Invitation Homes

Invitation Homes boasted that its lease growth were accelerating but were more affordable due to rising mortgage rates 

The CEO of Invitation Homes told analysts that “Lease growth continued to accelerate, including a blended rate of 11.8% that was 380 basis points higher year-over-year.” “DALLAS B. TANNER, CO-FOUNDER, PRESIDENT, CEO & DIRECTOR, INVITATION HOMES INC.: Thanks, Scott, and good morning. I’m excited to speak with you today following the release of our second quarter results. The state of the business remains very healthy. Second quarter average occupancy was 98%. We set a new record with trailing 12-month turnover at only 21.3%. Lease growth continued to accelerate, including a blended rate of 11.8% that was 380 basis points higher year-over-year. And same-store NOI growth was 12.4%.” (Q2 2022 Invitation Homes Inc Earnings Call, 7/28/2022) 

The COO of Invitation Homes: “New lease growth rate accelerated throughout the second quarter, with June’s 17.9% result surpassing May’s 16.5% and April’s 15.4%” “CHARLES D. YOUNG, EXECUTIVE VP & COO, INVITATION HOMES INC.: Next, I’ll discuss the current leasing environment. We continue to see strong demand through the second quarter into July. New lease growth rate accelerated throughout the second quarter, with June’s 17.9% result surpassing May’s 16.5% and April’s 15.4%. Blended rate growth was 11.8% for the second quarter, up 380 basis points from last year’s strong results. As we sit today, leads are at or near 3-year highs, while our application volume remains in line with the last 2 years.” (Q2 2022 Invitation Homes Inc Earnings Call, 7/28/2022) 

Invitation Homes saw its strongest lease growth in Las Vegas, Phoenix, and Florida, with new lease growth “significantly exceeding” the growth for lease renewals. “CHARLES D. YOUNG, EXECUTIVE VP & COO, INVITATION HOMES INC.: Markets with the strongest new lease growth continued to include Las Vegas and Phoenix, and now also include South Florida, Tampa, Orlando as well, reflecting the continued strength of the Sunbelt. Further, with our new lease rate growth continuing to significantly exceed renewals, we remain — we maintain a sizable loss to lease that we estimate to be approximately 16% across the portfolio. Together with our historically low turnover, we believe we are well positioned for future rental growth.” (Q2 2022 Invitation Homes Inc Earnings Call, 7/28/2022) 

Invitation Homes COO told analysts that even as leases skyrocketed, it remained more affordable than owning thanks to rising mortgage rates “CHARLES D. YOUNG, EXECUTIVE VP & COO, INVITATION HOMES INC.: While these leasing trends are notable, so too are new resident incomes. Residents who moved in with us for 12 months ending June 30 had an average annual household income that exceeded $131,000. This represented income-to-rent ratio of 5.3x, which means our new residents are spending on average less than 19% of their annual income on housing. Leasing a home has become increasingly more affordable given rising mortgage rates and home prices. According to John Burns’ latest figures, in all 16 of our markets, it is more affordable to lease a single-family home today than it is to buy by a weighted average savings of almost $700 per month or 24%.” (Q2 2022 Invitation Homes Inc Earnings Call, 7/28/2022) 

After being asked if it could raise lease renewals even faster, Invitation Homes said “We’ve been really tough on renewals.”

A Barclays Analyst pressed Invitation Homes on increasing lease renewal growth, if there was “more of an opportunity to maybe be a bit more aggressive there given the overall dynamics in rental housing across your markets?” “ANTHONY FRANKLIN POWELL, RESEARCH ANALYST, BARCLAYS BANK PLC, RESEARCH DIVISION: Question on renewals versus new lease spreads, they’ve converged a bit in the past few quarters. I know you want to be prudent in terms of pushing rate on renewals. That said, is there more of an opportunity to maybe be a bit more aggressive there given the overall dynamics in rental housing across your markets?” (Q2 2022 Invitation Homes Inc Earnings Call, 7/28/2022) 

Invitation Homes’ COO emphasized “We’ve been really tough on renewals. As you can see, we’ve been pushing up almost every quarter, every month for the last year or so breaking into the low 10% here.” “CHARLES D. YOUNG: Yes. As we said from the beginning — this is Charles here. We’ve been really tough on renewals. As you can see, we’ve been pushing up almost every quarter, every month for the last year or so breaking into the low 10% here. Ernie mentioned it, we’re — for September and October, we’re out in the mid-10s, 10.5, 10.4 (inaudible). So I expect that we’re going to stay steady there. And what you’ll see is we’re kind of in really nice new lease spreads, but — accelerating from Q2 to Q3. Naturally, we’ll see that stay high in Q3. But as we move into Q4, you’ll see some seasonal slowdown. And I think those spreads will start to — between the new lease and renewals, start to converge a bit. And given our loss to lease that I mentioned earlier, we think that those renewals are going to stay steady for a little while as we try to catch up and clean up there.” (Q2 2022 Invitation Homes Inc Earnings Call, 7/28/2022) 

