Following the great recession, the supply of single-family homes was high, and prices were low. We are currently in the opposite position, with supply not being able to keep up with demand, and increasing prices in most markets.
According to a recent report from RCLCO, the undersupply and high demand for single-family rental units will continue into the foreseeable future. The report notes that "demand for new build-to-rent product is being driven by demographic shifts resulting in more households being in the stage of life where single-family housing better suits their needs, and the housing affordability challenges that are keeping many households, especially first timers, out of the for-sale market."
Invitation Homes (NYSE: INVH) is the largest owner of single-family rental homes in the U.S. They own and operate 80,000 homes across 16 markets, a geographic concentration that provides excellent economies of scale.
Keeping this in mind, here's a closer look at Invitation Homes’ business, how the company has been performing recently, how it plans to grow going forward, and the performance and income it has delivered for investors over the years.
Invitation Homes company profile
Invitation Homes is the largest owner of single-family homes in the U.S. and professionally manages 80,000 units across 16 markets, including Atlanta, Chicago, Dallas, Denver, Jacksonville, Las Vegas, Minneapolis, Orlando, Phoenix, Seattle, Tampa, and others.
The single-family home sector has been on fire lately, with the National Association of Realtors (NAR) reporting recently that almost all U.S. metros (96%) saw price growth amidst minimal inventory in Q1 2020. National single-family home prices for Q1 2020 was $274,600, up 7.7% from Q1 2019. This bodes well for Invitation Homes' business model and portfolio of assets.
Invitation Homes earns revenue from the rents produced by its portfolio assets. Invitation Homes professionally manages these some 80,000 units, and according to its latest earnings report, total revenues grew 1.9% to $450 million in Q2 2020. Net income attributable to common stockholders also increased by 10.2% to $43 million.
Invitation Homes was originally founded in 2012 by Blackstone following the great recession. The group originally purchased 50,000 single-family homes between 2012 and 2016, for a total cost of $8.3 billion. That averages to about $166,000 per property, with Invitation Homes investing an additional average amount of $25,000 into renovating each property.
That said, Blackstone divested its shares in Invitation Homes in 2019.
Quick stats about Invitation Homes:
- Invitation Homes operates only in the U.S., with 80,000 single-family homes across 16 markets.
- Markets: Atlanta, Carolinas, Chicago, Dallas, Denver, Houston, Jacksonville, Las Vegas, Minneapolis, Northern California, Orlando, Phoenix, South Florida, Southern California, Seattle, and Tampa.
- Invitation Homes has a market cap of $16.54 billion, compared to American Homes 4 Rent (NYSE: AMH), which has a market cap of $9.33 billion, or Front Yard Residential Corporation (NYSE: RESI), which sits at $587 million.
- Occupancy across the Invitation Homes portfolio sat at 97.5%, up 100 basis points year-over-year. Note that this is despite the COVID-19 pandemic.
Invitation Homes news
According to the latest earnings, Invitation Homes plans to grow through the acquisition of new single-family assets. Year to date as of late June, Invitation Homes acquired 651 homes for a total price tag of $200 million, or $307,219 per unit. The company also sold 900 homes during the same time period for gross proceeds of $246 million.
Invitation Homes President and CEO Dallas Tanner noted, "Demand for our homes is as strong as it has ever been, with summer occupancy at record highs. We have successfully adapted to meet this demand and deliver exceptional service in a way that continues to prioritize health and safety above all else. We have also continued to achieve strong rent collection from our mature, stable resident base, with collections in June and July near historical average levels. This combination of strong demand and outstanding execution helped drive a year-over-year increase in AFFO per share of over 9% in the second quarter."
The company plans to continue acquiring properties using its in-house local investment teams as well as its proprietary AcquisitionIQ technology.
Invitation Homes competitors include American Homes 4 Rent and Front Yard Residential Corporation. American Homes is the closest competitor, with 50,000 homes nationwide. As of 2019, average rents for Invitations Homes sat at $1,784, and $1,600 and $1,261 for American Homes and Front Yard, respectively. Invitation Homes has the advantage on average rents; however, its inventory is older than American Homes. The average age of Invitation Homes homes is 22 years, whereas American Homes is 15.
Invitation Homes plans to grow its portfolio in the future with a special focus on the suburbs. According to Bloomberg, the REIT has focused on suburbs that are closer to the city center in 16 different markets and is also buying new-build homes from builders. Invitation Homes also plans to benefit from rent inflation and the general trend seeing city-dwellers looking for more space and bigger homes to accommodate home offices.
Invitation Homes stock price
The Invitation Homes stock price has been relatively stable since Blackstone took it public in 2017. With an original share price of $20 in January 2017, Invitation Homes remained flat for years, sitting at $22 per share in January 2019. The price jumped to a high of $31 this February and crashed along with the rest of the markets to a low of $17 in mid-March. The stock price has since rebounded and now sits at $28.75 as of August 20, 2020.
The dip in stock price had nothing to do with the fundamentals of Invitation Homes as a company, but was more driven by market factors related to the COVID-19 pandemic.
In July, 2020, the company's board of directors announced a quarterly cash dividend of $0.15 per share. That compares to $0.13 per share in Q2 of 2019 and $0.11 per share in 2018.
The bottom line on Invitation Homes
Rising home prices have been a boon for holders of residential real estate, including Invitation Homes. The tight supply of housing coupled with low vacancy rates and strong demand for rental housing are all positive signs for Invitation Homes REIT.
With a history of an increasing dividend and occupancy sitting at 97% despite the COVID-19 pandemic, Invitation Homes could be a strong bet for those looking for exposure to the single-family home market in the U.S.