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 managing 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 and we have elected to be taxed as a REIT. As ofMarch 31, 2023 , we owned 58,639 single-family properties in select submarkets of metropolitan statistical areas ("MSAs") in 21 states, including 903 properties held for sale, compared to 58,993 single-family properties in 21 states, including 1,115 properties held for sale, as ofDecember 31, 2022 , and 57,984 single-family properties in 22 states, including 855 properties held for sale as ofMarch 31, 2022 . As ofMarch 31, 2023 , 56,049 of our total properties (excluding properties held for sale) were occupied, compared to 55,605 of our total properties (excluding properties held for sale) as ofDecember 31, 2022 and 54,352 of our total properties (excluding properties held for sale) as ofMarch 31, 2022 . Also, as ofMarch 31, 2023 , the Company had an additional 2,688 properties held in unconsolidated joint ventures, compared to 2,540 properties held in unconsolidated joint ventures as ofDecember 31, 2022 , and 1,849 properties held in unconsolidated joint ventures as ofMarch 31, 2022 . Our portfolio of single-family properties, including those held in our unconsolidated joint ventures, is internally managed through our proprietary property management platform.
Key Single-Family Property and Leasing Metrics
The following table summarizes certain key single-family properties metrics as ofMarch 31, 2023 :Total Single-Family Properties (1) 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 Properties (millions) Value Total Property Sq. Ft. (years) Purchased or DeliveredAtlanta, GA 5,770 10.0 %$ 1,256.8 10.2 %$ 217,811 2,167 17.2
2016
Dallas-Fort Worth, TX 4,162 7.2 % 726.1 5.9 % 174,462 2,103 18.8 2014Charlotte, NC 3,988 6.9 % 852.3 6.9 % 213,706 2,107 17.5 2015Phoenix, AZ 3,387 5.9 % 710.9 5.7 % 209,898 1,839 18.8 2015Nashville, TN 3,240 5.6 % 780.3 6.3 % 240,824 2,112 15.8 2016Jacksonville, FL 2,923 5.1 % 614.2 5.0 % 210,110 1,930 14.5 2016Indianapolis, IN 2,880 5.0 % 495.9 4.0 % 172,196 1,928 20.2 2014Tampa, FL 2,746 4.8 % 610.7 4.9 % 222,399 1,939 15.5 2016Houston, TX 2,548 4.4 % 449.5 3.6 % 176,401 2,090 17.3 2014Raleigh, NC 2,183 3.8 % 431.9 3.5 % 197,846 1,889 17.1 2015Cincinnati, OH 2,126 3.7 % 414.0 3.3 % 194,752 1,843 20.2 2014Columbus, OH 2,108 3.7 % 398.0 3.2 % 188,816 1,869 20.8 2015Las Vegas, NV 1,927 3.3 % 522.9 4.2 % 271,349 1,917 12.7 2016Salt Lake City, UT 1,904 3.3 % 575.5 4.6 % 302,233 2,243 16.5 2016Orlando, FL 1,887 3.3 % 388.8 3.1 % 206,036 1,901 19.1 2015Greater Chicago area, IL and IN 1,586 2.7 % 299.9 2.4 % 189,106 1,867 21.6 2013Charleston, SC 1,521 2.6 % 345.6 2.8 % 227,221 1,963 12.4 2017San Antonio, TX 1,299 2.2 % 254.2 2.1 % 195,659 1,927 14.4 2015Seattle, WA 1,140 2.0 % 369.9 3.0 % 324,506 1,995 13.3 2017 Savannah/Hilton Head, SC 1,042 1.8 % 216.9 1.8 % 208,192 1,889 14.5 2016 All Other (2) 7,369 12.7 % 1,666.1 13.5 % 226,090 1,903 17.0 2015 Total/Average 57,736 100.0 %$ 12,380.4 100.0 %$ 214,430 1,989 17.2 2015
(1)Excludes 903 single-family properties held for sale as of
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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 96.3 % $ 2,044 12.0 5.9 9.3 %
Dallas-Fort Worth, TX 97.3 % 2,096 12.0 5.8 6.6 %
Charlotte, NC 96.5 % 1,951 12.1 6.3 7.1 %
Phoenix, AZ 96.2 % 1,964 12.0 6.4 7.3 %
Nashville, TN 95.7 % 2,133 12.0 6.0 8.5 %
Jacksonville, FL 97.0 % 2,006 12.0 6.3 6.2 %
Indianapolis, IN 96.3 % 1,722 12.1 6.1 4.8 %
Tampa, FL 97.6 % 2,170 12.0 6.2 8.8 %
Houston, TX 97.4 % 1,906 12.0 5.6 4.9 %
Raleigh, NC 95.5 % 1,860 12.0 6.1 7.4 %
Cincinnati, OH 96.9 % 1,941 12.0 5.9 6.2 %
Columbus, OH 96.5 % 1,978 12.0 6.0 6.5 %
Las Vegas, NV 92.2 % 2,094 12.0 6.4 5.8 %
Salt Lake City, UT 96.5 % 2,275 12.0 5.9 5.8 %
Orlando, FL 96.3 % 2,104 12.0 6.3 9.3 %
Greater Chicago area, IL and IN 97.7 % 2,218 12.1 5.9 6.1 %
Charleston, SC 97.2 % 2,090 12.0 5.6 7.5 %
San Antonio, TX 94.7 % 1,864 12.0 5.6 4.2 %
Seattle, WA 95.5 % 2,509 12.0 5.9 7.5 %
Savannah/Hilton Head, SC 98.2 % 1,971 12.0 5.9 9.3 %
All Other (6) 95.2 % 2,007 12.0 5.9 6.5 %
