American Residential Properties (ARPI) 10-Q 2014 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________ 

FORM 10-Q

_______________________________________ 

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

For the quarterly period ended March 31, 2014

or

¨ 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 001-35899

_______________________________________ 

AMERICAN RESIDENTIAL PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

_______________________________________ 

Maryland	45-4941882
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
7047 East Greenway Parkway, Suite 350 Scottsdale, AZ	85254
(Address of principal executive offices)	(Zip Code)

(480) 474-4800

(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.    Yes  ý    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).    Yes  ý    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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x  (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  ¨    No  ý

As of May 12, 2014, there were 32,171,102 shares of common stock, $0.01 par value per share, outstanding.

AMERICAN RESIDENTIAL PROPERTIES, INC.

INDEX

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements.	4
	Condensed Consolidated Balance Sheets as of March 31, 2014 (unaudited) and December 31, 2013	4
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2014 and 2013 (unaudited)	5
	Condensed Consolidated Statement of Equity for the Three Months Ended March 31, 2014 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2014 and 2013 (unaudited)	7
	Notes to the Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	35
Item 4.	Controls and Procedures.	36
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings.	37
Item 1A.	Risk Factors.	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	37
Item 3.	Defaults Upon Senior Securities.	37
Item 4.	Mine Safety Disclosures.	37
Item 5.	Other Information.	37
Item 6.	Exhibits.	38
Signatures		39

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements included in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, forecasts, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events or our investments and results of operations could differ materially from those expressed or implied in the forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

The forward-looking statements included in this report reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement. Statements regarding the following subjects, among others, may be forward-looking:

• our business and investment strategy;

• our projected operating results;

• economic, demographic or real estate developments in our markets;

• home value appreciation, employment growth, residential building permits, median household income and household formation in our markets;

• defaults on, early terminations of or non-renewal of leases by our tenants;

• our ability to identify properties to acquire and completing acquisitions;

• increased time and/or expense to gain possession and restore properties;

• our ability to successfully restore, lease and manage acquired properties;

• projected operating costs;

• rental rates or vacancy rates;

• our ability to obtain financing;

• general volatility of the markets in which we participate;

• our expected investments;

• interest rates and the market value of our assets;

• impact of changes in governmental regulations, tax law and rates and similar matters;

• our ability to maintain our qualification as a real estate investment trust, or REIT, for federal income tax purposes;

• availability of qualified personnel;

• estimates relating to our ability to make distributions to our stockholders in the future;

• our understanding of our competition; and

• market trends in our industry, real estate values, the debt securities markets or the general economy.

The forward-looking statements are based on our beliefs, assumptions and expectations of future events, taking into account all information currently available to us. Forward-looking statements are not guarantees of future events or of our performance. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these events and factors are described in “Item 1A. Risk Factors” and in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q and other risks and uncertainties detailed in this and our other reports and filings with the Securities and Exchange Commission, or the SEC. If a change occurs, our business, financial condition, liquidity, cash flows and results of operations may vary materially from those expressed in or implied by our forward-looking statements. New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those matters or the manner in which they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should, therefore, not rely on these forward-looking statements as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

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PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERICAN RESIDENTIAL PROPERTIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share amounts)

	March 31, 2014 (unaudited)			December 31, 2013
Assets
Investment in real estate:
Land	$	180,319		$	158,795
Building and improvements	722,848			627,881
Furniture, fixtures and equipment	7,456			6,930
	910,623			793,606
Less: accumulated depreciation	(25,996		)	(18,058		)
Investment in real estate, net	884,627			775,548
Mortgage financings	36,656			43,512
Cash and cash equivalents	50,855			24,294
Acquisition deposits	4,609			282
Rents and other receivables, net	3,178			2,906
Due from related party	5			43
Deferred leasing costs and lease intangibles, net	3,144			2,454
Deferred financing costs, net	5,689			6,558
Investment in unconsolidated ventures	26,561			26,611
Goodwill	3,500			3,500
Other, net	4,695			8,494
Total assets	$	1,023,519		$	894,202
Liabilities and Equity
Liabilities:
Revolving credit facility	$	303,000		$	169,000
Exchangeable senior notes	100,041			99,377
Accounts payable and accrued expenses	12,437			12,862
Security deposits	5,405			3,995
Prepaid rent	2,344			1,549
Total liabilities	423,227			286,783
Equity:
American Residential Properties, Inc. stockholders’ equity:
Preferred stock, $0.01 par value, 100,000,000 shares authorized; no shares issued and outstanding	—			—
Common stock, $0.01 par value, 500,000,000 shares authorized; 32,171,102 shares issued and outstanding at March 31, 2014 and December 31, 2013	322			322
Additional paid-in capital	628,289			628,210
Accumulated deficit	(38,791		)	(31,122		)
Total American Residential Properties, Inc. stockholders’ equity	589,820			597,410
Non-controlling interests	10,472			10,009
Total equity	600,292			607,419
Total liabilities and equity	$	1,023,519		$	894,202

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

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AMERICAN RESIDENTIAL PROPERTIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(amounts in thousands, except share and per-share amounts)

(unaudited)

	Three Months Ended   March 31,
	2014			2013
Revenue:
Self-managed rental revenue	$	14,562		$	2,951
Preferred operator rental revenue	1,368			1,371
Management services (related party)	113			104
Interest and other	1,411			821
Total revenue	17,454			5,247
Expenses:
Property operating and maintenance	4,146			923
Real estate taxes	3,111			497
Homeowners’ association fees	460			153
Acquisition	67			1,775
Depreciation and amortization	9,464			3,140
General, administrative and other	3,720			2,537
Interest	4,230			371
Total expenses	25,198			9,396
Loss from continuing operations before equity in net (loss) income of unconsolidated ventures	(7,744		)	(4,149		)
Equity in net (loss) income of unconsolidated ventures	(50		)	90
Net loss and comprehensive loss	(7,794		)	(4,059		)
Net loss and comprehensive loss attributable to non-controlling interests	125			40
Net loss and comprehensive loss attributable to common stockholders	$	(7,669	)	$	(4,019	)
Basic and diluted loss per share:
Net loss attributable to common stockholders	$	(0.24	)	$	(0.22	)
Weighted-average number of shares of common stock outstanding	32,130,733			18,414,830

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

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AMERICAN RESIDENTIAL PROPERTIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(amounts in thousands, except share amounts)

(unaudited)

	Number of Shares Common Stock	Common Stock		Preferred Stock		Additional Paid-In Capital		Accumulated Deficit			Non- Controlling Interests			Total Equity
Balance at December 31, 2013	32,171,102	$	322	$	—	$	628,210	$	(31,122	)	$	10,009		$	607,419
Net loss	—	—		—		—		(7,669		)	(125		)	(7,794		)
Other comprehensive loss	—	—		—		—		—			—			—
Stock-based compensation	—	—		—		79		—			588			667
Balance at March 31, 2014	32,171,102	$	322	$	—	$	628,289	$	(38,791	)	$	10,472		$	600,292

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

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AMERICAN RESIDENTIAL PROPERTIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

	Three Months Ended   March 31,
	2014			2013
Operating activities:
Net loss	$	(7,794	)	$	(4,059	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	9,464			3,140
Amortization of stock-based compensation	667			728
Amortization of deferred financing costs	1,034			212
Accretion of discount on senior exchangeable notes	664			—
Bad debt expense	545			157
Straight line rent revenue	(67		)	(16		)
Equity in net loss (income) of unconsolidated ventures	50			(90		)
Distributions from unconsolidated ventures	—			90
Changes in operating assets and liabilities:
Rent and other receivables, net	(750		)	146
Due from related party	38			(78		)
Deferred leasing costs	(1,778		)	(233		)
Other assets, net	3,627			(472		)
Accounts payable and other liabilities	1,388			1,099
Net cash provided by operating activities	7,088			624
Investing activities:
Improvements of real estate	(8,272		)	(2,553		)
Property acquisitions, including acquired in-place leases	(108,619		)	(69,324		)
Investment in mortgage financings	(5,407		)	(15,142		)
Repayments from mortgage financings	12,263			1,693
Distributions from unconsolidated ventures	—			12
Increase in acquisition deposits	(4,327		)	(564		)
Net cash used in investing activities	(114,362		)	(85,878		)
Financing activities:
Borrowings under revolving credit facility	144,000			31,300
Repayments of revolving credit facility	(10,000		)	—
Proceeds from issuance of common stock	—			771
Deferred initial public offering costs	—			(899		)
Deferred financing costs paid	(165		)	(1,657		)
Net cash provided by financing activities	133,835			29,515
Net increase (decrease) in cash and cash equivalents	26,561			(55,739		)
Cash and cash equivalents—beginning of period	24,294			101,725
Cash and cash equivalents—end of period	$	50,855		$	45,986
Supplemental schedule of noncash investing and financing activities:
Accounts payable and accrued expenses for additions to investments in real estate	$	1,607		$	291
Cash paid for interest	$	1,301		$	128

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

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AMERICAN RESIDENTIAL PROPERTIES, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014

(unaudited)

1. Company’s Organization and Operations

As used in these condensed consolidated financial statements and related notes, the terms “American Residential Properties, Inc.,” the “Company,” “us,” “we” and “our” refer to American Residential Properties, Inc. We are an internally managed real estate company organized as a real estate investment trust, or REIT, that acquires, owns and manages single-family homes as rental properties. We own all of our assets and conduct substantially all of our operations through (i) American Residential Properties OP, L.P., a Delaware limited partnership, or our Operating Partnership, in which we have a 98.4% interest as of March 31, 2014 and for which, through our wholly owned subsidiary, American Residential GP, LLC, we serve as sole general partner, and (ii) American Residential Properties TRS, LLC, or our TRS, which is our taxable REIT subsidiary. We have elected to be taxed as a REIT for federal income tax purposes. As a REIT, we will generally not be subject to federal income taxes to the extent that we currently distribute all of our taxable income to our stockholders and meet other specific requirements.

We were incorporated in Maryland in March 2012 and completed our initial private offering of our common stock in May 2012, raising net proceeds of approximately $208.7 million. In December 2012 and January 2013, we raised an additional approximately $139.1 million of net proceeds from a follow-on private offering of our common stock and a private placement of our common stock.

We completed our initial public offering, or our IPO, in May 2013, in which we issued and sold 13,700,000 shares of our common stock at a public offering price of $21.00 per share, and we received approximately $265.1 million of net proceeds.

As of March 31, 2014, we owned 6,762 properties in Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Nevada, North Carolina, Ohio, South Carolina, Tennessee and Texas.

2. Summary of Significant Accounting Policies

Basis of Accounting and Principles of Consolidation

The accompanying interim unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or the SEC. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles, or GAAP, have been condensed or omitted according to such SEC rules and regulations. Management believes, however, that the disclosures included in these interim condensed consolidated financial statements are adequate to make the information presented not misleading. The accompanying condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements, included in the Company’s Annual Report on Form 10-K dated December 31, 2013 and filed with the SEC on March 31, 2014. In the opinion of management, the unaudited condensed consolidated financial statements include the normal, recurring adjustments necessary for a fair statement of the information required to be set forth therein. The results of operations for the three months ended March 31, 2014 are not necessarily indicative of the results to be expected for the entire year.

The accompanying condensed consolidated financial statements include the accounts of American Residential Properties, Inc., our Operating Partnership and the wholly owned subsidiaries of our Operating Partnership. All majority-owned subsidiaries are consolidated and included in our condensed consolidated financial statements. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

Investment in Real Estate

Property acquired not subject to an existing lease is accounted for as an asset acquisition, with the property recorded at the purchase price, including acquisition costs, and allocated between land and building and improvements based upon their relative fair values at the date of acquisition. Property acquired with an existing lease is recorded as a business combination. For properties acquired through portfolio transactions, we determine whether the acquisition qualifies as a business combination based on the nature and status of the properties as of the acquisition date. A portfolio comprised of properties that

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are substantially leased at acquisition is treated as a business combination. A portfolio comprised of properties that are substantially vacant at acquisition is treated as an asset acquisition. For property acquisitions accounted for as business combinations, the land, building and improvements and the existing lease are recorded at fair value at the date of acquisition, with acquisition costs expensed as incurred.

Fair value is determined under the guidance of Accounting Standards Codification, or ASC, Topic 820, Fair Value Measurements, primarily based on unobservable market data inputs, which are categorized as Level 3 inputs. In making estimates of fair values for purposes of allocating purchase price, we utilize our market knowledge and published market data. Our real estate portfolio is depreciated using the straight-line method over the estimated useful lives of the respective assets, ranging from 5 to 27.5 years.

We have acquired portfolios of leased properties from established local operators through our “preferred operator” program. In this program, we acquired portfolios of leased properties for which the operator retains day-to-day management responsibilities pursuant to a longer-term lease. In these arrangements, the operator is responsible for all property-related expenses and we receive payments from the operator that escalate over the term of the lease. In-place lease intangibles associated with the preferred operator program are valued based on management’s estimates of lost rent and carrying costs. In-place lease intangibles associated with the acquisition of self-managed homes are valued based on management’s estimate of lost rent during the time it would take to locate a tenant and execute a lease if the property were vacant, considering current market conditions and costs to execute similar leases. In estimating lost rent and carrying costs, management considers market rents, real estate taxes, insurance, costs to execute similar leases (including leasing commissions) and other related costs. The value assigned to in-place leases is amortized on a straight-line basis as a component of depreciation and amortization expense over the remaining initial term of the related lease. The leases reflect market rental rates.