Invitation Homes stressed “we don’t have any really hard caps other than where we’re required in California, but we are thoughtful about how we do that and where we go. And you can see we’re still steadily pushing that number up.” “CHARLES D. YOUNG, EXECUTIVE VP & COO, INVITATION HOMES INC.: So we’ve been thoughtful. Low turnover is a good thing for this business. We look at it in terms of our markets and where we think market is. But on an individual home or a submarket, our local teams are really thoughtful around are we pushing the rent too much. We’re not — we don’t have any really hard caps other than where we’re required in California, but we are thoughtful about how we do that and where we go. And you can see we’re still steadily pushing that number up. So we’re going to keep finding that right balance, and I think we’re putting up good numbers overall. (Q2 2022 Invitation Homes Inc Earnings Call, 7/28/2022)

Invitation Homes boasted to analysts that rising rates was making their single family rental model even stronger

Invitation Homes CEO: “one could obviously argue if the cost of owning a home is 60% higher today than it was in January of earlier this year that’s a net windfall to single-family rental one would assume.”  “Dallas Tanner – President & Chief Executive Officer: That being said I think we’re also early in where the impact of mortgage rates are and what that could mean for our business both in how we capture existing demand in the marketplace, because one could obviously argue if the cost of owning a home is 60% higher today than it was in January of earlier this year that’s a net windfall to single-family rental one would assume.” (Invitation Homes Inc. Q3 2022 Earnings Call, 10/27/2022)

Invitation Homes CEO told analysts their single family rental model was more valuable as “elevated interest and mortgage rates haven’t helped as seen by the pullback from builders in the last month’s further decline in starts for single-family home” “Dallas Tanner – President & Chief Executive Officer: To start we believe professionally managed single-family homes for lease are an important part of the housing solution in the United States. We still face a housing supply shortage in this country by as many as several million units from some accounts. Today’s elevated interest and mortgage rates haven’t helped as seen by the pullback from builders in the last month’s further decline in starts for single-family home. It’s also harder for those thinking of buying a home in the near term. Recent reports have noted that monthly payments on new mortgages have increased by as much as 60% since the start of this year due to higher mortgage rates.” (Invitation Homes Inc. Q3 2022 Earnings Call, 10/27/2022)

Invitation Homes CEO noted that rising mortgage rates “contributes to a cost of homeownership that is over 20% higher on average than leasing across Invitation Homes markets.”  “Dallas Tanner – President & Chief Executive Officer: According to last month’s data from John Burns, this contributes to a cost of homeownership that is over 20% higher on average than leasing across Invitation Homes markets. That works out to an average difference of roughly $600 a month in savings from leasing a home. So, leasing remains a preferred choice for many families combining convenience and flexibility as well as value. These advantages further fan the favorable tailwinds of demographics especially among millennials who are just beginning to approach our average resident age of 39 years old.” (Invitation Homes Inc. Q3 2022 Earnings Call, 10/27/2022)

Invitation Homes said it was rising rental rates by 10% and admitted increasing move outs with renters who were behind

Invitation Homes boasted to analysts the company was seeing 10% increases in their the lease rental rates.  “Charles Young – Chief Operating Officer Next, I’ll cover third quarter leasing trends. New lease rates grew 15.6% and renewal rates grew 10.2%. This resulted in blended rent growth of 11.6% or 100 basis points higher than the third quarter of 2021. Given that we’re nearing the end of the year, I’ll also touch on how things are shaping up for October. We expect new lease rate growth for this month to come in at 9% or better, and renewal increases to come in at 10% or better. We sent out renewals for November and December in the mid-10% range. All told, these are strong increases that we believe underscore the current health of the single-family fundamentals.” (Invitation Homes Inc. Q3 2022 Earnings Call, 10/27/2022)

Invitation Homes COO told analysts “We’re seeing good demand and healthy rent growth…Blended rent growth with the strength of renewals are really strong.”  “Charles Young – Chief Operating Officer: Yes. No great question. Look we — 97.5% ended Q3 really strong. We know that it’s Q4 as Dallas mentioned that we’re seeing the seasonality return to the market that wasn’t there the last couple of years. And so, this is typical as we go into Q4 and it’s a push for the holidays. So the — we’re running limited concessions on select homes as really a push before Thanksgiving just to secure and make sure that we keep occupancy at a healthy rate which it is or 97%-plus for this time of the year is amazing. We’re seeing good demand and healthy rent growth with the numbers that I gave you. Blended rent growth with the strength of renewals are really strong. So this is really just making sure we go into the slow period highly occupied as high as we can and then set us up well for 2023.” (Invitation Homes Inc. Q3 2022 Earnings Call, 10/27/2022)

