Edgar Filing: American Homes 4 Rent

Document

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 June 30, 2017



¨		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 ¨ 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 ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý		Accelerated filer	¨
Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	¨
			Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes ý No

There were 259,691,986 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 August 2, 2017.

American Homes 4 Rent

Form 10-Q

INDEX



		Page
	CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	i

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	37

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.	Defaults Upon Senior Securities	38

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	38

Item 6.	Exhibits	38

	Signatures	39

	Exhibit Index

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, 2016, 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.

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)



	June 30, 2017			December 31, 2016
	(Unaudited)
Assets
Single-family properties:
Land	$	1,553,214		$	1,512,183
Buildings and improvements	6,815,409			6,614,953
Single-family properties held for sale, net	65,237			87,430
	8,433,860			8,214,566
Less: accumulated depreciation	(800,076		)	(666,710		)
Single-family properties, net	7,633,784			7,547,856
Cash and cash equivalents	67,325			118,799
Restricted cash	128,524			131,442
Rent and other receivables, net	19,262			17,618
Escrow deposits, prepaid expenses and other assets	137,496			133,594
Deferred costs and other intangibles, net	13,971			11,956
Asset-backed securitization certificates	25,666			25,666
Goodwill	120,279			120,279
Total assets	$	8,146,307		$	8,107,210

Liabilities
Revolving credit facility	$	92,000		$	—
Term loan facility, net	197,648			321,735
Asset-backed securitizations, net	1,985,847			2,442,863
Exchangeable senior notes, net	109,862			108,148
Secured note payable	49,346			49,828
Accounts payable and accrued expenses	222,990			177,206
Participating preferred shares derivative liability	76,860			69,810
Total liabilities	2,734,553			3,169,590

Commitments and contingencies

Equity
Shareholders’ equity:
Class A common shares, $0.01 par value per share, 450,000,000 shares authorized, 258,490,493 and 242,740,482 shares issued and outstanding at June 30, 2017, and December 31, 2016, respectively	2,585			2,427
Class B common shares, $0.01 par value per share, 50,000,000 shares authorized, 635,075 shares issued and outstanding at June 30, 2017, and December 31, 2016	6			6
Preferred shares, $0.01 par value per share, 100,000,000 shares authorized, 43,210,000 and 37,010,000 shares issued and outstanding at June 30, 2017, and December 31, 2016, respectively	432			370
Additional paid-in capital	5,075,460			4,568,616
Accumulated deficit	(405,426		)	(378,578		)
Accumulated other comprehensive income	—			95
Total shareholders’ equity	4,673,057			4,192,936

Noncontrolling interest	738,697			744,684
Total equity	5,411,754			4,937,620

Total liabilities and equity	$	8,146,307		$	8,107,210

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

American Homes 4 Rent

Condensed Consolidated Statements of Operations

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

(Unaudited)



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016
Revenues:
Rents from single-family properties	$	204,648		$	193,491		$	405,755		$	361,486
Fees from single-family properties	2,690			2,724			5,294			4,921
Tenant charge-backs	27,382			20,253			55,755			41,269
Other	2,288			3,846			3,958			7,597
Total revenues	237,008			220,314			470,762			415,273

Expenses:
Property operating expenses	85,954			77,887			169,259			146,499
Property management expenses	17,442			18,096			34,920			34,842
General and administrative expense	8,926			7,931			18,221			16,501
Interest expense	28,392			35,481			60,281			66,458
Acquisition fees and costs expensed	1,412			3,489			2,508			9,142
Depreciation and amortization	72,716			79,604			146,669			149,121
Other	1,359			2,087			2,917			3,340
Total expenses	216,201			224,575			434,775			425,903

Gain on sale of single-family properties and other, net	2,454			658			4,480			892
Loss on early extinguishment of debt	(6,555		)	—			(6,555		)	—
Gain on conversion of Series E units	—			—			—			11,463
Remeasurement of participating preferred shares	(1,640		)	(150		)	(7,050		)	(450		)

Net income (loss)	15,066			(3,753		)	26,862			1,275

Noncontrolling interest	(30		)	(761		)	(331		)	3,075
Dividends on preferred shares	15,282			7,412			28,869			12,981

Net loss attributable to common shareholders	$	(186	)	$	(10,404	)	$	(1,676	)	$	(14,781	)

Weighted-average shares outstanding—basic and diluted	258,900,456			238,481,265			251,685,993			228,819,566

Net loss attributable to common shareholders per share—basic and diluted	$	—		$	(0.04	)	$	(0.01	)	$	(0.06	)

Dividends declared per common share	$	0.05		$	0.05		$	0.10		$	0.10

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

American Homes 4 Rent

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Amounts in thousands)

(Unaudited)



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016
Net income (loss)	$	15,066		$	(3,753	)	$	26,862		$	1,275
Other comprehensive income (loss):
Unrealized gain on interest rate cap agreement:
Reclassification adjustment for amortization of interest expense included in net income (loss)	—			62			(28		)	102
Unrealized gain on investment in equity securities:
Reclassification adjustment for realized gain included in net income (loss)	—			—			(67		)	—
Other comprehensive income (loss)	—			62			(95		)	102
Comprehensive income (loss)	15,066			(3,691		)	26,767			1,377
Comprehensive (loss) income attributable to noncontrolling interests	(31		)	(778		)	(314		)	3,058
Dividends on preferred shares	15,282			7,412			28,869			12,981
Comprehensive loss attributable to common shareholders	$	(185	)	$	(10,325	)	$	(1,788	)	$	(14,662	)

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

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 income			Shareholders’ equity			Noncontrolling interest			Total equity

Balances at December 31, 2016	242,740,482	$	2,427	635,075	$	6	37,010,000	$	370	$	4,568,616		$	(378,578	)	$	95		$	4,192,936		$	744,684		$	4,937,620

Share-based compensation	—	—		—	—		—	—		2,059			—			—			2,059			—			2,059

Common shares issued under share-based compensation plans, net of shares withheld for employee taxes	55,424	1		—	—		—	—		92			—			—			93			—			93

