Despite Strong Rate Growth, High Operating Expense Growth Leads Invitation Homes to Reduce Guidance

Third-quarter results for no-moat Invitation Homes were in line with our expectations, leading us to reaffirm our $42 fair value estimate. Same-store occupancy was down 50 basis points sequentially and 60 basis points year over year to 97.5%. Still, average rental rates increased 9.7% year over year, leading to same-store revenue growth of 8.3% which was in line with our 8.0% estimate for the third quarter. However, same-store operating expenses increased 7.6%, the largest increase in the company’s history, due to inflation driving a 15.4% increase in the cost of repairs and maintenance and a 15.2% increase in turnover-related expenses. As a result, same-store net operating income came in at 8.6%, and while that is in line with our 8.2% estimate for the third quarter, it is below the double-digit same-store NOI growth Invitation Homes reported over the past four quarters. Core funds from operations grew 9.5% in the third quarter to $0.42, in line with our estimate for the firm.