Document
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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| | |
(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, 2018
or |
| | |
¨ | | 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)
Commission File Number: 333-221878-02 (American Homes 4 Rent, L.P.)
AMERICAN HOMES 4 RENT
AMERICAN HOMES 4 RENT, L.P.
(Exact name of registrant as specified in its charter)
|
| | |
Maryland (American Homes 4 Rent) | | 46-1229660 |
Delaware (American Homes 4 Rent, L.P.) | | 80-0860173 |
(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.
American Homes 4 Rent ý Yes ¨ No American Homes 4 Rent, L.P. 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).
American Homes 4 Rent ý Yes ¨ No American Homes 4 Rent, L.P. 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.
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| | | | |
American Homes 4 Rent
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Large accelerated filer | ý | | Accelerated filer | ¨
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Non-accelerated filer | ¨
| (Do not check if a smaller reporting company) | Smaller reporting company | ¨
|
| | | Emerging growth company | ¨
|
American Homes 4 Rent, L.P. |
Large accelerated filer | ¨
| | Accelerated filer | ¨
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Non-accelerated filer | ý | (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.
American Homes 4 Rent ¨ American Homes 4 Rent, L.P. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
American Homes 4 Rent ¨ Yes ý No American Homes 4 Rent, L.P. ¨ Yes ý No
There were 295,383,219 shares of American Homes 4 Rent's Class A common shares, $0.01 par value per share, and 635,075 shares of American Homes 4 Rent's Class B common shares, $0.01 par value per share, outstanding on August 1, 2018.
EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2018, of American Homes 4 Rent and American Homes 4 Rent, L.P. Unless stated otherwise or the context otherwise requires, references to “AH4R" or "the General Partner" mean American Homes 4 Rent, a Maryland real estate investment trust (“REIT”), and references to “the Operating Partnership," "our operating partnership" or “the OP” mean American Homes 4 Rent, L.P., a Delaware limited partnership, and its subsidiaries taken as a whole. References to “the Company,” “we,” "our," and “us” mean collectively AH4R, the Operating Partnership and those entities/subsidiaries owned or controlled by AH4R and/or the Operating Partnership.
AH4R is the general partner of, and as of June 30, 2018, owned an approximate 84.2% common partnership interest in, the Operating Partnership. The remaining 15.8% common partnership interest was owned by limited partners. As the sole general partner of the Operating Partnership, AH4R has exclusive control of the Operating Partnership’s day-to-day management. The Company’s management operates AH4R and the Operating Partnership as one business, and the management of AH4R consists of the same members as the management of the Operating Partnership.
The Company believes that combining the quarterly reports on Form 10-Q of the Company and the Operating Partnership into this single report provides the following benefits:
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• | enhances investors' understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business; |
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• | eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and |
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• | creates time and cost efficiencies through the preparation of one combined report instead of two separate reports. |
The Company believes it is important to understand the few differences between AH4R and the Operating Partnership in the context of how AH4R and the Operating Partnership operate as a consolidated company. AH4R’s primary function is acting as the general partner of the Operating Partnership. The only material asset of AH4R is its partnership interest in the Operating Partnership. As a result, AH4R generally does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing equity from time to time and guaranteeing certain debt of the Operating Partnership. AH4R itself is not directly obligated under any indebtedness, but guarantees some of the debt of the Operating Partnership. The Operating Partnership owns substantially all of the assets of the Company, including the Company’s ownership interests in its joint ventures, either directly or through its subsidiaries, conducts the operations of the Company’s business and is structured as a limited partnership with no publicly traded equity. One difference between the Company and the Operating Partnership is $25.7 million of asset-backed securitization certificates issued by the Operating Partnership and purchased by AH4R. The asset-backed securitization certificates are recorded as an asset-backed securitization certificates receivable by the Company and as an amount due from affiliates by the Operating Partnership. AH4R contributes all net proceeds from its various equity offerings to the Operating Partnership. In return for those contributions, AH4R receives Operating Partnership units (“OP units”) equal to the number of shares it has issued in the equity offering. Based on the terms of the Agreement of Limited Partnership of the Operating Partnership, as amended (the "Agreement of Limited Partnership"), OP units can be exchanged for shares on a one-for-one basis. Except for net proceeds from equity issuances by AH4R, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s incurrence of indebtedness or through the issuance of OP units.
Shareholders' equity, partners' capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The limited partnership interests in the Operating Partnership are accounted for as partners' capital in the Operating Partnership's financial statements and as noncontrolling interests in the Company's financial statements. The noncontrolling interests in the Operating Partnership's financial statements include an outside ownership interest in a consolidated subsidiary of the Company. The noncontrolling interests in the Company's financial statements include the same noncontrolling interests at the Operating Partnership level, as well as the limited partnership interests in the Operating Partnership. The differences between shareholders' equity and partners' capital result from differences in the equity and capital issued at the Company and Operating Partnership levels.
To help investors understand the differences between the Company and the Operating Partnership, this report provides
separate consolidated financial statements for the Company and the Operating Partnership; a single set of consolidated notes to such financial statements that includes separate discussions of each entity's debt, noncontrolling interests and shareholders' equity or partners' capital, as applicable; and a combined Management's Discussion and Analysis of Financial Condition and Results of Operations section that includes discrete information related to each entity.
