American Homes 4 Rent — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; the filing also reports fourth-quarter results. American Homes 4 Rent is a REIT focused on acquiring, developing, renovating, leasing and operating single-family rental homes. Its operating partnership conducts substantially all business and held approximately 85.2% of partnership interests through the REIT at year-end.
Business and operating performance
- Owned 52,552 homes across 22 states, including 1,187 classified as held for sale. Excluding homes held for sale, 48,767 homes were occupied, a 94.9% year-end occupancy rate, versus 94.1% a year earlier.
- Average monthly realized rent per property was $1,641 for the total portfolio; Same-Home realized rent increased 3.5% to $1,625 per month. Same-Home average occupied days rose to 95.4% from 95.0%. Blended rent change on renewals and re-leases was 4.2%.
- Sold 1,330 homes and acquired or developed 1,099 homes during 2019. Of homes added, 813 came through new-construction channels, including 648 developed internally.
Financial results and liquidity
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Total revenue | $1.143 billion | $1.073 billion |
| Property operating expenses | $433.9 million | $412.9 million |
| Property management expenses | $86.9 million | $74.6 million |
| Interest expense | $127.1 million | $122.9 million |
| Net income | $156.3 million | $112.4 million |
| Net income attributable to common shareholders | $85.9 million; $0.29 per share | $23.5 million; $0.08 per share |
| Operating cash flow | $457.9 million | $410.9 million |
| Investing cash flow | $(376.9) million | $(674.4) million |
| Financing cash flow | $(92.1) million | $255.9 million |
- Same-Home Core NOI increased to $479.2 million from $462.2 million; its margin was 63.6%, versus 63.8%. Total Core NOI was $612.7 million, with a 63.0% margin versus 62.8%. Core NOI is a non-GAAP measure.
- Adjusted FFO attributable to common shareholders and unitholders was $348.7 million, up from $323.1 million; this non-GAAP measure is not a substitute for GAAP earnings or operating cash flow.
- Cash and cash equivalents were $37.6 million, plus $126.5 million of restricted cash. The $800 million revolver had no borrowings at year-end; $6.2 million was committed to letters of credit.
- Debt principal totaled $2.871 billion: $1.971 billion of asset-backed securitizations and $900 million of unsecured notes. Balance-sheet debt, net of discounts and financing costs, was $2.833 billion. No variable-rate debt was outstanding at year-end.
- Total assets were $9.10 billion and total liabilities $3.08 billion. Common-share distributions were $0.20 per share for 2019, unchanged from 2018; preferred distributions have priority over common distributions.
Changes, unusual items and outlook
- Revenue rose 6.6%, primarily from more occupied homes and higher rents. Operating cash flow increased 11.4%. Same-Home core revenue grew 4.1%.
- Net income attributable to common shareholders increased substantially, but the comparison is affected by the 2018 $32.2 million allocation to Series C participating preferred shareholders upon conversion into common shares. 2019 net income also included a $43.9 million gain on property sales, versus $17.9 million in 2018.
- Management described a shift from rapid traditional acquisitions toward internally developed and builder-sourced homes. Cash paid for development increased to $383.3 million from $215.8 million; property acquisition cash outlays declined. Management expects development and acquisition investment to continue, funded through operating cash flow, debt or equity, property sales and joint ventures. The filing provides no numerical 2020 earnings or revenue guidance.
- Same-Home property operating expense ratio edged up to 36.4% from 36.2%, reflecting higher property taxes, repairs and maintenance, and turnover costs. New lease accounting adopted in 2019 changed revenue presentation and leasing-cost treatment; comparative periods were not restated.
- Key risks include competition for homes and tenants, cost inflation and property taxes, short-term leases and turnover, development execution and land availability, natural disasters and insurance gaps, geographic concentration, financing and covenant constraints, and REIT qualification requirements. About 61% of operating homes were in Texas, North Carolina, Florida, Georgia and Tennessee.
- At February 21, 2020, the company had drawn $55 million on its revolver. Subsequent to year-end it added 318 homes and disposed of 297. In February 2020 it entered a $253.1 million development-focused joint venture, in which it holds a 20% interest and may earn service fees and a promoted interest.
- The SEC advised the company on February 4, 2020 that its investigation captioned “Trading in Silver Bay Realty Trust Corp.” was concluded with no further action. The auditor gave an unqualified opinion on the financial statements; management and the auditor reported effective internal control over financial reporting for the REIT.
Important facts for investors to verify
- Reconcile GAAP earnings growth with the 2018 preferred-share conversion allocation and the higher 2019 property-sale gains.
- Review same-home occupancy, rent growth, turnover and expense trends, especially property taxes and maintenance costs.
- Assess debt maturity and refinancing exposure: $955.9 million of principal is scheduled in 2024 under the filing’s fully extended maturity schedule; certain 2015 securitizations have anticipated repayment dates in 2025.
- Check development returns, construction commitments and funding needs against the strategy’s growing development spend; year-end commitments included $75.1 million for 289 homes and $44.3 million for land and developer agreements.
- Evaluate distribution coverage and preferred-share priority. The filing reports $0.20 annual common distributions and an estimated $188.8 million REIT net operating loss carryforward at year-end.