Invitation Homes Earnings: Announces Large Portfolio Acquisition Alongside Strong Rent Growth

Invitation Homes INVH reported second-quarter results that were in line with our expectations, leading us to reaffirm our $40 fair value estimate for the no-moat company. Same-store occupancy fell 20 basis points sequentially to 97.6%, though that is slightly better than our estimate of 97.3% occupancy. Average rental rates increased 7.4% year over year, in line with our estimate of 7.3% growth, leading to same-store revenue growth of 5.9% in the second quarter. However, same-store operating expenses increased 11.2% in the quarter largely due to a 36.5% increase in turnover costs and a 46.9% increase in property administrative costs from higher lease compliance costs. As a result, same-store net operating income only grew 3.6% in the second quarter, though that is slightly better than our estimate of 2.8% growth. Invitation Homes reported core funds from operations of $0.44 per share in the second quarter, which matched our estimate and is 2 cents better than the $0.42 figure the company reported in the second quarter of 2022.

The company reported that subsequent to quarter-end it had acquired a portfolio of 1,900 homes for $650 million. The acquisition was funded primarily with cash on hand as the company had $414 million of cash on its balance sheet at the end of the second quarter with the remaining funding coming from the company’s line of credit. Management stated that it achieved an acquisition cap rate in the mid-5% range, which is in line with the cap rates the company has historically paid. As a result of the transaction, management raised its 2023 acquisition guidance to a new range of $800 million to $900 million from its prior range of $250 million to $300 million. However, we generally don’t believe that acquisitions at a mid-5% cap rate are materially accretive to shareholder value, so we don’t anticipate making a change to our fair value estimate on the news of the large acquisition.