American Homes 4 Rent 10-Q

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, developing, renovating, leasing and operating single-family homes as rental properties. The Operating Partnership is the entity through which we conduct substantially all of our business and own, directly or through subsidiaries, substantially all of our assets. We commenced operations in November 2012. As of September 30, 2020, we owned 53,229 single-family properties in selected sub-markets of metropolitan statistical areas (“MSAs”) in 22 states, including 813 properties held for sale, compared to 52,552 single-family properties in 22 states, including 1,187 properties held for sale, as of December 31, 2019, and 52,537 single-family properties in 22 states, including 1,439 properties held for sale as of September 30, 2019. As of September 30, 2020, we had commitments to acquire an additional 396 single-family properties for an aggregate purchase price of $99.8 million, as well as $65.5 million in purchase commitments that relate to both third-party developer agreements and land for our AMH Development Program. As of September 30, 2020, 51,090, or 97.5%, of our total properties (excluding properties held for sale) were occupied, compared to 48,767, or 94.9%, of our total properties (excluding properties held for sale) as of December 31, 2019, and 48,868, or 95.6%, of our total properties (excluding properties held for sale) as of September 30, 2019. Also, as of September 30, 2020, the Company had an additional 1,131 properties held in unconsolidated joint ventures, compared to 808 properties held in unconsolidated joint ventures as of December 31, 2019, and 717 properties held in unconsolidated joint ventures as of September 30, 2019. Our portfolio of single-family properties, including those held in our unconsolidated joint ventures, is internally managed through our proprietary property management platform. COVID-19 Business Update The Company has maintained continuity in business operations since the beginning of the COVID-19 pandemic and produced strong operating results in the third quarter of 2020 demonstrating the flexibility of its technology enabled operating platform and the resiliency of its high-quality, diversified portfolio. Comprehensive remote working policies remain in place for all corporate and field offices, and operational protocols have been tailored based on state and local mandates to ensure continuity of services, while protecting employees, residents and their families. Driven by shifting housing preferences as households migrate away from city centers and apartments, the Company is experiencing record demand levels and reported its highest ever Same-Home portfolio Average Occupied Days Percentages in September and October 2020 of 97.2% and 97.2%, respectively. Additionally, as the Company entered the third quarter of 2020, it began a socially responsible return to normal operating practices, including the assessment of late fees, in jurisdictions where allowable, and modest renewal increases on expiring leases. Collections continue to remain resilient. The Company reported third quarter 2020 rental revenue equivalent to 98.0% of quarterly rental billings, comprised of: (i) one percentage point of second quarter 2020 rental billings received and recognized in the third quarter and (ii) 97.0% of revenue recognition on third quarter rental billings. On a cumulative basis through October 2020, we have now received 97.5% of second quarter rental billings and 96.3% of third quarter rental billings, which is consistent with second quarter payment history for the same time frame. Collections are reported without application of any existing resident security deposits or adjustment for deferred payment plans. During October 2020, the Company has collected 93.7% of October rents, which represents 101% of second quarter 2020 payment history for the same time frame. Although the Company has produced strong operating results to date during the COVID-19 pandemic, the extent to which the pandemic will ultimately impact us and our residents will depend on future developments which are highly uncertain. These include the scope, severity and duration of the pandemic, including resurgences, status of eviction moratoriums, the speed and effectiveness of vaccine and treatment developments and the direct and indirect economic effects of the pandemic and containment measures, among others. For more information on risks related to COVID-19, see Part II, “Item 1A. Risk Factors— We are subject to risks from the global pandemic associated with COVID-19 and we may in the future be subject to risks from other public health crises .” 31 Key Single-Family Property and Leasing Metrics The following table summarizes certain key single-family properties metrics as of September 30, 2020: Market Number of Single-Family Properties (1) % of Total Single-Family Properties Gross Book Value (millions) % of Gross Book Value Total Avg. Gross Book Value per Property Avg. Sq. Ft. Avg. Property Age (years) Avg. Year Purchased or Delivered Atlanta, GA 4,919 9.4 % $ 903.5 9.2 % $ 183,684 2,165 17.3 2015 Dallas-Fort Worth, TX 4,309 8.2 % 717.9 7.3 % 166,603 2,117 16.5 2014 Charlotte, NC 3,789 7.2 % 748.1 7.6 % 197,444 2,099 16.0 2015 Phoenix, AZ 3,114 5.9 % 552.5 5.6 % 177,414 1,835 17.0 2015 Houston, TX 2,988 5.7 % 495.8 5.0 % 165,923 2,094 14.7 2014 Nashville, TN 2,868 5.5 % 619.8 6.3 % 216,094 2,109 15.0 2015 Indianapolis, IN 2,801 5.3 % 433.7 4.4 % 154,853 1,930 18.0 2013 Tampa, FL 2,417 4.6 % 488.5 5.0 % 202,117 1,943 14.4 2015 Jacksonville, FL 2,374 4.5 % 431.8 4.4 % 181,887 1,938 14.6 2015 Raleigh, NC 2,093 4.0 % 389.5 4.0 % 186,084 1,879 15.3 2014 Columbus, OH 2,046 3.9 % 356.5 3.6 % 174,226 1,870 18.7 2015 Cincinnati, OH 1,967 3.8 % 347.1 3.5 % 176,466 1,853 18.2 2013 Greater Chicago area, IL and IN 1,731 3.3 % 317.8 3.2 % 183,566 1,869 19.1 2013 Orlando, FL 1,739 3.3 % 321.8 3.3 % 185,020 1,901 18.2 2015 Salt Lake City, UT 1,545 2.9 % 396.5 4.0 % 256,653 2,185 17.1 2015 Charleston, SC 1,242 2.4 % 253.4 2.6 % 204,036 1,972 11.9 2016 Las Vegas, NV 1,077 2.1 % 198.2 2.0 % 184,017 1,852 16.7 2013 San Antonio, TX 931 1.8 % 150.7 1.5 % 161,893 2,019 16.5 2014 Savannah/Hilton Head, SC 916 1.7 % 168.2 1.7 % 183,625 1,871 12.6 2016 Denver, CO 829 1.6 % 247.8 2.5 % 298,932 2,106 18.2 2015 All Other (2) 6,721 12.9 % 1,297.7 13.3 % 193,077 1,877 15.7 2015 Total/Average 52,416 100.0 % $ 9,836.8 100.0 % $ 187,667 1,987 16.3 2014 (1) Excludes 813 single-family properties held for sale as of September 30, 2020. (2) Represents 15 markets in 14 states. 32 The following table summarizes certain key leasing metrics as of September 30, 2020: Total Single-Family Properties (1) Market Avg. Occupied Days Percentage (2) Avg. Monthly Realized Rent per property (3) Avg. Original Lease Term (months) (4) Avg. Remaining Lease Term (months) (4) Avg. Blended Change in Rent (5) Atlanta, GA 97.0 % $ 1,671 12.0 7.2 2.8 % Dallas-Fort Worth, TX 96.2 % 1,796 12.2 6.8 2.4 % Charlotte, NC 97.8 % 1,652 12.3 7.4 2.9 % Phoenix, AZ 98.0 % 1,515 12.0 6.6 5.3 % Houston, TX 95.8 % 1,685 12.4 7.0 1.7 % Nashville, TN 95.6 % 1,787 12.0 7.1 2.1 % Indianapolis, IN 97.0 % 1,481 12.0 7.1 3.4 % Tampa, FL 97.2 % 1,745 12.0 7.1 2.8 % Jacksonville, FL 97.0 % 1,632 12.0 7.0 3.0 % Raleigh, NC 96.4 % 1,581 12.3 7.2 2.1 % Columbus, OH 98.0 % 1,698 12.0 6.8 3.0 % Cincinnati, OH 97.1 % 1,659 11.9 7.0 3.1 % Greater Chicago area, IL and IN 97.3 % 1,916 12.2 7.1 3.1 % Orlando, FL 96.0 % 1,736 12.1 7.3 2.0 % Salt Lake City, UT 97.7 % 1,836 12.1 7.3 3.9 % Charleston, SC 97.0 % 1,763 12.0 7.2 3.0 % Las Vegas, NV 97.0 % 1,637 12.0 7.1 3.8 % San Antonio, TX 95.4 % 1,572 12.1 6.8 1.5 % Savannah/Hilton Head, SC 96.4 % 1,613 12.1 7.1 2.2 % Denver, CO 94.9 % 2,284 12.1 7.1 3.1 % All Other (6) 97.0 % 1,668 12.1 7.1 2.7 % Total/Average 96.9 % $ 1,689 12.1 7.1 2.8 % (1) Leasing information excludes 813 single-family properties held for sale as of September 30, 2020. (2) For the three months ended September 30, 2020, Average Occupied Days Percentage represents the number of days a property is occupied in the period divided by the total number of days the property is owned during the same period after initially being placed in-service. (3) For the three months ended September 30, 2020, Average Monthly Realized Rent is calculated as the lease component of rents and other single-family property revenues (i.e., rents from single-family properties) divided by the product of (a) number of properties and (b) Average Occupied Days Percentage, divided by the number of months. For properties partially owned during the period, this is adjusted to reflect the number of days of ownership. (4) Average Original Lease Term and Average Remaining Lease Term are reflected as of period end. (5) Represents the percentage change in rent on all non-month-to-month lease renewals and re-leases during the three months ended September 30, 2020, compared to the annual rent of the previously expired non-month-to-month comparable long-term lease for each property. (6) Represents 15 markets in 14 states. We believe these key single-family property and leasing metrics provide useful information to