Invitation Homes Reports Third Quarter 2018 Results

DALLAS, Nov. 5, 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 third quarter 2018 financial and operating results.

Third Quarter 2018 Highlights

• Year-over-year, total revenues increased 78.3% to $434 million, total property operating and maintenance expenses increased 82.3% to $170 million, and net income attributable to common shareholders increased to $1 million, or $0.00 per share.
• Core FFO per share increased 21.3% year-over-year to $0.29 per share.
• Same Store NOI grew 4.9% year-over-year on 4.4% Same Store Core revenue growth and 3.7% Same Store Core operating expense growth.
• Same Store average occupancy was 95.5%, up 50 basis points year-over-year.
• Continued strength in Same Store renewal rent growth of 4.8% and new lease rent growth of 3.3% drove Same Store blended rent growth of 4.2%.
• As of October 31, 2018, $41 million of the total $50 - 55 million of expected merger synergies had been realized on a run-rate basis, outpacing management's previous expectation for 75% achievement by the end of 2018.
• In October 2018, the Company used cash on hand to prepay $50 million of securitized debt maturing in 2021, incremental to the previously announced $200 million of securitized debt prepaid in the third quarter of 2018.
• In the third quarter of 2018 and October 2018, pursuant to the Company's plan to further enhance portfolio quality, five bulk transactions were completed to dispose of homes with below-average rent. A total of 1,375 homes were sold across the five bulk transactions, with 147 homes closing in two September 2018 transactions, and the remaining 1,228 homes closing in three October 2018 transactions. Gross proceeds of $214 million from the five transactions are expected to be used for general corporate purposes and to repay debt.

Interim President Dallas Tanner comments:  "Fundamentals in our high-growth markets remain favorable, and the high-quality service and living experience we provide continues to resonate with residents.  As a result, we achieved another quarter of lower year-over-year turnover that drove Same Store average occupancy 50 basis points higher year-over-year to 95.5% in the third quarter of 2018.  Blended rent growth also remained strong, driving Same Store Core revenue growth of 4.4% year-over-year in the third quarter of 2018, consistent with growth in the first half of the year.

"In addition to strong top line execution, our other operational priorities for the year are progressing well.  With respect to merger integration, we achieved our 2018 year-end target of 75% run-rate synergy realization ahead of schedule.  We also continue to fine-tune our integrated repairs and maintenance technology platform to increase the efficiency with which we serve our residents.  With respect to capital recycling and balance sheet optimization, we closed the sale of 1,375 homes in bulk transactions in September and October to further enhance the quality of our portfolio and reduce leverage.

"We expect favorable fundamentals and execution on our key initiatives to continue driving growth, and are narrowing our 2018 Core FFO per share guidance to $1.16 - $1.18, a 12.0 - 13.9% increase versus 2017.  We look forward to finishing the year strong as we remain focused on delivering value for our residents, associates, and shareholders."

Financial Results

Net Income (Loss)
Net income attributable to common shareholders for the three months ended September 30, 2018 was $0.00 per share, compared to a loss of $0.07 per share for the three months ended September 30, 2017.  Total revenues and total operating and maintenance expenses for the three months ended September 30, 2018 were $434 million and $170 million, respectively, compared to $244 million and $93 million, respectively, for the three months ended September 30, 2017.

Net loss attributable to common shareholders for the nine months ended September 30, 2018 was a loss of $0.06 per share, compared to a loss of $0.14 per share for the prior year period during which the Company was public from February 1, 2017 to September 30, 2017.  Total revenues and total operating and maintenance expenses for the nine months ended September 30, 2018 were $1,290 million and $496 million, respectively, compared to $725 million and $274 million, respectively, for the prior year period during which the Company was public from February 1, 2017 to September 30, 2017.

Core FFO
Year-over-year, Core FFO for the three months ended September 30, 2018 increased 21.3% 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 nine months ended September 30, 2018 increased 18.0% to $0.87 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 September 30, 2018 increased 10.2% to $0.22 per share, primarily driven by the increase in Core FFO described above.

Year-over-year, AFFO for the nine months ended September 30, 2018 increased 10.5% to $0.70 per share, primarily driven by the increase in Core FFO described above.

Operating Results

Same Store NOI
For the Same Store portfolio of 71,226 homes, third quarter 2018 Same Store NOI increased 4.9% year-over-year on Same Store Core revenue growth of 4.4% and Same Store Core operating expense growth of 3.7%.

YTD 2018 Same Store NOI increased 4.5% year-over-year on Same Store Core revenue growth of 4.4% and Same Store Core operating expense growth of 4.2%.

Same Store Core Revenues
Third quarter 2018 Same Store Core revenue growth of 4.4% year-over-year was driven by a 3.8% increase in average monthly rent, a 0.5% increase in average occupancy to 95.5%, and a 4.4% increase in other property income, net of resident reimbursements.

