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American Homes 4 Rent Reports Third Quarter 2018 Financial and Operating Results

AGOURA HILLS, Calif., Nov. 1, 2018 /PRNewswire/ -- American Homes 4 Rent (AMH) (the "Company"), a leading provider of high quality single-family homes for rent, today announced its financial and operating results for the quarter ended September 30, 2018.

American Homes 4 Rent is a leader in the single-family home rental industry and

Highlights

  • Total revenues increased 13.5% to $280.1 million for the third quarter of 2018 from $246.8 million for the third quarter of 2017.
  • Net income attributable to common shareholders totaled $15.2 million, or $0.05 income per diluted share, for the third quarter of 2018, compared to net income attributable to common shareholders of $1.5 million, or a $0.00 loss per diluted share, for the third quarter of 2017.
  • Core Funds from Operations attributable to common share and unit holders for the third quarter of 2018 was $94.6 million, or $0.27 per FFO share and unit, compared to $79.4 million, or $0.25 per FFO share and unit, for the same period in 2017, which represents an 8.0% increase on a per share and unit basis.
  • Adjusted Funds from Operations attributable to common share and unit holders for the third quarter of 2018 was $79.4 million, or $0.23 per FFO share and unit, compared to $67.1 million, or $0.21 per FFO share and unit, for the same period in 2017.
  • Core Net Operating Income ("Core NOI") margin on Same-Home properties was 63.4% for the third quarter of 2018, compared to 63.8% for the same period in 2017.
  • Core NOI after capital expenditures from Same-Home properties increased by 3.4% year-over-year for the third quarter of 2018.
  • Same-Home portfolio Average Occupied Days Percentage increased to 95.2% for the third quarter of 2018, compared to 94.1% for the third quarter of 2017, while achieving 3.4% growth in Average Monthly Realized Rent per property for the same comparable periods.
  • Entered into a $156.3 million joint venture with a leading institutional investor to create a portfolio of newly constructed single-family rental homes, which will be developed and managed by the Company, providing additional scale and institutional endorsement of the Company's growing built-for-rental strategy.
  • Issued 4,600,000 6.25% Series H perpetual preferred shares, raising gross proceeds of $115.0 million before offering costs (see "Capital Activities and Balance Sheet").

"Macro fundamentals of the single-family rental sector remain robust and our expectation is that they are likely to strengthen further as rising interest rates continue to pressure home affordability in the U.S.," stated David Singelyn, American Homes 4 Rent's Chief Executive Officer. "During the third quarter, we continued to experience record high volumes of prospective tenant traffic per available home that enabled us to drive a 110 basis point year-over-year increase in our Same-Home average occupied days percentage, while achieving strong blended leasing spreads of 4.1%. Looking forward, we believe that we still have significant runway ahead to continue optimizing our operations, while leveraging the scale of our platform to create long-term value for our shareholders."

Third Quarter 2018 Financial Results

Net income attributable to common shareholders totaled $15.2 million, or $0.05 income per diluted share, for the third quarter of 2018, compared to net income attributable to common shareholders of $1.5 million, or a $0.00 loss per diluted share, for the third quarter of 2017. This increase was primarily attributable to higher revenues resulting from a larger number of leased properties and higher rental rates.

Total revenues increased 13.5% to $280.1 million for the third quarter of 2018 from $246.8 million for the third quarter of 2017. Revenue growth was primarily driven by continued strong acquisition and leasing activity, as our average leased portfolio grew to 47,898 homes for the quarter ended September 30, 2018, compared to 46,058 homes for the quarter ended September 30, 2017, as well as higher rental rates.   

Core NOI on our total portfolio increased 11.1% to $146.1 million for the third quarter of 2018, compared to $131.5 million for the third quarter of 2017. This increase was primarily due to growth in rental income resulting from a larger number of leased properties.

