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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
 
 
 
 
FORM
10-Q
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the quarterly period ended
March 31, 2020
 
 
 
 
 
 
 
OR
 
 
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
90-0939055
(State or other jurisdiction of incorporation or organization)
 (I.R.S. Employer Identification No.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1717 Main Street,
Suite 2000
75201
Dallas,
Texas
(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)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.01 par value
 
INVH
 
New York Stock Exchange
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
No
 
 
 
 
 
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
No
 
 
 
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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
 
Accelerated Filer
 
 
 
 
 
 
 
 
 
Non-Accelerated Filer
 
Smaller Reporting Company
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Emerging Growth Company
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Yes
No
 
 
 
 
 
As of May 4, 2020, there were 543,767,670 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 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 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, risks related to our indebtedness, and risks related to the potential negative impact of the outbreak of the novel coronavirus strain, known as COVID-19, on our financial condition, results of operations, cash flows, business, associates, and residents. The extent to which COVID-19 impacts us will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity, and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic, containment measures, monetary and/or fiscal policies implemented to provide support or relief to businesses and/or residents, and other government, regulatory, and/or legislative changes precipitated by the COVID-19 pandemic, among others. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. Many of these factors have been heightened as a result of the ongoing and numerous adverse impacts of COVID-19. 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, 2019 (the “Annual Report on Form 10-K”) and under Part II. Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q 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 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
Invitation Homes Inc. (“INVH”), a real estate investment trust (“REIT”), conducts its operations through Invitation Homes Operating Partnership LP (“INVH LP”). THR Property Management L.P., a wholly owned subsidiary of INVH LP (the “Manager”), provides all management and other administrative services with respect to the properties we own. On November 16, 2017 (the “Merger Date”), INVH and certain of its affiliates entered into a series of transactions with Starwood Waypoint Homes (“SWH”) and certain SWH affiliates which resulted in SWH and its operating partnership being merged into INVH and INVH LP, respectively, with INVH and INVH LP being the surviving entities (the “Mergers”).
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.
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. We believe average monthly rent reflects pricing trends that significantly impact rental revenues over time, making average monthly rent useful to management and external stakeholders as a means of evaluating changes in rental revenues across periods;
“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. We believe average occupancy significantly impacts rental revenues in a given period, making comparisons of average occupancy across different periods helpful to management and external stakeholders in evaluating changes in rental revenues across periods;
“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. Days to re-resident impacts our average occupancy and thus our rental revenues, making comparisons of days to re-resident helpful to management and external stakeholders in evaluating changes in rental revenues across periods;
“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. Net effective rental rate growth drives changes in our average monthly rent, making net effective rental rate growth useful to management and external stakeholders as a means of evaluating changes in rental revenues across periods;
“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. When comparing homes or cohorts of homes, we believe PSF calculations help management and external stakeholders normalize metrics for differences in property size, enabling more meaningful comparisons based on characteristics other than property size;


4





“Same Store” or “Same Store portfolio” includes, for a given reporting period, homes that have been stabilized and seasoned, 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, 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, and homes in markets that we have announced an intent to exit where we no longer operate a significant number of homes for the primary purpose of income generation. 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. 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 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 management and external stakeholders 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 and Carolinas 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. We believe turnover rate impacts average occupancy and thus our rental revenues, making comparisons of turnover rate helpful to management and external stakeholders in evaluating changes in rental revenues across periods. In addition, turnover can impact our cost to maintain homes, making changes in turnover rate useful to management and external stakeholders in evaluating changes in our property operating and maintenance expenses across periods; 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, 2020
 
December 31, 2019
 
 
(unaudited)
 
 
Assets:
 

 
 
Investments in single-family residential properties:
 
 
 
 
Land
 
$
4,498,591

 
$
4,499,346

Building and improvements
 
13,844,299

 
13,747,818

 
 
18,342,890


18,247,164

Less: accumulated depreciation
 
(2,126,400
)
 
