Asset Acquisitions and Dispositions

Real estate assets

Asset acquisitions

On March 30, 2017, we entered into an agreement to acquire up to 3,500 SFR properties (the “HOME Flow Transaction”) from entities (the “Sellers”) sponsored by Amherst Holdings, LLC (“Amherst”) in multiple closings. Through the third quarter of 2017, we have consummated two closings under the HOME Flow Transaction and anticipate that a final closing to acquire approximately 1,750 to 2,000 additional SFR properties will occur in the fourth quarter of 2017.

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In the first closing on March 30, 2017, our indirect wholly owned subsidiary, HOME SFR Borrower II, LLC (“HOME Borrower II”), acquired 757 SFR properties for an aggregate purchase price of $106.5 million, which is subject to potential purchase price adjustments as described in Note 7. The purchase price was funded with approximately $79.9 million in a seller financing arrangement (the “HOME II Loan Agreement,” see Note 6), representing 75% of the aggregate purchase price, as well as $26.6 million of cash on hand. We capitalized $1.5 million of acquisition fees and costs related to this portfolio acquisition pursuant to ASU 2017-01. The value of in-place leases was estimated at $2.4 million based upon the costs we would have incurred to lease the properties and is being amortized over the weighted average remaining life of the leases of approximately seven months as of the acquisition date. We allocated the purchase price to land, building, site improvements and furniture, fixtures and equipment based on the relative fair value of the properties acquired.

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In the second closing on June 29, 2017, our indirect wholly owned subsidiary, HOME SFR Borrower III, LLC (“HOME Borrower III”), acquired 751 SFR properties for an aggregate purchase price of $117.1 million, which is subject to potential purchase price adjustments as described in Note 7. The purchase price was funded with approximately $87.8 million in a seller financing arrangement (the “HOME III Loan Agreement,” see Note 6), representing 75% of the aggregate purchase price, as well as $29.3 million of cash on hand. We capitalized $1.3 million of acquisition fees and costs related to this portfolio acquisition pursuant to ASU 2017-01. The value of in-place leases was estimated at $2.0 million based upon the costs we would have incurred to lease the properties and is being amortized over the weighted average remaining life of the leases of approximately nine months as of the acquisition date. We allocated the purchase price to land, building, site improvements and furniture, fixtures and equipment based on the relative fair value of the properties acquired.

Following the above closings, as of September 30, 2017, we were committed to purchase up to 1,992 additional stabilized rental properties from the Sellers, 1,250 of which are subject to the Sellers' good faith efforts to offer such properties for sale (see Note 7).

During the three and nine months ended September 30, 2017, we acquired 10 and 27 residential properties, respectively, under our other acquisition programs for an aggregate purchase price of $0.9 million and $2.7 million.

Acquisitions accounted for as business combinations

On September 30, 2016, ARLP acquired a portfolio of 4,262 SFR properties for an aggregate purchase price of $652.3 million in two separate seller-financed transactions. In the first transaction, ARLP acquired 3,868 of the 4,262 properties through its entry into a Membership Interest Purchase and Sale Agreement (the “MIPA”) with MSR I, LP (“MSR I”). Pursuant to the MIPA, ARLP acquired from MSR I 100% of the membership interests of HOME SFR Equity Owner, LLC (“HOME Equity”), a newly formed special purpose entity and sole equity owner of HOME SFR Borrower, LLC (“HOME Borrower”), which owned the 3,868 SFR properties. Following the consummation of the transaction, HOME Equity and HOME Borrower became indirect, wholly owned subsidiaries of the Company. In the second transaction, ALRP entered into a Purchase and Sale Agreement (the “PSA”) with Firebird SFE I, LLC, an independent wholly owned subsidiary of MSR II, LP. Pursuant to the PSA, HOME Borrower, as assignee from ARLP, acquired the remaining 394 of the 4,262 properties. We refer to these acquisitions, collectively, as the “HOME SFR Transaction.”

We recognized acquisition fees and costs related to the HOME SFR Transaction of $3.9 million. The value of in-place leases was estimated at $9.8 million based upon the costs we would have incurred to lease the properties and was amortized over the weighted average remaining life of the leases, which was approximately seven months as of date of the HOME SFR Transaction.

We recognized $163 thousand in revenues and $59 thousand in earnings related to the HOME SFR Transaction in our condensed consolidated statements of operations for the three and nine months ended September 30, 2016.

The following table sets forth the allocation of the estimated fair value of the assets acquired as well as the source of funds related to the HOME SFR Transaction ($ in thousands):



Estimated fair value of assets acquired:
Land	$	123,793
Rental residential properties	499,307
Real estate owned	19,437
Prepaid expenses and other assets (1)	9,809
Total allocation of purchase price	$	652,346

Source of funds:
Cash on hand	$	163,087
Debt financing (Note 6)	489,259
Total purchase price	$	652,346

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(1)	Represent estimated lease-in-place intangible asset.

On March 30, 2016, we completed the acquisition of 590 SFR properties located in five states from an unrelated third party for an aggregate purchase price of approximately $64.8 million. We recognized acquisition fees and costs related to this portfolio acquisition of $0.6 million. The value of in-place leases was estimated at $0.7 million based upon the costs we would have incurred to lease the properties and was amortized over the weighted average remaining life of the leases of approximately seven months as of the acquisition date.

