SFR Starwood Waypoint Homes of Beneficial Interes (delisted)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30 , 2017

(Unaudited)

Note 1.  Organization and Operations

Except where the context suggests otherwise, the terms “we,” “us,” and “our” refer to Starwood Waypoint Homes (formerly Colony Starwood Homes and before that Starwood Waypoint Residential Trust (“SWAY”)), a Maryland real estate investment trust, together with its consolidated subsidiaries, including Starwood Waypoint Homes Partnership, L.P. (“SFR LP”) (formerly Colony Starwood Homes Partnership, L.P. and before that Starwood Waypoint Residential Partnership, L.P.), a Delaware limited partnership through which we conduct substantially all of our business, which we refer to as “our operating partnership”; the term “CAH” refers to Colony American Homes, Inc., our predecessor for accounting purposes; the term “the Manager” refers to SWAY Management LLC, a Delaware limited liability company, our former external manager; the term “Starwood Capital Group” refers to Starwood Capital Group Global, L.P. (and its predecessors), together with all of its affiliates and subsidiaries, including the Manager prior to the Internalization, other than us; and the term “INVH” refers to Invitation Homes Inc., a Maryland corporation.

The Proposed Mergers with INVH

On August 9, 2017, we entered into the Agreement and Plan of Merger dated as of August 9, 2017, among us, and certain of our subsidiaries and INVH and certain of its subsidiaries (the “INVH Merger Agreement”) to form a combined company with INVH in a stock-for-stock transaction.  The INVH Merger Agreement provides that, upon the terms and subject to the conditions set forth in the INVH Merger Agreement, (i) we will be merged with and into IH Merger Sub, LLC, a wholly owned subsidiary of INVH (“REIT Merger Sub”), with REIT Merger Sub surviving as a subsidiary of INVH (the “REIT Merger”) and (ii) as promptly as practicable after the REIT Merger, our operating partnership will be merged with and into Invitation Homes Operating Partnership LP (“INVH LP”), with INVH LP surviving as a subsidiary of INVH (together with the REIT Merger, the “Proposed Mergers”) . In connection with the Proposed Mergers, we filed with the SEC on October 16, 2017 a definitive joint proxy statement/information statement and prospectus (the “Merger Proxy”), which includes more detailed information about the Proposed Mergers and the related transactions.

Under the terms of the INVH Merger Agreement and as described in the Merger Proxy, each of our outstanding common shares will be converted into 1.6140 shares of INVH’s common stock (the “Exchange Ratio”), and each outstanding unit of our operating partnership will be converted into the right to receive 1.6140 common units, representing limited partner interests, in INVH LP. Further, each outstanding restricted share unit (“RSU”) that vests as a result of the Proposed Mergers or the INVH Merger Agreement will automatically be converted into the right to receive INVH common stock based on the Exchange Ratio, plus any accrued but unpaid dividends (if any) and less certain taxes (if any). At the effective time of the REIT Merger, each RSU that does not vest as a result of the Proposed Mergers or the INVH Merger Agreement will be automatically assumed by INVH and converted into an equivalent stock-based incentive award unit with respect to INVH’s common stock and be subject to the same terms and conditions as applicable to such awards.

Upon the closing of the Proposed Mergers, INVH stockholders will own approximately 59% of the combined company’s stock, and our shareholders will own approximately 41% of the combined company’s stock. Based on the closing prices of our common shares and INVH’s common stock on October 13, 2017, the equity market capitalization of the combined company would be approximately $12.0 billion, and the total enterprise value (including debt) would be approximately $21.1 billion.  Upon the closing of the Proposed Mergers, the Combined Company will be named “Invitation Homes Inc.” and its common stock will be listed and traded on the NYSE under the ticker symbol “INVH”.

The transaction has been approved by our board of trustees and INVH’s board of directors.  Completion of the Proposed Mergers is subject to, among other things, approval by the holders of our common shares. Assuming approval is obtained, the Proposed Mergers are expected to close in the fourth quarter of 2017. We can give no assurance that the Proposed Mergers and related transactions will be completed in the above timeframe, if at all. Two putative class actions have been filed by our purported shareholders challenging the Proposed Mergers. The lawsuits seek, among other things, injunctive relief preventing consummation of the Proposed Mergers, rescission of the transactions contemplated by the INVH Merger Agreement should they be consummated and litigation costs, including attorneys’ fees. See Note 15. Commitments and Contingencies for additional information.

The SWAY Merger

On September 21, 2015, we and CAH announced the signing of the SWAY Merger Agreement, to combine the two companies in a stock-for-stock transaction.  In connection with the transaction, we internalized the Manager. The SWAY Merger and the Internalization were completed on January 5, 2016.  

