Invitation Homes, the nation's largest owner of single-family rentals with nearly 85,000 houses, is having a hard time finding properties to buy — and has been turning to homebuilders to help it bolster its offerings to clients.
CEO Dallas Tanner told investors Thursday that the landlord has been scouring multiple listing services and "not finding a lot of transactions in that environment."
Even when it finds something it likes, something that fits the Dallas-based company's strategy of buying in sought-after neighborhoods in growing U.S. markets, it often "gets outbid," he said.
Invitation's difficulties would hardly surprise would-be homebuyers these days as many potential sellers have been reluctant to put their properties on the market and give up their low-interest mortgages after rates for new 30-year loans jumped to near 8%.
Despite its difficulties, Invitation Homes, along with its various joint venture partnerships, still managed to snap a few thousand properties — adding 2,291 homes to its portfolio for a total cost of $854 million during the third quarter ending Sept. 30, 2023. This includes 1,870 homes added through a $650 million portfolio acquisition in July. In the third quarter, Invitation Homes and its joint ventures sold 416 homes in deals totaling $160 million.
"We are continuing to see a supply-demand imbalance," Tanner told investors during the quarterly earnings call. "At the same time the leasing market remains robust with soaring interest rates making leasing a home less expensive than buying one. We are bringing new supply to the market through our extensive homebuilding relationships."
That imbalance in the housing market has led to Invitation Homes reporting $618 million in revenues for the third quarter, increasing 8.6% from the same quarter last year. The single-family-rental firm also collected 99% of its rents in the third quarter with executives saying evictions once delayed during the pandemic are now making their way through the legal process and that "bad debt," is falling off the company's balance sheet.
Invitation Homes is also beginning to see rents return to historical norms after a run on housing during the pandemic led to double-digit year-over-year rent growth for new and existing tenants only a year ago. In the third quarter 2023, Invitation Homes reported a blended rent growth of 6.2%.
Building Pipeline
Invitation Homes is in the process of selling off so-called non-core houses that might be a bit older with some capital expenditure needs in the near future, to raise money to buy newly built homes with little to no capital improvement risk in the near term and a better yield on cost, Tanner told investors.
Year-to-date through Sept. 30, Invitation Homes has acquired 2,761 homes for more than $1 billion this year. The majority of those homes are wholly owned by the company. In that same time, Invitation Homes sold 1,091 homes for a total of $401 million.
In upgrading the housing stock, Invitation Homes has teamed up with homebuilders. The landlord has a construction pipeline of 1,931 homes in the United States with its third-party homebuilders as of the third quarter 2023 ending Sept. 30. The average estimated cost of a house underway is $390,000.
One of those builders, PulteGroup, entered into a five-year deal beginning in 2021 with Invitation Homes to buy 7,500 homes during that time.
An analyst asked Tanner about speculation Invitation Homes would take over the management of more than 8,500 homes owned by Starwood Capital Group, but Tanner said the company would not comment on market speculation. (Invitation Homes declined to disclose the seller of a nearly 2,000-home portfolio in July, but the finance news service Bloomberg, citing confidential sources said the seller was Starwood, fueling the speculation.)
"With the strength of the platform, we continue to look for opportunities to grow and leverage the platform to enhance our operating margins, but, as of today, there's nothing to report," he added.
Tanner and other executives told investors to anticipate guidance about company finances for 2024 in February. Invitation Homes also plans to move into its new Dallas headquarters by next spring.
Invitation Homes still has billions in dry powder to invest in potential merger and acquisition deals, which it initially revealed to investors in May, but, Tanner said, nothing has been lined up at this time. The company plans to keep its liquidity and position itself for opportunities on the horizon, he said.
"We want to stay in a position of strength with as much flexibility as we can," he added. "Some companies with smaller portfolios have to make a decision with the capital markets the way they are, and we want to be ready. We are still seeing opportunities out there."