ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the information appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements based upon our current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part I. Item 1A. “Risk Factors” of our Annual Report on Form 10-K.
Capitalized terms used without definition have the meaning provided elsewhere in this Quarterly Report on Form 10-Q.
Overview
Invitation Homes is a leading owner and operator of single-family homes for lease, offering residents high-quality homes in sought-after neighborhoods across America. With over 80,000 homes for lease in 16 markets across the country as of June 30, 2022, we are meeting the needs of a growing share of Americans who prefer the ease of leasing over the burden of owning a home. We provide our residents access to updated homes with features they value, as well as close proximity to jobs and access to good schools. The continued demand for our product proves that the choice and flexibility we offer is attractive to many prospective residents.
We operate in markets with strong demand drivers, high barriers to entry, and high rent growth potential, primarily in the Western United States, Florida, and the Southeast United States. Through disciplined market and asset selection, as well as through strategic mergers and acquisitions, we designed our portfolio to capture the operating benefits of local density as well as economies of scale that we believe cannot be readily replicated. Since our founding in 2012, we have built a proven, vertically integrated operating platform that enables us to effectively and efficiently acquire, renovate, lease, maintain, and manage our homes.
Our homes average approximately 1,870 square feet with three bedrooms and two bathrooms, appealing to a resident base that we believe is less transitory than a typical multifamily resident. We invest in the upfront renovation of homes in our portfolio in order to address capital needs, reduce ongoing maintenance costs, and drive resident demand.
At Invitation Homes, we are committed to creating a better way to live and to being a force for positive change, while at the same time advancing efforts that make our company more innovative and our processes more sustainable. Environmental, social, and governance initiatives are an important part of our strategic business objectives and are critical to our long-term success.
Our mission statement, “Together with you, we make a house a home,” reflects our commitment to high-touch customer service that continuously enhances residents’ living experiences and provides homes where individuals and families can thrive. Each aspect of our operations — whether in our corporate headquarters or field offices located in our 16 markets — is driven by a resident-centric model. Our associates take our values seriously and work hard every day to honor the trust our residents have placed in us to provide safe and secure homes for them and their loved ones. In turn, we focus on ensuring our associates are fairly compensated and that we provide a diverse, equitable, and inclusive culture where they are appreciated for who they are and what they bring to the business. We also place a strong emphasis on the impact we have in our communities and to the environment in general, and we continue to develop programs that will demonstrate that commitment. In addition, we ensure that we operate under strong, well-defined governance practices and adhere to the highest ethical standards at all times.
Impact of Macroeconomic Trends
In March 2020, interest rates reached historically low levels, in large part driven by the impacts of COVID-19 on the United States economy. More recently, high consumer demand, low interest rates, global supply chain disruptions, and other factors have contributed to rapidly accelerating economic inflation to an annual inflation rate of 9.1% for the twelve months ended June 30, 2022, the largest annual increase since November 1981. To offset the impacts of inflation, since March 2022, the Federal Open Market Committee has raised short-term interest rates and may continue to do for some period of time.
Overall weaker economic conditions, ongoing geopolitical tensions, uncertainty in financial markets, including the impact of inflation and rising interest rates, and a general decline in business activity and/or consumer confidence. These
factors could adversely affect (i) our ability to acquire or dispose of single-family homes, (ii) our access to financial markets on attractive terms, or at all, and (iii) the value of our homes and our business that could cause us to recognize impairments in value of our tangible assets or goodwill. High levels of inflation and interest rates may also negatively impact consumer income, credit availability, and spending, among other factors, which may adversely impact our business, financial condition, cash flows, and results of operations.
Continuing Impact of COVID-19
The ongoing COVID-19 pandemic continues to create many unknowns that may impact our residents, associates, and suppliers. The ultimate impacts remain unknown, but have included and could range from macroeconomic effects (such as continued strain on global and United States economic conditions and disruptions to, and volatility in, the credit and financial markets, consumer spending, supply chains, and the market for acquisition and disposition of single-family homes) to more industry-specific effects (such as depressed collection rates, higher or lower occupancy levels, and restrictions on evictions, collections, rent increases, and late fees), and other unanticipated consequences. As such, we continue to closely monitor the impact of the pandemic on all aspects of our business and actively manage our response thereto in collaboration with our residents and business partners.
The overall impact of the ongoing COVID-19 pandemic has not created significant disruptions to our business model during the six months ended June 30, 2022 and 2021.
For further discussion of risks related to the pandemic, see Part I. Item 1A. “Risk Factors — Risks Related to Our Business and Industry — Our business, results of operations, financial condition, and cash flows may be adversely affected by pandemics and outbreaks of infectious disease, particularly the ongoing COVID-19 pandemic” in our Annual Report on Form 10-K.
Other Matters
In July 2021, we received congressional inquiries requesting information and documentation about our eviction practices during the COVID-19 pandemic, including information relating to compliance with federal eviction moratorium requirements and cooperation with impacted residents to use federal assistance funds as an alternative to eviction. In October 2021 and January 2022, we received additional congressional inquiries requesting information about our activities in the housing market. We are in the process of responding to and cooperating with these inquiries and information requests.
In August 2021, we received a letter from the staff of the Federal Trade Commission requesting information as to how we conduct our business generally and during the COVID-19 pandemic specifically. We are in the process of responding to and cooperating with this request.
As these inquiries are ongoing, we cannot currently predict their timing, outcome, or scope.
Climate Change
Climate change continues to attract considerable public, political, and scientific attention. Experiencing or addressing the various physical, regulatory, and adaptation/transition risks of climate change may affect our profitability. Government authorities, including the SEC, and various interest groups are promoting laws and regulations relating to climate change, including regulations aimed at drastically increasing reporting and governance related to climate change as well as focused on limiting greenhouse gas emissions and the implementation of “green” building codes. These laws and regulations may require us to make costly improvements to our existing properties beyond our current plans to decrease the impact of our homes on the environment, resulting in increased operating costs. Implementation of any voluntary improvements requires consideration of multiple factors, including whether such elections would raise our costs to maintain our homes. Alternatively, choosing not to enhance our homes’ resource efficiency could make our portfolio less attractive to residents and investors and/or increase the vulnerability of our residents to rising energy and water expenses and use restrictions.
As the climate continues to change, and with a portfolio located in a variety of United States markets that include coastal areas, we recognize the increased potential for acute weather events and other climate-related impacts to our business, operations, and homes. We take a proactive approach to protect our properties against potential risks related to climate
change and business interruptions, and we recognize that we must continue to adapt our policies, objectives, and processes to improve the resiliency of our physical properties and our business.
Our management and the Board of Directors are focused on managing our business risks, including climate change-related risks. The process to identify, manage, and integrate climate-change risk is part of our enterprise risk management program. For more information on risks related to climate change, see Part I. Item 1A. “Risk Factors — Risks Related to Environmental, Social, and Governance Issues — Climate change, related legislative and regulatory responses to climate change, and the transition to a lower-carbon economy may adversely affect our business, — We are subject to risks from natural disasters such as earthquakes and severe weather, and — We are subject to increasing scrutiny from investors and others regarding our environmental, social, or sustainability, responsibilities, which could result in additional costs or risks and adversely impact our reputation, associate retention, and ability to raise capital from such investors” in our Annual Report on Form 10-K.
Our Portfolio
The following table provides summary information regarding our total and Same Store portfolios as of and for the three months ended June 30, 2022 as noted below:
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Market | | Number of Homes(1) | | Average Occupancy(2) | | Average Monthly Rent(3) | | Average Monthly Rent PSF(3) | | % of Revenue(4) | |
Western United States: | | | | | | | | | | | |
Southern California | | 7,826 | | 97.6% | | $2,779 | | $1.64 | | 12.0 | % | |
Northern California | | 4,467 | | 94.6% | | 2,486 | | 1.59 | | 6.2 | % | |
Seattle | | 4,086 | | 92.3% | | 2,602 | | 1.35 | | 5.8 | % | |
Phoenix | | 8,885 | | 95.4% | | 1,808 | | 1.08 | | 9.2 | % | |
Las Vegas | | 3,176 | | 95.2% | | 2,024 | | 1.02 | | 3.6 | % | |
Denver | | 2,671 | | 89.4% | | 2,360 | | 1.29 | | 3.4 | % | |
Western United States Subtotal | | 31,111 | | 94.9% | | 2,326 | | 1.34 | | 40.2 | % | |
| | | | | | | | | | | |
Florida: | | | | | | | | | | | |
South Florida | | 8,346 | | 97.8% | | 2,560 | | 1.37 | | 12.1 | % | |
Tampa | | 8,580 | | 97.2% | | 1,995 | | 1.07 | | 9.9 | % | |
Orlando | | 6,446 | | 97.3% | | 1,963 | | 1.05 | | 7.2 | % | |
Jacksonville | | 1,928 | | 96.9% | | 1,967 | | 0.99 | | 2.2 | % | |
Florida Subtotal | | 25,300 | | 97.4% | | 2,172 | | 1.16 | | 31.4 | % | |
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| | | | | | | | | | | |
Southeast United States: | | | | | | | | | | | |
Atlanta | | 12,686 | | 97.0% | | 1,793 | | 0.87 | | 13.1 | % | |
Carolinas | | 5,356 | | 94.9% | | 1,844 | | 0.86 | | 5.5 | % | |
Southeast United States Subtotal | | 18,042 | | 96.4% | | 1,808 | | 0.87 | | 18.6 | % | |
| | | | | | | | | | | |
Texas: | | | | | | | | | | | |
Houston | | 2,119 | | 96.7% | | 1,724 | | 0.89 | | 2.1 | % | |
Dallas | | 2,857 | | 95.7% | | 2,027 | | 0.99 | | 3.3 | % | |
Texas Subtotal | | 4,976 | | 96.1% | | 1,897 | | 0.95 | | 5.4 | % | |
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Midwest United States: | | | | | | | | | | | |
Chicago | | 2,548 | | 97.6% | | 2,152 | | 1.34 | | 3.1 | % | |
Minneapolis | | 1,116 | | 97.1% | | 2,129 | | 1.09 | | 1.3 | % | |
Midwest United States Subtotal | | 3,664 | | 97.4% | | 2,145 | | 1.25 | | 4.4 | % | |
| | | | | | | | | | | |
Total / Average | | 83,093 | | 96.2% | | $2,132 | | $1.14 | | 100.0 | % | |
Same Store Total / Average | | 75,215 | | 98.0% | | $2,124 | | $1.14 | | 92.1 | % | |
(1)As of June 30, 2022.