investors because they allow investors to understand the composition and performance of our properties on a market by market basis. Management also uses these metrics to understand the composition and performance of our properties at the market level. Factors That Affect Our Results of Operations and Financial Condition Our results of operations and financial condition are affected by numerous factors, many of which are beyond our control. Currently, the most significant factor impacting us is the effect of the COVID-19 pandemic, which is discussed above. Other key factors that impact our results of operations and financial condition include the pace at which we identify and acquire suitable properties, the time and cost required to renovate the acquired properties, the pace and cost of our property developments, the time to lease newly acquired or developed properties at acceptable rental rates, occupancy levels, rates of tenant turnover, the length of vacancy in properties between tenant leases, our expense ratios, our ability to raise capital and our capital structure. Property Acquisitions, Development and Dispositions Since our formation, we have rapidly but systematically grown our portfolio of single-family properties. Our ability to identify and acquire homes that meet our investment criteria is impacted by home prices in our target markets, the inventory of properties available-for-sale through traditional acquisition channels, competition for our target assets and our available capital. We are increasingly focused on developing “built-for-rental” homes through our internal AMH Development Program and acquiring newly constructed homes from third-party developers through our National Builder Program. Opportunities from these new 33 construction channels are impacted by the availability of vacant developed lots, development land assets and inventory of homes currently under construction or newly developed. Our level of investment activity has fluctuated based on the number of suitable opportunities and the level of capital available to invest. During the three months ended September 30, 2020, we developed or acquired 508 homes, including 400 newly constructed properties delivered through our AMH Development Program and 108 homes acquired through our National Builder Program and traditional acquisition channel, partially offset by 233 homes sold and 46 homes contributed to unconsolidated joint ventures. We are currently continuing construction activity on our existing pipeline of internally developed built-for-rental homes, subject to compliance with state and local mandates related to COVID-19, and we have resumed acquisitions through our National Builder Program and traditional acquisition channel. Our properties held for sale were identified based on sub-market analysis, as well as individual property-level operational review. As of September 30, 2020 and December 31, 2019, there were 813 and 1,187 properties, respectively, classified as held for sale. We will continue to evaluate our properties for potential disposition going forward as a normal course of business. Property Operations Homes added to our portfolio through new construction channels include properties developed through our internal AMH Development Program and newly constructed properties acquired from third-party developers through our National Builder Program. Rental homes developed through our AMH Development Program involve substantial up-front costs, time to acquire and develop land, time to build the rental home, and time to lease the rental home before the home generates income. This process is dependent upon the nature of each lot acquired and the timeline varies primarily due to land development requirements. Once land development requirements have been met, on average it takes approximately four to six months to complete the rental home vertical construction process. Our internal construction program is managed by our team of development professionals that oversee the full rental home construction process including all land development and work performed by subcontractors. We typically incur costs between $200,000 and $350,000 to acquire and develop land and build a rental home. Homes added through our AMH Development Program are available for lease immediately upon or shortly after receipt of a certificate of occupancy. Rental homes acquired from third-party developers through our National Builder Program are dependent on the inventory of newly constructed homes and homes currently under construction. Homes added to our portfolio through traditional acquisition channels require expenditures in addition to payment of the purchase price, including property inspections, closing costs, liens, title insurance, transfer taxes, recording fees, broker commissions, property taxes and homeowner association (“HOA”) fees, when applicable. In addition, we typically incur costs between $15,000 and $30,000 to renovate a home acquired through traditional acquisition channels to prepare it for rental. Renovation work varies, but may include paint, flooring, cabinetry, appliances, plumbing hardware and other items required to prepare the home for rental. The time and cost involved to prepare our homes for rental can impact our financial performance and varies among properties based on several factors, including the source of acquisition channel and age and condition of the property. On average, it takes approximately 40 to 60 days to complete the renovation process. Our operating results are also impacted by the amount of time it takes to market and lease a property, which can vary greatly among properties, and is impacted by local demand, our marketing techniques and the size of our available inventory. On average, it takes approximately 20 to 40 days to lease a property after acquiring or developing a new property through our new construction channels or after completing the renovation process for a traditionally acquired property. Lastly, our operating results are impacted by the length of stay of our tenants and the amount of time it takes to prepare and re-lease a property after a tenant vacates. This process, which we refer to as “turnover,” is impacted by numerous factors, including the condition of the home upon move-out of the previous tenant, and by local demand, our marketing techniques and the size of our available inventory at the time of the turnover. On average, it takes approximately 40 to 60 days to complete the turnover process. Revenues Our revenues are derived primarily from rents collected from tenants for our single-family properties under lease agreements which typically have a term of one year. Our rental rates and occupancy levels are affected by macroeconomic factors and local and property-level factors, including market conditions, seasonality and tenant defaults, and the amount of time it takes to turn properties when tenants vacate. Additionally, our ability to collect revenues and related operating results are impacted by the credit worthiness and quality of our tenants. On average, our tenants have household incomes ranging from $70,000 to $110,000 and primarily consist of families with approximately two adults and one or more children. Our rents and other single-family property revenues are comprised of rental revenue from single-family properties, fees from our single-family property rentals and “tenant charge-backs,” which are primarily related to cost recoveries on utilities. 34 Our ability to maintain and grow revenues from our existing portfolio of homes will be dependent on our ability to retain tenants and increase rental rates. Based on our Same-Home population of properties (defined below), the year-over-year increase in Average Monthly Realized Rent per property was 2.7% for the three months ended September 30, 2020, and we experienced turnover rates of 9.2% and 10.8% during the three months ended September 30, 2020 and 2019, respectively. Based on our Same-Home population of properties, the year-over-year increase in Average Monthly Realized Rent per property was 3.1% for the nine months ended September 30, 2020, and we experienced turnover rates of 26.3% and 29.6% during the nine months ended September 30, 2020 and 2019, respectively. In response to the COVID-19 pandemic, we waived month-to-month lease premiums and offered zero percent increases on newly signed renewal leases between April and July 2020 and then began a socially responsible return to normal operating practices including modest renewal increases on expiring leases. Expenses We monitor the following categories of expenses that we believe most significantly affect our results of operations. Property Operating Expenses Once a property is available for lease for the first time, which we refer to as “rent-ready,” we incur ongoing property-related expenses which may not be subject to our control. These include primarily property taxes, repairs and maintenance (“R&M”), turnover costs, HOA fees (when applicable) and insurance. Property Management Expenses As we internally manage our portfolio of single-family properties through our proprietary property management platform, we incur costs such