American Homes 4 Rent — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Amounts are in U.S. dollars; financial statement figures are generally in millions unless noted. The filing combines American Homes 4 Rent (AH4R) and its operating partnership, which conducts substantially all operations.
Business context and operating performance
AH4R owns, develops, leases and operates single-family rental homes. At quarter-end it held 52,776 homes across 22 states, including 960 classified as held for sale; 49,029 homes, or 94.6% of properties excluding those held for sale, were occupied. The company also reported 876 homes in unconsolidated joint ventures.
| Metric | Q1 2020 | Q1 2019 or comparison |
|---|---|---|
| Total revenue | $289.6 million | $279.2 million; up 3.7% |
| Net income | $37.5 million | $33.1 million |
| Net income attributable to common shareholders | $20.2 million; $0.07 per share | $16.3 million; $0.05 per share |
| Core NOI | $157.0 million; 63.5% of core revenue | $150.6 million; 63.3% |
| Same-Home Core NOI | $140.2 million; 64.6% of core revenue | $135.0 million; 64.6% |
| Net cash from operating activities | $126.5 million | $147.9 million |
| Net cash used in investing activities | $179.2 million | $130.9 million |
| Net cash from financing activities | $50.3 million | $120.5 million |
Same-Home average monthly realized rent increased 3.6% year over year to $1,664. The filing reports average occupied days of 94.7% across the portfolio for the quarter; occupancy at March 31 was 94.6% on the stated excluding-held-for-sale basis.
Debt, liquidity and capital
- At March 31, cash and cash equivalents were $33.1 million, with restricted cash of $128.6 million. Cash, cash equivalents and restricted cash totaled $161.7 million.
- Principal debt totaled $2.971 billion; balance-sheet debt, net of discounts and financing costs, was $2.935 billion. This comprised $1.966 billion of asset-backed securitizations, $900 million of unsecured senior notes and $105 million drawn on the revolving credit facility.
- The revolver has an $800 million borrowing capacity, subject to $3.7 million of letters of credit; the filing says there were no debt maturities other than recurring amortization until 2022. Contractual principal maturities include $955.6 million in 2024.
- Quarter-end total liabilities were $3.177 billion and total assets were $9.201 billion. The company paid $49.1 million in cash distributions to share and unit holders during the quarter.
- AH4R had a $500 million at-the-market common share program available, with no shares issued under it as of March 31. No shares were repurchased in the quarter.
Changes versus the prior comparable period
- Revenue rose 3.7%, attributed primarily to more occupied homes and higher rents. Net income increased to $37.5 million from $33.1 million.
- Property operating expense rose 0.8% to $107.5 million; property management expense increased to $23.3 million from $20.7 million, and general and administrative expense rose to $11.3 million from $9.4 million.
- Interest expense declined 6.9% to $29.7 million, partly reflecting more capitalized interest and repayment of a term loan in June 2019.
- Operating cash flow declined 14.5%, primarily due to changes in operating assets and liabilities. Investing outflows increased with property acquisitions and development; financing cash flow was lower than in 2019, which included proceeds from senior notes.
- Other expenses increased to $6.1 million from $1.0 million. Q1 2020 included a $4.9 million noncash write-down tied to liquidation of legacy joint ventures, as well as property-sale impairments.
Outlook, risks and unusual items
- Management said COVID-19 was expected to negatively affect Q2 results and potentially later periods; the duration and financial impact could not be estimated. The company reported collecting 95% of April rent and 82% of May rent through May 5, 2020, equivalent to approximately 94% of typical collections during the first five days of a month.
- For April and May, the company waived late fees, halted evictions for nonpayment and offered zero-percent renewal increases. It reported April Same-Home monthly turnover of 3.0%, versus 3.2% in April 2019, and an April average occupied-days percentage of approximately 95.1%.
- Traditional-channel and National Builder acquisitions were temporarily suspended amid market uncertainty. Construction continued on the existing internally developed built-for-rental pipeline where permitted. The company cited risks to tenant payment, occupancy, maintenance, construction, employees, and access to capital.
- After quarter-end, a strategic joint venture’s planned size was increased from $253.1 million to $625.0 million; AH4R holds a 20% interest. From April 1 through April 30, the company added 158 properties for approximately $39.2 million and sold 60 for net proceeds of approximately $13.8 million. Cash at April 30 was $30.1 million.
- No specific earnings or operating guidance was provided. Legal and administrative proceedings were described as incidental, with management stating they were not expected to materially adversely affect financial position or results.
- Adoption of the expected-credit-loss standard resulted in a $1.5 million allowance on notes receivable and a cumulative-effect reduction to accumulated deficit; management said adoption did not materially affect the financial statements.
Important facts for investors to verify
- Subsequent rent collection, delinquency and occupancy trends, including the effects of eviction restrictions and rent-relief measures.
- Whether COVID-19 changes the timing or scale of home construction, acquisitions, dispositions and required property maintenance.
- Revolver availability, variable-rate exposure, debt maturities and capital-market access; the filing estimates a 100-basis-point LIBOR change would alter projected annual interest expense by about $1.1 million.
- Cash flow conversion and the sustainability of distributions relative to operating cash flow and recurring capital needs. Core NOI, FFO and related measures are non-GAAP and are not substitutes for GAAP earnings or cash flow.
- Performance and funding terms of the expanded joint venture, plus the outcome and financial effect of legacy joint-venture liquidation and property impairments.