Invitation Homes Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022; comparisons are with the same periods in 2021. Invitation Homes is a REIT that owns and operates single-family rental homes. At quarter-end, it owned 83,093 homes across 16 markets.
Financial and operating performance
| Metric | Q2 2022 | Q2 2021 | Change |
|---|---|---|---|
| Total revenue | $557.3 million | $491.6 million | +13.4% |
| Net income | $111.5 million | $60.7 million | +83.7% |
| Net income per diluted share | $0.18 | $0.11 | +$0.07 |
| Same Store NOI (non-GAAP) | $334.4 million | $297.5 million | +12.4% |
| Core FFO per diluted share (non-GAAP) | $0.42 | $0.37 | +13.5% |
| Adjusted FFO per diluted share (non-GAAP) | $0.36 | $0.32 | +12.5% |
For the six months, revenue was $1.090 billion, up 12.7%; net income was $204.5 million, up 72.7%; and diluted EPS was $0.33 versus $0.21. Same Store NOI increased 12.2% to $659.6 million. Core FFO per diluted share was $0.82 versus $0.73, and Adjusted FFO was $0.71 versus $0.63.
- Q2 rental revenue and other property income rose 13.0% to $554.5 million. Average monthly rent per occupied home increased 9.7% to $2,132, while average occupancy declined to 96.2% from 97.6%. Same Store occupancy was 98.0%, versus 98.4%, and average monthly rent was $2,124, up 9.4%.
- Same Store renewal and new-lease net effective rent growth was 10.2% and 16.7%, respectively. Same Store average days to re-resident increased to 32 from 23; annualized turnover declined to 23.3% from 27.0%.
- Q2 property operating and maintenance costs increased 8.7% to $190.7 million, with higher property taxes, repairs, utilities, and administrative costs. Interest expense decreased 7.3% to $74.8 million, primarily reflecting refinancing and lower gross debt than a year earlier.
- Q2 net income included a $27.5 million gain on property sales. Net income also reflects depreciation and other items; it is not equivalent to recurring operating performance.
Cash flow, debt, and liquidity
- For the six months, operating cash flow was $552.1 million, compared with $470.1 million. Investing activities used $580.7 million, including $416.3 million for home acquisitions, $72.8 million for initial renovations, and $121.6 million invested in unconsolidated joint ventures. Financing activities used $310.6 million.
- At June 30, unrestricted cash was $272.7 million and restricted cash was $206.9 million. Gross debt was $7.826 billion; balance-sheet debt, net of discounts and financing costs, was $7.754 billion. Management reported net debt of $7.403 billion using its stated adjustments.
- The $1.0 billion revolving facility was undrawn; $575 million of delayed-draw capacity remained under the 2022 Term Loan Facility. The company reported that it was in compliance with debt covenants. It had no debt reaching final maturity before March 2025 if applicable extension options are exercised.
- Variable-rate debt totaled $3.878 billion, of which 98.5% was effectively fixed through swaps. Management estimated a 100-basis-point rate change would affect annual interest expense by approximately $0.6 million, assuming debt balances remained unchanged.
- Cash and cash equivalents fell from $610.2 million at year-end 2021 to $272.7 million, mainly due to acquisitions, joint-venture investments, and net debt repayments. The company issued $600 million of 4.15% senior notes due 2032 and a $150 million term loan due 2029, and repaid $845.2 million of mortgage loans during the first half.
Material changes, outlook, and risks
- Rental growth and an increase in the average number of homes supported revenue growth, partially offset by lower occupancy. Management attributed cost increases to portfolio growth and inflation in taxes, repairs, utilities, materials, and services.
- The company acquired 1,029 homes and sold 317 in the first half. Binding homebuilder agreements cover 2,029 homes over five years, with approximately $620 million of estimated remaining commitments. Remaining equity commitments to joint ventures were $173.3 million.
- Management said rental income, net of expenses, is generally expected to support near-term operations and dividends. The filing provides no numeric earnings, rent-growth, or acquisition guidance.
- Management cited inflation, rising interest rates, weaker economic conditions, financial-market uncertainty, geopolitical tensions, COVID-19, property-tax and insurance costs, supply and labor constraints, and weather and climate risks as potential pressures on operations, property values, costs, and access to capital. Summer seasonality can increase move-outs, turnover costs, and maintenance expense.
- Congressional inquiries into eviction practices and housing-market activities, and an FTC information request, remained ongoing; the company said their timing, outcome, and scope could not be predicted. Management did not believe ordinary-course legal matters would materially affect the financial statements.
- For additions to properties placed in service after January 1, 2022, the company extended the upper end of the estimated useful-life range for building components from 28.5 to 32 years. It stated this policy change was not material to the interim statements. The $141.5 million 2022 Convertible Notes balance was settled in January through issuance of 6.2 million shares and a small cash payment.
Important facts for investors to verify
- Whether strong rent increases can continue while occupancy is lower and re-resident times are longer.
- Whether property-tax, insurance, repair, renovation, and other inflation-sensitive costs erode NOI growth.
- Funding needs and returns for the $620 million homebuilder commitments and $173.3 million of remaining joint-venture commitments.
- Debt refinancing, variable-rate exposure, extension conditions, and transition of LIBOR-linked debt and hedges to successor rates.
- Developments and potential consequences of the ongoing congressional inquiries and FTC request.
- Whether reported FFO, Core FFO, Adjusted FFO, and NOI trends are supported by GAAP results and recurring cash generation; these are non-GAAP measures and may not be comparable across companies.