Shareholders’ Equity / Partners' Capital

When the Company issues common or preferred shares, the Operating Partnership issues an equivalent number of units of partnership interest of a corresponding class to AH4R, with the Operating Partnership receiving the net proceeds from the share issuances.

At-the-Market Common Share Offering Program

In November 2016, the Company established an at-the-market common share offering program under which we were able to issue Class A common shares from time to time through various sales agents up to an aggregate of $400.0 million (the "Original At-the-Market Program"). The program was established in order to use the net proceeds from share issuances to repay borrowings against the Company’s revolving credit and term loan facilities, to acquire and renovate single-family properties and for related activities in accordance with the Company’s business strategy, and for working capital and general corporate purposes. The program may be suspended or terminated by the Company at any time. During the nine months ended September 30, 2017, the Company issued and sold 2.0 million Class A common shares under the Original At-the-Market Program for gross proceeds of $46.2 million, or $22.74 per share, and net proceeds of $45.6 million, after commissions and other expenses of approximately $0.6 million. The Operating Partnership issued an equivalent number of corresponding Class A units to AH4R in exchange for the net proceeds from the share issuances. The Original At-the-Market Program was replaced in August 2017 with an at-the-market common share offering program with a $500.0 million capacity with the same terms (the "At-the-Market Program"). As of September 30, 2018, no shares have been issued under the At-the-Market Program and $500.0 million remained available for future share issuances.

Share Repurchase Program

In February 2018, the Company's board of trustees re-authorized our existing share repurchase program, authorizing the repurchase of up to $300.0 million of our outstanding Class A common shares and up to $250.0 million of our outstanding preferred 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. The Operating Partnership funds the repurchases and constructively retires an equivalent number of corresponding Class A units. During the nine months ended September 30, 2018, the Company repurchased and retired 1.8 million of our Class A common shares on a settlement date basis, in accordance with the program, at a weighted-average price of $19.36 per share and a total price of $34.9 million. We did not repurchase and retire any of our shares during the nine months ended September 30, 2017. As of September 30, 2018, we had a remaining repurchase authorization of up to $265.1 million of our outstanding Class A common shares and up to $250.0 million of our outstanding preferred shares under the program.

Preferred Shares

As of September 30, 2018, and December 31, 2017, the Company had the following series of preferred shares outstanding (in thousands, except share data):



					September 30, 2018			December 31, 2017
Series	Issuance Date	Earliest Redemption Date	Dividend Rate		Outstanding Shares	Current Liquidation Value		Outstanding Shares	Current Liquidation Value (1)
Series C participating preferred shares (2)	N/A	N/A	N/A		—	$	—	7,600,000	$	218,236
Series D perpetual preferred shares	5/24/2016	5/24/2021	6.500	%	10,750,000	268,750		10,750,000	268,750
Series E perpetual preferred shares	6/29/2016	6/29/2021	6.350	%	9,200,000	230,000		9,200,000	230,000
Series F perpetual preferred shares	4/24/2017	4/24/2022	5.875	%	6,200,000	155,000		6,200,000	155,000
Series G perpetual preferred shares	7/17/2017	7/17/2022	5.875	%	4,600,000	115,000		4,600,000	115,000
Series H perpetual preferred shares	9/19/2018	9/19/2023	6.250	%	4,600,000	115,000		—	—
Total preferred shares					35,350,000	$	883,750	38,350,000	$	986,986


(1)	Liquidation value reflects initial liquidation value of $25.00 per share, which in the case of the Series C participating preferred shares is 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.


(2)	All of the outstanding Series C participating preferred shares were converted into 10,848,827 Class A common shares on April 5, 2018, based on a conversion ratio of 1.4275 common shares per preferred share in accordance with the conversion terms in the Articles Supplementary.

Issuance of Perpetual Preferred Shares

During the third quarter of 2018, the Company issued 4,600,000 6.25% Series H cumulative redeemable perpetual preferred shares in an underwritten public offering, raising gross proceeds of $115.0 million before offering costs of approximately $4.0 million, with a liquidation preference of $25.00 per share. The Operating Partnership issued an equivalent number of the same class of perpetual preferred units to AH4R in exchange for the net proceeds from the share issuance.

