Shareholders' Equity

Class A Common Shares

In connection with the Management Internalization in 2013 (see Note 11), we entered into a registration rights agreement with AH LLC providing for registration rights exercisable after December 10, 2015. Beginning in June 10, 2015, if we are eligible to file a shelf registration statement, AH LLC has the right to request that we file and maintain a shelf registration statement to register for resale the Class A common shares and securities convertible into Class A common shares that are held by AH LLC. AH LLC also has the right to "piggy-back" registration rights to include the Class A common shares and securities convertible into Class A common shares that AH LLC owns in other registration statements that we may initiate.

In connection with the Alaska Joint Venture Acquisition in 2013 (see Note 11), we entered into a registration rights agreement with APFC. Pursuant to the terms of such agreement, we filed and will maintain a shelf registration statement with the SEC that registers for resale the Class A common shares acquired by APFC in connection with the Alaska Joint Venture Acquisition. APFC also has a right to "piggy-back" registration in the event we conduct future offerings of Class A common shares for our own behalf.

In March 2013, the Company sold 46,718,750 Class A common shares in connection with the 2013 Offering. In August 2013, the Company sold an additional 55,422,794 Class A common shares in connection with the IPO and the 2013 Concurrent Private Placements.

In July 2014, the Company issued 8,158,001 Class A common shares, $0.01 par value per share, in connection with the acquisition of Beazer Rental Homes (see Note 11).

In August 2014, the Company issued 17,782,861 Class A common shares, $0.01 par value per share, in an underwritten public offering and concurrent private placement, which raised gross proceeds of $313.3 million before offering costs of $4.9 million.

Our board of trustees declared distributions that totaled $0.20 per share, $0.20 per share and $0.05 per share on our Class A common shares during the years ended December 31, 2015, 2014 and 2013, respectively.

Class B Common Shares

AH LLC received a total of 635,075 shares of Class B common shares in the Company in connection with its investment in the 2012 Offering and the 2,770 Property Contribution (see Note 10). Each Class B common share generally entitles the holder to 50 votes on all matters that the holders of Class A common shares are entitled to vote. The issuance of Class B common shares to AH LLC allows AH LLC a voting right associated with its investment in the Company no greater than if it had solely received Class A common shares. Additionally, when the voting interest from Class A common shares and Class B common shares are added together, a shareholder is limited to a 30% total voting interest. Each Class B common share has the same economic interest as a Class A common share. Our board of trustees declared distributions that totaled $0.20 per share, $0.20 per share and $0.05 per share on our Class B common shares during the years ended December 31, 2015, 2014 and 2013, respectively.

Participating Preferred Shares

Participating preferred shares represent non-voting preferred equity interests in the Company and entitle holders to a cumulative annual cash dividend equal to 5.0% for Series A participating preferred shares, 5.0% for Series B participating preferred shares and 5.5% for Series C participating preferred shares of an initial liquidation preference of $25 per share. Any time between September 30, 2017, and September 30, 2020, for the Series A and Series B participating preferred shares and between March 31, 2018, and March 31, 2021, for the Series C participating preferred shares (the "initial redemption period"), the Company has the option to redeem the preferred shares for cash or Class A common shares, at a redemption price equal to the initial liquidation preference, 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 (the "HPA adjustment"). During the initial redemption period, the amount payable upon redemption will be subject to a cap, such that the total internal rate of return, when considering the initial liquidation preference, the HPA adjustment and dividends up to, but excluding, the date of redemption, will not exceed 9.0%. If not redeemed by the end of the initial redemption period, the initial liquidation preference of $25 per share will be adjusted by the HPA adjustment as of September 30, 2020, for the Series A and Series B participating preferred shares and as of March 31, 2021, for the Series C participating preferred shares (the "adjusted liquidation preference") and the cumulative annual cash dividend rate will be prospectively increased to 10% of the adjusted liquidation preference. Any time after September 30, 2020, for the Series A and Series B participating preferred shares and March 31, 2021, for the Series C participating preferred shares, the Company has the option to redeem the preferred shares for cash or Class A common shares, at a redemption price equal to the adjusted liquidation preference. Because the HPA adjustment meets the definition of a derivative under ASC 815, Derivatives and Hedging, and is not clearly and closely related to the economic characteristics and risks of the underlying preferred shares, the fair value of the HPA adjustment has been reflected as a liability in the consolidated balance sheets and is adjusted to fair value each period and included in remeasurement of preferred shares in the consolidated statements of operations (see Note 15).