7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30 , 2017

(Unaudited)

Upon consummation of the Internalization, Starwood Capital Group contributed the outstanding equit y interests of the Manager to our operating partnership in exchange for 6,400,000 OP Units. The OP Units are redeemable at the election of the holder and we have the option, at our sole discretion, to redeem any such OP Units for cash or exchange such OP U nits for common shares, on a one-for-one basis (see Note 8. Shareholders’ Equity ). Subsequent to the Internalization and the SWAY Merger, we own all material assets and intellectual property rights of the Manager.

Under the SWAY Merger Agreement, CAH shareholders received an aggregate of 64,869,526 of our common shares in exchange for all shares of CAH. Upon completion of the transaction, our existing shareholders and Starwood Capital Group owned approximately 41% of our common shares, while former CAH shareholders owned approximately 59% of our common shares.

Since both SWAY and CAH had significant pre-combination activities, the SWAY Merger was accounted for as a business combination by the combined company in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations . Based upon consideration of a number of factors, CAH was designated as the accounting acquirer in the SWAY Merger (although SWAY was the legal acquirer), which resulted in a reverse acquisition of SWAY for accounting purposes.

Overview

We are an internally managed Maryland real estate investment trust and commenced operations in March 2012 primarily to acquire, renovate, lease and manage residential assets in select markets throughout the United States. Our objective is to generate attractive risk-adjusted returns for our shareholders over the long term through dividends and capital appreciation. Our primary strategy is to acquire single-family rental properties through a variety of channels, renovate these properties to the extent necessary and lease them to qualified residents. We measure properties by the number of rental units as compared to number of properties, taking into account our limited investments in multi-unit properties. We seek to take advantage of macroeconomic trends in favor of leasing properties by acquiring, owning, renovating and managing properties that we believe will generate substantial current rental revenue, which we expect to grow over time.

Our operating partnership was formed as a Delaware limited partnership in May 2012. Our wholly owned subsidiary is the sole general partner of our operating partnership, and we conduct substantially all of our business through our operating partnership. We owned 95.6% of the outstanding OP Units as of September 30, 2017.

As a result of the SWAY Merger, we have a joint venture with Prime Asset Fund VI, LLC (“Prime”), an entity managed by Prime Finance, an asset manager that specializes in acquisition, resolution and disposition of non-performing loans (“NPLs”). We own a greater than 98.75% interest in the joint venture. We have substantially exited the NPL business (which includes NPLs and related real estate owned (“REO”)) and are currently marketing all remaining assets of the joint venture for disposition (see Note 14. Discontinued Operations ).

We intend to operate and to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes. We generally will not be subject to U.S. federal income taxes on our REIT taxable income to the extent that we annually distribute all of our REIT taxable income to shareholders and maintain our qualification as a REIT.

Note 2.  Basis of Presentation and Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying interim condensed consolidated financial statements are unaudited. These interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the applicable rules and regulations of the SEC for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The December 31, 2016 condensed consolidated balance sheet was derived from our audited financial statements as of that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. The condensed consolidated financial statements include our accounts and those of our wholly and majority owned subsidiaries. Intercompany amounts have been eliminated.

The accompanying unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to state fairly our financial position as of September 30, 2017, and the results of operations and comprehensive loss for the three and nine months ended September 30, 2017 and 2016 and cash flows for the nine months ended September 30, 2017

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30 , 2017

(Unaudited)

and 2016. The interim results for the three and nine months ended September 30, 2017 are not necess arily indicative of the results that may be expected for the year ending December 31, 2017, or for any other future annual or interim period.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations, Quantitative and Qualitative Disclosures About Market Risk , and the consolidated financial statements and notes thereto included in Items 7, 7A and 8, respectively, in our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC on February 28, 2017.

We consolidate entities in which we retain a controlling financial interest or entities that meet the definition of a variable interest entity (“VIE”) for which we are deemed to be the primary beneficiary. In performing our analysis of whether we are the primary beneficiary, at initial investment and at each quarterly reporting period, we consider whether we individually have the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and also have the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The determination of whether an entity is a VIE, and whether we are the primary beneficiary, involves significant judgments, including the determination of which activities most significantly affect the entities’ performance, estimates about the current and future fair values and performance of assets held by the VIE and/or general market conditions.

As described in Note 6. Debt , we entered into multiple mortgage loan arrangements with JP Morgan Chase Bank, N.A. (“JPMorgan”) and, in September 2017, with German American Capital Corporation (together, the “Loan Sellers”). As part of these arrangements, the loans were transferred into trusts that issued and sold pass-through certificates approximating the principal amount of the mortgage loans, and we retained or purchased certain of the certificates (the “Retained Certificates”). We have determined that the trusts are VIEs. We have evaluated the Retained Certificates as a variable interest in the trusts and concluded that the Retained Certificates will not absorb a majority of the trusts’ expected losses or receive a majority of the trusts’ expected residual returns. Additionally, we have concluded that the Retained Certificates do not provide us with the ability to direct activities that could impact the trusts’ economic performance. Accordingly, we do not consolidate the trusts and have recorded a mortgage loan liability at September 30, 2017 and December 31, 2016, which is included in mortgage loans, net in the accompanying condensed consolidated balance sheets. Separately, the Retained Certificates have been included and reflected as asset-backed securitization certificates in the accompanying condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016.  

