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 March 31, 2022, we owned 57,984 single-family properties in selected sub-markets of metropolitan statistical areas (“MSAs”) in 22 states, including 855 properties held for sale, compared to 57,024 single-family properties in 22 states, including 659 properties held for sale, as of December 31, 2021, and 53,984 single-family properties in 22 states, including 636 properties held for sale as of March 31, 2021. As of March 31, 2022, 54,352 of our total properties (excluding properties held for sale) were occupied, compared to 53,637 of our total properties (excluding properties held for sale) as of December 31, 2021 and 52,025 of our total properties (excluding properties held for sale) as of March 31, 2021. Also, as of March 31, 2022, the Company had an additional 1,849 properties held in unconsolidated joint ventures, compared to 1,942 properties held in unconsolidated joint ventures as of December 31, 2021, and 1,383 properties held in unconsolidated joint ventures as of March 31, 2021. Our portfolio of single-family properties, including those held in our unconsolidated joint ventures, is internally managed through our proprietary property management platform. Key Single-Family Property and Leasing Metrics The following table summarizes certain key single-family properties metrics as of March 31, 2022: Total Single-Family Properties (1) Market Number of Single-Family Properties % 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 5,690 10.0 % $ 1,183.7 10.1 % $ 208,034 2,167 16.9 2016 Dallas-Fort Worth, TX 4,310 7.5 % 738.7 6.3 % 171,394 2,113 17.9 2014 Charlotte, NC 3,900 6.8 % 802.4 6.9 % 205,748 2,099 17.2 2015 Phoenix, AZ 3,334 5.8 % 656.6 5.6 % 196,946 1,834 18.2 2015 Nashville, TN 3,118 5.5 % 722.9 6.2 % 231,839 2,108 15.6 2015 Indianapolis, IN 2,932 5.1 % 488.3 4.2 % 166,541 1,930 19.2 2014 Houston, TX 2,850 5.0 % 490.6 4.2 % 172,146 2,103 16.2 2014 Jacksonville, FL 2,770 4.8 % 558.9 4.8 % 201,781 1,935 14.3 2016 Tampa, FL 2,662 4.7 % 571.5 4.9 % 214,682 1,940 15.1 2015 Raleigh, NC 2,167 3.8 % 421.9 3.6 % 194,694 1,886 16.4 2015 Columbus, OH 2,134 3.7 % 394.1 3.4 % 184,663 1,867 19.9 2015 Cincinnati, OH 2,134 3.7 % 404.9 3.5 % 189,751 1,848 19.3 2014 Orlando, FL 1,840 3.2 % 362.6 3.1 % 197,054 1,899 18.9 2015 Salt Lake City, UT 1,830 3.2 % 526.9 4.5 % 287,922 2,227 16.2 2015 Greater Chicago area, IL and IN 1,686 3.0 % 315.1 2.7 % 186,917 1,869 20.6 2013 Las Vegas, NV 1,597 2.8 % 384.9 3.3 % 241,031 1,879 14.3 2015 Charleston, SC 1,512 2.6 % 335.8 2.9 % 222,077 1,970 11.7 2016 San Antonio, TX 1,331 2.3 % 253.2 2.2 % 190,253 1,938 13.8 2015 Seattle, WA 1,106 1.9 % 349.0 3.0 % 315,583 2,002 12.5 2017 Savannah/Hilton Head, SC 990 1.7 % 194.4 1.7 % 196,390 1,887 13.6 2016 All Other (2) 7,236 12.9 % 1,549.9 12.9 % 214,197 1,900 17.0 2015 Total/Average 57,129 100.0 % $ 11,706.3 100.0 % $ 204,910 1,989 16.8 2015 (1) Excludes 855 single-family properties held for sale as of March 31, 2022. (2) Represents 15 markets in 13 states. 29 The following table summarizes certain key leasing metrics as of March 31, 2022: 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 96.1 % $ 1,877 12.0 6.1 10.6 % Dallas-Fort Worth, TX 97.1 % 1,961 12.2 5.9 8.1 % Charlotte, NC 96.6 % 1,819 12.3 6.0 8.2 % Phoenix, AZ 96.0 % 1,767 11.9 6.3 12.0 % Nashville, TN 97.3 % 1,951 12.0 6.1 8.7 % Indianapolis, IN 95.7 % 1,625 12.0 6.1 7.2 % Houston, TX 96.4 % 1,812 12.5 5.6 5.6 % Jacksonville, FL 97.3 % 1,841 12.0 6.0 9.6 % Tampa, FL 97.9 % 1,952 12.0 6.1 10.7 % Raleigh, NC 95.6 % 1,736 12.4 6.2 7.9 % Columbus, OH 94.7 % 1,870 12.0 6.3 6.9 % Cincinnati, OH 95.7 % 1,822 11.9 6.4 7.6 % Orlando, FL 97.9 % 1,907 12.0 5.6 8.5 % Salt Lake City, UT 95.8 % 2,070 12.1 6.6 8.4 % Greater Chicago area, IL and IN 97.2 % 2,077 12.3 6.2 8.4 % Las Vegas, NV 93.9 % 1,920 11.9 6.4 10.5 % Charleston, SC 92.6 % 1,947 12.0 6.3 7.3 % San Antonio, TX 94.3 % 1,763 12.0 5.9 6.9 % Seattle, WA 94.3 % 2,311 12.0 6.9 9.3 % Savannah/Hilton Head, SC 96.3 % 1,785 11.9 6.7 10.6 % All Other (6) 95.8 % 1,857 12.0 6.3 8.8 % Total/Average 96.2 % $ 1,872 12.1 6.2 8.8 % (1) Excludes 855 single-family properties held for sale as of March 31, 2022. (2) For the three months ended March 31, 2022, 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 March 31, 2022, 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 March 31, 2022, 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 13 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. Key factors that impact our results of operations and financial condition include the pace at which we identify and acquire suitable land and 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. Additionally, recent supply chain disruptions, inflationary increases in labor and material costs and labor shortages have impacted and may continue to impact certain aspects of our business, including our AMH Development Program, our renovation program associated with recently acquired properties and our maintenance program. 