Invitation Homes Inc. (INVH) Earnings Call Transcript & Summary

Welcome to the Invitation Homes Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Scott McLaughlin, Senior Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning. Joining me today from Invitation Homes are Dallas Tanner, our President and Chief Executive Officer; Tim Lobner, our Chief Operating Officer; Jon Olsen, our Chief Financial Officer; and Scott Eisen, our Chief Investment Officer. Following our prepared remarks, we'll open the line for questions from our covering sell-side analysts. During today's call, we may reference our second quarter 2026 earnings release and supplemental information. We issued this document yesterday afternoon after the market closed, and it is available on the Investor Relations section of our website at www.invh.com. Certain statements we make during this call may include forward-looking statements relating to the future performance of our business, financial results, liquidity and capital resources and other nonhistorical statements, which are subject to risks and uncertainties that could cause actual outcomes or results to differ materially from those indicated. We describe some of these risks and uncertainties in our 2025 annual report on Form 10-K and other filings we make with the SEC from time to time. Except to the extent otherwise required by law, we do not update forward-looking statements and expressly disclaim any obligation to do so. We may also discuss certain non-GAAP financial measures during the call. You can find additional information regarding these non-GAAP measures, including reconciliations to the most comparable GAAP measures, in yesterday's earnings release. With that, I'll turn the call over to Dallas Tanner. Go ahead, Dallas.

Thanks, Scott, and good morning, everyone. It's been a busy peak season for us. Before getting into the quarter, I want to thank our residents for the trust they keep placing in us and our field teams for how they've handled the pace. Together, we delivered a strong second quarter. Average occupancy held above 97%. New lease rate growth accelerated for the 6 month in a row, and we grew core FFO per share by 5% and AFFO per share by just under 6%. Tim and Jon will get into the details, but it's a great foundation heading into the second half of the year. I'll kick off my comments by talking about the 21st century ROAD to Housing Act. The law was enacted earlier this month, providing greater clarity for our business and the broader housing industry. Among other things, the act includes some meaningful provisions and is speeding up and encouraging new construction. That's a goal we fully support since we've long known that better housing affordability is achieved by increasing new supply. In fact, that's been precisely our approach at Invitation Homes, going through new construction and homebuilder partnerships. We're pleased that the law lets us keep doing what we do best: offering a valuable housing solution to the millions of Americans choose to lease while helping deliver the new supply this country needs. And that commitment goes well beyond supply. For our residents, that means continuing free positive credit reporting of [ the build credit ] simply by paying their rent on time. For policymakers, that means staying closely engaged with Treasury and [ HUD ] and others as these new regulatory guidances take further shape. Beyond the legislative backdrop, demand for our homes remains healthy. According to the latest data from John Burns, on average, it's over $1,000 per month cheaper to lease today than to own a similar house in our markets. Based on our average resident tenure of just now over 40 months, that adds up to more than $40,000 in total savings for a typical family. That is a compelling value proposition, along with favorable demographics and the convenience of leasing will continue to support our demand. Turning now to capital allocation. The story during the second quarter was similar to the first quarter. Stock repurchases remained among the most attractive uses of our capital. During the second quarter, we bought back another $100 million of stock, which brings us to $600 million in stock repurchased since December at an average price of a little over $26 per share. These share repurchases have been funded in large part by home sales priced well above where the public market is valuing our assets. We are also starting to see early signs of a [ thaw ] on the acquisition side. Deal flow has been relatively stagnant over the first 6 months of 2026, thanks to the legislative uncertainty. But with the ROAD to Housing Act now settled, more sellers are coming to market, including some attractive smaller portfolios. It's still early, but encouraging, since it gives us another lever for accretive capital deployment. Similarly, we see opportunities in our development and our lending channels. ResiBuilt's pipeline has reaccelerated following some disruption earlier this year when the bill was still in flux. And on the lending side, construction loan commitments, including some still in diligence, now total just under $350 million, with about 10% of that funded so far. As a reminder, these loans typically yield in the high single digits and give us the opportunity to purchase the community once they're built. Zooming out, at our Investor Day last November, we talked about building the best-run SFR platform in the country that's disciplined on costs and capital, but also focused on the resident experience. That discipline has been on full display in 3 ways so far this year. First, capital allocation, selling homes at a premium and redeploying that capital into accretive opportunities. Second, growth, supporting our platform through the acquisition of ResiBuilt and the expansion of our construction lending business. And third, in resident satisfaction, reflected in the renewal and retention numbers Tim will walk through shortly. In short, we're doing exactly what we said we were going to do. In line with what Tim and Jon are about to cover, our first half performance gave us confidence to raise our full year guidance. I'll let Jon cover the specifics here. But the takeaway is that Invitation Homes continues to generate strong and stable cash flows, selling homes at a premium to where the market is valuing our assets and recycling that capital accretively to create value for our shareholders. Tim, over to you.

