Invitation Homes Inc. quarterly report, Q2 FY2020

Invitation Homes Inc. — Q2 2020 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2020. Invitation Homes is a REIT owning and operating single-family rental homes; it reported approximately 79,256 homes across 16 markets at quarter-end. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless noted.

Financial performance and key metrics

Metric	Q2 2020	Q2 2019	Six months 2020	Six months 2019
Rental revenue and other property income	$449.8	$441.6	$899.5	$877.1
Net income	$43.2	$39.4	$93.5	$60.6
Net income available to common stockholders	$42.8	$38.8	$92.6	$59.5
Diluted earnings per share	$0.08	$0.07	$0.17	$0.11
Operating cash flow	Not separately reported for the quarter	$395.9	$375.3
Total portfolio NOI (non-GAAP)	$282.8	$275.0	$565.6	$550.2
Same Store NOI (non-GAAP)	$261.5	$255.6	$527.1	$510.7
Adjusted FFO (non-GAAP)	$151.6	$133.1	$312.2	$281.3

• Revenue increased 1.9% in Q2 and 2.6% for the first half. Q2 average monthly rent per occupied home rose 3.8% for the total portfolio; average occupancy increased to 96.0% from 94.6%. Same Store occupancy was 97.5% versus 96.5%.
• Same Store NOI increased 2.3% in Q2 and 3.2% for the first half. Total portfolio NOI was approximately 62.9% of Q2 revenue, calculated from reported figures.
• Net income improved despite lower property-sale gains: gains were $11.2 million in Q2 versus $26.2 million a year earlier, and $26.4 million for the first half versus $43.7 million. Lower interest expense and lower overhead also supported results.
• Operating cash flow was $395.9 million for the first half. Investing activities used $89.5 million; financing activities provided $202.9 million. Dividends paid were $163.5 million. Cash, cash equivalents and restricted cash totaled $795.6 million at June 30, including $571.7 million unrestricted.
• Net debt carrying value was $8.35 billion: $6.12 billion mortgage loans, $401.0 million secured term loan, $1.50 billion term loan facility and $336.8 million convertible notes. The $1.0 billion revolving facility was undrawn. Unrestricted cash plus undrawn facility capacity was $1.57 billion.

Changes versus the prior comparable period

• Q2 revenue rose 1.9%, while net income increased 9.6%; first-half net income rose 54.3%. The first-half comparison benefited from lower general and administrative costs, interest expense and impairment charges, partly offset by lower gains on property sales.
• Interest expense declined 10.1% in Q2 and 9.9% for the first half, primarily reflecting lower average debt balances and prior debt repayments. Property operating and maintenance expense rose 0.3% in Q2 and 2.1% for the first half.
• Same Store renewal rent growth slowed to 3.5% in Q2 from 5.3% a year earlier; new-lease growth slowed to 2.7% from 5.2%. Lower turnover and shorter re-resident periods helped lift occupancy.
• Bad debt increased to 1.9% of gross rental income in Q2 from 0.4%; for the first half it was 1.1% versus 0.5%. The June public offering raised $447.5 million net and increased shares outstanding.
• Other comprehensive loss was $357.6 million for the first half, largely reflecting unrealized losses on interest-rate swaps; this was recorded in equity, not as an equivalent reduction in reported net income.

Outlook, risks and notable items

• COVID-19: Revenue collections as a percentage of monthly billings were 94% in April, 96% in May, 98% in June and 97% in July, compared with a historical average of 99%. The company cited resident hardship, payment plans, eviction moratoriums, limits on late fees and rent increases, and elevated bad debt. It warned the pandemic’s effects on collections, occupancy, rents, expenses and property values remained uncertain.
• Management reported Same Store occupancy of 97.5% in Q2 and 97.8% in July, and July new-lease rent growth of 4.9%. It resumed sourcing acquisitions in June after pausing from mid-March through May; acquisition commitments were $47.5 million at quarter-end. No formal earnings or operating guidance is provided in the supplied filing text.
• The company repaid its $270 million revolving balance by June after drawing it in March. Management stated it believed the company was in compliance with debt covenants and expected to meet scheduled debt service, while warning that weaker collections or market disruption could affect liquidity and covenant compliance.
• Debt maturities shown at quarter-end included $2.50 billion in the remainder of 2020 and $2.64 billion in 2021; mortgage-loan extensions are conditional. After quarter-end, the lender approved extending the IH 2018-3 loan maturity from July 9, 2020 to July 9, 2021. Management stated no debt would mature before 2022 if available extension options were exercised.
• Approximately 98.2% of variable-rate debt was effectively fixed through swaps. LIBOR transition, swap valuation changes and the estimated $153.2 million of accumulated hedge losses expected to be reclassified as higher interest expense over the next 12 months are relevant considerations.
• The board declared a $0.15-per-share dividend for Q2 and subsequently declared another $0.15 dividend payable August 28, 2020. The filing reports no material litigation, defaults on senior securities or material off-balance-sheet arrangements.

Important facts for investors to verify

1. Whether collections, bad debt, payment plans and eviction or rent restrictions improve or deteriorate, and how that affects rental income and cash flow.
2. Whether occupancy and rent growth remain durable after pandemic-related turnover reductions and Q2’s high occupancy.
3. Debt-extension conditions and maturities, covenant headroom, revolving-facility availability and the transition of LIBOR-linked debt and hedges.
4. How proceeds from the share offering and remaining ATM capacity are used, including acquisition returns and potential dilution.
5. Underlying recurring performance and capital needs: compare GAAP income with NOI, FFO/AFFO, property-sale gains and recurring capital expenditures.