AMERICAN HOMES 4 RENT The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.
Overview
We are a Maryland REIT focused on acquiring, developing, renovating, leasing and operating single-family homes as rental properties.The Operating Partnership is the entity through which we conduct substantially all of our business and own, directly or through subsidiaries, substantially all of our assets. We commenced operations inNovember 2012 . As ofSeptember 30, 2021 , we owned 56,077 single-family properties in selected sub-markets of metropolitan statistical areas ("MSAs") in 22 states, including 604 properties held for sale, compared to 53,584 single-family properties in 22 states, including 711 properties held for sale, as ofDecember 31, 2020 , and 53,229 single-family properties in 22 states, including 813 properties held for sale as ofSeptember 30, 2020 . As ofSeptember 30, 2021 , 53,133, or 95.8%, of our total properties (excluding properties held for sale) were occupied, compared to 51,271, or 97.0%, of our total properties (excluding properties held for sale) as ofDecember 31, 2020 , and 51,090, or 97.5%, of our total properties (excluding properties held for sale) as ofSeptember 30, 2020 . Also, as ofSeptember 30, 2021 , the Company had an additional 1,729 properties held in unconsolidated joint ventures, compared to 1,293 properties held in unconsolidated joint ventures as ofDecember 31, 2020 , and 1,131 properties held in unconsolidated joint ventures as ofSeptember 30, 2020 . Our portfolio of single-family properties, including those held in our unconsolidated joint ventures, is internally managed through our proprietary property management platform.
COVID-19 Business Update
The Company has maintained continuity in business operations since the beginning of the COVID-19 pandemic and produced strong operating results in the third quarter of 2021 demonstrating the flexibility of its technology enabled operating platform and the resiliency of its high-quality, diversified portfolio. Comprehensive remote working policies remain in place for most corporate and field offices, and operational protocols have been tailored based on state and local mandates to ensure continuity of services, while protecting employees, residents and their families. Collections remain strong with the Company reporting bad debt equivalent to 1.7% of its third quarter 2021 rental billings for its Same-Home portfolio, which reflects benefits from strengthening underlying collections as well as government rental assistance programs. The Company has helped its residents access nearly$14 million related to these government assistance programs throughout the course of the pandemic and continues to work with residents on a case-by-case basis. Although the Company has produced strong operating results to date during the COVID-19 pandemic, the extent to which the pandemic will ultimately impact us and our residents will depend on future developments which are highly uncertain. These include the scope, severity and duration of the pandemic, including resurgences, new variants or strains, such as the Delta variant, the impact of government regulations, vaccine adoption rates (including boosters), the effectiveness of vaccines, employee retention issues resulting from vaccine mandates, and the direct and indirect economic effects of the pandemic and containment measures, among others. For more information on risks related to COVID-19, see Part I, "Item 1A. Risk Factors-Risks Related to Our Business-We are subject to risks from the global pandemic associated with COVID-19 and we may in the future be subject to risks from other public health crises" in our 2020 Annual Report. 31
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Key Single-Family Property and Leasing Metrics
The following table summarizes certain key single-family properties metrics as
of
Number of % of Total Gross Book Avg. Gross Book
Single-Family Single-Family Value % of Gross Book Value per Avg. Avg. Property Age Avg. Year
Market Properties (1) Properties (millions) Value Total Property Sq. Ft. (years) Purchased or Delivered
Atlanta, GA 5,404 9.7 % $ 1,068.4 9.7 % $ 197,702 2,165 17.3 2015
Dallas-Fort Worth, TX 4,313 7.8 % 728.4 6.7 % 168,879 2,117 17.4 2014Charlotte, NC 3,873 7.0 % 782.9 7.2 % 202,143 2,097 16.9 2015Phoenix, AZ 3,291 5.9 % 626.7 5.7 % 190,418 1,835 17.8 2015Houston, TX 2,917 5.3 % 491.4 4.5 % 168,444 2,099 15.7 2014Nashville, TN 3,024 5.5 % 682.2 6.2 % 225,588 2,106 15.6 2015Indianapolis, IN 2,916 5.3 % 472.6 4.3 % 162,080 1,929 18.8 2014Tampa, FL 2,612 4.7 % 550.2 5.0 % 210,645 1,944 14.8 2015Jacksonville, FL 2,640 4.8 % 513.4 4.7 % 194,475 1,937 14.5 2015Raleigh, NC 2,156 3.9 % 413.2 3.8 % 191,654 1,882 16.0 2015Columbus, OH 2,129 3.8 % 386.6 3.5 % 181,596 1,869 19.5 2015Cincinnati, OH 2,099 3.8 % 389.0 3.6 % 185,324 1,852 18.9 2014Orlando, FL 1,817 3.3 % 351.0 3.2 % 193,181 1,902 18.7 2015Greater Chicago area, IL and IN 1,713 3.1 % 318.6 2.9 % 186,003 1,871 20.1 2013Salt Lake City, UT 1,687 3.0 % 458.4 4.2 % 271,706 2,196 16.9 2015Charleston, SC 1,385 2.5 % 296.9 2.7 % 214,394 1,979 12.0 2016Las Vegas, NV 1,418 2.6 % 314.4 2.9 % 221,721 1,869 15.2 2015Austin, TX (3) 781 1.4 % 156.4 1.4 % 200,229 1,957 13.0 2015San Antonio, TX (3) 1,254 2.3 % 225.8 2.1 % 180,099 1,951 13.9 2015 Savannah/Hilton Head, SC 944 1.7 % 177.4 1.6 % 187,872 1,875 13.5 2016 All Other (2) 7,100 12.6 % 1,544.7 14.1 % 217,564 1,902 16.6 2015 Total/Average 55,473 100.0 %$ 10,948.6 100.0 %$ 197,368 1,987 16.7 2015 (1)Excludes 604 single-family properties held for sale as ofSeptember 30, 2021 . (2)Represents 15 markets in 13 states. (3)263 properties were reclassified fromAustin, TX toSan Antonio, TX during the three months endedSeptember 30, 2021 as a result of property reassignments between district offices. 32
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The following table summarizes certain key leasing metrics as of
Avg. Monthly Avg. Original Avg. Remaining Avg. Blended
Avg. Occupied Days Realized Rent per Lease Term Lease Term Change in
Market Percentage (2) property (3) (months) (4) (months) (4) Rent (5)
Atlanta, GA 97.0 % $ 1,803 12.0 7.0 9.8 %
Dallas-Fort Worth, TX 96.8 % 1,905 12.2 6.7 8.3 %
Charlotte, NC 96.8 % 1,761 12.4 7.2 8.9 %
Phoenix, AZ 97.7 % 1,685 12.0 6.7 13.6 %
Houston, TX 96.0 % 1,766 12.5 6.7 6.5 %
Nashville, TN 97.0 % 1,893 12.0 6.9 8.0 %
Indianapolis, IN 96.5 % 1,584 12.1 7.2 9.4 %
Tampa, FL 98.2 % 1,879 12.0 6.9 9.5 %
Jacksonville, FL 97.6 % 1,758 12.0 6.9 10.4 %
Raleigh, NC 97.0 % 1,677 12.4 6.8 8.6 %
Columbus, OH 96.9 % 1,820 12.1 6.6 8.5 %
Cincinnati, OH 97.0 % 1,771 12.0 7.0 9.0 %
Orlando, FL 98.1 % 1,844 12.0 6.6 7.9 %
Greater Chicago area, IL and IN 97.9 % 2,029 12.3 6.9 8.0 %
Salt Lake City, UT 97.2 % 1,986 12.1 6.6 9.7 %
Charleston, SC 96.6 % 1,903 12.0 7.1 8.4 %
Las Vegas, NV 96.9 % 1,828 11.9 7.0 11.3 %
Austin, TX 96.1 % 1,835 12.2 7.3 8.4 %
San Antonio, TX 96.1 % 1,716 12.0 6.4 8.4 %
Savannah/Hilton Head, SC 98.5 % 1,711 12.0 6.6 10.1 %
All Other (6) 96.6 % 1,853 12.0 6.9 8.7 %
Total/Average 97.0 % $ 1,809 12.1 6.9 9.0 %
(1)Leasing information excludes 604 single-family properties held for sale as of
September 30, 2021 .
(2)For the three months ended September 30, 2021 , Average Occupied Days
Percentage represents the number of days a property is occupied in the period
divided by the total number of days the property is owned during the same period
after initially being placed in-service.
