America’s Largest SFH Landlord Doing Better Than Ever, For Now

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Invitation Homes Inc. (NYSE:INVH), the nation’s largest SFH landlord, with over 80,000 properties, reported earnings for the first quarter of 2020 earlier this month.

If you are a DIY landlord, you may take comfort in the fact that your largest peer and competitor hasn’t skipped a beat in the face of COVID-19, collecting 95% and over 100% of historical averages in April and May, respectively.

Invitation Homes’ business has been stronger than ever as it maneuvers and modifies policies to continue performing in the midst of a pandemic.

A closer look into the company’s public statements reveals that it’s taking many similar actions to other landlords around the country, but also some added measures that are specific to large corporations but could be translated in principal to smaller landlords.

Invitation Homes Performance By The Numbers

Financially speaking, it’s as if COVID-19 didn’t even happen:

  • Revenue of $450M in the first quarter of 2020, an increase of 3.3% over the first quarter of 2019
  • Net income increased 140% over the same period
  • Same Store NOI grew 4% over the period (meaning looking at the profit from the same homes, not taking into account new homes)
  • Same Store average occupancy of 96.7%
  • Same Store renewal rent growth of 4.3%

What The Company Is Doing About COVID-19

As you would expect, Invitation Homes is placing the health and safety of its residents and employees as the top priority.

Added measure the company is taking include:

  • Social distancing and sanitary best practices throughout all operations
  • Self-tours to show vacant homes
  • Deferral of non-critical service trips
  • Implementation of financial and health care benefits to support associates impacted by COVID-19

In addition to these health and safety measures, the following COVID-19 related policies have been instituted:

  • Voluntary moratorium on all evictions
  • Created a payment plan and waived late fees for residents in need

Despite Strong Results, Liquidity Is Top Of Mind

While Invitation Homes continues to perform well, it is wisely taking steps to ensure a strong position of liquidity.

The primary danger of any business in the face of economic disaster is not having enough cash in the bank to survive the combination of limited revenue and unrelenting obligations.

For a rental business, that means having the ability to pay your debt while not collecting rent for a prolonged period of time, so that you could avoid default for as long as possible.

Invitation Homes is no different.

While it has over $1B of liquidity, via cash and access to its line of credit, and no significant debt due prior to 2022, the company is still taking action to improve their liquidity position.

For starters, the company paused placing new acquisitions under contract, but continues to monitor the housing market for the opportune time to resume.

In addition, in March the company improved its cash position by actually drawing on the line of credit and keeping that cash in their own bank account, rather than having it as an optional sum that they can theoretically draw on in time of need.

While this move comes with the added expense of paying interest on drawn funds, it gives Invitation Homes the assurance it needs with having the cash in hand.

Takeaway For DIY Landlords

While everyday landlords don’t have access to billions of dollars in the form of a line of credit, there is an important takeaway here – if you have the chance to access funds during uncertain times, it may be wise to take it.

Even with the added cost.

If the economy was to take a turn for the worse, this move could be a potential lifesaver.

Depending on the options available to you, securing money at a low cost might make sense even if you don’t have use for it right away.

For small landlords, this could come in the form of a loan from the SBA with very favorable terms, or even approaching local lenders for a potentially similar, albeit much smaller, line of credit.

If you are in a really good cash position and are looking to expand your rental business, it might be wise to follow Invitation Home’s acquisition strategy as well.

Putting new acquisitions on hold for a while will not only keep cash and flexibility in your hands, it will also buy you time to see where market prices for SFH will be trending.

This could mean opportunistically purchasing new investment properties at discount prices.

Proceed with Cautious Optimism

While the numbers from Invitation Homes seem great, there are some factors to take into account before declaring that landlords are completely out of the woods.

First, Invitation Homes is a public company that will try to paint as positive a picture as possible for its investor base. In addition, the results reported are through the end of March, so they do not reflect the full impact of COVID-19.

Second, it is unclear whether Invitation Homes is using any of their security deposits to cover for rent as many landlords have had to do. This is always a possibility and one that the company would likely not be required to disclose.

Third, there is massive government financial support propping up the economy at the moment. The combination of stimulus money and elevated unemployment benefits has resulted in higher income for some recently-unemployed tenants than while they were working.

With unemployment at an all-time high, there is a risk for a much worse picture in a few months. If government support dries up and not enough jobs come back, tenants across the nation could struggle to pay rent.