INVITATION HOMES INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the information appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements based upon our current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part I. Item 1A. "Risk Factors" of our Annual Report on Form 10-K. Capitalized terms used without definition have the meaning provided elsewhere in this Quarterly Report on Form 10-Q. OverviewInvitation Homes is a leading owner and operator of single-family homes for lease, offering residents high-quality homes in sought-after neighborhoods across America. With over 80,000 homes for lease in 16 markets across the country as ofSeptember 30, 2021 ,Invitation Homes is meeting changing lifestyle demands by providing residents access to updated homes with features they value, such as close proximity to jobs and access to good schools. Our mission statement, "Together with you, we make a house a home," reflects our commitment to high-touch service that continuously enhances residents' living experiences and provides homes where individuals and families can thrive. We operate in markets with strong demand drivers, high barriers to entry, and high rent growth potential, primarily in theWestern United States ,Florida , and theSoutheast United States . Through disciplined market and asset selection, as well as through strategic mergers and acquisitions, we designed our portfolio to capture the operating benefits of local density as well as economies of scale that we believe cannot be readily replicated. Since our founding in 2012, we have built a proven, vertically integrated operating platform that enables us to effectively and efficiently acquire, renovate, lease, maintain, and manage our homes. We invest in markets that we expect will exhibit lower new supply, stronger job and household formation growth, and superior net operating income ("NOI") growth relative to the broaderUnited States housing and rental markets. Within our 16 markets, we target attractive neighborhoods in in-fill locations with multiple demand drivers, such as proximity to major employment centers, desirable schools, and transportation corridors. Our homes average approximately 1,870 square feet with three bedrooms and two bathrooms, appealing to a resident base that we believe is less transitory than the typical multifamily resident. We invest in the upfront renovation of homes in our portfolio in order to address capital needs, reduce ongoing maintenance costs, and drive resident demand. The in-fill locations and high quality of our homes and service further differentiate our resident experience, which we continue to refine. COVID-19 The ongoing COVID-19 pandemic has had a significant adverse impact on global andUnited States economic activity and has contributed to significant volatility and disruption in financial markets. The ultimate impacts remain unknown, but have included and could range from macroeconomic effects (such as continued strain on global andUnited States economic conditions and disruptions to, and volatility in, the credit and financial markets, consumer spending, supply chains, and the market for acquisition and disposition of single-family homes) to more industry-specific effects (such as depressed collection rates, higher or lower occupancy levels, and restrictions on evictions, collections, rent increases, and late fees), and other unanticipated consequences. As such, we continue to closely monitor the impact of the ongoing COVID-19 pandemic on all aspects of our business and actively manage our response thereto in collaboration with our residents and business partners. With the safety and well-being of our residents and associates being our highest priority during the ongoing COVID-19 pandemic, we implemented a host of measures and continue to follow protocols that enable teams to safely provide outstanding service to residents. These protocols include: (1) implementing a safety training program and providing personal protective equipment for all associates including a supply of masks, gloves, shoe covers, and hand sanitizer for field teams; (2) creating flexible work schedules for our associates in terms of both location and hours of work; (3) adhering to strict safety protocols for maintenance service trips; (4) leveraging self-show and virtual-tour technology; and (5) offering virtual options for resident move-in orientations and pre-move-out visits. 44 -------------------------------------------------------------------------------- We also continue to adhere to Federal, state, and local restrictions on items such as evictions, collections, rent increases, and late fees as appropriate. Additionally, to act on our core values of "Genuine Care" and "Standout Citizenship," we offer flexible solutions for residents experiencing financial hardship when requested, including payment plans and late fee abatements. We work with our residents experiencing financial hardship to try to find solutions that keep them in their homes. This includes providing residents with information about rental assistance programs for which they may be eligible, application instructions, necessary documentation, and owner requirements. We have helped thousands of residents apply for rental assistance programs and, as a result, they have received$23.0 million in rental assistance payments during the nine months endedSeptember 30, 2021 , and$25.5 million cumulatively since such programs were put in place. Neither the aforementioned procedural adjustments nor the overall impact of the COVID-19 pandemic created significant disruptions to our business model during the three and nine months endedSeptember 30, 2021 . Our overall revenue collections as a percentage of monthly billings was 97% for the three months endedSeptember 30, 2021 , or approximately 98% of our historical average. The situation surrounding the ongoing COVID-19 pandemic and its variants remains fluid, and we continue to actively monitor the effects of the pandemic and manage our response in collaboration with our residents and business partners and to assess potential impacts to our financial position and operating results, as well as potential adverse developments in our business. For further discussion of risks related to the pandemic, see Part I. Item 1A. "Risk Factors - Risks Related to Our Business and Industry - Our business, results of operations, financial condition, and cash flows may be adversely affected by pandemics and outbreaks of infectious disease, particularly the ongoing COVID-19 pandemic" in our Annual Report on Form 10-K. Other Matters InJuly 2021 , we received congressional inquiries requesting information and documentation about our eviction practices during the COVID-19 pandemic, including information relating to compliance with federal eviction moratorium requirements and cooperation with impacted residents to use federal assistance funds as an alternative to eviction. We are in the process of cooperating with these inquiries and information requests. InAugust 2021 , we received a letter from the staff of theFederal Trade Commission requesting information as to how we conduct our business generally and during the COVID-19 pandemic specifically. We are in the process of cooperating with this request. As these inquiries are ongoing, we cannot currently predict their timing, outcome, or scope. 45 -------------------------------------------------------------------------------- Our Portfolio The following table provides summary information regarding our total and Same Store portfolios as of and for the three months endedSeptember 30, 2021 as noted below: Average Monthly Average Monthly % of Market Number of Homes(1) Average Occupancy(2) Rent(3) Rent PSF(3) Revenue(4) Western United States: Southern California 7,894 98.3%$2,670 $1.57 12.6 % Northern California 4,322 96.5% 2,333 1.50 6.1 % Seattle 3,908 95.3% 2,392 1.24 5.5 % Phoenix 8,626 96.3% 1,647 0.99 8.8 % Las Vegas 3,021 97.7% 1,855 0.93 3.6 % Denver 2,598 90.6% 2,241 1.23 3.4 % Western United States Subtotal 30,369 96.4% 2,181 1.26 40.0 % Florida: South Florida 8,239 97.6% 2,355 1.26 12.1 % Tampa 8,336 97.8% 1,831 0.98 9.7 % Orlando 6,310 97.3% 1,830 0.98 7.3 % Jacksonville 1,880 98.2% 1,832 0.92 2.2 % Florida Subtotal 24,765 97.6% 2,006 1.07 31.3 % Southeast United States: Atlanta 12,619 97.4% 1,671 0.81 13.2 % Carolinas 5,132 96.5% 1,736 0.81 5.4 % Southeast United States Subtotal 17,751 97.1% 1,690 0.81 18.6 % Texas: Houston 2,139 96.7% 1,647 0.85 2.2 % Dallas 2,827 96.7% 1,915 0.93 3.3 % Texas Subtotal 4,966 96.7% 1,799 0.90 5.5 % Midwest United States: Chicago 2,573 97.7% 2,068 1.28 3.2 % Minneapolis 1,122 96.0% 2,036 1.04 1.4 % Midwest United States Subtotal 3,695 97.2% 2,058 1.20 4.6 % Announced Market-in-Exit: Nashville(5) 3 33.7% 3,694 1.06 - % Total / Average 81,549 97.0%$1,991 $1.06 100.0 % Same Store Total / Average 72,423 98.1%$1,989 $1.07 90.2 % (1)As ofSeptember 30, 2021 . (2)Represents average occupancy for the three months endedSeptember 30, 2021 . (3)Represents average monthly rent for the three months endedSeptember 30, 2021 . (4)Represents the percentage of rental revenues and other property income generated in each market for the three months endedSeptember 30, 2021 . (5)InDecember 2019 , we announced a plan to fully exit theNashville market. As ofSeptember 30, 2021 , we have three remaining homes in the market. 46 -------------------------------------------------------------------------------- Factors That Affect Our Results of Operations and Financial Condition Our results of operations and financial condition are affected by numerous factors, many of which are beyond our control. See Part I. Item 1A. "Risk Factors" of our Annual Report on Form 10-K for more information regarding factors that could materially adversely affect our results of operations and financial condition. Key factors that impact our results of operations and financial condition include market fundamentals, rental rates and occupancy levels, collection rates, turnover rates and days to re-resident homes, property improvements and maintenance, property acquisitions and renovations, and financing arrangements. Sensitivity to many of these factors has been heightened as a result of the ongoing and numerous adverse impacts of COVID-19. Market Fundamentals: Our results are impacted by housing market fundamentals and supply and demand conditions in our markets, particularly in theWestern United States andFlorida , which represented 71.3% of our rental revenues and other property income during the three months endedSeptember 30, 2021 . We actively monitor the impact of the COVID-19 outbreak on market fundamentals and quickly implement changes in pricing as market fundamentals shift. Rental Rates and Occupancy Levels: Rental rates and occupancy levels are primary drivers of rental revenues and other property income. Our rental rates and occupancy levels are affected by macroeconomic factors and local and property-level factors, including market conditions, seasonality, resident defaults, and the amount of time it takes to prepare a home for its next resident and re-lease homes when residents vacate. An important driver of rental rate growth is our ability to increase monthly rents from expiring leases, which typically have a term of one to two years. The ongoing COVID-19 pandemic has negatively impacted our ability to increase rents in certain markets and may impact our ability to maintain occupancy levels. Collection Rates: Our rental revenues and other property income is impacted by the rate at which we collect such revenues from our residents. We routinely work with residents facing financial hardships who need flexibility to fulfill their lease obligations, but the ongoing COVID-19 pandemic has increased the number of such residents. When requested, we work with these residents to create payment plans, without late fees, and then actively manage these receivables. Additionally, we work with residents to identify and pursue rental assistance payments from various federal, state, and local government and other entities providing such assistance. Despite these efforts, a portion of amounts receivable may not ultimately be collected. Any amounts billed to residents that have been deemed uncollectible along with our estimate of amounts that may ultimately be uncollectible decrease our rental revenues and other property income. Turnover Rates and Days to Re-Resident: Other drivers of rental revenues and property operating and maintenance expense include the length of stay of our residents, resident turnover rates, and the number of days a home is unoccupied between residents. Our operating results are also impacted by the amount of time it takes to market and lease a property, which is a component of the number of days a home is unoccupied between residents. The period of time to market and lease a property can vary greatly and is impacted by local demand, our marketing techniques, the size of our available inventory, and both current economic conditions and future economic outlook, both of which are impacted by the ongoing COVID-19 pandemic. Days to re-resident may be negatively affected by homes potentially remaining vacant while prospective residents remain in their current housing. Our turnover rate may be affected by the current COVID-19 pandemic as a result of delayed eviction proceedings and/or move outs potentially being canceled by residents who have not secured their next housing plans. Increases in turnover rates and the average number of days to re-resident reduce rental revenues as the homes are not generating income during this period of vacancy. Property Improvements and Maintenance: Property improvements and maintenance impact capital expenditures, property operating and maintenance expense, and rental revenues. We actively manage our homes on a total portfolio basis to determine what capital and maintenance needs may be required and what opportunities we may have to generate additional revenues or expense savings from such expenditures. Due to our size and scale both nationally and locally, we believe we are able to purchase goods and services at favorable prices. While the COVID-19 outbreak has required us to modify our property improvement and maintenance procedures to accommodate resident preferences, we complete all maintenance work orders in a timely manner unless a resident reports symptoms of or exposure to COVID-19. 