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Debt | 12 Months Ended
--- | ---
Dec. 31, 2018
Debt Disclosure [Abstract] |
Debt | Debt All of the Company's indebtedness is debt of the Operating Partnership. AH4R is not directly obligated under any indebtedness, but guarantees some of the debt of the Operating Partnership. The following table presents the Company’s debt as of December 31, 2018 and 2017 (in thousands):
|  |  |  |  | Outstanding Principal Balance
| Interest Rate (1) |  | Maturity Date |  | December 31, 2018 |  | December 31, 2017
AH4R 2014-SFR2 securitization | 4.42 | % |  | October 9, 2024 |  | $ | 491,195 |  |  | $ | 496,326 |
AH4R 2014-SFR3 securitization | 4.40 | % |  | December 9, 2024 |  | 506,760 |  |  | 512,041 |
AH4R 2015-SFR1 securitization (2) | 4.14 | % |  | April 9, 2045 |  | 532,197 |  |  | 537,723 |
AH4R 2015-SFR2 securitization (3) | 4.36 | % |  | October 9, 2045 |  | 462,358 |  |  | 467,267 |
Total asset-backed securitizations |  |  |  |  | 1,992,510 |  |  | 2,013,357 |
2028 notes (4) | 4.08 | % |  | February 15, 2028 |  | 500,000 |  |  | — |
Exchangeable senior notes (5) | N/A |  |  | N/A |  | — |  |  | 115,000 |
Secured note payable (6) | N/A |  |  | N/A |  | — |  |  | 48,859 |
Revolving credit facility (7) | 3.70 | % |  | June 30, 2022 |  | 250,000 |  |  | 140,000 |
Term loan facility (8) | 3.85 | % |  | June 30, 2022 |  | 100,000 |  |  | 200,000 |
Total debt (9) |  |  |  |  | 2,842,510 |  |  | 2,517,216 |
Unamortized discount on unsecured and exchangeable notes |  |  |  |  | (2,546 | ) |  | (895 | )
Equity component of exchangeable senior notes |  |  |  |  | — |  |  | (2,408 | )
Deferred financing costs, net (10) |  |  |  |  | (36,421 | ) |  | (38,026 | )
Total debt per balance sheet |  |  |  |  | $ | 2,803,543 |  |  | $ | 2,475,887 |
(1) | Interest rates are as of December 31, 2018. Unless otherwise stated, interest rates are fixed percentages.
(2) | The AH4R 2015-SFR1 securitization has a maturity date of April 9, 2045, with an anticipated repayment date of April 9, 2025.
(3) | The AH4R 2015-SFR2 securitization has a maturity date of October 9, 2045, with an anticipated repayment date of October 9, 2025.
(4) | The stated interest rate on the 2028 notes is 4.25%, which was effectively hedged to yield an interest rate of 4.08%.
(5) | The exchangeable senior notes were paid off in full during the fourth quarter of 2018.
(6) | The secured note payable was paid off in full during the second quarter of 2018.
(7) | The revolving credit facility provides for a borrowing capacity of up to $800.0 million, with a fully extended maturity date of June 2022, and bears interest at a LIBOR rate plus a margin ranging from 0.825% to 1.55% or a base rate (generally determined according to a prime rate or federal funds rate) plus a margin ranging from 0.00% to 0.55%. The interest rate stated represents the applicable spread for LIBOR based borrowings as of December 31, 2018, plus 1-month LIBOR.
(8) | The term loan component of our credit facility matures June 2022, and bears interest at a LIBOR rate plus a margin ranging from 0.90% to 1.75% or a base rate (generally determined according to a prime rate or federal funds rate) plus a margin ranging from 0.00% to 0.75%. The interest rate stated represents the applicable spread for LIBOR based borrowings as of December 31, 2018, plus 1-month LIBOR.
(9) | The Company was in compliance with all debt covenants associated with its asset-backed securitizations, unsecured senior notes, secured note payable, revolving credit facility and term loan facility as of December 31, 2018 and 2017.
(10) | Deferred financing costs relate to our asset-backed securitizations, unsecured senior notes and term loan facility. Amortization of deferred financing costs was $5.8 million, $6.4 million and $8.5 million for the years ended December 31, 2018, 2017 and 2016, respectively, which has been included in gross interest, prior to interest capitalization.
