Invitation Homes : Reports Second Quarter 2019 Results

DALLAS, July 30, 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 second quarter 2019 financial and operating results.

Second Quarter 2019 Highlights

• Year over year, total revenues increased 2.1% to $442 million, total property operating and maintenance expenses increased 0.7% to $167 million, and net income attributable to common stockholders increased to $39 million, or $0.07 per share.
• Core FFO per share increased 5.2% year over year to $0.31, and AFFO per share increased 4.1% year over year to $0.25.
• Same Store NOI grew 6.1% year over year on 4.2% Same Store Core revenue growth and 0.6% Same Store Core operating expense growth.
• Same Store average occupancy was 96.5%, up 40 basis points year over year.
• Same Store renewal rent growth of 5.4% and Same Store new lease rent growth of 5.2% drove Same Store blended rent growth to 5.3%, 60 basis points higher year over year.
• As previously announced, in the second quarter of 2019 the Company completed a $115 million bulk acquisition of 463 homes in in-fill submarkets of Las Vegas and Atlanta that overlap closely with the Company's existing portfolio in those markets. Total acquisition and disposition volume in the quarter was $211 million and $205 million, respectively, as the Company continued to execute its capital recycling plan to further enhance portfolio quality.
• As previously announced, in the second quarter of 2019 the Company closed its first ever term loan from a life insurance company, with a principal amount of $403 million. The loan ("IH 2019-1") has a twelve-year term, with total cost of funds fixed at 3.59% for the first 11 years and floating at LIBOR + 147 basis points in the twelfth year. Structural features of the loan provide for more flexibility in collateral release and substitution rights than most of the Company's other financings to date. Proceeds from the loan were used to repay secured debt.
• The Company repaid $529 million of secured debt in the second quarter of 2019 with proceeds from IH 2019-1 and other cash on hand. As a result, the Company has no debt maturing prior to 2022. In July 2019, the Company voluntarily prepaid an additional $50 million of secured debt.
• In accordance with its previously announced intent, on July 1, 2019 the Company completed settling conversions of its 3.0% Convertible Notes due July 1, 2019 ("2019 Convertible Notes") with common shares. Conversion of the 2019 Convertible Notes reduced pro forma net debt / EBITDAre to 8.4x, down from 9.0x at the end of 2018.
• In the second quarter of 2019, affiliates of Blackstone completed two secondary offerings totaling 77.5 million shares of Invitation Homes common stock. Invitation Homes did not receive any proceeds from the transactions. After the transactions, Blackstone's ownership decreased to approximately 19% of total common shares and units outstanding as of June 30, 2019, pro forma the conversion of the 2019 Convertible Notes.

President & Chief Executive Officer Dallas Tanner comments:  "We continued to execute well in the second quarter, leveraging strong fundamentals and our fully-integrated operating platform to drive another quarter of outstanding resident service and better-than-expected Same Store NOI growth of 6.1%.  The strong leasing momentum with which we started the year has continued into peak season, as rent growth exceeded our expectations and prior year levels in the second quarter, while at the same time occupancy remained higher year over year at 96.5%.  Enhancements to operating efficiency also remain a tailwind, with controllable expenses, net of resident recoveries, down over 7% year over year in the second quarter.

"We continue to see tremendous opportunity to refine and grow our business to enhance the experience of our residents, associates, and communities, while at the same time driving outsized risk-adjusted returns for shareholders. With excellent execution through the first half of the year, and supply and demand fundamentals that remain favorable in our markets, we are increasing the midpoint of our FY 2019 Same Store NOI growth guidance range by 75 basis points to 5.25%, and increasing the midpoints of our FY 2019 Core FFO and AFFO per share guidance ranges by $0.01 to $1.26 and $1.04, respectively."