(2,003,972
)
Investments in single-family residential properties, net
 
16,216,490


16,243,192

Cash and cash equivalents
 
297,060

 
92,258

Restricted cash
 
218,735

 
193,987

Goodwill
 
258,207

 
258,207

Other assets, net
 
602,853

 
605,266

Total assets
 
$
17,593,345


$
17,392,910

 
 
 
 
 
Liabilities:
 
 
 
 
Mortgage loans, net
 
$
6,137,744

 
$
6,238,461

Secured term loan, net
 
401,033

 
400,978

Term loan facility, net
 
1,494,469

 
1,493,747

Revolving facility
 
270,000

 

Convertible senior notes, net
 
335,559

 
334,299

Accounts payable and accrued expenses
 
180,222

 
186,110

Resident security deposits
 
150,160

 
147,787

Other liabilities
 
666,031

 
325,450

Total liabilities
 
9,635,218


9,126,832

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, 2020 and December 31, 2019
 

 

Common stock, $0.01 par value per share, 9,000,000,000 shares authorized, 543,767,445 and 541,642,725 outstanding as of March 31, 2020 and December 31, 2019, respectively
 
5,438

 
5,416

Additional paid-in capital
 
9,066,512

 
9,010,194

Accumulated deficit
 
(556,305
)
 
(524,588
)
Accumulated other comprehensive loss
 
(607,402
)
 
(276,600
)
Total stockholders' equity
 
7,908,243


8,214,422

Non-controlling interests
 
49,884

 
51,656

Total equity
 
7,958,127


8,266,078

Total liabilities and equity
 
$
17,593,345


$
17,392,910

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,
 
 
2020
 
2019
Rental revenues and other property income
 
$
449,789

 
$
435,500

 
 
 
 
 
Expenses:
 
 
 
 
Property operating and maintenance
 
166,916

 
160,346

Property management expense
 
14,372

 
15,160

General and administrative
 
14,228

 
26,538

Interest expense
 
84,757

 
93,983

Depreciation and amortization
 
135,027

 
133,609

Impairment and other
 
3,127

 
5,392

Total expenses
 
418,427

 
435,028

 
 
 
 
 
Other, net
 
3,714

 
3,125

Gain on sale of property, net of tax
 
15,200

 
17,572

 
 
 
 
 
Net income
 
50,276


21,169

Net income attributable to non-controlling interests
 
(320
)
 
(347
)
 
 
 
 
 
Net income attributable to common stockholders
 
49,956


20,822

Net income available to participating securities
 
(102
)
 
(106
)
 
 
 
 
 
Net income available to common stockholders — basic and diluted (Note 12)
 
$
49,854

 
$
20,716

 
 
 
 
 
Weighted average common shares outstanding — basic
 
542,549,512

 
521,440,822

Weighted average common shares outstanding — diluted
 
543,904,420

 
521,817,494

 
 
 
 
 
Net income per common share — basic

$
0.09

 
$
0.04

Net income per common share — diluted
 
$
0.09

 
$
0.04


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


7


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


 
 
For the Three Months
Ended March 31,
 
 
2020
 
2019
Net income
 
$
50,276

 
$
21,169

 
 
 
 
 
Other comprehensive loss
 
 
 
 
Unrealized losses on interest rate swaps
 
(341,438
)
 
(87,868
)
(Gains) losses from interest rate swaps reclassified into earnings from accumulated other comprehensive loss
 
8,567

 
(10,863
)
Other comprehensive loss
 
(332,871
)
 
(98,731
)
Comprehensive loss
 
(282,595
)

(77,562
)
Comprehensive loss attributable to non-controlling interests
 
1,749

 
1,271

 
 
 
 
 
Comprehensive loss attributable to common stockholders
 
$
(280,846
)

$
(76,291
)

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, 2020
(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, 2019
 
541,642,725


$
5,416


$
9,010,194


$
(524,588
)

$
(276,600
)

$
8,214,422


$
51,656


$
8,266,078

Capital distributions
 

 

 

 

 

 

 
(534
)
 
(534
)
Net income
 

 

 

 
49,956

 