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. In addition, we also acquire newly constructed homes from third-party developers through our National Builder Program. Opportunities from these new 30 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 March 31, 2022, we developed or acquired 1,131 homes, including 325 newly constructed homes delivered through our AMH Development Program, 606 homes acquired through our National Builder Program and traditional acquisition channel and 200 homes acquired in a bulk transaction from an unconsolidated joint venture, partially offset by 171 homes sold to third parties or contributed to an unconsolidated joint venture. During the three months ended March 31, 2022, we also developed an additional 127 newly constructed properties which were delivered to our unconsolidated joint ventures, aggregating to 452 total program deliveries through our AMH Development Program. Our properties held for sale were identified based on sub-market analysis, as well as individual property-level operational review. As of March 31, 2022 and December 31, 2021, there were 855 and 659 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, historically it has taken approximately four to six months to complete the rental home vertical construction process. However, delivery of homes may be staggered to facilitate leasing absorption. 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 $250,000 and $450,000 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 $20,000 and $40,000 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. Historically, it has taken approximately 20 to 90 days to complete the renovation process, which will fluctuate based on our overall acquisition volume as well as availability of construction labor and materials. 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 10 to 30 days to lease a property after acquiring or developing a new property through our new construction channels and 20 to 40 days 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 30 to 50 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. Typically, our tenants have household incomes ranging from $70,000 to $120,000 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. 31 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 7.5% for the three months ended March 31, 2022, and we experienced turnover rates of 6.2% and 7.0% during the three months ended March 31, 2022 and 2021, respectively. 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. Historically, we have experienced 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 $70.0 million for the three months ended March 31, 2022, compared to net income of $48.9 million for the three months ended March 31, 2021. This increase was primarily due to a larger number of occupied properties associated with growth in the Company’s portfolio, higher rental rates and lower uncollectible rents, as well as higher net gains on property sales. 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 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 32 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 rents and other single-family property revenues, excluding expenses reimbursed by tenant charge-backs, 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) gains and losses from sales or impairments 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, and (9) other income and expense, net. 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”)). 33 Comparison of the Three Months Ended March 31, 2022 to the Three Months Ended March 31, 2021 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 March 31, 2022 and 2021 (amounts in thousands): For the Three Months Ended March 31, 2022 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 $ 262,720 $ 38,945 $ 301,665 Fees from single-family properties 4,995 1,092 6,087 Bad debt (3,137) (782) (3,919) Core revenues 264,578 39,255 303,833 Property tax expense 44,532 16.8 % 7,410 18.9 % 51,942 17.1 % HOA fees, net (2) 4,688 1.8 % 720 1.8 % 5,408 1.8 % R&M and turnover costs, net (2) 18,045 6.8 % 3,958 10.1 % 22,003 7.2 % Insurance 2,877 1.1 % 496 1.3 % 3,373 1.1 % Property management expenses, net (3) 19,111 7.2 % 4,569 11.6 % 23,680 7.8 % Core property operating expenses 89,253 33.7 % 17,153 43.7 % 106,406 35.0 % Core NOI $ 175,325 66.3 % $ 22,102 56.3 % $ 197,427 65.0 % For the Three Months Ended March 31, 2021 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 $ 244,237 $ 24,084 $ 268,321 Fees from single-family properties 4,528 646 5,174 Bad debt (5,852) (865) (6,717) Core revenues 242,913 23,865 266,778 Property tax expense 42,601 17.5 % 4,807 20.1 % 47,408 17.8 % HOA fees, net (2) 4,402 1.8 % 565 2.4 % 4,967 1.9 % R&M and turnover costs, net (2) 15,809 6.6 % 2,427 10.2 % 18,236 6.8 % Insurance 2,498 1.0 % 290 1.2 % 2,788 1.0 % Property management expenses, net (3) 19,393 8.0 % 2,807 11.8 % 22,200 8.3 % Core property operating expenses 84,703 34.9 % 10,896 45.7 % 95,599 35.8 % Core NOI $ 158,210 65.1 % $ 12,969 54.3 % $ 171,179 64.2 % (1) Includes 48,423 properties that have been stabilized longer than 90 days prior to January 1, 2021. (2) Presented net of tenant charge-backs. (3) Presented net of tenant charge-backs and excludes noncash share-based compensation expense related to centralized and field property management employees. 