American Homes 4 Rent — Q1 2016 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2016. American Homes 4 Rent is a REIT focused on acquiring, renovating, leasing and operating single-family rental homes. At quarter-end it owned 47,955 properties across 22 states, including 1,581 held for sale; 44,455 properties were leased. The February 29 acquisition of American Residential Properties, Inc. (ARPI) added 8,936 homes and materially changed the portfolio and financing mix.
Financial and operating highlights
| Metric | Q1 2016 | Q1 2015 / prior date |
|---|---|---|
| Total revenue | $195.2 million | $131.7 million |
| Net income (loss) | $5.0 million | $(8.3) million |
| Net loss attributable to common shareholders | $(4.4) million; $(0.02) per share | $(17.8) million; $(0.08) per share |
| Operating cash flow | $55.4 million | $28.9 million |
| Investing cash flow | $(376.3) million | $(373.2) million |
| Financing cash flow | $334.7 million | $351.2 million |
| Cash and cash equivalents | $71.4 million | $57.7 million at Dec. 31, 2015 |
| Total debt principal | $3.469 billion | $2.581 billion at Dec. 31, 2015 |
| Total assets | $8.098 billion | $6.751 billion at Dec. 31, 2015 |
- Revenue increased about 48%, reflecting portfolio growth, including ARPI, as well as higher rent and tenant charge-backs. Interest expense rose to $31.0 million from $15.7 million, primarily as borrowings increased.
- Core NOI, a company-defined non-GAAP measure, was $106.2 million versus $76.5 million; its margin was 62.8% versus 63.3%. Same-Home Core NOI rose 4.9% to $65.7 million, while the Same-Home margin declined to 62.2% from 63.2%.
- Same-Home revenue increased 6.6%; average monthly rent was $1,463 versus $1,420, and occupancy was 95.1% versus 93.7%. Portfolio leased and occupancy rates at quarter-end were 95.9% and 94.7%, respectively.
- Adjusted FFO attributable to common share and unit holders, a non-GAAP measure, was $55.6 million, or $0.20 per share and unit, versus $31.7 million, or $0.12. GAAP net loss attributable to common shareholders remained negative.
- At March 31, balance-sheet debt was $3.393 billion net of discounts and financing costs. This included $438 million drawn on the credit facility, $2.799 billion of asset-backed securitizations, $105.6 million of exchangeable notes and a $50.5 million secured note. Cash was $71.4 million; restricted cash was $132.1 million.
Material changes versus the prior comparable period
- The ARPI merger was the principal change: the company issued 36.5 million Class A shares and 1.34 million operating partnership units, valued at $530.5 million, and assumed approximately $792 million of debt. ARPI contributed $11.1 million of revenue and a $2.6 million net loss from February 29 through March 31.
- Property operating expenses increased to $85.0 million from $59.2 million, and depreciation and amortization increased to $69.5 million from $53.7 million, mainly reflecting the expanded portfolio. General and administrative expense rose to $8.1 million from $6.1 million.
- The company repurchased 4.9 million Class A shares for approximately $75.9 million during the quarter. At March 31, $166.8 million remained authorized under its $300 million repurchase program.
- Operating cash flow improved, while investing remained substantially cash-negative. Q1 2016 investing included a $350 million payoff of ARPI’s assumed credit facility; financing included credit-facility proceeds and share repurchases.
Outlook, risks and unusual items
- Management expected individual-property acquisition activity to continue declining over the next year. No numerical earnings or operating guidance is provided in the filing.
- The $800 million revolving credit facility allowed new borrowings only through June 7, 2016; outstanding balances would convert to a term loan through September 30, 2018. The company said it was pursuing an extension or replacement. It had $438 million drawn at quarter-end and $418 million outstanding at April 30.
- Variable-rate debt totaled approximately $1.253 billion at March 31. The filing estimates that a 100-basis-point LIBOR increase would raise projected annual interest expense by approximately $10.9 million, before capitalization and considering the interest-rate cap.
- The quarter included an $11.5 million noncash gain on conversion of Series E units. This helped produce GAAP net income despite a net loss attributable to common shareholders after noncontrolling interests and preferred dividends.
- Management cited property acquisition, renovation and leasing execution, occupancy, tenant turnover, operating costs, access to capital, interest rates and REIT qualification as factors affecting results. It reported compliance with debt covenants, effective disclosure controls and no material change in risk factors or internal control over financial reporting. Routine legal matters were not expected to materially affect financial position.
- After quarter-end, the board declared quarterly common-share dividends of $0.05 per share, payable June 30, 2016. The company also reported additional share repurchases through April 30.
Important facts for investors to verify
- Progress and terms for extending or replacing the credit facility, including the June 2016 borrowing-availability deadline and resulting liquidity needs.
- Whether ARPI integration and the enlarged portfolio deliver expected operating synergies, and how leased occupancy and renovation/turnover costs develop.
- Performance of Same-Home Core NOI and margins, distinguishing recurring operations from portfolio additions and non-GAAP adjustments.
- Exposure to floating rates, securitization terms and collateral restrictions, and potential dilution or settlement choices tied to the $115 million exchangeable notes.
- Cash requirements for dividends, share repurchases, property investment and debt service; note that Core NOI, FFO and adjusted FFO are non-GAAP measures and are not substitutes for operating cash flow or GAAP earnings.