Invitation Homes Reports First Quarter 2017 Results, Sets 2017 Guidance

DALLAS, May 11, 2017 /PRNewswire/ -- Invitation Homes Inc. (NYSE: INVH) ("Invitation Homes" or the "Company"), a leading owner and operator of single-family homes for lease in the United States, today announced its first quarter 2017 financial and operating results and set full year 2017 guidance.

First Quarter 2017 Highlights

• Total revenues increased 6.3% to $239 million, total property operating and maintenance expenses increased 3.8% to $88 million, net loss increased to $42 million, and total NOI increased 7.9% to $151 million.
• Same Store NOI grew 5.7% year-over-year on 4.7% Same Store revenue growth and a 3.0% increase in Same Store operating expenses.
• Same Store Core NOI margin increased to 64.3% in the first quarter of 2017 from 63.4% in the first quarter of 2016.
• Same Store blended net effective rental rate growth was 4.5% on leases signed in the first quarter of 2017.
• Same Store average occupancy was 95.8%.
• Same Store other property income grew 22.3% year-over-year.
• Raised gross proceeds of $1.8 billion in an initial public offering of common stock, and raised $1.5 billion through a five-year unsecured Term Loan. Proceeds were used to repay all $2.3 billion outstanding on existing credit facilities, and $1.0 billion of mortgage debt. In addition, the Company entered into a new revolving credit facility with capacity of $1.0 billion, which was undrawn throughout the first quarter.
• Subsequent to quarter end, closed a $1.0 billion, ten-year fixed rate mortgage loan, with principal and interest payments guaranteed by Fannie Mae. Net proceeds were used to repay mortgage debt.

Chief Executive Officer John Bartling comments:  "We are excited to report our first results as a public company after executing a successful initial public offering in the first quarter of 2017.  We achieved strong internal NOI growth in the quarter, leveraging our local operating platform to translate favorable supply/demand fundamentals into attractive rent growth and drive incremental efficiencies on the expense side of the business.

Looking ahead, we expect the location and scale of our portfolio to position us for another year of significant internal growth in 2017.  We believe that limited new supply and favorable demand trends should drive continued rent growth in our markets for the foreseeable future, and that our portfolio and operating model offer an attractive opportunity for residents to lease high quality homes in in-fill neighborhoods while enjoying a resident-centric service experience.  In addition to these rent growth tailwinds, we are excited about our opportunity to capture further NOI growth and margin expansion through strategic initiatives related to revenue management, ancillary income, and operating cost efficiency."

Financial Results

Net Loss - Year-over-year, net loss for the three months ended March 31, 2017 was $42.4 million, an increase of $32.4 million from the prior year.  The increase in net loss was primarily due to a $40.0 million increase in share-based compensation related to our initial public offering and $7.6 million of other non-recurring general and administrative cost associated with our initial public offering.  Exclusive of these two items, results improved by $15.3 million from the prior year, primarily due to higher revenues.  For details, see the Condensed Consolidated Statement of Operations in this press release.

Core FFO - Year-over-year, Core FFO for the three months ended March 31, 2017 increased 21.6% to $78.2 million, primarily due to an increase in NOI, driven by higher revenues.  Revenue growth was driven by an increase in average rental rate per home and higher occupancy that more than offset a slight decline in home count.  Lower interest expense, net of non-cash interest, also contributed to the increase in Core FFO.  For a reconciliation of Net Loss to Core FFO, see Schedule 1 of the Supplemental Financial Information.

AFFO - Year-over-year, AFFO for the three months ended March 31, 2017 increased 30.4% to $69.0 million, primarily driven by the increase in Core FFO described above, as well as a 19.1% decline in recurring capex.  For a reconciliation of net loss to AFFO per share, see Schedule 1 of the Supplemental Financial Information.

Operating Results

Same Store NOI - For the Same Store portfolio of 43,224 homes, first quarter 2017 Same Store NOI increased 5.7% year-over-year on Same Store revenue growth of 4.7% and Same Store expense growth of 3.0%.  As a result, Core NOI margin increased to 64.3% in the first quarter of 2017 from 63.4% in the first quarter of 2016.

Same Store Revenues - Same Store revenue growth of 4.7% was driven by a 4.5% increase in average monthly rent and a 22.3% increase in other property income, partially offset by a 0.6% decline in average occupancy to 95.8%.

