10-Q

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

 
FORM 10-Q
 
 
 
  
(Mark One)
ý   
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015
or
o    
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 
 
EXCHANGE ACT OF 1934
 
For the transition period from                      to                     
 
COMMISSION FILE NUMBER 001-36013
 
 
 
AMERICAN HOMES 4 RENT
(Exact name of registrant as specified in its charter) 
 
 
 
Maryland
 
46-1229660
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
30601 Agoura Road, Suite 200
Agoura Hills, California 91301
(Address of principal executive offices) (Zip Code)
 
(805) 413-5300
(Registrant’s telephone number, including area code)
 
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   ý  Yes   o  No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   ý  Yes   o  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
 
Accelerated filer
o
Non-accelerated filer
 o
(Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   o  Yes    ý  No
 
There were 207,462,066 Class A common shares of beneficial interest, $0.01 par value per share, and 635,075 Class B common shares of beneficial interest, $0.01 par value per share, outstanding on November 3, 2015.
 


American Homes 4 Rent
Form 10-Q
INDEX
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
Various statements contained in this Quarterly Report on Form 10-Q of American Homes 4 Rent (the “Company,” “we,” “our” and “us”), including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. These forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future revenues, income and capital spending. Our forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “intend,” “anticipate,” “potential,” “plan,” “goal” or other words that convey the uncertainty of future events or outcomes. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors, including those discussed or incorporated by reference under Part II, Item 1A.”Risk Factors”, Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements.
 
While forward-looking statements reflect our good faith beliefs, assumptions and expectations, they are not guarantees of future performance, and you should not unduly rely on them. The forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date of this report. We are not obligated to update or revise these statements as a result of new information, future events or otherwise, unless required by applicable law.


i

PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
American Homes 4 Rent
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share and per share data)
 
September 30, 2015
 
December 31, 2014
 
(Unaudited)
 
 
Assets
 

 
 

Single-family properties:
 

 
 

Land
$
1,218,547

 
$
1,104,409

Buildings and improvements
5,401,857

 
4,808,706

Single-family properties held for sale
6,472

 
3,818

 
6,626,876

 
5,916,933

Less: accumulated depreciation
(359,412
)
 
(206,262
)
Single-family properties, net
6,267,464

 
5,710,671

Cash and cash equivalents
238,417

 
108,787

Restricted cash
106,973

 
77,198

Rent and other receivables, net
17,527

 
11,009

Escrow deposits, prepaid expenses and other assets
118,444

 
118,783

Deferred costs and other intangibles, net
70,670

 
54,582

Asset-backed securitization certificates
25,666

 
25,666

Goodwill
120,655

 
120,655

Total assets
$
6,965,816

 
$
6,227,351

 
 
 
 
Liabilities
 

 
 

Credit facility
$
—

 
$
207,000

Asset-backed securitizations
2,536,192

 
1,519,390

Secured note payable
50,980

 
51,644

Accounts payable and accrued expenses
234,651

 
149,706

Contingently convertible Series E units liability
68,601

 
72,057

Preferred shares derivative liability
60,260

 
57,960

Total liabilities
2,950,684

 
2,057,757

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Equity
 
 
 
Shareholders’ equity:
 

 
 

Class A common shares, $0.01 par value per share, 450,000,000 shares authorized, 207,460,466 and 210,838,831 shares issued and outstanding at September 30, 2015, and December 31, 2014, respectively
2,074

 
2,108

Class B common shares, $0.01 par value per share, 50,000,000 shares authorized, 635,075 shares issued and outstanding at September 30, 2015, and December 31, 2014
6

 
6

Preferred shares, $0.01 par value per share, 100,000,000 shares authorized, 17,060,000 shares issued and outstanding at September 30, 2015, and December 31, 2014
171

 
171

Additional paid-in capital
3,566,892

 
3,618,207

Accumulated deficit
(265,988
)
 
(170,162
)
Accumulated other comprehensive loss
(148
)
 
(229
)
Total shareholders’ equity
3,303,007

 
3,450,101

 
 
 
 
Noncontrolling interest
712,125

 
719,493

Total equity
4,015,132

 
4,169,594

 
 
 
 
Total liabilities and equity
$
6,965,816

 
$
6,227,351


The accompanying notes are an integral part of these condensed consolidated financial statements.

1

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,
 
2015
 
2014
 
2015
 
2014
Revenues:
 

 
 

 
 

 
 

Rents from single-family properties
$
148,815

 
$
104,210

 
$
407,313

 
$
266,842

Fees from single-family properties
2,146

 
1,529

 
5,681

 
4,776

Tenant charge-backs
19,881

 
4,282

 
40,215

 
9,310

Other
1,771

 
372

 
4,780

 
1,047

Total revenues
172,613

 
110,393

 
457,989

 
281,975

 
 
 
 
 
 
 
 
Expenses:
 

 
 

 
 

 
 

Property operating expenses
 

 
 

 
 

 
 

Leased single-family properties
83,682

 
50,583

 
205,435

 
117,148

Vacant single-family properties and other
2,522

 
3,885

 
12,950

 
18,770

General and administrative expense
6,090

 
5,291

 
18,497

 
16,068

Interest expense
23,866

 
5,112

 
61,539

 
10,502

Noncash share-based compensation expense
913

 
751

 
2,343

 
1,895

Acquisition fees and costs expensed
4,153

 
14,550

 
14,297

 
15,921

Depreciation and amortization
67,800

 
44,855

 
180,685

 
118,311

Total expenses
189,026

 
125,027

 
495,746

 
298,615

 
 
 
 
 
 
 
 
Remeasurement of Series E units
(525
)
 
3,588

 
3,456

 
(4,112
)
Remeasurement of preferred shares
(3,000
)
 
(1,750
)
 
(2,300
)
 
(2,348
)
 
 
 
 
 
 
 
 
Net loss
(19,938
)
 
(12,796
)
 
(36,601
)
 
(23,100
)
 
 
 
 
 
 
 
 
Noncontrolling interest
3,109

 
3,382

 
10,795

 
11,214

Dividends on preferred shares
5,569

 
5,569

 
16,707

 
13,359

 
 
 
 
 
 
 
 
Net loss attributable to common shareholders
$
(28,616
)
 
$
(21,747
)
 
$
(64,103
)
 
$
(47,673
)
 
 
 
 
 
 
 
 
Weighted-average shares outstanding—basic and diluted
211,414,368

 
202,547,677

 
211,460,840

 
191,251,638

 
 
 
 
 
 
 
 
Net loss attributable to common shareholders per share- basic and diluted
$
(0.14
)
 
$
(0.11
)
 
$
(0.30
)
 
$
(0.25
)
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

2

American Homes 4 Rent
Condensed Consolidated Statements of Comprehensive Income
(Amounts in thousands)
(Unaudited)
 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Net loss
$
(19,938
)
 
$
(12,796
)
 
$
(36,601
)
 
$
(23,100
)
Other comprehensive income (loss):
 

 
 

 
 

 
 

Unrealized gain (loss) on interest rate cap agreement:
 

 
 

 
 

 
 

Unrealized interest rate cap agreement gain (loss) arising during the period
51

 
16

 
81

 
(196
)
Unrealized gain (loss) on interest rate cap agreement
51

 
16

 
81

 
(196
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
51

 
16

 
81

 
(196
)
Comprehensive loss
(19,887
)
 
(12,780
)
 
(36,520
)
 
(23,296
)
Comprehensive income attributable to noncontrolling interests
3,106

 
3,379

 
10,790

 
11,226

Dividends on preferred shares
5,569

 
5,569

 
16,707

 
13,359

Comprehensive loss attributable to common shareholders
$
(28,562
)
 
