Invitation Homes Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing is an annual report, not a standalone Q4 filing; quarterly figures below are summarized and unaudited. Invitation Homes is a single-family rental REIT operating 79,505 homes across 16 markets at year-end.
Financial and operating performance
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Rental revenues and other property income | $1.765 billion | $1.723 billion | +2.4% |
| Total expenses | $1.726 billion | $1.785 billion | -3.3% |
| Net income (loss) | $147.1 million | $(5.0) million | +$152.1 million |
| Net income (loss) per diluted share | $0.27 | $(0.01) | Improved |
| Operating cash flow | $662.1 million | $561.2 million | +18.0% |
| Same Store NOI | $997.1 million | $944.4 million | +5.6% |
| Adjusted FFO | $555.0 million; $1.03 per diluted share | $501.9 million; $0.95 per diluted share | Per-share +8.4% |
- GAAP net income included a $96.3 million net gain on property sales, up from $49.7 million in 2018. Depreciation and amortization remained substantial at $533.7 million.
- Total-portfolio average occupancy was 94.2%, versus 94.6%; average monthly rent was $1,809, up 4.3%. Same Store occupancy increased to 96.3% from 95.8%, and monthly rent rose 4.1% to $1,812.
- Same Store renewal and new-lease net effective rent growth averaged 5.0% and 3.8%, respectively. Same Store turnover declined to 30.1% from 32.5%; average days vacant between residents held at 46.
- Property operating and maintenance expense rose 2.2% to $670.0 million, including higher utilities, property taxes, HOA costs and insurance, partly offset by lower controllable costs and turnover.
Q4 2019 summary
Fourth-quarter rental revenues and other property income were $444.3 million; net income was $52.6 million, or $0.10 per basic and diluted share. The declared quarterly dividend was $0.13 per share. For comparison, Q4 2018 revenue was $432.6 million and net income was $25.7 million, or $0.05 per share.
Debt and liquidity
- Year-end debt was $8.515 billion in aggregate principal, or $8.467 billion net carrying value, down from $9.250 billion net carrying value at year-end 2018. Total assets were $17.393 billion and equity was $8.266 billion.
- Unrestricted cash was $92.3 million; restricted cash was $194.0 million. The $1.0 billion revolving facility was undrawn at year-end.
- Operating cash flow was $662.1 million. Investing activities provided $102.2 million, reflecting property-sale proceeds exceeding acquisition and capital spending; financing activities used $838.1 million. The company paid $276.7 million in dividends and distributions.
- Variable-rate debt totaled $6.771 billion; swaps effectively fixed 96.3% of it. Management estimated a 100-basis-point rate move would change annual interest expense by approximately $2.5 million after hedging.
- The debt maturity schedule showed $4.332 billion of mortgage loans due in 2020, with extensions available on certain loans subject to conditions. The revolving facility matures in 2021, the $1.5 billion term loan in 2022, and $345 million of convertible notes in 2022. The company reported compliance with debt covenants.
Material changes, outlook and risks
- Revenue growth was driven by higher rents and utility reimbursements, partly offset by lower occupancy and a smaller average home count. Interest expense declined 4.3%, primarily due to lower average debt following repayments and refinancing.
- The company acquired 2,153 homes and sold 3,455 during 2019; year-end portfolio size fell to 79,505 from 80,807. It announced a full exit from Nashville and sold 708 homes there in a bulk transaction, with 87 remaining at year-end.
- A new $403.5 million secured term loan was entered into in June 2019, bearing a fixed 3.59% rate for 11 years before becoming floating-rate in year 12. The 2019 convertible notes matured and were substantially settled by issuing 12.6 million common shares. The company also raised $55.3 million net through its at-the-market equity program, with $743.0 million of program capacity remaining.
- Management cited favorable employment, household formation and housing-supply trends in Western U.S. and Florida markets and expected those trends to continue in the near to intermediate term. The filing provides no specific earnings, revenue, NOI or FFO guidance.
- Risks include housing-market and rental-demand weakness, concentrated geographic exposure, rising taxes/insurance/HOA and maintenance costs, competition, resident defaults and turnover, renovation execution, natural disasters and uninsured losses, and reliance on third-party vendors and technology. California’s 2019 Tenant Protection Act limits rent increases and certain tenancy terminations; the company expects an adverse effect on some of its 12,461 California homes.
- LIBOR-referencing debt and hedges require transition to successor benchmarks after LIBOR’s expected phaseout. Management did not expect a material financing-cost impact but noted uncertainty and implementation demands. The company reported no material litigation, no material off-balance-sheet arrangements, and effective internal controls; Deloitte issued unqualified audit opinions.
Most important facts for investors to verify
- How much of reported earnings and cash generation is recurring rental performance versus property-sale gains and other adjustments; review the company’s non-GAAP reconciliations.
- The timing and extension conditions for the substantial 2020 mortgage maturities, and the company’s refinancing capacity and liquidity needs.
- Actual exposure to California rent restrictions and changes in property taxes, insurance, HOA charges and maintenance costs.
- Whether rent growth, occupancy, turnover and Same Store NOI trends persist as acquisition and disposition activity changes the portfolio.
- The effects of leverage, interest-rate hedges and the LIBOR transition, as well as potential dilution from equity issuance and convertible notes.