As described in Note 4. Investments in Unconsolidated Joint Ventures , we have a joint venture with the Federal National Mortgage Association (“Fannie Mae”), which is a voting interest entity. Since we do not hold a controlling financial interest in the joint venture but have significant influence over its operating and financial policies, we account for our investment using the equity method. Under the equity method, we initially record our investments at cost and adjust for our proportionate share of net earnings or losses and other comprehensive income or loss, cash contributions made and distributions received, and other adjustments, as appropriate. Distributions of operating profit from the joint venture are reported as part of operating cash flows while distributions related to a capital transaction, such as a refinancing transaction or sale, are reported as investing activities. We perform a periodic evaluation of our investment to determine whether the fair value of the investment is less than the carrying value, and, if so, whether such decrease in value is deemed to be other-than-temporary. There were no   impairment losses recognized by us related to our Fannie Mae investment during the three and nine months ended September 30, 2017 and 2016.

Non-controlling interests represent (1) the portion of the equity (net assets) in Prime that is not attributable, directly or indirectly, to us and (2) the interests in our operating partnership held by Starwood Capital Group. Non-controlling interests are presented as a separate component of equity in the condensed consolidated balance sheets. In addition, the accompanying condensed consolidated statements of operations include the allocation of the net income or loss attributable to the non-controlling interest holders.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

The most significant estimates that we make are of the fair value of our properties with regards to impairment. While property values are typically not a highly subjective estimate on a per-unit basis, given the usual availability of comparable property sale and other market data, these fair value estimates significantly affect the condensed consolidated financial statements, including (1) whether certain assets are identified as being potentially impaired and then, if deemed to be impaired, the amount of the resulting impairment charges and (2) the allocation of purchase price to individual assets acquired as part of a pool, which have a significant impact on the

9

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30 , 2017

(Unaudited)

amount of gain or loss recognized from a subsequent sale, and the subsequent impairment assessment, of individual assets. As described further below in the description of our significant accounting policies, we determined the fair value of NPLs, at the time of the SWAY Merger, by using a discounted cash flow valuation model, which is significantly informed by the fair value of the underlying collateral property, and also applied the estimated effect of a bulk sale of the portfolio. These estimates of fai r value are determined using methodologies similar to those described below.

Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents include cash in banks and short-term investments. Short-term investments are comprised of highly liquid instruments with original maturities of three months or less. We maintain our cash and cash equivalents in multiple financial institutions with high credit quality in order to minimize our credit loss exposure. At times, these balances exceed federally insurable limits.

Restricted Cash

Restricted cash is primarily comprised of resident security deposits held by us and rental revenues held in accounts controlled by lenders on our debt facilities, as well as cash collateral held by the counterparties to certain of our interest rate swap contracts.

Investments in Real Estate

Effective in the fourth quarter of 2016, we adopted Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (see Recent Accounting Pronouncements below) . Under the revised framework, acquisitions of properties or portfolios of properties are considered asset acquisitions, rather than business combinations, regardless of whether there is a lease in place, because substantially all of the fair value of the acquired assets is concentrated in a single identifiable asset or group of similar identifiable assets. As a result, we account for acquisitions and dispositions of properties as purchases or disposals of assets, rather than businesses.  Prior to the adoption of this standard, w e evaluated each purchase transaction to determine whether the acquired assets met the definition of a business within the scope of ASC Topic 805, Business Combinations . We recorded properties acquired with an existing lease as a business combination. For property acquisitions accounted for as business combinations, the land, building and improvements and the existing lease were recorded at fair value at the date of acquisition, with acquisition costs expensed as incurred. We accounted for properties acquired not subject to an existing lease as an asset acquisition, with the property recorded at the purchase price, including acquisition costs, allocated among land, building and improvements based upon their relative fair values at the date of acquisition. Transaction costs related to acquisitions that were not deemed to be businesses were included in the cost basis of the acquired assets.

We determine fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures , primarily based on unobservable data inputs. In making estimates of fair values for purposes of allocating purchase price, we utilize various valuation studies, our own market knowledge, and published market data to estimate fair value of the assets acquired.

The nature of our business requires that in certain circumstances properties are acquired subject to existing liens. Liens that are expected to be extinguished in cash are estimated and accrued on the date of acquisition and recorded as a cost of the property.

