Is Now a Good Time To Buy Invitation Homes?

Invitation Homes Inc. INVH is a Dallas-based residential real estate investment trust (REIT) that buys large numbers of higher-quality single-family homes and then leases or leases to purchase them to higher-income tenants. 

With 83,000 homes across 16 markets, Invitation Homes is now the largest owner/landlord of single-family homes in the U.S. It focuses on communities with strong rental demand where purchasing homes is difficult because of high prices and a lack of inventory.

The 52-week price range is $29.86 to $45.80, and its most recent closing price was $30.78. Like most REITs, Invitation Homes has had a difficult year, with higher interest rates having taken their toll. Add the threat of recession, and Invitation Homes has not bounced off its lows like many other REITs since mid-October. Its share price has fallen nearly 7% over the past month and is still far below the 50- and 200-day moving averages.

On Oct. 26, Invitation Homes reported earnings and highlights of its performance for the third quarter of 2022:

• Funds from operation (FFO) of $0.42 per share show an increase of 10.5% from $0.38 a year ago, but a penny below Wall Street’s estimate.
• Revenue of $568.67 million was up 11.6% over the third quarter of 2021 and ahead of analysts’ estimates of $566.54 million. It also surpassed second-quarter revenue of $554.6 million.
• Net income available to stockholders increased 14.4% to $79 million and net income per diluted common share increased 8% to $0.13.
• Same-store (homes owned more than one year) average occupancy was 97.5%, down 0.6% from the third quarter of 2021.

So Invitation Homes had a decent quarter, but investors still fear increasing rent defaults or vacancies that could result from a hard recession.

Take a look at the positives of Invitation Homes. Why should an investor consider buying it as a long-term hold?

• Invitation Homes has grown its revenue and earnings per share (EPS) quarter after quarter over the past few years. Its projected 2022 annual FFO of $1.63 to $1.67 far exceeds the $0.88 annual dividend and leaves room for further expansion and/or debt repayment.
• While the dividend yield of 2.8% is less than many other residential REITs, Invitation Homes has raised its dividend six times for a total increase of 266% over the past five years. Invitation Homes has a total return with dividends of 70.6% since its January 2017 initial public offering.
• In addition to rents, single-family homes historically appreciate an average 4% to 5% per year, and in many areas of the country, appreciation has been much higher.
• The geographic areas in which Invitation Homes invests continue to show substantial population and job growth, leading to increasing demand for rentals.
• If interest rates on mortgages remain high for long periods of time, tenants are likely to continue renting, sustaining the current demand and keeping rental prices higher.
• Rent collections have been quite stable between 97% and 99% for several quarters.

  But every company has its risks, and Invitation Homes is no exception:

• Current fears of a recession are casting doubts over the ability of REITs such as Invitation Homes to continue raising rents, and it’s possible that vacancies could rise if jobs are lost.
• Rental markets could become oversaturated as homebuilders turn away from constructing homes for owner-occupants and focus more on apartments and single-family rental homes.
• A recession could diminish home values for its preexisting portfolio. However, if home prices decline, Invitation Homes could then acquire new units more inexpensively. 
• Eviction costs are high and upset tenants on occasion can damage a home prior to leaving.
• Continued inflation raising the costs of materials and repairs.
• Although there was limited damage to its homes from hurricanes Ian and Nicole, there is always a threat of future hurricanes or tropical storms in homes in the Southern markets. Damage to homes means loss of rents, repair costs and increases in dwelling insurance.
• Government interference and scrutiny could interfere with further growth as political fears abound over companies like Invitation Homes crowding out homebuyers with large purchases of rental properties. Invitation has already had a number of class action lawsuits against it over excessive fees and rent increases. Landlords are frequently vilified by politicians and the media.
• Increasing taxes and insurance on its preexisting homes from home price appreciation will put a larger dent into the company’s available cash. However, if values decline, so will taxes and insurance costs.

So is now a good time to buy Invitation Homes? Perhaps not, as it might be more prudent to wait a few more months to see how inflation and recession fears play out. But Invitation Homes has a solid business model, increasing FFO and an aggressive approach to growth that could serve investors well for many years to come.

REITs are one of the most misunderstood investment options, making it difficult for investors to spot incredible opportunities until it’s too late. Benzinga’s in-house real estate research team has been working hard to identify the greatest opportunities in today’s market, which you can gain access to for free by signing up for Benzinga’s Weekly REIT Report.

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