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Section 1: 10-Q (10-Q)

Document


 
 
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
 
 
 
FORM 10-Q
 
 
 
 
 
 
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended
March 31, 2018
 
 
OR
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from to
 
 
 
 
 
Commission File Number 001-38004
 
 
 
 
 
 
 
 
 
Invitation Homes Inc.
(Exact name of registrant as specified in governing instruments)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maryland
(State or other jurisdiction of incorporation or organization)
 
90-0939055
(I.R.S. Employer Identification No.)
 
 
 
 
 
 
 
1717 Main Street, Suite 2000
Dallas, Texas 75201
(Address of principal executive offices)(Zip Code)
 
 
 
 
 
(972) 421-3600
(Registrant’s telephone number, including area code)
 
 
 
 
 
 
 
 
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
 
 
 
 
 
 
 
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
 
 
Accelerated filer
o
Non-accelerated filer
x
(Do not check if a smaller reporting company)
Smaller reporting company
o
 
 
 
 
Emerging growth company
x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
 
 
 
As of May 10, 2018, there were 520,411,307 shares of common stock, par value $0.01 per share, outstanding.

 
 
 





INVITATION HOMES INC.
 
 
 
Page
PART I
Item
1.
Financial Statements
Item
2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item
3.
Quantitative and Qualitative Disclosures About Market Risk
Item
4.
Controls and Procedures
 
 
 
 
PART II
Item
1.
Legal Proceedings
Item
1A.
Risk Factors
Item
2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item
3.
Defaults Upon Senior Securities
Item
4.
Mine Safety Disclosures
Item
5.
Other Information
Item
6.
Exhibits
 
 
 
 
Signatures
 
 
 






FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 our expectations regarding the anticipated benefits of the merger with Starwood Waypoint Homes (“SWH”), the performance of our business, our financial results, our 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 and our business model, macroeconomic factors beyond our control, competition in identifying and acquiring properties, competition in the leasing market for quality residents, increasing property taxes, homeowners’ association (“HOA”) and insurance costs, our dependence on third parties for key services, risks related to the evaluation of properties, poor resident selection and defaults and non-renewals by our residents, performance of our information technology systems, and risks related to our 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. We believe these factors include, but are not limited to, those described under Part I. Item 1A. “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2017 (the “Annual Report on Form 10-K”) as such factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (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 elsewhere in this Quarterly Report on Form 10-Q, in the Annual Report on Form 10‑K and in our other periodic filings. The forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q, 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.




3



DEFINED TERMS
Prior to the completion of our initial public offering, our business was owned by six holding entities: Invitation Homes L.P., Preeminent Holdings Inc., Invitation Homes 3 L.P., Invitation Homes 4 L.P., Invitation Homes 5 L.P. and Invitation Homes 6 L.P. We refer to these six holding entities collectively as the “IH Holding Entities.” Unless the context suggests otherwise, references to “IH1,” “IH2,” “IH3,” “IH4,” “IH5” and “IH6” refer to Invitation Homes L.P., Preeminent Holdings Inc., Invitation Homes 3 L.P., Invitation Homes 4 L.P., Invitation Homes 5 L.P. and Invitation Homes 6 L.P., respectively, in each case including any wholly-owned subsidiaries, if applicable. THR Property Management L.P., a wholly-owned subsidiary of IH1 (the “Manager”), provides all management and other administrative services with respect to the homes we own. The IH Holding Entities were under the common control of Blackstone Real Estate Partners VII L.P., an investment fund sponsored by The Blackstone Group L.P., and its general partner and certain affiliated funds and investment vehicles. Investment funds and vehicles associated with or designated by The Blackstone Group L.P. are referred to herein as “Blackstone.” We refer to Blackstone, together with our management and other equity holders prior to the completion of our initial public offering, collectively as our “Pre-IPO Owners.”
On November 16, 2017 (the “Merger Date”), pursuant to an Agreement and Plan of Merger, dated August 9, 2017 (the “Merger Agreement”), by and among Invitation Homes Inc. (“INVH”), Invitation Homes Operating Partnership LP (“INVH LP”), IH Merger Sub, LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of INVH (“REIT Merger Sub”), SWH and Starwood Waypoint Homes Partnership, L.P., a Delaware limited partnership and a subsidiary of SWH (“SWH Partnership”), SWH merged with and into REIT Merger Sub, with REIT Merger Sub surviving as our subsidiary (the “REIT Merger”). Immediately after the REIT Merger, SWH Partnership merged with and into INVH LP, with INVH LP surviving as our subsidiary (the “Partnership Merger,” and together with the REIT Merger, the “Mergers”). “Legacy SWH” and “SWH,” as the context requires, refer to the business practices and operations of SWH prior to the Mergers, including the homes owned by SWH. “Legacy IH” refers to the business practices and operations of INVH prior to the Mergers, including the homes owned by INVH.
Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q to “Invitation Homes,” the “Company,” “we,” “our” and “us” refer (1) prior to the consummation of the reorganization transactions described in Part I. Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (the “Pre-IPO Transactions”), to the combined IH Holding Entities and their consolidated subsidiaries, including INVH LP, (2) after the consummation of the Pre-IPO Transactions, to INVH and its consolidated subsidiaries (including INVH LP and the IH Holding Entities), and (3) after the consummation of the Mergers, to INVH and its consolidated subsidiaries including those acquired in the Mergers.
In this Quarterly Report on Form 10-Q:
“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 rent concessions and contractual rent increases amortized over the life of the related lease;
“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;
“days to re-resident” for an individual home represents the number of days between (i) the date the prior resident moves out of a home, and (ii) the date the next resident is granted access to the same home, which is deemed to be the earlier of the next resident’s contractual lease start date and the next resident’s move-in date;
“Carolinas” includes Charlotte, NC, Greensboro, NC, Raleigh, NC and Fort Mill, SC.
“in-fill” refers to markets, MSAs, submarkets, neighborhoods or other geographic areas that are typified by significant population densities and low availability of land suitable for development into competitive properties, resulting in limited opportunities for new construction;
“Metropolitan Statistical Area” or “MSA” is defined by the United States Office of Management and Budget as a region associated with at least one urbanized area that has a population of at least 50,000 and comprises the central county or counties containing the core, plus adjacent outlying counties having a high degree of social and economic integration with the central county or counties as measured through commuting;


4



“net effective 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 non-service rent concessions and contractual rent increases amortized over the life of the related lease. 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;
“Northern California” includes Chico, CA, Modesto, CA, Napa, CA, Sacramento-Arden-Arcade-Roseville, CA, San Francisco-Oakland-Hayward, CA, Stockton-Lodi, CA, Vallejo-Fairfield, CA and Yuba City, CA;
“PSF” means per square foot;
“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 Mergers 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 the Legacy SWH portfolio prior to the Mergers. 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 Mergers, all information regarding the performance of the Same Store portfolio for periods prior to December 31, 2017 is presented as though the Mergers were consummated on January 1, 2017;
“Southeast United States” includes our Atlanta, Carolinas and Nashville markets;
“South Florida” includes Miami-Fort Lauderdale-West Palm Beach, FL and Port St. Lucie, FL;
“Southern California” includes Bakersfield, CA, Los Angeles-Long Beach-Anaheim, CA, Oxnard-Thousand Oaks-Ventura, CA, Riverside-San Bernardino-Ontario, CA and San Diego-Carlsbad, CA;
“total homes” or “total portfolio” refers to the total number of homes we own, whether or not stabilized, and excludes any properties previously acquired in purchases that have been subsequently rescinded or vacated. Unless the context otherwise requires, all measures in this Quarterly Report on Form 10-Q are presented on a total portfolio basis;
“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. To the extent the measurement period shown is less than 12 months, the turnover rate may be reflected on an annualized basis; and
“Western United States” includes our Southern California, Northern California, Seattle, Phoenix, Las Vegas and Denver markets.



5



PART I
ITEM 1. FINANCIAL STATEMENTS
INVITATION HOMES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except shares and per share data)
 
 
March 31,
2018
 
December 31, 2017
Assets:
 
(unaudited)
 
 
Investments in single-family residential properties:
 
 
 
 
Land
 
$
4,637,540

 
$
4,646,917

Building and improvements
 
13,759,959

 
13,740,981

 
 
18,397,499


18,387,898

Less: accumulated depreciation
 
(1,197,520
)
 
(1,075,634
)
Investments in single-family residential properties, net
 
17,199,979


17,312,264

Cash and cash equivalents
 
134,893

 
179,878

Restricted cash
 
255,855

 
236,684

Goodwill
 
258,207

 
258,207

Other assets, net
 
847,511

 
696,605

Total assets
 
$
18,696,445


$
18,683,638

 
 
 
 
 
Liabilities:
 
 
 
 
Mortgage loans, net
 
$
7,614,460

 
$
7,580,153

Term loan facility, net
 
1,488,695

 
1,487,973

Revolving facility
 
15,000

 
35,000

Convertible senior notes, net
 
550,695

 
548,536

Accounts payable and accrued expenses
 
199,317

 
193,413

Resident security deposits
 
150,202

 
146,689

Other liabilities
 
41,179

 
41,999

Total liabilities
 
10,059,548


10,033,763

 
 
 
 
 
Equity:
 
 
 
 
Shareholders' equity
 
 
 
 
Preferred stock, $0.01 par value per share, 900,000,000 shares authorized, none outstanding at March 31, 2018 and December 31, 2017
 

 

Common stock, $0.01 par value per share, 9,000,000,000 shares authorized, 520,364,636 and 519,173,142 outstanding at March 31, 2018 and December 31, 2017, respectively
 
5,204

 
5,192

Additional paid-in capital
 
8,612,110

 
8,602,603

Accumulated deficit
 
(232,296
)
 
(157,595
)
Accumulated other comprehensive income
 
106,918

 
47,885

Total shareholders' equity
 
8,491,936


8,498,085

Non-controlling interests
 
144,961

 
151,790

Total equity
 
8,636,897


8,649,875

Total liabilities and equity
 
$
18,696,445


$
18,683,638


The accompanying notes are an integral part of these condensed consolidated financial statements.


