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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, 2019
 
 
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 its charter)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maryland
(State or other jurisdiction of incorporation or organization)
 
90-0939055
(I.R.S. Employer Identification No.)
 
 
 
 
 
 
 
1717 Main Street, Suite 2000
Dallas, Texas

(Address of principal executive offices)
 
75201
(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 every Interactive Data File required to be submitted 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 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
x
 
 
Accelerated filer
o
Non-accelerated filer
o
 
Smaller reporting company
o
 
 
 
 
Emerging growth company
o
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. o
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
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol
 
Name of Each Exchange on Which Registered
 
 
 
 
 
Common stock, $0.01 par value
 
INVH
 
New York Stock Exchange
 
 
 
As of May 3, 2019, there were 524,990,955 shares of common stock, par value $0.01 per share, outstanding.
 
 
 





INVITATION HOMES INC.
 
 
 
Page
PART I
Item
1.
Item
2.
Item
3.
Item
4.
 
 
 
 
PART II
Item
1.
Item
1A.
Item
2.
Item
3.
Item
4.
Item
5.
Item
6.
 
 
 
 
 
 







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, 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, 2018 (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
On November 16, 2017 (the “Merger Date”), Invitation Homes Inc. (“INVH”), Invitation Homes Operating Partnership LP (“INVH LP”), IH Merger Sub, LLC, a Delaware limited liability company and direct wholly owned subsidiary of INVH, SWH, and Starwood Waypoint Homes Partnership, L.P., a Delaware limited partnership and a subsidiary of SWH, (“SWH Partnership”) effectuated a series of transactions which resulted in SWH and SWH Partnership being merged into INVH and INVH LP, respectively, with INVH and INVH LP being the surviving entities (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. THR Property Management L.P., a wholly owned subsidiary (the “Manager”), provides all management and other administrative services with respect to the properties we own.
Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q to “Invitation Homes,” the “Company,” “we,” “our,” and “us” refer to INVH and its consolidated subsidiaries including INVH LP and all subsidiaries 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;
“Carolinas” includes Charlotte, NC, Greensboro, NC, Raleigh, NC, and Fort Mill, SC;
“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;
“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;
“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 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 and seasoned (whether under Invitation Homes ownership or Legacy SWH ownership), excluding homes that have been sold, homes that have been identified for sale to an owner occupant and have become vacant, homes that have been deemed inoperable or significantly impaired by casualty loss events or force majeure, and homes acquired in portfolio transactions that are deemed not to have undergone renovations of sufficiently similar quality and characteristics as the existing Invitation Homes Same Store portfolio. Homes are considered stabilized if they have (i) completed an initial renovation and (ii) entered into at least one post-initial renovation lease. An acquired portfolio that is both leased and deemed to be of


4




sufficiently similar quality and characteristics as the existing Invitation Homes Same Store portfolio may be considered stabilized at the time of acquisition. Homes are considered to be seasoned once they have been stabilized for at least 15 months prior to January 1st of the year in which the Same Store portfolio was established. We believe presenting information about the portion of our portfolio that has been fully operational for the entirety of a given reporting period and its prior year comparison period provides investors with meaningful information about the performance of our comparable homes across periods and about trends in our organic business;
“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 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, 2019
 
December 31, 2018
Assets:
 
(unaudited)
 
 
Investments in single-family residential properties:
 
 
 
 
Land
 
$
4,532,848

 
$
4,561,441

Building and improvements
 
13,639,736

 
13,668,533

 
 
18,172,584


18,229,974

Less: accumulated depreciation
 
(1,662,708
)
 
(1,543,914
)
Investments in single-family residential properties, net
 
16,509,876


16,686,060

Cash and cash equivalents
 
130,896

 
144,940

Restricted cash
 
220,522

 
215,051

Goodwill
 
258,207

 
258,207

Other assets, net
 
734,118

 
759,170

Total assets
 
$
17,853,619


$
18,063,428

 
 
 
 
 
Liabilities:
 
 
 
 
Mortgage loans, net
 
$
7,029,768

 
$
7,201,654

Term loan facility, net
 
1,491,582

 
1,490,860

Revolving facility
 

 

Convertible senior notes, net
 
559,575

 
557,301

Accounts payable and accrued expenses
 
193,495

 
169,603

Resident security deposits
 
150,672

 
148,995

Other liabilities
 
207,159

 
125,829

Total liabilities
 
9,632,251


9,694,242

Commitments and contingencies (Note 14)
 


 


 
 
 
 
 
Equity:
 
 
 
 
Stockholders' equity
 
 
 
 
Preferred stock, $0.01 par value per share, 900,000,000 shares authorized, none outstanding as of March 31, 2019 and December 31, 2018
 

 

Common stock, $0.01 par value per share, 9,000,000,000 shares authorized, 524,989,775 and 520,647,977 outstanding as of March 31, 2019 and December 31, 2018, respectively
 
5,250

 
5,206

Additional paid-in capital
 
8,685,058

 
8,629,462

Accumulated deficit
 
(439,737
)
 
(392,594
)
Accumulated other comprehensive loss
 
(110,655
)
 