as salary expenses for property management personnel, lease expenses and operating costs for property management offices and technology expenses for maintaining our property management platform. As part of developing our property management platform, we have made significant investments in our infrastructure, systems and technology. We believe that these investments will enable our property management platform to become more efficient over time, especially as our portfolio grows. Also included in property management expenses is noncash share-based compensation expense related to centralized and field property management employees. Seasonality We believe that our business and related operating results will be impacted by seasonal factors throughout the year. We experience higher levels of tenant move-outs and move-ins during the late spring and summer months, which impacts both our rental revenues and related turnover costs. Our property operating costs are seasonally impacted in certain markets for expenses such as HVAC repairs, turn costs and landscaping expenses during the summer season. Additionally, our single-family properties are at greater risk in certain markets for adverse weather conditions such as hurricanes in the late summer months and extreme cold weather in the winter months. General and Administrative Expense General and administrative expense primarily consists of corporate payroll and personnel costs, federal and state taxes, trustees’ and officers’ insurance expenses, audit and tax fees, trustee fees and other expenses associated with our corporate and administrative functions. Also included in general and administrative expense is noncash share-based compensation expense related to corporate administrative employees. Results of Operations Net income totaled $40.2 million for the three months ended September 30, 2020, compared to net income of $41.4 million for the three months ended September 30, 2019. This decrease was primarily attributable to increased uncollectible rents and tenant utility reimbursements related to the COVID-19 pandemic, partially offset by growth in the Company’s portfolio and higher occupancy. Net income totaled $109.5 million for the nine months ended September 30, 2020, compared to net income of $114.8 million for the nine months ended September 30, 2019. This decrease was primarily attributable to increased uncollectible rents and tenant utility reimbursements related to the COVID-19 pandemic and a noncash write-down included in other expenses associated with the liquidation of legacy joint ventures, which were acquired as part of the American Residential Properties, Inc. (“ARPI”) merger in February 2016. This decrease was offset in part by growth in the Company’s portfolio and higher occupancy. As we continue to grow our portfolio with a portion of our homes still recently developed, acquired and/or renovated, we distinguish our portfolio of homes between Same-Home properties and Non-Same-Home and Other properties in evaluating our 35 operating performance. We classify a property as Same-Home if it has been stabilized longer than 90 days prior to the beginning of the earliest period presented under comparison and if it has not been classified as held for sale or taken out of service as a result of a casualty loss, which allows the performance of these properties to be compared between periods. Single-family properties that we acquire individually (i.e., not through a bulk purchase) are classified as either stabilized or non-stabilized. A property is classified as stabilized once it has been renovated by the Company or newly constructed and then initially leased or available for rent for a period greater than 90 days. Properties acquired through a bulk purchase are first considered non-stabilized, as an entire group, until (1) we have owned them for an adequate period of time to allow for complete on-boarding to our operating platform, and (2) a substantial portion of the properties have experienced tenant turnover at least once under our ownership, providing the opportunity for renovations and improvements to meet our property standards. After such time has passed, properties acquired through a bulk purchase are then evaluated on an individual property basis under our standard stabilization criteria. All other properties, including those classified as held for sale or taken out of service as a result of a casualty loss, are classified as Non-Same-Home and Other. One of the primary financial measures we use in evaluating the operating performance of our single-family properties is Core Net Operating Income (“Core NOI”), which we also present separately for our Same-Home portfolio. Core NOI is a supplemental non-GAAP financial measure that we define as core revenues, which is calculated as total revenues, excluding expenses reimbursed by tenant charge-backs and other revenues, less core property operating expenses, which is calculated as property operating and property management expenses, excluding noncash share-based compensation expense and expenses reimbursed by tenant charge-backs. Core NOI also excludes (1) gain or loss on early extinguishment of debt, (2) hurricane-related charges, net, which result in material charges to the impacted single-family properties, (3) gain or loss on sales of single-family properties and other, (4) depreciation and amortization, (5) acquisition and other transaction costs incurred with business combinations and the acquisition or disposition of properties as well as nonrecurring items unrelated to ongoing operations, (6) noncash share-based compensation expense, (7) interest expense, (8) general and administrative expense, (9) other expenses and (10) other revenues. We believe Core NOI provides useful information to investors about the operating performance of our single-family properties without the impact of certain operating expenses that are reimbursed through tenant charge-backs. Core NOI and Same-Home Core NOI should be considered only as supplements to net income or loss as a measure of our performance and should not be used as measures of our liquidity, nor are they indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions. Additionally, these metrics should not be used as substitutes for net income or loss or net cash flows from operating activities (as computed in accordance with accounting principles generally accepted in the United States of America (“GAAP”)). 36 Comparison of the Three Months Ended September 30, 2020 to the Three Months Ended September 30, 2019 The following table presents a summary of Core NOI for our Same-Home properties, Non-Same-Home and Other properties, and total properties for the three months ended September 30, 2020 and 2019 (in thousands): For the Three Months Ended September 30, 2020 Same-Home Properties (1) % of Core Revenue Non-Same- Home and Other Properties % of Core Revenue Total Properties % of Core Revenue Rents from single-family properties (2) $ 219,868 $ 38,888 $ 258,756 Fees from single-family properties (2) 3,569 769 4,338 Bad debt (3) (4,311) (786) (5,097) Core revenues 219,126 38,871 257,997 Property tax expense 38,683 17.7 % 6,658 17.1 % 45,341 17.5 % HOA fees, net (4) 4,235 1.9 % 825 2.1 % 5,060 2.0 % R&M and turnover costs, net (4)(5) 20,356 9.3 % 3,674 9.5 % 24,030 9.3 % Insurance 2,030 0.9 % 437 1.1 % 2,467 1.0 % Property management expenses, net (6) 16,960 7.7 % 3,910 10.1 % 20,870 8.1 % Core property operating expenses 82,264 37.5 % 15,504 39.9 % 97,768 37.9 % Core NOI $ 136,862 62.5 % $ 23,367 60.1 % $ 160,229 62.1 % For the Three Months Ended September 30, 2019 Same-Home Properties (1) % of Core Revenue Non-Same- Home and Other Properties % of Core Revenue Total Properties % of Core Revenue Rents from single-family properties $ 210,615 $ 33,238 $ 243,853 Fees from single-family properties 3,132 525 3,657 Bad debt (2,290) (462) (2,752) Core revenues 211,457 33,301 244,758 Property tax expense 37,374 17.7 % 6,408 19.2 % 43,782 17.8 % HOA fees, net (4) 3,858 1.8 % 740 2.2 % 4,598 1.9 % R&M and turnover costs, net (4) 19,024 9.0 % 3,173 9.5 % 22,197 9.1 % Insurance 1,931 0.9 % 352 1.1 % 2,283 0.9 % Property management expenses, net (6) 17,686 8.4 % 3,316 10.0 % 21,002 8.6 % Core property operating expenses 79,873 37.8 % 13,989 42.0 % 93,862 38.3 % Core NOI $ 131,584 62.2 % $ 19,312 58.0 % $ 150,896 61.7 % (1) Includes 44,862 properties that have been stabilized longer than 90 days prior to January 1, 2019. (2) As a result of the COVID-19 pandemic, rents from single-family properties were impacted by the Company’s socially responsible decisions between April and July 2020 to waive month-to-month lease premiums and offer zero percent increases on newly signed renewal leases. Fees from single-family properties were also impacted as the Company waived late fees between April and July 2020. (3) Includes increased uncollectible rents related to the COVID-19 pandemic of $2.2 million and $1.9 million for the total portfolio and Same-Home portfolio, respectively, during the third quarter of 2020. (4) Presented net of tenant charge-backs. (5) Includes increased uncollectible tenant utility reimbursements of $0.7 million and $0.6 million for the total portfolio and Same-Home portfolio, respectively, during the third quarter of 2020. (6) Presented net of tenant charge-backs and excludes noncash share-based compensation expense related to centralized and field property management employees. 