Same Store Expenses - Same Store expenses increased 3.0% year-over-year, driven primarily by 7.1% higher property taxes.  Personnel, leasing & marketing, and insurance costs were lower year-over-year by 15.9%, 17.3%, and 10.7%, respectively.

Investment Management Activity

In the first quarter of 2017, the Company acquired 121 homes for $31.2 million, including estimated renovation cost, and sold 501 homes for gross proceeds of $77.7 million, resulting in total portfolio home count at March 31, 2017 of 47,918 homes.  Dispositions in the first quarter of 2017 resulted in a gain on sale, net of tax of approximately $14.3 million.

Balance Sheet and Capital Markets Activity

At March 31, 2017, the Company had $1,192 million in availability through a combination of unrestricted cash and undrawn capacity on its credit facility.  The Company's total indebtedness at March 31, 2017 was $5,734 million, consisting of $4,234 million of secured debt and $1,500 million of unsecured debt.

During the quarter, as previously announced, the Company completed an initial public offering of 88,550,000 shares of its common stock at a price of $20.00 per share, resulting in net proceeds of $1,667 million after deducting underwriting discounts and offering expenses payable by the Company.  In addition, the Company entered into a $1,500 million Term Loan Facility with a five-year term, and a $1,000 million revolving credit facility.  With the proceeds from the initial public offering and the Term Loan Facility, and cash on hand, the Company repaid $3,336 million of debt, consisting of the full amount outstanding on its existing credit facilities and IH1 2013-1 securitization, and a portion of its IH1 2014-1 securitization.

In addition, as previously announced, the Company entered into three interest rate swap agreements during the quarter with a combined notional amount of $2,020 million.  Together with two interest rate swap agreements entered into during the fourth quarter of 2016, the aggregate amount of debt that has been swapped from floating rate to fixed rate is $3,520 million.  All of the Company's interest rate swaps became effective on February 28, 2017.

Subsequent to quarter end, the Company closed a ten-year fixed rate securitization loan with a total principal amount of $1,000 million.  The securitization loan is comprised of two components.  Class A certificates representing an indirect interest in the Class A component of the loan, which totaled $944.5 million and represented the entirety of the gross proceeds to the Company, were offered to investors, and feature principal and interest payments that benefit from a guaranty by Fannie Mae.  Class B certificates representing an interest in the Class B component of the loan, which totaled $55.5 million, were retained by the Company to comply with the United States risk retention requirements.  The total cost of funds for the loan is fixed at 4.23%.  Structural features of the transaction include the right to substitute properties (subject to certain loan to value, debt service coverage, and geographic concentration tests being met), as well as the right to release properties from the loan by prepaying the loan in an amount equal to 105% to 120% of the allocated loan amount associated with any properties released (subject to certain loan to value, debt service coverage, and geographic concentration tests being met, as well as the payment of any yield maintenance amounts required).  Additionally, twice during the term of the loan the Company will have the ability to exercise special release rights to release properties from the collateral pool (without any prepayment of the underlying loan) to reset the size of the collateral pool based on asset appreciation and cash flow growth.  Following any such special release, the allocated loan amounts related to the remaining homes in the collateral pool will be resized based on loan-level loan to value and debt service coverage tests, and the remaining collateral pool must continue to meet certain geographic concentration tests.  Net proceeds of approximately $930 million were used to repay the remaining outstanding balance of the IH1 2014-1 securitization and to voluntarily prepay $510 million of the IH1 2014-3 securitization.

After giving effect to the Fannie Mae mortgage loan and associated repayment activity, weighted average years to maturity at March 31, 2017 would have been 4.7 years, with no debt scheduled to mature before September 2019.  78% of debt would have been fixed rate or swapped to fixed rate, and the weighted average interest rate on total debt would have been 3.7%.

Full Year 2017 Guidance

Earnings Conference Call Information

Invitation Homes has scheduled a conference call at 11:00 a.m. Eastern Time on May 12, 2017 to discuss results for the three months ended March 31, 2017.  The domestic dial-in number is 1-888-317-6016, and the international dial-in number is 1-412-317-6016.  The passcode is 5027416.  An audio webcast may be accessed at ir.invitationhomes.com.  A replay of the call will be available through June 12, 2017, and can be accessed by calling 1-877-344-7529 (domestic) or 1-412-317-0088 (international) and using the replay passcode 10105700, or by using the link at ir.invitationhomes.com.

