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 March 31, 2016
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 237,646,752 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 May 4, 2016.
 


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, 2015, 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)
 
March 31, 2016
 
December 31, 2015
 
(Unaudited)
 
 
Assets
 

 
 

Single-family properties:
 

 
 

Land
$
1,474,902

 
$
1,229,017

Buildings and improvements
6,434,859

 
5,469,533

Single-family properties held for sale
123,575

 
7,432

 
8,033,336

 
6,705,982

Less: accumulated depreciation
(472,147
)
 
(416,044
)
Single-family properties, net
7,561,189

 
6,289,938

Cash and cash equivalents
71,438

 
57,686

Restricted cash
132,082

 
111,282

Rent and other receivables, net
16,998

 
13,936

Escrow deposits, prepaid expenses and other assets
142,828

 
121,627

Deferred costs and other intangibles, net
26,854

 
10,429

Asset-backed securitization certificates
25,666

 
25,666

Goodwill
120,655

 
120,655

Total assets
$
8,097,710

 
$
6,751,219

 
 
 
 
Liabilities
 

 
 

Credit facility
$
438,000

 
$
—

Asset-backed securitizations, net
2,799,267

 
2,473,643

Exchangeable senior notes, net
105,618

 
—

Secured note payable
50,522

 
50,752

Accounts payable and accrued expenses
200,946

 
154,751

Amounts payable to affiliates
—

 
4,093

Contingently convertible Series E units liability
—

 
69,957

Preferred shares derivative liability
63,090

 
62,790

Total liabilities
3,657,443

 
2,815,986

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Equity
 

 
 

Shareholders’ equity:
 

 
 

Class A common shares, $0.01 par value per share, 450,000,000 shares authorized, 238,919,417 and 207,235,510 shares issued and outstanding at March 31, 2016, and December 31, 2015, respectively
2,389

 
2,072

Class B common shares, $0.01 par value per share, 50,000,000 shares authorized, 635,075 shares issued and outstanding at March 31, 2016, and December 31, 2015
6

 
6

Preferred shares, $0.01 par value per share, 100,000,000 shares authorized, 17,060,000 shares issued and outstanding at March 31, 2016, and December 31, 2015
171

 
171

Additional paid-in capital
3,997,747

 
3,554,063

Accumulated deficit
(313,364
)
 
(296,865
)
Accumulated other comprehensive loss
(62
)
 
(102
)
Total shareholders’ equity
3,686,887

 
3,259,345

 
 
 
 
Noncontrolling interest
753,380

 
675,888

Total equity
4,440,267

 
3,935,233

 
 
 
 
Total liabilities and equity
$
8,097,710

 
$
6,751,219


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
March 31,
 
2016
 
2015
Revenues:
 

 
 

Rents from single-family properties
$
167,995

 
$
120,680

Fees from single-family properties
2,197

 
1,331

Tenant charge-backs
21,016

 
8,372

Other
3,985

 
1,365

Total revenues
195,193

 
131,748

 
 
 
 
Expenses:
 

 
 

Property operating expenses
85,001

 
59,208

General and administrative expense
8,057

 
6,131

Interest expense
30,977

 
15,670

Noncash share-based compensation expense
870

 
696

Acquisition fees and costs expensed
5,653

 
5,908

Depreciation and amortization
69,517

 
53,664

Other
1,253

 
694

Total expenses
201,328

 
141,971

 
 
 
 
Gain on conversion of Series E units
11,463

 
—

Remeasurement of Series E units
—

 
1,838

Remeasurement of preferred shares
(300
)
 
120

 
 
 
 
Net income (loss)
5,028

 
(8,265
)
 
 
 
 
Noncontrolling interest
3,836

 
3,956

Dividends on preferred shares
5,569

 
5,569

 
 
 
 
Net loss attributable to common shareholders
$
(4,377
)
 
$
(17,790
)
 
 
 
 
Weighted-average shares outstanding—basic and diluted
219,157,870

 
211,481,727

 
 
 
 
Net loss attributable to common shareholders per share—basic and diluted
$
(0.02
)
 
$
(0.08
)
 
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
March 31,
 
2016
 
2015
Net income (loss)
$
5,028

 
$
(8,265
)
Other comprehensive income:
 

 
 

Unrealized gain on interest rate cap agreement:
 

 
 

Unrealized interest rate cap agreement gain arising during the period
—

 
—

Reclassification adjustment for amortization of interest expense included in net income (loss)
40

 
—

Unrealized gain on interest rate cap agreement
40

 
—

 
 
 
 
Other comprehensive income
40

 
—

Comprehensive income (loss)
5,068

 
(8,265
)
Comprehensive income attributable to noncontrolling interests
3,836

 
3,956

Dividends on preferred shares
5,569

 
5,569

Comprehensive loss attributable to common shareholders
$
(4,337
)
 
$
(17,790
)
 
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, 2015
207,235,510

 
$
2,072

 
635,075

 
$
6

 
17,060,000

 
$
171

 
$
3,554,063

 
$
(296,865
)
 
$
(102
)
 
$
3,259,345

 
$
675,888

 
$
3,935,233

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation
—

 
—

 
—

 
—

 
—

 
—

 
870

 
—

 
—

 
870

 
—

 
870

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock issued under share-based compensation plans, net of shares withheld for employee taxes
40,096

 
1

 
—

 
—

 
—

 
—

 
189

 
—

 
—

 
190

 
—

 
190

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of Class A common shares and units in connection with the ARPI merger
36,546,170

 
365

 
—

 
—

 
—

 
—

 
511,281

 
—

 
—

 
511,646

 
18,814

 
530,460

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Redemptions of Class A units
28,424

 
—

 
—

 
—

 
—

 
—

 
370

 
—

 
—

 
370

 
(661
)
 
(291
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Repurchases of Class A common shares
(4,930,783
)
 
(49
)
 
—

 
—

 
—

 
—

 
(75,996
)
 
—

 
—

 
(76,045
)
 
—

 
(76,045
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assumption of exchangeable senior notes
—

 
—

 
—

 
—

 
—

 
—

 
6,970

 
—

 
—

 
6,970

 
—

 
6,970

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of Series E units to Series D units
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
58,494

 
58,494

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions to equity holders:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Preferred shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(5,569
)
 