34 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 March 31, 2022 and 2021 (amounts in thousands): For the Three Months Ended March 31, 2022 2021 Core revenues and Same-Home core revenues Rents and other single-family property revenues $ 356,105 $ 312,573 Tenant charge-backs (52,272) (45,795) Core revenues 303,833 266,778 Less: Non-Same-Home core revenues 39,255 23,865 Same-Home core revenues $ 264,578 $ 242,913 Core property operating expenses and Same-Home core property operating expenses Property operating expenses $ 133,643 $ 118,694 Property management expenses 26,034 23,699 Noncash share-based compensation - property management (999) (999) Expenses reimbursed by tenant charge-backs (52,272) (45,795) Core property operating expenses 106,406 95,599 Less: Non-Same-Home core property operating expenses 17,153 10,896 Same-Home core property operating expenses $ 89,253 $ 84,703 Core NOI and Same-Home Core NOI Net income $ 70,014 $ 48,921 Gain on sale and impairment of single-family properties and other, net (22,044) (16,069) Depreciation and amortization 99,954 90,071 Acquisition and other transaction costs 5,974 4,846 Noncash share-based compensation - property management 999 999 Interest expense 27,567 28,005 General and administrative expense 17,282 15,205 Other income and expense, net (2,319) (799) Core NOI 197,427 171,179 Less: Non-Same-Home Core NOI 22,102 12,969 Same-Home Core NOI $ 175,325 $ 158,210 Rents and Other Single-Family Property Revenues Rents and other single-family property revenues increased 13.9% to $356.1 million for the three months ended March 31, 2022 from $312.6 million for the three months ended March 31, 2021. Revenue growth was driven by an increase in our average occupied portfolio which grew to 53,995 homes for the three months ended March 31, 2022, compared to 51,648 homes for the three months ended March 31, 2021, as well as higher rental rates and lower uncollectible rents. Property Operating Expenses Property operating expenses increased 12.6% to $133.6 million for the three months ended March 31, 2022 from $118.7 million for the three months ended March 31, 2021. This increase was primarily a result of inflationary increases and growth in our portfolio. Property Management Expenses Property management expenses for the three months ended March 31, 2022 and 2021 were $26.0 million and $23.7 million, respectively, which included $1.0 million of noncash share-based compensation expense in each period related to centralized and field property management employees. The increase in property management expenses was primarily attributable to higher personnel costs as a result of inflationary increases and to support growth in our portfolio as well as an increase in other miscellaneous property management expenses. 35 Core Revenues from Same-Home Properties Core revenues from Same-Home properties increased 8.9% to $264.6 million for the three months ended March 31, 2022 from $242.9 million for the three months ended March 31, 2021. This increase was primarily attributable to higher Average Monthly Realized Rent per property, which increased 7.5% to $1,856 per month for the three months ended March 31, 2022 compared to $1,727 per month for the three months ended March 31, 2021, a rise in the Average Occupied Days Percentage, which increased to 97.5% for the three months ended March 31, 2022 compared to 97.3% for the three months ended March 31, 2021, and lower uncollectible rents. 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 5.4% to $89.3 million for the three months ended March 31, 2022 from $84.7 million for the three months ended March 31, 2021 primarily driven by annual growth in property tax expense and other inflationary increases. 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 March 31, 2022 and 2021 was $17.3 million and $15.2 million, respectively, which included $4.0 million and $4.3 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 personnel costs as a result of inflationary increases and to support growth in our business as well as timing of professional fees. Interest Expense Interest expense decreased 1.6% to $27.6 million for the three months ended March 31, 2022 from $28.0 million for the three months ended March 31, 2021. This decrease was primarily due to additional capitalized interest during the three months ended March 31, 2022 related to an increase in our development activities under our AMH Development Program and an increase in acquired properties that underwent initial renovation, partially offset by additional interest from the issuance of the 2031 unsecured senior notes and the 2051 unsecured senior notes during July 2021 and higher borrowings costs on the revolving credit facility during the three months ended March 31, 2022. Acquisition and