(12,963
)
Total stockholders' equity
 
8,139,916


8,229,111

Non-controlling interests
 
81,452

 
140,075

Total equity
 
8,221,368


8,369,186

Total liabilities and equity
 
$
17,853,619


$
18,063,428


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,
 
 
2019
 
2018
Rental revenues and other property income
 
$
435,500


$
423,669

 
 
 
 
 
Expenses:
 
 
 
 
Property operating and maintenance
 
160,346

 
160,767

Property management expense
 
15,160

 
17,164

General and administrative
 
26,538

 
27,636

Interest expense
 
93,983

 
92,299

Depreciation and amortization
 
133,609

 
144,500

Impairment and other
 
5,392

 
6,121

Total expenses
 
435,028


448,487

 
 
 
 
 
Other, net
 
3,125

 
1,736

Gain on sale of property, net of tax
 
17,572

 
5,502

 
 
 
 
 
Net income (loss)
 
21,169


(17,580
)
Net (income) loss attributable to non-controlling interests
 
(347
)
 
311

 
 
 
 
 
Net income (loss) attributable to common stockholders
 
20,822


(17,269
)
Net income available to participating securities
 
(106
)
 
(222
)
 
 
 
 
 
Net income (loss) available to common stockholders — basic and diluted (Note 12)
 
$
20,716

 
$
(17,491
)
 
 
 
 
 
Weighted average common shares outstanding — basic
 
521,440,822

 
519,660,998

Weighted average common shares outstanding — diluted
 
521,817,494

 
519,660,998

 
 
 
 
 
Net income (loss) per common share — basic

$
0.04

 
$
(0.03
)
Net income (loss) per common share — diluted
 
$
0.04

 
$
(0.03
)

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,
 
 
2019
 
2018
Net income (loss)
 
$
21,169

 
$
(17,580
)
 
 
 
 
 
Other comprehensive income (loss)
 
 
 
 
Unrealized gains (losses) on interest rate swaps
 
(87,868
)
 
59,900

(Gains) losses from interest rate swaps reclassified into earnings from accumulated other comprehensive income
 
(10,863
)
 
271

Other comprehensive income (loss)
 
(98,731
)
 
60,171

Comprehensive income (loss)
 
(77,562
)
 
42,591

Comprehensive (income) loss attributable to non-controlling interests
 
1,271

 
(753
)
 
 
 
 
 
Comprehensive income (loss) attributable to common stockholders
 
$
(76,291
)
 
$
41,838


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, 2019
(in thousands, except share and per share data)
(unaudited)


 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of Shares
 
Amount
 
Additional
Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Loss
 
Total Stockholders' Equity
 
Non-Controlling Interests
 
Total Equity
Balance as of December 31, 2018
 
520,647,977


$
5,206


$
8,629,462


$
(392,594
)

$
(12,963
)

$
8,229,111


$
140,075


$
8,369,186

Capital distributions
 

 

 

 

 

 

 
(1,175
)
 
(1,175
)
Net income
 

 

 

 
20,822

 

 
20,822

 
347

 
21,169

Dividends and dividend equivalents declared ($0.13 per share)
 

 

 

 
(67,965
)
 

 
(67,965
)
 

 
(67,965
)
Issuance of common stock — settlement of RSUs, net of tax
 
768,505

 
8

 
(6,731
)
 

 

 
(6,723
)
 

 
(6,723
)
Share-based compensation expense
 

 

 
5,607

 

 

 
5,607

 

 
5,607

Total other comprehensive loss
 

 

 

 

 
(97,113
)
 
(97,113
)
 
(1,618
)
 
(98,731
)
Redemption of OP Units for common stock
 
3,573,293

 
36

 
56,720

 

 
(579
)
 
56,177

 
(56,177
)
 

Balance as of March 31, 2019
 
524,989,775

 
$
5,250

 
$
8,685,058

 
$
(439,737
)
 
$
(110,655
)
 
$
8,139,916

 
$
81,452

 
$
8,221,368


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


9


INVITATION HOMES INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (continued)
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 Stockholders' 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.


10


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

 
 
For the Three Months
Ended March 31,
 
 
2019
 
2018
Operating Activities:
 
 
 
 
Net income (loss)
 
$
21,169

 
$
(17,580
)
 
 
 
 
 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
133,609

 
144,500

Share-based compensation expense
 
5,607

 
9,498

Amortization of deferred leasing costs
 
2,579

 
2,844

Amortization of deferred financing costs
 
10,150

 
3,995

Amortization of debt discounts
 
2,364

 
2,254

Provisions for impairment
 
3,253

 
603

Gain on sale of property, net of tax
 
(17,572
)
 
(5,502
)
Change in fair value of derivative instruments
 
2,351

 
2,246

Other noncash amounts included in net income (loss)
 
419

 
(1,153
)
Changes in operating assets and liabilities:
 
 
 
 
Other assets, net
 
304

 
(23,390
)
Accounts payable and accrued expenses
 
25,002

 
10,920

Resident security deposits
 
1,677

 
3,513

Other liabilities
 
2,271

 
(2,668
)
Net cash provided by operating activities
 
193,183

 
130,080

 
 
 
 
 
Investing Activities:
 
 
 
 
Amounts deposited and held by others
 
(1,173
)
 
(1,557
)
Acquisition of single-family residential properties
 
(55,458
)
 
