What changed in this filing

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Item 1A. Risk Factors

2021-02-19 compared with 2020-02-19 · 158 added, 104 removed, 647 unchanged (29% of the section changed)

The risk factors noted in this section and other factors noted throughout this Annual Report on Form 10-K, describe certain risks and uncertainties that could cause our actual results to differ materially from those contained in any forward-looking statement and should be considered carefully in evaluating our company and our business.

Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations.

Moreover, many risk factors set forth in this Annual Report on Form 10-K have been heightened as a result of the impact of the COVID-19 pandemic.

Risks Related to Our Business and Industry

Our business, results of operations, financial condition, and cash flows may be adversely affected by pandemics and outbreaks of infectious disease, particularly the ongoing COVID-19 pandemic.

Pandemics, such as the current COVID-19 pandemic, and outbreaks of infectious disease may adversely impact our business, results of operations, financial condition, and cash flows.

The ongoing COVID-19 outbreak in the United States has led entities directed by, or notionally affiliated with, the Federal government as well as certain states and cities, including those in which we own properties and where our principal places of business are located, to impose and continue to implement measures intended to control the spread of COVID-19, including instituting quarantines, restrictions on travel, “shelter in place” rules, and restrictions on types of business that may continue to operate.

We depend on rental revenues and other property income from residents for substantially all of our revenues.

The COVID-19 outbreak, as well as continuing measures taken by governmental authorities and private actors to limit the spread of this virus or mitigate its impact, are interfering with the ability of some of our residents to meet their lease obligations and make their rent payments on time or at all.

In addition, entities directed by, or notionally affiliated with, the Federal government as well as some state and local jurisdictions across the United States, have imposed temporary eviction moratoriums if certain criteria are met by residents, are allowing residents to defer missed rent payments without incurring late fees, and are prohibiting rent increases.

Jurisdictions and other local and national authorities may expand or extend measures imposing restrictions on our ability to enforce residents’ contractual rental obligations and limiting our ability to increase rents.

While such measures are likely to enable residents to stay in their homes despite an inability to pay because of financial or other hardship stemming from the pandemic, they are likely to continue to result in loss of rental income and other property income.

We cannot predict if states, municipalities, local, and/or national authorities will expand existing restrictions, if additional states or municipalities will implement similar restrictions, or when restrictions currently in place will expire.

Additionally, COVID-19 and related containment measures may also continue to interfere with the ability of our associates, suppliers, and other business partners to carry out their assigned tasks or supply materials, services, or funding (in the case of our Revolving Facility (see definition in Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”)) at ordinary levels of performance relative to the conduct of our business.

Business continuity and disaster recovery issues which may result from the current COVID-19 pandemic or any future pandemic could materially interrupt our business operations.

In accordance with phased re-opening guidelines and the ongoing spread of COVID-19 cases in certain states where we operate, the majority of our associates based at our headquarters and local offices continue working remotely.

An extended period of remote work arrangements could strain our business continuity plans, introduce operational risk, including, but not limited to cybersecurity risks, and impair our ability to manage our business.

A significant outbreak of infectious disease in the human population or pandemic may result, and the COVID-19 pandemic has resulted, in a widespread health crisis adversely affecting the economies and financial markets of many countries, resulting in an economic downturn that could negatively affect our business, results of operations, and financial condition.

The COVID-19 pandemic, or a future pandemic, could also have material and adverse effects on our ability to successfully operate our business and on our financial condition, results of operations and cash flows due to, among other factors:

• demand for single-family rental properties decreasing substantially and/or occupancy decreasing materially;

• inability of our residents to meet their lease obligations has reduced and may continue to reduce our cash flows, and the resulting impact on rental and other property income could impact our ability to make all required debt service payments and to continue paying dividends to our stockholders at expected levels or at all.

For example, our securitized financings require that monthly cash collections from their respective property collateral pools be controlled by the servicer until monthly debt service payments and property management fees are paid and escrow reserves are funded.

So long as we remain in compliance with certain covenants contained in the underlying loan agreements, after such monthly payments are made the servicer releases all residual net cash flow to us.

This residual net cash flow represents a material portion of our cash flows.

If the property collateral pools experience higher rates of resident defaults or delinquencies, these covenants may not be achieved.

This would result in the servicer holding all residual net cash flow from any collateral pool that does not meet the covenant requirements, net of a monthly funding to us for budgeted operating expenses, in blocked collateral accounts for the benefit of the securitized lender rather than being made available to us.

Our lack of access to the net cash flow from securitized collateral pools could have a material adverse effect on our business, results of operations and financial condition;

• a general decline in business activity and demand for real estate transactions could adversely affect (1) our ability to acquire or dispose of single-family homes on terms that are attractive or at all and (2) the value of our homes and our business such that we may recognize impairment on the carrying value of our investments in single-family residential properties and other assets subject to impairment review, including, but not limited to, goodwill;

• difficulty accessing debt and equity capital on attractive terms, or at all, impacts to our credit ratings, and a severe disruption of, and/or instability in, the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations, including acquisitions, or address maturing liabilities on a timely basis;

• the financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of our Credit Facility (see definition in Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”) and other debt agreements and result in a default and potentially an acceleration of indebtedness, which non-compliance could negatively impact our ability to make additional borrowings under our Revolving Facility or to exercise extension options on our mortgage loans and our Credit Facility;

• a deterioration in our ability to operate in affected areas or delays in the supply of products or services by vendors that are needed for our efficient operations;

• the potential negative consequences for the health of our associates, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during this disruption.

The extent to which the COVID-19 pandemic ultimately impacts our operations depends on ongoing developments, which remain highly uncertain and cannot be predicted with confidence, including the scope, severity, and duration of the pandemic, the extent and duration of actions taken to contain the pandemic or mitigate its impact, the availability of an effective vaccine and therapeutic drugs and the effectiveness of the distribution of any such vaccines and therapeutic drugs, and the direct and indirect economic effects of the pandemic, containment measures, monetary and/or fiscal policies implemented to provide support or relief to businesses and/or residents, and other government, regulatory, and/or legislative changes precipitated by the COVID-19 pandemic, among others.

