Invitation Homes Reports Second Quarter 2018 Results

DALLAS, Aug. 9, 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 second quarter 2018 financial and operating results.

Second Quarter 2018 Highlights

• Year-over-year, total revenues increased 78.5% to $432 million, total property operating and maintenance expenses increased 78.2% to $165 million, and net income (loss) attributable to common shareholders decreased to a $14 million loss, or a $0.03 loss per share.
• Core FFO per share increased 19.3% year-over-year to $0.29 per share.
• Same Store NOI grew 5.0% year-over-year on 4.5% Same Store Core revenue growth and 3.6% Same Store Core operating expense growth.
• Same Store average occupancy was 96.0%, up 20 basis points year-over-year.
• Continued strong Same Store renewal rent growth of 4.7% and a seasonal acceleration in new lease rent growth to 4.8% drove Same Store blended rent growth of 4.7%.
• The Company has raised its expectation for total annual run-rate merger synergies by $5 million to $50 - $55 million. The Company expects to realize 75% of total cost synergies on a run-rate basis by the end of 2018, with the remainder to be realized by mid-2019.
• As previously announced, in the second quarter of 2018, the Company repaid $2.3 billion of existing securitization debt maturing in 2020 with proceeds from two newly issued seven-year securitization loans. In July 2018, the Company repaid an additional $200 million of securitization debt maturing in 2021 using the remaining proceeds from its second quarter issuance and cash on hand. These transactions are expected to lower the weighted average spread on the Company's floating rate debt by 25 basis points, and extend weighted average maturity to 5.4 years.

Chief Executive Officer Fred Tuomi comments:  "We continue to believe that favorable supply, demand, and demographics trends in our high-growth markets create a long future runway for outsized NOI and Core FFO growth.  In the second quarter of 2018, we continued to execute well and provide outstanding resident service, achieving another quarter of lower year-over-year turnover that drove Same Store average occupancy to its highest level in the last six quarters at 96.0%, while blended rent growth remained strong at 4.7%.  As a result, Same Store Core revenues grew 4.5% year-over-year in the second quarter of 2018, up from 4.1% year-over-year growth in the first quarter of 2018.

"We are maintaining the midpoints of our Same Store Core revenue growth and 2018 Core FFO per share guidance, and narrowing the ranges to 4.3% - 4.7% and $1.15 - $1.19.  Favorable fundamentals are expected to continue supporting revenue growth, and better than expected interest expense savings due to opportunistic refinancing activity are likely to offset higher Same Store operating expenses.  We are also pleased that synergy savings are expected to exceed our initial estimates, and achievement has occurred faster in 2018 than we originally anticipated.

"As we enter the second half of 2018, we remain focused on widening our competitive advantages in the marketplace - namely our people, locations, scale, and service - for the benefit of residents, associates, and shareholders."

Financial Results

Net Income (Loss)
Net income (loss) attributable to common shareholders for the three months ended June 30, 2018 was a loss of $0.03 per share, compared to income of $0.02 per share for the three months ended June 30, 2017.  Total revenues and total operating and maintenance expenses for the three months ended June 30, 2018 were $432 million and $165 million, respectively, compared to $242 million and $93 million, respectively, for the three months ended June 30, 2017.

Net income (loss) attributable to common shareholders for the six months ended June 30, 2018 was a loss of $0.06 per share, compared to a loss of $0.06 per share for the prior year period during which the Company was public from February 1, 2017 to June 30, 2017.  Total revenues and total operating and maintenance expenses for the six months ended June 30, 2018 were $856 million and $326 million, respectively, compared to $481 million and $181 million, respectively, for the prior year period during which the Company was public from February 1, 2017 to June 30, 2017.

Core FFO
Year-over-year, Core FFO for the three months ended June 30, 2018 increased 19.3% to $0.29 per share, primarily due to an increase in NOI per share, driven by higher revenues, lower adjusted general and administrative expense per share, and lower cash interest expense per share.

Year-over-year, Core FFO for the six months ended June 30, 2018 increased 16.3% to $0.58 per share, primarily due to an increase in NOI per share, driven by higher revenues, lower adjusted general and administrative expense per share, and lower cash interest expense per share.

AFFO
Year-over-year, AFFO for the three months ended June 30, 2018 increased 14.5% to $0.24 per share, primarily driven by the increase in Core FFO described above.