 
49,956

 
320

 
50,276

Dividends and dividend equivalents declared ($0.15 per share)
 

 

 

 
(81,673
)
 

 
(81,673
)
 

 
(81,673
)
Issuance of common stock — settlement of RSUs, net of tax
 
252,654

 
3

 
(3,174
)
 

 

 
(3,171
)
 

 
(3,171
)
Issuance of common stock, net
 
1,872,066

 
19

 
55,902

 

 

 
55,921

 

 
55,921

Share-based compensation expense
 

 

 
3,590

 

 

 
3,590

 
511

 
4,101

Total other comprehensive loss
 

 

 

 

 
(330,802
)
 
(330,802
)
 
(2,069
)
 
(332,871
)
Balance as of March 31, 2020
 
543,767,445

 
$
5,438

 
$
9,066,512

 
$
(556,305
)
 
$
(607,402
)
 
$
7,908,243

 
$
49,884

 
$
7,958,127


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, 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.


10


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


 
 
For the Three Months
Ended March 31,
 
 
2020
 
2019
Operating Activities:
 
 
 
 
Net income
 
$
50,276

 
$
21,169

 
 
 
 
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
135,027

 
133,609

Share-based compensation expense
 
4,101

 
5,607

Amortization of deferred leasing costs
 
2,856

 
2,579

Amortization of deferred financing costs
 
7,952

 
10,150

Amortization of debt discounts
 
1,348

 
2,364

Provisions for impairment
 
2,471

 
3,253

Gain on sale of property, net of tax
 
(15,200
)
 
(17,572
)
Change in fair value of derivative instruments
 
1,091

 
2,351

Other noncash amounts included in net income
 
(185
)
 
419

Changes in operating assets and liabilities:
 
 
 
 
Other assets, net
 
(10,787
)
 
304

Accounts payable and accrued expenses
 
(4,534
)
 
25,002

Resident security deposits
 
2,373

 
1,677

Other liabilities
 
932

 
2,271

Net cash provided by operating activities
 
177,721

 
193,183

 
 
 
 
 
Investing Activities:
 
 
 
 
Amounts deposited and held by others
 
(773
)
 
(1,173
)
Acquisition of single-family residential properties
 
(137,471
)
 
(55,458
)
Initial renovations to single-family residential properties
 
(31,042
)
 
(9,644
)
Other capital expenditures for single-family residential properties
 
(40,220
)
 
(29,492
)
Proceeds from sale of single-family residential properties
 
123,318

 
142,562

Repayment proceeds from retained debt securities
 
5,539

 
8,441

Other investing activities
 
(93
)
 
(209
)
Net cash provided by (used in) investing activities
 
(80,742
)
 
55,027

 
 
 
 
 
Financing Activities:
 
 
 
 
Payment of dividends and dividend equivalents
 
(81,774
)
 
(67,965
)
Distributions to non-controlling interests
 
(534
)
 
(1,175
)
Payment of taxes related to net share settlement of RSUs
 
(3,171
)
 
(6,723
)
Payments on mortgage loans
 
(107,387
)
 
(180,812
)
Proceeds from revolving facility
 
320,000

 
20,000

Payments on revolving facility
 
(50,000
)
 
(20,000
)
Proceeds from issuance of common stock, net
 
55,921

 

Other financing activities
 
(484
)
 
(108
)
Net cash provided by (used in) financing activities
 
132,571

 
(256,783
)
 
 
 
 
 
Change in cash, cash equivalents, and restricted cash
 
229,550

 
(8,573
)
Cash, cash equivalents, and restricted cash, beginning of period (Note 4)
 
286,245

 
359,991

Cash, cash equivalents, and restricted cash, end of period (Note 4)
 
$
515,795

 
$
351,418

 
 
 
 
 

11


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

 
 
For the Three Months
Ended March 31,
 
 
2020
 
2019
Supplemental cash flow disclosures:
 
 
 
 
Interest paid, net of amounts capitalized
 
$
77,326

 
$
83,316

Cash paid for income taxes
 
362

 
866

Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
 
Operating cash flows from operating leases
 
1,398

 
1,326

Financing cash flows from finance leases
 
454

 
108

 
 