(3)For the three months ended September 30, 2021 , Average Monthly Realized Rent
is calculated as the lease component of rents and other single-family property
revenues (i.e., rents from single-family properties) divided by the product of
(a) number of properties and (b) Average Occupied Days Percentage, divided by
the number of months. For properties partially owned during the period, this is
adjusted to reflect the number of days of ownership.
(4)Average Original Lease Term and Average Remaining Lease Term are reflected as
of period end.
(5)Represents the percentage change in rent on all non-month-to-month lease
renewals and re-leases during the three months ended September 30, 2021 ,
compared to the annual rent of the previously expired non-month-to-month
comparable long-term lease for each property.
(6)Represents 15 markets in 13 states.
We believe these key single-family property and leasing metrics provide useful
information to investors because they allow investors to understand the
composition and performance of our properties on a market by market basis.
Management also uses these metrics to understand the composition and performance
of our properties at the market level.
Factors That Affect Our Results of Operations and Financial Condition
Our results of operations and financial condition are affected by numerous factors, many of which are beyond our control. Currently, the most significant factor impacting our results of operations and financial condition is the effect of the COVID-19 pandemic, which is discussed above. Other key factors that impact our results of operations and financial condition include the pace at which we identify and acquire suitable land and properties, the time and cost required to renovate the acquired properties, the pace and cost of our property developments, the time to lease newly acquired or developed properties at acceptable rental rates, occupancy levels, rates of tenant turnover, the length of vacancy in properties between tenant leases, our expense ratios, our ability to raise capital and our capital structure. Additionally, recent supply chain disruptions, increases in material costs and labor shortages may have an impact on certain aspects of our business, including our AMH Development Program, renovation program associated with recently acquired properties and maintenance program.
Property Acquisitions, Development and Dispositions
Since our formation, we have rapidly but systematically grown our portfolio of
single-family properties. Our ability to identify and acquire homes that meet
our investment criteria is impacted by home prices in our target markets, the
inventory of properties available-for-sale through traditional acquisition
channels, competition for our target assets and our available capital. We
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are increasingly focused on developing "built-for-rental" homes through our
internal AMH Development Program. In addition, we also acquire newly constructed
homes from third-party developers through our National Builder Program.
Opportunities from these new construction channels are impacted by the
availability of vacant developed lots, development land assets and inventory of
homes currently under construction or newly developed. Our level of investment
activity has fluctuated based on the number of suitable opportunities and the
level of capital available to invest. During the three months ended September
30, 2021 , we developed or acquired 1,382 homes, including 368 newly constructed
properties delivered through our AMH Development Program and 1,014 homes
acquired through our National Builder Program and traditional acquisition
channel, partially offset by 90 homes sold.
Our properties held for sale were identified based on sub-market analysis, as
well as individual property-level operational review. As of September 30, 2021
and December 31, 2020 , there were 604 and 711 properties, respectively,
classified as held for sale. We will continue to evaluate our properties for
potential disposition going forward as a normal course of business.
Property Operations
Homes added to our portfolio through new construction channels include properties developed through our internal AMH Development Program and newly constructed properties acquired from third-party developers through our National Builder Program. Rental homes developed through our AMH Development Program involve substantial up-front costs, time to acquire and develop land, time to build the rental home, and time to lease the rental home before the home generates income. This process is dependent upon the nature of each lot acquired and the timeline varies primarily due to land development requirements. Once land development requirements have been met, on average it takes approximately four to six months to complete the rental home vertical construction process. However, delivery of homes may be staggered to facilitate leasing absorption. Our internal construction program is managed by our team of development professionals that oversee the full rental home construction process including all land development and work performed by subcontractors. We typically incur costs between$250,000 and$400,000 to acquire and develop land and build a rental home. Homes added through our AMH Development Program are available for lease immediately upon or shortly after receipt of a certificate of occupancy. Rental homes acquired from third-party developers through our National Builder Program are dependent on the inventory of newly constructed homes and homes currently under construction. Homes added to our portfolio through traditional acquisition channels require expenditures in addition to payment of the purchase price, including property inspections, closing costs, liens, title insurance, transfer taxes, recording fees, broker commissions, property taxes and homeowner association ("HOA") fees, when applicable. In addition, we typically incur costs between$20,000 and$40,000 to renovate a home acquired through traditional acquisition channels to prepare it for rental. Renovation work varies, but may include paint, flooring, cabinetry, appliances, plumbing hardware and other items required to prepare the home for rental. The time and cost involved to prepare our homes for rental can impact our financial performance and varies among properties based on several factors, including the source of acquisition channel and age and condition of the property. On average, it has taken approximately 20 to 40 days to complete the renovation process. However, as a result of increased acquisition volumes as well as recent construction labor and material constraints, the time to complete the renovation process has increased by 30 days on average. Our operating results are also impacted by the amount of time it takes to market and lease a property, which can vary greatly among properties, and is impacted by local demand, our marketing techniques and the size of our available inventory. On average, it takes approximately 20 to 40 days to lease a property after acquiring or developing a new property through our new construction channels or after completing the renovation process for a traditionally acquired property. Lastly, our operating results are impacted by the length of stay of our tenants and the amount of time it takes to prepare and re-lease a property after a tenant vacates. This process, which we refer to as "turnover," is impacted by numerous factors, including the condition of the home upon move-out of the previous tenant, and by local demand, our marketing techniques and the size of our available inventory at the time of the turnover. On average, it takes approximately 30 to 50 days to complete the turnover process.
Revenues
Our revenues are derived primarily from rents collected from tenants for our single-family properties under lease agreements which typically have a term of one year. Our rental rates and occupancy levels are affected by macroeconomic factors and local and property-level factors, including market conditions, seasonality and tenant defaults, and the amount of time it takes to turn properties when tenants vacate. Additionally, our ability to collect revenues and related operating results are impacted by the credit worthiness and quality of our tenants. Typically, our tenants have household incomes ranging from$70,000 to$120,000 and primarily consist of families with approximately two adults and one or more children.
Our rents and other single-family property revenues are comprised of rental revenue from single-family properties, fees from our single-family property rentals and "tenant charge-backs," which are primarily related to cost recoveries on utilities.
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Our ability to maintain and grow revenues from our existing portfolio of homes
will be dependent on our ability to retain tenants and increase rental rates.
Based on our Same-Home population of properties (defined below), the
year-over-year increase in Average Monthly Realized Rent per property was 6.2%
for the three months ended September 30, 2021 , and we experienced turnover rates
of 8.9% and 9.2% during the three months ended September 30, 2021 and 2020,
respectively. Based on our Same-Home population of properties (defined below),
the year-over-year increase in Average Monthly Realized Rent per property was
4.5% for the nine months ended September 30, 2021 , and we experienced turnover
rates of 23.9% and 26.6% during the nine months ended September 30, 2021 and
2020, respectively.
Expenses
We monitor the following categories of expenses that we believe most significantly affect our results of operations.
Property Operating Expenses
Once a property is available for lease for the first time, which we refer to
as "rent-ready," we incur ongoing property-related expenses which may not be
subject to our control. These include primarily property taxes, repairs and
maintenance ("R&M"), turnover costs, HOA fees (when applicable) and insurance.
Property Management Expenses
As we internally manage our portfolio of single-family properties through our proprietary property management platform, we incur costs such as salary expenses for property management personnel, lease expenses and operating costs for property management offices and technology expenses for maintaining our property management platform. As part of developing our property management platform, we have made significant investments in our infrastructure, systems and technology. We believe that these investments will enable our property management platform to become more efficient over time, especially as our portfolio grows. Also included in property management expenses is noncash share-based compensation expense related to centralized and field property management employees.
Seasonality
We believe that our business and related operating results will be impacted by seasonal factors throughout the year. We experience higher levels of tenant move-outs and move-ins during the late spring and summer months, which impacts both our rental revenues and related turnover costs. Our property operating costs are seasonally impacted in certain markets for expenses such as HVAC repairs, turn costs and landscaping expenses during the summer season. Additionally, our single-family properties are at greater risk in certain markets for adverse weather conditions such as hurricanes in the late summer months and extreme cold weather in the winter months.
General and Administrative Expense
General and administrative expense primarily consists of corporate payroll and personnel costs, federal and state taxes, trustees' and officers' insurance expenses, audit and tax fees, trustee fees and other expenses associated with our corporate and administrative functions. Also included in general and administrative expense is noncash share-based compensation expense related to corporate administrative employees.