$
(21,728
)
 
$
(64,017
)
 
$
(47,881
)
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


3

American Homes 4 Rent
Condensed Consolidated Statement of Equity
(Amounts in thousands, except share data)
(Unaudited)
 
Class A common shares
 
Class B common shares
 
Preferred shares
 
 
 
 
 
 
 
 
 
 
 
 
 
Number
of shares
 
Amount
 
Number
of shares
 
Amount
 
Number
of shares
 
Amount
 
Additional
paid-in
capital
 
Accumulated
deficit
 
Accumulated  other
comprehensive
loss
 
Shareholders’
equity
 
Noncontrolling
interest
 
Total
equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at December 31, 2014
210,838,831

 
$
2,108

 
635,075

 
$
6

 
17,060,000

 
$
171

 
$
3,618,207

 
$
(170,162
)
 
$
(229
)
 
$
3,450,101

 
$
719,493

 
$
4,169,594

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation
—

 
—

 
—

 
—

 
—

 
—

 
2,343

 
—

 
—

 
2,343

 
—

 
2,343

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock issued under share-based compensation plans, net of shares withheld for employee taxes
28,681

 
—

 
—

 
—

 
—

 
—

 
86

 
—

 
—

 
86

 
—

 
86

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Repurchase of Class A common shares
(3,407,046
)
 
(34
)
 
—

 
—

 
—

 
—

 
(53,744
)
 
—

 
—

 
(53,778
)
 
—

 
(53,778
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions to equity holders:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Preferred shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(16,707
)
 
—

 
(16,707
)
 
—

 
(16,707
)
Noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
 

 
—

 
(18,163
)
 
(18,163
)
Common shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(31,723
)
 
—

 
(31,723
)
 
—

 
(31,723
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(47,396
)
 
—

 
(47,396
)
 
10,795

 
(36,601
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total other comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
81

 
81

 
—

 
81

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at September 30, 2015
207,460,466

 
$
2,074

 
635,075

 
$
6

 
17,060,000

 
$
171

 
$
3,566,892

 
$
(265,988
)
 
$
(148
)
 
$
3,303,007

 
$
712,125

 
$
4,015,132

 
The accompanying notes are an integral part of these condensed consolidated financial statements.


4

American Homes 4 Rent
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited) 
 
For the Nine Months Ended September 30,
 
2015
 
2014
Operating activities
 

 
 

Net loss
$
(36,601
)
 
$
(23,100
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 

 
 

Depreciation and amortization
180,685

 
118,311

Noncash amortization of deferred financing costs
5,769

 
919

Noncash share-based compensation
2,343

 
1,895

Provision for bad debt
5,005

 
4,429

Remeasurement of Series E units
(3,456
)
 
4,112

Remeasurement of preferred shares
2,300

 
2,348

Equity in net income of unconsolidated ventures
385

 
62

Other changes in operating assets and liabilities:
 

 
 

Rent and other receivables
(13,071
)
 
(3,927
)
Restricted cash for resident security deposits
(10,239
)
 
(13,232
)
Prepaid expenses and other assets
(5,140
)
 
6,331

Deferred leasing costs
(7,733
)
 
(5,096
)
Accounts payable and accrued expenses
27,184

 
18,150

Resident security deposit liability
10,239

 
13,232

Amounts payable to affiliates
(1,721
)
 
7,218

Net cash provided by operating activities
155,949

 
131,652

 
 
 
 
Investing activities
 

 
 

Cash paid for single-family properties
(552,944
)
 
(914,059
)
Escrow deposits for purchase of single-family properties
(2,050
)
 
(37,834
)
Increase in restricted cash related to lender requirements
(19,536
)
 
(19,550
)
Cash acquired in non-cash business combinations
—

 
2,202

Beazer Rental Homes acquisition
—

 
(108,246
)
Investment in unconsolidated joint ventures
(10,003
)
 
(13,932
)
Investments in mortgage financing receivables
(11,227
)
 
(23,744
)
Initial renovations to single-family properties
(125,158
)
 
(136,150
)
Other capital expenditures for single-family properties
(23,008
)
 
(10,051
)
Net cash used for investing activities
(743,926
)
 
(1,261,364
)
 
 
 
 
Financing activities
 

 
 

Net proceeds from issuance of Class A common shares
—

 
308,617

Net proceeds from issuance of preferred shares
—

 
189,433

Proceeds from exercise of stock options
225

 
431

Proceeds from asset-backed securitizations
1,030,559

 
968,594

Payments on asset-backed securitizations
(13,757
)
 
(1,202
)
Proceeds from credit facility
799,000

 
1,174,000

Payments on credit facility
(1,006,000
)
 
(1,467,000
)
Payments on secured note
(664
)
 
—

Distributions to noncontrolling interests
(18,163
)
 
(17,827
)
Distributions to common shareholders
(31,723
)
 
(29,125
)
Distributions to preferred shareholders
(16,707
)
 
(13,359
)
Deferred financing costs paid
(25,163
)
 
(27,900
)
Net cash provided by financing activities
717,607

 
1,084,662

 
 
 
 
Net increase (decrease) in cash and cash equivalents
129,630

 
(45,050
)
Cash and cash equivalents, beginning of period
108,787

 
148,989

Cash and cash equivalents, end of period
$
238,417

 
$
103,939


The accompanying notes are an integral part of these condensed consolidated financial statements.
American Homes 4 Rent
Condensed Consolidated Statements of Cash Flows (continued)
(Amounts in thousands)
(Unaudited)
 
For the Nine Months Ended September 30,
 
2015
 
2014
Supplemental cash flow information
 

 
 

Cash payments for interest
$
(56,005
)
 
$
(15,654
)
 
 
 
 
Supplemental schedule of noncash investing and financing activities
 

 
 

Accounts payable and accrued expenses related to property acquisitions
$
531

 
$
(4,631
)
Amounts payable to affiliates related to property acquisitions
$
—

 
$
(1,883
)
Accrued distribution to Series C convertible units
$
4,698

 
$
4,698

Repurchase of Class A common shares
$
53,778

 
$
—

 
 
 
 
Acquisitions for equity
 
 
 
Single-family properties
$
—

 
$
144,834

Cash and cash equivalents
$
—

 
$
2,202

Other net assets and liabilities
$
—

 
$
(4,886
)
Deferred costs and other intangibles
$
—

 
$
2,655

Class A common shares
$
—

 
$
(82
)
Additional paid-in capital
$
—

 
$
(144,723
)

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

American Homes 4 Rent
Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Organization and Operations
 
American Homes 4 Rent (the “Company,” “we,” “our” and “us”) is a Maryland real estate investment trust (“REIT”) formed on October 19, 2012. We are focused on acquiring, renovating, leasing and operating single-family homes as rental properties. As of September 30, 2015, the Company held 38,377 single-family properties in 22 states, including 46 properties held for sale.
 
From our formation through June 10, 2013, we were externally managed and advised by American Homes 4 Rent Advisor, LLC (the “Advisor”) and the leasing, managing and advertising of our properties was overseen and directed by American Homes 4 Rent Management Holdings, LLC (the “Property Manager”), both of which were subsidiaries of American Homes 4 Rent, LLC (“AH LLC”). On June 10, 2013, we acquired the Advisor and the Property Manager from AH LLC in exchange for 4,375,000 Series D units and 4,375,000 Series E units in American Homes 4 Rent, L.P. (the “Operating Partnership”) (the “Management Internalization”). Under the terms of the contribution agreement, all administrative, financial, property management, marketing and leasing personnel, including executive management, became fully dedicated to us. Since the date of the Management Internalization, the Company has consolidated the Advisor and the Property Manager and the results of these operations are reflected in the condensed consolidated financial statements.
 
