American Homes 4 Rent — 2020 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2020. American Homes 4 Rent is a Maryland REIT that acquires, develops, renovates, leases and operates single-family rental homes. Its Operating Partnership conducts substantially all operations. At year-end, the company held 53,584 homes in 22 states, including 711 classified as held for sale; 97.0% of homes excluding those held for sale were occupied.
Financial and operating performance
| Metric | 2020 | 2019 | Change / context |
|---|---|---|---|
| Total revenue | $1,182.8 million | $1,143.4 million | Up 3.5% |
| Net income | $154.8 million | $156.3 million | Down 0.9% |
| Net income attributable to common shareholders | $85.2 million; $0.28 per diluted share | $85.9 million; $0.29 per diluted share | Lower year over year |
| Core NOI (non-GAAP) | $634.1 million; 62.7% of core revenue | $612.7 million; 63.0% | Up 3.5%; margin down 0.3 percentage points |
| Same-Home Core NOI (non-GAAP) | $546.1 million; 63.4% margin | $535.6 million; 63.9% | Up 2.0%; margin down 0.5 percentage points |
| Net cash from operating activities | $474.1 million | $457.9 million | Up 3.5% |
| Net cash used in investing activities | $642.9 million | $376.9 million | Higher mainly from development and acquisitions |
| Net cash from financing activities | $269.8 million | $(92.1) million | Includes 2020 common-share issuance |
| Adjusted FFO attributable to common share and unit holders (non-GAAP) | $367.5 million | $348.7 million | Up 5.4% |
Same-Home average monthly realized rent rose 3.0% to $1,680, and average occupied days increased to 96.3% from 95.4%. Total average monthly realized rent was $1,683; year-end blended rent change on renewals and re-leases was 3.6%. The company developed or acquired 2,103 homes and sold 1,047 homes during 2020.
Year-end cash and cash equivalents were $137.1 million, with an additional $128.0 million of restricted cash. The company had no revolver borrowings and up to $800 million of revolving capacity, with $1.5 million committed to letters of credit. Debt principal totaled approximately $2.85 billion: $1.95 billion of asset-backed securitizations and $900 million of unsecured senior notes. The weighted-average interest rate on fixed-rate debt was 4.48%; the filing reports no variable-rate debt outstanding at year-end. Scheduled debt maturities are concentrated in 2024 and thereafter. Total liabilities were $3.12 billion and total equity was $6.47 billion.
Material changes versus 2019
- Revenue and operating cash flow increased with growth in occupied homes and higher rents, while net income edged down. Management attributed the earnings decline mainly to higher uncollectible rents and utility reimbursements related to COVID-19 and a noncash write-down on legacy joint ventures.
- COVID-related bad debt was $12.8 million for the total portfolio; uncollectible tenant utility reimbursements were $2.8 million. The company also incurred $0.5 million of enhanced cleaning and safety costs.
- Property operating expenses rose 3.8% to $450.3 million, reflecting portfolio growth, higher property taxes, and repairs and turnover costs. Interest expense fell 7.9% to $117.0 million.
- Development spending increased: cash paid for development activity was $564.2 million versus $383.3 million. Recurring and other property capital expenditures rose to $104.8 million from $71.5 million.
- The company raised $411.7 million net from a third-quarter common-share offering and issued 86,130 shares for $2.4 million gross under its at-the-market program. The annual common distribution remained $0.20 per share for 2020.
Outlook, management commentary, risks and unusual items
Management reported record demand and the highest-ever Same-Home average occupied-days percentages for the fourth quarter of 2020 and January 2021, citing shifts toward suburban single-family housing and remote work. It reported receiving 96.7% of fourth-quarter rental billings; this measure excludes use of security deposits and adjustments for deferred payment plans. The company offered rent relief in some cases, waived month-to-month premiums and late fees, and offered zero-percent renewal increases between April and July 2020 before resuming modest renewal increases. Management expected COVID-19 to negatively affect results in the first quarter of 2021 and likely beyond, but said the ultimate impact could not be estimated reliably.
No numerical earnings or operating guidance is provided in the filing. On February 24, 2021, the board approved a quarterly common-share dividend of $0.10 for the first quarter of 2021, versus the $0.20 total distribution per share for full-year 2020.
- Key risks include pandemic-related rent collection and eviction restrictions, rent-control or other tenant-protection laws, and potential effects on occupancy and development. The CDC eviction moratorium had been extended through March 31, 2021 as of the filing.
- The portfolio is concentrated by property type and geography: 60.5% of homes were in the ten largest listed markets. Real estate illiquidity, severe weather, uninsured losses, construction costs and delays, and competition for homes, land and tenants are material risks.
- Debt agreements impose financial and operating covenants. Asset-backed securitizations are secured by property pools and require specified coverage ratios; covenant failures could restrict cash use or trigger repayment obligations.
- An unconsolidated joint venture had $85.2 million outstanding under a $201 million loan; the company provided a customary non-recourse guarantee that may be triggered by specified events. The guarantee had not been invoked.
- The company recorded a $4.9 million noncash impairment associated with liquidation of legacy joint ventures and a $2.9 million net expense to settle a former-employee legal matter. It also disclosed a Georgia Attorney General information request concerning customary landlord-tenant matters; the company said it was cooperating.
- The auditor issued unqualified opinions on the financial statements and the company’s internal controls. The audit identified acquisition purchase-price allocation as a critical audit matter because land-versus-building values relied on estimates and limited direct comparable land data.
Most important facts for investors to verify
- Reconcile reported revenue growth and higher occupancy with the decline in net income and the rise in bad debt, property costs and capital spending.
- Review the quality and sustainability of rental collections, including the scope of the 96.7% fourth-quarter collection figure and deferred payment plans.
- Assess development returns, acquisition costs, construction commitments and the effect of elevated investment spending on operating cash flow and future funding needs.
- Confirm debt maturity and refinancing exposure, especially the 2024 maturities, securitization covenants and the revolver’s applicable extension terms.
- Evaluate geographic concentration, eviction and rent regulation exposure, the joint-venture guarantee, and the status or outcome of disclosed legal matters.
- Distinguish GAAP results from non-GAAP Core NOI, FFO and Adjusted FFO; the filing cautions that these measures are not substitutes for GAAP earnings or operating cash flow.