Invitation Homes Reports First Quarter 2018 Results

DALLAS, May 14, 2018 /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 2018 financial and operating results. 

First Quarter 2018 Highlights

• Year-over-year, total revenues increased 77.5% to $424 million, total property operating and maintenance expenses increased 82.3% to $161 million, and net loss attributable to common shareholders decreased to $17 million.
• Core FFO per share increased 13.7% year-over-year to $0.29 per share in the first quarter of 2018.
• Same Store NOI grew 3.6% year-over-year on 4.1% Same Store Core revenue growth and 5.1% Same Store Core operating expense growth.
• Continued strong Same Store renewal rent growth of 4.9% and seasonally accelerating new lease rent growth of 2.5% drove Same Store blended rent growth of 4.0% in the first quarter of 2018.
• Same Store average occupancy was 95.7% in the first quarter of 2018.
• As previously announced, in February 2018, Invitation Homes closed a $0.9 billion, seven-year (inclusive of extension options) mortgage loan with total cost of funds of LIBOR + 124 basis points.  Subsequent to quarter end, in May 2018 the Company closed a $1.1 billion, seven-year (inclusive of extension options) mortgage loan with total cost of funds of LIBOR + 138 basis points.  Net proceeds from the two transactions were used to repay existing floating rate secured debt.  After giving effect to these refinancings, the Company's weighted average maturity has been extended to 5.0 years, and annual run-rate cash net interest expense savings are expected to be approximately $14 million.
• Subsequent to quarter end, the Company closed $2.5 billion of forward-starting interest rate swaps.  After giving effect to these swaps, and based on the Company's current capital structure, the percentage of debt that will be fixed rate or swapped to fixed rate increases to 87% in January 2019.
• Merger integration remains on track, and the Company continues to expect $45 - $50 million of annual run-rate cost synergies by mid-2019, with additional upside possible as best practices are implemented across the organization.

Chief Executive Officer Fred Tuomi comments:  "Fundamentals in our markets remain favorable, and we believe that the quality of our locations, homes, and resident service continue to differentiate Invitation Homes in the marketplace.  We achieved another strong quarter of approximately 5% renewal rent growth in first quarter, while turnover moved even lower to 7.6%.  As expected, new lease rent growth improved seasonally in first quarter and continues to grow as we enter the peak leasing season.  We believe that we remain on track to achieve our 2018 guidance, including 5 - 6% Same Store NOI growth for the full year 2018.

"The merger integration also continues to progress according to plan, and we remain confident in our ability to achieve the synergies we committed to residents, team members, and shareholders."

Financial Results

Net Loss

Net loss attributable to common shareholders for the three months ended March 31, 2018 was $0.03 per share, compared to $0.08 per share for the prior year period during which the Company was public from February 1, 2017 to March 31, 2017.

Core FFO

Year-over-year, Core FFO for the three months ended March 31, 2018 increased 13.7% to $0.29 per share, primarily due to an increase in NOI per share, driven by higher revenues, and lower cash interest expense per share.

AFFO

Year-over-year, AFFO for the three months ended March 31, 2018 increased 7.3% to $0.24 per share, primarily driven by the increase in Core FFO described above.

Operating Results

Same Store NOI

For the Same Store portfolio of 72,109 homes, first quarter 2018 Same Store NOI increased 3.6% year-over-year on Same Store Core revenue growth of 4.1% and Same Store Core expense growth of 5.1%.

Same Store Core Revenues

First quarter 2018 Same Store Core revenue growth of 4.1% was driven by a 4.0% increase in average monthly rent and a 10.0% increase in other property income, net of resident reimbursements, partially offset by a 0.1% decline in average occupancy to 95.7%.

Same Store Core Operating Expenses

First quarter 2018 Same Store Core operating expenses increased 5.1% year-over-year, driven primarily by a 7.3% increase in property taxes and a 24.5% increase in repair and maintenance expenses.  The increase in repair and maintenance expenses was primarily one-time in nature, and related to a timing delay in completing routine, non-storm related service requests in markets impacted by the September 2017 hurricane.  Service requests related to hurricane damage were prioritized in the fourth quarter of 2017, while other non-critical service requests that otherwise would have been resolved last year were completed in the first quarter of 2018.  Harsher winter weather in the first quarter of 2018 compared to the first quarter of 2017 also contributed to higher repair and maintenance expenses in some markets.