—

 
(5,569
)
 
—

 
(5,569
)
Noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(2,991
)
 
(2,991
)
Common shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(12,122
)
 
—

 
(12,122
)
 
—

 
(12,122
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,192

 
—

 
1,192

 
3,836

 
5,028

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total other comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
40

 
40

 
—

 
40

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at March 31, 2016
238,919,417

 
$
2,389

 
635,075

 
$
6

 
17,060,000

 
$
171

 
$
3,997,747

 
$
(313,364
)
 
$
(62
)
 
$
3,686,887

 
$
753,380

 
$
4,440,267

 
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 Three Months Ended
March 31,
 
2016
 
2015
Operating activities
 

 
 

Net income (loss)
$
5,028

 
$
(8,265
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 

 
 

Depreciation and amortization
69,517

 
53,664

Noncash amortization of deferred financing costs
2,838

 
1,377

Noncash amortization of discount on exchangeable senior notes
290

 
—

Noncash amortization of discount on ARP 2014-SFR1 securitization
286

 
—

Noncash share-based compensation
870

 
696

Provision for bad debt
1,069

 
1,271

Gain on conversion of Series E units to Series D units
(11,463
)
 
—

Remeasurement of Series E units
—

 
(1,838
)
Remeasurement of preferred shares
300

 
(120
)
Equity in net income of unconsolidated ventures
232

 
96

Net (gain) loss on sale / impairment of single-family properties
(60
)
 
—

Other changes in operating assets and liabilities:
 

 
 

Rent and other receivables
(3,277
)
 
(2,578
)
Restricted cash for resident security deposits
(13,170
)
 
(4,209
)
Prepaid expenses and other assets
659

 
(2,819
)
Deferred leasing costs
(1,929
)
 
(2,410
)
Accounts payable and accrued expenses
(4,011
)
 
(17,117
)
Resident security deposit liability
13,170

 
4,209

Amounts payable to affiliates
(4,946
)
 
6,957

Net cash provided by operating activities
55,403

 
28,914

 
 
 
 
Investing activities
 

 
 

Cash paid for single-family properties
(34,181
)
 
(292,735
)
Escrow deposits for purchase of single-family properties
(467
)
 
(2,259
)
Decrease (increase) in restricted cash related to lender requirements
1,891

 
(5,039
)
Cash acquired in ARPI merger
15,499

 
—

Payoff of credit facility assumed in ARPI merger
(350,000
)
 
—

Net proceeds received from sales of single-family properties
7,582

 
—

Investment in unconsolidated joint ventures
—

 
(2
)
Investments in mortgage financing receivables
—

 
(6,633
)
Renovations to single-family properties
(12,118
)
 
(60,047
)
Other capital expenditures for single-family properties
(4,526
)
 
(6,457
)
Net cash used for investing activities
(376,320
)
 
(373,172
)
 
 
 
 
Financing activities
 

 
 

Net proceeds from issuance of Class A common shares
1

 
—

Proceeds from exercise of stock options
337

 
—

Repurchase of Class A common shares
(76,045
)
 
—

Redemptions of Class A units
(291
)
 
—

Proceeds from asset-backed securitizations
—

 
552,830

Payments on asset-backed securitizations
(6,381
)
 
(3,831
)
Proceeds from credit facility
521,000

 
346,000

Payments on credit facility
(83,000
)
 
(508,000
)
Payments on secured note payable
(230
)
 
(227
)
Distributions to noncontrolling interests
(2,991
)
 
(6,054
)
Distributions to common shareholders
(12,122
)
 
(10,574
)
Distributions to preferred shareholders
(5,569
)
 
(5,569
)
Deferred financing costs paid
(40
)
 
(13,411
)
Net cash provided by financing activities
334,669

 
351,164

 
 
 
 
Net increase in cash and cash equivalents
13,752

 
6,906

Cash and cash equivalents, beginning of period
57,686

 
108,787

Cash and cash equivalents, end of period
$
71,438

 
$
115,693


American Homes 4 Rent
Condensed Consolidated Statements of Cash Flows (continued)
(Amounts in thousands)
(Unaudited)
 
For the Three Months Ended
March 31,
 
2016
 
2015
Supplemental cash flow information
 

 
 

Cash payments for interest
$
(27,043
)
 
$
(13,895
)
 
 
 
 
Supplemental schedule of noncash investing and financing activities
 

 
 

Accounts payable and accrued expenses related to property acquisitions
$
(1,013
)
 
$
4,450

Accrued distribution to Series C convertible units
$
—

 
$
4,698

 
 
 
 
Merger with ARPI (see Note 10)
 
 
 
Single-family properties
$
1,277,253

 
$
—

Cash and cash equivalents
$
15,499

 
$
—

Restricted cash
$
9,521

 
$
—

Rent and other receivables
$
843

 
$
—

Escrow deposits, prepaid expenses and other assets
$
35,134

 
$
—

Deferred costs and other intangibles, net
$
22,696

 
$
—

Credit facility
$
(350,000
)
 
$
—

Asset-backed securitization
$
(329,703
)
 
$
—

Exchangeable senior notes, net
$
(112,298
)
 
$
—

Accounts payable and accrued expenses
$
(38,485
)
 
$
—

Class A common shares and units issued
$
(530,460
)
 
$
—


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 March 31, 2016, the Company held 47,955 single-family properties in 22 states, including 1,581 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, 2015. 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.
 
Effective January 1, 2016, in accordance with Accounting Standards Update (“ASU”) No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, deferred financing costs, net of amortization, related to our asset-backed securitizations have been classified in asset-backed securitizations, net within the condensed consolidated balance sheets. Prior to January 1, 2016, these costs were included in deferred costs and other intangibles, net within the condensed consolidated balance sheets. All prior period amounts have been reclassified to conform to the current presentation. This resulted in the reclassification of $56.6 million of deferred financing costs, net of amortization, from deferred costs and other intangibles, net to

6

asset-backed securitizations, net as of December 31, 2015, in the condensed consolidated balance sheets.