In October 2013, the Company issued 5,060,000 5.0% Series A participating preferred shares in an underwritten public offering, which raised gross proceeds of $126.5 million before offering costs of $7.3 million.

In December 2013 and January 2014, the Company issued 4,400,000 5.0% Series B preferred shares in an underwritten public offering which raised gross proceeds of $110.0 million before offering costs of $6.6 million.

In May 2014, the Company issued 7,600,000 5.5% Series C participating preferred shares in an underwritten public offering and concurrent private placement, raising gross proceeds of $190.0 million before offering costs of $9.7 million.

As of December 31, 2015, the initial liquidation preference, 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 $457.6 million.

Our board of trustees declared distributions that totaled $1.25 per share, $1.25 per share and $1.38 per share on our 5.0% Series A participating preferred shares, 5.0% Series B participating preferred shares and 5.5% Series C participating preferred shares, respectively, during the year ended December 31, 2015. Our board of trustees declared distributions that totaled $1.25 per share, $1.29 per share and $0.91 per share on our 5.0% Series A participating preferred shares, 5.0% Series B participating preferred shares and 5.5% Series C participating preferred shares, respectively, during the year ended December 31, 2014. Distributions declared on our 5.0% Series A participating preferred shares totaled $0.23 per share for the year ended December 31, 2013.

Class A Units

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. The Company owned 93.5% and 93.6% of the total 222,311,255 and 225,914,576 Class A units outstanding as of December 31, 2015 and 2014, respectively.

Series C Convertible Units

Series C convertible units represent voting equity interests in our operating partnership. Holders of the Series C convertible units are entitled to distributions equal to the actual net cash flow from a portfolio of 2,770 single-family properties contributed to the Company by AH LLC on February 28, 2013 (see Note 10), up to a maximum of 3.9% per unit per annum based on a price per unit of $15.50, but will not be entitled to any distributions of income generated by any other properties or operations of the Company or any liquidating distributions. Since the date of issuance of the Series C convertible units, net cash flow from the properties contributed to the Company exceeded 3.9% per annum, providing the payment of the maximum amount of the preferred distribution. Holders of the Series C convertible units have a one-time right to convert all such units into Class A units on a unit for unit basis. If on the date of conversion, the contributed properties have not been initially leased for at least 98% of the scheduled rents (determined on an aggregate basis), then the Series C convertible units with respect to the single-family properties leased for at least 98% of the scheduled rents (determined on an aggregate basis) will convert into Class A units, and the Series C convertible units associated with the remaining single-family properties will convert into a number of Class A units determined by dividing the original aggregate cost of the properties (including the acquisition fees) by $15.50, with a proportionate reduction in Class B common shares. If the Series C convertible units have not been converted by the earlier of the third anniversary of the original issue date, which is February 28, 2016, or the date of commencement of a dissolution or liquidation, then the Series C convertible units will automatically convert into Class A units at the specified conversion ratio defined above. As of December 31, 2015, AH LLC owned all of the 31,085,974 outstanding Series C convertible units. Our board of trustees declared distributions that totaled $0.60 per share, $0.60 per share and $0.15 per share on our Series C convertible units during the years ended December 31, 2015, 2014 and 2013, respectively. Based on the historic initial leasing performance of the 2,770 contributed properties, we currently expect the Series C convertible units to convert into Class A units on February 28, 2016.

Series D Convertible Units

Series D convertible units represent non-voting equity interests in our operating partnership. Holders of the Series D convertible units do not participate in any distributions for 30 months from the date of issuance and do not participate in any liquidating distributions at any point in time. The Series D convertible units are 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 aggregates $0.80 or more over four consecutive quarters following the closing of the Management Internalization and (ii) the date on which the daily closing price of our Class A common shares on the NYSE averages $18.00 or more for two consecutive quarters following the closing of the Management Internalization. After 30 months, the Series D convertible units will participate in distributions (other than liquidating distributions) at a rate of 70% of the per unit distributions on the Class A units. As of December 31, 2015 and 2014, AH LLC owned all of the 4,375,000 outstanding Series D convertible units (see Note 11).