Investment Management Activity

Invitation Homes acquired 190 homes for $52.6 million in the first quarter of 2018, including estimated renovation costs, and sold 251 homes for gross proceeds of $55.2 million, resulting in total portfolio home count of 82,509 homes at March 31, 2018.

Merger Integration Update

Merger integration efforts are progressing well and remain on track.  The development of systems and technology to support the Company's future-state operating model is on schedule, and implementation of the new platform is expected to begin in the second half of 2018, as previously communicated.

In-line with its initial estimate, the Company has identified $45 million to $50 million of projected annual run-rate cost synergies, and expects to realize 75% of those synergies on a run-rate basis by the end of 2018.  Furthemore, the Company believes there could be additional upside from the implementation of best practices across the organization.  As of May 14, 2018, approximately $24 million of annualized run-rate synergy savings had been realized, which includes approximately $9 million of share-based compensation expense.

Balance Sheet and Capital Markets Activity

At March 31, 2018, the Company had $1,120 million in availability through a combination of unrestricted cash and undrawn capacity on its revolving credit facility.  The Company's total indebtedness at March 31, 2018 was $9,745 million, consisting of $7,655 million of secured debt and $2,090 million of unsecured debt.

During the first quarter of 2018, as previously announced, on February 8, 2018, the Company closed a seven-year (inclusive of extension options), floating rate securitization loan (IH 2018-1) with a principal amount of $917 million, of which the Company retained $46 million to comply with risk retention requirements.  Total cost of funds for the loan was LIBOR + 124 basis points.  Net proceeds were used to repay in full the Company's last remaining 2019 secured debt maturities, CAH 2014-1 and CAH 2014-2.  The securitization transaction and associated repayments are expected to result in cash net annual interest expense savings of approximately $4 million on a run-rate basis.

Subsequent to quarter end, on May 8, 2018, the Company closed another seven-year (inclusive of extension options), floating rate securitization loan (IH 2018-2) with a principal amount of $1,057 million, of which the Company retained $53 million to comply with risk retention requirements.  Total cost of funds for the loan was LIBOR + 138 basis points.  Net proceeds and available cash were used to repay in full two of the Company's floating rate securitization loans maturing in 2020, IH 2015-1 and IH 2015-2.  The securitization transaction and associated repayments are expected to result in cash net annual interest expense savings of approximately $10 million on a run-rate basis.

After giving effect to the IH 2018-2 securitization and associated repayment activity, weighted average years to maturity at March 31, 2018 would have been 5.0 years, 79% of debt would have been fixed rate or swapped to fixed rate, and the weighted average interest rate on total debt during the quarter would have been 3.4%.

Subsequent to quarter end, the Company also closed $2,520 million of forward-starting interest rate swaps at a weighted average swap rate of 2.91%.  After giving effect to these swaps, and based on the Company's current capital structure, the percentage of debt that will be fixed rate or swapped to fixed rate increases to 87% beginning in January 2019.

Dividend

As previously announced, on May 4, 2018 the Company's Board of Directors declared a quarterly cash dividend of $0.11 per share of common stock.  The dividend will be paid on or before May 31, 2018 to shareholders of record as of the close of business on May 15, 2018.

Full Year 2018 Guidance

2018 guidance remains unchanged versus initial guidance set in February 2018, as outlined in the table below.

Merger Synergy Impact

Guidance is inclusive of anticipated synergy savings resulting from Invitation Homes' merger with Starwood Waypoint Homes.  Of identifiable total cost synergies of $45 to $50 million, the Company expects 75% to be realized on a run-rate basis by the end of 2018, consistent with initial expectations.  The majority of NOI synergies are expected to be realized after transitioning to one operating platform for the Company's field and corporate teams, which the Company remains on track to complete later in the second half of 2018.  As a result, the Company anticipates that synergy realization in 2018 will be almost entirely related to property management and G&A savings rather than NOI increases.  Synergies are expected to be more impactful to earnings growth in 2019 than in 2018, consistent with initial expectations.