Total/Average 96.3 % $ 2,027 12.0 6.0 7.1 %
(1)Excludes 903 single-family properties held for sale as of March 31, 2023 .
(2)For the three months ended March 31, 2023 , 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 March 31, 2023 , 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 March 31, 2023 , 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. 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, inflationary increases in labor and material costs and labor shortages have impacted and may continue to impact certain aspects of our business, including our AMH Development Program, our renovation program associated with recently acquired properties and our 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 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
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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.
Recently, we have strategically scaled back acquisitions through our National
Builder Program and traditional acquisition channel as the housing market
adjusts to the current macroeconomic environment. We anticipate beginning to
grow in these acquisition channels when the housing and capital markets
stabilize. During the three months ended March 31, 2023 , we developed or
acquired 312 homes, including 299 newly constructed homes delivered through our
AMH Development Program and 13 homes acquired through our National Builder
Program, offset by 666 homes sold to third parties. During the three months
ended March 31, 2023 , we also developed an additional 167 newly constructed
properties which were delivered to our unconsolidated joint ventures,
aggregating to 466 total program deliveries through our AMH Development Program.
Our properties held for sale were identified based on submarket analysis, as
well as individual property-level operational review. As of March 31, 2023 and
December 31, 2022 , there were 903 and 1,115 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, historically it has taken 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$450,000 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. Historically, it has taken approximately 20 to 90 days to complete the renovation process, which will fluctuate based on our overall acquisition volume as well as availability of construction labor and materials. 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. Typically, it takes approximately 10 to 30 days to lease a property after acquiring or developing a new property through our new construction channels and 20 to 40 days 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. Typically, it takes approximately 20 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 incoming residents have household incomes ranging from$80,000 to$140,000 and primarily consist of families with approximately two adults and one or more children. 31 --------------------------------------------------------------------------------
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.
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 8.0% for the three months endedMarch 31, 2023 , and we experienced turnover rates, which represents the number of tenant move-outs during the period divided by the total number of properties, of 6.4% and 6.2% during the three months endedMarch 31, 2023 and 2022, 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 as well as enhancing our property management platform. As part of developing our property management platform, we continue to make significant investments in our personnel, infrastructure, systems and technology that will impact expenses based on investment programs during the year. 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. Historically, we have experienced 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. In addition, we also continue to make corporate level investments to support certain initiatives which will impact expenses based on given investment programs during the year. Also included in general and administrative expense is noncash share-based compensation expense related to corporate administrative employees.