YTD 2018 Same Store Core revenue growth of 4.4% year-over-year was driven by a 3.9% increase in average monthly rent, a 0.3% increase in average occupancy to 95.8%, and a 7.5% increase in other property income, net of resident reimbursements.

Same Store Core Operating Expenses
Third quarter 2018 Same Store Core operating expenses increased 3.7% year-over-year, driven primarily by increases in repairs and maintenance (R&M) expenses and property taxes.  Repairs and maintenance expenses remain elevated, but in-line with the Company's expectations, prior to completion of the R&M technology and personnel optimization efforts that are underway.

YTD 2018 Same Store Core operating expenses increased 4.2% year-over-year, driven primarily by increases in repairs and maintenance expenses and property taxes.  The increase in repairs and maintenance expenses was primarily attributable to lower R&M productivity prior to completion of optimization efforts that are underway, and 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.

Investment Management Activity

Invitation Homes acquired 249 homes for $72.8 million in the third quarter of 2018, including estimated renovation costs, and sold 413 homes for gross proceeds of $85.9 million, resulting in total portfolio home count of 82,260 homes at September 30, 2018.

Year-to-date, the Company acquired 702 homes for $205.1 million, including estimated renovation costs, and sold 1,012 homes for gross proceeds of $217.9 million.

Of the 413 homes sold during the third quarter, 147 were sold in two bulk transactions that closed in September 2018 for $22.5 million of gross proceeds.  Subsequent to quarter end, the Company closed the sale of an additional 1,228 homes for $191.7 million in gross proceeds across three bulk transactions.  Homes included in the five bulk sales had average in-place monthly rent of $1,404, 19.8% below that of the remaining portfolio.  Proceeds from the transactions are expected to be used for general corporate purposes and to prepay debt.

Merger Integration Update

Completion of key integration milestones has unlocked $41 million of synergies on a run-rate basis as of October 31, 2018, and resulted in achievement of the Company's year-end 2018 target of 75% synergy realization faster than expected.  Of the $41 million of synergies realized as of October 31, 2018, $36 million are related to property management and G&A, $4 million are related to operating expenses, and $1 million are related to capitalized expenses.

The company continues to expect to achieve total annualized cost synergies between $50 million and $55 million on a run-rate basis by mid-2019.  Approximately two thirds of the remaining synergies are likely to be attributable to NOI and achieved after implementation of the Company's unified operating platform and field configuration in each market.

Balance Sheet and Capital Markets Activity

At September 30, 2018, the Company had $1,130 million in available liquidity through a combination of unrestricted cash and undrawn capacity on its revolving credit facility.  The Company's total indebtedness at September 30, 2018 was $9,544 million, consisting of $7,469 million of secured debt and $2,075 million of unsecured debt.

As previously announced, the Company prepaid $200 million of securitized debt (CSH 2016-1) in July 2018 using proceeds from its June 2018 refinancings and cash on hand.  In October 2018, the Company prepaid an additional $50 million of CSH 2016-1 using cash on hand.  As of September 30, 2018, weighted average years to maturity of the Company's debt was 5.2 years, and the weighted average interest rate on total debt during the third quarter of 2018 was 3.3%.

Dividend

As previously announced, on November 1, 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 November 30, 2018 to shareholders of record as of the close of business on November 14, 2018.

Full Year 2018 Guidance Update

Changes to FY 2018 Guidance
The change in Same Store NOI growth guidance is primarily attributable to revised Same Store Core operating expense expectations.

The vast majority of the increase in Same Store Core operating expense growth guidance is attributable to higher expected real estate taxes.  Property tax reassessments received in October 2018 have trended higher than expected.  While the Company intends to appeal assessed values where appropriate, real estate tax expenses in the fourth quarter of 2018 are likely to be higher than what was contemplated in previous guidance.

Excluding real estate taxes, all other Same Store Core operating expenses are expected to fall within the previous range of expectations, though some are trending toward the high end of that previous range.  Repairs and maintenance operating expenses remain on track to meet the midpoint of what was contemplated in previous guidance.

Taking into account revised expectations for Same Store results, guidance ranges for Core FFO per share and AFFO per share have also been revised.

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 Monday, November 5, 2018 to discuss results for the three months ended September 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 8467806.  An audio webcast may be accessed at www.invh.com.  A replay of the call will be available through December 5, 2018, and can be accessed by calling 1-877-344-7529 (domestic) or 1-412-317-0088 (international) and using the replay passcode 10125240, 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 Contacts

Claire Parker
Phone: 202.257.2329
Email: [email protected]

Kristi DesJarlais
Phone: 972.421.3587
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