Edgar Filing: American Homes 4 Rent

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

COMMISSION FILE NUMBER 001-36013

AMERICAN HOMES 4 RENT

(Exact name of registrant as specified in its charter)

Maryland		46-1229660
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

30601 Agoura Road, Suite 200

Agoura Hills, California 91301

(Address of principal executive offices) (Zip Code)

(805) 413-5300

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

There were 210,852,089 Class A common shares of beneficial interest, $0.01 par value per share, and 635,075 Class B common shares of beneficial interest, $0.01 par value per share, outstanding on August 5, 2015.

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American Homes 4 Rent

Form 10-Q

INDEX

		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	29

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults Upon Senior Securities	30

Item 4.	Mine Safety Disclosures	30

Item 5.	Other Information	30

Item 6.	Exhibits	30

	Signatures	31

	Exhibit Index

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Various statements contained in this Quarterly Report on Form 10-Q of American Homes 4 Rent (the “Company,” “we,” “our” and “us”), including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. These forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future revenues, income and capital spending. Our forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “intend,” “anticipate,” “potential,” “plan,” “goal” or other words that convey the uncertainty of future events or outcomes. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors, including those discussed or incorporated by reference under Part II, Item 1A.”Risk Factors”, Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements.

While forward-looking statements reflect our good faith beliefs, assumptions and expectations, they are not guarantees of future performance, and you should not unduly rely on them. The forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date of this report. We are not obligated to update or revise these statements as a result of new information, future events or otherwise, unless required by applicable law.

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PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

American Homes 4 Rent

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share and per share data)

	June 30, 2015			December 31, 2014
	(Unaudited)
Assets
Single-family properties:
Land	$	1,192,335		$	1,104,409
Buildings and improvements	5,263,599			4,808,706
Single-family properties held for sale	6,387			3,818
	6,462,321			5,916,933
Less: accumulated depreciation	(300,173		)	(206,262		)
Single-family properties, net	6,162,148			5,710,671
Cash and cash equivalents	90,657			108,787
Restricted cash	94,837			77,198
Rent and other receivables, net	12,184			11,009
Escrow deposits, prepaid expenses and other assets	118,516			118,783
Deferred costs and other intangibles, net	62,299			54,582
Asset-backed securitization certificates	25,666			25,666
Goodwill	120,655			120,655
Total assets	$	6,686,962		$	6,227,351

Liabilities
Credit facility	$	177,000		$	207,000
Asset-backed securitizations	2,063,663			1,519,390
Secured note payable	51,200			51,644
Accounts payable and accrued expenses	158,037			149,706
Amounts payable to affiliates	1,863			—
Contingently convertible Series E units liability	68,076			72,057
Preferred shares derivative liability	57,260			57,960
Total liabilities	2,577,099			2,057,757

Commitments and contingencies

Equity
Shareholders’ equity:
Class A common shares, $0.01 par value per share, 450,000,000 shares authorized, 210,852,089 and 210,838,831 shares issued and outstanding at June 30, 2015, and December 31, 2014, respectively	2,108			2,108
Class B common shares, $0.01 par value per share, 50,000,000 shares authorized, 635,075 shares issued and outstanding at June 30, 2015, and December 31, 2014	6			6
Preferred shares, $0.01 par value per share, 100,000,000 shares authorized, 17,060,000 issued and outstanding at June 30, 2015, and December 31, 2014	171			171
Additional paid-in capital	3,619,503			3,618,207
Accumulated deficit	(226,797		)	(170,162		)
Accumulated other comprehensive loss	(199		)	(229		)
Total shareholders’ equity	3,394,792			3,450,101

Noncontrolling interest	715,071			719,493
Total equity	4,109,863			4,169,594

Total liabilities and equity	$	6,686,962		$	6,227,351

The accompanying notes are an integral part of these condensed consolidated financial statements.

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American Homes 4 Rent

Condensed Consolidated Statements of Operations

(Amounts in thousands, except share and per share data)

(Unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Revenues:
Rents from single-family properties	$	137,818		$	88,871		$	258,498		$	162,632
Fees from single-family properties	2,204			1,889			3,535			3,247
Tenant charge-backs	11,962			3,138			20,334			5,028
Other	1,644			406			3,009			675
Total revenues	153,628			94,304			285,376			171,582

Expenses:
Property operating expenses
Leased single-family properties	67,823			37,299			121,753			66,565
Vacant single-family properties and other	4,456			5,842			10,428			14,885
General and administrative expense	6,276			5,703			12,407			10,777
Interest expense	22,003			3,888			37,673			5,390
Noncash share-based compensation expense	734			612			1,430			1,144
Acquisition fees and costs expensed	4,236			919			10,144			1,371
Depreciation and amortization	59,221			38,325			112,885			73,456
Total expenses	164,749			92,588			306,720			173,588

Remeasurement of Series E units	2,143			(4,944		)	3,981			(7,700		)
Remeasurement of preferred shares	580			(141		)	700			(598		)

Net loss	(8,398		)	(3,369		)	(16,663		)	(10,304		)

Noncontrolling interest	3,730			4,212			7,686			7,832
Dividends on preferred shares	5,569			4,669			11,138			7,790

Net loss attributable to common shareholders	$	(17,697	)	$	(12,250	)	$	(35,487	)	$	(25,926	)

Weighted-average shares outstanding—basic and diluted	211,487,164			185,515,651			211,484,461			185,510,004

Net loss attributable to common shareholders per
share—basic and diluted	$	(0.08	)	$	(0.07	)	$	(0.17	)	$	(0.14	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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American Homes 4 Rent

Condensed Consolidated Statements of Comprehensive Income

(Amounts in thousands)

(Unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Net loss	$	(8,398	)	$	(3,369	)	$	(16,663	)	$	(10,304	)
Other comprehensive income (loss):
Unrealized gain (loss) on interest rate cap agreement:
Unrealized interest rate cap agreement gain (loss) arising during the period	30			(212		)	30			(212		)
Unrealized gain (loss) on interest rate cap agreement	30			(212		)	30			(212		)

Other comprehensive income (loss)	30			(212		)	30			(212		)
Comprehensive loss	(8,368		)	(3,581		)	(16,633		)	(10,516		)
Comprehensive income attributable to noncontrolling interests	3,728			4,227			7,684			7,847
Dividends on preferred shares	5,569			4,669			11,138			7,790
Comprehensive loss attributable to common shareholders	$	(17,665	)	$	(12,477	)	$	(35,455	)	$	(26,153	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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American Homes 4 Rent

Condensed Consolidated Statement of Equity

(Amounts in thousands, except share data)

(Unaudited)

	Class A common shares			Class B common shares			Preferred shares
										Additional						Accumulated other
	Number			Number			Number			paid-in			Accumulated			comprehensive			Shareholders’			Noncontrolling			Total
	of shares	Amount		of shares	Amount		of shares	Amount		capital			deficit			loss			equity			interest			equity

Balances at December 31, 2014	210,838,831	$	2,108	635,075	$	6	17,060,000	$	171	$	3,618,207		$	(170,162	)	$	(229	)	$	3,450,101		$	719,493		$	4,169,594