Prior to the Management Internalization, AH LLC exercised control over the Company through the contractual rights provided to the Advisor through an advisory management agreement. Accordingly, the contribution of certain properties by AH LLC to the Company prior to the Management Internalization have been deemed to be transactions between entities under common control, and as such, the accounts relating to the properties contributed have been recorded by us as if they had been acquired by us on the dates such properties were acquired by AH LLC. Accordingly, the condensed consolidated financial statements include AH LLC’s historical carrying values of the properties that had been acquired by AH LLC.
 
Note 2. Significant Accounting Policies
 
Basis of Presentation
 
The condensed consolidated financial statements are unaudited and include the accounts of the Company, the Operating Partnership and its consolidated subsidiaries. Intercompany accounts and transactions have been eliminated. The Company consolidates real estate partnerships and other entities that are not variable interest entities (“VIEs”) when it owns, directly or indirectly, a majority interest in the entity or is otherwise able to control the entity. The Company consolidates VIEs in accordance with Accounting Standards Codification (“ASC”) No. 810, Consolidation, if it is the primary beneficiary of the VIE as determined by its power to direct the VIE’s activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE. Entities for which the Company owns an interest, but does not consolidate, are accounted for under the equity method of accounting as an investment in unconsolidated subsidiary and are included in escrow deposits, prepaid expenses and other assets within the condensed consolidated balance sheets. Ownership interests in certain consolidated subsidiaries of the Company held by outside parties are included in noncontrolling interest within the condensed consolidated financial statements.
 
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. In the opinion of management, all adjustments of a normal and recurring nature necessary for a fair presentation of the condensed consolidated financial statements for the interim periods have been made. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
There have been no changes to our significant accounting policies that have had a material impact on our condensed consolidated financial statements and related notes, compared to those policies disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. Therefore, notes to the condensed consolidated financial statements that would substantially duplicate the disclosures contained in our most recent audited consolidated financial statements have been omitted.


6

Recent Accounting Pronouncements
 
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, rather than as an asset. The recognition and measurement guidance for debt issuance costs is not affected and amortization of such costs will continue to be reported as interest expense. In August 2015, the FASB issued ASU No. 2015-15, Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, to clarify that debt issuance costs related to line-of-credit arrangements may be deferred and presented as an asset and subsequently amortized ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The guidance will be effective for the Company for annual reporting periods beginning after December 15, 2015, and for interim periods within those annual periods, with early adoption permitted and retrospective application required. The Company expects to adopt the guidance effective January 1, 2016, and the impact will be a reduction of deferred costs and other intangibles, net, as well as a corresponding reduction of the associated debt liability.
 
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. Among other changes, it modifies the criteria used in the variable interest model and eliminates the presumption that a general partner should consolidate a limited partnership in the voting model. The guidance will be effective for the Company for annual reporting periods beginning after December 15, 2015, and for interim periods within those annual periods, with early adoption permitted. The Company does not anticipate that the adoption of this guidance will have a material impact on its financial statements.
 
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which provides guidance on revenue recognition and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, most industry-specific guidance and some cost guidance included in Subtopic 605-35, “Revenue Recognition—Construction-Type and Production-Type Contracts.” The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. These judgments may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The guidance will be effective for the Company for annual reporting periods beginning after December 15, 2017, and for interim periods within those annual periods. At that time, the Company may adopt the full retrospective approach or the modified retrospective approach. Early adoption is not permitted. The Company is currently evaluating the method of adoption of this guidance and does not anticipate that the adoption of this guidance will have a material impact on its financial statements.
 
Note 3. Single-Family Properties
 
Single-family properties, net, consists of the following as of September 30, 2015, and December 31, 2014 (dollars in thousands):
 
September 30, 2015
 
Number of properties
 
Net book value
Leased single-family properties
35,617

 
$
5,815,458

Single-family properties being renovated
810

 
127,734

Single-family properties being prepared for re-lease
283

 
45,756

Vacant single-family properties available for lease
1,621

 
272,044

Single-family properties held for sale
46

 
6,472

Total
38,377

 
$
6,267,464

 
December 31, 2014
 
Number of properties
 
Net book value
Leased single-family properties
28,250

 
$
4,631,797

Single-family properties being renovated
2,886

 
476,120

Single-family properties being prepared for re-lease
630

 
104,974

Vacant single-family properties available for lease
2,807

 
493,962

Single-family properties held for sale
26

 
3,818

Total
34,599

 
$
5,710,671



7

Single-family properties, net at September 30, 2015, and December 31, 2014, included $34.0 million and $114.6 million, respectively, related to properties for which the recorded grant deed has not been received. For these properties, the trustee or seller has warranted that all legal rights of ownership have been transferred to us on the date of the sale, but there is a delay for the deeds to be recorded.
 
Depreciation expense related to single-family properties was $63.9 million and $40.8 million for the three months ended September 30, 2015 and 2014, respectively, and $165.8 million and $106.6 million for the nine months ended September 30, 2015 and 2014, respectively.
 
Note 4. Rent and Other Receivables
 
Included in rent and other receivables, net is an allowance for doubtful accounts of $2.8 million and $0.5 million as of September 30, 2015, and December 31, 2014, respectively. Also included in rent and other receivables, net, are receivables related to payments made on single-family properties for which sales have been rescinded or unwound due to legal issues beyond our control, which totaled zero and $1.1 million as of September 30, 2015, and December 31, 2014, respectively, and other non-tenant receivables, which totaled $2.7 million and $2.4 million as of September 30, 2015, and December 31, 2014, respectively.
 
Note 5. Deferred Costs and Other Intangibles
 
Deferred costs and other intangibles, net, consists of the following as of September 30, 2015, and December 31, 2014 (in thousands):
 
September 30, 2015
 
December 31, 2014
Deferred leasing costs
$
14,893

 
$
18,307

Deferred financing costs
78,176

 
53,013

Intangible assets:
 

 
 

In-place lease values
2,231

 
10,468

Trademark
3,100

 
3,100

Database
2,100

 
2,100

 
100,500


86,988

Less: accumulated amortization
(29,830
)
 
(32,406
)
Total
$
70,670


$
54,582

 
Amortization expense related to deferred leasing costs, the value of in-place leases, trademark and database was $2.8 million and $4.0 million for the three months ended September 30, 2015 and 2014, respectively, and $10.0 million and $11.7 million for the nine months ended September 30, 2015 and 2014, respectively, which has been included in depreciation and amortization within the condensed consolidated statements of operations. Amortization of deferred financing costs was $2.4 million and $1.4 million for the three months ended September 30, 2015 and 2014, respectively, and $6.8 million and $2.9 million for the nine months ended September 30, 2015 and 2014, respectively, which has been included in gross interest, prior to interest capitalization (see Note 6).
 