Issuance of Class A common shares, net of offering costs of $704	15,694,587	157		—	—		—	—		355,032			—			—			355,189			—			355,189

Issuance of perpetual preferred shares, net of offering costs of $5,209	—	—		—	—		6,200,000	62		149,729			—			—			149,791			—			149,791

Redemptions of Class A units	—	—		—	—		—	—		(68		)	—			—			(68		)	(101		)	(169		)

Distributions to equity holders:
Preferred shares	—	—		—	—		—	—		—			(28,869		)	—			(28,869		)	—			(28,869		)
Noncontrolling interests	—	—		—	—		—	—		—			—						—			(5,555		)	(5,555		)
Common shares	—	—		—	—		—	—		—			(25,172		)	—			(25,172		)	—			(25,172		)

Net income (loss)	—	—		—	—		—	—		—			27,193			—			27,193			(331		)	26,862

Total other comprehensive loss	—	—		—	—		—	—		—			—			(95		)	(95		)	—			(95		)

Balances at June 30, 2017	258,490,493	$	2,585	635,075	$	6	43,210,000	$	432	$	5,075,460		$	(405,426	)	$	—		$	4,673,057		$	738,697		$	5,411,754

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

American Homes 4 Rent

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)



	For the Six Months Ended June 30,
	2017			2016
Operating activities
Net income	$	26,862		$	1,275
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	146,669			149,121
Noncash amortization of deferred financing costs	4,410			5,279
Noncash amortization of discount on exchangeable senior notes	1,714			1,106
Noncash amortization of discount on ARP 2014-SFR1 securitization	—			1,119
Noncash share-based compensation	2,059			1,853
Provision for bad debt	2,843			2,483
Loss on early extinguishment of debt	6,555			—
Gain on conversion of Series E units to Series D units	—			(11,463		)
Remeasurement of participating preferred shares	7,050			450
Equity in net (earnings) loss of unconsolidated ventures	(1,623		)	261
Net gain on sale of single-family properties and other	(4,480		)	(892		)
Loss on impairment of single-family properties	2,487			900
Net gain on resolutions of mortgage loans	(16		)	(1,656		)
Other changes in operating assets and liabilities:
Rent and other receivables	(4,497		)	(6,977		)
Prepaid expenses and other assets	(7,440		)	3,807
Deferred leasing costs	(3,401		)	(4,080		)
Accounts payable and accrued expenses	40,967			24,441
Amounts payable to affiliates	5,047			(5,250		)
Net cash provided by operating activities	225,206			161,777

Investing activities
Cash paid for single-family properties	(226,937		)	(61,966		)
Change in escrow deposits for purchase of single-family properties	(1,708		)	(330		)
Cash acquired in noncash business combinations	—			25,020
Payoff of credit facility in connection with ARPI merger	—			(350,000		)
Net proceeds received from sales of single-family properties and other	54,232			15,493
Net proceeds received from sales of non-performing loans	—			16,405
Purchase of commercial office buildings	—			(20,056		)
Collections from mortgage financing receivables	78			—
Distributions from unconsolidated joint ventures	2,144			5,770
Renovations to single-family properties	(18,351		)	(17,529		)
Other capital expenditures for single-family properties	(15,038		)	(12,675		)
Other purchases of productive assets	(16,936		)	—
Net cash used for investing activities	(222,516		)	(399,868		)

Financing activities
Proceeds from issuance of Class A common shares	355,589			2
Payments of Class A common share issuance costs	(350		)	—
Proceeds from issuance of perpetual preferred shares	155,000			498,750
Payments of perpetual preferred share issuance costs	(5,209		)	(16,024		)
Proceeds from exercise of stock options	1,858			1,682
Repurchase of Class A common shares	—			(96,098		)
Redemptions of Class A units	(169		)	(291		)
Payments on asset-backed securitizations	(466,793		)	(12,762		)
Proceeds from revolving credit facility	62,000			626,000
Payments on revolving credit facility	(20,000		)	(484,000		)
Proceeds from term loan facility	25,000			—
Payments on term loan facility	(100,000		)	—
Payments on secured note payable	(482		)	(457		)
Distributions to noncontrolling interests	(5,555		)	(5,905		)
Distributions to common shareholders	(25,172		)	(24,038		)
Distributions to preferred shareholders	(28,869		)	(12,981		)
Deferred financing costs paid	(3,930		)	(390		)
Net cash (used for) provided by financing activities	(57,082		)	473,488

Net (decrease) increase in cash, cash equivalents and restricted cash	(54,392		)	235,397
Cash, cash equivalents and restricted cash, beginning of period	250,241			168,968
Cash, cash equivalents and restricted cash, end of period (see Note 3)	$	195,849		$	404,365

American Homes 4 Rent

Condensed Consolidated Statements of Cash Flows (continued)

(Amounts in thousands)

(Unaudited)



	For the Six Months Ended June 30,
	2017			2016
Supplemental cash flow information
Cash payments for interest, net of amounts capitalized	$	(54,157	)	$	(58,956	)

Supplemental schedule of noncash investing and financing activities
Accounts payable and accrued expenses related to property acquisitions and renovations	$	3,922		$	(1,345	)
Transfer of term loan borrowings to revolving credit facility	$	50,000		$	—
Transfer of deferred financing costs from term loan to revolving credit facility	$	1,354		$	—
Note receivable related to a bulk sale of properties, net of discount	$	5,559		$	—

Merger with ARPI
Single-family properties	$	—		$	1,277,253
Restricted cash	$	—		$	9,521
Rent and other receivables, net	$	—		$	843
Escrow deposits, prepaid expenses and other assets	$	—		$	35,134
Deferred costs and other intangibles, net	$	—		$	22,696
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.

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 June 30, 2017, the Company held 48,982 single-family properties in 22 states, including 582 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 were 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 convertible units and 4,375,000 Series E convertible units in American Homes 4 Rent, L.P. (the “operating partnership”), therefore internalizing our management including all administrative, financial, property management, marketing and leasing personnel, including executive management. The Company consolidates the Advisor and the Property Manager and the results of these operations are reflected in the condensed consolidated financial statements. Effective August 31, 2016, AH LLC was liquidated and its ownership interests in the operating partnership were distributed to its members.