Core revenues from Same-Home properties increased 4.4% to $172.0 million for the third quarter of 2018, compared to $164.8 million for the third quarter of 2017. This growth was primarily driven by a 3.4% increase in Average Monthly Realized Rent and an increase in Average Occupied Days Percentage to 95.2% from 94.1%. Core property operating expenses from Same-Home properties increased 5.4% from $59.7 million for the third quarter of 2017 to $63.0 million for the third quarter of 2018, which was primarily attributable to property tax expense timing and higher repairs and maintenance costs, which included $0.3 million of costs to repair damages resulting from Hurricane Florence. 

Core NOI from Same-Home properties increased 3.8% to $109.1 million for the third quarter of 2018, compared to $105.1 million for the third quarter of 2017. After capital expenditures, Core NOI from Same-Home properties increased 3.4% to $100.1 million for the third quarter of 2018, compared to $96.8 million for the third quarter of 2017. The increase in Core NOI from Same-Home properties was primarily attributable to an increase in rental revenue driven by higher Average Monthly Realized Rent and Average Occupied Days Percentage during the third quarter of 2018.The resulting increase in Core NOI after Capital Expenditures from Same-Home properties was offset, in part, by higher recurring capital expenditures primarily due to hotter summer temperatures, resulting in higher HVAC costs. 

Core Funds from Operations attributable to common share and unit holders ("Core FFO attributable to common share and unit holders") was $94.6 million, or $0.27 per FFO share and unit, for the third quarter of 2018, compared to $79.4 million, or $0.25 per FFO share and unit, for the third quarter of 2017. Adjusted Funds from Operations attributable to common share and unit holders ("Adjusted FFO attributable to common share and unit holders") for the third quarter of 2018 was $79.4 million, or $0.23 per FFO share and unit, compared to $67.1 million, or $0.21 per FFO share and unit, for the third quarter of 2017. This improvement was primarily attributable to increases in rental revenue driven by a larger number of leased properties and higher rental rates.

Year-to-Date 2018 Financial Results

Net income attributable to common shareholders totaled $5.8 million, or $0.02 income per diluted share, for the nine-month period ended September 30, 2018, compared to a net loss attributable to common shareholders of $0.1 million, or a $0.00 loss per diluted share, for the nine-month period ended September 30, 2017. This increase was primarily attributable to higher revenues resulting from a larger number of leased properties and higher rental rates, partially offset by a noncash charge related to the redemption of the Series C participating preferred shares through a conversion into Class A common shares in April 2018.

Total revenues increased 11.8% to $802.5 million for the nine-month period ended September 30, 2018, from $717.6 million for the nine-month period ended September 30, 2017. Revenue growth was primarily driven by continued strong leasing activity, as our average leased portfolio grew to 47,617 homes for the nine months ended September 30, 2018, compared to 45,550 homes for the nine months ended September 30, 2017, as well as higher rental rates.       

Core NOI on our total portfolio increased 8.6% to $429.0 million for the nine-month period ended September 30, 2018, compared to $394.9 million for the nine-month period ended September 30, 2017. This increase was primarily due to growth in rental income resulting from a larger number of leased properties.

Core revenues from Same-Home properties increased 3.8% to $512.2 million for the nine-month period ended September 30, 2018, compared to $493.6 million for the nine-month period ended September 30, 2017. This growth was primarily driven by a 3.6% increase in Average Monthly Realized Rent. Core property operating expenses from Same-Home properties increased 6.5% from $173.3 million for the nine-month period ended September 30, 2017, to $184.6 million for the nine-month period ended September 30, 2018, which was primarily attributable to temporarily elevated turnover costs through April 2018, incurred as part of the Company's initiative to strengthen occupancy. 

Core NOI from Same-Home properties increased 2.3% to $327.6 million for the nine months ended September 30, 2018, compared to $320.2 million for the nine months ended September 30, 2017. After capital expenditures, Core NOI from Same-Home properties increased 2.2% to $306.5 million for the nine-month period ended September 30, 2018, from $299.9 million for the nine-month period ended September 30, 2017. The increases in Core NOI from Same-Home properties and Core NOI After Capital Expenditures from Same-Home properties were primarily attributable to increases in rental revenue driven by higher rental rates during the nine-month period ended September 30, 2018, offset by higher R&M and turnover costs during the nine-month period ended September 30, 2018.

