Invitation Homes Earnings: High Revenue and Expense Growth Should Decelerate Through Course of 2023

First-quarter results for no-moat Invitation Homes INVH were slightly better than we anticipated, leading us to reaffirm our $40 fair value estimate. Same-store occupancy improved 50 basis points sequentially to 97.8%, better than our estimate of flat growth. Average rental rates were up 8.5% year over year, leading to same-store revenue growth of 7.7% that was just slightly ahead of our 7.2% estimate. However, same-store operating expenses were up 14.0%, in line with our estimate, with real estate taxes up 11.3%, personnel costs up 18.4%, costs related to turning over units up 45.7%, and utility costs up 64.5%. As a result, same-store net operating income was up 5.0%, which is less than the revenue increase but beat our 4.1% same-store NOI growth estimate. Core funds from operations came in at $0.44 per share in the first quarter, which is a penny better than our $0.43 estimate and 9.5% higher than the $0.40 figure reported in the first quarter of 2022.

The high expense growth in the first quarter was included in management’s prior guidance for 2023, which remains unchanged this quarter. Management still believes that full-year same-store expense growth will range between 7.5% and 9.5%, so expense growth should significantly decelerate over the course of the year, which is in line with our quarterly estimates that add up to our full-year estimate of 8.2% growth. However, revenue growth is also expected to decelerate over the course of the year, with the full-year guidance range of 5.25%-6.25% and our estimate of 5.5% growth both below the first quarter figure. Therefore, while revenue growth and expense growth were both high in the first quarter, the high growth figures were both anticipated and do not represent a trend for the rest of year. We remain confident in our forecasts that remain within management’s unchanged guidance ranges.