Despite Solid Revenue Growth, Large Tax Bill Leads to Slight NOI Miss for Invitation Homes in Q4

Invitation Homes INVH reported mixed results compared with our expectations for the fourth quarter, though we didn’t see anything that would materially change our $40 fair value estimate for the no-moat company. Same-store occupancy declined 20 basis points sequentially to 97.3%, slightly worse than our estimate of occupancy remaining flat. Average rental rates increased 9.4% year over year, relatively in line with our estimate of 9.0% growth, leading to same-store revenue increasing 7.6% year over year. However, the company reported 18.3% growth in property taxes paid as the underaccrual of taxes paid in the first three quarters of the year led to a high catch-up bill in the fourth quarter. Combined with repair costs increasing 14.8% and turnover costs increasing 54.0%, Invitation Homes reported same-store operating expense growth of 16.3% that was well above our estimate of 5.2%. As a result, same-store net operating income growth of 3.7% fell short of our 8.9% estimate. However, core funds from operations of $0.43 per share came in ahead of our estimate of $0.42 as the company reported fewer miscellaneous costs than we anticipated in the fourth quarter.

Management’s guidance was relatively in line with our expectations for 2023. Same-store revenue is expected to grow between 5.25% and 6.25%, putting our estimate of 5.7% at the midpoint of the range. The outlook for same-store operating expense growth of 7.5%-9.5% is higher than our 5.2% estimate, so our 5.9% estimate of same-store NOI growth is just above the high end of management’s outlook of 4.0%-5.5% same-store NOI growth. Still, core FFO is expected to range between $1.73 and $1.81, which puts our $1.76 estimate just below the midpoint. While we may adjust our model to reflect higher operating expenses and lower miscellaneous corporate expenses in 2023, we don’t anticipate any material changes to our long-term outlook for the company.