American Homes 4 Rent — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Figures are unaudited; dollar amounts are in millions unless noted. The filing presents American Homes 4 Rent (AH4R) and its operating partnership together. AH4R is a REIT focused on owning, developing, leasing and managing single-family rental homes.
Business context and operating performance
- At quarter-end, the company held 53,000 homes in 22 states, including 948 classified as held for sale. Excluding those homes, 50,170 properties, or 96.4%, were occupied. Same-Home average occupied days were 95.1% for Q2.
- Management described demand as strong, citing record Same-Home occupied-days percentages of 96.1% in June and 96.4% in July. Same-Home realized rent per property increased 3.1% year over year in Q2 and 3.3% for the first half.
Key financial metrics
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $283.1 | $281.9 | $572.7 | $561.1 |
| Net income | $31.8 | $40.3 | $69.3 | $73.4 |
| Net income attributable to common shareholders | $15.4 | $22.5 | $35.6 | $38.8 |
| Diluted earnings per common share | $0.05 | $0.08 | $0.12 | $0.13 |
| Core NOI (non-GAAP) | $148.4 | $154.0 | $305.4 | $304.6 |
| Same-Home Core NOI (non-GAAP) | $130.4 | $135.0 | $270.2 | $269.5 |
| Cash provided by operating activities | — | $279.2 | $287.5 | |
| Cash used for investing activities | — | $(322.5) | $(170.0) | |
| Cash provided by (used for) financing activities | — | $40.4 | $(7.8) |
- Q2 Core NOI margin was 60.5% of core revenue, versus 63.0% a year earlier; first-half margin was 62.0%, versus 63.2%. Core NOI is a company-defined non-GAAP measure and is not a substitute for GAAP earnings or cash flow.
- Q2 Core FFO attributable to common shareholders and unit holders was $94.8, versus $98.2; Adjusted FFO was $81.6, versus $86.8. For the first half, Core FFO was $197.9 versus $194.0, and Adjusted FFO was $175.1 versus $173.6.
- At June 30, cash and cash equivalents were $32.0; restricted cash was $129.2. Total cash, cash equivalents and restricted cash was $161.2.
- Debt principal totaled $2,989.2: $1,959.2 of asset-backed securitizations, $900.0 of unsecured senior notes and $130.0 drawn on the revolving facility. Debt carrying value, net of discounts and financing costs, was $2,954.9. The $800.0 revolving facility had $3.7 committed to letters of credit.
- Total assets were $9,271.8, total liabilities $3,242.0 and total equity $6,029.8. The quarterly common distribution was $0.05 per share; preferred distributions continued at the disclosed series rates.
Changes versus prior comparable periods
- Q2 revenue increased 0.4%, but net income fell 21.1% and common-shareholder income fell from $22.5 to $15.4. Management attributed the earnings decline principally to increased uncollectible rents and tenant utility reimbursements, higher property operating expenses and lower property-sale gains.
- Q2 property operating expenses rose 5.6% to $110.4; property management expenses rose to $22.3. Interest expense declined 9.3% to $29.6, partly due to additional capitalized interest and the prior-year term-loan payoff.
- First-half revenue rose 2.1%, while net income declined 5.5%. First-half operating cash flow fell 2.9%; investing cash outflow increased 89.6%, reflecting higher acquisition, development and property investment activity.
- Q2 total Core NOI declined 3.6%, while first-half Core NOI was broadly flat. Higher rents and occupied homes were offset by bad debt and higher operating costs.
Outlook, risks and unusual items
- The company gave no quantified earnings or operating guidance. Management expected COVID-19 to negatively affect Q3 results and likely beyond; the ultimate impact was described as uncertain.
- During Q2, the company waived late fees and month-to-month premiums, halted evictions for nonpayment, and offered zero-percent increases on newly signed renewals for leases expiring April through July. It reported recognizing revenue on 96.5% of Q2 rental billings, with those amounts collected in cash through July without using security deposits or adjusting for deferred-payment plans. It collected 92% of July rents during July.
- Management reported $9.4 of Q2 adverse COVID-related effects included in its supplemental Core FFO disclosures: $7.0 of increased uncollectible rents, $1.9 of uncollectible tenant utility reimbursements and $0.5 of enhanced cleaning and safety costs. It also cited $1.3 of incremental HVAC capital expenditures in Q2.
- Traditional-channel and National Builder Program acquisitions were temporarily suspended amid market uncertainty; construction in the existing AMH Development Program pipeline continued subject to local requirements. COVID-19 risks include tenant payment and occupancy weakness, government restrictions, construction delays, maintenance backlogs, employee disruption and reduced or costlier capital-market access.
- Other notable items: a $4.9 noncash write-down related to liquidation of legacy joint ventures contributed to higher first-half other expenses; adoption of the expected-credit-loss standard resulted in a $1.5 opening accumulated-deficit adjustment. The company reported no material adverse effect expected from routine legal and administrative proceedings.
- Subsequent to quarter-end through July 31, the company repaid $25.0 on its revolver, leaving $105.0 outstanding; reported cash and equivalents of $55.7; added 157 properties for approximately $38.8; sold 91 properties for approximately $20.1 net proceeds; and contributed $57.8 of land and development projects to joint ventures, receiving $46.2 in cash distributions.
Important facts for investors to verify
- Whether rent collections, delinquency levels and deferred-payment plans remain resilient as pandemic conditions and tenant assistance measures evolve.
- Whether occupancy and rent growth can offset bad debt, property taxes, repairs, turnover costs and other operating expense increases.
- How long acquisition pauses and construction delays persist, and the returns and funding needs of development and joint-venture activity.
- Revolver availability, interest-rate exposure and refinancing needs, including the debt maturity schedule; variable-rate borrowings were $130.0 at quarter-end.
- Whether cash generation supports distributions and planned investment, given first-half operating cash flow of $279.2 versus investing outflows of $322.5.
- That Core NOI, FFO and Adjusted FFO are non-GAAP measures; review their reconciliations and assess results alongside GAAP income and cash flows.