Series E Convertible Units

Series E convertible units represent non-voting equity interests in our operating partnership. Series E convertible units do not participate in any distributions and automatically convert into Series D convertible units, or if the Series D convertible units have previously converted into Class A units, into Class A 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. Based on the terms of the earn-out provision, if pro forma annualized EBITDA contribution, as defined, equals or exceeds $28 million during the six-month period ending December 31, 2015 (the "measurement period"), the Series E convertible units will convert into Series D convertible units (or if the Series D convertible units have previously converted into Class A units, into Class A units) on a one-for-one basis at February 29, 2016. If, during the measurement period, the pro forma annualized EBITDA contribution, as defined, is less than $28 million, the Series E convertible units will convert into a number of Series D convertible units (or if the Series D convertible units have previously converted into Class A units, into Class A units) determined by (1) dividing (A) Pro Forma Annualized EBITDA Contribution during the measurement period less $14 million by (B) $14 million and (2) multiplying that result by 4,375,000. Series E convertible units which are not converted at the end of the measurement period, if any, will be cancelled.

Because the Series E convertible units may potentially be settled by issuing a variable number of Series D convertible units or Class A units, the Series E convertible units have been recorded at fair value and reflected as a liability in accordance with ASC 480, Distinguishing Liabilities and Equity, in the consolidated balance sheets and are adjusted to fair value each period (see Note 15). As of December 31, 2015 and 2014, AH LLC owned all of the 4,375,000 outstanding Series E convertible units (see Note 11). We currently expect the above-described earn-out provision to be met in full and the Series E convertible units to convert into Series D convertible units on a one-for-one basis on February 29, 2016.

3.5% Convertible Perpetual Preferred Units

In connection with the Company's acquisition of a Class B ownership interest in RJ American Homes 4 Rent Investments, LLC ("RJ LLC") on December 31, 2012 (see Note 11), the Company issued 653,492 3.5% convertible perpetual preferred units ("Preferred Units") to AH LLC. The Preferred Units represented non-voting equity interest in our operating partnership and entitled the holder to a preferred annual distribution equal to $0.53 per unit, when authorized and declared by the general partner of our operating partnership (i.e., the Company). Distributions accrued on a cumulative basis from the date of issuance and were payable quarterly.

In connection with AH LLC's contribution of its remaining ownership interest in RJ LLC to the Company on June 14, 2013, all of the outstanding 653,492 Preferred Units held by AH LLC were converted into Class A units (see Note 11).

Noncontrolling Interest

Noncontrolling interest as reflected in the Company's 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 6.5% and 6.4%, of the total 222,311,255 and 225,914,576 Class A units in our operating partnership as of December 31, 2015 and 2014, respectively. Additionally, AH LLC owned all 31,085,974 Series C convertible units and all 4,375,000 Series D convertible units in our operating partnership as of December 31, 2015 and 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 consolidated statements of operations for the years ended December 31, 2015, 2014 and 2013, of $14.4 million, $15.0 million and $13.2 million, respectively, primarily consisted of $18.8 million, $18.6 million and $14.9 million, respectively, of preferred income allocated to Series C convertible units, zero, zero and $0.2 million, respectively, of preferred income allocated to Preferred Units (prior to the date of conversion), $4.3 million, $3.4 million and $1.8 million, respectively, of net loss allocated to Class A units, and $0.1 million, $0.3 million and $0.1 million, respectively, of net loss allocated to noncontrolling interests in certain of the Company's consolidated subsidiaries.

Subscription Agreement

In 2012, we entered into a subscription agreement with AH LLC under which AH LLC had the option to purchase 3,333,334 Class A common shares through November 21, 2015, for an aggregate purchase price of $50.0 million ($15.00 per share), the price per share of our Class A common shares in the 2012 Offering.

In 2013, the Company entered into an agreement with AH LLC to fully settle the subscription agreement based on a price of $17.25 per share, a price determined based on the most recent trade in the Company's shares at the time of settlement. Such settlement resulted in the issuance of 434,783 Class A common shares to AH LLC.