Supplemental Information

The full text of the Earnings Release and Supplemental Information referenced in this release are available on Invitation Homes' Investor Relations website at ir.invitationhomes.com.

Glossary & Reconciliations of Non-GAAP Financial Operating Measures

Financial and operating measures found in the Earnings Release and the Supplemental Information include certain measures used by Invitation Homes management that are measures not defined under accounting principles generally accepted in the United States ("GAAP").  These measures are defined in the Glossary in the Supplemental Information and, as applicable, reconciled to the most comparable GAAP measures.

About Invitation Homes

Invitation Homes is a leading owner and operator of single-family homes for lease, offering residents high-quality homes in desirable neighborhoods across America. With nearly 50,000 homes for lease in 13 markets across the country, Invitation Homes is meeting changing lifestyle demands by providing residents access to updated homes with features they value, such as close proximity to jobs and access to good schools.  The company's mission, "Together with you, we make a house a home," reflects its commitment to high-touch service that continuously enhances residents' living experiences and provides homes where individuals and families can thrive.

Investor Relations Contact

Greg Van Winkle
Phone: 844.456.INVH (4684)
Email: [email protected]

Media Relations Contact

Claire Parker
Phone: 202.257.2329
Email: [email protected] 

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which include, but are not limited to, statements related to the Company's expectations regarding the performance of the Company's business, its financial results, its liquidity and capital resources, and other non-historical statements.  In some cases, you can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "could," "seeks," "projects," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties, including, among others, risks inherent to the single-family rental industry sector and the Company's business model, macroeconomic factors beyond the Company's  control, competition in identifying and acquiring the Company's properties, competition in the leasing market for quality residents, increasing property taxes, homeowners' association fees and insurance costs, the Company's dependence on third parties for key services, risks related to evaluation of properties, poor resident selection and defaults and non-renewals by the Company's residents, performance of the Company's information technology systems, and risks related to the Company's indebtedness. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements.  Additional factors that could cause the Company's results to differ materially from those described in the forward-looking statements can be found under the section entitled "Part I-Item 1A. Risk Factors," of the Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the Securities and Exchange Commission (the "SEC"), as such factors may be updated from time to time in the Company's periodic filings with the SEC, which are accessible on the SEC's website at http://www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in the Company's filings with the SEC. The forward-looking statements speak only as of the date of this press release, and we expressly disclaim any obligation or undertaking to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except to the extent otherwise required by law.

Supplemental Schedule 1

Supplemental Schedule 2(a)

Supplemental Schedule 2(b)

Supplemental Schedule 2(c)

Supplemental Schedule 3(a)

Supplemental Schedule 3(b)

Supplemental Schedule 4

Supplemental Schedule 5(a)

Supplemental Schedule 5(a) (Continued)

Supplemental Schedule 5(b)

Supplemental Schedule 5(b) (Continued)

Supplemental Schedule 5(c)

Supplemental Schedule 6

Supplemental Schedule 7

Supplemental Schedule 8

Supplemental Schedule 9

Glossary and Reconciliations

Glossary:

Average Estimated Invested Basis

Average estimated cost basis on acquisition represents the sum of purchase price, any closing adjustments, and estimated upfront renovation expense for an acquired home or population of homes.

Average Monthly Rent

Average monthly rent represents the average of the contracted monthly rent for occupied properties in an identified population of homes for the relevant period and reflects rent concessions amortized over the life of the related lease.

Average Occupancy

Average occupancy for an identified population of homes represents (i) the number of days that the homes available for lease in such population were occupied, divided by (ii) the total number of available days in the measurement period for the homes in that population.

Core NOI Margin

Core NOI margin for an identified population of homes is calculated by dividing NOI by total revenues, net of resident recoveries attributable to such population.

Days to Re-resident

Days to re-resident for an individual home represents the number of days a home is unoccupied between residents, calculated as the number of days between (i) the date the prior resident moves out of a home, and (ii) the date the next resident is granted access to the same home, which is deemed to be the earlier of (x) the next resident's contractual lease start date and (y) the next resident's move-in date.

