Invitation Homes Inc. — Q3 2021 Form 10-Q
Business context and reporting period. Invitation Homes is a REIT focused on owning, renovating, leasing, and operating single-family rental homes. This unaudited filing covers the three and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods unless noted. At quarter-end, the company owned 81,549 homes in 16 markets; its Same Store portfolio comprised 72,423 homes.
Financial performance and key metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $509.5 million | $459.2 million | $1,476.4 million | $1,358.7 million |
| Net income | $69.5 million | $32.9 million | $187.9 million | $126.3 million |
| Diluted GAAP EPS | $0.12 | $0.06 | $0.33 | $0.23 |
| Same Store NOI | $290.5 million | $259.5 million | $854.2 million | $788.8 million |
| Core FFO per diluted share | $0.38 | $0.30 | $1.11 | $0.96 |
| Adjusted FFO per diluted share | $0.32 | $0.24 | $0.95 | $0.81 |
- Rental operations: Q3 rental revenue and other property income increased 10.7% to $508.2 million. Total-portfolio average occupancy was 97.0%, and average monthly rent per occupied home was $1,991, up 5.8%. Same Store occupancy was 98.1%; Same Store rent was $1,989, also up 5.8%.
- Rent growth: Q3 Same Store net effective rental rate growth was 7.8% on renewals and 18.4% on new leases. Same Store annualized turnover was 25.1%, versus 29.7% a year earlier; average re-resident time was 25 days versus 26.
- Cash flow: For the nine months, operating cash flow was $782.3 million, investing cash outflow was $728.3 million, and financing cash inflow was $355.4 million. Cash, cash equivalents, and restricted cash totaled $821.2 million; unrestricted cash was $569.7 million.
- Debt and liquidity: Balance-sheet debt, net of financing costs and discounts, was $7.81 billion; management reported net debt of $7.02 billion using its stated calculation. The $1.0 billion revolving facility was undrawn. Reported weighted-average debt interest rate was 3.50%, assuming stated hedges and LIBOR. The company said it was in compliance with debt covenants.
- Dividends: The Q3 dividend was $0.17 per share. The board subsequently declared another $0.17 dividend, payable November 24, 2021.
Material changes versus prior period
- Q3 revenue rose 11.0% and net income increased 111.5%; nine-month revenue rose 8.7% and net income increased 48.8%. Higher rents, occupancy and the average home count supported revenue. Same Store NOI increased about 11.9% in Q3 and 8.3% for the nine months.
- Q3 interest expense fell 9.5% to $79.4 million; nine-month interest expense fell 5.8% to $243.5 million. Management attributed the decrease mainly to refinancing, mortgage prepayments, lower average debt and lower weighted-average borrowing costs.
- Operating and maintenance costs rose 3.6% in Q3 and 3.2% for the nine months, with higher property taxes, utilities, personnel/services and HOA costs among the drivers. Property management and G&A expenses also increased, including higher incentive and share-based compensation.
- Capital activity included $950 million of unsecured notes issued during 2021, $964.3 million of mortgage-loan principal payments, and $693.4 million of net equity proceeds from public and at-the-market offerings. The company issued 8.7 million shares to settle approximately $198.5 million of convertible notes; another $146.5 million principal amount remained outstanding at quarter-end.
Outlook, commentary, risks and unusual items
- Outlook and capital strategy: The filing provides no specific earnings or rental-growth guidance. Management’s long-term debt targets are net debt of approximately 5.5–6.0 times trailing Adjusted EBITDAre, secured debt below 20% of gross assets, and unencumbered assets above 70% of gross assets. It expects to refinance or repay a significant portion of secured debt maturing in 2024–2026, subject to market access and other conditions.
- Acquisition commitments: As of September 30, the company had $511.6 million of purchase commitments for 1,414 homes, including 520 builder homes. It also had a remaining $34.4 million equity commitment to the Rockpoint joint venture.
- COVID-19 and collections: Q3 revenue collections were 97% of billings, approximately 98% of the company’s historical average. Residents received $23.0 million of rental assistance during the nine months. Management noted that bad debt as a percentage of gross rental income increased to 1.7% from 1.5% for the comparable nine-month period. Eviction, collection and rent-increase restrictions, resident hardship, and future policy changes remain uncertainties.
- Other risks: Management cites interest-rate and refinancing exposure, LIBOR transition, acquisition competition and home prices, property taxes, insurance and HOA costs, supply-chain and labor constraints, turnover and occupancy, and potential COVID-19 effects. About 96.2% of variable-rate borrowings were effectively fixed through swaps; management estimated a 100-basis-point LIBOR increase would add about $2.0 million to annual interest expense, while a decrease would add about $21.0 million under its stated assumptions.
- Inquiries and contingencies: The company was cooperating with congressional inquiries about eviction practices and a Federal Trade Commission information request. Their timing, scope and outcome were not predictable. Management reported no material litigation or material contingent liabilities from uninsured property losses and did not expect routine legal matters to have a material adverse effect.
- Unusual items: Q3 included $4.2 million of net casualty losses and $4.3 million of net gains on equity securities; nine-month equity-security results were a $5.8 million net loss. Nine-month comprehensive income also reflected a $170.3 million other comprehensive gain, primarily related to interest-rate swaps.
Important facts for investors to verify
- Reconcile the company’s reported net debt and leverage targets to its debt definitions, cash exclusions, and trailing Adjusted EBITDAre.
- Review mortgage-loan extension conditions and the maturity schedule, particularly the remaining convertible notes due January 2022 and the large stated 2022 mortgage maturities before extensions.
- Assess whether strong new-lease and renewal rent growth, occupancy, and collections can be sustained as pandemic-related restrictions and rental assistance evolve.
- Track the impact of equity issuance and note conversions on share count, per-share results, and capital available for acquisitions.
- Monitor the congressional and FTC inquiries, LIBOR transition, interest-rate hedges, casualty costs, and acquisition commitments.