(2)Represents average occupancy for the three months ended June 30, 2022.
(3)Represents average monthly rent for the three months ended June 30, 2022.
(4)Represents the percentage of rental revenues and other property income generated in each market for the three months ended June 30, 2022.
Factors That Affect Our Results of Operations and Financial Condition
Our results of operations and financial condition are affected by numerous factors, many of which are beyond our control. See Part I. Item 1A. “Risk Factors” of our Annual Report on Form 10-K for more information regarding factors that could materially adversely affect our results of operations and financial condition. Key factors that impact our results of operations and financial condition include market fundamentals, rental rates and occupancy levels, collection rates, turnover rates and days to re-resident homes, property improvements and maintenance, property acquisitions and renovations, and financing arrangements. Sensitivity to many of these factors has been heightened as a result of current macroeconomic conditions, including rapidly accelerating economic inflation, and the ongoing and numerous adverse impacts of COVID-19.
Market Fundamentals: Our results are impacted by housing market fundamentals and supply and demand conditions in our markets, particularly in the Western United States and Florida, which represented 71.6% of our rental revenues and other property income during the three months ended June 30, 2022. We actively monitor the impact of macroeconomic conditions on market fundamentals and quickly implement changes in pricing as market fundamentals shift.
Rental Rates and Occupancy Levels: Rental rates and occupancy levels are primary drivers of rental revenues and other property income. Our rental rates and occupancy levels are affected by macroeconomic factors and local and property-level factors, including market conditions, seasonality, resident defaults, and the amount of time it takes to prepare a home for its next resident and re-lease homes when residents vacate. An important driver of rental rate growth is our ability to increase monthly rents from expiring leases, which typically have a term of one to two years.
Collection Rates: Our rental revenues and other property income are impacted by the rate at which we collect such revenues from our residents. Despite our efforts to assist residents facing financial hardships who need flexibility to fulfill their lease obligations, a portion of amounts receivable may not ultimately be collected. Any amounts billed to residents that have been deemed uncollectible along with our estimate of amounts that may ultimately be uncollectible decrease our rental revenues and other property income.
Turnover Rates and Days to Re-Resident: Other drivers of rental revenues and property operating and maintenance expense include the length of stay of our residents, resident turnover rates, and the number of days a home is unoccupied between residents. Our operating results are also impacted by the amount of time it takes to market and lease a property, which is a component of the number of days a home is unoccupied between residents. The period of time to market and lease a property can vary greatly and is impacted by local demand, our marketing techniques, the size of our available inventory, the ability of our suppliers and other business partners to carry out their assigned tasks and/or source labor or supply materials at ordinary levels of performance relative to the conduct of our business, and both current economic conditions and future economic outlook, including the impact of rising inflation and interest rates which could adversely affect demand for our properties.
Property Improvements and Maintenance: Property improvements and maintenance impact capital expenditures, property operating and maintenance expense, and rental revenues. We actively manage our homes on a total portfolio basis to determine what capital and maintenance needs may be required and what opportunities we may have to generate additional revenues or expense savings from such expenditures. As a result of current inflationary trends, we have experienced, and expect to continue to incur, increased costs for certain materials and services necessary to improve and maintain our homes. We continue to actively manage the impact of inflation on these costs, and we believe we are able to purchase goods and services at favorable prices compared to other purchasers due to our size and scale both nationally and locally.
Property Acquisitions and Renovations: Future growth in rental revenues and other property income may be impacted by our ability to identify and acquire homes, our pace of property acquisitions, and the time and cost required to renovate and lease a newly acquired home. Our ability to identify and acquire single-family homes that meet our investment criteria is impacted by home prices in targeted acquisition locations, the inventory of homes available for sale through our acquisition channels, and competition for our target assets. All of these factors may be negatively impacted by current inflationary trends and rising interest rates, potentially reducing the number of homes we acquire.
The acquisition of homes involves expenditures in addition to payment of the purchase price, including payments for acquisition fees, property inspections, closing costs, title insurance, transfer taxes, recording fees, broker commissions, property taxes, and HOA fees (when applicable). Additionally, we typically incur costs to renovate a home to prepare it for rental. The scope of renovation work varies, but may include paint, flooring, carpeting, cabinetry, appliances, plumbing hardware, roof replacement, HVAC replacement, and other items required to prepare the home for rental. The time and cost involved in accessing our homes and preparing them for rental can significantly impact our financial performance. The time
to renovate a newly acquired property can vary significantly among homes for several reasons, including the property’s acquisition channel, the condition of the property, whether the property was vacant when acquired, and whether there are any state or local restrictions on our ability to complete renovations as an essential business function. Additionally, the ability of our suppliers and other business partners to carry out their assigned tasks and/or source labor or supply materials at ordinary levels of performance relative to the conduct of our business have increased the time required to renovate our homes. As a result of current inflationary trends, we have experienced, and expect to continue to incur, increased costs for certain materials and services necessary to renovate our homes.We continue to actively manage the impact of inflation on the cost of renovations, and we believe we are able to purchase goods and services at favorable prices compared to other purchasers due to our size and scale both nationally and locally.
Financing Arrangements: Financing arrangements directly impact our interest expense, our various debt instruments, and our ability to acquire and renovate homes. We have historically utilized indebtedness to fund the acquisition and renovation of new homes. Our current financing arrangements contain financial covenants and other terms and conditions, including variable interest rates in some cases, that are impacted by market conditions. Current macroeconomic conditions may continue to negatively affect volatility, availability of funds, and transaction costs (including interest rates) within financial markets. These factors may also negatively affect our ability to access financial markets as well as our business, results of operations, and financial condition. See Part I. Item 3. “Quantitative and Qualitative Disclosures about Market Risk” for further discussion regarding interest rate risk. Our future financing arrangements may not have similar terms with respect to amounts, interest rates, financial covenants, and durations.
Components of Revenues and Expenses
The following is a description of the components of our revenues and expenses.
Revenues
Rental Revenues and Other Property Income
Rental revenues, net of any concessions and bad debt (including write-offs, credit reserves, and uncollectible amounts), consist of rents collected under lease agreements related to our single-family homes for lease. We enter into leases directly with our residents, and the leases typically have a term of one to two years.
Other property income is comprised of: (i) resident reimbursements for utilities, HOA fines, and other charge-backs; (ii) rent and non-refundable deposits associated with pets; (iii) revenues from ancillary services such as smart homes and HVAC replacement filters; and (iv) various other fees, including late fees and lease termination fees, among others.
Management Fee Revenues
Management fee revenues consist of asset and property management fees from our unconsolidated joint ventures.
Expenses
Property Operating and Maintenance
Once a property is available for its initial lease, which we refer to as “rent-ready,” we incur ongoing property-related expenses, which consist primarily of property taxes, insurance, HOA fees (when applicable), market-level personnel expenses, utility expenses, repairs and maintenance, and property administration. Prior to a property being “rent-ready,” certain of these expenses are capitalized as building and improvements. Once a property is “rent-ready,” expenditures for ordinary repairs and maintenance thereafter are expensed as incurred, and we capitalize expenditures that improve or extend the life of a home.
Property Management Expense
Property management expense represents personnel and other costs associated with the oversight and management of our portfolio of homes, including those within our unconsolidated joint ventures. All of our homes are managed through our internal property manager.
General and Administrative
General and administrative expense represents personnel costs, professional fees, and other costs associated with our day-to-day activities. General and administrative expense may also include expenses that are of a non-recurring nature, such as severance.
Share-Based Compensation Expense
All share-based compensation expense is recognized in our condensed consolidated statements of operations as components of general and administrative expense and property management expense. We issue share-based awards to align the interests of our associates with those of our investors.
Interest Expense
Interest expense includes interest payable on our debt instruments, payments and receipts related to our interest rate swap agreements, amortization of discounts and deferred financing costs, unrealized gains (losses) on non-designated hedging instruments, and non-cash interest expense related to our interest rate swap agreements.
Depreciation and Amortization
We recognize depreciation and amortization expense associated with our homes and other capital expenditures over the expected useful lives of the assets.
Impairment and Other
Impairment and other represents provisions for impairment when the carrying amount of our single-family residential properties is not recoverable and casualty (gains) losses, net of any insurance recoveries.
Gains (Losses) on Investments in Equity Securities, net
Gains (losses) on investments in equity securities, net includes unrealized gains and losses resulting from mark to market adjustments and realized gains and losses recognized upon the sale of such securities.
Other, net
Other, net includes interest income and other miscellaneous income and expenses.
Gain on Sale of Property, net of tax
Gain on sale of property, net of tax consists of net gains and losses resulting from sales of our homes.
Income (Loss) from Investments in Unconsolidated Joint Ventures
Income (loss) from investments in unconsolidated joint ventures consists of our share of net earnings and losses from investments in unconsolidated joint ventures accounted for using the equity method.
Results of Operations
Portfolio Information
As of June 30, 2022 and 2021, we owned 83,093 and 80,612 single-family rental homes, respectively, in our total portfolio. During the three months ended June 30, 2022 and 2021, we acquired 511 and 494 homes, respectively, and sold 176 and 212 homes, respectively. During the three months ended June 30, 2022 and 2021, we owned an average of 82,877 and 80,412 single-family rental homes, respectively. During the six months ended June 30, 2022 and 2021, we acquired 1,029 and 895 homes, respectively, and sold 317 and 460 homes, respectively. During the six months ended June 30, 2022 and 2021, we owned an average of 82,726 and 80,315 single-family rental homes, respectively.