The following table sets forth the estimated annual amortization expense related to deferred costs and other intangibles, net as of September 30, 2015, for future periods (in thousands):
Year
 
Deferred
Leasing
Costs
 
Deferred
Financing
Costs
 
Value of
In-place
Leases
 
Trademark
 
Database
Remaining 2015
 
$
2,016

 
$
2,678

 
$
38

 
$
165

 
$
75

2016
 
2,497

 
10,591

 
42

 
660

 
300

2017
 
—

 
9,025

 
—

 
752

 
300

2018
 
—

 
8,527

 
—

 
—

 
300

2019
 
—

 
6,374

 
—

 
—

 
300

Thereafter
 
—

 
25,898

 
—

 
—

 
132

Total
 
$
4,513


$
63,093


$
80


$
1,577


$
1,407



8

Note 6. Debt
 
The following table presents the Company’s debt as of September 30, 2015, and December 31, 2014 (in thousands):
 
 
 
 
 
Outstanding Principal Balance
 
Interest Rate (1)
 
Maturity Date
 
September 30, 2015
 
December 31, 2014
2014-SFR1 securitization (2)
1.79
%
 
June 9, 2019
 
$
474,958

 
$
478,565

2014-SFR2 securitization
4.42
%
 
October 9, 2024
 
508,587

 
512,435

2014-SFR3 securitization
4.40
%
 
December 9, 2024
 
524,429

 
528,390

2015-SFR1 securitization (3)
4.14
%
 
April 9, 2045
 
550,502

 
—

2015-SFR2 securitization (4)
4.36
%
 
October 9, 2045
 
477,716

 
—

Total asset-backed securitizations
 

 
 
 
2,536,192

 
1,519,390

Secured note payable
4.06
%
 
July 1, 2019
 
50,980

 
51,644

Credit facility (5)
2.96
%
 
September 30, 2018
 
—

 
207,000

Total debt (6)
 

 
 
 
$
2,587,172

 
$
1,778,034


(1)
Interest rates are as of September 30, 2015. Unless otherwise stated, interest rates are fixed percentages.
(2)
The 2014-SFR1 securitization bears interest at a duration-weighted blended interest rate of LIBOR plus 1.54%, subject to a LIBOR floor of 0.25%. The maturity date of June 9, 2019, reflects the fully extended maturity date based on an initial two-year loan term and three, 12-month extension options, at the Company’s election, provided there is no event of default and compliance with certain other terms.
(3)
The 2015-SFR1 securitization has a maturity date of April 9, 2045, with an anticipated repayment date of April 9, 2025.
(4)
The 2015-SFR2 securitization has a maturity date of October 9, 2045, with an anticipated repayment date of October 9, 2025.
(5)
The credit facility provides for a borrowing capacity of up to $800.0 million through March 2016 and bears interest at LIBOR plus 2.75% (3.125% beginning in March 2017). Any outstanding borrowings upon expiration of the credit facility period in March 2016 will become due in September 2018.
(6)
The Company was in compliance with all debt covenants associated with its asset-backed securitizations and credit facility as of September 30, 2015.
 
Asset-Backed Securitizations

March 2015 Securitization
     
In March 2015, we completed a private securitization transaction (the “2015-SFR1 securitization”), in which a newly-formed special purpose entity (the “Borrower”) entered into a loan with a third-party lender for $552.8 million represented by a promissory note. The Borrower under the loan is wholly owned by another special purpose entity (the “Equity Owner”) and the Equity Owner is wholly owned by the Operating Partnership. The loan is a fixed-rate loan with a 30 year term, maturity date of April 9, 2045, and a duration-adjusted weighted-average interest rate of 4.14%. The loan requires monthly payments of interest together with principal payments representing one-twelfth of one percent of the original principal amount. The loan has an anticipated repayment date of April 9, 2025. In the event the loan is not repaid on April 9, 2025, the interest rate on each component is increased to a rate per annum equal to the sum of 3% plus the greater of: (a) the initial interest rate and (b) a rate equal to the sum of (i) the bid side yield to maturity for the “on the run” United States Treasury note with a 10 year maturity plus the mid-market 10 year swap spread, plus (ii) the component rate spread for each component.
 
The note was immediately transferred by the third-party lender to a subsidiary of the Company and then to a REMIC trust in exchange for eight classes of single-family rental pass-through certificates representing all the beneficial ownership interests in the loan and the trust. Upon receipt of the certificates, a subsidiary of the Company sold the certificates to investors for gross proceeds of $552.8 million, before issuance costs of $13.3 million. Proceeds from this transaction were used to pay down the outstanding balance on the credit facility and for general corporate purposes. The principal amount of each class of certificates corresponds to the corresponding principal amount of the loan components with an additional class to hold the residual REMIC interest.
 
The loan is secured by first priority mortgages on a pool of 4,661 single-family residential properties transferred to the Borrower from the Company’s portfolio of properties. The Borrower’s homes were substantially similar to the other properties owned by the Company and were leased to tenants underwritten on substantially the same basis as the tenants in the Company’s other properties. During the duration of the loan, the Borrower’s properties may not generally be transferred, sold or otherwise securitized, the Company can substitute properties only if a property owned by the Borrower becomes a disqualified property under the terms of the loan, and the Borrower is limited in its ability to incur any additional indebtedness.
 
The loan is also secured by a security interest in all of the Borrower’s personal property and a pledge of all of the assets of the Equity Owner, including a security interest in its membership interest in the Borrower. The Company provides a limited guaranty

9

(i) for certain losses arising out of designated acts of intentional misconduct and (ii) for the principal amount of the loan and all other obligations under the loan agreement in the event of insolvency or bankruptcy proceedings.

The loan agreement provides that the Borrower maintain covenants typical for securitization transactions including maintaining certain reserve accounts and a debt service coverage ratio of at least 1.20 to 1.00. The loan agreement defines the debt service coverage ratio as of any determination date as a ratio in which the numerator is the net cash flow divided by the aggregate debt service for the 12 month period following the date of determination. As of September 30, 2015, the Company was in compliance with all covenants under the loan agreement.
 
The Company has accounted for the transfer of the note from its subsidiary to the trust as a sale under ASC 860, Transfers and Servicing, with no resulting gain or loss as the note was both originated by the third party lender and immediately transferred at the same fair market value. The Company has also evaluated and not identified any variable interests in the trust. Accordingly, the Company continues to consolidate, at historical cost basis, the 4,661 homes placed as collateral for the note. The principal balance outstanding on the note was $550.5 million as of September 30, 2015, and was included in asset-backed securitizations within the condensed consolidated balance sheets. The 4,661 collateral homes had a net book value of $741.5 million as of September 30, 2015.

September 2015 Securitization

In September 2015, we completed a private securitization transaction (the “2015-SFR2 securitization”), which was structured substantially similar to the 2015-SFR1 securitization. The principal differences from the 2015-SFR1 securitization are: (1) the loan is a fixed-rate loan for $477.7 million with a 30 year term, maturity date of October 9, 2045, and a duration-adjusted weighted-average interest rate of 4.36%, (2) the loan is secured by first priority mortgages on a portfolio of 4,125 single-family residential properties owned by the borrower, a subsidiary of the Company, and (3) the loan has an anticipated repayment date of October 9, 2025. In the event the loan is not repaid on October 9, 2025, the interest rate on each component is increased to a rate per annum equal to the sum of 3% plus the greater of: (a) the initial interest rate and (b) a rate equal to the sum of (i) the bid side yield to maturity for the “on the run” United States Treasury note with a 10 year maturity plus the mid-market 10 year swap spread, plus (ii) the component rate spread for each component. Gross proceeds to the Company from the 2015-SFR2 securitization were $477.7 million, before issuance costs of $11.3 million. Proceeds from this transaction were used to pay down the outstanding balance on the credit facility and for general corporate purposes.