The ongoing development and fluidity of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic.

Nevertheless, the COVID-19 pandemic presents material uncertainty and risk with respect to our financial condition, results of operations, cash flows and performance.

While we have taken steps to mitigate the impact of the pandemic on our results of operations, there can be no assurance that these efforts will be successful.

Our operating results are subject to general economic conditions and risks associated with our real estate assets.

Our operating results are subject to risks generally incident to the ownership and rental of residential real estate, many of which are beyond our control, including, without limitation:

Our operating results are subject to risks generally incident to the ownership and rental of residential real estate, in many cases heightened as a result of the impact of the COVID-19 pandemic (see “— Our business, results of operations, financial condition, and cash flows may be adversely affected by pandemics and outbreaks of infectious disease, particularly the ongoing COVID-19 pandemic”), many of which are beyond our control, including, without limitation:

• changes in national, regional, or local economic, demographic, or real estate market conditions;

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We may not be able to effectively manage our growth, and any failure to do so may have an adverse effect on our business and operating results.

Since commencing operations in 2012, we have grown rapidly, assembling a portfolio of approximately 80,000 homes as of December 31, 2019 .

Since commencing operations in 2012, we have grown rapidly, assembling a portfolio of over 80,000 homes as of December 31, 2020.

Our future operating results may depend on our ability to effectively manage our growth, which is dependent, in part, upon our ability to:

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We recorded net losses in the past and we may experience net losses in the future.

We recorded consolidated net losses for the years ended December 31, 2018 and 2017.

We recorded consolidated net losses for the year ended December 31, 2018.

These net losses were inclusive in each period of significant non-cash charges, consisting primarily of depreciation and amortization expense.

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Our ability to meet our labor needs while controlling our labor costs is subject to numerous external factors, including unemployment levels, prevailing wage rates, changing demographics, and changes in employment legislation.

unable to retain qualified personnel or our labor costs increase significantly, our business operations and our financial performance could be adversely impacted.

If we are unable to retain qualified personnel or our labor costs increase significantly, our business operations and our financial performance could be adversely impacted.

Our investments are and will continue to be concentrated in our markets and in the single-family properties sector of the real estate industry, which exposes us to seasonal fluctuations in rental demand and downturns in our markets or in the single-family properties sector.

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Such seasonal fluctuations may impact our operating results.

The COVID-19 pandemic, or a future pandemic, could also result in demand for single-family rental properties decreasing substantially and/or occupancy decreasing materially.

In addition to general, regional, national, and international economic conditions, our operating performance will be impacted by the economic conditions in our markets.

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However, these markets have experienced substantial economic downturns in recent years and could experience similar or worse economic downturns in the future.

We can provide no assurance as to the extent property values and operating fundamentals in these markets will improve, if at all.

Additionally, a significant outbreak of infectious disease in the human population or pandemic may result, and the COVID-19 pandemic has resulted, in a widespread health crisis adversely affecting the economies and financial markets of many countries, resulting in an economic downturn that could negatively affect our business, results of operations, and financial condition.

See “— Our business, results of operations, financial condition, and cash flows may be adversely affected by pandemics and outbreaks of infectious disease, particularly the ongoing COVID-19 pandemic.” We can provide no assurance as to the extent property values and operating fundamentals in these markets will improve, if at all.

If the recent economic downturn in these markets returns or if we fail to accurately predict the timing of economic improvement in these markets, the value of our properties could decline and our ability to execute our business plan may be adversely affected to a greater extent than if we owned a real estate portfolio that was more geographically diversified, which could adversely affect our financial condition, operating results, and ability to make distributions to our stockholders and cause the value of our common stock to decline.

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Consequently, we routinely retain independent contractors and trade professionals to perform physical repair work and are exposed to all of the risks inherent in property renovation and maintenance, including potential cost overruns, increases in labor and materials costs, delays by contractors in completing work, delays in the timing of receiving necessary work permits, certificates of occupancy, and poor workmanship.

If our assumptions regarding the costs or timing of renovation and maintenance across our properties prove to be materially inaccurate, our operating results and ability to make distributions to our stockholders may be adversely affected.

Additionally, COVID-19 and related containment measures may also continue to interfere with the ability of our associates, suppliers, and other business partners to carry out their assigned tasks or supply materials, services, or funding at ordinary levels of performance relative to the conduct of our business.

See “— Our business, results of operations, financial condition, and cash flows may be adversely affected by pandemics and outbreaks of infectious disease, particularly the ongoing COVID-19 pandemic.” If our assumptions regarding the costs or timing of renovation and maintenance across our properties prove to be materially inaccurate, our operating results and ability to make distributions to our stockholders may be adversely affected.

We face significant competition in the leasing market for quality residents, which may limit our ability to lease our single-family homes on favorable terms.

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Potential competitors may have lower rates of occupancy than we do or may have superior access to capital and other resources, which may result in competing owners more easily locating residents and leasing available housing at lower rental rates than we might offer at our homes.

Many of these competitors may successfully

attract residents with better incentives and amenities, which could adversely affect our ability to obtain quality residents and lease our single-family properties on favorable terms.

Additionally, some competing housing options may qualify for government subsidies that may make such options more accessible and therefore more attractive than our properties.

Many of these competitors may successfully attract residents with better incentives and amenities, which could adversely affect our ability to obtain quality residents and lease our single-family properties on favorable terms.

Additionally, some competing housing options may qualify for

government subsidies that may make such options more accessible and therefore more attractive than our properties.

This competition may affect our ability to attract and retain residents and may reduce the rental rates we are able to charge.

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• tax or other government incentives that encourage homeownership.

Additionally, a general decline in business activity and demand for real estate transactions, resulting from COVID-19 pandemic, could adversely affect our ability to acquire or dispose of single-family homes on terms that are attractive or at all.

