Invitation Homes Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Invitation Homes is a REIT that owns and operates single-family rental homes. At quarter-end it owned 82,758 homes across 16 markets; the Same Store portfolio comprised 75,493 homes.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $532.3 million | $475.2 million | +12.0% |
| Rental revenue and other property income | $530.2 million | $474.5 million | +11.7% |
| Net income | $93.0 million | $57.7 million | +61.1% |
| Net income per diluted share | $0.15 | $0.10 | Increased |
| Operating cash flow | $235.0 million | $240.6 million | -2.3% |
| Adjusted EBITDAre (non-GAAP) | $316.9 million | $280.2 million | Increased |
| Same Store NOI (non-GAAP) | $325.8 million | $291.6 million | Increased |
| FFO per diluted share (non-GAAP) | $0.38 | $0.32 | Increased |
| Core FFO per diluted share (non-GAAP) | $0.40 | $0.36 | Increased |
| Adjusted FFO per diluted share (non-GAAP) | $0.35 | $0.31 | Increased |
Net income margin was approximately 17.5%, versus 12.1% in the prior-year quarter. Net income included $18.0 million of gains on property sales; FFO and other non-GAAP measures exclude or adjust for certain items and are not substitutes for GAAP results.
Average monthly rent per occupied home increased 8.5% to $2,078 for the total portfolio. Total portfolio average occupancy declined to 95.8% from 97.3%; Same Store occupancy was 98.1%, versus 98.4%. Same Store renewal and new-lease net effective rent growth were 9.7% and 14.8%, respectively. Average time to re-resident a Same Store home increased to 37 days from 28 days.
Cash and cash equivalents were $467.5 million at quarter-end, down from $610.2 million at year-end; restricted cash was $215.7 million. Gross debt was approximately $7.92 billion, balance-sheet debt net of discounts and financing costs was $7.86 billion, and management-reported net debt was $7.25 billion. The $1.0 billion revolving facility was undrawn. Weighted average debt interest rate was 3.34%; 83.6% of outstanding variable-rate borrowings had been converted to fixed rates through swaps as of March 31.
Cash used in investing activities was $289.2 million, including $202.5 million for home acquisitions, $77.2 million for renovations and other property capital expenditures, and $34.7 million invested in unconsolidated joint ventures. Financing activities used $81.5 million, including $134.8 million of dividends and dividend equivalents; $84.0 million of ATM stock proceeds partly offset financing uses.
Changes, outlook and notable items
- Revenue growth reflected higher rents and an increase of 2,354 in average homes owned, partly offset by lower occupancy. Property operating and maintenance expense rose 8.3%, mainly from property taxes, repairs, utilities, staffing and the larger portfolio.
- Interest expense fell 10.8% to $74.4 million, which management attributed primarily to refinancing and lower borrowing costs. Management said gross debt had decreased $151.5 million year over year and the weighted average interest rate had fallen 34 basis points.
- Operating cash flow declined modestly despite improved operating profitability, largely because of year-over-year timing changes in operating assets and liabilities, including property tax payments. Investing cash use increased with higher acquisitions and JV investment and lower home-sale proceeds.
- No specific full-year earnings or operating guidance is provided in the supplied filing text. Management said rental income, net of expenses, is generally expected to support near-term operations and dividends, while describing future financing and operating conditions as uncertain.
- After quarter-end, the company issued $600 million of 4.150% senior notes due 2032. It used the net proceeds to repay the IH 2018-3 mortgage loan and prepay $395.5 million on IH 2018-2, reducing secured floating-rate debt and releasing collateral. The offering and repayments are subsequent events, not quarter-end balances.
- The board declared a $0.22-per-share dividend payable May 27, 2022. In January, the company settled $141.5 million of convertible notes by issuing 6.2 million shares and paying $0.3 million in cash; Q1 ATM share sales generated $84.0 million of net proceeds.
- Commitments include approximately $520 million remaining for 1,682 homes under builder agreements, $259.7 million of remaining JV equity commitments, and $124.6 million of purchase commitments for 313 homes. These obligations compete with dividends, acquisitions and debt service for liquidity.
- Management extended the useful-life range for depreciation of certain building additions placed in service after January 1, 2022, from 7–28.5 years to 7–32 years. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Risks and contingencies
Management highlighted risks from inflation and rising interest rates, rent collection and resident affordability, potential renewed eviction or rent restrictions, property taxes, insurance and HOA costs, labor and supply-chain constraints, acquisition competition, and severe weather and climate-related regulation. COVID-19 impacts had not significantly disrupted the business in Q1, but management said future effects remain uncertain. A 100-basis-point increase in LIBOR, assuming unchanged debt balances, was estimated to increase annual interest expense by $7.5 million after hedges; management also noted LIBOR transition arrangements remain necessary.
The company was responding to congressional inquiries about eviction practices and housing-market activities, and an FTC request for information about its business. Their timing, outcome and scope could not be predicted. The filing reports no material litigation beyond ordinary-course matters and states that the company believed it was in compliance with its debt covenants.
Important facts for investors to verify
- Whether strong lease rent growth can persist while occupancy is lower and re-resident times are longer, and how those trends affect Same Store revenue and NOI.
- Rent collection, bad-debt trends and the effects of rental assistance, eviction rules and other resident protections.
- Post-quarter refinancing effects on floating-rate exposure, collateral, debt maturities, interest expense and covenant headroom.
- Funding requirements and expected returns from builder purchases and JV commitments, alongside dividends and continued acquisitions.
- Progress and potential consequences of the congressional and FTC inquiries; also compare non-GAAP FFO, NOI and EBITDAre with GAAP results and their stated definitions.