Core FFO attributable to common share and unit holders was $273.1 million, or $0.78 per FFO share and unit, for the nine-month period ended September 30, 2018, compared to $237.6 million, or $0.76 per FFO share and unit, for the nine-month period ended September 30, 2017. Adjusted FFO attributable to common share and unit holders for the nine-month period ended September 30, 2018, was $236.2 million, or $0.68 per FFO share and unit, compared to $207.2 million, or $0.66 per FFO share and unit, for the same period in 2017.

Portfolio

As of September 30, 2018, the Company had a total leased percentage of 95.2%, compared to 96.3% as of June 30, 2018. The leased percentage on Same-Home properties was 96.2% as of September 30, 2018, compared to 97.1% as of June 30, 2018.

Investments

As of September 30, 2018, the Company's total portfolio consisted of 52,464 homes, including 2,266 properties to be disposed, compared to 52,049 homes as of June 30, 2018, including 2,209 properties to be disposed, an increase of 415 homes, which included 401 properties acquired through traditional acquisition channels, 168 newly constructed properties delivered through our AMH Development and National Builder Programs and 154 homes sold, rescinded or contributed to an unconsolidated joint venture.

Capital Activities and Balance Sheet

During the third quarter of 2018, the Company issued 4,600,000 6.25% Series H cumulative redeemable perpetual preferred shares in an underwritten public offering, raising gross proceeds of $115.0 million before offering costs of approximately $4.0 million, with a liquidation preference of $25.00 per share.

In August 2018, the Company entered into a $156.3 million joint venture with a leading institutional investor to develop, lease, and operate newly constructed single-family rental homes located in select submarkets in the Southeast. The Company holds a 20% unconsolidated interest in the joint venture and is entitled to its proportionate share of cash flows over the joint venture term of five years, along with opportunity for a promoted interest and fees for services the Company will provide to the joint venture.

As of September 30, 2018, the Company had cash and cash equivalents of $110.1 million and had total outstanding debt of $2.7 billion, excluding unamortized discounts, the value of exchangeable senior notes classified within equity and unamortized deferred financing costs, with a weighted-average interest rate of 4.21% and a weighted-average term to maturity of 14.0 years. The Company had no outstanding borrowings on our $800.0 million revolving credit facility and had $100.0 million of outstanding borrowings on our term loan facility at the end of the quarter.

2018 Outlook


Full Year 2018


Same-Home

Previous Guidance


Current Guidance


Average Occupied Days Percentage

95.0% - 95.5%


94.75% - 95.25%

(1)

Core revenues growth

4.0% - 4.5%


3.75% - 4.25%

(2)

Property tax expense growth

2.75% - 3.75%


2.75% - 3.75%


Average R&M and turnover costs, net, plus Recurring Capital Expenditures per property

$2,050 - $2,150


$2,100 - $2,150


Core property operating expenses growth

5.0% - 6.0%


5.5% - 6.0%







Core NOI margin

64.0% - 65.0%


64.0% - 65.0%


Core NOI After Capital Expenditures growth

3.25% - 3.75%


2.5% - 3.0%

(2)






Property Enhancing Capex

$8 - $12 million


$8 - $12 million







General and administrative expense, excluding noncash share-based compensation

$34.5 - $35.5 million


$34.5 - $35.5 million







Acquisition and development volume

$500 - $600 million


$500 - $600 million




(1)

As previously communicated, we expected the full year Average Occupied Days Percentage to be below the midpoint of previous guidance range due to modest leasing disruption from Hurricane Florence. Additionally, as a result of recent field personnel turnover, we now expect occupancy softness in certain markets in the fourth quarter of 2018 and are therefore revising the guidance range to 94.75% to 95.25%.

(2)

Revised as a result of lowered Average Occupied Days Percentage guidance.