We plan to continue acquiring properties as long as we believe such properties offer an attractive total return opportunity.

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Some competitors may have a lower cost of funds and access to funding sources that may not be available to us.

In addition, any potential competitor may have higher risk tolerances or different risk assessments and may not be subject to the operating constraints associated with qualification for taxation as a REIT, which could allow them to consider a wider variety of investments.

of investments.

Competition may result in fewer investments, higher prices, a broadly dispersed portfolio of properties that does not lend itself to efficiencies of concentration, acceptance of greater risk, lower yields and a narrower spread of yields over our financing costs.

In addition, competition for desirable investments could delay the investment of our capital, which

could adversely affect our results of operations and cash flows.

In addition, competition for desirable investments could delay the investment of our capital, which could adversely affect our results of operations and cash flows.

As a result, there can be no assurance that we will be able to identify and finance investments that are consistent with our investment objectives or to achieve positive investment results, and our failure to accomplish any of the foregoing could have a material adverse effect on us and cause the value of our common stock to decline.

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If rent controls unexpectedly became applicable to certain of our properties, our revenue from and the value of such properties could be adversely affected.

In 2019, the state of California passed the Tenant Protection Act of 2019, a rent control law which limits our ability to increase rental rates for existing residents and put into place protections for the terminations of tenancies.

We believe this law will negatively affect our rental income from certain of the 12,461 homes we own in California as of December 31, 2019 .

For example, in 2019, the state of California passed the Tenant Protection Act of 2019, a rent control law which limits our ability to increase rental rates for existing residents and put into place protections for the terminations of tenancies.

We believe this law negatively affects our rental income from certain of the 12,198 homes we own in California as of December 31, 2020.

The COVID-19 pandemic in the United States has led entities directed by, or notionally affiliated with, the Federal government as well as certain states and cities, including those in which we own properties and where our principal places of business are located, to impose and continue to implement measures intended to control the spread of COVID-19, including instituting quarantines, restrictions on travel, “shelter in place” rules, and restrictions on types of business that may continue to operate.

Entities directed by, or notionally affiliated with, the Federal government as well as some state and local jurisdictions across the United States, have imposed temporary eviction moratoriums if certain criteria are met by residents, are allowing residents to defer missed rent payments without incurring late fees, and are prohibiting rent increases.

We may become a target of legal demands, litigation (including class actions), and negative publicity by tenant and consumer rights organizations, which could directly limit and constrain our operations and may result in significant litigation expenses and reputational harm.

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As a result, the application, interpretation, and enforcement of these laws and regulations are often uncertain and may be interpreted and applied inconsistently.

Additionally, as we depend on third parties for key services (see “Our dependence upon third parties for key services may have an adverse effect on our operating results or reputation if the third parties fail to perform”), we rely on such third party service providers’ compliance with laws and regulations regarding privacy, data protection, consumer protection, and other matters relating to our customers.

Additionally, as we depend on third parties for key services (see “— Our dependence upon third parties for key services may have an adverse effect on our operating results or reputation if the third parties fail to perform”), we rely on such third party service providers’

compliance with laws and regulations regarding privacy, data protection, consumer protection, and other matters relating to our customers.

There are a number of legislative proposals at both the federal and state level, as well as other jurisdictions that could impose new obligations in areas affecting our business.

For example, the California Consumer Privacy Act and Nevada Privacy Law, effective in 2020, create new data privacy rights for users, including more ability to control how their data is shared with third parties.

We are subject to numerous, complex, and frequently changing laws, regulations, and contractual obligations designed to protect personal information.

Various federal and state privacy and data security laws, such as the California Consumer Privacy Act and Nevada Privacy Law, or other regulatory standards create data privacy rights for users, including more ability to control how their data is shared with third parties.

These laws and regulations, as well as any associated inquiries or investigations or any other government actions, may be costly to comply with, result in negative publicity, require significant management time and attention, and subject us to remedies that may harm our business, including fines or demands or orders that we modify or cease existing business practices.

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In determining whether a particular property meets our investment criteria, we also make a number of assumptions, including, among other things, assumptions related to estimated time of possession and estimated renovation costs and time frames, annual operating costs, market rental rates and potential rent amounts, time from purchase to leasing, and resident default rates.

These assumptions may prove inaccurate, particularly

since the properties that we acquire vary materially in terms of time to possession, renovation, quality and type of construction, geographic location, and hazards.

These assumptions may prove inaccurate, particularly since the properties that we acquire vary materially in terms of time to possession, renovation, quality and type of construction, geographic location, and hazards.

As a result, we may pay too much for properties we acquire and/or overvalue our properties, or our properties may fail to perform as anticipated.

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Selecting, managing, and supervising these third party service providers requires significant resources and expertise, and because our portfolio consists of geographically dispersed properties, our ability to adequately select, manage, and supervise such third parties may be more limited or subject to greater inefficiencies than if our properties were more geographically concentrated.

We have entered into a three-year contract with a third party vendor to provide certain services for our properties.

We have entered into a multi-year contract with a third party vendor to provide certain services for our properties.

Because of the large volume of services under this contract, only a limited number of companies are capable of servicing our needs on this scale.

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A failure in the systems of one of our third party service providers, or their inability to perform in accordance with the terms of our contracts or to retain sufficient qualified personnel, could have a material adverse effect on our business, results of operations, and financial condition.

Additionally, COVID-19 and related containment measures may also continue to interfere with the ability of our associates, suppliers, and other business partners to carry out their assigned tasks or supply materials, services, or funding at ordinary levels of performance relative to the conduct of our business.

Notwithstanding our efforts to implement and enforce strong policies and practices regarding service providers, we may not successfully detect and prevent fraud, misconduct, incompetence, or theft by our third party service providers.

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Allegations of deficiencies in auction practices could result in claims challenging the validity of some auctions, potentially placing our claim of ownership to the properties at risk.

Since we may not have obtained title insurance policies

for properties we acquired through the auction process, such instances or such proceedings may result in a complete loss without compensation.