This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32
certifications for each of the Company and the Operating Partnership in order to establish that the requisite certifications have
been made and that the Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities
Exchange Act of 1934 and 18 U.S.C. §1350.
In order to highlight the differences between the Company and the Operating Partnership, the separate sections in this report for the Company and the Operating Partnership specifically refer to the Company and the Operating Partnership. In the sections that combine disclosure of the Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the Company is one business and the Company operates that business through the Operating Partnership. The separate discussions of the Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.
American Homes 4 Rent
American Homes 4 Rent, L.P.
Form 10-Q
INDEX
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Various statements contained in this Quarterly Report on Form 10-Q of American Homes 4 Rent ("AH4R,” “the General Partner") and of American Homes 4 Rent, L.P. ("the Operating Partnership," "our operating partnership," or “the OP”) 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 operations, 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, 2017, 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 data)
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| | | | | | | |
| June 30, 2018 | | December 31, 2017 |
| (Unaudited) | | |
Assets | |
| | |
|
Single-family properties: | |
| | |
|
Land | $ | 1,670,214 |
| | $ | 1,665,631 |
|
Buildings and improvements | 7,276,606 |
| | 7,303,270 |
|
Single-family properties held for sale, net | 284,012 |
| | 35,803 |
|
| 9,230,832 |
| | 9,004,704 |
|
Less: accumulated depreciation | (1,046,911 | ) | | (939,724 | ) |
Single-family properties, net | 8,183,921 |
| | 8,064,980 |
|
Cash and cash equivalents | 53,504 |
| | 46,156 |
|
Restricted cash | 159,010 |
| | 136,667 |
|
Rent and other receivables, net | 28,049 |
| | 30,144 |
|
Escrow deposits, prepaid expenses and other assets | 246,877 |
| | 171,851 |
|
Deferred costs and other intangibles, net | 13,142 |
| | 13,025 |
|
Asset-backed securitization certificates | 25,666 |
| | 25,666 |
|
Goodwill | 120,279 |
| | 120,279 |
|
Total assets | $ | 8,830,448 |
| | $ | 8,608,768 |
|
| | | |
Liabilities | |
| | |
|
Revolving credit facility | $ | — |
| | $ | 140,000 |
|
Term loan facility, net | 99,120 |
| | 198,023 |
|
Asset-backed securitizations, net | 1,969,322 |
| | 1,977,308 |
|
Unsecured senior notes, net | 492,406 |
| | — |
|
Exchangeable senior notes, net | 113,533 |
| | 111,697 |
|
Secured note payable | — |
| | 48,859 |
|
Accounts payable and accrued expenses | 282,734 |
| | 222,867 |
|
Amounts payable to affiliates | 4,571 |
| | 4,720 |
|
Participating preferred shares derivative liability | — |
| | 29,470 |
|
Total liabilities | 2,961,686 |
| | 2,732,944 |
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| | | |
Commitments and contingencies |
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| |
|
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| | | |
Equity | |
| | |
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Shareholders’ equity: | |
| | |
|
Class A common shares, $0.01 par value per share, 450,000,000 shares authorized, 295,383,159 and 286,114,637 shares issued and outstanding at June 30, 2018, and December 31, 2017, respectively | 2,954 |
| | 2,861 |
|
Class B common shares, $0.01 par value per share, 50,000,000 shares authorized, 635,075 shares issued and outstanding at June 30, 2018, and December 31, 2017 | 6 |
| | 6 |
|
Preferred shares, $0.01 par value per share, 100,000,000 shares authorized, 30,750,000 and 38,350,000 shares issued and outstanding at June 30, 2018, and December 31, 2017, respectively | 308 |
| | 384 |
|
Additional paid-in capital | 5,630,321 |
| | 5,600,256 |
|
Accumulated deficit | (494,326 | ) | | (453,953 | ) |
Accumulated other comprehensive income | 9,267 |
| | 75 |
|
Total shareholders’ equity | 5,148,530 |
| | 5,149,629 |
|
Noncontrolling interest | 720,232 |
| | 726,195 |
|
Total equity | 5,868,762 |
| | 5,875,824 |
|
| | | |
Total liabilities and equity | $ | 8,830,448 |
| | $ | 8,608,768 |
|
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, |
| 2018 | | 2017 | | 2018 | | 2017 |
Revenues: | |
| | |
| | |
| | |
|
Rents from single-family properties | $ | 227,211 |
| | $ | 204,648 |
| | $ | 445,234 |
| | $ | 405,755 |
|
Fees from single-family properties | 2,754 |
| | 2,690 |
| | 5,587 |
| | 5,294 |
|
Tenant charge-backs | 32,917 |
| | 27,382 |
| | 68,724 |
| | 55,755 |
|
Other | 1,601 |
| | 2,288 |
| | 2,942 |
| | 3,958 |
|
Total revenues | 264,483 |
| | 237,008 |
| | 522,487 |
| | 470,762 |
|
| | | | | | | |
Expenses: | |
| | |
| | |
| | |
|
Property operating expenses | 98,843 |
| | 85,954 |
| | 199,830 |
| | 169,259 |
|
Property management expenses | 18,616 |
| | 17,442 |
| | 37,603 |
| | 34,920 |
|
General and administrative expense | 9,677 |