Note: The Company does not provide guidance for the most comparable GAAP financial measures of net income or loss, total revenues and property operating expenses, or a reconciliation of the above-listed forward-looking non-GAAP financial measures to the comparable GAAP financial measures because we are unable to reasonably predict certain items contained in the GAAP measures, including non-recurring and infrequent items that are not indicative of the Company's ongoing operations. Such items include, but are not limited to, net gain or loss on sales and impairment of single-family properties, casualty loss, Non-Same-Home revenues and Non-Same-Home property operating expenses. These items are uncertain, depend on various factors and could have a material impact on our GAAP results for the guidance period. 

Additional Information

A copy of the Company's Third Quarter 2018 Earnings Release and Supplemental Information Package and this press release are available on our website at www.americanhomes4rent.com. This information has also been furnished to the SEC in a current report on Form 8-K.

Conference Call

A conference call is scheduled on Friday, November 2, 2018, at 11:00 a.m. Eastern Time to discuss the Company's financial results for the quarter ended September 30, 2018, and to provide an update on its business. The domestic dial-in number is (877) 451-6152 (for U.S. and Canada) and the international dial-in number is (201) 389-0879 (passcode not required). A simultaneous audio webcast may be accessed by using the link at www.americanhomes4rent.com, under "For Investors." A replay of the conference call may be accessed through Friday, November 16, 2018, by calling (844) 512-2921 (U.S. and Canada) or (412) 317-6671 (international), replay passcode number 13683741#, or by using the link at www.americanhomes4rent.com, under "For Investors."

About American Homes 4 Rent

American Homes 4 Rent (AMH) is a leader in the single-family home rental industry and "American Homes 4 Rent" is fast becoming a nationally recognized brand for rental homes, known for high quality, good value and tenant satisfaction. We are an internally managed Maryland real estate investment trust, or REIT, focused on acquiring, renovating, leasing, and operating attractive, single-family homes as rental properties. As of September 30, 2018, we owned 52,464 single-family properties in selected submarkets in 22 states.

Forward-Looking Statements

This press release contains "forward-looking statements." These forward-looking statements relate to beliefs, expectations or intentions and similar statements concerning matters that are not of historical fact and are generally accompanied by words such as "estimate," "project," "predict," "believe," "expect," "anticipate," "intend," "potential," "plan," "goal," "outlook" or other words that convey the uncertainty of future events or outcomes. Examples of forward-looking statements contained in this press release include, among others, our belief that we will continue to optimize operations to create long-term shareholder value. The Company has based these forward-looking statements on its current expectations and assumptions about future events. While the Company's management considers these expectations to be reasonable, they are inherently subject to risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond the Company's control and could cause actual results to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company undertakes no obligation to update any forward-looking statements to conform to actual results or changes in its expectations, unless required by applicable law. For a further description of the risks and uncertainties that could cause actual results to differ from those expressed in these forward-looking statements, as well as risks relating to the business of the Company in general, see the "Risk Factors" disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2017, and in the Company's subsequent filings with the SEC.

American Homes 4 Rent

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share data)



September 30, 2018


December 31, 2017


(Unaudited)



Assets




Single-family properties:




Land

$

1,689,207



$

1,665,631


Buildings and improvements

7,385,387



7,303,270


Single-family properties held for sale, net

299,551



35,803



9,374,145



9,004,704


Less: accumulated depreciation

(1,115,588)



(939,724)


Single-family properties, net

8,258,557



8,064,980


Cash and cash equivalents

110,138



46,156


Restricted cash

156,026



136,667


Rent and other receivables, net

36,078



30,144


Escrow deposits, prepaid expenses and other assets

251,245



171,851


Deferred costs and other intangibles, net

13,437



13,025


Asset-backed securitization certificates

25,666



25,666


Goodwill

120,279



120,279


Total assets

$

8,971,426



$

8,608,768






Liabilities




Revolving credit facility

$



$

140,000


Term loan facility, net

99,176



198,023


Asset-backed securitizations, net

1,965,417



1,977,308


Unsecured senior notes, net

492,603




Exchangeable senior notes, net

114,507



111,697


Secured note payable



48,859


Accounts payable and accrued expenses

305,935



222,867


Amounts payable to affiliates

4,784



4,720


Participating preferred shares derivative liability



29,470


Total liabilities

2,982,422



2,732,944






Commitments and contingencies








Equity




Shareholders' equity:




Class A common shares, $0.01 par value per share, 450,000,000 shares authorized, 295,896,219 and 286,114,637 shares issued and outstanding at September 30, 2018, and December 31, 2017, respectively

2,959



2,861


Class B common shares, $0.01 par value per share, 50,000,000 shares authorized, 635,075 shares issued and outstanding at September 30, 2018, and December 31, 2017

6



6


Preferred shares, $0.01 par value per share, 100,000,000 shares authorized, 35,350,000 and 38,350,000 shares issued and outstanding at September 30, 2018, and December 31, 2017, respectively

354



384


Additional paid-in capital

5,750,309



5,600,256


Accumulated deficit

(493,995)



(453,953)


Accumulated other comprehensive income

9,026



75


Total shareholders' equity

5,268,659



5,149,629


Noncontrolling interest

720,345



726,195


Total equity

5,989,004



5,875,824






Total liabilities and equity

$

8,971,426



$

8,608,768


 


American Homes 4 Rent

Condensed Consolidated Statements of Operations

(Amounts in thousands, except share and per share data)

(Unaudited)



For the Three Months Ended
September 30,


For the Nine Months Ended
September 30,


2018


2017


2018


2017

Revenues:








Rents from single-family properties

$

231,324



$

207,490



$

676,558



$

613,245


Fees from single-family properties

2,711



2,843



8,298



8,137


Tenant charge-backs

44,152



36,094



112,876



91,849


Other

1,865



409



4,807



4,367


Total revenues

280,052



246,836



802,539



717,598










Expenses:








Property operating expenses

113,600



97,944



313,430



267,203


Property management expenses

18,865



17,447



56,468



52,367


General and administrative expense

9,265



8,525



28,173



26,746


Interest expense

30,930



26,592



92,209



86,873


Acquisition fees and costs expensed

1,055



1,306



3,687



3,814


Depreciation and amortization

79,940



74,790



237,562



221,459


Hurricane-related charges, net



10,136





10,136


Other

1,069



1,285



3,520



4,202


Total expenses

254,724



238,025



735,049



672,800










Gain on sale of single-family properties and other, net

4,953



1,895



10,449



6,375


Loss on early extinguishment of debt





(1,447)



(6,555)


Remeasurement of participating preferred shares



8,391



1,212



1,341










Net income

30,281



19,097



77,704



45,959










Noncontrolling interest

2,881



309



845



(22)


Dividends on preferred shares

12,223



17,253



38,804



46,122


Redemption of participating preferred shares





32,215












Net income (loss) attributable to common shareholders

$

15,177



$

1,535



$

5,840



$

(141)










Weighted-average shares outstanding:








Basic

296,214,509



266,767,313



292,656,914



256,768,343


Diluted

296,967,649



289,153,060



293,319,245



256,768,343










Net income (loss) attributable to common shareholders per share:








Basic

$

0.05



$

0.01



$

0.02



$


Diluted

$

0.05



$



$

0.02



$


Non-GAAP Financial Measures

This press release and the Third Quarter 2018 Earnings Release and Supplemental Information Package include Funds from Operations attributable to common share and unit holders ("FFO attributable to common share and unit holders"), Core FFO attributable to common share and unit holders, Adjusted FFO attributable to common share and unit holders, Core NOI, Same-Home Core NOI and Same-Home Core NOI After Capital Expenditures, which are non-GAAP financial measures. We believe these measures are helpful in understanding our financial performance and are widely used in the REIT industry. Because other REITs may not compute these financial measures in the same manner, they may not be comparable among REITs. In addition, these metrics are not substitutes for net income or loss or net cash flows from operating activities, as defined by GAAP, as measures of our operating performance, liquidity or ability to pay dividends. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in this press release and in the Third Quarter 2018 Earnings Release and Supplemental Information Package.

