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 managing 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 and we have elected to be taxed as a REIT. As of September 30, 2023, we owned 59,092 single-family properties in select submarkets of metropolitan statistical areas (“MSAs”) in 21 states, including 700 properties held for sale, compared to 58,993 single-family properties in 21 states, including 1,115 properties held for sale, as of December 31, 2022 and 58,961 single-family properties in 21 states, including 1,057 properties held for sale, as of September 30, 2022. As of September 30, 2023, 55,949 of our total properties (excluding properties held for sale) were occupied, compared to 55,605 of our total properties (excluding properties held for sale) as of December 31, 2022 and 55,421 of our total properties (excluding properties held for sale) as of September 30, 2022. Also, as of September 30, 2023, the Company had an additional 2,936 properties held in unconsolidated joint ventures, compared to 2,540 properties held in unconsolidated joint ventures as of December 31, 2022 and 2,271 properties held in unconsolidated joint ventures as of September 30, 2022. 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 September 30, 2023: 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 5,851 10.0 % $ 1,301.7 10.2 % $ 222,478 2,173 17.2 2016 Dallas-Fort Worth, TX 4,108 7.0 % 721.0 5.6 % 175,506 2,100 19.3 2014 Charlotte, NC 4,039 6.9 % 879.2 6.9 % 217,682 2,109 17.8 2015 Phoenix, AZ 3,386 5.8 % 718.6 5.6 % 212,239 1,839 19.1 2016 Nashville, TN 3,290 5.6 % 809.2 6.3 % 245,952 2,116 16.0 2016 Jacksonville, FL 3,038 5.2 % 653.9 5.1 % 215,247 1,928 14.4 2016 Indianapolis, IN 2,863 4.9 % 496.6 3.9 % 173,466 1,928 20.6 2014 Tampa, FL 2,875 4.9 % 660.6 5.2 % 229,767 1,947 15.2 2016 Houston, TX 2,458 4.2 % 436.9 3.4 % 177,734 2,086 17.8 2014 Raleigh, NC 2,175 3.7 % 432.9 3.4 % 199,047 1,890 17.6 2015 Cincinnati, OH 2,125 3.6 % 417.3 3.3 % 196,358 1,842 20.7 2014 Columbus, OH 2,151 3.7 % 417.8 3.3 % 194,252 1,878 20.9 2015 Las Vegas, NV 2,128 3.6 % 601.6 4.7 % 282,700 1,935 11.8 2017 Salt Lake City, UT 1,899 3.3 % 577.3 4.5 % 303,986 2,244 17.0 2016 Orlando, FL 1,982 3.4 % 428.2 3.4 % 216,061 1,910 18.4 2016 Greater Chicago area, IL and IN 1,559 2.7 % 297.0 2.3 % 190,489 1,866 22.1 2013 Charleston, SC 1,520 2.6 % 346.5 2.7 % 227,982 1,963 12.9 2017 San Antonio, TX 1,282 2.2 % 252.4 2.0 % 196,843 1,925 14.7 2015 Seattle, WA 1,149 2.0 % 376.1 2.9 % 327,350 2,001 13.6 2017 Savannah/Hilton Head, SC 1,042 1.8 % 218.4 1.7 % 209,613 1,888 15.0 2016 All Other (2) 7,472 12.9 % 1,728.1 13.6 % 231,277 1,910 17.6 2015 Total/Average 58,392 100.0 % $ 12,771.3 100.0 % $ 218,717 1,991 17.4 2015 (1) Excludes 700 single-family properties held for sale as of September 30, 2023. (2) Represents 15 markets in 13 states. 31 The following table summarizes certain key leasing metrics as of September 30, 2023: 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 95.4 % $ 2,103 12.0 7.3 7.7 % Dallas-Fort Worth, TX 95.8 % 2,148 12.0 6.5 7.0 % Charlotte, NC 96.6 % 2,016 12.0 6.5 7.6 % Phoenix, AZ 95.4 % 2,015 12.0 6.2 6.6 % Nashville, TN 95.7 % 2,201 12.0 6.7 6.4 % Jacksonville, FL 95.3 % 2,050 12.0 6.3 6.2 % Indianapolis, IN 96.5 % 1,753 12.1 6.4 5.9 % Tampa, FL 95.3 % 2,246 12.0 6.9 8.8 % Houston, TX 96.6 % 1,928 12.0 6.5 6.5 % Raleigh, NC 96.1 % 1,909 12.0 6.8 6.5 % Cincinnati, OH 96.2 % 1,993 12.0 6.7 8.0 % Columbus, OH 96.3 % 2,033 12.0 6.4 6.9 % Las Vegas, NV 92.0 % 2,148 12.0 6.6 4.2 % Salt Lake City, UT 95.8 % 2,311 12.0 6.5 5.9 % Orlando, FL 94.8 % 2,188 12.0 6.8 9.9 % Greater Chicago area, IL and IN 97.3 % 2,273 12.1 6.6 7.4 % Charleston, SC 95.7 % 2,136 12.0 6.8 7.6 % San Antonio, TX 95.5 % 1,885 12.0 6.3 4.1 % Seattle, WA 95.1 % 2,612 11.8 6.6 8.2 % Savannah/Hilton Head, SC 96.6 % 2,031 12.0 6.2 10.0 % All Other (6) 94.8 % 2,062 12.0 6.5 7.1 % Total/Average 95.6 % $ 2,081 12.0 6.6 7.1 % (1) Excludes 700 single-family properties held for sale as of September 30, 2023. (2) For the three months ended September 30, 2023, 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, 2023, 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, 2023, 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, property taxes including changes in rates and valuation assessments of our properties, our ability to raise capital and our capital structure. Additionally, further supply chain disruptions, inflationary increases in labor and material costs and labor shortages may have the potential to impact certain aspects of our business, including our AMH Development Program, our renovation program associated with 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 32 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. Recently, we