6


INVITATION HOMES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except shares and per share data)
(unaudited)

 
 
For the Three Months Ended
March 31,
 
 
2018
 
2017
Revenues:
 
 
 
 
Rental revenues
 
$
395,792

 
$
226,096

Other property income
 
27,877

 
12,654

Total revenues
 
423,669


238,750

 
 
 
 
 
Operating expenses:
 
 
 
 
Property operating and maintenance
 
160,767

 
88,168

Property management expense
 
17,164

 
11,449

General and administrative
 
27,636

 
58,266

Depreciation and amortization
 
144,500

 
67,577

Impairment and other
 
6,121

 
1,204

Total operating expenses
 
356,188


226,664

Operating income
 
67,481


12,086

 
 
 
 
 
Other expenses:
 
 
 
 
Interest expense
 
(92,299
)
 
(68,572
)
Other, net
 
1,736

 
(226
)
Total other expenses
 
(90,563
)

(68,798
)
 
 
 
 
 
Loss from continuing operations
 
(23,082
)

(56,712
)
Gain on sale of property, net of tax
 
5,502

 
14,321

 
 
 
 
 
Net loss
 
(17,580
)

(42,391
)
Net loss attributable to non-controlling interests
 
311

 

 
 
 
 
 
Net loss attributable to common shareholders
 
$
(17,269
)

$
(42,391
)
 
 
 
 
 
 
 
For the Three
Months Ended
March 31, 2018
 
February 1, 2017
through
March 31, 2017
Net loss available to common shareholders — basic and diluted (Note 12)
 
$
(17,491
)
 
$
(25,512
)
 
 
 
 
 
Weighted average common shares outstanding — basic and diluted
 
519,660,998

 
311,651,082

 
 
 
 
 
Net loss per common share — basic and diluted

$
(0.03
)
 
$
(0.08
)
 
 
 
 
 
Dividends declared per common share
 
$
0.11

 
N/A



The accompanying notes are an integral part of these condensed consolidated financial statements.


7


INVITATION HOMES INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)

 
 
For the Three Months Ended
March 31,
 
 
2018
 
2017
Net loss
 
$
(17,580
)
 
$
(42,391
)
Other comprehensive income
 
 
 
 
Unrealized gains on interest rate swaps
 
59,900

 
10,561

Losses from interest rate swaps reclassified into earnings from accumulated other comprehensive income
 
271

 
2,711

Other comprehensive income
 
60,171

 
13,272

Comprehensive income (loss)
 
42,591

 
(29,119
)
Comprehensive income attributable to non-controlling interests
 
(753
)
 

Comprehensive income (loss) attributable to common shareholders
 
$
41,838

 
$
(29,119
)


The accompanying notes are an integral part of these condensed consolidated financial statements.


8


INVITATION HOMES INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Three Months Ended March 31, 2018
(in thousands, except share and per share data)
(unaudited)

 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of Shares
 
Amount
 
Additional
Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income
 
Total Shareholders' Equity
 
Non-Controlling Interests
 
Total Equity
Balance as of December 31, 2017
 
519,173,142

 
$
5,192

 
$
8,602,603

 
$
(157,595
)
 
$
47,885


$
8,498,085


$
151,790

 
$
8,649,875

Capital distributions
 

 

 

 

 

 

 
(1,037
)
 
(1,037
)
Net loss
 

 

 

 
(17,269
)
 

 
(17,269
)
 
(311
)
 
(17,580
)
Dividends and dividend equivalents declared ($0.11 per share)
 

 

 

 
(57,432
)
 

 
(57,432
)
 

 
(57,432
)
Issuance of common stock — settlement of RSUs, net of tax
 
786,457

 
8

 
(6,606
)
 

 

 
(6,598
)
 

 
(6,598
)
Share-based compensation expense
 

 

 
9,498

 

 

 
9,498

 

 
9,498

Total other comprehensive income
 

 

 

 

 
59,107

 
59,107

 
1,064

 
60,171

Redemption of OP Units for common stock
 
405,037

 
4

 
6,615

 

 
(74
)
 
6,545

 
(6,545
)
 

Balance as of March 31, 2018
 
520,364,636


$
5,204


$
8,612,110


$
(232,296
)

$
106,918


$
8,491,936


$
144,961


$
8,636,897



The accompanying notes are an integral part of these condensed consolidated financial statements.


9


INVITATION HOMES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 
 
For the Three Months Ended
March 31,
 
 
2018
 
2017
Operating Activities:
 
 
 
 
Net loss
 
$
(17,580
)
 
$
(42,391
)
 
 
 
 
 
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
144,500

 
67,577

Share-based compensation expense
 
9,498

 
44,244

Amortization of deferred leasing costs
 
2,844

 
3,139

Amortization of deferred financing costs
 
3,995

 
11,327

Amortization of debt discounts
 
2,254

 
55

Provisions for impairment
 
603

 
1,037

Gain on sale of property, net of tax
 
(5,502
)
 
(14,321
)
Change in fair value of derivative instruments
 
2,246

 
3,752

Other noncash amounts included in net loss
 
(1,153
)
 
(337
)
Changes in operating assets and liabilities:
 
 
 
 
Other assets, net
 
(23,390
)
 
(15,906
)
Accounts payable and accrued expenses
 
10,920

 
16,207

Resident security deposits
 
3,513

 
1,279

Other liabilities
 
(2,668
)
 
412

Net cash provided by operating activities
 
130,080

 
76,074

 
 
 
 
 
Investing Activities:
 
 
 
 
Change in amounts deposited and held by others
 
(1,557
)
 
484

Acquisition of single-family residential properties
 
(48,486
)
 
(27,813
)
Initial renovations to single-family residential properties
 
(16,820
)
 
(6,855
)
Other capital expenditures for single-family residential properties
 
(31,233
)
 
(10,800
)
Corporate capital expenditures
 
(29
)
 
(270
)
Proceeds from sale of residential properties
 
51,105

 
73,652

Purchases of investments in debt securities
 
(45,832
)
 

Repayment proceeds from retained debt securities
 
114

 

Other investing activities
 
(9,260
)
 

Net cash (used in) provided by investing activities
 
(101,998
)
 
28,398

 
 
 
 
 
Financing Activities:
 
 
 
 
Proceeds from IPO, net of underwriting discounts
 

 
1,692,058

IPO costs paid
 

 
(2,457
)
Payment of dividends and dividend equivalents
 
(57,432
)
 

Distributions to non-controlling interests
 
(1,037
)
 

Payment of taxes related to net share settlement of RSUs
 
(6,598
)
 

Redemption of Series A Preferred Stock
 

 
(1,153
)
Payments on credit facilities
 

 
(2,321,585
)
Proceeds from mortgage loans
 
916,571

 



10


INVITATION HOMES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)

 
 
For the Three Months Ended
March 31,
 
 
2018
 
2017
Payments on mortgage loans
 
(873,269
)
 
(1,030,471
)
Proceeds from term loan facility
 

 
1,500,000

Payments on revolving facility
 
(20,000
)
 

Deferred financing costs paid
 
(11,770
)
 
(24,456
)
Other financing activities
 
(361
)
 

Net cash used in financing activities
 
(53,896
)
 
(188,064
)
 
 
 
 
 
Change in cash, cash equivalents, and restricted cash
 
(25,814
)
 
(83,592
)
Cash, cash equivalents, and restricted cash, beginning of period (Note 4)
 
416,562

 
420,211

Cash, cash equivalents, and restricted cash, end of period (Note 4)
 
$
390,748

 
$
336,619

 
 
 
 
 
Supplemental cash flow disclosures:
 
 
 
 
Interest paid, net of amounts capitalized
 
$
87,797

 
$
53,645

Cash paid for income taxes
 
671

 

 
 
 
 
 
Noncash investing and financing activities:
 
 
 
 
Accrued renovation improvements at period end
 
$
5,747

 
$
3,620

Accrued residential property capital improvements at period end
 
5,849

 
2,277

Transfer of residential property, net to other assets, net for held for sale assets
 
59,173

 
32,862

Reclassification of IPO costs from other assets to additional paid-in capital
 

 
2,629

Change in other comprehensive income from cash flow hedges
 
57,516

 
13,272

Capital leases
 
2,209

 



The accompanying notes are an integral part of these condensed consolidated financial statements.


11


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


 
Note 1—Organization and Formation
Invitation Homes Inc. (“INVH”) was formed for the purpose of owning, renovating, leasing, and operating single-family residential properties. On February 6, 2017, INVH completed an initial public offering (“IPO”) of 88,550,000 shares of common stock at a price to the public of $20.00 per share. An additional 221,826,634 shares of common stock were issued to the Pre-IPO Owners (as defined below) on January 31, 2017. On November 16, 2017, INVH merged with Starwood Waypoint Homes (“SWH”) as more fully described below resulting in the issuance of an additional 207,448,958 shares of common stock.
Prior to the IPO, we conducted our business through a combination of entities formed by Blackstone Real Estate Partners VII L.P. (“BREP VII”), an investment fund sponsored by The Blackstone Group L.P., along with BREP VII’s affiliated side-by-side funds and co-investment vehicles (“BREP VII and Affiliates”). The first Invitation Homes partnership was formed on June 12, 2012, through the establishment of Invitation Homes L.P. (“IH1”) and its wholly-owned subsidiary, THR Property Management L.P. (the “Manager”). Preeminent Holdings, Inc. (“IH2”) was created on February 14, 2013, Invitation Homes 3 L.P. (“IH3”) on August 8, 2013, Invitation Homes 4 L.P. (“IH4”) on January 10, 2014, Invitation Homes 5 L.P. (“IH5”) on August 22, 2014, and Invitation Homes 6 L.P. (“IH6”) on June 15, 2015 (collectively with IH1, the “Invitation Homes Partnerships”). Through the Manager, we provide all management and other administrative services with respect to the properties we own. The collective owners of the Invitation Homes Partnerships prior to the IPO are referred to as the “Pre-IPO Owners.”
Invitation Homes Operating Partnership LP (“INVH LP”) and its general partner, Invitation Homes OP GP LLC (the “OP General Partner”), were formed by one of our Pre-IPO Owners on December 14, 2016. INVH LP began negotiating and entering into certain debt and hedge instruments upon its inception in anticipation of our IPO.
Prior to the IPO, the Invitation Homes Partnerships and INVH LP were under the common control of BREP VII and Affiliates. BREP VII and Affiliates had the ability to control each of the Invitation Homes Partnerships and manage and operate the Invitation Homes Partnerships through the Manager and a common board of directors. As such, prior to the IPO our historical financial statements include assets, liabilities and results of operations of INVH LP and the Invitation Homes Partnerships and their consolidated subsidiaries on a combined and consolidated basis.
As a result of the Pre-IPO Transactions described below, IH2 was effectively merged into INVH (and the assets and liabilities of IH2 were contributed to INVH LP), and the remaining Invitation Homes Partnerships became wholly-owned subsidiaries of INVH through INVH LP.
On October 4, 2016, INVH was incorporated in the State of Delaware and was capitalized as of that date by an investment from one of our Pre-IPO Owners. Since inception, and through the date of the Pre-IPO Transactions (as described below), INVH did not engage in any business or activity. On February 6, 2017, INVH changed its jurisdiction of incorporation to Maryland. The Pre-IPO Transactions also included amendments to the INVH charter which provide for the issuance of up to 9,000,000,000 shares of common stock and 900,000,000 shares of preferred stock, $0.01 par value per share.
Our organizational structure includes several wholly-owned subsidiaries that were formed to facilitate our financing arrangements (the “Borrower Entities”). These Borrower Entities are used to align the ownership of our single-family residential properties with individual debt instruments. Collateral for the individual debt instruments may be in the form of equity interests in the Borrower Entities or in pools of single-family residential properties owned either directly by the Borrower Entities or indirectly by their wholly-owned subsidiaries (see Note 6).
References to “Invitation Homes,” the “Company,” “we,” “our,” and “us” refer, collectively, to INVH, INVH LP, and the consolidated subsidiaries of INVH LP, including the Manager. References to “SWH” refer to Starwood Waypoint Homes and its subsidiaries.
Pre-IPO Transactions
On January 31, 2017, we effected certain transactions (the “Pre-IPO Transactions”) that resulted in INVH LP holding, directly or indirectly, all of the assets, liabilities, and results of operations of the Invitation Homes Partnerships, including the


