Invitation Homes - strong start to 2021

Invitation Homes (INVH - initial writeup here) reported a very strong start to 2021.  A decade+ of underbuilding, the maturing of the millennials (marriage, kids, burbs), increased work flexibility (fewer days in the office/ more time at home) and ultra low mortgage rates have caused the US housing market to catch fire.  The lack of supply over the past decade coupled with the millennial buying wave are powerful tailwinds which I expect to be supportive (along with the Fed pledging to keep rates low) of a strong multi year housing market for many years to come.

For it’s part, INVH saw occupancy north of 98% in 1Q.  With such strong demand, the company is able to increase rents at a very healthy clip- 7.9% for new leases and 4.4% for renewals.  Strength in rents lead management to increase guidance for full year same store NOI growth (midpoint now 4.25% vs. 3.75% previously; 4.4% achieved in 1Q21) despite property tax/insurance/maintenance expense hikes.  In addition, INVH was able to make accretive acquisitions during the quarter, buying nearly 700 homes at an estimated cap rate of 5.5% (vs. low 4s cap rate at which INVH trades).

While shares have run-up sharply since my initial piece, I continue to hold them given that 1) while no longer ‘cheap’, the valuation is still reasonable (2) positive operating fundamentals and tailwinds expected for years to come (3) with shares trading at a higher price, INVH now has the ability to create value through accretive acquisitions and boost per share NAV.  I will have more to say on the US housing/homebuilding market in the weeks to come.  

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As always this IS NOT INVESTMENT ADVICE.  Do your own work.

Eric Bokota owns shares of INVH.