Effective January 1, 2016, due to the stabilization of our portfolio and the majority of our properties having been initially leased, vacant single-family properties and other expenses has been reclassified in the condensed consolidated statements of operations, with vacant single-family property operating expenses combined with leased single-family property operating expenses, which are both included in property operating expenses within the condensed consolidated statements of operations, and other expenses reclassified to other expenses within the condensed consolidated statements of operations. This resulted in the reclassification of the $6.0 million of vacant single-family properties and other expenses for the quarter ended March 31, 2015, with $5.3 million of vacant single-family property operating expenses reclassified to property operating expenses and $0.7 million of other expenses reclassified to other expenses in the condensed consolidated statements of operations.

There have been no other 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, 2015. 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.

Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (Topic 718), which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance will be effective for the Company for annual reporting periods beginning after December 15, 2016, and for interim periods within those annual periods, with early adoption permitted. The Company is currently assessing the impact of the guidance on our financial statements.
 
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which will require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than one year. Lessor accounting will remain similar to lessor accounting under previous GAAP, while aligning with the FASB's new revenue recognition guidance. The guidance will be effective for the Company for annual reporting periods beginning after December 15, 2018, and for interim periods within those annual periods, with early adoption permitted. The Company is currently assessing the impact of the guidance on our financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including the requirement to measure certain equity investments at fair value with changes in fair value recognized in net income. 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. The Company is currently assessing the impact of the guidance on our financial statements.
    
In April 2015, the FASB issued 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 is 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 adopted this guidance January 1, 2016, which had the impact of a reduction to deferred costs and other intangibles, net, for the deferred financing costs on our asset-backed securitizations, as well as a reduction to the corresponding associated debt liability in asset-backed securitizations, net within the condensed consolidated balance sheets.
 
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 is 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 adopted this guidance January 1, 2016, with no material impact on our financial statements.
 

7

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 our financial statements.

Note 3. Single-Family Properties
 
Single-family properties, net, consisted of the following as of March 31, 2016, and December 31, 2015 (dollars in thousands):
 
March 31, 2016
 
Number of
properties
 
Net book
value
Leased single-family properties
44,455

 
$
7,116,267

Single-family properties being renovated
320

 
55,325

Single-family properties being prepared for re-lease
136

 
21,393

Vacant single-family properties available for lease
1,463

 
244,629

Single-family properties held for sale
1,581

 
123,575

Total
47,955

 
$
7,561,189

 
December 31, 2015
 
Number of
properties
 
Net book
value
Leased single-family properties
36,403

 
$
5,895,482

Single-family properties being renovated
476

 
75,055

Single-family properties being prepared for re-lease
178

 
28,525

Vacant single-family properties available for lease
1,678

 
283,444

Single-family properties held for sale
45

 
7,432

Total
38,780

 
$
6,289,938


Single-family properties, net increased $1.3 billion to $7.6 billion as of March 31, 2016, compared to $6.3 billion as of December 31, 2015, primarily related to the acquisition of 8,936 properties in connection with the Merger with American Residential Properties, Inc. ("ARPI") (see Note 10). Single-family properties, net at March 31, 2016, and December 31, 2015, included $8.9 million and $8.5 million, respectively, related to properties for which the recorded grant deed had not been received. For these properties, the trustee or seller had warranted that all legal rights of ownership had been transferred to us on the date of the sale, but there was a delay for the deeds to be recorded.
 
Depreciation expense related to single-family properties was $60.8 million and $48.7 million for the three months ended March 31, 2016 and 2015, respectively.
 
Note 4. Rent and Other Receivables
 
Included in rent and other receivables, net is an allowance for doubtful accounts of $3.8 million and $3.0 million as of March 31, 2016, and December 31, 2015, respectively. Also included in rent and other receivables, net, are non-tenant receivables, which totaled $1.1 million and $1.0 million as of March 31, 2016, and December 31, 2015, respectively.
 

8

Note 5. Deferred Costs and Other Intangibles
 
Deferred costs and other intangibles, net, consisted of the following as of March 31, 2016, and December 31, 2015 (in thousands):
 
March 31, 2016
 
December 31, 2015
Deferred leasing costs
$
10,621

 
$
8,692

Deferred financing costs
12,454

 
12,454

Intangible assets:
 

 
 

In-place lease values
22,847

 
152

Trademark
3,100

 
3,100

Database
2,100

 
2,100

 
51,122

 
26,498

Less: accumulated amortization
(24,268
)
 
(16,069
)
Total
$
26,854

 
$
10,429


Deferred costs and other intangibles, net increased $16.5 million to $26.9 million as of March 31, 2016, compared to $10.4 million as of December 31, 2015, primarily related to the acquisition of $22.7 million of in-place leases in connection with the Merger with ARPI (see Note 10).
 
Amortization expense related to deferred leasing costs, the value of in-place leases, trademark and database was $7.6 million and $3.2 million for the three months ended March 31, 2016 and 2015, respectively, which has been included in depreciation and amortization within the condensed consolidated statements of operations. Deferred financing costs relate to our credit facility. Amortization of deferred financing costs was $0.6 million for the three months ended March 31, 2016 and 2015, 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 March 31, 2016, for future periods (in thousands):
Year
 
Deferred
Leasing
Costs
 
Deferred
Financing
Costs
 
Value of
In-place
Leases
 
Trademark
 
Database
Remaining 2016
 
$
2,769

 
$
1,870

 
$
16,212

 
$
495

 
$
225

2017
 
506

 
1,017

 
1,426

 
660

 
300

2018
 
—

 
519

 
31

 
92

 
300

2019
 
—

 
—

 
—

 
—

 
300

2020
 
—

 
—

 
—

 
—

 
132

Total
 
$
3,275

 
$
3,406

 
$
17,669

 
$
1,247

 
$
1,257



9

Note 6. Debt
 
The following table presents the Company’s debt as of March 31, 2016, and December 31, 2015 (in thousands):
 
 
 
 
 
Outstanding Principal Balance
 
Interest Rate (1)
 
Maturity Date
 
March 31, 2016
 
December 31, 2015
AH4R 2014-SFR1 securitization (2)
1.98
%
 
June 9, 2019
 
$
472,553

 
$
473,755

ARP 2014-SFR1 securitization (3)
2.55
%
 
September 9, 2019
 
342,115

 
—

AH4R 2014-SFR2 securitization
4.42
%
 
October 9, 2024
 
506,022

 
507,305

AH4R 2014-SFR3 securitization
4.40
%
 
December 9, 2024
 
521,788

 
523,109

AH4R 2015-SFR1 securitization (4)
4.14
%
 
April 9, 2045
 
547,739

 
549,121

AH4R 2015-SFR2 securitization (5)
4.36
%
 
October 9, 2045
 
475,726

 
476,920

Total asset-backed securitizations
 

 
 
