Invitation Homes Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. Invitation Homes is a REIT focused on owning and operating single-family rental homes. At quarter-end it owned 79,525 homes in 16 markets.
Financial and operating performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Rental revenue and other property income | $449.8 million | $435.5 million |
| Net income | $50.3 million | $21.2 million |
| Net income per diluted share | $0.09 | $0.04 |
| Operating cash flow | $177.7 million | $193.2 million |
| NOI, total portfolio | $282.9 million | $275.2 million |
| Adjusted EBITDAre | $258.4 million | $248.8 million |
| Core FFO per diluted share | $0.34 | $0.33 |
| Adjusted FFO per diluted share | $0.29 | $0.28 |
Revenue increased 3.3%, primarily from higher average rents and utility reimbursements. Average monthly rent per occupied home rose 3.9% to $1,851; total portfolio average occupancy was 94.4%, versus 94.7%. Same Store occupancy was 96.7%, versus 96.5%, and Same Store NOI increased to $267.0 million from $256.7 million. Approximate total-portfolio NOI margin was 62.9%, compared with 63.2% in Q1 2019.
Net income more than doubled, aided by lower general and administrative costs and interest expense; it included $15.2 million of net gains on property sales. General and administrative expense fell 46.4%, reflecting lower severance, merger and transaction, and offering costs. Property operating and maintenance expense rose 4.1%, driven by repairs, utilities, and property taxes. Operating cash flow declined 8.0%, which management attributed to changes in operating assets and liabilities.
Balance sheet, debt and liquidity
- At March 31, 2020, total assets were $17.6 billion and total equity was $8.0 billion.
- Debt carrying value, net of deferred financing costs and discounts, was $8.64 billion; principal obligations totaled $8.68 billion. Debt included $6.16 billion of mortgage loans, a $403 million secured term loan, a $1.50 billion term loan facility, $270 million drawn on the revolving facility, and $345 million principal amount of 2022 convertible notes.
- Unrestricted cash was $297.1 million; restricted cash was $218.7 million. The company reported $1.027 billion of liquidity, including $730 million undrawn on its $1.0 billion revolving facility. It drew on the revolver in March amid COVID-19 uncertainty.
- Debt maturities were concentrated in 2020–2022, although mortgage and revolver extensions were available subject to conditions. Management said it believed the company was in compliance with debt covenants at quarter-end and through issuance of the statements.
- Cash used in investing activities was $80.7 million, including $137.5 million for acquisitions and $71.3 million for initial renovations and other property capital expenditures, partly offset by $123.3 million of home-sale proceeds. Dividends paid were $81.8 million. The quarterly dividend was $0.15 per share, also declared for payment in May.
Changes, outlook and risks
- Compared with Q1 2019, the company acquired 504 homes versus 208 and sold 484 versus 654. It paused placing new acquisitions under contract in March while continuing to monitor the market. The acquisition pipeline at quarter-end was $56.1 million.
- Management reported no significant COVID-19 disruption during Q1, but identified substantial uncertainty around collections, occupancy, rent growth, home values, operations, access to capital, and debt covenant compliance. The company implemented a voluntary eviction moratorium across its markets and waived late fees in certain situations; it also deferred non-critical service work and evaluated resident payment plans.
- Management reported April rent collections above 95% of the historical average, with fewer than 2% of residents electing to defer part of April rent. For the first five days of May, collections were above 100% of the pre-COVID historical average. These early figures may not predict subsequent periods. Same Store occupancy reached 97.2% in April; blended lease-over-lease rent growth, including concessions, was 3.2%.
- There was no formal full-year earnings or operating guidance in the supplied filing text. Management stated COVID-19 could reduce rent collections, hinder rent increases and property operations, impair assets, and constrain access to financing; the ultimate impact could not be predicted.
- Interest-rate swaps had a $608.0 million net liability fair value at quarter-end, contributing to a $332.9 million Q1 other comprehensive loss. Management estimated $135.6 million would be reclassified into earnings as increased interest expense over the next 12 months. Approximately 94% of variable-rate borrowings were effectively converted to fixed rates through swaps; a 100-basis-point LIBOR move was estimated to change annual interest expense by about $4.1 million.
- Subsequent events included an extension request for the IH 2018-3 mortgage loan and the May dividend declaration. Management reported no material litigation or material change to previously disclosed risk factors other than COVID-19-related risks.
Important facts for investors to verify
- Subsequent rent collection, deferral, delinquency, and eviction developments, distinguishing reported collections relative to historical averages from actual rent collection rates.
- Whether requested mortgage-loan extensions were approved and how maturities, revolver availability, and covenant headroom evolved.
- Actual Same Store occupancy, rent growth, concessions, turnover, and NOI trends after Q1, including whether April and early-May indicators persisted.
- Cash available for operations and dividends, given restricted cash, property capital needs, debt service, and the company’s REIT distribution requirements.
- Potential effects of interest-rate derivatives and LIBOR transition on reported earnings, cash flows, and debt costs.