Financial Results

Net Income (Loss), FFO, Core FFO, and AFFO Per Share — Diluted
		Q2 2019				Q2 2018				YTD 2019				YTD 2018
Net income (loss) (1)		$	0.07			$	(0.03)			$	0.11			$	(0.06)
FFO (1)		0.28				0.24				0.54				0.47
Core FFO (2)		0.31				0.29				0.64				0.58
AFFO (2)		0.25				0.24				0.53				0.48

(1)	In accordance with GAAP and Nareit guidelines, net income (loss) per share and FFO per share are calculated as if the 2019 Convertible Notes were converted to common shares at the beginning of the relevant period, unless such treatment is anti-dilutive to net income (loss) per share or FFO per share.  As such, FFO per share in Q2 2019 and YTD 2019 are calculated by adjusting FFO in the numerator to remove the interest expense associated with the 2019 Convertible Notes, and including shares issued upon conversion of the 2019 Convertible Notes as shares outstanding in the denominator.  Net income per share in Q2 2019 and YTD 2019 do not treat the 2019 Convertible Notes as if they were converted, as doing so would be anti-dilutive to net income per share.
(2)	Core FFO and AFFO per share reflect the 2019 Convertible Notes in the form in which they were outstanding during the period.  Because the 2019 Convertible Notes were an interest-bearing liability during the periods reflected in the table, cash interest expense associated with the 2019 Convertible Notes has been included in Core FFO and AFFO in the numerators, and shares issued upon conversion of the 2019 Convertible Notes have not been included as shares outstanding in the denominators.

Net Income (Loss)
Net income in the second quarter of 2019 was $0.07 per share, compared to a net loss of $0.03 per share in the second quarter of 2018.  Total revenues and total property operating and maintenance expenses in the second quarter of 2019 were $442 million and $167 million, respectively, compared to $432 million and $165 million, respectively, in the second quarter of 2018.

Net income in YTD 2019 was $0.11 per share, compared to a net loss of $0.06 per share in YTD 2018.  Total revenues and total property operating and maintenance expenses in YTD 2019 were $877 million and $327 million, respectively, compared to $856 million and $326 million, respectively, in YTD 2018.

Core FFO
Year over year, Core FFO in the second quarter of 2019 increased 5.2% to $0.31 per share, primarily due to an increase in NOI and lower cash interest expense.

Year over year, Core FFO in YTD 2019 increased 9.7% to $0.64 per share, primarily due to an increase in NOI and lower cash interest expense.

AFFO
Year over year, AFFO in the second quarter of 2019 increased 4.1% to $0.25 per share, primarily driven by the increase in Core FFO described above.

Year over year, AFFO in YTD 2019 increased 10.7% to $0.53 per share, primarily driven by the increase in Core FFO described above.

Operating Results

Same Store Operating Results Snapshot
Number of homes in Same Store portfolio:		72,787
		Q2 2019			Q2 2018			YTD 2019			YTD 2018
Core revenue growth (year-over-year)		4.2	%					4.5	%
Core operating expense growth (year-over-year)		0.6	%					0.3	%
NOI growth (year-over-year)		6.1	%					6.8	%
Average occupancy		96.5	%		96.1	%		96.5	%		95.9	%
Turnover rate		8.5	%		9.5	%		14.8	%		17.2	%
Rental rate growth (lease-over-lease):
Renewals		5.4	%		4.7	%		5.3	%		4.8	%
New leases		5.2	%		4.8	%		4.5	%		3.7	%
Blended		5.3	%		4.7	%		5.0	%		4.4	%

Same Store NOI
For the Same Store portfolio of 72,787 homes, second quarter 2019 Same Store NOI increased 6.1% year over year on Same Store Core revenue growth of 4.2% and Same Store Core operating expense growth of 0.6%.

YTD 2019 Same Store NOI increased 6.8% year over year on Same Store Core revenue growth of 4.5% and Same Store Core operating expense growth of 0.3%.

Same Store Core Revenues

Second quarter 2019 Same Store Core revenue growth of 4.2% year over year was driven by a 4.0% increase in average monthly rent and a 40 basis point increase in average occupancy to 96.5%.

YTD 2019 Same Store Core revenue growth of 4.5% year over year was driven by a 4.1% increase in average monthly rent and  a 60 basis point increase in average occupancy to 96.5%.