 
2,865,943

 
2,530,210

Exchangeable senior notes
3.25
%
 
November 15, 2018
 
115,000

 
—

Secured note payable
4.06
%
 
July 1, 2019
 
50,522

 
50,752

Credit facility (6)
3.19
%
 
September 30, 2018
 
438,000

 
—

Total debt (7)
 

 
 
 
3,469,465

 
2,580,962

Unamortized discount on ARP 2014-SFR1 securitization
 
 
 
 
(12,126
)
 
—

Unamortized discount on exchangeable senior notes
 
 
 
 
(2,614
)
 
—

Equity component of exchangeable senior notes
 
 
 
 
(6,768
)
 
—

Deferred financing costs, net (8)
 
 
 
 
(54,550
)
 
(56,567
)
Total debt per balance sheet
 
 
 
 
$
3,393,407

 
$
2,524,395


(1)
Interest rates are as of March 31, 2016. Unless otherwise stated, interest rates are fixed percentages.
(2)
The 2014-SFR1 securitization bears interest at a duration-weighted blended interest rate of 1-month 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 ARP 2014-SFR1 securitization bears interest at an effective weighted-average interest rate of 1-month LIBOR plus 2.11%. The maturity date of September 9, 2019, reflects the fully extended maturity date based on an initial two-year 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.
(4)
The 2015-SFR1 securitization has a maturity date of April 9, 2045, with an anticipated repayment date of April 9, 2025.
(5)
The 2015-SFR2 securitization has a maturity date of October 9, 2045, with an anticipated repayment date of October 9, 2025.
(6)
The credit facility provides for a borrowing capacity of up to $800.0 million through June 2016 and bears interest at 1-month LIBOR plus 2.75% (3.125% beginning in March 2017). Any outstanding borrowings upon expiration of the credit facility period in June 2016 will become due in September 2018.
(7)
The Company was in compliance with all debt covenants associated with its asset-backed securitizations, exchangeable senior notes, secured note payable and credit facility as of March 31, 2016, and December 31, 2015.
(8)
Deferred financing costs relate to our AH4R asset-backed securitizations. Amortization of deferred financing costs was $2.1 million and $1.4 million for the three months ended March 31, 2016 and 2015, respectively, which has been included in gross interest, prior to interest capitalization.

Asset-Backed Securitization

In connection with the merger with ARPI on February 29, 2016 (see Note 10), the Company assumed a securitization loan (the "ARP 2014-SFR1 securitization”), which involved the issuance and sale of single-family rental pass-through certificates that represent beneficial ownership interests in a loan secured by 2,876 homes held by a special purpose entity, ARP 2014-1 Borrower, LLC (the “Borrower”). 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, at the time of its origination by ARPI in August 2014, had an original principal amount of $342.2 million and an initial term of two years, with three, 12-month extension options, resulting in a fully extended maturity date of September 9, 2019. It is comprised of six floating rate components computed monthly based on 1-month LIBOR for each interest period plus a fixed component spread for each of the six components resulting in an effective weighted-average interest rate of 1-month LIBOR plus 2.11%. Interest on the loan is paid monthly.

The 2,876 homes securing the loan are substantially similar to the other properties owned by the Company and are 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

10

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 (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 requires that we maintain certain covenants, including but not limited to, a minimum debt yield on the collateral pool of properties. We were in compliance with all covenants as of March 31, 2016.

The Company consolidates, at the historical cost basis, which was adjusted to fair value at the time of the merger, the 2,876 properties placed as collateral for the loan and has recorded a $342.1 million asset-backed securitization liability, representing the principal balance outstanding on the loan as of March 31, 2016, net of an unamortized discount of $12.1 million, which is included in asset-backed securitizations, net within the condensed consolidated balance sheets. The 2,876 collateral homes had a net book value of $456.9 million as of March 31, 2016.

We also assumed an interest rate cap agreement in connection with the assumption of the asset-backed securitization loan that has a LIBOR-based strike rate equal to 3.12% for the initial two-year term of the loan, based on ARPI’s issuance date of the loan in August 2014, to hedge against interest rate fluctuations. The fair value of the interest rate cap agreement is estimated to be zero as of March 31, 2016.

Exchangeable Senior Notes, Net

In connection with the merger with ARPI on February 29, 2016 (see Note 10), the Company assumed 3.25% exchangeable senior notes due 2018 that have a $115.0 million aggregate principal amount and a fair value at assumption of $112.3 million. The exchangeable senior notes are senior unsecured obligations of the operating partnership and rank equally in right of payment with all other existing and future senior unsecured indebtedness of the operating partnership. Interest is payable in arrears on May 15 and November 15 of each year, beginning May 15, 2016, until the maturity date of November 15, 2018. The operating partnership’s obligations under the exchangeable senior notes are fully and unconditionally guaranteed by the Company. The exchangeable senior notes bear interest at a rate of 3.25% per annum and contain an exchange settlement feature, which provides that the exchangeable senior notes may, under certain circumstances, be exchangeable for cash, shares of our common stock or a combination of cash and shares of our common stock, at the option of the operating partnership, based on an initial exchange rate of 46.9423 shares of ARPI's common stock per $1,000 principal amount of the notes. The adjusted initial exchange rate would be 53.2795 shares of our common stock per $1,000 principal amount of the notes, based on the 1.135 exchange ratio of ARPI shares to our shares resulting from our merger with ARPI. The current exchange rate as of March 31, 2016, was 54.1851 shares of our common stock per $1,000 principal amount of the notes. The exchange rate changes over time based on our common share price and distributions to common shareholders.