37 The following are reconciliations of core revenues, Same-Home core revenues, core property operating expenses, Same-Home core property operating expenses, Core NOI and Same-Home Core NOI to their respective GAAP metrics for the three months ended September 30, 2020 and 2019 (amounts in thousands): For the Three Months Ended September 30, 2020 2019 Core revenues and Same-Home core revenues Total revenues $ 310,809 $ 298,304 Tenant charge-backs (49,935) (48,306) Other revenues (2,877) (5,240) Core revenues 257,997 244,758 Less: Non-Same-Home core revenues 38,871 33,301 Same-Home core revenues $ 219,126 $ 211,457 Core property operating expenses and Same-Home core property operating expenses Property operating expenses $ 126,174 $ 119,791 Property management expenses 21,976 22,727 Noncash share-based compensation - property management (447) (350) Expenses reimbursed by tenant charge-backs (49,935) (48,306) Core property operating expenses 97,768 93,862 Less: Non-Same-Home core property operating expenses 15,504 13,989 Same-Home core property operating expenses $ 82,264 $ 79,873 Core NOI and Same-Home Core NOI Net income $ 40,153 $ 41,401 Gain on sale of single-family properties and other, net (12,422) (13,521) Depreciation and amortization 86,996 82,073 Acquisition and other transaction costs 1,616 651 Noncash share-based compensation - property management 447 350 Interest expense 29,267 31,465 General and administrative expense 12,570 11,107 Other expenses 4,479 2,610 Other revenues (2,877) (5,240) Core NOI 160,229 150,896 Less: Non-Same-Home Core NOI 23,367 19,312 Same-Home Core NOI $ 136,862 $ 131,584 Total Revenues Total revenues increased 4.2% to $310.8 million for the three months ended September 30, 2020 from $298.3 million for the three months ended September 30, 2019. Revenue growth was driven by an increase in our average occupied portfolio which grew to 50,630 homes for the three months ended September 30, 2020, compared to 48,990 homes for the three months ended September 30, 2019, as well as higher rental rates, offset by an increase in uncollectible rents and tenant utility reimbursements related to the COVID-19 pandemic. Property Operating Expenses Property operating expenses increased 5.3% to $126.2 million for the three months ended September 30, 2020 from $119.8 million for the three months ended September 30, 2019. This increase was primarily attributable to higher property tax expense and higher repairs and maintenance and turnover costs as a result of growth in our portfolio. Property Management Expenses Property management expenses for the three months ended September 30, 2020 and 2019 were $22.0 million and $22.7 million, respectively, which included $0.4 million and $0.4 million, respectively, of noncash share-based compensation expense 38 related to centralized and field property management employees. The decrease in property management expenses was primarily attributable to lower employee headcount and lower employee travel and other costs. Core Revenues from Same-Home Properties Core revenues from Same-Home properties increased 3.6% to $219.1 million for the three months ended September 30, 2020 from $211.5 million for the three months ended September 30, 2019 primarily driven by a 2.7% increase in Average Monthly Realized Rent per property, which increased to $1,686 per month for the three months ended September 30, 2020 compared to $1,642 per month for the three months ended September 30, 2019, as well as a 1.6% increase in Average Occupied Days Percentage, partially offset by an increase in uncollectible rents related to the COVID-19 pandemic. Core Property Operating Expenses from Same-Home Properties Core property operating expenses from Same-Home properties consist of direct property operating expenses, net of tenant charge-backs, and property management costs, net of tenant charge-backs, and excludes noncash share-based compensation expense. Core property operating expenses from Same-Home properties increased 3.0% to $82.3 million for the three months ended September 30, 2020 from $79.9 million for the three months ended September 30, 2019, primarily driven by annual growth in property tax expense and higher R&M and turnover costs, net, which includes $0.6 million of increased uncollectible tenant utility reimbursements related to the COVID-19 pandemic during the three months ended September 30, 2020, partially offset by lower property management expenses, net. General and Administrative Expense General and administrative expense primarily consists of corporate payroll and personnel costs, federal and state taxes, trustees’ and officers’ insurance expense, audit and tax fees, trustee fees and other expenses associated with our corporate and administrative functions. General and administrative expense for the three months ended September 30, 2020 and 2019 was $12.6 million and $11.1 million, respectively, which included $1.7 million and $0.9 million, respectively, of noncash share-based compensation expense related to corporate administrative employees. The increase in general and administrative expense was primarily related to higher noncash share-based compensation expense and the timing of legal fees. Interest Expense Interest expense decreased 7.0% to $29.3 million for the three months ended September 30, 2020 from $31.5 million for the three months ended September 30, 2019. This decrease was primarily related to additional capitalized interest during the three months ended September 30, 2020. Acquisition and Other Transaction Costs Acquisition and other transaction costs were $1.6 million and $0.7 million for the three months ended September 30, 2020 and 2019, respectively, which primarily related to costs associated with purchases of single-family properties, including newly constructed properties from third-party builders, as well as costs associated with the disposal of certain properties or portfolios of properties. The planned growth in our acquisition program, including an increase in personnel, was the primary driver for the year-over-year increase. Depreciation and Amortization Depreciation and amortization expense consists primarily of depreciation of buildings and improvements. Depreciation of our assets is calculated over their useful lives on a straight-line basis over three to 30 years. Our intangible assets are amortized on a straight-line basis over the asset’s estimated economic useful life. Depreciation and amortization expense increased 6.0% to $87.0 million for the three months ended September 30, 2020 from $82.1 million for the three months ended September 30, 2019 primarily due to growth in our average number of depreciable properties. Other Revenues Other revenues were $2.9 million and $5.2 million for the three months ended September 30, 2020 and 2019, respectively, which primarily related to interest income, fees from unconsolidated joint ventures, and equity in earnings from unconsolidated joint ventures. 39 Other Expenses Other expenses were $4.5 million and $2.6 million for the three months ended September 30, 2020 and 2019, respectively, which primarily related to impairments on properties held for sale, expenses related to unconsolidated joint ventures and a net expense of $2.9 million related to a legal matter involving a former employee during the three months ended September 30, 2020. Comparison of the Nine Months Ended September 30, 2020 to the Nine Months Ended September 30, 2019 The following table presents a summary of Core NOI for our Same-Home properties, Non-Same-Home and Other properties, and total properties for the nine months ended September 30, 2020 and 2019 (in thousands): For the Nine Months Ended September 30, 2020 Same-Home Properties (1) % of Core Revenue Non-Same- Home and Other Properties % of Core Revenue Total Properties % of Core Revenue Rents from single-family properties (2) $ 649,408 $ 105,442 $ 754,850 Fees from single-family properties (2) 9,528 2,135 11,663 Bad debt (3) (13,349) (2,578) (15,927) Core revenues 645,587 104,999 750,586 Property tax expense 115,306 17.8 % 20,152 19.1 % 135,458 18.1 % HOA fees, net (4) 12,065 1.9 % 2,494 2.4 % 14,559 1.9 % R&M and turnover costs, net (4)(5) 53,933 8.4 % 10,218 9.7 % 64,151 8.5 % Insurance 5,983 0.9 % 1,217 1.2 % 7,200 1.0 % Property management expenses, net (6) 52,346 8.1 % 11,201 10.7 % 63,547 8.5 % Core property operating expenses 239,633 37.1 % 45,282 43.1 % 284,915 38.0 % Core NOI $ 405,954 62.9 % $ 59,717 56.9 % $ 465,671 62.0 % For the Nine Months Ended September 30, 2019 Same-Home Properties (1) % of Core Revenue Non-Same- Home and Other Properties % of Core Revenue Total Properties % of Core Revenue Rents from single-family properties $ 626,295 $ 96,913 $ 723,208 Fees from single-family properties 8,512 1,651 10,163 Bad debt (5,223) (1,037) (6,260) Core revenues 629,584 97,527 727,111 Property tax expense 109,632 17.5 % 19,994 20.6 % 129,626 17.9 % HOA fees, net (4) 13,454 2.1 % 2,482 2.5 % 15,936 2.2 % R&M and turnover costs, net (4) 49,886 7.9 % 9,276 9.5 % 59,162 8.1 % Insurance 5,693 0.9 % 1,055 1.1 % 6,748 0.9 % Property management expenses, net (6) 51,019 8.1 % 9,111 9.3 % 60,130 8.3 % Core property operating expenses 229,684 36.5 % 41,918 43.0 % 271,602 37.4 % Core NOI $ 399,900 63.5 % $ 55,609 57.0 % $ 455,509 62.6 % (1) Includes 44,862 properties that have been stabilized longer than 90 days prior to January 1, 2019. (2) As a result of the COVID-19 pandemic, rents from single-family properties were impacted by the Company’s socially responsible decisions between April and July 2020 to waive month-to-month lease premiums and offer zero percent increases on newly signed renewal leases. Fees from single-family properties were also impacted as the Company waived late fees between April and July 2020. (3) Includes increased uncollectible rents related to the COVID-19 pandemic of $9.2 million and $7.9 million for the total portfolio and Same-Home portfolio, respectively, during the nine months ended September 30, 2020. (4) Presented net of tenant charge-backs. (5) Includes increased uncollectible tenant utility reimbursements of $2.6 million and $2.4 million and costs associated with enhanced cleaning and safety protocols related to the COVID-19 pandemic of $0.5 million and $0.4 million for the total portfolio and Same-Home portfolio, respectively, during the nine months ended September 30, 2020. (6) Presented net of tenant charge-backs and excludes noncash share-based compensation expense related to centralized and field property management employees. 40 The following are reconciliations of core revenues, Same-Home core revenues, core property operating expenses, Same-Home core property operating expenses, Core NOI and Same-Home Core NOI to their respective GAAP metrics for the nine months ended September 30, 2020 and 2019 (amounts in thousands): For the Nine Months Ended September 30, 2020 2019 Core revenues and Same-Home core revenues Total revenues $ 883,501 $ 859,368 Tenant charge-backs (125,377) (123,561) Other revenues (7,538) (8,696) Core revenues 750,586 727,111 Less: Non-Same-Home core revenues 104,999 97,527 Same-Home core revenues $ 645,587 $ 629,584 Core property operating expenses and Same-Home core property operating expenses Property operating expenses $ 344,107 $ 331,066 Property management expenses 67,512 65,086 Noncash share-based compensation - property management (1,327) (989) Expenses reimbursed by tenant charge-backs (125,377) (123,561) Core property operating expenses 284,915 271,602 Less: Non-Same-Home core property operating expenses 45,282 41,918 Same-Home core property operating expenses $ 239,633 $ 229,684 Core NOI and Same-Home Core NOI Net income $ 109,487 $ 114,796 Loss on early extinguishment of debt — 659 Gain on sale of single-family properties and other, net (33,838) (32,895) Depreciation and amortization 254,653 246,074 Acquisition and other transaction costs 5,719 2,455 Noncash share-based compensation - property management 1,327 989 Interest expense 88,540 95,951 General and administrative expense 35,329 31,028 Other expenses 11,992 5,148 Other revenues (7,538) (8,696) Core NOI 465,671 455,509 Less: Non-Same-Home Core NOI 59,717 55,609 Same-Home Core NOI $ 405,954 $ 399,900 Total Revenues Total revenues increased 2.8% to $883.5 million for the nine months ended September 30, 2020 from $859.4 million for the nine months ended September 30, 2019. Revenue growth was driven by an increase in our average occupied portfolio which grew to 49,764 homes for the nine months ended September 30, 2020, compared to 48,667 homes for the nine months ended September 30, 2019, as well as higher rental rates, offset by an increase in uncollectible rents and tenant utility reimbursements related to the COVID-19 pandemic. Property Operating Expenses Property operating expenses increased 3.9% to $344.1 million for the nine months ended September 30, 2020 from $331.1 million for the nine months ended September 30, 2019. This increase was primarily attributable to higher property tax expense and higher repairs and maintenance and turnover costs as a result of growth in our portfolio. 41 Property Management Expenses Property management expenses for the nine months ended September 30, 2020 and 2019 were $67.5 million and $65.1 million, respectively, which included $1.3 million and $1.0 million, respectively, of noncash share-based compensation expense related to centralized and field property management employees. The increase in property management expenses was primarily attributable to higher personnel costs, partially offset by lower employee travel costs. Core Revenues from Same-Home Properties Core revenues from Same-Home properties increased 2.5% to $645.6 million for the nine months ended September 30, 2020 from $629.6 million for the nine months ended September 30, 2019, primarily driven by a 3.1% increase in Average Monthly Realized Rent per property, which increased to $1,676 per month for the nine months ended September 30, 2020 compared to $1,625 per month for the nine months ended September 30, 2019, as well as a 0.5% increase in Average Occupied Days Percentage, partially offset by an increase in uncollectible rents related to the COVID-19 pandemic. Additionally, during the nine months ended September 30, 2020, core revenues from Same-Home properties were impacted by (i) the Company’s socially responsible decisions between April and July 2020 to waive month-to-month lease premiums and offer zero percent increases on newly signed renewal leases and (ii) waived late fees between April and July 2020. Core Property Operating Expenses from Same-Home Properties Core property operating expenses from Same-Home properties consist of direct property operating expenses, net of tenant charge-backs, and property management costs, net of tenant charge-backs, and excludes noncash share-based compensation expense. Core property operating expenses from Same-Home properties increased 4.3% to $239.6 million for the nine months ended September 30, 2020 from $229.7 million for the nine months ended September 30, 2019, primarily driven by annual growth in property tax expense and higher R&M and turnover costs, net, which includes $2.8 million of incremental costs related to the COVID-19 pandemic including increased uncollectible tenant utility reimbursements and enhanced cleaning costs during the nine months ended September 30, 2020. General and Administrative Expense General and administrative expense primarily consists of corporate payroll and personnel costs, federal and state taxes, trustees’ and officers’ insurance expense, audit and tax fees, trustee fees and other expenses associated with our corporate and administrative functions. General and administrative expense for the nine months ended September 30, 2020 and 2019 was $35.3 million and $31.0 million, respectively, which included $4.7 million and $2.5 million, respectively, of noncash share-based compensation expense related to corporate administrative employees. The increase in general and administrative expense was primarily related to higher noncash share-based compensation expense as well as higher personnel costs and an increase in state taxes. Interest Expense Interest expense decreased 7.7% to $88.5 million for the nine months ended September 30, 2020 from $96.0 million for the nine months ended September 30, 2019. This decrease was primarily related to additional capitalized interest during the nine months ended September 30, 2020 and the payoff of the term loan facility in June 2019, partially offset by the unsecured senior notes issued in late January 2019. Acquisition and Other Transaction Costs Acquisition and other transaction costs were $5.7 million and $2.5 million for the nine months ended September 30, 2020 and 2019, respectively, which primarily related to costs associated with purchases of single-family properties, including newly constructed properties from third-party builders, as well as costs associated with the disposal of certain properties or portfolios of properties. The planned growth in our acquisition program, including an increase in personnel, was the primary driver for the year-over-year increase. Depreciation and Amortization Depreciation and amortization expense consists primarily of depreciation of buildings and improvements. Depreciation of our assets is calculated over their useful lives on a straight-line basis over three to 30 years. Our intangible assets are amortized on a straight-line basis over the asset’s estimated economic useful life. Depreciation and amortization expense increased 3.5% to $254.7 million for the nine months ended September 30, 2020 from $246.1 million for the nine months ended September 30, 2019 primarily due to growth in our average number of depreciable properties. 