Early Extinguishment of Debt During the year ended December 31, 2018, the Company paid off the outstanding principal on the secured note payable of approximately $48.4 million, which resulted in $0.5 million of charges that were included in loss on early extinguishment of debt within the consolidated statements of operations. The payoff of the secured note payable also resulted in the release of the 572 homes pledged as collateral and $2.1 million of restricted cash for lender requirements. Also during 2018, the Company paid down $100.0 million on our term loan facility, which resulted in $0.9 million of charges related to the write-off of unamortized deferred financing costs that were included in loss on early extinguishment of debt within the consolidated statements of operations. During the year ended December 31, 2017, the Company paid off the outstanding principal on the AH4R 2014-SFR1 asset-backed securitization of approximately $455.4 million using proceeds from the Class A common share offering in the first quarter of 2017 and available cash, which resulted in $6.6 million of charges primarily related to the write-off of unamortized deferred financing costs. The payoff of the AH4R 2014-SFR1 asset-backed securitization also resulted in the release of the 3,799 homes pledged as collateral and $9.4 million of restricted cash for lender requirements. During the year ended December 31, 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 charge related to the write-off of the discount on the securitization. The payoff of the ARP 2014-SFR1 asset-backed securitization also resulted in the release of the 2,875 homes pledged as collateral and $10.1 million of restricted cash for lender requirements. Also during 2016, the Company terminated our previous credit facility, which resulted in $2.7 million of charges related to the write-off of unamortized deferred financing costs. The charges resulting from early extinguishment of debt were included in loss on early extinguishment of debt within the consolidated statements of operations. Debt Maturities The following table summarizes the contractual maturities of the Company's principal debt balances on a fully extended basis as of December 31, 2018 (in thousands):
2019 | $ | 20,714 |
2020 | 20,714 |
2021 | 20,714 |
2022 | 370,714 |
2023 | 20,714 |
Thereafter | 2,388,940 |
Total debt | 2,842,510 |
Unamortized discount and deferred financing costs (1) | (38,967 | )
Total debt per balance sheet | $ | 2,803,543 |
(1) | Includes the unamortized discount of the unsecured senior notes and deferred financing costs, net.
Encumbered Properties The following table displays the number of properties pledged as collateral for the Company's asset-backed securitization loans and secured note payable and the aggregate net book values as of December 31, 2018 and 2017 (in thousands, except property data):
| As of December 31, 2018 |  | As of December 31, 2017
| Number of Properties |  | Net Book Value |  | Number of Properties |  | Net Book Value
AH4R 2014-SFR2 securitization (1) | 4,546 |  |  | $ | 611,279 |  |  | 4,481 |  |  | $ | 627,988 |
AH4R 2014-SFR3 securitization (2) | 4,588 |  |  | 662,068 |  |  | 4,499 |  |  | 680,788 |
AH4R 2015-SFR1 securitization (3) | 4,697 |  |  | 662,202 |  |  | 4,658 |  |  | 685,055 |
AH4R 2015-SFR2 securitization (4) | 4,178 |  |  | 612,835 |  |  | 4,124 |  |  | 635,612 |
Secured note payable | — |  |  | — |  |  | 572 |  |  | 71,868 |
Total encumbered properties | 18,009 |  |  | $ | 2,548,384 |  |  | 18,334 |  |  | $ | 2,701,311 |
(1) | During the years ended December 31, 2018 and 2017, the Company substituted 65 and zero properties, respectively, and had zero and 3 properties that were disqualified for a total release price of $0.0 million and $0.4 million, respectively, which was used to pay down the principal balance on the loan.
(2) | During the years ended December 31, 2018 and 2017, the Company substituted 89 and zero properties, respectively, and had zero and 4 properties that were disqualified for a total release price of $0.0 million and $0.5 million, respectively, which was used to pay down the principal balance on the loan.
(3) | During the years ended December 31, 2018 and 2017, the Company substituted 39 and zero properties, respectively, and had zero and 2 properties that were disqualified for a total release price of $0.0 million and $0.2 million, respectively, which was used to pay down the principal balance on the loan.
(4) | During the year ended December 31, 2018, the Company substituted 55 properties and had 1 property that was disqualified for a total release price of $0.1 million, which was used to pay down the principal balance on the loan.
