Among most real estate investment trusts (REITs), rent collections due to COVID-19 disruptions have been a worry. Retail REITs have created the most concern, although apartment REITs and office REITs are generating worries as well.
So far, the worst fears regarding rental non-payment have not been borne out. With single-family REITs, companies like Invitation Homes (NYSE:INVH) are in an enviable position, with consumer tastes shifting to single-family suburban living. Home prices are also rising, which helps the company raise rents and also earn gains on sale.
Single-family rental REITs are consolidating what has always been an industry dominated by small landlords who own a couple of properties. For a long time, scale was difficult to achieve, but the single-family REITs have figured out how.
Rental collections are back to historic norms
For Invitation Homes, rent collections improved steadily during the quarter, and the company said that June and July collections were right around historical levels. Occupancy rates were at a record 97.5%, and the company resumed its investment in single-family homes after pausing acquisition activity from March to May.
Part of this is driven by the markets in which Invitation operates. The company said that household formation rates in the Sunbelt and Coastal U.S. markets are twice the national average, so Invitation Homes is increasing investment there. In the second quarter, Invitation bought 147 properties for $46 million. Year to date, the company has acquired 650 homes and sold 900.
The COVID-19 effect is real
COVID-19 has been a major influence on consumer decisions. On the earnings conference call, Invitation Homes CEO Dallas Tanner described what surveys are saying about the current mindset of potential renters:
The ripple effects of COVID-19 seem to be intensifying a shift in preferences toward single-family space over denser housing options today. In fact, we've begun surveying residents upon move-ins to learn more about how the pandemic may be influencing things [about] their housing decisions. Approximately 30% of the over 500 survey respondents who moved into our homes in April and May, moved from denser urban areas to our homes and approximately 30% said COVID-19 increased their desire to live in a single-family home versus an apartment or a town home.
Rent inflation is back
Invitation Homes is seeing accelerated rental growth driven by higher demand. During the early months of the pandemic, Invitation was offering rent concessions to try to maintain occupancy numbers. Over the past several months, rental inflation was in the 3%-3.5% range. For August and September, Invitation's "ask" increases are 5% and above.
In the second quarter, Invitation reported earnings per share of $0.08, a 14% increase from the year-earlier period. Funds from Operations (FFO) rose 7% to $0.30 per share. Note that Invitation waived late fees for April and was slowly trying to reintroduce them in May and June. This depressed revenues a touch. Invitation Homes stock is roughly flat for the year, which compares well to most stocks in the financial sector. The company pays a $0.60 dividend per share, which works out to a 2% yield.
Invitation Homes is still not quite ready to provide guidance for the rest of the year, but it remains confident in the future. Its stock trades at 27 times 2019 funds from operations. This is generally on the high side, but single-family rental REITs are disrupting the industry, and that trend is only just beginning.