(48,486
)
Initial renovations to single-family residential properties
 
(9,644
)
 
(16,820
)
Other capital expenditures for single-family residential properties
 
(29,492
)
 
(31,233
)
Proceeds from sale of residential properties
 
142,562

 
51,105

Purchases of investments in debt securities
 

 
(45,832
)
Repayment proceeds from retained debt securities
 
8,441

 
114

Other investing activities
 
(209
)
 
(9,289
)
Net cash provided by (used in) investing activities
 
55,027

 
(101,998
)
 
 
 
 
 
Financing Activities:
 
 
 
 
Payment of dividends and dividend equivalents
 
(67,965
)
 
(57,432
)
Distributions to non-controlling interests
 
(1,175
)
 
(1,037
)
Payment of taxes related to net share settlement of RSUs
 
(6,723
)
 
(6,598
)
Proceeds from mortgage loans
 

 
916,571

Payments on mortgage loans
 
(180,812
)
 
(873,269
)
Proceeds from revolving facility
 
20,000

 

Payments on revolving facility
 
(20,000
)
 
(20,000
)
Deferred financing costs paid
 

 
(11,770
)
Other financing activities
 
(108
)
 
(361
)
Net cash used in financing activities
 
(256,783
)
 
(53,896
)
 
 
 
 
 
Change in cash, cash equivalents, and restricted cash
 
(8,573
)
 
(25,814
)
Cash, cash equivalents, and restricted cash, beginning of period (Note 4)
 
359,991

 
416,562

Cash, cash equivalents, and restricted cash, end of period (Note 4)
 
$
351,418

 
$
390,748



11


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


 
 
For the Three Months
Ended March 31,
 
 
2019
 
2018
Supplemental cash flow disclosures:
 
 
 
 
Interest paid, net of amounts capitalized
 
$
83,316

 
$
87,797

Cash paid for income taxes
 
866

 
671

Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
 
Operating cash flows from operating leases
 
1,326

 
N/A

 
 
 
 
 
Noncash investing and financing activities:
 
 
 
 
Accrued renovation improvements at period end
 
$
5,361

 
$
5,747

Accrued residential property capital improvements at period end
 
7,906

 
5,849

Transfer of residential property, net to other assets, net for held for sale assets
 
94,474

 
59,173

Change in other comprehensive income (loss) from cash flow hedges
 
(101,049
)
 
57,516

Right-of-use assets obtained in exchange for operating lease liabilities
 
1,721

 
N/A

Capital leases
 
N/A

 
2,209


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



12


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





 
Note 1—Organization and Formation
Invitation Homes Inc. (“INVH”), a real estate investment trust (“REIT”), conducts its operations through Invitation Homes Operating Partnership LP (“INVH LP”). INVH LP was formed for the purpose of owning, renovating, leasing, and operating single-family residential properties. Through our wholly owned subsidiary, THR Property Management L.P. (the “Manager”), we provide all management and other administrative services with respect to the properties we own.
In preparation for our initial public offering (“IPO”), INVH was incorporated in the State of Delaware on October 4, 2016. From inception through the date of the IPO, INVH did not engage in any business or activity. Additionally, INVH LP and its general partner Invitation Homes OP GP LLC (the “OP General Partner”) were formed on December 14, 2016, and INVH LP began negotiating and entering into certain debt and hedge instruments upon its inception in anticipation of our IPO.
On February 6, 2017, INVH completed the IPO, changed its jurisdiction of incorporation to Maryland, and amended its charter to 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. In connection with certain pre-IPO reorganization transactions, INVH LP became (1) wholly owned by INVH directly and through INVH’s wholly owned subsidiary, the OP General Partner, and (2) the owner of all of the assets, liabilities, and operations of certain pre-IPO owners. These transactions were accounted for as a reorganization of entities under common control utilizing historical cost basis.
Our organizational structure includes several wholly owned subsidiaries that were formed to facilitate certain of our financing arrangements (the “Borrower Entities”). These Borrower Entities are used to align the ownership of our single-family residential properties with certain of our debt instruments. Collateral for certain of our 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. References to “SWH” refer to Starwood Waypoint Homes and its subsidiaries.
Merger with Starwood Waypoint Homes
On November 16, 2017 (the “Merger Date”), INVH, INVH LP, IH Merger Sub, LLC, a Delaware limited liability company and direct wholly owned subsidiary of INVH, SWH, and Starwood Waypoint Homes Partnership, L.P., a Delaware limited partnership and a subsidiary of SWH, (“SWH Partnership”) effectuated a series of transactions which resulted in SWH and SWH Partnership being merged into INVH and INVH LP, respectively, with INVH and INVH LP being the surviving entities (the “Mergers”).
In connection with the Mergers, each outstanding SWH common share was converted into shares of our common stock and each outstanding unit of SWH Partnership was converted into common units of limited partnership interests in INVH LP (“OP Units”). As of March 31, 2019, INVH owns a 99.0% 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.
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 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, 2018.