We believe presenting information about the portion of our total portfolio that has been fully operational for the entirety of both 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. To do so, we provide information regarding the performance of our Same Store portfolio.
As of June 30, 2022, our Same Store portfolio consisted of 75,215 single-family rental homes.
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
The following table sets forth a comparison of the results of operations for the three months ended June 30, 2022 and 2021:
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| | For the Three Months Ended June 30, | | | | | |
($ in thousands) | | 2022 | | 2021 | | $ Change | | % Change | |
Revenues: | | | | | | | | | |
Rental revenues and other property income | | $ | 554,541 | | | $ | 490,618 | | | $ | 63,923 | | | 13.0 | % | |
Management fee revenues | | 2,759 | | | 1,015 | | | 1,744 | | | 171.8 | % | |
Total revenues | | 557,300 | | | 491,633 | | | 65,667 | | | 13.4 | % | |
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Expenses: | | | | | | | | | |
Property operating and maintenance | | 190,680 | | | 175,422 | | | 15,258 | | | 8.7 | % | |
Property management expense | | 21,814 | | | 17,696 | | | 4,118 | | | 23.3 | % | |
General and administrative | | 19,342 | | | 19,828 | | | (486) | | | (2.5) | % | |
Interest expense | | 74,840 | | | 80,764 | | | (5,924) | | | (7.3) | % | |
Depreciation and amortization | | 158,572 | | | 145,280 | | | 13,292 | | | 9.1 | % | |
Impairment and other | | 1,355 | | | 980 | | | 375 | | | 38.3 | % | |
Total expenses | | 466,603 | | | 439,970 | | | 26,633 | | | 6.1 | % | |
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Gains (losses) on investments in equity securities, net | | (172) | | | (7,002) | | | 6,830 | | | 97.5 | % | |
Other, net | | (3,827) | | | (1,903) | | | (1,924) | | | (101.1) | % | |
Gain on sale of property, net of tax | | 27,508 | | | 17,919 | | | 9,589 | | | 53.5 | % | |
Income (loss) from investments in unconsolidated joint ventures | | (2,701) | | | 11 | | | (2,712) | | | N/M | |
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Net income | | $ | 111,505 | | | $ | 60,688 | | | $ | 50,817 | | | 83.7 | % | |
Revenues
For the three months ended June 30, 2022 and 2021, total revenues were $557.3 million and $491.6 million, respectively. Set forth below is a discussion of changes in the individual components of total revenues.
For the three months ended June 30, 2022 and 2021, total portfolio rental revenues and other property income totaled $554.5 million and $490.6 million, respectively, an increase of 13.0%, driven by an increase in average monthly rent per occupied home and a 2,465 home increase between periods in the average number of homes owned, partially offset by a 140 bps reduction in occupancy.
Average occupancy for the three months ended June 30, 2022 and 2021 for the total portfolio was 96.2% and 97.6%, respectively. Average monthly rent per occupied home for the total portfolio for the three months ended June 30, 2022 and 2021 was $2,132 and $1,943, respectively, a 9.7% increase. For our Same Store portfolio, average occupancy was 98.0% and 98.4% for the three months ended June 30, 2022 and 2021, respectively, and average monthly rent per occupied home for the three months ended June 30, 2022 and 2021 was $2,124 and $1,942, respectively, a 9.4% increase.
The annualized turnover rate for the Same Store portfolio for the three months ended June 30, 2022 and 2021 was 23.3% and 27.0%, respectively. For the Same Store portfolio, an average home remained unoccupied for 32 and 23 days between residents for the three months ended June 30, 2022 and 2021, respectively. The decrease in annualized turnover rate only partially offset the increase in days to re-resident resulting in an overall decrease in average occupancy on a year over year basis. During the three months ended June 30, 2021, our turnover rate may have been impacted by the effects of the COVID-19 pandemic (e.g., eviction moratoriums and residents who were not inclined to relocate during a pandemic). These moratoriums have now generally been lifted in the vast majority of our markets.
To monitor prospective changes in average monthly rent per occupied home, we compare the monthly rent from an expiring lease to the monthly rent from the next lease for the same home, in each case, net of any amortized non-service concessions, to calculate net effective rental rate growth. Leases are either renewal leases, where our current resident stays for a subsequent lease term, or new leases, where our previous resident moves out and a new resident signs a lease to occupy the same home.
Renewal lease net effective rental rate growth for the total portfolio averaged 10.2% and 5.8% for the three months ended June 30, 2022 and 2021, respectively, and new lease net effective rental rate growth for the total portfolio averaged 16.3% and 13.8% for the three months ended June 30, 2022 and 2021, respectively. For our Same Store portfolio, renewal lease net effective rental rate growth averaged 10.2% and 5.8% for the three months ended June 30, 2022 and 2021, respectively, and new lease net effective rental rate growth averaged 16.7% and 13.7% for the three months ended June 30, 2022 and 2021, respectively.
Other property income for the three months ended June 30, 2022 increased compared to June 30, 2021, due to increased collections of late fees, increased utility billbacks as new leases are entered into, and enhanced ancillary revenue programs, among other things.
For the three months ended June 30, 2022 and 2021, management fee revenues totaled $2.8 million and $1.0 million, respectively. These fees increased as a result of the formation of new joint ventures and an increase in the number of homes generating revenues within our joint venture investments.
Expenses
For the three months ended June 30, 2022 and 2021, total expenses were $466.6 million and $440.0 million, respectively. Set forth below is a discussion of changes in the individual components of total expenses.
For the three months ended June 30, 2022, property operating and maintenance expense increased to $190.7 million from $175.4 million for the three months ended June 30, 2021. In addition to a 2,465 home increase in the average number of homes owned between periods, increases in property taxes, repairs and maintenance expense, utilities, and property administrative costs contributed to the overall 8.7% net increase in property operating and maintenance expense.
Property management expense and general and administrative expense increased to $41.2 million from $37.5 million for the three months ended June 30, 2022 and 2021, respectively. The increase is primarily due to increased property management expense, including personnel and technology costs related to expansion of our platform that provides services to both our wholly owned portfolio and our joint venture investments.
Interest expense decreased from $80.8 million for the three months ended June 30, 2021 to $74.8 million for the three months ended June 30, 2022. The decrease in interest expense was primarily due to refinancing activities since June 30, 2021. Gross debt outstanding decreased by $231.6 million from June 30, 2021 to June 30, 2022.
Depreciation and amortization expense increased to $158.6 million for the three months ended June 30, 2022 from $145.3 million for the three months ended June 30, 2021 due to an increase in cumulative capital expenditures and an increase in the average number of homes owned during the three months ended June 30, 2022 compared to the three months ended June 30, 2021.
Impairment and other expenses were $1.4 million and $1.0 million for the three months ended June 30, 2022 and 2021, respectively. During the three months ended June 30, 2022, impairment and other expenses were comprised primarily of net casualty losses. During the three months ended June 30, 2021, impairment and other expenses were comprised of impairment losses of $0.1 million on our single-family residential properties and net casualty losses of $0.9 million.
Gains (Losses) on Investments in Equity Securities, net
For the three months ended June 30, 2022, gains (losses) on investments in equity securities, net was comprised of net unrealized losses from marking investments still held at period end to market. For the three months ended June 30, 2021, gains (losses) on investments in equity securities, net totaling $7.0 million was comprised of $8.9 million of unrealized losses from reversals of previously recorded unrealized gains on equity securities sold during the period and marking investments still held at period end to market offset by a $1.9 million gain from the sale of equity securities compared to the actual amount originally invested.
Other, net
Other, net was $3.8 million for the three months ended June 30, 2022 compared to $1.9 million for the three months ended June 30, 2021, due to increases in administrative costs between those periods.
Gain on Sale of Property, net of tax
Gain on sale of property, net of tax was $27.5 million and $17.9 million for the three months ended June 30, 2022 and 2021, respectively. The primary driver of the increase was an increase in disposition proceeds received per home between periods, partially offset by a decrease in the number of homes sold from 212 for the three months ended June 30, 2021 to 176 for the three months ended June 30, 2022.
Income (Loss) from Investments in Unconsolidated Joint Ventures
Our share of equity in earnings and/or (losses) from unconsolidated joint ventures was a loss of $2.7 million for the three months ended June 30, 2022 compared to a de minimis balance for the three months ended June 30, 2021. This change is primarily due to commencement of operations in certain of our joint ventures, including a $0.9 million increase in our share of depreciation expense between periods and start up costs for recently formed joint ventures.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
The following table sets forth a comparison of the results of operations for the six months ended June 30, 2022 and 2021:
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| | For the Six Months Ended June 30, | | | | | |
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($ in thousands) | | 2022 | | 2021 | | $ Change | | % Change | |
Revenues: | | | | | | | | | |
Rental revenues and other property income | | $ | 1,084,740 | | | $ | 965,072 | | | $ | 119,668 | | | 12.4 | % | |
Management fee revenues | | 4,870 | | | 1,786 | | | 3,084 | | | 172.7 | % | |
Total revenues | | 1,089,610 | | | 966,858 | | | 122,752 | | | 12.7 | % | |
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Expenses: | | | | | | | | | |
Property operating and maintenance | | 372,949 | | | 343,795 | | | 29,154 | | | 8.5 | % | |
Property management expense | | 42,781 | | | 33,538 | | | 9,243 | | | 27.6 | % | |
General and administrative | | 36,981 | | | 36,778 | | | 203 | | | 0.6 | % | |
Interest expense | | 149,229 | | | 164,170 | | | (14,941) | | | (9.1) | % | |
Depreciation and amortization | | 314,368 | | | 289,781 | | | 24,587 | | | 8.5 | % | |
Impairment and other | | 2,870 | | | 1,336 | | | 1,534 | | | 114.8 | % | |
Total expenses | | 919,178 | | | 869,398 | | | 49,780 | | | 5.7 | % | |
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Gains (losses) on investments in equity securities, net | | (3,204) | | | (10,142) | | | 6,938 | | | 68.4 | % | |
Other, net | | (3,233) | | | (1,673) | | | (1,560) | | | (93.2) | % | |
Gain on sale of property, net of tax | | 45,534 | | | 32,403 | | | 13,131 | | | 40.5 | % | |
Income (loss) from investments in unconsolidated joint ventures | | (5,021) | | | 362 | | | (5,383) | | | N/M | |
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Net income | | $ | 204,508 | | | $ | 118,410 | | | $ | 86,098 | | | 72.7 | % | |
Revenues
For the six months ended June 30, 2022 and 2021, total revenues were $1,089.6 million and $966.9 million, respectively. Set forth below is a discussion of changes in the individual components of total revenues.