Expenditures that improve or extend the life of an acquired property, including construction overhead, personnel and other allocated direct costs, along with related holding costs during the renovation period are capitalized and depreciated over their estimated useful life. Expenditures for ordinary maintenance and repairs are expensed to operations as incurred.

We capitalize certain costs incurred in connection with successful property acquisitions and associated stabilization activities, including tangible property improvements and replacements of existing property components. Included in these capitalized costs are certain personnel costs associated with time spent by certain personnel in connection with the planning and execution of all capital additions activities at the property level as well as third-party acquisition fees.  Capitalized indirect costs are allocations of certain department costs, including personnel costs, that directly relate to capital additions activities. We also capitalize property taxes, insurance, interest and homeowners’ association (“HOA”) fees during periods in which property stabilization is in progress. We expense costs that do not relate to capital additions activities, including ordinary repairs, maintenance, resident turnover costs and general and administrative expenses.

10

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30 , 2017

(Unaudited)

Real Estate Held for Use

We evaluate our long-lived assets for impairment periodically or whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Examples of such events and changes in circumstances include, but are not limited to, significant and persistent declines in property values, rental rates and occupancy percentages, as well as significant macroeconomic changes in the economy. If an impairment indicator exists, we compare the expected future undiscounted cash flows from the use and eventual disposition of the property against the carrying amount of an asset. If the sum of the estimated undiscounted cash flows is less than the carrying amount of the asset, we record an impairment loss for the difference between the estimated fair value and the carrying amount of the asset. To determine the estimated fair value, we consider an independent valuation of the property from a third-party automated valuation model (“AVM”) service provider or we use local broker-pricing opinions (“BPOs”). In order to validate the BPOs received and used in our assessment of fair value of real estate, we perform an internal review to determine if an acceptable valuation approach was used to estimate fair value in compliance with the guidance under ASC Topic 820. Additionally, we undertake an internal review to assess the relevance and appropriateness of comparable transactions that have been used by the broker in its BPO and any adjustments to comparable transactions made by the broker in reaching its value opinion. Such values represent the estimated amounts at which the properties could be sold in their current condition, assuming the sale is completed within a period of time typically associated with non-distressed sales. Estimated values may be less precise, particularly in respect of any necessary repairs, where the interior of homes are not accessible for inspection by the broker performing the valuation.

The process whereby we assess our properties for impairment requires significant judgment and assessment of factors that are, at times, subject to significant uncertainty. We evaluate multiple information sources and perform a number of internal analyses, each of which are important components of our process with no one information source or analysis being necessarily determinative.

Since impairment of properties classified as held for use in our operations is evaluated on the basis of undiscounted cash flows, the carrying values of certain properties may exceed their fair value but no impairment loss is recognized as long as the carrying values are recoverable from future cash flows. However, if properties classified as held for use were subsequently classified as held for sale, they would be required to be measured at the lower of their carrying value or their fair value less estimated costs to sell, and the resulting impairment losses could be material.

Real Estate Held for Sale

We evaluate our long-lived assets on a regular basis to ensure that individual properties still meet our investment criteria. If we determine that an individual property no longer meets our investment criteria, we make a decision to dispose of the property. We then market the property for sale and classify it as real estate held for sale in the condensed consolidated financial statements. The properties that are classified as real estate held for sale are reported at the lower of their carrying value or their fair value less estimated costs to sell and are no longer depreciated. For the three months ended September 30, 2017 and 2016, we recorded impairment charges of $0.3 million and $0.4 million , respectively. For the nine months ended September 30, 2017 and 2016, we recorded impairment charges of $1.0 million and $0.5 million, respectively.

Non-Performing Loans

As a result of the SWAY Merger, we acquired a portfolio of NPLs held and administered through our joint venture with Prime. We have decided to exit the NPL business and we are currently marketing all remaining assets of the joint venture for disposition. The disposal of the assets and liabilities of our NPL business represents a strategic shift in operations and is expected to have a major effect on our operations and financial results and therefore the results of operations are presented separately as discontinued operations in all periods presented in the accompanying condensed consolidated statements of operations. See Note 14. Discontinued Operations for further disclosure.

We determined the fair value for NPLs, at the time of the SWAY Merger, by using a discounted cash flow valuation model and also applied the estimated effect of a bulk sale of the portfolio.

When we convert loans into REO through foreclosure or other resolution processes and have obtained title to the property, the property is initially recorded at fair value. The fair value of these assets at the time of loan conversion is estimated using BPOs. Gains are recognized in earnings immediately when the fair value of the acquired property exceeds our recorded investment in the loan. Conversely, any excess of the recorded investment in the loan over the fair value of the property would be immediately recognized as a loss. In situations where property foreclosure is subject to an auction process and a third party submits the winning bid, we recognize the resulting gain or loss. All remaining NPL and REO assets are classified as assets held for sale in our condensed consolidated

11

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30 , 2017

(Unaudited)

balance sheets and not depreciated. Upon the sale of REOs, we recognize the resulting gain or loss in (loss) income from discontinued operations, net in our condensed consolidated statements of operations.  