Other Transaction Costs Acquisition and other transaction costs consists primarily of costs associated with purchases of single-family properties, including newly constructed properties from third-party builders, the development of single-family properties, or the disposal of certain properties or portfolios of properties which do not qualify for capitalization. Acquisition and other transaction costs for the three months ended March 31, 2022 and 2021 were $6.0 million and $4.8 million, respectively, which included $2.4 million and $2.8 million, respectively, of noncash share-based compensation expense related to employees in these functions. The increase in acquisition and other transaction costs was primarily related to higher acquisition costs associated with the growth of our portfolio, partially offset by lower noncash share-based compensation expense. 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 11.0% to $100.0 million for the three months ended March 31, 2022 from $90.1 million for the three months ended March 31, 2021 primarily due to growth in our average number of depreciable properties. Gain on Sale and Impairment of Single-Family Properties and Other, net Gain on sale and impairment of single-family properties and other, net was $22.0 million and $16.1 million for the three months ended March 31, 2022 and 2021, respectively, which included $1.1 million and $0.1 million of impairment charges, respectively, related to homes classified as held for sale during each period. The increase was primarily related to higher net gains from property sales. 36 Other Income and Expense, net Other income and expense, net was $2.3 million and $0.8 million for the three months ended March 31, 2022 and 2021, respectively, which primarily related to interest income, fees from unconsolidated joint ventures and equity in income (losses) from unconsolidated joint ventures, partially offset by expenses related to unconsolidated joint ventures and other nonrecurring expenses. Critical Accounting Estimates Our critical accounting estimates are included in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2021 Annual Report. There have been no material changes to these estimates during the three months ended March 31, 2022. 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, if any. Liquidity and Capital Resources 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. Sources of Capital We expect to satisfy our cash requirements 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. Our liquidity and capital resources as of March 31, 2022 included cash and cash equivalents of $56.6 million. Additionally, as of March 31, 2022, we had $410.0 million of outstanding borrowings under our revolving credit facility, which provides for maximum borrowings of up to $1.25 billion, of which $2.2 million was committed to outstanding letters of credit. As described in Note 16. Subsequent Events to our condensed consolidated financial statements in this report, in April 2022, the Company issued $600.0 million of 3.625% unsecured senior notes due 2032 and $300.0 million of 4.300% unsecured senior notes due 2052 raising net proceeds of $870.3 million and as described below, we also have estimated net proceeds of $488.6 million available from future settlement of the January 2022 Forward Sale Agreements. We maintain an investment grade credit rating which provides for greater availability of and lower cost of debt financing. Uses of Capital Our expected material cash requirements over the next twelve months consist of (i) contractually obligated expenditures, including payments of principal and interest, (ii) other essential expenditures, including property operating expenses, HOA fees (as applicable), real estate taxes, maintenance capital expenditures, general and administrative expenses and dividends on our equity securities including those paid in accordance with REIT distribution requirements, and (iii) opportunistic expenditures, including to pay for the acquisition, development and renovation of our properties and repurchases of our securities. With respect to our contractually obligated expenditures, our cash requirements within the next twelve months include accounts payable and accrued expenses, interest payments on debt obligations, principal amortization on our asset-backed securitizations, operating lease obligations and purchase commitments to acquire single-family properties and land for our AMH Development Program. Except as described in Note 8. Debt, Note 9. Accounts Payable and Accrued Expenses, Note 15. Commitments and Contingencies and Note 16. Subsequent Events to our condensed consolidated financial statements in this report, there have been no other material changes outside the ordinary course of business to our other known contractual obligations described in “Liquidity and 37 Capital Resources” in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2021 Annual Report. Cash Flows The following table summarizes the Company’s and the Operating Partnership’s cash flows for