We incur costs to prepare our acquired properties to be rented. These costs (including direct internal costs) are capitalized and allocated to building costs. Costs related to the restoration or improvement of our properties (including direct internal costs, primarily comprised of payroll expense) that improve and extend their useful lives are capitalized and depreciated over their estimated useful lives. Expenditures for ordinary repairs and maintenance are expensed as incurred.

Impairment of Long-Lived Assets

We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Significant indicators of impairment may include, but are not limited to, declines in home values, rental rates and occupancy percentages and significant changes in the economy. We make our assessment at the individual property level because it represents the lowest level of cash flows. If an impairment indicator exists, we compare the expected future undiscounted cash flows from the property against its net carrying amount. We prepare our future undiscounted cash flow analysis using estimates based on current rental rates, renewals and occupancy, operating expenses and inputs from our annual planning process and historical performance. When preparing these estimates, we consider each property’s historical results, current operating trends and current market conditions. These estimates may be impacted by variable factors, including inflation, expected rental rates, the general health of the economy and market competition. If the sum of the estimated undiscounted cash flows is less than the net carrying amount of the property, we record an impairment loss for the difference between the estimated fair value of the individual property and the carrying amount of the property at that date. To determine the estimated fair value, we consider both recent comparable homes sales and the use of discounted projected future cash flows. The rates used to discount projected future cash flows reflect market discount rates. No impairments were recorded during the three months ended March 31, 2014 or 2013.

Revenue Recognition

We lease single-family residences we own and manage directly to tenants who occupy the properties under operating leases, generally, with terms of one year. We perform credit investigations on prospective tenants and obtain security deposits. Rental revenue, net of any concessions, is recognized on a straight-line basis over the term of the lease, which is not materially different than if it were recorded when due from tenants and recognized monthly as it is earned. Properties that are subject to longer-term operating arrangements with preferred operators are leased to the operator for a minimum of five to ten years with renewal options. These operators are responsible for taxes, insurance and maintenance of the properties under the terms of the operating arrangements. Under our preferred operator program, we earn base rental revenue paid monthly, with contractual minimum annual rent increases on each anniversary of the lease commencement date. We recognize rental revenue on a straight-line basis over the term of the lease. We also earn percentage rents on a quarterly basis equal to a fixed percentage of the gross revenue the preferred operator collects from its residential sub-tenants who occupy the homes. Percentage rental revenue is recorded when the gross revenue collected from the sub-tenants is known and the amount can be calculated.

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Mortgage Financings

We hold mortgage financing receivables for investment. The receivables are carried at cost, net of related unamortized premiums or discounts, if any. The mortgage loans are secured by single-family homes.

Interest income on mortgage financings is recognized on the effective interest method applied on a loan-by-loan basis. Direct costs, if any, associated with funding loans are offset against any related fees received and the balance, along with any premium or discount, is deferred and amortized as an adjustment to interest income over the terms of the related loans using the effective interest method.

Mortgage loans as of March 31, 2014 include approximately $35.5 million of short-term loans with a weighted-average interest rate of approximately 11.8% and a weighted-average remaining term of approximately 84 days and approximately $1.1 million in long-term loans with a weighted-average interest rate of approximately 8.0% and a weighted-average remaining term of approximately 29 years.

Cash and Cash Equivalents

Cash and cash equivalents are held in depository accounts with financial institutions that are members of the Federal Deposit Insurance Corporation, or the FDIC. Cash balances with institutions may be in excess of federally insured limits or may be invested in time deposits that are not insured by the institution or the FDIC or any other government agency. We have not realized any losses in such cash investments and we believe that these investments are not exposed to any significant credit risk. Cash equivalents consist of highly liquid investments with original maturities of three months or less when acquired. Such investments are stated at cost, which approximates fair value.

Included in the cash and cash equivalents balance is approximately $20.1 million of cash held with designated brokers to facilitate the acquisition of properties as of March 31, 2014. There was no cash held with designated brokers as of December 31, 2013.

Rents and Other Receivables, Net

We maintain an allowance for doubtful accounts for estimated losses that may result from the inability of tenants, preferred operators or borrowers to make required rent or other payments. This allowance is estimated based on payment history and current credit status. If a tenant, preferred operator or borrower fails to make contractual payments beyond any allowance, we may recognize bad debt expense in future periods equal to the amount of unpaid rent, interest or principal and deferred rent. We generally do not require collateral or other security from our tenants, other than security deposits. Mortgage loans are secured by single-family homes. If estimates of collectibility differ from the cash received, then the timing and amount of our reported revenue could be impacted.

Our rents and other receivables for self-managed and preferred operator program homes are presented net of an allowance for doubtful accounts in our condensed consolidated balance sheet of approximately $0.6 million and $0.1 million, respectively, for a total of $0.7 million as of March 31, 2014. The allowance for doubtful accounts was $1.7 million as of December 31, 2013.

We recorded a provision for doubtful accounts for self-managed and preferred operator homes of approximately $0.3 million and $0.2 million, respectively, for a total of $0.5 million for the three months ended March 31, 2014. We recorded a provision for doubtful accounts for self-managed homes of approximately $0.2 million for the three months ended March 31, 2013. There was no provision for doubtful accounts recorded for preferred operator program homes for the three months ended March 31, 2013.

Deferred Leasing Costs and In-Place Lease Intangibles, Net

Deferred leasing commissions and other direct costs associated with leasing our properties (including direct internal costs) and in-place lease intangibles are capitalized and amortized on a straight-line basis over the terms of the related leases.

Deferred Financing Costs, Net

Financing costs are recorded at cost and consist of loan fees and other costs incurred in connection with obtaining debt. Amortization of deferred financing costs is computed using a method, which approximates the effective interest method over the remaining life of the debt, and is included in interest expense in the accompanying condensed consolidated statements of operations.

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Investments in Unconsolidated Ventures

Investments in ventures are generally accounted for under the equity method of accounting when we exercise significant influence over the venture but we do not serve as managing member or control the venture. Net income/loss allocations are included in the investment balance along with the contributions made and distributions received over the life of the investment. In October 2012, we invested approximately $5.5 million in Flat Iron VI LLC, a joint venture in which our equity interest is approximately 78% of the total amount invested. In December 2012, we invested approximately $4.7 million in Siphon Draw LLC, a joint venture in which our equity interest is approximately 80% of the total amount invested. In May 2013, we invested approximately $18.0 million in Red Rock River LLC, a joint venture in which our equity interest is approximately 62% of the total amount invested. Each of these joint ventures used invested funds to purchase portfolios of residential mortgage loans.

Other Assets, Net

Other assets include prepaid expenses, deposits, other receivables and other miscellaneous assets, including office property and equipment. Office property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the respective assets of three to seven years.

Income Taxes

We have elected to be taxed as a REIT under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended, or the Code, commencing with our short taxable year ended December 31, 2012. We believe that we have operated in such a manner as to satisfy the requirements for qualification as a REIT. Accordingly, we will not be subject to federal income tax, provided that we qualify as a REIT and our distributions to our stockholders equal or exceed our REIT taxable income.

Qualification and taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Code related to the percentage of income that we earn from specified sources, the percentage of our assets that fall within specified categories, the diversity of our capital stock ownership and the percentage of our earnings that we distribute. Accordingly, no assurance can be given that we will be organized or be able to operate in a manner so as to qualify or remain qualified as a REIT. If we fail to qualify as a REIT in any taxable year, we will be subject to federal and state income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate tax rates, and we may be ineligible to qualify as a REIT for four subsequent tax years. Even if we qualify as a REIT, we may be subject to certain state and local income and franchise taxes, and our TRS will be subject to federal, state and local taxes on its income. Franchise taxes are included in general and administrative expenses on the accompanying condensed consolidated statements of operations and comprehensive loss.

We have elected to treat our TRS as a taxable REIT subsidiary. Certain activities that we undertake will be conducted in our TRS, such as third-party property management, non-customary services for our tenants and holding assets that we cannot hold directly. Our TRS is subject to both federal and state income taxes.

We determine whether any tax positions taken or expected to be taken meet the "more-likely-than-not" threshold of being sustained by the applicable federal, state or local tax authority. As of March 31, 2014, we concluded that there is no tax liability relating to uncertain income tax positions. Our policy is to recognize interest related to any underpayment of income taxes as interest expense and to recognize any penalties as operating expenses. There was no accrual for interest or penalties at March 31, 2014.

We file federal, state and local income tax returns. Federal and state tax returns filed for 2012 are still subject to examination. We believe that we have appropriate support for the income tax positions taken on our tax returns. We have net operating loss carryforwards for income tax purposes at December 31, 2013 and 2012. These losses would be available to reduce future taxable income or distribution requirements until they expire, which varies by jurisdiction but generally is not more than 20 years from the tax year in which they originate. Based on all available evidence, we cannot conclude it is more likely than not these attributes will be utilized in the future and thus a valuation allowance has been recorded against them.

Earnings (Loss) Per Share

Basic earnings (loss) per share, or EPS, is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS is computed by dividing net loss attributable to common stockholders as adjusted for dilutive securities, by the weighted-average number of shares of common stock outstanding plus dilutive securities. Any anti-dilutive securities are excluded from the diluted per-share calculation. Potentially dilutive securities include unvested restricted shares of our common stock, OP units, vested and unvested LTIP units and exchangeable senior notes. We intend to satisfy our exchange obligation for the principal amount of the exchangeable senior notes to the exchanging note holders entirely in cash. As we intend to settle the principal amount of the exchangeable

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senior notes in cash, the "if-converted" method to include debt in diluted EPS is not applicable and the treasury stock method is being used and as our stock price is below the conversion price, there is no impact.

Comprehensive Loss

Net loss and comprehensive loss are the same for the three months ended March 31, 2014 and 2013.

Recent Accounting Pronouncements

In April 2014, the FASB issued ASU 2014-08 Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes the criteria for determining which disposals are presented as discontinued operations and modifies related disclosure requirements. This standard is effective for fiscal years beginning after December 15, 2014 and for interim periods within those fiscal years with early adoption permitted. The Company has adopted the provisions of this ASU and anticipates that the majority of property sales will not be classified as discontinued operations.

3. Lease Intangibles

Our identifiable intangible assets as of March 31, 2014 and December 31, 2013 are summarized as follows (amounts in thousands):

	March 31, 2014			December 31, 2013
Acquired in-place leases	$	1,249		$	1,823
Less: accumulated amortization	(720		)	(1,039		)
Intangible lease assets, net	$	529		$	784

The impact of the amortization of acquired in-place leases on our depreciation and amortization expense is approximately $0.5 million and $1.0 million for the three months ended March 31, 2014 and 2013, respectively.

4. Debt

Senior Secured Revolving Credit Facility

In 2013, we entered into an amended and restated $380 million senior secured revolving credit facility, or the Credit Facility, with a syndicate of major national banks. The Credit Facility has an accordion feature that allows us, assuming our compliance with applicable covenants and at the lenders’ discretion, to borrow up to $500 million thereunder if certain criteria are met. The amount available for us to borrow under the Credit Facility is subject to limitations governed by calculations based on the cost, value and debt yield supported by our properties that form the borrowing base of the Credit Facility. The credit agreement requires us to comply with various financial covenants as well as customary affirmative and negative covenants that restrict our ability to, among other things, incur debt and liens, make investments, dispose of properties and make distributions. The Credit Facility is secured by our ownership interest in American Residential Leasing Company, LLC, which is a wholly owned subsidiary of our Operating Partnership. The Credit Facility contains certain financial covenants, including a maximum leverage ratio, a minimum tangible net worth, a minimum fixed charge coverage ratio and a minimum liquidity. As of March 31, 2014, we were in compliance with all of the financial covenants of the Credit Facility.

The Credit Facility matures in January 2015 and has an optional one-year extension (assuming our compliance with applicable covenants). Borrowings under the Credit Facility bear interest, at our option, at either the one-month, two-month, three-month or six-month Eurodollar rate or the base rate, plus, in each case, a spread based on a ratio of total indebtedness to total asset value (each as defined in the credit agreement that governs the Credit Facility) ranging from less than or equal to 45% to greater than 55%. The Eurodollar rate for an interest period is the London Interbank Offered Rate, or LIBOR, for a term equivalent to such period plus a spread ranging from 2.50% to 3.25% (determined as described in the preceding sentence) and the base rate for any day is a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) Bank of America's "prime rate" for such day and (c) the one-month Eurodollar rate plus 1.00% plus a spread ranging from 1.50% to 2.25% (determined as described in the preceding sentence). We are also required to pay a quarterly fee on the unused portion of the Credit Facility at a rate of between 0.35% and 0.45% per annum, based on the actual daily unused balance during a fiscal quarter. For the three months ended March 31, 2014 and 2013, we incurred non-utilization fees of $0.2 million and $0.1 million, respectively.