During the three and nine months ended September 30, 2016, we acquired 238 and 642 residential properties, respectively, under our other acquisition programs for an aggregate purchase price of $24.6 million and $64.7 million, respectively.

Supplemental pro forma financial information (unaudited)

The following supplemental pro forma financial information summarizes our results of operations as if the HOME SFR Transaction occurred on January 1, 2016 as follows ($ in thousands, except per share amounts):



	Three months ended September 30, 2016			Nine months ended September 30, 2016
Unaudited pro forma revenues	$	18,711		$	86,021
Unaudited pro forma net loss	$	(59,717	)	$	(173,562	)
Loss per basic common share	$	(1.10	)	$	(3.17	)
Weighted average common stock outstanding - basic	54,178,129			54,722,828
Loss per diluted common share	$	(1.10	)	$	(3.17	)
Weighted average common stock outstanding - diluted	54,178,129			54,722,828

The following table presents the adjustments included for each period ($ in thousands):



	Three months ended September 30, 2016			Nine months ended September 30, 2016
Revenues from consolidated statement of operations	$	4,401		$	44,700
Add: historical revenues of acquired properties not reflected in consolidated statement of operations	14,310			41,321
Unaudited pro forma revenues	$	18,711		$	86,021

Net loss from consolidated statement of operations	$	(57,638	)	$	(166,824	)
Plus: historical net income of acquired properties not reflected in consolidated statement of operations	8,416			25,566
Less: pro forma depreciation and amortization	(5,157		)	(15,472		)
Less: pro forma interest expense	(4,737		)	(14,212		)
Less: pro forma management fees	(601		)	(2,620		)
Unaudited pro forma net loss	$	(59,717	)	$	(173,562	)

The supplemental pro forma financial information for all periods presented was adjusted to reflect real estate depreciation and amortization on the acquired properties and related intangible assets, interest expense on the related financing facility and incremental management fees that would have been incurred under the asset management agreement. The supplemental pro forma financial information is for informational purposes only and is not necessarily indicative of the actual results of operations that would have been achieved if the acquisition had taken place on January 1, 2016, nor does it purport to represent or be indicative of the results of operations for future periods.

Dispositions

During the three and nine months ended September 30, 2017, we sold 450 and 1,385 REO properties, respectively, and recorded $21.4 million and $62.1 million, respectively, of net realized gain on sales of real estate.

During the three and nine months ended September 30, 2016, we sold 604 and 2,200 REO properties, respectively, and recorded $26.3 million and $94.8 million, respectively, of net realized gain on sales of real estate.

Mortgage loans at fair value

Dispositions and resolutions

During the three and nine months ended September 30, 2017, we sold 0 and 2,660 mortgage loans, respectively, to third party purchasers. In addition, we resolved 11 and 122 mortgage loans, respectively, primarily through short sales, refinancing and foreclosure sales. In connection with these sales and resolutions, we received proceeds of $0.1 million (net of $(2.8) million of post-closing price adjustments related to prior sales) and $463.8 million, respectively, and recorded $(2.7) million and $73.1 million of net realized (loss) gain on sales of mortgage loans, respectively.

During the three and nine months ended September 30, 2016, we sold 1 and 1,974 mortgage loans, respectively, to third party purchasers. In addition, we resolved 109 and 400 mortgage loans, respectively, primarily through short sales, refinancing and foreclosure sales. In connection with these sales and resolutions, we received gross proceeds of $29.3 million and $506.9 million, respectively, and recorded $9.4 million and $80.5 million, respectively, of net realized gains on mortgage loans.

As of September 30, 2017, we had sold the substantial majority of our mortgage loan portfolio and had 431 remaining mortgage loans. We anticipate additional sales of our remaining mortgage loans, and we anticipate that the proceeds generated from any such transactions would be utilized, in part, to continue to facilitate our strategy to grow our SFR portfolio through the purchase of additional SFR properties.

Transfers of mortgage loans to real estate owned

During the three months ended September 30, 2017, we transferred 13 mortgage loans to REO, which were offset by 13 reversions of REO properties to mortgage loans, at an aggregate fair value based on broker price opinions (“BPOs”) of $1.5 million. During the nine months ended September 30, 2017, we transferred an aggregate of 261 mortgage loans to REO at an aggregate fair value based on BPOs of $42.3 million. Such transfers occur when the foreclosure sale is complete; however, subsequent to a foreclosure sale, we may be notified that the foreclosure sale was invalidated for certain reasons. In connection with these transfers to REO, we recorded $0.8 million and $15.2 million in change in unrealized gain on mortgage loans that resulted from marking the properties to their most current market value for the three and nine months ended September 30, 2017, respectively.

During the three and nine months ended September 30, 2016, we transferred an aggregate of 246 and 914 mortgage loans, respectively, to REO at an aggregate fair value based on BPOs of $48.6 million and $168.4 million, respectively. In connection with these transfers to REO, we recorded $10.7 million and $34.8 million, respectively, in change in unrealized gains on mortgage loans.