Redemption of Series C Participating Preferred Shares

On April 5, 2018, the Company redeemed all 7,600,000 shares of the outstanding 5.5% Series C participating preferred shares through a conversion of those participating preferred shares into Class A common shares of beneficial interest, $0.01 par value, in accordance with the conversion terms in the Articles Supplementary. This resulted in 10,848,827 Class A common shares issued from the conversion, based on a conversion ratio of 1.4275 Class A common shares issued per Series C participating preferred share. The Operating Partnership also redeemed its corresponding Series C participating preferred units through a conversion into Class A units on April 5, 2018. The conversion ratio was calculated by dividing (1) the initial liquidation preference on the Series C 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 (adjusted for a maximum 9.0% internal rate of return), plus unaccrued dividends by (2) the one-day volume weighted-average price (“VWAP”) of the Company’s Class A common shares on March 29, 2018, the date the Company delivered the required notice of redemption. As a result of the redemption, the Company recorded a $32.2 million allocation of income to the Series C participating preferred shareholders in the second quarter of 2018, which represents the initial liquidation value of the Series C participating preferred shares in excess of the original equity carrying value of the Series C participating preferred shares as of the redemption date. The original equity carrying value of the Series C participating preferred shares was net of the initial bifurcated home price appreciation derivative liability and offering costs.

Distributions

During the quarter ended September 30, 2018, the Company's board of trustees declared distributions that totaled $0.05 per share on the Company's Class A and Class B common shares, $0.41 on the Company's 6.5% Series D perpetual preferred shares, $0.40 on the Company's 6.35% Series E perpetual preferred shares, $0.37 on the Company's 5.875% Series F perpetual preferred shares and $0.37 on the Company's 5.875% Series G perpetual preferred shares. The initial distribution for the Company's 6.25% Series H perpetual preferred shares was declared on November 1, 2018, and relates to the initial distribution period that commenced on and includes the original issuance date of September 19, 2018, through December 31, 2018. During the quarter ended September 30, 2017, the Company's board of trustees declared distributions that totaled $0.05 per share on the Company's Class A and Class B common shares, $0.31 on the Company's 5.0% Series A participating preferred shares, $0.31 on the Company's 5.0% Series B participating preferred shares, $0.34 on the Company's 5.5% Series C participating preferred shares, $0.41 on the Company's 6.5% Series D perpetual preferred shares, $0.40 on the Company's 6.35% Series E perpetual preferred shares and $0.37 on the Company's 5.875% Series F perpetual preferred shares. Distributions declared on the Company's 5.875% Series G perpetual preferred shares were for a pro-rated amount of $0.30 during the quarter ended September 30, 2017. The Operating Partnership funds the payment of distributions, and an equivalent amount of distributions were declared on the corresponding Operating Partnership units.

Noncontrolling Interest

Noncontrolling interest as reflected in the Company’s condensed consolidated balance sheets primarily consists of the interests held by former American Homes 4 Rent, LLC ("AH LLC") members in units in the Operating Partnership. Former AH LLC members owned 54,276,644, or approximately 15.4% and 15.9%, of the total 351,881,447 and 342,099,865 Class A units in the Operating Partnership as of September 30, 2018, and December 31, 2017, respectively. Noncontrolling interest also includes interests held by non-affiliates in Class A units in the Operating Partnership. Non-affiliate Class A unitholders owned 1,073,509, or approximately 0.3% of the total 351,881,447 and 342,099,865 Class A units in the Operating Partnership as of September 30, 2018, and December 31, 2017, respectively. Also included in noncontrolling interest as of December 31, 2017, was the outside ownership interest in a consolidated subsidiary of the Operating Partnership, which was liquidated during the second quarter of 2018.