As of March 31, 2014, $303.0 million was outstanding under the Credit Facility, bearing weighted-average interest at a rate of 2.9%, with remaining availability of $32.3 million.

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We have incurred $5.1 million in financing costs in connection with the Credit Facility, which are included in deferred financing costs, net on the accompanying condensed consolidated balance sheets. These costs are being amortized to interest expense over the remaining initial term of the Credit Facility.

Exchangeable Senior Notes

In November 2013, we issued and sold $115.0 million aggregate principal amount of 3.25% Exchangeable Senior Notes due 2018 (the “Notes”). The 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, 2014, until the maturity date of November 15, 2018. The Operating Partnership’s obligations under the Notes are fully and unconditionally guaranteed by the Company. The Notes bear interest at a rate of 3.25% per annum and contain an exchange settlement feature, which provides that the Notes may, under certain circumstances, be exchangeable for cash, shares of Common Stock or a combination of cash and shares of Common Stock, at the option of the Operating Partnership, based on an initial exchange rate of 46.9423 shares of Common Stock per $1,000 principal amount of Notes, subject to adjustment of the exchange rate under certain circumstances. At the initial exchange rate, the Notes are exchangeable for Common Stock at an exchange price of approximately $21.30 per share of Common Stock, representing an approximately 22.5% premium over the last reported sale price of the Common Stock on November 21, 2013, which was $17.39 per share.

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 the 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 the 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 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 shares or in a combination of cash and shares of Common Stock.

The number of shares of Common Stock holders of Notes will receive upon exchange may be subject to an “exchange share cap” unless and until the Company obtains stockholder approval to issue more than 19.99% of the Common Stock outstanding at the time the Notes were issued (the “aggregate share cap”) upon exchange of the Notes in accordance with the listing standards of the New York Stock Exchange (the “NYSE”). The exchange share cap is equivalent to the pro rata portion of the aggregate share cap represented by the notes to be exchanged. Holders of the Notes will not have the right to receive more than 55.9206 shares of Common Stock per $1,000 principal amount of Notes, as adjusted for share splits and combinations, upon an exchange of the Notes. If the delivery of shares of Common Stock upon exchange of the Notes is subject to the exchange share cap, unless and until such stockholder approval is obtained, the Operating Partnership will be deemed to have elected “combination settlement” with a specified dollar amount per $1,000 principal amount of Notes of at least $1,000 for all Notes submitted for exchange, which means the Operating Partnership will be obligated to settle its exchange obligation by paying up to the specified dollar amount with respect to such Notes in cash and delivering shares of Common Stock for any exchange value in excess of such specified dollar amount (subject to the exchange share cap). The Company will not have any obligation to seek stockholder approval to issue shares of Common Stock in excess of these limitations. However, if any delivery of shares of Common Stock owed to a holder upon exchange of notes is not made, in whole or in part, as a result of the limitations described above, the Operating Partnership’s obligation to make such delivery will persist, and the Operating Partnership will deliver such shares to such holder as promptly as practicable following the earlier of the date on which the issuance of shares of Common Stock in excess of the limitations described above is approved by the Company’s stockholders or the aggregate share cap is no longer required under the listing standards of the NYSE.

In connection with the issuance of the Notes, we recorded approximately $99.1 million within exchangeable senior notes on the accompanying condensed consolidated balance sheets, based on the fair value of the instrument using a straight-debt rate of 6.5% at the time of issuance, and approximately $15.4 million in additional paid-in-capital, net of $0.5 million in financing costs, in the accompanying condensed consolidated statement of equity. The difference between the $115.0 million face amount and the $99.1 million will be accreted over the five-year period ended November 15, 2018. As of March 31, 2014, the unaccreted discount was $15.0 million. We incurred $3.8 million in financing costs, of which $3.3 million are included in deferred financing costs, net on the accompanying condensed consolidated balance sheets to be amortized to interest expense over the term of the Notes.

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5. Earnings (Loss) Per Share

Basic net income or loss attributable to common stockholders is computed by dividing reported net income or loss attributable to common stockholders by the weighted-average number of common and contingently issuable shares outstanding during each period.

A reconciliation of our net loss per share is as follows (amounts in thousands, except share and per-share amounts):

	Three Months Ended   March 31,
	2014			2013
Net loss attributable to common stockholders	$	(7,669	)	$	(4,019	)
Weighted-average number of shares of common stock outstanding:
Basic and diluted	32,130,733			18,414,830
Net loss per share of common stock, basic and diluted	$	(0.24	)	$	(0.22	)

For all periods presented, no potentially dilutive securities were included in computing loss per share of common stock as their effect would be anti-dilutive. Potentially dilutive securities excluded were OP and vested LTIP units, unvested LTIP units, and unvested restricted stock. The weighted-average number of shares of potentially dilutive securities were as follows:

	Three Months Ended   March 31,
	2014	2013
OP and vested LTIP units	524,941	185,490
Unvested LTIP units	520,830	493,432
Unvested restricted stock	40,369	—
Potentially dilutive shares	1,086,140	678,922

6. Stock Compensation

We award stock-based compensation to certain employees, executives and members of our Board of Directors under the American Residential Properties, Inc. 2012 Equity Incentive Plan, or our 2012 Equity Incentive Plan. Under our 2012 Equity Incentive Plan, the Compensation Committee of our Board of Directors has the ability to grant nonqualified stock options, incentive stock options, restricted shares of our common stock, restricted stock units, dividend equivalents, stock appreciation rights and other awards to our officers, employees, directors and other persons providing services to our Operating Partnership and its subsidiaries. The number of shares of our common stock available for grant under our 2012 Equity Incentive Plan is subject to an aggregate limit of 1,500,000 shares. Our 2012 Equity Incentive Plan expires on May 11, 2022, except as to any grants which are then outstanding. As of March 31, 2014, there were 504,212 shares of our common stock available for grant under our 2012 Equity Incentive Plan.

In March 2014, the Compensation Committee of our Board of Directors awarded an aggregate of 78,272 LTIP units to our executive management team, half of which will be issued pursuant to award agreements providing for service-based vesting and half of which will be issued pursuant to award agreements providing for performance-based vesting.

We recorded stock-based compensation cost of approximately $0.7 million as part of general, administrative and other expense in the condensed consolidated statement of operations and comprehensive loss during each of the three months ended March 31, 2014 and 2013.

LTIP Units

Under our 2012 Equity Incentive Plan, we may grant LTIP units. LTIP units are a special class of partnership interests in our Operating Partnership with certain restrictions, which are convertible into Operating Partnership units, or OP units, subject to satisfying vesting and other conditions. LTIP unit holders are entitled to receive the same distributions as holders of our OP units (only if we pay such distributions) on the unvested portion of their LTIP units. The vesting of LTIP units is determined at the time of the grant and may be based on performance criteria. Any unvested LTIP units are forfeited, except in limited circumstances, as determined by the Compensation Committee of our Board of Directors, when the recipient is no longer employed by us or when a director leaves our Board of Directors for any reason. LTIP units may be subject to full or partial accelerated vesting under certain circumstances, as described in the applicable award agreement.

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Service-Based LTIP Units

Service-based LTIP units are valued at fair value on the date of grant and compensation expense is recognized over the vesting period, which approximates a straight-line basis. These shares generally vest over three years based on continued service or employment. We valued the service-based LTIP units at a per-unit value equivalent to the per-share offering price of our common stock sold in our private and public offerings less a discount for lack of marketability estimated with the assistance of a third-party consultant for grants issued prior to our IPO. Subsequent to our IPO, we valued the service-based LTIP units at the per-share market close trading price of our common stock on the date of grant less a discount for lack of marketability estimated with the assistance of a third-party consultant.

The following table summarizes information about the service-based LTIP units outstanding as of March 31, 2014:

	Total Vested Units	Total Unvested Units	Total Outstanding Units	Weighted-Average Grant Date Fair Value (Per Unit)
Balance, December 31, 2013	349,941	174,242	524,183	$	16.98
Granted	—	8,994	8,994	$	14.63
Vested	—	—	—	$	—
Converted	—	—	—	$	—
Canceled	—	—	—	$	—
Balance, March 31, 2014	349,941	183,236	533,177	$	16.94

Total unrecognized compensation cost related to unvested service-based LTIP units totaled approximately $1.8 million as of March 31, 2014, and is expected to be recognized in general, administrative and other expense over a weighted-average period of approximately 1.4 years, subject to the stated vesting conditions.

Market-Based LTIP Units

In November 2013, we issued 338,094 LTIP units, of which up to 50% will vest based on the percentage increase of the Company’s total stockholder return, or TSR, beginning on May 14, 2013 (the date of the closing of our initial public offering), and up to 50% will vest based on the relative outperformance of our TSR as compared to the percentage change of the SNL US REIT Equity Index, or the Index, over the same period. The market-based LTIP awards were valued on the date of grant using a Monte Carlo simulation method. The aggregate grant date fair value of the market-based LTIP units was $1.9 million.

The following table summarizes information about the market-based LTIP units outstanding as of March 31, 2014:

	Total Vested Units	Total Unvested Units	Total Outstanding Units	Weighted-Average Grant Date Fair Value (Per Unit)
Balance, December 31, 2013	—	338,094	338,094	$	5.58
Granted	—	—	—	$	—
Vested	—	—	—	$	—
Converted	—	—	—	$	—
Forfeited	—	—	—	$	—
Balance, March 31, 2014	—	338,094	338,094	$	5.58

Total unrecognized compensation cost related to unvested market-based LTIP units totaled approximately $1.6 million as of March 31, 2014, and is expected to be recognized in general, administrative and other expense over a weighted-average period of approximately 4.1 years, subject to stated vesting conditions.

Restricted Stock

Under our 2012 Equity Incentive Plan, we may grant restricted shares of our common stock. Restricted shares of our common stock are valued at fair value on the date of grant and compensation expense is recognized over the vesting period, which approximates a straight-line basis. These shares generally vest over three years based on continued service or employment. We valued the restricted shares of our common stock based on the closing price of our commons stock on the grant date.

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The following table summarizes information about the shares of restricted common stock outstanding as of March 31, 2014:

	Number of Shares	Weighted-Average Grant Date Fair Value (Per Share)
Unvested at December 31, 2013	40,369	$	21.00
Granted	—	$	—
Vested	—	$	—
Canceled	—	$	—
Unvested at March 31, 2014	40,369	$	21.00

Total unrecognized compensation cost related to unvested shares of restricted common stock totaled approximately $0.6 million as of March 31, 2014, and is expected to be recognized in general, administrative and other expense over a weighted-average period of approximately 2 years, subject to stated vesting conditions.

7. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The three levels of fair value defined in ASC Topic 820, Fair Value Measurements, are as follows:

• Level 1—Valuations based on quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access.

• Level 2—Valuations based on quoted market prices for similar assets or liabilities, quoted market prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

• Level 3—Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, which are typically based on the reporting entity’s own assumptions.

Companies are required to disclose the estimated fair values of all financial instruments, even if they are not carried at their fair value. The fair values of financial instruments are estimates based upon market conditions and perceived risks as of March 31, 2014 and December 31, 2013. These estimates require management’s judgment and may not be indicative of the future fair values of the assets and liabilities.

Our financial instruments include cash and cash equivalents, acquisition deposits, rents and other receivables, due from related party and accounts payable and accrued expenses. The carrying amount of these instruments approximates fair value because of their short-term nature.

Our mortgage financings, the Credit Facility and the Notes are also financial instruments, and we estimated their fair value based on market quotes for comparable instruments or discounted cash flow analysis using estimates of the amount and timing of future cash flows, market rates and credit spreads. The estimated fair values of the Credit Facility using Level 2 assumptions approximate the carrying amounts. The estimated fair values of our mortgage financing receivables using Level 3 assumptions approximate the carrying amounts.

The fair value of our Notes using Level 2 assumptions is as follows (amounts in thousands):

	March 31, 2014
	Fair Value		Carrying Value
Exchangeable senior notes	$	122,044	$	115,000

8. Transactions With Related Parties

Upon closing our initial private offering, we acquired the proprietary, vertically integrated real estate acquisition and management platform of American Residential Management, Inc., or ARM, a company co-owned by our founders, Stephen G. Schmitz, our Chief Executive Officer and Chairman, and Laurie A. Hawkes, our President and Chief Operating Officer, pursuant to a contribution and sale agreement between our Operating Partnership and ARM. As consideration for our acquisition, our Operating Partnership issued 175,000 OP units, valued at $3.5 million, representing a 1.5% limited partnership interest in our Operating Partnership at that time, and we paid approximately $85,000 in cash. The OP units were valued at $20 per unit, equivalent to the offering price per share of our common stock sold in our initial private offering.

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In February 2013, our TRS entered into a management agreement directly with ARP Phoenix Fund I, LP, or Phoenix Fund. The general partner of Phoenix Fund is ARP Phoenix Fund I GP, LLC, which is owned by Mr. Schmitz and Ms. Hawkes. The services our TRS provides to Phoenix Fund include property restoration, leasing and property management and disposition services with respect to the properties owned by Phoenix Fund. Our TRS provides these services to Phoenix Fund for a fee in an amount equal to 6.0% of the gross rental revenue received by Phoenix Fund with respect to the properties managed by our TRS.