For the six months ended June 30, 2022 and 2021, total portfolio rental revenues and other property income totaled $1,084.7 million and $965.1 million, respectively, an increase of 12.4%, driven by an increase in average monthly rent per occupied home and a 2,411 home increase between periods in the average number of homes owned, partially offset by a 150 bps reduction in occupancy.
Average occupancy for the six months ended June 30, 2022 and 2021 for the total portfolio was 96.0% and 97.5%, respectively. Average monthly rent per occupied home for the total portfolio for the six months ended June 30, 2022 and 2021 was $2,105 and $1,930, respectively, a 9.1% increase. For our Same Store portfolio, average occupancy was 98.1% and 98.4% for the six months ended June 30, 2022 and 2021, respectively, and average monthly rent per occupied home for the six months ended June 30, 2022 and 2021 was $2,099 and $1,928, respectively, an 8.9% increase.
The annualized turnover rate for the Same Store portfolio for the six months ended June 30, 2022 and 2021 was 20.7% and 24.2%, respectively. For the Same Store portfolio, an average home remained unoccupied for 35 and 26 days between residents for the six months ended June 30, 2022 and 2021, respectively. The decrease in annualized turnover only partially offset the increase in days to re-resident resulting in an overall decrease in average occupancy on a year over year basis. During the three months ended June 30, 2021, our turnover rate may have been impacted by the effects of the COVID-19 pandemic (e.g., eviction moratoriums and residents who were not inclined to relocate during a pandemic). These moratoriums have now generally been lifted in the vast majority of our markets.
To monitor prospective changes in average monthly rent per occupied home, we compare the monthly rent from an expiring lease to the monthly rent from the next lease for the same home, in each case, net of any amortized non-service concessions, to calculate net effective rental rate growth. Leases are either renewal leases, where our current resident stays for a subsequent lease term, or new leases, where our previous resident moves out and a new resident signs a lease to occupy the same home.
Renewal lease net effective rental rate growth for the total portfolio averaged 9.9% and 5.1% for the six months ended June 30, 2022 and 2021, respectively, and new lease net effective rental rate growth for the total portfolio averaged 15.6% and 11.2% for the six months ended June 30, 2022 and 2021, respectively. For our Same Store portfolio, renewal lease net effective rental rate growth averaged 10.0% and 5.1% for the six months ended June 30, 2022 and 2021, respectively, and new lease net effective rental rate growth averaged 15.8% and 11.1% for the six months ended June 30, 2022 and 2021, respectively.
Other property income for the six months ended June 30, 2022 increased compared to June 30, 2021, due to increased collections of late fees, increased utility billbacks as new leases are entered into, and enhanced ancillary revenue programs, among other things.
For the six months ended June 30, 2022 and 2021, management fee revenues totaled $4.9 million and $1.8 million, respectively. These fees increased as a result of the formation of new joint ventures and an increase in the number of homes generating revenues within our joint venture investments.
Expenses
For the six months ended June 30, 2022 and 2021, total expenses were $919.2 million and $869.4 million, respectively. Set forth below is a discussion of changes in the individual components of total expenses.
For the six months ended June 30, 2022, property operating and maintenance expense increased to $372.9 million from $343.8 million for the six months ended June 30, 2021. In addition to a 2,411 home increase between periods in the average number of homes owned, increases in property taxes, repairs and maintenance, utilities, and property administrative costs resulted in the overall 8.5% net increase in property operating and maintenance expense.
Property management expense and general and administrative expense increased to $79.8 million from $70.3 million for the six months ended June 30, 2022 and 2021, respectively. The increase is primarily due to increased property management expense, including personnel and technology costs related to expansion of our platform that provides services to both our wholly owned portfolio and our joint venture investments.
Interest expense decreased from $164.2 million for the six months ended June 30, 2021 to $149.2 million for the six months ended June 30, 2022. The decrease in interest expense was primarily due to refinancing activities since June 30, 2021. Gross debt outstanding decreased by $231.6 million from June 30, 2021 to June 30, 2022. Additionally, the spread on our 2020 term loan facility decreased by 55 bps in April 2021 as a result of achieving an investment grade rating.
Depreciation and amortization expense increased to $314.4 million for the six months ended June 30, 2022 from $289.8 million for the six months ended June 30, 2021 due to an increase in cumulative capital expenditures and an increase in the average number of homes owned during the six months ended June 30, 2022 compared to the six months ended June 30, 2021.
Impairment and other expenses were $2.9 million and $1.3 million for the six months ended June 30, 2022 and 2021, respectively. During the six months ended June 30, 2022, impairment and other expenses were comprised of net casualty losses of $2.7 million and impairment losses of $0.1 million on our single-family residential properties. During the six months ended June 30, 2021, impairment and other expenses were comprised of impairment losses of $0.5 million on our single-family residential properties and net casualty losses of $0.8 million.
Gains (Losses) on Investments in Equity Securities, net
For the six months ended June 30, 2022, losses on investments in equity securities, net of $3.2 million was comprised of of $6.5 million of unrealized losses from reversals of previously recorded unrealized gains on equity securities sold during the period and marking investments still held at period end to market offset by a $3.3 million gain from the sale of equity securities compared to the actual amount originally invested. For the six months ended June 30, 2021, losses on investments in equity securities, net of $10.1 million was comprised of $12.0 million of unrealized losses from reversals of previously recorded unrealized gains on equity securities sold during the period and marking investments still held at period end to market offset by a $1.9 million gain from the sale of equity securities compared to the actual amount originally invested.
Other, net
Other, net increased to $3.2 million for the six months ended June 30, 2022 from $1.7 million for the six months ended June 30, 2021, due to increases in administrative costs between those periods.
Gain on Sale of Property, net of tax
Gain on sale of property, net of tax was $45.5 million and $32.4 million for the six months ended June 30, 2022 and 2021, respectively. The primary driver of the increase was an increase in disposition proceeds received per home between periods, partially offset by a decrease in the number of homes sold from 460 for the six months ended June 30, 2021 to 317 for the six months ended June 30, 2022.
Income (Loss) from Investments in Unconsolidated Joint Ventures
Our share of equity in earnings and/or (losses) from unconsolidated joint ventures was a loss of $5.0 million for the six months ended June 30, 2022 compared to income of $0.4 million for the six months ended June 30, 2021. This change is primarily due to commencement of operations in certain of our joint ventures, including a $1.4 million increase in our share of depreciation expense between periods and start up costs for recently formed joint ventures.
Liquidity and Capital Resources
Our liquidity and capital resources as of June 30, 2022 and December 31, 2021 include unrestricted cash and cash equivalents of $272.7 million and $610.2 million, respectively, a 55.3% decrease primarily due to the funding of acquisitions of single-family residential properties and investments in our joint ventures and net repayments of indebtedness, partially offset by issuance of common stock as further described below.
In addition to our day-to-day business operations, including ongoing acquisitions of and investments in single-family residential properties, funding of commitments, and quarterly dividend and distribution payments, the following activity has occurred since December 31, 2021:
•Through June 30, 2022, we sold 2,438,927 shares of our common stock under our 2021 ATM Equity Program, respectively, generating net proceeds of $98.4 million.
•In March 2022, we entered into an agreement with Rockpoint Group, L.L.C. to form a joint venture that will acquire homes in premium locations and at higher price points relative to our other investments in single-family residential properties (the “2022 Rockpoint JV”). As of June 30, 2022, we have funded $5.0 million to the 2022 Rockpoint JV, and our remaining equity commitment is $45.0 million.
•In January 2022, we settled $141.5 million of the 2022 Convertible Notes through the issuance of 6,216,261 shares of our common stock and a cash payment of $0.3 million.
•On March 25, 2022, we priced a public offering of $600.0 million aggregate principal amount of 4.15% Senior Notes which mature in April 2032; and on April 5, 2022, we closed the offering and issued the related notes (the “2032 Unsecured Notes”).
•On June 22, 2022, we entered into the 2022 Term Loan Facility that provides $725.0 million of borrowing capacity, consisting of a $150.0 million initial term loan and up to three delayed draw term loans totaling $575.0 million which may be drawn during the six month period following the effective date of the 2022 Term Loan Agreement. The loans mature on June 22, 2029.
•During the three months ended June 30, 2022, we used the proceeds from the 2032 Unsecured Notes and the 2022 Term Loan Facility to make voluntary prepayments of the then-outstanding balances of IH 2018-2 and IH 2018-3, which resulted in a release of each loan’s collateral.
As of June 30, 2022, our $1,000.0 million revolving facility (the “Revolving Facility”) remains undrawn, and there are no restrictions on our ability to draw additional funds thereunder provided we remain in compliance with all covenants. As of June 30, 2022, we also have $575.0 million of undrawn capacity on the 2022 Term Loan Facility. We have no debt reaching final maturity until March 2025, provided all extension options are exercised.
