American Homes 4 Rent: Q3 2022 10-Q Summary
Business context and reporting period
For the quarter and nine months ended September 30, 2022. AH4R is a REIT whose operating partnership conducts substantially all business. The company owned 58,961 single-family properties in 21 states, including 1,057 held for sale; 55,421 owned properties were occupied. It also held interests in joint ventures with 2,271 homes.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Change |
|---|---|---|---|
| Revenue | $391.6 million | $339.6 million | +15.3% |
| Net income | $61.7 million | $48.5 million | +27.1% |
| Net income attributable to common shareholders | $50.7 million; $0.14/share | $36.9 million; $0.11/share | Higher |
| Core NOI | $210.8 million; 64.0% margin | $181.0 million; 63.1% margin | +16.5% |
| Same-home Core NOI | $175.2 million; 64.5% margin | $160.3 million; 63.8% margin | +9.3% |
For the nine months, revenue was $1.110 billion versus $965.8 million (+14.9%); net income was $206.2 million versus $149.2 million; common-shareholder income was $163.2 million versus $87.2 million ($0.47 versus $0.27 per share). Core NOI was $613.2 million versus $527.4 million, with a 64.4% versus 63.6% margin. Same-home Core NOI increased to $521.2 million from $472.8 million.
- Cash flow, nine months: Operating cash flow was $596.8 million, up from $498.2 million. Investing used $1.268 billion, mainly for development, acquisitions, renovations and capital expenditures. Financing provided $736.8 million. Cash, cash equivalents and restricted cash ended at $257.7 million, up from $191.8 million at year-end 2021.
- Debt and liquidity: Total debt principal was $4.457 billion; balance-sheet debt net of discounts and financing costs was $4.389 billion, versus $3.880 billion at year-end. The revolver had no borrowings and provided up to $1.25 billion, with $2.7 million committed to letters of credit. Cash and cash equivalents were $97.2 million. No variable-rate borrowings were outstanding at quarter-end. Debt maturities are concentrated in 2024 ($951.1 million), with $3.460 billion thereafter.
- Operating indicators: Same-home realized rent per property rose 8.1% in Q3 and 7.9% for the nine months year over year. Portfolio occupancy was 95.7% for the quarter; same-home occupied-day percentage was 97.1%. Q3 turnover was 8.3%, compared with 8.8% a year earlier.
Material changes versus prior period
Revenue growth reflected more occupied homes, higher rents and lower uncollectible rents. Same-home rent growth supported improved Core NOI margins, while property operating costs rose amid inflation, higher property taxes and portfolio expansion. Interest expense increased 16.6% in Q3 and 13.8% for the nine months, mainly reflecting new senior notes, partly offset by capitalized interest. Gains on property sales increased; the company sold 530 homes in the first nine months versus 367 a year earlier. The common distribution rose from $0.10 to $0.18 per share per quarter.
Debt principal increased following issuance of $600 million of 2032 notes and $300 million of 2052 notes in April. The company redeemed all $155 million of Series F preferred shares in May. It raised equity through offerings and forward sales, including settling 5 million forward-sale shares in September.
Outlook, risks and unusual items
- Management said it had strategically scaled back traditional and National Builder Program acquisitions as housing and capital markets adjusted, and expects to resume growth in those channels when markets stabilize. No numerical earnings or operating guidance is provided in the supplied filing text.
- The company expected to settle the remaining 8 million shares under January 2022 forward-sale agreements by January 20, 2023, with estimated proceeds of approximately $297.1 million. Cash or net-share settlement could instead result in no proceeds or an obligation to deliver cash or shares.
- Hurricane Ian resulted in $8.4 million of estimated gross repair and remediation charges, partly offset by $2.3 million of probable insurance recoveries, for $6.1 million net charges. Coverage is subject to deductibles and limits.
- Management cited inflation, labor and material shortages, supply-chain disruption, property taxes, maintenance and turnover costs, lease-up and occupancy, weather events, and access to capital as risks to results. The company also has substantial development and land commitments, including $453.1 million of land purchase commitments, and $167.2 million of surety bonds.
- The company is discussing a possible negotiated resolution with the Georgia Attorney General concerning an investigation into customary landlord-tenant matters. Management said other routine legal proceedings are not expected to materially affect financial position or results.
- Non-GAAP Core NOI, FFO and adjusted measures supplement, but do not replace, GAAP results or operating cash flow. Property-sale gains, the hurricane charge and preferred-share redemption allocation affected reported comparisons.
Important facts for investors to verify
- Whether rent growth and occupancy can hold up as housing-market conditions change, and how lease renewals and new-lease pricing develop.
- Progress, costs and delivery pace of the development program, and the scale and timing of committed land purchases.
- Debt refinancing exposure around the 2024 securitization maturities, future borrowing costs, and continued access to revolver and capital markets.
- Actual settlement and proceeds from the remaining forward-sale shares, including potential dilution and settlement alternatives.
- Ultimate Hurricane Ian repair costs and insurance recoveries, as well as developments in the Georgia AG matter.
- Reconciliation and comparability of non-GAAP operating measures with GAAP earnings and cash flow.