Unsecured Senior Notes In February 2018, the Operating Partnership issued $500.0 million of 4.25% unsecured senior notes with a maturity date of February 15, 2028 (the "2028 Notes"). Interest on the 2028 Notes is payable semi-annually in arrears on February 15 and August 15 of each year, which commenced on August 15, 2018. The Operating Partnership received net proceeds of $494.0 million from this issuance, after underwriting fees of approximately $3.2 million and a $2.8 million discount, and before offering costs of $1.9 million. The net proceeds from this issuance were used for general corporate purposes, including, without limitation, acquisitions of additional properties, the repayment of outstanding indebtedness, capital expenditures, the expansion, redevelopment and/or improvement of our properties, working capital and other general purposes, including repurchases of securities. The 2028 Notes are the Operating Partnership's unsecured and unsubordinated obligation and rank equally in right of payment with all of the Operating Partnership’s existing and future unsecured and unsubordinated indebtedness. The Operating Partnership may redeem the 2028 Notes at any time, in whole or in part, at the applicable redemption price specified in the indenture with respect to the 2028 Notes. If the 2028 Notes are redeemed on or after November 15, 2027 (three months prior to the maturity date), the redemption price will be equal to 100% of the principal amount of the 2028 Notes being redeemed plus accrued and unpaid interest thereon to, but not including, the redemption date. The 2028 Notes were initially guaranteed by American Residential Properties OP, L.P., (the “Guarantor Subsidiary”), a 100% owned subsidiary of the Operating Partnership, but such guarantee was automatically released during the fourth quarter of 2018 contemporaneously with the Guarantor Subsidiary's release of its guarantee of our credit facility. Including the effect of a cash flow hedging instrument settled in February 2018 (see Note 15), the 2028 Notes yield an effective interest rate of 4.08%. Asset-backed Securitizations General Terms As of December 31, 2018, the Company has completed multiple asset-backed securitizations, all of which have certain general characteristics in common. The asset-backed securitization transactions resulted in newly-formed special purpose entities (the “Borrowers”), which entered into loans with third-party lenders. The Borrowers are each wholly owned by respective special purpose entities (the “Equity Owners”), which are wholly owned by the Operating Partnership. The loans were represented by promissory notes that were immediately transferred by the third-party lenders to subsidiaries of the Company and then to REMIC trusts in exchange for single-family rental pass-through certificates representing all the beneficial ownership interests in the respective loans and trusts. Upon receipt of the certificates, the subsidiaries sold the certificates to investors. The principal amount of each class of certificates corresponds to the corresponding principal amount of the loan components with an additional class to hold the residual REMIC interest. The loans require monthly payments of interest together with principal payments representing one-twelfth of one percent of the original principal amount of the loans. The loans are secured by first priority mortgages on pools of single-family residential properties transferred to the Borrowers from the Company’s portfolio of properties. The Borrowers’ homes were substantially similar to the other properties owned by the Company and were leased to tenants underwritten on substantially the same basis as the tenants in the Company’s other properties. During the duration of the loans, the Borrowers’ properties may not generally be transferred, sold or otherwise securitized and the Company can substitute properties if a property owned by the Borrowers becomes a disqualified property under the terms of the loan or voluntarily with properties eligible for substitution, in limited circumstances, subject to the terms, conditions and limitations provided in the loan agreements. The loans are also secured by a security interest in all of the Borrowers’ personal property and a pledge of all of the assets of the Equity Owners, including a security interest in their membership interests in the Borrowers. The Company provides a limited guaranty (i) for certain losses arising out of designated acts of intentional misconduct and (ii) for the principal amount of the loans and all other obligations under the loan agreements in the event of insolvency or bankruptcy proceedings. The Company has accounted for the transfers of the notes from its subsidiaries to the trusts as sales under ASC 860, Transfers and Servicing, with no resulting gain or loss as the notes were both originated by the third party lenders and immediately transferred at the same fair market value. The Company has also evaluated and not identified any variable interests in the trusts. Accordingly, the Company consolidates, at historical cost basis, the homes placed as collateral for the notes, and the principal balances outstanding on the notes are included in asset-backed securitizations, net within the consolidated balance sheets. The loan agreements provide that the Borrowers maintain covenants typical for securitization transactions including maintaining certain reserve accounts and a debt service coverage ratio of at least 1.20 to 1.00. The loan agreements define the debt service coverage ratio as of any determination date as a ratio in which the numerator is the net cash flow divided by the aggregate debt service for the 12-month period following