Results of Operations
Net income totaled$48.5 million for the three months endedSeptember 30, 2021 , compared to net income of$40.2 million for the three months endedSeptember 30, 2020 . This increase was primarily attributable to growth in the Company's portfolio, a larger number of occupied properties and higher rental rates and fees. Net income totaled$149.2 million for the nine months endedSeptember 30, 2021 , compared to net income of$109.5 million for the nine months endedSeptember 30, 2020 . This increase was primarily attributable to growth in the Company's portfolio, a larger number of occupied properties and higher rental rates and fees, as well as an increase in gain on sale and impairment of single-family properties and other, net, partially offset by increased uncollectible rents related to the COVID-19 pandemic. EffectiveMarch 31, 2021 , the Company reclassified certain impairment charges related to homes classified as held for sale from other expenses to gain on sale and impairment of single-family properties and other, net within the condensed consolidated statements of operations. The Company also reclassified other revenues and the remaining other expenses to other income and expense, net within the condensed consolidated statements of operations. The reclassification had no impact to net income, core revenues, core property operating expenses, Core NOI, Core FFO and Adjusted FFO attributable to common share and unit holders, 35
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Adjusted EBITDAre or Fully Adjusted EBITDAre.
As we continue to grow our portfolio with a portion of our homes still
recently developed, acquired and/or renovated, we distinguish our portfolio of
homes between Same-Home properties and Non-Same-Home and Other properties in
evaluating our operating performance. We classify a property as Same-Home if it
has been stabilized longer than 90 days prior to the beginning of the earliest
period presented under comparison and if it has not been classified as held for
sale or taken out of service as a result of a casualty loss, which allows the
performance of these properties to be compared between periods. Single-family
properties that we acquire individually (i.e., not through a bulk purchase) are
classified as either stabilized or non-stabilized. A property is classified as
stabilized once it has been renovated by the Company or newly constructed and
then initially leased or available for rent for a period greater than 90 days.
Properties acquired through a bulk purchase are first considered non-stabilized,
as an entire group, until (1) we have owned them for an adequate period of time
to allow for complete on-boarding to our operating platform, and (2) a
substantial portion of the properties have experienced tenant turnover at least
once under our ownership, providing the opportunity for renovations and
improvements to meet our property standards. After such time has passed,
properties acquired through a bulk purchase are then evaluated on an individual
property basis under our standard stabilization criteria. All other properties,
including those classified as held for sale or taken out of service as a result
of a casualty loss, are classified as Non-Same-Home and Other.
One of the primary financial measures we use in evaluating the operating
performance of our single-family properties is Core Net Operating Income ("Core
NOI"), which we also present separately for our Same-Home portfolio. Core NOI is
a supplemental non-GAAP financial measure that we define as core revenues, which
is calculated as rents and other single-family property revenues, excluding
expenses reimbursed by tenant charge-backs, less core property operating
expenses, which is calculated as property operating and property management
expenses, excluding noncash share-based compensation expense and expenses
reimbursed by tenant charge-backs.
Core NOI also excludes (1) gain or loss on early extinguishment of debt, (2)
hurricane-related charges, net, which result in material charges to the impacted
single-family properties, (3) gains and losses from sales or impairments of
single-family properties and other, (4) depreciation and amortization, (5)
acquisition and other transaction costs incurred with business combinations and
the acquisition or disposition of properties as well as nonrecurring items
unrelated to ongoing operations, (6) noncash share-based compensation expense,
(7) interest expense, (8) general and administrative expense, and (9) other
income and expense, net. We believe Core NOI provides useful information to
investors about the operating performance of our single-family properties
without the impact of certain operating expenses that are reimbursed through
tenant charge-backs.
Core NOI and Same-Home Core NOI should be considered only as supplements to
net income or loss as a measure of our performance and should not be used as
measures of our liquidity, nor are they indicative of funds available to fund
our cash needs, including our ability to pay dividends or make distributions.
Additionally, these metrics should not be used as substitutes for net income or
loss or net cash flows from operating activities (as computed in accordance with
accounting principles generally accepted in the United States of America
("GAAP")).
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Comparison of the Three Months Ended
The following table presents a summary of Core NOI for our Same-Home
properties, Non-Same-Home and Other properties, and total properties for the
three months ended
For the Three Months Ended September 30, 2021
Non-Same-
Same-Home % of Core Home and Other % of Core Total % of Core
Properties (1) Revenue Properties Revenue Properties Revenue
Rents from single-family
properties $ 245,501 $ 40,735 $ 286,236
Fees from single-family properties 4,940 1,016 5,956
Bad debt (4,120) (1,232) (5,352)
Core revenues 246,321 40,519 286,840
Property tax expense 41,558 16.9 % 6,266 15.5 % 47,824 16.7 %
HOA fees, net (2) 4,752 1.9 % 802 2.0 % 5,554 1.9 %
R&M and turnover costs, net (2) 22,833 9.3 % 3,842 9.5 % 26,675 9.3 %
Insurance 2,495 1.0 % 492 1.2 % 2,987 1.0 %
Property management expenses, net
(3) 18,757 7.6 % 4,056 10.0 % 22,813 8.0 %
Core property operating expenses 90,395 36.7 % 15,458 38.2 % 105,853 36.9 %
Core NOI $ 155,926 63.3 % $ 25,061 61.8 % $ 180,987 63.1 %
For the Three Months Ended September 30, 2020
Non-Same-
Same-Home % of Core Home and Other % of Core Total % of Core
Properties (1) Revenue Properties Revenue Properties Revenue
Rents from single-family
properties $ 230,206 $ 28,550 $ 258,756
Fees from single-family properties 3,757 581 4,338
Bad debt (4,361) (736) (5,097)
Core revenues 229,602 28,395 257,997
Property tax expense 40,334 17.6 % 5,007 17.6 % 45,341 17.5 %
HOA fees, net (2) 4,459 1.9 % 601 2.1 % 5,060 2.0 %
R&M and turnover costs, net (2) 20,861 9.1 % 3,169 11.2 % 24,030 9.3 %
Insurance 2,131 0.9 % 336 1.2 % 2,467 1.0 %
Property management expenses, net
(3) 17,708 7.7 % 3,162 11.1 % 20,870 8.1 %
Core property operating expenses 85,493 37.2 % 12,275 43.2 % 97,768 37.9 %
Core NOI $ 144,109 62.8 % $ 16,120 56.8 % $ 160,229 62.1 %
(1)Includes 46,832 properties that have been stabilized longer than 90 days
prior to January 1, 2020 .
(2)Presented net of tenant charge-backs.
(3)Presented net of tenant charge-backs and excludes noncash share-based
compensation expense related to centralized and field property management
employees.
37-------------------------------------------------------------------------------- The following are reconciliations of core revenues, Same-Home core revenues, core property operating expenses, Same-Home core property operating expenses, Core NOI and Same-Home Core NOI to their respective GAAP metrics for the three months endedSeptember 30, 2021 and 2020 (amounts in thousands): For the Three Months Ended September 30, 2021 2020 Core revenues and Same-Home core revenues Rents and other single-family property revenues$ 339,563 $ 307,932 Tenant charge-backs (52,723) (49,935) Core revenues 286,840 257,997 Less: Non-Same-Home core revenues 40,519 28,395 Same-Home core revenues$ 246,321 $ 229,602 Core property operating expenses and Same-Home core property operating expenses Property operating expenses$ 134,694 $ 126,174 Property management expenses 24,562 21,976 Noncash share-based compensation - property management (680) (447) Expenses reimbursed by tenant charge-backs (52,723) (49,935) Core property operating expenses 105,853 97,768 Less: Non-Same-Home core property operating expenses 15,458 12,275 Same-Home core property operating expenses$ 90,395
Core NOI and Same-Home Core NOI Net income $
48,501
Gain on sale and impairment of single-family properties and other, net
(9,572) (12,206)
Depreciation and amortization 94,494 86,996
Acquisition and other transaction costs 3,279 1,616
Noncash share-based compensation - property management 680 447
Interest expense 31,097 29,267
General and administrative expense 12,647 12,570
Other income and expense, net (139) 1,386
Core NOI 180,987 160,229
Less: Non-Same-Home Core NOI 25,061 16,120
Same-Home Core NOI $
155,926
Rents and Other Single-Family Property Revenues
Rents and other single-family property revenues increased 10.3% to$339.6 million for the three months endedSeptember 30, 2021 from$307.9 million for the three months endedSeptember 30, 2020 . Revenue growth was primarily driven by an increase in our average occupied portfolio which grew to 52,889 homes for the three months endedSeptember 30, 2021 , compared to 50,630 homes for the three months endedSeptember 30, 2020 , as well as higher rental rates and fees from single-family properties.