Funds from Operations attributable to common share and unit holders

The following is a reconciliation of net income or loss attributable to common shareholders 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 ended September 30, 2018 and 2017 (amounts in thousands, except share data):


For the Three Months Ended
September 30,


For the Nine Months Ended
September 30,


2018


2017


2018


2017


(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)

Net income (loss) attributable to common shareholders

$

15,177



$

1,535



$

5,840



$

(141)


Adjustments:








Noncontrolling interests in the Operating Partnership

2,881



340



1,104



(30)


Net (gain) on sale / impairment of single-family properties and other

(4,393)



(596)



(7,653)



(2,589)


Depreciation and amortization

79,940



74,790



237,562



221,459


Less: depreciation and amortization of non-real estate assets

(1,845)



(1,753)



(5,462)



(6,050)


FFO attributable to common share and unit holders

$

91,760



$

74,316



$

231,391



$

212,649


Adjustments:








Acquisition fees and costs expensed

1,055



1,306



3,687



3,814


Noncash share-based compensation - general and administrative

491



699



1,609



1,917


Noncash share-based compensation - property management

341



417



1,141



1,258


Noncash interest expense related to acquired debt

973



910



2,810



2,624


Hurricane-related charges, net



10,136





10,136


Loss on early extinguishment of debt





1,447



6,555


Remeasurement of participating preferred shares



(8,391)



(1,212)



(1,341)


Redemption of participating preferred shares





32,215




Core FFO attributable to common share and unit holders

$

94,620



$

79,393



$

273,088



$

237,612


Recurring capital expenditures (1)

(11,467)



(10,316)



(27,342)



(25,055)


Leasing costs

(3,722)



(1,960)



(9,556)



(5,361)


Adjusted FFO attributable to common share and unit holders

$

79,431



$

67,117



$

236,190



$

207,196










Per FFO share and unit:








FFO attributable to common share and unit holders

$

0.26



$

0.23



$

0.66



$

0.68


Core FFO attributable to common share and unit holders

$

0.27



$

0.25



$

0.78



$

0.76


Adjusted FFO attributable to common share and unit holders

$

0.23



$

0.21



$

0.68



$

0.66










Weighted-average FFO shares and units:








Common shares outstanding

296,214,509



266,767,313



292,656,914



256,768,343


Share-based compensation plan (2)

753,140



736,456



662,331



746,643


Operating partnership units

55,350,153



55,535,824



55,350,153



55,547,386


Total weighted-average FFO shares and units

352,317,802



323,039,593



348,669,398



313,062,372




(1)

As a portion of our homes are recently acquired and / or renovated, we estimate recurring 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 non-stabilized properties and properties identified as part of our disposition program, comprised of properties classified as held for sale and identified for future sale.

(2)

Reflects the effect of potentially dilutive securities issuable upon the assumed vesting / exercise of restricted stock units and stock options.  

FFO attributable to common share and unit holders is a non-GAAP financial measure that we calculate in accordance with the White Paper on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT"), which defines FFO as net income or loss calculated in accordance with GAAP, excluding extraordinary items, as defined by GAAP, 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 adjustment for unconsolidated partnerships and joint ventures. 

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 fees and costs expensed incurred with business combinations and the acquisition of individual properties, (2) noncash share-based compensation expense, (3) noncash interest expense related to acquired debt, (4) hurricane-related charges, net, (5) gain or loss on early extinguishment of debt, (6) noncash gain or loss on redemption or conversion of shares or units and (7) noncash fair value adjustments associated with remeasuring our participating preferred shares derivative liability to fair value.

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) actual leasing costs incurred during the period. As a portion of our homes are recently acquired and/or renovated, we estimate recurring 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 non-stabilized properties and properties identified as part of our disposition program, which is comprised of properties classified as held for sale and properties identified for future sale.

We present FFO attributable to common share and unit holders, as well as on a per FFO share and unit basis, 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, as well as on a per FFO share and unit basis, 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 loss per share or net cash flow provided by operating activities, 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.