Leasing Costs

We defer certain direct and indirect costs incurred to lease our properties and amortize them over the term of the lease, usually one year. Amortization of leasing costs is included in depreciation and amortization expense in our condensed consolidated statements of operations.

Purchase Deposits

We routinely make various deposits relating to property acquisitions, including transactions where we have agreed to purchase a property subject to certain conditions being met before closing, such as satisfactory home inspections and title search results. Our purchase deposit balances are recorded in other assets, net in our condensed consolidated balance sheets.

Derivative Financial Instruments

We are exposed to certain risks arising from both our business operations and economic conditions.  We principally manage our exposures to a wide variety of business and operational risks through the management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of our debt funding and the use of derivative financial instruments.  Specifically, we enter into derivative financial instruments to manage exposure that may arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.  Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and our known or expected cash payments, principally related to our borrowings.

As required by ASC Topic 815, Derivatives and Hedging , we record all derivatives in the condensed consolidated balance sheets at fair value.  The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.  We may enter into derivative contracts that are intended to economically hedge certain of our risks, even though hedge accounting does not apply or we elect not to apply hedge accounting. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income in our condensed consolidated balance sheet and is subsequently reclassified into interest expense in the period that the hedged forecasted transaction affects earnings.

Derivatives not designated as hedges are derivatives that do not meet the criteria for hedge accounting under GAAP or for which we have not elected to designate as hedges. We do not use these derivatives for speculative purposes, but instead they are used to manage our exposure to interest rate changes. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in other (expense) income, net in our condensed consolidated statements of operations.

Goodwill

We test goodwill for impairment on an annual basis, or more frequently if circumstances indicate that goodwill carrying values may exceed their fair values. We perform this evaluation at the reporting unit level. As of October 31, 2016 (the date we elected as our annual goodwill impairment test), we were comprised of two operating segments and reporting units, which are represented by (1) our portfolio of properties and (2) our portfolio of NPLs owned by the joint venture with Prime.  However, for financial reporting purposes, we are comprised of one reporting segment, because the Prime joint venture’s revenues, net loss and total assets are each less than 10% of our consolidated totals. Goodwill was allocated only to our single-family rental home business.

As part of our goodwill impairment testing, we first assess a range of qualitative factors including, but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political developments, and entity-specific factors such as strategies and financial performance when evaluating

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30 , 2017

(Unaudited)

potential impairment for goodwill.  If, after completing such assessment, it is determined that it is “more likely than not” that the fair va lue of a reporting unit is less than its carrying value, we proceed to a two-step impairment test, whereby the first step is comparing the fair value of a reporting unit with its carrying amount, including goodwill.  If the fair value of a reporting unit e xceeds its carrying amount, goodwill of the reporting unit is considered to not be impaired and the second step of the test is not performed.  The second step of the impairment test is performed when the carrying amount of the reporting unit exceeds the fa ir value, in which case the implied fair value of the reporting unit goodwill is compared with the carrying amount of that goodwill.  If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.

Based on the results of our 2016 review, we qualitatively concluded that it was not more likely than not that the fair value of our reporting unit was less than its carrying value and therefore determined that goodwill was not impaired. We have noted no indications of impairment subsequent to our 2016 review that would change this conclusion.

Convertible Notes

ASC Topic 470-20, Debt with Conversion and Other Options , requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The initial proceeds from the sale of convertible notes are allocated between a liability component and an equity component in a manner that reflects interest expense at the rate of similar nonconvertible debt that could have been issued at such time. The equity component represents the excess initial proceeds received over the fair value of the liability component of the notes as of the date of issuance. We measure the fair value of the debt component of our convertible notes as of the issuance date based on our nonconvertible debt borrowing rate. In connection with the SWAY Merger, we adjusted our existing convertible senior notes to estimated fair value based on our nonconvertible debt borrowing rate as of the SWAY Merger date. The resulting discount from the outstanding principal balance, and the discount recorded in connection with the 2022 Convertible Notes (see Note 6. Debt ), are being amortized using the effective interest rate method over the periods to maturity as noncash interest expense as the notes accrete to their respective par values.

