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 September 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 $470.9 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 former AH LLC members. 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. Additionally, the Series E convertible units had a $2.8 million contingent beneficial conversion feature that represents a return to the Series E convertible unit holders in the form of additional noncontrolling interest, calculated as the difference between the estimated fair value of the Series D units and the Class A units at the time of the conversion of the Series E units into Series D units in February 2016. The contingent beneficial conversion feature was recognized when the contingency was met, which occurred when the Series D units converted into Class A units on September 30, 2016.

Conversion of Series D Convertible Units into Class A Units

The Series D convertible units represented non-voting equity interests in our operating partnership owned by former AH LLC members and began participating in distributions, representing 70% of distributions declared on Class A units, 30 months after their issuance. The Series D convertible units were automatically convertible into Class A units on a one-for-one basis only after the later of (1) 30 months after the date of issuance and (2) the earlier of (i) the date on which adjusted funds from operations per Class A common share aggregated to $0.80 or more over four consecutive quarters following the original issuance date of the units and (ii) the date on which the daily closing price of our Class A common shares on the New York Stock Exchange ("NYSE") averaged $18.00 or more for two consecutive quarters following the original issuance date of the units. On September 30, 2016, the above-referenced conversion contingency was met and the 8,750,000 Series D convertible units were converted into Class A units on a one-for-one basis, which resulted in a $4.8 million noncash charge that was included in noncontrolling interest within the condensed consolidated statements of operations. The noncash charge relates to a contingent beneficial conversion feature that represents a return to the Series D convertible unit holders in the form of additional noncontrolling interest, calculated as the difference between the estimated fair value of the Series D units and the Class A units at the time of their respective issuances, which was recognized when the contingency was met.

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 September 30, 2016 and 2015. Distributions declared on our 5.0% Series A participating preferred shares, 5.0% Series B participating preferred shares and 5.5% Series C participating preferred shares during the quarters ended September 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 and 6.35% Series E perpetual preferred shares totaled $0.40625 per share and $0.40569 per share, respectively, during the quarter ended September 30, 2016. Distributions declared on our Series C convertible units totaled zero and $0.15113 per unit during the quarters ended September 30, 2016 and 2015, respectively. Distributions declared on our Series D convertible units totaled $0.035 per unit for the quarter ended September 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 former AH LLC members in units in the Company’s operating partnership. Former AH LLC members owned 54,276,644 and 14,440,670, or approximately 18.5% and 6.5%, of the total 293,987,819 and 222,311,255 Class A units in the operating partnership as of September 30, 2016, and December 31, 2015, respectively. Additionally, former AH LLC members owned zero and all 31,085,974 of the Series C convertible units and owned zero and all 4,375,000 of the Series D convertible units in the operating partnership as of September 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 1,279,316, or approximately 0.4% of the total 293,987,819 Class A units in the operating partnership as of September 30, 2016. Also included in noncontrolling interest is the outside ownership interest in a consolidated subsidiary of the Company.

The following table summarizes the activity that relates to the Company’s noncontrolling interest as reflected in the condensed consolidated statements of operations for the three and nine months ended September 30, 2016 and 2015:



	For the Three Months Ended						For the Nine Months Ended
	September 30, 2016			September 30, 2015			September 30, 2016			September 30, 2015
Preferred income allocated to Series C convertible units	$	—		$	4,698		$	3,027		$	14,094
Net (loss) income allocated to Class A units	(27		)	(1,575		)	108			(3,241		)
Net income allocated to Series D convertible units	—			—			133			—
Beneficial conversion feature	7,569			—			7,569			—
Net loss allocated to noncontrolling interests in certain consolidated subsidiaries	(226		)	(14		)	(446		)	(58		)
	$	7,316		$	3,109		$	10,391		$	10,795

2012 Equity Incentive Plan

During the nine months ended September 30, 2016 and 2015, the Company granted stock options for 708,000 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 nine months ended September 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 nine months ended September 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	(15,000	)	15.00			19
Forfeited	(178,500	)	16.57
Options outstanding at September 30, 2015	2,560,000		$	16.23	8.3	$	557
Options exercisable at September 30, 2015	636,250		$	15.94	7.7	$	273

Options outstanding at January 1, 2016	2,484,400		$	16.22	8.0	$	1,225
Granted	708,000		14.15
Exercised	(172,250	)	16.12			680
Forfeited	(153,150	)	16.36
Options outstanding at September 30, 2016	2,867,000		$	15.70	7.84	$	17,021
Options exercisable at September 30, 2016	1,051,125		$	16.04	7.08	$	5,885


(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 nine months ended September 30, 2016 and 2015:



	2016			2015
Weighted-average fair value	$	2.82		$	4.57
Expected term (years)		7.0			7.0
Dividend yield		3.0	%		3.0	%
Volatility		27.3	%		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 nine months ended September 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	)	(22,000	)
Units forfeited	(6,550	)	(9,700	)
Restricted stock units at end of the period	131,950		97,300

Total non-cash share-based compensation expense related to stock options and restricted stock units was $0.9 million for the three months ended September 30, 2016 and 2015 and $2.7 million and $2.3 million for the nine months ended September 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 nine months ended September 30, 2016, we repurchased and retired approximately 6.2 million of our Class A common shares, on a settlement basis, in accordance with the program at a weighted-average price of $15.44 per share and a total price of $96.0 million. During the nine months ended September 30, 2015, we repurchased and retired approximately 3.4 million of our Class A common shares, in accordance with the program at a weighted-average price of $15.76 per share and a total price of $53.7 million. As of September 30, 2016, we had a remaining repurchase authorization of $146.7 million under the program.

Secondary Offering

In September 2016, the Alaska Permanent Fund Corporation (the "Selling Shareholder") sold 43.5 million of the Company's Class A common shares at an offering price of $21.75 per share, in a registered offering (the "Secondary Offering"). The Company did not sell any shares in, or receive any proceeds from, the Secondary Offering. The Company incurred approximately $0.2 million of expenses in the third quarter of 2016 related to the Secondary Offering, which were included in acquisition fees and costs expensed within the condensed consolidated statements of operations.