12


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


full portfolio of homes held by the Invitation Homes Partnerships. As a result of the Pre-IPO Transactions, INVH LP was wholly-owned by INVH directly and through its wholly-owned subsidiary, the OP General Partner. More specifically:
INVH acquired all of the assets, liabilities, and operations held directly or indirectly by IH2 through certain mergers and related transactions as follows:
IH2 Property Holdings Inc., a parent entity of IH2, merged with and into INVH, with INVH as the entity surviving the merger (the “IH2 Property Holdings Merger”), and the issued and outstanding shares of IH2 Property Holdings Inc., all of which were held by certain of the Pre-IPO Owners, were converted into newly issued shares of common stock of INVH; and
following the IH2 Property Holdings Merger, IH2 merged with and into INVH, with INVH as the entity surviving the merger (the “IH2 Merger”). In the IH2 Merger, all of the shares of common stock of IH2 issued and outstanding immediately prior to such merger, other than the shares held by INVH, were converted into shares of newly issued common stock of INVH. As a result of the IH2 Merger, INVH holds all of the assets and operations held directly or indirectly by IH2 prior to such merger;
prior to the IH2 Merger, our Pre-IPO Owners contributed to INVH their interests in each of the other Invitation Homes Partnerships (other than IH2) in exchange for newly-issued shares of INVH; and
INVH contributed to INVH LP all of the interests in the Invitation Homes Partnerships (other than IH2, the assets, liabilities and operations of which were contributed to INVH LP).
The Pre-IPO Transactions were accounted for as a reorganization of entities under common control utilizing historical cost basis.
Merger with Starwood Waypoint Homes
On November 16, 2017 (the “Merger Date”), pursuant to an Agreement and Plan of Merger, dated as of August 9, 2017 (the “Merger Agreement”), by and among INVH, INVH LP, IH Merger Sub, LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of INVH (“REIT Merger Sub”), SWH and Starwood Waypoint Homes Partnership, L.P., a Delaware limited partnership and a subsidiary of SWH (“SWH Partnership”), SWH merged with and into REIT Merger Sub, with REIT Merger Sub surviving as our subsidiary (the “REIT Merger”). Immediately after the REIT Merger, SWH Partnership merged with and into INVH LP, with INVH LP surviving as our subsidiary (the “Partnership Merger,” and together with the REIT Merger, the “Mergers”).
Under the terms of the Merger Agreement, each outstanding SWH common share was converted into 1.6140 shares of our common stock (the “Exchange Ratio”), and each outstanding unit of SWH Partnership was converted into 1.6140 common units, representing limited partner interests, in INVH LP. Further, each outstanding restricted share unit of SWH (an “SWH RSU”) that vested as a result of the Mergers was automatically converted into the right to receive our common stock based on the Exchange Ratio, plus any accrued but unpaid dividends (if any) and less certain taxes (if any). After giving effect to the Mergers, as of March 31, 2018, INVH owns a 98.3% partnership interest in INVH LP and has the full, exclusive and complete responsibility for and discretion over the day to day management and control of INVH LP. See Note 15 for additional information regarding the accounting treatment for the Mergers.
The REIT Merger is intended to qualify as a reorganization for United States federal income tax purposes, and the Partnership Merger is intended to be treated as a transaction that is generally tax free to the holders of units of SWH Partnership for United States federal income tax purposes.
Note 2—Significant Accounting Policies
Basis of Presentation
The accompanying interim condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements


13


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


and should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017.
Subsequent to the date of the Pre-IPO Transactions, these condensed consolidated financial statements include the accounts of INVH and its consolidated subsidiaries. Prior to the date of the Pre-IPO Transactions, these condensed consolidated financial statements include the combined accounts of INVH LP and the Invitation Homes Partnerships and their wholly-owned subsidiaries.
All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. In the opinion of management, all adjustments that are of a normal recurring nature considered necessary for a fair presentation of our interim financial statements have been included in these condensed consolidated financial statements. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2018.
We consolidate entities when we own, directly or indirectly, a majority interest in the entity or are otherwise able to control the entity. We consolidate variable interest entities (“VIEs”) in accordance with Accounting Standards Codification (“ASC”) 810, Consolidation, if we are the primary beneficiary of the VIE as determined by our power to direct the VIE’s activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE. A VIE is broadly defined as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights.
As described in Note 5, as a result of the Mergers we acquired an investment in a joint venture with the Federal National Mortgage Association (“FNMA”), which is a voting interest entity. We do not hold a controlling financial interest in the joint venture but have significant influence over its operating and financial policies. Additionally, FNMA held certain substantive participating rights that preclude the presumption of control by us; as such, we account for our investment using the equity method. In connection with the Mergers, we initially recorded this investment at fair value in connection with purchase accounting as described in Note 15 and have subsequently adjusted for our proportionate share of net earnings or losses and other comprehensive income or loss, cash contributions made and distributions received, and other adjustments, as appropriate. Distributions of operating profit from the joint venture are reported as part of operating cash flows while distributions related to a capital transaction, such as a refinancing transaction or sale, are reported as investing activities.
Non-controlling interests primarily represent the interests in INVH LP held by a third party as a result of the Partnership Merger. Non-controlling interests are presented as a separate component of equity on the condensed consolidated balance sheets as of March 31, 2018 and December 31, 2017 and the condensed consolidated statement of operations for the three months ended March 31, 2018 includes an allocation of the net loss attributable to the non-controlling interest holders.
Adoption of New Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which provides guidance on revenue recognition and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, most industry-specific guidance, and some cost guidance included in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts. The standard’s core principle is that a company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. These judgments may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. We adopted ASU 2014-09 effective January 1, 2018 using the modified retrospective transition method. This adoption did not have a significant impact on our condensed consolidated financial statements, as


14


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


more than 90% of our total revenues consist of rental income from leasing arrangements, and such revenue is specifically excluded from the standard. We analyzed our remaining revenue streams included within other property income and concluded there was no change to the timing and pattern of revenue recognition for these revenue streams under the new guidance. As such, adoption of the standard did not result in a change to our revenue recognition policies, require recognition of a cumulative adjustment as of January 1, 2018, or have a material impact on our condensed consolidated financial statements.
In September 2017, the FASB issued ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments. The purpose of this pronouncement is to update the guidance in the SEC paragraphs of the ASC to align with ASU No. 2014-09. We adopted ASU 2017-03 effective January 1, 2018, and it did not have a material impact on our condensed consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies the definition of modification with the objective of evaluating whether modification accounting should be applied when there are changes to the terms or conditions of a share-based payment award. We adopted ASU 2017-09 effective January 1, 2018, and it did not have a material impact on our condensed consolidated financial statements.
In February 2017, the FASB issued ASU 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. The new guidance clarifies that ASC 610-20 applies to the derecognition of nonfinancial assets and in substance nonfinancial assets unless other specific guidance applies. As a result, it will not apply to the derecognition of businesses, nonprofit activities, or financial assets (including equity method investments), or to revenue transactions (contracts with customers). The new guidance also clarifies that an in substance nonfinancial asset is an asset or group of assets for which substantially all of the fair value consists of nonfinancial assets and the group or subsidiary is not a business. In addition, transfers of nonfinancial assets to another entity in exchange for a non-controlling ownership interest in that entity will be accounted for under ASC 610-20, removing specific guidance on such partial exchanges from ASC 845, Nonmonetary Transactions. As a result of the new guidance, the guidance specific to real estate sales in ASC 360-20, Real Estate Sales, will be eliminated. As such, sales and partial sales of real estate assets will now be subject to the same derecognition model as all other nonfinancial assets. We adopted ASU 2017-05 effective January 1, 2018, and it did not have a material impact on our condensed consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, to simplify the accounting for goodwill impairment by removing step two of the goodwill impairment test, which had involved determining the fair value of individual assets and liabilities of a reporting unit to measure goodwill. Instead, goodwill impairment will be determined as the excess of a reporting unit’s carrying value over its fair value, not to exceed the carrying amount of goodwill. We adopted ASU 2017-04 effective January 1, 2018, which will impact our goodwill impairment testing process; however, it did not have a material impact on our condensed consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires that period changes in the total of cash, cash equivalents, and amounts generally described as restricted cash or cash equivalents are explained in the statement of cash flows. Thus, amounts generally described as restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning and ending balances shown in the statement of cash flows. We adopted ASU 2016-18 effective January 1, 2018, using a retrospective transition method. As a result, on our condensed consolidated statements of cash flow, changes in restricted cash related to security deposits (previously included in the operating activities section) and changes in the restricted cash line (previously included in the investing activities section) have been eliminated. Changes in restricted cash are now included in the beginning of period and end of period total cash, cash equivalents and restricted cash amounts. Additionally, Note 4 includes expanded disclosures regarding the components of the beginning and ending balances on our condensed consolidated statements of cash flows.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This new guidance will require the current and deferred tax effects of intercompany transactions, except for those involving inventory, to be recognized currently. Under current GAAP, the tax effects of intra-entity asset transfers are


15


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


deferred until the transferred asset is sold to a third party or otherwise recovered through use. We adopted ASU 2016-16 effective January 1, 2018, and it did not have a material impact on our condensed consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies the classification of certain cash receipts and cash payments including debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, proceeds from the settlement of insurance claims, and beneficial interests in securitization transactions. We adopted ASU 2016-15 effective January 1, 2018, and it did not have a material impact on our condensed consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including the requirement to measure certain equity investments at fair value with changes in fair value recognized in net income. We adopted ASU 2016-01 effective January 1, 2018, and it did not have a material impact on our condensed consolidated financial statements.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. These estimates are inherently subjective in nature and actual results could differ from those estimates.
Accounting Policies
There have been no changes to our significant accounting policies that have had a material impact on our condensed consolidated financial statements and related notes, compared to those policies disclosed in our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes how companies will measure credit losses for certain financial assets. This guidance requires an entity to estimate its expected credit loss and record an allowance based on this estimate so that it is presented at the net amount expected to be collected on the financial asset. This new standard will be effective for annual reporting periods beginning after December 15, 2019, and interim periods within that reporting period, with early adoption permitted beginning after December 15, 2018 and interim periods within that reporting period. We do not anticipate that the adoption of this standard will have a material impact on our condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than one year. Lessor accounting will remain similar to lessor accounting under current GAAP, while aligning with the FASB’s new revenue recognition guidance. The new standard will be effective for us for annual reporting periods beginning after December 15, 2018, and for interim periods within those annual periods, with early adoption permitted. We expect that the adoption of this standard will result in an increase in assets and liabilities on our condensed consolidated balance sheets related to our leased office space and vehicles.