Prior to the close of business on the business day immediately preceding August 15, 2018, the notes will be exchangeable at the option of the holders only under the following circumstances: (1) during any calendar quarter beginning after December 31, 2013 (and only during such quarter) if the closing sale price per share of our common stock is more than 130% of the then-current exchange price for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter; (2) during the five consecutive business-day period following any five consecutive trading-day period in which the trading price per $1,000 principal amount of notes was less than 98% of the product of the closing sale price per share of our common stock multiplied by the then-current exchange rate; or (3) upon the occurrence of specified corporate transactions described in the indenture. On or after August 15, 2018, the notes will be exchangeable at any time prior to the close of business on the second business day immediately preceding the maturity date. Subject to its election to satisfy its exchange obligations entirely in shares of our common stock, upon exchange, the operating partnership will pay or deliver, as the case may be, to exchanging holders in respect of each $1,000 principal amount of notes being exchanged a settlement amount either solely in cash, solely in common shares or in a combination of cash and shares of our common stock.

The fair value of the exchangeable senior notes, which was calculated using a straight-debt rate of 6.7% at the time of assumption, was $112.3 million, which represents the $115.0 million face value less a discount of $2.7 million, which will be amortized using the effective interest method over the term of the notes. The amount recorded to exchangeable senior notes, net at the time of assumption was $105.3 million, which represents the fair value of $112.3 million, less the fair value of the exchange settlement feature of the notes of $7.0 million, which was recorded in additional paid-in capital. The fair value of the exchange settlement feature will be amortized using the effective interest method over the term of the notes.


11

As of March 31, 2016, the exchangeable senior notes, net had a balance of $105.6 million in the condensed consolidated balance sheets, which was net of an unamortized discount of $2.6 million and $6.8 million of unamortized fair value of the exchange settlement feature, which was included in additional paid-in capital within the condensed consolidated balance sheets.

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 June 7, 2016, at which point, any outstanding borrowings will convert to a term loan through September 30, 2018. We are in the process of extending or replacing this credit facility. All borrowings under the credit facility bear interest at 1-month LIBOR plus 2.75% until March 2017, and thereafter at 1-month 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 March 31, 2016 and December 31, 2015, the Company was in compliance with all loan covenants. The Company had $438.0 million of borrowings outstanding under the credit facility as of March 31, 2016, compared to no borrowings outstanding under the credit facility at December 31, 2015.
 
Interest Expense
 
The following table displays our total gross interest, which includes unused commitment and other fees on our credit facility and amortization of deferred financing costs, the discount on the ARP 2014-SFR1 securitization and the fair value of the exchange settlement feature of the exchangeable senior notes, and capitalized interest for the three months ended March 31, 2016 and 2015 (in thousands):
 
For the Three Months Ended
 
March 31, 2016
 
March 31, 2015
Gross interest
$
31,613

 
$
20,239

Capitalized interest
(636
)
 
(4,569
)
Interest expense
$
30,977

 
$
15,670


Note 7. Accounts Payable and Accrued Expenses
 
The following table summarizes accounts payable and accrued expenses as of March 31, 2016, and December 31, 2015 (in thousands):
 
March 31, 2016
 
December 31, 2015
Accounts payable
$
139

 
$
1,173

Accrued property taxes
64,634

 
46,024

Other accrued liabilities
41,818

 
26,031

Accrued construction and maintenance liabilities
10,995

 
11,429

Resident security deposits
66,989

 
53,819

Prepaid rent
16,371

 
16,275

Total
$
200,946

 
$
154,751

 
Note 8. Shareholders’ Equity
 
Issuance of Class A Common Shares and Class A Units

In February 2016, the Company issued 36,546,170 Class A common shares, $0.01 par value per share, and 1,343,843 Class A units in connection with the merger with ARPI (see Note 10). Class A units represent voting equity interests in our operating partnership. Holders of Class A units in our operating partnership have the right to redeem the units for cash or, at the election of the Company, exchange the units for the Company's Class A common shares on a one-for-one basis.

Conversion of Series C Convertible Units into Class A Units

The Series C convertible units represented voting equity interests in our operating partnership owned by AH LLC. On February 28, 2016, the third anniversary of their original issue date, the 31,085,974 Series C convertible units converted into Class A units on a one-for-one basis in accordance with their terms.


12

Conversion of Series E Convertible Units into Series D Convertible Units

The Series E convertible units represented non-voting equity interests in our operating partnership. Series E convertible units did not participate in any distributions and were convertible into Series D convertible units on February 29, 2016, subject to an earn-out provision based on the level of pro forma annualized EBITDA contribution, as defined, of the Advisor and the Property Manager. The terms of the earn-out provision were met in full and, therefore, the 4,375,000 Series E convertible units were converted into Series D convertible units on a one-for-one basis on February 29, 2016. The fair value of the Series D convertible units was estimated using a Monte Carlo simulation model, which was primarily driven by the most recent trading price of the Company’s Class A common shares into which the Series D convertible units are ultimately convertible. Based on this valuation, the conversion of Series E convertible units into Series D convertible units resulted in a gain of $11.5 million which was recorded in gain on conversion of Series E units within the condensed consolidated statements of operations. As of March 31, 2016, AH LLC owned all of the 8,750,000 outstanding Series D convertible units.

Participating Preferred Shares
 
As of March 31, 2016, 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 $457.8 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 March 31, 2016 and 2015. 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 March 31, 2016 and 2015, totaled $0.3125 per share, $0.3125 per share and $0.34375 per share, respectively. Our board of trustees declared distributions that totaled zero and $0.15113 per share on our Series C convertible units during the quarters ended March 31, 2016 and 2015, respectively. Former Series C convertible unit holders received a pro-rated distribution of $0.09739 per unit based on the period of time during the first quarter of 2016 prior to their conversion to Class A units on February 28, 2016. On December 10, 2015, the Series D convertible units became eligible to participate in 70% of distributions declared on Class A units.
 
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 45,526,644 and 14,440,670, or approximately 15.9% and 6.5%, of the total 286,377,860 and 222,311,255 Class A units in the operating partnership as of March 31, 2016, and December 31, 2015, respectively. Additionally, AH LLC owned zero and all 31,085,974 of the Series C convertible units and owned all 8,750,000 and 4,375,000 of the Series D convertible units in the operating partnership as of March 31, 2016, and December 31, 2015, respectively. Noncontrolling interest also includes interests held by former ARPI employees in Class A units of the Company's operating partnership, which were issued in connection with the merger with ARPI in February 2016. Former ARPI Class A unit holders owned 1,296,724, or approximately 0.5% of the total 286,377,860 Class A units in the operating partnership as of March 31, 2016. Also included in noncontrolling interest is the outside ownership interest in a consolidated subsidiary of the Company.
 