42 Other Revenues Other revenues were $7.5 million and $8.7 million for the nine months ended September 30, 2020 and 2019, respectively, which primarily related to interest income, fees from unconsolidated joint ventures, and equity in earnings from unconsolidated joint ventures. Other Expenses Other expenses were $12.0 million and $5.1 million for the nine months ended September 30, 2020 and 2019, respectively, which primarily related to impairments on properties held for sale and expenses related to unconsolidated joint ventures. Also included in other expenses for the nine months ended September 30, 2020 was a $4.9 million noncash write-down associated with the liquidation of legacy joint ventures, which were acquired as part of the ARPI merger in February 2016, and a net expense of $2.9 million related to a legal matter involving a former employee. Critical Accounting Policies and Estimates Our critical accounting policies are included in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Annual Report”). There have been no changes to these policies during the nine months ended September 30, 2020. Income Taxes AH4R has elected to be taxed as a REIT for U.S. federal income tax purposes under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our taxable year ended December 31, 2012. We believe that we have operated, and continue to operate, in such a manner as to satisfy the requirements for qualification as a REIT. Provided that we qualify as a REIT and our distributions to our shareholders equal or exceed our REIT taxable income (determined without regard to the deduction for dividends paid and excluding any net capital gains), we generally will not be subject to U.S. federal income tax. Qualification and taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Code, including tests related to the percentage of income that we earn from specified sources and the percentage of our earnings that we distribute to our shareholders. Accordingly, no assurance can be given that we will continue to be organized or be able to operate in a manner so as to remain qualified as a REIT. If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we would be subject to U.S. federal income tax and state income tax on our taxable income at regular corporate tax rates, and we would likely be precluded from qualifying for treatment as a REIT until the fifth calendar year following the year in which we fail to qualify. Even if we qualify as a REIT, we may be subject to certain state or local income and capital taxes and U.S. federal income and excise taxes on our undistributed REIT taxable income, if any. Certain of our subsidiaries are subject to taxation by U.S. federal, state and local authorities for the periods presented. We made joint elections to treat certain subsidiaries as taxable REIT subsidiaries which are subject to U.S. federal, state and local taxes on their income at regular corporate rates. The tax years from 2015 to present generally remain open to examination by the taxing jurisdictions to which the Company is subject. We believe that our Operating Partnership is properly treated as a partnership for U.S. federal income tax purposes. As a partnership, the Operating Partnership is not subject to U.S. federal income tax on its income. Instead, each of the Operating Partnership’s partners, including AH4R, is allocated, and may be required to pay tax with respect to, its share of the Operating Partnership’s income. As such, no provision for U.S. federal income taxes has been included for the Operating Partnership. Accounting Standards Codification 740-10, Income Taxes, requires recognition of deferred tax assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We recognize tax benefits of uncertain tax positions only if it is more likely than not that the tax position will be sustained, based solely on its technical merits, with the taxing authority having full authority of all relevant information. The measurement of a tax benefit for an uncertain tax position that meets the more likely than not threshold is based on a cumulative probability model under which the largest amount of tax benefit recognized is the amount with a greater than 50% likelihood of being realized upon ultimate settlement with the taxing authority having full knowledge of all the relevant information. As of September 30, 2020, there were no deferred tax assets and liabilities or unrecognized tax benefits recorded by the Company. We do not anticipate a significant change in unrecognized tax benefits within the next 12 months. 43 As a REIT, we are required to distribute annually to our shareholders at least 90% of our REIT taxable income (determined without regard to the deduction for dividends paid and excluding any net capital gains) and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of our REIT taxable income. The Operating Partnership funds the payment of distributions. We expect to use our net operating loss carryforward (“NOL”) to reduce our REIT taxable income in the current and future years. As of December 31, 2019, AH4R had an NOL for U.S. federal income tax purposes of $189.1 million. Once our NOL is fully used, we would be required to increase AH4R’s distributions to comply with REIT distribution requirements and our current policy of distributing approximately all of our REIT taxable income (determined without regard to the deduction for dividends paid). Recent Accounting Pronouncements See Note 2. Significant Accounting Policies to our condensed consolidated financial statements in this report for a discussion of the adoption and potential impact of recently issued accounting standards. Liquidity and Capital Resources Our liquidity and capital resources as of September 30, 2020 included cash and cash equivalents of $315.8 million. Additionally, as of September 30, 2020, we had no outstanding borrowings under our revolving credit facility, which provides for maximum borrowings of up to $800.0 million, of which $1.5 million was committed to outstanding letters of credit. We have no debt maturities, other than recurring principal amortization, until 2024. Liquidity is a measure of our ability to meet potential cash requirements, maintain our assets, fund our operations, make distributions to our shareholders and OP unitholders, including AH4R, and meet other general requirements of our business. Our liquidity, to a certain extent, is subject to general economic, financial, competitive and other factors beyond our control. Our liquidity requirements consist primarily of funds necessary to pay for the acquisition, development, renovation and maintenance of our properties, HOA fees (as applicable), real estate taxes, non-recurring capital expenditures, interest and principal payments on our indebtedness, general and administrative expenses, payment of quarterly dividends on our preferred shares and units, and payment of distributions to our common shareholders and unitholders. We seek to satisfy our liquidity needs through cash provided by operations, long-term secured and unsecured borrowings, issuances of debt and equity securities (including OP units), asset-backed securitizations, property dispositions and joint venture transactions. We have financed our operations, acquisitions and development expenditures to date through the issuance of equity securities, borrowings under our credit facilities, asset-backed securitizations and unsecured senior notes, and proceeds from the sale of single-family properties. Going forward, we expect to meet our operating liquidity requirements generally through cash on hand and cash provided by operations. We believe our rental income, net of operating expenses and recurring capital expenditures, will generally provide cash flow sufficient to fund our operations and dividend distributions. However, our real estate assets are illiquid in nature. A timely liquidation of assets might not be a viable source of short-term liquidity should a cash flow shortfall arise, and we may need to source liquidity from other financing alternatives including drawing on our revolving credit facility. As discussed above under “COVID-19 Business Update,” the COVID-19 pandemic has had an adverse impact on financial markets and may adversely impact our operating cash flows. Since we do not know the ultimate severity and length of the COVID-19 pandemic, and thus cannot predict the impact it will have on our tenants and on the debt and equity capital markets, we cannot estimate the ultimate impact it will have on our liquidity and capital resources. Cash Flows The following table summarizes the Company’s and the Operating Partnership’s cash flows for the nine months ended September 30, 2020 and 2019 (in thousands): For the Nine Months Ended September 30, 2020 2019 Change Net cash provided by operating activities $ 427,411 $ 420,415 $ 6,996 Net cash used for investing activities (437,092) (224,096) (212,996) Net cash provided by (used for) financing activities 287,589 (73,523) 361,112 Net increase in cash, cash equivalents and restricted cash $ 277,908 $ 122,796 $ 155,112 44 Operating Activities Our cash flows provided by operating activities, which is our principal source of cash flows, depend on numerous factors, including the occupancy level of our properties, the rental rates achieved on our leases, the collection of rent from our tenants and the level of property operating expenses, property management expenses and general and administrative expenses. Net cash provided