Share-based compensation	—	—		—	—		—	—		1,430			—			—			1,430			—			1,430

Common stock issued under share-based compensation plans, net of shares withheld for employee taxes	13,258	—		—	—		—	—		(134		)	—			—			(134		)	—			(134		)

Distributions to equity holders:
Preferred shares	—	—		—	—		—	—		—			(11,138		)	—			(11,138		)	—			(11,138		)
Noncontrolling interests	—	—		—	—		—	—		—			—						—			(12,108		)	(12,108		)
Common shares	—	—		—	—		—	—		—			(21,148		)	—			(21,148		)	—			(21,148		)

Net (loss) income	—	—		—	—		—	—		—			(24,349		)	—			(24,349		)	7,686			(16,663		)

Total other comprehensive income	—	—		—	—		—	—		—			—			30			30			—			30

Balances at June 30, 2015	210,852,089	$	2,108	635,075	$	6	17,060,000	$	171	$	3,619,503		$	(226,797	)	$	(199	)	$	3,394,792		$	715,071		$	4,109,863

The accompanying notes are an integral part of these condensed consolidated financial statements.

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American Homes 4 Rent

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

	For the Six Months Ended
	June 30,
	2015			2014
Operating activities
Net loss	$	(16,663	)	$	(10,304	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	112,885			73,456
Noncash amortization of deferred financing costs	3,500			446
Noncash share-based compensation	1,430			1,144
Provision for bad debt	2,785			2,385
Remeasurement of Series E units	(3,981		)	7,700
Remeasurement of preferred shares	(700		)	598
Equity in net loss (income) of unconsolidated ventures	273			(17		)
Other changes in operating assets and liabilities:
Rent and other receivables	(5,305		)	(2,029		)
Restricted cash for resident security deposits	(9,223		)	(10,281		)
Prepaid expenses and other assets	2,546			6,028
Deferred leasing costs	(5,421		)	(3,503		)
Accounts payable and accrued expenses	6,267			7,884
Resident security deposit liability	9,223			10,281
Amounts payable to affiliates	6,211			4,882
Net cash provided by operating activities	103,827			88,670

Investing activities
Cash paid for single-family properties	(438,689		)	(597,717		)
Escrow deposits for purchase of single-family properties	(3,113		)	6,044
Increase in restricted cash related to lender requirements	(8,416		)	(10,201		)
Investment in unconsolidated joint ventures	(10,003		)	(12,191		)
Investments in mortgage financing receivables	(7,731		)	(17,465		)
Initial renovations to single-family properties	(93,655		)	(91,427		)
Other capital expenditures for single-family properties	(15,925		)	—
Net cash used for investing activities	(577,532		)	(722,957		)

Financing activities
Net proceeds from issuance of preferred shares	—			189,433
Proceeds from exercise of stock options	—			431
Proceeds from asset-backed securitizations	552,830			480,970
Payments on asset-backed securitizations	(8,557		)	—
Proceeds from credit facility	628,000			837,909
Payments on credit facility	(658,000		)	(731,909		)
Payments on secured note	(444		)	—
Distributions to noncontrolling interests	(12,108		)	(11,805		)
Distributions to common shareholders	(21,148		)	(18,551		)
Distributions to preferred shareholders	(11,138		)	(7,790		)
Deferred financing costs paid	(13,860		)	(14,315		)
Net cash provided by financing activities	455,575			724,373

Net (decrease) increase in cash and cash equivalents	(18,130		)	90,086
Cash and cash equivalents, beginning of period	108,787			148,989
Cash and cash equivalents, end of period	$	90,657		$	239,075

Supplemental cash flow information
Cash payments for interest	$	(33,431	)	$	(8,473	)

Supplemental schedule of noncash investing and financing activities
Accounts payable and accrued expenses related to property acquisitions	$	(344	)	$	(4,076	)
Amounts payable to affiliates related to property acquisitions	$	—		$	647
Accrued distribution to Series C convertible units	$	4,698		$	4,698

The accompanying notes are an integral part of these condensed consolidated financial statements.

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American Homes 4 Rent

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Organization and Operations

American Homes 4 Rent (the “Company,” “we,” “our” and “us”) is a Maryland real estate investment trust (“REIT”) formed on October 19, 2012. We are focused on acquiring, renovating, leasing and operating single-family homes as rental properties. As of June 30, 2015, the Company held 37,491 single-family properties in 22 states, including 44 properties held for sale.

From our formation through June 10, 2013, we were externally managed and advised by American Homes 4 Rent Advisor, LLC (the “Advisor”) and the leasing, managing and advertising of our properties was overseen and directed by American Homes 4 Rent Management Holdings, LLC (the “Property Manager”), both of which were subsidiaries of American Homes 4 Rent, LLC (“AH LLC”). On June 10, 2013, we acquired the Advisor and the Property Manager from AH LLC in exchange for 4,375,000 Series D units and 4,375,000 Series E units in American Homes 4 Rent, L.P. (the “Operating Partnership”) (the “Management Internalization”). Under the terms of the contribution agreement, all administrative, financial, property management, marketing and leasing personnel, including executive management, became fully dedicated to us. Since the date of the Management Internalization, the Company has consolidated the Advisor and the Property Manager and the results of these operations are reflected in the condensed consolidated financial statements.

Prior to the Management Internalization, AH LLC exercised control over the Company through the contractual rights provided to the Advisor through an advisory management agreement. Accordingly, the contribution of certain properties by AH LLC to the Company prior to the Management Internalization have been deemed to be transactions between entities under common control, and as such, the accounts relating to the properties contributed have been recorded by us as if they had been acquired by us on the dates such properties were acquired by AH LLC. Accordingly, the condensed consolidated financial statements include AH LLC’s historical carrying values of the properties that had been acquired by AH LLC.

Note 2. Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements are unaudited and include the accounts of the Company, the Operating Partnership and its consolidated subsidiaries. Intercompany accounts and transactions have been eliminated. The Company consolidates real estate partnerships and other entities that are not variable interest entities (“VIEs”) when it owns, directly or indirectly, a majority interest in the entity or is otherwise able to control the entity. The Company consolidates VIEs in accordance with Accounting Standards Codification (“ASC”) No. 810, Consolidation, if it is the primary beneficiary of the VIE as determined by its power to direct the VIE’s activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE. Entities for which the Company owns an interest, but does not consolidate, are accounted for under the equity method of accounting as an investment in unconsolidated subsidiary and are included in escrow deposits, prepaid expenses and other assets within the condensed consolidated balance sheets. Ownership interests in certain consolidated subsidiaries of the Company held by outside parties are included in noncontrolling interest within the condensed consolidated financial statements.

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. In the opinion of management, all adjustments of a normal and recurring nature necessary for a fair presentation of the condensed consolidated financial statements for the interim periods have been made. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

There have been no changes to our significant accounting policies that have had a material impact on our condensed consolidated financial statements and related notes, compared to those policies disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. Therefore, notes to the condensed consolidated financial statements that would substantially duplicate the disclosures contained in our most recent audited consolidated financial statements have been omitted.

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Recent Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, rather than as an asset. The recognition and measurement guidance for debt issuance costs is not affected and amortization of such costs will continue to be reported as interest expense. The guidance will be effective for the Company for annual reporting periods beginning after December 15, 2015, and for interim periods within those annual periods, with early adoption permitted and retrospective application required. The Company expects to adopt the guidance effective January 1, 2016, and the impact will be a reduction of deferred costs and other intangibles, net, as well as a corresponding reduction of the associated debt liability.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. Among other changes, it modifies the criteria used in the variable interest model and eliminates the presumption that a general partner should consolidate a limited partnership in the voting model. The guidance will be effective for the Company for annual reporting periods beginning after December 15, 2015, and for interim periods within those annual periods, with early adoption permitted. The Company does not anticipate that the adoption of this guidance will have a material impact on its financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which provides guidance on revenue recognition and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, most industry-specific guidance and some cost guidance included in Subtopic 605-35, “Revenue Recognition—Construction-Type and Production-Type Contracts.” The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. These judgments may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The guidance will be effective for the Company for annual reporting periods beginning after December 15, 2017, and for interim periods within those annual periods. At that time, the Company may adopt the full retrospective approach or the modified retrospective approach. Early adoption is not permitted. The Company is currently evaluating the method of adoption of this guidance and does not anticipate that the adoption of this guidance will have a material impact on its financial statements.

Note 3. Single-Family Properties

Single-family properties, net, consists of the following as of June 30, 2015, and December 31, 2014 (dollars in thousands):

	June 30, 2015
	Number of properties	Net book value
Leased single-family properties	34,903	$	5,746,687
Single-family properties being renovated	686	98,435
Single-family properties being prepared for re-lease	355	56,788
Vacant single-family properties available for lease	1,503	253,851
Single-family properties held for sale	44	6,387
Total	37,491	$	6,162,148

	December 31, 2014
	Number of properties	Net book value
Leased single-family properties	28,250	$	4,631,797
Single-family properties being renovated	2,886	476,120
Single-family properties being prepared for re-lease	630	104,974
Vacant single-family properties available for lease	2,807	493,962
Single-family properties held for sale	26	3,818
Total	34,599	$	5,710,671

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Single-family properties, net at June 30, 2015, and December 31, 2014, included $21.7 million and $114.6 million, respectively, related to properties for which the recorded grant deed has not been received. For these properties, the trustee or seller has warranted that all legal rights of ownership have been transferred to us on the date of the sale, but there is a delay for the deeds to be recorded.

Depreciation expense related to single-family properties was $53.2 million and $34.8 million for the three months ended June 30, 2015 and 2014, respectively, and $101.9 million and $65.8 million for the six months ended June 30, 2015 and 2014, respectively.

Note 4. Rent and Other Receivables

Included in rent and other receivables, net is an allowance for doubtful accounts of $1.7 million and $0.5 million as of June 30, 2015, and December 31, 2014, respectively. Also included in rent and other receivables, net, are receivables related to payments made on single-family properties for which sales have been rescinded or unwound due to legal issues beyond our control, which totaled $0.2 million and $1.1 million as of June 30, 2015, and December 31, 2014, respectively, and other non-tenant receivables, which totaled $2.5 million and $2.4 million as of June 30, 2015, and December 31, 2014, respectively.

Note 5. Deferred Costs and Other Intangibles

Deferred costs and other intangibles, net, consists of the following as of June 30, 2015, and December 31, 2014 (in thousands):

	June 30, 2015			December 31, 2014
Deferred leasing costs	$	12,581		$	18,307
Deferred financing costs	66,873			53,013
Intangible assets:
In-place lease values	3,712			10,468
Trademark	3,100			3,100
Database	2,100			2,100
	88,366			86,988
Less: accumulated amortization	(26,067		)	(32,406		)
Total	$	62,299		$	54,582

Amortization expense related to deferred leasing costs, the value of in-place leases, trademark and database was $4.0 million and $3.5 million for the three months ended June 30, 2015 and 2014, respectively, and $7.2 million and $7.7 million for the six months ended June 30, 2015 and 2014, respectively, which has been included in depreciation and amortization within the condensed consolidated statements of operations. Amortization of deferred financing costs was $2.4 million and $0.9 million for the three months ended June 30, 2015 and 2014, respectively, and $4.4 million and $1.5 million for the six months ended June 30, 2015 and 2014, respectively, which has been included in gross interest, prior to interest capitalization (see Note 6).

The following table sets forth the estimated annual amortization expense related to deferred costs and other intangibles, net as of June 30, 2015, for future periods (in thousands):

Year	Deferred Leasing Costs		Deferred Financing Costs		Value of In-place Leases		Trademark		Database
Remaining 2015	$	3,374	$	4,753	$	217	$	330	$	150
2016	1,229		9,416		55		660		300
2017	—		7,926		—		752		300
2018	—		7,428		—		—		300
2019	—		5,257		—		—		300
Thereafter	—		19,420		—		—		132
Total	$	4,603	$	54,200	$	272	$	1,742	$	1,482

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Note 6. Debt

The following table presents the Company’s debt as of June 30, 2015, and December 31, 2014 (in thousands):

				Outstanding Principal Balance
	Interest Rate (1)		Maturity Date	June 30, 2015		December 31, 2014
2014-SFR1 securitization (2)	1.79	%	June 9, 2019	$	476,160	$	478,565
2014-SFR2 securitization	4.42	%	October 9, 2024	509,868		512,435
2014-SFR3 securitization	4.40	%	December 9, 2024	525,776		528,390
2015-SFR1 securitization (3)	4.14	%	April 9, 2045	551,859		—
Total asset-backed securitizations				2,063,663		1,519,390
Secured note payable	4.06	%	July 1, 2019	51,200		51,644
Credit facility (4)	2.94	%	September 30, 2018	177,000		207,000
Total debt				$	2,291,863	$	1,778,034

(1) Interest rates are as of June 30, 2015. Unless otherwise stated, interest rates are fixed percentages.

(2) The 2014-SFR1 securitization bears interest at a duration-weighted blended interest rate of LIBOR plus 1.54%, subject to a LIBOR floor of 0.25%. The maturity date of June 9, 2019, reflects the fully extended maturity date based on an initial two-year loan term and three, 12-month extension options, at the Company’s election, provided there is no event of default and compliance with certain other terms.

(3) The 2015-SFR1 securitization has a maturity date of April 9, 2045, with an anticipated repayment date of April 9, 2025.

(4) The credit facility provides for a borrowing capacity of up to $800.0 million through March 2016 and bears interest at LIBOR plus 2.75% (3.125% beginning in March 2017). Any outstanding borrowings upon expiration of the credit facility period in March 2016 will become due in September 2018.

Asset-Backed Securitization

In March 2015, we completed a private securitization transaction (the “2015-SFR1 securitization”), in which a newly-formed special purpose entity (the “Borrower”) entered into a loan with a third-party lender for $552.8 million represented by a promissory note. The Borrower under the loan is wholly owned by another special purpose entity (the “Equity Owner”) and the Equity Owner is wholly owned by the Operating Partnership. The loan is a fixed-rate loan with a 30 year term, maturity date of April 9, 2045, and a duration-adjusted weighted-average interest rate of 4.14%. The loan requires monthly payments of interest together with principal payments representing one-twelfth of one percent of the original principal amount. The loan has an anticipated repayment date of April 9, 2025. In the event the loan is not repaid on April 9, 2025, the interest rate on each component is increased to a rate per annum equal to the sum of 3% plus the greater of: (a) the initial interest rate and (b) a rate equal to the sum of (i) the bid side yield to maturity for the “on the run” United States Treasury note with a 10 year maturity plus the mid-market 10 year swap spread, plus (ii) the component rate spread for each component.

The note was immediately transferred by the third-party lender to a subsidiary of the Company and then to a REMIC trust in exchange for eight classes of single-family rental pass-through certificates representing all the beneficial ownership interests in the loan and the trust. Upon receipt of the certificates, a subsidiary of the Company sold the certificates to investors for gross proceeds of $552.8 million, before issuance costs of $13.3 million. Proceeds from this transaction were used to pay down the outstanding balance on the credit facility and for general corporate purposes. The principal amount of each class of certificates corresponds to the corresponding principal amount of the loan components with an additional class to hold the residual REMIC interest.

The loan is secured by first priority mortgages on a pool of 4,661 single-family residential properties transferred to the Borrower from the Company’s portfolio of properties. The Borrower’s homes were substantially similar to the other properties owned by the Company and were leased to tenants underwritten on substantially the same basis as the tenants in the Company’s other properties. During the duration of the loan, the Borrower’s properties may not generally be transferred, sold or otherwise securitized, the Company can substitute properties only if a property owned by the Borrower becomes a disqualified property under the terms of the loan, and the Borrower is limited in its ability to incur any additional indebtedness.

The loan is also secured by a security interest in all of the Borrower’s personal property and a pledge of all of the assets of the Equity Owner, including a security interest in its membership interest in the Borrower. The Company provides a limited guaranty (i) for certain losses arising out of designated acts of intentional misconduct and (ii) for the principal amount of the loan and all other obligations under the loan agreement in the event of insolvency or bankruptcy proceedings.

The loan agreement provides that the Borrower maintain covenants typical for securitization transactions including maintaining certain reserve accounts and a debt service coverage ratio of at least 1.20 to 1.00. The loan agreement defines the debt service coverage ratio as of any determination date as a ratio in which the numerator is the net cash flow divided by the aggregate debt service

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for the twelve month period following the date of determination. As of June 30, 2015, the Company was in compliance with all covenants under the loan agreement.

The Company has accounted for the transfer of the note from its subsidiary to the trust as a sale under ASC 860, Transfers and Servicing, with no resulting gain or loss as the note was both originated by the third party lender and immediately transferred at the same fair market value. The Company has also evaluated and not identified any variable interests in the trust. Accordingly, the Company continues to consolidate, at historical cost basis, the 4,661 homes placed as collateral for the note. The principal balance outstanding on the note was $551.9 million as of June 30, 2015, and was included in asset-backed securitizations within the condensed consolidated balance sheets. The 4,661 collateral homes had a net book value of $746.9 million as of June 30, 2015.

Credit Facility

In March 2013, the Company entered into a $500.0 million senior secured revolving credit facility with a financial institution, which was subsequently amended in September 2013 to, among other things, expand our borrowing capacity to $800.0 million and extend the repayment period to September 30, 2018. Borrowings under the credit facility are available through March 7, 2016, at which point, any outstanding borrowings will convert to a term loan through September 30, 2018. All borrowings under the credit facility bear interest at 30 day LIBOR plus 2.75% until March 2017, and thereafter at 30 day LIBOR plus 3.125%. The credit facility is secured by our Operating Partnership’s membership interests in entities that own certain of our single-family properties and requires that we maintain certain financial covenants. As of June 30, 2015, the Company was in compliance with all loan covenants. The Company had $177.0 million and $207.0 million in total outstanding borrowings under the credit facility at June 30, 2015, and December 31, 2014, respectively.

Interest Expense

The following table outlines our total gross interest, including unused commitment and other fees and amortization of deferred financing costs, and capitalized interest for the three and six months ended June 30, 2015 and 2014 (in thousands):

	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Gross interest	$	23,913		$	6,298		$	44,152		$	10,728
Capitalized interest	(1,910		)	(2,410		)	(6,479		)	(5,338		)
Interest expense	$	22,003		$	3,888		$	37,673		$	5,390

Note 7. Accounts Payable and Accrued Expenses

The following table summarizes accounts payable and accrued expenses as of June 30, 2015, and December 31, 2014 (in thousands):

	June 30, 2015		December 31, 2014
Accounts payable	$	92	$	4,925
Accrued property taxes	55,775		49,018
Other accrued liabilities	33,105		28,972
Accrued construction and maintenance liabilities	16,965		23,914
Resident security deposits	52,100		42,877
Total	$	158,037	$	149,706

Note 8. Shareholders’ Equity

Participating Preferred Shares

As of June 30, 2015, the initial liquidation preference on the Company’s participating preferred shares, as adjusted by an amount equal to 50% of the cumulative change in value of an index based on the purchase prices of single-family properties located in our top 20 markets, for all of the Company’s outstanding 5.0% Series A participating preferred shares, 5.0% Series B participating preferred shares and 5.5% Series C participating preferred shares was $444.5 million.

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Distributions

Our board of trustees declared distributions that totaled $0.05 per share on our Class A and Class B common shares during the quarters ended June 30, 2015 and 2014. Distributions declared on our 5.0% Series A participating preferred shares, 5.0% Series B participating preferred shares and 5.5% Series C participating preferred shares during the quarter ended June 30, 2015, totaled $0.3125 per share, $0.3125 per share and $0.34375 per share, respectively. Distributions declared on our 5.0% Series A participating preferred shares, 5.0% Series B participating preferred shares and 5.5% Series C participating preferred shares during the quarter ended June 30, 2014, totaled $0.3125 per share, $0.3125 per share and $0.225347 per share, respectively. Our board of trustees declared distributions that totaled $0.15113 per share on our Series C convertible units during the quarters ended June 30, 2015 and 2014.

Noncontrolling Interest

Noncontrolling interest as reflected in the Company’s condensed consolidated balance sheets primarily consists of the interest held by AH LLC in units in the Company’s Operating Partnership. AH LLC owned 14,440,670, or approximately 6.4%, of the total 225,927,834 and 225,914,576 Class A units in the Operating Partnership as of June 30, 2015, and December 31, 2014, respectively. Additionally, AH LLC owned all 31,085,974 Series C convertible units and all 4,375,000 Series D convertible units in the Operating Partnership as of June 30, 2015, and December 31, 2014. Also included in noncontrolling interest are outside ownership interests in certain consolidated subsidiaries of the Company.

Noncontrolling interest as reflected in the Company’s condensed consolidated statements of operations for the three and six months ended June 30, 2015, of $3.7 million and $7.7 million, respectively, primarily consisted of $4.7 million and $9.4 million, respectively, of preferred income allocated to Series C convertible units, $0.8 million and $1.6 million, respectively, of net loss allocated to Class A units and $0.2 million and $0.1 million, respectively, of net loss allocated to noncontrolling interests in certain of the Company’s consolidated subsidiaries. Noncontrolling interest for the three and six months ended June 30, 2014, of $4.2 million and $7.8 million, respectively, primarily consisted of $4.7 million and $9.2 million, respectively, of preferred income allocated to Series C convertible units, $0.6 million and $1.3 million, respectively, of net loss allocated to Class A units and $0.1 million of net income and $0.1 million of net loss, respectively, allocated to noncontrolling interests in certain of the Company’s consolidated subsidiaries.

2012 Equity Incentive Plan

During the six months ended June 30, 2015 and 2014, the Company granted stock options for 588,500 and 1,220,000 Class A common shares, respectively, and 44,000 and 92,000 restricted stock units, respectively, to certain employees of the Company under the 2012 Equity Incentive Plan (the “Plan”). The options and restricted stock units granted during the six months ended June 30, 2015 and 2014, vest over four years and expire 10 years from the date of grant.

The following table summarizes stock option activity under the Plan for the six months ended June 30, 2015 and 2014:

	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (1) (in thousands)
Options outstanding at January 1, 2014	1,190,000		$	15.48	9.3	$	862
Granted	1,220,000		16.74
Exercised	(28,750	)	15.00			74
Forfeited	(216,250	)	15.70
Options outstanding at June 30, 2014	2,165,000		$	16.17	9.3	$	3,438
Options exercisable at June 30, 2014	131,250		$	15.00	8.4	$	362

Options outstanding at January 1, 2015	2,165,000		$	16.17	8.8	$	1,890
Granted	588,500		16.49
Exercised	—		—			—
Forfeited	(125,500	)	16.57
Options outstanding at June 30, 2015	2,628,000		$	16.23	8.5	$	535
Options exercisable at June 30, 2015	661,250		$	15.93	7.7	$	274

(1) Intrinsic value for activities other than exercises is defined as the difference between the grant price and the market value on the last trading day of the period for those stock options where the market value is greater than the exercise price. For exercises, intrinsic value is defined as the difference between the grant price and the market value on the date of exercise.

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The following table summarizes the Black-Scholes Option Pricing Model inputs used for valuation of the stock options for Class A common shares issued during the six months ended June 30, 2015 and 2014:

	2015			2014
Weighted-average fair value	$	4.57		$	4.89
Expected term (years)	7.0			7.0
Dividend yield	3.0		%	3.0		%
Volatility	35.9		%	37.3		%
Risk-free interest rate	1.9		%	2.2		%

The following table summarizes the activity that relates to the Company’s restricted stock units under the Plan for the six months ended June 30, 2015 and 2014:

	2015		2014
Restricted stock units at beginning of period	85,000		—
Units awarded	44,000		92,000
Units vested	(21,250	)	—
Units forfeited	(7,400	)	(2,000	)
Restricted stock units at end of the period	100,350		90,000

Total non-cash share-based compensation expense related to stock options and restricted stock units was $0.7 million and $0.6 million for the three months ended June 30, 2015 and 2014, respectively, and $1.4 million and $1.1 million for the six months ended June 30, 2015 and 2014, respectively.

Note 9. Related Party Transactions

As of June 30, 2015, and December 31, 2014, AH LLC owned approximately 3.3% of our outstanding Class A common shares. On a fully-diluted basis, AH LLC held (including consideration of 635,075 Class B common shares as of June 30, 2015, and December 31, 2014, 14,440,670 Class A common units as of June 30, 2015, and December 31, 2014, 31,085,974 Series C convertible units as of June 30, 2015, and December 31, 2014, 4,375,000 Series D units as of June 30, 2015, and December 31, 2014, and 4,375,000 Series E units as of June 30, 2015, and December 31, 2014) an approximate 21.8% interest at June 30, 2015, and December 31, 2014.

As of June 30, 2015, the Company had a net payable of $1.9 million due to AH LLC, which has been included in amounts payable to affiliates within the condensed consolidated balance sheets. This amount primarily consisted of Series C distributions payable to AH LLC, partially offset by receivables from affiliates related to fees and reimbursable expenditures. As of December 31, 2014, the Company had a net receivable of $4.0 million due from AH LLC, which has been included in escrow deposits, prepaid expenses and other assets within the condensed consolidated balance sheets. This amount primarily consisted of receivables due from AH LLC related to working capital settlement items.

Agreement on Investment Opportunities

In November 2012, the Company entered into an Agreement on Investment Opportunities with AH LLC under which we paid an acquisition and renovation fee equal to 5% of all costs and expenses we incur in connection with the initial acquisition, repair and renovation of single-family properties (net of any broker fees received by the Property Manager) for its services in identifying, evaluating, acquiring and overseeing the renovation of the properties we purchase. In connection with the Management Internalization on June 10, 2013, we entered into an Amended and Restated Agreement on Investment Opportunities. Under the terms of the Amended and Restated Agreement on Investment Opportunities, on December 10, 2014, AH LLC ceased providing acquisition and renovation services for us, we stopped paying AH LLC an acquisition and renovation fee, we hired all of AH LLC’s acquisition and renovation personnel necessary for our operations and AH LLC ceased paying the Company a monthly fee of $0.1 million for the maintenance and use of certain intellectual property transferred to us in the Management Internalization.

During the three and six months ended June 30, 2014, we incurred $9.2 million and $26.8 million in aggregate acquisition and renovation fees to AH LLC prior to the termination of the Amended and Restated Agreement on Investment Opportunities, of which $8.3 million and $25.6 million was capitalized related to asset acquisitions and included in the cost of the single-family properties and $0.9 million and $1.2 million was expensed related to property acquisitions with in-place leases, respectively.

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Employee Administration Agreement

In connection with the Management Internalization on June 10, 2013, we entered into an employee administration agreement with Malibu Management, Inc. (“MMI”), an affiliate of AH LLC, to obtain the exclusive services of personnel of the Advisor and the Property Manager, who were previously employees of MMI under the direction of AH LLC. Under the terms of the agreement, we obtained the exclusive service of the employees dedicated to us for all management and other personnel dedicated to our business and were able to direct MMI to implement employment decisions with respect to the employees dedicated to us. We were required to reimburse MMI for all compensation and benefits and costs associated with the employees dedicated to us. We did not pay any fee or any other form of compensation to MMI. The agreement with MMI terminated on December 31, 2014. Effective January 1, 2015, all employees previously employed by MMI and performing services on our behalf became our employees. Total compensation and benefit costs paid by MMI and passed through to us under the agreement during the three and six months ended June 30, 2014, were $10.1 million and $19.1 million, respectively.

Note 10. Earnings per Share

The following table reflects the computation of net loss per share on a basic and diluted basis for the three and six months ended June 30, 2015 and 2014 (in thousands, except share data):

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Income / (loss) (numerator):
Net loss	$	(8,398	)	$	(3,369	)	$	(16,663	)	$	(10,304	)
Noncontrolling interest	3,730			4,212			7,686			7,832
Dividends on preferred shares	5,569			4,669			11,138			7,790
Net loss attributable to common shareholders	$	(17,697	)	$	(12,250	)	$	(35,487	)	$	(25,926	)

Weighted-average shares (denominator)	211,487,164			185,515,651			211,484,461			185,510,004

Net loss per share—basic and diluted	$	(0.08	)	$	(0.07	)	$	(0.17	)	$	(0.14	)

Total weighted-average shares for the three and six months ended June 30, 2015, excludes an aggregate of 74,064,994, and for the three and six months ended June 30, 2014, excludes an aggregate of 72,938,266, of shares or units in our Operating Partnership, Series A, B and C preferred shares, common shares issuable upon exercise of stock options, and restricted stock units because they were antidilutive.

Note 11. Commitments and Contingencies

In connection with the renovation of single-family properties after they are purchased, the Company enters into contracts for the necessary improvements. As of June 30, 2015, and December 31, 2014, the Company had aggregate outstanding commitments of $2.2 million and $4.1 million, respectively, in connection with these contracts.

As of June 30, 2015, and December 31, 2014, we had commitments to acquire 171 and 703 single-family properties, respectively, with an aggregate purchase price of $26.4 million and $110.9 million, respectively.

We are involved in various legal and administrative proceedings that are incidental to our business. We believe these matters will not have a materially adverse effect on our financial position.

Note 12. Fair Value

The carrying amount of rents and other receivables, restricted cash, escrow deposits, prepaid expenses and other assets, and accounts payable and accrued expenses approximate fair value because of the short maturity of these amounts. The Company’s interest rate cap agreement, contingently convertible Series E units liability and preferred shares derivative liability are the only financial instruments recorded at fair value on a recurring basis in the condensed consolidated financial statements.

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As our securitization transactions were recently entered into, management believes that the carrying values of the securitization transactions reasonably approximate their fair values as of June 30, 2015, which have been estimated by discounting future cash flows at market rates (Level 2). These market rates have been estimated based on recent market activity, including our own securitization transactions. As our credit facility bears interest at a floating rate based on an index plus a spread, which is 30 day LIBOR plus 2.75%, and the credit spread is consistent with those demanded in the market for credit facilities with similar risks and maturities, management believes that the carrying value of the credit facility as of June 30, 2015, reasonably approximates fair value, which has been estimated by discounting future cash flows at market rates (Level 2).

Inputs to the model used to value the contingently convertible Series E units liability include a risk-free rate corresponding to the assumed timing of the conversion date and a volatility input based on the historical volatilities of selected peer group companies. The starting point for the simulation is the most recent trading price in the Company’s Class A common shares, into which the Series E units are ultimately convertible. The timing of such conversion is based on the provisions of the contribution agreement and the Company’s best estimate of the events that trigger such conversions.

Valuation of the preferred shares derivative liability considers scenarios in which the preferred shares would be redeemed or converted into Class A common shares by the Company and the subsequent payoffs under those scenarios. The valuation also considers certain variables such as the risk-free rate matching the assumed timing of either redemption or conversion, volatility of the underlying home price appreciation index, dividend payments, conversion rates, the assumed timing of either redemption or conversion and an assumed drift factor in home price appreciation across certain metropolitan statistical areas, or MSAs, as outlined in the agreement.

The fair value of our interest rate cap agreement is determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the interest rate cap. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. To comply with the provisions of ASC 820, Fair Value Measurements and Disclosures, the Company incorporates credit valuation adjustments to appropriately reflect the respective counterparty’s nonperformance risk in the fair value measurements.

The following tables set forth the fair value of our interest rate cap agreement, the contingently convertible Series E units liability and preferred shares derivative liability as of June 30, 2015, and December 31, 2014 (in thousands):

	June 30, 2015
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Interest rate cap agreement	$	—	$	1	$	—	$	1

Liabilities:
Contingently convertible Series E units liability	$	—	$	—	$	68,076	$	68,076
Preferred shares derivative liability	$	—	$	—	$	57,260	$	57,260

	December 31, 2014
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Interest rate cap agreement	$	—	$	14	$	—	$	14

Liabilities:
Contingently convertible Series E units liability	$	—	$	—	$	72,057	$	72,057
Preferred shares derivative liability	$	—	$	—	$	57,960	$	57,960

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The following table presents changes in the fair values of our Level 3 financial instruments, consisting of our contingently convertible series E units liability and preferred shares derivative liability, which are measured on a recurring basis with changes in fair value recognized in remeasurement of Series E units and remeasurement of preferred shares, respectively, in the condensed consolidated statements of operations for the six months ended June 30, 2015 and 2014 (in thousands):

Description	January 1, 2015		Issuances		Remeasurement included in earnings			June 30, 2015
Liabilities:
Contingently convertible Series E units liability	$	72,057	$	—	$	(3,981	)	$	68,076
Preferred shares derivative liability	$	57,960	$	—	$	(700	)	$	57,260

Description	January 1, 2014		Issuances		Remeasurement included in earnings		June 30, 2014
Liabilities:
Contingently convertible Series E units liability	$	66,938	$	—	$	7,700	$	74,638
Preferred shares derivative liability	$	28,150	$	26,922	$	598	$	55,670

Changes in inputs or assumptions used to value the contingently convertible Series E units liability and preferred shares derivative liability may have a material impact on the resulting valuation.

Note 13. Subsequent Events

Subsequent Acquisitions

From July 1, 2015, through July 31, 2015, we acquired 305 properties with an aggregate purchase price of approximately $43.6 million. We expect that our level of acquisition activity will fluctuate based on the number of suitable investments and on the level of funds available for investment.

Borrowings on Credit Facility

From July 1, 2015, through July 31, 2015, the Company borrowed an additional $53.0 million under the credit facility and made payments on the credit facility totaling $35.0 million, resulting in an outstanding balance of $195.0 million as of July 31, 2015.

Declaration of Dividends

On August 6, 2015, our board of trustees declared quarterly dividends of $0.05 per Class A common share payable on September 30, 2015, to shareholders of record on September 15, 2015, and $0.05 per Class B common share payable on September 30, 2015, to shareholders of record on September 15, 2015. Additionally, our board of trustees also declared quarterly dividends of $0.3125 per share on the Company’s 5.0% Series A participating preferred shares payable on September 30, 2015, to shareholders of record on September 15, 2015, $0.3125 per share on the Company’s 5.0% Series B participating preferred shares payable on September 30, 2015, to shareholders of record on September 15, 2015, and $0.34375 per share on the Company’s 5.5% Series C participating preferred shares payable on September 30, 2015, to shareholders of record on September 15, 2015.

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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, renovating, leasing and operating single-family homes as rental properties. We commenced operations in November 2012 to continue the investment activities of AH LLC, which was founded by our chairman, B. Wayne Hughes, in 2011 to take advantage of the dislocation in the single-family home market.

As of June 30, 2015, we owned 37,491 single-family properties in selected sub-markets of MSAs in 22 states, compared to 34,599 single-family properties in 22 states as of December 31, 2014, and 27,173 single-family properties in 22 states as of June 30, 2014. As of June 30, 2015, we had an additional 171 properties in escrow that we expected to acquire, subject to customary closing conditions, for an aggregate purchase price of approximately $26.4 million. As of June 30, 2015, 34,903, or 93.1%, of our total properties were leased, compared to 28,250, or 81.6%, of our total properties as of December 31, 2014, and 23,364, or 86.0%, of our total properties as of June 30, 2014. As of June 30, 2015, our entire portfolio of single-family properties was internally managed through our proprietary property management platform.

Our Properties and Key Operating Metrics

The following table provides a summary of our single-family properties as of June 30, 2015:

	Properties (1)			Gross Book Value						Averages Per Property
Market	Number of Properties	% of Total		($ millions)		% of Total		Avg. per Property		Square Footage	Property Age (years)	Avg. Year Purchased
Dallas-Fort Worth, TX	3,090	8.2	%	$	493.4	7.6	%	$	159,676	2,131	11.6	2013
Indianapolis, IN	2,735	7.3	%	416.0		6.4	%	152,102		1,938	12.8	2013
Atlanta, GA	2,506	6.7	%	407.1		6.3	%	162,450		2,106	14.5	2013
Charlotte, NC	2,205	5.9	%	381.6		5.9	%	173,061		2,005	12.3	2013
Greater Chicago area, IL and IN	2,058	5.5	%	364.1		5.6	%	176,919		1,897	13.8	2013
Houston, TX	1,978	5.3	%	342.6		5.3	%	173,205		2,225	10.9	2013
Cincinnati, OH	1,842	4.9	%	316.5		4.9	%	171,824		1,846	13.3	2013
Tampa, FL	1,531	4.1	%	288.7		4.5	%	188,570		1,982	11.6	2013
Jacksonville, FL	1,482	4.0	%	224.3		3.5	%	151,350		1,913	11.4	2013
Nashville, TN	1,443	3.8	%	300.5		4.7	%	208,247		2,213	10.9	2013
All Other (2)	16,621	44.3	%	2,927.5		45.3	%	176,134		1,885	12.6	2013
Total / Average	37,491	100.0	%	$	6,462.3	100.0	%	$	172,370	1,965	12.5	2013

(1) Includes 377 properties in which we hold an approximate one-third interest.

(2) Represents 31 markets in 19 states.

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The following table summarizes certain key leasing metrics as of June 30, 2015:

	Total Portfolio								Stabilized Properties (3)
					Avg. Scheduled		Avg. Original	Avg. Remaining					Total
	Leased		Occupancy		Monthly Rent		Lease Term	Lease Term	Leased		Occupancy		Stabilized
Market	Percentage (1)		Percentage (2)		Per Property		(months)	(months)	Percentage (1)		Percentage (2)		Properties
Dallas-Fort Worth, TX	95.2	%	93.5	%	$	1,525	12.4	7.6	98.3	%	96.5	%	2,958
Indianapolis, IN	92.0	%	89.9	%	1,297		13.4	7.4	92.6	%	90.6	%	2,706
Atlanta, GA	90.3	%	88.5	%	1,335		12.5	7.4	96.0	%	94.1	%	2,324
Charlotte, NC	92.5	%	91.3	%	1,379		12.6	7.6	97.2	%	96.0	%	2,084
Greater Chicago area, IL and IN	91.7	%	89.7	%	1,685		13.8	7.2	94.5	%	92.5	%	1,975
Houston, TX	90.4	%	87.7	%	1,603		12.4	7.8	95.1	%	92.2	%	1,832
Cincinnati, OH	95.0	%	92.7	%	1,432		13.2	6.8	96.6	%	94.3	%	1,799
Tampa, FL	94.5	%	93.9	%	1,529		12.1	7.0	95.6	%	95.0	%	1,500
Jacksonville, FL	90.1	%	87.9	%	1,317		12.0	6.9	94.9	%	92.5	%	1,385
Nashville, TN	94.6	%	92.9	%	1,586		12.3	7.1	95.8	%	94.1	%	1,402
All Other (4)	93.7	%	92.3	%	1,384		12.6	7.7	95.9	%	94.5	%	16,077
Total / Average	93.1	%	91.5	%	$	1,428	12.7	7.5	95.8	%	94.1	%	36,042

(1) A property is classified as leased upon the execution (i.e., the signature) of a lease agreement.

(2) A property is classified as occupied upon commencement (i.e., start date) of a lease agreement, which can occur contemporaneously with or subsequent to execution (i.e., signature).

(3) A property is classified as stabilized once it has been renovated and then initially leased or available for rent for a period greater than 90 days.

(4) Represents 31 markets in 19 states.

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 our ability to identify and acquire properties; our pace of property acquisitions; the time and cost required to gain access to the properties and then to renovate and lease a newly acquired property at acceptable rental rates; occupancy levels; rates of tenant turnover; the length of vacancy in properties between tenant leases; our expense ratios; our ability to raise capital; and our capital structure.

Property Acquisitions

Since our formation, we have rapidly but systematically grown our portfolio of single-family homes. Our ability to identify and acquire single-family homes that meet our investment criteria is impacted by home prices in our target markets, the inventory of properties available-for-sale through our acquisition channels, competition for our target assets and our available capital. We expect that our level of acquisition activity will fluctuate based on the number of suitable investments and the level of capital available to invest. During the quarter ended June 30, 2015, our total portfolio increased by 903 homes, including 604 homes acquired through trustee acquisitions, 284 homes acquired through bulk acquisitions and 15 homes acquired through broker acquisitions.

Prior to December 10, 2014, we paid an acquisition and renovation fee to AH LLC equal to 5% of all costs and expenses incurred in connection with the initial acquisition, repair and renovation of our single-family properties for its services in identifying, evaluating, acquiring and overseeing the renovation of our properties. On December 10, 2014, AH LLC ceased providing acquisition and renovation services for us, we stopped paying AH LLC an acquisition and renovation fee and we hired all of AH LLC’s acquisition and renovation personnel necessary for our operations. No termination or other fee was paid to AH LLC in connection with the termination of AH LLC providing such services. Although we anticipate the internalization of AH LLC’s acquisition and renovation personnel to be cash flow positive to the Company, we expect a larger proportion of the internalized cost structure to be expensed in accordance with GAAP, compared to the 5% acquisition and renovation fee previously paid to AH LLC, which has been primarily capitalized related to asset acquisitions in accordance with GAAP and included in the cost basis of our single-family properties.

Property Operations

The acquisition of properties involves 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 $5,000 and $25,000 to renovate a home to prepare it for rental. Renovation work varies, but may include paint, flooring, carpeting, cabinetry, appliances, plumbing hardware and other items required to prepare the home for rental. The time and cost involved in initially accessing our homes to prepare them for rental can impact our financial performance and varies among properties based on several factors, including the source of acquisition channel,

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whether the property is located in a judicial or non-judicial foreclosure state, if applicable, and whether or not the home is occupied at the time of acquisition. This process of finalizing the acquisition and gaining initial access to the home can range from immediate access to multiple months and, on average, takes approximately 20 to 30 days. Additionally, after gaining access to the home, the time to renovate a property can vary significantly among properties and is most impacted by the age and condition of the property. On average, it takes approximately 50 to 60 days to complete the renovation process after gaining initial access to the home. Our operating results are also impacted by the amount of time it takes to market and lease a property, which can vary greatly among properties, and is impacted by local demand, our marketing techniques and the size of our available inventory. On average, it takes approximately 20 to 30 days to lease a property after completing the renovation process. Lastly, our operating results are impacted by the length of stay of our tenants and the amount of time it takes to prepare and re-lease a property after a tenant vacates. This process, which we refer to as “turnover,” is impacted by numerous factors, including the condition of the home upon move-out of the previous tenant, and by local demand, our marketing techniques and the size of our available inventory at the time of the turnover. On average, it takes approximately 50 to 60 days to complete the turnover process.

Revenue

Our revenue is derived primarily from rents collected under lease agreements with tenants for our single-family properties. These include short-term leases that we enter into directly with our tenants, 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 renovate and re-lease properties when tenants vacate. We generally do not offer free rent or other concessions in connection with leasing our properties. Additionally, our ability to collect revenues and related operating results are impacted by the credit worthiness and quality of our tenants. On average, our tenants have household incomes ranging from $70,000 to $100,000 and primarily consist of families with approximately two adults and one or more children.

In addition to rental revenues, we receive fees and other reimbursements, referred to as “tenant charge-backs”, from our tenants, which are primarily designed to recover costs for certain items, such as utilities, damages and maintenance. In accordance with GAAP, these fees and tenant charge-backs are presented gross in the condensed consolidated statements of operations.

We expect that the overall occupancy of our portfolio will continue to increase as the proportion of recently acquired properties declines relative to the size of our entire portfolio. Nevertheless, in the near term, our ability to drive revenue growth will depend in large part on our ability to efficiently renovate and lease newly acquired properties, maintain occupancy in the rest of our portfolio and acquire additional properties, both leased and vacant.

Over the longer term and as our total portfolio occupancy stabilizes, our ability to maintain and grow revenues will become more dependent on our ability to retain tenants and increase rental rates. We believe that our platform will allow us to achieve strong tenant retention and lease renewal rates at our properties. Based on 7,925 and 4,292 leases that expired during the three months ended June 30, 2015 and 2014, respectively, we experienced tenant renewal rates of 76.6% and 80.8%, respectively, at an average rental rate increase on non-month-to-month leases of 2.4% and 3.2%, respectively. Including the impact of 845 and 744 early terminated tenants during the three months ended June 30, 2015 and 2014, respectively, we experienced tenant retention rates of 69.2% and 71.8%, respectively. Based on 12,894 and 6,323 leases that expired during the six months ended June 30, 2015 and 2014, respectively, we experienced tenant renewal rates of 77.6% and 81.5%, respectively, at an average rental rate increase on non-month-to-month leases of 2.9% and 3.0%, respectively. Including the impact of 1,659 and 1,108 early terminated tenants during the six months ended June 30, 2015 and 2014, respectively, we experienced tenant retention rates of 68.8% and 71.8%, respectively. To date, our leasing efforts have been primarily focused on increasing our overall portfolio occupancy rather than raising rental rates. We believe that there will be significant opportunity to optimize rental rates in the future as our total portfolio occupancy stabilizes.

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, which we refer to as “rent-ready,” we incur ongoing property-related expenses, primarily HOA fees (when applicable); property taxes; insurance; marketing expenses; repairs and maintenance; and turnover costs, which may not be subject to our control.

Property Management Expenses

As we now internally manage our entire portfolio of single-family properties through our proprietary property management platform, we incur costs such as salary expenses for property management personnel, lease expenses for property management offices

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and technology expenses for maintaining the property management platform. As part of developing our property management platform, we have made significant investments in our infrastructure, systems and technology. We believe that these investments will enable the costs of our property management platform to become more efficient over time and as our overall portfolio grows in size.

Seasonality

While we still have limited operating history, we believe that our business and related operating results will be impacted by seasonal factors throughout the year. In particular, we have experienced higher levels of tenant move-outs during the summer months, which impacts both our rental revenues and related turnover costs. Further, our property operating costs are seasonally impacted in certain markets for expenses such as snow removal and heating during the winter season and HVAC repairs and expenses during the summer season.

General and Administrative Expense

General and administrative expense primarily consists of payroll and personnel costs, trustees’ and officers’ insurance expenses, audit and tax fees, state taxes, trustee fees and other expenses associated with our corporate and administrative functions.

Results of Operations

As we have rapidly grown our portfolio and have many properties in the early stages of operations, we distinguish our portfolio of initially leased homes between Same-Home properties and Non-Same-Home properties in evaluating our operating performance. We classify a property as Same-Home if it has been stabilized longer than 90 days prior to the beginning of the earliest period presented under comparison, which allows the performance of these properties to be compared between periods. A property is considered stabilized once it has been renovated and then initially leased or available for rent for a period greater than 90 days. All other properties that have been initially leased, whether or not currently leased, are classified as Non-Same-Home.

One of the primary financial measures we use in evaluating the operating performance of our initially leased, whether or not currently leased, single-family properties is core net operating income (“Initially Leased Property Core NOI”), which we define as rents and fees from single-family properties, net of bad debt expense, less property operating expenses for leased single-family properties, excluding expenses reimbursed by tenant charge-backs and bad debt expense. We use Initially Leased Property Core NOI as a primary financial measure as it reflects the economic operating performance of our properties that have been initially leased, without the impact of certain tenant reimbursed operating expenses that are presented gross in the condensed consolidated statements of operations in accordance with GAAP.

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Comparison of the Three Months Ended June 30, 2015, to the Three Months Ended June 30, 2014

The following table presents a summary of Initially Leased Property Core NOI for our Same-Home properties, Non-Same-Home properties and total properties for the three months ended June 30, 2015 and 2014 (in thousands):

	For the Three Months Ended June 30, 2015
	Same-Home Properties (1)			% of Revenue		Non-Same- Home Properties			% of Revenue		Total Portfolio			% of Revenue
Rents from single-family properties	$	69,395				$	68,423				$	137,818
Fees from single-family properties	947					1,257					2,204
Bad debt	(653		)			(861		)			(1,514		)
Core revenues from single-family properties	69,689					68,819					138,508

Leased property operating expenses:
Property tax expense	12,183			17.4	%	12,187			17.7	%	24,370			17.6	%
HOA fees, net of tenant charge-backs	1,508			2.2	%	1,417			2.1	%	2,925			2.1	%
Maintenance and turnover costs, net of tenant charge-backs	6,876			9.9	%	6,324			9.2	%	13,200			9.5	%
Insurance	904			1.3	%	776			1.1	%	1,680			1.2	%
Property management expenses	6,126			8.8	%	6,046			8.8	%	12,172			8.8	%
Core property operating expenses	27,597			39.6	%	26,750			38.9	%	54,347			39.2	%

Initially Leased Property Core NOI	$	42,092		60.4	%	$	42,069		61.1	%	$	84,161		60.8	%

For the Three Months Ended June 30, 2014

Same-Home
Properties (1)

% of
Revenue

Non-Same-
Home
Properties

% of
Revenue

Total
Portfolio

% of
Revenue

Rents from single-family properties

66,779