We earned approximately $0.1 million in property management fees during each of the three months ended March 31, 2014 and 2013, which are included in management services (related party) in our condensed consolidated statements of operations and comprehensive loss. Accounts receivable of approximately $5,000 and $43,000 due from Phoenix Fund and ARM are included in due from related party in our condensed consolidated balance sheets at March 31, 2014 and December 31, 2013, respectively.

Phoenix Fund purchased 150,000 shares of our common stock in our initial private offering.

9. Non-Controlling Interests

Non-controlling common units of our Operating Partnership relate to the interest in our Operating Partnership that is not owned by us and are presented as non-controlling interests in the equity section of our condensed consolidated balance sheets.

Non-controlling common units of our Operating Partnership have essentially the same economic characteristics as shares of our common stock as they share equally in the net income or loss and distributions of our Operating Partnership. Our limited partners have the right to redeem all or part of their non-controlling common units of our Operating Partnership following the one-year anniversary of issuance. At the time of redemption, we have the right to determine whether to redeem the non-controlling common units of our Operating Partnership for cash, based upon the fair value of an equivalent number of shares of our common stock at the time of redemption, or exchange them for unregistered shares of our common stock on a one-for-one basis, subject to adjustment in the event of stock splits, stock dividends, issuance of stock rights, specified extraordinary distribution and similar events. In the event of a termination or liquidation of us and our Operating Partnership, it is expected that in most cases each common unit would be entitled to a liquidating distribution equal to the amount payable with respect to each share of our common stock. As of March 31, 2014, there were 524,941 outstanding non-controlling common units of our Operating Partnership, representing an approximate 1.6% ownership interest in our Operating Partnership. These units are comprised of 175,000 units issued in connection with our acquisition of the assets and management platform from ARM and 349,941 vested LTIP units.

Net income or loss attributable to non-controlling common units of our Operating Partnership is allocated based on their relative ownership percentage of the Operating Partnership during the period. The non-controlling ownership interest percentage is determined by dividing the number of non-controlling common units outstanding by the total of the shares of our common stock and non-controlling units outstanding at the balance sheet date. The issuance or redemption of additional shares of our common stock or common units results in changes to our limited partners’ ownership interest in our Operating Partnership, as well as our net assets. As a result, all equity-related transactions result in an allocation between stockholders’ equity and the non-controlling common units of our Operating Partnership in the condensed consolidated balance sheet to account for any change in ownership percentage during the period. Our limited partners’ weighted-average share of our net loss was 1.6% and 1.0% for the three months ended March 31, 2014 and 2013, respectively.

10. Commitments and Contingencies

Litigation

From time to time, we are subject to potential liability under various claims and legal actions arising in the ordinary course of business. Liabilities are established for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts established for those claims. Based on information currently available, management is not aware of any legal claims that would have a material effect on our condensed consolidated financial statements and therefore no accrual is required as of March 31, 2014.

Accepted Purchase Offers

As of March 31, 2014, we have committed to purchase single-family homes for a total purchase price of approximately $48.9 million. These are offers to purchase properties that were accepted by the sellers but had not closed as of March 31, 2014.

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Homeowners’ Association Fees

Certain of our properties are located in communities that are subject to homeowners’ association, or HOA, fees. The fees are generally billed monthly and subject to annual adjustments. The fees cover the costs of maintaining common areas and are generally paid for by us.

Concentrations

Approximately 50.5% of our properties are located in Arizona and Texas, which exposes us to greater economic risks than if we owned a more geographically dispersed portfolio.

11. Subsequent Events

For the period from April 1, 2014 to April 30, 2014, we acquired 232 single-family homes for a total purchase price of approximately $36.1 million and contracted to acquire 197 single-family homes for a total purchase price of approximately $31.8 million.

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

The following discussion of our financial condition and results of operations should be read together with the financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This report, including the following Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements based upon our current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Cautionary Note Regarding Forward-Looking Statements,” as well as the risk factors described in “Item IA. Risk Factors,” of this report.

Overview

We are an internally managed real estate company that acquires, owns and manages single-family homes as rental properties. In 2008, our founders, Stephen G. Schmitz, our Chief Executive Officer and Chairman, and Laurie A. Hawkes, our President and Chief Operating Officer and a member of our Board of Directors, identified a unique opportunity to acquire homes at distressed pricing and lease them at attractive rental rates. They subsequently began developing a vertically integrated platform to acquire and manage single-family homes on an institutional scale. We were formed to expand upon our founders’ vision, strategy and platform.

As of March 31, 2014, we owned 6,762 properties in Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Nevada, North Carolina, Ohio, South Carolina, Tennessee and Texas with an aggregate investment of $920.9 million, and we managed an additional 587 properties for ARP Phoenix Fund I, LP, or Phoenix Fund, in Arizona and Nevada. For the period from April 1, 2014 to April 30, 2014, we acquired 232 single-family homes for a total purchase price of approximately $36 million and contracted to acquire 197 additional homes for a total purchase price of approximately $32 million. Of the homes we acquired or contracted to acquire during this period, 197 are in Georgia, 81 are in Tennessee, 69 are in Texas, 66 are in Florida, 9 are in North Carolina and 7 are in Indiana. There is no assurance that we will close on the properties we have under contract.

Our primary business strategy is to acquire, restore, lease and manage single-family homes as well-maintained investment properties to generate attractive risk-adjusted returns over the long-term. We employ a disciplined and focused approach to evaluating acquisition opportunities, considering the mix of rent yield and future home price appreciation potential when selecting a market and investment. Our strategic aggregation of single-family homes provides a strong foundation for creating long-term home price appreciation in our portfolio. We have the infrastructure to acquire large numbers of properties through multiple acquisition channels, including sourcing individual properties through auctions and brokers and purchasing portfolios of properties through brokerages or directly from operators, investors or banks. We restore homes to “rent-ready” condition in an efficient and cost-effective manner, to a standard that we believe appeals to our target tenants’ preferences, enabling us to attract qualified tenants and provide a high level of service to retain our tenants. We believe that our vertically integrated acquisition and management platform is critical to executing our strategy.

In addition to our primary business strategy of acquiring, restoring, leasing and managing single-family homes, we have a private mortgage financing business that generates attractive returns on invested capital and provides us access to acquisition opportunities and valuable market data. As of March 31, 2014, our private mortgage portfolio had an aggregate outstanding principal balance of $35.5 million, a weighted-average interest rate of 11.8% per annum and a weighted-average remaining term of 84 days. We also owned an additional $1.1 million in long-term mortgage investments.

We plan to continue acquiring single-family homes and other residential real estate related assets in markets that satisfy our investment criteria. We conduct substantially all of our operations through our Operating Partnership, in which we own a 96.9% interest, including the sole 0.4% general partnership interest that we hold through a subsidiary as of March 31, 2014 after giving effect to vested and unvested LTIP awards.

We have elected to be taxed as a REIT for federal income tax purposes. As a REIT, we will generally not be subject to federal income taxes to the extent that we currently distribute all of our taxable income to our stockholders and meet other specific requirements. If we fail to qualify as a REIT in any taxable year, we will be subject to federal and state income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate tax rates, and we may be ineligible to qualify as a REIT for four subsequent tax years. Even if we qualify as a REIT, we may be subject to certain state or local income taxes, and our TRS, which is our taxable REIT subsidiary, will be subject to federal, state and local taxes on its income at regular corporate rates.

Industry Outlook

Residential housing is the largest real estate asset class in the United States with a size of approximately $19.4 trillion, according to the 2013 fourth quarter Federal Reserve Flow of Funds release. Historically, according to the U.S. Census Bureau,

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approximately one-third of this asset class has been rented and single-family homes currently comprise roughly one-third of all residential rental housing.

We believe that an over-correction in residential housing prices in certain housing markets from their historic peak occurred as a result of the housing and mortgage crisis in 2008, creating the potential for home price appreciation. We also believe that there continues to be a large supply of single-family homes that we can acquire at favorable pricing.

Property Portfolio

The following three tables present summary statistics of our single-family homes by metropolitan statistical area, or MSA, and metropolitan division, or metro division, as of March 31, 2014, in descending order of aggregate investment. The first table includes our entire portfolio of single-family homes. The second table includes only the single-family homes that we manage. The third table includes only the single-family homes that our preferred operators manage.

Total Portfolio of Single-Family Homes - Summary Statistics

(As of March 31, 2014)

MSA/Metro Division	Number of Homes	Aggregate Investment (thousands)		Average Investment Per Home(1)		Percentage Leased(2)		Average Age (years)	Average Size (square feet)
Phoenix, AZ	1,380	$	199,116	$	144,287	93	%	17	1,714
Houston, TX	1,042	$	151,736	$	145,620	86	%	7	1,920
Dallas-Fort Worth, TX	698	$	111,352	$	159,530	86	%	11	2,106
Chicago, IL	511	$	66,774	$	130,673	100	%	55	1,404
Nashville, TN	367	$	56,856	$	154,921	62	%	11	1,821
Other Texas	297	$	51,072	$	171,960	82	%	10	1,965
Atlanta, GA	390	$	42,724	$	109,549	49	%	18	1,870
Inland Empire, CA	213	$	38,163	$	179,169	86	%	16	1,915
Indianapolis, IN	549	$	34,408	$	62,674	63	%	53	1,306
Charlotte, NC-SC	218	$	32,427	$	148,748	68	%	9	1,984
Raleigh, NC	205	$	30,126	$	146,956	77	%	9	1,709
Winston-Salem, NC	232	$	29,008	$	125,034	91	%	12	1,415
Florida	285	$	26,596	$	93,319	69	%	12	1,449
Other California	82	$	10,509	$	128,159	87	%	36	1,336
Las Vegas, NV	68	$	7,310	$	107,500	82	%	15	1,553
Other	225	$	32,712	$	145,387	76	%	9	1,605
Total/Weighted Average	6,762	$	920,889	$	136,186	81	%	19	1,739

______________

(1) For self-managed homes, represents average purchase price (including broker commissions and closing costs) plus average capital expenditures. For preferred operator program homes, represents purchase price (including broker commissions and closing costs) paid by us for the portfolio divided by the number of homes in the portfolio and does not include past, expected or budgeted general and administrative expenses associated with ongoing monitoring activities of our investment. The preferred operator is obligated to pay for all taxes, insurance, other expenses and capital expenditures (including significant capital improvements) required for the management, operation and maintenance of the properties. Accordingly, absent a default by the preferred operator under a long-term lease agreement with us, we expect to incur no expenses related to properties under our preferred operator program, other than general and administrative expenses associated with ongoing monitoring activities of our investment.

(2) Includes both self-managed homes and preferred operator program homes. We classify homes in our preferred operator program as 100% leased, because each preferred operator is obligated to pay us 100% of the base rent specified in the applicable lease irrespective of whether or not the homes are occupied by residential sub-tenants. This does not mean that 100% of the homes leased to preferred operators are occupied by residential sub-tenants. If a preferred operator is unable to lease a material portion of the homes it leases from us to residential sub-tenants, it may adversely affect such operator’s ability to pay rent to us under the lease. We are also eligible to receive percentage rents on a quarterly basis equal to a fixed percentage of gross revenue that the preferred operator collects from its residential sub-tenants who occupy the homes.

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Portfolio of Self-Managed Single-Family Homes - Summary Statistics

(As of March 31, 2014)

														Leased Homes
MSA/Metro Division	Number of Homes	Average Purchase Price Per Home(1)		Average Capital Expenditures Per Home(2)		Average Investment Per Home(3)		Aggregate Investment (thousands)		Percentage Leased		Average Age (years)	Average Size (square feet)	Average Monthly Rent Per Leased Home		Annual Average Rent per Leased Home as a Percentage of Average Investment Per Leased Home(4)
Phoenix, AZ	1,380	$	138,362	$	5,925	$	144,287	$	199,116	93	%	17	1,714	$	1,013	8.4	%
Houston, TX	1,042	$	140,920	$	4,700	$	145,620	$	151,736	86	%	7	1,920	$	1,354	11.3	%
Dallas-Fort Worth, TX	698	$	150,500	$	9,030	$	159,530	$	111,352	86	%	11	2,106	$	1,433	10.8	%
Nashville, TN	367	$	148,436	$	6,485	$	154,921	$	56,856	62	%	11	1,821	$	1,258	10.8	%
Other Texas	297	$	162,536	$	9,424	$	171,960	$	51,072	82	%	10	1,965	$	1,535	10.8	%
Atlanta, GA	390	$	106,026	$	3,523	$	109,549	$	42,724	49	%	18	1,870	$	1,002	12.6	%
Inland Empire, CA	213	$	156,736	$	22,433	$	179,169	$	38,163	86	%	16	1,915	$	1,404	9.3	%
Charlotte, NC-SC	218	$	142,672	$	6,076	$	148,748	$	32,427	68	%	9	1,984	$	1,184	9.6	%
Raleigh, NC	205	$	141,176	$	5,780	$	146,956	$	30,126	77	%	9	1,709	$	1,222	9.8	%
Indianapolis, IN	450	$	64,659	$	1,552	$	66,211	$	29,795	55	%	51	1,338	$	770	16.0	%
Winston-Salem, NC	232	$	122,611	$	2,423	$	125,034	$	29,008	91	%	12	1,415	$	1,077	10.3	%
Florida	285	$	89,916	$	3,403	$	93,319	$	26,596	69	%	12	1,449	$	845	12.3	%
Other California	82	$	108,500	$	19,659	$	128,159	$	10,509	87	%	36	1,336	$	1,046	9.8	%
Las Vegas, NV	68	$	97,787	$	9,713	$	107,500	$	7,310	82	%	15	1,553	$	1,025	11.4	%
Other	225	$	139,703	$	5,684	$	145,387	$	32,712	76	%	9	1,605	$	1,242	10.2	%
Total/Weighted Average	6,152	$	131,747	$	6,339	$	138,086	$	849,502	80	%	15	1,776	$	1,183	10.2	%

 ______________

(1) Average purchase price includes broker commissions and closing costs.