| | 8,926 |
| | 18,908 |
| | 18,221 |
|
Interest expense | 31,978 |
| | 28,392 |
| | 61,279 |
| | 60,281 |
|
Acquisition fees and costs expensed | 1,321 |
| | 1,412 |
| | 2,632 |
| | 2,508 |
|
Depreciation and amortization | 78,319 |
| | 72,716 |
| | 157,622 |
| | 146,669 |
|
Other | 1,624 |
| | 1,359 |
| | 2,451 |
| | 2,917 |
|
Total expenses | 240,378 |
| | 216,201 |
| | 480,325 |
| | 434,775 |
|
| | | | | | | |
Gain on sale of single-family properties and other, net | 3,240 |
| | 2,454 |
| | 5,496 |
| | 4,480 |
|
Loss on early extinguishment of debt | (1,447 | ) | | (6,555 | ) | | (1,447 | ) | | (6,555 | ) |
Remeasurement of participating preferred shares | — |
| | (1,640 | ) | | 1,212 |
| | (7,050 | ) |
| | | | | | | |
Net income | 25,898 |
| | 15,066 |
| | 47,423 |
| | 26,862 |
|
| | | | | | | |
Noncontrolling interest | (3,150 | ) | | (30 | ) | | (2,036 | ) | | (331 | ) |
Dividends on preferred shares | 11,984 |
| | 15,282 |
| | 26,581 |
| | 28,869 |
|
Redemption of participating preferred shares | 32,215 |
| | — |
| | 32,215 |
| | — |
|
| | | | | | | |
Net loss attributable to common shareholders | $ | (15,151 | ) | | $ | (186 | ) | | $ | (9,337 | ) | | $ | (1,676 | ) |
| | | | | | | |
Weighted-average shares outstanding─basic and diluted | 295,462,572 |
| | 258,900,456 |
| | 290,848,633 |
| | 251,685,993 |
|
| | | | | | | |
Net loss attributable to common shareholders per share─basic and diluted | $ | (0.05 | ) | | $ | — |
| | $ | (0.03 | ) | | $ | (0.01 | ) |
| | | | | | | |
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, |
| 2018 | | 2017 | | 2018 | | 2017 |
Net income | $ | 25,898 |
| | $ | 15,066 |
| | $ | 47,423 |
| | $ | 26,862 |
|
Other comprehensive (loss) income: | | | | | | | |
Gain on cash flow hedging instruments: | | | | | | | |
Gain on settlement of cash flow hedging instrument | — |
| | — |
| | 9,553 |
| | — |
|
Reclassification adjustment for amortization of interest expense included in net income | (241 | ) | | — |
| | (361 | ) | | (28 | ) |
Gain on investment in equity securities: | | | | | | | — |
|
Reclassification adjustment for realized gain included in net income | — |
| | — |
| | — |
| | (67 | ) |
Other comprehensive (loss) income | (241 | ) | | — |
| | 9,192 |
| | (95 | ) |
Comprehensive income | 25,657 |
| | 15,066 |
| | 56,615 |
| | 26,767 |
|
Comprehensive loss attributable to noncontrolling interests | (3,209 | ) | | (31 | ) | | (566 | ) | | (314 | ) |
Dividends on preferred shares | 11,984 |
| | 15,282 |
| | 26,581 |
| | 28,869 |
|
Redemption of participating preferred shares | 32,215 |
| | — |
| | 32,215 |
| | — |
|
Comprehensive loss attributable to common shareholders | $ | (15,333 | ) | | $ | (185 | ) | | $ | (1,615 | ) | | $ | (1,788 | ) |
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, 2017 | 286,114,637 |
| | $ | 2,861 |
| | 635,075 |
| | $ | 6 |
| | 38,350,000 |
| | $ | 384 |
| | $ | 5,600,256 |
| | $ | (453,953 | ) | | $ | 75 |
| | $ | 5,149,629 |
| | $ | 726,195 |
| | $ | 5,875,824 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
Share-based compensation | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,918 |
| | — |
| | — |
| | 1,918 |
| | — |
| | 1,918 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued under share-based compensation plans, net of shares withheld for employee taxes | 223,858 |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | 2,658 |
| | — |
| | — |
| | 2,660 |
| | — |
| | 2,660 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
Redemption of Series C participating preferred shares into Class A common shares | 10,848,827 |
| | 109 |
| | — |
| | — |
| | (7,600,000 | ) | | (76 | ) | | 60,440 |
| | (32,215 | ) | | — |
| | 28,258 |
| | — |
| | 28,258 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
Repurchase of Class A common shares | (1,804,163 | ) | | (18 | ) | | — |
| | — |
| | — |
| | — |
| | (34,951 | ) | | — |
| | — |
| | (34,969 | ) | | — |
| | (34,969 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
Liquidation of consolidated joint venture | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,849 | ) | | — |
| | (1,849 | ) | | 1,608 |
| | (241 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
Distributions to equity holders: | | | | | | | | | | | | | | | | | | | | | | | |
Preferred shares | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (26,581 | ) | | — |
| | (26,581 | ) | | — |
| | (26,581 | ) |
Noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (5,535 | ) | | (5,535 | ) |
Common shares | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (29,187 | ) | | — |
| | (29,187 | ) | | — |
| | (29,187 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 49,459 |
| | — |
| | 49,459 |
| | (2,036 | ) | | 47,423 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 9,192 |
| | 9,192 |
| | — |
| | 9,192 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
Balances at June 30, 2018 | 295,383,159 |
| | $ | 2,954 |
| | 635,075 |
| | $ | 6 |
| | 30,750,000 |
| | $ | 308 |
| | $ | 5,630,321 |
| | $ | (494,326 | ) | | $ | 9,267 |