Our ability to access capital as well as to use cash from operations to continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted, could be affected by various risks and uncertainties, including, but not limited to, the effects of general economic conditions, including rising inflation and interest rates, as detailed in Part I. Item 1A. “Risk Factors” of our Annual Report on Form 10-K.
Long-Term Debt Strategy
The following table summarizes certain information about our debt obligations as of June 30, 2022 ($ in thousands):
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Debt Instruments(1) | | Balance (Gross of Retained Certificates and Unamortized Discounts) | | Balance (Net of Retained Certificates) | | Weighted Average Interest Rate | | Weighted Average Years to Maturity(2) | | Amount Freely Prepayable (Gross) |
Secured: | | | | | | | | | | |
IH 2017-1(3) | | $ | 994,650 | | | $ | 939,150 | | | 4.23% | | 4.9 | | $ | — | |
IH 2018-1(4) | | 563,116 | | | 534,931 | | | L + 88 bps | | 2.7 | | 563,116 | |
IH 2018-4(4) | | 664,566 | | | 631,311 | | | L + 122 bps | | 3.5 | | 664,566 | |
Secured Term Loan(5) | | 403,363 | | | 403,363 | | | 3.59% | | 8.9 | | — | |
Total secured(6) | | 2,625,695 | | | $ | 2,508,755 | | | 4.02% | | 4.7 | | 1,227,682 | |
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Unsecured: | | | | | | | | | | |
| | | | | | | | | | |
2020 Term Loan Facility(7) | | $ | 2,500,000 | | | | | L + 100 bps | | 3.6 | | $ | 2,500,000 | |
2022 Term Loan Facility(8) | | 150,000 | | | | | S + 124 bps | | 7.0 | | — | |
Revolving Facility(7) | | — | | | | | L + 89 bps | | 3.6 | | — | |
Unsecured Notes — May 2028 | | 150,000 | | | | | 2.46% | | 5.9 | | — | |
Unsecured Notes — November 2028 | | 600,000 | | | | | 2.30% | | 6.4 | | — | |
Unsecured Notes — August 2031 | | 650,000 | | | | | 2.00% | | 9.1 | | — | |
Unsecured Notes — April 2032 | | 600,000 | | | | | 4.15% | | 9.8 | | — | |
Unsecured Notes — January 2034 | | 400,000 | | | | | 2.70% | | 11.6 | | — | |
Unsecured Notes — May 2036 | | 150,000 | | | | | 3.18% | | 13.9 | | — | |
Total unsecured(6) | | 5,200,000 | | | | | 3.36% | | 6.4 | | 2,500,000 | |
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Total debt(6) | | 7,825,695 | | | | | 3.58% | | 5.8 | | $ | 3,727,682 | |
Unamortized discounts | | (14,316) | | | | | | | | | |
Deferred financing costs, net | | (57,448) | | | | | | | | | |
Total debt per balance sheet | | 7,753,931 | | | | | | | | | |
Retained certificates | | (116,940) | | | | | | | | | |
Cash and restricted cash, excluding security deposits and letters of credit | | (306,049) | | | | | | | | | |
Deferred financing costs, net | | 57,448 | | | | | | | | | |
Unamortized discounts | | 14,316 | | | | | | | | | |
Net debt | | $ | 7,402,706 | | | | | | | | | |
(1)For detailed information about and definition of each of our financing arrangements see Part I. Item 1. “Financial Statements —Note 7 of Notes to Condensed Consolidated Financial Statements.” For information about our derivative instruments that hedge floating rate debt, see Part I. Item 1. “Financial Statements — Note 8 of Notes to Condensed Consolidated Financial Statements.”
(2)Weighted average years to maturity assumes all extension options are exercised, which are subject to certain conditions being met.
(3)IH 2017-1 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.
(4)Interest rates are based on a weighted average spread over LIBOR (or a comparable or successor rate as provided for in our loan agreements), plus applicable servicing fees; as of June 30, 2022, LIBOR was 1.79%.
(5)The Secured Term Loan bears interest at a fixed rate of 3.59% per annum including applicable servicing fees for the first 11 years and for the twelfth year bears interest at a floating rate based on a spread of 147 bps over one month LIBOR (or
a comparable or successor rate as provided for in our loan agreement), including applicable servicing fees, subject to certain adjustments as outlined in the loan agreement. Interest payments are made monthly.
(6)For secured debt, unsecured debt, and total debt, the weighted average interest rate is calculated based on June 30, 2022, LIBOR of 1.79% or Adjusted SOFR of 1.79%, as appropriate, and includes the impact of interest rate swap agreements effective as of that date.
(7)Interest rate is based on LIBOR plus an applicable margin. As of June 30, 2022, LIBOR was 1.79%.
(8)Interest rate is based on SOFR, adjusted for a 0.10% credit spread adjustment (“Adjusted SOFR”), plus the applicable margin. As of June 30, 2022, Adjusted SOFR was 1.79%.
As part of our long-term debt strategy, our goal is to improve our credit ratings, and, over time, we generally intend to target net debt that is approximately 5.5 to 6.0 times trailing twelve months Adjusted EBITDAre (see “— Non-GAAP Measures — EBITDA, EBITDAre, and Adjusted EBITDAre”), secured debt that is less than 20% of gross assets, and unencumbered assets that are greater than 70% of gross assets. To facilitate our long-term debt strategy we expect to seek to, among other things, (a) refinance a significant portion of our secured debt maturing in 2025 and 2026 (assuming all extension options are exercised) with unsecured debt, including potential unsecured bond issuances and/or (b) repay a portion of such debt. There can be no assurance that we will be successful in implementing our long-term debt strategy, improving our credit ratings, or adhering to our targets in the short or medium term or at all, or that we will not change our strategy or targets in the future. We may from time to time fall outside of our target ranges. In addition, we cannot assure you that we will be able to access the capital and credit markets to obtain additional unsecured debt financing or that we will be able to obtain financing on terms favorable to us. For further discussion of risks related to our indebtedness, see Part I. Item 1A. “Risk Factors — Risks Related to Our Indebtedness,” including “Risk Factors — Risks Related to Our Indebtedness — We may be unable to obtain financing through the debt and equity markets, which would have a material adverse effect on our growth strategy and our financial condition and results of operations” in our Annual Report on Form 10-K.
Short-Term and Long-Term Liquidity Needs
Liquidity is a measure of our ability to meet potential cash requirements, maintain our assets, fund our operations, make dividend payments to our stockholders, and meet other general requirements of our business. Our liquidity, to a certain extent, is subject to general economic, financial, competitive, and other factors beyond our control. Our near-term liquidity requirements consist primarily of:
•acquisition of homes currently under contract;
•renovation of newly-acquired homes;
•HOA fees (as applicable), property taxes, insurance premiums, and the ongoing maintenance of our homes;
•property management and general and administrative expenses;
•interest expense;
•dividend payments to our equity investors; and
•required contributions to our joint ventures.
We believe our rental income, net of total expenses, will generally provide cash flow sufficient to fund operations and dividend payments on a near-term basis. Additionally, we have guaranteed the funding of certain tax, insurance, and non-conforming property reserves related to the financing of one of our joint ventures. We do not expect this guarantee to have a material current or future effect on our liquidity. See Part I. Item 1. “Financial Statements — Note 5 of Notes to Consolidated Financial Statements” for additional information about our investments in unconsolidated joint ventures.
Overall macroeconomic conditions, including rising inflation and interest rates, and the ongoing COVID-19 pandemic may negatively impact our operating cash flow such that we are unable to make required debt service payments, which would result in an event of default for any debt instrument under whose loan agreement such payments were not made. Specifically, the collateral within individual borrower entities may underperform, resulting in cash flow shortfalls for debt service while consolidated cash flows are sufficient to fund our operations. If an event of default occurs for a specific mortgage loan or for our secured term loan, our loan agreements provide certain remedies, including our ability to fund shortfalls from consolidated cash flow; and such an event of default would not result in an immediate acceleration of the loan.
Our real estate assets are illiquid in nature. A timely liquidation of assets may not be a viable source of short-term liquidity should a cash flow shortfall arise, and we may need to source liquidity from other financing sources, such as the Revolving Facility or the 2022 Term Loan Facility, which had an undrawn balance of $1,000.0 million and $575.0 million, respectively, as of June 30, 2022.
Our long-term liquidity requirements consist primarily of funds necessary to pay for the acquisition of, and non-recurring capital expenditures for, our homes, and principal and interest payments of our indebtedness. We intend to satisfy our long-term liquidity needs through cash provided by operations, long-term secured and unsecured borrowings, the issuance of debt and equity securities, and property dispositions. As a REIT, we are required to distribute to our stockholders at least 90% of our taxable income, excluding net capital gain, on an annual basis. Therefore, as a general matter, it is unlikely that we will be able to retain substantial cash balances from our annual taxable income that could be used to meet our liquidity needs. Instead, we will need to meet these needs from external sources of capital and amounts, if any, by which our cash flow generated from operations exceeds taxable income.
Cash Flows
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
The following table summarizes our cash flows for the six months ended June 30, 2022 and 2021:
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| | For the Six Months Ended June 30, | | | | |
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($ in thousands) | | 2022 | | 2021 | | $ Change | | % Change |
Net cash provided by operating activities | | $ | 552,057 | | | $ | 470,101 | | | $ | 81,956 | | | 17.4 | % |
Net cash used in investing activities | | (580,684) | | | (282,875) | | | (297,809) | | | (105.3) | % |
Net cash used in financing activities | | (310,635) | | | (230,850) | | | (79,785) | | | (34.6) | % |
Change in cash, cash equivalents, and restricted cash | | $ | (339,262) | | | $ | (43,624) | | | $ | (295,638) | | | (677.7) | % |
Operating Activities
Our cash flows provided by operating activities depend on numerous factors, including the occupancy level of our homes, the rental rates achieved on our leases, the collection of rent from our residents, and the amount of our operating and other expenses. Net cash provided by operating activities was $552.1 million and $470.1 million for the six months ended June 30, 2022 and 2021, respectively, an increase of 17.4%. The increase in cash provided by operating activities is primarily due to (1) improved operational profitability, including a $93.6 million increase in total revenues net of property operating and maintenance expense from period to period, partially offset by (2) a net $6.9 million use of cash between periods from changes in operating assets and liabilities.