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, 2016. Any references in this report to the number of properties is outside the scope of our independent registered public accounting firm’s review of our financial statements, in accordance with the standards of the Public Company Accounting Oversight Board. 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 July 1, 2016, due to increased volume in the Company's sales of single-family properties, gains and losses from the sales of single-family properties have been included in gain on sale of single-family properties and other, net within the condensed consolidated statements of operations. Prior period net gain from the sales of single-family properties and other, which totaled $0.7 million and $0.9 million for the three and six months ended June 30, 2016, respectively, was previously included in other revenues and has been reclassified to gain on sale of single-family properties and other, net to conform to the current presentation.

Effective December 31, 2016, in accordance with our adoption of Accounting Standards Update ("ASU") No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, the Company includes restricted cash together with cash and cash equivalents when reconciling the beginning and ending balances shown in the statements of cash flows, which has the effect of excluding the presentation of transfers between restricted and unrestricted cash amounts in the statements of cash flows. Prior to the adoption, the beginning and ending balances presented in the statements of cash flows included only cash and cash equivalents, and transfers between restricted and unrestricted cash

amounts were presented within operating and investing activities based on the nature of the amounts. All prior period amounts have been reclassified to conform to the current presentation. This resulted in $134.0 million and $111.3 million of restricted cash as of June 30, 2016 and December 31, 2015, respectively, being added to cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows.

Effective January 1, 2017, in order to include share-based compensation costs for employees in the same financial statement line item as the cash compensation paid to the employees, noncash share-based compensation expense has been reclassified with the amounts related to corporate administrative employees and centralized and field property management employees reflected in general and administrative expense and property management expenses, respectively, within the condensed consolidated statements of operations. Additionally, all costs associated with operating our proprietary property management platform such as salary expenses for both centralized and field property management personnel, lease expenses and operating costs for property management offices and technology expenses for maintaining the property management platform, which were previously included in property operating expenses, have been reclassified into property management expenses. This resulted in the reclassification of $1.0 million and $1.9 million of noncash share-based compensation expense for the three and six months ended June 30, 2016, respectively, with $0.4 million and $0.8 million of noncash share-based compensation expense reclassified to property management expenses, respectively, and $0.6 million and $1.1 million of noncash share-based compensation expense reclassified to general and administrative expense, respectively, in the condensed consolidated statements of operations. This also resulted in $17.7 million and $34.1 million of property management expenses for the three and six months ended June 30, 2016, respectively, which were previously included in property operating expenses, being reclassified to property management 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, 2016. 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 January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, to simplify the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which had involved determining the fair value of individual assets and liabilities of a reporting unit to measure goodwill. Instead, goodwill impairment will be determined as the excess of a reporting unit’s carrying value over its fair value, not to exceed the carrying amount of goodwill. This guidance will be effective for the Company for annual reporting periods beginning after December 15, 2019, and for interim periods within those annual periods. Early adoption is permitted for any goodwill impairment tests performed after January 1, 2017. The Company is currently assessing the impact of the guidance on our financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which changed the definition of a business and will now require management to determine whether substantially all of the fair value of gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. When this is the case, the transferred assets and activities are not a business. This determination is important as the accounting treatment for business combinations and asset acquisitions differs since transaction costs are expensed in a business combination and capitalized in an asset acquisition. This guidance will be effective for public companies for annual reporting periods beginning after December 15, 2017, and for interim periods within those annual periods, with early adoption permitted. The guidance will be applied prospectively to any transactions occurring within the period of adoption. The Company adopted this guidance as of January 1, 2017, on a prospective basis, which results in our leased properties no longer meeting the definition of a business. Therefore, dispositions of leased properties will no longer result in a reduction to goodwill. The adoption of this guidance did not have a material impact on our financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce the existing diversity in practice by addressing eight specific cash flow issues related to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance will be effective for the Company for annual reporting periods beginning after December 15, 2017, and for interim periods within those annual periods with early adoption permitted. If early adopted, an entity must adopt all of the amendments in the same period. The Company is currently assessing the impact of the adoption of this guidance and does not anticipate that the adoption of this guidance will have a material impact on our financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), to amend the accounting for credit losses for certain financial instruments by requiring companies to recognize an estimate of expected credit losses as an allowance in order to recognize such losses more timely than under previous guidance that had allowed companies to wait until it was probable such losses had been incurred. The guidance will be effective for the Company for annual reporting periods beginning

after December 15, 2019, and for interim periods within those annual periods. Early adoption is permitted for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. The Company is currently assessing the impact of the guidance on our financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, 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 became effective for the Company for annual reporting periods beginning after December 15, 2016, and for interim periods within those annual periods. The Company adopted this guidance effective January 1, 2017, which resulted in our election to recognize forfeitures of share-based compensation as they occur. The adoption of this guidance did not have a material impact 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 for non-lease components. The new guidance will also require lessees and lessors to capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. Any other costs incurred, including allocated indirect costs, will no longer be capitalized and instead will be expensed as incurred. The guidance will be effective for the Company in annual reporting periods beginning after December 15, 2018, and in interim periods within those annual periods, with early adoption permitted, and requires the use of the modified retrospective transition method. The Company is currently assessing the impact of the adoption of this 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 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 include identifying “distinct” performance obligations in multi-element contracts, estimating the amount of variable consideration to include in the transaction price at contract inception, allocating the transaction price to each separate performance obligation, and determining at contract inception whether the performance obligation is satisfied over time or at a point in time. Since lease contracts under ASC 840 are specifically excluded from ASU No. 2014-09’s scope, most of the Company’s rental contract revenue will continue to follow current leasing guidance. We have reviewed our other sources of revenue and identified that the non-lease components (tenant chargebacks and recovery revenue) in our single-family home and office leases will continue being accounted for under ASC 840 until the adoption of ASU 2016-02 beginning January 1, 2019.