by operating activities increased $7.0 million, or 1.7%, from $420.4 million for the nine months ended September 30, 2019 to $427.4 million for the nine months ended September 30, 2020, primarily as a result of increased cash flows generated from a larger number of occupied properties and increases in rental rates on lease renewals and re-leasing of our single-family properties, partially offset by a decrease in collections on rent and tenant utility reimbursements associated with the COVID-19 pandemic. Investing Activities Net cash used for investing activities increased $213.0 million, or 95.0%, from $224.1 million for the nine months ended September 30, 2019 to $437.1 million for the nine months ended September 30, 2020, primarily driven by the strategic expansion of our portfolio through traditional acquisition channels, the development of “built-for-rental” homes through our AMH Development Program, and acquiring newly built properties through our National Builder Program. We use cash generated from operating and financing activities and by recycling capital through the sale of single-family properties to invest in this strategic expansion. The Company has continued construction activity, while in compliance with state and local mandates related to COVID-19, on its existing pipeline of “built-for-rental” homes through our AMH Development Program. Recurring and other capital expenditures for single-family properties increased as a result of investments in properties to increase future revenues or reduce maintenance expenditures. The development of “built-for-rental” homes and our property-enhancing capital expenditures may reduce recurring and other capital expenditures on an average per home basis in the future. These increased cash outflows were offset by additional proceeds from sales of single-family properties and other and additional distributions from unconsolidated joint ventures in respect of property contributions. Financing Activities Net cash provided by or used for financing activities increased $361.1 million from $73.5 million of net cash outflows for the nine months ended September 30, 2019 to $287.6 million of net cash inflows for the nine months ended September 30, 2020, driven by $413.5 million of proceeds from the issuance of Class A common shares, net of share issuance costs, during the nine months ended September 30, 2020, partially offset by $48.8 million of increased debt repayment activity, net of new borrowings, and $0.9 million of increased distributions to share and unit holders compared to the nine months ended September 30, 2019. During the nine months ended September 30, 2020, the Company borrowed and fully repaid $130.0 million on its revolving credit facility and repaid $17.1 million on its asset-backed securitizations, compared to the nine months ended September 30, 2019 during which the Company received $397.9 million of proceeds from the issuance of unsecured senior notes, net of discount, and repaid $350.0 million on its revolving credit and term loan facilities and $16.3 million on its asset-backed securitizations. The Company distributed $112.8 million on a cash basis to share and unit holders during the nine months ended September 30, 2020, compared to $111.9 million during the nine months ended September 30, 2019. Class A Common Share Offering During the third quarter of 2020, the Company issued 14,950,000 Class A common shares of beneficial interest, $0.01 par value per share, in an underwritten public offering, raising net proceeds of $411.7 million after deducting underwriting discounts and before offering costs of approximately $0.2 million. The Company used the net proceeds from this offering to repay indebtedness the Company had incurred under its revolving credit facility and intends to use the remaining net proceeds (i) to develop new single-family properties and communities, (ii) to acquire and renovate single-family properties and for related activities in accordance with its business strategy and (iii) for general corporate purposes. The Operating Partnership issued an equivalent number of corresponding Class A units to AH4R in exchange for the net proceeds from the issuance. At-the-Market Common Share Offering Program During the second quarter of 2020, the Company extended its at-the-market common share offering program under which we can issue Class A common shares from time to time through various sales agents up to an aggregate gross sales offering price of $500.0 million (the “At-the-Market Program”). The At-the-Market Program also provides that we may enter into forward contracts for our Class A common shares with forward sellers and forward purchasers. The Company intends to use any net proceeds from the At-the-Market Program (i) to repay indebtedness the Company has incurred or expects to incur under its revolving credit facility, (ii) to develop new single-family properties and communities, (iii) to acquire and renovate single-family properties and for related activities in accordance with the Company’s business strategy and (iv) for working capital and general corporate purposes, including 45 repurchases of the Company’s securities, acquisitions of additional properties, capital expenditures and the expansion, redevelopment and/or improvement of properties in the Company’s portfolio. The At-the-Market Program may be suspended or terminated by the Company at any time. During the three and nine months ended September 30, 2020, the Company issued 86,130 Class A common shares under the At-the-Market Program, raising $2.4 million in gross proceeds before commissions and other expenses of approximately $0.4 million. As of September 30, 2020, 86,130 shares have been issued under the At-the-Market Program and $497.6 million remained available for future share issuances. Share Repurchase Program The Company’s board of trustees authorized the establishment of our share repurchase program, authorizing the repurchase of up to $300.0 million of our outstanding Class A common shares and up to $250.0 million of our outstanding preferred 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. The Operating Partnership funds the repurchases and constructively retires an equivalent number of corresponding Class A units. During the nine months ended September 30, 2020 and 2019, we did not repurchase and retire any of our shares. As of September 30, 2020, we had a remaining repurchase authorization of up to $265.1 million of our outstanding Class A common shares and up to $250.0 million of our outstanding preferred shares under the program. Distributions As a REIT, we are required to distribute annually to our shareholders at least 90% of our REIT taxable income (determined without regard to the deduction for dividends paid and excluding any net capital gains) and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of our REIT taxable income. The Operating Partnership funds the payment of distributions. We expect to use our NOL to reduce our REIT taxable income in the current and future years. As of December 31, 2019, AH4R had an NOL for U.S. federal income tax purposes of $189.1 million. Once our NOL is fully used, we would be required to increase AH4R’s distributions to comply with REIT distribution requirements and our current policy of distributing approximately all of our REIT taxable income (determined without regard to the deduction for dividends paid). Off-Balance Sheet Arrangements We have no material obligations, assets or liabilities that would be considered off-balance sheet arrangements. Contractual Obligations and Commitments Material changes to our aggregate indebtedness, if any, are described in Note 8. Debt to our condensed consolidated financial statements in this report. Except as described in Note 15. Commitments and Contingencies to our condensed consolidated financial statements in this report, as of September 30, 2020, there have been no other material changes outside of the ordinary course of business to our other known contractual obligations, which are set forth in the table included in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2019 Annual Report. 