have strategically scaled back acquisitions through our National Builder Program and traditional acquisition channel as the housing market adjusts to the current macroeconomic environment. We anticipate beginning to grow in these acquisition channels when the housing and capital markets stabilize. During the three months ended September 30, 2023, we developed or acquired 623 homes, including 615 newly constructed homes delivered through our AMH Development Program and eight homes acquired through our traditional acquisition channel, offset by 224 homes sold to third parties. During the three months ended September 30, 2023, we also developed an additional 99 newly constructed homes which were delivered to our unconsolidated joint ventures, aggregating to 714 total program deliveries through our AMH Development Program. Our properties held for sale were identified based on submarket analysis, as well as individual property-level operational review. As of September 30, 2023 and December 31, 2022, there were 700 and 1,115 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. Typically, 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. Typically, it takes approximately 20 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 incoming residents have household incomes ranging from $80,000 to $140,000 and primarily consist of families with approximately two adults and one or more children. 33 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. 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 6.8% for the three months ended September 30, 2023, and we experienced turnover rates, which represents the number of tenant move-outs during the period divided by the total number of properties, of 8.6% and 8.3% during the three months ended September 30, 2023 and 2022, respectively. Based on our Same-Home population of properties, the year-over-year increase in Average Monthly Realized Rent per property was 7.3% for the nine months ended September 30, 2023, and we experienced turnover rates of 23.1% and 22.2% during the nine months ended September 30, 2023 and 2022, 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 as well as enhancing our property management platform. As part of developing our property management platform, we continue to make significant investments in our personnel, infrastructure, systems and technology that will impact expenses based on investment programs during the year. 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. In addition, we also continue to make corporate level investments to support certain initiatives which will impact expenses based on given investment programs during the year. Also included in general and administrative expense is noncash share-based compensation expense related to corporate administrative employees. Results of Operations Net income totaled $88.1 million for the three months ended September 30, 2023, compared to $61.7 million for the three months ended September 30, 2022. The increase was primarily due to higher rental rates as well as higher net gains on property sales. Net income totaled $341.2 million for the nine months ended September 30, 2023, compared to $206.2 million for the nine months ended September 30, 2022. The increase was primarily due to higher net gains on property sales, higher rental rates and a larger number of occupied properties. 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 34 period presented under comparison and if it has not been classified as held for sale or experienced 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 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 our single-family property portfolio, (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”)). 35 Comparison of the Three Months Ended September 30, 2023 to the Three Months Ended September 30, 2022 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, 2023 and 2022 (amounts in thousands): For the Three Months Ended September 30, 2023 2022 Core revenues and Same-Home core revenues Rents and other single-family property revenues $ 421,697 $ 391,627 Tenant charge-backs (65,840) (62,014) Core revenues 355,857 329,613 Less: Non-Same-Home core revenues 53,559 43,953 Same-Home core revenues $ 302,298 $ 285,660 Core property operating expenses and Same-Home core property operating expenses Property operating expenses $ 167,041 $ 152,065 Property management expenses 30,785 29,739 Noncash share-based compensation - property management (953) (1,015) Expenses reimbursed by tenant charge-backs (65,840) (62,014) Core property operating expenses 131,033 118,775 Less: Non-Same-Home core property operating expenses 19,824 18,338 Same-Home core property operating expenses $ 111,209 $ 100,437 Core NOI and Same-Home Core NOI Net income $ 88,092 $ 61,665 Hurricane-related charges, net — 6,133 Gain on sale and impairment of single-family properties and other, net (33,335) (24,197) Depreciation and amortization 114,863 109,319 Acquisition and other transaction costs 3,399 4,482 Noncash share-based compensation - property management 953 1,015 Interest expense 34,381 36,254 General and administrative expense 18,336 16,986 Other income and expense, net (1,865) (819) Core NOI 224,824 210,838 Less: Non-Same-Home Core NOI 33,735 25,615 Same-Home Core NOI $ 191,089 $ 185,223 36 The following tables present 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, 2023 and 2022 (amounts in thousands): For the Three Months Ended September 30, 2023 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 $ 299,652 $ 53,334 $ 352,986 Fees from single-family properties 6,746 1,276 8,022 Bad debt (4,100) (1,051) (5,151) Core revenues 302,298 53,559 355,857 Property tax expense 51,646 17.1 % 7,939 14.9 % 59,585 16.7 % HOA fees, net (2) 5,737 1.9 % 1,095 2.0 % 6,832 1.9 % R&M and turnover costs, net (2) 27,379 9.1 % 4,873 9.1 % 32,252 9.1 % Insurance 3,962 1.3 % 718 1.3 % 4,680 1.3 % Property management expenses, net (3) 22,485 7.4 % 5,199 9.7 % 27,684 7.8 % Core property operating expenses 111,209 36.8 % 19,824 37.0 % 131,033 36.8 % Core NOI $ 191,089 63.2 % $ 33,735 63.0 % $ 224,824 63.2 % For the Three Months Ended September 30, 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 $ 282,489 $ 44,000 $ 326,489 Fees from single-family properties 5,900 1,117 7,017 Bad debt (2,729) (1,164) (3,893) Core revenues 285,660 43,953 329,613 Property tax expense 45,726 16.0 % 7,176 16.3 % 52,902 16.0 % HOA fees, net (2) 5,465 1.9 % 941 2.1 % 6,406 1.9 % R&M and turnover costs, net (2) 23,972 8.4 % 4,879 11.1 % 28,851 8.8 % Insurance 3,109 1.1 % 470 1.1 % 3,579 1.1 % Property management expenses, net (3) 22,165 7.8 % 4,872 11.1 % 27,037 8.2 % Core property operating expenses 100,437 35.2 % 18,338 41.7 % 118,775 36.0 % Core NOI $ 185,223 64.8 % $ 25,615 58.3 % $ 210,838 64.0 % (1) Includes 49,643 properties that have been stabilized longer than 90 days prior to January 1, 2022. (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. Rents and Other Single-Family Property Revenues Rents and other single-family property revenues increased 7.7% to $421.7 million for the three months ended September 30, 2023 from $391.6 million for the three months ended September 30, 2022. Revenue growth was primarily driven by higher rental rates. Property Operating Expenses Property operating expenses increased 9.8% to $167.0 million for the three months ended September 30, 2023 from $152.1 million for the three months ended September 30, 2022. This increase was primarily attributable to increased property tax expense from anticipated 2023 property tax assessments and timing of prior year property tax accruals as well as increased R&M and turnover costs. Property Management Expenses Property management expenses for the three months ended September 30, 2023 and 2022 were $30.8 million and $29.7 million, respectively, which included $1.0 million of noncash share-based compensation expense in each period related to centralized and field 37 property management employees. The increase in property management expenses was primarily attributable to an increase in personnel related expenses. Core Revenues from Same-Home Properties Core revenues from Same-Home properties increased 5.8% to $302.3 million for the three months ended September 30, 2023 from $285.7 million for the three months ended September 30, 2022. This increase was primarily attributable to higher Average Monthly Realized Rent per property, which increased 6.8% to $2,086 per month for the three months ended September 30, 2023 compared to $1,954 per month for the three months ended September 30, 2022, partially offset by a decrease in Average Occupied Days Percentage, which was 96.4% for the three months ended September 30, 2023 compared to 97.1% for the three months ended September 30, 2022. 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 10.7% to $111.2 million for the three months ended September 30, 2023 from $100.4 million for the three months ended September 30, 2022 primarily driven by increased property tax expense from anticipated 2023 property tax assessments and timing of prior year property tax accruals as well as increased R&M and turnover costs, 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, 2023 and 2022 was $18.3 million and $17.0 million, respectively, which included $4.2 million and $3.4 million, respectively, of noncash share-based compensation expense in each period related to corporate administrative employees. The increase in general and administrative expense was primarily related to an increase