As part of ASU No. 2014-09, the FASB issued consequential amendments to other sections, eliminating ASC 360-20, Real Estate Sales and adding ASU No. 2017-05 Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets, Subtopic 610-20. Real estate sales to noncustomers will follow new guidance from ASC 610-20, while sales to customers will follow the general revenue guidance in ASC 606. While the Company’s property sales are not part of our ordinary customer activity and will fall under ASC 610-20, there is little economic difference in the accounting for real estate sales to customer versus noncustomer, with exception to presentation of comprehensive income (revenue and expense when sale to customer or gain and loss when sale to noncustomer).

In our initial assessment, the Company’s current accounting policies for tenant chargebacks, recovery revenue, and real estate property sales are aligned with the new revenue recognition principles prescribed by the new guidance. Although we do not expect the new standards to ultimately change the amount or timing of our revenue recognition, the Company will continue to assess the potential effects of ASU No. 2014-09 and ASU No. 2017-05, noting that the underlying principles and processes used to record that revenue are changing under ASC 606 and ASC 610-20. The guidance will be effective for the Company in fiscal years (interim and annual reporting periods) that begin after December 15, 2017, with the option to early adopt. At that time, the Company may adopt the full retrospective approach or the modified retrospective approach. The Company does not anticipate that adoption of this guidance will have a material impact on our financial statements.

Note 3. Cash, Cash Equivalents and Restricted Cash

We consider all demand deposits, cashier's checks, money market accounts and certificates of deposit with a maturity of three months or less to be cash equivalents. We maintain our cash and cash equivalents and escrow deposits at financial institutions. The combined account balances typically exceed the FDIC insurance coverage, and, as a result, there is a concentration of credit risk related to amounts on deposit. We believe that the risk is not significant.

Restricted cash primarily consists of funds held related to resident security deposits and cash reserves in accordance with certain loan agreements. Funds held related to resident security deposits are restricted during the term of the related lease agreement, which is generally one year. Cash reserved in connection with lender requirements is restricted during the term of the related debt instrument.

The following table provides a reconciliation of cash, cash equivalents and restricted cash per the condensed consolidated statements of cash flows to the corresponding financial statement line items in the condensed consolidated balance sheets as of June 30, 2017 and 2016:



	June 30, 2017		June 30, 2016
Balance Sheet:
Cash and cash equivalents	$	67,325	$	270,369
Restricted cash	128,524		133,996
Statement of Cash Flows:
Cash, cash equivalents and restricted cash	$	195,849	$	404,365

Note 4. Single-Family Properties

Single-family properties, net, consisted of the following as of June 30, 2017, and December 31, 2016 (dollars in thousands):



	June 30, 2017
	Number of properties	Net book value
Leased single-family properties	46,089	$	7,173,352
Single-family properties being renovated	508	97,976
Single-family properties being prepared for re-lease	161	26,510
Vacant single-family properties available for lease	1,642	270,709
Single-family properties held for sale	582	65,237
Total	48,982	$	7,633,784



	December 31, 2016
	Number of properties	Net book value
Leased single-family properties	44,798	$	7,040,000
Single-family properties being renovated	312	57,200
Single-family properties being prepared for re-lease	91	14,453
Vacant single-family properties available for lease	2,102	348,773
Single-family properties held for sale	1,119	87,430
Total	48,422	$	7,547,856

Single-family properties, net as of June 30, 2017, and December 31, 2016, included $30.0 million and $14.3 million, respectively, related to properties for which the recorded grant deed had 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 was a delay for the deeds to be recorded.

Depreciation expense related to single-family properties was $69.0 million and $66.2 million for the three months ended June 30, 2017 and 2016, respectively, and $137.8 million and $127.0 million for the six months ended June 30, 2017 and 2016, respectively.

During the three and six months ended June 30, 2017, the Company sold 127 and 631 homes, respectively, which generated total net proceeds of $15.7 million and $39.8 million, respectively, and resulted in a net gain on sale of $2.2 million and $1.2 million,

respectively. Total net proceeds for the six months ended June 30, 2017 included a $7.0 million note receivable, before a $1.5 million discount, that was recorded during the first quarter of 2017. During the three and six months ended June 30, 2016, the Company sold 68 and 134 homes, respectively, which generated total net proceeds of $7.9 million and $15.5 million, respectively, and resulted in a net gain on sale of $0.7 million and $0.9 million, respectively.

Note 5. Rent and Other Receivables, Net

Included in rent and other receivables, net is an allowance for doubtful accounts of $7.7 million and $5.7 million as of June 30, 2017, and December 31, 2016, respectively. Also included in rent and other receivables, net, are non-tenant receivables, which totaled $0.8 million and $0.6 million as of June 30, 2017, and December 31, 2016, respectively.

Note 6. Deferred Costs and Other Intangibles, Net

Deferred costs and other intangibles, net, consisted of the following as of June 30, 2017, and December 31, 2016 (in thousands):



	June 30, 2017			December 31, 2016
Deferred leasing costs	$	10,871		$	7,470
Deferred financing costs	11,044			6,552
Intangible assets:
Value of in-place leases	4,638			4,739
Trademark	3,100			3,100
Database	2,100			2,100
	31,753			23,961
Less: accumulated amortization	(17,782		)	(12,005		)
Total	$	13,971		$	11,956

Amortization expense related to deferred leasing costs, the value of in-place leases, trademark and database was $2.2 million and $12.3 million for the three months ended June 30, 2017 and 2016, respectively, and $5.1 million and $19.8 million for the six months ended June 30, 2017 and 2016, respectively, which has been included in depreciation and amortization within the condensed consolidated statements of operations. Deferred financing costs that relate to our revolving credit facility are included in deferred costs and other intangibles, net within the condensed consolidated balance sheets. Amortization of deferred financing costs that relate to our revolving credit facility was $0.4 million and $0.7 million for the three months ended June 30, 2017 and 2016, respectively, and $0.8 million and $1.3 million for the six months ended June 30, 2017 and 2016, respectively, which has been included in gross interest, prior to interest capitalization (see Note 7).