Property Operating Expenses
Property operating expenses increased 6.8% to$134.7 million for the three months endedSeptember 30, 2021 from$126.2 million for the three months endedSeptember 30, 2020 . This increase was primarily attributable to higher property tax expense and higher R&M and turnover costs as a result of growth in our portfolio.
Property Management Expenses
Property management expenses for the three months endedSeptember 30, 2021 and 2020 were$24.6 million and$22.0 million , respectively, which included$0.7 million and$0.4 million , respectively, of noncash share-based compensation expense related to centralized and field property management employees. The increase in property management expenses was primarily attributable to higher personnel costs and higher noncash share-based compensation expense. 38 --------------------------------------------------------------------------------
Core Revenues from
Core revenues from Same-Home properties increased 7.3% to$246.3 million for the three months endedSeptember 30, 2021 from$229.6 million for the three months endedSeptember 30, 2020 primarily driven by a 6.2% increase in Average Monthly Realized Rent per property, which increased to$1,794 per month for the three months endedSeptember 30, 2021 compared to$1,690 per month for the three months endedSeptember 30, 2020 , a 0.4% increase in Average Occupied Days Percentage and higher fees from single-family properties.
Core Property Operating Expenses from
Core property operating expenses from Same-Home properties consist of direct property operating expenses, net of tenant charge-backs, and property management costs, net of tenant charge-backs, and excludes noncash share-based compensation expense. Core property operating expenses from Same-Home properties increased 5.7% to$90.4 million for the three months endedSeptember 30, 2021 from$85.5 million for the three months endedSeptember 30, 2020 primarily driven by annual growth in property tax expense, higher R&M and turnover costs, net and higher property management expenses, net.
General and Administrative Expense
General and administrative expense primarily consists of corporate payroll and personnel costs, federal and state taxes, trustees' and officers' insurance expense, audit and tax fees, trustee fees and other expenses associated with our corporate and administrative functions. General and administrative expense for the three months endedSeptember 30, 2021 and 2020 was$12.6 million in each period, which included$1.6 million and$1.7 million , respectively, of noncash share-based compensation expense related to corporate administrative employees.
Interest Expense
Interest expense increased 6.3% to$31.1 million for the three months endedSeptember 30, 2021 from$29.3 million for the three months endedSeptember 30, 2020 . This increase was primarily due to additional interest from the issuance of the 2031 and 2051 unsecured senior notes duringJuly 2021 and higher borrowings on the revolving credit facility during the three months endedSeptember 30, 2021 , partially offset by additional capitalized interest during the three months endedSeptember 30, 2021 related to an increase in our development activities under our AMH Development Program.
Acquisition and Other Transaction Costs
Acquisition and other transaction costs consists primarily of costs associated with purchases of single-family properties, including newly constructed properties from third-party builders, the development of single-family properties, or the disposal of certain properties or portfolios of properties which do not qualify for capitalization. Acquisition and other transaction costs were$3.3 million and$1.6 million for the three months endedSeptember 30, 2021 and 2020, respectively, which included$0.8 million of noncash share-based compensation expense related to employees in these functions during the three months endedSeptember 30, 2021 . The increase in acquisition and other transaction costs was primarily related to higher acquisition costs associated with the growth of our portfolio as well as higher noncash share-based compensation expense.
Depreciation and Amortization
Depreciation and amortization expense consists primarily of depreciation of buildings and improvements. Depreciation of our assets is calculated over their useful lives on a straight-line basis over three to 30 years. Our intangible assets are amortized on a straight-line basis over the asset's estimated economic useful life. Depreciation and amortization expense increased 8.6% to$94.5 million for the three months endedSeptember 30, 2021 from$87.0 million for the three months endedSeptember 30, 2020 primarily due to growth in our average number of depreciable properties.
Gain on Sale and Impairment of
Gain on sale and impairment of single-family properties and other, net was$9.6 million and$12.2 million for the three months endedSeptember 30, 2021 and 2020, respectively, which included zero and$0.2 million of impairment charges, respectively, related to homes classified as held for sale during each period. The decrease was primarily related to lower net gains from property sales. 39
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Other Income and Expense, net
Included in other income and expense, net was$0.1 million of net other income and$1.4 million of net other expenses for the three months endedSeptember 30, 2021 and 2020, respectively, which primarily related to interest income, fees from unconsolidated joint ventures, and equity in income (losses) from unconsolidated joint ventures, partially offset by expenses related to unconsolidated joint ventures and other nonrecurring expenses. Also included in other income and expense, net for the three months endedSeptember 30, 2020 was a net expense of$2.9 million related to a legal matter involving a former employee.
Comparison of the Nine Months Ended
The following table presents a summary of Core NOI for our Same-Home
properties, Non-Same-Home and Other properties, and total properties for the
nine months ended
For the Nine Months Ended September 30, 2021
Non-Same-
Same-Home % of Core Home and Other % of Core Total % of Core
Properties (1) Revenue Properties Revenue Properties Revenue
Rents from single-family
properties $ 721,855 $ 110,025 $ 831,880
Fees from single-family properties 13,937 2,719 16,656
Bad debt (15,832) (3,446) (19,278)
Core revenues 719,960 109,298 829,258
Property tax expense 124,863 17.3 % 18,349 16.7 % 143,212 17.2 %
HOA fees, net (2) 13,633 1.9 % 2,190 2.0 % 15,823 1.9 %
R&M and turnover costs, net (2) 58,162 8.1 % 9,752 8.9 % 67,914 8.2 %
Insurance 7,350 1.0 % 1,367 1.3 % 8,717 1.1 %
Property management expenses, net
(3) 55,268 7.7 % 10,899 10.0 % 66,167 8.0 %
Core property operating expenses 259,276 36.0 % 42,557 38.9 % 301,833 36.4 %
Core NOI $ 460,684 64.0 % $ 66,741 61.1 % $ 527,425 63.6 %
For the Nine Months Ended September 30, 2020
Non-Same-
Same-Home % of Core Home and Other % of Core Total % of Core
Properties (1) Revenue Properties Revenue Properties Revenue
Rents from single-family
properties $ 678,986 $ 75,864 $ 754,850
Fees from single-family properties 10,099 1,564 11,663
Bad debt (13,709) (2,218) (15,927)
Core revenues 675,376 75,210 750,586
Property tax expense 120,231 17.8 % 15,227 20.3 % 135,458 18.1 %
HOA fees, net (2) 12,726 1.9 % 1,833 2.4 % 14,559 1.9 %
R&M and turnover costs, net (2) 55,667 8.2 % 8,484 11.3 % 64,151 8.5 %
Insurance 6,279 0.9 % 921 1.2 % 7,200 1.0 %
Property management expenses, net
(3) 54,648 8.1 % 8,899 11.8 % 63,547 8.5 %
Core property operating expenses 249,551 36.9 % 35,364 47.0 % 284,915 38.0 %
Core NOI $ 425,825 63.1 % $ 39,846 53.0 % $ 465,671 62.0 %
(1)Includes 46,832 properties that have been stabilized longer than 90 days
prior to January 1, 2020 .
(2)Presented net of tenant charge-backs.
(3)Presented net of tenant charge-backs and excludes noncash share-based
compensation expense related to centralized and field property management
employees.