16


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


Note 3—Investments in Single-Family Residential Properties
The following table sets forth the net carrying amount associated with our properties by component:
 
 
March 31,
2018
 
December 31,
2017
Land
 
$
4,637,540

 
$
4,646,917

Single-family residential property
 
13,103,690

 
13,084,156

Capital improvements
 
536,314

 
536,297

Equipment
 
119,955

 
120,528

Total gross investments in the properties
 
18,397,499

 
18,387,898

Less: accumulated depreciation
 
(1,197,520
)
 
(1,075,634
)
Investments in single-family residential properties, net
 
$
17,199,979

 
$
17,312,264

As of March 31, 2018 and December 31, 2017, the carrying amount of the residential properties above includes $122,011 and $125,903, respectively, of capitalized acquisition costs (excluding purchase price), along with $64,687 and $62,938, respectively, of capitalized interest, $25,976 and $25,966, respectively, of capitalized property taxes, $4,731 and $4,727, respectively, of capitalized insurance, and $2,794 and $2,818, respectively, of capitalized homeowners’ association (“HOA”) fees.
During the three months ended March 31, 2018 and 2017, we recognized $126,661 and $66,653, respectively, of depreciation expense related to the components of the properties, $16,447 and $0, respectively, of amortization related to in-place lease intangible assets, and $1,392 and $924, respectively, of depreciation and amortization related to corporate furniture and equipment. These amounts are included in depreciation and amortization in the condensed consolidated statements of operations. Further, during the three months ended March 31, 2018 and 2017, impairments totaling $603 and $1,037, respectively, have been recognized and are included in impairment and other in the condensed consolidated statements of operations.
Note 4—Cash, Cash Equivalents, and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the condensed consolidated balance sheets that sum to the total of such amounts shown in the condensed consolidated statements of cash flows:
 
 
As of
March 31,
 
As of
December 31,
 
 
2018
 
2017
 
2017
 
2016
Cash and cash equivalents
 
$
134,893

 
$
192,450

 
$
179,878

 
$
198,119

Restricted cash
 
255,855

 
144,169

 
236,684

 
222,092

Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows
 
$
390,748

 
$
336,619

 
$
416,562

 
$
420,211

Pursuant to the terms of the mortgage loans described in Note 6, we are required to establish, maintain, and fund from time to time (generally either monthly or at the time borrowings are funded) certain specified reserve accounts. These reserve accounts include, but are not limited to, the following types of accounts: (i) property tax reserves; (ii) insurance reserves; (iii) capital expenditure reserves; and (iv) HOA reserves. The reserve accounts associated with the mortgage loans are under the sole control of the loan servicer. Additionally, we hold security deposits pursuant to resident lease agreements that are required to be segregated. We also are required to post collateral related to certain of our interest rate swap agreements and to hold letters of credit as required by certain of our insurance policies. Accordingly, amounts funded to these reserve accounts, security deposit accounts, and other restricted accounts have been classified on our condensed consolidated balance sheets as restricted cash.


17


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


The amounts funded, and to be funded, to the reserve accounts are subject to formulae included in the mortgage loan agreements and are to be released to us subject to certain conditions specified in the mortgage loan agreements being met. To the extent that an event of default were to occur, the loan servicer has discretion to use such funds to either settle the applicable operating expenses to which such reserves relate or reduce the allocated loan amount associated with a residential property of ours.
The balances of our restricted cash accounts, as of March 31, 2018 and December 31, 2017, are set forth in the table below. As of March 31, 2018 and December 31, 2017, no amounts were funded to the insurance and HOA reserve accounts as the conditions specified in the mortgage loan agreements that require such funding did not exist.
 
 
March 31,
2018
 
December 31,
2017
Resident security deposits
 
$
150,583

 
$
147,098

Property taxes
 
46,931

 
20,785

Collections
 
34,700

 
40,607

Derivative collateral
 
11,680

 
15,120

Insurance premium and deductible
 
4,487

 
4,250

Capital expenditure reserves
 
3,461

 
5,257

Letters of credit
 
3,440

 
2,994

Eligibility reserves
 
573

 
573

Total
 
$
255,855

 
$
236,684

Note 5—Other Assets
As of March 31, 2018 and December 31, 2017, the balances in other assets, net are as follows:
 
 
March 31,
2018
 
December 31,
2017
Investments in debt securities, net
 
$
424,351

 
$
378,545

Interest rate swaps (Note 7)
 
115,127

 
57,612

Held for sale assets(1)
 
76,951

 
46,814

Investment in unconsolidated joint venture
 
56,940

 
57,078

Prepaid expenses
 
54,364

 
37,869

Rent and other receivables, net
 
28,686

 
24,525

In-place leases, net
 
21,070

 
37,517

Corporate fixed assets, net
 
15,415

 
16,595

Amounts deposited and held by others
 
14,155

 
12,598

Deferred leasing costs, net
 
7,358

 
7,018

Deferred financing costs, net
 
6,911

 
7,504

Other
 
26,183

 
12,930

Total
 
$
847,511

 
$
696,605

 
(1)
As of March 31, 2018 and December 31, 2017, 402 and 236 properties, respectively, are classified as held for sale.


18


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


Investments in Debt Securities, net
As of March 31, 2018, in connection with certain of our Securitizations (as defined in Note 6), we have retained and purchased certificates totaling $424,351, net of unamortized discounts of $3,257. These investments in debt securities are classified as held to maturity investments. As of March 31, 2018 and December 31, 2017, there were no gross unrecognized holding gains or losses, and there were no other than temporary impairments recognized in accumulated other comprehensive income. As of March 31, 2018, our retained certificates are scheduled to mature over the next three months to nine years.
Investment in Unconsolidated Joint Venture
In connection with the Mergers, we acquired a 10% interest in a joint venture with FNMA to operate, lease, and manage a portfolio of properties primarily located in Arizona, California, and Nevada. A wholly-owned subsidiary of INVH LP is the managing member of the joint venture and is responsible for the operation and management of the properties, subject to FNMA’s approval on major decisions. As of March 31, 2018 and December 31, 2017, the joint venture owned 768 and 776 properties, respectively.
Rent and Other Receivables, net
We lease our properties to residents pursuant to leases that generally have an initial contractual term of at least 12 months, provide for monthly payments, and are cancelable by the resident and us under certain conditions specified in the related lease agreements.
Included in other assets, net on the condensed consolidated balance sheets, is an allowance for doubtful accounts of $3,331 and $4,094, as of March 31, 2018 and December 31, 2017, respectively.
In-Place Leases, net
In connection with the Mergers, we acquired in-place leases with a fair value of $45,740. The amortization period assigned at the Merger Date was approximately eight months, which represents the weighted average remaining lease period, and amortization expense of $16,447 is included in depreciation and amortization expense in the condensed consolidated statement of operations for the three months ended March 31, 2018. As of March 31, 2018 and December 31, 2017, the unamortized balances of the in-place lease intangible asset are $21,070 and $37,517, respectively, and the balance will be fully amortized during the year ended December 31, 2018.
Deferred Financing Costs, net
In connection with our Revolving Facility (as defined in Note 6), we incurred $9,673 of financing costs during the year ended December 31, 2017, which have been deferred as other assets, net on our condensed consolidated balance sheet due to the line of credit features of the Revolving Facility. These deferred financing costs are being amortized as interest expense on a straight line basis over the term of the Revolving Facility. As of March 31, 2018 and December 31, 2017, the unamortized balances of these deferred financing costs are $6,911 and $7,504, respectively.
Note 6—Debt
Mortgage Loans
Our securitization transactions (the “Securitizations” or the “mortgage loans”) are collateralized by certain homes owned by the respective Borrower Entities. We utilize the proceeds from our securitizations to fund (i) repayments of then-outstanding indebtedness, (ii) initial deposits into Securitization reserve accounts, (iii) closing costs in connection with the mortgage loans, (iv) general costs associated with our operations, and (v) distributions and dividends. In addition to the Securitization transactions we initiated, we assumed certain mortgage loans from SWH in connection with the Mergers.


