Invitation Homes Inc. — Q3 2020 Form 10-Q
Business context and reporting period. Invitation Homes is a REIT that owns, renovates, leases, and manages single-family rental homes. This unaudited report covers the quarter and nine months ended September 30, 2020; comparisons are with the same 2019 periods. The company reported approximately 79,400 homes across 16 markets.
Financial and operating results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Rental revenue and other property income | $459.2 million | $443.3 million | $1,358.7 million | $1,320.4 million |
| Net income | $32.9 million | $34.0 million | $126.3 million | $94.6 million |
| Diluted EPS | $0.06 | $0.06 | $0.23 | $0.18 |
| Operating cash flow | Not stated separately | Not stated separately | $625.7 million | $590.8 million |
| Net cash used in investing | Not stated separately | Not stated separately | $194.4 million | $26.6 million |
- Revenue and occupancy: Q3 revenue rose 3.6%. Total-portfolio average occupancy increased to 96.9% from 93.8%, and average monthly rent per occupied home rose 3.3% to $1,881. Same Store occupancy was 97.8% versus 95.9%; Same Store average monthly rent increased 3.2% to $1,881.
- Profitability and margins: Q3 net income decreased 3.3%, while nine-month net income increased 33.6%. Total-portfolio NOI, a non-GAAP measure, was $281.2 million in Q3, up from $267.8 million; Same Store NOI was $256.3 million, up from $247.5 million. Diluted AFFO per share, also non-GAAP, was $0.24 in Q3 versus $0.23 and $0.81 for nine months versus $0.75.
- Cash flow and investment: Nine-month operating cash flow increased 5.9%. Investing cash use increased primarily as home-sale proceeds declined and initial renovation spending rose. Cash, cash equivalents, and restricted cash totaled $808.9 million at quarter-end, including $559.6 million of unrestricted cash.
- Debt and liquidity: Debt, net of deferred financing costs and discounts, was $8.33 billion. The $1.0 billion revolving facility was undrawn; management reported $1.56 billion of available liquidity, comprising unrestricted cash and undrawn revolver capacity. Management stated the company was in compliance with debt covenants. It reported no debt maturing before 2022 provided applicable extension options are exercised.
- Margins and costs: Total expenses increased 0.8% in Q3, less than revenue growth. Property operating and maintenance expense rose 1.4%; interest expense fell 1.5%. For the nine months, total expenses declined 1.8%, including lower management, general and administrative, and interest expenses.
Material changes versus prior comparable periods
- Higher occupancy and rents supported revenue growth, while average homes owned declined year over year. Same Store annualized turnover fell to 29.4% in Q3 from 35.0%; average days vacant between residents fell to 26 from 40.
- COVID-19-related bad debt increased to 2.1% of gross rental income in Q3 from 0.5% a year earlier, and was 1.5% for the first nine months versus 0.5%. Q3 revenue collections were 97% of monthly billings, compared with a historical average of 99%.
- Nine-month interest expense declined 7.3%, partly reflecting lower average debt and the prior-year settlement of convertible debt with common shares. The company issued shares in June 2020, raising $447.5 million net; proceeds were primarily intended for acquisitions.
- Accumulated other comprehensive loss increased to $599.0 million from $276.6 million at year-end 2019, principally reflecting interest-rate swap fair-value movements. The company estimated $152.3 million would be reclassified into earnings as increased interest expense over the next 12 months.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific earnings or operating guidance. Management said acquisition activity had returned to a pre-pandemic pace after a pause from mid-March through May; it continued to monitor COVID-19 effects and could not predict their duration or full financial impact.
- Key risks include resident payment hardship and uncollectible rent, eviction moratoriums and restrictions on rent increases or fees, potential operating and service disruptions, weaker housing markets, and reduced access to capital or covenant pressure. Management noted collection rates and occupancy could change as restrictions and economic conditions evolve.
- Most variable-rate debt exposure was hedged: the company said swaps effectively fixed 98.6% of its $6.61 billion of variable-rate borrowings. Its loans and derivatives referenced LIBOR, which was expected to be phased out after 2021; transition terms and effects remained uncertain.
- Subsequent events included an October 2020 Rockpoint joint venture with $375 million of committed equity ($75 million from Invitation Homes), two October bulk acquisitions totaling 327 homes for $65.7 million, and lender approval of an extension of the SWH 2017-1 loan. Extensions for other loans were requested or remained conditional.
- Q3 included a $1.8 million impairment of a vacated office lease asset and $0.3 million of residential-property impairments. The company reported no material litigation and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether rent collections, bad debt, payment plans, and eviction or rent restrictions improve or deteriorate after quarter-end.
- Whether requested and available debt extensions are completed on schedule, and whether covenant compliance and the reported $1.56 billion liquidity remain intact.
- The cost, funding, acquisition pace, allocation practices, and expected returns of the Rockpoint joint venture, including the company’s $75 million commitment.
- How recurring property capital expenditures compare with non-GAAP FFO and AFFO measures, and whether cash flow supports dividends and planned investment.
- The effect of LIBOR transition and swap settlements on future interest expense; reported debt maturities assume certain extensions are exercised.