47 -------------------------------------------------------------------------------- Property Acquisitions and Renovations: Future growth in rental revenues and other property income may be impacted by our ability to identify and acquire homes, our pace of property acquisitions, and the time and cost required to renovate and lease a newly acquired home. Our ability to identify and acquire single-family homes that meet our investment criteria is impacted by home prices in targeted acquisition locations, the inventory of homes available for sale through our acquisition channels, and competition for our target assets. All of these factors may be negatively impacted by the ongoing COVID-19 pandemic, potentially reducing the number of homes we acquire. The acquisition of homes involves expenditures in addition to payment of the purchase price, including payments for acquisition fees, property inspections, closing costs, title insurance, transfer taxes, recording fees, broker commissions, property taxes, and HOA fees (when applicable). Additionally, we typically incur costs to renovate a home to prepare it for rental. The scope of renovation work varies, but may include paint, flooring, carpeting, cabinetry, appliances, plumbing hardware, roof replacement, HVAC replacement, and other items required to prepare the home for rental. The time and cost involved in accessing our homes and preparing them for rental can significantly impact our financial performance. The time to renovate a newly acquired property can vary significantly among homes for several reasons, including the property's acquisition channel, the condition of the property, whether the property was vacant when acquired, and whether there are any state or local restrictions on our ability to complete renovations as an essential business function. Additionally, COVID-19 and related containment measures may interfere with the ability of our suppliers and other business partners to carry out their assigned tasks and/or source labor or supply materials at ordinary levels of performance relative to the conduct of our business. Due to our size and scale both nationally and locally, we believe we are able to purchase goods and services at favorable prices. Financing Arrangements: Financing arrangements directly impact our interest expense, our various debt instruments, and our ability to acquire and renovate homes. We have historically utilized indebtedness to fund the acquisition and renovation of new homes. Our current financing arrangements contain financial covenants, and certain financing arrangements contain variable interest rate terms. Interest rates are impacted by market conditions and the terms of the underlying financing arrangements. The COVID-19 pandemic has resulted in a widespread health crisis adversely affecting the economy and financial markets of many countries resulting in an economic downturn that could negatively affect our ability to access financial markets as well as our business, results of operations, and financial condition. See Part I. Item 3. "Quantitative and Qualitative Disclosures about Market Risk" for further discussion regarding interest rate risk. Our future financing arrangements may not have similar terms with respect to amounts, interest rates, financial covenants, and durations. Components of Revenues and Expenses The following is a description of the components of our revenues and expenses. Revenues Rental Revenues and Other Property Income Rental revenues, net of any concessions and bad debt (including write-offs, credit reserves, and uncollectible amounts), consist of rents collected under lease agreements related to our single-family homes for lease. We enter into leases directly with our residents, and the leases typically have a term of one to two years. Other property income is comprised of: (i) resident reimbursements for utilities, HOA fines, and other charge-backs; (ii) rent and non-refundable deposits associated with pets; (iii) revenues from ancillary services such as smart homes and HVAC replacement filters; and (iv) various other fees, including late fees, lease termination fees, among others. Joint Venture Management Fees Joint venture management fees consist of asset and property management fees from our unconsolidated joint ventures. 48 --------------------------------------------------------------------------------
Expenses
Property Operating and Maintenance Once a property is available for its initial lease, which we refer to as "rent-ready," we incur ongoing property-related expenses, which consist primarily of property taxes, insurance, HOA fees (when applicable), market-level personnel expenses, utility expenses, repairs and maintenance, leasing costs, marketing expenses, and property administration. Prior to a property being "rent-ready," certain of these expenses are capitalized as building and improvements. Once a property is "rent-ready," expenditures for ordinary repairs and maintenance thereafter are expensed as incurred, and we capitalize expenditures that improve or extend the life of a home. Property Management Expense Property management expense represents personnel and other costs associated with the oversight and management of our portfolio of homes, including those within our unconsolidated joint ventures. All of our homes are managed through our internal property manager. General and Administrative General and administrative expense represents personnel costs, professional fees, and other costs associated with our day-to-day activities. General and administrative expense may also include expenses that are of a non-recurring nature, such as severance. Share-Based Compensation Expense All share-based compensation expense is recognized in our condensed consolidated statements of operations as components of general and administrative expense and property management expense. We issue share-based awards to align the interests of our associates with those of our investors. Interest Expense Interest expense includes interest payable on our debt instruments, payments and receipts related to our interest rate swap agreements, amortization of discounts and deferred financing costs, unrealized gains (losses) on non-designated hedging instruments, and non-cash interest expense related to our interest rate swap agreements. Depreciation and Amortization We recognize depreciation and amortization expense associated with our homes and other capital expenditures over the expected useful lives of the assets. Impairment and Other Impairment and other represents provisions for impairment when the carrying amount of our single-family residential properties is not recoverable and casualty (gains) losses, net of any insurance recoveries. Gains (Losses) on Investments inEquity Securities , net Gains (losses) on investments in equity securities, net includes unrealized gains and losses resulting from mark to market adjustments and realized gains and losses resulting from the sale of such securities. Other, net Other, net includes interest income and other miscellaneous income and expenses. Gain on Sale of Property, net of tax Gain on sale of property, net of tax consists of net gains and losses resulting from sales of our homes. 49 -------------------------------------------------------------------------------- Income from Investments inUnconsolidated Joint Ventures Income from investments in unconsolidated joint ventures consists of our share of net earnings and losses from investments in unconsolidated joint ventures accounted for using the equity method. Results of Operations Portfolio Information As ofSeptember 30, 2021 and 2020, we owned 81,549 and 79,397 single-family rental homes, respectively, in our total portfolio. During the three months endedSeptember 30, 2021 and 2020, we acquired 1,082 and 544 homes, respectively, and sold 145 and 403 homes, respectively. During the three months endedSeptember 30, 2021 and 2020, we owned an average of 81,007 and 79,285 single-family rental homes, respectively. During the nine months endedSeptember 30, 2021 and 2020, we acquired 1,977 and 1,195 homes, respectively, and sold 605 and 1,303 homes, respectively. During the nine months endedSeptember 30, 2021 and 2020, we owned an average of 80,547 and 79,412 single-family rental homes, respectively. We believe presenting information about the portion of our total portfolio that has been fully operational for the entirety of both a given reporting period and its prior year comparison period provides investors with meaningful information about the performance of our comparable homes across periods, and about trends in our organic business. To do so, we provide information regarding the performance of our Same Store portfolio. As ofSeptember 30, 2021 , our Same Store portfolio consisted of 72,423 single-family rental homes. Three Months EndedSeptember 30, 2021 Compared to Three Months EndedSeptember 30, 2020 The following table sets forth a comparison of the results of operations for the three months endedSeptember 30, 2021 and 2020: For the Three Months Ended September 30, ($ in thousands) 2021 2020 $ Change % Change Revenues:
Rental revenues and other property income
Joint venture management fees 1,354 - 1,354 N/M Total revenues 509,532 459,184 50,348 11.0 % Expenses: Property operating and maintenance 184,484 177,997 6,487 3.6 % Property management expense 17,886 14,824 3,062 20.7 % General and administrative 19,369 17,972 1,397 7.8 % Interest expense 79,370 87,713 (8,343) (9.5) % Depreciation and amortization 150,694 138,147 12,547 9.1 % Impairment and other 4,294 1,723 2,571 149.2 % Total expenses 456,097 438,376 17,721 4.0 %
Gains (losses) on investments in equity
securities, net 4,319 - 4,319 N/M Other, net (1,508) (3,049)
1,541 50.5 %
Gain on sale of property, net of tax 13,047 15,106
(2,059) (13.6) %
Income from investments in unconsolidated
joint ventures 202 - 202 N/M Net income$ 69,495 $ 32,865 $ 36,630 111.5 % 50
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Revenues
For the three months endedSeptember 30, 2021 and 2020, total revenues were$509.5 million and$459.2 million , respectively. Set forth below is a discussion of changes in the individual components of total revenues. For the three months endedSeptember 30, 2021 and 2020, total portfolio rental revenues and other property income totaled$508.2 million and$459.2 million , respectively, an increase of 10.7%, driven by an increase in average monthly rent per occupied home and a 1,722 home increase between periods in the average number of homes owned. Average occupancy for the three months endedSeptember 30, 2021 and 2020 for the total portfolio was 97.0% and 96.9%, respectively. Average monthly rent per occupied home for the total portfolio for the three months endedSeptember 30, 2021 and 2020 was$1,991 and$1,881 , respectively, a 5.8% increase. For our Same Store portfolio, average occupancy was 98.1% and 97.8% for the three months endedSeptember 30, 2021 and 2020, respectively, and average monthly rent per occupied home for the three months endedSeptember 30, 2021 and 2020 was$1,989 and$1,880 , respectively, a 5.8% increase. The annualized turnover rate for the Same Store portfolio for the three months endedSeptember 30, 2021 and 2020 was 25.1% and 29.7%, respectively. For the Same Store portfolio, an average home remained unoccupied for 25 and 26 days between residents for the three months endedSeptember 30, 2021 and 2020, respectively. The decreases in these two metrics contributed to our increase in average occupancy on a year over year basis. Our turnover rate may have been, and may continue to be, impacted by the effects of the COVID-19 pandemic (e.g., eviction moratoriums and residents who are not inclined to relocate during a pandemic). We cannot predict how long existing eviction moratoriums will remain in place, if new eviction moratoriums will be issued and/or reinstated, or when the general effects of the pandemic will subside and how those items may affect our turnover and occupancy rates. To monitor prospective changes in average monthly rent per occupied home, we compare the monthly rent from an expiring lease to the monthly rent from the next lease for the same home, in each case, net of any amortized non-service concessions, to calculate net effective rental rate growth. Leases are either renewal leases, where our current resident stays for a subsequent lease term, or new leases, where our previous resident moves out and a new resident signs a lease to occupy the same home. Renewal lease net effective rental rate growth for the total portfolio averaged 7.7% and 3.3% for the three months endedSeptember 30, 2021 and 2020, respectively, and new lease net effective rental rate growth for the total portfolio averaged 18.3% and 5.7% for the three months endedSeptember 30, 2021 and 2020, respectively. For our Same Store portfolio, renewal lease net effective rental rate growth averaged 7.8% and 3.2% for the three months endedSeptember 30, 2021 and 2020, respectively, and new lease net effective rental rate growth averaged 18.4% and 5.6% for the three months endedSeptember 30, 2021 and 2020, respectively. During the three months endedSeptember 30, 2020 , almost all late fees typically enforced in accordance with our lease agreements were not enforced or collected. During the three months endedSeptember 30, 2021 , enforcement and collection of late fees generally occurred in all markets where permissible. While the effects of the COVID-19 pandemic and the ensuing jurisdictional restrictions on rental rates, late fees, collections, and evictions have decreased substantially over time, they may continue to affect our future collection rates, ability to increase rental revenues in certain markets, and fees and other ancillary income charged to residents. For the three months endedSeptember 30, 2021 , joint venture management fees totaled$1.4 million . Expenses For the three months endedSeptember 30, 2021 and 2020, total expenses were$456.1 million and$438.4 million , respectively. Set forth below is a discussion of changes in the individual components of total expenses. For the three months endedSeptember 30, 2021 , property operating and maintenance expense increased to$184.5 million from$178.0 million for the three months endedSeptember 30, 2020 . In addition to a 1,722 home increase in the average number of homes owned between periods, increases in property taxes, personnel and other services costs, utilities, and HOA expenses contributed to the overall 3.6% net increase in property operating and maintenance expense. During the three months endedSeptember 30, 2020 , as a result of the COVID-19 pandemic, controllable expenses such as 51 -------------------------------------------------------------------------------- turnover and property administrative costs declined significantly. We also believe HOA expenses were lower due to stay-at-home orders that reduced the number of fines and violations we received. Property management expense and general and administrative expense increased to$37.3 million from$32.8 million for the three months endedSeptember 30, 2021 and 2020, respectively. The increase was primarily due to a$2.4 million increase in short term incentive plan compensation based on estimated annual performance and increased spend for projects intended to improve the resident and associate experiences. To date, the COVID-19 pandemic has not had a material impact on our property management and general and administrative expenses. Interest expense decreased from$87.7 million for the three months endedSeptember 30, 2020 to$79.4 million for the three months endedSeptember 30, 2021 . The decrease in interest expense was primarily due to refinancing activities sinceSeptember 30, 2020 , including theDecember 2020 amended and restated credit facility which increased the balance of the term loan by$1,000.0 million ,$950.0 million of newly issued unsecured notes, repayment of$2,241.2 million of mortgage loan indebtedness, and conversion of$198.5 million of convertible debt to shares of our common stock. This activity resulted in the following net impacts: (1) a 37 bps decrease in the weighted average interest rate on our outstanding debt at each respective period end and (2) a decrease in our average debt outstanding, from$8,372.7 million for the three months endedSeptember 30, 2020 to$7,964.7 million for the three months endedSeptember 30, 2021 due to various prepayments made subsequent toSeptember 30, 2020 . Depreciation and amortization expense increased to$150.7 million for the three months endedSeptember 30, 2021 from$138.1 million for the three months endedSeptember 30, 2020 due to an increase in cumulative capital expenditures and an increase in the average number of homes owned during the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . Impairment and other expenses were$4.3 million and$1.7 million for the three months endedSeptember 30, 2021 and 2020, respectively. During the three months endedSeptember 30, 2021 , impairment and other expenses were comprised of impairment losses of$0.1 million on our single-family residential properties and net casualty losses of$4.2 million . During the three months endedSeptember 30, 2020 , impairment and other expenses were comprised of impairment losses of$0.3 million on our single-family residential properties and net casualty losses of$1.4 million . The impairment costs recognized during the three months endedSeptember 30, 2021 and 2020 were not a direct result of the COVID-19 pandemic. Gains (Losses) on Investments inEquity Securities , net For the three months endedSeptember 30, 2021 ,$4.3 million of gains (losses) on investments in equity securities, net was comprised of$14.2 million of realized gains from the sale of equity securities, net of$(9.9) million of unrealized losses from reversals of previously recorded unrealized gains on the sold equity securities and marking investments that have a readily determinable fair value to market as ofSeptember 30, 2021 . There were no gains (losses) on investments in equity securities, net during the three months endedSeptember 30, 2020 . Other, net Other, net was$(1.5) million for the three months endedSeptember 30, 2021 compared to$(3.0) million for the three months endedSeptember 30, 2020 . The change is primarily due to the non-recurrence of a$1.8 million ROU lease impairment during the three months endedSeptember 30, 2020 and lower interest income from our investments in debt securities. Additionally, joint venture management fees and income from investments in unconsolidated joint ventures presented separately on our condensed consolidated statement of operations for the three months endedSeptember 30, 2021 were included in other, net during the three months endedSeptember 30, 2020 . Gain on Sale of Property, net of tax Gain on sale of property, net of tax was$13.0 million and$15.1 million for the three months endedSeptember 30, 2021 and 2020, respectively. The primary driver of the decrease was a decrease in the number of homes sold from 403 for the three months endedSeptember 30, 2020 to 145 for the three months endedSeptember 30, 2021 , offset by an increase in disposition proceeds received per home between periods. 52 -------------------------------------------------------------------------------- Income from Investments inUnconsolidated Joint Ventures Income from investments in unconsolidated joint ventures was comprised of our equity in earnings and/or (losses) therefrom on a net basis. Nine Months EndedSeptember 30, 2021 Compared to Nine Months EndedSeptember 30, 2020 The following table sets forth a comparison of the results of operations for the nine months endedSeptember 30, 2021 and 2020: For the Nine Months Ended September 30, ($ in thousands) 2021 2020 $ Change % Change Revenues:
Rental revenues and other property
income$ 1,473,250 $ 1,358,728
Joint venture management fees 3,140 - 3,140 N/M Total revenues 1,476,390 1,358,728 117,662 8.7 % Expenses: Property operating and maintenance 528,279 511,915 16,364 3.2 % Property management expense 51,424 43,725 7,699 17.6 % General and administrative 56,147 46,626 9,521 20.4 % Interest expense 243,540 258,541 (15,001) (5.8) % Depreciation and amortization 440,475 410,440 30,035 7.3 % Impairment and other 5,630 4,670 960 20.6 % Total expenses 1,325,495 1,275,917 49,578 3.9 %
Gains (losses) on investments in equity
securities, net (5,823) 34 (5,857) N/M Other, net (3,181) 2,001
(5,182) (259.0) %
Gain on sale of property, net of tax 45,450 41,473
3,977 9.6 %
Income from investments in
unconsolidated joint ventures 564 - 564 N/M Net income$ 187,905 $ 126,319 $ 61,586 48.8 % Revenues For the nine months endedSeptember 30, 2021 and 2020, total revenues were$1,476.4 million and$1,358.7 million , respectively. Set forth below is a discussion of changes in the individual components of total revenues. For the nine months endedSeptember 30, 2021 and 2020, total portfolio rental revenues and other property income totaled$1,473.3 million and$1,358.7 million , respectively, an increase of 8.4%, driven by an increase in average occupancy, an increase in average monthly rent per occupied home, and an 1,135 home increase between periods in the average number of homes owned, partially offset by an increase in bad debt. Average occupancy for the nine months endedSeptember 30, 2021 and 2020 for the total portfolio was 97.3% and 95.8%, respectively. Average monthly rent per occupied home for the total portfolio for the nine months endedSeptember 30, 2021 and 2020 was$1,950 and$1,867 , respectively, a 4.4% increase. For our Same Store portfolio, average occupancy was 98.3% and 97.3% for the nine months endedSeptember 30, 2021 and 2020, respectively, and average monthly rent per occupied home for the nine months endedSeptember 30, 2021 and 2020 was$1,948 and$1,866 , respectively, a 4.4% increase. 53 -------------------------------------------------------------------------------- The annualized turnover rate for the Same Store portfolio for the nine months endedSeptember 30, 2021 and 2020 was 24.3% and 27.7%, respectively. For the Same Store portfolio, an average home remained unoccupied for 26 and 38 days between residents for the nine months endedSeptember 30, 2021 and 2020, respectively. The decreases in these two metrics contributed to our increase in average occupancy on a year over year basis. Our turnover rate may have been, and may continue to be, impacted by the effects of the COVID-19 pandemic (e.g., eviction moratoriums and residents who are not inclined to relocate during this period). We cannot predict how long existing eviction moratoriums will remain in place, if new eviction moratoriums will be issued and/or reinstated, or when the general effects of the pandemic will subside and how those items may affect our turnover and occupancy rates. To monitor prospective changes in average monthly rent per occupied home, we compare the monthly rent from an expiring lease to the monthly rent from the next lease for the same home, in each case, net of any amortized non-service concessions, to calculate net effective rental rate growth. Leases are either renewal leases, where our current resident stays for a subsequent lease term, or new leases, where our previous resident moves out and a new resident signs a lease to occupy the same home. Renewal lease net effective rental rate growth for the total portfolio averaged 6.0% and 3.7% for the nine months endedSeptember 30, 2021 and 2020, respectively, and new lease net effective rental rate growth for the total portfolio averaged 13.6% and 3.6% for the nine months endedSeptember 30, 2021 and 2020, respectively. For our Same Store portfolio, renewal lease net effective rental rate growth averaged 6.1% and 3.6% for the nine months endedSeptember 30, 2021 and 2020, respectively, and new lease net effective rental rate growth averaged 13.6% and 3.5% for the nine months endedSeptember 30, 2021 and 2020, respectively. The COVID-19 pandemic has negatively impacted rental revenues and other property income since the onset of the pandemic inmid-March 2020 in two notable ways: (1) we experienced lower collection rates, which caused bad debt as a percentage of gross rental income to increase from 1.5% for the nine months endedSeptember 30, 2020 to 1.7% for the nine months endedSeptember 30, 2021 ; and (2) a significant portion of all late fees typically enforced in accordance with our lease agreements were not enforced or collected for a significant period of time. As of the second quarter of 2021, enforcement and collections of late fees generally re-commenced in all markets where permissible. While the effects of the COVID-19 pandemic and the ensuing jurisdictional restrictions on rental rates, late fees, collections, and evictions have decreased over time, they may continue to affect our future collection rates, ability to increase rental revenues in certain markets, and fees and other ancillary income charged to residents. For the nine months endedSeptember 30, 2021 , joint venture management fees totaled$3.1 million . Expenses For the nine months endedSeptember 30, 2021 and 2020, total expenses were$1,325.5 million and$1,275.9 million , respectively. Set forth below is a discussion of changes in the individual components of total expenses. For the nine months endedSeptember 30, 2021 , property operating and maintenance expense increased to$528.3 million from$511.9 million for the nine months endedSeptember 30, 2020 . In addition to an 1,135 home increase between periods in the average number of homes owned, increases in property taxes, utilities, personnel and other services costs, and HOA expenses, partially offset by decreases in repairs and maintenance and turnover costs, resulted in the overall 3.2% net increase in property operating and maintenance expense. Property management expense and general and administrative expense increased to$107.6 million from$90.4 million for the nine months endedSeptember 30, 2021 and 2020, respectively. The increase is comprised primarily of a$8.8 million increase in share-based compensation expense due to changes in expected results for performance-based awards and a$6.6 million increase in short term incentive plan compensation based on estimated annual performance. Other than the impact on share-based compensation expense, to date, the COVID-19 pandemic has not had a material impact on our property management and general and administrative expenses. 54 -------------------------------------------------------------------------------- Interest expense decreased from$258.5 million for the nine months endedSeptember 30, 2020 to$243.5 million for the nine months endedSeptember 30, 2021 . The decrease in interest expense was primarily due to refinancing activities sinceSeptember 30, 2020 , including theDecember 2020 amended and restated credit facility which increased the balance of the term loan by$1,000.0 million ,$950.0 million of newly issued unsecured notes, repayment of$2,241.2 million of mortgage loan indebtedness, and conversion of$198.5 million of convertible debt to shares of our common stock. This activity resulted in the following net impacts: (1) a 37 bps decrease in the weighted average interest rate on our outstanding debt at each respective period end and (2) a decrease in our average debt outstanding, from$8,485.7 million for the nine months endedSeptember 30, 2020 to$8,020.5 million for the nine months endedSeptember 30, 2021 due to various prepayments made subsequent toSeptember 30, 2020 . Depreciation and amortization expense increased to$440.5 million for the nine months endedSeptember 30, 2021 from$410.4 million for the nine months endedSeptember 30, 2020 due to an increase in cumulative capital expenditures and an increase in the average number of homes owned during the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . Impairment and other expenses were$5.6 million and$4.7 million for the nine months endedSeptember 30, 2021 and 2020, respectively. During the nine months endedSeptember 30, 2021 , impairment and other expenses were comprised of impairment losses of$0.6 million on our single-family residential properties and net casualty losses of$5.0 million . During the nine months endedSeptember 30, 2020 , impairment and other expenses were comprised of impairment losses of$4.2 million on our single-family residential properties and net casualty losses of$0.5 million . The impairment costs recognized during the nine months endedSeptember 30, 2021 and 2020 were not a direct result of the COVID-19 pandemic. Gains (Losses) on Investments inEquity Securities , net For the nine months endedSeptember 30, 2021 ,$(5.8) million of gains (losses) on investments in equity securities, net was comprised of$21.9 million of unrealized losses from reversals of previously recorded unrealized gains on sold equity securities and marking investments that have a readily determinable fair value to market as ofSeptember 30, 2021 , net of$16.1 million of realized gains from the sale of equity securities. Other, net Other, net was$(3.2) million for the nine months endedSeptember 30, 2021 compared to$2.0 million for the nine months endedSeptember 30, 2020 , primarily due to lower interest income from our investments in debt securities and increases in debt and transaction costs between those periods, partially offset by the non-recurrence of a$1.8 million ROU lease impairment during the nine months endedSeptember 30, 2020 . Additionally, joint venture management fees and income from investments in unconsolidated joint ventures presented separately on our condensed consolidated statement of operations for the nine months endedSeptember 30, 2021 were included in other, net during the nine months endedSeptember 30, 2020 . Gain on Sale of Property, net of tax Gain on sale of property, net of tax was$45.5 million and$41.5 million for the nine months endedSeptember 30, 2021 and 2020, respectively. The primary driver of the increase was an increase in disposition proceeds received per home between periods, offset by a decrease in the number of homes sold from 1,303 for the nine months endedSeptember 30, 2020 to 605 for the nine months endedSeptember 30, 2021 . Income from Investments inUnconsolidated Joint Ventures Income from investments in unconsolidated joint ventures was comprised of our equity in earnings and/or (losses) therefrom on a net basis. 55 -------------------------------------------------------------------------------- Liquidity and Capital Resources Our liquidity and capital resources as ofSeptember 30, 2021 andDecember 31, 2020 include unrestricted cash and cash equivalents of$569.7 million and$213.4 million , respectively, a 166.9% increase primarily due to the capital markets activity described below, net of cash used to fund acquisitions of single-family residential properties. The following significant activity occurred during the nine months endedSeptember 30, 2021 : •InMay 2021 , we issued and sold$300.0 million of unsecured notes in a private placement transaction. We used the proceeds to repay$300.0 million of the highest-cost classes of various securitizations due to reach final maturity betweenDecember 2024 andJanuary 2026 . •InAugust 2021 , we issued and sold$650.0 million of unsecured notes in an underwritten public offering. We used the proceeds to repay$635.3 million of the highest-cost classes of various securitizations due to reach final maturity betweenDecember 2024 andJanuary 2026 . •InSeptember 2021 , we completed an underwritten public offering to sell 12,500,000 shares of our common stock and generated net proceeds of$496.7 million (the "2021 Public Offering"). OnOctober 21, 2021 , we sold 1,875,000 shares of our common stock pursuant to the underwriters' full exercise of the option to purchase additional shares, generating net proceeds of$74.5 million . Proceeds were and will be used primarily for general corporate purposes, including acquisitions. •We sold 4,951,969 shares of our common stock under our at the market equity program ("ATM Equity Program"), generating net proceeds of$196.8 million after giving effect to agent commissions and other costs totaling$3.2 million . As ofSeptember 30, 2021 ,$300.1 million remains available for future offerings under the ATM Equity Program. •We settled$198.5 million of the 2022 Convertible Notes (defined below) through the issuance of 8,723,421 shares of our common stock. As ofSeptember 30, 2021 , our$1,000.0 million revolving facility (the "Revolving Facility") remains undrawn, and there are no restrictions on our ability to draw additional funds thereunder provided we remain in compliance with all covenants. We have no debt reaching final maturity untilDecember 2024 , provided all extensions are exercised, with the exception of$146.5 million of convertible notes maturing inJanuary 2022 which we will settle with the issuance of shares of our common stock. Our ability to access capital as well as to use cash from operations to continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted, could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic, as detailed in Part I. Item 1A. "Risk Factors" of our Annual Report on Form 10-K. ThroughSeptember 30, 2021 , disposition channels remained healthy in our markets, and we continue to sell homes that are designated for disposition. With a pipeline of acquisitions to which we are committed of$511.6 million as ofSeptember 30, 2021 , we have limited cash commitments outside of acquisitions and debt service. However, the ongoing impact of the COVID-19 pandemic may impact the acquisition and disposition of single-family homes in ways that we are unable to predict. 