the date of determination. As of December 31, 2018 and 2017, the Company was in compliance with all covenants under the loan agreements. AH4R 2014-SFR1 Securitization The AH4R 2014-SFR1 securitization, which was completed in May 2014, was a two-year, floating rate loan for $481.0 million, 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 a duration-weighted blended interest rate of LIBOR plus 1.54%, subject to a LIBOR floor of 0.25%. In addition, the Company entered into an interest rate cap agreement for the initial two year term of the loan, with a LIBOR based strike rate equal to 3.85%. The loan had three, 12-month extensions at the Borrower's option, resulting in a fully extended maturity date of June 9, 2019. The loan was originally secured by first priority mortgages on a pool of 3,852 single-family residential properties. Gross proceeds from the transaction were $481.0 million, before issuance costs of $14.9 million, and were used to pay down the outstanding balance on the credit facility. During the second quarter of 2017, the Company paid off the AH4R 2014-SFR1 asset-backed securitization in full. AH4R 2014-SFR2 Securitization The AH4R 2014-SFR2 securitization, which was completed in September 2014, is a fixed-rate loan for $513.3 million with a 10-year term, maturity date of October 9, 2024, and a duration-adjusted weighted-average interest rate of 4.42%. The loan was originally secured by first priority mortgages on a portfolio of 4,487 single-family residential properties. Also, in addition to the single-family rental pass-through certificates sold to third parties, the Company acquired all of the Class F certificates, which bear no interest, for $25.7 million. The Company has evaluated the purchased Class F certificates as a variable interest in the trust and has concluded that the Class F certificates will not absorb a majority of the trust's expected losses or receive a majority of the trust's expected residual returns. Additionally, the Company has concluded that the Class F certificates do not provide the Company with any ability to direct activities that could impact the trust's economic performance. The Company does not consolidate the trust and the $25.7 million of purchased Class F certificates have been reflected as asset-backed securitization certificates in the Company's consolidated balance sheets and as amounts due from affiliates in the Operating Partnership's consolidated balance sheets. Gross proceeds to the Company from the transaction, after purchase of the Class F certificates, were $487.7 million, before issuance costs of $12.9 million, and were used to pay down the outstanding balance on the credit facility and for general corporate purposes. AH4R 2014-SFR3 Securitization The AH4R 2014-SFR3 securitization, which was completed in November 2014, is a fixed-rate loan for $528.4 million with a 10-year term, maturity date of December 9, 2024, and a duration-adjusted weighted-average interest rate of 4.40%. The loan was originally secured by first priority mortgages on a portfolio of 4,503 single-family residential properties owned by the Borrower. Gross proceeds from the transaction were $528.4 million, before issuance costs of $12.9 million, and were used to pay down the outstanding balance on the credit facility and for general corporate purposes. AH4R 2015-SFR1 Securitization The AH4R 2015-SFR1 securitization, which was completed in March 2015, is a fixed-rate loan for $552.8 million with a 30-year term, maturity date of April 9, 2045, and a duration-adjusted weighted-average interest rate of 4.14%. The loan was originally secured by first priority mortgages on a pool of 4,661 single-family residential properties owned by the Borrower and has an anticipated repayment date of April 9, 2025. Gross proceeds from the transaction were $552.8 million, before issuance costs of $13.3 million, and were used to pay down the outstanding balance on the credit facility and for general corporate purposes. AH4R 2015-SFR2 Securitization The AH4R 2015-SFR2 securitization, which was completed in September 2015, is a fixed-rate loan for $477.7 million with a 30-year term, maturity date of October 9, 2045, and a duration-adjusted weighted-average interest rate of 4.36%. The loan was originally secured by first priority mortgages on a portfolio of 4,125 single-family residential properties owned by the Borrower and has an anticipated repayment date of October 9, 2025. Gross proceeds from the transaction were $477.7 million, before issuance costs of $11.3 million, and were used to pay down the outstanding balance on the credit facility and for general corporate purposes. Exchangeable Senior Notes, Net In connection with the ARPI Merger on February 29, 2016 (see Note 11), the Company assumed $115.0 million of 3.25% exchangeable senior notes due November 15, 2018. The exchangeable senior notes were senior unsecured obligations of the Operating Partnership and ranked equally in right of payment with all other existing and future senior unsecured indebtedness of the Operating Partnership. Interest was payable in arrears on May 15 and November 15 of each year, which began on May 15, 2016, until the maturity date. The Operating Partnership’s obligations under the exchangeable senior notes were fully and unconditionally guaranteed by a subsidiary of the Company. The exchangeable senior notes were subject to interest at a rate of 3.25% per annum and contained an exchange settlement feature, which provided that the exchangeable senior notes could, under certain circumstances, be exchangeable for cash, the Company's Class A common shares or a combination of cash and the Company's Class A common shares, 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 of our Class A common shares per $1,000 principal amount of the notes, based on the 1.135 exchange ratio of ARPI shares to the Company's shares resulting from the ARPI Merger. The exchange rate as of November 15, 2018, at maturity, was 55.6688 of the Company's Class A common shares per $1,000 principal amount of the notes. The exchange rate was adjusted based on the Company's Class A 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 were 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 was 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 5 consecutive business-day period following any 5 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 were exchangeable at any time prior to the close of business on the second business day immediately preceding the maturity date. 