in noncash share-based compensation expense and the timing of increased personnel and information technology costs to support growth in our business as well as other inflationary increases. Interest Expense Interest expense decreased 5.2% to $34.4 million for the three months ended September 30, 2023 from $36.3 million for the three months ended September 30, 2022. The decrease was primarily due to additional capitalized interest during the three months ended September 30, 2023 related to an increase in development activities under our AMH Development Program. Acquisition and Other Transaction Costs Acquisition and other transaction costs consist primarily of personnel and platform 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 September 30, 2023 and 2022 were $3.4 million and $4.5 million, respectively, which included $1.3 million of noncash share-based compensation expense in each period related to employees in these functions. The decrease in acquisition and other transaction costs was primarily a result of a decrease in personnel costs due to fewer planned transactions through our traditional acquisition channel during the three months ended September 30, 2023. 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 5.1% to $114.9 million for the three months ended September 30, 2023 from $109.3 million for the three months ended September 30, 2022 primarily due to growth in the average number and cost of depreciable properties as well as ongoing capital investments into existing properties. Hurricane-Related Charges, net Hurricane Ian impacted certain properties primarily located in Florida, South Carolina and North Carolina, resulting in $6.1 million of hurricane-related charges, net during the three months ended September 30, 2022. The Company’s property and casualty insurance 38 policies provide coverage for wind and flood damage, as well as business interruption costs, during the period of remediation and repairs, subject to deductibles and limits. During the three months ended September 30, 2022, the Company recognized $8.4 million in gross charges primarily related to an estimated accrual for minor repair and remediation costs, partially offset by $2.3 million of related insurance claims. Gain on Sale and Impairment of Single-Family Properties and Other, net Gain on sale and impairment of single-family properties and other, net for the three months ended September 30, 2023 and 2022 was $33.3 million and $24.2 million, respectively, which included $0.3 million and $0.2 million, respectively, of impairment charges related to homes classified as held for sale during each period. The increase was primarily related to higher net gains on property sales resulting from an increase in properties sold. Other Income and Expense, net Other income and expense, net for the three months ended September 30, 2023 and 2022 was $1.9 million and $0.8 million, 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. Comparison of the Nine Months Ended September 30, 2023 to the Nine Months Ended September 30, 2022 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, 2023 and 2022 (amounts in thousands): For the Nine Months Ended September 30, 2023 2022 Core revenues and Same-Home core revenues Rents and other single-family property revenues $ 1,214,948 $ 1,109,608 Tenant charge-backs (167,049) (157,423) Core revenues 1,047,899 952,185 Less: Non-Same-Home core revenues 152,724 113,521 Same-Home core revenues $ 895,175 $ 838,664 Core property operating expenses and Same-Home core property operating expenses Property operating expenses $ 456,662 $ 414,978 Property management expenses 92,251 84,541 Noncash share-based compensation - property management (3,151) (3,146) Expenses reimbursed by tenant charge-backs (167,049) (157,423) Core property operating expenses 378,713 338,950 Less: Non-Same-Home core property operating expenses 58,757 50,243 Same-Home core property operating expenses $ 319,956 $ 288,707 Core NOI and Same-Home Core NOI Net income $ 341,205 $ 206,234 Hurricane-related charges, net — 6,133 Gain on sale and impairment of single-family properties and other, net (180,752) (79,052) Depreciation and amortization 340,779 313,688 Acquisition and other transaction costs 12,650 18,114 Noncash share-based compensation - property management 3,151 3,146 Interest expense 105,107 98,622 General and administrative expense 56,128 53,115 Other income and expense, net (9,082) (6,765) Core NOI 669,186 613,235 Less: Non-Same-Home Core NOI 93,967 63,278 Same-Home Core NOI $ 575,219 $ 549,957 39 The following tables present 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, 2023 and 2022 (amounts in thousands): For the Nine Months Ended September 30, 2023 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 $ 887,363 $ 152,709 $ 1,040,072 Fees from single-family properties 19,165 3,697 22,862 Bad debt (11,353) (3,682) (15,035) Core revenues 895,175 152,724 1,047,899 Property tax expense 154,709 17.2 % 25,503 16.8 % 180,212 17.1 % HOA fees, net (2) 16,287 1.8 % 2,818 1.8 % 19,105 1.8 % R&M and turnover costs, net (2) 69,494 7.8 % 13,328 8.7 % 82,822 7.9 % Insurance 11,261 1.3 % 1,951 1.3 % 13,212 1.3 % Property management expenses, net (3) 68,205 7.6 % 15,157 9.9 % 83,362 8.0 % Core property operating expenses 319,956 35.7 % 58,757 38.5 % 378,713 36.1 % Core NOI $ 575,219 64.3 % $ 93,967 61.5 % $ 669,186 63.9 % For the Nine Months Ended September 30, 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 $ 829,690 $ 113,500 $ 943,190 Fees from single-family properties 16,740 3,268 20,008 Bad debt (7,766) (3,247) (11,013) Core revenues 838,664 113,521 952,185 Property tax expense 136,856 16.3 % 20,435 18.0 % 157,291 16.5 % HOA fees, net (2) 15,427 1.8 % 2,462 2.2 % 17,889 1.9 % R&M and turnover costs, net (2) 63,683 7.6 % 12,653 11.1 % 76,336 8.0 % Insurance 9,156 1.1 % 1,333 1.2 % 10,489 1.1 % Property management expenses, net (3) 63,585 7.6 % 13,360 11.8 % 76,945 8.1 % Core property operating expenses 288,707 34.4 % 50,243 44.3 % 338,950 35.6 % Core NOI $ 549,957 65.6 % $ 63,278 55.7 % $ 613,235 64.4 % (1) Includes 49,643 properties that have been stabilized longer than 90 days prior to January 1, 2022. (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. Rents and Other Single-Family Property Revenues Rents and other single-family property revenues increased 9.5% to $1.2 billion for the nine months ended September 30, 2023 from $1.1 billion for the nine months ended September 30, 2022. Revenue growth was driven by higher rental rates and an increase in our average occupied portfolio which grew to 55,901 homes for the nine months ended September 30, 2023, compared to 54,658 homes for the nine months ended September 30, 2022. Property Operating Expenses Property operating expenses increased 10.0% to $456.7 million for the nine months ended September 30, 2023 from $415.0 million for the nine months ended September 30, 2022. This increase was primarily attributable to increased property tax expense from anticipated 2023 property tax assessments and timing of prior year property tax accruals as well as inflationary increases in R&M and turnover costs. 40 Property Management Expenses Property management expenses for the nine months ended September 30, 2023 and 2022 were $92.3 million and $84.5 million, respectively, which included $3.2 million and $3.1 million, respectively, 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 an increase in personnel related expenses as well as other inflationary increases. Core Revenues from Same-Home Properties Core revenues from Same-Home properties increased 6.7% to $895.2 million for the nine months ended September 30, 2023 from $838.7 million for the nine months ended September 30, 2022. This increase was primarily attributable to higher Average Monthly Realized Rent per property, which increased 7.3% to $2,049 per month for the nine months ended September 30, 2023 compared to $1,910 per month for the nine months ended September 30, 2022, partially offset by a decrease in Average Occupied Days Percentage, which was 96.9% for the nine months ended September 30, 2023 compared to 97.2% for the nine months ended September 30, 2022. 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 10.8% to $320.0 million for the nine months ended September 30, 2023 from $288.7 million for the nine months ended September 30, 2022 primarily driven by increased property tax expense from anticipated 2023 property tax assessments and timing of prior year property tax accruals as well as inflationary increases in R&M and turnover costs, net and 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 nine months ended September 30, 2023 and 2022 was $56.1 million and $53.1 million, respectively, which included $13.9 million and $13.4 million, respectively, of noncash share-based compensation expense in each period related to corporate administrative employees. The increase in general and administrative expense was primarily related to the timing of increased personnel and information technology costs to support growth in our business as well as other inflationary increases. Interest Expense Interest expense increased 6.6% to $105.1 million for the nine months ended September 30, 2023 from $98.6 million for the nine months ended September 30, 2022. This increase was primarily due to additional interest from the issuances of the 2032 and 2052 unsecured senior notes in April 2022, partially offset by additional capitalized interest during the nine months ended September 30, 2023 related to