56 -------------------------------------------------------------------------------- Long-Term Debt Strategy The following table summarizes certain information about our debt obligations as ofSeptember 30, 2021 ($ in thousands): Balance (Gross of Retained Weighted Certificates and Balance Average Weighted Amount Freely Debt Unamortized (Net of Retained Interest Average Years Prepayable Instruments Discounts) Certificates) Rate to Maturity(1) (Gross) Secured: IH 2017-1(2)$ 995,748 $ 940,248 4.23% 5.7 $ - IH 2017-2(2) 184,400 175,179 L + 107 bps 3.2 184,400 IH 2018-1(2) 570,134 541,606 L + 88 bps 3.4 570,134 IH 2018-2(2) 629,863 598,359 L + 105 bps 3.7 629,863 IH 2018-3(2) 819,039 778,071 L + 112 bps 3.8 819,039 IH 2018-4(2) 670,920 637,361 L + 122 bps 4.3 670,920 Secured Term Loan(3)(4) 403,363 403,363 3.59% 9.7 - Total secured(5) 4,273,467$ 4,074,187 3.79% 4.8 2,874,356 Unsecured: 2022 Convertible Senior Notes(6) 146,491 3.50% 0.3 - Term Loan Facility(4) 2,500,000 L + 100 bps 4.3 2,500,000 Revolving Facility(4) - L + 90 bps 4.3 - Unsecured Notes(4) - May 2028 150,000 2.46% 6.7 - Unsecured Notes(4) - August 2031 650,000 2.00% 9.9 - Unsecured Notes(4) - May 2036 150,000 3.18% 14.7 - Total unsecured(5) 3,596,491 3.15% 5.7 2,500,000 Total debt(5) 7,869,958 3.50% 5.2$ 5,374,356 Unamortized discounts and fair value adjustments (13,002) Deferred financing costs, net (43,819) Total debt per balance sheet 7,813,137 Retained certificates (199,280) Cash and restricted cash, excluding security deposits and letters of credit (653,475) Deferred financing costs, net 43,819 Unamortized discounts and fair value adjustments 13,002 Net debt$ 7,017,203 (1)Weighted average years to maturity assumes all extension options are exercised, which are subject to certain conditions being met. (2)Except for IH 2017-1, interest rates are based on a weighted average spread over the London Interbank Offer Rate ("LIBOR") (or a comparable or successor rate as provided for in our loan agreements), plus applicable servicing fees; as ofSeptember 30, 2021 , LIBOR was 0.08%. Our IH 2017-1 mortgage loan bears interest at a fixed rate of 4.23% per annum, equal to the market determined pass-through rate payable on the certificates including applicable servicing fees. (3)The Secured Term Loan bears interest at a fixed rate of 3.59% per annum including applicable servicing fees for the first 11 years and for the twelfth year bears interest at a floating rate based on a spread of 147 bps over one month LIBOR (or a comparable or successor rate as provided for in our loan agreement), including applicable servicing fees, subject to certain adjustments as outlined in the loan agreement. Interest payments are made monthly. 57 -------------------------------------------------------------------------------- (4)Defined below. (5)For secured debt, unsecured debt, and total debt, the weighted average interest rate is calculated based on LIBOR as ofSeptember 30, 2021 , 0.08%, and includes the impact of interest rate swap agreements effective as ofSeptember 30, 2021 . (6)EffectiveJuly 15, 2021 , we notified note holders of our intent to settle conversions of the 2022 Convertible Notes in shares of common stock. As part of our long-term debt strategy, our goal is to improve our credit ratings, and, over time, we generally intend to target a reduction in our level of net debt to approximately 5.5 to 6.0 times trailing twelve months Adjusted EBITDAre (see "- Non-GAAP Measures - EBITDA, EBITDAre, and Adjusted EBITDAre"), a reduction in our level of secured debt to less than 20% of gross assets, and an increase in our level of unencumbered assets to greater than 70% of gross assets. To facilitate our long-term debt strategy, we expect to seek to, among other things, (a) refinance a significant portion of our secured debt maturing in 2024 through 2026 (assuming all extension options are exercised) with unsecured debt, including potential unsecured bond issuances and/or (b) repay a portion of such debt. There can be no assurance that we will be successful in implementing our long-term debt strategy, improving our credit ratings, or achieving our targets in the short or medium term or at all or that we will not change our strategy or targets in the future. Even if we do achieve our targets, we may from time to time fall outside of our target ranges; and there can be no assurance that we will continue to meet our targets. In addition, we cannot assure you that we will be able to access the capital and credit markets to obtain additional unsecured debt financing or that we will be able to obtain financing on terms favorable to us. For further discussion of risks related to our indebtedness, see Part I. Item 1A. "Risk Factors - Risks Related to Our Indebtedness," including "Risk Factors - Risks Relating to Our Indebtedness - We may be unable to obtain financing through the debt and equity markets, which would have a material adverse effect on our growth strategy and our financial condition and results of operations" in our Annual Report on Form 10-K. Short-Term and Long-Term Liquidity Needs Liquidity is a measure of our ability to meet potential cash requirements, maintain our assets, fund our operations, make dividend payments to our stockholders, and meet other general requirements of our business. Our liquidity, to a certain extent, is subject to general economic, financial, competitive, and other factors beyond our control. Our near-term liquidity requirements consist primarily of: (i) renovating newly-acquired homes; (ii) funding HOA fees (as applicable), property taxes, insurance premiums, and the ongoing maintenance of our homes; (iii) interest expense; (iv) payment of dividends to our equity investors; and (v) required contributions to theRockpoint Group, L.L.C. ("Rockpoint") joint venture. We believe our rental income, net of total expenses, will generally provide cash flow sufficient to fund operations and dividend payments on a near-term basis. Additionally, we have guaranteed the funding of certain tax, insurance, and non-conforming property reserves related to the Rockpoint joint venture's financing. We do not expect this guarantee to have a material current or future effect on our liquidity. However, the COVID-19 pandemic may negatively impact our operating cash flow such that we are unable to make required debt service payments, which would result in an event of default for any such loan agreement under which payments were not made. Specifically, the collateral within individual borrower entities may underperform, resulting in cash flow shortfalls for debt service while consolidated cash flows are sufficient to fund our operations. If an event of default occurs for a specific mortgage loan or for our secured term loan, our loan agreements provide certain remedies, including our ability to fund shortfalls from consolidated cash flow; and such an event of default would not result in an immediate acceleration of the loan. Our real estate assets are illiquid in nature. A timely liquidation of assets may not be a viable source of short-term liquidity should a cash flow shortfall arise, and we may need to source liquidity from other financing sources, such as the Revolving Facility, which had an undrawn balance of$1,000.0 million as ofSeptember 30, 2021 . Our long-term liquidity requirements consist primarily of funds necessary to pay for the acquisition of, and non-recurring capital expenditures for, our homes and principal payments on and maturities of our indebtedness. We intend to satisfy our long-term liquidity needs through cash provided by operations, long-term secured and unsecured borrowings, the issuance of debt and equity securities, and property dispositions. As a REIT, we are required to distribute to our stockholders at least 90% of our taxable income, excluding net capital gain, on an annual basis. Therefore, as a general matter, it is unlikely that we will be able to retain substantial cash balances from our annual taxable income that could be used to meet our liquidity needs. 58 -------------------------------------------------------------------------------- Instead, we will need to meet these needs from external sources of capital and amounts, if any, by which our cash flow generated from operations exceeds taxable income. LIBOR Transition Certain Securitizations, the Secured Term Loan, the Term Loan Facility, and the Revolving Facility (collectively, the "LIBOR-Based Loans") use the one month LIBOR as a benchmark for establishing interest rates. Our derivative instruments are also indexed to one month LIBOR. OnMarch 5, 2021 , theFinancial Conduct Authority of the United Kingdom , which has statutory powers to require panel banks to contribute to LIBOR, announced that it would cease publication of the one week and two month USD LIBOR immediately afterDecember 31, 2021 and cease publication of the remaining tenors immediately afterJune 30, 2023 . Once one month LIBOR is phased out afterJune 30, 2023 , the interest rates for our LIBOR-Based Loans will be based on a comparable or successor rate as provided for in our loan agreements. We will work with the counterparties to our swap and cap agreements to adjust each floating rate to a comparable or successor rate. While we do not expect that the transition from LIBOR and risks related thereto will have a material adverse effect on our financing costs, the ultimate outcome of this change is uncertain at this time, and significant management time and attention may be required to transition to using the new benchmark rates and to implement necessary changes to our financial models. Supplemental Guarantor Information InMarch 2020 , theSEC adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 to simplify disclosure requirements related to certain registered securities. The amendments became effective onJanuary 4, 2021 . INVH,INVH LP ,Invitation Homes OP GP LLC (the "General Partner"), andIH Merger Sub, LLC ("IH Merger Sub") have filed a registration statement on Form S-3 with theSEC registering, among other securities, debt securities ofINVH LP , fully and unconditionally guaranteed, on a joint and several basis, by INVH, the General Partner, and/orIH Merger Sub . As a result of the amendments to Rule 3-10 of Regulation S-X, subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that the subsidiary obligor is consolidated into the parent company's consolidated financial statements, the parent guarantee is "full and unconditional" and, subject to certain exceptions as set forth below, the alternative disclosure required by Rule 13-01 is provided, which includes narrative disclosure and summarized financial information. Accordingly, separate consolidated financial statements ofINVH LP , the General Partner, andIH Merger Sub have not been presented. Furthermore, as permitted under Rule 13-01(a)(4)(vi) of Regulation S-X, we have excluded the summarized financial information for theINVH LP , the General Partner, andIH Merger Sub , because the combined assets, liabilities, and results of operations of INVH,INVH LP , the General Partner, andIH Merger Sub are not materially different than the corresponding amounts in our condensed consolidated financial statements, and management believes such summarized financial information would be repetitive and would not provide incremental value to investors. The following describes the key terms of our current indebtedness. Mortgage Loans Our securitization transactions (the "Securitizations" or the "mortgage loans") are collateralized by certain homes owned by wholly owned subsidiaries ofINVH LP that were formed to facilitate certain of our financing arrangements (the "Borrower Entities"). We utilize the proceeds from our securitizations to fund: (i) repayments of then-outstanding indebtedness; (ii) initial deposits into Securitization reserve accounts; (iii) closing costs in connection with the mortgage loans; and (iv) general costs associated with our operations. 59 --------------------------------------------------------------------------------
The following table sets forth a summary of our mortgage loan indebtedness as of
Outstanding Principal Balance(5)
Maturity Maturity Date if Interest September 30, December 31,
($ in thousands) Date(1) Fully Extended(2) Rate(3) Range of Spreads(4) 2021 2020
IH 2017-1(6) June 9, 2027 June 9, 2027 4.23% N/A $ 993,723 $ 994,787
IH 2017-2(7)(8) December 9, 2021 December 9, 2024 1.15% 91-151 bps 184,400 612,506
IH 2018-1(7) March 9, 2022 March 9, 2025 0.96% 76-131 bps 570,134 646,021
IH 2018-2(7) June 9, 2022 June 9, 2025 1.13% 95-133 bps 629,863 693,988
IH 2018-3(7) July 9, 2022 July 9, 2025 1.20% 105-135 bps 819,039 1,036,561
IH 2018-4(7)(9) January 9, 2022 January 9, 2026 1.30% 115-145 bps 670,920 848,270
Total Securitizations 3,868,079 4,832,133
Less: deferred financing costs, net (10,216) (12,035)
Total $ 3,857,863 $ 4,820,098
(1)The maturity dates above reflect all extension options that have been
exercised.
(2)Represents the maturity date if we exercise each of the remaining one year
extension options available, which are subject to certain conditions being met.
(3)Except for IH 2017-1, interest rates are based on a weighted average spread
over the LIBOR, plus applicable servicing fees; as of September 30, 2021 , LIBOR
was 0.08%. Our IH 2017-1 mortgage loan bears interest at a fixed rate of 4.23%
per annum, equal to the market determined pass-through rate payable on the
certificates including applicable servicing fees.
(4)Range of spreads is based on outstanding principal balances as of
September 30, 2021 .
(5)Outstanding principal balance is net of discounts and does not include
deferred financing costs, net.
(6)Net of unamortized discount of $2.0 million and $2.3 million as of
September 30, 2021 and December 31, 2020 , respectively.
(7)The initial maturity term of each of these mortgage loans is two years,
individually subject to three to five, one year extension options at the
Borrower Entity's discretion (provided that there is no continuing event of
default under the mortgage loan agreement and the Borrower Entity obtains and
delivers to the lender a replacement interest rate cap agreement from an
approved counterparty within the required timeframe). Our IH 2018-4 mortgage
loan has exercised the first extension option, and our IH 2017-2, IH 2018-1,
IH 2018-2, and IH 2018-3 mortgage loans have exercised the second extension
option. The maturity dates above reflect all extensions that have been
exercised.
(8)On September 13, 2021 , we submitted a notification to exercise an extension
of the maturity date of the IH 2017-2 mortgage loan from December 9, 2021 to
December 9, 2022 .
(9)On October 12, 2021 , we submitted a notification to exercise an extension of
the maturity date of the IH 2018-4 mortgage loan from January 9, 2022 to
January 9, 2023 .
Securitization Transactions
For each Securitization transaction, the Borrower Entity executed a loan
agreement with a third party lender. Except for IH 2017-1, each outstanding
mortgage loan originally consisted of six floating rate components. The two year
initial terms are individually subject to three to five, one year extension
options at the Borrower Entity's discretion. Such extensions are available
provided there is no continuing event of default under the respective mortgage
loan agreement and the Borrower Entity obtains and delivers a replacement
interest rate cap agreement from an approved counterparty within the required
timeframe to the lender. IH 2017-1 is a 10 year, fixed rate mortgage loan
comprised of two components. Certificates issued by the trust in connection with
Component A of IH 2017-1 benefit from the Federal National Mortgage
Association's guaranty of timely payment of principal and interest.
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Each mortgage loan is secured by a pledge of the equity in the assets of the
respective Borrower Entities, as well as first-priority mortgages on the
underlying properties and a grant of security interests in all of the related
personal property. As of September 30, 2021 and December 31, 2020 , a total of
31,160 and 31,316 homes, respectively, with a gross book value of
$6,901.7 million and $6,888.3 million , respectively, and a net book value of
$5,621.5 million and $5,761.6 million , respectively, are pledged pursuant to the
mortgage loans. Each Borrower Entity has the right, subject to certain
requirements and limitations outlined in the respective loan agreements, to
substitute properties. We are obligated to make monthly payments of interest for
each mortgage loan.