(2) Represents average capital expenditures per home as of March 31, 2014. Does not include additional expected or future capital expenditures.

(3) Represents average purchase price plus average capital expenditures.

(4) Represents annualized average monthly rent per leased home as a percentage of our average investment (average purchase price per home plus average capital expenditures) per leased home. Does not include a provision for payment of ongoing property expenses (such as insurance, taxes, HOA fees and maintenance) or an allocation of our general and administrative expense, all of which materially impact our results. Accordingly, it should not be interpreted as a measure of profitability, and its utility in evaluating our business is limited. Average monthly rent for leased homes may not be indicative of average rents we may achieve on our vacant homes.

Portfolio of Preferred Operator Program Single-Family Homes - Summary Statistics

(As of March 31, 2014)

MSA/Metro Division	Number of Homes	Average Investment Per Home(1)		Aggregate Investment (thousands)		Percentage Leased(2)		Average Age (years)	Average Size (square feet)	Average Monthly Rent Per Home Paid by Preferred Operator to Us(3)		Annual Rent as a Percentage of Average Investment Per Home(4)
Chicago, IL	511	$	130,673	$	66,774	100	%	55	1,404	$	794	7.3	%
Indianapolis, IN	99	$	46,596	$	4,613	100	%	62	1,162	$	348	9.0	%
Total/Weighted Average	610	$	117,028	$	71,387	100	%	56	1,365	$	722	7.4	%

 ______________

(1) Represents purchase price (including broker commissions and closing costs) paid by us for the portfolio divided by the number of homes in the portfolio and does not include past, expected or budgeted general and administrative expenses associated with ongoing monitoring activities of our investment. The preferred operator is obligated to pay for all taxes, insurance, other expenses and capital expenditures (including significant capital improvements) required for the management, operation and maintenance of the properties. Accordingly, absent a default by the preferred operator under a long-term lease agreement with us, we expect to incur no expenses related to properties under our preferred operator program, other than general and administrative expenses associated with ongoing monitoring activities of our investment.

(2) We classify homes in our preferred operator program as 100% leased, because each preferred operator is obligated to pay us 100% of the base rent specified in the applicable lease irrespective of whether or not the homes are occupied by residential sub-tenants. This does not mean that 100% of the homes leased to preferred operators are occupied by residential sub-tenants. If a preferred operator is unable to lease a material portion of the homes it leases from us to residential sub-tenants, it may adversely affect such operator’s ability to pay rent to us under the lease. We are also eligible to receive percentage rents on a quarterly basis equal to a fixed percentage of gross revenue that the preferred operator collects from its residential sub-tenants who occupy the homes.

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(3) Represents the initial annual base rent payable to us by the preferred operator pursuant to the portfolio lease divided by 12 and then divided by the number of homes included in the lease.

(4) Represents annualized average monthly rent paid by preferred operator to us as a percentage of our average investment per home. The rent paid by the preferred operator is net of all taxes, insurance, other expenses and capital expenses (including significant capital improvements) for which the preferred operator is responsible.

Stabilized Properties

We acquire both vacant homes and homes subject to existing leases. When we acquire a property that is not leased, we must possess, restore, market and lease the property before it becomes a revenue generating asset. We refer to this process as property stabilization. Historically, we presented the summary statistics of our stabilized homes as those homes owned six-months or longer. In estimating the stabilization period we considered factors including the channel through which the property was acquired, the age and condition of the property and whether the property was vacant when we acquired it. After additional considerations of history, shareholders' and market participants' ability to compare stabilized summary statistics within the market and the factors listed above, we have refined our statistical summary of "stabilized" properties to properties in which we have (i) completed restorations and the property has been leased for the first time, (ii) completed restorations and the property has been listed for the first time for a period of greater than 90 days and (iii) acquired a property with an existing lease. Properties acquired with existing leases may require future renovations to restore a property to our standards prior to re-leasing. We expect that stabilized properties provide an indication of how our portfolio will perform over the long-term.

The summary statistic for properties owned six-months or longer is included below for comparative purposes to previously disclosed statistics.

The following table presents summary statistics of the our portfolio of stabilized single-family homes by MSA and metro division as of March 31, 2014, in descending order of number of homes.

Total Portfolio of Stabilized⁽¹⁾ Single-Family Homes—Summary Statistics

(As of March 31, 2014)

MSA/Metro Division	Number of Homes	��Average Investment Per Home (2)		Homes Leased	Homes Vacant (3)	Percentage Leased
Phoenix, AZ	1,341	$	144,700	1,286	55	96	%
Houston, TX	936	$	144,430	896	40	96	%
Dallas-Fort Worth, TX	618	$	159,197	600	18	97	%
Chicago, IL	511	$	130,673	511	—	100	%
Indianapolis, IN	363	$	56,888	345	18	95	%
Other Texas	258	$	170,373	244	14	95	%
Nashville, TN	247	$	141,092	228	19	92	%
Atlanta, GA	232	$	92,399	193	39	83	%
Winston-Salem, NC	221	$	125,315	210	11	95	%
Inland Empire, CA	213	$	179,171	184	29	86	%
Florida	209	$	82,717	198	11	95	%
Raleigh, NC	191	$	148,197	158	33	83	%
Charlotte, NC-SC	190	$	148,618	148	42	78	%
Other California	82	$	128,155	71	11	87	%
Las Vegas, NV	62	$	110,404	56	6	90	%
Other	213	$	144,640	172	41	81	%
Total/Weighted Average	5,887	$	136,425	5,500	387	93	%

 ______________

(1) Properties are considered stabilized when we have completed renovations and the properties have been leased or are available for rent for a period of greater than 90 days. Properties with in-place leases at the date of acquisition are also considered stabilized even though these properties have not been renovated and may require future renovations to meet our standards.

(2) Represents average purchase price plus average capital expenditures.

(3) As of March 31, 2014, 271 homes were available for rent, 70 homes were undergoing renovation and 46 homes were occupied with no lease.

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Properties Owned for Six Months or Longer

Historically, we have provided the summary statistics for properties owned for six-months or longer as an indication of how our portfolio will perform over the long-term. As described above, we have refined our definition of "stabilized"; however, we have included the summary statistics for properties owned for six-months or longer below for comparative purposes. In the future, we intend to include only a single metric of "stabilized" properties as described in the section above.

The following three tables present summary statistics of our portfolio of single-family homes we owned for at least six months as of March 31, 2014, in descending order of number of homes. The first table includes our entire portfolio of single-family homes. The second table includes only the single-family homes that we manage. The third table includes only the single-family homes that our preferred operators manage.

Total Portfolio of Single-Family Homes

Owned for Six Months or Longer—Summary Statistics

(As of March 31, 2014)

MSA/Metro Division	Number of Homes	Average Investment Per Home(1)		Homes Leased	Homes Vacant(2)	Percentage Leased
Phoenix, AZ	1,363	$	143,720	1,270	93	93	%
Houston, TX	830	$	141,947	761	69	92	%
Indianapolis, IN	470	$	52,291	337	133	72	%
Dallas-Fort Worth, TX	455	$	158,958	434	21	95	%
Chicago, IL	437	$	130,785	437	—	100	%
Atlanta, GA	230	$	83,792	164	66	71	%
Florida	226	$	77,966	191	35	85	%
Inland Empire, CA	213	$	179,171	184	29	86	%
Other Texas	213	$	170,081	203	10	95	%
Winston-Salem, NC	207	$	125,064	198	9	96	%
Raleigh, NC	189	$	146,667	149	40	79	%
Charlotte, NC-SC	146	$	146,771	117	29	80	%
Nashville, TN	121	$	99,025	111	10	92	%
Other California	82	$	128,155	71	11	87	%
Las Vegas, NV	66	$	105,533	55	11	83	%
Other	192	$	141,747	154	38	80	%
Total/Weighted Average	5,440	$	130,653	4,836	604	89	%

  ______________

(1) Represents average purchase price plus average capital expenditures.

(2) As of March 31, 2014, 237 homes were available for rent, 318 homes were undergoing renovation and 49 homes were occupied with no lease.

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Portfolio of Self-Managed Single-Family Homes

Owned for Six Months or Longer—Summary Statistics

(As of March 31, 2014)

												Leased Homes
MSA/Metro Division	Number of Homes	Average Purchase Price Per Home(1)		Average Capital Expenditure Per Home(2)		Average Investment Per Home(3)		Homes Leased	Homes Vacant(4)	Percentage Leased		Average Monthly Rent Per Leased Home		Annual Average Rent per Leased Home as a Percentage of Average Investment Per Leased Home(5)
Phoenix, AZ	1,363	$	137,812	$	5,908	$	143,720	1,270	93	93	%	$	1,011	8.4	%
Houston, TX	830	$	137,619	$	4,328	$	141,947	761	69	92	%	$	1,332	11.2	%
Dallas-Fort Worth, TX	455	$	149,044	$	9,914	$	158,958	434	21	95	%	$	1,420	10.7	%
Indianapolis, IN	371	$	52,604	$	1,203	$	53,807	238	133	64	%	$	759	16.4	%
Atlanta, GA	230	$	80,008	$	3,784	$	83,792	164	66	71	%	$	962	13.2	%
Florida	226	$	74,099	$	3,867	$	77,966	191	35	85	%	$	833	12.4	%
Inland Empire, CA	213	$	156,738	$	22,433	$	179,171	184	29	86	%	$	1,404	9.3	%
Other Texas	213	$	160,507	$	9,574	$	170,081	203	10	95	%	$	1,524	10.8	%
Winston-Salem, NC	207	$	122,818	$	2,246	$	125,064	198	9	96	%	$	1,078	10.3	%
Raleigh, NC	189	$	140,603	$	6,064	$	146,667	149	40	79	%	$	1,224	9.8	%
Charlotte, NC-SC	146	$	140,193	$	6,578	$	146,771	117	29	80	%	$	1,185	9.6	%
Nashville, TN	121	$	93,787	$	5,238	$	99,025	111	10	92	%	$	1,110	13.7	%
Other California	82	$	108,496	$	19,659	$	128,155	71	11	87	%	$	1,046	9.8	%
Las Vegas, NV	66	$	95,870	$	9,663	$	105,533	55	11	83	%	$	1,025	11.5	%
Other	192	$	135,797	$	5,950	$	141,747	154	38	80	%	$	1,226	10.2	%
Total/Weighted Average	4,904	$	125,861	$	6,476	$	132,337	4,300	604	88	%	$	1,153	10.2	%

 ______________

(1) Average purchase price includes broker commissions and closing costs.

(2) Represents average capital expenditures per home as of March 31, 2014. Does not include additional expected or future capital expenditures.

(3) Represents average purchase price plus average capital expenditures.

(4) As of March 31, 2014, 237 homes were available for rent, 318 homes were undergoing renovation and 49 homes were occupied with no lease.

(5) Represents annualized average monthly rent per leased home as a percentage of our average investment (average purchase price per home plus average capital expenditures) per leased home. Does not include a provision for payment of ongoing property expenses (such as insurance, taxes, HOA fees and maintenance) or an allocation of our general and administrative expense, all of which materially impact our results. Accordingly, it should not be interpreted as a measure of profitability, and its utility in evaluating our business is limited. Average monthly rent for leased homes may not be indicative of average rents we may achieve on our vacant homes.

Portfolio of Preferred Operator Program Single-Family Homes

Owned for Six Months or Longer—Summary Statistics

(As of March 31, 2014)

MSA/Metro Division	Number of Homes	Average Investment Per Home(1)		Percentage Leased(2)		Average Monthly Rent Per Home Paid by Preferred Operator to Us		Annual Rent as a Percentage of Average Investment Per Home(3)
Chicago, IL	437	$	130,785	100	%	$	791	7.3	%
Indianapolis, IN	99	$	46,595	100	%	$	348	9.0	%
Total/Weighted Average	536	$	115,235	100	%	$	709	7.4	%

 ______________

(1) Represents purchase price (including broker commissions and closing costs) paid by us for the portfolio divided by the number of homes in the portfolio and does not include past, expected or budgeted general and administrative expenses associated with ongoing monitoring activities of our investment. The preferred operator is obligated to pay for all taxes, insurance, other expenses and capital expenditures (including significant capital improvements) required for the management, operation and maintenance of the properties. Accordingly, absent a default by the preferred operator under a long-term lease agreement with us, we expect to incur no expenses related to properties under our preferred operator program, other than general and administrative expenses associated with ongoing monitoring activities of our investment.