Transfers of Financial Assets

We may periodically sell our financial assets. In connection with these transactions, we may retain or acquire senior or subordinated interests in the related assets. Gains and losses on such transactions are recognized using the guidance in ASC Topic 860, Transfers and Servicing , which is based on a financial components approach that focuses on control. Under this approach, if a transfer of financial assets meets the criteria for treatment as a sale – legal isolation, ability of transferee to pledge or exchange the transferred assets without constraint, and transferred control – an entity recognizes the financial assets it retains and any liabilities it has incurred, derecognizes the financial assets it has sold, and derecognizes liabilities when extinguished. Transfers that do not qualify for sales treatment are accounted for as secured financing arrangements. We determine the gain or loss on sale of the assets by allocating the carrying value of the sold asset between the sold asset and the interests retained based on their relative fair values, as applicable. The gain or loss on sale is the difference between the cash proceeds from the sale and the amount allocated to the sold asset.

Revenue Recognition

Rental revenue, net of concessions, is recognized on a straight-line basis over the term of the lease. The initial term of our residential leases is generally one year, with renewals upon consent of both parties on an annual or monthly basis.

We periodically evaluate the collectability of our resident and other receivables and record an allowance for doubtful accounts for any estimated probable losses. This allowance is estimated based on payment history and probability of collection. We generally do not require collateral other than resident security deposits. Our allowance for doubtful accounts was $2.9 million and $2.5 million as of September 30, 2017 and December 31, 2016, respectively. Bad debt expense amounts are recorded as property operating and maintenance expenses in the condensed consolidated statements of operations. During the three months ended September 30, 2017 and 2016, we incurred bad debt expense of $2.3 million and $2.4 million, respectively. During the nine months ended September 30, 2017 and 2016, we incurred bad debt expense of $6.2 million and $5.3 million, respectively.

We recognize sales of real estate when a sale has closed, title has passed, adequate initial and continuing investment by the buyer is received, possession and other attributes of ownership have been transferred to the buyer, and we are not obligated to perform significant additional activities after closing. All these conditions are typically met at or shortly after closing.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30 , 2017

(Unaudited)

Earnings (Loss) Per Share

We use the two-class method to calculate basic and diluted earnings per common share (“EPS”) as our RSUs are participating securities as defined by GAAP. We calculate basic EPS by dividing net income (loss) attributable to common shareholders for the period by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur from shares issuable in connection with the RSUs, convertible senior notes, and redeemable OP Units, except when doing so would be anti-dilutive.

Share-Based Compensation

The fair value of our restricted shares and RSUs granted is recorded as expense over the vesting period for the award, with an offsetting increase in shareholders' equity. For grants to employees and trustees, the fair value of RSUs with only a service condition for vesting is determined based upon the share price on the grant date and expense is recognized on a straight-line basis. For RSUs with a performance condition for vesting, such as growth in net operating income, fair value is determined based upon the share price on the grant date and e xpense is recognized when it is probable the performance goal will be achieved. For RSUs with a market condition for vesting, such as growth in shareholder returns, fair value is estimated on the grant date using a binomial lattice model and expense is recognized on a straight-line basis.  Performance goals are determined by our board of trustees. For non-employee grants, the fair value is based on the share price when the shares vest, which requires the amount to be adjusted in each subsequent reporting period based on the fair value of the award at the end of the reporting period until the award has vested.

Income Taxes

We have elected to operate as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), and intend to comply with the Code with respect thereto. Accordingly, we will not be subject to federal income tax as long as certain asset, income, dividend distribution, and share ownership tests are met. Many of these requirements are technical and complex, and if we fail to meet these requirements, we may be subject to federal, state, and local income tax and penalties. A REIT's net income from prohibited transactions is subject to a 100% penalty tax. We have taxable REIT subsidiaries (“TRSs”) where certain investments may be made and activities conducted that (1) may have otherwise been subject to the prohibited transactions tax and (2) may not be favorably treated for purposes of complying with the various requirements for REIT qualification. The income, if any, within the TRSs is subject to federal and state income taxes as a domestic C corporation based upon the TRSs' net income. See Note 12. Income Taxes.   We recorded income tax expense of approximately $0.4 million and $0.7 million during the three and nine months ended September 30, 2017 and approximately $0.2 million and $0.5 million during the three and nine months ended September 30, 2016, respectively.

Fair Value Measurement

We estimate the fair value of financial assets and liabilities using the three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The three levels of inputs that may be used to measure fair value, as defined in ASC Topic 820, are as follows:

Level I—Quoted prices in active markets for identical assets or liabilities.

Level II—Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.

Level III—Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used.

We record certain financial instruments at fair value on a recurring basis when required by GAAP. Certain other real estate assets are measured at fair value on a non-recurring basis. We have not elected the fair value option for any other financial instruments, which are carried at cost with fair value disclosed where reasonably estimable (see Note 10. Fair Value Measurements ).