 
 
 
Noncash investing and financing activities:
 
 
 
 
Accrued renovation improvements at period end
 
$
12,489

 
$
5,361

Accrued residential property capital improvements at period end
 
11,159

 
7,906

Transfer of residential property, net to other assets, net for held for sale assets
 
60,061

 
94,474

Change in other comprehensive loss from cash flow hedges
 
(333,949
)
 
(101,049
)
ROU assets obtained in exchange for operating lease liabilities
 
518

 
1,721

ROU assets obtained in exchange for finance lease liabilities
 
7,285

 


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 1Organization and Formation
Invitation Homes Inc. (“INVH”) is a real estate investment trust (“REIT”) that 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 THR Property Management L.P., a wholly owned subsidiary of INVH LP (the “Manager”), we provide all management and other administrative services with respect to the properties we own.
On February 6, 2017, INVH completed an initial public offering (“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, in each case $0.01 par value per share. In connection with certain pre-IPO reorganization transactions, INVH LP became (1) owned by INVH directly and through Invitation Homes OP LLC, a wholly owned subsidiary of INVH, and (2) the owner of all of the assets, liabilities, and operations of certain pre-IPO ownership entities. These transactions were accounted for as a reorganization of entities under common control utilizing historical cost basis.
On November 16, 2017 (the “Merger Date”), INVH and certain of its affiliates entered into a series of transactions with Starwood Waypoint Homes (“SWH”) and certain SWH affiliates which resulted in SWH and its operating partnership being merged into INVH and INVH LP, respectively, with INVH and INVH LP being the surviving entities (the “Mergers”). The Mergers were accounted for as a business combination in accordance with ASC 805, Business Combinations, and INVH was designated as the accounting acquirer.
The limited partnership interests of INVH LP consist of common units and other classes of limited partnership interests that may be issued (the “OP Units”). As of March 31, 2020, INVH owns 99.4% of the common OP Units and has the full, exclusive, and complete responsibility for and discretion over the day to day management and control of INVH LP.
Our organizational structure includes several wholly owned subsidiaries of INVH LP 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.
Note 2Significant 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 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, 2019.
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, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020.

13


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







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 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, we have 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 represent the OP Units not owned by INVH, including any vested OP Units granted in connection with certain share-based compensation awards. Non-controlling interests are presented as a separate component of equity on the condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019, and the condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019 include an allocation of the net income attributable to the non-controlling interest holders. Vested 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.
Significant Risks and Uncertainties
One of the most significant risks and uncertainties to our financial condition and results of operations is the potential adverse effect of the current pandemic resulting from the emergence of the novel coronavirus, or COVID-19 (see Note 15 for more information). Since the outbreak, a number of our residents have requested rent deferral and/or late fee relief, and components of our rental revenues and other property income have been impacted by the pandemic. In response, in addition to temporary eviction moratoriums and measures imposed by some jurisdictions across the United States that allow residents to defer missed rent payments without incurring late fees, we have chosen to implement a temporary moratorium on evictions across all of our markets and have elected not to charge late fees in certain situations. Additionally, some jurisdictions have implemented other measures, including disaster declarations, which limit our ability to increase rents. We cannot predict if additional states or cities will implement similar restrictions, or when restrictions currently in place will expire. Certain other restrictions imposed by jurisdictions across the United States are intended to limit operations by businesses not deemed “essential businesses.” While we believe none of the current restrictions materially impact our ability to provide services to our residents or homes, future measures may negatively impact our ability to access our homes, complete service requests, or make our homes ready for new residents. Many experts predict that the outbreak will trigger, or even has already triggered, a period of global economic slowdown or a global recession.  
The COVID-19 pandemic could have material and adverse effects on our financial condition, results of operations, and cash flows in the near term due to, but not limited to, the following: (1)     reduced economic activity that severely impacts the earnings or health of our residents, thereby causing them to be unable to fully meet their obligations to us and resulting in increases in uncollectible receivables and reductions in rental revenues and other property income; (2) governmental restrictions and moratoriums that negatively impact our ability to charge and collect rental revenues and other income or impose restrictions on our ability to provide services to our residents and homes; (3) negative financial impact of the pandemic that could impact our ability to access funds available under our Revolving Facility (as defined in Note 6) or affect future compliance with financial covenants of our Revolving Facility and other debt agreements; and (4) weaker economic conditions that could cause us to recognize impairments in value of our tangible assets or goodwill.