an increase in development activities under our AMH Development Program. Acquisition and Other Transaction Costs Acquisition and other transaction costs consist primarily of personnel and platform 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 nine months ended September 30, 2023 and 2022 were $12.7 million and $18.1 million, respectively, which included $3.7 million and $7.2 million, respectively, of noncash share-based compensation expense in each period related to employees in these functions. The decrease in acquisition and other transaction costs was primarily due to lower noncash share-based compensation expense as well as a decrease in personnel costs due to fewer planned transactions through our traditional acquisition channel during the nine months ended September 30, 2023. 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 8.6% to $340.8 million for the 41 nine months ended September 30, 2023 from $313.7 million for the nine months ended September 30, 2022 primarily due to growth in the average number and cost of depreciable properties as well as ongoing capital investments into existing properties. Hurricane-Related Charges, net Hurricane Ian impacted certain properties primarily located in Florida, South Carolina and North Carolina, resulting in $6.1 million of hurricane-related charges, net during the nine months ended September 30, 2022. The Company’s property and casualty insurance policies provide coverage for wind and flood damage, as well as business interruption costs, during the period of remediation and repairs, subject to deductibles and limits. During the nine months ended September 30, 2022, the Company recognized $8.4 million in gross charges primarily related to an estimated accrual for minor repair and remediation costs, partially offset by $2.3 million of related insurance claims. Gain on Sale and Impairment of Single-Family Properties and Other, net Gain on sale and impairment of single-family properties and other, net for the nine months ended September 30, 2023 and 2022 was $180.8 million and $79.1 million, respectively, which included $1.1 million and $1.3 million, respectively, of impairment charges related to homes classified as held for sale during each period. The increase was primarily related to higher net gains on property sales resulting from an increase in properties sold. Other Income and Expense, net Other income and expense, net for the nine months ended September 30, 2023 and 2022 was $9.1 million and $6.8 million, 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 2022 Annual Report. There have been no material changes to these estimates during the nine months ended September 30, 2023. 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 AMH, 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), property dispositions and joint venture transactions. We expect to meet our operating liquidity requirements and our dividend distributions generally through cash on hand and cash provided by operations. For our acquisition and development expenditures, we expect to supplement these sources through the issuance of equity securities, including under our June 2023 At-the-Market Program described below, borrowings under our credit facility, issuances of unsecured senior notes, and proceeds from sales of single-family properties. 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 September 30, 2023 included cash and cash equivalents of $69.5 million. Additionally, as of September 30, 2023, we had no outstanding borrowings and $2.7 million committed to outstanding letters of credit under our $1.25 billion revolving credit facility, leaving $1.25 billion of remaining borrowing capacity. Under our June 2023 At-the-Market Program discussed below, we also had $1.0 billion remaining available for future share issuances as of September 30, 2023. We maintain an investment grade credit rating which provides for greater availability of and lower cost of debt financing. 42 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 Capital Resources” in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2022 Annual Report. Cash Flows The following table summarizes the Company’s and the Operating Partnership’s cash flows for the nine months ended September 30, 2023 and 2022 (amounts in thousands): For the Nine Months Ended September 30, 2023 2022 Change Net cash provided by operating activities $ 623,374 $ 596,788 $ 26,586 Net cash used for investing activities (465,316) (1,267,654) 802,338 Net cash (used for) provided by financing activities (133,371) 736,819 (870,190) Net increase in cash, cash equivalents and restricted cash $ 24,687 $ 65,953 $ (41,266) 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 $26.6 million, or 4.5%, from $596.8 million for the