The loan agreement provides that the Borrower maintain covenants typical for securitization transactions including maintaining certain reserve accounts and a debt service coverage ratio of at least 1.20 to 1.00. The loan agreement defines the debt service coverage ratio as of any determination date as a ratio in which the numerator is the net cash flow divided by the aggregate debt service for the 12 month period following the date of determination. As of September 30, 2015, the Company was in compliance with all covenants under the loan agreement. The Company consolidates, at historical cost basis, the 4,125 homes placed as collateral for the note. The principal balance outstanding on the note was $477.7 million as of September 30, 2015, and was included in asset-backed securitizations within the condensed consolidated balance sheets. The 4,125 collateral homes had a net book value of $686.8 million as of September 30, 2015.      

Credit Facility
 
In March 2013, the Company entered into a $500.0 million senior secured revolving credit facility with a financial institution, which was subsequently amended in September 2013 to, among other things, expand our borrowing capacity to $800.0 million and extend the repayment period to September 30, 2018. Borrowings under the credit facility are available through March 7, 2016, at which point, any outstanding borrowings will convert to a term loan through September 30, 2018. All borrowings under the credit facility bear interest at 30 day LIBOR plus 2.75% until March 2017, and thereafter at 30 day LIBOR plus 3.125%. The credit facility is secured by our Operating Partnership’s membership interests in entities that own certain of our single-family properties and requires that we maintain certain financial covenants. As of September 30, 2015, the Company was in compliance with all loan covenants. The Company did not have any borrowings outstanding under the credit facility as of September 30, 2015, compared to $207.0 million in total outstanding borrowings under the credit facility at December 31, 2014.
 

10

Interest Expense
 
The following table outlines our total gross interest, including unused commitment and other fees and amortization of deferred financing costs, and capitalized interest for the three and nine months ended September 30, 2015 and 2014 (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2015
 
September 30, 2014
 
September 30, 2015
 
September 30, 2014
Gross interest
$
25,029

 
$
8,500

 
$
69,181

 
$
19,228

Capitalized interest
(1,163
)
 
(3,388
)
 
(7,642
)
 
(8,726
)
Interest expense
$
23,866


$
5,112


$
61,539


$
10,502


 
Note 7. Accounts Payable and Accrued Expenses
 
The following table summarizes accounts payable and accrued expenses as of September 30, 2015, and December 31, 2014 (in thousands):
 
September 30, 2015
 
December 31, 2014
Accounts payable
$
396

 
$
4,925

Accrued property taxes
74,975

 
49,018

Other accrued liabilities
89,175

 
28,972

Accrued construction and maintenance liabilities
16,989

 
23,914

Resident security deposits
53,116

 
42,877

Total
$
234,651


$
149,706

 
Note 8. Shareholders’ Equity
 
Participating Preferred Shares
 
As of September 30, 2015, the initial liquidation preference on the Company’s participating preferred shares, as adjusted by an amount equal to 50% of the cumulative change in value of an index based on the purchase prices of single-family properties located in our top 20 markets, for all of the Company’s outstanding 5.0% Series A participating preferred shares, 5.0% Series B participating preferred shares and 5.5% Series C participating preferred shares was $453.6 million.

Distributions
 
Our board of trustees declared distributions that totaled $0.05 per share on our Class A and Class B common shares during the quarters ended September 30, 2015 and 2014. Distributions declared on our 5.0% Series A participating preferred shares, 5.0% Series B participating preferred shares and 5.5% Series C participating preferred shares during the quarters ended September 30, 2015 and 2014, totaled $0.3125 per share, $0.3125 per share and $0.34375 per share, respectively. Our board of trustees declared distributions that totaled $0.15113 per share on our Series C convertible units during the quarters ended September 30, 2015 and 2014.
 
Noncontrolling Interest
 
Noncontrolling interest as reflected in the Company’s condensed consolidated balance sheets primarily consists of the interest held by AH LLC in units in the Company’s Operating Partnership. AH LLC owned 14,440,670, or approximately 6.5% and 6.4%, of the total 222,536,211 and 225,914,576 Class A units in the Operating Partnership as of September 30, 2015, and December 31, 2014, respectively. Additionally, AH LLC owned all 31,085,974 Series C convertible units and all 4,375,000 Series D convertible units in the Operating Partnership as of September 30, 2015, and December 31, 2014. Also included in noncontrolling interest are outside ownership interests in certain consolidated subsidiaries of the Company.
 
Noncontrolling interest as reflected in the Company’s condensed consolidated statements of operations for the three and nine months ended September 30, 2015, of $3.1 million and $10.8 million, respectively, primarily consisted of $4.7 million and $14.1 million, respectively, of preferred income allocated to Series C convertible units, $1.6 million and $3.2 million, respectively, of net loss allocated to Class A units and $0.01 million and $0.06 million, respectively, of net loss allocated to noncontrolling interests in certain of the Company’s consolidated subsidiaries. Noncontrolling interest for the three and nine months ended September 30, 2014, of $3.4 million and $11.2 million, respectively, primarily consisted of $4.7 million and $13.9 million, respectively, of preferred income allocated to Series C convertible units, $1.1 million and $2.5 million, respectively, of net loss allocated to Class A units, and $0.2 million of net loss, allocated to noncontrolling interests in certain of the Company’s consolidated subsidiaries.
 
2012 Equity Incentive Plan
 
During the nine months ended September 30, 2015 and 2014, the Company granted stock options for 588,500 and 1,220,000 Class A common shares, respectively, and 44,000 and 92,000 restricted stock units, respectively, to certain employees of the Company under the 2012 Equity Incentive Plan (the “Plan”). The options and restricted stock units granted during the nine months ended September 30, 2015 and 2014, vest over four years and expire 10 years from the date of grant.
 

11

The following table summarizes stock option activity under the Plan for the nine months ended September 30, 2015 and 2014:
 
Shares
 
Weighted-
Average
Exercise Price
 
Weighted-
Average
Remaining
Contractual Life
(in years)
 
Aggregate
Intrinsic Value (1)
(in thousands)
Options outstanding at January 1, 2014
1,190,000

 
$
15.48

 
9.3
 
$
862

Granted
1,220,000

 
16.74

 
 
 
 

Exercised
(28,750
)
 
15.00

 
 
 
74

Forfeited
(216,250
)
 
15.70

 
 
 
 

Options outstanding at September 30, 2014
2,165,000

 
$
16.17

 
9.3
 
$
3,438

Options exercisable at September 30, 2014
131,250

 
$
15.00

 
8.4
 
$
362

 
 
 
 
 
 
 
 
Options outstanding at January 1, 2015
2,165,000

 
$
16.17

 
8.8
 
$
1,890

Granted
588,500

 
16.49

 
 
 
 

Exercised
(15,000
)
 
15.00

 
 
 
19

Forfeited
(178,500
)
 
16.57

 
 
 
 

Options outstanding at September 30, 2015
2,560,000

 
$
16.23

 
8.3
 
$
557

Options exercisable at September 30, 2015
636,250

 
$
15.94

 
7.7
 
$
273


(1)
Intrinsic value for activities other than exercises is defined as the difference between the grant price and the market value on the last trading day of the period for those stock options where the market value is greater than the exercise price. For exercises, intrinsic value is defined as the difference between the grant price and the market value on the date of exercise.