Invitation Homes said it was pushing harder on evicting residents who were behind on rent

Invitation Homes COO noted a 15% increase in “turnover expenses” due to a “ rise in the number of move-outs of residents, who are not current with their rent.”  “Charles Young – Chief Operating Officer: Returning to our same-store results for the quarter. Core operating expenses increased 7.6% year-over-year, primarily driven by a 3.8% increase in fixed expenses, a 15.4% increase in repair and maintenance expense and a 15.2% increase in turnover expenses. These increases were attributable to the continued inflationary pressure — pressures and a rise in the number of move-outs of residents, who are not current with their rent. Our teams are working hard to leverage our procurement relationships, our scale and our technology to combat these pressures where we can.” (Invitation Homes Inc. Q3 2022 Earnings Call, 10/27/2022)

Invitation Homes CFO: “ the bigger issue with the turnover is, as we are having some success as Charles talked about in dealing with residents who aren’t paying rent, those churns tend to be more expensive when someone comes out.”  “Ernie Freedman – Chief Financial Officer: Yes. No, Dennis, we continue to have inflationary pressures on both the — with regards to repairs and maintenance and on terms. With churn, I would call out, we also do expect turnover to be maybe slightly higher than at last year. But the bigger issue with the turnover is, as we are having some success as Charles talked about in dealing with residents who aren’t paying rent, those churns tend to be more expensive when someone comes out.” (Invitation Homes Inc. Q3 2022 Earnings Call, 10/27/2022)

Invitation Homes COO said that “in 2022, we purposely were focused in on getting back to our typical enforcement of the lease where we legally could. “  “Charles Young – Chief Operating Officer: Hi Haendel, it’s Charles. Thanks for the question. Let me just step back and kind of set context around the environment. As we talked about on prior calls since early in the pandemic we were very conscious of working with residents that face the closer hardship and helped thousands of residents with flexible payment plans and the like. But in 2022, we purposely were focused in on getting back to our typical enforcement of the lease where we legally could. But what we’re seeing in the process — and it has been working is — what we’re seeing in the process though however is the states are taking — and it varies by state they’re taking two or three times longer to process non-payers through the system.” (Invitation Homes Inc. Q3 2022 Earnings Call, 10/27/2022)

Invitation Home executives repeatedly praised the end of rental aid as improving tenant “behavior”

Invitation Homes CFO said that thanks to the decline in rental aid assistance “we have gotten better at being able to collect rent on normal non-rental assistance and that our residents are also seeing that,” calling it a “perverse incentive.”  “Charles Young – Chief Operating Officer: That being said, at the same time, rental assistance has been a big part of what we’ve done to help our — support our residents. And today we’ve supported over 12,000 residents secure rental assistance. And in 2022 alone, we’ve secured over $57 million to help them. And we knew that that rental assistance would slow down towards the back half of the year, but that acceleration in Q3 was a little faster than we thought it would be. The good news is, as that acceleration has come we have gotten better at being able to collect rent on normal non-rental assistance and that our residents are also seeing that. And we’re starting to see them step up in terms of recognizing that kind of perverse incentive that they were waiting on the rental systems to show up that they need to pay now.” (Invitation Homes Inc. Q3 2022 Earnings Call, 10/27/2022)

Invitation Homes CFO: “People are getting — they understand that rent assistance, isn’t going to be available for them anymore…we’ve seen better behavior in terms of people then making up for the fact.”  “Ernie Freedman – Chief Financial Officer: So from the second quarter to the third quarter, we saw rent assistance payments drop for us by $9 million from $23 million to $14 million. Bad debt went up $5 million from the second quarter to third quarter. So, one might have thought that if we’re going to lose $9 million of rent assistance, bad debt would have been up $9 million. It’s only up $5 million, and that’s because of what Charles talked about. People are getting — they understand that rent assistance, isn’t going to be available for them anymore. And people are starting to get back on I’d say, what we saw pre-pandemic in terms of keeping more current with their rents. So we would expect going forward maybe a similar type thing, where you see rent assistance continue to drop off and fade away and likely be gone as we — it may be a little bit trickles into the first quarter of 2023, but we’re not counting on very much there at all. But for the last couple of quarters, we’ve seen better behavior in terms of people then making up for the fact, that we’ve had a little bit of a dropoff there.” (Invitation Homes Inc. Q3 2022 Earnings Call, 10/27/2022)