Transactions with Trusts
Concurrent with the execution of each mortgage loan agreement, the respective
third party lender sold each loan it originated to individual depositor entities
(the "Depositor Entities") who subsequently transferred each loan to
Securitization-specific trust entities (the "Trusts"). The Depositor Entities
for our currently outstanding Securitizations are wholly owned subsidiaries. We
accounted for the transfers of the individual Securitizations from the wholly
owned Depositor Entities to the respective Trusts as sales under ASC 860,
Transfers and Servicing, with no resulting gain or loss as the Securitizations
were both originated by the lender and immediately transferred at the same fair
market value.
As consideration for the transfer of each loan to the Trusts, the Trusts issued
classes of certificates which mirror the components of the individual loans
(collectively, the "Certificates") to the Depositor Entities, except that
Class R certificates do not have related loan components as they represent
residual interests in the Trusts. The Certificates represent the entire
beneficial interest in the Trusts. Following receipt of the Certificates, the
Depositor Entities sold the Certificates to investors and used the proceeds as
consideration for the loans sold to the Depositor Entities by the lenders. These
transactions had no effect on our condensed consolidated financial statements
other than with respect to Certificates we retained in connection with
Securitizations or purchased at a later date.
The Trusts are structured as pass-through entities that receive interest
payments from the Securitizations and distribute those payments to the holders
of the Certificates. The assets held by the Trusts are restricted and can only
be used to fulfill the obligations of those entities. The obligations of the
Trusts do not have any recourse to the general credit of any entities in these
condensed consolidated financial statements. We have evaluated our interests in
certain certificates of the Trusts held by us (discussed below) and determined
that they do not create a more than insignificant variable interest in the
Trusts. Additionally, the retained certificates do not provide us with any
ability to direct activities that could impact the Trusts' economic performance.
Therefore, we do not consolidate the Trusts.
Retained Certificates
As the Trusts made Certificates available for sale to both domestic and foreign
investors, sponsors of the mortgage loans are required to retain a portion of
the risk that represents a material net economic interest in each loan pursuant
to Regulation RR (the "Risk Retention Rules") under the Securities Exchange Act
of 1934, as amended. As such, loan sponsors are required to retain a portion of
the credit risk that represents not less than 5% of the aggregate fair value of
the loan as of the closing date.
IH 2017-1 issued Class B certificates, which are restricted certificates that
were made available exclusively to INVH LP in order to comply with the Risk
Retention Rules. The Class B certificates bear a stated annual interest rate of
4.23%, including applicable servicing fees.
For IH 2017-2, IH 2018-1, IH 2018-2, IH 2018-3, and IH 2018-4, we retain 5% of
each class of certificates to meet the Risk Retention Rules. These retained
certificates accrue interest at a floating rate of LIBOR plus a spread ranging
from 0.76% to 1.51%.
The retained certificates total $197.3 million and $245.2 million as of
September 30, 2021 and December 31, 2020 , respectively, and are classified as
held to maturity investments and recorded in other assets, net on the condensed
consolidated balance sheets.
Loan Covenants
The general terms that apply to all of the mortgage loans require each Borrower
Entity to maintain compliance with certain affirmative and negative covenants.
Affirmative covenants include each Borrower Entity's, and certain of their
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respective affiliates', compliance with (i) licensing, permitting and legal
requirements specified in the mortgage loan agreements, (ii) organizational
requirements of the jurisdictions in which they are organized, (iii) federal and
state tax laws, and (iv) books and records requirements specified in the
respective mortgage loan agreements. Negative covenants include each Borrower
Entity's, and certain of their affiliates', compliance with limitations
surrounding (i) the amount of each Borrower Entity's indebtedness and the nature
of their investments, (ii) the execution of transactions with affiliates,
(iii) the Manager, (iv) the nature of each Borrower Entity's business
activities, and (v) the required maintenance of specified cash reserves. As of
September 30, 2021 , and through the date our condensed consolidated financial
statements were issued, we believe each Borrower Entity is in compliance with
all affirmative and negative covenants for the mortgage loans.
Prepayments
For the mortgage loans, prepayments of amounts owed by us are generally not
permitted under the terms of the respective mortgage loan agreements unless such
prepayments are made pursuant to the voluntary election or mandatory provisions
specified in such agreements. The specified mandatory provisions become
effective to the extent that a property becomes characterized as a disqualified
property, a property is sold, and/or upon the occurrence of a condemnation or
casualty event associated with a property. To the extent either a voluntary
election is made, or a mandatory prepayment condition exists, in addition to
paying all interest and principal, we must also pay certain breakage costs as
determined by the loan servicer and a spread maintenance premium if prepayment
occurs before the month following the one or two year anniversary of the closing
dates of each of the mortgage loans except for IH 2017-1. For IH 2017-1,
prepayments on or before December 2026 will require a yield maintenance premium.
For the nine months ended September 30, 2021 and 2020, we made voluntary and
mandatory prepayments of $964.3 million and $157.8 million , respectively, under
the terms of the mortgage loan agreements.
Secured Term Loan
On June 7, 2019 , 2019-1 IH Borrower LP , a consolidated subsidiary ("2019-1 IH
Borrower" and one of our Borrower Entities), entered into a 12 year loan
agreement with a life insurance company (the "Secured Term Loan"). The Secured
Term Loan bears interest at a fixed rate of 3.59%, including applicable
servicing fees, for the first 11 years and bears interest at a floating rate
based on a spread of 147 bps, including applicable servicing fees, over one
month LIBOR (subject to certain adjustments as outlined in the loan agreement)
for the twelfth year. The Secured Term Loan is secured by first priority
mortgages on a portfolio of single-family rental properties as well as a first
priority pledge of the equity interests of 2019-1 IH Borrower. We utilized the
proceeds from the Secured Term Loan to fund: (i) repayments of then-outstanding
indebtedness; (ii) initial deposits into the Secured Term Loan's reserve
accounts; (iii) transaction costs related to the closing of the Secured Term
Loan; and (iv) general corporate purposes.
The following table sets forth a summary of our Secured Term Loan indebtedness
as of September 30, 2021 and December 31, 2020 :
Maturity Interest September 30, December 31,
($ in thousands) Date Rate(1) 2021 2020
Secured Term Loan June 9, 2031 3.59% $ 403,363 $ 403,363
Deferred financing costs, net (2,105) (2,268)
Secured Term Loan, net $ 401,258 $ 401,095
(1)The Secured Term Loan bears interest at a fixed rate of 3.59% per annum
including applicable servicing fees for the first 11 years and for the twelfth
year bears interest at a floating rate based on a spread of 147 bps over one
month LIBOR (or a comparable or successor rate as provided for in our loan
agreement), including applicable servicing fees, subject to certain adjustments
as outlined in the loan agreement. Interest payments are made monthly.
Collateral
The Secured Term Loan's collateral pool contains 3,334 and 3,332 homes as of
September 30, 2021 and December 31, 2020 , respectively, with a gross book value
of $799.2 million and $791.9 million , respectively, and a net book value of
$707.9 million and $719.8 million , respectively. 2019-1 IH Borrower has the
right, subject to certain requirements and
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limitations outlined in the loan agreement, to substitute properties
representing up to 20% of the collateral pool annually, and to substitute
properties representing up to 100% of the collateral pool over the life of the
Secured Term Loan. In addition, four times after the first anniversary of the
closing date, 2019-1 IH Borrower has the right, subject to certain requirements
and limitations outlined in the loan agreement, to execute a special release of
collateral representing up to 15% of the then-outstanding principal balance of
the Secured Term Loan in order to bring the loan-to-value ratio back in line
with the Secured Term Loan's loan-to-value ratio as of the closing date. Any
such special release of collateral would not change the then-outstanding
principal balance of the Secured Term Loan, but rather would reduce the number
of single-family rental homes included in the collateral pool.
Loan Covenants
The Secured Term Loan requires 2019-1 IH Borrower to maintain compliance with
certain affirmative and negative covenants. Affirmative covenants include
2019-1 IH Borrower's, and certain of its affiliates', compliance with
(i) licensing, permitting and legal requirements specified in the loan
agreement, (ii) organizational requirements of the jurisdictions in which they
are organized, (iii) federal and state tax laws, and (iv) books and records
requirements specified in the loan agreement. Negative covenants include
2019-1 IH Borrower's, and certain of its affiliates', compliance with
limitations surrounding (i) the amount of 2019-1 IH Borrower's indebtedness and
the nature of its investments, (ii) the execution of transactions with
affiliates, (iii) the Manager, (iv) the nature of 2019-1 IH Borrower's business
activities, and (v) the required maintenance of specified cash reserves. As of
September 30, 2021 , and through the date our condensed consolidated financial
statements were issued, we believe 2019-1 IH Borrower is in compliance with all
affirmative and negative covenants for the Secured Term Loan.
Prepayments
Prepayments of the Secured Term Loan are generally not permitted unless such
prepayments are made pursuant to the voluntary election or mandatory provisions
specified in the loan agreement. The specified mandatory provisions become
effective to the extent that a property becomes characterized as a disqualified
property, a property is sold, and/or upon the occurrence of a condemnation or
casualty event associated with a property. To the extent either a voluntary
election is made, or a mandatory prepayment condition exists, in addition to
paying all interest and principal, we must also pay certain breakage costs as
determined by the loan servicer and a yield maintenance premium if prepayment
occurs before June 9, 2030 . For the nine months ended September 30, 2020 , we
made mandatory prepayments of $0.1 million . No such prepayments were made during
the nine months ended September 30, 2021 .
Unsecured Notes
Our unsecured notes are issued in connection with either an underwritten public
offering pursuant to our existing shelf registration statement that
automatically became effective upon filing with the SEC in July 2021 and expires
in July 2024 or in connection with a private placement transaction with certain
institutional investors (collectively, the "Unsecured Notes"). We utilize
proceeds from the Unsecured Notes to fund: (i) repayments of then-outstanding
indebtedness, including the securitizations; (ii) closing costs in connection
with the Unsecured Notes; and (iii) general costs associated with our operations
and other corporate purposes, including acquisitions. Interest on the Unsecured
Notes is payable semi-annually in arrears.
The following table sets forth a summary of our Unsecured Notes as of
September 30, 2021 and December 31, 2020 :
September 30,
2021 2020
Total Unsecured Notes, net (1) $ 939,696 $ -
Deferred financing costs, net (7,807) -
Total $ 931,889 $ -
(1)Net of unamortized discount of
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The following activity occurred during the nine months ended September 30, 2021
with respect to the Unsecured Notes:
•On May 25, 2021 , in a private placement transaction, we issued (1) $150.0
million aggregate principal amount of 2.46% Senior Notes, Series A due May 25,
2028 and (2) $150.0 million aggregate principal amount of 3.18% Senior Notes,
Series B which mature on May 25, 2036 .
•On August 6, 2021 , in a public offering under our existing shelf registration
statement, we issued $650.0 million aggregate principal amount of 2.00% Senior
Notes which mature on August 15, 2031 .
Prepayments
The Unsecured Notes are redeemable in whole at any time or in part from time to
time, at our option, at a redemption price equal to (i) 100% of the principal
amount to be redeemed plus accrued and unpaid interest and (ii) a make-whole
premium calculated in accordance with the respective loan agreements. The
privately placed Unsecured Notes require any prepayment to be an amount not less
than 5% of the aggregate principal amount then outstanding. If any of the
Unsecured Notes issued publicly under our registration statement are redeemed on
or after the date that is three months prior to the maturity date, the
redemption price will not include a make-whole premium.
Guarantees
The Unsecured Notes are fully and unconditionally guaranteed, jointly and
severally, by INVH and two of its wholly owned subsidiaries, the General
Partner, and IH Merger Sub . Prior to the September 17, 2021 execution of a
parent guaranty agreement, the privately placed Unsecured Notes were not
guaranteed.
Loan Covenants
The Unsecured Notes issued publicly under our registration statement contain
customary covenants, including, among others, limitations on the incurrence of
debt; and they include the following financial covenants related to the
incurrence of debt: (i) an aggregate debt test; (ii) a debt service test;
(iii) a maintenance of total unencumbered assets; and (iv) a secured debt test.
The privately placed Unsecured Notes contain customary covenants, including,
among others, limitations on distributions, fundamental changes, and
transactions with affiliates; and they include the following financial
covenants, subject to certain qualifications: (i) a maximum total leverage
ratio; (ii) a maximum secured leverage ratio; (iii) a maximum unencumbered
leverage ratio; (iv) a minimum fixed charge coverage ratio; and (v) a minimum
unsecured interest coverage ratio.
The Unsecured Notes contain customary events of default (subject in certain
cases to specified cure periods), the occurrence of which would allow the
holders of notes to take various actions, including the acceleration of amounts
due under the Unsecured Notes. As of September 30, 2021 , and through the date
our condensed consolidated financial statements were issued, we believe we were
in compliance with all affirmative and negative covenants for the Unsecured
Notes.
Term Loan Facility and Revolving Facility
On December 8, 2020 , we entered into an Amended and Restated Revolving Credit
and Term Loan Agreement with a syndicate of banks, financial institutions, and
institutional lenders for a new credit facility (the "Credit Facility"). The
Credit Facility provides $3,500.0 million of borrowing capacity and consists of
the $1,000.0 million Revolving Facility and a $2,500.0 million term loan
facility (the "Term Loan Facility"), both of which mature on January 31, 2025 ,
with two six month extension options available. The Revolving Facility also
includes borrowing capacity for letters of credit. The Credit Facility provides
us with the option to enter into additional incremental credit facilities
(including an uncommitted incremental facility that provides us with the option
to increase the size of the Revolving Facility and/or the Term Loan Facility
such that the aggregate amount does not exceed $4,000.0 million at any time),
subject to certain limitations.
