SFR REITs Earnings Recaps: INVH and AMH

Sponsored by: Madera Residential

This is Part 1 of what will be a 3-part series recapping highlights from Q3’24 earnings calls among the rental housing REITs. Today’s edition is all about single-family rentals, and specifically the two big SFR REITs: Invitation Homes (INVH) and American Homes 4 Rent (AMH). Upcoming editions will dive into the longer list of apartment REITs.

Shameless plug before we dive in: Invitation Homes CEO Dallas Tanner joins me on this week’s episode of The Rent Roll Podcast, so dial it up on your podcast platform of choice. Really enjoyed picking Dallas’ brain on the evolution of institutional SFR — with a public image starting as rescuers of underwater homeowners before more recently shifting to a boogeyman scapegoated for every ill of the housing market.

As always, this commentary is not investment advice (nor should it be interpreted as such) — just stuff I found interesting.

Invitation Homes (INVH)

1) Continued focus on building new build-to-rent homes in bulk instead of buying individual homes off the MLS. Invitation Homes added 1,600 new BTR homes in 2024 YTD for $560 million. As CEO Dallas Tanner talks about in my podcast this week, institutional SFR players like Invitation just aren’t big buyers anymore of one-off, individual existing homes (and for a variety of reasons — namely value, but certainly also a positive to emphasize new housing creation).

2) New supply competition isn’t just a multifamily thing. It’s a headwind in many SFR markets, too. With others adding BTR, too, supply has become a headwind to revenues. INVH singled out higher-supplied markets like Phoenix, Tampa, Orlando, Dallas as particularly competitive.

But … like with multifamily, BTR supply could drop 65% next year due to plunging starts. Supply could quickly shift back to a tailwind.

3) Why isn’t new lease rent growth higher given the affordability advantages for renting versus buying these days? One analyst asked that question to INVH. (I love seeing such a direct question — and an ever better answer.)

And the answer: Supply is doing what supply is supposed to -- but only where supply is going.

But in low-supply spots like Chicago, rents up 10%. It’s all about supply and demand! And with supply scheduled to drop off, those dynamics will shift again.

4) Bottom line: Still solid renewal rent growth at 4.2%, but new lease rent growth lower at 1.7%. That’s a pretty similar to the apartment REITs, though even modest new lease rent growth puts SFR above multifamily right now.

On plus side: Strong occupancy (97%) and low bad debt (renters paying rent).

5) Leasing traffic remains strong. "Across the markets, we are seeing real health." INVH believes they're well positioned (strong demand + affordability) as supply drops off. Strong demand tailwinds.

6) And expense growth pressures are mitigating.

7) On the revenue side, INVH reported strong growth in its third-party property management business. Now up to 25k homes (which includes JVs, too) and a $15 million in Q3 incomes related to third-party management. INVH called the $15 million a “pretty decent run rate going forward.”

Also seeing ancillary revenue growth from service programs like bulk wifi and smart home tech.

8) INVH reported minimal impact from recent hurricanes, and flexed its scale as an advantage in responding quickly to resident messages about storm damages -- primarily to roofs and fencing.

9) INVH is still high on Florida. Asked whether storms would reduce Invitation's long-term presence in Florida, CEO Dallas Tanner said INVH has been careful to pick inland locations outside of flood zones. And while careful about sites, INVH is "so bullish on Florida's growth profile."

10) Invitation Homes reported very favorable demand drivers (far beyond just high barriers for homebuyers) starting with demographic tailwinds as large number of Millennials age into prime SFR age, citing data from the great John Burns.

(Median age of INVH resident is 38.)

American Homes 4 Rent (AMH)

1) AMH acquired a smaller SFR portfolio of nearly 1,700 properties in 13 markets for $480m. AMH indicated they'll sell off ~150 homes from the portfolio that fall outside their "buy box."

Average home in the portfolio was built in 2007, measuring 2,100 square feet with 3-4 bedrooms and an average rent around $2,000/month.

2) AMH sees opportunity to drive operational improvements and reduce OpEx through their efficiencies of scale. It appears the portfolio is currently running at below-market economic occupancy, though AMH didn’t share much on the “why?” Regardless, AMH expressed confidence that once the properties are “brought up to our standards,” they would perform well.

3) AMH continued to be a net seller of one-off homes in Q3. AMH -- like INVH and other institutional investors -- isn't buying much in terms of individual homes on the MLS.