Core Net Operating Income

Core NOI, which we also present separately for our Same-Home portfolio, is a supplemental non-GAAP financial measure that we define as core revenues, which is calculated as rents and fees from single-family properties, net of bad debt expense, less core property operating expenses, which is calculated as property operating and property management expenses, excluding noncash share-based compensation expense, expenses reimbursed by tenant charge-backs and bad debt expense. Our Same-Home portfolio consists of our single-family properties that have been stabilized longer than 90 days prior to the beginning of the earliest period presented, and that have not been classified as held for sale, identified for future sale or taken out of service as a result of a casualty loss.

Core NOI also excludes (1) noncash fair value adjustments associated with remeasuring our participating preferred shares derivative liability to fair value, (2) noncash gain or loss on conversion of shares or units, (3) gain or loss on early extinguishment of debt, (4) hurricane-related charges, net, (5) gain or loss on sales of single-family properties and other, (6) depreciation and amortization, (7) acquisition fees and costs expensed incurred with business combinations and the acquisition of individual properties, (8) noncash share-based compensation expense, (9) interest expense, (10) general and administrative expense, (11) other expenses and (12) other revenues. 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. We further adjust Core NOI for our Same-Home portfolio by subtracting recurring capital expenditures to calculate Same-Home Core NOI After Capital Expenditures, which we believe provides useful information to investors because it more fully reflects our operating performance after the impact of all property-level expenditures, regardless of whether they are capitalized or expensed.

Core NOI and Same-Home Core NOI After Capital Expenditures 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 GAAP).

The following are reconciliations of core revenues, core property operating expenses, Core NOI, Same-Home Core NOI and Same-Home Core NOI After Capital Expenditures to their respective GAAP metrics for the three and nine months ended September 30, 2018 and 2017 (amounts in thousands):


For the Three Months Ended
September 30,


For the Nine Months Ended
September 30,


2018


2017


2018


2017


(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)

Core revenues








Total revenues

$

280,052



$

246,836



$

802,539



$

717,598


Tenant charge-backs

(44,152)



(36,094)



(112,876)



(91,849)


Bad debt expense

(2,749)



(2,299)



(6,365)



(5,142)


Other revenues

(1,865)



(409)



(4,807)



(4,367)


Core revenues

$

231,286



$

208,034



$

678,491



$

616,240










Core property operating expenses








Property operating expenses

$

113,600



$

97,944



$

313,430



$

267,203


Property management expenses

18,865



17,447



56,468



52,367


Noncash share-based compensation - property management

(341)



(417)



(1,141)



(1,258)


Expenses reimbursed by tenant charge-backs

(44,152)



(36,094)



(112,876)



(91,849)


Bad debt expense

(2,749)



(2,299)



(6,365)



(5,142)


Core property operating expenses

$

85,223



$

76,581



$

249,516



$

221,321



Core NOI, Same-Home Core NOI and Same-Home Core NOI After Capital Expenditures

Net income

$

30,281



$

19,097



$

77,704



$

45,959


Remeasurement of participating preferred shares



(8,391)



(1,212)



(1,341)


Loss on early extinguishment of debt





1,447



6,555


Hurricane-related charges, net



10,136





10,136


Gain on sale of single-family properties and other, net

(4,953)



(1,895)



(10,449)



(6,375)


Depreciation and amortization

79,940



74,790



237,562



221,459


Acquisition fees and costs expensed

1,055



1,306



3,687



3,814


Noncash share-based compensation - property management

341



417



1,141



1,258


Interest expense

30,930



26,592



92,209



86,873


General and administrative expense

9,265



8,525



28,173



26,746


Other expenses

1,069



1,285



3,520



4,202


Other revenues

(1,865)



(409)



(4,807)



(4,367)


Core NOI

146,063



131,453



428,975



394,919


Less: Non-Same-Home Core NOI

37,008



26,364



101,369



74,684


Same-Home Core NOI

109,055



105,089



327,606



320,235


Less: Same-Home recurring capital expenditures

8,942



8,258



21,090



20,350


Same-Home Core NOI After Capital Expenditures

$

100,113



$

96,831



$

306,516



$

299,885


Contact:
American Homes 4 Rent
Investor Relations
Phone: (855) 794-2447
Email: investors@ah4r.com

 

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