Thanks, Dallas, and good morning, everyone. I'll start with the headline. New lease rate growth accelerated every month from January through June. Capping off peak leasing season on a high note, our second quarter same-store renewal rate was approximately 77%, and average length of stay for our residents remained over 40 months. The data points reflect high level of resident satisfaction with both our homes and our service. Turning now to our second quarter same-store results. NOI grew 1.5% year-over-year, driven by 1.6% core revenue growth and core operating expense growth of just 1.9%. I'll touch on a few more details behind each of those items. On the revenue side, renewable rent growth rose through the quarter from just over 3% in April and May to 3.7% in June, averaging 3.3% for the second quarter. Second quarter new lease rent growth was 1.1%, [ find ] that resulted in second quarter blended and lease growth of 2.7%. Turnover improved 50 basis points year-over-year to 5.7%. And average occupancy for the quarter landed at 97.1%, both strong results for the summer season. On the expense side, the best news is on the controllables, where expenses we manage on a day-to-day basis were down 1% year-over-year. It's a really good reflection how our teams are running the business. Fixed costs, including property taxes and insurance, increased by only 3.5% year-over-year. We're pleased to see both controllable and fixed expenses tracking in line with our expectations year-to-date. The supply backdrop across our markets is telling a similar story. Build-to-rent deliveries have continued to decline. And while SFR listings remain elevated, the pace of new supply growth has slowed sharply since the start of this year. In addition, according to John Burns, the markets that were the most oversupplied are now seeing the sharpest drops in unsold inventory of new homes. Still a bit of supply to work through in some markets, but the trend has clearly been moving in the right direction. We continue to keep a close eye on this as we move through late summer and into the fall. This slower supply growth, the steady demand that Dallas described and strong execution from our teams are all showing up directly in our numbers. New lease rate growth picked up every month through this year through June or easing as we'd expect for late summer, 1.2% in July. Renewals followed their own path, staying in the low 3% range for April and May before accelerating to 3.7% in June and 4.3% in July. That brings our preliminary blended lease rate growth for July to 3.4%, while average occupancy for July, 96.5%, reflecting normal seasonality from summer move-outs. Taken together, this was a strong operating quarter. We head into the back half of the year with real momentum on renewals, well managed expenses and a healthy demand and improving supply backdrop. I'm proud of how our teams have shown up for our residents this year and how their efforts have made results like these possible. Jon, I'll hand it over to you.