(2) We classify homes in our preferred operator program as 100% leased, because each preferred operator is obligated to pay us 100% of the base rent specified in the applicable lease irrespective of whether or not the homes are occupied by residential sub-tenants. This does not mean that 100% of the homes leased to preferred operators are occupied by residential sub-tenants. If a preferred operator is unable to lease a material portion of the homes it leases from us to residential sub-tenants, it may adversely affect such operator’s ability to pay rent to us under the lease. We are also eligible to receive percentage rents on a quarterly basis equal to a fixed percentage of gross revenue that the preferred operator collects from its residential sub-tenants who occupy the homes.

(3) Represents annualized average monthly rent paid by preferred operator to us as a percentage of our average investment per home.

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Highlights of First Quarter of 2014

Acquisitions

From January 1, 2014 to March 31, 2014, we acquired 689 single-family homes, of which 248 are in Texas, 143 are in Tennessee, 130 are in Georgia, 56 are in Indiana, 52 are in Florida, 44 are in North Carolina, 15 are in Illinois and 1 is in Ohio, and incurred renovation costs on our existing portfolio, for a total capital investment of approximately $117.3 million.

Factors Expected to Affect Our Results and Financial Condition

Our results of operations and financial condition are affected by numerous factors, many of which are beyond our control. Key factors that impact our results of operations and financial condition include our pace of acquisitions and ability to deploy our capital, the amount of time and cost required to stabilize newly acquired properties and convert them to revenue generating assets, rental rates, occupancy levels, rates of tenant turnover, the success of our preferred operators, our expense ratios and capital structure.

Property Acquisitions

We have aggressively but prudently grown our portfolio of single-family homes and intend to continue to do so. Our ability to identify and acquire single-family homes that meet our investment criteria is impacted by home prices in our markets, the inventory of properties available for sale through our acquisition channels and competition for our target assets.

We have accumulated a substantial amount of recent data on acquisition costs, restoration costs and the amount of time required to convert an acquired single-family home to a rental property through our management platform and the experience of our founders over the past six years.

Property Stabilization

The time and cost involved in stabilizing our newly acquired properties impacts our financial performance and is affected by the amount of time it takes us to gain possession of a property, the amount of time and cost associated with property restoration and the amount of time it takes to market and lease the property. Our possession of each property we acquire can be delayed for a multitude of reasons beyond our control, including applicable statutory rights of redemption, rescission rights and legal challenges to our ownership or unauthorized occupants living in the property at the time of purchase. As part of our underwriting criteria, we typically estimate restoration costs to be 5% to 15% of the purchase price, although actual costs may vary significantly based on market, age and condition of the property and other factors. The time to restore a newly acquired property can vary significantly among properties for several reasons, including the channel through which the property was acquired, the age and condition of the property and whether the property was vacant when we acquired it. Similarly, the time to market and lease a property is driven by local demand, our marketing techniques and the size of our available inventory. We actively monitor these measures and trends.

As of March 31, 2014, we had 5,887 properties owned in our portfolio of stabilized single-family homes, of which 93% were leased. We acquire both vacant homes and homes subject to existing leases. Homes acquired with existing leases may require future renovations to restore a property to our standards prior to re-leasing, which will impact the turnover time and may not be fully indicative of how we expect our stabilized portfolio to perform over time. We continually track key metrics such as average time to obtain possession, restore and lease our properties.

Revenue

Our revenue comes primarily from rents collected under lease agreements for our properties. These include both short-term leases that we enter into directly with tenants, which typically have a term of one year, and longer-term net leases, which typically have a term of five to ten years, that we enter into with preferred operators who sub-lease the properties to sub-tenants. For the three months ended March 31, 2014, approximately 91.3% of our total revenue was attributable to rental activity, 0.6% was attributable to management services and the remaining 8.1% was attributable to interest earned on our portfolio of private mortgage financings and on cash balances. Over time, we expect most of our revenue to be derived from leasing our properties. The most important drivers of revenue (aside from portfolio growth) are rental and occupancy rates. Our rental and occupancy rates are affected by macroeconomic factors and local and property-level factors, including, market conditions, seasonality, tenant defaults, the amount of time that it takes us to restore properties upon acquisition and the amount of time it takes us to restore and re-lease vacant properties.

In each of our markets, we monitor a number of factors that may impact the single-family real estate market and our tenants’ finances, including the unemployment rate, household formation and net population growth, income growth, size and make-up of existing and anticipated housing stock, prevailing market rental and mortgage rates, rental vacancies and credit

25

availability. Growth in demand for rental housing in excess of the growth of rental housing supply, among other factors, will generally drive higher occupancy and rental rates. Negative trends in our markets with respect to these metrics or others could adversely impact our rental revenue.

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

The following table summarizes portfolio and operating metrics as of March 31, 2014 and December 31, 2013.

	As of March 31, 2014			As of December 31, 2013
	Number of Homes	% Leased		Number of Homes	% Leased
Portfolio of single-family homes
Self-managed (1)	6,152	80	%	5,478	72	%
Preferred operator program(2)	610	100	%	595	100	%
Total properties	6,762	81	%	6,073	75	%
Portfolio of single-family homes owned six months or longer
Self-managed (1)	4,904	88	%	3,660	84	%
Preferred operator program (2)	536	100	%	429	100	%
Total properties	5,440	89	%	4,089	86	%

 ______________

(1) The amount presented represents the properties that were leased as of the end of the period.

(2) We classify homes in our preferred operator program as 100% leased, because each preferred operator is obligated to pay us 100% of the base rent specified in the applicable lease irrespective of whether or not the homes are occupied by residential sub-tenants. This does not mean that 100% of the homes leased to preferred operators are occupied by residential sub-tenants. If a preferred operator is unable to lease a material portion of the homes it leases from us to residential sub-tenants, it may adversely affect the operator’s ability to pay rent to us under the lease.

The following table summarizes our acquisition activity by quarter from December 31, 2012 through March 31, 2014.

		Three Months Ended
	Total Owned Properties as of March 31, 2014	March 31, 2014	December 31, 2013(1)		September 30, 2013	June 30,  2013	March 31, 2013	Total Owned Properties as of December 31, 2012
Portfolio of single-family homes
Self-managed	6,152	674	1,401		1,244	1,312	293	1,228
Preferred operator program	610	15	(768	)	107	246	463	547
Total properties	6,762	689	633		1,351	1,558	756	1,775

 ______________

(1) During the forth quarter 2013, 828 homes we own were transferred from the preferred operator program portfolio to our self-managed portfolio as a result of terminated leases with three of our preferred operators. Excluding the transfer, 573 homes were added to our self-managed portfolio and 60 homes were added to our preferred operator program portfolio during the three months ended December 31, 2013.

For the period from April 1, 2014 to April 30, 2014, we acquired 232 single-family homes for a total purchase price of approximately $36.1 million and contracted to acquire 197 additional homes for a total purchase price of approximately $31.8 million. Of the homes we acquired or contracted to acquire during this period, 197 homes are in Georgia, 81 homes are in Tennessee, 69 homes are in Texas, 66 homes are in Florida, 9 homes are in North Carolina and 7 homes are in Indiana. There is no assurance that we will close on the properties we have under contract.

Expenses

Our ability to acquire, restore, lease and maintain our portfolio in a cost-effective manner will be a key driver of our operating performance. We monitor the following categories of expenses that we believe most significantly affect our results of operations.

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Property-Related Expenses

Once we acquire and restore a self-managed property, we have ongoing property-related expenses, including HOA fees (when applicable), taxes, insurance, ongoing costs to market and maintain the property and expenses associated with tenant turnover. Certain of these expenses are not subject to our control, including HOA fees, property insurance and real estate taxes. We expect that certain of our costs, including insurance costs and property management costs, will account for a smaller percentage of our revenue as we expand our portfolio, achieve larger scale and negotiate volume discounts with third-party service providers and vendors. For properties leased to preferred operators, we have no day-to-day operating responsibilities or property-related expenses, because such responsibilities and expenses are obligations of the operators pursuant to the terms of the leases. As of March 31, 2014, 610 of our properties were managed by local operators through our preferred operator program.

Property Management

We provide all property management functions for our self-managed properties. For the properties we manage, these functions include: securing the property upon acquisition; coordinating with the utilities; controlling the restoration process; managing the leasing process; communicating with tenants; collecting rents; conducting periodic inspections, routine property maintenance and repairs; paying HOA fees; interfacing with vendors and contractors and accounting and compliance.

By performing these functions internally for our self-managed properties, we believe that we establish improved communications, foster direct relationships with tenants, gain tighter control over the quality and cost of restorations and property maintenance, gain increased attention and focus of third-party leasing agents and improve the timeliness of rental receipts. In addition, we believe that our internal management structure will allow us to manage properties more efficiently than many of our competitors who are externally managed.

Overhead

We will incur expenses associated with our vertically integrated real estate acquisition and management platform, such as compensation expense and other general and administrative costs. In the near term, as our business grows, we expect to hire additional employees, which will increase our general and administrative costs. In addition, we will incur additional costs related to operating as a public company due to increased legal, insurance, accounting and other expenses related to corporate governance, SEC reporting and other compliance matters. Over time, we expect these costs to decline as a percentage of revenue as our portfolio grows.

Based on our experience, we believe that the property-related expenses for vacancy, bad debt, property taxes, insurance, HOA fees, repairs and maintenance and capital expenditure reserves and the costs for property management services, such as managing the process of restoring, marketing, leasing and maintaining our stabilized single-family homes, will average between 55% and 60% of gross rental revenue. Variations in asset level returns will be due to a variety of factors, including location, age and condition of the property and the efficiency of our property management services.

Results of Operations for the Three Months Ended March 31, 2014 Compared to the Three Months Ended March 31, 2013

We believe our financial results during the three months ended March 31, 2014 are not representative of our future financial results. As we have been experiencing rapid growth since the commencement of our investment activities, we have a greater percentage of our portfolio invested in assets in the process of stabilization than we would expect to have as our company continues to mature. Newly acquired properties that are not leased at the time of acquisition will not begin generating revenue during this process of stabilization to offset fixed expenses incurred and, therefore, will reduce our overall financial performance in the near term. Accordingly, our operating margin has an opportunity to improve as vacant properties in our self-managed portfolio are leased and begin generating rental revenue. The following are our results of operations for the three months ended March 31, 2014 and 2013:

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Income Statement Data

(amounts in thousands)

(unaudited)

	Three Months Ended March 31,
	2014			2013
Revenue:
Rental revenue	$	15,930		$	4,322
Management services revenue	113			104
Interest and other	1,411			821
Total revenue	17,454			5,247
Expenses:
Property operating and maintenance	4,146			923
Real estate taxes	3,111			497
Homeowners’ association fees	460			153
Acquisition	67			1,775
Depreciation and amortization	9,464			3,140
General, administrative and other	3,720			2,537
Interest	4,230			371
Total expenses	25,198			9,396
Loss from continuing operations before equity in net (loss) income of    unconsolidated ventures	(7,744		)	(4,149		)
Equity in net (loss) income of unconsolidated ventures	(50		)	90
Net loss and comprehensive loss	(7,794		)	(4,059		)
Net loss and comprehensive loss attributable to non-controlling interests	125			40
Net loss and comprehensive loss attributable to common stockholders	$	(7,669	)	$	(4,019	)

Rental Revenue

Rental revenue includes rental revenue from our residential properties, application fees and lease termination fees. Our rental revenue of approximately $15.9 million for the three months ended March 31, 2014 was comprised of approximately $14.6 million of rental revenue from self-managed properties and approximately $1.4 million of revenue from preferred operator program properties. As of March 31, 2014, approximately 81% of our properties were leased. Rental revenue for the three months ended March 31, 2013 was $4.3 million. The increase in total revenue is primarily attributable to growth in our real estate portfolio from 2,531 to 6,762 homes as of March 31, 2013 and 2014, respectively, and higher rental income generated from the leases of an additional 3,336 homes.

Management Services Revenue

Management services revenue was $0.1 million for each of the three months ended March 31, 2014 and 2013 for property restoration, leasing and property management and disposition services provided to Phoenix Fund, a related party, under a management agreement between Phoenix Fund and our TRS.

Interest and Other Revenue

Interest and other revenue includes interest income earned on private mortgage financings and interest income earned on cash balances held with financial institutions. Interest and other revenue was $1.4 million and $0.8 million for the three months ended March 31, 2014 and 2013, respectively, an increase of $0.6 million. The increase in interest and other revenue is primarily attributable to growth in our mortgage financings.

Property Operating and Maintenance

Property operating and maintenance expenses include all direct and indirect costs related to operating our residential properties, including management personnel, insurance, utilities, landscaping and general repairs and maintenance, other than real estate taxes and HOA fees, which are presented separately in our unaudited condensed consolidated statement of operations. Property operating and maintenance expenses were $4.1 million and $0.9 million for the three months ended March 31, 2014 and 2013, respectively, an increase of $3.2 million. The increase in property operating and maintenance expenses is primarily attributable to the growth in our real estate portfolio.