Segment Information

As of September 30, 2017, we are comprised of two operating segments, which are represented by (1) our portfolio of properties and (2) our portfolio of NPLs owned by the joint venture with Prime.  However, for financial reporting purposes, we are comprised of one reportable segment, because the Prime joint venture’s revenues, net loss and total assets are each less than 10% of our consolidated total.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30 , 2017

(Unaudited)

Reclassification of Prior Period Amounts

Certain line items in prior period financial statements have been reclassified to conform to the current period groupings. For the three months ended September 30, 2016, we reclassified $0.7 million of salaries and wages and other services from general and administrative to property management, $0.6 million of legal settlements from other expenses to general and administrative expense, net, and $2.0 million of adjustments for certain revenues (i.e. a reduction to revenues) from other property income to rental income in the condensed consolidated statements of operations. For the nine months ended September 30, 2016, we reclassified $2.0 million of salaries and wages and other services from general and administrative to property management, $0.2 million of services from general and administrative to real estate taxes, insurance and HOA costs, $0.4 million of legal settlements from general and administrative expenses to other expense, net, $1.1 million of bad debt expense from property operating and maintenance to rental income and other property income and $0.8 million of fees from property operating and maintenance to property management in the condensed consolidated statements of operations. In addition, for the three months ended March 31, 2017, we reclassified $1.8 million of adjustments for certain revenues from other property income to rental income in the condensed consolidated statements of operations.

Recent Accounting Pronouncements

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.   The new guidance will make more financial and nonfinancial hedging strategies eligible for hedge accounting.  It also amends the presentation and disclosure requirements and changes how companies assess effectiveness.  It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs.   This new standard will be effective for annual reporting periods beginning after December 15, 2018 and interim periods within that reporting period with early adoption permitted.  We do not anticipate that the adoption of this standard will have a material impact on our condensed consolidated financial statements

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification.  Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions.   This new standard will be effective for annual reporting periods beginning after December 15, 2017 and interim periods within that reporting period with early adoption permitted.  We do not anticipate that the adoption of this standard will have a material impact on our condensed consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. The ne w g u ida nc e cl ari f i e s that AS C 61 0- 20, a ppl i e s to the d erec og n ition of n o nf i n a nc ial ass e ts a n d in su b s ta nc e n o nf i n a nc ial a sse ts unles s oth e r spec i f ic g u ida nc e a ppl i es . A s a res ul t, it w i l l n ot a ppl y to the d e r ec og n ition of b us i nesses , n o npr o f it a c ti v iti es , or fina nc ial a sse ts (i nclu di n g equ ity m e thod i nves t men t s ), or to revenu e t r a ns a c tio n s (c on tra c ts w ith cus tom e r s ). The ne w g u ida nc e a ls o cl a r i f i e s that an in su b s ta nc e n onf i n a nc ial a sse t is an a sse t or gro u p of a sse ts f or w hi c h su b s ta n tia ll y a l l of the f air val u e c o ns i s ts of n o nf i n a nc ial a sse ts a n d the g r o u p or su b s idia r y is n ot a b us i ness . In additio n , tra nsfe rs of n o nf i n a nc ial a sse ts to a n oth e r en tity in exc ha n ge f or a n onc o n tro ll i n g o wne r s hip i n t e r es t in that en tity w i l l be a cc o un t e d f or un d e r AS C 6 1 0- 2 0 , re m o v i n g spec i f ic g u ida nc e on suc h p artial exc ha n g e s fr om AS C 845 , N o n mo n etar y T ra ns ac t i on s . As a r esul t of the ne w g u ida nce , the g u ida nc e spec i f ic to re al es tate s a le s in AS C 360- 20, Real Estate Sales, will be el imi n at e d. A s suc h, s a le s a n d p artial s a le s of re al es tate a sse ts w i l l n ow be su b jec t to the s ame d e r ec og n ition mod e l as a l l oth e r n o nf i n a nc ial a sse t s . This new standard will be effective at the same time an entity adopts the new revenue guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , which is effective on January 1, 2018. We do not anticipate that the adoption of this standard will have a material impact on our condensed consolidated financial statements.

15

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30 , 2017

(Unaudited)

In October 2016, the FASB issued ASU 2016-1 7, Consolidation (Topic 810): Interests held through Related Parties that are under Common Control , which alters how a decision maker needs to consider indirect int erests in a VIE held through an entity under common control. The new guidance amends ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis , issued in February 2015. Under the new ASU, if a decision maker is required to evaluate w hether it is the primary beneficiary of a VIE, it will need to consider only its proportionate indirect interest in the VIE held through a common control party. Currently, ASU 2015-02 directs the decision maker to treat the common control party’s interest in the VIE as if the decision maker held the interest itself (sometimes called the “full attribution approach”). Under ASU 2015-02, a decision maker applies the proportionate approach only in those instances when it holds an indirect interest in a VIE thro ugh a related party that is not under common control. The amendment eliminates this distinction. We adopted this new standard effective in the first quarter of 2017 and it did not have a material impact on our condensed consolidated financial statements.  