| | $ | 5,148,530 |
| | $ | 720,232 |
| | $ | 5,868,762 |
|
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, |
| 2018 | | 2017 |
Operating activities | |
| | |
|
Net income | $ | 47,423 |
| | $ | 26,862 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 157,622 |
| | 146,669 |
|
Noncash amortization of deferred financing costs | 3,888 |
| | 4,410 |
|
Noncash amortization of discounts on debt instruments | 1,941 |
| | 1,714 |
|
Noncash amortization of cash flow hedging instrument | (361 | ) | | — |
|
Noncash share-based compensation | 1,918 |
| | 2,059 |
|
Provision for bad debt | 3,616 |
| | 2,843 |
|
Loss on early extinguishment of debt | 1,447 |
| | 6,555 |
|
Remeasurement of participating preferred shares | (1,212 | ) | | 7,050 |
|
Equity in net earnings of unconsolidated ventures | (587 | ) | | (1,623 | ) |
Net gain on sale of single-family properties and other | (5,496 | ) | | (4,480 | ) |
Loss on impairment of single-family properties | 2,236 |
| | 2,487 |
|
Net gain on resolutions of mortgage loans | — |
| | (16 | ) |
Other changes in operating assets and liabilities: | | | |
Rent and other receivables | (5,522 | ) | | (4,497 | ) |
Prepaid expenses and other assets | (12,167 | ) | | (7,440 | ) |
Deferred leasing costs | (5,834 | ) | | (3,401 | ) |
Accounts payable and accrued expenses | 61,061 |
| | 40,967 |
|
Amounts payable to affiliates | (8 | ) | | 5,047 |
|
Net cash provided by operating activities | 249,965 |
| | 225,206 |
|
| | | |
Investing activities | |
| | |
|
Cash paid for single-family properties | (206,137 | ) | | (226,937 | ) |
Change in escrow deposits for purchase of single-family properties | (4,357 | ) | | (1,708 | ) |
Net proceeds received from sales of single-family properties and other | 30,142 |
| | 54,232 |
|
Proceeds received from hurricane-related insurance claims | 4,000 |
| | — |
|
Collections from mortgage financing receivables | — |
| | 78 |
|
Distributions from joint ventures | 2,440 |
| | 2,144 |
|
Initial renovations to single-family properties | (33,030 | ) | | (18,351 | ) |
Recurring and other capital expenditures for single-family properties | (23,331 | ) | | (15,038 | ) |
Other purchases of productive assets | (95,354 | ) | | (16,936 | ) |
Net cash used for investing activities | (325,627 | ) | | (222,516 | ) |
| | | |
Financing activities | |
| | |
|
Proceeds from issuance of Class A common shares | — |
| | 355,589 |
|
Payments of Class A common share issuance costs | — |
| | (350 | ) |
Proceeds from issuance of perpetual preferred shares | — |
| | 155,000 |
|
Payments of perpetual preferred share issuance costs | — |
| | (5,209 | ) |
Repurchase of Class A common shares | (34,969 | ) | | — |
|
Share-based compensation proceeds, net | 1,933 |
| | 1,858 |
|
Redemptions of Class A units | — |
| | (169 | ) |
Payments on asset-backed securitizations | (10,490 | ) | | (466,793 | ) |
Proceeds from revolving credit facility | 100,000 |
| | 62,000 |
|
Payments on revolving credit facility | (240,000 | ) | | (20,000 | ) |
Proceeds from term loan facility | — |
| | 25,000 |
|
Payments on term loan facility | (100,000 | ) | | (100,000 | ) |
Payments on secured note payable | (49,427 | ) | | (482 | ) |
Proceeds from unsecured senior notes, net of discount | 497,210 |
| | — |
|
Settlement of cash flow hedging instrument | 9,628 |
| | — |
|
Distributions to noncontrolling interests | (5,536 | ) | | (5,555 | ) |
Distributions to common shareholders | (28,702 | ) | | (25,172 | ) |
Distributions to preferred shareholders | (29,194 | ) | | (28,869 | ) |
Deferred financing costs paid | (5,100 | ) | | (3,930 | ) |
Net cash provided by (used for) financing activities | 105,353 |
| | (57,082 | ) |
| | | |
American Homes 4 Rent
Condensed Consolidated Statements of Cash Flows (continued)
(Amounts in thousands)
(Unaudited)
|
| | | | | | | |
| For the Six Months Ended
June 30, |
| 2018 | | 2017 |
Net increase (decrease) in cash, cash equivalents and restricted cash | 29,691 |
| | (54,392 | ) |
Cash, cash equivalents and restricted cash, beginning of period | 182,823 |
| | 250,241 |
|
Cash, cash equivalents and restricted cash, end of period (see Note 3) | $ | 212,514 |
| | $ | 195,849 |
|
| | | |
Supplemental cash flow information | |
| | |
|
Cash payments for interest, net of amounts capitalized | $ | (47,663 | ) | | $ | (54,157 | ) |
| | | |
Supplemental schedule of noncash investing and financing activities | |
| | |
|
Accounts payable and accrued expenses related to property acquisitions, renovations and construction | $ | 979 |
| | $ | 3,922 |
|
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 |
|
Transfers of completed homebuilding deliveries to properties | $ | 37,541 |
| | $ | — |
|
Note receivable related to a bulk sale of properties, net of discount | $ | — |
| | $ | 5,559 |
|
Redemption of participating preferred shares | $ | (28,258 | ) | | $ | — |
|
Accrued distributions to affiliates | $ | (149 | ) | | $ | — |
|
Accrued distributions to non-affiliates | $ | (1,995 | ) | | $ | — |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