13


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





These condensed consolidated financial statements include the accounts of INVH and its consolidated 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, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019.
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 holds 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 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 Mergers. Non-controlling interests are presented as a separate component of equity on the consolidated balance sheets as of March 31, 2019 and December 31, 2018, and the condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018 include an allocation of the net income (loss) attributable to the non-controlling interest holders. OP Units are redeemable for shares of our common stock on a one-for-one basis or, in our sole discretion, cash, and redemptions of OP Units are accounted for as a reduction in non-controlling interests with an offset to stockholders’ equity based on the pro rata number of OP Units redeemed.
Reclassifications
Certain reclassifications have been made to prior periods to conform with current reporting on the condensed consolidated statements of operations. We combined other property income of $27,877 for the three months ended March 31, 2018 into rental revenues and other property income. We reclassified interest expense of $92,299 for the three months ended March 31, 2018 into total expenses. We also no longer present loss from continuing operations and have reclassified gain on sale of property, net of tax of $5,502 for the three months ended March 31, 2018 accordingly. These reclassifications did not have any effect on the total reported net loss for the three months ended March 31, 2018.
Adoption of New Accounting Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), (the “New Lease Standard”), which requires lessees to recognize assets and liabilities on the condensed balance sheets for the rights and obligations created by all leases with terms of more than one year. Lessor accounting remains similar to previous GAAP, while aligning with ASC 606, Revenue from Contracts with Customers (“ASC 606”).
We adopted the New Lease Standard using the optional transition approach as of January 1, 2019. As such, previously reported financial information was not updated, and additional disclosures required under the New Lease


14


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





Standard are not provided for periods prior to January 1, 2019. Additionally, we elected the practical expedient package related to lease identification, lease classification, and initial direct costs. As such, we have not reassessed our existing contracts and leases for these items. We did not elect the hindsight practical expedient, which permits entities to use hindsight in determining lease term and assessing impairment.
As a lessor, our leases with residents are classified as operating leases under the New Lease Standard, and thus the pattern of recognition of rental revenue and other property income remains unchanged from previous lease accounting guidance as adjusted by ASC 606. Rental revenues and other property income are recorded net of any concessions and uncollectible amounts for all periods presented.
As a lessee, adoption of the New Lease Standard resulted in the recognition of right-of-use (“ROU”) assets and lease liabilities for operating leases on our condensed consolidated balance sheet; however, our accounting for finance leases remains substantially unchanged. On January 1, 2019, we recorded the cumulative effect of adoption of the New Lease Standard on our condensed consolidated balance sheet which resulted in an increase in other assets and other liabilities of $14,118 and $14,118, respectively.
In August 2018, the SEC issued Securities Act Release No. 33-10532, Disclosure Update and Simplification, which amends certain of its disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. The Disclosure Update and Simplification requires us to disclose and analyze changes in stockholders’ equity for the current quarter and year to date interim periods as well as the comparative periods of the prior year. We have conformed the presentation of our condensed consolidated statements of equity with this requirement for all periods presented.
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, 2018 other than our adoption of the New Lease Standard as disclosed below.
Revenue Recognition and Resident Receivables
Rental revenues and other property income, net of any concessions and uncollectible amounts, consists primarily of rents collected under lease agreements related to our single-family residential properties. We enter into leases directly with our residents, and our leases typically have a term of one to two years. We elected the practical expedient not to separate the lease and nonlease components of these operating leases with our residents. Our lease components consist primarily of rental income, pet rent, and smart home system fees. Nonlease components include resident reimbursements for utilities and various other fees, including late fees and lease termination fees, among others. The lease component is the predominant component in these arrangements, and as such, we recognize rental revenues and other property income in accordance with the New Lease Standard for the three months ended March 31, 2019, and in accordance with previous GAAP for the three months ended March 31, 2018.
Variable lease payments consist of resident reimbursements for utilities, and various other fees, including late fees and lease termination fees, among others. Variable lease payments are charged based on the terms and conditions included in the resident leases. For the three months ended March 31, 2019, rental revenues and other property income includes $21,330 of variable lease payments. Sales taxes and other similar taxes assessed by governmental authorities that we collect from residents are excluded from our rental revenues and other property income.


15


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





Leases Entered Into as a Lessee
We lease our corporate and regional offices, related office equipment, and a fleet of vehicles for use by our field associates. As of January 1, 2019, these leases are accounted for pursuant to the New Lease Standard (see Note 5 and Note 14).
We account for leases for our corporate and regional offices as operating leases. In addition to monthly rent payments, we reimburse the lessors of our office spaces for our share of operating expenses as defined in the leases. Such amounts are not included in the measurement of the lease liability but are recognized as a variable lease expense when incurred. At this time, it is not reasonably certain that we will exercise any of the renewal or termination options on these leases, and the measurement of the ROU asset and lease liability is calculated accordingly.
We have elected the practical expedient under which the lease components of our office and vehicle fleet leases are not separated from the nonlease components. We have elected the short-term lease recognition exemption for our office equipment leases and therefore do not record these leases on our condensed consolidated balance sheets. These office equipment leases are not material to our condensed consolidated financial statements.
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, excluding receivables arising from operating leases. 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. The 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 August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which changes the fair value disclosure requirements for certain financial instruments. This guidance reduces the need for certain disclosure language related to our financial instruments and adds additional support for unobservable inputs used in the calculation of fair values. This new standard will be effective for annual reporting periods beginning after December 15, 2019, 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.
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,
2019
 