14


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







The extent to which the COVID-19 pandemic impacts our operations, residents, and business partners will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity, and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic, containment measures, monetary and/or fiscal policies implemented to provide support or relief to businesses and/or residents, and other government, regulatory, and/or legislative changes precipitated by the COVID-19 pandemic, among others.
Adoption of New Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes how companies 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. We adopted this standard as of January 1, 2020, and it did not have a material impact on our condensed consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”), which contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives, and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. We have elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future London Interbank Offer Rate (“LIBOR”) indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. We continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
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, 2019.
Recent Accounting Pronouncements
Due to the business disruptions and challenges severely affecting the global economy caused by the COVID-19 pandemic, many lessors may be asked to provide rent deferrals, rent abatements, late fee waivers, and other lease concessions to lessees (collectively, “lease accommodations”). While the lease modification guidance in ASC 842, Leases, addresses routine changes to lease terms resulting from negotiations between a lessee and lessor, it did not contemplate the rapid implementation of lease accommodations to address the sudden liquidity constraints of some lessees arising from the COVID-19 pandemic.
In April 2020, the FASB staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease accommodations resulting from the COVID-19 pandemic. Under existing lease guidance, we would have been required to determine, on a lease by lease basis, if each lease accommodation resulted from a new arrangement reached with the resident (treated within the lease modification accounting framework) or if each was contemplated under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). If certain criteria are met, the Lease Modification Q&A allows lessors to bypass the lease by lease analysis and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. We intend to elect not to

15


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







apply the lease modification accounting framework, eliminating the requirement to perform a lease by lease analysis with respect to any lease accommodations. The impact of the Lease Modification Q&A on our condensed financial statements is dependent upon the extent of lease accommodations granted to residents as a result of the COVID-19 pandemic in future periods and the elections made at the time of entering into such lease accommodations.
Note 3Investments in Single-Family Residential Properties
The following table sets forth the net carrying amount associated with our properties by component:
 
 
March 31, 2020
 
December 31, 2019
Land
 
$
4,498,591

 
$
4,499,346

Single-family residential property
 
13,218,445

 
13,121,179

Capital improvements
 
512,520

 
513,269

Equipment
 
113,334

 
113,370

Total gross investments in the properties
 
18,342,890

 
18,247,164

Less: accumulated depreciation
 
(2,126,400
)
 
(2,003,972
)
Investments in single-family residential properties, net
 
$
16,216,490

 
$
16,243,192


As of March 31, 2020 and December 31, 2019, the carrying amount of the residential properties above includes $119,709 and $119,608, respectively, of capitalized acquisition costs (excluding purchase price), along with $68,086 and $65,747, respectively, of capitalized interest, $26,262 and $25,565, respectively, of capitalized property taxes, $4,645 and $4,616, respectively, of capitalized insurance, and $2,951 and $2,836, respectively, of capitalized homeowners’ association (“HOA”) fees.
During the three months ended March 31, 2020 and 2019, we recognized $133,914 and $132,520, respectively, of depreciation expense related to the components of the properties and $1,113 and $1,089, 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, 2020 and 2019, impairments totaling $2,471 and $3,253, respectively, have been recognized and are included in impairment and other in the condensed consolidated statements of operations.
Note 4Cash, 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, 2020
 
December 31, 2019
Cash and cash equivalents
 
$
297,060

 
$
92,258

Restricted cash
 
218,735

 
193,987

Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows
 
$
515,795

 
$
286,245


Pursuant to the terms of the mortgage loans and Secured Term Loan (as defined 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 our mortgage loans and Secured Term Loan are under the sole control of the loan servicer. Additionally, we hold security

16


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







deposits pursuant to resident lease agreements that we are required to segregate. We are also required to hold letters of credit 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 and Secured Term Loan agreements and are to be released to us subject to certain conditions specified in the 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, 2020 and December 31, 2019, are set forth in the table below. As of March 31, 2020 and December 31, 2019, no amounts were funded to the insurance accounts as the conditions specified in the mortgage loan and Secured Term Loan agreements that require such funding did not exist.
 
