Invitation Homes Reports Fourth Quarter 2018 and Full Year 2018 Results

DALLAS, Feb. 14, 2019 /PRNewswire/ -- Invitation Homes Inc. (NYSE: INVH) ("Invitation Homes" or the "Company"), a leading owner and operator of single-family rental homes in the United States, today announced its fourth quarter 2018 and full year 2018 financial and operating results.

Fourth Quarter 2018 and Full Year 2018 Highlights

• In Q4 2018, total revenues increased 31.1% to $433 million, and net income attributable to common stockholders increased to $25 million, or $0.05 per share. In FY 2018, total revenues increased 63.4% to $1,723 million, and net loss attributable to common stockholders decreased to $5 million, or $0.01 per share.
• Core FFO per share increased 6.4% year over year to $0.30 in Q4 2018 and 13.7% to $1.18 in FY 2018.
• In Q4 2018, Same Store NOI grew 3.2% year over year on 4.6% Same Store Core revenue growth and 7.4% Same Store Core operating expense growth. In FY 2018, Same Store NOI grew 4.4% year over year on 4.5% Same Store Core revenue growth and 4.8% Same Store Core operating expense growth.
• Same Store average occupancy increased 70 basis points year over year to 96.0% in Q4 2018, and increased 50 basis points year over year to 95.9% in FY 2018.
• In Q4 2018, Same Store renewal rent growth of 4.7% and Same Store new lease rent growth of 2.1% drove Same Store blended rent growth 20 basis points higher year over year to 3.7%. In FY 2018, Same Store renewal rent growth of 4.8% and Same Store new lease rent growth of 3.3% drove Same Store blended rent growth of 4.2%.
• As of December 31, 2018, $46 million of the total $50 - 55 million of expected merger synergies had been realized on an annualized run-rate basis, outpacing management's initial expectation for 75% achievement by the end of 2018.
• In Q4 2018, pursuant to its plan to further enhance portfolio quality, the Company closed three previously announced bulk dispositions, bringing FY 2018 bulk dispositions to 1,497 homes for $234 million in gross proceeds. Total dispositions in FY 2018 were 2,701 homes for $512 million of gross proceeds. Acquisitions in FY 2018 totaled 938 homes for $279 million. Proceeds from net investment activities were used to prepay debt.
• In FY 2018 and January 2019, the Company used proceeds from four new securitizations, net investment proceeds, and cash on hand to repay $4.7 billion of securitized debt, eliminating all 2019 and 2020 secured debt maturities and all but $373 million of remaining 2021 debt maturities. As of January 2019, the Company had reduced net debt by $308 million since the beginning of 2018, and decreased weighted average cost of debt by approximately 10 basis points. In addition, the Company entered into $4.4 billion of forward-starting interest rate swaps in 2018, effectively increasing the percentage of debt that will be fixed rate or swapped to fixed rate to 90% in 2020.

President & Chief Executive Officer Dallas Tanner comments:  "Invitation Homes finished 2018 strong, as we executed well across our business.  In the fourth quarter of 2018, we drove Same Store average occupancy 70 basis point higher year over year to 96.0%, along the way achieving our lowest ever level of resident turnover, while at the same time realizing blended rent growth 20 basis points higher than last year.  In addition, we continued to enhance efficiency on controllable costs, resulting in better than expected NOI growth in the fourth quarter.

"We are encouraged by this momentum we are carrying into 2019, a year in which we see further opportunity for efficiencies and organic growth.  Strong fundamental tailwinds remain in our markets, and the anticipated completion of our merger integration in mid-2019 will enable us to operate as one team on one platform across the entire organization.  This scale and efficiency should allow us to better serve residents and maintain homes, and enable us to identify additional platform refinements and innovations that can benefit both residents and shareholders.  In addition, we will continue to focus in 2019 on a capital allocation plan that has the dual objective of refining our portfolio and reducing leverage on our balance sheet."

Financial Results

Net Income (Loss)
Net income per share for the three months ended December 31, 2018 was $0.05 per share, compared to a net loss of $0.11 per share for the three months ended December 31, 2017.  Total revenues and total property operating and maintenance expenses for the three months ended December 31, 2018 were $433 million and $159 million, respectively, compared to $330 million and $117 million, respectively, for the three months ended December 31, 2017.