19


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


The following table sets forth a summary of our mortgage loan indebtedness as of March 31, 2018 and December 31, 2017:
 
 
 
 
 
 
 
 
 
 
Outstanding Principal Balance(2)
 
 
Origination
Date
 
Maturity
Date
 
Interest Rate(1)
 
Range of Spreads
 
March 31,
2018
 
December 31,
2017
CAH 2014-1(3)
 
N/A
 
N/A
 
—%
 
N/A
 
$

 
$
473,384

CAH 2014-2(3)
 
N/A
 
N/A
 
—%
 
N/A
 

 
385,401

IH 2015-1, net(4)(5)
 
January 29, 2015
 
March 9, 2019
 
4.31%
 
152-437 bps
 
527,826

 
528,795

IH 2015-2(4)(5)
 
April 10, 2015
 
June 9, 2018
 
3.89%
 
142-377 bps
 
627,106

 
627,259

CAH 2015-1(4)(6)
 
June 11, 2015
 
July 9, 2018
 
3.76%
 
128-373 bps
 
655,455

 
656,551

IH 2015-3(4)(7)
 
June 25, 2015
 
August 9, 2018
 
4.13%
 
136-481 bps
 
1,162,225

 
1,165,886

CSH 2016-1(4)(6)
 
June 7, 2016
 
July 9, 2018
 
4.19%
 
158-508 bps
 
529,827

 
531,517

CSH 2016-2(4)
 
November 3, 2016
 
December 9, 2018
 
3.73%
 
133-423 bps
 
605,357

 
609,815

IH 2017-1(8)
 
April 28, 2017
 
June 9, 2027
 
4.23%
 
N/A
 
996,371

 
996,453

SWH 2017-1(4)
 
September 29, 2017
 
October 9, 2019
 
3.43%
 
102-347 bps
 
769,754

 
769,754

IH 2017-2(4)
 
November 9, 2017
 
December 9, 2019
 
3.38%
 
91-306 bps
 
863,263

 
863,413

IH 2018-1(3)(4)
 
February 8, 2018
 
March 9, 2020
 
3.12%
 
76-256 bps
 
914,441

 

Total Securitizations
 
7,651,625

 
7,608,228

Less deferred financing costs, net
 
(37,165
)
 
(28,075
)
Total
 
$
7,614,460

 
$
7,580,153

 
(1)
Except for IH 2017-1, interest rates are based on a weighted average spread over the London Interbank Offered Rate (“LIBOR”), plus applicable servicing fees; as of March 31, 2018, LIBOR was 1.88%. Our IH 2017-1 mortgage loan bears interest at a fixed rate of 4.23% per annum, equal to the market determined pass-through rate payable on the certificates including applicable servicing fees.
(2)
Outstanding principal balance is net of discounts and does not include deferred financing costs, net.
(3)
On February 8, 2018, the outstanding balances of CAH 2014-1 and CAH 2014-2 were repaid in full with proceeds from IH 2018-1, a new securitization transaction.
(4)
The initial maturity term of each of these mortgage loans is two to three years, individually subject to two to five, one-year extension options at the borrower’s discretion (provided that there is no continuing event of default under the mortgage loan agreement and the borrower obtains a replacement interest rate cap agreement in a form reasonably acceptable to the lender). Our IH 2015-2, IH 2015-3 and CAH 2015-1 mortgage loans have exercised the first extension option, and IH 2015-1 has exercised the second extension option. The maturity dates above are reflective of all extensions that have been exercised.
(5)
On May 8, 2018, the outstanding balances of IH 2015-1 and IH 2015-2 were repaid in full with proceeds from IH 2018-2, a new securitization transaction (see Note 16).
(6)
On April 9, 2018, we submitted a notification to request an extension of the maturity of the CAH 2015-1 and CSH 2016-1 mortgage loans from July 9, 2018 to July 9, 2019 upon approval.
(7)
On May 9, 2018, we submitted a notification to request an extension of the maturity of the IH 2015-3 mortgage loan from August 9, 2018 to August 9, 2019 upon approval.
(8)
Net of unamortized discount of $3,257 and $3,345 as of March 31, 2018 and December 31, 2017, respectively.
Securitization Transactions
For each Securitization transaction, the Borrower Entity executed a loan agreement with a third‑party lender. Except for IH 2017-1, each mortgage loan consists of five to seven components. The components are floating rate except with respect to certain components we were required to retain in connection with risk retention rules. The two to three year initial terms are individually subject to two to five, one-year extension options at the Borrower Entity’s discretion. Such extensions are


20


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


available provided there is no continuing event of default under the respective mortgage loan agreement and the Borrower Entity obtains a replacement interest rate cap agreement in a form reasonably acceptable the lender. IH 2017-1 is a 10-year, fixed rate mortgage loan comprised of two components. Certificates issued by the trust in connection with Component A of IH 2017-1 benefit from FNMA’s guaranty of timely payment of principal and interest.
Certain components were sold at a discount, and $3,257 and $3,345 of unamortized discount are included in mortgage loans, net on our condensed consolidated balance sheets as of March 31, 2018 and December 31, 2017, respectively.
Each mortgage loan is secured by a pledge of the equity in the assets of the respective Borrower Entities, as well as first-priority mortgages on the underlying properties and a grant of security interests in all of the related personal property. As of March 31, 2018 and December 31, 2017, a total of 45,005 and 47,616 homes, respectively, were pledged pursuant to the mortgage loans. We are obligated to make monthly payments of interest for each mortgage loan, and IH 2013-1 and CAH 2014-1 also required monthly payments of principal.
Transactions with Trusts
Concurrent with the execution of each mortgage loan agreement, the respective third-party lender sold each loan it originated to individual depositor entities (the “Depositor Entities”) who subsequently transferred each loan to Securitization-specific trust entities (the “Trusts”). The Depositor Entities for our Securitizations currently outstanding are wholly-owned subsidiaries. We accounted for the transfer of the individual Securitizations from the wholly-owned Depositor Entities to the respective Trusts as sales under ASC Topic 860, Transfers and Servicing, with no resulting gain or loss as the Securitizations were both originated by the lender and immediately transferred at the same fair market value.
As consideration for the transfer of each loan to the Trusts, the Trusts issued certificate classes which mirror the components of the individual loan agreements (collectively, the “Certificates”) to the Depositor Entities, except that Class R certificates do not have related loan components as they represent residual interests in the Trusts. The Certificates represent the entire beneficial interest in the Trusts. Following receipt of the Certificates, the Depositor Entities sold the Certificates to investors using the proceeds as consideration for the loans sold to the Depositor Entities by the lenders. These transactions had no effect on our condensed consolidated financial statements other than with respect to Certificates we retained in connection with Securitizations or purchased at a later date.
The Trusts are structured as pass-through entities that receive interest, and in the case of IH 2013-1 and CAH 2014-1 principal payments, from the Securitizations and distribute those payments to the holders of the Certificates. The assets held by the Trusts are restricted and can only be used to fulfill the obligations of those entities. The obligations of the Trusts do not have any recourse to the general credit of any entities in these condensed consolidated financial statements. We have evaluated our interests in certain certificates of the Trusts held by us (discussed below) and determined that they do not create a more than insignificant variable interest in the Trusts. Additionally, the retained certificates do not provide us with any ability to direct the activities that could impact the Trusts’ economic performance. Therefore, we do not consolidate the Trusts.
Retained Certificates
Beginning in April 2014, the Trusts made Certificates available for sale to both domestic and foreign investors. With the introduction of foreign investment, sponsors of the mortgage loans are required to retain a portion of the risk that represents a material net economic interest in each loan. These requirements were further refined in December 2016 pursuant to Regulation RR (the “Risk Retention Rules”) under the Securities Exchange Act of 1934, as amended. As such, loan sponsors are now required to retain a portion of the credit risk that represents not less than 5% of the aggregate fair value of the loan as of the closing date.
To fulfill these requirements, Class G certificates for IH 2015-1, IH 2015-2, IH 2015-3, CAH 2015-1, CSH 2016-1, and CSH 2016-2 are equal to 5% of the original principal amount of the loans. Per the terms of the mortgage loan agreements, the Class G certificates are restricted certificates that were made available exclusively to the sponsor, as applicable. We retained these Class G certificates at the time of the related Securitizations, and they are principal only, bearing a stated interest rate of 0.0005%. Additionally, in certain instances, we have elected to purchase certain Class F certificates, which bear a stated annual interest rate of LIBOR plus a spread ranging from 4.80% to 5.08%.


21


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


For IH 2017-1, the Class B certificates are restricted certificates that were made available exclusively to INVH LP in order to comply with the Risk Retention Rules. The Class B certificates bear a stated annual interest rate of 4.23%, including applicable servicing fees.
For IH 2017-2, SWH 2017-1, and IH 2018-1, we retained a portion of each certificate class to meet the Risk Retention Rules. These retained certificates accrue interest at a floating rate of LIBOR plus a spread ranging from 0.76% to 3.47%.
The retained certificates total $424,351 and $378,545 as of March 31, 2018 and December 31, 2017, respectively, are classified as held to maturity investments, and are recorded in other assets, net on the condensed consolidated balance sheets (see Note 5).
Loan Covenants
The general terms that apply to all of the mortgage loans require us to maintain compliance with certain affirmative and negative covenants. Affirmative covenants with which we must comply include our, and certain of our affiliates’, compliance with (i) licensing, permitting and legal requirements specified in the mortgage loan agreements, (ii) organizational requirements of the jurisdictions in which we, and certain of our affiliates, are organized, (iii) federal and state tax laws, and (iv) books and records requirements specified in the respective mortgage loan agreements. Negative covenants with which we must comply include our, and certain of our affiliates’, compliance with limitations surrounding (i) the amount of our indebtedness and the nature of our investments, (ii) the execution of transactions with affiliates, (iii) the Manager, and (iv) the nature of our business activities. As of March 31, 2018, and through the date our condensed consolidated financial statements were issued, we believe we are in compliance with all affirmative and negative covenants.
Prepayments
For the mortgage loans, prepayments of amounts owed by us are generally not permitted by us under the terms of the respective mortgage loan agreements unless such prepayments are made pursuant to the voluntary election or mandatory provisions specified in such agreements. The specified mandatory provisions become effective to the extent that a property becomes characterized as a disqualified property, a property is sold, and/or upon the occurrence of a condemnation or casualty event associated with a property. To the extent either a voluntary election is made, or a mandatory prepayment condition exists, in addition to paying all interest and principal, we must also pay certain breakage costs as determined by the loan servicer and a spread maintenance premium if prepayment occurs before the month following the one or two year anniversary of the closing dates of each of the mortgage loans except for IH 2017-1. For IH 2017-1, prepayments on or before December 2026 will require a yield maintenance premium. For the three months ended March 31, 2018 and 2017, we made voluntary and mandatory prepayments of $873,269 and $1,030,471, respectively, under the terms of the mortgage loan agreements.
Term Loan Facility and Revolving Facility
On February 6, 2017, we entered into a credit agreement with a syndicate of banks, financial institutions and institutional lenders for a credit facility (the “Credit Facility”), which was amended on December 18, 2017 to include entities and homes acquired in the Mergers. The Credit Facility provides $2,500,000 of borrowing capacity and consists of a $1,000,000 revolving facility (the “Revolving Facility”), which will mature on February 6, 2021, with a one-year extension option, and a $1,500,000 term loan facility (the “Term Loan Facility”), which will mature on February 6, 2022. The Revolving Facility also includes borrowing capacity available for letters of credit and for short-term borrowings referred to as swing line borrowings, in each case subject to certain sublimits. The Credit Facility provides us with the option to enter into additional incremental credit facilities (including an uncommitted incremental facility that provides us with the option to increase the size of the Revolving Facility and/or the Term Loan Facility by an aggregate amount of up to $1,500,000), subject to certain limitations. Proceeds from the Term Loan Facility were used to repay existing indebtedness and for general corporate purposes. Proceeds from the Revolving Facility were used for general corporate purposes.