the three months ended March 31, 2022 and 2021 (amounts in thousands): For the Three Months Ended March 31, 2022 2021 Change Net cash provided by operating activities $ 158,742 $ 151,997 $ 6,745 Net cash used for investing activities (512,764) (208,230) (304,534) Net cash provided by financing activities 369,235 3,260 365,975 Net increase (decrease) in cash, cash equivalents and restricted cash $ 15,213 $ (52,973) $ 68,186 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 $6.7 million, or 4.4%, from $152.0 million for the three months ended March 31, 2021 to $158.7 million for the three months ended March 31, 2022 primarily as a result of increased cash flows generated from a larger number of occupied properties, higher rental rates and lower uncollectible rents, partially offset by higher cash outflows for property related expenses as a result of inflationary increases and growth in our portfolio. Investing Activities Net cash used for investing activities increased $304.5 million, or 146%, from $208.2 million for the three months ended March 31, 2021 to $512.8 million for the three months ended March 31, 2022. Our investing activities are most significantly impacted by the strategic expansion of our portfolio through traditional acquisition channels, the development of “built-for-rental” homes through our AMH Development Program and the acquisition of newly built properties through our National Builder Program. Cash outflows for the addition of single-family properties to our portfolio through these channels increased $298.0 million during the three months ended March 31, 2022. 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. Renovations to single-family properties increased $12.7 million as a result of an increased volume in purchases of homes through our traditional acquisition channel during the three months ended March 31, 2022. These increases in net cash used for investing activities were partially offset by an increase of $5.1 million in net proceeds received from sales of single-family properties as a result of higher average per home realized sales prices during the three months ended March 31, 2022. 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. Financing Activities Net cash provided by financing activities increased $366.0 million from $3.3 million for the three months ended March 31, 2021 to $369.2 million for the three months ended March 31, 2022 primarily due to $375.6 million of net proceeds from the issuance of Class A common shares, an $8.0 million reduction in distributions to preferred shareholders as a result of the redemption of our Series D and E perpetual preferred shares in June 2021 and $19.8 million of proceeds from liabilities related to consolidated land not owned during the three months ended March 31, 2022 (see Note 6. Escrow Deposits, Prepaid Expenses and Other Assets to our condensed consolidated financial statements in this report for further discussion). These increases were partially offset by a $20.0 million reduction in borrowing activity, net of paydowns, under our revolving credit facility and a $16.6 million increase in distributions paid to common share and unit holders resulting from an 80% increase in distributions paid per common share and unit. Class A Common Share Offering During the first quarter of 2022, the Company completed an underwritten public offering for 23,000,000 of its Class A common shares of beneficial interest, $0.01 par value per share, of which 10,000,000 shares were issued directly by the Company, and 13,000,000 shares were offered on a forward basis at the request of the Company by the forward sellers. In connection with this offering, the Company entered into forward sale agreements with the forward purchasers (the “January 2022 Forward Sale Agreements”) for these 13,000,000 shares which are accounted for in equity. The Company expects to physically settle the January 2022 Forward Sale Agreements by the delivery of the Class A common shares and receive proceeds by January 20, 2023, although the Company has the 38 right to elect settlement prior to that time subject to certain conditions. Although the Company expects to physically settle, the January 2022 Forward Sale Agreements allow the Company to cash or net-share settle all or a portion of its obligations. If the Company elects to cash or net share settle the January 2022 Forward Sale Agreements, the Company may not receive any proceeds, and may owe cash or Class A common shares to the forward purchasers in certain circumstances. The January 2022 Forward Sale Agreements are subject to early termination or settlement under certain circumstances. The Company received net proceeds of $375.8 million from the 10,000,000 Class A common shares issued directly by the Company after deducting underwriting fees and before offering costs of approximately $0.2 million. The Operating Partnership issued an equivalent number of corresponding Class A units to AH4R in exchange for the net proceeds from the issuance. The Company used the net proceeds from