American Homes 4 Rent — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. The unaudited filing covers American Homes 4 Rent and its operating partnership, which conducts substantially all of the business. The company owned 58,715 single-family homes in 22 states, including 955 held for sale.
Financial performance and operating metrics
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $361.9 million | $313.7 million | $718.0 million | $626.2 million |
| Net income | $74.6 million | $51.8 million | $144.6 million | $100.7 million |
| Net income attributable to common shareholders | $56.6 million | $20.1 million | $112.5 million | $50.3 million |
| Diluted EPS | $0.16 | $0.06 | $0.32 | $0.16 |
| Core NOI, total properties | $205.0 million; 64.3% margin | $175.3 million; 63.6% margin | $402.4 million; 64.6% margin | $346.4 million; 63.9% margin |
| Operating cash flow | Not separately stated in the provided cash-flow statement | Not separately stated | $379.0 million | $331.8 million |
Q2 revenue increased 15.4%; net income rose about 44%. Management attributed growth to more occupied homes, higher rents, lower uncollectible rents and increased gains on property sales. Same-home realized rent rose 8.3% year over year in Q2; average occupied-days percentage was 97.4% for same-home properties. Same-home Core NOI increased 10.2% to $174.4 million.
For the first half, investing activities used $953.5 million, versus $585.2 million in 2021, chiefly reflecting greater property acquisitions, development and renovation spending. Financing activities provided $604.9 million; cash, cash equivalents and restricted cash increased $30.4 million to $222.2 million. Cash and cash equivalents alone were $70.4 million at June 30.
Debt, liquidity and capital
- Debt principal totaled $4.463 billion at June 30, 2022; balance-sheet carrying value, net of discounts and financing costs, was $4.392 billion. Debt principal was $3.924 billion at year-end 2021.
- No borrowings were outstanding under the $1.25 billion revolving credit facility at June 30; about $2.5 million was reserved for letters of credit. The company reported no variable-rate debt outstanding at quarter-end.
- In April, the operating partnership issued $600 million of 3.625% notes due 2032 and $300 million of 4.30% notes due 2052, receiving approximately $870.3 million net proceeds. Proceeds were used to repay revolver borrowings, redeem Series F preferred shares and for general corporate purposes.
- The company had estimated proceeds of $488.6 million available from future settlement of January 2022 forward-sale agreements. Settlement was expected by January 20, 2023, but cash or net-share settlement could result in no proceeds or an obligation to deliver cash or shares.
- Contractual debt maturities are concentrated in 2024, with $951.4 million due that year; most remaining principal is due thereafter.
Material changes and unusual items
- Revenue increased 15.4% in Q2 and 14.7% for the first half. First-half operating cash flow rose 14.2% year over year.
- Property operating costs increased 10.9% in Q2 and 11.7% in the first half, driven by portfolio growth and inflation. Interest expense rose 26.4% in Q2 and 12.3% in the first half, primarily due to additional notes, partly offset by higher capitalized interest.
- Net gains on property sales and other were $32.8 million in Q2 versus $10.8 million a year earlier, and $54.9 million for the first half versus $26.8 million. These gains materially contributed to reported net income.
- Q2 general and administrative expense increased to $18.8 million from $12.8 million, including a rise in noncash share-based compensation; management cited accelerated expense recognition for retirement-eligible employees and costs supporting growth.
- The company redeemed all 6.2 million Series F preferred shares in May for $155 million, plus accrued dividends, and recorded a $5.3 million allocation of income related to the redemption. Common distributions were $0.18 per share in each of Q1 and Q2, compared with $0.10 per share in each 2021 quarter.
Outlook, risks and contingencies
The filing provides no numerical full-year earnings or operating guidance. Management expects to fund operations primarily from cash on hand and operating cash flow, while using debt and equity issuance, property sales and joint ventures as additional capital sources. It describes continued investment in acquisitions, development and renovation, and says rental income net of operating costs and recurring capital expenditures is generally expected to support operations and distributions.
Management identifies inflation in labor and materials, labor shortages and supply-chain disruption as pressures on development, renovation and maintenance. Other key sensitivities include acquisition opportunities and costs, leasing pace, occupancy, tenant turnover and collections, operating expenses, capital availability and seasonal or severe weather. The company had $443.2 million of land purchase commitments for its development program, commitments to acquire 191 homes for $57.8 million, and approximately $150.7 million of surety bonds. A Georgia Attorney General investigation concerns customary landlord-tenant matters; the company is cooperating and discussing a possible negotiated resolution. Management believes other incidental legal proceedings will not materially adversely affect financial position or results, but outcomes are uncertain.
Subsequent to quarter-end, the company reported $50 million outstanding on its revolver at July 31, 2022. It also added 148 homes for approximately $54.7 million and disposed of 57 homes for approximately $17.2 million during July.
Important facts for investors to verify
- How much of earnings growth reflects recurring rental operations versus property-sale gains and the preferred-share redemption allocation.
- Whether rent growth can continue to outpace property taxes, maintenance, insurance, labor and other inflation-related costs, and how occupancy and tenant collections trend.
- Development and acquisition returns, delivery and leasing timelines, and exposure to the disclosed purchase commitments and construction-cost pressures.
- Debt capacity, covenant compliance, refinancing needs—particularly the 2024 maturity concentration—and the eventual settlement and proceeds from forward-sale agreements.
- Developments in the Georgia AG matter and any changes in legal, regulatory or other contingencies.