Investing Activities
Net cash used in investing activities consists primarily of the acquisition costs of homes, capital improvements, proceeds from property sales, and investments in our joint ventures. Net cash used in investing activities was $580.7 million and $282.9 million for the six months ended June 30, 2022 and 2021, respectively, an increase of $297.8 million. The increase in net cash used in investing activities resulted primarily from the combined effect of the following significant changes in cash flows during the six months ended June 30, 2022 compared to the six months ended June 30, 2021: (1) an increase in cash used for investments in joint ventures; (2) an increase in cash used for the acquisition and initial renovations of homes; and (3) a decrease in proceeds from the sale of homes. More specifically, investments in joint ventures increased $112.6 million as a result of the formation of new joint ventures and increased acquisition activity in our existing joint ventures during the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Acquisition and initial renovation spend increased $145.7 million due to an increase in the number of homes acquired from 895 during the six months ended June 30, 2021 to 1,029 homes acquired during the six months ended June 30, 2022, an increase in average cost per home, and ongoing renovations of previously acquired homes. Proceeds from sales of homes decreased $22.1 million from the six months ended June 30, 2021 to the six months ended June 30, 2022 due to a decrease in the number of homes sold from 460 to 317, respectively, partially offset by an increase in proceeds per home.
Financing Activities
Net cash used in financing activities was $310.6 million and $230.9 million for the six months ended June 30, 2022 and 2021, respectively. During the six months ended June 30, 2022, issuances and sales of stock under our 2021 ATM Equity Program generated $98.4 million of net proceeds which were used primarily for acquisitions. During that period, we also issued $598.4 million of unsecured notes and borrowed $150.0 million on a new term loan facility. The proceeds from this financing activity along with cash from operations were used to repay $845.2 million of mortgage loans. During that period, we also made $271.3 million of dividend and distribution payments funded by cash flows from operations and proceeds from home sales. During the six months ended June 30, 2021, $300.0 million of proceeds from the issuance and sale of unsecured notes along with cash from operations were used to repay $323.4 million of principal on our mortgage loans. During that period, we also made $195.0 million of dividend and distribution payments funded by cash flows from operations and proceeds from home sales.
Contractual Obligations
Our contractual obligations as of June 30, 2022, consist of the following:
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($ in thousands) | | Total | | 2022(1) | | 2023-2024 | | 2025-2026 | | Thereafter |
Mortgage loans(2)(3)(4) | | $ | 2,542,723 | | | $ | 38,939 | | | $ | 155,268 | | | $ | 1,335,430 | | | $ | 1,013,086 | |
Secured Term Loan(2)(3) | | 532,717 | | | 7,236 | | | 28,944 | | | 28,944 | | | 467,593 | |
Unsecured Notes(2)(3) | | 3,213,083 | | | 35,480 | | | 141,920 | | | 141,920 | | | 2,893,763 | |
Term Loan Facilities(2)(3)(4)(5) | | 2,943,988 | | | 38,516 | | | 153,016 | | | 2,588,170 | | | 164,286 | |
Revolving Facility(2)(3)(4)(5) | | 7,283 | | | 1,022 | | | 4,061 | | | 2,200 | | | — | |
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Derivative instruments(6) | | 123,380 | | | 22,136 | | | 87,195 | | | 14,049 | | | — | |
Purchase commitments(7) | | 90,840 | | | 85,930 | | | 4,910 | | | — | | | — | |
Operating leases | | 13,413 | | | 2,364 | | | 7,411 | | | 3,138 | | | 500 | |
Finance leases | | 5,006 | | | 1,501 | | | 3,390 | | | 115 | | | — | |
Total | | $ | 9,472,433 | | | $ | 233,124 | | | $ | 586,115 | | | $ | 4,113,966 | | | $ | 4,539,228 | |
(1)Includes estimated payments for the remaining six months of 2022.
(2)Includes estimated interest payments through the extended maturity date based on the principal amount outstanding as of June 30, 2022.
(3)Interest is calculated at rates in effect as of June 30, 2022, including the indexed rate and any applicable margin, and that rate is held constant until the maturity date. As of June 30, 2022, LIBOR was 1.79%, and Adjusted SOFR was 1.79%.
(4)Calculated based on the maturity date if we exercise each of the remaining extension options available, which are subject to certain conditions being met. See Part I. Item 1. “Financial Statements — Note 7 of Notes to Consolidated Financial Statements” for a description of maturity dates without consideration of extension options.
(5)Includes the related unused commitment fee, as applicable.
(6)Includes interest rate swap and interest rate cap obligations calculated using LIBOR as of June 30, 2022, or 1.79%.
(7)Represents commitments to acquire 216 single-family rental homes. The amounts above do not include commitments pursuant to binding purchase agreements with certain homebuilders for the purchase of 2,029 homes over the next five years. Estimated remaining commitments under these agreements total approximately $620.0 million as of June 30, 2022.
Additionally, we have commitments, which are not reflected in the table above, to make additional capital contributions to our joint ventures. As of June 30, 2022, our remaining equity commitments to the joint ventures total $173.3 million.
LIBOR Transition
Certain securitizations, the Secured Term Loan, the 2020 Term Loan Facility, and the Revolving Facility (collectively, the “LIBOR-Based Loans”) use one month LIBOR as a benchmark for establishing interest rates. Our derivative instruments are also indexed to one month LIBOR. On March 5, 2021, the Financial Conduct Authority of the United Kingdom, which has statutory powers to require panel banks to contribute to LIBOR, announced that it would cease publication of the one week and two month USD LIBOR immediately after December 31, 2021 and cease publication of the remaining tenors immediately after June 30, 2023. Further, on March 15, 2022, the Consolidated Appropriations Act of 2022, which includes the Adjustable Interest Rate (LIBOR) Act, was signed into law in the United States. This legislation establishes a uniform benchmark replacement process for financial contracts that mature after June 30, 2023 which do not contain clearly defined or practicable fallback provisions. The legislation also creates a safe harbor that shields lenders from litigation if they choose to utilize a replacement rate recommended by the Board of Governors of the Federal Reserve.
Once one month LIBOR is phased out after June 30, 2023, the interest rates for our LIBOR-Based Loans will be indexed to a comparable or successor rate as provided for in our loan agreements. That said, we anticipate the need to work with our lenders to document and effectuate the necessary index changes via the terms of the underlying debt instruments. We will also work with the counterparties to our LIBOR-based swap and cap agreements to adjust each to a comparable or successor rate. Furthermore, we will continue to make the appropriate elections available within ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting to ease the impact of transition from LIBOR to comparable or successor rates on hedge accounting. As more fully described in Part I. Item 1. “Financial Statements —Note 2 of Notes to Condensed Consolidated Financial Statements,” we have and will continue to elect to apply practical expedients related to contract modifications, changes in critical terms, and updates to the designated hedged risk(s) as qualifying changes are made to applicable debt and derivative instruments. While we do not expect that the transition from LIBOR and risks related thereto will have a material adverse effect on our financing costs, the ultimate outcome of this change is uncertain at this time, and significant management time and attention may be required to transition to using the new benchmark rates and to implement necessary changes to our financial models.
Supplemental Guarantor Information
In March 2020, the SEC adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 to simplify disclosure requirements related to certain registered securities. The amendments became effective on January 4, 2021. INVH, INVH LP, the General Partner, and IH Merger Sub, LLC (“IH Merger Sub”) have filed a registration statement on Form S-3 with the SEC registering, among other securities, debt securities of INVH LP, fully and unconditionally guaranteed, on a joint and several basis, by INVH, the General Partner, and/or IH Merger Sub. As a result of the amendments to Rule 3-10 of Regulation S-X, subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that the subsidiary obligor is consolidated into the parent company’s consolidated financial statements, the parent guarantee is “full and unconditional” and, subject to certain exceptions as set forth below, the alternative disclosure required by Rule 13-01 is provided, which includes narrative disclosure and summarized financial information. Accordingly, separate consolidated financial statements of INVH LP, the General Partner, and IH Merger Sub have not been presented.
Furthermore, as permitted under Rule 13-01(a)(4)(vi) of Regulation S-X, we have excluded the summarized financial information for the INVH LP, the General Partner, and IH Merger Sub, because the combined assets, liabilities, and results of operations of INVH, INVH LP, the General Partner, and IH Merger Sub are not materially different than the corresponding amounts in our condensed consolidated financial statements, and management believes such summarized financial information would be repetitive and would not provide incremental value to investors.
Purchase of Outstanding Debt Securities or Loans
As market conditions warrant, we may from time to time seek to purchase our outstanding debt or debt securities that we may issue in the future, in privately negotiated or open market transactions, by tender offer or otherwise. Subject to any applicable limitations contained in the agreements governing our indebtedness, any purchases made by us may be funded by the use of cash on our condensed consolidated balance sheet or the incurrence of new secured or unsecured debt, including borrowings under our Credit Facility. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases may be with respect to a substantial amount of a particular class or series of debt, with the attendant reduction in the trading liquidity of such class or series. In addition, any such purchases made at
prices below the “adjusted issue price” (as defined for United States federal income tax purposes) may result in taxable cancellation of indebtedness income to us, which amounts may be material, and in related adverse tax consequences to us.
Critical Accounting Policies and Estimates
Critical accounting policies are those accounting policies that management believes are important to the portrayal of our financial condition and results and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We believe that our critical accounting policies pertain to our investments in single-family residential properties, including acquisition of real estate assets, related cost capitalization, provisions for impairment, and single-family residential properties held for sale. These critical policies and estimates are summarized in Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K. We periodically evaluate the appropriateness of our accounting policies in accordance with authoritative guidance. Based on a review of the useful lives of the components of our buildings and improvements, we extended the weighted average useful lives range for depreciation thereof from 7 to 28.5 years to 7 to 32 years. This change was implemented for additions to our single-family residential properties placed in service after January 1, 2022. There were no additional material changes to our critical accounting policies during the six months ended June 30, 2022.