The following table summarizes the Black-Scholes Option Pricing Model inputs used for valuation of the stock options for Class A common shares issued during the nine months ended September 30, 2015 and 2014:
 
2015
 
2014
Weighted-average fair value
$
4.57

 
 
$
4.89

 
Expected term (years)
7.0

 
 
7.0

 
Dividend yield
3.0

%
 
3.0

%
Volatility
35.9

%
 
37.3

%
Risk-free interest rate
1.9

%
 
2.2

%
  
The following table summarizes the activity that relates to the Company’s restricted stock units under the Plan for the nine months ended September 30, 2015 and 2014:
 
2015
 
2014
Restricted stock units at beginning of period
85,000

 
—

Units awarded
44,000

 
92,000

Units vested
(22,000
)
 
—

Units forfeited
(9,700
)
 
(2,000
)
Restricted stock units at end of the period
97,300


90,000

 
Total non-cash share-based compensation expense related to stock options and restricted stock units was $0.9 million and $0.8 million for the three months ended September 30, 2015 and 2014, respectively, and $2.3 million and $1.9 million for the nine months ended September 30, 2015 and 2014, respectively.


12

Share Repurchase Program
 
On September 21, 2015, the Company announced that our Board of Trustees approved a share repurchase program authorizing us to repurchase up to $300.0 million of our outstanding Class A common 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. In addition, the excess of the purchase price over the par value of shares repurchased is recorded as a reduction to additional paid-in capital. During the nine months ended September 30, 2015, we repurchased 3.4 million of our Class A common shares in accordance with the program at a weighted-average price of $15.76 per share and a total price of $53.7 million, which was included in accounts payable and accrued expenses in the condensed consolidated balance sheets. As of September 30, 2015, we had a remaining repurchase authorization of $246.3 million under the program.

Note 9. Related Party Transactions
 
As of September 30, 2015, and December 31, 2014, AH LLC owned approximately 3.3% of our outstanding Class A common shares. On a fully-diluted basis, AH LLC held (including consideration of 635,075 Class B common shares as of September 30, 2015, and December 31, 2014, 14,440,670 Class A common units as of September 30, 2015, and December 31, 2014, 31,085,974 Series C convertible units as of September 30, 2015, and December 31, 2014, 4,375,000 Series D units as of September 30, 2015, and December 31, 2014, and 4,375,000 Series E units as of September 30, 2015, and December 31, 2014) an approximate 22.1% and 21.8% interest at September 30, 2015, and December 31, 2014, respectively.
 
As of September 30, 2015, the Company had a net receivable of $6.1 million due from affiliates related to expense reimbursements, partially offset by declared and unpaid distributions on the Series C convertible units, compared to a net receivable of $4.0 million due from affiliates as of December 31, 2014, which consisted of receivables due from AH LLC related to working capital settlement items, partially offset by declared and unpaid distributions on the Series C convertible units. These amounts were included in escrow deposits, prepaid expenses and other assets within the condensed consolidated balance sheets.
 
Agreement on Investment Opportunities
 
In November 2012, the Company entered into an Agreement on Investment Opportunities with AH LLC under which we paid an acquisition and renovation fee equal to 5% of all costs and expenses we incur in connection with the initial acquisition, repair and renovation of single-family properties (net of any broker fees received by the Property Manager) for its services in identifying, evaluating, acquiring and overseeing the renovation of the properties we purchase. In connection with the Management Internalization on June 10, 2013, we entered into an Amended and Restated Agreement on Investment Opportunities. Under the terms of the Amended and Restated Agreement on Investment Opportunities, on December 10, 2014, AH LLC ceased providing acquisition and renovation services for us, we stopped paying AH LLC an acquisition and renovation fee, we hired all of AH LLC’s acquisition and renovation personnel necessary for our operations and AH LLC ceased paying the Company a monthly fee of $0.1 million for the maintenance and use of certain intellectual property transferred to us in the Management Internalization.
 
During the three and nine months ended September 30, 2014, we incurred $31.8 million and $58.6 million in aggregate acquisition and renovation fees to AH LLC prior to the termination of the Amended and Restated Agreement on Investment Opportunities, of which $19.0 million and $44.6 million was capitalized related to asset acquisitions and included in the cost of the single-family properties and $12.8 million and $14.0 million was expensed related to property acquisitions with in-place leases and to the acquisition of Beazer Pre-Owned Rental Homes, Inc. ("Beazer Rental Homes"), respectively.

Employee Administration Agreement
 
In connection with the Management Internalization on June 10, 2013, we entered into an employee administration agreement with Malibu Management, Inc. (“MMI”), an affiliate of AH LLC, to obtain the exclusive services of personnel of the Advisor and the Property Manager, who were previously employees of MMI under the direction of AH LLC. Under the terms of the agreement, we obtained the exclusive service of the employees dedicated to us for all management and other personnel dedicated to our business and were able to direct MMI to implement employment decisions with respect to the employees dedicated to us. We were required to reimburse MMI for all compensation and benefits and costs associated with the employees dedicated to us. We did not pay any fee or any other form of compensation to MMI. The agreement with MMI terminated on December 31, 2014. Effective January 1, 2015, all employees previously employed by MMI and performing services on our behalf became our employees. Total compensation and benefit costs paid by MMI and passed through to us under the agreement during the three and nine months ended September 30, 2014, were $11.2 million and $30.3 million, respectively.
 
Note 10. Earnings per Share
 
The following table reflects the computation of net loss per share on a basic and diluted basis for the three and nine months ended September 30, 2015 and 2014 (in thousands, except share data): 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Income / (loss) (numerator):
 

 
 

 
 

 
 

Net loss
$
(19,938
)
 
$
(12,796
)
 
$
(36,601
)
 
$
(23,100
)
Noncontrolling interest
3,109

 
3,382

 
10,795

 
11,214

Dividends on preferred shares
5,569

 
5,569

 
16,707

 
13,359

Net loss attributable to common shareholders
$
(28,616
)
 
$
(21,747
)
 
$
(64,103
)
 
$
(47,673
)
 
 
 
 
 
 
 
 
Weighted-average shares (denominator)
211,414,368

 
202,547,677

 
211,460,840

 
191,251,638

 
 
 
 
 
 
 
 
Net loss per share—basic and diluted
$
(0.14
)
 
$
(0.11
)
 
$
(0.30
)
 
$
(0.25
)
 
Total weighted-average shares for the three and nine months ended September 30, 2015, excludes an aggregate of 73,993,944, and for the three and nine months ended September 30, 2014, excludes an aggregate of 72,938,266, of shares or units in our Operating Partnership, Series A, B and C preferred shares, common shares issuable upon exercise of stock options, and restricted stock units because they were antidilutive.
 
Note 11. Commitments and Contingencies
 
In connection with the renovation of single-family properties after they are purchased, the Company enters into contracts for the necessary improvements. The Company had no outstanding commitments in connection with these contracts that were not accrued for as of September 30, 2015, compared to aggregate outstanding commitments of $4.1 million as of December 31, 2014, in connection with these contracts.
 
As of September 30, 2015, and December 31, 2014, we had commitments to acquire 112 and 703 single-family properties, respectively, with an aggregate purchase price of $16.2 million and $110.9 million, respectively.
 
We are involved in various legal and administrative proceedings that are incidental to our business. We believe these matters will not have a materially adverse effect on our financial position.
 
Note 12. Fair Value
 
The carrying amount of rents and other receivables, restricted cash, escrow deposits, prepaid expenses and other assets, and accounts payable and accrued expenses approximate fair value because of the short maturity of these amounts. The Company’s interest rate cap agreement, contingently convertible Series E units liability and preferred shares derivative liability are the only financial instruments recorded at fair value on a recurring basis in the condensed consolidated financial statements.

As our securitization transactions were recently entered into, management believes that the carrying values of the securitization transactions reasonably approximate their fair values as of September 30, 2015, which have been estimated by discounting future cash flows at market rates (Level 2). These market rates have been estimated based on recent market activity, including our own securitization transactions.
 