Since we may not have obtained title insurance policies for properties we acquired through the auction process, such instances or such proceedings may result in a complete loss without compensation.

Title defects could lead to material losses on our investments in our properties.

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This lack of title knowledge and insurance protection may result in third parties having claims against our title to such properties that may materially and adversely affect the values of the properties or call into question the validity of our title to such properties.

Without title insurance, we are fully exposed to, and would have to defend ourselves against, such claims.

Without title insurance, we

are fully exposed to, and would have to defend ourselves against, such claims.

Further, if any such claims are superior to our title to the property we acquired, we risk loss of the property purchased.

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In addition, financial and other information provided to us regarding such portfolios during our due diligence may be inaccurate, and we may not discover such inaccuracies until it is too late to seek remedies against such sellers.

To the extent we pursue such remedies, we may not be able to successfully prevail against the seller in an action seeking damages for such

inaccuracies.

To the extent we pursue such remedies, we may not be able to successfully prevail against the seller in an action seeking damages for such inaccuracies.

If we conclude that certain individual properties purchased in bulk portfolio sales do not fit our target investment criteria, we may decide to sell, rather than renovate and lease, such properties, which could take an extended period of time and may not result in a sale at an attractive price.

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As a result, the total amount of costs and expenses that we may incur with respect to liabilities associated with acquired properties and entities may exceed our expectations, which may adversely affect our operating results and financial condition.

Additionally, such properties may be subject to covenants, conditions, or restrictions that restrict the use or ownership of such properties, including prohibitions on leasing.

Additionally, such properties may be

subject to covenants, conditions, or restrictions that restrict the use or ownership of such properties, including prohibitions on leasing.

We may not discover such restrictions during the acquisition process and such restrictions may adversely affect our ability to operate such properties as we intend.

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We may be unaware of or unable to review or comply with HOA rules before purchasing a property, and any such excessively restrictive or arbitrary regulations may cause us to sell such property at a loss, prevent us from leasing such property, or otherwise reduce our cash flow from such property, which would have an adverse effect on our returns on these properties.

Several states have enacted laws that provide that a

lien for unpaid monies owed to an HOA may be senior to or extinguish mortgage liens on properties.

Several states have enacted laws that provide that a lien for unpaid monies owed to an HOA may be senior to or extinguish mortgage liens on properties.

Such actions, if not cured, may give rise to events of default under certain of our indebtedness, which could have a material adverse impact on us.

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Even if we are able to place residents as quickly as we had expected, we may incur vacancies in the future and may not be able to re-lease those properties without longer than assumed delays, which may result in increased renovation and maintenance costs and opportunity costs from lost revenues.

The COVID-19 pandemic, or a future pandemic, could negatively affect the ability of our residents to meet their lease obligations resulting in an increased number of residents not renewing their leases.

We may not be able to promptly re-lease properties that are vacant or become vacant because residents decide not to renew their leases or for other reasons, and the rental rates or other terms under new leases may be less favorable than the terms of the current leases.

Vacant homes may also be at risk for fraudulent activity which could impact our ability to lease a home.

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Even though this information is not updated, we will use it to evaluate the characteristics of our portfolio over time.

If resident-supplied information is inaccurate or our residents’ creditworthiness

declines over time, we may make poor or imperfect leasing decisions and our portfolio may contain more risk than we believe.

If resident-supplied information is inaccurate or our residents’ creditworthiness declines over time, we may make poor or imperfect leasing decisions and our portfolio may contain more risk than we believe.

We depend on our residents and their willingness to meet their lease obligations and renew their leases for substantially all of our revenues.

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Our reputation, financial performance, and ability to make distributions to our stockholders would be adversely affected if a significant number of our residents fail to meet their lease obligations or fail to renew their leases.

For example, residents may default on rent payments, make unreasonable and repeated demands for service or improvements, make unsupported or unjustified complaints to regulatory or political authorities, use our properties for illegal purposes, damage or make unauthorized structural changes to our properties that are not covered by security deposits, refuse to leave the property upon termination of the lease, engage in domestic violence or similar disturbances, disturb nearby residents with noise, trash, odors, or eyesores, fail to comply with HOA regulations, sublet to less desirable individuals in violation of our lease, or permit unauthorized persons to live with them.

properties that are not covered by security deposits, refuse to leave the property upon termination of the lease, engage in domestic violence or similar disturbances, disturb nearby residents with noise, trash, odors, or eyesores, fail to comply with HOA regulations, sublet to less desirable individuals in violation of our lease, or permit unauthorized persons to live with them.

Additionally, the COVID-19 outbreak, as well as continuing measures taken by governmental authorities and private actors to limit the spread of this virus or mitigate its impact, are interfering with the ability of some of our residents to meet their lease obligations and make their rent payments on time or at all.

Furthermore, entities directed by, or notionally affiliated with, the Federal government as well as some state and local jurisdictions across the United States, have imposed temporary eviction moratoriums if certain criteria are met by residents, are allowing residents to defer missed rent payments without incurring late fees, and are prohibiting rent increases.

Damage to our properties may delay re-leasing after eviction, necessitate expensive repairs, or impair the rental income or value of the property resulting in a lower than expected rate of return.

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The success of our business model depends, in part, on conditions in the single-family rental market in which we operate.

Our investment strategy is based on assumptions about occupancy levels, rental rates, interest rates, and other factors;

One of the direct impacts on our results of operations and key operating metrics is a decrease in gross rental revenues and other property income (before concessions and bad debt) due to the restrictions on rent increases imposed in certain jurisdictions in response to the COVID-19 pandemic.

The COVID-19 pandemic, or a future pandemic, could also have material and adverse effect on demand for single-family rental properties and/or occupancy levels.

See “— Our business, results of operations, financial condition, and cash flows may be adversely affected by pandemics and outbreaks of infectious disease, particularly the ongoing COVID-19 pandemic.” Our investment strategy is based on assumptions about occupancy levels, rental rates, interest rates, and other factors;

and if those assumptions prove to be inaccurate, our cash flows and profitability may be reduced.

