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    Invitation Homes (INVH)

    Q2 2024 Earnings Summary

    Reported on Jan 6, 2025
    Pre-Earnings Price$37.28Last close (Sep 5, 2024)
    Post-Earnings Price$35.95Last close (Sep 6, 2024)
    Price Change
    $-1.33(-3.57%)

    What went well

    • INVH is expanding partnerships with national and regional homebuilders, leading to a strong acquisition pipeline of over 1,000 additional homes, driving future growth opportunities at attractive yields over 6% on cost.
    • INVH anticipates blended rent growth to be in the high 4% to low 5% range for the full year, supported by robust demand and strategic balancing of rate and occupancy to maximize revenue and NOI.
    • INVH expects renewal pricing to pick up in the fourth quarter due to a return to normal seasonality patterns and increased loss to lease, enhancing revenue growth through higher renewal rates.

    What went wrong

    • Elevated property tax expenses are expected to increase by 8% to 9.5% year-over-year, impacting operating expenses and leading to cautious outlook until better clarity exists later this year.
    • Moderation in key markets like Phoenix and Florida (excluding South Florida) is leading to adjustments in revenue growth expectations, indicating potential challenges in maintaining growth.
    • Balancing between occupancy and rental rates may limit revenue growth, as the company adjusts guidance to reflect early signs of market softening and return to seasonality.

    Q&A Summary

    1. Revenue Guidance Reduction
      Q: Why reduce same-store revenue guidance?
      A: We observed moderation in markets like Phoenix and Central Florida due to price fatigue and increased supply, leading us to reassess and fine-tune our revenue guidance. Most of our portfolio is still performing strongly, with markets like Chicago and Southern California showing new lease rate growth above 5% in Q2.

    2. FTC Inquiry and Accrual
      Q: What's the status of the FTC inquiry and related accrual?
      A: We received an FTC inquiry in summer 2021 regarding our business practices during the pandemic. We've cooperated fully and accrued an amount reflecting what we'd consider paying to resolve the matter without admitting liability. We expect no material ongoing impact on our business.

    3. Capital Deployment and Yields
      Q: Expectations for capital deployment and yields?
      A: We're continuing our acquisition strategy, focusing on relationships with national and regional builders. We expect yields to remain consistent, achieving deals in the 6% plus range. We have a robust pipeline and are seeing more deal flow than in previous years.

    4. Renewal Rate Growth Outlook
      Q: Confidence in renewal rate growth reaccelerating?
      A: Despite a slight moderation in June, we expect renewals to pick up, with asks moving from the mid-6% in the summer to above 7% in October. This is driven by the seasonal increase in loss to lease as we enter the fall.

    5. R&M Costs Impact on OpEx and CapEx
      Q: Details on higher R&M costs impacting OpEx and CapEx?
      A: Early heat waves increased repairs and replacements, especially HVACs, leading to higher R&M expenses. CapEx has been running hot, but we're monitoring and focusing on cost controls. AFFO guidance remains unchanged for now.

    6. Turnover Trends and Costs
      Q: Is lower turnover a larger trend affecting costs?
      A: Turnover is returning to normal levels post-pandemic and lease compliance cleanup. Turn costs have decreased year-over-year, and we feel good about controlling expenses. In Q2, 17.5% of move-outs were lease compliance-related, down 200 basis points from Q1.

    7. Property Taxes Below Expectations
      Q: Which markets had property taxes below expectations?
      A: Washington State and Minnesota came in below expectations, leading to a revision in our property tax guidance. Assumptions for other markets like Florida and Georgia remain unchanged.

    8. Average Stay Duration
      Q: Is the 3-year average stay peaking?
      A: We don't expect the average stay to peak at 3 years. Our West Coast markets are approaching 4 to 5 years in average stay. We anticipate customers will continue to stay longer due to housing supply-demand imbalances.

    9. Acquisition Guidance and Pipeline
      Q: How will you achieve acquisition guidance?
      A: We'll continue direct negotiations with builders for partial and full community purchases and may acquire full communities from developers. Our backlog includes 2,700 homes, with 691 expected to be delivered in the second half of this year.

    10. Supply Dynamics in Key Markets
      Q: Who is adding supply in markets like Florida?
      A: Both build-to-rent operators and national homebuilders are increasing supply due to slower homebuyer demand from higher mortgage rates. This contributes to supply sensitivity in markets like Phoenix, Tampa, and Orlando.

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