American Homes 4 Rent — FY 2013 Form 10-K
Reporting period: Year ended December 31, 2013. The filing also provides unaudited fourth-quarter results. The company began operations in November 2012 and completed its IPO in August 2013. Comparisons with 2012 are not like-for-like: the portfolio expanded sharply, and historical statements include predecessor properties and activity before the company operated independently.
Business context and operations
American Homes 4 Rent is a self-managed REIT focused on acquiring, renovating, leasing and operating single-family rental homes. At year-end, it owned 23,268 homes across 22 states; 17,328, or 74.5%, were leased. The portfolio’s net book value was $3.86 billion, with average property size of 1,972 square feet and average age of 11.2 years. The company had 536 additional properties in escrow, with an estimated total investment of $88.4 million.
Financial and operating metrics
| Metric | FY 2013 / year-end | Comparison or detail |
|---|---|---|
| Total revenue | $139.0 million | $4.5 million in 2012 |
| Property revenue | $137.9 million | Includes $132.7 million rents and $5.2 million other property revenue |
| Net loss | $19.1 million | Net loss attributable to common shareholders was $43.9 million, or $0.36 per share |
| Net operating income (NOI) | $86.5 million | Non-GAAP; NOI margin was 63%, versus 62% in 2012 |
| Operating cash flow | $16.2 million provided | Compared with $6.5 million used in 2012 |
| Investing cash flow | $2.37 billion used | Includes $382.1 million of property improvements |
| Financing cash flow | $2.10 billion provided | Reflects equity and preferred-share issuance and credit-facility activity |
| Cash and credit availability | $149.0 million cash; $425 million undrawn | At December 31, 2013 |
| Debt | $375 million credit-facility borrowings | Variable-rate debt; facility capacity was $800 million |
| Total assets / liabilities | $4.22 billion / $573.5 million | At December 31, 2013 |
Fourth-quarter 2013 rents were $61.8 million; net loss was $9.5 million and loss attributable to common shareholders was $14.5 million. Year-end portfolio occupancy was reported as 75%. For rent-ready properties, occupancy was 90.1% among those available for rent at least 30 days and 94.5% among those available at least 90 days. The company reported 71.1% renewal among 1,844 leases reaching full term in 2013, with average rent increases of 2.5%; management cautioned that this limited history may not predict future results.
Material changes versus the prior period
- Property count grew from 3,644 at year-end 2012 to 23,268 at year-end 2013, primarily through acquisitions and portfolio contributions.
- Major transactions included a 2,770-home contribution from AH LLC, the acquisition of 4,778 homes through the Alaska Joint Venture transaction, and consolidation of 377 homes through the RJ joint ventures.
- The company internalized its advisor and property manager in June 2013, taking on direct personnel and operating costs while ending advisory and third-party property-management fees. AH LLC continued to provide acquisition and renovation services for a 5% fee through December 2014.
- Funding included the March private placement, August IPO and concurrent placements, and preferred-share offerings. The company also expanded its secured revolving credit facility to $800 million and extended its term to 2018.
- Annual net loss increased from $10.2 million to $19.1 million, while revenue and operating cash flow rose substantially as the portfolio scaled. The figures are affected by acquisitions, depreciation, financing and management-structure changes; the filing cautions that historical results are not indicative of standalone performance.
Outlook, risks and unusual items
- Management said acquisition activity would vary with suitable opportunities and available capital. It slowed acquisitions in the second half of 2013 to align investment pace with financing and said future occupancy should benefit as recently acquired homes are renovated and leased. No numerical earnings or acquisition guidance was provided.
- Key risks include the untested large-scale single-family rental model, execution of renovations and leasing, competition for homes and tenants, market concentration, seasonality, tenant defaults, property-value declines, and the liquidity constraints of real estate.
- Foreclosure-auction purchases may lack pre-purchase title review and title insurance; the company also faces risks from eviction delays, unknown property conditions, liens, HOA restrictions, environmental liabilities and uninsured losses.
- Liquidity and financing risks include variable-rate debt, borrowing-base limitations and credit-facility covenants. The company was in compliance with covenants at year-end. By March 7, 2014, borrowings had risen to $584 million; from January 1 through that date, it acquired about 1,863 homes for approximately $253.8 million.
- Related-party arrangements remain significant: AH LLC received acquisition and renovation fees, and company leadership had disclosed economic interests in AH LLC. Series D and E units and preferred-share home-price appreciation features generated fair-value liabilities and remeasurement expense; the RJ transaction generated a $10.9 million remeasurement gain.
- The board declared a $0.05 per-share common distribution for the fourth quarter, payable in January 2014. Series A and Series B preferred shares carry cumulative 5% dividends; common distributions cannot be paid unless cumulative preferred dividends are current. Future common distributions are discretionary.
- CFO Peter Nelson announced his resignation in February 2014, with a successor search underway. Disclosure controls were deemed effective; management did not provide an internal-control-over-financial-reporting assessment in this filing because of the newly public company transition period.
Important facts for investors to verify
- Whether the reported occupancy and renewal performance converts into durable, comparable same-home rent growth and cash NOI as the portfolio stabilizes.
- Renovation spending, time to possession and leasing, and the carrying costs of vacant and rent-ready homes.
- Current debt, borrowing availability, covenant headroom, interest-rate sensitivity and financing needs after the post-year-end increase in borrowings.
- The terms, economic impact and related-party oversight of AH LLC fees, convertible units and preferred-share redemption features.
- How the company reconciles GAAP losses to NOI and other non-GAAP measures, and how historical results are affected by predecessor operations, acquisitions and unusual remeasurement items.
- Progress on the CFO transition and future internal-control reporting, as well as any material title, foreclosure, HOA, environmental or insurance exposures.