December 31,
2018
Land
 
$
4,532,848

 
$
4,561,441

Single-family residential property
 
13,000,866

 
13,026,317

Capital improvements
 
522,912

 
525,670

Equipment
 
115,958

 
116,546

Total gross investments in the properties
 
18,172,584

 
18,229,974

Less: accumulated depreciation
 
(1,662,708
)
 
(1,543,914
)
Investments in single-family residential properties, net
 
$
16,509,876

 
$
16,686,060



16


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





As of March 31, 2019 and December 31, 2018, the carrying amount of the residential properties above includes $118,985 and $120,438, respectively, of capitalized acquisition costs (excluding purchase price), along with $65,019 and $66,449, respectively, of capitalized interest, $25,540 and $25,670, respectively, of capitalized property taxes, $4,721 and $4,694, respectively, of capitalized insurance, and $2,769 and $2,779, respectively, of capitalized homeowners’ association (“HOA”) fees.
During the three months ended March 31, 2019 and 2018, we recognized $132,520 and $126,661, respectively, of depreciation expense related to the components of the properties, $0 and $16,447, respectively, of amortization related to in-place lease intangible assets, and $1,089 and $1,392, 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, 2019 and 2018, impairments totaling $3,253 and $603, 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:
 
 
March 31,
 
December 31,
 
 
2019
 
2018
 
2018
 
2017
Cash and cash equivalents
 
$
130,896

 
$
134,893

 
$
144,940

 
$
179,878

Restricted cash
 
220,522

 
255,855

 
215,051

 
236,684

Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows
 
$
351,418

 
$
390,748

 
$
359,991

 
$
416,562

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 are also required 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.
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.


17


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





The balances of our restricted cash accounts, as of March 31, 2019 and December 31, 2018, are set forth in the table below. As of March 31, 2019 and December 31, 2018, no amounts were funded to the insurance accounts as the conditions specified in the mortgage loan agreements that require such funding did not exist.
 
 
March 31,
2019
 
December 31,
2018
Resident security deposits
 
$
151,057

 
$
150,346

Property taxes
 
31,586

 
26,163

Collections
 
26,472

 
26,677

Standing and capital expenditure reserves
 
4,807

 
5,269

Letters of credit
 
3,449

 
3,444

Special and other reserves
 
3,151

 
3,152

Total
 
$
220,522

 
$
215,051

Note 5—Other Assets
As of March 31, 2019 and December 31, 2018, the balances in other assets, net are as follows:
 
 
March 31,
2019
 
December 31,
2018
Investments in debt securities, net
 
$
358,246

 
$
366,599

Held for sale assets(1)
 
160,211

 
154,077

Investment in unconsolidated joint venture
 
56,438

 
56,622

Derivative instruments (Note 7)
 
37,650

 
75,405

Rent and other receivables
 
33,534

 
33,117

Prepaid expenses
 
27,639

 
30,970

ROU lease assets — operating and finance, net
 
16,978

 
N/A

Corporate fixed assets, net
 
9,654

 
11,792

Deferred leasing costs, net
 
6,238

 
6,316

Amounts deposited and held by others
 
5,587

 
1,010

Deferred financing costs, net
 
4,542

 
5,134

Other
 
17,401

 
18,128

Total
 
$
734,118

 
$
759,170


(1)
As of March 31, 2019 and December 31, 2018, 700 and 738 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
In connection with certain of our Securitizations (as defined in Note 6), we have retained and purchased certificates totaling $358,246, net of unamortized discounts of $2,905, as of March 31, 2019. These investments in debt securities are classified as held to maturity investments. As of March 31, 2019 and December 31, 2018, 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, 2019, our retained certificates are scheduled to mature over the next six months to eight years.
Investment in Unconsolidated Joint Venture
We own 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 of major decisions. As of March 31, 2019 and December 31, 2018, the joint venture owned 734 and 754 properties, respectively.
Rent and Other Receivables
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.
ROU Lease Assets — Operating and Finance, net
The following table presents supplemental information related to leases into which we have entered as a lessee as of March 31, 2019:
 
 
March 31, 2019
 
 
Operating Leases
 
Finance
Leases
Other assets
 
$
15,379

 
$
1,599

Other liabilities
 
16,465

 
1,599

Weighted average remaining lease term
 
4 years

 
3 years

Weighted average discount rate
 
4.0
%
 
4.0
%
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 sheets. 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, 2019 and December 31, 2018, the unamortized balances of these deferred financing costs are $4,542 and $5,134, 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.


