Shareholders’ Equity

Issuance of Class A Common Shares and Class A Units

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

Perpetual Preferred Shares

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

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

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

Participating Preferred Shares

As of June 30, 2016, the initial liquidation preference on the Company’s participating preferred shares, as adjusted by an amount equal to 50% of the cumulative change in value of an index based on the purchase prices of single-family properties located in our top 20 markets, for all of the Company’s outstanding 5.0% Series A participating preferred shares, 5.0% Series B participating preferred shares and 5.5% Series C participating preferred shares was $460.2 million.

Conversion of Series C Convertible Units into Class A Units

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

Conversion of Series E Convertible Units into Series D Convertible Units

The Series E convertible units represented non-voting equity interests in our operating partnership. Series E convertible units did not participate in any distributions and were convertible into Series D convertible units on February 29, 2016, subject to an earn-out provision based on the level of pro forma annualized EBITDA contribution, as defined, of the Advisor and the Property Manager. The terms of the earn-out provision were met in full and, therefore, the 4,375,000 Series E convertible units were converted into Series D convertible units on a one-for-one basis on February 29, 2016. The fair value of the Series D convertible units was estimated using a Monte Carlo simulation model, which was primarily driven by the most recent trading price of the Company’s Class A common shares into which the Series D convertible units are ultimately convertible. Based on this valuation, the conversion of Series E convertible units into Series D convertible units resulted in a gain of $11.5 million which was recorded in gain on conversion of Series E units within the condensed consolidated statements of operations. As of June 30, 2016, AH LLC owned all of the 8,750,000 outstanding Series D convertible units.

Distributions

Our board of trustees declared distributions that totaled $0.05 per share on our Class A and Class B common shares during the quarters ended June 30, 2016 and 2015. Distributions declared on our 5.000% Series A participating preferred shares, 5.000% Series B participating preferred shares and 5.500% Series C participating preferred shares during the quarters ended June 30, 2016 and 2015, totaled $0.3125 per share, $0.3125 per share and $0.34375 per share, respectively. Distributions declared on our 6.5% Series D perpetual preferred shares were for a pro-rated amount of $0.17153 per share during the quarter ended June 30, 2016. Our board of trustees declared distributions that totaled zero and $0.15113 per share on our Series C convertible units during the quarters ended June 30, 2016 and 2015, respectively. Distributions declared on our Series D convertible units totaled $0.035 per unit for the quarter ended June 30, 2016, which represents 70% of distributions declared on Class A units.

Noncontrolling Interest

Noncontrolling interest as reflected in the Company’s condensed consolidated balance sheets primarily consists of the interest held by AH LLC in units in the Company’s operating partnership. AH LLC owned 45,526,644 and 14,440,670, or approximately 16.0% and 6.5%, of the total 285,176,519 and 222,311,255 Class A units in the operating partnership as of June 30, 2016, and December 31, 2015, respectively. Additionally, AH LLC owned zero and all 31,085,974 of the Series C convertible units and owned all 8,750,000 and 4,375,000 of the Series D convertible units in the operating partnership as of June 30, 2016, and December 31, 2015, respectively. Noncontrolling interest also includes interests held by former ARPI employees in Class A units of the Company's operating partnership, which were issued in connection with the merger with ARPI in February 2016. Former ARPI Class A unit holders owned 1,284,516, or approximately 0.5% of the total 285,176,519 Class A units in the operating partnership as of June 30, 2016. Also included in noncontrolling interest is the outside ownership interest in a consolidated subsidiary of the Company.