Year-over-year, AFFO for the six months ended June 30, 2018 increased 10.7% to $0.48 per share, primarily driven by the increase in Core FFO described above.

Operating Results

Same Store NOI
For the Same Store portfolio of 71,813 homes, second quarter 2018 Same Store NOI increased 5.0% year-over-year on Same Store Core revenue growth of 4.5% and Same Store Core operating expense growth of 3.6%.

YTD 2018 Same Store NOI increased 4.3% year-over-year on Same Store Core revenue growth of 4.3% and Same Store Core operating expense growth of 4.3%.

Same Store Core Revenues
Second quarter 2018 Same Store Core revenue growth of 4.5% year-over-year was driven by a 4.0% increase in average monthly rent, a 0.2% increase in average occupancy to 96.0%, and a 8.9% increase in other property income, net of resident reimbursements.

YTD 2018 Same Store Core revenue growth of 4.3% year-over-year was driven by a 4.0% increase in average monthly rent, a 0.1% increase in average occupancy to 95.9%, and a 9.3% increase in other property income, net of resident reimbursements.

Same Store Core Operating Expenses
Second quarter 2018 Same Store Core operating expenses increased 3.6% year-over-year, driven primarily by increases in repair and maintenance expenses and property taxes, partially offset by increased efficiencies in various controllable costs including leasing and marketing costs and personnel costs.  The increase in repair and maintenance expenses was primarily attributable to two correctable issues: 1) performance declines in two markets that were significantly impacted by personnel challenges, in contrast to most markets which have experienced limited personnel challenges through the integration; and 2) temporary declines in service technician productivity as teams adapt to newly integrated repairs and maintenance management technology that was implemented on an accelerated timeline in the second quarter, amplified by the time of year in which work order volume is seasonally the highest.  Ultimately, the newly integrated technology is expected to raise productivity by increasing the percentage of service trips completed by in-house maintenance technicians versus third party vendors, and bundling more work orders per service trip, but will likely take longer to optimize than initially expected.

YTD 2018 Same Store Core operating expenses increased 4.3% year-over-year, driven primarily by increases in repair and maintenance expenses and property taxes, partially offset by decreases in leasing and marketing costs and personnel costs.  The increase in repair and maintenance expenses was primarily attributable to the second quarter 2018 challenges described above, as well as prioritization of service requests related to hurricane damage in the fourth quarter of 2017 that pushed routine, non-storm related service requests that otherwise would have been resolved in 2017 into the first quarter of 2018.  With respect to property taxes, a one-time unfavorable impact in the first quarter of 2018 related to prior year Prop 13 accrual timing was offset by a corresponding one-time favorable impact in the second quarter of 2018.

Investment Management Activity

Invitation Homes acquired 263 homes for $79.6 million in the second quarter of 2018, including estimated renovation costs, and sold 348 homes for gross proceeds of $76.8 million, resulting in total portfolio home count of 82,424 homes at June 30, 2018.

Year-to-date, the Company acquired 453 homes for $132.2 million, including estimated renovation costs, and sold 599 homes for gross proceeds of $132.0 million.

Merger Integration Update

Important merger integration milestones were completed in the second quarter of 2018, ahead of schedule.  Office space in fifteen of the Company's seventeen markets has now been consolidated, and integration of field teams and vendors onto one R&M management technology platform has been completed, both on an accelerated timeline.  In addition, the Company launched its newly developed accounting platform in the third quarter of 2018.

As a result, synergy realization through August 8, 2018 has outpaced previous expectations by approximately $10 million.  The Company has captured $34 million of annualized run-rate synergies to date, almost entirely related to G&A and property management, including $9 million of share-based compensation synergies.  The final major integration milestone remaining to be accomplished is implementation of the Company's unified operating platform and field configuration in each market, with rollout to the field expected to begin in the fourth quarter of 2018, and be completed by mid-2019.

With the majority of integration milestones completed, cost synergies resulting from the merger can be estimated with greater certainty.  As a result, the Company now expects annual run-rate cost synergies to be $5 million more favorable than its initial projection, and total between $50 million and $55 million.  $35.0 million to $37.5 million of these synergies are now expected to be attributable to G&A and property management, and $15.0 million to $17.5 million of operating expense synergies continue to be expected.  The Company continues to expect 75% of total identified cost synergies to be realized on a run-rate basis by the end of 2018, with the remainder to be achieved in the first half of 2019.