Same Store Core Operating Expenses

Second quarter 2019 Same Store Core operating expenses increased 0.6% year over year.  Same Store controllable expenses, net of resident recoveries, decreased 7.2% year over year, driven most significantly by lower turnover, repairs and maintenance ("R&M"), and personnel costs.  Offsetting the improvement in controllable expenses was a 7.0% year over year increase in Same Store property taxes.

YTD 2019 Same Store Core operating expenses increased 0.3% year over year.  Same Store controllable expenses, net of resident recoveries, decreased 8.6% year over year, driven most significantly by lower turnover, R&M, and personnel costs.  Year-over-year improvement in R&M expense was primarily attributable to process refinements resulting in more efficient delivery of high-quality care for residents and homes, in addition to a favorable first quarter comparison resulting from higher-than-normal work order volume in the first quarter of 2018.  The favorable factors impacting controllable expense growth were partially offset by a negative impact from last year's realignment of utility bill-back timing that resulted in higher than normal resident recoveries in the first quarter of 2018.  Same Store property taxes increased 5.9% year over year.

Investment Management Activity
In the second quarter of 2019, Invitation Homes acquired 740 homes for $211 million, including estimated renovation costs, and sold 779 homes for gross proceeds of $205 million, resulting in a total portfolio home count of 80,322 homes as of June 30, 2019.  Acquisitions in the quarter included the previously announced $115 million bulk acquisition of 297 homes in Las Vegas and 166 homes in Atlanta, located within in-fill submarkets that overlap closely with Invitation Homes' existing footprint in those markets.

In YTD 2019, the Company acquired 948 homes for $273 million, including estimated renovation costs, and sold 1,433 homes for gross proceeds of $360 million.

Balance Sheet and Capital Markets Activity
As of June 30, 2019, the Company had $1,077 million in available liquidity through a combination of unrestricted cash and undrawn capacity on its revolving credit facility.  The Company's total indebtedness as of June 30, 2019 was $9,036 million, consisting of $6,961 million of secured debt and $2,075 million of unsecured debt.

As previously announced, in the second quarter of 2019 the Company completed a $403 million twelve-year secured term loan (IH 2019-1) with a U.K.-based life insurance company.  Total cost of funds for the loan is fixed at 3.59% for the first 11 years, and then floats at LIBOR + 147 basis points in the twelfth year.  The loan is prepayable with yield maintenance during the first 11 years, and prepayable with no yield maintenance in year 12.  Structural features of the loan provide for more flexibility than in most of the Company's other secured financings to date.  Invitation Homes has the right to substitute properties representing up to 20% of the collateral pool annually, and up to 100% of the collateral pool over the life of the loan, subject to certain requirements and limitations outlined in the loan agreement.  In addition, four times after the first anniversary of the closing of the loan, and subject to certain requirements and limitations outlined in the loan agreement, Invitation Homes has the right to execute a special release of collateral representing up to 15% of the then-outstanding principal balance of the loan in order to bring the loan-to-value ratio back in line with the loan-to-value ratio as of the closing date.

Net proceeds from IH 2019-1 and other cash on hand were used in the second quarter of 2019 to repay the full $368 million balance of CSH 2016-2, eliminating all debt maturing prior to 2022, and to repay $161 million of other secured borrowings.  In July 2019, the Company voluntarily prepaid an additional $50 million of secured borrowings under IH 2017-2.  The secured debt repaid in the second quarter of 2019 and July 2019 carried a weighted average interest rate of LIBOR + 199 basis points.

On July 1, 2019, the Company completed settling conversions of its 2019 Convertible Notes with common shares.  Conversion of the $230 million of 2019 Convertible Notes resulted in issuance of 12.6 million common shares.

Pro forma the conversion of the 2019 Convertible Notes, weighted average years to maturity as of June 30, 2019 was 5.5 years, and net debt / annualized Adjusted EBITDAre as of June 30, 2019 was 8.4x, down from 9.0x at the end of 2018.