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, 2019 and December 31, 2018:
 
 
 
 
 
 
 
 
 
 
Outstanding Principal Balance(2)
 
 
Origination
Date
 
Maturity
Date
 
Interest
Rate
(1)
 
Range of Spreads
 
March 31,
2019
 
December 31,
2018
CSH 2016-2(3)
 
November 3, 2016
 
December 9, 2019
 
4.35%
 
133-423 bps
 
$
369,665

 
$
442,614

IH 2017-1(4)
 
April 28, 2017
 
June 9, 2027
 
4.23%
 
N/A
 
995,913

 
995,826

SWH 2017-1(3)
 
September 29, 2017
 
October 9, 2019
 
4.04%
 
102-347 bps
 
762,294

 
764,685

IH 2017-2(3)(5)
 
November 9, 2017
 
December 9, 2019
 
3.84%
 
91-306 bps
 
770,744

 
856,238

IH 2018-1(3)(5)
 
February 8, 2018
 
March 9, 2020
 
3.73%
 
76-256 bps
 
906,408

 
911,827

IH 2018-2(3)
 
May 8, 2018
 
June 9, 2020
 
3.88%
 
95-230 bps
 
1,028,832

 
1,035,749

IH 2018-3(3)
 
June 28, 2018
 
July 9, 2020
 
3.91%
 
105-230 bps
 
1,291,669

 
1,296,959

IH 2018-4(3)
 
November 7, 2018
 
January 9, 2021
 
3.90%
 
115-225 bps
 
957,229

 
959,578

Total Securitizations
 
7,082,754

 
7,263,476

Less: deferred financing costs, net
 
(52,986
)
 
(61,822
)
Total
 
$
7,029,768

 
$
7,201,654

 
(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, 2019, LIBOR was 2.49%. 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)
The initial maturity term of each of these mortgage loans is two years, individually subject to three to five, one-year extension options at the Borrower Entity’s discretion (provided that there is no continuing event of default under the mortgage loan agreement and the Borrower Entity obtains and delivers a replacement interest rate cap agreement from an approved counterparty within the required timeframe to the lender). Our CSH 2016-2 mortgage loan has exercised the first extension option. The maturity dates above are reflective of all extensions that have been exercised.
(4)
Net of unamortized discount of $2,905 and $2,993 as of March 31, 2019 and December 31, 2018, respectively.
(5)
On April 9, 2019, we made voluntary prepayments of $12,800 and $57,200 on IH 2017-2 and IH 2018-1, respectively (see Note 15).
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 six 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-year initial terms are individually subject to three to five, one-year extension options at the Borrower Entity’s discretion. Such extensions are available provided there is no continuing event of default under the respective mortgage loan agreement and the Borrower Entity obtains and delivers a replacement interest rate cap agreement from an approved counterparty within the required timeframe to 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.
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, 2019 and December 31, 2018, a total of 41,482 and 41,644 homes, respectively, were pledged pursuant to the mortgage loans. We are obligated to make monthly payments of interest for each mortgage loan.


20


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





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 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 and used 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 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 CSH 2016-2 were issued in an amount equal to 5% of the original principal amount of the loans. Per the terms of the mortgage loan agreements, the Class G certificates were restricted certificates that were made available exclusively to the sponsor, as applicable. We retained these Class G certificates during the time the related Securitization was outstanding, and they were principal only, bearing a stated interest rate of 0.0005%.
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 SWH 2017-1, IH 2017-2, IH 2018-1, IH 2018-2, IH 2018-3, and IH 2018-4, we retained 5% 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 $358,246 and $366,599 as of March 31, 2019 and December 31, 2018, respectively, and are classified as held to maturity investments and 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


21


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





(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, 2019, 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 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, 2019 and 2018, we made voluntary and mandatory prepayments of $180,812 and $873,269, respectively, under the terms of the mortgage loan agreements. During the three months ended March 31, 2018, prepayments included full repayment of CAH 2014-1 and CAH 2014-2 mortgage loans.
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 then-outstanding indebtedness and for general corporate purposes. Proceeds from the Revolving Facility are used for general corporate purposes.
The following table sets forth a summary of the outstanding principal amounts under the Credit Facility as of March 31, 2019 and December 31, 2018:
 
 
Maturity
Date
 
Interest
Rate
(1)
 
March 31,
2019
 
December 31,
2018
Term Loan Facility
 
February 6, 2022
 
4.19%
 
$
1,500,000

 
$
1,500,000

Deferred financing costs, net
 
(8,418
)
 
(9,140
)
Term Loan Facility, net
 
$
1,491,582

 
$
1,490,860

 
 
 
 
 
 
 
 
 
Revolving Facility
 
February 6, 2021
 
4.24%
 
$

 
$

 
(1)
Interest rates for the Term Loan Facility and the Revolving Facility are based on LIBOR plus an applicable margin. As of March 31, 2019, the applicable margins were 1.70% and 1.75%, respectively, and LIBOR was 2.49%.
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


22


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





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 due under the Credit Facility and all actions permitted to be taken by a secured creditor. As of March 31, 2019, 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 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.


23


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





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. On December 28, 2018, we notified note holders of our intent to settle conversions of the 2019 Convertible Notes in shares of common stock.
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, 2019 and December 31, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
Principal Amount
 
 
Coupon
Rate
 
Effective
Rate
(1)
 
Conversion
Rate
(2)
 
Maturity
Date
 
Remaining Amortization
Period
 
March 31,
2019
 
December 31,
2018
2019 Convertible Notes
 
3.00%
 
4.92%
 
54.3097
 
July 1, 2019
 
0.25 years
 
$
229,991

 
$
229,993

2022 Convertible Notes
 
3.50%
 
5.12%
 
43.7694
 
January 15, 2022
 
2.80 years
 
345,000

 
345,000

Total
574,991

 
574,993

Net unamortized fair value adjustment
(15,416
)
 