In fact, AMH bought just 16 homes in one-off transactions (excluding the SFR portfolio acquisition) in Q3, while selling 256 homes. More dispositions coming, too, particularly from the ~150 homes in the acquired portfolio that AMH intends to unload.

4) Like others, AMH is still heavily focused on new build-to-rent construction. AMH delivered 753 new BTR units in Q3, and is on track to deliver 2,300 units in 2024 "with yields averaging in the high 5s."

Plus, AMH has another 11,000 lots in pipeline.

5) Like INVH, AMH reports that new BTR supply is putting downward pressure on new lease rents in some markets. AMH plans to "optimize revenue by prioritizing occupancy" over rent.

But AMH also made the case that detached SFR is less impacted by supply than attached SFR.

6) Following industry-wide trend, AMH reported very solid renewal rent growth combined with softer (though still positive) new lease rents and with healthy occupancy rates. It’s interesting to see such parallels with the apartment REITs (as also noted above on INVH), though even the ~2% new lease rent growth tops the multifamily REIT norms right now.

Also reported "better-than-expected results" on the expense side as well as low bad debt numbers that AMH said "speaks to the health and financial resiliency of our resident base."

7) One Wall Street analyst threw a curveball on the earnings call, stating "investors feel somewhat disappointed about some of the fourth quarter operating trends that are being discussed." AMH pushed back hard on that, insisting their results "exceeded expectations."

(And in fairness, it was probably premature for any analyst to make such a sweeping statement about investor sentiment in the middle of an earnings call.)

8) Like INVH (and apartment owners, too), AMH reported that the Midwest -- with lesser new or high-quality existing SFR supply -- remained a strong performer. Expecting more of the same for 2025.

9) Also like peers, AMH reported minimal damage from recent hurricanes plus rapid response on repairs. (Though even minimal damage adds up to 7-figure bill across portfolio.) Most damage was roofs, fences, and landscaping.

AMH did note that while hurricanes dinged leasing demand to some degree, they’re seeing — as is normal post-storms — a “little bit of a pickup” now.

10) And finally: AMH prepares to bid farewell to its long-time CEO, David Singelyn, who participated on his last earnings call before retirement. (COO Bryan Smith will take over.)

Dave reflected on the journey launching AMH, how they "seized a once-in-a-lifetime opportunity to pioneer professionally managed" SFR. Dave unquestionably goes down as one of the founding titans of SFR and gave a classy farewell message.

Dave said: “Housing is a fundamental American need, and single-family rental homes have emerged as an important part of the American housing landscape and solution. Building AMH with Wayne and with your support is one of my proudest career accomplishments. I leave AMH with gratitude, pride and fond memories that I will cherish forever.”

Best wishes to Dave in the next chapter!

***Now Spinning on the Podcast***

We launched a podcast! Find us on YouTube, Spotify, Apple and Amazon. The Rent Roll with Jay Parsons.

Episode 1: The Case for Middle-Income Housing with special guest Bob Simpson, head of the Multifamily Impact Council

Episode 2: Debunking a Few Multifamily Myths with BSR REIT CEO Dan Oberste

Episode 3: The Hurdles for Apartment Builders with Payton Mayes, CEO of JPI

Episode 4: Fresh Data and REITs’ Earnings Previews with REIT researcher David Auerbach.

Episode 5: Win/Wins for Cities and Developers with Bellevue Mayor Dr. Lynne Robinson

Episode 6: The Politicalization of Rental Housing with ex-Fannie Mae CEO Hugh Frater

Episode 7: Rental Housing 2024 Voters’ Guide with ex-Freddie Mac CEO David Brickman

Episode 8: The Case for New Apartment Construction with Thompson Thrift CEO Paul Thrift

***Episode 9: SFR REITs’ Q3 Earnings Recaps & Outlook with Invitation Homes CEO Dallas Tanner*** (Released Today!)

More on REIT Earnings Season:

Stay tuned for upcoming editions of Rental Housing Economics diving into highlights from the multifamily REITs.

As a reminder once again: None of what I write about REITs (or otherwise) is intended to be investment advice whatsoever, nor is it a comprehensive look at any REIT. I just write about the things I find interesting.

Disclaimer: The contents of this newsletter are for informational purposes, not investment advice. No recommendation or advice is being given.

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