Thanks, Tim. Today, I'll cover our second quarter financial results, capital allocation activity, the balance sheet and our updated guidance. Starting with our results. Second quarter core FFO per share was $0.51, up 5% year-over-year, and AFFO per share was $0.44, up nearly 6% year-over-year. On the capital side, during the second quarter, we sold 657 wholly owned homes primarily to end users for gross proceeds of about $309 million. And we bought 196 homes, all from our homebuilder partners, for about $74 million. Combined with our first quarter activity, this pace of dispositions has run well ahead of our original expectations, which is why we increased our full year disposition guidance for wholly owned homes by $300 million at the midpoint to $850 million. Our acquisitions guidance remains unchanged, with midpoints of $250 million for wholly owned homes from our homebuilder partners and $100 million through our joint ventures. We also deployed another $100 million for stock repurchases in the second quarter for a total of $600 million of share repurchases since we started the program late last year. Since that time, we repurchased approximately 22.8 million shares at an average price of $26.30 per share. For reference, this average repurchase price represents an implied value of just over $270,000 per wholly owned home. That's a significant discount compared to our year-to-date actual average sale price of $450,000 per home. We used proceeds from this quarter's asset sales, along with free cash flow, to reduce our revolver balance from $560 million as of March 31 to $280 million as of June 30. As a result, we ended the second quarter with a net debt to trailing 12-month adjusted EBITDA ratio of 5.4x, or just below our 5.5x to 6x target range. Turning to the balance sheet more broadly, it remains in great shape. We ended the quarter with over $1.5 billion of available liquidity. Substantially all of our debt is at fixed rate or swap to fixed rates, and approximately 90% of our wholly owned homes were unencumbered. We also took steps to strengthen that balance sheet profile even further, taking advantage of favorable market conditions earlier this month to issue $500 million of senior notes maturing in 2032 at a 4.95% coupon. We used the net proceeds to prepay approximately half of our 2017-1 securitization, which had a $988 million balance outstanding as of June 30 that matures next summer. Because the offering and prepayments both occurred in July, their impact isn't reflected in our June 30 financial statements or supplemental schedules, and we've provided the pro forma impact on certain metrics in a footnote to supplemental schedules 2B and 2C. Reflecting on our year-to-date operating results and the benefit of this year's stock buyback activity, we raised full year core FFO and AFFO per share guidance this quarter with midpoints of $0.01 each to $1.95 and $1.65, respectively, alongside the disposition guidance increase I mentioned earlier. With the first half of the year now behind us, we also narrowed our same-store core revenue and NOI growth guidance ranges around unchanged midpoints, reflecting improved visibility into the balance of the year. All told, we have a strong balance sheet, good operating momentum and multiple ways to keep creating value for our shareholders. This concludes our prepared remarks. Operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Eric Wolfe with Citi.

You mentioned that you were starting to see some smaller portfolios come to market. Could you talk about how you think those portfolios will price from a cap rate and unlevered IRR perspective? Assuming you take part in any of these deals, how would you fund them?

Thanks for the question. This is Scott. Yes, in terms of the market right now, we're not seeing any large transactions at this point. We've probably seen some smaller portfolios in the sub-$100 million, maybe slightly bigger than $100 million size range. I think it's too early to really talk about price guidance and returns on it because we really haven't seen a lot of transaction activity. But I would say that post ROAD to Housing Act, for the first 6 months of the year, things were really quiet just because people were waiting to see where the legislation turned out. I think now that the act has been passed, I think we're seeing some capital start to open up again and start to test the waters and see where the market is. So it's too really -- it's too soon to say exactly where we think transactions are going to price. But I would definitely say that, that activity has sort of picked up since the legislation got passed.

And your next question comes from the line of Jamie Feldman with Wells Fargo.

You've got [ Connor ] on with Jamie. Could you provide an update on July new renewal and blended lease rate growth? And as we think about the second half of this year, what are you assuming for those metrics? And especially with the seasonal moderation of new lease, particularly given the easier comps and more first half-weighted expiration schedule?

[ Connor ], great question. Thank you. This is Tim speaking. As prepared or as discussed in our prepared remarks, let me run through what we had in July. July, our renewals was at 4.3%, really happy with that. That accelerated out of our Q2 number, which was 3.3%. On the new lease side, we were at 1.2%. That's coming off of 1.8% in June. We saw a nice acceleration through Q2. And then on the blended side, that was 3.4%. And as I shared also in the prepared remarks, we were really pleased with how the year has progressed and continues to progress. Every month on the blended side, we've seen favorable upward movement. And look, as you think about the back half of the year, as we share at several of the investor conferences, there is a regular cadence to how the industry moves, right? Let's just talk -- start with occupancy because that also informs us on how we go about our rent rate. Occupancy, like you start the year and you continue to grow into peak season. During peak season, you see a lot of households move out, typical time for families to move out of houses. So you see occupancy moderate a bit. And then towards the very end of the year, you see it pick up, and then that puts us back into the new year. As it relates to rent growth, let me break it down. Obviously, the blend is really just a reflection, like a 75% reflection of the renewal side of the house and about a 25% reflection of the new lease. New lease, you guys saw our numbers from Q1. We started out negative. That kind of picks up as you go through the year. That positive number held out. We saw it go and actually, we plateaued in June, which was really strong. It's later in the year than we saw in 2025. And we expect that to moderate through to the balance of the year. On the renewal side, that's probably the most consistent part of our business. As we typically see over the course of the year, it varies between 3.5% to 4.5%. Which, again, is really important because that 75% to 80% of the book of business. So that's how we expect to see it for the balance of the year, and we're really liking how we've seen the year shape up so far. And as for August, obviously, we don't know what new lease growth will be for August, but renewals in August are shaping up much like July. So we're really happy with how the portfolio is performing and how the teams are executing.

