Invitation Homes Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Invitation Homes is a REIT that owns and operates single-family rental homes. At quarter-end, it owned 80,322 homes across 17 markets; the Same Store portfolio comprised 72,787 homes.
Financial and operating results
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Rental revenue and other property income | $441.6 million | $432.4 million | $877.1 million | $856.1 million |
| Net income (loss) | $39.4 million | ($14.2 million) | $60.6 million | ($31.8 million) |
| Diluted EPS | $0.07 | ($0.03) | $0.11 | ($0.06) |
| Net cash from operations | Not separately stated for the quarter | $375.3 million | $310.3 million | |
| Net cash from (used in) investing | Not separately stated for the quarter | $39.2 million | ($189.4 million) | |
| Net cash used in financing | Not separately stated for the quarter | ($455.1 million) | ($127.6 million) |
- Q2 total-portfolio occupancy averaged 94.6%, compared with 95.1%; average monthly rent per occupied home rose 4.3% to $1,800. Same Store occupancy improved to 96.5% from 96.1%, and monthly rent rose 4.0% to $1,804.
- Q2 Same Store net effective rent growth was 5.4% on renewals and 5.2% on new leases. Annualized Same Store turnover fell to 34.1% from 37.8%; average time to re-resident was 42 days versus 43.
- Q2 Same Store NOI, a non-GAAP measure, was $257.0 million versus $242.2 million. Six-month Same Store NOI was $514.7 million versus $482.0 million.
- Six-month diluted Core FFO per share, a non-GAAP measure, was $0.64 versus $0.58; Adjusted FFO per share was $0.53 versus $0.48.
Balance sheet, debt and liquidity
- At June 30, total assets were $17.7 billion, total liabilities $9.7 billion, and total equity $8.0 billion. Unrestricted cash was $77.0 million; restricted cash was $242.4 million.
- Debt principal totaled approximately $9.03 billion before deferred financing costs and note fair-value adjustments. This included $6.55 billion of mortgage loans, a new $403.5 million secured term loan, a $1.50 billion term loan facility, and $575.0 million of convertible notes. The $1.0 billion revolving facility was undrawn.
- The secured term loan was entered into in June, matures in 2031, and bears a fixed 3.59% rate for its first 11 years, then a floating rate in year 12. Mortgage and term-loan balances are substantially exposed to floating rates; the company reported hedging 92.4% of variable-rate debt through swaps.
- Management reported compliance with debt covenants. The filing lists contractual mortgage maturities of $1.49 billion for the remainder of 2019 and $3.11 billion in 2020; some mortgage loans have conditional extension options.
- In the six months, operating cash flow increased 20.9% year over year. Investing cash flow benefited from higher home-sale proceeds; financing cash use reflected mortgage repayments and $136.3 million of dividends.
Changes, outlook and risks
- Revenue increased 2.1% in Q2 and 2.5% for the six-month period, despite a smaller average home count. Rental growth and utility reimbursements contributed.
- GAAP earnings turned positive in both comparisons, substantially aided by property-sale gains: $26.2 million in Q2 and $43.7 million for six months, versus $3.9 million and $9.4 million, respectively, in 2018. Homes sold increased to 779 in Q2 and 1,433 year to date, from 348 and 599.
- Total expenses fell 5.1% in Q2 and 4.1% year to date. Lower G&A and depreciation helped; property taxes, insurance and HOA costs pressured property expenses. Six-month interest expense was essentially flat as higher LIBOR offset lower average debt.
- Other comprehensive loss was $156.5 million in Q2, principally reflecting unrealized swap losses; accumulated other comprehensive loss reached $265.4 million at quarter-end. This noncash mark-to-market effect reduced reported equity.
- After quarter-end, the company settled substantially all of the 2019 convertible notes by issuing 12,553,864 shares on July 1, and prepaid $50 million of mortgage debt on July 9. Common shares outstanding were 537,680,811 on July 29.
- Management described recent demand and supply conditions in Western U.S. and Florida markets as favorable and expected these trends to continue in the near to intermediate term. The filing provides no formal quantified earnings or operating guidance.
- Risks include interest-rate exposure, market and leasing competition, home acquisition and renovation costs, property taxes, insurance and HOA costs, resident defaults or non-renewals, reliance on third-party services, debt and covenant requirements, and seasonality. Management reported no material litigation and no material off-balance-sheet arrangements.
Important facts for investors to verify
- How much of reported profit growth is recurring rental performance versus property-sale gains, and whether home dispositions affect future revenue and NOI.
- Whether rent growth, occupancy, turnover and re-resident times remain favorable across markets and the Same Store portfolio.
- Liquidity and refinancing plans for near-term mortgage maturities, extension conditions, debt covenants and the use of the undrawn revolver.
- The dilution and per-share impact of the 2019 note conversion, alongside the remaining 2022 convertible notes.
- How swap fair-value changes and interest-rate movements could affect reported equity, interest expense and cash flows; also compare non-GAAP FFO/NOI with GAAP results and recurring capital needs.