40
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The following are reconciliations of core revenues, Same-Home core revenues,
core property operating expenses, Same-Home core property operating expenses,
Core NOI and Same-Home Core NOI to their respective GAAP metrics for the nine
months ended September 30, 2021 and 2020 (amounts in thousands):
For the Nine Months
Ended
September 30,
2021 2020
Core revenues and Same-Home core revenues
Rents and other single-family property revenues $ 965,790 $ 875,963
Tenant charge-backs (136,532) (125,377)
Core revenues 829,258 750,586
Less: Non-Same-Home core revenues 109,298 75,210
Same-Home core revenues Core property operating expenses and Same-Home core property operating expenses Property operating expenses
$ 369,966 $ 344,107 Property management expenses 70,677 67,512 Noncash share-based compensation - property management (2,278) (1,327) Expenses reimbursed by tenant charge-backs (136,532) (125,377) Core property operating expenses 301,833 284,915 Less: Non-Same-Home core property operating expenses 42,557 35,364 Same-Home core property operating expenses
Core NOI and Same-Home Core NOI Net income
Gain on sale and impairment of single-family properties and other, net
(36,401) (28,522)
Depreciation and amortization 275,682 254,653
Acquisition and other transaction costs 11,093 5,719
Noncash share-based compensation - property management 2,278 1,327
Interest expense 86,630 88,540
General and administrative expense 40,645 35,329
Other income and expense, net (1,738) (862)
Core NOI 527,425 465,671
Less: Non-Same-Home Core NOI 66,741 39,846
Same-Home Core NOI $ 460,684 $ 425,825 Rents and Other Single-Family Property Revenues
Rents and other single-family property revenues increased 10.3% to$965.8 million for the nine months endedSeptember 30, 2021 from$876.0 million for the nine months endedSeptember 30, 2020 . Revenue growth was primarily driven by an increase in our average occupied portfolio which grew to 52,269 homes for the nine months endedSeptember 30, 2021 , compared to 49,764 homes for the nine months endedSeptember 30, 2020 , as well as higher rental rates and fees from single-family properties, partially offset by an increase in uncollectible rents related to the COVID-19 pandemic.
Property Operating Expenses
Property operating expenses increased 7.5% to$370.0 million for the nine months endedSeptember 30, 2021 from$344.1 million for the nine months endedSeptember 30, 2020 . This increase was primarily attributable to higher property tax expense, HOA fees, R&M and turnover costs and insurance costs as a result of growth in our portfolio. Property Management Expenses Property management expenses for the nine months endedSeptember 30, 2021 and 2020 were$70.7 million and$67.5 million , respectively, which included$2.3 million and$1.3 million , respectively, of noncash share-based compensation expense related to centralized and field property management employees. The increase in property management expenses was primarily attributable to higher personnel costs and higher noncash share-based compensation expense. 41 --------------------------------------------------------------------------------
Core Revenues from
Core revenues from Same-Home properties increased 6.6% to$720.0 million for the nine months endedSeptember 30, 2021 from$675.4 million for the nine months endedSeptember 30, 2020 primarily driven by a 4.5% increase in Average Monthly Realized Rent per property, which increased to$1,756 per month for the nine months endedSeptember 30, 2021 compared to$1,680 per month for the nine months endedSeptember 30, 2020 , a 1.6% increase in Average Occupied Days Percentage and higher fees from single-family properties, partially offset by an increase in uncollectible rents related to the COVID-19 pandemic.
Core Property Operating Expenses from
Core property operating expenses consist of direct property operating expenses, net of tenant charge-backs, and property management costs, net of tenant charge-backs, and excludes noncash share-based compensation expense. Core property operating expenses from Same-Home properties increased 3.9% to$259.3 million for the nine months endedSeptember 30, 2021 from$249.6 million for the nine months endedSeptember 30, 2020 primarily driven by annual growth in property tax expense, higher HOA fees, net and higher R&M and turnover costs, net.
General and Administrative Expense
General and administrative expense primarily consists of corporate payroll and personnel costs, federal and state taxes, trustees' and officers' insurance expense, audit and tax fees, trustee fees and other expenses associated with our corporate and administrative functions. General and administrative expense for the nine months endedSeptember 30, 2021 and 2020 was$40.6 million and$35.3 million , respectively, which included$7.7 million and$4.7 million , respectively, of noncash share-based compensation expense related to corporate administrative employees. The increase in general and administrative expense was primarily related to higher noncash share-based compensation expense driven by retirement provisions that resulted in accelerated expense recognition for retirement eligible employees during the nine months endedSeptember 30, 2021 , as well as higher personnel costs and professional fees.
Interest Expense
Interest expense decreased 2.2% to$86.6 million for the nine months endedSeptember 30, 2021 from$88.5 million for the nine months endedSeptember 30, 2020 . This decrease was primarily due to additional capitalized interest during the nine months endedSeptember 30, 2021 related to an increase in our development activities under our AMH Development Program, partially offset by additional interest from the issuance of the 2031 and 2051 unsecured senior notes duringJuly 2021 .
Acquisition and Other Transaction Costs
Acquisition and other transaction costs consists primarily of costs associated with purchases of single-family properties, including newly constructed properties from third-party builders, the development of single-family properties, or the disposal of certain properties or portfolios of properties which do not qualify for capitalization. Acquisition and other transaction costs were$11.1 million and$5.7 million for the nine months endedSeptember 30, 2021 and 2020, respectively, which included$4.3 million of noncash share-based compensation expense related to employees in these functions during the nine months endedSeptember 30, 2021 . The increase in acquisition and other transaction costs was primarily related to higher noncash share-based compensation expense driven by retirement provisions that resulted in accelerated expense recognition for retirement eligible employees during the nine months endedSeptember 30, 2021 as well as higher acquisition costs associated with the growth of our portfolio.
Depreciation and Amortization
Depreciation and amortization expense consists primarily of depreciation of buildings and improvements. Depreciation of our assets is calculated over their useful lives on a straight-line basis over three to 30 years. Our intangible assets are amortized on a straight-line basis over the asset's estimated economic useful life. Depreciation and amortization expense increased 8.3% to$275.7 million for the nine months endedSeptember 30, 2021 from$254.7 million for the nine months endedSeptember 30, 2020 primarily due to growth in our average number of depreciable properties.
Gain on Sale and Impairment of
Gain on sale and impairment of single-family properties and other, net was$36.4 million and$28.5 million for the nine months endedSeptember 30, 2021 and 2020, respectively, which included$0.2 million and$5.3 million of impairment charges, respectively, related to homes classified as held for sale during each period. The increase was primarily related to lower impairment 42 -------------------------------------------------------------------------------- charges. During the nine months endedSeptember 30, 2020 , a$3.5 million noncash write-down associated with the liquidation of legacy joint ventures, which were acquired as part of theAmerican Residential Properties, Inc. merger inFebruary 2016 , was included in gain on sale and impairment of single-family properties and other, net.
Other Income and Expense, net
Other income and expense, net was$1.7 million and$0.9 million for the nine months endedSeptember 30, 2021 and 2020, respectively, which primarily related to interest income, fees from unconsolidated joint ventures, and equity in income (losses) from unconsolidated joint ventures, partially offset by expenses related to unconsolidated joint ventures and other nonrecurring expenses. Also included in other income and expense, net for the nine months endedSeptember 30, 2020 was a net expense of$2.9 million related to a legal matter involving a former employee.