The following table sets forth the estimated annual amortization expense related to deferred costs and other intangibles, net as of June 30, 2017, for future periods (in thousands):



Year	Deferred Leasing Costs		Deferred Financing Costs		Value of In-place Leases		Trademark		Database
Remaining 2017	$	2,162	$	969	$	83	$	330	$	150
2018	784		1,923		21		92		300
2019	—		1,923		2		—		300
2020	—		1,929		—		—		132
2021	—		1,923		—		—		—
Thereafter	—		948		—		—		—
Total	$	2,946	$	9,615	$	106	$	422	$	882

Note 7. Debt

The following table presents the Company’s debt as of June 30, 2017, and December 31, 2016 (in thousands):



			Outstanding Principal Balance
	Interest Rate (1)	Maturity Date	June 30, 2017			December 31, 2016
AH4R 2014-SFR1 securitization (2)	N/A	N/A	$	—		$	456,074
AH4R 2014-SFR2 securitization	4.42%	October 9, 2024	499,245			501,810
AH4R 2014-SFR3 securitization	4.40%	December 9, 2024	514,824			517,827
AH4R 2015-SFR1 securitization (3)	4.14%	April 9, 2045	540,717			543,480
AH4R 2015-SFR2 securitization (4)	4.36%	October 9, 2045	469,655			472,043
Total asset-backed securitizations			2,024,441			2,491,234
Exchangeable senior notes	3.25%	November 15, 2018	115,000			115,000
Secured note payable	4.06%	July 1, 2019	49,346			49,828
Revolving credit facility (5)	2.42%	June 30, 2022	92,000			—
Term loan facility (6)	2.57%	June 30, 2022	200,000			325,000
Total debt (7)			2,480,787			2,981,062
Unamortized discount on exchangeable senior notes			(1,414		)	(1,883		)
Equity component of exchangeable senior notes			(3,724		)	(4,969		)
Deferred financing costs, net (8)			(40,946		)	(51,636		)
Total debt per balance sheet			$	2,434,703		$	2,922,574


(1)	Interest rates are as of June 30, 2017. Unless otherwise stated, interest rates are fixed percentages.


(2)	The AH4R 2014-SFR1 securitization was paid off in full during the second quarter of 2017.


(3)	The AH4R 2015-SFR1 securitization has a maturity date of April 9, 2045, with an anticipated repayment date of April 9, 2025.


(4)	The AH4R 2015-SFR2 securitization has a maturity date of October 9, 2045, with an anticipated repayment date of October 9, 2025.

(5)

The revolving credit facility provides for a borrowing capacity of up to $800.0 million, with a fully extended maturity date of June 2022, and bears interest at a LIBOR rate plus a margin ranging from 0.825% to 1.55% or a base rate (generally determined according to a prime rate or federal funds rate) plus a margin ranging from 0.00% to 0.55%. The interest rate stated represents the applicable spread for LIBOR based borrowings as of June 30, 2017, plus 1-month LIBOR.

(6)

The term loan facility provides for a borrowing capacity of up to $200.0 million, with a maturity date of June 2022, and bears interest at a LIBOR rate plus a margin ranging from 0.90% to 1.75% or a base rate (generally determined according to a prime rate or federal funds rate) plus a margin ranging from 0.00% to 0.75%. The interest rate stated represents the applicable spread for LIBOR based borrowings as of June 30, 2017, plus 1-month LIBOR.


(7)	The Company was in compliance with all debt covenants associated with its asset-backed securitizations, secured note payable, revolving credit facility and term loan facility as of June 30, 2017, and December 31, 2016.

(8)

Deferred financing costs relate to our asset-backed securitizations and our term loan facility. Amortization of deferred financing costs was $1.4 million and $2.1 million for the three months ended June 30, 2017 and 2016, respectively, and $3.6 million and $4.1 million for the six months ended June 30, 2017 and 2016, respectively, which has been included in gross interest, prior to interest capitalization.

Early Extinguishment of Debt

During the second quarter of 2017, the Company paid off the outstanding principal on the AH4R 2014-SFR1 asset-backed securitization of approximately $455.4 million using proceeds from the Class A common share offering in the first quarter of 2017 and available cash, which resulted in $6.6 million of charges primarily related to the write-off of unamortized deferred financing costs that were included in loss on early extinguishment of debt within the condensed consolidated statements of operations. The payoff of the AH4R 2014-SFR1 asset-backed securitization also resulted in the release of the 3,799 homes pledged as collateral and $9.4 million of restricted cash for lender requirements.

Exchangeable Senior Notes, Net

The exchangeable senior notes, which were assumed in connection with the Company's merger (the "ARPI Merger") with American Residential Properties, Inc. ("ARPI") during 2016, 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. 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 the ARPI Merger. The current exchange rate as of June 30, 2017, was 55.0193 shares of our common stock per $1,000 principal amount of the notes. The exchange rate is adjusted based on our common share price and distributions to common shareholders.

As of June 30, 2017, the exchangeable senior notes, net had a balance of $109.9 million in the condensed consolidated balance sheets, which was net of an unamortized discount of $1.4 million and $3.7 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 Facilities

During 2016, the Company entered into a $1.0 billion credit agreement, which was subsequently amended in June 2017. The amendment expanded our borrowing capacity on the revolving credit facility to $800.0 million and reduced the term loan facility to $200.0 million. The amendment also lowered our cost of borrowing and provides a more flexible borrowing structure. The interest rate on the revolving credit facility is, at the Company’s election, a LIBOR rate plus a margin ranging from 0.825% to 1.55% or a base rate (generally determined according to a prime rate or federal funds rate) plus a margin ranging from 0.00% to 0.55%. Borrowings under the term loan facility accrue interest, at the Company’s election, at either a LIBOR rate plus a margin ranging from 0.90% to 1.75% or a base rate plus a margin ranging from 0.00% to 0.75%. In each case, the actual margin is determined based on the Company's credit ratings in effect from time to time. Based on current corporate ratings for LIBOR-based borrowings as of June 30, 2017, the revolving credit facility bears interest at 1-month LIBOR plus 1.20%, and the term loan facility bears interest at 1-month LIBOR plus 1.35%. The credit agreement includes an accordion feature allowing the revolving credit facility or the term loan facility to be increased to an aggregate amount not to exceed $1.75 billion, subject to certain conditions. The revolving credit facility matures on June 30, 2021, with two six-month extension options at the Company's election upon payment of an extension fee, and the term loan facility matures on June 30, 2022. No amortization payments are required on the term loan facility prior to the maturity date. The credit agreement requires that we maintain certain financial covenants. As of June 30, 2017 and December 31, 2016, the Company had $92.0 million and zero, respectively, of outstanding borrowings against the revolving credit facility, $200.0 million and $325.0 million, respectively, of outstanding borrowings against the term loan facility and was in compliance with all loan covenants.