American Homes 4 Rent, L.P.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except unit data)
|
| | | | | | | |
| June 30, 2018 | | December 31, 2017 |
| (Unaudited) | | |
Assets | | | |
Single-family properties: | | | |
Land | $ | 1,670,214 |
| | $ | 1,665,631 |
|
Buildings and improvements | 7,276,606 |
| | 7,303,270 |
|
Single-family properties held for sale, net | 284,012 |
| | 35,803 |
|
| 9,230,832 |
| | 9,004,704 |
|
Less: accumulated depreciation | (1,046,911 | ) | | (939,724 | ) |
Single-family properties, net | 8,183,921 |
| | 8,064,980 |
|
Cash and cash equivalents | 53,504 |
| | 46,156 |
|
Restricted cash | 159,010 |
| | 136,667 |
|
Rent and other receivables, net | 28,049 |
| | 30,144 |
|
Escrow deposits, prepaid expenses and other assets | 246,869 |
| | 171,851 |
|
Amounts due from affiliates | 25,674 |
| | 25,666 |
|
Deferred costs and other intangibles, net | 13,142 |
| | 13,025 |
|
Goodwill | 120,279 |
| | 120,279 |
|
Total assets | $ | 8,830,448 |
| | $ | 8,608,768 |
|
| | | |
Liabilities | | | |
Revolving credit facility | $ | — |
| | $ | 140,000 |
|
Term loan facility, net | 99,120 |
| | 198,023 |
|
Asset-backed securitizations, net | 1,969,322 |
| | 1,977,308 |
|
Unsecured senior notes, net | 492,406 |
| | — |
|
Exchangeable senior notes, net | 113,533 |
| | 111,697 |
|
Secured note payable | — |
| | 48,859 |
|
Accounts payable and accrued expenses | 282,734 |
| | 222,867 |
|
Amounts payable to affiliates | 4,571 |
| | 4,720 |
|
Participating preferred units derivative liability | — |
| | 29,470 |
|
Total liabilities | 2,961,686 |
| | 2,732,944 |
|
| | | |
Commitments and contingencies |
| |
|
| | | |
Capital | | | |
Partners' capital: | | | |
General partner: | | | |
Common units (296,018,234 and 286,749,712 units issued and outstanding at June 30, 2018, and December 31, 2017, respectively) | 4,395,806 |
| | 4,248,236 |
|
Preferred units (30,750,000 and 38,350,000 units issued and outstanding at June 30, 2018, and December 31, 2017, respectively) | 743,457 |
| | 901,318 |
|
Limited partners: | | | |
Common units (55,350,153 units issued and outstanding at June 30, 2018, and December 31, 2017) | 720,232 |
| | 727,544 |
|
Accumulated other comprehensive income | 9,267 |
| | 75 |
|
Total partners' capital | 5,868,762 |
| | 5,877,173 |
|
Noncontrolling interest | — |
| | (1,349 | ) |
Total capital | 5,868,762 |
| | 5,875,824 |
|
| | | |
Total liabilities and capital | $ | 8,830,448 |
| | $ | 8,608,768 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
American Homes 4 Rent, L.P.
Condensed Consolidated Statements of Operations
(Amounts in thousands, except unit and per unit data)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended
June 30, | | For the Six Months Ended
June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Revenues: | | | | | | | |
Rents from single-family properties | $ | 227,211 |
| | $ | 204,648 |
| | $ | 445,234 |
| | $ | 405,755 |
|
Fees from single-family properties | 2,754 |
| | 2,690 |
| | 5,587 |
| | 5,294 |
|
Tenant charge-backs | 32,917 |
| | 27,382 |
| | 68,724 |
| | 55,755 |
|
Other | 1,601 |
| | 2,288 |
| | 2,942 |
| | 3,958 |
|
Total revenues | 264,483 |
| | 237,008 |
| | 522,487 |
| | 470,762 |
|
| | | | | | | |
Expenses: | | | | | | | |
Property operating expenses | 98,843 |
| | 85,954 |
| | 199,830 |
| | 169,259 |
|
Property management expenses | 18,616 |
| | 17,442 |
| | 37,603 |
| | 34,920 |
|
General and administrative expense | 9,677 |
| | 8,926 |
| | 18,908 |
| | 18,221 |
|
Interest expense | 31,978 |
| | 28,392 |
| | 61,279 |
| | 60,281 |
|
Acquisition fees and costs expensed | 1,321 |
| | 1,412 |
| | 2,632 |
| | 2,508 |
|
Depreciation and amortization | 78,319 |
| | 72,716 |
| | 157,622 |
| | 146,669 |
|
Other | 1,624 |
| | 1,359 |
| | 2,451 |
| | 2,917 |
|
Total expenses | 240,378 |
| | 216,201 |
| | 480,325 |
| | 434,775 |
|
| | | | | | | |
Gain on sale of single-family properties and other, net | 3,240 |
| | 2,454 |
| | 5,496 |
| | 4,480 |
|
Loss on early extinguishment of debt | (1,447 | ) | | (6,555 | ) | | (1,447 | ) | | (6,555 | ) |
Remeasurement of participating preferred units | — |
| | (1,640 | ) | | 1,212 |
| | (7,050 | ) |
| | | | | | | |
Net income | 25,898 |
| | 15,066 |
| | 47,423 |
| | 26,862 |
|
| | | | | | | |
Noncontrolling interest | (248 | ) | | 1 |
| | (259 | ) | | 39 |
|
Preferred distributions | 11,984 |
| | 15,282 |
| | 26,581 |
| | 28,869 |
|
Redemption of participating preferred units | 32,215 |
| | — |
| | 32,215 |
| | — |
|
| | | | | | | |
Net loss attributable to common unitholders | $ | (18,053 | ) | | $ | (217 | ) | | $ | (11,114 | ) | | $ | (2,046 | ) |
| | | | | | | |
Weighted-average common units outstanding─basic and diluted | 350,812,725 |
| | 314,451,049 |
| | 346,198,786 |
| | 307,239,255 |
|
| | | | | | | |
Net loss attributable to common unitholders per unit─basic and diluted | $ | (0.05 | ) | | $ | — |
| | $ | (0.03 | ) | | $ | (0.01 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
American Homes 4 Rent, L.P.