Recent strengthening of the United States economy and job growth, coupled with government programs designed to keep homeowners in their homes, and/or other factors may contribute to an increase in homeownership rather than renting.

Multiple economic and demographic factors may contribute to increases or decreases in homeownership rates resulting in fluctuating rental rates and average occupancy levels.

In addition, we expect that as investors like us increasingly seek to capitalize on opportunities to purchase housing assets and convert them to productive uses, the supply of single-family rental properties will decrease, which may increase competition for residents, limit our strategic opportunities, and increase the cost to acquire those properties.

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Even if we do not determine that it is necessary or appropriate to record an impairment loss, a reduction in the intrinsic value of a property would become manifest over time through reduced income from the property and would therefore affect our earnings and financial condition.

The COVID-19 pandemic, or a future pandemic, could also lead to a general decline in business activity and demand for real estate transactions could adversely affect the value of our homes and our business such that we may recognize impairment on the carrying value of our investments in single-family residential properties and other assets subject to impairment review, including, but not limited to, goodwill.

We are highly dependent on information systems, and systems failures could significantly disrupt our business, which may, in turn, negatively affect us and the value of our common stock.

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The secure processing and maintenance of such information is critical to our operations and business strategy.

Despite our security measures, our information technology and infrastructure are subject and may be vulnerable to attacks by malicious third parties or breached due to employee error, malfeasance, or other disruptions.

Despite our security measures, our information

technology and infrastructure are subject and may be vulnerable to attacks by malicious third parties or breached due to employee error, malfeasance, or other disruptions.

Due to the nature of some of the attacks, there is a risk that they may remain undetected for a period of time.

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Any such breach could compromise our networks and the information stored therein could be accessed, publicly disclosed, misused, lost, or stolen.

Any such access, disclosure or other loss of information could result in legal claims or proceedings, misstated or unreliable

financial data, liability under laws that protect the privacy of personal information, regulatory penalties, disruption to our operations and the services we provide to customers, or damage our reputation, any of which could adversely affect our results of operations, reputation, and competitive position.

Any such access, disclosure or other loss of information could result in legal claims or proceedings, misstated or unreliable financial data, liability under laws that protect the privacy of personal information, regulatory penalties, disruption to our operations and the services we provide to customers, or damage our reputation, any of which could adversely affect our results of operations, reputation, and competitive position.

We maintain cyber liability insurance;

however, this insurance may not be sufficient to cover the financial, legal, business, or reputational losses that may result from an interruption or breach of our systems.

Business continuity and disaster recovery issues which may result from the current COVID-19 pandemic or any future pandemic could materially interrupt our business operations.

Our participation in joint venture investments may limit our ability to invest in certain markets, and we may be adversely affected by our lack of sole decision-making authority, our reliance on joint venture partners’ financial condition, and disputes between us and our joint venture partners.

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In such an event, the value of the affected properties would be reduced by the amount of any such uninsured loss, and we could experience a significant loss of capital invested and potential revenues in such properties and could potentially remain obligated under any recourse debt associated with such properties.

Inflation, changes in building codes and ordinances, environmental considerations, and other factors might also keep us from using insurance proceeds to replace or

renovate a particular property after it has been damaged or destroyed.

Inflation, changes in building codes and ordinances, environmental considerations, and other factors might also keep us from using insurance proceeds to replace or renovate a particular property after it has been damaged or destroyed.

Under those circumstances, the insurance proceeds we receive might be inadequate to restore our economic position in the damaged or destroyed property.

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We have in the past and may in the future incur losses arising from natural disasters or severe weather.

For example, uninsured losses and damages related to Hurricanes Irma and Harvey totaled $8.0 million and $21.5 million for the years ended December 31, 2018 and 2017 , respectively.

For example, uninsured losses and damages related to Hurricanes Irma and Harvey totaled $8.0 million for the year ended December 31, 2018.

Climate change may adversely affect our business.

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Our ability to sell our properties may also be limited by our need to avoid the 100% prohibited transactions tax that is imposed on gain recognized by a REIT from the sale of property characterized as dealer property.

For example, we may be required to hold our properties for a minimum period of time and comply with certain other requirements in the Internal

Revenue Code of 1986, as amended (the “Code”), or dispose of our properties through a taxable REIT subsidiary (“TRS”), in which case we will incur corporate level tax on any net gains from such dispositions.

For example, we may be required to hold our properties for a minimum period of time and comply with certain other requirements in the Internal Revenue Code of 1986, as amended (the “Code”), or dispose of our properties through a taxable REIT subsidiary (“TRS”), in which case we will incur corporate level tax on any net gains from such dispositions.

The COVID-19 pandemic, or a future pandemic, could also have material and adverse effects on our ability to sell our properties.

We are subject to increasing scrutiny from investors with respect to the social and environmental impact of our business, which may adversely impact our business and ability to raise capital from such investors.

In recent years, certain investors have placed increasing importance on the implications of our business with respect to environmental, social, and governance (“ESG”) matters.

In recent years, certain investors have placed increasing importance on the implications of our business with respect to ESG matters.

Investors’ increased focus and activism related to ESG and similar matters may constrain our business operations.

In addition, investors may decide to refrain from investing in us as a result of their assessment of our approach to and consideration of the ESG factors.

We may have failed to uncover all liabilities of Legacy SWH business through the due diligence process prior to the Mergers, exposing us to potentially large, unanticipated costs.

Prior to completing the Mergers, we performed certain due diligence reviews of the Legacy SWH business.

In view of timing and other considerations relevant to successfully achieving the closing of the Mergers, our due diligence reviews were necessarily limited in nature and may not adequately have uncovered all of the contingent or undisclosed liabilities we may incur as a consequence of the Mergers.

Any such liabilities could cause us to experience potentially significant losses, which could materially adversely affect our business, results of operations and financial condition.