Note:  The Company does not provide guidance for the most comparable GAAP financial measures of net loss, total revenues, and property operating and maintenance, or a reconciliation of the forward-looking non-GAAP financial measures of Core FFO per share, AFFO per share, Same Store revenue growth, Same Store operating expense growth, and Same Store NOI growth to the comparable GAAP financial measures because it is unable to reasonably predict certain items contained in the GAAP measures, including non-recurring and infrequent items that are not indicative of the Company's ongoing operations.  Such items include, but are not limited to, impairment on depreciated real estate assets, net (gain)/loss on sale of previously depreciated real estate assets, share-based compensation, casualty loss, non-Same Store revenues, and non-Same Store operating expenses.  These items are uncertain, depend on various factors, and could have a material impact on our GAAP results for the guidance period.

Earnings Conference Call Information

Invitation Homes has scheduled a conference call at 11:00 a.m. Eastern Time on Tuesday, May 15, 2018 to discuss results for the three months ended March 31, 2018.  The domestic dial-in number is 1-888-317-6003, and the international dial-in number is 1-412-317-6061.  The passcode is 6613112.  An audio webcast may be accessed at www.invh.com.  A replay of the call will be available through June 15, 2018, and can be accessed by calling 1-877-344-7529 (domestic) or 1-412-317-0088 (international) and using the replay passcode 10119340, or by using the link at www.invh.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 www.invh.com.

Glossary & Reconciliations of Non-GAAP Financial Operating Measures

Financial and operating measures found in the Earnings Release and 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 and Reconciliations section of this press release and 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 across America. With over 80,000 homes for lease in 17 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 statement, "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 anticipated benefits of the merger with Starwood Waypoint Homes, 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 associated with achieving expected revenue synergies or cost savings from the merger, 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, 2017, 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.

Glossary and Reconciliations

---

Glossary:

Average Monthly Rent

Average monthly rent represents average monthly rental income per home for occupied properties in an identified population of homes over the measurement period, and reflects the impact of non-service rental concessions and contractual rent increases amortized over the life of the lease.

Average Occupancy

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

Core Operating Expenses

Core operating expenses for an identified population of homes reflect property operating and maintenance expenses, excluding any expenses recovered from residents.

Core Revenues

Core revenues for an identified population of homes reflects total revenues, net of any resident recoveries.

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 Nareit as net income or loss (computed in accordance with GAAP) excluding 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, gains or losses related to sales of previously depreciated homes, as well non-controlling interests, from GAAP net income or loss.

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 "Reconciliation of Non-GAAP measures" below for a reconciliation of GAAP net income (loss) to FFO, Core FFO, and Adjusted FFO.

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 GAAP net income (loss) to NOI for our total portfolio and NOI for our Same Store portfolio.

Recurring Capital Expenditures or Recurring CapEx

Recurring Capital Expenditures or Recurring CapEx represents general replacements and expenditures required to preserve and maintain the value and functionality of a home and its systems as a single-family rental.

Rental Rate Growth

Rental rate growth for any home represents the percentage difference between the monthly rent from an expiring lease and the monthly rent from the next lease, and, in each case, reflects the impact of any amortized non-service rent concessions and contractual rent increases. 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.

Same Store / Same Store Portfolio

Same Store or Same Store portfolio includes, for a given reporting period, homes that have been stabilized for at least 15 months prior to January 1st of the year in which the Same Store portfolio was established, excluding homes that have been sold, homes that have been identified for sale to an owner occupant and have become vacant, and homes that have been deemed inoperable or significantly impaired by casualty loss events or force majeure.

Homes are considered stabilized if they have (i) completed an initial renovation and (ii) entered into at least one post-initial renovation lease.  An acquired portfolio that is both leased and deemed to be of sufficiently similar quality and characteristics as the existing Invitation Homes Same Store portfolio may be considered stabilized at the time of acquisition.

Additionally, homes acquired via the Starwood Waypoint Homes merger have been deemed to qualify for the Same Store portfolio beginning in 2018 if they were stabilized, according to the Invitation Homes criteria for stabilization, within Starwood Waypoint Homes' portfolio prior to the merger.

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.  In order to provide meaningful comparative information across periods that, in some cases, pre-date the Starwood Waypoint Homes merger, all information regarding the performance of the Same Store portfolio for periods prior to December 31, 2017 is presented as though the Starwood Waypoint Homes merger was consummated on January 1, 2017.

Total Homes / Total Portfolio

Total homes or total portfolio refers to the total number of homes owned, 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.

Reconciliation of Non-GAAP Measures:

SOURCE Invitation Homes