Invitation Homes Inc. — Q1 2023 Form 10-Q
Business context and reporting period
Invitation Homes is a REIT that owns and operates single-family rental homes. This unaudited filing covers the three months ended March 31, 2023, compared with Q1 2022. At quarter-end, the company owned 83,010 homes across 16 markets; its Same Store portfolio comprised 77,016 homes.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Total revenue | $589.9 million | $532.3 million; up 10.8% |
| Rental revenue and other property income | $586.5 million | $530.2 million; up 10.6% |
| Net income | $120.6 million | $93.0 million; up 29.7% |
| Diluted net income per share | $0.20 | $0.15 |
| Same Store NOI | $351.8 million | $335.1 million; up approximately 5.0% |
| Core FFO per diluted share | $0.44 | $0.40 |
| Adjusted FFO per diluted share | $0.38 | $0.35 |
| Cash from operating activities | $317.8 million | $235.0 million |
Average occupancy for the total portfolio was 97.2%, versus 95.8% a year earlier. Average monthly rent per occupied home rose 8.7% to $2,259. Same Store occupancy was 97.8%, compared with 98.2%; Same Store average monthly rent increased 8.5% to $2,254. Same Store NOI was approximately 64.5% of rental revenue, versus approximately 63.2% in Q1 2022.
Total expenses rose 9.0% to $493.4 million. Property operating and maintenance costs increased 14.4% to $208.5 million, reflecting higher property taxes, utilities, administrative and turnover costs, as well as a larger average portfolio. Interest expense increased 4.9% to $78.0 million. Net income also benefited from a $29.7 million gain on property sales, up from $18.0 million in Q1 2022.
Cash, debt and liquidity
Cash and cash equivalents were $325.3 million at March 31, 2023, up from $262.9 million at year-end; cash, cash equivalents and restricted cash totaled $528.3 million. Investing activities used $69.8 million and financing activities used $173.6 million, including $160.3 million of dividends and dividend equivalents paid. The quarterly dividend declared was $0.26 per share.
Debt totaled $7.83 billion gross, or $7.77 billion net of unamortized discounts and financing costs. Management reported net debt of $7.39 billion using its stated adjustments. The $1.0 billion revolving facility was undrawn. The weighted average interest rate on total debt was 3.63%; 98.4% of outstanding variable-rate borrowings had been effectively fixed through swaps. The company reported compliance with debt covenants.
Material changes, outlook and risks
- Rental growth supported higher revenue, but rent growth on new leases slowed: total-portfolio net effective growth was 5.4% for new leases and 7.8% for renewals, compared with 14.7% and 9.6%, respectively, a year earlier.
- Same Store turnover increased to an annualized 20.4% from 18.7%, and average days to re-resident rose to 40 from 37, contributing to lower Same Store occupancy.
- Acquisitions declined to 181 homes from 518; dispositions increased to 284 from 141. The filing provides no specific earnings or revenue guidance for the remainder of 2023.
- Management said bad debt expense remained elevated and expected it to stay above pre-COVID averages, citing reduced availability of rent assistance and local restrictions on lease-compliance options. Inflation in labor, materials, property taxes, insurance and other costs, rising interest rates, resident payment capacity, and financial-market uncertainty remain risks.
- After quarter-end, on April 18, the company amended its credit facility and converted LIBOR-indexed swaps to SOFR. IH 2018-4 was still LIBOR-indexed at filing and was expected to transition when LIBOR publication ended June 30, 2023. Management did not expect the transition to materially affect the financial statements.
- Binding builder agreements cover 2,233 homes over seven years, with approximately $720 million of remaining commitments; additional joint-venture equity commitments were $128.1 million. Hurricane Ian and Nicole repair costs included a $6.8 million accrual and a $6.0 million insurance receivable at quarter-end.
- The company was cooperating with congressional, FTC and SEC inquiries, including an SEC inquiry concerning building codes and permitting. Management reported no material litigation and no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether rent growth, occupancy and collection trends remain sufficient to offset elevated operating costs and slower new-lease growth.
- How much of reported net-income growth reflects recurring rental operations versus property-sale gains; review GAAP results alongside NOI, Core FFO and Adjusted FFO.
- Debt maturity and refinancing needs, including the assumptions behind extension options, interest-rate hedges and the company’s net-debt calculation.
- Funding needs and returns associated with the $720 million builder commitments, joint-venture commitments and hurricane repairs.
- Developments or potential consequences from the SEC, FTC and congressional inquiries, and the completed LIBOR-to-SOFR transition.