 
March 31, 2020
 
December 31, 2019
Resident security deposits
 
$
150,620

 
$
148,186

Property taxes
 
35,753

 
10,443

Collections
 
21,026

 
24,034

Capital expenditures
 
5,633

 
5,627

Letters of credit
 
3,462

 
3,459

Special and other reserves
 
2,241

 
2,238

Total
 
$
218,735

 
$
193,987


Note 5Other Assets
As of March 31, 2020 and December 31, 2019, the balances in other assets, net are as follows:
 
 
March 31, 2020
 
December 31, 2019
Investments in debt securities, net
 
$
311,540

 
$
316,991

Held for sale assets(1)
 
106,328

 
116,529

Investment in unconsolidated joint venture
 
54,629

 
54,778

Prepaid expenses
 
40,095

 
32,106

Rent and other receivables, net
 
25,048

 
25,244

ROU lease assets — operating and finance, net
 
20,613

 
13,768

Investments in equity securities
 
16,734

 
16,650

Corporate fixed assets, net
 
9,363

 
9,825

Deferred leasing costs, net
 
7,486

 
7,427

Amounts deposited and held by others
 
2,731

 
1,348

Deferred financing costs, net
 
2,172

 
2,765

Derivative instruments (Note 7)
 
22

 
1,643

Other
 
6,092

 
6,192

Total
 
$
602,853

 
$
605,266


(1)
As of March 31, 2020 and December 31, 2019, 436 and 478 properties, respectively, are classified as held for sale.

17


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 $311,540, net of unamortized discounts of $2,553, as of March 31, 2020. These investments in debt securities are classified as held to maturity investments. As of March 31, 2020, we have not recognized any credit losses with respect to these investments in debt securities. As of December 31, 2019, there were no gross unrecognized holding gains or losses, and there were no other than temporary impairments recognized in accumulated other comprehensive loss. As of March 31, 2020, our retained certificates are scheduled to mature over the next two months to seven 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, 2020 and December 31, 2019, the joint venture owned 618 and 641 properties, respectively.
Right-of-Use (“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, 2020:
 
 
March 31, 2020
 
December 31, 2019
 
 
Operating
Leases
 
Finance
Leases
 
Operating
Leases
 
Finance
Leases
Other assets
 
$
12,098

 
$
8,515

 
$
12,552

 
$
1,216

Other liabilities
 
13,364

 
8,041

 
13,787

 
1,210

Weighted average remaining lease term
 
3.7 years

 
3.8 years

 
3.8 years

 
2.0 years

Weighted average discount rate
 
4.0
%
 
4.0
%
 
4.0
%
 
4.0
%

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. Rental revenues and other property income are recorded net of any concessions and uncollectible amounts for all periods presented.
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, 2020 and 2019, rental revenues and other property income includes $25,047 and $21,330, respectively, of variable lease payments.
Future minimum rental revenues under leases existing on our single-family residential properties as of March 31, 2020 are as follows:
Year
 
Lease Payments to be Received
Remainder of 2020
 
$
877,619

2021
 
289,546

2022
 
13,304

2023
 

2024
 

Thereafter
 

Total
 
$
1,180,469



18


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







Investments in Equity Securities
We hold investments in equity securities without a readily determinable fair value. We have elected to measure the investments at cost, less any impairment, plus or minus changes resulting from observable price changes for identical or similar investments in the same issuers. As of March 31, 2020 and December 31, 2019, the carrying amount of our investments in equity securities was $16,734 and