Interest Expense

The following table displays our total gross interest, which includes unused commitment and other fees on our credit facilities and amortization of deferred financing costs, the discounts on the ARP 2014-SFR1 securitization and exchangeable senior notes and the fair value of the exchange settlement feature of the exchangeable senior notes, and capitalized interest for the three and six months ended June 30, 2017 and 2016 (in thousands):



	For the Three Months Ended						For the Six Months Ended
	June 30, 2017			June 30, 2016			June 30, 2017			June 30, 2016
Gross interest	$	29,427		$	35,840		$	61,919		$	67,453
Capitalized interest	(1,035		)	(359		)	(1,638		)	(995		)
Interest expense	$	28,392		$	35,481		$	60,281		$	66,458

Note 8. Accounts Payable and Accrued Expenses

The following table summarizes accounts payable and accrued expenses as of June 30, 2017, and December 31, 2016 (in thousands):



	June 30, 2017		December 31, 2016
Accounts payable	$	897	$	9
Accrued property taxes	86,164		46,091
Other accrued liabilities	26,436		31,262
Accrued construction and maintenance liabilities	13,778		9,899
Resident security deposits	74,392		70,430
Prepaid rent	21,323		19,515
Total	$	222,990	$	177,206

Note 9. Shareholders’ Equity

Class A Common Share Offering

During the first quarter of 2017, the Company issued 14,842,982 Class A common shares of beneficial interest, $0.01 par value per share, in an underwritten public offering and concurrent private placement, raising gross proceeds to the Company of $336.5 million after underwriter's discount and before offering costs of approximately $0.4 million.

"At the Market" Common Share Offering Program

In November 2016, the Company established an “at the market” common share offering program under which we may issue Class A common shares from time to time through various sales agents up to an aggregate of $400.0 million. The program was established in order to use the net proceeds from share issuances to repay borrowings against the Company’s revolving credit and term loan facilities, to acquire and renovate single-family properties and for related activities in accordance with the Company’s business strategy, and for working capital and general corporate purposes. The program does not have an expiration date, but may be suspended or terminated by the Company at any time. During the six months ended June 30, 2017, the Company issued and sold 0.9 million Class A common shares for gross proceeds of $19.4 million, or $22.75 per share, and net proceeds of $19.1 million, after commissions and other expenses of approximately $0.3 million. As of June 30, 2017, $276.6 million remained available for future share issuances under the program.

Share Repurchase Program

In September 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 six months ended June 30, 2017, we did not repurchase and retire any of our Class A common shares. During the six months ended June 30, 2016, we repurchased and retired 6.2 million of our Class A common shares, on a settlement date basis, in accordance with the program at a weighted-average price of $15.44 per share and a total price of $96.0 million. As of June 30, 2017, we had a remaining repurchase authorization of $146.7 million under the program.

Participating Preferred Shares

As of June 30, 2017, 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 $480.0 million.

Perpetual Preferred Shares

During the quarter ended June 30, 2017, the Company issued 6,200,000 5.875% Series F cumulative redeemable perpetual preferred shares in an underwritten public offering, raising gross proceeds of $155.0 million before offering costs of approximately $5.2 million, with a liquidation preference of $25.00 per share.

In July 2017, the Company issued 4,600,000 5.875% Series G cumulative redeemable perpetual preferred shares in an underwritten public offering, raising gross proceeds of $115.0 million before offering costs of approximately $4.1 million, with a liquidation preference of $25.00 per share.

Distributions

During the quarter ended June 30, 2017, our board of trustees declared distributions that totaled $0.05 per share on our Class A and Class B common shares, $0.3125 on our 5.0% Series A participating preferred shares, $0.3125 on our 5.0% Series B participating preferred shares, $0.34375 on our 5.5% Series C participating preferred shares, $0.40625 on our 6.5% Series D perpetual preferred shares and $0.39688 on our 6.35% Series E perpetual preferred shares. Distributions declared on our 5.875% Series F perpetual preferred shares were for a pro-rated amount of $0.27335 during the quarter ended June 30, 2017. During the quarter ended June 30, 2016, our board of trustees declared distributions that totaled $0.05 per share on our Class A and Class B common shares, $0.3125 on our 5.0% Series A participating preferred shares, $0.3125 on our 5.0% Series B participating preferred shares and $0.34375 on our 5.5% Series C participating preferred shares. Distributions declared on our 6.5% Series D perpetual preferred shares were for a pro-rated amount of $0.17153 per share during the quarter ended June 30, 2016. Distributions declared on our Series D

convertible units totaled $0.035 per unit for the quarter ended June 30, 2016, which represented 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 interests held by former AH LLC members in units in the Company’s operating partnership. Former AH LLC members owned 54,276,644, or approximately 17.3% and 18.2%, of the total 314,674,346 and 298,931,517 Class A units in our operating partnership as of June 30, 2017, and December 31, 2016, 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 ARPI Merger in February 2016. Former ARPI Class A unit holders owned 1,272,134 and 1,279,316, or approximately 0.4% of the total 314,674,346 and 298,931,517 Class A units in the operating partnership as of June 30, 2017, and December 31, 2016, respectively. Also included in noncontrolling interest is the outside ownership interest in a consolidated subsidiary of the Company.