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, |
| 2018 | | 2017 | | 2018 | | 2017 |
Net income | $ | 25,898 |
| | $ | 15,066 |
| | $ | 47,423 |
| | $ | 26,862 |
|
Other comprehensive (loss) income: | | | | | | | |
Gain on cash flow hedging instruments: | | | | | | | |
Gain on settlement of cash flow hedging instrument | — |
| | — |
| | 9,553 |
| | — |
|
Reclassification adjustment for amortization of interest expense included in net income | (241 | ) | | — |
| | (361 | ) | | (28 | ) |
Gain on investment in equity securities: | | | | | | | |
Reclassification adjustment for realized gain included in net income | — |
| | — |
| | — |
| | (67 | ) |
Other comprehensive (loss) income | (241 | ) | | — |
| | 9,192 |
| | (95 | ) |
Comprehensive income | 25,657 |
| | 15,066 |
| | 56,615 |
| | 26,767 |
|
Comprehensive (loss) income attributable to noncontrolling interests | (248 | ) | | 1 |
| | (259 | ) | | 39 |
|
Preferred distributions | 11,984 |
| | 15,282 |
| | 26,581 |
| | 28,869 |
|
Redemption of participating preferred units | 32,215 |
| | — |
| | 32,215 |
| | — |
|
Comprehensive loss attributable to common unitholders | $ | (18,294 | ) | | $ | (217 | ) | | $ | (1,922 | ) | | $ | (2,141 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
American Homes 4 Rent, L.P.
Condensed Consolidated Statement of Capital
(Amounts in thousands, except unit data)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| General Partner | | Limited Partners | | Accumulated other comprehensive income | | Total partners' capital | | Noncontrolling interest | | Total capital |
| Common capital | | Preferred capital amount | | Common capital | | | | |
| Units | | Amount | | | Units | | Amount | | | | |
| | | | | | | | | | | | | | | | | |
Balances at December 31, 2017 | 286,749,712 |
| | $ | 4,248,236 |
| | $ | 901,318 |
| | 55,350,153 |
| | $ | 727,544 |
| | $ | 75 |
| | $ | 5,877,173 |
| | $ | (1,349 | ) | | $ | 5,875,824 |
|
| | | | | | | | | | | | | | | | | |
Share-based compensation | — |
| | 1,918 |
| | — |
| | — |
| | — |
| | — |
| | 1,918 |
| | — |
| | 1,918 |
|
| | | | | | | | | | | | | | | | | |
Common units issued under share-based compensation plans, net of units withheld for employee taxes | 223,858 |
| | 2,660 |
| | — |
| | — |
| | — |
| | — |
| | 2,660 |
| | — |
| | 2,660 |
|
| | | | | | | | | | | | | | | | | |
Redemption of Series C participating preferred units into Class A units | 10,848,827 |
| | 186,119 |
| | (157,861 | ) | | — |
| | — |
| | — |
| | 28,258 |
| | — |
| | 28,258 |
|
| | | | | | | | | | | | | | | | | |
Repurchase of Class A units | (1,804,163 | ) | | (34,969 | ) | | — |
| | — |
| | — |
| | — |
| | (34,969 | ) | | — |
| | (34,969 | ) |
| | | | | | | | | | | | | | | | | |
Liquidation of consolidated joint venture | — |
| | (1,849 | ) | | — |
| | — |
| | — |
| | — |
| | (1,849 | ) | | 1,608 |
| | (241 | ) |
| | | | | | | | | | | | | | | | | |
Distributions to capital holders: | | | | | | | | | | | | | | | | | |
Preferred units | — |
| | — |
| | (26,581 | ) | | — |
| | — |
| | — |
| | (26,581 | ) | | — |
| | (26,581 | ) |
Common units | — |
| | (29,187 | ) | | — |
| | — |
| | (5,535 | ) | | — |
| | (34,722 | ) | | — |
| | (34,722 | ) |
| | | | | | | | | | | | | | | | | |
Net income | — |
| | 22,878 |
| | 26,581 |
| | — |
| | (1,777 | ) | | — |
| | 47,682 |
| | (259 | ) | | 47,423 |
|
| | | | | | | | | | | | | | | | | |
Total other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 9,192 |
| | 9,192 |
| | — |
| | 9,192 |
|
| | | | | | | | | | | | | | | | | |
Balances at June 30, 2018 | 296,018,234 |
| | $ | 4,395,806 |
| | $ | 743,457 |
| | 55,350,153 |
| | $ | 720,232 |
| | $ | 9,267 |
| | $ | 5,868,762 |
| | $ | — |
