Invitation Homes Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Invitation Homes is a REIT focused on owning, renovating, leasing, and operating single-family rental homes. It owned 83,148 homes across 16 markets at quarter-end; its Same Store portfolio comprised 74,881 homes.
Financial and operating results
| Metric | Q3 2022 | Q3 2021 | Change |
|---|---|---|---|
| Total revenue | $568.7 million | $509.5 million | +11.6% |
| Net income | $79.4 million | $69.5 million | +14.3% |
| Diluted EPS | $0.13 | $0.12 | Up $0.01 |
| Total portfolio NOI (non-GAAP) | $361.6 million | $323.7 million | +11.7% |
| Same Store NOI (non-GAAP) | $328.4 million | $302.4 million | +8.6% |
| Adjusted FFO (non-GAAP) | $211.1 million | $184.4 million | +14.5% |
| Adjusted FFO per diluted share | $0.34 | $0.32 | Up $0.02 |
For the nine months, revenue increased 12.3% to $1.658 billion, net income rose 51.1% to $283.9 million, and diluted EPS was $0.46 versus $0.33. Adjusted FFO was $645.1 million, or $1.05 per diluted share, compared with $547.1 million, or $0.95 per share.
Q3 rental revenue and other property income grew 11.3% to $565.4 million. Average monthly rent per occupied home rose 9.9% to $2,189, while total portfolio average occupancy fell to 96.0% from 97.0%. Same Store occupancy was 97.5% versus 98.1%; Same Store rent per occupied home increased 9.7% to $2,181. Renewal lease rent growth was 10.2%, and new lease growth was 15.6% for Same Store homes. Same Store homes took an average 35 days to re-resident, versus 25 days a year earlier.
Q3 property operating and maintenance expense rose 10.5% to $203.8 million, while interest expense declined 3.7% to $76.5 million. Depreciation and amortization increased 6.5% to $160.4 million. Impairment and other expense was $20.0 million, including $19.9 million of net casualty losses. The company reported $24.0 million of gains on property sales, compared with $13.0 million a year earlier; gains on sales contributed to reported net income.
Cash flow, debt, and liquidity
- For the first nine months, operating cash flow was $903.9 million, up 15.5% year over year. Investing activities used $756.1 million; financing activities used $450.8 million. Cash, cash equivalents, and restricted cash ended at $515.9 million, including $300.3 million of unrestricted cash.
- Debt carrying value was $7.753 billion at September 30; management reported net debt of $7.364 billion. Gross debt was $7.821 billion, with a weighted-average interest rate of 3.59% and average term of 5.6 years, assuming available extensions are exercised.
- The $1.0 billion revolving facility was undrawn, and $575 million remained available under the 2022 term loan facility. Management stated there was no debt reaching final maturity before March 2025 if extension options are exercised; the debt maturity schedule shows $1.223 billion of mortgage loans due in 2023 under extensions already exercised.
- Variable-rate debt totaled $3.873 billion, of which 98.6% was effectively fixed through swaps. The company estimated a 100-basis-point rate change would affect annual interest expense by approximately $0.5 million, assuming debt balances and other factors remained unchanged.
- Q3 dividend declared was $0.22 per share. The board declared another $0.22-per-share dividend on October 20, 2022, payable November 23, 2022.
Material changes and notable items
- Rental revenue growth reflected higher rents and a larger average home count, partially offset by lower occupancy and a 70-basis-point increase in bad debt as a share of rental revenue. Management attributed bad-debt pressure partly to longer resolution periods for residents behind on rent.
- The company issued $600 million of 4.15% senior notes due 2032 and borrowed $150 million under a new term loan facility due 2029. Proceeds and operating cash were used in part to repay $849.7 million of mortgage debt, including full repayment of two securitizations.
- The 2022 Convertible Notes were settled in January through issuance of 6.2 million common shares and a nominal cash payment. Shares outstanding increased to 611.4 million from 601.0 million at year-end 2021.
- Investments in unconsolidated joint ventures increased to $286.9 million from $130.4 million at year-end. The company reported a $5.9 million share of JV losses for the nine-month period, versus $0.6 million of income a year earlier.
- Management extended the useful-life range used to depreciate building additions placed in service after January 1, 2022, from 7–28.5 years to 7–32 years.
Outlook, risks, and contingencies
The filing provides no specific earnings or revenue guidance. Management said it expects rental income, net of expenses, generally to fund operations and near-term dividends. Its stated long-term debt objectives are net debt of approximately 5.5–6.0 times trailing-twelve-month Adjusted EBITDAre, secured debt below 20% of gross assets, and unencumbered assets above 70% of gross assets. These are targets, not assurances.
- Management cited inflation, rising interest rates, labor and supply-chain constraints, weaker economic conditions, geopolitical uncertainty, and potential resident payment stress as risks to costs, occupancy, collections, acquisition activity, property values, and financing access.
- Hurricane Ian damaged properties in Florida and the Carolinas. The company accrued an estimated $19.0 million of losses; additional damage and costs may emerge. Some losses may be insured, subject to deductibles and limits.
- Binding homebuilder agreements cover 2,212 homes over five years, with estimated remaining commitments of approximately $700 million. Remaining equity commitments to joint ventures were $128.3 million.
- A global settlement of a multistate putative class action concerning resident late fees was estimated at $7.4 million and remained subject to court approval. The company also reported ongoing congressional inquiries and an FTC information request; it said outcomes and timing could not be predicted.
- LIBOR-based debt and derivatives require transition to replacement benchmark rates after LIBOR publication ends. The company did not expect a material adverse effect on financing costs but noted the transition outcome remained uncertain.
- The company reported compliance with debt covenants and effective disclosure controls as of September 30, 2022. It stated routine legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether rent growth can continue while occupancy, bad debt, and time to re-resident remain under pressure.
- Actual Hurricane Ian repair costs, insurance recoveries, and any changes to the initial loss estimate.
- Progress and funding needs for the $700 million homebuilder commitments and $128.3 million of JV commitments, alongside reported JV losses.
- Debt maturities, refinancing plans, floating-rate exposure, and the transition of LIBOR-linked instruments.
- Court approval and final cost of the late-fee settlement, and any material developments in regulatory or congressional inquiries.
- Non-GAAP measures such as NOI, Adjusted FFO, and Adjusted EBITDAre are company-defined supplemental measures and should be assessed alongside GAAP results.