Invitation Homes Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Invitation Homes is a REIT that owns, renovates, leases, and operates single-family rental homes. At quarter-end, it owned 80,612 homes across 16 markets; its Same Store portfolio comprised 72,658 homes.
Financial and operating performance
- Q2 revenue: $491.6 million, up 9.3% year over year. Rental revenue and other property income rose 9.1% to $490.6 million.
- Q2 earnings: Net income was $60.7 million versus $43.2 million; net income available to common stockholders was $60.2 million, or $0.11 per diluted share, versus $42.8 million, or $0.08.
- First-half revenue and earnings: Revenue was $966.9 million, up 7.5%; net income was $118.4 million versus $93.5 million. Diluted EPS was $0.21 versus $0.17.
- Property operations: Q2 total-portfolio average occupancy was 97.6% (96.0% prior year), and average monthly rent was $1,943, up 4.0%. Same Store occupancy was 98.3%; Same Store net operating income (NOI) was $285.9 million, up from $263.7 million. First-half Same Store NOI was $565.4 million versus $531.2 million.
- Cash flow: First-half operating cash flow was $470.1 million, up 18.7%. Investing used $282.9 million and financing used $230.9 million. Cash, cash equivalents, and restricted cash totaled $368.1 million at June 30; unrestricted cash was $126.2 million.
- Debt and liquidity: Balance-sheet debt, net of financing costs and discounts, was $8.014 billion; management reported net debt of $7.626 billion. The $1.0 billion revolving facility was undrawn. The company reported compliance with debt covenants.
- Margins and supplemental measures: GAAP operating margin is not stated as a standalone figure. Q2 Adjusted EBITDAre was $288.4 million versus $256.2 million; Adjusted FFO per diluted share was $0.32 versus $0.27. These are non-GAAP measures.
Material changes versus the prior comparable period
- Q2 rental growth reflected higher occupancy, a 4.0% increase in average rent, and more homes owned. Same Store renewal and new-lease net effective rent growth were 5.8% and 13.8%, respectively.
- First-half revenue growth was partly offset by higher bad debt: bad debt as a percentage of gross rental income increased to 2.0% from 1.1%.
- Q2 expenses increased 5.0% to $440.0 million, slower than revenue growth. Property management and general and administrative costs rose, including increased share-based compensation. Interest expense declined 6.2% to $80.8 million, reflecting lower borrowing margins and debt balances.
- First-half acquisition spending increased; the company acquired 895 homes and sold 460, compared with 651 acquired and 900 sold in the prior-year period. First-half investing cash outflow therefore rose substantially.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific full-year earnings or operating guidance. Management said rental income, net of expenses, is generally expected to support near-term operations and dividends, but results remain subject to uncertainty.
- COVID-19-related risks include resident payment difficulties, eviction and rent-increase restrictions, collection uncertainty, and possible effects on occupancy, home access, maintenance, and financing. Q2 revenue collections were 98% of billings, approximately 99% of the company’s historical average.
- Management disclosed congressional inquiries received in July 2021 concerning eviction practices, compliance with federal moratorium requirements, and coordination with residents seeking federal assistance; the company said it was cooperating.
- Debt and rate risks include $6.015 billion of variable-rate borrowings, 95.9% of which was effectively fixed through swaps. LIBOR transition after June 2023 remains a consideration. The company estimated that a 100-basis-point increase in LIBOR would raise annual interest expense by $2.4 million, assuming no debt-balance change.
- The 2022 convertible notes had $345.0 million principal outstanding at quarter-end. After quarter-end, $176.7 million was converted into 7.77 million common shares; the company notified holders it intended to settle conversions in shares. The IH 2018-3 mortgage maturity was extended to July 2022 after quarter-end.
- In May 2021, the company issued $300 million of unsecured notes: $150 million at 2.46% due 2028 and $150 million at 3.18% due 2036. Proceeds were used for general purposes, including repayment of higher-cost securitized debt.
- Other items include a $7.0 million Q2 net loss on equity securities, primarily unrealized, and a $17.9 million gain on property sales. The company reported no material litigation and no material uninsured property-loss contingencies.
Important facts for investors to verify
- Whether elevated new-lease rent growth and high occupancy persist, and how those trends translate into realized rental revenue.
- Collection performance, bad debt, and the impact or expiration of eviction, collection, and rent-increase restrictions; also monitor the congressional inquiries.
- Execution of acquisition commitments ($275.9 million at quarter-end), renovation costs, and the effect of property taxes, insurance, HOA fees, and turnover on NOI.
- Debt maturities, covenant headroom, refinancing plans, LIBOR replacement terms, and dilution from conversions of the 2022 notes.
- Cash available after dividends and capital spending; distinguish unrestricted cash from restricted cash and review non-GAAP measures alongside GAAP results.