46 Additional Non-GAAP Measures Funds from Operations (“FFO”) / Core FFO / Adjusted FFO attributable to common share and unit holders FFO attributable to common share and unit holders is a non-GAAP financial measure that we calculate in accordance with the definition approved by the National Association of Real Estate Investment Trusts (“NAREIT”), which defines FFO as net income or loss calculated in accordance with GAAP, excluding gains and losses from sales or impairment of real estate, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustments for unconsolidated partnerships and joint ventures to reflect FFO on the same basis. Core FFO attributable to common share and unit holders is a non-GAAP financial measure that we use as a supplemental measure of our performance. We compute this metric by adjusting FFO attributable to common share and unit holders for (1) acquisition and other transaction costs incurred with business combinations and the acquisition or disposition of properties as well as nonrecurring items unrelated to ongoing operations, (2) noncash share-based compensation expense, (3) hurricane-related charges, net, which result in material charges to the impacted single-family properties, and (4) gain or loss on early extinguishment of debt. Adjusted FFO attributable to common share and unit holders is a non-GAAP financial measure that we use as a supplemental measure of our performance. We compute this metric by adjusting Core FFO attributable to common share and unit holders for (1) Recurring Capital Expenditures that are necessary to help preserve the value and maintain functionality of our properties and (2) capitalized leasing costs incurred during the period. As a portion of our homes are recently developed, acquired and/or renovated, we estimate Recurring Capital Expenditures for our entire portfolio by multiplying (a) current period actual Recurring Capital Expenditures per Same-Home Property by (b) our total number of properties, excluding newly acquired non-stabilized properties and properties classified as held for sale. We present FFO attributable to common share and unit holders because we consider this metric to be an important measure of the performance of real estate companies, as do many investors and analysts in evaluating the Company. We believe that FFO attributable to common share and unit holders provides useful information to investors because this metric excludes depreciation, which is included in computing net income and assumes the value of real estate diminishes predictably over time. We believe that real estate values fluctuate due to market conditions and in response to inflation. We also believe that Core FFO and Adjusted FFO attributable to common share and unit holders provide useful information to investors because they allow investors to compare our operating performance to prior reporting periods without the effect of certain items that, by nature, are not comparable from period to period. FFO, Core FFO and Adjusted FFO attributable to common share and unit holders are not a substitute for net income or net cash provided by operating activities, each as determined in accordance with GAAP, as a measure of our operating performance, liquidity or ability to pay dividends. These metrics also are not necessarily indicative of cash available to fund future cash needs. Because other REITs may not compute these measures in the same manner, they may not be comparable among REITs. 47 The following is a reconciliation of the Company’s net income attributable to common shareholders, determined in accordance with GAAP, to FFO attributable to common share and unit holders, Core FFO attributable to common share and unit holders and Adjusted FFO attributable to common share and unit holders for the three and nine months ended September 30, 2020 and 2019 (in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 2020 2019 Net income attributable to common shareholders $ 22,552 $ 23,520 $ 58,165 $ 62,321 Adjustments: Noncontrolling interests in the Operating Partnership 3,819 4,099 9,976 11,129 Net (gain) on sale / impairment of single-family properties and other (11,994) (11,871) (27,901) (29,812) Adjustments for unconsolidated joint ventures 393 (325) 1,019 976 Depreciation and amortization 86,996 82,073 254,653 246,074 Less: depreciation and amortization of non-real estate assets (2,296) (1,991) (6,552) (5,902) FFO attributable to common share and unit holders $ 99,470 $ 95,505 $ 289,360 $ 284,786 Adjustments: Acquisition, other transaction costs and other (1) 4,541 651 8,644 2,455 Noncash share-based compensation - general and administrative 1,723 938 4,741 2,520 Noncash share-based compensation - property management 447 350 1,327 989 Loss on early extinguishment of debt — — — 659 Core FFO attributable to common share and unit holders (2) $ 106,181 $ 97,444 $ 304,072 $ 291,409 Recurring capital expenditures (3) (15,397) (12,475) (36,292) (30,665) Leasing costs (1,157) (1,115) (3,059) (3,244) Adjusted FFO attributable to common share and unit holders (2) $ 89,627 $ 83,854 $ 264,721 $ 257,500 (1) Included in acquisition, other transaction costs and other is a net $2.9 million nonrecurring expense related to a legal matter involving a former employee during the three months ended September 30, 2020. (2) Core FFO and Adjusted FFO attributable to common share and unit holders include negative financial impacts associated with the COVID-19 pandemic that relate to (i) the Company’s socially responsible decisions between April and July 2020 to waive month-to-month lease premiums and offer zero percent increases on newly signed renewal leases, (ii) waived late fees between April and July 2020, and (iii) $2.9 million and $12.3 million of other negative financial impacts from the COVID-19 pandemic including $2.2 million and $9.2 million of increased uncollectible rents and $0.7 million and $2.6 million of increased uncollectible tenant utility reimbursements during the three and nine months ended September 30, 2020, respectively. Also included is $0.5 million of increased costs associated with enhanced cleaning and safety protocols during the nine months ended September 30, 2020. Additionally, due primarily to abnormally high home system usage during stay-at-home orders, we incurred approximately $2.1 million and $3.4 million of incremental capital expenditures within Adjusted FFO attributable to common share and unit holders that primarily related to HVAC and home system replacements during the three and nine months ended September 30, 2020, respectively. (3) As a portion of our homes are recently developed, acquired and/or renovated, we estimate recurring capital expenditures for our entire portfolio by multiplying (a) current period actual recurring capital expenditures per Same-Home Property by (b) our total number of properties, excluding newly acquired non-stabilized properties and properties classified as held for sale. EBITDA / EBITDAre / Adjusted EBITDAre / Fully Adjusted EBITDAre EBITDA is defined as earnings before interest, taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure and is used by us and others as a supplemental measure of performance. EBITDAre is a supplemental non-GAAP financial measure, which we calculate in accordance with the definition approved by NAREIT by adjusting EBITDA for the net gain or loss on sales / impairment of single-family properties and other and adjusting for unconsolidated partnerships and joint ventures on the same basis. Adjusted EBITDAre is a supplemental non-GAAP financial measure calculated by adjusting EBITDAre for (1) acquisition and other transaction costs incurred with business combinations and the acquisition or disposition of properties as well as nonrecurring items unrelated to ongoing operations, (2) noncash share-based compensation expense, (3) hurricane-related charges, net, which result in material charges to the impacted single-family properties, and (4) gain or loss on early extinguishment of debt. Fully Adjusted EBITDAre (formerly known as Adjusted EBITDAre after Capex and Leasing Costs) is a supplemental non-GAAP financial measure calculated by adjusting Adjusted EBITDAre for (1) Recurring Capital Expenditures and (2) leasing costs. We believe these metrics provide useful information to investors because they exclude the impact of various income and expense items that are not indicative of operating performance. 48 The following is a reconciliation of net income, as determined in accordance with GAAP, to EBITDA, EBITDAre, Adjusted EBITDAre and Fully Adjusted EBITDAre for the three and nine months ended September 30, 2020 and 2019 (in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 2020 2019 Net income $ 40,153 $ 41,401 $ 109,487 $ 114,796 Interest expense 29,267 31,465 88,540 95,951 Depreciation and amortization 86,996 82,073 254,653 246,074 EBITDA $ 156,416 $ 154,939 $ 452,680 $ 456,821 Net (gain) on sale / impairment of single-family properties and other (11,994) (11,871) (27,901) (29,812) Adjustments for unconsolidated joint ventures 393 (325) 1,019 976 EBITDAre $ 144,815 $ 142,743 $ 425,798 $ 427,985 Noncash share-based compensation - general and administrative 1,723 938 4,741 2,520 Noncash share-based compensation - property management 447 350 1,327 989 Acquisition, other transaction costs and other (1) 4,541 651 8,644 2,455 Loss on early extinguishment of debt — — — 659 Adjusted EBITDAre $ 151,526 $ 144,682 $ 440,510 $ 434,608 Recurring capital expenditures (2) (15,397) (12,475) (36,292) (30,665) Leasing costs (1,157) (1,115) (3,059) (3,244) Fully Adjusted EBITDAre $ 134,972 $ 131,092 $ 401,159 $ 400,699 (1) Included in acquisition, other transaction costs and other is a net $2.9 million nonrecurring expense related to a legal matter involving a former employee during the three months ended September 30, 2020. (2) As a portion of our homes are recently developed, acquired and/or renovated, we estimate recurring capital expenditures for our entire portfolio by multiplying (a) current period actual recurring capital expenditures per Same-Home Property by (b) our total number of properties, excluding newly acquired non-stabilized properties and properties classified as held for sale.