For a discussion of recently adopted accounting standards, if any, see Part I. Item 1. “Financial Statements — Note 2 of Notes to Condensed Consolidated Financial Statements.”
Segment Reporting
Operating segments are defined as components of an enterprise for which discrete financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and in assessing performance. Our CODM is the Chief Executive Officer.
Under the provisions of ASC 280, Segment Reporting, we have determined that we have one reportable segment related to acquiring, renovating, leasing, and operating single-family homes as rental properties. The CODM evaluates operating performance and allocates resources on a total portfolio basis. The CODM utilizes NOI as the primary measure to evaluate performance of the total portfolio. The aggregation of individual homes constitutes the total portfolio. Decisions regarding acquisitions and dispositions of homes are made at the individual home level with a focus on accretive growth in high-growth locations where we have greater scale and density.
Non-GAAP Measures
EBITDA, EBITDAre, and Adjusted EBITDAre
EBITDA, EBITDAre, and Adjusted EBITDAre are supplemental, non-GAAP measures often utilized to evaluate the performance of real estate companies. We define EBITDA as net income or loss computed in accordance with GAAP before the following items: interest expense; income tax expense; depreciation and amortization; and adjustments for unconsolidated joint ventures. The National Association of Real Estate Investment Trusts (“Nareit”) recommends as a best practice that REITs that report an EBITDA performance measure also report EBITDAre. Consistent with the Nareit definition, we define EBITDAre as EBITDA, further adjusted for the following: gain on sale of property, net of tax; impairment on depreciated real estate investments; and adjustments for unconsolidated joint ventures.
Adjusted EBITDAre is defined as EBITDAre before the following items: share-based compensation expense; severance; casualty (gains) losses, net; (gains) losses on investments in equity securities, net; and other income and expenses. EBITDA, EBITDAre, and Adjusted EBITDAre are used as supplemental financial performance measures by management and by external users of our financial statements, such as investors and commercial banks. Set forth below is additional detail on how management uses EBITDA, EBITDAre, and Adjusted EBITDAre as measures of performance.
Our management uses EBITDA, EBITDAre, and Adjusted EBITDAre in a number of ways to assess our condensed consolidated financial and operating performance, and we believe these measures are helpful to management and external users in identifying trends in our performance. EBITDA, EBITDAre, and Adjusted EBITDAre help management identify controllable expenses and make decisions designed to help us meet our current financial goals and optimize our financial performance, while neutralizing the impact of capital structure on results. Accordingly, we believe these metrics measure our financial performance based on operational factors that management can impact in the short-term, namely our cost structure and expenses.
We believe that the presentation of EBITDA, EBITDAre, and Adjusted EBITDAre provides information useful to investors in assessing our financial condition and results of operations. The GAAP measure most directly comparable to EBITDA, EBITDAre, and Adjusted EBITDAre is net income or loss. EBITDA, EBITDAre, and Adjusted EBITDAre are not used as measures of our liquidity and should not be considered alternatives to net income or loss or any other measure of financial performance presented in accordance with GAAP. Our EBITDA, EBITDAre, and Adjusted EBITDAre may not be comparable to the EBITDA, EBITDAre, and Adjusted EBITDAre of other companies due to the fact that not all companies use the same definitions of EBITDA, EBITDAre, and Adjusted EBITDAre. Accordingly, there can be no assurance that our basis for computing these non-GAAP measures is comparable with that of other companies.
The following table presents a reconciliation of net income (as determined in accordance with GAAP) to EBITDA, EBITDAre, and Adjusted EBITDAre for each of the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| | | | | | | | |
($ in thousands) | | | | | | 2022 | | 2021 | | 2022 | | 2021 |
Net income available to common stockholders | | | | | | $ | 110,815 | | | $ | 60,242 | | | $ | 203,210 | | | $ | 117,514 | |
Net income available to participating securities | | | | | | 148 | | | 96 | | | 368 | | | 191 | |
Non-controlling interests | | | | | | 542 | | | 350 | | | 930 | | | 705 | |
Interest expense | | | | | | 74,840 | | | 80,764 | | | 149,229 | | | 164,170 | |
Interest expense in unconsolidated joint ventures | | | | | | 859 | | | 225 | | | 1,451 | | | 299 | |
Depreciation and amortization | | | | | | 158,572 | | | 145,280 | | | 314,368 | | | 289,781 | |
Depreciation and amortization of investments in unconsolidated joint ventures | | | | | | 1,114 | | | 246 | | | 1,752 | | | 350 | |
EBITDA | | | | | | 346,890 | | | 287,203 | | | 671,308 | | | 573,010 | |
Gain on sale of property, net of tax | | | | | | (27,508) | | | (17,919) | | | (45,534) | | | (32,403) | |
Impairment on depreciated real estate investments | | | | | | 36 | | | 93 | | | 137 | | | 524 | |
Net gain on sale of investments in unconsolidated joint ventures | | | | | | (186) | | | (104) | | | (316) | | | (440) | |
EBITDAre | | | | | | 319,232 | | | 269,273 | | | 625,595 | | | 540,691 | |
Share-based compensation expense(1) | | | | | | 7,989 | | | 9,206 | | | 14,635 | | | 15,020 | |
Severance | | | | | | 189 | | | 160 | | | 207 | | | 274 | |
Casualty (gains) losses, net | | | | | | 1,319 | | | 887 | | | 2,733 | | | 812 | |
Losses on investments in equity securities, net | | | | | | 172 | | | 7,002 | | | 3,204 | | | 10,142 | |
Other, net(2) | | | | | | 3,827 | | | 1,903 | | | 3,233 | | | 1,673 | |
Adjusted EBITDAre | | | | | | $ | 332,728 | | | $ | 288,431 | | | $ | 649,607 | | | $ | 568,612 | |
(1)For the three months ended June 30, 2022 and 2021, $1,794 and $1,703 was recorded in property management expense, respectively, and $6,195 and $7,503 was recorded in general and administrative expense, respectively. For the six months ended June 30, 2022 and 2021, $3,220 and $2,877 was recorded in property management expense, respectively, and $11,415 and $12,143 was recorded in general and administrative expense, respectively.
(2)Includes interest income and other miscellaneous income and expenses.
Net Operating Income
NOI is a non-GAAP measure often used to evaluate the performance of real estate companies. We define NOI for an identified population of homes as rental revenues and other property income less property operating and maintenance expense (which consists primarily of property taxes, insurance, HOA fees (when applicable), market-level personnel expenses, utility expenses, repairs and maintenance, and property administration). NOI excludes: interest expense; depreciation and amortization; property management expense; general and administrative expense; impairment and other; gain on sale of property, net of tax; (gains) losses on investments in equity securities, net; other income and expenses; management fee revenues; and income (loss) from investments in unconsolidated joint ventures.
We consider NOI to be a meaningful supplemental financial measure of our performance when considered with the financial statements determined in accordance with GAAP. We believe NOI is helpful to investors in understanding the core performance of our real estate operations. The GAAP measure most directly comparable to NOI is net income or loss. NOI is not used as a measure of liquidity and should not be considered as an alternative to net income or loss or any other measure of financial performance presented in accordance with GAAP. Our NOI may not be comparable to the NOI of other companies due to the fact that not all companies use the same definition of NOI. Accordingly, there can be no assurance that our basis for computing this non-GAAP measure is comparable with that of other companies.
We believe that Same Store NOI is also a meaningful supplemental measure of our operating performance for the same reasons as NOI and is further helpful to investors as it provides a more consistent measurement of our performance across reporting periods by reflecting NOI for homes in our Same Store portfolio.
The following table presents a reconciliation of net income (as determined in accordance with GAAP) to NOI for our total portfolio and NOI for our Same Store portfolio for each of the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| | | | |
($ in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Net income available to common stockholders | | $ | 110,815 | | | $ | 60,242 | | | $ | 203,210 | | | $ | 117,514 | |
Net income available to participating securities | | 148 | | | 96 | | | 368 | | | 191 | |
Non-controlling interests | | 542 | | | 350 | | | 930 | | | 705 | |
Interest expense | | 74,840 | | | 80,764 | | | 149,229 | | | 164,170 | |
Depreciation and amortization | | 158,572 | | | 145,280 | | | 314,368 | | | 289,781 | |
Property management expense(1) | | 21,814 | | | 17,696 | | | 42,781 | | | 33,538 | |
General and administrative(2) | | 19,342 | | | 19,828 | | | 36,981 | | | 36,778 | |
Impairment and other | | 1,355 | | | 980 | | | 2,870 | | | 1,336 | |
Gain on sale of property, net of tax | | (27,508) | | | (17,919) | | | (45,534) | | | (32,403) | |
Losses on investments in equity securities, net | | 172 | | | 7,002 | | | 3,204 | | | 10,142 | |
Other, net(3) | | 3,827 | | | 1,903 | | | 3,233 | | | 1,673 | |
Management fee revenues | | (2,759) | | | (1,015) | | | (4,870) | | | (1,786) | |
(Income) loss from investments in unconsolidated joint ventures | | 2,701 | | | (11) | | | 5,021 | | | (362) | |
NOI (total portfolio) | | 363,861 | | | 315,196 | | | 711,791 | | | 621,277 | |
Non-Same Store NOI | | (29,443) | | | (17,742) | | | (52,185) | | | (33,238) | |
NOI (Same Store portfolio)(4) | | $ | 334,418 | | | $ | 297,454 | | | $ | 659,606 | | | $ | 588,039 | |
(1)Includes $1,794 and $1,703 of share-based compensation expense for the three months ended June 30, 2022 and 2021, respectively. Includes $3,220 and $2,877 of share-based compensation expense for the six months ended June 30, 2022 and 2021, respectively.