Results of Operations
Net income totaled$137.7 million for the three months endedMarch 31, 2023 , compared to$70.0 million for the three months endedMarch 31, 2022 . This increase was primarily due to higher net gains on property sales as well as a larger number of occupied properties resulting from growth in the Company's portfolio and higher rental rates. 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 experienced 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. 32 -------------------------------------------------------------------------------- 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 our single-family property portfolio, (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 inthe United States of America ("GAAP")). 33 --------------------------------------------------------------------------------
Comparison of the Three Months Ended
The following tables present a summary of Core NOI for our Same-Home properties, Non-Same-Home and Other properties and total properties for the three months endedMarch 31, 2023 and 2022 (amounts in thousands): For the Three Months Ended March 31, 2023 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$ 295,830 $ 44,384 $ 340,214 Fees from single-family properties 6,314 1,126 7,440 Bad debt (3,999) (1,347) (5,346) Core revenues 298,145 44,163 342,308 Property tax expense 51,890 17.5 % 7,995 18.1 % 59,885 17.6 % HOA fees, net (2) 5,152 1.7 % 829 1.9 % 5,981 1.7 % R&M and turnover costs, net (2) 19,830 6.7 % 3,786 8.6 % 23,616 6.9 % Insurance 3,428 1.1 % 503 1.1 % 3,931 1.1 % Property management expenses, net (3) 23,321 7.8 % 4,673 10.6 % 27,994 8.2 % Core property operating expenses 103,621 34.8 % 17,786 40.3 % 121,407 35.5 % Core NOI$ 194,524 65.2 %$ 26,377 59.7 %$ 220,901 64.5 % For the Three Months Ended March 31, 2022 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$ 274,474 $ 27,191 $ 301,665 Fees from single-family properties 5,241 846 6,087 Bad debt (2,822) (1,097) (3,919) Core revenues 276,893 26,940 303,833 Property tax expense 46,189 16.7 % 5,753 21.4 % 51,942 17.1 % HOA fees, net (2) 4,812 1.7 % 596 2.2 % 5,408 1.8 % R&M and turnover costs, net (2) 18,419 6.7 % 3,584 13.3 % 22,003 7.2 % Insurance 3,011 1.1 % 362 1.3 % 3,373 1.1 % Property management expenses, net (3) 19,921 7.2 % 3,759 14.0 % 23,680 7.8 % Core property operating expenses 92,352 33.4 % 14,054 52.2 % 106,406 35.0 % Core NOI$ 184,541 66.6 %$ 12,886 47.8 %$ 197,427 65.0 % (1)Includes 50,381 properties that have been stabilized longer than 90 days prior toJanuary 1, 2022 . (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. 34 -------------------------------------------------------------------------------- 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 endedMarch 31, 2023 and 2022 (amounts in thousands): For the Three Months Ended March 31, 2023 2022 Core revenues and Same-Home core revenues Rents and other single-family property revenues$ 397,703 $ 356,105 Tenant charge-backs (55,395) (52,272) Core revenues 342,308 303,833 Less: Non-Same-Home core revenues 44,163 26,940 Same-Home core revenues$ 298,145 $ 276,893 Core property operating expenses and Same-Home core property operating expenses Property operating expenses$ 147,068 $ 133,643 Property management expenses 30,800 26,034 Noncash share-based compensation - property management (1,066) (999) Expenses reimbursed by tenant charge-backs (55,395) (52,272) Core property operating expenses 121,407 106,406 Less: Non-Same-Home core property operating expenses 17,786 14,054 Same-Home core property operating expenses$ 103,621
Core NOI and Same-Home Core NOI Net income $
137,699
Gain on sale and impairment of single-family properties and other, net
(84,659) (22,044)
Depreciation and amortization 112,717 99,954
Acquisition and other transaction costs 5,076 5,974
Noncash share-based compensation - property management 1,066 999
Interest expense 35,882 27,567
General and administrative expense 17,855 17,282
Other income and expense, net (4,735) (2,319)
Core NOI 220,901 197,427
Less: Non-Same-Home Core NOI 26,377 12,886
Same-Home Core NOI $
194,524
Rents and Other Single-Family Property Revenues
Rents and other single-family property revenues increased 11.7% to$397.7 million for the three months endedMarch 31, 2023 from$356.1 million for the three months endedMarch 31, 2022 . Revenue growth was driven by an increase in our average occupied portfolio which grew to 55,827 homes for the three months endedMarch 31, 2023 , compared to 53,995 homes for the three months endedMarch 31, 2022 , as well as higher rental rates.
Property Operating Expenses
Property operating expenses increased 10.0% to$147.1 million for the three months endedMarch 31, 2023 from$133.6 million for the three months endedMarch 31, 2022 . This increase was primarily attributable to increased property tax expense from anticipated 2023 property tax assessments and timing of prior year property tax accruals as well as inflationary increases in R&M and turnover costs.