Full Year 2019 Guidance Update

FY 2019 Guidance
		Revised		Previous
		FY 2019		FY 2019
		Guidance		Guidance
Core FFO per share – diluted (1)		$1.23 - $1.29		$1.21 - $1.29
AFFO per share – diluted (1)		$1.01 - $1.07		$0.99 - $1.07
Same Store Core revenue growth		4.0% - 4.5%		3.8% - 4.4%
Same Store Core operating expense growth		2.0% - 3.0%		3.0% - 4.0%
Same Store NOI growth		5.0% - 5.5%		4.0% - 5.0%

(1)	For the purposes of reporting 2019 Core FFO and AFFO per share, the Company treats the 2019 Convertible Notes in the form in which they are outstanding during each period.  Guidance treats the 2019 Convertible Notes as an interest-bearing liability in the first and second quarters of 2019, and as common shares in the third and fourth quarters of 2019.

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 10:00 a.m. Eastern Time on Wednesday, July 31, 2019 to discuss results for the second quarter of 2019.  The domestic dial-in number is 1-888-317-6003, and the international dial-in number is 1-412-317-6061.  The passcode is 8316870.  An audio webcast may be accessed at www.invh.com.  A replay of the call will be available through August 31, 2019 and can be accessed by calling 1-877-344-7529 (domestic) or 1-412-317-0088 (international) and using the replay passcode 10133315, 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: [e-mail]

Media Relations Contact

Kristi DesJarlais
Phone: [phone]
Email: [e-mail]

Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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.  The Company believes these factors include, but are not limited to, those described 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, 2018, 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.

Consolidated Balance Sheets
($ in thousands, except shares and per share data)
		June 30,				December 31,
		2019				2018
		(unaudited)
Assets:
Investments in single-family residential properties, net		$	16,463,527			$	16,686,060
Cash and cash equivalents		77,046				144,940
Restricted cash		242,409				215,051
Goodwill		258,207				258,207
Other assets, net		672,964				759,170
Total assets		$	17,714,153			$	18,063,428
Liabilities:
Mortgage loans, net		$	6,509,962			$	7,201,654
Secured term loan, net		400,869				—
Term loan facility, net		1,492,304				1,490,860
Revolving facility		—				—
Convertible senior notes, net		561,830				557,301
Accounts payable and accrued expenses		227,983				169,603
Resident security deposits		151,995				148,995
Other liabilities		331,742				125,829
Total liabilities		9,676,685				9,694,242
Equity:
Stockholders' equity
Preferred stock, $0.01 par value per share, 900,000,000 shares authorized, none outstanding as of June 30, 2019 and December 31, 2018		—				—
Common stock, $0.01 par value per share, 9,000,000,000 shares authorized, 525,126,947 and 520,647,977 outstanding as of June 30, 2019 and December 31, 2018, respectively		5,251				5,206
Additional paid-in capital		8,686,927				8,629,462
Accumulated deficit		(469,129)				(392,594)
Accumulated other comprehensive loss		(265,370)				(12,963)
Total stockholders' equity		7,957,679				8,229,111
Non-controlling interests		79,789				140,075
Total equity		8,037,468				8,369,186
Total liabilities and equity		$	17,714,153			$	18,063,428

 

Consolidated Statements of Operations
($ in thousands, except shares and per share amounts) (unaudited)
		Q2 2019				Q2 2018				YTD 2019				YTD 2018
Rental revenues and other property income		$	441,582			$	432,426			$	877,082			$	856,095
Expenses:
Property operating and maintenance		166,574				165,423				326,920				326,190
Property management expense		16,021				14,348				31,181				31,512
General and administrative		15,956				24,636				42,494				52,272
Interest expense		95,706				97,226				189,689				189,525
Depreciation and amortization		133,031				146,450				266,640				290,950
Impairment and other		1,671				4,103				7,063				10,224
Total expenses		428,959				452,186				863,987				900,673
Other, net		610				1,631				3,735				3,367
Gain on sale of property, net of tax		26,172				3,941				43,744				9,443
Net income (loss)		39,405				(14,188)				60,574				(31,768)
Net (income) loss attributable to non-controlling interests		(463)				242				(810)				553
Net income (loss) attributable to common stockholders		38,942				(13,946)				59,764				$	(31,215)
Net income available to participating securities		(109)				(209)				(215)				(431)
Net income (loss) available to common stockholders — basic and diluted		$	38,833			$	(14,155)			$	59,549			$	(31,646)
Weighted average common shares outstanding — basic		525,070,036				520,509,058				523,265,455				520,087,371
Weighted average common shares outstanding — diluted		525,933,643				520,509,058				524,190,469				520,087,371
Net income (loss) per common share — basic		$	0.07			$	(0.03)			$	0.11			$	(0.06)
Net income (loss) per common share — diluted		$	0.07			$	(0.03)			$	0.11			$	(0.06)
Dividends declared per common share		$	0.13			$	0.11			$	0.26			$	0.22