Noncontrolling interest as reflected in the Company’s condensed consolidated statements of operations for the three months ended March 31, 2016, of $3.8 million, primarily consisted of $3.0 million of preferred income allocated to Series C convertible units prior to their conversion into Class A units on February 28, 2016, $0.8 million of net income allocated to Class A units, $0.1 million of net income allocated to Series D convertible units and $0.1 million of net loss allocated to the noncontrolling interest in a consolidated subsidiary of the Company. Noncontrolling interest for the three months ended March 31, 2015, of $4.0 million, primarily consisted of $4.7 million of preferred income allocated to Series C convertible units, $0.8 million of net loss allocated to Class A units, and $0.1 million of net income allocated to noncontrolling interests in certain of the Company’s consolidated subsidiaries.
 
2012 Equity Incentive Plan
 
During the three months ended March 31, 2016 and 2015, the Company granted stock options for 688,000 and 553,500 Class A common shares, respectively, and 74,100 and 42,000 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 three months ended March 31, 2016 and 2015, vest over four years and expire 10 years from the date of grant.
 

13

The following table summarizes stock option activity under the Plan for the three months ended March 31, 2016 and 2015:
 
Shares
 
Weighted-
Average
Exercise Price
 
Weighted-
Average
Remaining
Contractual 
Life (in years)
 
Aggregate
Intrinsic
Value (1)
(in thousands)
Options outstanding at January 1, 2015
2,165,000

 
$
16.17

 
8.8
 
$
1,890

Granted
553,500

 
16.48

 
 
 
 

Exercised
—

 
—

 
 
 


Forfeited
(110,500
)
 
16.57

 
 
 
 

Options outstanding at March 31, 2015
2,608,000

 
$
16.22

 
8.7
 
$
1,064

Options exercisable at March 31, 2015
597,500

 
$
15.80

 
7.8
 
$
466

 
 
 
 
 
 
 
 
Options outstanding at January 1, 2016
2,484,400

 
$
16.22

 
8.0
 
$
1,225

Granted
688,000

 
14.02

 
 
 
 

Exercised
(22,500
)
 
15.00

 
 
 
13

Forfeited
(32,150
)
 
16.70

 
 
 
 

Options outstanding at March 31, 2016
3,117,750

 
$
15.74

 
8.3
 
$
1,711

Options exercisable at March 31, 2016
1,137,125

 
$
16.02

 
7.5
 
$
314


(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 three months ended March 31, 2016 and 2015:
 
2016
 
2015
Weighted-average fair value
$
2.81

 
$
4.57

Expected term (years)
7.0

 
7.0

Dividend yield
3.0
%
 
3.0
%
Volatility
27.8
%
 
36.0
%
Risk-free interest rate
1.5
%
 
1.9
%
  
The following table summarizes the activity that relates to the Company’s restricted stock units under the Plan for the three months ended March 31, 2016 and 2015:
 
2016
 
2015
Restricted stock units at beginning of period
91,650

 
85,000

Units awarded
74,100

 
42,000

Units vested
(26,750
)
 
(21,250
)
Units forfeited
(400
)
 
(6,000
)
Restricted stock units at end of the period
138,600


99,750

 
Total non-cash share-based compensation expense related to stock options and restricted stock units was $0.9 million and $0.7 million for the three months ended March 31, 2016 and 2015, respectively.

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 three months ended March 31, 2016, we repurchased and retired approximately 4.9 million of our Class A common shares, on a settlement date basis, in accordance with the program at a weighted-average price of $15.40 per share and a total price of $75.9 million. As of March 31, 2016, we had a remaining repurchase authorization of $166.8 million under the program.


14

Note 9. Related Party Transactions
 
As of March 31, 2016, and December 31, 2015, AH LLC owned approximately 2.9% and 3.3%, respectively, 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 March 31, 2016, and December 31, 2015, 45,526,644 and 14,440,670 Class A common units as of March 31, 2016, and December 31, 2015, respectively, zero and 31,085,974 Series C convertible units as of March 31, 2016, and December 31, 2015, respectively, 8,750,000 and 4,375,000 Series D convertible units as of March 31, 2016, and December 31, 2015, respectively, and zero and 4,375,000 Series E convertible units as of March 31, 2016, and December 31, 2015, respectively) an approximate 19.8% and 22.1% interest at March 31, 2016, and December 31, 2015, respectively.
 
As of March 31, 2016, the Company had a net receivable of $0.9 million due from affiliates related to management fees, which was included in escrow deposits, prepaid expenses and other assets within the condensed consolidated balance sheets. As of December 31, 2015, the Company had a net payable of $4.1 million payable to affiliates related to declared and unpaid distributions on the Series C units, partially offset by expense reimbursements from affiliates, which was included in amounts payable to affiliates within the condensed consolidated balance sheets.

In June 2014, the Company and the Alaska Permanent Fund Corporation ("APFC") formed a joint venture (the "Alaska Joint Venture II"). As of March 31, 2016, and December 31, 2015, we had contributed $40.0 million to the Alaska Joint Venture II and APFC had contributed $160.0 million. The Company accounts for its investment in the joint venture under the equity method of accounting as an investment in an unconsolidated subsidiary, which is included in escrow deposits, prepaid expenses and other assets within the condensed consolidated balance sheets, as we do not have a majority interest or the ability to control the entity. The Company has a promoted interest in the Alaska Joint Venture II in addition to owning 20% of its equity.

Note 10. Acquisitions

Merger with American Residential Properties, Inc.

On February 29, 2016, the Company completed a merger with ARPI, in which ARPI merged with and into a wholly owned subsidiary of us in a stock-for-stock transaction, with our subsidiary continuing as the surviving entity (the "Merger"). The purpose of this acquisition was to solidify our position as the largest public owner and operator of single-family rental properties, increase scale and achieve operating synergies. ARPI’s portfolio is substantially similar to our own, meets our high quality portfolio standards and the acquisition of their portfolio has allowed us to add density in key markets. As a result of the Merger, each holder of ARPI common stock received 1.135 of our Class A common shares for each share of ARPI common stock and each holder of limited partnership interests in ARPI’s operating partnership received 1.135 Class A units of our operating partnership. We issued 36,546,170 Class A common shares and 1,343,843 Class A units in connection with the Merger, representing 12.7% of the total Class A common shares, Class B common shares and units of our operating partnership, collectively, as of the acquisition date. The equity transaction consideration of $530.5 million was calculated based on the 36,546,170 Class A common shares and 1,343,843 Class A units issued in connection with the Merger valued at the Company’s closing share price on the acquisition date of $14.00 per share. Total transaction costs incurred by the Company related to the Merger were $5.0 million, of which $3.4 million was incurred during the first quarter of 2016.


15

The following table summarizes the preliminary estimated fair values of the assets and liabilities acquired as part of the Merger as of the acquisition date (in thousands):
Net assets acquired
 
 
Land
 
$
262,396

Buildings and improvements
 
1,014,857

Cash and cash equivalents
 
15,499

Restricted cash
 
9,521

Rent and other receivables
 
843

Escrow deposits, prepaid expenses and other assets
 
35,134

In-place leases
 
22,696

Accounts payable and accrued expenses
 
(38,485
)
Net assets acquired
 
1,322,461

 
 
 
Debt assumed
 
 
Credit facility
 
350,000

Exchangeable senior notes
 
112,298

Asset-backed securitization
 
329,703

Total debt assumed
 
792,001

 
 
 
Equity transaction consideration
 
530,460

 
 
 
Total transaction consideration
 
$
1,322,461


Since the completion of the Merger, the Company has consolidated the 8,936 single-family properties acquired as part of the transaction and the related results of these operations are reflected in the Company’s condensed consolidated financial statements.

The following table presents the total revenues and net loss attributable to the Merger that are included in our condensed consolidated statements of operations for the three months ended March 31, 2016 (in thousands):
 
 
Period from February 29, 2016 to March 31, 2016
Total revenues
 
$
11,140

Net loss
 
$
(2,569
)

Pro Forma Supplemental Information
    
The following table presents the Company’s supplemental consolidated pro forma total revenues and net loss as if the Merger had occurred on January 1, 2015 (in thousands):
 
 
For the Three Months Ended
 
 
March 31, 2016
 
March 31, 2015
Pro forma total revenues (1)
 
$
217,262

 
$
159,250

Pro forma net loss (1)
 
$
(14,173
)
 
$
(10,711
)
Pro forma net loss per share (1)
 
$
(0.08
)
 
$
(0.08
)

(1)
This pro forma supplemental information does not purport to be indicative of what the Company's operating results would have been had the Merger occurred on January 1, 2015.


16

Note 11. Earnings per Share
 
The following table reflects the computation of net loss per share on a basic and diluted basis for the three months ended March 31, 2016 and 2015 (in thousands, except share data): 
 
For the Three Months Ended
March 31,
 
2016
 
2015
Income (loss) (numerator):
 

 
 

Net income (loss)
$
5,028

 
$
(8,265
)
Noncontrolling interest
3,836

 
3,956

Dividends on preferred shares
5,569

 
5,569

Net loss attributable to common shareholders
$
(4,377
)
 
$
(17,790
)
 
 
 
 
Weighted-average shares (denominator)
219,157,870

 
211,481,727

 
 
 
 
Net loss per share—basic and diluted
$
(0.02
)
 
$
(0.08
)
 
Total weighted-average shares for the three months ended March 31, 2016, excludes an aggregate of 75,889,718, and for the three months ended March 31, 2015, excludes an aggregate of 74,044,394, 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 12. Commitments and Contingencies
 
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 13. Noncash Transactions
 
On February 29, 2016 we completed our Merger with ARPI in a stock-for-stock transaction. Each holder of ARPI common stock received 1.135 of our Class A common shares for each share of ARPI common stock and each holder of limited partnership interests in ARPI's operating partnership received 1.135 Class A units of our operating partnership. We issued 36,546,170 Class A common shares and 1,343,843 Class A units in connection with the Merger, representing 12.7% of the total Class A common shares, Class B common shares and units of our operating partnership, collectively, as of the acquisition date (see Note 10).

Note 14. 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 and preferred shares derivative liability are the only financial instruments recorded at fair value on a recurring basis in the condensed consolidated financial statements.


17

Our credit facility, asset-backed securitizations, exchangeable senior notes and secured note payable are also financial instruments, which are classified as Level 3 in the fair value hierarchy as they were estimated by using unobservable inputs. We estimated their fair values by modeling the contractual cash flows required under the instruments and discounting them back to their present values using estimates of current market rates. The following table displays the carrying values and fair values of our debt instruments as of March 31, 2016, and December 31, 2015 (in thousands):
 
March 31, 2016
 
December 31, 2015
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
AH4R 2014-SFR1 securitization
$
472,553

 
$
480,021

 
$
473,755

 
$
472,258

ARP 2014-SFR1 securitization (1)
329,989

 
329,989

 
—

 
—

AH4R 2014-SFR2 securitization
506,022

 
511,289

 
507,305

 
476,952

AH4R 2014-SFR3 securitization
521,788

 
527,647

 
523,109

 
489,448

AH4R 2015-SFR1 securitization
547,739

 
549,515

 
549,121

 
496,673

AH4R 2015-SFR2 securitization
475,726

 
480,920

 
476,920

 
433,633

Total asset-backed securitizations, net (2)
2,853,817

 
2,879,381

 
2,530,210

 
2,368,964

Exchangeable senior notes, net (1)
105,618

 
105,618

 
—

 
—

Secured note payable
50,522

 
50,894

 
50,752

 
48,631

Credit facility (3)
438,000

 
438,000

 
—

 
—

Total debt
$
3,447,957

 
$
3,473,893

 
$
2,580,962

 
$
2,417,595

(1)
The ARP 2014-SFR1 securitization and exchangeable senior notes, net are presented net of unamortized discounts. As they were recently acquired in connection with the Merger with ARPI in February 2016, we believe their fair values approximate their carrying values.
(2)
The carrying values of the asset-backed securitizations exclude $54.6 million and $56.6 million of deferred financing costs as of March 31, 2016, and December 31, 2015, respectively.
(3)
As our credit facility bears interest at a floating rate based on an index plus a spread, which is 1-month LIBOR plus 2.75%, and the credit spread is consistent with those demanded in the market for credit facilities with similar risks and maturities, management believes that the carrying value of the credit facility as of March 31, 2016, reasonably approximates fair value, which has been estimated by discounting future cash flows at market rates.

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 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.
 

18

The following table sets forth the fair value of our interest rate cap agreement, the contingently convertible Series E units liability and preferred shares derivative liability as of March 31, 2016, and December 31, 2015 (in thousands):
 
 
March 31, 2016
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:
 
 

 
 

 
 

 
 

Preferred shares derivative liability
 
$
—

 
$
—

 
$
63,090

 
$
63,090

 
 
December 31, 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
 
$
—

 
$
—

 
$
69,957

 
$
69,957

Preferred shares derivative liability
 
$
—

 
$
—

 
$
62,790

 
$
62,790


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 three months ended March 31, 2016 and 2015 (in thousands):
Description
 
January 1, 2016
 
Issuances
 
Conversions
 
Remeasurement
included in
earnings
 
March 31, 2016
Liabilities:
 
 

 
 

 
 
 
 

 
 

Contingently convertible Series E units liability
 
$
69,957

 
$
—

 
$
(69,957
)
 
$
—

 
$
—

Preferred shares derivative liability
 
$
62,790

 
$
—

 
$
—

 
$
300

 
$
63,090

Description
 
January 1, 2015
 
Issuances
 
Conversions
 
Remeasurement
included in
earnings
 
March 31, 2015
Liabilities:
 
 

 
 

 
 
 
 

 
 

Contingently convertible Series E units liability
 
$
72,057

 
$
—

 
$
—

 
$
(1,838
)
 
$
70,219

Preferred shares derivative liability
 
$
57,960

 
$
—

 
$
—

 
$
(120
)
 
$
57,840

    
Changes in inputs or assumptions used to value the preferred shares derivative liability may have a material impact on the resulting valuation.
 
Note 15. Subsequent Events
 
Subsequent Acquisitions
 
From April 1, 2016, through April 30, 2016, we acquired 64 properties with an aggregate purchase price of approximately $9.0 million. Our acquisition pace for individually acquired properties has decreased over the past year and is expected to continue to decrease over the next year.

Borrowings on Credit Facility

From April 1, 2016, through April 30, 2016, the Company borrowed an additional $20.0 million under the credit facility and made payments on the credit facility totaling $40.0 million, resulting in an outstanding loan balance of $418.0 million as of April 30, 2016.

19


Share Repurchases

From April 1, 2016, through April 30, 2016, the Company repurchased and retired approximately 1.3 million of our Class A common shares, on a settlement date basis, at a weighted-average price of $15.59 per share and a total price of $20.0 million in accordance with our share repurchase program.

Declaration of Dividends
 
On May 3, 2016, our board of trustees declared quarterly dividends of $0.05 per Class A common share payable on June 30, 2016, to shareholders of record on June 15, 2016, and $0.05 per Class B common share payable on June 30, 2016, to shareholders of record on June 15, 2016. 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 June 30, 2016, to shareholders of record on June 15, 2016, $0.3125 per share on the Company’s 5.0% Series B participating preferred shares payable on June 30, 2016, to shareholders of record on June 15, 2016, and $0.34375 per share on the Company’s 5.5% Series C participating preferred shares payable on June 30, 2016, to shareholders of record on June 15, 2016.





20

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 March 31, 2016, we owned 47,955 single-family properties, in selected sub-markets of MSAs in 22 states, including 1,581 properties held for sale, of which 1,316 properties were former ARPI properties, compared to 38,780 single-family properties in 22 states, including 45 properties held for sale, as of December 31, 2015, and 36,588 single-family properties in 22 states, including 35 properties held for sale, as of March 31, 2015. As of March 31, 2016, 44,455, or 95.9%, of our total properties (excluding held for sale properties) were leased, compared to 36,403, or 94.0%, of our total properties (excluding held for sale properties) as of December 31, 2015, and 31,183, or 85.3%, of our total properties (excluding held for sale properties) as of March 31, 2015. As of March 31, 2016, our 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 March 31, 2016:
Market
 
Number of Single-family Properties (1)
 
% of Total Single-family Properties
 
Avg. Gross Book Value
per Property
 
Avg.
Sq. Ft.
 
Avg. Property Age
(years)
 
Avg. Year Purchased
Dallas-Fort Worth, TX
 
4,348

 
9.4
%
 
$
160,622

 
2,120

 
12.4

 
2014
Atlanta, GA
 
3,837

 
8.3
%
 
162,554

 
2,110

 
15.3

 
2014
Houston, TX
 
3,154

 
6.8
%
 
161,837

 
2,114

 
10.4

 
2014
Indianapolis, IN
 
2,901

 
6.3
%
 
150,684

 
1,933

 
13.5

 
2013
Phoenix, AZ
 
2,783

 
6.0
%
 
160,752

 
1,814

 
13.6

 
2014
Charlotte, NC
 
2,713

 
5.9
%
 
171,667

 
2,016

 
12.8

 
2014
Nashville, TN
 
2,352

 
5.1
%
 
195,979

 
2,084

 
11.8

 
2014
Greater Chicago area, IL and IN
 
2,062

 
4.4
%
 
180,062

 
1,899

 
14.7

 
2013
Cincinnati, OH
 
1,953

 
4.2
%
 
171,549

 
1,846

 
13.9

 
2013
Raleigh, NC
 
1,824

 
3.9
%
 
175,110

 
1,844

 
11.5

 
2014
All Other (2)
 
18,447

 
39.7
%
 
175,655

 
1,894

 
13.1

 
2014
Total / Average
 
46,374

 
100.0
%
 
$
170,565

 
1,959

 
13.1

 
2014

(1)
Excludes 1,581 held for sale properties as of March 31, 2016.
(2)
Represents 32 markets in 19 states.



21

The following table summarizes certain key leasing metrics as of March 31, 2016:
 
 
Total Single-family Properties (1)
Market
 
Leased Percentage (2)
 
Occupancy Percentage (2)
 
Avg. Contractual Monthly Rent Per Property (2)
 
Avg. Original Lease Term (months) (2)
 
Avg. Remaining Le