Critical Accounting Policies and Estimates
Our critical accounting policies are included in Part II, "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" of our 2020 Annual Report. There have been no changes to these
policies during the nine months ended
Income Taxes
AH4R has elected to be taxed as a REIT forU.S. federal income tax purposes under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with our taxable year endedDecember 31, 2012 . We believe that we have operated, and continue to operate, in such a manner as to satisfy the requirements for qualification as a REIT. Provided that we qualify as a REIT and our distributions to our shareholders equal or exceed our REIT taxable income (determined without regard to the deduction for dividends paid and including any net capital gains), we generally will not be subject toU.S. federal income tax. Qualification and taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Code, including tests related to the percentage of income that we earn from specified sources and the percentage of our earnings that we distribute to our shareholders. Accordingly, no assurance can be given that we will continue to be organized or be able to operate in a manner so as to remain qualified as a REIT. If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we would be subject toU.S. federal income tax and state income tax on our taxable income at regular corporate tax rates, and we would likely be precluded from qualifying for treatment as a REIT until the fifth calendar year following the year in which we fail to qualify. Even if we qualify as a REIT, we may be subject to certain state or local income and capital taxes andU.S. federal income and excise taxes on our undistributed REIT taxable income, if any. Certain of our subsidiaries are subject to taxation byU.S. federal, state and local authorities for the periods presented. We made joint elections to treat certain subsidiaries as taxable REIT subsidiaries which are subject toU.S. federal, state and local taxes on their income at regular corporate rates. The tax years from 2016 to present generally remain open to examination by the taxing jurisdictions to which the Company is subject. We believe that ourOperating Partnership is properly treated as a partnership forU.S. federal income tax purposes. As a partnership, theOperating Partnership is not subject toU.S. federal income tax on its income. Instead, each of theOperating Partnership's partners, including AH4R, is allocated, and may be required to pay tax with respect to, its share of theOperating Partnership's income. As such, no provision forU.S. federal income taxes has been included for theOperating Partnership . Accounting Standards Codification 740-10, Income Taxes, requires recognition of deferred tax assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We recognize tax benefits of uncertain tax positions only if it is more likely than not that the tax position will be sustained, based solely on its technical merits, with the taxing authority having full knowledge of all relevant information. The measurement of a tax benefit for an uncertain tax position that meets the more likely than not threshold is based on a cumulative probability model under which the largest amount of tax benefit recognized is the amount with a greater than 50% likelihood of being realized upon ultimate settlement with the taxing authority having full knowledge of all the relevant information. As ofSeptember 30, 2021 , there were no deferred tax assets and liabilities or unrecognized tax benefits recorded by the Company. We do not anticipate a significant change in unrecognized tax benefits within the next 12 months. As a REIT, we generally are required to distribute annually to our shareholders at least 90% of our REIT taxable income (determined without regard to the deduction for dividends paid and any net capital gains) and to pay tax at regular corporate rates to 43 -------------------------------------------------------------------------------- the extent that we annually distribute less than 100% of our REIT taxable income (determined without regard to the deduction for dividends paid and including any net capital gains).The Operating Partnership funds the payment of distributions. As ofDecember 31, 2020 , AH4R had a net operating loss ("NOL") forU.S. federal income tax purposes of$66.9 million . We intend to use our NOL (to the extent available) to reduce our REIT taxable income to the extent that REIT taxable income is not reduced by our deduction for dividends paid.
Recent Accounting Pronouncements
See Note 2. Significant Accounting Policies to our condensed consolidated financial statements in this report for a discussion of the adoption and potential impact of recently issued accounting standards, if any.
Liquidity and Capital Resources
Our liquidity and capital resources as ofSeptember 30, 2021 included cash and cash equivalents of$64.0 million . Additionally, as ofSeptember 30, 2021 , we had no outstanding borrowings under our revolving credit facility, which provides for maximum borrowings of up to$1.25 billion , of which$1.2 million was committed to outstanding letters of credit. We have no debt maturities, other than recurring principal amortization, until 2024. Liquidity is a measure of our ability to meet potential cash requirements, maintain our assets, fund our operations, make distributions to our shareholders and OP unitholders, including AH4R, and meet other general requirements of our business. Our liquidity, to a certain extent, is subject to general economic, financial, competitive and other factors beyond our control. Our liquidity requirements consist primarily of funds necessary to pay for the acquisition, development, renovation and maintenance of our properties, HOA fees (as applicable), real estate taxes, non-recurring capital expenditures, interest and principal payments on our indebtedness, general and administrative expenses, payment of quarterly dividends on our preferred shares and units, and payment of distributions to our common shareholders and unitholders. We seek to satisfy our liquidity needs through cash provided by operations, long-term secured and unsecured borrowings, issuances of debt and equity securities (including OP units), asset-backed securitizations, property dispositions and joint venture transactions. We have financed our operations, acquisitions and development expenditures to date through the issuance of equity securities, borrowings under our credit facilities, asset-backed securitizations and unsecured senior notes, and proceeds from the sale of single-family properties. Going forward, we expect to meet our operating liquidity requirements generally through cash on hand and cash provided by operations. We believe our rental income, net of operating expenses and recurring capital expenditures, will generally provide cash flow sufficient to fund our operations and dividend distributions. However, our real estate assets are illiquid in nature. A timely liquidation of assets might not be a viable source of short-term liquidity should a cash flow shortfall arise, and we may need to source liquidity from other financing alternatives including drawing on our revolving credit facility. As discussed above under "COVID-19 Business Update," the COVID-19 pandemic could adversely impact our future operating cash flows. Since we do not know the ultimate severity and length of the COVID-19 pandemic, and thus cannot predict the impact it will have on our tenants and on the debt and equity capital markets, we cannot estimate the ultimate impact it will have on our liquidity and capital resources. Cash Flows The following table summarizes the Company's and theOperating Partnership's cash flows for the nine months endedSeptember 30, 2021 and 2020 (in thousands): For the Nine Months Ended September 30, 2021 2020 Change
Net cash provided by operating activities
(1,191,461) (437,092) (754,369)
Net cash provided by financing activities 630,185 287,589 342,596
Net (decrease) increase in cash, cash equivalents
and restricted cash $ (63,083) Operating Activities
Our cash flows provided by operating activities, which is our principal source
of cash flows, depend on numerous factors, including the occupancy level of our
properties, the rental rates achieved on our leases, the collection of rent from
our tenants and the level of property operating expenses, property management
expenses and general and administrative expenses. Net cash provided by
44
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operating activities increased $70.8 million , or 16.6%, from $427.4 million for
the nine months ended September 30, 2020 to $498.2 million for the nine months
ended September 30, 2021 primarily as a result of increased cash flows generated
from a larger number of occupied properties and increases in rental rates on
lease renewals and re-leasing of our single-family properties, partially offset
by higher cash outflows for property taxes and a decrease in collections on rent
associated with the COVID-19 pandemic.
Investing Activities
Net cash used for investing activities increased$754.4 million , or 172.6%, from$437.1 million for the nine months endedSeptember 30, 2020 to$1.2 billion for the nine months endedSeptember 30, 2021 . Our investing activities are most significantly impacted by the strategic expansion of our portfolio through traditional acquisition channels, the development of "built-for-rental" homes through our AMH Development Program and the acquisition of newly built properties through our National Builder Program. Cash outflows for the addition of single-family properties to our portfolio through these channels increased$597.0 million during the nine months endedSeptember 30, 2021 . We use cash generated from operating and financing activities and by recycling capital through the sale of single-family properties to invest in this strategic expansion. Net proceeds received from sales of single-family properties and other decreased$83.6 million during the nine months endedSeptember 30, 2021 driven by a decrease in homes sold. Net cash used for investing activities also includes recurring and other capital expenditures for single-family properties and renovations to single-family properties, which increased$28.5 million during the nine months endedSeptember 30, 2021 as a result of investments in properties to increase future revenues or reduce maintenance expenditures. The development of "built-for-rental" homes and our property-enhancing capital expenditures may reduce recurring and other capital expenditures on an average per home basis in the future. Net cash used for investing activities also increased as a result of a$39.3 million reduction in distributions, net of investments, from our unconsolidated joint ventures and a$4.2 million increase in purchases of other productive assets during the nine months endedSeptember 30, 2021 . Financing Activities Net cash provided by financing activities increased$342.6 million from$287.6 million for the nine months endedSeptember 30, 2020 to$630.2 million for the nine months endedSeptember 30, 2021 primarily driven by a$179.3 million increase in net proceeds from the issuance of Class A common shares and$737.2 million of net proceeds from the issuance of unsecured senior notes during the nine months endedSeptember 30, 2021 . These increases in cash inflows were partially offset by$498.8 million of cash outflows for the redemption of our Series D and E perpetual preferred shares,$49.7 million of increased distributions to share and unit holders,$18.0 million of deferred financing costs paid for the amendment of our revolving credit facility and the issuance of unsecured senior notes and$4.0 million for the settlement of a cash flow hedging instrument during the nine months endedSeptember 30, 2021 .