Risks Related to Our Indebtedness

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Any of these risks could place strains on our cash flows, reduce our ability to grow, and adversely affect our results of operations.

The COVID-19 pandemic, or a future pandemic, could have material and adverse effect on our residents’ ability to meet their lease obligations thereby reducing our cash flows, and the resulting impact on rental and other property income could impact our ability to make all required debt service payments and to continue paying dividends to our stockholders at expected levels or at all.

We utilize a significant amount of indebtedness in the operation of our business.

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Investment returns on our assets and our ability to make acquisitions could be adversely affected by our inability to secure financing on reasonable terms, if at all.

The COVID-19 pandemic, or a future pandemic, could result in difficulty accessing debt and equity capital on attractive terms, or at all, have material and adverse impacts to our credit ratings, and lead to a severe disruption of, and/or instability in, the global financial markets or deteriorations in credit and financing conditions, which may affect our access to capital necessary to fund business operations, including acquisitions, or address maturing liabilities on a timely basis.

Secured indebtedness exposes us to the possibility of foreclosure on our ownership interests in our rental homes.

Incurring mortgage and other secured indebtedness increases our risk of loss of our ownership interests in our rental homes because defaults thereunder, and/or the inability to refinance such indebtedness, may result in foreclosure action initiated by lenders.

Incurring secured mortgage indebtedness increases our risk of loss of our ownership interests in our rental homes because defaults thereunder, and/or the inability to refinance such indebtedness, may result in foreclosure action initiated by lenders.

For tax purposes, a foreclosure of any of our rental homes would be treated as a sale of the home for a purchase price equal to the outstanding balance of the indebtedness secured by such rental home.

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For example, our mortgage loans and Secured Term Loan (see definition in Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”) require, among other things, that a cash management account controlled by the lender collect all rents and cash generated by the properties

securing the portfolio.

Upon the occurrence of an event of default or failure to satisfy the required minimum debt yield or debt service coverage ratio, the lender may apply any excess cash in such cash management account as the lender elects, including prepayment of principal and amounts due under the loans.

The financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of our Credit Facility and other debt agreements and result in a default and potentially an acceleration of indebtedness, which non-compliance could negatively impact our ability to make additional borrowings under our Revolving Facility or to exercise extension options on our mortgage loans and our Credit Facility.

These covenants may restrict our ability to engage in transactions that we believe would otherwise be in the best interests of our stockholders.

Further, such restrictions could make it difficult for us to satisfy the requirements necessary to maintain our qualification as a REIT for United States federal income tax purposes.

We have and expect to continue to utilize non-recourse long-term mortgage loans, and such structures may expose us to certain risks not prevalent in other debt fina ncings, which could affect the availability and attractiveness of this financing option or otherwise result in losses to us.

We have and expect to continue to utilize non-recourse long-term mortgage loans, and such structures may expose us to certain risks not prevalent in other debt financings, which could affect the availability and attractiveness of this financing option or otherwise result in losses to us.

We have and expect to continue to utilize non-recourse long-term mortgage loans relating to pools of homes which we own, if and when they become available and to the extent consistent with the maintenance of our REIT qualification, in order to generate cash for funding new investments.

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Moreover, we cannot be assured that we will be able to access the securitization market in the future, or be able to do so at favorable rates.

The global economy recently experienced a significant recession and recent events in the real estate and securitization markets, as well as the debt markets and the economy generally, have caused significant dislocations, illiquidity, and volatility in the market for asset-backed securities and mortgage-backed securities, as well as a severe, ongoing disruption in the wider global financial markets, including a significant reduction of investor demand for, and purchases of, asset-backed securities and structured financial products.

significant reduction of investor demand for, and purchases of, asset-backed securities and structured financial products.

Disruptions of the securitization market could preclude our ability to use mortgage loans as a financing source or could render it an inefficient source of financing, making us more dependent on alternative sourcing of financing that might not be as favorable as mortgage loans in otherwise favorable markets.

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A default under the 2022 Convertible Notes indenture or the fundamental change itself could also lead to a default under agreements governing our existing and future indebtedness.

If the repayment of the related indebtedness were to be

accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the 2022 Convertible Notes or make cash payments thereon.

If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the 2022 Convertible Notes or make cash payments thereon.

The conditional conversion feature of the 2022 Convertible Notes, if triggered, may adversely affect our financial condition and operating results.

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The adjustment is treated like a discount for accounting purposes and is amortized into interest expense over the term of the 2022 Convertible Notes using an effective interest method.

As a result, we will initially be required to record a greater amount of non-cash interest expense because of the amortization of fair value adjustment to the 2022 Convertible Notes’ face amount over the term of the 2022 Convertible Notes.

As a result, we will initially be required to record a greater amount of non-cash interest expense because of the amortization of fair value

adjustment to the 2022 Convertible Notes’ face amount over the term of the 2022 Convertible Notes.

Accordingly, we will report lower net income in our financial results because of the recognition of both the current period’s amortization of the fair value adjustment and the 2022 Convertible Notes’ coupon interest, which could adversely affect our reported or future financial results, the trading price of our common stock, and the trading price of the 2022 Convertible Notes.

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After giving effect to our interest rate swap agreements (see Part II.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for more information), each 100 bps change in interest rates on our floating rate indebtedness would result in a $2.5 million change in annual interest expense.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for more information), each 100 bps increase or decrease on our floating rate indebtedness would result in an estimated increase of $5.7 million or $15.8 million, respectively, in annual interest expense.

A 100 bps decrease in the London Interbank Offered Rate (“LIBOR”) results in a negative LIBOR rate and additional interest expense for us.

Our variable rate loan agreements contain LIBOR floors, and there is no reciprocal feature in our interest rate swap agreements.

In connection with our debt instruments, we have obtained interest rate caps and swaps, and subject to complying with the requirements for REIT qualification, we may obtain in the future one or more additional forms of interest rate protection (in the form of swap agreements, interest rate cap contracts, or similar agreements) to hedge against the possible negative effects of interest rate fluctuations.