EBITDA and Adjusted EBITDA

EBITDA and Adjusted EBITDA are supplemental, non-GAAP measures often utilized to evaluate the performance of real estate companies. We define EBITDA as net income or loss (computed in accordance with GAAP) before the following items: interest expense; income tax expense; and depreciation and amortization. Adjusted EBITDA is defined as EBITDA before the following items: share-based compensation expense; offering related expenses, impairment and other; acquisition costs; gain (loss) on sale of property, net of tax; and interest income and other miscellaneous income and expenses. EBITDA and Adjusted EBITDA are used as supplemental financial performance measures by management and by external users of our financial statements, such as investors and commercial banks. Set forth below is additional detail on how management uses EBITDA and Adjusted EBITDA as measures of performance.

The GAAP measure most directly comparable to EBITDA and Adjusted EBITDA is net income or loss. EBITDA and Adjusted EBITDA are not used as measures of our liquidity and should not be considered alternatives to net income or loss or any other measure of financial performance presented in accordance with GAAP. Our EBITDA and Adjusted EBITDA may not be comparable to the EBITDA and Adjusted EBITDA of other companies due to the fact that not all companies use the same definitions of EBITDA and Adjusted EBITDA. Accordingly, there can be no assurance that our basis for computing these non-GAAP measures is comparable with that of other companies.

See "Reconciliation of Non-GAAP Measures" below for a reconciliation of net loss to EBITDA and Adjusted EBITDA as determined in accordance with GAAP.

Funds from Operations (FFO), Core Funds from Operations (Core FFO), and Adjusted Funds from Operations (AFFO)

FFO, Core FFO, and Adjusted FFO are supplemental, non-GAAP measures often utilized to evaluate the performance of real estate companies. FFO is defined by the National Association of Real Estate Investment Trusts ("NAREIT") as net income or loss (computed in accordance with GAAP) excluding net gains or losses from sales of previously depreciated real estate assets, plus depreciation, amortization and impairment of real estate assets, and adjustments for unconsolidated partnerships and joint ventures.

We believe that FFO is a meaningful supplemental measure of the operating performance of our business because historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time, as reflected through depreciation and amortization. Because real estate values have historically risen or fallen with market conditions, management considers FFO an appropriate supplemental performance measure as it excludes historical cost depreciation and amortization, impairment on depreciated real estate investments, as well as gains or losses related to sales of previously depreciated homes, from GAAP net income or loss.

The GAAP measure most directly comparable to FFO is net income or loss. FFO is not used as a measure of our liquidity and should not be considered an alternative to net income or loss or any other measure of financial performance presented in accordance with GAAP. Our FFO may not be comparable to the FFO of other companies due to the fact that not all companies use the same definition of FFO. Accordingly, there can be no assurance that our basis for computing this non-GAAP measures is comparable with that of other companies.

We believe that Core FFO and Adjusted FFO are also meaningful supplemental measures of our operating performance for the same reasons as FFO and are further helpful to investors as they provides a more consistent measurement of our performance across reporting periods by removing the impact of certain items that are not comparable from period to period. We define Core FFO as FFO adjusted for noncash interest expense related to amortization of deferred financing costs and discounts related to our financing arrangements, noncash interest expense for derivatives, share-based compensation expense, offering related expenses, severance expenses, casualty losses, net, and acquisition costs, as applicable. We define Adjusted FFO as Core FFO less recurring capital expenditures that are necessary to help preserve the value of and maintain functionality of our homes.

The GAAP measure most directly comparable to Core FFO and Adjusted FFO is net income or loss. Core FFO and Adjusted FFO are not used as measures of our liquidity and should not be considered alternatives to net income or loss or any other measure of financial performance presented in accordance with GAAP. Our Core FFO and Adjusted FFO may not be comparable to the Core FFO and Adjusted FFO of other companies due to the fact that not all companies use the same definition of Core FFO and Adjusted FFO. Accordingly, there can be no assurance that our basis for computing this non-GAAP measures is comparable with that of other companies.

Please see Supplemental Schedule 1 for a reconciliation of net loss to FFO, Core FFO, and Adjusted FFO as determined in accordance with GAAP.