Net loss per share for the twelve months ended December 31, 2018 was $0.01 per share, compared to a net loss of $0.26 per share for the prior year period during which the Company was public from February 1, 2017 to December 31, 2017.  Total revenues and total property operating and maintenance expenses for the twelve months ended December 31, 2018 were $1,723 million and $655 million, respectively, compared to $1,054 million and $391 million, respectively, for the twelve months ended December 31, 2017.

Core FFO
Year over year, Core FFO for the three months ended December 31, 2018 increased 6.4% to $0.30 per share, primarily due to an increase in NOI per share and lower cash interest expense per share.

Year over year, Core FFO for the twelve months ended December 31, 2018 increased 13.7% to $1.18 per share, primarily due to an increase in NOI per share, lower cash interest expense per share, and lower adjusted general and administrative expense per share.

AFFO
Year over year, AFFO for the three months ended December 31, 2018 increased 4.9% to $0.25 per share, primarily driven by the increase in Core FFO described above.

Year over year, AFFO for the twelve months ended December 31, 2018 increased 8.1% to $0.95 per share, primarily driven by the increase in Core FFO described above.

Operating Results

Same Store NOI
For the Same Store portfolio of 68,880 homes, fourth quarter 2018 Same Store NOI increased 3.2% year over year on Same Store Core revenue growth of 4.6% and Same Store Core operating expense growth of 7.4%.

FY 2018 Same Store NOI increased 4.4% year over year on Same Store Core revenue growth of 4.5% and Same Store Core operating expense growth of 4.8%.

Same Store Core Revenues
Fourth quarter 2018 Same Store Core revenue growth of 4.6% year over year was driven by a 3.8% increase in average monthly rent, a 70 basis point increase in average occupancy to 96.0%, and a 2.2% increase in other property income, net of resident reimbursements.

FY 2018 Same Store Core revenue growth of 4.5% year over year was driven by a 3.9% increase in average monthly rent, a 50 basis point increase in average occupancy to 95.9%, and a 5.7% increase in other property income, net of resident reimbursements.

Same Store Core Operating Expenses
Fourth quarter 2018 Same Store Core operating expenses increased 7.4% year over year.  The primary driver of the increase was a 15.1% increase in property taxes, as anticipated, due to unfavorable accrual catch-ups for reassessments received in the fourth quarter of 2018 compared to favorable accrual catch-ups in the fourth quarter of 2017.  Core controllable expenses were 0.2% lower year over year in total.  Repairs and maintenance (R&M) expenses were lower than expected, albeit higher year over year due to a previously discussed challenging comparison to the fourth quarter of 2017 attributable to prioritization of service requests related to hurricane damage that pushed routine, non-storm related service requests out of the fourth quarter of 2017.

FY 2018 Same Store Core operating expenses increased 4.8% year over year, driven primarily by increases in property taxes and R&M expenses.  The increase in R&M expenses was primarily attributable to: (1) lower productivity, especially during the summer's peak service season, attributable to challenges stemming from newly integrated R&M platforms that the Company has since made progress toward improving; and (2) 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 236 homes for $74.1 million in the fourth quarter of 2018, including estimated renovation costs, and sold 1,689 homes for gross proceeds of $293.7 million, resulting in total portfolio home count of 80,807 homes at December 31, 2018.  Dispositions in the quarter included 1,228 homes sold in previously announced bulk transactions that closed in October, and an additional 97 homes sold in bulk transactions in December, totaling gross proceeds of $207.8 million.

In the full year 2018, the Company acquired 938 homes for $279.1 million, including estimated renovation costs, and sold 2,701 homes for gross proceeds of $511.7 million.

Merger Integration Update

Integration efforts unlocked $46 million of synergies on an annualized run-rate basis as of December 31, 2018, exceeding the Company's target for 75% synergy realization by year-end 2018.  Of the $46 million of synergies realized as of December 31, 2018, $40 million related to property management and general & administrative (G&A) expenses, $5 million related to operating expenses, and $1 million related to capitalized expenses.

The company continues to expect to achieve total annualized cost synergies between $50 - $55 million on a run-rate basis by mid-2019.  Almost all of the remaining synergies are likely to be attributable to NOI and achieved as the Company implements its unified operating platform and field configuration in each market.  As of February 14, 2019, implementation has been completed successfully in five markets, and roll-out to the remaining markets is scheduled in waves over the next several months.