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, representing the $115.0 million face value less a discount of $2.7 million, which was 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, representing 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 amortized using the effective interest method over the term of the notes. The Operating Partnership elected the cash settlement option for settlement of the exchangeable senior notes, which resulted in an aggregate payment of $135.1 million to the holders of the notes at maturity on November 15, 2018, based on the sum of the daily exchange values of the Company’s Class A common shares for 40 consecutive trading days, beginning 42 trading days prior to maturity. The daily exchange values were calculated as the volume weighted average price of the Company’s Class A common shares multiplied by the current exchange rate for each of the trading days. $115.0 million of the total $135.1 million settlement consideration was allocated to the extinguishment of the liability component based on the fair value of the liability component immediately prior to extinguishment, which was equal to the carrying amount of the liability component. The remaining $20.1 million of settlement consideration was allocated to the reacquisition of the equity component and recognized as a reduction to additional paid-in capital within the Company's consolidated balance sheets and a reduction to general partner's common capital within the Operating Partnership's consolidated balance sheets. Secured Note Payable In December 2014, as part of the Company's bulk portfolio acquisition of 914 homes, (the "Ellington Portfolio Acquisition"), the Company assumed a $51.6 million secured note payable, which was secured by a first priority mortgage on 583 of the acquired homes, was subject to interest at 4.06%, had a maturity date of July 1, 2019, and contained certain required covenants, including a minimum debt service coverage ratio of 1.47 to 1.00. During the second quarter of 2018, the Company paid off the outstanding principal on the secured note payable of approximately $48.4 million, which resulted in $0.5 million of charges that were included in loss on early extinguishment of debt within the consolidated statements of operations. Credit Facilities During 2016, the Company entered into a $1.0 billion credit agreement, which was subsequently amended in June 2017. The amendment expanded our borrowing capacity on the revolving credit facility to $800.0 million and reduced the term loan facility to $200.0 million. The amendment also lowered our cost of borrowing and provides a more flexible borrowing structure. The interest rate on the revolving credit facility is, at the Company’s election, a LIBOR rate plus a margin ranging from 0.825% to 1.55% or a base rate (generally determined according to a prime rate or federal funds rate) plus a margin ranging from 0.00% to 0.55%. Borrowings under the term loan facility accrue interest, at the Company’s election, at either a LIBOR rate plus a margin ranging from 0.90% to 1.75% or a base rate plus a margin ranging from 0.00% to 0.75%. In each case, the actual margin is determined based on the Company's credit ratings in effect from time to time. Based on current corporate ratings for LIBOR-based borrowings as of December 31, 2018, the revolving credit facility bears interest at 1-month LIBOR plus 1.20%, and the term loan facility bears interest at 1-month LIBOR plus 1.35%. 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 revolving credit facility matures on June 30, 2021, with two six-month extension options at the Company's election upon payment of an extension fee, and the term loan facility matures on June 30, 2022. No amortization payments are required on the term loan facility prior to the maturity date. The credit agreement requires that we maintain certain financial covenants. As of December 31, 2018, the Company had $250.0 million of outstanding borrowings against the revolving credit facility, $100.0 million of outstanding borrowings against the term loan facility and was in compliance with all loan covenants. Interest Expense The following table displays our total gross interest, which includes fees on our credit facilities and amortization of deferred financing costs, discounts on debt and the fair value of the exchange settlement feature of the exchangeable senior notes, and capitalized interest for the years ended December 31, 2018, 2017 and 2016 (in thousands):
| For the Years Ended December 31,
| 2018 |  | 2017 |  | 2016
Gross interest cost | $ | 129,571 |  |  | $ | 118,276 |  |  | $ | 133,137 |
Capitalized interest | (6,671 | ) |  | (5,656 | ) |  | (2,290 | )
Interest expense | $ | 122,900 |  |  | $ | 112,620 |  |  | $ | 130,847 |

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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