the offering to repay indebtedness under its revolving credit facility and for general corporate purposes. The Company did not initially receive proceeds from the sale of the Class A common shares offered on a forward basis but estimates that net proceeds will be approximately $488.6 million after deducting underwriting fees. The Company expects to use these net proceeds (i) to repay indebtedness it 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 its business strategy and (iv) for general corporate purposes. As of March 31, 2022, the Company has estimated net proceeds of $488.6 million available from future settlement under the January 2022 Forward Sale Agreements. At-the-Market Common Share Offering Program The Company maintains an at-the-market common share offering program under which it 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 its business strategy and (iv) for working capital and general corporate purposes, including 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 months ended March 31, 2022 and 2021, no shares were issued under the At-the-Market Program. As of March 31, 2022, 1,835,416 shares have been issued under the At-the-Market Program and $425.2 million remained available for future share issuances. Share Repurchase Program The Company’s board of trustees authorized the establishment of our share repurchase program for 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 three months ended March 31, 2022 and 2021, we did not repurchase and retire any of our Class A common shares or preferred shares. As of March 31, 2022, 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 generally 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 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 (determined without regard to the deduction for dividends paid and including any net capital gains). The Operating Partnership funds the payment of distributions. As of December 31, 2021, AH4R had a net operating loss (“NOL”) for U.S. federal income tax purposes of an estimated $25.4 million. We intend to use our NOL (to the extent available) to reduce our REIT taxable income to the extent that REIT taxable income is not reduced by our deduction for dividends paid. During the three months ended March 31, 2022 and 2021, the Company distributed an aggregate $77.7 million and $69.1 million, respectively, to common shareholders, preferred shareholders and noncontrolling interests on a cash basis. 39 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, (4) gain or loss on early extinguishment of debt and (5) the allocation of income to our perpetual preferred shares in connection with their redemption. 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. 40 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 months ended March 31, 2022 and 2021 (amounts in thousands): For the Three Months Ended March 31, 2022 2021 Net income attributable to common shareholders $ 55,939 $ 30,214 Adjustments: Noncontrolling interests in the Operating Partnership 8,312 4,925 Gain on sale and impairment of single-family properties and other, net (22,044) (16,069) Adjustments for unconsolidated joint ventures (371) 382 Depreciation and amortization 99,954 90,071 Less: depreciation and amortization of non-real estate assets (2,992) (2,788) FFO attributable to common share and unit holders $ 138,798 $ 106,735 Adjustments: Acquisition, other transaction costs and other 5,974 4,846 Noncash share-based compensation - general and administrative 4,030 4,342 Noncash share-based compensation - property management 999 999 Core FFO attributable to common share and unit holders $ 149,801 $ 116,922 Recurring Capital Expenditures (11,178) (9,651) Leasing costs (535) (975) Adjusted FFO attributable to common share and unit holders $ 138,088 $ 106,296 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 gains and losses from sales or impairments of single-family properties 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 is a supplemental non-GAAP financial measure calculated by adjusting Adjusted EBITDAre for (1) Recurring Capital Expenditures and (2) leasing costs. 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 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. 41 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 months ended March 31, 2022 and 2021 (amounts in thousands): For the Three Months Ended March 31, 2022 2021 Net income $ 70,014 $ 48,921 Interest expense 27,567 28,005 Depreciation and amortization 99,954 90,071 EBITDA $ 197,535 $ 166,997 Gain on sale and impairment of single-family properties and other, net (22,044) (16,069) Adjustments for unconsolidated joint ventures (371) 382 EBITDAre $ 175,120 $ 151,310 Noncash share-based compensation - general and administrative 4,030 4,342 Noncash share-based compensation - property management 999 999 Acquisition, other transaction costs and other 5,974 4,846 Adjusted EBITDAre $ 186,123 $ 161,497 Recurring Capital Expenditures (11,178) (9,651) Leasing costs (535) (975) Fully Adjusted EBITDAre $ 174,410 $ 150,871