Key Takeaways: Long Bias name INVH reported a modest beat-and-raise for 2Q21, but the story in our opinion is really on the blended leasing spread figure which is arguably the most important forward-looking metric in an accelerating rental rate growth environment. Some highlights:
- Core FFO of $0.37 was $0.02/share ahead of Hedgeye and the Street - our SSRev and SSExp forecasts were more or less in-line for the quarter driving a penny each of upside, with non-same store results driving an additional $0.01/share of upside offset by a $0.01/share drag from higher property management and G&A expenses. So taken together basically right down the middle
- The FY21 guidance raise was modest and conservative, with Core FFO taken up +1.4% at the midpoint to $1.44 which matches our model coming into the quarter. We expect additional beat-and-raises through the balance of the year, as the degree of market rate growth + additional flexibility to drive expiring tenant rents up to market rents + lower bad debt expense likely translates to a FY21 Core FFO number in the high-$1.40/share range. We think the market likely sees this already and assumes guidance is conservative
- What is far more interesting in our opinion is the degree to which blended leasing spreads are accelerating and going parabolic, given that this is a forward-looking metric as opposed to a coincident or backward-looking indicator. We talked about this as it relates to Best Idea Long AMH and this should be considered a positive read-across, but +8% blended leasing spreads likely means that INVH will be growing in-place rents in the high-single-digit range in FY22. The +8% was split +13.8% on new leases and importantly a +140bps sequential acceleration to +5.8% on renewals with turnover now in the mid-20% range versus mid-30% historically. We are roughly +6% above the Street on our current FY22 Core FFO estimates coming into the print with average in-place rents growing +5% next year, so we definitely need to move numbers higher after the 10-Q filing and it is almost impossible to not see Consensus doing the same
Figure 1: INVH 2Q21 Earnings Variances:
Figure 2: INVH Blended Leasing Spreads:
Please call or e-mail with any questions.
Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
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