Net Effective Rental Rate Growth

Net effective rental rate growth for any home represents the difference between the monthly rent from an expiring lease and the monthly rent from the next lease, in each case, net of any amortized concessions. Leases are either renewal leases, where our current resident chooses to stay for a subsequent lease term, or a new lease, where our previous resident moves out and a new resident signs a lease to occupy the same home.  Blended net effective rental rate growth represents the blended average of net effective rental rate growth for both new and renewal leases.

Net Operating Income (NOI)

NOI is a non-GAAP measure often used to evaluate the performance of real estate companies. We define NOI for an identified population of homes as rental revenues and other property income less property operating and maintenance expense (which consists primarily of property taxes, insurance, HOA fees (when applicable), market-level personnel expenses, repairs and maintenance, leasing costs and marketing). NOI excludes: interest expense; depreciation and amortization; general and administrative expense; property management expense; impairment and other; acquisition costs; (gain) loss on sale of property, net of tax; and interest income and other miscellaneous income and expenses.

The GAAP measure most directly comparable to NOI is net income or loss. NOI is not used as a measure of liquidity and should not be considered as an alternative to net income or loss or any other measure of financial performance presented in accordance with GAAP. Our NOI may not be comparable to the NOI of other companies due to the fact that not all companies use the same definition of NOI. Accordingly, there can be no assurance that our basis for computing this non-GAAP measure is comparable with that of other companies.

We believe that Same Store NOI is also a meaningful supplemental measure of our operating performance for the same reasons as NOI and is further helpful to investors as it provides a more consistent measurement of our performance across reporting periods by reflecting NOI for homes in our Same Store portfolio.

See "Reconciliation of Non-GAAP Measures" below for a reconciliation of net loss to NOI for our total portfolio and NOI for our Same Store portfolio as determined in accordance with GAAP.

Northern California

Northern California includes Modesto, CA, Napa, CA, Oakland-Fremont-Hayward, CA, Sacramento-Arden-Arcade-Roseville, CA, San Jose-Sunnyvale-Santa Clara, CA, Stockton-Lodi, CA, Vallejo-Fairfield, CA and Yuba City, CA.

PSF

PSF means per square foot.

Same Store / Same Store Portfolio

Same Store or Same Store portfolio includes, for a given reporting period, homes that have been stabilized (defined as homes that have (i) completed an upfront renovation and (ii) entered into at least one post-renovation Invitation Homes lease) for at least 90 days prior to the first day of the prior-year measurement period and excludes homes that have been sold and homes that have been designated for sale but have not yet entered into a written sale agreement during such reporting period. Same Store portfolios are established as of January 1st of each calendar year. Therefore, any home included in the Same Store portfolio will have satisfied the conditions described in clauses (i) and (ii) above prior to October 3rd of the year prior to the first year of the comparison period. We believe presenting information about the portion of our portfolio that has been fully operational for the entirety of a given reporting period and its prior year comparison period provides investors with meaningful information about the performance of our comparable homes across periods and about trends in our organic business.

South Florida

South Florida includes Fort Lauderdale-Pompano Beach-Deerfield Beach, FL, Key West, FL, Miami-Miami Beach-Kendall, FL and West Palm Beach-Boca Raton-Delray Beach, FL.

Southern California

Southern California includes Anaheim-Santa Ana-Irvine, CA, Los Angeles-Long Beach-Glendale, CA, Oxnard-Thousand Oaks-Ventura, CA, Riverside-San Bernardino-Ontario, CA and San Diego-Carlsbad-San Marcos, CA.

Total Cost to Maintain

Total cost to maintain a home represents the sum of average maintenance and turnover expense per home (gross) and average capital expenditures per home, in each case before giving effect to any offsetting income received directly from residents or withheld out of resident security deposits.

Total Homes / Total Portfolio

Total homes or total portfolio refers to the total number of homes we own, whether or not stabilized, and excludes any properties previously acquired in purchases that have been subsequently rescinded or vacated.

Turnover Rate

Turnover rate represents the number of instances that homes in an identified population become unoccupied in a given period, divided by the number of homes in such population. To the extent the measurement period shown is less than 12 months, the turnover rate will be reflected on an annualized basis.

Reconciliation of Non-GAAP Measures:

SOURCE Invitation Homes