Unsecured Senior Notes
InJuly 2021 , theOperating Partnership issued$450.0 million of 2.375% unsecured senior notes with a maturity date ofJuly 15, 2031 (the "2031 Notes") and$300.0 million of 3.375% unsecured senior notes with a maturity date ofJuly 15, 2051 (the "2051 Notes" and, together with the 2031 Notes, the "Notes"). Interest on the Notes is payable semi-annually in arrears onJanuary 15 andJuly 15 of each year, commencing onJanuary 15, 2022 .The Operating Partnership received aggregate net proceeds of$731.6 million from these issuances, after underwriting fees of approximately$5.6 million and a$12.8 million discount, and before offering costs of$1.4 million .The Operating Partnership used the net proceeds from this offering to repay amounts outstanding on its revolving credit facility and for general corporate purposes, including, without limitation, property acquisitions and developments, the expansion, redevelopment and/or improvement of existing properties in theOperating Partnership's portfolio, other capital expenditures, the redemption of its preferred shares, the repayment of outstanding indebtedness, working capital and other general purposes. The Notes are theOperating Partnership's unsecured and unsubordinated obligations and rank equally in right of payment with all of theOperating Partnership's existing and future unsecured and unsubordinated indebtedness.The Operating Partnership may redeem the Notes in whole at any time or in part from time to time at the applicable redemption price specified in the indentures with respect to the Notes. If the 2031 Notes are redeemed on or afterApril 15, 2031 (three months prior to the maturity date), the redemption price will be equal to 100% of the principal amount of the notes being redeemed plus accrued and unpaid interest thereon to, but not including, the redemption date. If the 2051 Notes are redeemed on or afterJanuary 15, 2051 (six months prior to the maturity date), the redemption price will be equal to 100% of the principal amount of the notes being redeemed plus accrued and unpaid interest thereon to, but not including, the redemption date. 45
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Revolving Credit Facility
During the second quarter of 2021, the Company closed a$1.25 billion revolving credit facility, amending its existing$800 million revolving credit facility. The amended revolving credit facility provides for expanded borrowing capacity, reflects a more favorable pricing grid based on current market conditions, and includes a sustainability component based upon third-party performance measures through which overall pricing can further improve if the Company meets certain targets. The interest rate on the amended revolving credit facility is at either LIBOR plus a margin ranging from 0.725% to 1.45% or a base rate (determined according to the greater of a prime rate, federal funds rate plus 0.5% or daily LIBOR rate plus 1.0%) plus a margin ranging from 0.00% to 0.45%. In each case the actual margin is determined based on the Company's credit ratings in effect from time to time. The amended revolving credit facility matures onApril 15, 2025 , with two six-month extension options at the Company's election if certain conditions are met.
Class A Common Share / Unit Offering
During the second quarter of 2021, the Company completed an underwritten public offering for 18,745,000 of its Class A common shares of beneficial interest,$0.01 par value per share, of which 5,500,000 shares were issued directly by the Company and 13,245,000 shares were offered on a forward basis at the request of the Company by the forward sellers. In connection with this offering, the Company entered into forward sale agreements with the forward purchasers (the "May 2021 Forward Sale Agreements") for these 13,245,000 shares which are accounted for in equity. The Company received net proceeds of$194.0 million from the 5,500,000 Class A common shares issued directly by the Company after deducting underwriting discounts and before offering costs of approximately$0.2 million .The Operating Partnership issued an equivalent number of corresponding Class A units to AH4R in exchange for the net proceeds from the issuance. The Company used the net proceeds to repay indebtedness under its revolving credit facility, to partially fund the redemption of its Series D and Series E perpetual preferred shares discussed below and for general corporate purposes. The Company did not initially receive proceeds from the sale of the Class A common shares offered on a forward basis. InSeptember 2021 , the Company issued and physically settled 11,400,000 Class A common shares under theMay 2021 Forward Sale Agreements, receiving net proceeds of$399.0 million .The Operating Partnership issued an equivalent number of corresponding Class A units to AH4R in exchange for the net proceeds from the issuance. As ofSeptember 30, 2021 , 1,845,000 Class A common shares remained available for future settlement under theMay 2021 Forward Sale Agreements. The Company expects to physically settle the remaining shares byMay 21, 2022 through the delivery of the Class A common shares and expects that net proceeds will be approximately$64.6 million . The Company expects to use these net proceeds for general corporate purposes including, without limitation, property acquisitions and developments. Although the Company expects to physically settle the remaining shares, theMay 2021 Forward Sale Agreements allow the Company to cash or net-share settle all or a portion of its obligations. If the Company elects to cash or net share settle theMay 2021 Forward Sale Agreements, the Company may not receive any proceeds, and may owe cash or Class A common shares to the forward purchasers in certain circumstances. TheMay 2021 Forward Sale Agreements are subject to early termination or settlement under certain circumstances.
Redemptions of Perpetual Preferred Shares
During the second quarter of 2021, the Company redeemed all 10,750,000 shares of the outstanding 6.500% Series D perpetual preferred shares,$0.01 par value per share, for cash at a liquidation preference of$25.00 per share plus any accrued and unpaid dividends in accordance with the terms of such shares.The Operating Partnership also redeemed its corresponding Series D perpetual preferred units. As a result of the redemption, the Company recorded an$8.5 million allocation of income to the Series D perpetual preferred shareholders within the condensed consolidated statements of operations in the second quarter of 2021, which represents the initial liquidation value of the Series D perpetual preferred shares in excess of its carrying value as of the redemption date. During the second quarter of 2021, the Company redeemed all 9,200,000 shares of the outstanding 6.350% Series E perpetual preferred shares,$0.01 par value per share, for cash at a liquidation preference of$25.00 per share plus accrued and unpaid dividends in accordance with the terms of such shares.The Operating Partnership also redeemed its corresponding Series E perpetual preferred units. As a result of the redemption, the Company recorded a$7.4 million allocation of income to the Series E perpetual preferred shareholders within the condensed consolidated statements of operations in the second quarter of 2021, which represents the initial liquidation value of the Series E perpetual preferred shares in excess of its carrying value as of the redemption date. 46
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At-the-Market Common Share Offering Program
During the second quarter of 2020, the Company extended its at-the-market common share offering program under which it can issue Class A common shares from time to time through various sales agents up to an aggregate gross sales offering price of$500.0 million (the "At-the-Market Program"). The At-the-Market Program also provides that we may enter into forward contracts for our Class A common shares with forward sellers and forward purchasers. The Company intends to use any net proceeds from the At-the-Market Program (i) to repay indebtedness the Company has incurred or expects to incur under its revolving credit facility, (ii) to develop new single-family properties and communities, (iii) to acquire and renovate single-family properties and for related activities in accordance with the Company's business strategy and (iv) for working capital and general corporate purposes, including repurchases of the Company's securities, acquisitions of additional properties, capital expenditures and the expansion, redevelopment and/or improvement of properties in the Company's portfolio. The At-the-Market Program may be suspended or terminated by the Company at any time. During the three and nine months endedSeptember 30, 2020 , 86,130 shares were issued under the At-the-Market Program, raising$2.4 million in gross proceeds before commissions and other expenses of approximately$0.4 million . As ofSeptember 30, 2021 , 86,130 shares have been issued under the At-the-Market Program and$497.6 million remained available for future share issuances. Share Repurchase Program The Company's board of trustees authorized the establishment of our share repurchase program for the repurchase of up to$300.0 million of our outstanding Class A common shares and up to$250.0 million of our outstanding preferred shares from time to time in the open market or in privately negotiated transactions. The program does not have an expiration date, but may be suspended or discontinued at any time without notice. All repurchased shares are constructively retired and returned to an authorized and unissued status.The Operating Partnership funds the repurchases and constructively retires an equivalent number of corresponding Class A units. During the nine months endedSeptember 30, 2021 and 2020, we did not repurchase and retire any of our shares. As ofSeptember 30, 2021 , we had a remaining repurchase authorization of up to$265.1 million of our outstanding Class A common shares and up to$250.0 million of our outstanding preferred shares under the program.
Distributions
As a REIT, we generally are required to distribute annually to our shareholders at least 90% of our REIT taxable income (determined without regard to the deduction for dividends paid and any net capital gains) and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of our REIT taxable income (determined without regard to the deduction for dividends paid and including any net capital gains).The Operating Partnership funds the payment of distributions. As ofDecember 31, 2020 , AH4R had an NOL forU.S. federal income tax purposes of$66.9 million . We intend to use our NOL (to the extent available) to reduce our REIT taxable income to the extent that REIT taxable income is not reduced by our deduction for dividends paid.
Off-Balance Sheet Arrangements
During the third quarter of 2020, one of our unconsolidated joint ventures entered into a loan agreement to borrow up to a$201.0 million aggregate commitment. During the initial two-year term, the loan bears interest at LIBOR plus a 3.50% margin and matures onAugust 11, 2022 . The loan agreement provides for three one-year extension options that include additional fees and interest. As ofSeptember 30, 2021 , the joint venture's loan had a$161.3 million outstanding principal balance. The Company has provided a customary non-recourse guarantee that may become a liability for us upon a voluntary bankruptcy filing by the joint venture or occurrence of other actions such as fraud or a material misrepresentation by us or the joint venture. To date, the guarantee has not been invoked and we believe that the actions that would trigger a guarantee would generally be disadvantageous to the joint venture and us, and therefore are unlikely to occur. However, there can be no assurances that actions that could trigger the guarantee will not occur.