Your next question comes from the line of Steve Sakwa with Evercore ISI.

Yes. I appreciate all the comments on the revenue side. Maybe just touching on expenses, which I think moderated a bit, Q1 to Q2. Maybe just what are some of the puts and takes as you look in the back half of the year? And as you think about kind of your overall '26 number and we sort of start to think about next year, I guess, what are the puts and takes we should be thinking about to next year's expense growth?

Yes, Steve, I think the big one is obviously always property tax. We have probably 3, 4 weeks before we start to get preliminary views on value and then maybe another 30 days, 1.5 months before we start to get actual bills in the door. So that's always a big consideration. But I think what's really striking to me is how effective the focus on cost controls around the controllable side of the house has been. I think the team has been making really thoughtful decisions about how they approach the service side of the house. I think we're really pleased that total turn costs are looking quite favorable. So as I think about puts and takes, I mean, to me, the big question mark at this point in the year is always property tax. I think vis-a-vis the rest of the expense line items, we are really happy with what we're seeing, and we're really pleased with where we are in the year, recognizing there's still a good bit of the year yet to go.

Your next question comes from Jana Galan with Bank of America.

Jon, on the guidance increase, can you speak to any one-timers that may have benefited the second quarter or any offsets you expect in the second half of the year that caused the FFO run rate to come down?

I think with respect to the guide, I guess I'd point out a couple of things. As I just said, firstly, we have half a year to go. And the second half of the year presents a potentially a higher degree of execution risk just based on the fact that, as Tim outlined, this is normally the seasonal period where you see turnover tick up a little bit. The quantum of homes that we're taking back that we need to get turned and back out under the market and released is something we're going to be really focused on as we think about defending occupancy in the second half of the year. Secondly, as we've talked about a lot of times, higher turnover in the second half of the year has the potential to impact both the revenue and expense side of the P&L. And obviously, any turnover we experience in the second half does create some degree of execution risk given that the supply backdrop, while improving, remains elevated. So we want to be mindful of that. Thirdly, as I just outlined with Steve, at this point in the year, property taxes are still largely unknown. As a reminder, the 3 largest states are California, Georgia and Florida. California and Georgia are both around 14% of total property tax. Florida is about 41%. So that -- those 3 states are 70% of a line item that represents about 55% of our total OpEx. So that is always going to be a consideration when that's still kind of waiting for further clarity. Lastly and I think what's maybe most notable is given the disruption that some of the earlier versions of the ROAD to Housing Act caused, we do expect the ResiBuilt contribution to '26 earnings to come in a bit behind our original expectations. Projects that were in flight continued, but there were a number of projects that were scheduled to start in the first half that were delayed and in some cases, even canceled. So we're going to have a little bit of a shortfall that we want to try to overcome there. I think the good news is the team is doing a really great job of refilling that pipeline now that the uncertainty overhang has been removed, but it remains to be seen how much of that benefit can be recouped in the second half of '26 versus rolling into '27. So when we put all those considerations together, we think our guidance continues to reflect cautious optimism, while at the same time, acknowledging that there are some unknowns and some execution risks, and a decent chunk of the year yet to go.

Your next question comes from Buck Horne with Raymond James.

I just got a question from a higher level. One of your multifamily peers [ in the ] Sunbelt highlighted that in quarter-over-quarter, they saw a big in-migration of new leases coming from out of market. I was wondering if you guys might have detected or tracked anything similar in terms of new lease demand kind of migrating into some of your Sunbelt markets from out of market?

Insightful question, Buck. This is Dallas. And if Tim, if you have anything to add, feel free to add in. It's interesting. We survey going in and going out. And in our second quarter surveys, roughly 85% of our move-ins were in state movements in the second quarter, based on that survey data. So it's not like we're seeing any major dislocation or out-of-state folks coming in. It's usually about 50% of those, by the way, are moving sort of city to city. So they're trying out a new area. They want to be close to job corridors, transportation corridors, they're testing out a neighborhood before they buy. So we haven't seen anything that's sort of dramatic in terms of, call it, net migration shifts. Tim, would you add anything to that?

I wouldn't add anything specific to our survey data as it relates to our residents. But I think there is a good story here that we see in third-party data regarding migratory patterns. And if you look at about 65%, 70% of our markets, we are seeing projected net favorable migration into our markets. And those are primarily Sunbelt markets, which I think is [ payable ] for the long-term prospects of our portfolio. So I think you touched on the IH decision-making that goes into where people are living, but I think the broader macroeconomic migratory patterns are favorable as well.

Your next question comes from the line of Ami Probandt with UBS.

Other core revenue declined in the quarter after being up over 10% in the last quarter. So I was wondering, what are the moving pieces within this line item? And how do you expect it to trend for the remainder of the year?

It's Jon. Thanks for the question. I think it's important to remember that other property income is comprised of both lease fees and value-add service revenue. So the decrease this quarter was driven primarily by lower lease fees, including lower late fees and other administrative charges. Value-add service income was actually up about 9% year-over-year, and we continue to see that as an area of growth for us. So year-to-date, other property income has increased almost 5%, and we do expect to continue to see strong growth from that line item in the rest of the year.

And the next question comes from Brad Heffern with RBC.

Just a follow-up question on the blends. You almost always see third quarter lower than second quarter, just given new lease pricing falls off. This year, the July blends are obviously up. It sounds like renewals will continue to be strong and above second quarter levels. So just wondering if we should expect blends to buck the normal seasonal trend and increase in the third quarter?

Yes. Look, we generally don't give too much of our projection numbers before it happens, right? But as I mentioned earlier, our renewal numbers that we're seeing in August look much like our July numbers. So we're really happy with the strength of what we're seeing in the marketplace. Typically, you do see the blended rate come down in Q4. You see that kind of taper off. But that's a function of also filling the portfolio. So again, we're really happy with how the market is continuing to find its footing. I think the year is shaping up as we expected. And to be honest with you, we're liking how it's going to set up for 2027.

And the next question comes from John Pawlowski with Green Street.

Jon, can you speak to the third-party management business as well as construction lending? Are those business lines and the contribution to earnings trending better or worse than you expected? And any color to the drivers would be appreciated.

Sure. Yes. That's a good question, John. I think they're trending generally in line with our expectations. We are seeing -- we're, I think, year-to-date, about $4 million lower on 3PM fee income. That's driven primarily by the fact that we sold the number of homes on behalf of Starwood. And so it's really just a function of a lower average home count as well as the fact that we had about $2.8 million of nonrecurring disposition fees in 2025. And so that is also coloring kind of the year-over-year comp. As far as the lending business goes -- and Scott should chime in with anything he thinks I've overlooked -- we're actually really pleased with how that is going. Things got pretty quiet while the ROAD to Housing Act was underway. But similar to what we're seeing on the acquisition side, since clarity has been sort of realized, I think there's a lot more interest in inbound activity. The team continues to originate what we think are really interesting deals on real estate that we have a high degree of conviction around. So it continues to be, I think, a really compelling area of growth for us, and we're actually a little bit ahead of where we thought we would be at this point in the year, which is great considering that we had about 6 months of kind of dislocation in the marketplace.

Yes. And the only thing I'd add to that is, look, the program is going according to plan, right? And as Dallas said in his introduction, we're on track for -- based upon what's either closed or under commitment right now, call it, approximately $350 million of loans. And again, first principles are still the same. We want strong sponsors with BTR development in communities where we have boots on the ground. We have local market knowledge of those areas and communities that potentially we could purchase upon stabilization. So nothing has changed in terms of the design of the program. Nothing has changed in terms of the buy box. We're going to do the right deals in the right markets. We're being measured in our pace. And we're going to do the right loans with the right counterparties when the time is right. We're on track, and we're pleased with the program.

Your next question comes from Haendel St. Juste with Mizuho Securities.