22


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


The following table sets forth a summary of the outstanding principal amounts under the Credit Facility as of March 31, 2018 and December 31, 2017:
 
 
Maturity
Date
 
Interest
Rate
(1)
 
March 31,
2018
 
December 31,
2017
Term loan facility
 
February 6, 2022
 
3.58%
 
$
1,500,000

 
$
1,500,000

Deferred financing costs, net
 
(11,305
)
 
(12,027
)
Term Loan Facility, net
 
$
1,488,695

 
$
1,487,973

 
 
 
 
 
 
 
 
 
Revolving Facility
 
February 6, 2021
 
3.63%
 
$
15,000

 
$
35,000

 
(1)
Interest rates for the Term Loan Facility and the Revolving Facility are based on LIBOR plus an applicable margin of 1.70% and 1.75%, respectively; as of March 31, 2018, LIBOR was 1.88%.
Interest Rate and Fees
Borrowings under the Credit Facility bear interest, at our option, at a rate equal to a margin over either (a) a LIBOR rate determined by reference to the Bloomberg LIBOR rate (or comparable or successor rate) for the interest period relevant to such borrowing, or (b) a base rate determined by reference to the highest of (1) the administrative agent’s prime lending rate, (2) the federal funds effective rate plus 0.50%, and (3) the LIBOR rate that would be payable on such day for a LIBOR rate loan with a one-month interest period plus 1.00%. The margin is based on a total leverage based grid. The margin for the Revolving Facility ranges from 0.75% to 1.30%, in the case of base rate loans, and 1.75% to 2.30%, in the case of LIBOR rate loans. The margin for the Term Loan Facility ranges from 0.70% to 1.30%, in the case of base rate loans, and 1.70% to 2.30%, in the case of LIBOR rate loans. In addition, the Credit Facility provides that, upon receiving an investment grade rating on its non-credit enhanced, senior unsecured long term debt of BBB- or better from Standard & Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc., or Baa3 or better from Moody’s Investors Service, Inc. (an “Investment Grade Rating Event”), we may elect to convert to a credit rating based pricing grid.
In addition to paying interest on outstanding principal under the Credit Facility, we are required to pay a facility fee to the lenders under the Revolving Facility in respect of the unused commitments thereunder. The facility fee rate is based on the daily unused amount of the Revolving Facility and is either 0.35% or 0.20% per annum based on the unused facility amount. Upon converting to a credit rating pricing based grid, the unused facility fee will no longer apply; and we will be required to pay a facility fee ranging from 0.125% to 0.300%. We are also required to pay customary letter of credit fees.
Prepayments and Amortization
No principal reductions are required under the Credit Facility. We are permitted to voluntarily repay amounts outstanding under the Term Loan Facility at any time without premium or penalty, subject to certain minimum amounts and the payment of customary “breakage” costs with respect to LIBOR loans. Once repaid, no further borrowings will be permitted under the Term Loan Facility.
Loan Covenants
The Credit Facility contains certain customary affirmative and negative covenants and events of default. Such covenants will, among other things, restrict, subject to certain exceptions, our ability and that of the Subsidiary Guarantors (as defined below) and their respective subsidiaries to (i) engage in certain mergers, consolidations or liquidations, (ii) sell, lease or transfer all or substantially all of their respective assets, (iii) engage in certain transactions with affiliates, (iv) make changes to our fiscal year, (v) make changes in the nature of our business and our subsidiaries, and (vi) incur additional indebtedness that is secured on a pari passu basis with the Credit Facility.
The Credit Facility also requires us, on a consolidated basis with our subsidiaries, to maintain a (i) maximum total leverage ratio, (ii) maximum secured leverage ratio, (iii) maximum unencumbered leverage ratio, (iv) minimum fixed charge coverage ratio, (v) minimum unencumbered fixed charge coverage ratio, and (vi) minimum tangible net worth. If an event of default occurs, the lenders under the Credit Facility are entitled to take various actions, including the acceleration of amounts


23


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


due under the Credit Facility and all actions permitted to be taken by a secured creditor. As of March 31, 2018, and through the date our condensed consolidated financial statements were issued, we believe we were in compliance with all affirmative and negative covenants.
Guarantees and Security
The obligations under the Credit Facility are guaranteed on a joint and several basis by each of our direct and indirect domestic wholly-owned subsidiaries that own, directly or indirectly, unencumbered assets (the “Subsidiary Guarantors”), subject to certain exceptions. The guarantee provided by any Subsidiary Guarantor will be automatically released upon the occurrence of certain events, including if it no longer has a direct or indirect interest in an unencumbered asset or as a result of certain non-recourse refinancing transactions pursuant to which such Subsidiary Guarantor becomes contractually prohibited from providing its guaranty of the Credit Facility. In addition, INVH may be required to provide a guarantee of the Credit Facility under certain circumstances, including if INVH does not maintain its qualification as a real estate investment trust (“REIT”).
The Credit Facility is collateralized by first priority or equivalent security interests in all the capital stock of, or other equity interests in, any Subsidiary Guarantor held by us and each of the Subsidiary Guarantors. The security interests granted under the Credit Facility will be automatically released upon the occurrence of certain events, including upon an Investment Grade Rating Event or if the total net leverage ratio is less than or equal to 8.00:1.00 for four consecutive fiscal quarters.
Convertible Senior Notes
In connection with the Mergers, we assumed SWH’s convertible senior notes. In July 2014, SWH issued $230,000 in aggregate principal amount of 3.00% convertible senior notes due 2019 (the “2019 Convertible Notes”). Interest on the 2019 Convertible Notes is payable semiannually in arrears on January 1st and July 1st of each year. The 2019 Convertible Notes will mature on July 1, 2019.
In January 2017, SWH issued $345,000 in aggregate principal amount of 3.50% convertible senior notes due 2022 (the “2022 Convertible Notes” and together with the 2019 Convertible Notes, the “Convertible Senior Notes”). Interest on the 2022 Convertible Notes is payable semiannually in arrears on January 15th and July 15th of each year. The 2022 Convertible Notes will mature on January 15, 2022.
The following table summarizes the terms of the Convertible Senior Notes outstanding as of March 31, 2018 and December 31, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
Principal Amount
 
 
Coupon
Rate
 
Effective
Rate
(1)
 
Conversion
Rate
(2)
 
Maturity
Date
 
Amortization
Period
 
March 31,
2018
 
December 31,
2017
2019 Convertible Notes
 
3.00
%
 
4.92
%
 
53.0969

 
7/1/2019
 
1.25 years
 
$
229,993

 
$
230,000

2022 Convertible Notes
 
3.50
%
 
5.12
%
 
43.7694

 
1/15/2022
 
3.80 years
 
345,000

 
345,000

Total
574,993

 
575,000

Net unamortized fair value adjustment
(24,298
)
 
(26,464
)
Total
$
550,695

 
$
548,536

 
(1)
Effective rate includes the effect of the adjustment to the fair value of the debt as of the Merger Date, the value of which reduced the initial liability recorded to $223,185 and $324,252 for each of the 2019 Convertible Notes and 2022 Convertible Notes, respectively.
(2)
We generally have the option to settle any conversions in cash, common stock or a combination thereof. The conversion rate represents the number of shares of common stock issuable per $1,000 principal amount (actual $) of Convertible Senior Notes converted at March 31, 2018, as adjusted in accordance with the applicable indentures as a result of cash dividend payments and the effects of the Mergers. The Convertible Senior Notes do not meet the criteria for conversion as of March 31, 2018.


24


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


Terms of Conversion
As of March 31, 2018, the conversion rate applicable to the 2019 Convertible Notes is 53.0969 shares of our common stock per $1,000 principal amount (actual $) of the 2019 Convertible Notes (equivalent to a conversion price of approximately $18.83 per common share – actual $). The conversion rate for the 2019 Convertible Notes is subject to adjustment in some events, but will not be adjusted for any accrued and unpaid interest. In addition, following certain events that occur prior to the maturity date, we will increase the conversion rate for a holder who elects to convert its 2019 Convertible Notes in connection with such an event in certain circumstances. At any time prior to January 1, 2019, holders may convert the 2019 Convertible Notes at their option only under specific circumstances as defined in the indenture agreement, dated as of July 7, 2014, between us and our trustee, Wilmington Trust, National Association (“the Convertible Notes Trustee”). As a result of the completion of the Mergers, the 2019 Convertible Notes were convertible for a 35 trading day period, which expired January 8, 2018. On or after January 1, 2019 and until maturity, holders may convert all or any portion of the 2019 Convertible Notes at any time. Upon conversion, we will pay or deliver, as the case may be, cash, common stock, or a combination of cash and common stock, at our election.
As of March 31, 2018, the conversion rate applicable to the 2022 Convertible Notes is 43.7694 shares of our common stock per $1,000 principal amount (actual $) of the 2022 Convertible Notes (equivalent to a conversion price of approximately $22.85 per common share – actual $). The conversion rate for the 2022 Convertible Notes is subject to adjustment in some events, but will not be adjusted for any accrued and unpaid interest. In addition, following certain events that occur prior to the maturity date, we will increase the conversion rate for a holder who elects to convert its 2022 Convertible Notes in connection with such an event in certain circumstances. At any time prior to July 15, 2021, holders may convert the 2022 Convertible Notes at their option only under specific circumstances as defined in the indenture agreement, dated as of January 10, 2017, between us and the Convertible Notes Trustee. As a result of the completion of the Mergers, the 2022 Convertible Notes were convertible for a 35 trading day period, which expired January 8, 2018. On or after July 15, 2021 and until maturity, holders may convert all or any portion of the 2022 Convertible Notes at any time. Upon conversion, we will pay or deliver, as the case may be, cash, common stock, or a combination of cash and common stock, at our election.
General Terms
We may not redeem the Convertible Senior Notes prior to their maturity dates except to the extent necessary to preserve our status as a REIT for United States federal income tax purposes, as further described in the indentures. If we undergo a fundamental change as defined in the indentures, holders may require us to repurchase for cash all or any portion of their Convertible Senior Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The indentures contain customary terms and covenants and events of default. If an event of default occurs and is continuing, the Convertible Notes Trustee, by notice to us, or the holders of at least 25% in aggregate principal amount of the outstanding Convertible Senior Notes, by notice to us and the Convertible Notes Trustee, may, and the Convertible Notes Trustee at the request of such holders shall, declare 100% of the principal of and accrued and unpaid interest on all the Convertible Senior Notes to be due and payable. In the case of an event of default arising out of certain events of bankruptcy, insolvency or reorganization in respect to us (as set forth in the indentures), 100% of the principal of and accrued and unpaid interest on the Convertible Senior Notes will automatically become due and payable.