The following table summarizes the income or loss allocated to noncontrolling interests as reflected in the Company's condensed consolidated statements of operations for the three and nine months ended September 30, 2018 and 2017 (in thousands):



	For the Three Months Ended					For the Nine Months Ended
	September 30, 2018		September 30, 2017			September 30, 2018			September 30, 2017
Net income (loss) allocated to Class A units	$	2,881	$	340		$	1,104		$	(30	)
Net (loss) income allocated to noncontrolling interest in a consolidated subsidiary	—		(31		)	(259		)	8
Total noncontrolling interest	$	2,881	$	309		$	845		$	(22	)

Noncontrolling interest as reflected in the Operating Partnership's condensed consolidated balance sheets consisted solely of the outside ownership interest in a consolidated subsidiary of the Operating Partnership, which was liquidated during the second quarter of 2018. Income and loss allocated to the Operating Partnership's noncontrolling interest is reflected in noncontrolling interest within the Operating Partnership's condensed consolidated statements of operations. The Operating Partnership units owned by former AH LLC members and non-affiliates that are reflected as noncontrolling interest in the Company's condensed consolidated balance sheets are reflected as limited partner capital in the Operating Partnership's condensed consolidated balance sheets.

2012 Equity Incentive Plan

The Company's employees are compensated through the Operating Partnership, including share-based compensation. When the Company issues Class A common shares under the 2012 Equity Incentive Plan (the "Plan"), the Operating Partnership issues an equivalent number of Class A units to AH4R.

During the nine months ended September 30, 2018 and 2017, the Company granted stock options for 140,000 and 385,600 Class A common shares, respectively, and 304,400 and 174,000 restricted stock units, respectively, to certain employees of the Company under the Plan. The options and restricted stock units granted during the nine months ended September 30, 2018 and 2017, vest over a four-year service period, and the options 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, 2018 and 2017:



	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (1) (in thousands)
Options outstanding at January 1, 2017	2,826,500		$	15.69	7.6	$	14,956
Granted	385,600		23.38
Exercised	(62,655	)	15.77			444
Forfeited	(85,250	)	16.24
Options outstanding at September 30, 2017	3,064,195		$	16.64	7.1	$	16,149
Options exercisable at September 30, 2017	1,681,595		$	15.90	6.3	$	9,764

Options outstanding at January 1, 2018	3,052,450		$	16.65	6.9	$	16,421
Granted	140,000		19.40
Exercised	(684,875	)	16.04			4,388
Forfeited	(112,750	)	17.84
Options outstanding at September 30, 2018	2,394,825		$	16.92	6.4	$	12,388
Options exercisable at September 30, 2018	1,659,050		$	16.23	5.7	$	9,521


(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 granted during the nine months ended September 30, 2018 and 2017:



	2018			2017
Weighted-average fair value	$	3.03		$	3.82
Expected term (years)		7.0			7.0
Dividend yield		3.0	%		3.0	%
Volatility		18.9	%		21.3	%
Risk-free interest rate		2.8	%		2.2	%

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, 2018 and 2017:



	2018		2017
Restricted stock units at beginning of period	243,875		130,150
Units awarded	304,400		174,000
Units vested	(80,125	)	(42,475	)
Units forfeited	(69,100	)	(16,200	)
Restricted stock units at end of period	399,050		245,475

For the three months ended September 30, 2018 and 2017, total non-cash share-based compensation expense related to stock options and restricted stock units was $0.8 million and $1.1 million, respectively, of which $0.5 million and $0.7 million, respectively, related to corporate administrative employees and was included in general and administrative expense and $0.3 million and $0.4 million, respectively, related to centralized and field property management employees and was included in property management expenses within the condensed consolidated statements of operations. For the nine months ended September 30, 2018 and 2017, total non-cash share-based compensation expense related to stock options and restricted stock units was $2.7 million and $3.2 million, respectively, of which $1.6 million and $1.9 million, respectively, related to corporate administrative employees and was included in general and administrative expense and $1.1 million and $1.3 million, respectively, related to centralized and field property management employees and was included in property management expenses in the condensed consolidated statements of operations.