Balance Sheet and Capital Markets Activity

At June 30, 2018, the Company had $1,167 million in available liquidity through a combination of unrestricted cash and undrawn capacity on its revolving credit facility.  The Company's total indebtedness at June 30, 2018 was $9,762 million, consisting of $7,687 million of secured debt and $2,075 million of unsecured debt.

As previously announced, the Company closed a seven-year (inclusive of extension options), floating rate securitization loan (IH 2018-2) on May 8, 2018 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.  On June 28, 2018, the Company closed another seven-year (inclusive of extension options), floating rate securitization loan (IH 2018-3) with a principal amount of $1,300 million, of which the Company retained $65 million to comply with risk retention requirements.  Total cost of funds for the loan was LIBOR + 142 basis points.  Net proceeds from IH 2018-2 and IH 2018-3 were used to repay in full the existing IH 2015-1, IH 2015-2, and IH 2015-3 floating rate securitization loans in the second quarter of 2018.  In July 2018, the Company repaid an additional $200 million of securitization debt (CSH 2016-1) using the remaining proceeds from IH 2018-3 and cash on hand.  These transactions are expected to lower the weighted average spread on the Company's floating rate debt by 25 basis points.  As of June 30, 2018, and giving effect to the aforementioned second quarter and July transactions, weighted average years to maturity of the Company's debt would have been 5.4 years.

The Company entered into additional forward interest rate swaps in the second quarter of 2018 to extend the duration of its hedges accordingly to match the extended duration of its maturities.  After giving effect to these swaps, and based on the Company's current capital structure, the weighted average interest rate on total debt during the second quarter of 2018 would have been 3.3%, and the percentage of debt that will be fixed rate or swapped to fixed rate is expected to increase to above 90% beginning in January 2020 versus today's approximately 80%.

Dividend

As previously announced, on August 3, 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 August 31, 2018 to shareholders of record as of the close of business on August 16, 2018.

Full Year 2018 Guidance Update

Merger Synergy Impact
Guidance is inclusive of anticipated synergy savings resulting from Invitation Homes' merger with Starwood Waypoint Homes.  Cost synergies are now expected to total $50 million to $55 million on a run-rate basis, up from previous guidance of $45 million to $50 million.  The Company expects 75% of these total cost synergies to be realized on a run-rate basis by the end of 2018.  The majority of NOI synergies are expected to be realized after transitioning to one operating platform for the Company's field teams.  Development of the unified operating platform remains on track to be completed in the fourth quarter of 2018, and related synergies remain on track to be achieved once market implementation of the platform is completed in the first half of 2019.  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.

Changes to FY 2018 Guidance
The midpoints of revised Same Store Core revenue growth guidance and Core FFO per share guidance remain unchanged versus previous guidance, as favorable fundamentals are expected to continue support revenue growth, and lower than expected interest expense due to refinancing activity is likely to offset higher Same Store Core operating expenses.  The midpoints of AFFO per share guidance and Same Store NOI guidance are lower than previous guidance, due primarily to temporarily higher expected operating expenses and capitalized expenses related to repairs and maintenance.

The increase in Same Store Core operating expense growth guidance is attributable to the two correctable issues related to repairs and maintenance expense discussed in the Operating Results section of this release, and an assumption that those issues continue to persist through the remainder of the year.  At the midpoint, expense growth for all Same Store Core operating expenses, exclusive of real estate taxes, is now expected to be approximately 3.5%, versus an expected decrease of approximately 1% in the Company's previous guidance.  At the midpoint, Same Store real estate taxes are expected to increase approximately 6.5%, consistent with initial expectations.  The table below summarizes the drivers of changes to the Company's Same Store operating expense guidance at the midpoint.

Note:  The Company does not provide guidance for the most comparable GAAP financial measures of net income (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 Friday, August 10, 2018 to discuss results for the three months ended June 30, 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 3194017.  An audio webcast may be accessed at www.invh.com.  A replay of the call will be available through September 10, 2018, and can be accessed by calling 1-877-344-7529 (domestic) or 1-412-317-0088 (international) and using the replay passcode 10121756, 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 and Other 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.

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