Property Management Expenses
Property management expenses for the three months endedMarch 31, 2023 and 2022 were$30.8 million and$26.0 million , respectively, which included$1.1 million and$1.0 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 35 -------------------------------------------------------------------------------- lower than normal staffing levels in the three months endedMarch 31, 2022 leading to a subsequent increase in personnel in the three months endedJune 30, 2022 to a more stabilized level, as well as inflationary increases in supplies and materials expense.
Core Revenues from
Core revenues from Same-Home properties increased 7.7% to$298.1 million for the three months endedMarch 31, 2023 from$276.9 million for the three months endedMarch 31, 2022 . This increase was primarily attributable to higher Average Monthly Realized Rent per property, which increased 8.0% to$2,014 per month for the three months endedMarch 31, 2023 compared to$1,865 per month for the three months endedMarch 31, 2022 , partially offset by a decrease in Average Occupied Days Percentage, which was 97.2% for the three months endedMarch 31, 2023 compared to 97.4% for the three months endedMarch 31, 2022 .
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 12.2% to$103.6 million for the three months endedMarch 31, 2023 from$92.4 million for the three months endedMarch 31, 2022 primarily driven by (i) increased property tax expense from anticipated 2023 property tax assessments and timing of prior year property tax accruals and (ii) increased property management expenses primarily attributable to lower than normal staffing levels in the three months endedMarch 31, 2022 leading to a subsequent increase in personnel in the three months endedJune 30, 2022 to a more stabilized level.
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 endedMarch 31, 2023 and 2022 was$17.9 million and$17.3 million , respectively, which included$3.7 million and$4.0 million , respectively, of noncash share-based compensation expense in each period related to corporate administrative employees. The increase in general and administrative expense was primarily related to the timing of increased personnel and information technology costs to support growth in our business during the three months endedMarch 31, 2023 , partially offset by lower noncash share-based compensation expense.
Interest Expense
Interest expense increased 30.2% to$35.9 million for the three months endedMarch 31, 2023 from$27.6 million for the three months endedMarch 31, 2022 . This increase was primarily due to additional interest expense from the issuances of the 2032 and 2052 unsecured senior notes inApril 2022 .
Acquisition and Other Transaction Costs
Acquisition and other transaction costs consist primarily of personnel and platform 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 for the three months endedMarch 31, 2023 and 2022 were$5.1 million and$6.0 million , respectively, which included$1.0 million and$2.4 million , respectively, of noncash share-based compensation expense related to employees in these functions. The decrease in acquisition and other transaction costs was primarily due to lower 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 12.8% to$112.7 million for the three months endedMarch 31, 2023 from$100.0 million for the three months endedMarch 31, 2022 primarily due to growth in our average number of depreciable properties. 36 --------------------------------------------------------------------------------
Gain on Sale and Impairment of
Gain on sale and impairment of single-family properties and other, net for the three months endedMarch 31, 2023 and 2022 was$84.7 million and$22.0 million , respectively, which included$0.4 million and$1.1 million , respectively, of impairment charges related to homes classified as held for sale during each period. The increase was primarily related to higher net gains on property sales resulting from an increase in properties sold.
Other Income and Expense, net
Other income and expense, net for the three months endedMarch 31, 2023 and 2022 was$4.7 million and$2.3 million , 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.
Critical Accounting Estimates
Our critical accounting estimates are included in Part II, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of the 2022 Annual Report. There have been no material changes to these estimates during the three months endedMarch 31, 2023 .
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
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 AMH, 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.
Sources of Capital
We expect to satisfy our cash requirements through cash provided by operations, long-term secured and unsecured borrowings, issuances of debt and equity securities (including OP units), property dispositions and joint venture transactions. We expect to meet our operating liquidity requirements and our dividend distributions generally through cash on hand and cash provided by operations. For our acquisition and development expenditures, we expect to supplement these sources through the issuance of equity securities, including under our At-the-Market Program described below, borrowings under our credit facility, issuances of unsecured senior notes, and proceeds from sales of single-family properties. 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. Our liquidity and capital resources as ofMarch 31, 2023 included cash and cash equivalents of$255.6 million . Additionally, as ofMarch 31, 2023 , we had no outstanding borrowings and$4.0 million committed to outstanding letters of credit under our$1.25 billion revolving credit facility, leaving$1.25 billion of remaining borrowing capacity. We maintain an investment grade credit rating which provides for greater availability of and lower cost of debt financing.