Inputs to the model used to value the contingently convertible Series E units liability include a risk-free rate corresponding to the assumed timing of the conversion date and a volatility input based on the historical volatilities of selected peer group companies. The starting point for the simulation is the most recent trading price in the Company’s Class A common shares, into which the Series E units are ultimately convertible. The timing of such conversion is based on the provisions of the contribution agreement and the Company’s best estimate of the events that trigger such conversions.
 
Valuation of the preferred shares derivative liability considers scenarios in which the preferred shares would be redeemed or converted into Class A common shares by the Company and the subsequent payoffs under those scenarios. The valuation also considers certain variables such as the risk-free rate matching the assumed timing of either redemption or conversion, volatility of the underlying home price appreciation index, dividend payments, conversion rates, the assumed timing of either redemption or

13

conversion and an assumed drift factor in home price appreciation across certain metropolitan statistical areas, or MSAs, as outlined in the agreement.
 
The fair value of our interest rate cap agreement is determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the interest rate cap. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. To comply with the provisions of ASC 820, Fair Value Measurements and Disclosures, the Company incorporates credit valuation adjustments to appropriately reflect the respective counterparty’s nonperformance risk in the fair value measurements.
 
The following tables set forth the fair value of our interest rate cap agreement, the contingently convertible Series E units liability and preferred shares derivative liability as of September 30, 2015, and December 31, 2014 (in thousands):
 
 
September 30, 2015
Description
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Assets:
 
 

 
 

 
 

 
 

Interest rate cap agreement
 
$
—

 
$
—

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
Liabilities:
 
 

 
 

 
 

 
 

Contingently convertible Series E units liability
 
$
—

 
$
—

 
$
68,601

 
$
68,601

Preferred shares derivative liability
 
$
—

 
$
—

 
$
60,260

 
$
60,260

 
 
December 31, 2014
Description
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Assets:
 
 

 
 

 
 

 
 

Interest rate cap agreement
 
$
—

 
$
14

 
$
—

 
$
14

 
 
 
 
 
 
 
 
 
Liabilities:
 
 

 
 

 
 

 
 

Contingently convertible Series E units liability
 
$
—

 
$
—

 
$
72,057

 
$
72,057

Preferred shares derivative liability
 
$
—

 
$
—

 
$
57,960

 
$
57,960


The following table presents changes in the fair values of our Level 3 financial instruments, consisting of our contingently convertible series E units liability and preferred shares derivative liability, which are measured on a recurring basis with changes in fair value recognized in remeasurement of Series E units and remeasurement of preferred shares, respectively, in the condensed consolidated statements of operations for the nine months ended September 30, 2015 and 2014 (in thousands):
Description
 
January 1, 2015
 
Issuances
 
Remeasurement
included in
earnings
 
September 30, 2015
Liabilities:
 
 

 
 

 
 

 
 

Contingently convertible Series E units liability
 
$
72,057

 
$
—

 
$
(3,456
)
 
$
68,601

Preferred shares derivative liability
 
$
57,960

 
$
—

 
$
2,300

 
$
60,260

Description
 
January 1, 2014
 
Issuances
 
Remeasurement
included in
earnings
 
September 30, 2014
Liabilities:
 
 

 
 

 
 

 
 

Contingently convertible Series E units liability
 
$
66,938

 
$
—

 
$
4,112

 
$
71,050

Preferred shares derivative liability
 
$
28,150

 
$
26,922

 
$
2,348

 
$
57,420

    
Changes in inputs or assumptions used to value the contingently convertible Series E units liability and preferred shares derivative liability may have a material impact on the resulting valuation.
 
Note 13. Subsequent Events
 
Subsequent Acquisitions
 
From October 1, 2015, through October 31, 2015, we acquired 188 properties with an aggregate purchase price of approximately $26.3 million. We expect that our level of acquisition activity will fluctuate based on the number of suitable investments and on the level of funds available for investment.

On October 31, 2015, the Company acquired the remaining 67% outside ownership interest in two of its consolidated joint ventures, RJ American Homes 4 Rent One, LLC and RJ American Homes 4 Rent Two, LLC, which own a total of 377 single-family properties, for a purchase price of $44.4 million.
 
Declaration of Dividends
 
On November 5, 2015, our board of trustees declared quarterly dividends of $0.05 per Class A common share payable on December 31, 2015, to shareholders of record on December 15, 2015, and $0.05 per Class B common share payable on December 31, 2015, to shareholders of record on December 15, 2015. Additionally, our board of trustees also declared quarterly dividends of $0.3125 per share on the Company’s 5.0% Series A participating preferred shares payable on December 31, 2015, to shareholders of record on December 15, 2015, $0.3125 per share on the Company’s 5.0% Series B participating preferred shares payable on December 31, 2015, to shareholders of record on December 15, 2015, and $0.34375 per share on the Company’s 5.5% Series C participating preferred shares payable on December 31, 2015, to shareholders of record on December 15, 2015.





14

Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
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, renovating, leasing and operating single-family homes as rental properties. We commenced operations in November 2012 to continue the investment activities of AH LLC, which was founded by our chairman, B. Wayne Hughes, in 2011 to take advantage of the dislocation in the single-family home market.
 
As of September 30, 2015, we owned 38,377 single-family properties in selected sub-markets of MSAs in 22 states, compared to 34,599 single-family properties in 22 states as of December 31, 2014, and 30,877 single-family properties in 22 states as of September 30, 2014. As of September 30, 2015, we had an additional 112 properties in escrow that we expected to acquire, subject to customary closing conditions, for an aggregate purchase price of approximately $16.2 million. As of September 30, 2015, 35,617, or 92.8%, of our total properties were leased, compared to 28,250, or 81.6%, of our total properties as of December 31, 2014, and 26,161, or 84.7%, of our total properties as of September 30, 2014. As of September 30, 2015, our entire portfolio of single-family properties was internally managed through our proprietary property management platform.
 
Our Properties and Key Operating Metrics
 
The following table provides a summary of our single-family properties as of September 30, 2015:
 
 
Properties (1)
 
Gross Book Value
 
Averages per Property
Market
 
Number of
Properties
 
% of
Total
 

($ millions)
 
% of
Total
 
Avg. per Property
 
Square Footage
 
Property
Age
(years)
 
Avg. Year Purchased
Dallas-Fort Worth, TX
 
3,150

 
8.2
%
 
$
504.3

 
7.6
%
 
$
160,104

 
2,129

 
11.9

 
2013
Indianapolis, IN
 
2,775

 
7.2
%
 
422.2

 
6.4
%
 
152,157

 
1,942

 
13.0

 
2013
Atlanta, GA
 
2,688

 
7.0
%
 
437.1

 
6.6
%
 
162,614

 
2,096

 
14.7

 
2013
Charlotte, NC
 
2,274

 
5.9
%
 
395.2

 
6.0
%
 
173,797

 
2,006

 
12.5

 
2014
Greater Chicago area, IL and IN
 
2,064

 
5.4
%
 
369.1

 
5.6
%
 
178,846

 
1,896

 
14.1

 
2013
Houston, TX
 
2,021

 
5.3
%
 
349.8

 
5.3
%
 
173,093

 
2,219

 
11.1

 
2013
Cincinnati, OH
 
1,871

 
4.9
%
 
321.3

 
4.8
%
 
171,739

 
1,846

 
13.5

 
2013
Tampa, FL
 
1,558

 
4.1
%
 
293.4

 
4.4
%
 
188,305

 
1,974

 
11.8

 
2013
Jacksonville, FL
 
1,546

 
4.0
%
 
234.9

 
3.5
%
 
151,931

 
1,909

 
11.7

 
2013
Nashville, TN
 
1,498

 
3.9
%
 
311.8

 
4.7
%
 
208,152

 
2,209

 
11.2

 
2013
All Other (2)
 
16,932

 
44.1
%
 
2,987.8

 
45.1
%
 
176,457

 
1,885

 
12.8

 
2013
Total / Average
 
38,377

 
100.0
%
 
$
6,626.9

 
100.0
%
 
$
172,678

 
1,965

 
12.7

 
2013

(1)
Includes 377 properties in which we hold an approximate one-third interest.
(2)
Represents 31 markets in 19 states.