(17,692
)
Total
$
559,575

 
$
557,301

 
(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)
The conversion rate as of March 31, 2019 represents the number of shares of common stock issuable per $1,000 principal amount (actual $) of Convertible Senior Notes converted on such date, as adjusted in accordance with the applicable indentures as a result of cash dividend payments and the effects of the Mergers. On December 28, 2018, note holders of the 2019 Convertible Notes were notified of our intent to convert in shares of common stock. As of March 31, 2019, the 2022 Convertible Notes do not meet the criteria for conversion. We have the option to settle the 2022 Convertible Notes in cash, common stock, or a combination thereof.
Terms of Conversion
As of March 31, 2019, the conversion rate applicable to the 2019 Convertible Notes is 54.3097 shares of our common stock per $1,000 principal amount (actual $) of the 2019 Convertible Notes (equivalent to a conversion price of approximately $18.41 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 adjust 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 were able to 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. On December 28, 2018, we notified note holders of our intent to settle conversions of the 2019 Convertible Notes in shares of common stock. The “if-converted” value of the 2019 Convertible Notes exceeded their principal amount by $73,909 as of March 31, 2019 as the closing market price of the Company’s common stock of $24.33 per common share (actual $) exceeded the implicit conversion price. For the three months ended March 31, 2019 and 2018, interest expense for the 2019 Convertible Notes, including non-cash amortization of discounts, was $2,803 and $2,752, respectively.


24


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





As of March 31, 2019, 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 adjust 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. The “if-converted” value of the 2022 Convertible Notes exceeded their principal amount by $22,394 as of March 31, 2019 as the closing market price of the Company’s common stock of $24.33 per common share (actual $) exceeded the implicit conversion price. For the three months ended March 31, 2019 and 2018, interest expense for the 2022 Convertible Notes, including non-cash amortization of discounts, was $4,217 and $4,158, respectively.
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.
Debt Maturities Schedule
The following table summarizes the contractual maturities of our debt as of March 31, 2019:
Year
 
Mortgage
Loans(1)
 
Term Loan Facility
 
Revolving Facility
 
Convertible Senior Notes
 
Total
Remainder of 2019
 
$
1,902,703

 
$

 
$

 
$
229,991

 
$
2,132,694

2020
 
3,226,909

 

 

 

 
3,226,909

2021
 
957,229

 

 

 

 
957,229

2022
 

 
1,500,000

 

 
345,000

 
1,845,000

2023
 

 

 

 

 

Thereafter
 
995,913

 

 

 

 
995,913

Total
 
7,082,754

 
1,500,000

 

 
574,991

 
9,157,745

Less: deferred financing costs, net
 
(52,986
)
 
(8,418
)
 

 

 
(61,404
)
Less: unamortized fair value adjustment
 

 

 

 
(15,416
)
 
(15,416
)
Total
 
$
7,029,768

 
$
1,491,582

 
$

 
$
559,575

 
$
9,080,925

 
(1)
The maturity dates of the obligations are reflective of all extensions that have been exercised.


25


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





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. Currently, all swaps are designated for hedge accounting purposes and 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. Prior to January 31, 2017, all swaps were accounted for as non-designated hedges as the criteria for designation had not been met at that time.
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. Over the terms of each of these swaps, an amount equal to the Merger Date fair value will be amortized and reclassified into earnings.
The table below summarizes our interest rate swap instruments as of March 31, 2019:
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, 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

April 19, 2018
 
January 31, 2019
 
January 31, 2025
 
2.86%
 
One-month LIBOR
 
400,000

February 15, 2019(1)
 
March 15, 2019
 
March 15, 2022
 
2.23%
 
One-month LIBOR
 
800,000

April 19, 2018
 
March 15, 2019
 
November 30, 2024
 
2.85%
 
One-month LIBOR
 
400,000

April 19, 2018
 
March 15, 2019
 
February 28, 2025
 
2.86%
 
One-month LIBOR
 
400,000

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

April 19, 2018
 
January 31, 2020
 
November 30, 2024
 
2.90%
 
One-month LIBOR
 
400,000

May 8, 2018
 
March 9, 2020
 
June 9, 2025
 
2.99%
 
One-month LIBOR
 
325,000

May 8, 2018
 
June 9, 2020
 
June 9, 2025
 
2.99%
 
One-month LIBOR
 
595,000

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

June 28, 2018
 
August 7, 2020
 
July 9, 2025
 
2.90%
 
One-month LIBOR
 
1,100,000

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

November 7, 2018
 
March 15, 2022
 
July 31, 2025
 
3.14%
 
One-month LIBOR
 
400,000

November 7, 2018
 
March 15, 2022
 
July 31, 2025
 
3.16%
 
One-month LIBOR
 
400,000

 
(1)
On February 15, 2019, we terminated an interest rate swap instrument and simultaneously entered into a new interest rate swap instrument with identical economic terms, except that the strike rate increased 2 bps, from 2.21% to 2.23%, and collateral posting requirements were removed.