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See “Risks Related to our REIT Status and Certain Other Tax Items — Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.”

Expected phasing out of LIBOR after 2021 may adversely affect the capital markets and our ability to raise capital.

Expected phasing out of LIBOR may adversely affect the capital markets and our ability to raise capital.

When LIBOR is discontinued, our variable rate debt agreements and financial instruments may be calculated using another base rate.

As of December 31, 2019 , we had outstanding $6,770.9 million of variable rate debt for which maturities extend past 2021 (assuming all extensions are exercised) that references the London Interbank Offered Rate (“LIBOR”) as the benchmark rate to determine the applicable interest rate or payment amount.

On November 30, 2020, the Financial Conduct Authority of the United Kingdom (the “FCA”), which has statutory powers to require panel banks to contribute to LIBOR, announced that subject to confirmation following its consultation with the administrator of LIBOR, it would cease publication of the one-week and two-month USD LIBOR immediately after December 31, 2021 and cease publication of the remaining tenors immediately after June 30, 2023.

As of December 31, 2020, we had $6,337.3 million of variable rate debt outstanding that references one month LIBOR as the benchmark rate to determine the applicable interest rate or payment amount and for which maturities extend past 2021 (assuming all extensions are exercised).

If LIBOR is discontinued after 2021 as expected, there will be uncertainty or differences in the calculation of the applicable interest rate or payment amount, depending on the terms of the agreement, and significant management time and attention may be required to transition to using the new benchmark rates and to implement necessary changes to our financial models.

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Additionally, debt holders or governing bodies may decide to transition to a successor rate prior to the expected LIBOR phase-out date.

Risks Related to Our Organization and Structure

If we are unable to maintain effective internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of our common stock may be negatively affected.

As a public company, we are subject to the requirements of the Sarbanes-Oxley Act of 2002, particularly Section 404, and the applicable SEC rules and regulations that require an annual report of our management on our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act).

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports in a timely manner.

If we identify material weaknesses in our internal controls over financial reporting, or if we are unable to assert that our internal controls over financial reporting are effective, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the New York Stock Exchange (“NYSE”), the SEC, or other regulatory authorities, which could require additional financial and management resources.

Risks Related to Our Organization, Structure, and Ownership of Our Common Stock

Provisions of Maryland law may limit the ability of a third party to acquire control of us by requiring our board of directors or stockholders to approve proposals to acquire our company or effect a change in control.

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In addition, pursuant to a provision in our bylaws, we opted out of the control share provisions of the MGCL.

Provisions of our bylaws will prohibit our board of directors from revoking, altering, or amending its resolution exempting any business combination from the business combination provisions of the MGCL or amending our bylaws to opt in to the control share provisions of the MGCL, in each case, without the affirmative vote of a majority of the votes cast on the matter by our stockholders entitled to vote generally in the election of directors.

case, without the affirmative vote of a majority of the votes cast on the matter by our stockholders entitled to vote generally in the election of directors.

In addition, the “unsolicited takeover” provisions of Title 3, Subtitle 8 of the MGCL permit our board of directors, without stockholder approval and regardless of what is provided in our charter or bylaws, to implement certain takeover defenses, including adopting a classified board or increasing the vote required to remove a director.

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In either case, and in other cases, our obligations under the 2022 Convertible Notes and the indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management.

Our board of directors may change significant corporate policies without stockholder approval.

Our investment, financing, borrowing, and dividend policies and our policies with respect to all other activities, including growth, debt, capitalization, and operations, are determined by our board of directors.

These policies may be amended or revised at any time and from time to time at the discretion of our board of directors without a vote of our stockholders.

Our charter also provides that our board of directors may revoke or otherwise terminate our REIT election without approval of our stockholders if it determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT.

In addition, our board of directors may change our policies with respect to conflicts of interest provided that such changes are consistent with applicable legal requirements.

A change in these policies or the termination of our REIT election could have an adverse effect on our financial condition, our results of operations, our cash flow, the per share trading price of our common stock, and our ability to satisfy our debt service obligations and to pay dividends to our stockholders.

Our rights and the rights of our stockholders to take action against our directors and officers are limited.

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These provisions may limit our ability to pursue business or investment opportunities that we might otherwise have had the opportunity to pursue, which could have an adverse effect on our financial condition, our results of operations, our cash flow, the per share trading price of our common stock, and our ability to satisfy our debt service obligations and to pay dividends to our stockholders.

The cash available for distribution to stockholders may not be sufficient to pay dividends at expected levels, nor can we assure you of our ability to make distributions in the future.

We may use borrowed funds to make distributions.

We have elected to qualify as a REIT for United States federal income tax purposes.

The Code generally requires that a REIT annually distribute at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain, and imposes tax on any REIT taxable income retained by a REIT, including capital gains.

We anticipate making quarterly distributions to our stockholders.

We expect that the cash required to fund our dividends will be covered by cash generated by operations.

However, our ability to make distributions to our stockholders will depend upon the performance of our asset portfolio.

If our operations do not generate sufficient cash flow to allow us to satisfy the REIT distribution requirements, we may be required to fund distributions from working capital, borrow funds, raise additional equity capital, sell assets, or reduce such distributions.

If such cash available for distribution decreases in future periods from expected levels, our inability to make the expected distributions could result in a decrease in the market price of our common stock.

In addition, our charter allows us to issue preferred stock that could have a preference over our common stock as to distributions.

covenants, contractual prohibitions or other limitations, and applicable law and such other matters as our board of directors may deem relevant from time to time.

We may not be able to make distributions in the future.

In addition, some of our distributions may include a return of capital.

To the extent that we decide to make distributions in excess of our current and accumulated earnings and profits, such distributions would generally be considered a return of capital for United States federal income tax purposes to the extent of the holder’s adjusted tax basis in their stock.

A return of capital is not taxable, but it has the effect of reducing the holder’s adjusted tax basis in its investment.