The following table summarizes the income or loss allocated to the Company’s noncontrolling interests as reflected in the condensed consolidated statements of operations for the three and six months ended June 30, 2017 and 2016:



	For the Three Months Ended						For the Six Months Ended
	June 30, 2017			June 30, 2016			June 30, 2017			June 30, 2016
Preferred income allocated to Series C convertible units	$	—		$	—		$	—		$	3,027
Net (loss) income allocated to Class A units	(31		)	(616		)	(370		)	134
Net income allocated to Series D convertible units	—			—			—			134
Net income (loss) allocated to noncontrolling interests in certain consolidated subsidiaries	1			(145		)	39			(220		)
	$	(30	)	$	(761	)	$	(331	)	$	3,075

2012 Equity Incentive Plan

During the six months ended June 30, 2017 and 2016, the Company granted stock options for 385,200 and 698,000 Class A common shares, respectively, and 174,000 and 74,100 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 six months ended June 30, 2017 and 2016, vest over four years and expire 10 years from the date of grant.

The following table summarizes stock option activity under the Plan for the six months ended June 30, 2017 and 2016:



	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (1) (in thousands)
Options outstanding at January 1, 2016	2,484,400		$	16.22	8.0	$	1,225
Granted	698,000		14.04
Exercised	(105,750	)	15.92			298
Forfeited	(95,650	)	16.35
Options outstanding at June 30, 2016	2,981,000		$	15.71	7.9	$	14,211
Options exercisable at June 30, 2016	1,117,625		$	16.07	7.2	$	4,934

Options outstanding at January 1, 2017	2,826,500		$	15.69	7.6	$	14,956
Granted	385,200		23.38
Exercised	(28,250	)	15.96			196
Forfeited	(50,000	)	16.38
Options outstanding at June 30, 2017	3,133,450		$	16.62	7.3	$	18,940
Options exercisable at June 30, 2017	1,716,000		$	15.89	6.5	$	11,468


(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 granted during the six months ended June 30, 2017 and 2016:



	2017			2016
Weighted-average fair value	$	3.82		$	2.81
Expected term (years)		7.0			7.0
Dividend yield		3.0	%		3.0	%
Volatility		21.3	%		27.4	%
Risk-free interest rate		2.2	%		1.5	%

The following table summarizes the activity that relates to the Company’s restricted stock units under the Plan for the six months ended June 30, 2017 and 2016:



	2017		2016
Restricted stock units at beginning of period	130,150		91,650
Units awarded	174,000		74,100
Units vested	(42,475	)	(27,250	)
Units forfeited	(10,250	)	(3,550	)
Restricted stock units at end of the period	251,425		134,950

For the three months ended June 30, 2017 and 2016, total non-cash share-based compensation expense related to stock options and restricted stock units was $1.1 million and $1.0 million, respectively, of which $0.7 million and $0.6 million, respectively, related to corporate administrative employees and was included in general and administrative expense and $0.4 million related to centralized and field property management employees and was included in property management expenses in the condensed consolidated statements of operations. For the six months ended June 30, 2017 and 2016, total non-cash share-based compensation expense related to stock options and restricted stock units was $2.1 million and $1.9 million, respectively, of which $1.2 million and $1.1 million, respectively, related to corporate administrative employees and was included in general and administrative expense and $0.9 million and $0.8 million, respectively, related to centralized and field property management employees and was included in property management expenses in the condensed consolidated statements of operations.

Note 10. Related Party Transactions

Concurrently with the Company's public offering of Class A common shares in the first quarter of 2017, the Chairman of our Board of Trustees, B. Wayne Hughes, purchased $50.0 million of our Class A common shares in a private placement at the public offering price.

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 and six months ended June 30, 2017 and 2016 (in thousands, except share data):



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016
Income (numerator):
Net income (loss)	$	15,066		$	(3,753	)	$	26,862		$	1,275
Noncontrolling interest	(30		)	(761		)	(331		)	3,075
Dividends on preferred shares	15,282			7,412			28,869			12,981
Net loss attributable to common shareholders	$	(186	)	$	(10,404	)	$	(1,676	)	$	(14,781	)

Weighted-average shares (denominator)	258,900,456			238,481,265			251,685,993			228,819,566

Net loss per share—basic and diluted	$	—		$	(0.04	)	$	(0.01	)	$	(0.06	)

The computation of diluted earnings per share for the three months ended June 30, 2017 and 2016, excludes an aggregate of 28,351,580 and 20,200,950, respectively, and for the six months ended June 30, 2017 and 2016, excludes 28,342,309 and 20,200,950 potentially dilutive securities, respectively, which include Series A, B and C participating preferred shares, exchangeable senior notes, common shares issuable upon exercise of stock options and unvested restricted stock units, because their effect would have been antidilutive due to the net loss for those periods.

Note 12. Commitments and Contingencies

As of June 30, 2017, the Company had commitments to acquire 354 single-family properties for an aggregate purchase price of $73.1 million and $8.9 million in land purchase commitments. As of December 31, 2016, the Company had commitments to acquire 203 single-family properties for an aggregate purchase price of $41.7 million and $3.9 million in land purchase commitments.

As of June 30, 2017, and December 31, 2016, the Company had sales in escrow for approximately 188 and 57 of our single-family properties, respectively, for an aggregate selling price of $20.1 million and $6.6 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 or results of operations upon resolution.

Note 13. 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 participating preferred shares derivative liability is the only financial instrument recorded at fair value on a recurring basis in the condensed consolidated financial statements.

Our revolving credit facility, term loan facility, asset-backed securitizations 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. Our exchangeable senior notes are also financial instruments, which are classified as Level 2 in the fair value hierarchy as their fair value is estimated using observable inputs, based on the market value of the last trade at the end of the period. The following table displays the carrying values and fair values of our debt instruments as of June 30, 2017, and December 31, 2016 (in thousands):



	June 30, 2017				December 31, 2016
	Carrying Value		Fair Value		Carrying Value		Fair Value
AH4R 2014-SFR1 securitization	$	—	$	—	$	456,074	$	465,343
AH4R 2014-SFR2 securitization	499,245		505,623		501,810		510,941
AH4R 2014-SFR3 securitization	514,824		523,975		517,827		530,549
AH4R 2015-SFR1 securitization	540,717		547,263		543,480		553,689
AH4R 2015-SFR2 securitization	469,655		478,478		472,043		483,901
Total asset-backed securitizations (1)	2,024,441		2,055,339		2,491,234		2,544,423
Exchangeable senior notes, net (2)	109,862		151,552		108,148		142,808
Secured note payable	49,346		49,633		49,828		50,053
Revolving credit facility (3)	92,000		92,000		—		—
Term loan facility (4)	200,000		200,000		325,000		325,000
Total debt	$	2,475,649	$	2,548,524	$	2,974,210	$	3,062,284


(1)	The carrying values of the asset-backed securitizations exclude $38.6 million and $48.4 million of deferred financing costs as of June 30, 2017, and December 31, 2016, respectively.