26


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





During the three months ended March 31, 2019 and 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 $26,384 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. 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 interest rate cap strike price 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. Additionally, in certain instances, in order to minimize the cash impact of purchasing required interest rate caps, we simultaneously sold interest rate caps (which have identical terms and notional amounts) such that the purchase price and sale proceeds of the related interest rate caps are intended to offset each other. The purchased and sold interest rates caps have strike prices ranging from approximately 3.24% to 5.12%.
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, 2019 and December 31, 2018:
 
 
Asset Derivatives
 
Liability Derivatives
 
 
 
 
Fair Value as of
 
 
 
Fair Value as of
 
 
Balance
Sheet Location
 
March 31,
2019
 
December 31,
2018
 
Balance
Sheet Location
 
March 31,
2019
 
December 31,
2018
Derivatives designated as
hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Other
assets
 
$
37,599

 
$
74,929

 
Other
liabilities
 
$
154,246

 
$
90,527

 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as
hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate caps
 
Other
assets
 
51

 
476

 
Other
liabilities
 
48

 
440

Total
 
 
 
$
37,650

 
$
75,405

 
 
 
$
154,294

 
$
90,967



27


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





Offsetting Derivatives
We enter into master netting arrangements, which reduce risk by permitting net settlement of transactions with the same counterparty. The tables below present a gross presentation, the effects of offsetting, and a net presentation of our derivatives as of March 31, 2019 and December 31, 2018:
 
 
March 31, 2019
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Condensed Statement of Financial Position
 
 
 
 
Gross Amounts of Recognized Assets/ Liabilities
 
Gross Amounts Offset in the Condensed Statement of Financial Position
 
Net Amounts of Assets/ Liabilities Presented in the Condensed Statement of Financial Position
 
Financial Instruments
 
Cash Collateral Received
 
Net
Amount
Offsetting assets:
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives
 
$
37,650

 
$

 
$
37,650

 
$
(15,018
)
 
$

 
$
22,632

Offsetting liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives
 
$
154,294

 
$

 
$
154,294

 
$
(15,018
)
 
$

 
$
139,276


 
 
December 31, 2018
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Condensed Statement of Financial Position
 
 
 
 
Gross Amounts of Recognized Assets/ Liabilities
 
Gross Amounts Offset in the Condensed Statement of Financial Position
 
Net Amounts of Assets/ Liabilities Presented in the Condensed Statement of Financial Position
 
Financial Instruments
 
Cash Collateral Received
 
Net
Amount
Offsetting assets:
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives
 
$
75,405

 
$

 
$
75,405

 
$
(30,374
)
 
$

 
$
45,031

Offsetting liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives
 
$
90,967

 
$

 
$
90,967

 
$
(30,374
)
 
$

 
$
60,593




28


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





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, 2019 and 2018:
 
 
Amount of Gain (Loss) Recognized in OCI on Derivative
 
Location of Gain (Loss) Reclassified from Accumulated OCI into Net Income (Loss)
 
Amount of Gain (Loss) Reclassified from Accumulated OCI into Net Income (Loss)
 
Total Amount of Interest Expense Presented in the Condensed Consolidated Statements of Operations
 
 
For the Three Months
Ended March 31,
 
 
For the Three Months
Ended March 31,
 
For the Three Months
Ended March 31,
 
 
2019
 
2018
 
 
2019
 
2018
 
2019
 
2018
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
(87,868
)
 
$
59,900

 
Interest expense
 
$
10,863

 
$
(271
)
 
$
93,983

 
$
92,299


 
 
Location of
Gain (Loss)
Recognized in
Net Income (Loss)
on Derivative
 
Amount of Gain (Loss) Recognized in Net Income (Loss) on Derivative
 
 
 
For the Three Months
Ended March 31,
 
 
 
2019
 
2018
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Interest rate caps
 
Interest expense
 
$
(33
)
 
$
253

Total
 
 
 
$
(33
)
 
$
253

Credit-Risk-Related Contingent Features
The agreements with our derivative counterparties which govern our interest rate swap agreements 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.
As of March 31, 2019, the fair value of certain derivatives in a net liability position was $139,276. If we had breached any of these provisions at March 31, 2019, we could have been required to settle the obligations under the agreements at their termination value, which includes accrued interest and excludes the nonperformance risk related to these agreements, of $149,207.
As of December 31, 2018, we had not posted any collateral for our interest rate swap agreements as the conditions specified in the derivative agreements that require such funding did not exist. As of March 31, 2019, none of our derivative agreements contain provisions that require us to post collateral deposits.
Note 8—Equity
Stockholders’ Equity
As of March 31, 2019, we have issued 524,989,775 shares of common stock to the public, the pre-IPO owners, and in settlement of restricted stock units (“RSUs,” see Note 10). In addition, we issue OP Units from time to time 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 and statements of equity.
During the three months ended March 31, 2019, we issued 4,341,798 shares of common stock, comprised of 768,505 shares of common stock in net settlement of 1,071,590 fully vested RSUs and 3,573,293 shares of common stock in exchange


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





for the redemption of the same number of OP Units. As of March 31, 2019, 5,463,285 OP Units remain outstanding and redeemable.
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 timing, form, and amount of distributions, if any, to our stockholders, will be at the sole discretion of our board of directors.
The following table summarizes our dividends declared from January 1, 2018 through March 31, 2019:
 
 
Record Date
 
Amount
per Share(1)
 
Pay Date
 
Total Amount Declared
Q1-2019