Noncontrolling interest as reflected in the Company’s condensed consolidated statements of operations for the three and six months ended June 30, 2016, totaled a net loss of $0.8 million and net income of $3.1 million, respectively, which consisted of zero and $3.0 million, respectively, of preferred income allocated to Series C convertible units prior to their conversion into Class A units on February 28, 2016, $0.6 million of net loss and $0.2 million of net income, respectively, allocated to Class A units, zero and $0.1 million, respectively, of net income allocated to Series D convertible units and $0.2 million of net loss allocated to the noncontrolling interest in a consolidated subsidiary of the Company. Noncontrolling interest for the three and six months ended June 30, 2015, totaled $3.7 million and $7.7 million, respectively, which consisted of $4.7 million and $9.4 million, respectively, of preferred income allocated to Series C convertible units, $0.8 million and $1.6 million, respectively, of net loss allocated to Class A units and $0.2 million and $0.1 million, respectively, of net loss allocated to noncontrolling interests in certain of the Company’s consolidated subsidiaries.

2012 Equity Incentive Plan

During the six months ended June 30, 2016 and 2015, the Company granted stock options for 698,000 and 588,500 Class A common shares, respectively, and 74,100 and 44,000 restricted stock units, respectively, to certain employees of the Company under the 2012 Equity Incentive Plan (the “Plan”). The options and restricted stock units granted during the six months ended June 30, 2016 and 2015, vest over four years and expire 10 years from the date of grant.

The following table summarizes stock option activity under the Plan for the six months ended June 30, 2016 and 2015:



	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (1) (in thousands)
Options outstanding at January 1, 2015	2,165,000		$	16.17	8.8	$	1,890
Granted	588,500		16.49
Exercised	—		—			—
Forfeited	(125,500	)	16.57
Options outstanding at June 30, 2015	2,628,000		$	16.23	8.5	$	535
Options exercisable at June 30, 2015	661,250		$	15.93	7.7	$	274

Options outstanding at January 1, 2016	2,484,400		$	16.22	8.0	$	1,225
Granted	698,000		14.04
Exercised	(105,750	)	15.92			298
Forfeited	(95,650	)	16.35
Options outstanding at June 30, 2016	2,981,000		$	15.71	7.9	$	14,211
Options exercisable at June 30, 2016	1,117,625		$	16.07	7.2	$	4,934


(1)	Intrinsic value for activities other than exercises is defined as the difference between the grant price and the market value on the last trading day of the period for those stock options where the market value is greater than the exercise price. For exercises, intrinsic value is defined as the difference between the grant price and the market value on the date of exercise.

The following table summarizes the Black-Scholes Option Pricing Model inputs used for valuation of the stock options for Class A common shares issued during the six months ended June 30, 2016 and 2015:



	2016			2015
Weighted-average fair value	$	2.81		$	4.57
Expected term (years)	7.0			7.0
Dividend yield	3.0		%	3.0		%
Volatility	27.4		%	35.9		%
Risk-free interest rate	1.5		%	1.9		%

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



	2016		2015
Restricted stock units at beginning of period	91,650		85,000
Units awarded	74,100		44,000
Units vested	(27,250	)	(21,250	)
Units forfeited	(3,550	)	(7,400	)
Restricted stock units at end of the period	134,950		100,350

Total non-cash share-based compensation expense related to stock options and restricted stock units was $1.0 million and $0.7 million for the three months ended June 30, 2016 and 2015, respectively, and $1.9 million and $1.4 million for the six months ended June 30, 2016 and 2015, respectively.

Share Repurchase Program

On September 21, 2015, the Company announced that our Board of Trustees approved a share repurchase program authorizing us to repurchase up to $300.0 million of our outstanding Class A common shares from time to time in the open market or in privately negotiated transactions. The program does not have an expiration date, but may be suspended or discontinued at any time without notice. All repurchased shares are constructively retired and returned to an authorized and unissued status. In addition, the excess of the purchase price over the par value of shares repurchased is recorded as a reduction to additional paid-in capital. During the six months ended June 30, 2016, we repurchased and retired approximately 6.2 million of our Class A common shares, on a settlement date basis, in accordance with the program at a weighted-average price of $15.44 per share and a total price of $96.0 million. As of June 30, 2016, we had a remaining repurchase authorization of $146.7 million under the program.