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Real Estate Taxes

Upon acquisition of a home, its real estate taxes are set based upon municipal and state laws. These costs generally remain constant throughout the year and have little variation. Because these expenses are relatively fixed during each year, our operating margin has an opportunity to improve as vacant properties in our self-managed portfolio are leased and begin generating rental revenue. Real estate taxes were $3.1 million and $0.5 million for the three months ended March 31, 2014 and 2013, respectively, an increase of $2.6 million. The increase in real estate taxes is primarily attributable to the growth in our real estate portfolio. In subsequent years, real estate taxes will fluctuate based on changes in municipal and state real estate tax rates and the number of homes in our portfolio.

Homeowners’ Association Fees

Like real estate taxes, these fees are determined upon each property’s acquisition and generally remain fixed thereafter based upon the existing HOA agreements. HOA fees were $0.5 million and $0.2 million for the three months ended March 31, 2014 and 2013, respectively, an increase of $0.3 million. The increase in HOA fees is primarily attributable to the growth in our real estate portfolio.

Acquisition

These expenses are primarily transaction costs incurred in connection with the acquisition of properties with existing leases, including, but not limited to, payments for property inspections, closing costs, title insurance, transfer taxes, recording fees and broker commissions. For properties that are leased at the time of acquisition, these costs are expensed, rather than capitalized as a component of the acquisition cost (which is the accounting treatment of these costs for properties that are vacant at the time of acquisition). Acquisition expenses were $0.1 million and $1.8 million for the three months ended March 31, 2014 and 2013, respectively, a decrease of $1.7 million. The reduction in acquisition costs is primarily attributable to the decrease in portfolio acquisitions with in-place leases at the time of acquisition.

Depreciation and Amortization

Depreciation and amortization includes depreciation expense on our real estate portfolio using the straight-line method over the estimated useful lives of the respective assets, ranging from 5 to 27.5 years, from the date of acquisition. Depreciation and amortization also includes amortization expense related to in-place lease intangibles, deferred leasing costs and other direct costs capitalized associated with leasing our properties, amortized over the remaining term of the related leases. The increase in depreciation and amortization is attributable to the growth in our real estate portfolio. The following table summarizes our depreciation and amortization expense (amounts in thousands):

	Three Months Ended March 31,
	2014		2013
Depreciation of real estate portfolio	$	7,938	2,058
Depreciation of other assets	172		39
Amortization of in-place lease intangibles and other direct costs	1,354		1,043
Total depreciation and amortization	$	9,464	$	3,140

General, Administrative and Other

These expenses include payroll expense, stock-based compensation expense, professional fees, insurance expense and office expenses. General, administrative and other expense was $3.7 million and $2.5 million for the three months ended March 31, 2014 and 2013, respectively, an increase of $1.2 million. The increase in general, administrative and other expense was primarily attributable to additional headcount to support the growth and size of our real estate portfolio operations.

Interest Expense

Interest expense includes interest on outstanding debt, non-utilization fees for unused portions of senior secured revolving credit facility, or the Credit Facility, the amortization of deferred financing costs incurred in connection with the Credit Facility and the exchangeable senior notes, or the Notes, and non-cash charges related to the accretion of the discount on the Notes. Interest expense was $4.2 million and $0.4 million for the three months ended March 31, 2014 and 2013, respectively, an increase of $3.8 million. The increase in interest expense is primarily attributable to the increase in borrowings under the Credit Facility and issuance of the Notes to fund acquisition activities.

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Critical Accounting Policies and Estimates

Our discussion and analysis of our historical financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

Investment in Real Estate

Property acquired not subject to an existing lease is accounted for as an asset acquisition, with the property recorded at the purchase price, including acquisition costs, allocated between land and building and improvements based upon their relative fair values at the date of acquisition. Property acquired with an existing lease is recorded as a business combination. For properties acquired through portfolio transactions, we determine whether the acquisition qualifies as a business combination based on the nature and status of the properties as of the acquisition date. A portfolio comprised of properties that are substantially leased at acquisition is treated as a business combination. A portfolio comprised of properties that are substantially vacant at acquisition is treated as an asset acquisition. To date, portfolio acquisitions were comprised of properties that were substantially leased at acquisition and accordingly were accounted for as business combinations. For property acquisitions accounted for as business combinations, the land, building and improvements and the existing lease are recorded at fair value at the date of acquisition, with acquisition costs expensed as incurred.

Fair value is determined under the guidance of Financial Accounting Standards Board, or FASB, Codification Topic 820, Fair Value Measurements, primarily based on unobservable market data inputs, which are categorized as Level 3 inputs. In making estimates of fair values for purposes of allocating purchase price, we utilize our market knowledge and published market data. Our real estate portfolio is depreciated using the straight-line method over the estimated useful lives of the respective assets, ranging from 5 to 27.5 years.

In-place lease intangibles associated with the preferred operator program are valued based on management’s estimates of lost rent and carrying costs while in-place lease intangibles associated with the acquisition of self- managed homes are valued based on management’s estimate of lost rent during the time it would take to locate a tenant and execute a lease if the property were vacant, considering current market conditions and costs to execute similar leases. In estimating lost rent and carrying costs, management considers market rents, real estate taxes, insurance, costs to execute similar leases (including leasing commissions) and other related costs. The value assigned to in-place leases is amortized on a straight-line basis as a component of depreciation and amortization expense over the remaining initial term of the related lease. The leases reflect market rental rates.

We incur costs to prepare our acquired properties to be rented. These costs (including direct internal costs) are capitalized and allocated to building costs. Costs related to the restoration or improvement of our properties (including direct internal costs, primarily comprised of payroll expense) that improve and extend their useful lives are capitalized and depreciated over their estimated useful lives. Expenditures for ordinary repairs and maintenance are expensed as incurred.

Impairment of Long-Lived Assets

We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Significant indicators of impairment may include, but are not limited to, declines in home values, rental rates and occupancy percentages and significant changes in the economy. We make our assessment at the individual property level because it represents the lowest level of cash flows. If an impairment indicator exists, we compare the expected future undiscounted cash flows from the property against its net carrying amount. We prepare our future undiscounted cash flow analysis using estimates based on current rental rates, renewals and occupancy, operating expenses and inputs from our annual planning process and historical performance. When preparing these estimates, we consider each property’s historical results, current operating trends and current market conditions. These estimates may be impacted by variable factors, including inflation, expected rental rates, the general health of the economy and market competition. If the sum of the estimated undiscounted cash flows is less than the net carrying amount of the property, we record an impairment loss for the difference between the estimated fair value of the individual property and the carrying amount of the property at that date. To determine the estimated fair value, we consider both recent comparable homes sales and the use of discounted projected future cash flows. The rates used to discount projected future cash flows reflect market discount rates. No impairments were recorded during the three months March 31, 2014 and 2013.

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Revenue Recognition

We lease single-family residences we own and manage directly to tenants who occupy the properties under operating leases, generally, with terms of one year. We perform credit investigations on prospective tenants and obtain security deposits. Rental revenue, net of any concessions, is recognized on a straight-line basis over the term of the lease, which is not materially different than if it were recorded when due from tenants and recognized monthly as it is earned. Properties that are subject to longer-term operating arrangements with preferred operators are leased to the operator for a minimum of five to ten years with renewal options. These operators are responsible for taxes, insurance and maintenance of the properties under the terms of the operating arrangements. Under our preferred operator program, we earn base rental revenue paid monthly, with contractual minimum annual rent increases on each anniversary of the lease commencement date. We recognize rental revenue on a straight-line basis over the term of the lease. We also earn percentage rents on a quarterly basis equal to a fixed percentage of the gross revenue the preferred operator collects from its residential sub-tenants who occupy the homes. Percentage rental revenue is recorded when the gross revenue collected from the sub-tenants is known and the amount can be calculated.

Mortgage Financings

We hold mortgage financing receivables for investment. The receivables are carried at cost, net of related unamortized premiums or discounts, if any. The mortgage loans are secured by single-family homes.

Interest income on mortgage financings is recognized on the effective interest method applied on a loan-by-loan basis. Direct costs, if any, associated with funding loans are offset against any related fees received and the balance, along with any premium or discount, is deferred and amortized as an adjustment to interest income over the terms of the related loans using the effective interest method.

Rents and Other Receivables, Net

We maintain an allowance for doubtful accounts for estimated losses that may result from the inability of tenants, preferred operators or borrowers to make required rent or other payments. This allowance is estimated based on payment history and current credit status of our tenants, preferred operators and borrowers. If a tenant, preferred operator or borrower fails to make contractual payments beyond any allowance, we may recognize bad debt expense in future periods equal to the amount of unpaid rent, interest or principal and deferred rent. We generally do not require collateral or other security from our tenants, other than security deposits. Mortgage loans are secured by single-family homes. If estimates of collectibility differ from the cash received, then the timing and amount of our reported revenue could be impacted.

Deferred Leasing Costs and In-Place Lease Intangibles, Net

Deferred leasing commissions and other direct costs associated with leasing our properties (including direct internal costs) and in-place lease intangibles are capitalized and amortized on a straight-line basis over the terms of the related leases.

Investments in Unconsolidated Ventures

Investments in ventures are generally accounted for under the equity method of accounting when we exercise significant influence over the venture but we do not serve as managing member or control the venture. Net income/loss allocations are included in the investment balance along with the contributions made and distributions received over the life of the investment. In October 2012, we invested approximately $5.5 million in Flat Iron VI LLC, a joint venture in which our equity interest is approximately 78% of the total amount invested. In December 2012, we invested approximately $4.7 million in Siphon Draw LLC, a joint venture in which our equity interest is approximately 80% of the total amount invested. In May 2013, we invested approximately $18.0 million in Red Rock River LLC, a joint venture in which our equity interest is approximately 62% of the total amount invested. The joint ventures used invested funds to purchase portfolios of residential mortgage loans.

Income Taxes

We have elected to be taxed as a REIT under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended, or the Code. We believe that we have operated in such a manner as to satisfy the requirements for qualification as a REIT. Accordingly, we will not be subject to federal income tax, provided that we qualify as a REIT and our distributions to our stockholders equal or exceed our REIT taxable income.

Qualification and taxation as a REIT depends upon our ability to meet the various qualification tests imposed under the Code related to the percentage of income that we earn from specified sources, the percentage of our assets that fall within specified categories, the diversity of our capital stock ownership, and the percentage of our earnings that we distribute.

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Accordingly, no assurance can be given that we will be organized or be able to operate in a manner so as to qualify or remain qualified as a REIT. If we fail to qualify as a REIT in any taxable year, we will be subject to federal and state income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate tax rates, and we may be ineligible to qualify as a REIT for four subsequent tax years. Even if we qualify as a REIT, we may be subject to certain state and local income and franchise taxes, and our TRS will be subject to federal, state and local taxes on its income. Franchise taxes are included in general and administrative expenses on the accompanying condensed consolidated statements of operations and comprehensive loss.

We have elected to treat our TRS as a taxable REIT subsidiary. Certain activities that we undertake will be conducted in our TRS, such as third-party property management and non-customary services for our tenants and holding assets that we cannot hold directly. Our TRS is subject to both federal and state income taxes, which are not material.

We determine whether any tax positions taken or expected to be taken meet the "more-likely-than-not" threshold of being sustained by the applicable federal, state or local tax authority. As of March 31, 2014 and 2013, we concluded that there is no tax liability relating to uncertain income tax positions. Our policy is to recognize interest related to any underpayment of income taxes as interest expense and to recognize any penalties as operating expenses. There was no accrual for interest or penalties at March 31, 2014 and 2013.

We file federal, state and local income tax returns. Federal and state tax returns filed for 2012 are still subject to examination. We believe that we have appropriate support for the income tax positions taken on our tax returns. We have net operating loss carryforwards for income tax purposes at December 31, 2013 and 2012. These losses would be available to reduce future taxable income or distribution requirements until they expire, which varies by jurisdiction but generally is not more than 20 years from the tax year in which they originate. Based on all available evidence, we cannot conclude it is more likely than not these attributes will be utilized in the future and thus a valuation allowance has been recorded against them.

Emerging Growth Company Status

We are an “emerging growth company,” as defined in the JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” We currently expect to take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us so long as we qualify as an “emerging growth company,” except that we have irrevocably elected not to take advantage of the extension of time to comply with new or revised financial accounting standards available under Section 102(b) of the JOBS Act.

Recent Accounting Pronouncements

See Note 2 to the March 31, 2014 unaudited condensed consolidated financial statements.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, maintain our assets, fund our operations and make distributions to our stockholders and other general business needs. Our liquidity, to a certain extent, is subject to general economic, financial, competitive and other factors that are beyond our control. Our near-term liquidity requirements consist primarily of purchasing our target assets, restoring and leasing properties and funding our operations.

