Invitation Homes Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Invitation Homes is a REIT that owns and operates single-family rental homes; its portfolio comprised 80,232 homes across 17 markets at quarter-end.
Financial results and operating metrics
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Rental revenue and other property income | $443.3 million | $434.3 million | $1,320.4 million | $1,290.3 million |
| Net income (loss) attributable to common stockholders | $33.7 million | $1.0 million | $93.5 million | $(30.2) million |
| Basic and diluted EPS | $0.06 | — | $0.18 | $(0.06) |
| Operating cash flow | Not separately provided for the quarter | $590.8 million | $513.1 million | |
| Same Store NOI | $247.7 million | $237.1 million | $757.4 million | $713.8 million |
| Adjusted FFO | $123.1 million | $116.4 million | $404.3 million | $369.7 million |
- Q3 revenue rose 2.1%; nine-month revenue rose 2.3%. Same Store rent growth and occupancy supported results: Q3 Same Store average monthly rent increased 4.0% to $1,825 and occupancy was 95.9%, versus 95.5% a year earlier. Nine-month rent increased 4.1% to $1,804 and occupancy was 96.3%, versus 95.8%.
- Total expenses declined 2.9% in Q3 and 3.7% for the nine-month period, with lower interest, depreciation and amortization, and general and administrative costs. Property operating and maintenance expense increased 3.2% in Q3 and 1.2% year to date, reflecting higher utilities, taxes, insurance and HOA costs, partly offset by operating efficiencies.
- Reported earnings benefited from property-sale gains: $20.8 million in Q3 and $64.6 million for nine months, compared with $11.5 million and $21.0 million, respectively, in 2018. Nine-month home sales were 2,101 versus 1,012.
- At September 30, assets were $17.66 billion and total equity was $8.18 billion. Property investments, net, were $16.22 billion.
- Debt carrying value was $8.66 billion, versus approximately $9.25 billion at December 31, 2018. Unrestricted cash was $81.5 million; restricted cash of $244.9 million is subject to loan, deposit and reserve restrictions. The $1.0 billion revolving facility was undrawn.
- Nine-month cash flow: operating activities provided $590.8 million; investing activities used $26.6 million; financing activities used $597.9 million. Dividends paid were $206.8 million. Cash, cash equivalents and restricted cash totaled $326.4 million at period-end.
Material changes and financing
- The company issued a $403.5 million secured term loan in June, bearing 3.59% fixed interest for 11 years and maturing in 2031; it is secured by 3,326 homes. Proceeds supported debt repayment and other corporate purposes.
- The $230 million 2019 Convertible Notes matured in July and were substantially settled with 12.55 million common shares. Common shares outstanding increased to 538.4 million from 520.6 million at year-end 2018. The remaining $345 million convertible notes mature in 2022.
- Mortgage principal was $6.47 billion. Scheduled maturities include $680 million for the remainder of 2019 and $3.85 billion in 2020. The company requested an extension of the IH 2017-2 loan maturity from December 2019 to December 2020; approval is not stated in the filing.
- The company established an at-the-market equity program of up to $800 million. It sold 671,020 shares for net proceeds of $17.7 million during Q3; $781.2 million remained available.
- Interest-rate swaps covered 93.5% of variable-rate debt. Management estimated that a 100-basis-point LIBOR change would alter annual interest expense by about $4.5 million, assuming debt balances remain unchanged.
Outlook, risks and unusual items
- No specific earnings or operating guidance was provided. Management said it expects favorable supply and demand trends in Western U.S. and Florida markets to continue in the near to intermediate term; those regions generated 70.4% of Q3 rental revenue.
- Management cited rental rates and occupancy, resident turnover and re-leasing time, property taxes, insurance and HOA costs, acquisition competition, renovation costs, interest rates and debt as key drivers and risks. Summer seasonality can increase move-outs and certain operating expenses.
- Q3 comprehensive loss attributable to common stockholders was $41.6 million, despite positive net income, largely reflecting a $71.7 million unrealized loss on interest-rate swaps recorded in other comprehensive income. Year-to-date other comprehensive loss was $331.2 million.
- There were 1,400 homes classified as held for sale at September 30, versus 738 at year-end 2018. Impairment losses on properties were $11.3 million for the nine months. The company reported no material off-balance-sheet arrangements, no material litigation expected to adversely affect the financial statements, and compliance with debt covenants.
- Q3 dividend declared was $0.13 per share. Management stated that distributions are at the board’s discretion and REIT status generally requires annual distribution of at least 90% of taxable income.
Investor verification priorities
- Confirm the extension status and refinancing plan for the $680 million near-term mortgage maturity and the substantial 2020 maturities.
- Assess whether rent growth and occupancy can offset rising property-level costs and the slightly lower total-portfolio occupancy.
- Separate recurring operating performance from gains on home sales and other nonrecurring or noncash items; review the company’s non-GAAP NOI, FFO and adjusted measures alongside GAAP results.
- Evaluate liquidity available after restricted cash, dividend requirements, property spending and planned acquisitions; consider potential dilution from the remaining ATM program.
- Review swap valuation volatility and sensitivity to LIBOR, along with the collateral, extension and covenant terms of secured debt.