Invitation Homes Looks At Potentially Buying Firms Stuck With Smaller Inventory
Invitation Homes, the nation's largest owner of single-family rentals, has "a couple of billion dollars of dry powder" for would-be mergers or acquisitions, CEO Dallas Tanner told investors.
The preparation for potential M&A activity comes as Invitation Homes, in reporting its first-quarter earnings Tuesday, saw a 30% jump in year-over-year net income in the quarter to $120 million.
That profit comes as it has become increasingly difficult for Invitation Homes — like other U.S. buyers — to find homes for sale, reflecting the national shortage of housing. One industry source estimates the U.S. housing shortage at 6.5 million homes due to a decade of builders pulling back on the number of homes they produce.
"If you don’t have a significant portfolio today, I don’t want to say that they have stuck, but it’s going to be harder to grow," Tanner told investors during an earnings call. "Scale is going to be more beneficial over the next couple of years and it should benefit companies like ours in the REIT space where we have very low leverage and generally access and availability to different buckets of capital."
Invitation Homes has a new product pipeline approaching $1 billion. The Dallas-based company entered into a five-year deal in 2021 with PulteGroup to purchase 7,500 homes during that time. Other developers and builders have approached Invitation Homes with similar offers, Tanner said. He declined to disclose the names of those developers and builders.
For Invitation Homes, rental rates continue to grow, with same-store new lease rent growth of 5.7% and same-store renewal growth of 8% for the first quarter. Rates are expected to continue to grow this year, with preliminary April results of new lease rent growth of 7.5% with renewals at 7.2%, with average occupancy of 97.8%.
"Our focus the last couple of years has been building out a much more robust new product pipeline, which today sits close to $1 billion," he added. "We have really excited about that product as it’s coming into our portfolio, both this year and years beyond."
On existing homes, Tanner said the resale environment has been limited in the past three to four years, which could make it difficult for new rental groups to build up scale in certain markets. For Invitation Homes, which has scale, this could lead to some opportunities, he added.
"As we see some of these smaller operators who are having trouble getting scale or sizing up, there could be opportunities where potential M&A over the next couple of years," Tanner said. "I think we will stay aggressive in our new product pipeline; we have obviously always looked at things as the resale market changes but we are ready."
Invitation Homes was a net seller of homes in the first quarter of the year.
In all, the company sold 284 wholly owned homes resulting in gross proceeds of $95 million, as well as 13 homes in joint ventures for $6 million. Invitation Homes also bought 181 wholly owned homes for $62 million and 13 homes in joint ventures for $5 million. Most of the purchased homes came through the company's builder partners.
In trading up its real estate, Invitation Homes was able to upgrade its portfolio with brand-new homes in well-located neighborhoods, executives told investors.