15

The following table summarizes certain key leasing metrics as of September 30, 2015:
 
 
Total Portfolio
 
Stabilized Properties (3)
Market
 
Leased Percentage (1)
 
Occupancy Percentage (2)
 
Avg. Scheduled Monthly Rent Per Property
 
Avg. Original Lease Term (months)
 
Avg. Remaining Lease Term (months)
 
Leased Percentage (1)
 
Occupancy Percentage (2)
 
Total Stabilized Properties
Dallas-Fort Worth, TX
 
94.4
%
 
93.4
%
 
$
1,531

 
12.5

 
7.2

 
96.8
%
 
95.8
%
 
3,037

Indianapolis, IN
 
92.7
%
 
91.3
%
 
1,306

 
12.8

 
7.6

 
94.1
%
 
92.7
%
 
2,724

Atlanta, GA
 
88.7
%
 
87.6
%
 
1,345

 
12.3

 
7.3

 
96.0
%
 
94.9
%
 
2,449

Charlotte, NC
 
93.7
%
 
93.3
%
 
1,393

 
12.4

 
7.4

 
96.4
%
 
96.0
%
 
2,196

Greater Chicago area, IL and IN
 
92.4
%
 
91.7
%
 
1,693

 
13.0

 
7.5

 
93.8
%
 
93.0
%
 
2,011

Houston, TX
 
92.1
%
 
90.4
%
 
1,610

 
12.4

 
7.5

 
94.8
%
 
93.0
%
 
1,915

Cincinnati, OH
 
92.1
%
 
91.2
%
 
1,442

 
13.0

 
6.8

 
93.8
%
 
92.9
%
 
1,822

Tampa, FL
 
93.3
%
 
91.6
%
 
1,542

 
12.1

 
7.1

 
95.1
%
 
93.4
%
 
1,514

Jacksonville, FL
 
90.5
%
 
88.9
%
 
1,327

 
12.0

 
7.0

 
95.0
%
 
93.2
%
 
1,451

Nashville, TN
 
91.9
%
 
90.9
%
 
1,592

 
12.1

 
7.0

 
95.2
%
 
94.1
%
 
1,425

All Other (4)
 
93.5
%
 
92.7
%
 
1,393

 
12.4

 
7.0

 
95.6
%
 
94.7
%
 
16,390

Total / Average
 
92.8
%
 
91.8
%
 
$
1,436

 
12.5

 
7.2

 
95.4
%
 
94.3
%
 
36,934


(1) 
A property is classified as leased upon the execution (i.e., signature) of a lease agreement.
(2) 
A property is classified as occupied upon commencement (i.e., start date) of a lease agreement, which can occur contemporaneously with or subsequent to execution (i.e., signature).
(3) 
A property is classified as stabilized once it has been renovated and then initially leased or available for rent for a period greater than 90 days.
(4) 
Represents 31 markets in 19 states.
 
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 our ability to identify and acquire properties; our pace of property acquisitions; the time and cost required to gain access to the properties and then to renovate and lease a newly acquired property 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.
 
Property Acquisitions
 
Since our formation, we have rapidly but systematically grown our portfolio of single-family homes. Our ability to identify and acquire single-family homes that meet our investment criteria is impacted by home prices in our target markets, the inventory of properties available-for-sale through our acquisition channels, competition for our target assets and our available capital. We expect that our level of acquisition activity will fluctuate based on the number of suitable investments and the level of capital available to invest. During the quarter ended September 30, 2015, our total portfolio increased by 886 homes, including 590 homes acquired through trustee acquisitions and 296 homes acquired through broker acquisitions.
 
Prior to December 10, 2014, we paid an acquisition and renovation fee to AH LLC equal to 5% of all costs and expenses incurred in connection with the initial acquisition, repair and renovation of our single-family properties for its services in identifying, evaluating, acquiring and overseeing the renovation of our properties. On December 10, 2014, AH LLC ceased providing acquisition and renovation services for us, we stopped paying AH LLC an acquisition and renovation fee and we hired all of AH LLC’s acquisition and renovation personnel necessary for our operations. No termination or other fee was paid to AH LLC in connection with the termination of AH LLC providing such services. Although we anticipate the internalization of AH LLC’s acquisition and renovation personnel to be cash flow positive to the Company, we expect a larger proportion of the internalized cost structure to be expensed in accordance with GAAP, compared to the 5% acquisition and renovation fee previously paid to AH LLC, which has been primarily capitalized related to asset acquisitions in accordance with GAAP and included in the cost basis of our single-family properties.
 

16

Property Operations
 
The acquisition of properties involves 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 $5,000 and $25,000 to renovate a home to prepare it for rental. Renovation work varies, but may include paint, flooring, carpeting, cabinetry, appliances, plumbing hardware and other items required to prepare the home for rental. The time and cost involved in initially accessing our homes to prepare them for rental can impact our financial performance and varies among properties based on several factors, including the source of acquisition channel, whether the property is located in a judicial or non-judicial foreclosure state, if applicable, and whether or not the home is occupied at the time of acquisition. This process of finalizing the acquisition and gaining initial access to the home can range from immediate access to multiple months and, on average, takes approximately 20 to 30 days. Additionally, after gaining access to the home, the time to renovate a property can vary significantly among properties and is most impacted by the age and condition of the property. On average, it takes approximately 50 to 60 days to complete the renovation process after gaining initial access to the home. 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 30 days to lease a property after completing the renovation process. 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 50 to 60 days to complete the turnover process.
 
Revenue
 
Our revenue is derived primarily from rents collected under lease agreements with tenants for our single-family properties. These include short-term leases that we enter into directly with our tenants, 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 renovate and re-lease properties when tenants vacate. We generally do not offer free rent or other concessions in connection with leasing our properties. Additionally, our ability to collect revenues and related operating results are impacted by the credit worthiness and quality of our tenants. On average, our tenants have household incomes ranging from $70,000 to $100,000 and primarily consist of families with approximately two adults and one or more children.
 
In addition to rental revenues, we receive fees and other reimbursements, referred to as “tenant charge-backs”, from our tenants, which are primarily designed to recover costs for certain items, such as utilities, damages and maintenance. In accordance with GAAP, these fees and tenant charge-backs are presented gross in the condensed consolidated statements of operations.
 
We expect that the overall occupancy of our portfolio will continue to increase as the proportion of recently acquired properties declines relative to the size of our entire portfolio. Nevertheless, in the near term, our ability to drive revenue growth will depend in large part on our ability to efficiently renovate and lease newly acquired properties, maintain occupancy in the rest of our portfolio and acquire additional properties, both leased and vacant.
 
Over the longer term and as our total portfolio occupancy stabilizes, our ability to maintain and grow revenues will become more dependent on our ability to retain tenants and increase rental rates. We believe that our platform will allow us to achieve strong tenant retention and lease renewal rates at our properties. Based o