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/loss 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 and seasoned (whether under Invitation Homes ownership or Starwood Waypoint Homes ownership), excluding homes that have been sold, homes that have been identified for sale to an owner occupant and have become vacant, homes that have been deemed inoperable or significantly impaired by casualty loss events or force majeure, and homes acquired in portfolio transactions that are deemed not to have undergone renovations of sufficiently similar quality and characteristics as the existing Invitation Homes Same Store portfolio.

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.

Homes are considered to be seasoned once they have been stabilized for at least 15 months prior to January 1^st of the year in which the Same Store portfolio was established.

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.

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:

Reconciliation of FFO, Core FFO, and AFFO
($ in thousands, except shares and per share amounts) (unaudited)
FFO Reconciliation		Q2 2019				Q2 2018				YTD 2019				YTD 2018
Net income (loss) available to common stockholders		$	38,833			$	(14,155)			$	59,549			$	(31,646)
Net income available to participating securities		109				209				215				431
Non-controlling interests		463				(242)				810				(553)
Depreciation and amortization on real estate assets		131,782				144,947				264,302				288,055
Impairment on depreciated real estate investments		4,076				1,671				7,329				2,274
Net gain on sale of previously depreciated investments in real estate		(26,172)				(3,941)				(43,744)				(9,443)
FFO		$	149,091			$	128,489			$	288,461			$	249,118
Core FFO Reconciliation		Q2 2019				Q2 2018				YTD 2019				YTD 2018
FFO		$	149,091			$	128,489			$	288,461			$	249,118
Noncash interest expense		12,172				11,543				27,037				20,038
Share-based compensation expense		3,615				8,016				9,222				17,514
Offering related expenses		476				—				2,019				—
Merger and transaction-related expenses		1,552				4,236				4,347				8,603
Severance expense		375				1,681				7,344				4,340
Casualty losses, net		(2,405)				2,432				(266)				7,950
Core FFO		$	164,876			$	156,397			$	338,164			$	307,563
AFFO Reconciliation		Q2 2019				Q2 2018				YTD 2019				YTD 2018
Core FFO		$	164,876			$	156,397			$	338,164			$	307,563
Recurring capital expenditures		(31,799)				(28,848)				(56,910)				(54,241)
Adjusted FFO		$	133,077			$	127,549			$	281,254			$	253,322
Net income (loss) available to common stockholders
Weighted average common shares outstanding — diluted (1)		525,933,643				520,509,058				524,190,469				520,087,371
Net income (loss) per common share — diluted (1)		$	0.07			$	(0.03)			$	0.11			$	(0.06)
FFO
FFO for per share calculation(1)		$	151,874			$	128,489			$	294,047			$	249,118
Weighted average common shares and OP Units outstanding — diluted (1)		544,335,990				530,509,568				544,365,617				530,417,389
FFO per share — diluted (1)		$	0.28			$	0.24			$	0.54			$	0.47
Core FFO and Adjusted FFO
Weighted average shares and units outstanding — diluted (2)		531,782,126				530,509,568				531,811,753				530,417,389
Core FFO per share — diluted (2)		$	0.31			$	0.29			$	0.64			$	0.58
AFFO per share — diluted (2)		$	0.25			$	0.24			$	0.53			$	0.48