Balance Sheet and Capital Markets Activity

At December 31, 2018, the Company had $1,145 million in available liquidity through a combination of unrestricted cash and undrawn capacity on its revolving credit facility.  The Company's total indebtedness at December 31, 2018 was $9,341 million, consisting of $7,266 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 2018-4) on November 7, 2018 with a principal amount of $960 million, of which the Company retained $48 million to comply with risk retention requirements. Total cost of funds for the loan was LIBOR + 141 basis points.  Net proceeds from the transaction and cash on hand were used to repay $1,133 million of existing debt in the quarter, including all remaining 2020 maturities and a portion of 2021 maturities.  In January 2019, the Company prepaid an additional $70 million of 2021 maturities.  Giving effect to these transactions, the Company's weighted average cost of debt (including swap impact) at year-end 2018 was 3.3%, down from 3.4% at the beginning of 2018, and weighted average maturity at year-end 2018 was 5.5 years, up from 4.1 years at the beginning of 2018.  In conjunction with the increased duration of its debt maturities resulting from refinancing activity during the fourth quarter of 2018, the Company also entered into $800 million of forward-starting interest rate swaps in the fourth quarter of 2018 to extend the duration of its interest rate hedges.

In December 2018, the Company gave notice of its intent to settle conversions of its 3.0% Convertible Notes due July 1, 2019 with common shares.  The Company believes that a common share settlement is the option most aligned with its balance sheet strategy of reducing leverage and pursuing an investment grade rating.  For all holders electing conversion on or before June 27, 2019, the 2019 Convertible Notes will be exchanged for common shares according to a conversion ratio that is fixed other than for adjustments related to dividends paid to common stockholders and other potential transactions.  Based on the December 31, 2018 conversion ratio of 54.0017 shares per $1,000 principal amount of 2019 Convertible Notes, settlement of the $230 million (par value) of 2019 Convertible Notes would result in the issuance of approximately 12.4 million common shares and a reduction in cash interest expense of approximately $6.9 million on an annualized basis.  On a pro forma basis, whereby net debt is reduced for the impact of the conversion of the 2019 Convertible Notes, net debt / annualized Adjusted EBITDAre at December 31, 2018 would have been 8.8x, down from 9.5x at the beginning of 2018.

Dividend

As previously announced, on February 1, 2019 the Company's Board of Directors declared a quarterly cash dividend of $0.13 per share of common stock, representing an 18.2% increase over the prior quarterly dividend of $0.11 per share.  The dividend will be paid on or before February 28, 2019 to stockholders of record as of the close of business on February 13, 2019.

Full Year 2019 Guidance Details

Earnings Conference Call Information

Invitation Homes has scheduled a conference call at 11:00 a.m. Eastern Time on Friday, February 15, 2019 to discuss results for the three months ended December 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 5865028.  An audio webcast may be accessed at www.invh.com.  A replay of the call will be available through March 15, 2019, and can be accessed by calling 1-877-344-7529 (domestic) or 1-412-317-0088 (international) and using the replay passcode 10127966, 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 rental homes, 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

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.

EBITDA, EBITDAre, and Adjusted EBITDAre
EBITDA, EBITDAre and Adjusted EBITDAre 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 accounting principles generally accepted in the United States ("GAAP") before the following items: interest expense; income tax expense; and depreciation and amortization. National Association of Real Estate Investment Trusts ("Nareit") recommends as a best practice that REITs operating as real estate companies which report an EBITDA performance measure also report EBITDAre in all financial reports for periods beginning after December 31, 2017.  We define EBITDAre, consistent with the Nareit definition, as EBITDA, further adjusted for gain on sale of property, net of tax and impairment on depreciated real estate investments.  Adjusted EBITDAre is defined as EBITDAre before the following items: share-based compensation expense; IPO related expenses; merger and transaction-related expenses; severance; casualty losses, net; acquisition costs; and interest income and other miscellaneous income and expenses. EBITDA, EBITDAre and Adjusted EBITDAre 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, EBITDAre and Adjusted EBITDAre as measures of performance.

The GAAP measure most directly comparable to EBITDA, EBITDAre and Adjusted EBITDAre is net income or loss. EBITDA, EBITDAre and Adjusted EBITDAre 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, EBITDAre and Adjusted EBITDAre may not be comparable to the EBITDA, EBITDAre and Adjusted EBITDAre of other companies due to the fact that not all companies use the same definitions of EBITDA, EBITDAre and Adjusted EBITDAre. 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 GAAP net income (loss) to EBITDA, EBITDAre and Adjusted EBITDAre.

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.  In calculating per share amounts, Core FFO and AFFO reflect convertible debt securities in the form in which they were outstanding during the period.

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

Related Links

http://www.invitationhomes.com