nine months ended September 30, 2022 to $623.4 million for the nine months ended September 30, 2023 primarily due to increased cash inflows generated from higher rental rates and a larger number of occupied properties, partially offset by higher cash outflows for property related expenses as a result of inflationary increases. Investing Activities Net cash used for investing activities decreased $802.3 million, or 63.3%, from $1.3 billion for the nine months ended September 30, 2022 to $465.3 million for the nine months ended September 30, 2023. Our investing activities are most significantly impacted by the level of investment activity 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 decreased $569.8 million during the nine months ended September 30, 2023 primarily due to a strategic scale back in the acquisition of single-family properties through our National Builder Program and traditional acquisition channel during the nine months ended September 30, 2023 as the housing market adjusts to the current macroeconomic environment. Homes acquired through our traditional acquisition channel require additional expenditures to prepare them for rental, and cash outflows for renovations to single-family properties decreased $56.7 million primarily as a result of a decreased volume of properties that underwent initial or property-enhancing renovations during the nine months ended September 30, 2023. 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. We use cash generated from operating and financing activities and by recycling capital through the sale of single-family properties to invest in the strategic expansion of our single-family property portfolio. Net proceeds received from the sale of single-family properties and other increased $221.0 million as a result of an increased volume of properties sold during the nine months ended September 30, 2023. In addition, cash paid for deposits on land option contracts decreased $9.5 million and cash outflows for other investing activities decreased $5.0 million during the nine months ended September 30, 2023. These changes were partially offset by (i) a $33.4 million reduction in collections on notes receivables related to property sales, (ii) a $19.0 million reduction in net cash inflows from unconsolidated joint ventures due to the timing of contributions 43 and distributions to and from our unconsolidated joint ventures, and (iii) a $7.6 million increase in recurring and other capital expenditures for single-family properties primarily due to inflationary increases in costs. Financing Activities Net cash used for financing activities was $133.4 million for the nine months ended September 30, 2023 compared to net cash provided by financing activities of $736.8 million for the nine months ended September 30, 2022. This change of $870.2 million was primarily due to (i) an $868.6 million reduction in proceeds from unsecured senior notes, net of discount and deferred financing costs, (ii) a $262.9 million reduction in proceeds from the issuance of Class A common shares, net of offering costs, (iii) a $60.2 million decrease in proceeds from liabilities related to consolidated land not owned, and (iv) a $57.1 million increase in distributions paid to common share and unit holders resulting from a 22% increase in distributions paid per common share and unit. These changes were partially offset by (i) a $220.0 million reduction in net cash outflows to pay down our revolving credit facility, (ii) a nonrecurring $155.0 million cash outflow for the redemption of the Series F perpetual preferred shares during the nine months ended September 30, 2022 and (iii) a $3.1 million reduction in distributions to preferred shareholders as a result of the redemption of our Series F perpetual preferred shares during the nine months ended September 30, 2022. 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 were accounted for in equity. The Company did not initially receive proceeds from the sale of the Class A common shares offered on a forward basis. During the third quarter of 2022, the Company issued and physically settled 5,000,000 Class A common shares under the January 2022 Forward Sale Agreements, receiving net proceeds of $185.6 million. During the first quarter of 2023, the Company issued and physically settled the remaining 8,000,000 Class A common shares under the January 2022 Forward Sale Agreements, receiving net proceeds of $298.4 million, which it used to repay indebtedness under its revolving credit facility and for general corporate purposes. When the Company issues common shares, the Operating Partnership issues an equivalent number of units of partnership interest of a corresponding class to AMH, with the Operating Partnership receiving the net proceeds