25


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


Debt Maturities Schedule
The following table summarizes the contractual maturities of our debt as of March 31, 2018:
Year
 
Mortgage Loans(1)(2)
 
Term Loan Facility
 
Revolving Facility
 
Convertible Senior Notes
 
Total
2018
 
$
3,579,970

 
$

 
$

 
$

 
$
3,579,970

2019
 
2,160,843

 

 

 
229,993

 
2,390,836

2020
 
914,441

 

 

 

 
914,441

2021
 

 

 
15,000

 

 
15,000

2022
 

 
1,500,000

 

 
345,000

 
1,845,000

2023 and thereafter
 
996,371

 

 

 

 
996,371

Total
 
7,651,625

 
1,500,000

 
15,000

 
574,993

 
9,741,618

Less deferred financing costs, net
 
(37,165
)
 
(11,305
)
 

 

 
(48,470
)
Less unamortized fair value adjustment
 

 

 

 
(24,298
)
 
(24,298
)
Total
 
$
7,614,460

 
$
1,488,695

 
$
15,000

 
$
550,695

 
$
9,668,850

 
(1)
The maturity dates of the obligations are reflective of all extensions that have been exercised.
(2)
On May 8, 2018, IH 2015-1 and IH 2015-2 were repaid in full with the proceeds from IH 2018-2, a new securitization transaction (see Note 16). The net result of the repayments and new securitization will be to reduce 2018 and 2019 obligations by $627,106 and $527,826, respectively, to be replaced with obligations totaling $1,057,225 due on June 9, 2020.
Note 7—Derivative Instruments
From time to time, we enter into derivative instruments to manage the economic risk of changes in interest rates. We do not enter into derivative transactions for speculative or trading purposes. Designated hedges are derivatives that meet the criteria for hedge accounting and for which we have elected to designate them as hedges. Non-designated hedges are derivatives that do not meet the criteria for hedge accounting or which we did not elect to designate as accounting hedges.
Designated Hedges
We have entered into various interest rate swap agreements, which are used to hedge the variable cash flows associated with variable-rate interest payments. Certain of the Invitation Homes Partnerships and certain Borrower Entities guaranteed the obligations under each of the interest rate swaps from the date the swaps were entered into through the date of the IPO. Each of these swaps was accounted for as a non-designated hedge until January 31, 2017, when the criteria for hedge accounting were met as a result of the Pre-IPO Transactions described in Note 1. At that time, we designated these swaps for hedge accounting purposes. Subsequent to that date, changes in the fair value of these swaps are recorded in other comprehensive income and are subsequently reclassified into earnings in the period in which the hedged forecasted transactions affect earnings.
In addition, in connection with the Mergers, we acquired various interest rate swap instruments, which we designated for hedge accounting purposes. On the Merger Date, we recorded these interest rate swaps at their aggregate estimated fair value of $21,135 (see Note 15). Over the terms of each swap, an amount equal to the Merger Date fair value will be amortized and recorded as an increase in interest expense and accumulated other comprehensive income.


26


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


The table below summarizes our interest rate swap instruments as of March 31, 2018:
Agreement Date
 
Forward
Effective Date
 
Maturity
Date
 
Strike
Rate
 
Index
 
Notional
Amount
December 21, 2016
 
February 28, 2017
 
January 31, 2022
 
1.97%
 
One-month LIBOR
 
$
750,000

December 21, 2016
 
February 28, 2017
 
January 31, 2022
 
1.97%
 
One-month LIBOR
 
750,000

January 12, 2017
 
February 28, 2017
 
August 7, 2020
 
1.59%
 
One-month LIBOR
 
1,100,000

January 13, 2017
 
February 28, 2017
 
June 9, 2020
 
1.63%
 
One-month LIBOR
 
595,000

January 20, 2017
 
February 28, 2017
 
March 9, 2020
 
1.60%
 
One-month LIBOR
 
325,000

June 3, 2016
 
July 15, 2017
 
July 15, 2018
 
0.93%
 
One-month LIBOR
 
450,000

January 10, 2017
 
January 15, 2018
 
January 15, 2019
 
1.58%
 
One-month LIBOR
 
550,000

February 23, 2016
 
March 15, 2018
 
March 15, 2019
 
1.10%
 
One-month LIBOR
 
800,000

February 23, 2016
 
March 15, 2018
 
March 15, 2019
 
1.06%
 
One-month LIBOR
 
800,000

June 3, 2016
 
July 15, 2018
 
July 15, 2019
 
1.12%
 
One-month LIBOR
 
450,000

January 10, 2017
 
January 15, 2019
 
January 15, 2020
 
1.93%
 
One-month LIBOR
 
550,000

March 29, 2017
 
March 15, 2019
 
March 15, 2022
 
2.21%
 
One-month LIBOR
 
800,000

June 3, 2016
 
July 15, 2019
 
July 15, 2020
 
1.30%
 
One-month LIBOR
 
450,000

January 10, 2017
 
January 15, 2020
 
January 15, 2021
 
2.13%
 
One-month LIBOR
 
550,000

June 3, 2016
 
July 15, 2020
 
July 15, 2021
 
1.47%
 
One-month LIBOR
 
450,000

January 10, 2017
 
January 15, 2021
 
July 15, 2021
 
2.23%
 
One-month LIBOR
 
550,000

During the three months ended March 31, 2018, such derivatives were used to hedge the variable cash flows associated with existing variable-rate interest payments. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. During the next 12 months, we estimate that $25,678 will be reclassified to earnings as a decrease in interest expense.
Non-Designated Hedges
Concurrent with entering into certain of the mortgage loan agreements and in connection with the Mergers, we entered into or acquired and maintain interest rate cap agreements with terms and notional amounts equivalent to the terms and amounts of the mortgage loans made by the third-party lenders and with strike prices ranging from approximately 2.83% to 3.74% (collectively, the “Strike Prices”). To the extent that the maturity date of one or more of the mortgage loans is extended through an exercise of one or more of the extension options, replacement or extension interest rate cap agreements must be executed with terms similar to those associated with the initial interest rate cap agreements and strike prices equal to the greater of the Strike Prices and the interest rate at which the debt service coverage ratio (as defined) is not less than 1.2 to 1.0. The interest rate cap agreements, including all of our rights to payments owed by the counterparties and all other rights, have been pledged as additional collateral for the mortgage loans.


27


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


Tabular Disclosure of Fair Values of Derivative Instruments on the Condensed Consolidated Balance Sheets
The table below presents the fair value of our derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of March 31, 2018 and December 31, 2017:
 
 
Asset Derivatives
 
Liability Derivatives
 
 
 
 
Fair Value as of
 
 
 
Fair Value as of
 
 
Balance
Sheet Location
 
March 31,
2018
 
December 31,
2017
 
Balance
Sheet Location
 
March 31,
2018
 
December 31,
2017
Derivatives designated as
hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Other
assets
 
$
115,127

 
$
57,612

 
Other
liabilities
 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as
hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate caps
 
Other
assets
 
496

 
27

 
Other
liabilities
 

 

Interest rate swaps
 
Other
assets
 

 

 
Other
liabilities
 

 

Total
 
 
 
$
115,623

 
$
57,639

 
 
 
$

 
$

Tabular Disclosure of the Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations
The tables below present the effect of our derivative financial instruments in the condensed consolidated statements of operations for the three months ended March 31, 2018 and 2017:
 
 
Amount of Gain (Loss) Recognized in OCI on Derivative
 
Location of Gain (Loss) Reclassified from Accumulated OCI into Net Loss
 
Amount of Gain (Loss) Reclassified from Accumulated OCI into Net Loss
 
Total Amount of Interest Expense Presented in the Condensed Consolidated Statements of Operations
 
 
Three Months Ended
March 31,
 
 
Three Months Ended
March 31,
 
Three Months Ended
March 31,
 
 
2018
 
2017
 
 
2018
 
2017
 
2018
 
2017
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
59,900

 
$
10,561

 
Interest
expense
 
$
(271
)
 
$
(2,711
)
 
$
92,299

 
$
68,572

 
 
Location of
Gain (Loss)
Recognized in
Net Loss
on Derivative
 
Amount of Gain (Loss) Recognized in Net Loss on Derivative
 
 
 
Three Months Ended
March 31,
 
 
 
2018
 
2017
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Interest rate swaps
 
Interest expense
 
$

 
$
(3,674
)
Interest rate caps
 
Interest expense
 
253

 
(78
)
Total
 
 
 
$
253

 
$
(3,752
)
Credit-Risk-Related Contingent Features
We have agreements with certain of our derivative counterparties for our interest rate swap agreements that contain a provision where we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on the indebtedness.


28


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


As of March 31, 2018, we had no interest rate swap derivatives with a fair value in a net liability position. As of March 31, 2018, we have posted collateral amounting to $11,680 related to certain of these agreements (see Note 4).
Note 8—Equity
Shareholders’ Equity
In connection with our IPO (see Note 1), we issued 310,376,634 shares of common stock to the public and the Pre-IPO Owners and 3,290,126 restricted stock units (“RSUs”) (see Note 10), and our IPO raised $1,692,058, net of underwriting discount, and before IPO costs of $5,726. During the three months ended March 31, 2018, we issued 1,191,494 shares of common stock, comprised of 786,086 shares of common stock in net settlement of 1,086,288 fully vested RSUs and 405,037 shares of common stock in exchange for the redemption of the same number of units of partnership interests in INVH LP (the “OP Units”).
Starwood Waypoint Homes Merger
In connection with the Mergers (see Note 1), SWH stockholders received an aggregate of 207,448,958 shares of our common stock in exchange for all outstanding SWH common shares. In addition, we issued 9,441,615 OP Units which are redeemable for shares of our common stock on a one-for-one basis or, in our sole discretion, cash and are reflected as non-controlling interests on our condensed consolidated balance sheets. As of March 31, 2018, 9,036,578 redeemable OP Units remain outstanding.
Dividends
To qualify as a REIT, we are required to distribute annually to our stockholders at least 90% of our REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of our net taxable income. We intend to pay quarterly dividends to our stockholders, which in the aggregate are approximately equal to or exceed our net taxable income in the relevant year.
The following table summarizes our dividends declared from January 1, 2017 through March 31, 2018:
 
 
Record
Date
 
Amount
per Share(1)
 
Pay
Date
 
Total Amount
Declared
Q1-2018
 
February 13, 2018
 
$
0.11

 
February 28, 2018
 
$
57,432

Q4-2017
 
October 24, 2017
 
0.08

 
November 7, 2017
 
25,139

Q3-2017
 
August 15, 2017
 
0.08

 
August 31, 2017
 
25,200

Q2-2017
 
May 15, 2017
 
0.06

 
May 31, 2017
 
18,800

 
(1)
Amounts are displayed in actual dollars and are paid on a per share basis.