The Credit Facility replaced a credit facility that consisted of a
$1,000.0 million revolving facility (the "2017 Revolving Facility") and a
$1,500.0 million term loan facility (the "2017 Term Loan Facility" and together
with the 2017 Revolving Facility, the "2017 Credit Facility"). The terms and
conditions of the Credit Facility are consistent with those of the 2017 Credit
Facility unless otherwise noted below. Proceeds from the Term Loan Facility were
used to repay then-outstanding
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indebtedness, including the 2017 Term Loan Facility. Proceeds from the Revolving
Facility are used for general corporate purposes.
The following table sets forth a summary of the outstanding principal amounts
under the Credit Facility as of September 30, 2021 and December 31, 2020 ,
respectively:
Maturity Interest September 30, December 31,
($ in thousands) Date Rate(1) 2021 2020
Term Loan Facility(2) January 31, 2025 1.08% Deferred financing costs, net (23,691) (29,093) Term Loan Facility, net$ 2,476,309 $ 2,470,907 Revolving Facility(2) January 31, 2025 0.98% $ - $ - (1)Interest rates for the Term Loan Facility and the Revolving Facility are based on LIBOR plus an applicable margin. As ofSeptember 30, 2021 , the applicable margins were 1.00% and 0.90%,respectively, and LIBOR was 0.08%. (2)If we exercise the two six month extension options, the maturity date will beJanuary 31, 2026 . Interest Rate and Fees Borrowings under the Credit Facility bear interest, at our option, at a rate equal to a margin over either (a) a LIBOR rate determined by reference to the Bloomberg LIBOR rate (or a comparable or successor rate as provided for in our loan agreement) for the interest period relevant to such borrowing, or (b) a base rate determined by reference to the highest of (1) the administrative agent's prime lending rate, (2) the federal funds effective rate plus 0.50%, and (3) the LIBOR rate that would be payable on such day for a LIBOR rate loan with a one month interest period plus 1.00%. After obtaining the requisite rating on our non-credit enhanced, senior unsecured long term debt as defined in the Credit Facility agreement (the "Investment Grade Rating"), we elected to convert to a credit rating based pricing grid (the "Pricing Grid Conversion") effectiveApril 22, 2021 . The margins for the Term Loan Facility and Revolving Facility under the credit rating based pricing grid are as follows: Base Rate Loans
LIBOR Rate Loans
Term Loan Facility 0.00 % - 0.65% 0.80% - 1.65%
Revolving Facility 0.00 % - 0.45% 0.75% - 1.45%
Prior to the Pricing Grid Conversion, the margins were based on a total leverage
based grid. The margins for the Term Loan Facility, Revolving Facility, 2017
Term Loan Facility, and 2017 Revolving Facility under the total leverage based
grid were as follows:
Base Rate Loans LIBOR Rate Loans
Term Loan Facility 0.45% - 1.15% 1.45% - 2.15%
Revolving Facility 0.50% - 1.15% 1.50% - 2.15%
2017 Term Loan Facility 0.70% - 1.30% 1.70% - 2.30%
2017 Revolving Facility 0.75% - 1.30% 1.75% - 2.30%
The Credit Facility also includes a sustainability component whereby the
Revolving Facility pricing can improve upon the Company's achievement of certain
sustainability ratings, determined via an independent third party evaluation.
This sustainability feature was not included in the 2017 Revolving Facility.
In addition to paying interest on outstanding principal under the Credit
Facility, we are required to pay a facility fee ranging from 0.10% to 0.30%. We
are also required to pay customary letter of credit fees. Prior to the Pricing
Grid Conversion, instead of a facility fee, we were required to pay an unused
facility fee to the lenders under the Revolving
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Facility and the 2017 Revolving Facility in respect of the unused commitments
thereunder. The unused facility fee rate was either 0.30% or 0.20% per annum for
the Revolving Facility and 0.35% or 0.20% per annum for the 2017 Revolving
Facility.
Prepayments and Amortization
No principal reductions are required under the Credit Facility. We are permitted
to voluntarily repay amounts outstanding under the Term Loan Facility at any
time without premium or penalty, subject to certain minimum amounts and the
payment of customary "breakage" costs with respect to LIBOR loans. Once repaid,
no further borrowings will be permitted under the Term Loan Facility.
Loan Covenants
The Credit Facility contains certain customary affirmative and negative
covenants and events of default. Such covenants will, among other things,
restrict, subject to certain exceptions, our ability and that of the Subsidiary
Guarantors (as defined below) and their respective subsidiaries to (i) engage in
certain mergers, consolidations or liquidations, (ii) sell, lease or transfer
all or substantially all of their respective assets, (iii) engage in certain
transactions with affiliates, (iv) make changes to our fiscal year, (v) make
changes in the nature of our business and our subsidiaries, and (vi) enter into
certain burdensome agreements.
The Credit Facility also requires us, on a consolidated basis with our
subsidiaries, to maintain a (i) maximum total leverage ratio, (ii) maximum
secured leverage ratio, (iii) maximum unencumbered leverage ratio, (iv) minimum
fixed charge coverage ratio, and (v) minimum unsecured interest coverage ratio.
Prior to obtaining an Investment Grade Rating, we were also required to maintain
a maximum secured recourse leverage ratio. If an event of default occurs, the
lenders under the Credit Facility are entitled to take various actions,
including the acceleration of amounts due under the Credit Facility. As of
September 30, 2021 , and through the date our condensed consolidated financial
statements were issued, we believe we were in compliance with all affirmative
and negative covenants for the Credit Facility.
Guarantees and Security
After we obtained the requisite Investment Grade Rating, our direct and indirect
wholly owned subsidiaries that directly own unencumbered assets (the "Subsidiary
Guarantors") were released from their previous guarantee requirements under the
Credit Facility (the "Investment Grade Release") effective May 5, 2021 . Prior to
the Investment Grade Release, the obligations under the Credit Facility were
guaranteed on a joint and several basis by each Subsidiary Guarantor, subject to
certain exceptions.
On September 17, 2021 , as a result of the execution of a parent guaranty
agreement, the obligations under the Credit Facility became guaranteed on a
joint and several basis by INVH and two of its wholly owned subsidiaries, the
General Partner and IH Merger Sub .
Although the 2017 Credit Facility was secured, such security interests have been
released and the Credit Facility is unsecured.
Convertible Senior Notes
In connection with the Mergers, we assumed SWH's convertible senior notes. In
January 2017 , SWH issued $345.0 million in aggregate principal amount of 3.50%
convertible senior notes due 2022 (the "2022 Convertible Notes" or the
"Convertible Senior Notes"). Interest on the 2022 Convertible Notes is payable
semiannually in arrears on January 15th and July 15th of each year. The 2022
Convertible Notes will mature on January 15, 2022 .
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The following table summarizes the terms of the Convertible Senior Notes
outstanding as of
Principal Amount
Coupon Effective Conversion Maturity Remaining Amortization September 30, December 31,
($ in thousands) Rate Rate(1) Rate(2) Date Period 2021 2020
2022 Convertible Notes 3.50% 5.12% 43.9819 January 15, 2022 0.29 years $ 146,491 $ 345,000
Net unamortized fair value adjustment (673) (5,596) Total$ 145,818 $ 339,404 (1)Effective rate includes the effect of the adjustment to the fair value of the debt as of the Merger Date, the value of which reduced the initial liability recorded to$324.3 million for the 2022 Convertible Notes. (2)The conversion rate as ofSeptember 30, 2021 represents the number of shares of common stock issuable per$1,000 principal amount (actual $) of the 2022 Convertible Notes converted on such date, as adjusted in accordance with the indenture as a result of cash dividend payments and the effects of previous mergers. EffectiveJuly 15, 2021 , we notified note holders of our intent to settle conversions of the 2022 Convertible Notes in shares of common stock. Terms of Conversion As ofSeptember 30, 2021 , the conversion rate applicable to the 2022 Convertible Notes is 43.9819 shares of our common stock per$1,000 principal amount (actual $) of the 2022 Convertible Notes (equivalent to a conversion price of approximately$22.74 per common share - actual $). The conversion rate for the 2022 Convertible Notes is subject to adjustment in some events, but will not be adjusted for any accrued and unpaid interest. In addition, following certain events that occur prior to the maturity date, we will adjust the conversion rate for a holder who elects to convert its 2022 Convertible Notes in connection with such an event in certain circumstances. At any time prior toJuly 15, 2021 , holders were able to convert the 2022 Convertible Notes at their option only under specific circumstances as defined in the indenture agreement, dated as ofJanuary 10, 2017 , between us and our trustee,Wilmington Trust National Association (the "Convertible Notes Trustee"). On or afterJuly 15, 2021 and until maturity, holders may convert all or any portion of the 2022 Convertible Notes at any time. EffectiveJuly 15, 2021 , we notified note holders of our intent to settle conversions of the 2022 Convertible Notes in shares of common stock. For the three and nine months endedSeptember 30, 2021 , we settled$198.5 million and$198.5 million , respectively, of principal balance outstanding of the 2022 Convertible Notes with the issuance of 8,723,161 and 8,723,421 shares of our common stock, respectively. The "if-converted" value of the 2022 Convertible Notes exceeds the principal amount by$100.5 million as ofSeptember 30, 2021 as the closing market price of our common stock of$38.33 per common share (actual $) exceeds the implicit conversion price. For the three months endedSeptember 30, 2021 and 2020, interest expense for the 2022 Convertible Notes, including non-cash amortization of discounts, was$3.8 million and$4.3 million , respectively. For the nine months endedSeptember 30, 2021 and 2020, interest expense for the 2022 Convertible Notes, including non-cash amortization of discounts, was$12.5 million and$12.9 million , respectively. General Terms We may not redeem the 2022 Convertible Notes prior to their maturity date except to the extent necessary to preserve our status as a REIT forUnited States federal income tax purposes, as further described in the indenture. If we undergo a fundamental change as defined in the indenture, holders may require us to repurchase for cash all or any portion of their 2022 Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2022 Convertible Notes to be repurchased, plus accrued and unpaid interest up to, but excluding, the fundamental change repurchase date. The indenture contains customary terms and covenants and events of default. If an event of default occurs and is continuing, the Convertible Notes Trustee, by notice to us, or the holders of at least 25% in aggregate principal amount of the outstanding 2022 Convertible Notes, by notice to us and the Convertible Notes Trustee, may, and the Convertible Notes Trustee at the request of such holders shall, declare 100% of the principal of and accrued and unpaid interest on all the 2022 Convertible Notes to be due and payable. In the case of an event of default arising out of certain events of bankruptcy, insolvency or reorganization in respect to us (as set forth in the indenture), 100% of the principal of and accrued and unpaid interest on the 2022 Convertible Notes will automatically become due and payable. 67 -------------------------------------------------------------------------------- Certain Hedging Arrangements From time to time, we enter into derivative instruments to manage the economic risk of changes in interest rates. We do not enter into derivative transactions for speculative or trading purposes. Designated hedges are derivatives that meet the criteria for hedge accounting and that we have elected to designate as hedges. Non-designated hedges are derivatives that do not meet the criteria for hedge accounting or that we did not elect to designate as hedges. Designated Hedges We have entered into various interest rate swap agreements, which are used to hedge the variable cash flows associated with variable-rate interest payments. Currently, each of our swap agreements is indexed to one month LIBOR and is designated for hedge accounting purposes. One month LIBOR is set to expire afterJune 30, 2023 , and we will work with the counterparties to our swap agreements to adjust each floating rate to a comparable or successor rate. Changes in the fair value of these swaps are recorded in other comprehensive income and are subsequently reclassified into earnings in the period in which the hedged forecasted transactions affect earnings. The table below summarizes our interest rate swap instruments as ofSeptember 30, 2021 ($ in thousands): Forward Maturity Strike Notional Agreement Date Effective Date Date Rate Index Amount December 11, 2019 February 28, 2017 December 31, 2024 1.74% One month LIBOR$ 750,000 April 19, 2018 January 31, 2019 January 31, 2025 2.86% One month LIBOR 400,000 February 15, 2019 March 15, 2019 March 15, 2022 2.23% One month LIBOR 800,000 April 19, 2018 March 15, 2019 November 30, 2024 2.85% One month LIBOR 400,000 April 19, 2018 March 15, 2019 February 28, 2025 2.86% One month LIBOR 400,000 May 8, 2018 March 9, 2020 June 9, 2025 2.99% One month LIBOR 325,000 May 8, 2018 June 9, 2020 June 9, 2025 2.99% One month LIBOR 595,000 June 28, 2018 August 7, 2020 July 9, 2025 2.90% One month LIBOR 1,100,000 December 9, 2019 July 15, 2021 November 30, 2024 2.90% One month LIBOR 400,000 November 7, 2018 March 15, 2022 July 31, 2025 3.14% One month LIBOR 400,000 November 7, 2018 March 15, 2022 July 31, 2025 3.16% One month LIBOR 400,000 During the three and nine months endedSeptember 30, 2021 and 2020, such derivatives were used to hedge the variable cash flows associated with existing variable-rate interest payments. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. During the next 12 months, we estimate that$138.1 million will be reclassified to earnings as an increase in interest expense. Non-Designated Hedges Concurrent with entering into certain of the mortgage loan agreements and in connection with previous mergers, we entered into or acquired and maintain interest rate cap agreements with terms and notional amounts equivalent to the terms and amounts of the mortgage loans made by the third party lenders. Currently, each of our cap agreements is indexed to one month LIBOR, which is set to expire onJune 30, 2023 . We will work with the counterparties to our cap agreements to adjust each floating rate to a comparable or successor rate. To the extent that the maturity date of one or more of the mortgage loans is extended through an exercise of one or more extension options, replacement or extension interest rate cap agreements must be executed with terms similar to those associated with the initial interest rate cap agreements and strike prices equal to the greater of the interest rate cap strike price and the interest rate at which the debt service coverage ratio (as defined) is not less than 1.2 to 1.0. The interest rate cap agreements, including all of our rights to payments owed by the counterparties and all other rights, have been pledged as additional collateral for the mortgage loans. Additionally, in certain instances, in order to minimize the cash impact of purchasing required interest rate caps, we simultaneously sell interest rate caps (which have identical terms and notional amounts) such that the purchase price and sales proceeds of the related interest rate caps are intended to offset each other. The purchased and sold interest rate caps have strike prices ranging from approximately 3.75% to 7.03%. 68 -------------------------------------------------------------------------------- Purchase ofOutstanding Debt Securities or Loans As market conditions warrant, we may from time to time seek to purchase our outstanding debt or debt securities that we may issue in the future, in privately negotiated or open market transactions, by tender offer or otherwise. Subject to any applicable limitations contained in the agreements governing our indebtedness, any purchases made by us may be funded by the use of cash on our condensed consolidated balance sheet or the incurrence of new secured or unsecured debt, including borrowings under our credit facility. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases may be with respect to a substantial amount of a particular class or series of debt, with the attendant reduction in the trading liquidity of such class or series. In addition, any such purchases made at prices below the "adjusted issue price" (as defined forUnited States federal income tax purposes) may result in taxable cancellation of indebtedness income to us, which amounts may be material, and in related adverse tax consequences to us. Cash Flows Nine Months EndedSeptember 30, 2021 Compared to Nine Months EndedSeptember 30, 2020 The following table summarizes our cash flows for the nine months endedSeptember 30, 2021 and 2020: For the Nine Months Ended September 30, ($ in thousands) 2021 2020 $ Change % Change Net cash provided by operating activities$ 782,314 $ 625,672 $ 156,642 25.0 % Net cash used in investing activities (728,310) (194,375) (533,935) (274.7) % Net cash provided by financing activities 355,378 91,366 264,012 289.0 % Change in cash, cash equivalents, and restricted cash$ 409,382 $ 522,663 $ (113,281) (21.7) % Operating Activities Our cash flows provided by operating activities depend on numerous factors, including the occupancy level of our homes, the rental rates achieved on our leases, the collection of rent from our residents, and the amount of our operating and other expenses. Net cash provided by operating activities was$782.3 million and$625.7 million for the nine months endedSeptember 30, 2021 and 2020, respectively, an increase of 25.0%. The increase in cash provided by operating activities was driven by improved operational profitability, including a$101.3 million increase in total revenues net of property operating and maintenance expense from period to period and a net$58.6 million source of cash from changes in operating assets and liabilities. Investing Activities Net cash used in investing activities consists primarily of the acquisition costs of homes, capital improvements, and proceeds from property sales. Net cash used in investing activities was$728.3 million and$194.4 million for the nine months endedSeptember 30, 2021 and 2020, respectively, an increase of$533.9 million . The increase in net cash used in investing activities resulted from the combined effect of the following significant changes in cash flows during the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 : (1) an increase in cash used for the acquisition of homes; (2) a decrease in proceeds from the sale of homes; (3) an increase in cash provided by repayment proceeds from retained debt securities; (4) an increase in amounts deposited and held by others; and (5) an increase in cash used for investments in joint ventures. More specifically, acquisition spend increased$406.4 million due to an increase in the number of homes acquired from 1,195 during the nine months endedSeptember 30, 2020 to 1,977 homes during the nine months endedSeptember 30, 2021 , respectively, and an increase in cost per home. Proceeds from sales of homes decreased$151.3 million from the nine months endedSeptember 30, 2020 to the nine months endedSeptember 30, 2021 due to a significant decrease in the number of homes sold from 1,303 to 605, respectively, partially offset by an increase in proceeds per home. Cash provided by repayment proceeds from retained debt securities increased by$40.1 million primarily due to the use of proceeds from the issuance and sale of the Unsecured Notes to repay a portion of our mortgage loans. Cash deposited and held by others increased$29.6 million due to increased placement of earnest money deposits for the acquisition of single-family residential properties, including deposits made to homebuilders. Investments in joint ventures spend increased 69 --------------------------------------------------------------------------------$25.0 million due to contributions to the Rockpoint joint venture that did not occur during the nine months endedSeptember 30, 2020 . Financing Activities Net cash provided by financing activities was$355.4 million and$91.4 million for the nine months endedSeptember 30, 2021 and 2020, respectively. During the nine months endedSeptember 30, 2021 , we received$939.6 million of proceeds from the issuance and sale of the Unsecured Notes which along with available cash and proceeds from sales of homes were used to repay$964.3 million of principal on our mortgage loans, including partial repayments of IH 2017-2, IH 2018-1, IH 2018-2, IH 2018-3, and IH 2018-4. Issuances and sales of stock under our ATM Equity Program and the 2021 Public Offering generated$693.4 million of net proceeds during the nine months endedSeptember 30, 2021 . During that period, we also made$293.8 million of dividend and distribution payments. During the nine months endedSeptember 30, 2020 , issuances and sales of stock under a public offering and proceeds from our ATM Equity Program resulted in$503.8 million of proceeds, and we repaid$157.8 million of our mortgage loans, including partial repayments of IH 2018-2 and IH 2018-3. During that period, we also made$249.3 million of dividend and distribution payments. Contractual Obligations Our contractual obligations as ofSeptember 30, 2021 , consist of the following: ($ in thousands) Total 2021(1) 2022-2023 2024-2026 Thereafter Mortgage loans(2)(3)$ 4,237,783 $ 19,032 $ 151,699 $ 2,339,604 $ 1,727,448 Secured Term Loan(2) 543,571 3,618 28,944 28,944 482,065 Unsecured Notes(2) 1,172,754 5,365 42,920 42,920 1,081,549 Term Loan Facility(2)(3) 2,618,800 6,900 54,750 54,825 2,502,325 Revolving Facility(2)(3)(4) 8,800 511 4,056 4,061 172 2022 Convertible Notes(2)(5) 149,055 - 149,055 - - Derivative instruments(6) 500,157 33,732 281,128 185,297 - Purchase commitments(7) 511,635 307,335 114,628 76,147 13,525 Operating leases 15,160 1,268 7,961 4,896 1,035 Finance leases 6,805 921 5,108 776 - Total$ 9,764,520 $ 378,682 $ 840,249
$ 2,737,470 $ 5,808,119 (1)Includes estimated payments for the remaining three months of 2021. (2)Includes estimated interest payments through the extended maturity date based on the principal amount outstanding as ofSeptember 30, 2021 . Interest is calculated at rates in effect as of such date; for LIBOR based loans, theSeptember 30, 2021 LIBOR, or 0.08%, is held constant until the maturity date. (3)Represents the maturity date if we exercise each of the remaining extension options available, which are subject to certain conditions being met. See Part I. Item 1. "Financial Statements - Note 7 of Notes to Condensed Consolidated Financial Statements" for a description of maturity dates without consideration of extension options. (4)Includes the related unused commitment fee. (5)Represents the principal amount and interest obligation of the 2022 Convertible Notes which is calculated using the notes' coupon rate. The 2022 Convertible Notes principal amount of$146.5 million is included in 2022 maturities presented above. EffectiveJuly 15, 2021 , we notified note holders of our intent to settle conversions of the 2022 Convertible Notes in shares of common stock. (6)Includes interest rate swap and interest rate cap obligations calculated using LIBOR as ofSeptember 30, 2021 , or 0.08%. (7)Represents commitments to acquire 1,414 single-family rental homes, of which 520 are part of agreements with homebuilders to purchase homes with expected completion dates ranging from 2022 to 2025.
We have a commitment, which is not reflected in the table above, to make
additional capital contributions to a joint venture. As of
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Critical Accounting Policies and Estimates
Critical accounting policies are those accounting policies that management
believes are important to the portrayal of our financial condition and results
and require management's most difficult, subjective or complex judgments, often
as a result of the need to make estimates about the effect of matters that are
inherently uncertain. We believe that our critical accounting policies pertain
to our investments in single-family residential properties, including
acquisition of real estate assets, related cost capitalization, provisions for
impairment, and single-family residential properties held for sale. These
critical policies and estimates are summarized in Part II. Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in our
Annual Report on Form 10-K. There were no material changes to our critical
accounting policies during the nine months ended September 30, 2021 .
For a discussion of recently adopted accounting standards, if any, see Part I.
Item 1. "Financial Statements - Note 2 of Notes to Condensed Consolidated
Financial Statements."
Segment Reporting
Operating segments are defined as components of an enterprise for which discrete
financial information is available that is evaluated regularly by the chief
operating decision maker ("CODM") in deciding how to allocate resources and in
assessing performance. Our CODM is the Chief Executive Officer.
Under the provisions of ASC 280, Segment Reporting, we have determined that we
have one reportable segment related to acquiring, renovating, leasing, and
operating single-family homes as rental properties. The CODM evaluates operating
performance and allocates resources on a total portfolio basis. The CODM
utilizes NOI as the primary measure to evaluate performance of the total
portfolio. The aggregation of individual homes constitutes the total portfolio.
Decisions regarding acquisitions and dispositions of homes are made at the
individual home level with a focus on growing accretively in high-growth
locations where we have greater scale and density.
Non-GAAP Measures
EBITDA, EBITDAre, and Adjusted EBITDAre
EBITDA, EBITDAre, and Adjusted EBITDAre are supplemental, non-GAAP measures
often utilized to evaluate the performance of real estate companies. We define
EBITDA as net income or loss computed in accordance with GAAP before the
following items: interest expense; income tax expense; depreciation and
amortization; and adjustments for unconsolidated joint ventures. The National
Association of Real Estate Investment Trusts ("Nareit") recommends as a best
practice that REITs that report an EBITDA performance measure also report
EBITDAre. We define EBITDAre, consistent with the Nareit definition, as EBITDA,
further adjusted for the following: gain on sale of property, net of tax;
impairment on depreciated real estate investments; and adjustments for
unconsolidated joint ventures.
Adjusted EBITDAre is defined as EBITDAre before the following items: share-based
compensation expense; severance; casualty losses, net; (gains) losses on
investments in equity securities, net; and other income and expenses. EBITDA,
EBITDAre, and Adjusted EBITDAre are used as supplemental financial performance
measures by management and by external users of our financial statements, such
as investors and commercial banks. Set forth below is additional detail on how
management uses EBITDA, EBITDAre, and Adjusted EBITDAre as measures of
performance.
Our management uses EBITDA, EBITDAre, and Adjusted EBITDAre in a number of ways
to assess our condensed consolidated financial and operating performance, and we
believe these measures are helpful to management and external users in
identifying trends in our performance. EBITDA, EBITDAre, and Adjusted EBITDAre
help management identify controllable expenses and make decisions designed to
help us meet our current financial goals and optimize our financial performance,
while neutralizing the impact of capital structure on results. Accordingly, we
believe these metrics measure our financial performance based on operational
factors that management can impact in the short-term, namely our cost structure
and expenses.
We believe that the presentation of EBITDA, EBITDAre, and Adjusted EBITDAre
provides information useful to investors in assessing our financial condition
and results of operations. The GAAP measure most directly comparable to EBITDA,
EBITDAre, and Adjusted EBITDAre is net income or loss. EBITDA, EBITDAre, and
Adjusted EBITDAre are not
71
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used as measures of our liquidity and should not be considered alternatives to
net income or loss or any other measure of financial performance presented in
accordance with GAAP. Our EBITDA, EBITDAre, and Adjusted EBITDAre may not be
comparable to the EBITDA, EBITDAre, and Adjusted EBITDAre of other companies due
to the fact that not all companies use the same definitions of EBITDA, EBITDAre,
and Adjusted EBITDAre. Accordingly, there can be no assurance that our basis for
computing these non-GAAP measures is comparable with that of other companies.