from the share issuances. At-the-Market Common Share Offering Program During the second quarter of 2023, the Company entered into a new at-the-market common share offering program, replacing the previously expiring 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 $1.0 billion (the “June 2023 At-the-Market Program”). The June 2023 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 June 2023 At-the-Market Program (i) to repay indebtedness the Company has incurred or expects to incur under its revolving credit facility or other debt obligations under its securitizations, (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 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 June 2023 At-the-Market Program may be suspended or terminated by the Company at any time. As of September 30, 2023, no shares have been issued under the June 2023 At-the-Market Program and $1.0 billion 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 nine months ended September 30, 2023 and 2022, we did not repurchase and retire any of our Class A common shares or preferred shares. As of September 30, 2023, 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. 44 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, 2022, AMH had a net operating loss (“NOL”) for U.S. federal income tax purposes of $11.8 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 nine months ended September 30, 2023 and 2022, the Company distributed an aggregate $283.8 million and $229.9 million, respectively, to common shareholders, preferred shareholders and noncontrolling interests on a cash basis. 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 our single-family property portfolio, (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. 45 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, 2023 and 2022 (amounts in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2023 2022 2023 2022 Net income attributable to common shareholders $ 74,113 $ 50,715 $ 289,607 $ 163,244 Adjustments: Noncontrolling interests in the Operating Partnership 10,493 7,464 41,140 24,119 Gain on sale and impairment of single-family properties and other, net (33,335) (24,197) (180,752) (79,052) Adjustments for unconsolidated joint ventures 812 448 2,380 (122) Depreciation and amortization 114,863 109,319 340,779 313,688 Less: depreciation and amortization of non-real estate assets (4,476) (3,543) (12,902) (9,648) FFO attributable to common share and unit holders (1) $ 162,470 $ 140,206 $ 480,252 $ 412,229 Adjustments: Acquisition, other transaction costs and other 3,399 4,482 12,650 18,114 Noncash share-based compensation - general and administrative 4,160 3,390 13,885 13,352 Noncash share-based compensation - property management 953 1,015 3,151 3,146 Hurricane-related charges, net — 6,133 — 6,133 Redemption of perpetual preferred shares — — — 5,276 Core FFO attributable to common share and unit holders (1) $ 170,982 $ 155,226 $ 509,938 $ 458,250 Recurring Capital Expenditures (23,973) (22,479) (59,079) (49,616) Leasing costs (792) (689) (2,368) (1,868) Adjusted FFO attributable to common share and unit holders (1) $ 146,217 $ 132,058 $ 448,491 $ 406,766 (1) Unit holders include former AH LLC members and other non-affiliates that own Class A units in the Operating Partnership and their OP units are reflected as noncontrolling interests in the Company’s condensed consolidated financial statements. See Note 10. Shareholders’ Equity / Partners’ Capital to our condensed consolidated financial statements included in this report. 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 our single-family property portfolio , 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. 46 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, 2023 and 2022 (amounts in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2023 2022 2023 2022 Net income $ 88,092 $ 61,665 $ 341,205 $ 206,234 Interest expense 34,381 36,254 105,107 98,622 Depreciation and amortization 114,863 109,319 340,779 313,688 EBITDA $ 237,336 $ 207,238 $ 787,091 $ 618,544 Gain on sale and impairment of single-family properties and other, net (33,335) (24,197) (180,752) (79,052) Adjustments for unconsolidated joint ventures 812 448 2,380 (122) EBITDAre $ 204,813 $ 183,489 $ 608,719 $ 539,370 Noncash share-based compensation - general and administrative 4,160 3,390 13,885 13,352 Noncash share-based compensation - property management 953 1,015 3,151 3,146 Acquisition, other transaction costs and other 3,399 4,482 12,650 18,114 Hurricane-related charges, net — 6,133 — 6,133 Adjusted EBITDAre $ 213,325 $ 198,509 $ 638,405 $ 580,115 Recurring Capital Expenditures (23,973) (22,479) (59,079) (49,616) Leasing costs (792) (689) (2,368) (1,868) Fully Adjusted EBITDAre $ 188,560 $ 175,341 $ 576,958 $ 528,631