| | $ | 5,868,762 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
American Homes 4 Rent, L.P.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
|
| | | | | | | |
| For the Six Months Ended
June 30, |
| 2018 | | 2017 |
Operating activities | | | |
Net income | $ | 47,423 |
| | $ | 26,862 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 157,622 |
| | 146,669 |
|
Noncash amortization of deferred financing costs | 3,888 |
| | 4,410 |
|
Noncash amortization of discounts on debt instruments | 1,941 |
| | 1,714 |
|
Noncash amortization of cash flow hedging instrument | (361 | ) | | — |
|
Noncash share-based compensation | 1,918 |
| | 2,059 |
|
Provision for bad debt | 3,616 |
| | 2,843 |
|
Loss on early extinguishment of debt | 1,447 |
| | 6,555 |
|
Remeasurement of participating preferred units | (1,212 | ) | | 7,050 |
|
Equity in net earnings of unconsolidated ventures | (587 | ) | | (1,623 | ) |
Net gain on sale of single-family properties and other | (5,496 | ) | | (4,480 | ) |
Loss on impairment of single-family properties | 2,236 |
| | 2,487 |
|
Net gain on resolutions of mortgage loans | — |
| | (16 | ) |
Other changes in operating assets and liabilities: | | | |
Rent and other receivables | (5,522 | ) | | (4,497 | ) |
Prepaid expenses and other assets | (12,167 | ) | | (7,440 | ) |
Deferred leasing costs | (5,834 | ) | | (3,401 | ) |
Accounts payable and accrued expenses | 61,061 |
| | 40,967 |
|
Amounts payable to affiliates | (8 | ) | | 5,047 |
|
Net cash provided by operating activities | 249,965 |
| | 225,206 |
|
| | | |
Investing activities | | | |
Cash paid for single-family properties | (206,137 | ) | | (226,937 | ) |
Change in escrow deposits for purchase of single-family properties | (4,357 | ) | | (1,708 | ) |
Net proceeds received from sales of single-family properties and other | 30,142 |
| | 54,232 |
|
Proceeds received from hurricane-related insurance claims | 4,000 |
| | — |
|
Collections from mortgage financing receivables | — |
| | 78 |
|
Distributions from joint ventures | 2,440 |
| | 2,144 |
|
Initial renovations to single-family properties | (33,030 | ) | | (18,351 | ) |
Recurring and other capital expenditures for single-family properties | (23,331 | ) | | (15,038 | ) |
Other purchases of productive assets | (95,354 | ) | | (16,936 | ) |
Net cash used for investing activities | (325,627 | ) | | (222,516 | ) |
| | | |
Financing activities | | | |
Proceeds from issuance of Class A units | — |
| | 355,589 |
|
Payments of Class A unit issuance costs | — |
| | (350 | ) |
Proceeds from issuance of perpetual preferred units | — |
| | 155,000 |
|
Payments of perpetual preferred unit issuance costs | — |
| | (5,209 | ) |
Repurchase of Class A units | (34,969 | ) | | — |
|
Share-based compensation proceeds, net | 1,933 |
| | 1,858 |
|
Redemptions of Class A units | — |
| | (169 | ) |
Payments on asset-backed securitizations | (10,490 | ) | | (466,793 | ) |
Proceeds from revolving credit facility | 100,000 |
| | 62,000 |
|
Payments on revolving credit facility | (240,000 | ) | | (20,000 | ) |
Proceeds from term loan facility | — |
| | 25,000 |
|
Payments on term loan facility | (100,000 | ) | | (100,000 | ) |
Payments on secured note payable | (49,427 | ) | | (482 | ) |
Proceeds from unsecured senior notes, net of discount | 497,210 |
| | — |
|
Settlement of cash flow hedging instrument | 9,628 |
| | — |
|
Distributions to common unitholders | (34,238 | ) | | (30,727 | ) |
Distributions to preferred unitholders | (29,194 | ) | | (28,869 | ) |
Deferred financing costs paid | (5,100 | ) | | (3,930 | ) |
Net cash provided by (used for) financing activities | 105,353 |
| | (57,082 | ) |
American Homes 4 Rent, L.P.