We have no other material obligations, assets or liabilities that would be considered off-balance sheet arrangements.
Contractual Obligations and Commitments
Material changes to our aggregate indebtedness, if any, are described in Note 8. Debt to our condensed consolidated financial statements in this report.
Except as described in Note 15. Commitments and Contingencies to our condensed consolidated financial statements in this report, as ofSeptember 30, 2021 , there have been no other material changes outside of the ordinary course of business to our other known contractual obligations, which are set forth in the table included in Part II, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2020 Annual Report. 47 --------------------------------------------------------------------------------
Additional Non-GAAP Measures
Funds from Operations ("FFO") / Core FFO / Adjusted FFO attributable to common share and unit holders
FFO attributable to common share and unit holders is a non-GAAP financial measure that we calculate in accordance with the definition approved by theNational Association of Real Estate Investment Trusts ("NAREIT"), which defines FFO as net income or loss calculated in accordance with GAAP, excluding gains and losses from sales or impairment of real estate, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustments for unconsolidated partnerships and joint ventures to reflect FFO on the same basis. Core FFO attributable to common share and unit holders is a non-GAAP financial measure that we use as a supplemental measure of our performance. We compute this metric by adjusting FFO attributable to common share and unit holders for (1) acquisition and other transaction costs incurred with business combinations and the acquisition or disposition of properties as well as nonrecurring items unrelated to ongoing operations, (2) noncash share-based compensation expense, (3) hurricane-related charges, net, which result in material charges to the impacted single-family properties, (4) gain or loss on early extinguishment of debt and (5) the allocation of income to our perpetual preferred shares in connection with their redemption. Adjusted FFO attributable to common share and unit holders is a non-GAAP financial measure that we use as a supplemental measure of our performance. We compute this metric by adjusting Core FFO attributable to common share and unit holders for (1) Recurring Capital Expenditures that are necessary to help preserve the value and maintain functionality of our properties and (2) capitalized leasing costs incurred during the period. As a portion of our homes are recently developed, acquired and/or renovated, we estimateRecurring Capital Expenditures for our entire portfolio by multiplying (a) current period actual Recurring Capital Expenditures per Same-Home Property by (b) our total number of properties, excluding newly acquired non-stabilized properties and properties classified as held for sale. We present FFO attributable to common share and unit holders because we consider this metric to be an important measure of the performance of real estate companies, as do many investors and analysts in evaluating the Company. We believe that FFO attributable to common share and unit holders provides useful information to investors because this metric excludes depreciation, which is included in computing net income and assumes the value of real estate diminishes predictably over time. We believe that real estate values fluctuate due to market conditions and in response to inflation. We also believe that Core FFO and Adjusted FFO attributable to common share and unit holders provide useful information to investors because they allow investors to compare our operating performance to prior reporting periods without the effect of certain items that, by nature, are not comparable from period to period. FFO, Core FFO and Adjusted FFO attributable to common share and unit holders are not a substitute for net income or net cash provided by operating activities, each as determined in accordance with GAAP, as a measure of our operating performance, liquidity or ability to pay dividends. These metrics also are not necessarily indicative of cash available to fund future cash needs. Because other REITs may not compute these measures in the same manner, they may not be comparable among REITs. 48 -------------------------------------------------------------------------------- The following is a reconciliation of the Company's net income attributable to common shareholders, determined in accordance with GAAP, to FFO attributable to common share and unit holders, Core FFO attributable to common share and unit holders and Adjusted FFO attributable to common share and unit holders for the three and nine months endedSeptember 30, 2021 and 2020 (in thousands): For the Three Months Ended For the Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Net income attributable to common shareholders$ 36,869 $ 22,552 $ 87,185 $ 58,165 Adjustments: Noncontrolling interests in the Operating Partnership 5,869 3,819 14,012 9,976 Gain on sale and impairment of single-family properties and other, net (9,572) (12,206) (36,401) (28,522) Adjustments for unconsolidated joint ventures 723 393 1,554 1,019 Depreciation and amortization 94,494 86,996 275,682 254,653 Less: depreciation and amortization of non-real estate assets (2,894) (2,296) (8,287) (6,552)
FFO attributable to common share and unit holders
3,279 4,753 11,093 9,265
Noncash share-based compensation - general and
administrative 1,557 1,723 7,722 4,741
Noncash share-based compensation - property
management 680 447 2,278 1,327
Redemption of perpetual preferred shares - - 15,879 -
Core FFO attributable to common share and unit
holders $ 131,005
(16,921) (15,397) (39,789) (36,292)
Leasing costs (792) (1,157) (2,672) (3,059)
Adjusted FFO attributable to common share and unit holders
$ 113,292
(1)Included in acquisition, other transaction costs and other is a net
EBITDA / EBITDAre / Adjusted EBITDAre / Fully Adjusted EBITDAre
EBITDA is defined as earnings before interest, taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure and is used by us and others as a supplemental measure of performance. EBITDAre is a supplemental non-GAAP financial measure, which we calculate in accordance with the definition approved by NAREIT by adjusting EBITDA for gains and losses from sales or impairments of single-family properties and adjusting for unconsolidated partnerships and joint ventures on the same basis. Adjusted EBITDAre is a supplemental non-GAAP financial measure calculated by adjusting EBITDAre for (1) acquisition and other transaction costs incurred with business combinations and the acquisition or disposition of properties as well as nonrecurring items unrelated to ongoing operations, (2) noncash share-based compensation expense, (3) hurricane-related charges, net which result in material charges to the impacted single-family properties, and (4) gain or loss on early extinguishment of debt. Fully Adjusted EBITDAre is a supplemental non-GAAP financial measure calculated by adjusting Adjusted EBITDAre for (1) Recurring Capital Expenditures and (2) leasing costs. As a portion of our homes are recently developed, acquired and/or renovated, we estimate Recurring Capital Expenditures for our entire portfolio by multiplying (a) current period actualRecurring Capital Expenditures per Same-Home Property by (b) our total number of properties, excluding newly acquired non-stabilized properties and properties classified as held for sale. We believe these metrics provide useful information to investors because they exclude the impact of various income and expense items that are not indicative of operating performance. 49 -------------------------------------------------------------------------------- The following is a reconciliation of net income, as determined in accordance with GAAP, to EBITDA, EBITDAre, Adjusted EBITDAre and Fully Adjusted EBITDAre for the three and nine months endedSeptember 30, 2021 and 2020 (in thousands): For the Three Months Ended For the Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Net income$ 48,501 $ 40,153 $ 149,236 $ 109,487 Interest expense 31,097 29,267 86,630 88,540 Depreciation and amortization 94,494 86,996 275,682 254,653 EBITDA$ 174,092 $
156,416
Gain on sale and impairment of single-family properties and other, net (9,572) (12,206) (36,401) (28,522) Adjustments for unconsolidated joint ventures 723 393 1,554 1,019 EBITDAre$ 165,243 $
144,603
Noncash share-based compensation - general and administrative 1,557 1,723 7,722 4,741 Noncash share-based compensation - property management 680 447 2,278 1,327 Acquisition, other transaction costs and other (1) 3,279 4,753 11,093 9,265 Adjusted EBITDAre$ 170,759 $ 151,526 $ 497,794 $ 440,510 Recurring Capital Expenditures (16,921) (15,397) (39,789) (36,292) Leasing costs (792) (1,157) (2,672) (3,059) Fully Adjusted EBITDAre$ 153,046 $
134,972
(1)Included in acquisition, other transaction costs and other is a net
Interest Rate Risk
During the nine months endedSeptember 30, 2021 , the Company borrowed an additional$1.1 billion and paid down$1.1 billion on its revolving credit facility, resulting in no outstanding variable rate debt as ofSeptember 30, 2021 and therefore no exposure to interest rate risk on its current borrowings. We may incur additional variable rate debt in the future, including additional amounts that we may borrow under our revolving credit facility.Treasury lock agreements are used from time to time to manage the potential change in interest rates in anticipation of the possible issuance of fixed rate debt. We do not hold or issue these derivative contracts for trading or speculative purposes.
There have been no other material changes to our market risk from those disclosed in section Part II, "Item 7A. Quantitative and Qualitative Disclosures About Market Risk" of our 2020 Annual Report.
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