Uses of Capital
Our expected material cash requirements over the next twelve months consist of (i) contractually obligated expenditures, including payments of principal and interest, (ii) other essential expenditures, including property operating expenses, HOA fees (as applicable), real estate taxes, maintenance capital expenditures, general and administrative expenses and dividends on our equity securities including those paid in accordance with REIT distribution requirements, and (iii) opportunistic expenditures, including to pay for the acquisition, development and renovation of our properties and repurchases of our securities. With respect to our contractually obligated expenditures, our cash requirements within the next twelve months include accounts payable and accrued expenses, interest payments on debt obligations, principal amortization on our asset-backed securitizations, operating lease obligations and purchase commitments to acquire single-family properties and land for ourAMH Development Program. Except as described in Note 8. Debt, Note 9. Accounts Payable and Accrued Expenses, Note 15. Commitments and Contingencies and Note 16. Subsequent Events to our condensed consolidated financial statements in this report, there have been no 37 -------------------------------------------------------------------------------- other material changes outside the ordinary course of business to our other known contractual obligations described in "Liquidity and Capital Resources" in Part II, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2022 Annual Report.
Cash Flows
The following table summarizes the Company's and theOperating Partnership's cash flows for the three months endedMarch 31, 2023 and 2022 (amounts in thousands): For the Three Months Ended March 31, 2023 2022 Change
Net cash provided by operating activities
(72,912) (512,764) 439,852
Net cash provided by financing activities 63,300 369,235 (305,935)
Net increase in cash, cash equivalents and
restricted cash $ 190,855 $ 15,213 $ 175,642 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 operating activities increased$41.7 million , or 26.3%, from$158.7 million for the three months endedMarch 31, 2022 to$200.5 million for the three months endedMarch 31, 2023 , primarily due to increased cash inflows generated from a larger number of occupied properties resulting from growth in our portfolio and higher rental rates, partially offset by higher cash outflows for property related expenses as a result of inflationary increases.
Investing Activities
Net cash used for investing activities decreased$439.9 million , or 85.8%, from$512.8 million for the three months endedMarch 31, 2022 to$72.9 million for the three months endedMarch 31, 2023 . Our investing activities are most significantly impacted by the level of investment activity 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 decreased$311.6 million during the three months endedMarch 31, 2023 primarily due to a strategic scale back in the acquisition of single-family properties through our National Builder Program and traditional acquisition channel during the three months endedMarch 31, 2023 as the housing market adjusts to the current macroeconomic environment. Homes acquired through our traditional acquisition channel require additional expenditures to prepare them for rental, and cash outflows for renovations to single-family properties decreased$13.0 million primarily as a result of a decreased volume of properties that underwent initial or property-enhancing renovations during the three months endedMarch 31, 2023 . Recurring and other capital expenditures for single-family properties increased$7.5 million primarily due to growth in our portfolio and inflationary increases in costs. 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. We use cash generated from operating and financing activities and by recycling capital through the sale of single-family properties to invest in the strategic expansion of our single-family property portfolio. Net proceeds received from the sale of single-family properties and other increased$133.1 million as a result of an increased volume of properties sold during the three months endedMarch 31, 2023 . The decrease in cash outflows was partially offset by a$6.4 million decrease in net cash inflows from unconsolidated joint ventures during the three months endedMarch 31, 2023 due to the timing of contributions and distributions to and from our unconsolidated joint ventures. Financing Activities Net cash provided by financing activities decreased$305.9 million , or 82.9%, from$369.2 million for the three months endedMarch 31, 2022 to$63.3 million for the three months endedMarch 31, 2023 primarily due to (i) a$77.3 million year-over-year decrease in proceeds from the issuance of Class A common shares, net of offering costs, (ii) activity under our revolving credit facility, which resulted in$130.0 million of net cash outflows during the three months endedMarch 31, 2023 compared to$60.0 million of net cash inflows during the three months endedMarch 31, 2022 , (iii) a$19.1 million increase in distributions paid to common share and unit holders resulting from a 22% increase in distributions paid per common share and unit, and (iv) a$19.8 million decrease in proceeds from liabilities related to consolidated land not owned. These decreases in net cash provided by financing activities were partially offset by a$2.3 million reduction in distributions to preferred shareholders as a result of the redemptions of our Series F perpetual preferred shares during the three months endedJune 30, 2022 . 38