Condensed Consolidated Statements of Cash Flows (continued)
(Amounts in thousands)
(Unaudited)
|
| | | | | | | |
| For the Six Months Ended
June 30, |
| 2018 | | 2017 |
Net increase (decrease) in cash, cash equivalents and restricted cash | 29,691 |
| | (54,392 | ) |
Cash, cash equivalents and restricted cash, beginning of period | 182,823 |
| | 250,241 |
|
Cash, cash equivalents and restricted cash, end of period (see Note 3) | $ | 212,514 |
| | $ | 195,849 |
|
| | | |
Supplemental cash flow information | | | |
Cash payments for interest, net of amounts capitalized | $ | (47,663 | ) | | $ | (54,157 | ) |
| | | |
Supplemental schedule of noncash investing and financing activities | | | |
Accounts payable and accrued expenses related to property acquisitions, renovations and construction | $ | 979 |
| | $ | 3,922 |
|
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 |
|
Transfers of completed homebuilding deliveries to properties | $ | 37,541 |
| | $ | — |
|
Note receivable related to a bulk sale of properties, net of discount | $ | — |
| | $ | 5,559 |
|
Redemption of participating preferred units | $ | (28,258 | ) | | $ | — |
|
Accrued distributions to affiliates | $ | (149 | ) | | $ | — |
|
Accrued distributions to non-affiliates | $ | (1,995 | ) | | $ | — |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
American Homes 4 Rent
American Homes 4 Rent, L.P.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Organization and Operations
American Homes 4 Rent (“AH4R") is a Maryland real estate investment trust (“REIT”) formed on October 19, 2012, for the purpose of acquiring, renovating, leasing and operating single-family homes as rental properties. American Homes 4 Rent, L.P., a Delaware limited partnership formed on October 22, 2012, and its consolidated subsidiaries (collectively, the "Operating Partnership," our "operating partnership" or the "OP") is the entity through which the Company conducts substantially all of our business and owns, directly or through subsidiaries, substantially all of our assets. References to “the Company,” “we,” "our," and “us” mean collectively, AH4R, the Operating Partnership and those entities/subsidiaries owned or controlled by AH4R and/or the Operating Partnership. As of June 30, 2018, the Company held 52,049 single-family properties in 22 states, including 2,209 properties identified as part of the Company's disposition program, comprised of 1,838 properties classified as held for sale and 371 properties identified for future sale.
AH4R is the general partner of, and as of June 30, 2018, owned an approximate 84.2% common partnership interest in, the Operating Partnership with the remaining 15.8% common partnership interest owned by limited partners. As the sole general partner of the Operating Partnership, AH4R has exclusive control of the Operating Partnership’s day-to-day management. The Company’s management operates AH4R and the Operating Partnership as one business, and the management of AH4R consists of the same members as the management of the Operating Partnership. AH4R’s primary function is acting as the general partner of the Operating Partnership. The only material asset of AH4R is its partnership interest in the Operating Partnership. As a result, AH4R generally does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing equity from time to time and guaranteeing certain debt of the Operating Partnership. AH4R itself is not directly obligated under any indebtedness, but guarantees some of the debt of the Operating Partnership. The Operating Partnership owns substantially all of the assets of the Company, including the Company’s ownership interests in its joint ventures, either directly or through its subsidiaries, conducts the operations of the Company’s business and is structured as a limited partnership with no publicly traded equity. One difference between the Company and the Operating Partnership is $25.7 million of asset-backed securitization certificates issued by the Operating Partnership and purchased by AH4R. The asset-backed securitization certificates are recorded as an asset-backed securitization certificates receivable by the Company and an amount due from affiliates by the Operating Partnership. AH4R contributes all net proceeds from its various equity offerings to the Operating Partnership. In return for those contributions, AH4R receives Operating Partnership units (“OP units”) equal to the number of shares it has issued in the equity offering. Based on the terms of the Agreement of Limited Partnership of the Operating Partnership, OP units can be exchanged for shares on a one-for-one basis. Except for net proceeds from equity issuances by AH4R, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s incurrence of indebtedness or through the issuance of OP units.
Note 2. Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements are unaudited and include the accounts of AH4R, the Operating Partnership and their consolidated subsidiaries. The condensed consolidated financial statements of the Operating Partnership include the accounts of 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. The ownership interest in a consolidated subsidiary of the Company held by outside parties is 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, 2017. 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, liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
There have been no changes to our significant accounting policies that have had a material impact on our condensed consolidated financial statements and related notes, compared to those policies disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. 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 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. The guidance is 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. The Company adopted this guidance effective January 1, 2018. The adoption of this guidance did not 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 February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which sets forth principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessors and lessees). Lessor accounting will remain similar to lessor accounting under previous guidance, while aligning with the FASB's new revenue recognition guidance for non-lease components. The new guidance will require lessees to recognize right-of-use assets and lease liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than one year. 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 for annual reporting periods beginning after December 15, 2018, and for interim periods within those annual periods, with early adoption permitted, and requires the use of the modified retrospective transition method. The Company does not anticipate significant changes in the accounting for our residential operating leases for which we are the lessor, as our leases generally do not have terms of more than one year. As part of our operations, we lease office space for our corporate and property management offices under non-cancelable operating lease agreements for which we are the lessee. We anticipate that the adoption of this guidance will require us to recognize a right-of-use asset and corresponding lease liability for these office leases. 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 is effective for the Company for annual reporting periods beginning after December 15, 2017, and for interim periods within those annual periods. The Company adopted this guidance effective January 1, 2018. The adoption of this guidance did not have a material impact 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, "Leases", 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. Based on our assessment, the Company’s current accounting policies for these non-lease components are aligned with the revenue recognition principles prescribed by the new guidance. Therefore, the new standard did not ultimately change the amount or timing of our revenue recognition. 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, "Other Income"