(2)Includes $6,195 and $7,503 of share-based compensation expense for the three months ended June 30, 2022 and 2021, respectively. Includes $11,415 and $12,143 of share-based compensation expense for the six months ended June 30, 2022 and 2021, respectively.
(3)Includes interest income and other miscellaneous income and expenses.
(4)The Same Store portfolio totaled 75,215 homes for the six months ended June 30, 2022 and 2021.
Funds from Operations, Core Funds from Operations, and Adjusted Funds from Operations
Funds From Operations (“FFO”), Core FFO, and Adjusted FFO are supplemental, non-GAAP measures often utilized to evaluate the performance of real estate companies. FFO is defined by Nareit as net income or loss (computed in accordance with GAAP) excluding gains or losses from sales of previously depreciated real estate assets, plus depreciation, amortization and impairment of real estate assets, and adjustments for unconsolidated joint ventures.
We believe that FFO is a meaningful supplemental measure of the operating performance of our business because historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time, as reflected through depreciation and amortization. Because real estate values have historically risen or fallen with market conditions, management considers FFO an appropriate supplemental performance measure as it excludes historical cost depreciation and amortization, impairment on depreciated real estate investments, gains or losses related to sales of previously depreciated homes, as well non-controlling interests, from net income or loss (computed in accordance with GAAP). By excluding depreciation and amortization and gains or losses on sales of real estate, management uses FFO to measure returns on its investments in homes. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of the homes that result from use or market conditions nor the level of capital expenditures to maintain the operating performance of the homes, all of which have real economic effect and could materially affect our results from operations, the utility of FFO as a measure of our performance is limited.
Management also believes that FFO, combined with the required GAAP presentations, is useful to investors in providing more meaningful comparisons of the operating performance of a company’s real estate between periods or as compared to other companies. The GAAP measure most directly comparable to FFO is net income or loss. FFO is not used as a measure of our liquidity and should not be considered an alternative to net income or loss or any other measure of financial performance presented in accordance with GAAP. Our FFO may not be comparable to the FFO of other companies due to the fact that not all companies use the same definition of FFO. Accordingly, there can be no assurance that our basis for computing this non-GAAP measures is comparable with that of other companies.
We believe that Core FFO and Adjusted FFO are also meaningful supplemental measures of our operating performance for the same reasons as FFO and are further helpful to investors as they provide a more consistent measurement of our performance across reporting periods by removing the impact of certain items that are not comparable from period to period. We define Core FFO as FFO adjusted for the following: non-cash interest expense related to amortization of deferred financing costs, loan discounts, and non-cash interest expense from derivatives; share-based compensation expense; severance expense; casualty (gains) losses, net; and (gains) losses on investments in equity securities, net, as applicable. We define Adjusted FFO as Core FFO less recurring capital expenditures, including adjustments for unconsolidated joint ventures, that are necessary to help preserve the value, and maintain the functionality, of our homes. The GAAP measure most directly comparable to Core FFO and Adjusted FFO is net income or loss. Core FFO and Adjusted FFO are not used as measures of our liquidity and should not be considered alternatives to net income or loss or any other measure of financial performance presented in accordance with GAAP. Our Core FFO and Adjusted FFO may not be comparable to the Core FFO and Adjusted FFO of other companies due to the fact that not all companies use the same definition of Core FFO and Adjusted FFO. No adjustments were made to the Core FFO and Adjusted FFO per common share — diluted computations for potential shares of common stock related to the Convertible Senior Notes. Accordingly, there can be no assurance that our basis for computing this non-GAAP measures is comparable with that of other companies.
The following table presents a reconciliation of net income (as determined in accordance with GAAP) to FFO, Core FFO, and Adjusted FFO for each of the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| | | | |
(in thousands, except shares and per share data) | | 2022 | | 2021 | | 2022 | | 2021 |
Net income available to common stockholders | | $ | 110,815 | | | $ | 60,242 | | | $ | 203,210 | | | $ | 117,514 | |
Add (deduct) adjustments from net income to derive FFO: | | | | | | | | |
Net income available to participating securities | | 148 | | | 96 | | | 368 | | | 191 | |
Non-controlling interests | | 542 | | | 350 | | | 930 | | | 705 | |
Depreciation and amortization on real estate assets | | 156,433 | | | 143,607 | | | 310,073 | | | 286,391 | |
Impairment on depreciated real estate investments | | 36 | | | 93 | | | 137 | | | 524 | |
Net gain on sale of previously depreciated investments in real estate | | (27,508) | | | (17,919) | | | (45,534) | | | (32,403) | |
Depreciation and net gain on sale of investments in unconsolidated joint ventures | | 916 | | | 142 | | | 1,416 | | | (90) | |
FFO | | 241,382 | | | 186,611 | | | 470,600 | | | 372,832 | |
Non-cash interest expense related to amortization of deferred financing costs, loan discounts, and non-cash interest expense from derivatives, including our share from unconsolidated joint ventures | | 6,498 | | | 8,169 | | | 12,968 | | | 16,787 | |
Share-based compensation expense(1) | | 7,989 | | | 9,206 | | | 14,635 | | | 15,020 | |
Severance expense | | 189 | | | 160 | | | 207 | | | 274 | |
Casualty (gains) losses, net | | 1,319 | | | 887 | | | 2,733 | | | 812 | |
Losses on investments in equity securities, net | | 172 | | | 7,002 | | | 3,204 | | | 10,142 | |
Core FFO | | 257,549 | | | 212,035 | | | 504,347 | | | 415,867 | |
Recurring capital expenditures, including our share from unconsolidated joint ventures | | (37,544) | | | (28,714) | | | (70,374) | | | (53,189) | |
Adjusted FFO | | $ | 220,005 | | | $ | 183,321 | | | $ | 433,973 | | | $ | 362,678 | |
| | | | | | | | |
Net income available to common stockholders | | | | | | | | |
Weighted average common shares outstanding — diluted(2)(3)(4) | | 611,620,475 | | | 569,283,166 | | | 609,775,270 | | | 569,056,182 | |
| | | | | | | | |
Net income per common share — diluted(2)(3)(4) | | $ | 0.18 | | | $ | 0.11 | | | $ | 0.33 | | | $ | 0.21 | |
| | | | | | | | |
FFO | | | | | | | | |
Numerator for FFO per common share — diluted(2) | | $ | 241,382 | | | $ | 190,955 | | | $ | 470,600 | | | $ | 381,520 | |
Weighted average common shares and OP Units outstanding — diluted(2)(3)(4) | | 614,569,431 | | | 587,982,707 | | | 612,648,238 | | | 587,906,276 | |
| | | | | | | | |
FFO per common share — diluted(2)(3)(4) | | $ | 0.39 | | | $ | 0.32 | | | $ | 0.77 | | | $ | 0.65 | |
| | | | | | | | |
Core FFO and Adjusted FFO | | | | | | | | |
Weighted average common shares and OP Units outstanding — diluted(2)(3)(4) | | 614,569,431 | | | 572,822,015 | | | 612,648,238 | | | 572,745,584 | |
| | | | | | | | |
Core FFO per common share — diluted(2)(3)(4) | | $ | 0.42 | | | $ | 0.37 | | | $ | 0.82 | | | $ | 0.73 | |
AFFO per common share — diluted(2)(3)(4) | | $ | 0.36 | | | $ | 0.32 | | | $ | 0.71 | | | $ | 0.63 | |
(1)For the three months ended June 30, 2022 and 2021, $1,794 and $1,703 was recorded in property management expense, respectively, and $6,195 and $7,503 was recorded in general and administrative expense, respectively. For the six months ended June 30, 2022 and 2021, $3,220 and $2,877 was recorded in property management expense, respectively, and $11,415 and $12,143 was recorded in general and administrative expense, respectively.
(2)On January 18, 2022, we settled the $141,490 outstanding principal balance of the 2022 Convertible Notes with the issuance of 6,216,261 shares of our common stock. For the three and six months ended June 30, 2022, the shares of common stock issued with respect to this settlement are included within all net income, FFO, Core FFO, and AFFO per common share calculations subsequent to the conversion date.
For the three and six months ended June 30, 2021, the numerator for FFO per common share — diluted is adjusted for $4,344 and $8,688, respectively, of interest expense on the 2022 Convertible Notes, including non-cash amortization of discounts. For the three and six months ended June 30, 2021, the denominator is adjusted for 15,160,692 potential shares of common stock issuable upon the conversion of the 2022 Convertible Notes. For the three and six months ended June 30, 2021, no such adjustments were made to Core FFO and AFFO per common share —diluted.
(3)Incremental shares attributed to non-vested share-based awards totaling 1,288,832 and 1,351,694 for the three months ended June 30, 2022 and 2021, respectively, and 1,393,502 and 1,401,148 for the six months ended June 30, 2022 and 2021, respectively, are included in weighted average common shares outstanding in the calculation of net income per common share — diluted. For the computations of FFO, Core FFO, and AFFO per common share — diluted, common share equivalents of 1,466,818 and 1,658,302 for the three months ended June 30, 2022 and 2021, respectively, and 1,611,200 and 1,743,425 for the six months ended June 30, 2022 and 2021, respectively, related to incremental shares attributed to non-vested share-based awards are included in the denominator.
(4)Vested units of partnership interests in INVH LP (“OP Units”) have been excluded from the computation of net income per common share — diluted for the periods above because all net income attributable to the vested OP Units has been recorded as non-controlling interest and thus excluded from net income available to common stockholders. Weighted average vested OP Units of 2,770,970 and 3,232,241 for the three months ended June 30, 2022 and 2021, respectively, and 2,655,270 and 3,347,125 for the six months ended June 30, 2022 and 2021, respectively, are included in the denominator for the computations of FFO, Core FFO, and AFFO per common share — diluted.