On May 3, 2018, our board of directors declared a dividend of $0.11 per share to stockholders of record on May 15, 2018, which is payable on May 31, 2018.
Combined Equity
Prior to the IPO, our business was conducted through the Invitation Homes Partnerships which did not have a common capital structure. As described in Note 1, IH1, IH3, IH4, IH5, and IH6 are partnerships. These entities each had limited partners and a general partner (the “Class A Partners”), along with a board of directors designated in the respective limited partnership agreements. IH2 was a Delaware corporation and had issued 1,000 shares of common stock and 113 shares of Series A Preferred Stock. IH2 had a board of directors elected by the common stockholders. The same board of directors was responsible for directing the significant activities of the Invitation Homes Partnerships and INVH LP on a combined basis.


29


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


The IH2 Series A Preferred Stock ranked, in respect of rights to the payment of dividends and the distribution of assets in the event of any liquidation or dissolution, senior to the IH2 common stock. Holders of such IH2 Series A Preferred Stock shares were entitled to receive cumulative cash dividends at the rate of 12.0% per annum of the total of a liquidation preference. On January 31, 2017, in connection with the Pre-IPO Transactions, the Series A Preferred Stock was redeemed for $1,153, inclusive of the redemption premium and accrued and unpaid dividends to that date.
Profits and losses, and cash distributions were allocated in accordance with the terms of the respective entity’s organizational documents.
As further described in Note 10, we granted certain individuals incentive compensation units in IH1, IH2, IH3, IH4, IH5, and IH6 (the “Class B Units”) that were accounted for as a substantive class of equity due to the terms of the agreements and rights of the holders. We previously made distributions to certain Class B unitholders in the form of non-recourse cash advances totaling $11,023. Any amounts distributed to the holders of the Class B Units whose Class B Units were converted in connection with the Pre-IPO Transactions (see Note 10), reduced the number of converted shares common stock received by amounts previously paid to such Class B unitholders as advance distributions. As a result of the Pre-IPO Transactions, there are no longer any Class B Units outstanding.
We previously executed and funded notes receivables with certain Class B unitholders (the “Class B Notes”). On January 5, 2017, $7,723 of Class B Notes, including accrued interest, were canceled, and the transaction was accounted for as a distribution to the underlying unitholder. As part of the Pre-IPO Transactions, IH1 assigned $11,963, including accrued interest, of Class B Notes to a wholly-owned subsidiary of the Pre-IPO Owners that was formed in connection with the reorganization described in Note 1, and the transaction was accounted for as a distribution. The Class B Notes were secured by certain of the Class B Units of the makers of the Class B Notes and were otherwise non-recourse to the makers. As such, the Class B Notes were recorded as a component of combined equity on our condensed consolidated balance sheet prior to the transactions described above.
Note 9—Related Party Transactions
Management Services
One of our wholly-owned subsidiaries, as the managing member of a joint venture with FNMA (see Note 5), earns a management fee based upon the venture’s gross receipts. For the three months ended March 31, 2018, we earned $707 of management fees which are included in other, net in the accompanying condensed consolidated statement of operations. There were no such management fees earned during the three months ended March 31, 2017.
Note 10—Share-Based Compensation
INVH RSAs and RSUs
Prior to completion of the IPO, our board of directors adopted, and our stockholders approved, the Invitation Homes Inc. 2017 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) to provide a means through which to attract and retain key personnel and to provide a means whereby our directors, officers, employees, consultants and advisors can acquire and maintain an equity interest in us, or be paid incentive compensation, including incentive compensation measured by reference to the value of our common stock, and to align their interests with those of our stockholders. Under the Omnibus Incentive Plan, we may issue up to 16,000,000 shares, and as of March 31, 2018, we have awarded 5,530,937 RSUs thereunder. Time-vesting RSUs are participating securities for earnings per share (“EPS”) purposes, and performance or market based vesting RSUs are not. We refer to RSUs with performance or market based vesting conditions as “PRSUs.” Additionally, in connection with the IPO, we granted 62,529 restricted shares of common stock of INVH (“RSAs”) in conversion of the Class B Units. These RSAs are all time-vesting awards, and they are not part of the Omnibus Incentive Plan. For detailed discussion of RSUs and RSAs issued prior to January 1, 2018, refer to our Annual Report on Form 10-K for the year ended December 31, 2017.
2018 Annual Long Term Incentive (“LTIP”) Awards: During the three months ended March 31, 2018, we granted 598,468 RSUs pursuant to LTIP awards. Each award is divided into three tranches, portions of which vest based on


30


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


time-vesting conditions, market based vesting conditions, and performance based vesting conditions. The time-vesting RSUs vest in three equal annual installments based on an anniversary date of March 1, 2018 subject to continued employment through the applicable vesting date.
The PRSUs may be earned based on the achievement of certain measures over a three-year performance period. The number of PRSUs earned will be determined based on performance achieved during the performance period for each measure at certain threshold, target, or maximum levels and corresponding payout ranges. In general, the LTIP PRSUs are earned on the date after the end of the performance period on which the performance results are certified (a “Certification Date”) by our compensation and management development committee (the “Compensation Committee”). The 2018 LTIP PRSUs are eligible to vest on the related Certification Date subject to continued employment through such date.
All of the LTIP Awards are subject to certain change in control and retirement eligibility provisions that may impact these vesting schedules.
Other Awards: During the three months ended March 31, 2018, we granted 132,376 RSUs (the “2018 Bonus Awards”) each of which award is a time-vesting award which vests in three equal annual installments based on an anniversary date of March 1, 2018.
During the three months ended March 31, 2018, the grant date was established for 168,184 PRSUs issued in connection with the Mergers. These Merger-related PRSUs may be earned based on the achievement of certain measures over a three-year performance period that began on the Merger Date. The number of Merger-related PRSUs earned will be determined based on performance achieved during the performance period for each measure at certain threshold, target, or maximum levels and corresponding payout ranges. In general, the Merger-related LTIP PRSUs are earned on the related Certification Date by our Compensation Committee. The Merger-related PRSUs will vest on the related Certification Date subject to continued employment through such date.
During the three months ended March 31, 2018, certain PRSUs vested and achieved performance in excess of the target level, resulting in the issuance of an additional 39,871 shares of common stock. Such awards are reflected as an increase in the number of awards granted and vested in the table below.
The following table summarizes the status of non-vested time-vesting RSUs (including RSAs) and PRSUs as of March 31, 2018 and changes during the three months ended March 31, 2018:
 
 
Time-Vesting Awards
 
PRSUs
 
Total Share-Based Awards
 
 
Number
 
Weighted
Average Grant
Date Fair Value
(Actual $)
 
Number
 
Weighted Average Grant Date Fair Value (Actual $)
 
Number
 
Weighted
Average Grant
Date Fair Value
(Actual $)
Balance, December 31, 2017
 
2,695,902

 
$
21.51

 
408,102

 
$
22.25

 
3,104,004

 
$
20.79

Granted
 
318,121

 
21.91

 
620,778

 
22.11

 
938,899

 
22.05

Vested
 
(946,834
)
 
(21.14
)
 
(111,062
)
 
(23.28
)
 
(1,057,896
)
 
(21.36
)
Forfeited
 
(99,719
)
 
(22.97
)
 
(9,813
)
 
(22.15
)
 
(109,532
)
 
(22.90
)
Balance, March 31, 2018
 
1,967,470

 
$
21.68

 
908,005

 
$
22.03

 
2,875,475

 
$
21.79

 
(1)
All vested RSUs, RSAs and PRSUs are included in basic EPS for the period during which they are outstanding.



31


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


During the three months ended March 31, 2018, 946,834 time-vesting RSUs and 111,062 PRSUs with an estimated fair value of $23,669 fully vested. As of March 31, 2018, there were 908,005 PRSUs outstanding. The grant-date fair value of the RSAs, time-vesting RSUs, and PRSUs with performance condition vesting criteria is generally based on the closing price of our common stock on the grant date. However, for the awards granted in connection with the IPO, the grant-date fair value is the opening offering price per common share, and the grant-date fair values for PRSUs with market condition vesting criteria are based on Monte-Carlo option pricing models. The following table summarizes the significant inputs utilized in these models at the grant date for awards issued during the three months ended March 31, 2018:
 
 
March 1, 2018
Expected volatility(1)
 
14.5%-17.3%
Risk-free rate
 
2.38%
Expected holding period (years)
 
2.71-2.84
 
(1)
Expected volatility is estimated based on the historical volatility of realized returns of the Company and the applicable index.
Summary of Total Share-Based Compensation Expense
During the three months ended March 31, 2018 and 2017, we recognized $9,498, and $44,244 respectively, of share-based compensation expense, comprised of the following:
 
 
Share-Based Compensation
Expense for the Three Months
Ended March 31,
 
 
2018
 
2017
General and administrative
 
$
7,554

 
$
40,271

Property management expense
 
1,944

 
3,973

Total
 
$
9,498

 
$
44,244

As of March 31, 2018, there is $42,407 of unrecognized share-based compensation expense related to non-vested RSUs which is expected to be recognized over a weighted average period of 2.02 years.
Note 11—Fair Value Measurements
The carrying amounts of restricted cash, certain components of other assets, accounts payable and accrued expenses, resident security deposits, and other liabilities approximate fair value due to the short maturity of these amounts. Our interest rate swap agreements are the only financial instruments recorded at fair value on a recurring basis within our condensed consolidated financial statements. The fair values of our interest rate caps and swaps, which are classified as Level 2 in the fair value hierarchy, are estimated using market values of instruments with similar attributes and maturities. See Note 7 for the details of the balance sheet classification and the fair values for the interest rate caps and swaps.


32


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


The following table displays the carrying values and fair values of financial instruments as of March 31, 2018 and December 31, 2017:
 
 
 
 
March 31, 2018
 
December 31, 2017
 
 
 
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Assets carried at historical cost on the condensed consolidated balance sheets:
 
 
 
 
 
 
 
 
 
 
Investments in debt securities(1)
 
Level 2
 
$
424,351

 
$
422,162

 
$
378,545

 
$
379,500

 
 
 
 
 
 
 
 
 
 
 
Liabilities carried at historical cost on the condensed consolidated balance sheets:
 
 
 
 
 
 
 
 
 
 
Mortgage loans(2)
 
Level 2
 
$
7,651,625

 
$