(1)	In accordance with GAAP and Nareit guidelines, net income (loss) per share and FFO per share are calculated as if the 2019 Convertible Notes were converted to common shares at the beginning of the relevant period, unless such treatment is anti-dilutive to net income (loss) per share or FFO per share.  As such, FFO per share in Q2 2019 and YTD 2019 are calculated by adjusting FFO in the numerator to remove the interest expense associated with the 2019 Convertible Notes, and including shares issued upon conversion of the 2019 Convertible Notes as shares outstanding in the denominator.  Net income per share in Q2 2019 and YTD 2019 do not treat the 2019 Convertible Notes as if they were converted, as doing so would be anti-dilutive to net income per share.
(2)	Core FFO and AFFO per share reflect the 2019 Convertible Notes in the form in which they were outstanding during the period.  Because the 2019 Convertible Notes were an interest-bearing liability during the periods reflected in the table, cash interest expense associated with the 2019 Convertible Notes has been included in Core FFO and AFFO in the numerators, and shares issued upon conversion of the 2019 Convertible Notes have not been included as shares outstanding in the denominators.

 

Reconciliation of Total Revenues to Same Store Total Revenues and Same Store Core Revenues, Quarterly
(in thousands) (unaudited)
		Q2 2019				Q1 2019				Q4 2018				Q3 2018				Q2 2018
Total revenues (total portfolio)		$	441,582			$	435,500			$	432,616			$	434,251			$	432,426
Non-Same Store revenues		(33,549)				(34,327)				(37,578)				(43,786)				(44,702)
Same Store revenues		408,033				401,173				395,038				390,465				387,724
Same Store resident recoveries		(16,765)				(15,018)				(13,397)				(13,503)				(12,095)
Same Store Core revenues		$	391,268			$	386,155			$	381,641			$	376,962			$	375,629

 

Reconciliation of Total Revenues to Same Store Total Revenues and Same Store Core Revenues, YTD
(in thousands) (unaudited)
		YTD 2019				YTD 2018
Total revenues (total portfolio)		$	877,082			$	856,095
Non-Same Store revenues		(67,876)				(87,273)
Same Store revenues		809,206				768,822
Same Store resident recoveries		(31,783)				(24,769)
Same Store Core revenues		$	777,423			$	744,053

 

Reconciliation of Property Operating and Maintenance to Same Store Operating Expenses and Same Store Core Operating Expenses, Quarterly
(in thousands) (unaudited)
		Q2 2019				Q1 2019				Q4 2018				Q3 2018				Q2 2018
Property operating and maintenance expenses (total portfolio)		$	166,574			$	160,346			$	159,200			$	170,021			$	165,423
Non-Same Store operating expenses		(15,556)				(16,813)				(16,042)				(19,274)				(19,906)
Same Store operating expenses		151,018				143,533				143,158				150,747				145,517
Same Store resident recoveries		(16,765)				(15,018)				(13,397)				(13,503)				(12,095)
Same Store Core operating expenses		$	134,253			$	128,515			$	129,761			$	137,244			$	133,422

 

Reconciliation of Property Operating and Maintenance to Same Store Operating Expenses and Same Store Core Operating Expenses, YTD
(in thousands) (unaudited)
		YTD 2019				YTD 2018
Property operating and maintenance expenses (total portfolio)		$	326,920			$	326,190
Non-Same Store operating expenses		(32,369)				(39,329)
Same Store operating expenses		294,551				286,861
Same Store resident recoveries		(31,783)				(24,769)
Same Store Core operating expenses		$	262,768			$	262,092

 

Reconciliation of Net Income (Loss) to NOI and Same Store NOI, Quarterly
(in thousands) (unaudited)
		Q2 2019				Q1 2019				Q4 2018				Q3 2018				Q2 2018
Net income (loss) available to common stockholders		$	38,833			$	20,716			$	25,078			$	824			$	(14,155)
Net income available to participating securities		109				106				190				196				209
Non-controlling interests		463				347				446				21				(242)
Interest expense		95,706				93,983				96,506				97,564				97,226
Depreciation and amortization		133,031				133,609				130,220				139,371				146,450
General and administrative		15,956				26,538				25,340				21,152				24,636
Property management expense		16,021				15,160				17,281				16,692				14,348
Impairment and other		1,671				5,392				7,343				3,252				4,103
Gain on sale of property, net of tax		(26,172)				(17,572)				(28,727)				(11,512)				(3,941)
Other, net		(610)				(3,125)				(261)				(3,330)				(1,631)
NOI (total portfolio)		275,008				275,154				273,416				264,230				267,003
Non-Same Store NOI		(17,993)				(17,514)				(21,536)				(24,512)				(24,796)
Same Store NOI		$	257,015			$	257,640			$	251,880			$	239,718			$	242,207

