Invitation Homes Inc. annual report, FY2018

Invitation Homes Inc. — 2018 Form 10-K

Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing; quarterly data are summarized below. Invitation Homes is a single-family rental REIT operating 80,807 homes across 17 U.S. markets at year-end.

Financial and operating performance

Metric	2018	2017
Rental revenue and other property income	$1.723 billion	$1.054 billion
Total expenses	$1.785 billion	$1.193 billion
Net loss attributable to common stockholders	$4.9 million loss; $(0.01) per share	$105.3 million loss; $(0.26) per share for the post-IPO period
Net cash from operating activities	$561.2 million	$263.0 million
Net cash from investing activities	$63.0 million	$64.7 million
Net cash used in financing activities	$680.8 million	$331.3 million
Debt, principal amount	$9.338 billion	Not stated on a comparable principal basis in the cited summary data
Cash and cash equivalents at year-end	$144.9 million	$179.9 million

Revenue grew 63.4%, primarily reflecting the full-year contribution of homes acquired in the November 2017 Starwood Waypoint Homes merger, a higher average home count, higher rents and occupancy, and increased utility reimbursements. Average homes owned rose to 82,171 from 52,275.
GAAP results remained loss-making, but the loss narrowed substantially. Depreciation and amortization was $560.5 million, a major expense; gains on property sales were $49.7 million.
Total portfolio average occupancy was 94.6%. Same-store occupancy was 95.9%, versus 95.4%; same-store average monthly rent was $1,741, up 3.9%. Same-store NOI was $914.9 million versus $876.7 million, an increase of approximately 4.4%.
Renewal and new-lease net effective rent growth were 4.8% and 3.3%, respectively, both below 2017 rates. Same-store turnover declined to 32.7% from 35.8%; average vacancy between residents was 47 days versus 46 days.
Core FFO per diluted share was $1.18 versus $1.04; Adjusted FFO per diluted share was $0.95 versus $0.88. Adjusted FFO deducts recurring capital expenditures and is a non-GAAP measure.
Cash from operations increased 113.4%. The company paid $230.1 million in dividends during 2018, or $0.44 per share declared. A $0.13-per-share dividend for early 2019 was declared after year-end.

Debt, liquidity and capital

Year-end debt carrying value was $9.250 billion; principal debt was $9.338 billion. Mortgage loans accounted for $7.263 billion of principal and the term loan for $1.500 billion. The $1.0 billion revolving facility was undrawn at year-end.
Variable-rate debt totaled $7.768 billion; swaps effectively fixed 78.8% of that exposure. Management estimated a 100-basis-point LIBOR increase would raise annual interest expense by $14.3 million after hedges.
Year-end restricted cash was $215.1 million, much of it held for security deposits and lender-controlled reserves, and is not equivalent to freely available cash. Mortgage loans were secured by 41,644 homes.
Mortgage refinancing and repayments were substantial: the company issued $4.234 billion of mortgage loans and repaid $4.580 billion during the year. Contractual debt maturities include $2.294 billion in 2019, including $230 million of convertible notes, and significant mortgage maturities in 2020.

Material changes, outlook and risks

The merger with Starwood Waypoint Homes added 34,670 homes in late 2017 and materially affects year-over-year financial comparisons. The company sold 2,701 homes in 2018 and acquired 938; year-end portfolio size declined from 82,570 to 80,807.
Management expected merger integration and associated cost savings to be substantially complete by mid-2019. It described Western U.S. and Florida demand, employment and household formation trends as favorable, and expected those trends to continue in the near to intermediate term. The filing provides no numerical earnings or revenue guidance.
Key risks include rent and occupancy competition, resident defaults and turnover, property-tax, HOA, insurance and repair-cost increases, concentrated exposure to particular markets and natural disasters, integration execution, third-party service-provider reliance, and real-estate valuation uncertainty.
Leverage, variable interest rates, refinancing access, debt covenants and upcoming maturities pose material financial risks. The company also cautions that rent regulation, landlord-tenant laws and REIT qualification requirements could constrain operations or distributions.
Hurricane-related losses and damages were $8.0 million in 2018, compared with $21.5 million in 2017. Merger and transaction expenses were $16.9 million in 2018; severance costs were also incurred.
CEO Frederick C. Tuomi’s departure became effective in January 2019; the company disclosed approximately $4.4 million of expected first-quarter 2019 severance expense. The SEC notified the company in February 2019 that its investigation of certain single-family rental securitizations had concluded and that it did not intend to recommend enforcement action.
The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management reported effective disclosure controls and internal controls as of year-end.

Important facts for investors to verify

How much of reported growth reflects merger-related portfolio scale versus organic same-store performance, and whether integration savings were achieved on schedule.
The trajectory of renewal and new-lease rent growth, occupancy, turnover, vacancy duration and same-store NOI.
Debt maturity and refinancing plans, covenant headroom, interest-rate hedge coverage, and the effect of LIBOR replacement on floating-rate debt.
Cash available for dividends after recurring capital expenditures, debt service and REIT distribution requirements; compare GAAP losses with FFO and Adjusted FFO definitions.
Exposure to property taxes, insurance, HOA costs, weather losses, and the concentration of pledged homes and restricted cash.
Post-year-end CEO transition costs and other integration, severance or unusual expenses.