Invitation Homes Earnings: Expense Growth Remains Elevated While Company Completes Major Acquisition

Third-quarter results for Invitation Homes INVH were in line with our expectations, leading us to reaffirm our $41 fair value estimate for the no-moat company. Same-store occupancy fell 70 basis points sequentially to 96.9%, relatively in line with our estimate of 97.0%. Meanwhile, average rents increased 6.2% year over year, close to our estimate of 5.9% growth for the third quarter, which led to same-store revenue growth of 6.0%. Same-store operating expenses remain elevated with the company reporting 10.2% year-over-year growth, though expense growth has been decelerating each quarter since the company reported what appears to be the peak of 16.3% growth in the fourth quarter of 2022. As a result, same-store net operating income grew 4.0% in the third quarter, which is below our estimate of 5.8% growth. Still, Invitation Homes reported core funds from operations of $0.44 per share in the third quarter that matched our estimate and is up $0.02 from the $0.42 figure the company reported in the third quarter of 2022.

Invitation Homes acquired 2,257 homes in the third quarter for $842 million, which is nearly twice the company’s prior record for acquisition volume in a single quarter. This includes a previously announced acquisition of a portfolio of 1,870 homes in July but also includes 387 homes purchased through other deals that match the general volume of acquisition activity the company normally executes. The reported average acquisition cap rate of 5.5% for the quarter is in line with the level the company has typically executed at over the past several years, which is mildly impressive given that large portfolio acquisitions typically are done at cap rates 25 basis points to 50 basis points below smaller deals. Still, given that the 5.5% cap rate basically matches the 5.45% and 5.50% interest rates on the two senior notes issued to finance the deals, we don’t view the large volume of acquisitions as being materially accretive for shareholders.