 

Reconciliation of Net Income (Loss) to NOI and Same Store NOI, YTD
(in thousands) (unaudited)
		YTD 2019						YTD 2018
Net income (loss) available to common stockholders		$			59,549			$			(31,646)
Net income available to participating securities		215						431
Non-controlling interests		810						(553)
Interest expense		189,689						189,525
Depreciation and amortization		266,640						290,950
General and administrative		42,494						52,272
Property management expense		31,181						31,512
Impairment and other		7,063						10,224
Gain on sale of property, net of tax		(43,744)						(9,443)
Other, net		(3,735)						(3,367)
NOI (total portfolio)		550,162						529,905
Non-Same Store NOI		(35,507)						(47,944)
Same Store NOI		$			514,655			$			481,961

 

Reconciliation of Net Income (Loss) to EBITDA, EBITDAre, and Adjusted EBITDAre
(in thousands) (unaudited)
		Q2 2019				Q2 2018				% Change			YTD 2019				YTD 2018				% Change
Net income (loss) available to common stockholders		$	38,833			$	(14,155)						$	59,549			$	(31,646)
Net income available to participating securities		109				209							215				431
Non-controlling interests		463				(242)							810				(553)
Interest expense		95,706				97,226							189,689				189,525
Depreciation and amortization		133,031				146,450							266,640				290,950
EBITDA		268,142				229,488							516,903				448,707
Gain on sale of property, net of tax		(26,172)				(3,941)							(43,744)				(9,443)
Impairment on depreciated real estate investments		4,076				1,671							7,329				2,274
EBITDAre		246,046				227,218							480,488				441,538
Share-based compensation expense		3,615				8,016							9,222				17,514
Merger and transaction-related expenses		1,552				4,236							4,347				8,603
Severance		375				1,681							7,344				4,340
Casualty losses, net		(2,405)				2,432							(266)				7,950
Other, net		(610)				(1,631)							(3,735)				(3,367)
Adjusted EBITDAre		$	248,573			$	241,952			2.7	%		$	497,400			$	476,578			4.4	%

 

Reconciliation of Net Debt / Annualized Adjusted EBITDAre
(in thousands, except for ratio) (unaudited)
		As of
		June 30, 2019
Mortgage loans, net		$	6,509,962
Secured term loan, net		400,869
Term loan facility, net		1,492,304
Revolving facility		—
Convertible senior notes, net		561,830
Total Debt per Balance Sheet		8,964,965
Retained and repurchased certificates		(333,905)
Cash, ex-security deposits (1)		(167,982)
Deferred financing costs		54,602
Unamortized discounts on note payable		15,976
Net Debt (A)		$	8,533,656
2019 convertible senior notes, net		(229,989)
Pro Forma Net Debt (B) (2)		$	8,303,667
		For the Three
		Months Ended
		June 30, 2019
Adjusted EBITDAre (C)		$	248,573
Annualized Adjusted EBITDAre (D = C x 4)		$	994,292
Net Debt / Annualized Adjusted EBITDAre (A / D)		8.6x
Pro Forma Net Debt / Annualized Adjusted EBITDAre (B / D) (2)		8.4x

(1)	Represents cash and cash equivalents and the non-security deposit portion of restricted cash.
(2)	In July 2019, the Company completed settling conversions of its 2019 Convertible Notes with common shares.  Pro Forma Net Debt and Pro Forma Net Debt / Annualized Adjusted EBITDAre is reduced for the impact of the conversion of the 2019 Convertible Notes.

 

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SOURCE Invitation Homes