Edgar Filing: American Homes 4 Rent

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



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

For the quarterly period ended September 30, 2016



¨		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. ý Yes ¨ 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). ý Yes ¨ 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	ý		Accelerated filer	¨
Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	¨

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

There were 237,796,784 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 November 2, 2016.

American Homes 4 Rent

Form 10-Q

INDEX



		Page
	CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	i

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4.	Controls and Procedures	38

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults Upon Senior Securities	39

Item 4.	Mine Safety Disclosures	39

Item 5.	Other Information	39

Item 6.	Exhibits	39

	Signatures	40

	Exhibit Index

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, 2015 and in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, 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.

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)



	September 30, 2016			December 31, 2015
	(Unaudited)
Assets
Single-family properties:
Land	$	1,497,681		$	1,229,017
Buildings and improvements	6,542,708			5,469,533
Single-family properties held for sale, net	105,308			7,432
	8,145,697			6,705,982
Less: accumulated depreciation	(600,299		)	(416,044		)
Single-family properties, net	7,545,398			6,289,938
Cash and cash equivalents	106,308			57,686
Restricted cash	131,367			111,282
Rent and other receivables, net	21,818			13,936
Escrow deposits, prepaid expenses and other assets	120,609			121,627
Deferred costs and other intangibles, net	15,016			10,429
Asset-backed securitization certificates	25,666			25,666
Goodwill	120,317			120,655
Total assets	$	8,086,499		$	6,751,219

Liabilities
Revolving credit facilities	$	75,000		$	—
Term loan facility, net	246,575			—
Asset-backed securitizations, net	2,447,898			2,473,643
Exchangeable senior notes, net	107,283			—
Secured note payable	50,065			50,752
Accounts payable and accrued expenses	241,067			154,751
Amounts payable to affiliates	—			4,093
Contingently convertible Series E units liability	—			69,957
Preferred shares derivative liability	65,730			62,790
Total liabilities	3,233,618			2,815,986

Commitments and contingencies

Equity
Shareholders’ equity:
Class A common shares, $0.01 par value per share, 450,000,000 shares authorized, 237,796,784 and 207,235,510 shares issued and outstanding at September 30, 2016, and December 31, 2015, respectively	2,378			2,072
Class B common shares, $0.01 par value per share, 50,000,000 shares authorized, 635,075 shares issued and outstanding at September 30, 2016, and December 31, 2015	6			6
Preferred shares, $0.01 par value per share, 100,000,000 shares authorized, 37,010,000 and 17,060,000 shares issued and outstanding at September 30, 2016, and December 31, 2015, respectively	370			171
Additional paid-in capital	4,464,792			3,554,063
Accumulated deficit	(368,795		)	(296,865		)
Accumulated other comprehensive income (loss)	28			(102		)
Total shareholders’ equity	4,098,779			3,259,345

Noncontrolling interest	754,102			675,888
Total equity	4,852,881			3,935,233

Total liabilities and equity	$	8,086,499		$	6,751,219

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

American Homes 4 Rent

Condensed Consolidated Statements of Operations

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

(Unaudited)



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2016			2015			2016			2015
Revenues:
Rents from single-family properties	$	197,137		$	148,815		$	558,623		$	407,313
Fees from single-family properties	2,898			2,146			7,819			5,681
Tenant charge-backs	30,808			19,881			72,077			40,215
Other	5,214			1,771			12,811			4,780
Total revenues	236,057			172,613			651,330			457,989

Expenses:
Property operating expenses	110,412			85,052			290,998			215,699
General and administrative expense	7,563			6,090			22,966			18,497
Interest expense	32,851			23,866			99,309			61,539
Noncash share-based compensation expense	891			913			2,744			2,343
Acquisition fees and costs expensed	1,757			4,153			10,899			14,297
Depreciation and amortization	75,392			67,800			224,513			180,685
Other	3,142			1,152			6,482			2,686
Total expenses	232,008			189,026			657,911			495,746

Gain on sale of single-family properties, net	11,682			—			12,574			—
Loss on early extinguishment of debt	(13,408		)	—			(13,408		)	—
Gain on conversion of Series E units	—			—			11,463			—
Remeasurement of Series E units	—			(525		)	—			3,456
Remeasurement of preferred shares	(2,490		)	(3,000		)	(2,940		)	(2,300		)

Net (loss) income	(167		)	(19,938		)	1,108			(36,601		)

Noncontrolling interest	7,316			3,109			10,391			10,795
Dividends on preferred shares	13,669			5,569			26,650			16,707

Net loss attributable to common shareholders	$	(21,152	)	$	(28,616	)	$	(35,933	)	$	(64,103	)

Weighted-average shares outstanding—basic and diluted	238,401,343			211,414,368			232,036,802			211,460,840

Net loss attributable to common shareholders per share—basic and diluted	$	(0.09	)	$	(0.14	)	$	(0.15	)	$	(0.30	)

Dividends declared per common share	$	0.05		$	0.05		$	0.15		$	0.15

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

American Homes 4 Rent

Condensed Consolidated Statements of Comprehensive Income

(Amounts in thousands)

(Unaudited)



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2016			2015			2016			2015
Net (loss) income	$	(167	)	$	(19,938	)	$	1,108		$	(36,601	)
Other comprehensive income:
Unrealized gain on interest rate cap agreement:
Unrealized interest rate cap agreement gain arising during the period	—			51			—			81
Reclassification adjustment for amortization of interest expense included in net (loss) income	28			—			130			—
Other comprehensive income	28			51			130			81
Comprehensive (loss) income	(139		)	(19,887		)	1,238			(36,520		)
Comprehensive income attributable to noncontrolling interests	7,308			3,106			10,366			10,790
Dividends on preferred shares	13,669			5,569			26,650			16,707
Comprehensive loss attributable to common shareholders	$	(21,116	)	$	(28,562	)	$	(35,778	)	$	(64,017	)

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

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

Balances at December 31, 2015	207,235,510		$	2,072		635,075	$	6	17,060,000	$	171	$	3,554,063		$	(296,865	)	$	(102	)	$	3,259,345		$	675,888		$	3,935,233

Share-based compensation	—		—			—	—		—	—		2,744			—			—			2,744			—			2,744

Common shares issued under share-based compensation plans, net of shares withheld for employee taxes	190,128		2			—	—		—	—		2,638			—			—			2,640			—			2,640

Issuance of Class A common shares and units in connection with the Merger	36,546,170		365			—	—		—	—		511,281			—			—			511,646			18,814			530,460

Issuance of perpetual preferred shares, net of offering costs of $15,996	—		—			—	—		19,950,000	199		482,629			—			—			482,828			—			482,828

Redemptions of Class A units	40,632		1			—	—		—	—		503			—			—			504			(903		)	(399		)

Repurchases of Class A common shares	(6,215,656	)	(62		)	—	—		—	—		(96,036		)	—			—			(96,098		)	—			(96,098		)

Assumption of exchangeable senior notes	—		—			—	—		—	—		6,970			—			—			6,970			—			6,970

Conversion of Series E units to Series D units	—		—			—	—		—	—		—			—			—			—			58,494			58,494

Distributions to equity holders:
Preferred shares	—		—			—	—		—	—		—			(26,650		)	—			(26,650		)	—			(26,650		)
Noncontrolling interests	—		—			—	—		—	—		—			—			—			—			(8,582		)	(8,582		)
Common shares	—		—			—	—		—	—		—			(35,997		)	—			(35,997		)	—			(35,997		)

Net income (loss)	—		—			—	—		—	—		—			(9,283		)	—			(9,283		)	10,391			1,108

Total other comprehensive income	—		—			—	—		—	—		—			—			130			130			—			130

Balances at September 30, 2016	237,796,784		$	2,378		635,075	$	6	37,010,000	$	370	$	4,464,792		$	(368,795	)	$	28		$	4,098,779		$	754,102		$	4,852,881

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

American Homes 4 Rent

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)



	For the Nine Months Ended September 30,
	2016			2015
Operating activities
Net income (loss)	$	1,108		$	(36,601	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	224,513			180,685
Noncash amortization of deferred financing costs	7,912			5,769
Noncash amortization of discount on exchangeable senior notes	1,955			—
Noncash amortization of discount on ARP 2014-SFR1 securitization	1,744			—
Noncash share-based compensation	2,744			2,343
Provision for bad debt	5,092			5,005
Loss on early extinguishment of debt	13,408			—
Gain on conversion of Series E units to Series D units	(11,463		)	—
Remeasurement of Series E units	—			(3,456		)
Remeasurement of preferred shares	2,940			2,300
Equity in net (loss) income of unconsolidated ventures	(418		)	385
Net gain on sale of single-family properties	(12,574		)	—
Loss on impairment of single-family properties	1,467			—
Net gain on resolutions of mortgage loans	(7,205		)	—
Other changes in operating assets and liabilities:
Rent and other receivables	(12,110		)	(13,071		)
Restricted cash for resident security deposits	(12,059		)	(10,239		)
Prepaid expenses and other assets	(429		)	(5,140		)
Deferred leasing costs	(6,199		)	(7,733		)
Accounts payable and accrued expenses	47,920			37,423
Amounts payable to affiliates	(5,425		)	(1,721		)
Net cash provided by operating activities	242,921			155,949

Investing activities
Cash paid for single-family properties	(187,886		)	(552,944		)
Change in escrow deposits for purchase of single-family properties	(821		)	(2,050		)
Change in other restricted cash	1,495			(19,536		)
Cash acquired in ARPI merger	15,499			—
Payoff of credit facility in connection with ARPI merger	(350,000		)	—
Net proceeds received from sales of single-family properties	71,894			—
Net proceeds received from sales of non-performing loans	44,538			—
Purchase of commercial office buildings	(27,105		)	—
Investment in unconsolidated joint ventures	—			(10,003		)
Investments in mortgage financing receivables	—			(11,227		)
Collections from mortgage financing receivables	17,687			—
Distributions from unconsolidated joint ventures	6,400			—
Renovations to single-family properties	(21,710		)	(125,158		)
Other capital expenditures for single-family properties	(22,026		)	(23,008		)
Net cash used for investing activities	(452,035		)	(743,926		)

Financing activities
Proceeds from issuance of perpetual preferred shares	498,750			—
Payments of perpetual preferred share issuance costs	(15,922		)	—
Proceeds from exercise of stock options	2,777			225
Repurchase of Class A common shares	(96,098		)	—
Redemptions of Class A units	(399		)	—
Proceeds from asset-backed securitizations	—			1,030,559
Payments on asset-backed securitizations	(374,031		)	(13,757		)
Proceeds from revolving credit facilities	951,000			799,000
Payments on revolving credit facilities	(876,000		)	(1,006,000		)
Proceeds from term loan facility	250,000			—
Payments on secured note payable	(687		)	(664		)
Distributions to noncontrolling interests	(8,582		)	(18,163		)
Distributions to common shareholders	(35,997		)	(31,723		)
Distributions to preferred shareholders	(26,650		)	(16,707		)
Deferred financing costs paid	(10,425		)	(25,163		)
Net cash provided by financing activities	257,736			717,607

Net increase in cash and cash equivalents	48,622			129,630
Cash and cash equivalents, beginning of period	57,686			108,787
Cash and cash equivalents, end of period	$	106,308		$	238,417

American Homes 4 Rent

Condensed Consolidated Statements of Cash Flows (continued)

(Amounts in thousands)

(Unaudited)



	For the Nine Months Ended September 30,
	2016			2015
Supplemental cash flow information
Cash payments for interest, net of amounts capitalized	$	(87,707	)	$	(49,368	)

Supplemental schedule of noncash investing and financing activities
Accounts payable and accrued expenses related to property acquisitions and renovations	$	(226	)	$	531
Accrued distribution to Series C convertible units	$	—		$	4,698
Repurchase of Class A common shares	$	—		$	53,778

Merger with ARPI (see Note 10)
Single-family properties	$	1,277,253		$	—
Restricted cash	$	9,521		$	—
Rent and other receivables	$	843		$	—
Escrow deposits, prepaid expenses and other assets	$	35,134		$	—
Deferred costs and other intangibles, net	$	22,696		$	—
Credit facility	$	(350,000	)	$	—
Asset-backed securitization	$	(329,703	)	$	—
Exchangeable senior notes, net	$	(112,298	)	$	—
Accounts payable and accrued expenses	$	(38,485	)	$	—
Class A common shares and units issued	$	(530,460	)	$	—

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

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 September 30, 2016, the Company held 48,153 single-family properties in 22 states, including 1,238 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”), therefore internalizing our management including all administrative, financial, property management, marketing and leasing personnel, including executive management. The Company consolidates the Advisor and the Property Manager and the results of these operations are reflected in the condensed consolidated financial statements.

Previously, 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 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. Effective August 31, 2016, AH LLC was liquidated and its ownership interests in the operating partnership were distributed to its members.

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, 2015. Any references in this report to the number of properties is outside the scope of our independent registered public accounting firm’s review of our financial statements, in accordance with the standards of the Public Company Accounting Oversight Board ("PCAOB"). 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.

Effective January 1, 2016, in accordance with Accounting Standards Update (“ASU”) No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, deferred financing costs, net of amortization, related to our asset-backed securitizations have been classified in asset-backed securitizations, net within the condensed consolidated balance sheets. Prior to January 1, 2016, these costs were included in deferred costs and other intangibles, net within the condensed

consolidated balance sheets. All prior period amounts have been reclassified to conform to the current presentation. This resulted in the reclassification of $56.6 million of deferred financing costs, net of amortization, from deferred costs and other intangibles, net to asset-backed securitizations, net as of December 31, 2015, in the condensed consolidated balance sheets.

Effective January 1, 2016, due to the stabilization of our portfolio and the majority of our properties having been initially leased, vacant single-family properties and other expenses have been reclassified in the condensed consolidated statements of operations, with vacant single-family property operating expenses combined with leased single-family property operating expenses, which are both included in property operating expenses within the condensed consolidated statements of operations, and other expenses reclassified to other expenses within the condensed consolidated statements of operations. This resulted in the reclassification of the $2.5 million and $13.0 million, respectively, of vacant single-family properties and other expenses for the three and nine months ended September 30, 2015, with $1.4 million and $10.3 million, respectively, of vacant single-family property operating expenses reclassified to property operating expenses and $1.1 million and $2.7 million, respectively, of other expenses reclassified to other expenses in the condensed consolidated statements of operations.

Effective July 1, 2016, due to recently increased volume in the Company's sales of single-family properties, gains and losses from the sales of single-family properties have been included in gain on sale of single-family properties, net within the condensed consolidated statements of operations. Prior period gains and losses from the sales of single-family properties, which were previously included in other revenues have been reclassified to gain on sale of single-family properties, net to conform to the current presentation.

There have been no other 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, 2015. 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.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), to amend the accounting for credit losses for certain financial instruments by requiring companies to recognize an estimate of expected credit losses as an allowance in order to recognize such losses more timely than under previous guidance that had allowed companies to wait until it was probable such losses had been incurred. The guidance will be effective for the Company for annual reporting periods beginning after December 15, 2019, and for interim periods within those annual periods. Early adoption is permitted for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. The Company is currently assessing the impact of the guidance on our financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (Topic 718), which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance will be effective for the Company for annual reporting periods beginning after December 15, 2016, and for interim periods within those annual periods, with early adoption permitted. The Company is currently assessing the impact of the guidance on our financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which will require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than one year. Lessor accounting will remain similar to lessor accounting under previous GAAP, while aligning with the FASB's new revenue recognition guidance. The guidance will be effective for the Company for annual reporting periods beginning after December 15, 2018, and for interim periods within those annual periods, with early adoption permitted. The Company is currently assessing the impact of the guidance on our financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including the requirement to measure certain equity investments at fair value with changes in fair value recognized in net income. 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. The Company is currently assessing the impact of the guidance on our 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 our financial statements.

Note 3. Single-Family Properties

Single-family properties, net, consisted of the following as of September 30, 2016, and December 31, 2015 (dollars in thousands):



	September 30, 2016
	Number of properties	Net book value
Leased single-family properties	44,746	$	7,072,461
Single-family properties being renovated	406	77,451
Single-family properties being prepared for re-lease	90	15,333
Vacant single-family properties available for lease	1,673	274,845
Single-family properties held for sale, net	1,238	105,308
Total	48,153	$	7,545,398



	December 31, 2015
	Number of properties	Net book value
Leased single-family properties	36,403	$	5,895,482
Single-family properties being renovated	476	75,055
Single-family properties being prepared for re-lease	178	28,525
Vacant single-family properties available for lease	1,678	283,444
Single-family properties held for sale, net	45	7,432
Total	38,780	$	6,289,938

Single-family properties, net increased $1.2 billion to $7.5 billion as of September 30, 2016, compared to $6.3 billion as of December 31, 2015, primarily related to the acquisition of 8,936 properties in connection with the Merger with American Residential Properties, Inc. ("ARPI") (see Note 10). Single-family properties, net at September 30, 2016, and December 31, 2015, included $15.4 million and $8.5 million, respectively, related to properties for which the recorded grant deed had 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 was a delay for the deeds to be recorded.

Depreciation expense related to single-family properties was $67.2 million and $63.9 million for the three months ended September 30, 2016 and 2015, respectively, and $194.2 million and $165.8 million for the nine months ended September 30, 2016 and 2015, respectively.

During the three and nine months ended September 30, 2016, the Company sold 453 and 587 homes, respectively, which generated total net proceeds of $56.2 million and $71.9 million, respectively, and resulted in a net gain on sale of $11.7 million and $12.6 million, respectively. In accordance with ASC 350, Intangibles—Goodwill and Other, the Company allocates a portion of goodwill to the carrying values of its leased properties sold, which results in a reduction to the gain on sale. The amount of goodwill allocated to leased properties sold during the three and nine months ended September 30, 2016, was $0.4 million, which reduced goodwill to $120.3 million as of September 30, 2016, compared to $120.7 million as of December 31, 2015.

Note 4. Rent and Other Receivables, Net

Included in rent and other receivables, net is an allowance for doubtful accounts of $4.5 million and $3.0 million as of September 30, 2016, and December 31, 2015, respectively. Also included in rent and other receivables, net, are non-tenant receivables, which totaled $0.7 million and $1.0 million as of September 30, 2016, and December 31, 2015, respectively.

Note 5. Deferred Costs and Other Intangibles, Net

Deferred costs and other intangibles, net, consisted of the following as of September 30, 2016, and December 31, 2015 (in thousands):



	September 30, 2016			December 31, 2015
Deferred leasing costs	$	14,985		$	8,692
Deferred financing costs	6,520			12,454
Intangible assets:
Value of in-place leases	22,352			152
Trademark	3,100			3,100
Database	2,100			2,100
	49,057			26,498
Less: accumulated amortization	(34,041		)	(16,069		)
Total	$	15,016		$	10,429

Amortization expense related to deferred leasing costs, the value of in-place leases, trademark and database was $6.9 million and $2.8 million for the three months ended September 30, 2016 and 2015, respectively, and $26.7 million and $10.0 million for the nine months ended September 30, 2016 and 2015, respectively, which has been included in depreciation and amortization within the condensed consolidated statements of operations. Deferred financing costs relate to our revolving credit facilities. Amortization of deferred financing costs was $0.5 million and $0.6 million for the three months ended September 30, 2016 and 2015, respectively, and $1.9 million and $1.8 million for the nine months ended September 30, 2016 and 2015, 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 September 30, 2016, for future periods (in thousands):



Year	Deferred Leasing Costs		Deferred Financing Costs		Value of In-place Leases		Trademark		Database
Remaining 2016	$	1,463	$	412	$	2,222	$	165	$	75
2017	2,054		1,633		908		660		300
2018	—		1,633		21		92		300
2019	—		1,633		2		—		300
2020	—		1,011		—		—		132
Total	$	3,517	$	6,322	$	3,153	$	917	$	1,107

Note 6. Debt

The following table presents the Company’s debt as of September 30, 2016, and December 31, 2015 (in thousands):



				Outstanding Principal Balance
	Interest Rate (1)		Maturity Date	September 30, 2016			December 31, 2015
AH4R 2014-SFR1 securitization (2)	2.07	%	June 9, 2019	$	457,979		$	473,755
AH4R 2014-SFR2 securitization	4.42	%	October 9, 2024	503,093			507,305
AH4R 2014-SFR3 securitization	4.40	%	December 9, 2024	519,148			523,109
AH4R 2015-SFR1 securitization (3)	4.14	%	April 9, 2045	544,861			549,121
AH4R 2015-SFR2 securitization (4)	4.36	%	October 9, 2045	473,237			476,920
Total asset-backed securitizations				2,498,318			2,530,210
Exchangeable senior notes	3.25	%	November 15, 2018	115,000			—
Secured note payable	4.06	%	July 1, 2019	50,065			50,752
Revolving credit facilities (5)	2.38	%	August 16, 2020	75,000			—
Term loan facility (6)	2.33	%	August 16, 2021	250,000			—
Total debt (7)				2,988,383			2,580,962
Unamortized discount on exchangeable senior notes				(2,134		)	—
Equity component of exchangeable senior notes				(5,583		)	—
Deferred financing costs, net (8)				(53,845		)	(56,567		)
Total debt per balance sheet				$	2,926,821		$	2,524,395


(1)	Interest rates are as of September 30, 2016. Unless otherwise stated, interest rates are fixed percentages.

(2)

The AH4R 2014-SFR1 securitization bears interest at a duration-weighted blended interest rate of 1-month 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 AH4R 2015-SFR1 securitization has a maturity date of April 9, 2045, with an anticipated repayment date of April 9, 2025.


(4)	The AH4R 2015-SFR2 securitization has a maturity date of October 9, 2045, with an anticipated repayment date of October 9, 2025.

(5)

The revolving credit facility that was entered into in August 2016 provides for a borrowing capacity of up to $650.0 million, with a fully extended maturity date of August 2020, and bears interest at a LIBOR rate plus a margin ranging from 1.75% to 2.30% or a base rate (generally determined according to a prime rate or federal funds rate) plus a margin ranging from 0.75% to 1.30%. The interest rate stated represents the applicable spread for LIBOR based borrowings as of September 30, 2016, plus 1-month LIBOR.

(6)

The term loan facility provides for a borrowing capacity of up to $350.0 million, with a fully extended maturity date of August 2021, and bears interest at a LIBOR rate plus a margin ranging from 1.70% to 2.30% or a base rate (generally determined according to a prime rate or federal funds rate) plus a margin ranging from 0.70% to 1.30%. The interest rate stated represents the applicable spread for LIBOR based borrowings as of September 30, 2016, plus 1-month LIBOR.


(7)	The Company was in compliance with all debt covenants associated with its asset-backed securitizations, exchangeable senior notes, secured note payable, credit facilities and term loan facility as of September 30, 2016, and December 31, 2015.

(8)

Deferred financing costs relate to our asset-backed securitizations and our term loan facility. Amortization of deferred financing costs was $2.2 million and $1.8 million for the three months ended September 30, 2016 and 2015, respectively, and $6.3 million and $5.0 million for the nine months ended September 30, 2016 and 2015, respectively, which has been included in gross interest, prior to interest capitalization.

Asset-Backed Securitization

In connection with the Merger with ARPI on February 29, 2016 (see Note 10), the Company assumed a securitization loan (the "ARP 2014-SFR1 securitization”), which involved the issuance and sale of single-family rental pass-through certificates that represent beneficial ownership interests in a loan secured by 2,875 homes held by a special purpose entity, ARP 2014-1 Borrower, LLC (the “Borrower”). The Borrower under the loan was wholly owned by another special purpose entity (the “Equity Owner”) and the Equity Owner was wholly owned by the operating partnership. The loan, at the time of its origination by ARPI in August 2014, had an original principal amount of $342.2 million and an initial term of two years, with three, 12-month extension options, resulting in a fully extended maturity date of September 9, 2019. It was comprised of six floating rate components computed monthly based on 1-month LIBOR for each interest period plus a fixed component spread for each of the six components resulting in an effective weighted-average interest rate of 1-month LIBOR plus 2.11%. Interest on the loan was paid monthly.

The 2,875 homes securing the loan 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 were not generally able to be transferred, sold or otherwise securitized, the Company could have substituted properties only if a property owned by the Borrower became a disqualified property under the terms of the loan, and the Borrower was limited in its ability to incur any additional indebtedness.

The loan was 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 provided 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 required that we maintained certain covenants, including but not limited to, a minimum debt yield on the collateral pool of properties. In September 2016, the Company paid off the ARP 2014-SFR1 asset-backed securitization using available cash and borrowings from our credit facilities, which resulted in a $10.7 million loss on early extinguishment of debt related to the write-off of the discount on the securitization. The payoff of the ARP 2014-SFR1 asset-backed securitization resulted in the release of the 2,875 collateralized homes and $10.1 million of restricted cash for lender requirements.

Exchangeable Senior Notes, Net

In connection with the Merger with ARPI on February 29, 2016 (see Note 10), the Company assumed 3.25% exchangeable senior notes due 2018 that have a $115.0 million aggregate principal amount and a fair value at assumption of $112.3 million. The exchangeable senior notes are senior unsecured obligations of the operating partnership and rank equally in right of payment with all other existing and future senior unsecured indebtedness of the operating partnership. Interest is payable in arrears on May 15 and November 15 of each year, beginning May 15, 2016, until the maturity date of November 15, 2018. The operating partnership’s obligations under the exchangeable senior notes are fully and unconditionally guaranteed by the Company. The exchangeable senior notes bear interest at a rate of 3.25% per annum and contain an exchange settlement feature, which provides that the exchangeable senior notes may, under certain circumstances, be exchangeable for cash, shares of our common stock or a combination of cash and shares of our common stock, at the option of the operating partnership, based on an initial exchange rate of 46.9423 shares of ARPI's common stock per $1,000 principal amount of the notes. The adjusted initial exchange rate would be 53.2795 shares of our common stock per $1,000 principal amount of the notes, based on the 1.135 exchange ratio of ARPI shares to our shares resulting from our merger with ARPI. The current exchange rate as of September 30, 2016, was 54.6381 shares of our common stock per $1,000 principal amount of the notes. The exchange rate changes over time based on our common share price and distributions to common shareholders.

Prior to the close of business on the business day immediately preceding August 15, 2018, the notes will be exchangeable at the option of the holders only under the following circumstances: (1) during any calendar quarter beginning after December 31, 2013 (and only during such quarter) if the closing sale price per share of our common stock is more than 130% of the then-current exchange price for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter; (2) during the five consecutive business-day period following any five consecutive trading-day period in which the trading price per $1,000 principal amount of notes was less than 98% of the product of the closing sale price per share of our common stock multiplied by the then-current exchange rate; or (3) upon the occurrence of specified corporate transactions described in the indenture. On or after August 15, 2018, the notes will be exchangeable at any time prior to the close of business on the second business day immediately preceding the maturity date. Subject to its election to satisfy its exchange obligations entirely in shares of our common stock, upon exchange, the operating partnership will pay or deliver, as the case may be, to exchanging holders in respect of each $1,000 principal amount of notes being exchanged a settlement amount either solely in cash, solely in common shares or in a combination of cash and shares of our common stock.

The fair value of the exchangeable senior notes, which was calculated using a binomial lattice model at the time of assumption, was $112.3 million, which represents the $115.0 million face value less a discount of $2.7 million, which will be amortized using the effective interest method over the term of the notes. The amount recorded to exchangeable senior notes, net at the time of assumption was $105.3 million, which represents the fair value of $112.3 million, less the fair value of the exchange settlement feature of the notes of $7.0 million, which was calculated using a straight-debt rate of 6.7% at the time of assumption. The fair value of the exchange settlement feature was recorded in additional paid-in capital and will be amortized using the effective interest method over the term of the notes.

As of September 30, 2016, the exchangeable senior notes, net had a balance of $107.3 million in the condensed consolidated balance sheets, which was net of an unamortized discount of $2.1 million and $5.6 million of unamortized fair value of the exchange settlement feature, which was included in additional paid-in capital within the condensed consolidated balance sheets.

Credit Facilities

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. All borrowings under the credit facility accrued interest at 1-month LIBOR plus 2.75% until March 2017, and thereafter at 1-month LIBOR plus 3.125%. The credit facility was secured by our operating partnership’s membership interests in entities that own certain of our single-family properties and required that we maintain certain financial covenants. In July 2016, the Company paid off the $142.0 million of borrowings that had been outstanding on the credit facility as of June 30, 2016, using proceeds from our 6.35% Series E perpetual preferred share offering, and terminated the credit facility in August 2016. The termination of the credit facility resulted in $2.7 million of charges during the quarter ended September 30, 2016, related to deferred financing cost write-offs, that were included in loss on early extinguishment of debt within the condensed consolidated statements of operations.

In August 2016, the Company entered into a $1.0 billion credit agreement providing for a revolving credit facility in an aggregate principal amount of $650.0 million and a delayed draw term loan facility in an aggregate principal amount of $350.0 million. The interest rate on the revolving credit facility is, at the Company’s election, a LIBOR rate plus a margin ranging from 1.75% to 2.30% or a base rate (generally determined according to a prime rate or federal funds rate) plus a margin ranging from 0.75% to 1.30%. Loans under the term loan facility accrue interest, at the Company’s election, at either a LIBOR rate plus a margin ranging from 1.70% to 2.30% or a base rate plus a margin ranging from 0.70% to 1.30%. In each case, the actual margin is determined according to a ratio of the Company’s total indebtedness to total asset value in effect from time to time. Based on current credit metrics for LIBOR based borrowings as of September 30, 2016, the revolving credit facility bears interest at 1-month LIBOR plus 1.85%, and the term loan facility bears interest at 1-LIBOR plus 1.80%. The credit agreement includes an accordion feature allowing the revolving credit facility or the term loan facility to be increased to an aggregate amount not to exceed $1.75 billion, subject to certain conditions. The facilities mature on August 16, 2019. No amortization payments are required on the term loan facility prior to the maturity date. The Company has the option to extend the maturity date of the revolving credit facility for up to one year, and has two options to extend the maturity date of the term loan facility for up to one year each, in both cases upon payment of an extension fee. The credit agreement requires that we maintain certain financial covenants. As of September 30, 2016, the Company had $75.0 million of outstanding borrowings against the revolving credit facility, $250.0 million of outstanding borrowings against the term loan facility, net and was in compliance with all loan covenants.

Interest Expense

The following table displays our total gross interest, which includes unused commitment and other fees on our credit facilities and amortization of deferred financing costs, the discounts on the ARP 2014-SFR1 securitization and exchangeable senior notes and the fair value of the exchange settlement feature of the exchangeable senior notes, and capitalized interest for the three and nine months ended September 30, 2016 and 2015 (in thousands):



	For the Three Months Ended						For the Nine Months Ended
	September 30, 2016			September 30, 2015			September 30, 2016			September 30, 2015
Gross interest	$	33,433		$	25,029		$	100,886		$	69,181
Capitalized interest	(582		)	(1,163		)	(1,577		)	(7,642		)
Interest expense	$	32,851		$	23,866		$	99,309		$	61,539

Note 7. Accounts Payable and Accrued Expenses

The following table summarizes accounts payable and accrued expenses as of September 30, 2016, and December 31, 2015 (in thousands):



	September 30, 2016		December 31, 2015
Accounts payable	$	—	$	1,173
Accrued property taxes	108,102		46,024
Other accrued liabilities	31,096		26,031
Accrued construction and maintenance liabilities	12,661		11,429
Resident security deposits	69,743		53,819
Prepaid rent	19,465		16,275
Total	$	241,067	$	154,751

Accounts payable and accrued expenses rose $86.3 million to $241.1 million as of September 30, 2016, compared to $154.8 million as of December 31, 2015, primarily due to increases in accrued property taxes and resident security deposits, which are primarily related to the acquisition of 8,936 properties in connection with the Merger with ARPI (see Note 10).

Note 8. Shareholders’ Equity

Issuance of Class A Common Shares and Class A Units

In February 2016, the Company issued 36,546,170 Class A common shares, $0.01 par value per share, and 1,343,843 Class A units in connection with the Merger with ARPI (see Note 10). Class A units represent voting equity interests in our operating partnership. Holders of Class A units in our operating partnership have the right to redeem the units for cash or, at the election of the Company, exchange the units for the Company's Class A common shares on a one-for-one basis.

Perpetual Preferred Shares

Perpetual preferred shares represent non-voting preferred equity interests in the Company and entitle holders to a cumulative annual cash dividend equal to 6.5% for Series D cumulative redeemable perpetual preferred shares ("Series D perpetual preferred shares") and 6.35% for Series E cumulative redeemable perpetual preferred shares ("Series E perpetual preferred shares"), which is applied to the liquidation preference at issuance of $25 per share. The Company may, at its option, redeem the perpetual preferred shares for cash, in whole or in part, from time to time, at any time on or after May 24, 2021, for the Series D perpetual preferred shares and June 29, 2021, for the Series E perpetual preferred shares or within 120 days after the occurrence of a change in control at a redemption price equal to the $25 per share liquidation preference, plus any accumulated and unpaid dividends.

During May 2016, the Company issued 10,750,000 6.5% Series D perpetual preferred shares in an underwritten public offering and concurrent private placement, raising gross proceeds of $268.8 million before offering costs of $8.5 million.

During June 2016, the Company issued 9,200,000 6.35% Series E perpetual preferred shares in an underwritten public offering, raising gross proceeds of $230.0 million before offering costs of $7.5 million.

Participating Preferred Shares

As of September 30, 2016, 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 $470.9 million.

Conversion of Series C Convertible Units into Class A Units

The Series C convertible units represented voting equity interests in our operating partnership owned by former AH LLC members. On February 28, 2016, the third anniversary of their original issue date, the 31,085,974 Series C convertible units converted into Class A units on a one-for-one basis in accordance with their terms.

Conversion of Series E Convertible Units into Series D Convertible Units

The Series E convertible units represented non-voting equity interests in our operating partnership. Series E convertible units did not participate in any distributions and were convertible into Series D convertible units on February 29, 2016, subject to an earn-out provision based on the level of pro forma annualized EBITDA contribution, as defined, of the Advisor and the Property Manager. The terms of the earn-out provision were met in full and, therefore, the 4,375,000 Series E convertible units were converted into Series D convertible units on a one-for-one basis on February 29, 2016. The fair value of the Series D convertible units was estimated using a Monte Carlo simulation model, which was primarily driven by the most recent trading price of the Company’s Class A common shares into which the Series D convertible units are ultimately convertible. Based on this valuation, the conversion of Series E convertible units into Series D convertible units resulted in a gain of $11.5 million which was recorded in gain on conversion of Series E units within the condensed consolidated statements of operations. Additionally, the Series E convertible units had a $2.8 million contingent beneficial conversion feature that represents a return to the Series E convertible unit holders in the form of additional noncontrolling interest, calculated as the difference between the estimated fair value of the Series D units and the Class A units at the time of the conversion of the Series E units into Series D units in February 2016. The contingent beneficial conversion feature was recognized when the contingency was met, which occurred when the Series D units converted into Class A units on September 30, 2016.

Conversion of Series D Convertible Units into Class A Units

The Series D convertible units represented non-voting equity interests in our operating partnership owned by former AH LLC members and began participating in distributions, representing 70% of distributions declared on Class A units, 30 months after their issuance. The Series D convertible units were automatically convertible into Class A units on a one-for-one basis only after the later of (1) 30 months after the date of issuance and (2) the earlier of (i) the date on which adjusted funds from operations per Class A

common share aggregated to $0.80 or more over four consecutive quarters following the original issuance date of the units and (ii) the date on which the daily closing price of our Class A common shares on the New York Stock Exchange ("NYSE") averaged $18.00 or more for two consecutive quarters following the original issuance date of the units. On September 30, 2016, the above-referenced conversion contingency was met and the 8,750,000 Series D convertible units were converted into Class A units on a one-for-one basis, which resulted in a $4.8 million noncash charge that was included in noncontrolling interest within the condensed consolidated statements of operations. The noncash charge relates to a contingent beneficial conversion feature that represents a return to the Series D convertible unit holders in the form of additional noncontrolling interest, calculated as the difference between the estimated fair value of the Series D units and the Class A units at the time of their respective issuances, which was recognized when the contingency was met.

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 September 30, 2016 and 2015. 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 quarters ended September 30, 2016 and 2015, totaled $0.3125 per share, $0.3125 per share and $0.34375 per share, respectively. Distributions declared on our 6.5% Series D perpetual preferred shares and 6.35% Series E perpetual preferred shares totaled $0.40625 per share and $0.40569 per share, respectively, during the quarter ended September 30, 2016. Distributions declared on our Series C convertible units totaled zero and $0.15113 per unit during the quarters ended September 30, 2016 and 2015, respectively. Distributions declared on our Series D convertible units totaled $0.035 per unit for the quarter ended September 30, 2016, which represents 70% of distributions declared on Class A units.

Noncontrolling Interest

Noncontrolling interest as reflected in the Company’s condensed consolidated balance sheets primarily consists of the interest held by former AH LLC members in units in the Company’s operating partnership. Former AH LLC members owned 54,276,644 and 14,440,670, or approximately 18.5% and 6.5%, of the total 293,987,819 and 222,311,255 Class A units in the operating partnership as of September 30, 2016, and December 31, 2015, respectively. Additionally, former AH LLC members owned zero and all 31,085,974 of the Series C convertible units and owned zero and all 4,375,000 of the Series D convertible units in the operating partnership as of September 30, 2016, and December 31, 2015, respectively. Noncontrolling interest also includes interests held by former ARPI employees in Class A units of the Company's operating partnership, which were issued in connection with the Merger with ARPI in February 2016. Former ARPI Class A unit holders owned 1,279,316, or approximately 0.4% of the total 293,987,819 Class A units in the operating partnership as of September 30, 2016. Also included in noncontrolling interest is the outside ownership interest in a consolidated subsidiary of the Company.

The following table summarizes the activity that relates to the Company’s noncontrolling interest as reflected in the condensed consolidated statements of operations for the three and nine months ended September 30, 2016 and 2015:



	For the Three Months Ended						For the Nine Months Ended
	September 30, 2016			September 30, 2015			September 30, 2016			September 30, 2015
Preferred income allocated to Series C convertible units	$	—		$	4,698		$	3,027		$	14,094
Net (loss) income allocated to Class A units	(27		)	(1,575		)	108			(3,241		)
Net income allocated to Series D convertible units	—			—			133			—
Beneficial conversion feature	7,569			—			7,569			—
Net loss allocated to noncontrolling interests in certain consolidated subsidiaries	(226		)	(14		)	(446		)	(58		)
	$	7,316		$	3,109		$	10,391		$	10,795

2012 Equity Incentive Plan

During the nine months ended September 30, 2016 and 2015, the Company granted stock options for 708,000 and 588,500 Class A common shares, respectively, and 74,100 and 44,000 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 nine months ended September 30, 2016 and 2015, 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 nine months ended September 30, 2016 and 2015:



	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (1) (in thousands)
Options outstanding at January 1, 2015	2,165,000		$	16.17	8.8	$	1,890
Granted	588,500		16.49
Exercised	(15,000	)	15.00			19
Forfeited	(178,500	)	16.57
Options outstanding at September 30, 2015	2,560,000		$	16.23	8.3	$	557
Options exercisable at September 30, 2015	636,250		$	15.94	7.7	$	273

Options outstanding at January 1, 2016	2,484,400		$	16.22	8.0	$	1,225
Granted	708,000		14.15
Exercised	(172,250	)	16.12			680
Forfeited	(153,150	)	16.36
Options outstanding at September 30, 2016	2,867,000		$	15.70	7.84	$	17,021
Options exercisable at September 30, 2016	1,051,125		$	16.04	7.08	$	5,885


(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.

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 nine months ended September 30, 2016 and 2015:



	2016			2015
Weighted-average fair value	$	2.82		$	4.57
Expected term (years)		7.0			7.0
Dividend yield		3.0	%		3.0	%
Volatility		27.3	%		35.9	%
Risk-free interest rate		1.5	%		1.9	%

The following table summarizes the activity that relates to the Company’s restricted stock units under the Plan for the nine months ended September 30, 2016 and 2015:



	2016		2015
Restricted stock units at beginning of period	91,650		85,000
Units awarded	74,100		44,000
Units vested	(27,250	)	(22,000	)
Units forfeited	(6,550	)	(9,700	)
Restricted stock units at end of the period	131,950		97,300

Total non-cash share-based compensation expense related to stock options and restricted stock units was $0.9 million for the three months ended September 30, 2016 and 2015 and $2.7 million and $2.3 million for the nine months ended September 30, 2016 and 2015, respectively.

Share Repurchase Program

On September 21, 2015, the Company announced that our Board of Trustees approved a share repurchase program authorizing us to repurchase up to $300.0 million of our outstanding Class A common shares from time to time in the open market or in privately negotiated transactions. The program does not have an expiration date, but may be suspended or discontinued at any time without notice. All repurchased shares are constructively retired and returned to an authorized and unissued status. In addition, the excess of the purchase price over the par value of shares repurchased is recorded as a reduction to additional paid-in capital. During the nine months ended September 30, 2016, we repurchased and retired approximately 6.2 million of our Class A common shares, on a settlement basis, in accordance with the program at a weighted-average price of $15.44 per share and a total price of $96.0 million.

During the nine months ended September 30, 2015, we repurchased and retired approximately 3.4 million of our Class A common shares, in accordance with the program at a weighted-average price of $15.76 per share and a total price of $53.7 million. As of September 30, 2016, we had a remaining repurchase authorization of $146.7 million under the program.

Secondary Offering

In September 2016, the Alaska Permanent Fund Corporation (the "Selling Shareholder") sold 43.5 million of the Company's Class A common shares at an offering price of $21.75 per share, in a registered offering (the "Secondary Offering"). The Company did not sell any shares in, or receive any proceeds from, the Secondary Offering. The Company incurred approximately $0.2 million of expenses in the third quarter of 2016 related to the Secondary Offering, which were included in acquisition fees and costs expensed within the condensed consolidated statements of operations.

Note 9. Related Party Transactions

As of September 30, 2016, and December 31, 2015, former AH LLC members owned approximately 2.8% and 3.3%, respectively, of our outstanding Class A common shares. On a fully-diluted basis, former AH LLC members held (including consideration of 635,075 Class B common shares as of September 30, 2016, and December 31, 2015, 54,276,644 and 14,440,670 Class A units as of September 30, 2016, and December 31, 2015, respectively, zero and all 31,085,974 Series C convertible units as of September 30, 2016, and December 31, 2015, respectively, zero and all 4,375,000 Series D convertible units as of September 30, 2016, and December 31, 2015, respectively, and zero and all 4,375,000 Series E convertible units as of September 30, 2016, and December 31, 2015, respectively) an approximate 18.6% and 22.1% interest at September 30, 2016, and December 31, 2015, respectively.

As of September 30, 2016, the Company had a net receivable of $1.3 million due from affiliates primarily related to expense reimbursements due from a joint venture, which was included in escrow deposits, prepaid expenses and other assets within the condensed consolidated balance sheets. As of December 31, 2015, the Company had a net payable of $4.1 million payable to affiliates related to declared and unpaid distributions on the Series C units, partially offset by expense reimbursements from affiliates, which was included in amounts payable to affiliates within the condensed consolidated balance sheets.

In June 2014, the Company and the Alaska Permanent Fund Corporation ("APFC") formed a joint venture (the "Alaska Joint Venture II"). As of September 30, 2016, and December 31, 2015, we had contributed $40.0 million to the Alaska Joint Venture II and APFC had contributed $160.0 million. During the third quarter of 2016, the Alaska Joint Venture II paid distributions totaling $0.4 million and $1.6 million to us and APFC, respectively. In evaluating the Company's interest in the Alaska Joint Venture II, we concluded that the entity is not a variable interest entity after applying the variable interest model and, therefore, we account for our interest in the Alaska Joint Venture II as an investment in an unconsolidated subsidiary using the equity method of accounting after applying the voting interest model. As of September 30, 2016, the balance of the Company's investment in the Alaska Joint Venture II was $33.3 million, which is included in escrow deposits, prepaid expenses and other assets within the condensed consolidated balance sheets. The Company has a promoted interest in the Alaska Joint Venture II in addition to owning 20% of its equity.

Note 10. Acquisitions

Merger with American Residential Properties, Inc.

On February 29, 2016, the Company completed a merger with ARPI, in which ARPI merged with and into a wholly owned subsidiary of us in a stock-for-stock transaction, with our subsidiary continuing as the surviving entity (the "Merger"). The purpose of this acquisition was to solidify our position as the largest public owner and operator of single-family rental properties, increase scale and achieve operating synergies. ARPI’s portfolio is substantially similar to our own, meets our high quality portfolio standards and the acquisition of their portfolio has allowed us to add density in key markets. As a result of the Merger, each holder of ARPI common stock received 1.135 of our Class A common shares for each share of ARPI common stock and each holder of limited partnership interests in ARPI’s operating partnership received 1.135 Class A units of our operating partnership. We issued 36,546,170 Class A common shares and 1,343,843 Class A units in connection with the Merger, representing 12.7% of the total Class A common shares, Class B common shares and units of our operating partnership, collectively, as of the acquisition date. The equity transaction consideration of $530.5 million was calculated based on the 36,546,170 Class A common shares and 1,343,843 Class A units issued in connection with the Merger valued at the Company’s closing share price on the acquisition date of $14.00 per share. Transaction costs incurred by the Company related to the Merger totaled $7.7 million, of which $0.5 million was incurred during the third quarter of 2016.

The following table summarizes the preliminary allocation of the estimated fair values of the assets and liabilities acquired as part of the Merger as of the acquisition date (in thousands):



Net assets acquired
Land	$	262,396
Buildings and improvements	1,014,857
Cash and cash equivalents	15,499
Restricted cash	9,521
Rent and other receivables	843
Escrow deposits, prepaid expenses and other assets	35,134
In-place leases	22,696
Accounts payable and accrued expenses	(38,485		)
Net assets acquired	1,322,461

Debt assumed or extinguished
Credit facility	350,000
Exchangeable senior notes	112,298
Asset-backed securitization	329,703
Total debt assumed or extinguished	792,001

Equity transaction consideration	530,460

Total transaction consideration	$	1,322,461

Since the completion of the Merger, the Company has consolidated the 8,936 single-family properties acquired as part of the transaction and the related results of these operations are reflected in the Company’s condensed consolidated financial statements.

The following table presents the total revenues and net income (loss) attributable to the Merger that are included in our condensed consolidated statements of operations for the three and nine months ended September 30, 2016 (in thousands):



	For the Three Months Ended September 30, 2016		For the Period from February 29, 2016 to September 30, 2016
Total revenues	$	37,505	$	83,387
Net income (loss)	$	2,148	$	(3,479	)

Pro Forma Supplemental Information

The following table presents the Company’s supplemental consolidated pro forma total revenues and net loss as if the Merger had occurred on January 1, 2015 (in thousands):



	For the Three Months Ended						For the Nine Months Ended
	September 30, 2016			September 30, 2015			September 30, 2016			September 30, 2015
Pro forma total revenues (1)	$	236,057		$	204,580		$	674,291		$	549,508
Pro forma net loss (1)	$	(167	)	$	(22,958	)	$	(18,093	)	$	(42,265	)
Pro forma net loss per share (1)	$	(0.09	)	$	(0.13	)	$	(0.23	)	$	(0.28	)


(1)	This pro forma supplemental information does not purport to be indicative of what the Company's operating results would have been had the Merger occurred on January 1, 2015.

Note 11. Earnings per Share

The following table reflects the computation of net income (loss) per share on a basic and diluted basis for the three and nine months ended September 30, 2016 and 2015 (in thousands, except share data):



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2016			2015			2016			2015
Numerator:
Net (loss) income	$	(167	)	$	(19,938	)	$	1,108		$	(36,601	)
Noncontrolling interest	7,316			3,109			10,391			10,795
Dividends on preferred shares	13,669			5,569			26,650			16,707
Net loss attributable to common shareholders	$	(21,152	)	$	(28,616	)	$	(35,933	)	$	(64,103	)
Denominator:
Denominator:
Weighted-average shares	238,401,343			211,414,368			232,036,802			211,460,840

Net loss per share—basic and diluted	$	(0.09	)	$	(0.14	)	$	(0.15	)	$	(0.30	)

Total weighted-average shares for the three and nine months ended September 30, 2016, excludes an aggregate of 81,898,292 shares or units in our operating partnership, participating preferred shares, common shares issuable upon exercise of stock options, restricted stock units and common shares issuable upon the conversion of our exchangeable senior notes from dilutive securities because they were antidilutive due to the net loss attributable to common shareholders in those periods. Total weighted-average shares for the three and nine months ended September 30, 2015, excludes an aggregate of 73,993,944 shares or units in our operating partnership, participating preferred shares, common shares issuable upon exercise of stock options, and restricted stock units from dilutive securities because they were antidilutive due to the net loss attributable to common shareholders in those periods.

Note 12. Commitments and Contingencies

As of September 30, 2016, and December 31, 2015, we had commitments to acquire 103 and 12 single-family properties, respectively, with an aggregate purchase price of $22.4 million and $1.7 million, respectively.

As of September 30, 2016, the Company had sales in escrow for approximately 445 of our single-family properties for an aggregate selling price of $26.7 million.

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 or results of operations upon resolution.

Note 13. Noncash Transactions

On February 29, 2016 we completed our Merger with ARPI in a stock-for-stock transaction. Each holder of ARPI common stock received 1.135 of our Class A common shares for each share of ARPI common stock and each holder of limited partnership interests in ARPI's operating partnership received 1.135 Class A units of our operating partnership. We issued 36,546,170 Class A common shares and 1,343,843 Class A units in connection with the Merger, representing 12.7% of the total Class A common shares, Class B common shares and units of our operating partnership, collectively, as of the acquisition date (see Note 10).

Note 14. 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 and preferred shares derivative liability are the only financial instruments recorded at fair value on a recurring basis in the condensed consolidated financial statements.

Our credit facilities, term loan facility, asset-backed securitizations, exchangeable senior notes and secured note payable are also financial instruments, which are classified as Level 3 in the fair value hierarchy as they were estimated by using unobservable inputs. We estimated their fair values by modeling the contractual cash flows required under the instruments and discounting them back to their present values using estimates of current market rates. The following table displays the carrying values and fair values of our debt instruments as of September 30, 2016, and December 31, 2015 (in thousands):



	September 30, 2016				December 31, 2015
	Carrying Value		Fair Value		Carrying Value		Fair Value
AH4R 2014-SFR1 securitization	$	457,979	$	460,767	$	473,755	$	472,258
AH4R 2014-SFR2 securitization	503,093		513,484		507,305		476,952
AH4R 2014-SFR3 securitization	519,148		532,755		523,109		489,448
AH4R 2015-SFR1 securitization	544,861		555,558		549,121		496,673
AH4R 2015-SFR2 securitization	473,237		484,615		476,920		433,633
Total asset-backed securitizations (1)	2,498,318		2,547,179		2,530,210