2012 Equity Incentive Plan

In 2012, we adopted the 2012 Equity Incentive Plan (the "Plan") to provide persons with an incentive to contribute to the success of the Company and to operate and manage our business in a manner that will provide for the Company's long-term growth and profitability. The Plan provides for the issuance of up to 1,500,000 Class A common shares through the grant of a variety of awards including stock options, stock appreciation rights, restricted stock, unrestricted shares, dividend equivalent rights and performance-based awards. The Plan terminates in November 2022, unless it is earlier terminated by our board of trustees. In April 2013, our shareholders approved an amendment to the Plan allowing for an increase in the maximum number of Class A common shares available for issuance from 1,500,000 to 6,000,000.

In 2015, the Company granted stock options for 588,500 Class A common shares and 44,000 restricted stock units to certain employees of the Company. In 2014, the Company granted stock options for 1,270,000 Class A common shares and 92,000 restricted stock units to certain employees of the Company. In 2013, the Company granted stock options for 550,000 Class A common shares to certain employees of the Company. As a result of the Management Internalization on June 10, 2013, certain former employees of AH LLC became employees of the Company and, accordingly, stock options for 485,000 Class A common shares were reclassified as grants to employees and re-measured as of the date of the Management Internalization.

All of the options and restricted stock units granted during the years ended December 31, 2015, 2014 and 2013, vest over four years and expire 10 years from the date of grant. Noncash share-based compensation expense related to these options is based on the estimated fair value on the date of grant and is recognized in expense over the service period. Such expense is adjusted to consider estimated forfeitures. Estimated forfeitures are adjusted to reflect actual forfeitures at the end of the vesting period.

The following table summarizes stock option activity under the Plan for the years ended December 31, 2015, 2014 and 2013:



	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (1) (in thousands)
Options outstanding at December 31, 2012	700,000		$	15.00	9.9	$	—	(2)
Granted	550,000		16.03
Exercised	—		—			—
Forfeited	(60,000	)	15.00
Options outstanding at December 31, 2013	1,190,000		$	15.48	9.3	$	862
Granted	1,270,000		16.74
Exercised	(28,750	)	15.00			74
Forfeited	(266,250	)	15.88
Options outstanding at December 31, 2014	2,165,000		$	16.17	8.8	$	1,890
Granted	588,500		16.49
Exercised	(16,600	)	15.16			19
Forfeited	(252,500	)	16.57
Options outstanding at December 31, 2015	2,484,400		$	16.22	8.0	$	1,225
Options exercisable at December 31, 2015	860,900		$	15.81	7.4	$	766


(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.


(2)	Prior to August 1, 2013, there was no public trading market for our Class A common shares.

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 years ended December 31, 2015, 2014 and 2013:



	2015			2014			2013
Weighted-average fair value	$	4.57		$	5.06		$	4.75
Expected term (years)	7.0			7.0			7.0
Dividend yield	3.0		%	3.0		%	3.0		%
Volatility	35.9		%	38.5		%	38.0		%
Risk-free interest rate	1.9		%	2.2		%	2.0		%

The following table summarizes the activity that relates to the Company's restricted stock units under the Plan for the years ended December 31, 2015, 2014 and 2013:



	2015		2014		2013
Restricted stock units at beginning of period	85,000		—		—
Units awarded	44,000		92,000		—
Units vested	(22,000	)	—		—
Units forfeited	(15,350	)	(7,000	)	—
Restricted stock units at end of the period	91,650		85,000		—

Total non-cash share-based compensation expense related to stock options and restricted stock units was $3.1 million, $2.6 million and $0.8 million for the years ended December 31, 2015, 2014 and 2013, respectively. Also included in noncash share-based compensation expense for the year ended December 31, 2013, was $0.3 million associated with 19,500 Class A common shares issued to our trustees during 2013.

As of December 31, 2015, there was a total unrecognized compensation cost of $6.0 million for unvested stock options and $1.1 million for unvested restricted stock and restricted stock units, which does not include estimated forfeitures. The unrecognized compensation cost for unvested stock options and restricted stock and restricted stock units is expected to be recognized over a weighted-average period of 2.0 and 2.4 years, 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 year ended December 31, 2015, we repurchased and retired 3.6 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 $57.3 million. As of December 31, 2015, we had a remaining repurchase authorization of $242.7 million under the program.