(2)	The carrying value of the exchangeable senior notes, net is presented net of an unamortized discount.

(3)

As our revolving credit facility bears interest at a floating rate based on an index plus a spread, which is a LIBOR rate plus a margin ranging from 0.825% to 1.55% or a base rate (generally determined according to a prime rate or federal funds rate) plus a margin ranging from 0.00% to 0.55%, management believes that the carrying value of the revolving credit facility reasonably approximates fair value.

(4)

The carrying value of the term loan facility excludes $2.0 million and $3.3 million of deferred financing costs as of June 30, 2017, and December 31, 2016, respectively. As our term loan facility bears interest at a floating rate based on an index plus a spread, which is a LIBOR rate plus a margin ranging from 0.90% to 1.75% or a base rate (generally determined according to a prime rate or federal funds rate) plus a margin ranging from 0.00% to 0.75%, management believes that the carrying value of the term loan facility reasonably approximates fair value.

Valuation of the participating preferred shares derivative liability considers scenarios in which the participating 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 following tables set forth the fair value of the participating preferred shares derivative liability as of June 30, 2017, and December 31, 2016 (in thousands):



	June 30, 2017
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Liabilities:
Participating preferred shares derivative liability	$	—	$	—	$	76,860	$	76,860



	December 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
Liabilities:
Participating preferred shares derivative liability	$	—	$	—	$	69,810	$	69,810

The following tables present changes in the fair values of our Level 3 financial instruments that are measured on a recurring basis with changes in fair value recognized in remeasurement of participating preferred shares in the condensed consolidated statements of operations for the six months ended June 30, 2017 and 2016 (in thousands):



Description	January 1, 2017		Issuances		Conversions		Remeasurement included in earnings		June 30, 2017
Liabilities:
Participating preferred shares derivative liability	$	69,810	$	—	$	—	$	7,050	$	76,860



Description	January 1, 2016		Issuances		Conversions			Gain and remeasurement included in earnings			June 30, 2016
Liabilities:
Contingently convertible Series E units liability	$	69,957	$	—	$	(58,494	)	$	(11,463	)	$	—
Participating preferred shares derivative liability	$	62,790	$	—	$	—		$	450		$	63,240

Changes in inputs or assumptions used to value the participating preferred shares derivative liability may have a material impact on the resulting valuation.

Note 14. Subsequent Events

Credit Facilities

From July 1, 2017, through July 31, 2017, the Company paid down $92.0 million on our revolving credit facility, resulting in no outstanding borrowings under our revolving credit facility as of July 31, 2017.

Subsequent Dispositions

From July 1, 2017, through July 31, 2017, the Company disposed of 27 properties for aggregate net proceeds of approximately $4.6 million.

Subsequent Acquisitions

From July 1, 2017, through July 31, 2017, the Company acquired 314 properties for an aggregate purchase price of approximately $61.5 million, which included our initial delivery of eight homes developed through our internal construction program.

Share Issuances

From July 1, 2017, through July 31, 2017, the Company issued 1.2 million Class A common shares under its "at the market" program for gross proceeds of $26.9 million, or $22.73 per share, and net proceeds of $26.5 million, after commissions and other expenses of approximately $0.4 million. As of July 31, 2017, $249.8 million remained available for future share issuances under the "at the market" program.

Perpetual Preferred Share Offering

Declaration of Dividends

On August 3, 2017, our board of trustees declared quarterly dividends of $0.05 per Class A common share payable on September 29, 2017, to shareholders of record on September 15, 2017, and $0.05 per Class B common share payable on September 29, 2017, to shareholders of record on September 15, 2017. 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 September 29, 2017, to shareholders of record on September 15, 2017, $0.3125 per share on the Company’s 5.0% Series B participating preferred shares payable on September 29, 2017, to shareholders of record on September 15, 2017, $0.34375 per share on the Company’s 5.5% Series C participating preferred shares payable on September 29, 2017, to shareholders of record on September 15, 2017, $0.40625 per share on the Company’s 6.5% Series D perpetual preferred shares payable on September 29, 2017, to shareholders of record on September 15, 2017, $0.39688 per share on the Company’s 6.35% Series E perpetual preferred shares payable on September 29, 2017, to shareholders of record on September 15, 2017, $0.36719 per share on the Company’s 5.875% Series F perpetual preferred shares payable on September 29, 2017, to shareholders of record on September 15, 2017, and $0.30191 per share on the 5.875% Series G perpetual preferred shares payable on September 29, 2017, to shareholders of record on September 15, 2017.

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. Effective August 31, 2016, AH LLC was liquidated and its ownership interests in the operating partnership were distributed to its members.

As of June 30, 2017, we owned 48,982 single-family properties, in selected sub-markets of MSAs in 22 states, including 582 properties held for sale, of which 446 properties were former ARPI properties, compared to 48,422 single-family properties in 22 states, including 1,119 properties held for sale, as of December 31, 2016, and 48,038 single-family properties in 22 states, including 1,582 properties held for sale, as of June 30, 2016. As of June 30, 2017, we had commitments to acquire an additional 354 single-family properties for an aggregate purchase price of approximately $73.1 million. As of June 30, 2017, 46,089, or 95.2%, of our total properties (excluding held for sale properties) were leased, compared to 44,798, or 94.7%, of our total properties (excluding held for sale properties) as of December 31, 2016, and 44,729, or 96.3%, of our total properties (excluding held for sale properties) as of June 30, 2016. As of June 30, 2017, 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 June 30, 2017:



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	4,341	9.0	%	$	162,003	2,121	13.6	2014
Atlanta, GA	4,191	8.7	%	164,411		2,107