Invitation Homes COO: “we’ve seen improvement in terms of how residents are paying. A lot of it is just the psychology effect of them getting back to understanding we are at our normal way in which we enforce the lease.”  “Charles Young – Chief Operating Officer: Yes. As I said on earlier question, the flexibility that we were showing while we’re waiting and supporting the residents, with rental assistance and how we’ve been tightening this year, we’re just going to continue to do that as residents recognize that the rental assistance going away. The partial payments and all that stuff, we’re going really back to where we were before. And as Ernie just mentioned, we’ve seen improvement in terms of how residents are paying. A lot of it is just the psychology effect of them getting back to understanding we are at our normal way in which we enforce the lease. And we’ll continue to do that to execute while the rental assistance, wanes and we’re starting to see good improvement and we’ll continue to push. And it will be like I said, a little bit of a transition period as we work through back to normal eventually.” (Invitation Homes Inc. Q3 2022 Earnings Call, 10/27/2022)

Invitation Homes predicted opportunities to buy as the housing market declined, comparing it to the 2008 crash

Invitation Homes CEO discussed the possibility of buying more homes for rent as the market declined: “we would view this as a very opportunistic moment for us say over the next year or two where we should be able to lean in.”  “Dallas Tanner – President & Chief Executive Officer: So, I imagine a lot of the near-term inventory can get taken care of through kind of the use of buying down rate. Also, obviously, selling scattered sites to operators, like ourselves, we have done some of that. I think over the last couple of years, we’ve picked up a couple of hundred homes that way. So, we’re going to continue to invest in it. It’s part of our thesis. We have over 2000 homes in our pipeline that we’re doing with Pulte and other partners. And we would view this as a very opportunistic moment for us say over the next year or two where we should be able to lean in and be a good partner with not only our current partners but maybe future partners down the road. (Invitation Homes Inc. Q3 2022 Earnings Call, 10/27/2022)

Invitation Homes CEO said “we’re viewing the next, call it, a couple of years as a great opportunity for growth,” comparing it to the aftermath of the 2008 housing crisis.  “Dallas Tanner – President & Chief Executive Officer: So, from our advantage point, we’ve seen this once before. While my current belief is that we’re not going to see housing move backwards like we did in 2007 and 2008. I think it could be a great opportunity for Invitation Homes over time to make additional meaningful investments that will add to our already, what I would call industry-leading scale and performance. So, we’re viewing the next, call it, a couple of years as a great opportunity for growth.” (Invitation Homes Inc. Q3 2022 Earnings Call, 10/27/2022)

Invitation Homes’ CEO said he didn’t see any suggestion housing prices would decline significantly

Invitation Homes CEO: “ You have to take a step back in these moments and also remember, on a fundamental basis, we don’t have enough housing units in this country.” “Dallas Tanner – President & Chief Executive Officer: So, we would expect our business to hold up pretty well given any of the downcycle some of the embedded loss at least that Ernie talked about and the overall limitations around supply. You have to take a step back in these moments and also remember, on a fundamental basis, we don’t have enough housing units in this country. Specifically, if you look at our portfolio and where we’re lined up, you still are going to have household formation and demographic growth that’s almost 2.5 times the US average.” (Invitation Homes Inc. Q3 2022 Earnings Call, 10/27/2022)

Invitation Homes CEO told analysts “we’re not seeing anything that’s suggesting wholesale changes in the housing market right now outside of maybe new listings coming into the space and decelerating, which should support home prices in the near-term.” “Dallas Tanner – President & Chief Executive Officer: No. Our top of funnel has felt pretty consistent in terms of call it the type of customer coming into our business today. And it lines up with things that we generally would see in normal years around this time of the year. Now that being said and I think it’s important to emphasize, we’re not seeing anything that’s suggesting wholesale changes in the housing market right now outside of maybe new listings coming into the space and decelerating, which should support home prices in the near-term.” (Invitation Homes Inc. Q3 2022 Earnings Call, 10/27/2022)

Invitation Homes CEO that there was little sign of increasing housing supply, “so we view the overall landscape as quite favorable.”  “Dallas Tanner – President & Chief Executive Officer: We’re not seeing anything on the supply side that’s suggesting that we’re going to have a tremendous amount of inbound to put pressure on our existing supply. So we view the overall landscape as quite favorable, but we’re also being realistic that it’s still pretty early in terms of where mortgage rates are providing impact. But we’ll obviously keep everybody updated on our thoughts as we go forward.” (Invitation Homes Inc. Q3 2022 Earnings Call, 10/27/2022)