The following table presents a reconciliation of net income (as determined in
accordance with GAAP) to EBITDA, EBITDAre, and Adjusted EBITDAre for each of the
periods indicated:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
($ in thousands) 2021 2020 2021 2020Net income available to common
stockholders$ 69,108 $ 32,540
Net income available to participating
securities 69 114 260 335 Non-controlling interests 318 211 1,023 806 Interest expense 79,370 87,713 243,540 258,541
Interest expense in unconsolidated joint
ventures 370 - 669 - Depreciation and amortization 150,694 138,147
440,475 410,440
Depreciation and amortization of
investments in unconsolidated joint
ventures 389 - 739 - EBITDA 300,318 258,725
873,328 795,300
Gain on sale of property, net of tax (13,047) (15,106)
(45,450) (41,473)
Impairment on depreciated real estate
investments 126 289
650 4,202
Net gain on sale of investments in
unconsolidated joint ventures (360) - (800) - EBITDAre 287,037 243,908
827,728 758,029
Share-based compensation expense(1) 6,052 6,086 21,072 12,293 Severance 226 133 500 388 Casualty losses, net 4,168 1,434 4,980 468
(Gains) losses on investments in equity
securities, net (4,319) - 5,823 (34) Other, net(2) 1,508 3,049
3,181 (2,001)
Adjusted EBITDAre$ 294,672 $ 254,610 $ 863,284 $ 769,143 (1)For the three months endedSeptember 30, 2021 and 2020,$1,277 and$1,253 was recorded in property management expense, respectively, and$4,775 and$4,833 was recorded in general and administrative expense, respectively. For the nine months endedSeptember 30, 2021 and 2020,$4,154 and$2,533 was recorded in property management expense, respectively, and$16,918 and$9,760 was recorded in general and administrative expense, respectively. (2)Includes interest income and other miscellaneous income and expenses. Net Operating Income NOI is a non-GAAP measure often used to evaluate the performance of real estate companies. We define NOI for an identified population of homes as rental revenues and other property income less property operating and maintenance expense (which consists primarily of property taxes, insurance, HOA fees (when applicable), market-level personnel expenses, repairs and maintenance, leasing costs, and marketing expense). NOI excludes: interest expense; depreciation and amortization; property management expense; general and administrative expense; impairment and other; gain on sale of property, net of tax; (gains) losses on investments in equity securities, net; other income and expenses; joint venture management fees; and income from investments in unconsolidated joint ventures. 72 -------------------------------------------------------------------------------- We consider NOI to be a meaningful supplemental financial measure of our performance when considered with the financial statements determined in accordance with GAAP. We believe NOI is helpful to investors in understanding the core performance of our real estate operations. The GAAP measure most directly comparable to NOI is net income or loss. NOI is not used as a measure of liquidity and should not be considered as an alternative to net income or loss or any other measure of financial performance presented in accordance with GAAP. Our NOI may not be comparable to the NOI of other companies due to the fact that not all companies use the same definition of NOI. Accordingly, there can be no assurance that our basis for computing this non-GAAP measure is comparable with that of other companies. We believe that Same Store NOI is also a meaningful supplemental measure of our operating performance for the same reasons as NOI and is further helpful to investors as it provides a more consistent measurement of our performance across reporting periods by reflecting NOI for homes in our Same Store portfolio. The following table presents a reconciliation of net income (as determined in accordance with GAAP) to NOI for our total portfolio and NOI for our Same Store portfolio for each of the periods indicated: For the Three Months For the Nine Months Ended September 30, Ended September 30, ($ in thousands) 2021 2020 2021 2020
Net income available to common
stockholders$ 69,108 $ 32,540
Net income available to participating
securities 69 114 260 335 Non-controlling interests 318 211 1,023 806 Interest expense 79,370 87,713 243,540 258,541 Depreciation and amortization 150,694 138,147
440,475 410,440
Property management expense(1) 17,886 14,824
51,424 43,725
General and administrative(2) 19,369 17,972
56,147 46,626
Impairment and other 4,294 1,723
5,630 4,670
Gain on sale of property, net of tax (13,047) (15,106)
(45,450) (41,473)
(Gains) losses on investments in equity
securities, net (4,319) - 5,823 (34) Other, net(3) 1,508 3,049
3,181 (2,001)
Joint venture management fees (1,354) - (3,140) -
Income from investments in
unconsolidated joint ventures (202) - (564) - NOI (total portfolio) 323,694 281,187 944,971 846,813 Non-Same Store NOI (33,192) (21,676) (90,786) (57,994) NOI (Same Store portfolio)(4)$ 290,502 $ 259,511 $ 854,185 $ 788,819 (1)Includes$1,277 and$1,253 of share-based compensation expense for the three months endedSeptember 30, 2021 and 2020, respectively. Includes$4,154 and$2,533 of share-based compensation expense for the nine months endedSeptember 30, 2021 and 2020, respectively. (2)Includes$4,775 and$4,833 of share-based compensation expense for the three months endedSeptember 30, 2021 and 2020, respectively. Includes$16,918 and$9,760 of share-based compensation expense for the nine months endedSeptember 30, 2021 and 2020, respectively. (3)Includes interest income and other miscellaneous income and expenses. (4)The Same Store portfolio totaled 72,423 homes for the nine months endedSeptember 30, 2021 and 2020. Funds from Operations, Core Funds from Operations, and Adjusted Funds from Operations Funds From Operations ("FFO"), Core FFO, and Adjusted FFO are supplemental, non-GAAP measures often utilized to evaluate the performance of real estate companies. FFO is defined by Nareit as net income or loss (computed in accordance with GAAP) excluding gains or losses from sales of previously depreciated real estate assets, plus depreciation, amortization and impairment of real estate assets, and adjustments for unconsolidated joint ventures. 73 -------------------------------------------------------------------------------- We believe that FFO is a meaningful supplemental measure of the operating performance of our business because historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time, as reflected through depreciation and amortization. Because real estate values have historically risen or fallen with market conditions, management considers FFO an appropriate supplemental performance measure as it excludes historical cost depreciation and amortization, impairment on depreciated real estate investments, gains or losses related to sales of previously depreciated homes, as well non-controlling interests, from net income or loss (computed in accordance with GAAP). By excluding depreciation and amortization and gains or losses on sales of real estate, management uses FFO to measure returns on its investments in homes. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of the homes that result from use or market conditions nor the level of capital expenditures to maintain the operating performance of the homes, all of which have real economic effect and could materially affect our results from operations, the utility of FFO as a measure of our performance is limited. Management also believes that FFO, combined with the required GAAP presentations, is useful to investors in providing more meaningful comparisons of the operating performance of a company's real estate between periods or as compared to other companies. The GAAP measure most directly comparable to FFO is net income or loss. FFO is not used as a measure of our liquidity and should not be considered an alternative to net income or loss or any other measure of financial performance presented in accordance with GAAP. Our FFO may not be comparable to the FFO of other companies due to the fact that not all companies use the same definition of FFO. Accordingly, there can be no assurance that our basis for computing this non-GAAP measures is comparable with that of other companies. We believe that Core FFO and Adjusted FFO are also meaningful supplemental measures of our operating performance for the same reasons as FFO and are further helpful to investors as they provide a more consistent measurement of our performance across reporting periods by removing the impact of certain items that are not comparable from period to period. We define Core FFO as FFO adjusted for the following: non-cash interest expense related to amortization of deferred financing costs, loan discounts, and non-cash interest expense from derivatives; share-based compensation expense; severance expense; casualty losses, net; and (gains) losses on investments in equity securities, net, as applicable. We define Adjusted FFO as Core FFO less recurring capital expenditures, including adjustments for unconsolidated joint ventures, that are necessary to help preserve the value, and maintain the functionality, of our homes. The GAAP measure most directly comparable to Core FFO and Adjusted FFO is net income or loss. Core FFO and Adjusted FFO are not used as measures of our liquidity and should not be considered alternatives to net income or loss or any other measure of financial performance presented in accordance with GAAP. Our Core FFO and Adjusted FFO may not be comparable to the Core FFO and Adjusted FFO of other companies due to the fact that not all companies use the same definition of Core FFO and Adjusted FFO. No adjustments were made to the Core FFO and Adjusted FFO per common share - diluted computations for potential shares of common stock related to the Convertible Senior Notes. Accordingly, there can be no assurance that our basis for computing this non-GAAP measures is comparable with that of other companies. 74 -------------------------------------------------------------------------------- The following table presents a reconciliation of net income (as determined in accordance with GAAP) to FFO, Core FFO, and Adjusted FFO for each of the periods indicated: For the Three Months For the Nine Months Ended September 30, Ended September 30, (in thousands, except shares and per share data) 2021 2020 2021 2020 Net income available to common stockholders$ 69,108 $ 32,540 $ 186,622 $ 125,178 Add (deduct) adjustments from net income to derive FFO: Net income available to participating securities 69 114 260 335 Non-controlling interests 318 211 1,023 806 Depreciation and amortization on real estate assets 148,957 136,517 435,348 406,078 Impairment on depreciated real estate investments 126 289 650 4,202 Net gain on sale of previously depreciated investments in real estate (13,047) (15,106) (45,450) (41,473) Depreciation and net gain on sale of investments in unconsolidated joint ventures 29 - (61) - FFO 205,560 154,565 578,392 495,126 Non-cash interest expense related to amortization of deferred financing costs, loan discounts, and non-cash interest expense from derivatives, including our share from unconsolidated joint ventures 9,004 6,883 25,791 26,640 Share-based compensation expense(1) 6,052 6,086 21,072 12,293 Severance expense 226 133 500 388 Casualty losses, net 4,168 1,434 4,980 468 (Gains) losses on investments in equity securities, net (4,319) - 5,823 (34) Core FFO 220,691 169,101 636,558 534,881 Recurring capital expenditures, including our share from unconsolidated joint ventures (36,248) (33,861) (89,437) (87,466) Adjusted FFO$ 184,443 $ 135,240 $ 547,121 $ 447,415
Net income available to common stockholders Weighted average common shares outstanding - diluted(2)(3)(4) 578,571,392 561,871,373
572,262,198 551,947,278
Net income per common share - diluted(2)(3)(4) $ 0.12$ 0.06 $ 0.33$ 0.23 FFO Numerator for FFO per common share - diluted(2)$ 205,560 $ 154,565 $ 590,923 $ 507,995 Weighted average common shares and OP Units outstanding - diluted(2)(3)(4) 581,333,229 565,655,768
588,603,771 570,851,976
FFO per common share - diluted(2)(3)(4) $ 0.35$ 0.27 $ 1.00$ 0.89 Core FFO and Adjusted FFO Weighted average common shares and OP Units outstanding - diluted(2)(3)(4) 581,333,229 565,655,768
575,639,449 555,751,533
Core FFO per common share - diluted(2)(3)(4) $ 0.38$ 0.30 $ 1.11$ 0.96 AFFO per common share - diluted(2)(3)(4) $ 0.32$ 0.24 $ 0.95$ 0.81 (1)For the three months endedSeptember 30, 2021 and 2020,$1,277 and$1,253 was recorded in property management expense, respectively, and$4,775 and$4,833 was recorded in general and administrative expense, respectively. For the nine months endedSeptember 30, 2021 and 2020,$4,154 and$2,533 was recorded in property management expense, respectively, and$16,918 and$9,760 was recorded in general and administrative expense, respectively. 75
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(2)During the three and nine months endedSeptember 30, 2021 , at the election of the noteholders, we settled$198,503 and$198,509 , respectively, of principal outstanding for the 2022 Convertible Notes with the issuance of 8,723,161 and 8,723,421 shares of common stock, respectively. These issued shares of common stock are included within all net income, FFO, Core FFO, and AFFO per common share calculations subsequent to the conversion date. For the three and nine months endedSeptember 30, 2021 , using the "if-converted" method, 8,632,132 and 12,964,322 potential shares of common stock issuable upon the conversion of the 2022 Convertible Notes, respectively, are excluded from the computation of net income per common share - diluted as they are anti-dilutive. For the three and nine months endedSeptember 30, 2020 , using the "if-converted" method, 15,100,443 potential shares of common stock issuable upon the conversion of the 2022 Convertible Notes are excluded from the computation of net income per common share - diluted as they are anti-dilutive. For the nine months endedSeptember 30, 2021 and 2020, the numerator for FFO per common share - diluted is adjusted for interest expense on the 2022 Convertible Notes, including non-cash amortization of discounts, totaling$12,531 and$12,869 , respectively, and the denominator is adjusted for 12,964,322 and 15,100,443 potential shares of common stock issuable upon the conversion of the 2022 Convertible Notes, respectively. No such adjustments were made to Core FFO and AFFO per common share -diluted for the nine months endedSeptember 30, 2021 and 2020. For the three months endedSeptember 30, 2021 and 2020, 8,632,132 and 15,100,443 potential shares of common stock issuable upon the conversion of the 2022 Convertible Notes, respectively, are excluded from the computation of FFO per common share - diluted as they are anti-dilutive and are excluded from Core FFO and AFFO per common share - diluted. (3)Incremental shares attributed to non-vested share-based awards totaling 1,560,214 and 1,272,378 shares for the three months endedSeptember 30, 2021 and 2020, respectively, and 1,454,170 and 1,224,594 for the nine months endedSeptember 30, 2021 and 2020, respectively, are included in weighted average common shares outstanding in the calculation of net income per common share - diluted. For the computations of FFO, Core FFO, and AFFO per common share - diluted, common share equivalents of 1,783,766 and 1,593,488 for the three months endedSeptember 30, 2021 and 2020, respectively, and 1,756,872 and 1,565,564 for the nine months endedSeptember 30, 2021 and 2020, respectively, related to incremental shares attributed to non-vested share-based awards are included in the denominator. (4)Vested units of partnership interests inINVH LP ("OP Units") have been excluded from the computation of net income per common share - diluted for the periods above because all net income attributable to the vested OP Units has been recorded as non-controlling interest and thus excluded from net income available to common stockholders. Weighted average vested OP Units of 2,538,285 and 3,463,285 for the three months endedSeptember 30, 2021 and 2020, respectively, and 3,074,549 and 3,463,285 for the nine months endedSeptember 30, 2021 and 2020, respectively, are included in the denominator for the computations of FFO, Core FFO, and AFFO per common share - diluted.
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