Our long-term liquidity needs consist primarily of funds necessary to pay for the acquisition, restoration and maintenance of properties; HOA fees; real estate taxes; non-recurring capital expenditures; interest and principal payments on incurred indebtedness; payment of quarterly distributions to our stockholders to the extent declared by our Board of Directors; and general and administrative expenses. We expect to incur between 5% and 15% of the total purchase price of vacant homes acquired on restorations in order to prepare the acquired home for rental activities. The nature of our business, our growth plans and the requirement that we distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, to our stockholders, may cause us to have substantial liquidity needs over the long-term, although we have not had any taxable income to date. We will seek to satisfy our long-term liquidity needs through cash flow from operations, long-term secured and unsecured indebtedness, the issuance of debt and equity securities, including OP units, property dispositions and joint venture transactions. We have financed our operations and acquisitions to date through the issuance of equity securities and the Notes and borrowings under the Credit Facility. We expect to meet our

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operating liquidity requirements generally through cash on hand and cash provided by operations (as we lease up acquired single-family homes). We anticipate that cash on hand, cash provided by operations and borrowings under the Credit Facility will be sufficient to meet our liquidity requirements for at least the next 12 months. Our assets are illiquid by their nature. Thus, a timely liquidation of assets might not be a viable source of short-term liquidity should a cash flow shortfall arise that causes a need for additional liquidity. It could be necessary to source liquidity from other financing alternatives should any such scenario arise.

Our liquidity and capital resources as of March 31, 2014 consisted of cash and cash equivalents of $50.9 million, including $20.1 million held by designated brokers to facilitate the acquisition of properties.

As of March 31, 2014, $303.0 million was outstanding under the Credit Facility, with remaining availability of $32.3 million. In the future, we expect to finance our operations, in part, with borrowings under the Credit Facility and with various other types of indebtedness. We may raise additional capital in the future through the sale of shares of our capital stock.

To date, we have not declared any distributions. To qualify as a REIT for federal income tax purposes, we are required to distribute annually at least 90% of our REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of our net taxable income. Subject to the requirements of the Maryland General Corporation Law, or the MGCL, we intend to pay quarterly dividends to our stockholders, if and to the extent authorized by our Board of Directors.

Operating Activities

Cash from operating activities is primarily dependent upon the number of owned properties, occupancy level of our portfolio, the rental rates specified in our leases, the collectibility of rent, the interest rates specified in our portfolio of private mortgage financings and the level of our operating expenses and general and administrative costs. Cash provided by operating activities for the three months ended March 31, 2014 increased $6.5 million to $7.1 million, compared to cash provided by operating activities for the three months ended March 31, 2013 of $0.6 million. Net income for the three months ended March 31, 2014, adjusted for depreciation and amortization, amortization of stock-based compensation, amortization of deferred financing costs, accretion of the discount on the Notes and bad debt expense, was $4.6 million, an increase of $4.4 million compared to the three months ended March 31, 2013. The increase is primarily attributable to the increase in the size of our real estate portfolio and aggregate number of homes leased.

Investing Activities

Cash used in investing activities for the three months ended March 31, 2014 was $114.4 million and was primarily the result of property acquisitions and renovations on newly acquired properties offset by repayments of mortgage financings. We utilized $108.6 million for property acquisitions, including the purchase price and the value of any in-place leases, $8.3 million in capital improvements, of which $6.7 million was related to initial renovations on newly acquired properties and $1.6 million was related to capital improvements made to properties that had been previously occupied. The average purchase price for newly acquired properties was $157,261 for acquisitions that occurred in the three months ended March 31, 2014.

We invested $5.4 million in mortgage financings, offset by $12.3 million in repayments of mortgage financings.

Cash used in investing activities for the three months ended March 31, 2013 was $85.9 million, primarily due to property acquisitions and investments in mortgage financings.

Financing Activities

Cash provided by financing activities for the three months ended March 31, 2014 was $133.8 million and was primarily attributable to net borrowings of $134.0 million under the Credit Facility to fund acquisition activities.

Cash provided by financing activities for the three months ended March 31, 2013 of $29.5 million was primarily attributable to borrowings of $31.3 million under the Credit Facility to fund acquisition activities.

We have elected to be taxed as a REIT for federal income tax purposes. As a REIT, under federal income tax law we are required to distribute annually at least 90% of our REIT taxable income. Subject to the requirements of MGCL, we intend to pay quarterly dividends to our stockholders, if and to the extent authorized by our Board of Directors, which in the aggregate will approximately equal our REIT taxable income in the relevant year. As of March 31, 2014, no dividends have been declared.

Off-Balance Sheet Arrangements

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We have not participated in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.

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Contractual Obligations

The following table provides information with respect to our commitments as of March 31, 2014, including any guaranteed or minimum commitments under contractual obligations (amounts in thousands).

	Payment due by period
	Total		Less than 1 Year (2014)		1-3 years (2015-2016)		3-5 years (2017-2018)		More than 5 years (after 2018)
Debt obligations(1)	$	418,000	$	—	$	303,000	$	115,000	$	—
Interest payment obligations(2)	25,712		10,728		7,934		7,050		—
Operating lease(3)	3,157		637		1,238		1,282		—
Property acquisition obligations(4)	48,910		48,910		—		—		—
Total	$	495,779	$	60,275	$	312,172	$	123,332	$	—

 ______________

(1) Represents amounts outstanding under the Credit Facility and the Notes.

(2) Interest payment obligations were calculated using interest rates applicable as of March 31, 2014.

(3) Includes operating leases for corporate office space at 7047 East Greenway Parkway Road, Scottsdale, Arizona, 6060 North Central Expressway, 5th Floor, Dallas, Texas, 4753 North Broadway, Chicago, Illinois and 201 17th Street, Atlanta, Georgia.

(4) Represents purchase offers on single-family rental homes that were accepted by the sellers but not closed as of March 31, 2014. Acquisition deposits were paid through March 31, 2014 in connection with these rental home purchase commitments. There is no assurance that we will close on the properties we have under contract.

Funds From Operations

The following is a reconciliation of net income (loss) (which we believe is the most comparable GAAP measure) to funds from operations, or FFO. Also presented is information regarding the weighted-average number of shares of our common stock outstanding used for the basic and diluted computation per share (amounts in thousands, expect share and per-share amounts):

	Three Months Ended   March 31,
	2014			2013
Net loss	$	(7,794	)	$	(4,059	)
Add: Depreciation and amortization of real estate assets	9,292			3,101
FFO	$	1,498		$	(958	)
FFO attributable to common stockholders (1)	$	1,474		$	(948	)
FFO per share of common stock, basic and diluted	$	0.05		$	(0.05	)
Weighted-average number of shares of common stock outstanding:
Basic	32,130,733			18,414,830
Diluted (2)	32,755,110			18,414,830

______________

(1) Based on a weighted-average interest in our operating partnership of approximately 98.39% and 99.00%, for the three months ended March 31, 2014 and 2013, respectively.

(2) Assumes the issuance of potentially issuable shares unless the result would be anti-dilutive.

FFO is a widely recognized measure of REIT performance. We calculate FFO as defined by the National Association of Real Estate Investment Trusts, or NAREIT. FFO represents net income (loss) (as computed in accordance with GAAP), excluding gains from disposition of property (but including impairments and provisions for losses on property held for sale), plus real estate-related depreciation and amortization (including capitalized leasing costs).

Management uses FFO as a supplemental performance measure because, in excluding real estate-related depreciation and amortization and gains from property dispositions, it accounts for trends in occupancy rates, rental rates and operating costs. We believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs.

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However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially impact our results of operations, the utility of FFO as a measure of our performance is limited. Other equity REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable to that of other REITs. As a result, FFO should be considered only as a supplement to net income (loss) as a measure of our performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including the Company’s ability to pay dividends or make distributions. FFO also should not be used as a supplement to or substitute for net income (loss) or net cash flows from operating activities (as computed in accordance with GAAP).

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market Risk

Our future income, cash flows and fair values relevant to financial instruments are dependent on prevalent market interest rates. Interest rates are highly sensitive to several factors, including governmental monetary policies, domestic and global economic and political conditions and other factors which are beyond our control. We may incur additional variable rate debt in the future, including additional amounts that we may borrow under the Credit Facility. In addition, decreases in interest rates may lead to additional competition for the acquisition of single-family homes and other real estate due to a reduction in attractive alternative income-producing investments. Increased competition for the acquisition of single-family homes may lead to future acquisitions being more costly and result in lower yields on single-family homes we have targeted for acquisition. In such circumstances, if we are not able to offset the decrease in yields by obtaining lower interest costs on our borrowings, our results of operations will be adversely affected. Significant increases in interest rates may also have an adverse impact on our earnings if we are unable to acquire single-family homes with rental rates high enough to offset the increase in interest rates on our borrowings.

Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We may in the future use derivative financial instruments to manage, or hedge, interest rate risks related to any borrowings we may have. We expect to enter into such contracts only with major financial institutions based on their credit rating and other factors.

Interest Rate Risk

We have interest rate risk with respect to our debt. Our fixed rate debt consists of the Notes. Our variable rate debt consists of the Credit Facility. Changes in interest rates have different impacts on the fixed and variable portions of our debt portfolio. A change in interest rates on the fixed portion of the debt portfolio impacts the fair value of the instrument, but has no impact on interest expense or cash flow. A change in interest rates on the variable portion of the debt portfolio impacts the interest incurred and cash flows, but does not generally impact the fair value of the instrument. The fair value of the Notes is also impacted by changes in the market price of our common stock.

As of March 31, 2014, $303.0 million was outstanding and $32.3 million was available under the Credit Facility. Amounts borrowed on the Credit Facility bear interest at variable rates based, at our option, on LIBOR plus a spread ranging from 2.50% to 3.25% or a base rate plus a spread ranging from 1.50% to 2.25%, with each spread based on a ratio of total indebtedness to total asset value (each as defined in the credit agreement that governs the Credit Facility) ranging from less than or equal to 45% to greater than 55%. If interest rates on our outstanding balance of $303.0 million under the Credit Facility were to increase or decrease by 50 basis points, our interest expense would increase or decrease by approximately $1.5 million, respectively.

The following table presents the principal amounts, weighted-average interest rates, maturities and fair values of our fixed and variable rate debt by year as of March 31, 2014 (amounts in thousands).

			2015			2016			2017			2018			2019			Thereafter			Total
Liabilities:
	Fixed rate debt		$	—		$	—		$	—		$	115,000		$	—		$	—		$	115,000
	Average interest rate		—		%	—		%	—		%	3.25		%	—		%	—		%	3.25		%
	Variable rate debt		$	303,000		$	—		$	—		$	—		$	—		$	—		$	303,000
	Average interest rate		2.93		%	—		%	—		%	—		%	—		%	—		%	2.93		%
		Total	$	303,000		$	—		$	—		$	115,000		$	—		$	—		$	418,000

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The table reflects aggregate principal indebtedness outstanding as of March 31, 2014 and does not reflect indebtedness, if any, incurred after that date. For information regarding the fair value of our long-term debt, see Note 7 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Equity Price Risk

We have $115.0 million aggregate principal amount of exchangeable senior notes that are exchangeable into cash, shares of our common stock or a combination of cash and shares of our common stock. If investors were to decide to exchange their notes, our future earnings would benefit from a reduction in interest expense and our common stock outstanding would increase if we elect to issue shares of our common stock in the exchange.

Further, the trading price of our common stock has been and is likely to continue to be highly volatile and could be subject to wide fluctuations. Such fluctuations could impact our decision or ability to utilize the equity markets as a potential source of our funding needs in the future.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of March 31, 2014. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of these disclosure controls and procedures were effective as of March 31, 2014.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

We are not involved in any material litigation nor, to our knowledge, is any material litigation threatened against us.

Item 1A. Risk Factors.

There have been no material changes to the risk factors as disclosed in the section entitled “Item 1A. Risk Factors” beginning on page 10 of our Annual Report on Form 10-K for the year ended December 31, 2013 and filed with the SEC on March 31, 2014.

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

Unregistered Sales of Equity Securities

None.

Use of Proceeds from Registered Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

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Item 6. Exhibits.

Exhibit No.	Description
10.1†*	Form of LTIP Unit Performance-Based Vesting Agreement (for executives).
10.2†*	Form of LTIP Unit Vesting Agreement (time-based) (for executives)
31.1*	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
32.1**	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document (1)
101.SCH	XBRL Taxonomy Extension Schema Document (1)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document (1)
101.LAB	XBRL Taxonomy Extension Label Linkbase Document (1)
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document (1)

______________

*	Filed herewith.
**	Furnished herewith.
†	Management contract or compensatory plan or arrangement
(1)	Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		AMERICAN RESIDENTIAL PROPERTIES, INC.
Date: May 15, 2014	By:	/s/ STEPHEN G. SCHMITZ
		Stephen G. Schmitz
		Chief Executive Officer (principal executive officer)
Date: May 15, 2014	By:	/s/ SHANT KOUMRIQIAN
		Shant Koumriqian
		Chief Financial Officer, Treasurer and Secretary (principal financial officer and principal accounting officer)

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EXHIBIT INDEX

Exhibit No.	Description
10.1†*	Form of LTIP Unit Performance-Based Vesting Agreement (for executives).
10.2†*	Form of LTIP Unit Vesting Agreement (time-based) (for executives).
31.1*	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
32.1**	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document (1)
101.SCH	XBRL Taxonomy Extension Schema Document (1)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document (1)
101.LAB	XBRL Taxonomy Extension Label Linkbase Document (1)
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document (1)

______________

*	Filed herewith.
**	Furnished herewith.
†	Management contract or compensatory plan or arrangement
(1)	Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

40