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, which changes how companies will measure credit losses for certain financial assets. This guidance requires an entity to estimate its expected credit loss and record an allowance based on this estimate so that it is presented at the net amount expected to be collected on the financial asset. This new standard will be effective for annual reporting periods beginning after December 15, 2019 and interim periods within that reporting period with early adoption permitted beginning after December 15, 2018 and interim periods within that reporting period.  We do not anticipate that the adoption of this standard will have a material impact on our condensed consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which is intended to simplify the accounting for and presentation of certain aspects related to share-based payments to employees. The guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. We adopted this standard effective in the first quarter of 2017 and it did not have a material impact on our condensed consolidated financial statements.  

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. This new guidance clarifies that the novation of a derivative contract (i.e., a change in the counterparty) in a hedge accounting relationship does not, in and of itself, require de-designation of that hedge accounting relationship, provided that all other hedge criteria continue to be met. We adopted this standard effective in the first quarter of 2017 and it did not have a material impact on our condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 , Leases (Topic 842). The new standard requires lessees to clarify leases as either finance or operating leases based on certain criteria and record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The standard also eliminates current real estate-specific provisions and changes of initial direct costs and lease executory costs for all entities. The new guidance will require lessees and lessors to capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. Any other costs incurred, including allocated indirect costs, will no longer be capitalized and instead will be expensed as incurred. The guidance supersedes previously issued guidance under ASC Topic 840 Leases . This standard will be effective for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. We expect that the adoption of this standard will result in an increase in assets and liabilities on our balance sheet related to our leased office space.  Allocated indirect costs incurred with acquisition and stabilization of properties, which amounted to $5.0 million for the nine months ended September 30, 2017, will be expensed as incurred rather than amortized over the lease terms, which are generally one year.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which will supersede nearly all existing revenue recognition guidance . The new standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.  Companies will likely need to use more judgment and make more estimates than under current revenue recognition guidance.  These may include identifying performance obligations in the contract, estimating the amount of variable consideration, if any, to include in the transaction price and allocating the transaction price to each separate performance obligation. The new standard specifically excludes lease revenue. The new standard may be applied retrospectively to each prior period presented or prospectively with the cumulative effect, if any, recognized as of the date of adoption.  We anticipate selecting the modified retrospective transition method with any cumulative effect recognized as of the date of adoption and will adopt the new standard effective January 1, 2018 as required.  We are continuing to evaluate the standard; however, we do not expect its adoption to have a significant impact on the consolidated financial statements, as more than 90% of our total revenues consist of rental

16

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30 , 2017

(Unaudited)

income from leasing arrangements, which is specifically excluded from the standard.  In addition, based on our preliminary assessment, we deter mined that there will not be a material impact on our other property income (fees and tenant chargebacks) or other income, which represents fees from management contracts.  

In June 2017, we completed the acquisition of a portfolio of 3,106 properties (the “GI Portfolio”) pursuant to a securities purchase agreement with Waypoint/GI Venture, LLC (the “GI Portfolio Acquisition”). The consideration paid to Waypoint/GI Venture, LLC was approximately $814.9 million, including the assumption of a $500.0 million secured term loan (see Note 6. Debt ), and the cost basis of the GI Portfolio was approximately $817.5 million, inclusive of capitalized third-party transaction costs.

We determined the fair values of the properties in the GI Portfolio primarily by reference to BPOs and allocated the purchase price among land and land improvements, building and building improvements and furniture, fixtures and equipment on our condensed consolidated balance sheets.  We identified 386 homes in the portfolio that we do not intend to hold for the long term.  The aggregate carrying value of these homes, $122.1 million, was included in real estate held for sale, net in the condensed consolidated balance sheet as of June 30, 2017.  As of September 30, 2017, 373 of these homes with an aggregate carrying value of $115.4 million remain in real estate held for sale, net in the condensed consolidated balance sheet. See Note 2. Significant Accounting Policies—Real Estate Held for Use and —Real Estate Held for Sale.   We accounted for the GI Portfolio Acquisition as an asset purchase, rather than a business combination, and did not acquire intangible assets.

Note 4. Investments in Unconsolidated Joint Ventures

On October 31, 2012, we acquired a 10% interest in a joint venture with Fannie Mae to operate, lease, and manage a portfolio of 1,176 properties primarily located in Arizona, California, and Nevada. We paid approximately $34.0 million to acquire our interest, and funded approximately $1.0 million in reserves to the joint venture.

A subsidiary of ours is the managing member and responsible for the operation and management of the properties, subject to Fannie Mae’s approval on major decisions. We evaluated the entity and determined that Fannie Mae held certain substantive participating rights that preclude the presumption of control by us. Accordingly, we account for our ownership interest using the equity method. As of September 30, 2017 and December 31, 2016, the joint venture owned 798 and 856 properties, respectively.

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