American Homes 4 Rent — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016; comparisons are to the corresponding 2015 periods unless noted. The company is a REIT focused on acquiring, renovating, leasing and operating single-family rental homes. At quarter-end it owned 48,153 properties in 22 states, including 1,238 held for sale; 95.4% of properties excluding those held for sale were leased.
Financial and operating performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $236.1 million | $172.6 million | $651.3 million | $458.0 million |
| Consolidated net income (loss) | $(0.2) million | $(19.9) million | $1.1 million | $(36.6) million |
| Net loss attributable to common shareholders | $(21.2) million; $(0.09) per share | $(28.6) million; $(0.14) per share | $(35.9) million; $(0.15) per share | $(64.1) million; $(0.30) per share |
| Core NOI (non-GAAP) | $120.4 million | $87.2 million | $347.5 million | $247.8 million |
| Adjusted FFO attributable to common share and unit holders (non-GAAP) | $56.6 million | $38.5 million | $174.8 million | $102.3 million |
| Net cash provided by operating activities | Not separately provided for the quarter | Not separately provided for the quarter | $242.9 million | $155.9 million |
- Q3 Core NOI margin was 61.0% of core revenue, versus 58.6% a year earlier. Same-home core revenue rose 5.5%, supported by higher rents and occupancy; same-home Core NOI was $65.3 million versus $58.9 million.
- For the first nine months, same-home core revenue increased 5.8%; same-home Core NOI was $197.1 million versus $182.0 million. Core NOI and FFO measures are non-GAAP and should not be treated as substitutes for GAAP earnings or cash flow.
- Q3 common-shareholder losses narrowed primarily on higher revenue and $11.7 million of gains on home sales. Higher property operating and depreciation expenses, higher interest expense and a $13.4 million debt-extinguishment loss partly offset those benefits. The nine-month comparison also benefited from an $11.5 million gain on conversion of Series E units.
- Q3 dividends declared were $0.05 per common share; nine-month declarations totaled $0.15 per common share.
Balance sheet, debt and liquidity
- At September 30, 2016, total assets were $8.09 billion, total liabilities $3.23 billion, and total equity $4.85 billion. Cash and cash equivalents were $106.3 million; restricted cash was $131.4 million.
- Gross debt principal was approximately $2.99 billion; debt reported on the balance sheet was $2.93 billion, net of discounts and financing costs. Debt included $2.50 billion of asset-backed securitizations, $250 million of term loans, $75 million drawn on a $650 million revolving facility, $115 million face value of 3.25% exchangeable notes due 2018, and a $50.1 million secured note.
- The company refinanced its credit arrangements in August 2016 and paid off an ARPI-assumed securitization in September, releasing 2,875 collateralized homes and related restricted cash. It recorded a $13.4 million loss on early debt extinguishment. Management reported compliance with debt covenants at quarter-end.
- For the first nine months, investing activities used $452.0 million and financing activities provided $257.7 million; cash increased $48.6 million. Financing included $482.8 million net proceeds from perpetual preferred share issuance and $325.0 million of net borrowings on revolving and term facilities. The company repurchased $96.1 million of common shares.
Material changes, outlook and risks
- The February 2016 ARPI merger added 8,936 homes and contributed $37.5 million of Q3 revenue and $2.1 million of Q3 net income; its nine-month post-merger contribution was $83.4 million revenue and a $3.5 million net loss. Portfolio growth and the merger are major drivers of year-over-year revenue and expense changes.
- Management expects operating liquidity generally to come from cash on hand and operating cash flow, and believes rental income net of operating expenses and recurring capital expenditures will generally fund operations and dividends. The filing provides no specific earnings, revenue, acquisition or occupancy guidance.
- Risks include interest-rate exposure, property acquisition and renovation costs, occupancy and tenant turnover, local market conditions, and the availability of capital. A 100-basis-point increase in LIBOR was estimated to raise projected annual interest expense by $7.8 million, before interest capitalization and assuming debt balances remain unchanged. Management cautions that forward-looking statements are not guarantees.
- Hurricane Matthew affected certain Florida and Carolina properties; estimated potential damage was $0.6 million to $1.0 million and was still being assessed. The company reported no material change to previously disclosed risk factors and no material litigation beyond ordinary-course matters.
- Subsequent to quarter-end, the company reported acquiring 129 properties and disposing of 36 through October 31, 2016. The board declared another $0.05 quarterly common-share dividend on November 1.
Important facts for investors to verify
- How much of revenue, occupancy and Core NOI growth reflects the ARPI merger versus organic same-home improvement, and how former ARPI properties perform as they stabilize.
- Whether operating cash flow, after recurring property capital spending and leasing costs, adequately supports dividends and ongoing investment; non-GAAP FFO measures do not establish dividend coverage.
- Debt refinancing, variable-rate exposure, maturities and covenant headroom, including the effect of interest-rate changes on financing costs.
- The ultimate cost and insurance recovery, if any, for Hurricane Matthew damage, and the execution and economics of planned property sales and acquisitions.
- Preferred-share dividend obligations and the dilutive or cash-settlement implications of the exchangeable senior notes and other potentially dilutive securities.