To the extent that distributions exceed the adjusted tax basis of a holder’s stock, they will be treated as gain from the sale or exchange of such stock.

If we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been.

Risks Related to our REIT Status and Certain Other Tax Items

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As part of our pre-IPO reorganization transactions, we acquired certain appreciated assets that were held (directly or indirectly) in part by one or more C corporations in transactions in which the adjusted tax basis of the assets in our hands is determined by reference to the adjusted basis of such assets in the hands of such C corporations.

If we dispose of any such appreciated assets during the five-year period following the date we acquired those assets, we will be subject to United States

federal income tax on the portion of such gain attributable to such C corporations at the highest corporate tax rates to the extent of the excess of the fair market value of such assets on the date that we acquired those assets over the adjusted tax basis of such assets on such date, which are referred to as built-in gains.

If we dispose of any such appreciated assets during the five-year period following the date we acquired those assets, we will be subject to United States federal income tax on the portion of such gain attributable to such C corporations at the highest corporate tax rates to the extent of the excess of the fair market value of such assets on the date that we acquired those assets over the adjusted tax basis of such assets on such date, which are referred to as built-in gains.

We would be subject to this tax liability even if we qualify and maintain our status as a REIT.

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If a United States stockholder sells the stock that it receives as part of the distribution in order to pay this tax, the sales proceeds may be less than the amount it must include in income with respect to the distribution, depending on the market price of our stock at the time of the sale.

Furthermore, with respect to certain non-United States holders, we may be required to withhold United States tax with respect to such

distribution, including in respect of all or a portion of such distribution that is payable in stock, by withholding or disposing of part of the stock included in such distribution and using the proceeds of such disposition to satisfy the withholding tax imposed.

Furthermore, with respect to certain non-United States holders, we may be required to withhold United States tax with respect to such distribution, including in respect of all or a portion of such distribution that is payable in stock, by withholding or disposing of part of the stock included in such distribution and using the proceeds of such disposition to satisfy the withholding tax imposed.

In addition, if a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividend income, such sale may put downward pressure on the market price of our common stock.

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For example, the recently enacted Tax Cuts and Jobs Act (“TCJA”) has resulted in fundamental changes to the Code.

Among the numerous changes included in the TCJA is a deduction of 20% of ordinary REIT dividends for non-corporate taxpayers for tax years beginning on or after January 1, 2018 through 2025.

numerous changes included in the TCJA is a deduction of 20% of ordinary REIT dividends for non-corporate taxpayers for tax years beginning on or after January 1, 2018 through 2025.

We cannot assure you that the TCJA or any such changes in the future will not adversely affect the taxation of a stockholder.

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Finally, the amount of our REIT taxable income could be recalculated, which might cause us to fail to meet the distribution requirement for a taxable year and require us to pay deficiency dividends, interest, and penalty taxes in order to maintain REIT status.

Risks Related to Ownership of Our Common Stock

The cash available for distribution to stockholders may not be sufficient to pay dividends at expected levels, nor can we assure you of our ability to make distributions in the future.

We may use borrowed funds to make distributions.

We have elected to qualify as a REIT for United States federal income tax purposes.

We anticipate making quarterly distributions to our stockholders.

We expect that the cash required to fund our dividends will be covered by cash generated by operations.

However, our ability to make distributions to our stockholders will depend upon the performance of our asset portfolio.

In addition, our charter allows us to issue preferred stock that could have a preference over our

common stock as to distributions.

All distributions will be made at the sole discretion of our board of directors and will depend upon a number of factors, including our actual and projected results of operations, financial condition, cash flows and liquidity, maintenance of our REIT qualification and other tax considerations, capital expenditure and other obligations, debt covenants, contractual prohibitions or other limitations, and applicable law and such other matters as our board of directors may deem relevant from time to time.

We may not be able to make distributions in the future.

In addition, some of our distributions may include a return of capital.

A return of capital is not taxable, but it has the effect of reducing the holder’s adjusted tax basis in its investment.

To the extent that distributions exceed the adjusted tax basis of a holder’s stock, they will be treated as gain from the sale or exchange of such stock.

If we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been.

The market price of our common stock could be adversely affected by market conditions and by our actual and expected future earnings and level of cash dividends.

Securities markets worldwide experience significant price and volume fluctuations.

This market volatility, as well as general economic, market, or political conditions, could reduce the market price of stock without regard to our operating performance.

For example, the trading prices of equity securities issued by REITs have historically been affected by changes in market interest rates.

One of the factors that may influence the market price of our common stock is the annual yield from distributions on our common stock as compared to yields on other financial instruments.

An increase in market interest rates, or a decrease in our distributions to stockholders, may lead prospective purchasers of shares of our common stock to demand a higher distribution rate or seek alternative investments.

As a result, if interest rates rise, it is possible that the market price of our common stock will decrease as market rates on interest-bearing securities increase.

In addition, our operating results could be below the expectations of public market analysts and investors, and in response the market price of our stock could decrease significantly.

The market value of the equity securities of a REIT is also based upon the market’s perception of the REIT’s growth potential and its current and potential future cash distributions, whether from operations, sales, or refinancings, and is secondarily based upon the real estate market value of the underlying assets.

For that reason, our common stock may trade at prices that are higher or lower than our net asset value per share of stock.

To the extent we retain operating cash flow for investment purposes, working capital reserves, or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our common stock.

Our failure to meet the market’s expectations with regard to future earnings and cash distributions likely would adversely affect the market price of our common stock.

UNRESOLVED STAFF COMMENTS

Our headquarters are located in Dallas, Texas at 1717 Main Street.

The information required by this Item is included in a separate section in this Annual Report on Form 10-K.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Our Portfolio,” which is incorporated herein by reference.

LEGAL PROCEEDINGS

The Company currently is not subject to any material litigation nor, to management’s knowledge, is any material litigation currently threatened against the Company other than routine litigation and administrative proceedings arising in the ordinary course of business.

MINE SAFETY DISCLOSURES

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors