American Homes 4 Rent — Q3 2015 Form 10-Q
Business context and reporting period
Quarter ended September 30, 2015; filed November 6, 2015. The Maryland REIT acquires, renovates, leases and operates single-family rental homes. At quarter-end it owned 38,377 properties across 22 states; 92.8% were leased and 91.8% occupied. The portfolio grew from 34,599 homes at December 31, 2014.
Financial and operating highlights
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $172.6 million | $110.4 million | $458.0 million | $282.0 million |
| Net loss | $19.9 million | $12.8 million | $36.6 million | $23.1 million |
| Net loss attributable to common shareholders | $28.6 million; $0.14/share | $21.7 million; $0.11/share | $64.1 million; $0.30/share | $47.7 million; $0.25/share |
| Operating cash flow | Not presented by quarter in this filing | $155.9 million | $131.7 million | |
| Investing cash flow | Not presented by quarter in this filing | $(743.9) million | $(1,261.4) million | |
| Financing cash flow | Not presented by quarter in this filing | $717.6 million | $1,084.7 million | |
| Initially Leased Property Core NOI (non-GAAP) | $87.2 million; 58.6% of core revenue | $59.4 million; 57.3% | $247.8 million; 60.7% | $163.8 million; 61.3% |
| Core FFO per share and unit (non-GAAP) | $0.19 | $0.15 | $0.51 | $0.42 |
At September 30, cash and cash equivalents were $238.4 million, with no credit-facility borrowings and $106.97 million in restricted cash. Total debt was $2.59 billion, up from $1.78 billion at year-end 2014; total liabilities were $2.95 billion and total equity $4.02 billion. Nine-month capital spending included $552.9 million for property acquisitions and $125.2 million for initial renovations. Cash and cash equivalents rose $129.6 million during the nine-month period.
Material changes versus prior comparable periods
- Q3 revenue rose 56%; nine-month revenue rose 62%, reflecting portfolio expansion and higher rent revenue. Rents from single-family properties were $148.8 million in Q3, versus $104.2 million a year earlier.
- Q3 net loss attributable to common shareholders widened to $28.6 million from $21.7 million. Higher interest expense ($23.9 million versus $5.1 million) and depreciation and amortization ($67.8 million versus $44.9 million) offset revenue growth. Nine-month interest expense increased to $61.5 million from $10.5 million.
- Same-home core revenue increased 5.2% in Q3 and 4.9% for the nine-month period. Management attributed this to higher rents and occupancy. Same-home occupancy averaged 94.6% in Q3 versus 93.1% in Q3 2014.
- Same-home core operating expenses fell to 41.3% of core revenue in Q3 from 44.2%; for nine months, they declined to 39.7% from 40.9%. Total portfolio core NOI margin improved in Q3 but declined year to date.
Outlook, commentary, risks and unusual items
- Management expects acquisition activity to vary with available suitable investments and capital. It expects portfolio occupancy to continue rising as recently acquired homes become a smaller share of the portfolio, while longer-term revenue growth will depend more on retention and rent increases. No quantitative earnings or acquisition guidance was provided.
- The company completed two 2015 securitizations: $552.8 million in March at a 4.14% weighted-average rate and $477.7 million in September at 4.36%. Both have 30-year stated maturities and anticipated repayment dates in 2025. Their collateral pools comprise 4,661 and 4,125 homes, respectively. The company reported compliance with debt covenants; each loan requires a debt-service coverage ratio of at least 1.20 to 1.00.
- Variable-rate exposure included $475.0 million under the 2014-SFR1 securitization. Management estimated a 100-basis-point rate increase would add $4.75 million to annual interest expense, before capitalization and after the interest-rate cap effect.
- A $300 million share-repurchase authorization was announced in September. The company repurchased 3.4 million shares for $53.7 million at a weighted-average $15.76 per share, leaving $246.3 million authorized at quarter-end. Quarterly common distributions were $0.05 per share.
- Management identified property acquisition, renovation and leasing timelines, occupancy, tenant turnover, rent collection, expenses, financing access, seasonality and interest rates as factors affecting results. It cautioned that real estate assets are illiquid and that REIT qualification depends on meeting statutory tests, including distribution requirements.
- Level 3 derivative liabilities were $68.6 million for Series E units and $60.3 million for preferred shares; changes in valuation assumptions may materially affect their values. Management reported no material litigation, no material change to previously disclosed risk factors, effective disclosure controls, and no material internal-control changes.
- Subsequent events: the company acquired 188 homes for approximately $26.3 million from October 1 through October 31, and acquired the remaining interests in two joint ventures owning 377 homes for $44.4 million on October 31.
Important facts for investors to verify
- Reconcile growth in revenue and non-GAAP NOI/FFO with the widening GAAP net loss, higher financing costs and depreciation; assess the definitions and comparability of the non-GAAP measures.
- Review securitization repayment mechanics, anticipated 2025 repayment dates, collateral restrictions, rate-reset provisions and covenant headroom, as well as dependence on continued financing access.
- Track leased and occupied percentages, same-home rent growth, tenant renewal and retention rates, bad-debt allowance, turnover costs and renovation-to-lease timelines.
- Assess liquidity needs against acquisition, renovation, debt service, preferred distributions, common distributions and the remaining share-repurchase authorization; operating cash flow was below investing outflows in the first nine months.
- Review assumptions underlying Level 3 derivative valuations and monitor the company’s ongoing compliance with REIT qualification and distribution requirements.