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Class A Common Share Offering
During the first quarter of 2022, the Company completed an underwritten public offering for 23,000,000 of its Class A common shares of beneficial interest,$0.01 par value per share, of which 10,000,000 shares were issued directly by the Company and 13,000,000 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 "January 2022 Forward Sale Agreements") for these 13,000,000 shares which were accounted for in equity. The Company did not initially receive proceeds from the sale of the Class A common shares offered on a forward basis. During the third quarter of 2022, the Company issued and physically settled 5,000,000 Class A common shares under theJanuary 2022 Forward Sale Agreements, receiving net proceeds of$185.6 million . InJanuary 2023 , the Company issued and physically settled the remaining 8,000,000 Class A common shares under theJanuary 2022 Forward Sale Agreements, receiving net proceeds of$298.4 million , which it used to repay indebtedness under its revolving credit facility and for general corporate purposes. When the Company issues common shares, theOperating Partnership issues an equivalent number of units of partnership interest of a corresponding class to AMH, with theOperating Partnership receiving the net proceeds from the share issuances.
At-the-Market Common Share Offering Program
The Company maintains an 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 its 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 months endedMarch 31, 2023 and 2022, no shares were issued under the At-the-Market Program. As ofMarch 31, 2023 , 1,835,416 shares have been issued under the At-the-Market Program and$425.2 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 three months endedMarch 31, 2023 and 2022, we did not repurchase and retire any of our Class A common shares or preferred shares. As ofMarch 31, 2023 , 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, 2022 , AMH had a net operating loss ("NOL") forU.S. federal income tax purposes of an estimated$11.8 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.
During the three months ended
39
--------------------------------------------------------------------------------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 our single-family property portfolio, (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. 40
-------------------------------------------------------------------------------- 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 months endedMarch 31, 2023 and 2022 (amounts in thousands): For the Three Months Ended March 31, 2023 2022 Net income attributable to common shareholders$ 117,465 $ 55,939 Adjustments: Noncontrolling interests in the Operating Partnership 16,748 8,312
Gain on sale and impairment of single-family properties and other, net
(84,659) (22,044) Adjustments for unconsolidated joint ventures 510 (371) Depreciation and amortization 112,717 99,954 Less: depreciation and amortization of non-real estate assets (4,177) (2,992) FFO attributable to common share and unit holders (1)$ 158,604 $ 138,798 Adjustments: Acquisition, other transaction costs and other 5,076 5,974 Noncash share-based compensation - general and administrative 3,743 4,030 Noncash share-based compensation - property management 1,066 999 Core FFO attributable to common share and unit holders (1)$ 168,489 $ 149,801 Recurring Capital Expenditures (14,193) (11,178) Leasing costs (808) (535)
Adjusted FFO attributable to common share and unit holders (1) $
153,488
(1)Unit holders include former AH LLC members and other non-affiliates that own Class A units in theOperating Partnership and their OP units are reflected as noncontrolling interests in the Company's condensed consolidated financial statements. See Note 10. Shareholders' Equity / Partners' Capital to our condensed consolidated financial statements included in this report.
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 our single-family property portfolio, 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. 41 -------------------------------------------------------------------------------- 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 months endedMarch 31, 2023 and 2022 (amounts in thousands): For the Three Months Ended March 31, 2023 2022 Net income$ 137,699 $ 70,014 Interest expense 35,882 27,567 Depreciation and amortization 112,717 99,954 EBITDA $
286,298
Gain on sale and impairment of single-family properties and other, net
(84,659) (22,044)
Adjustments for unconsolidated joint ventures 510 (371)
EBITDAre $
202,149
Noncash share-based compensation - general and administrative 3,743 4,030 Noncash share-based compensation - property management 1,066 999 Acquisition, other transaction costs and other 5,076 5,974 Adjusted EBITDAre$ 212,034 $ 186,123 Recurring Capital Expenditures (14,193) (11,178) Leasing costs (808) (535) Fully Adjusted EBITDAre$ 197,033 $ 174,410
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