# Invitation Homes Inc. (INVH) FY 2022 MD&A Verbatim Item 7 Management's Discussion and Analysis from Invitation Homes Inc.'s 10-K for fiscal year 2022. SEC filing source: https://www.sec.gov/Archives/edgar/data/1687229/000168722923000029/invh-20221231.htm Accession: 0001687229-23-000029 Filing date: 2023-02-22 Report date: 2022-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/INVH/ All MD&A years: /company/INVH/mda/ Previous year: /company/INVH/mda/fy2021/ (FY 2021) Next year: /company/INVH/mda/fy2023/ (FY 2023) ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with Part I. Item 1. “Business” and the consolidated financial statements, including the notes thereto, that are included elsewhere in this 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,” “Forward-Looking Statements,” or in other parts of this report. For similar operating and financial data and discussion of our year ended December 31, 2021 results compared to our year ended December 31, 2020 results, refer to Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K which was filed with the SEC on February 22, 2022 (the “2021 10-K”). The sections entitled “Result of Operations — Year Ended December 31, 2021 Compared to Year Ended December 31, 2020” and “Cash Flows — Year Ended December 31, 2021 Compared to Year Ended December 31, 2020” in Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Result of Operations” of our 2021 10-K are incorporated herein by reference. Capitalized terms used without definition have the meaning provided elsewhere in this Annual Report on Form 10-K. Overview Invitation Homes is a leading owner and operator of single-family homes for lease, offering residents high-quality homes in sought-after neighborhoods across the United States. With over 80,000 homes for lease in 16 markets across the country as of December 31, 2022, we are meeting the needs of a growing share of Americans who prefer the ease of a leasing lifestyle over the burden of owning a home. We provide our residents access to updated homes with features they value, as well as close proximity to jobs and access to good schools. The continued demand for our product proves that the choice and flexibility we offer is attractive to many prospective residents. We operate in markets with strong demand drivers, high barriers to entry, and high rent growth potential, primarily in the Western United States, Florida, and the Southeast 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. 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 a 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. At Invitation Homes, we are committed to creating a better way to live and to being a force for positive change, while at the same time advancing efforts that make our company more innovative and our processes more sustainable. ESG initiatives are an important part of our strategic business objectives and are critical to our long-term success. Our mission statement, “Together with you, we make a house a home,” reflects our commitment to high-touch customer service that continuously enhances residents’ living experiences and provides homes where individuals and families can thrive. Each aspect of our operations — whether in our corporate headquarters or field offices located in our 16 markets — is driven by a resident-centric model. Our associates take our values seriously and work hard every day to honor the trust our residents have placed in us to provide clean, safe, and functional homes for them and their loved ones. In turn, we focus on ensuring that our associates are fairly compensated and that we provide a diverse, equitable, and inclusive culture where they are appreciated for who they are and what they bring to the business. We also place a strong emphasis on the impact we have in our communities and to the environment in general, and we continue to develop programs that demonstrate that commitment. In addition, we ensure that we operate under strong, well-defined governance practices and adhere to the highest ethical standards at all times. 53 Impact of Macroeconomic Trends Overall unfavorable global and United States economic conditions (including inflation and interest rates), uncertainty in financial markets, ongoing geopolitical tensions, and a general decline in business activity and/or consumer confidence could adversely affect (i) our ability to acquire or dispose of single-family homes, (ii) our access to financial markets on attractive terms, or at all, and (iii) the value of our homes and our business that could cause us to recognize impairments in value of our tangible assets or goodwill. High levels of inflation and interest rates may also negatively impact consumer income, credit availability, and spending, among other factors, which may adversely impact our business, financial condition, cash flows, and results of operations, including the ability of our residents to pay rent. These factors, which include supply chain disruptions, labor shortages, and inflationary increases in labor and material costs, have impacted and may continue to impact certain aspects of our business. For example, we have experienced higher levels of bad debt expense, which we believe is driven in part by declining availability of rent assistance payments as many COVID-related programs begin to wind down, as well as ordinances in certain markets which restrict residential lease compliance options. We expect that our bad debt expense will remain elevated compared to pre-COVID averages, as it continues to take longer to address residents who are not current with their rent. To offset the impacts of increasing inflation, since March 2022 the Federal Open Market Committee has raised short-term interest rates a total of 425 bps to a target range of 4.25% to 4.50% as of December 31, 2022. The committee has signaled that it expects to make additional rate increases. For further discussion of risks related to general economic conditions, see Part I. Item 1A. “Risk Factors — Risks Related to Our Business and Industry — Our operating results are subject to general economic conditions and risks associated with our real estate assets” in this Annual Report on Form 10-K. Climate Change Climate change continues to attract considerable public, political, and scientific attention. Experiencing or addressing the various physical, regulatory, and adaptation/transition risks of climate change may affect our profitability. Government authorities, including the SEC, and various interest groups are promoting laws and regulations relating to climate change, including regulations aimed at drastically increasing reporting and governance related to climate change as well as focused on limiting greenhouse gas emissions and the implementation of “green” building codes. These laws and regulations may require us to make costly improvements to our existing properties beyond our current plans to decrease the impact of our homes on the environment, resulting in increased operating costs. Implementation of any voluntary improvements requires consideration of multiple factors, including whether such elections would raise our costs to maintain our homes. Alternatively, choosing not to enhance our homes’ resource efficiency could make our portfolio less attractive to residents and investors and/or increase the vulnerability of our residents to rising energy and water expenses and use restrictions. We may also incur additional expenses as a result of regulations requiring additional detailed climate-related disclosures, including regarding greenhouse gas emissions. We recognize that climate change could have a significant impact on our portfolio of homes located in a variety of United States markets and that an increase in the number of acute weather events, natural disasters, and other climate-related events could significantly impact our business, operations, and homes. We actively consider physical risks such as the potential for natural disasters such as hurricanes, floods, droughts, and wildfires when assessing our portfolio of homes and our business processes. We take a proactive approach to protect our properties against potential risks related to climate change and business interruptions, and we recognize that we must continue to adapt our policies, objectives, and processes to prepare for such events and improve the resiliency of our physical properties and our business. Our management and the Board of Directors are focused on managing our business risks, including climate change-related risks. The process to identify, manage, and integrate climate-change risk is part of our enterprise risk management program. For more information on risks related to climate change, see Part I. Item 1A. “Risk Factors — Risks Related to Environmental, Social, and Governance Issues — Climate change and related environmental issues, related legislative and regulatory responses to climate change, and the transition to a lower-carbon economy may adversely affect our business, — We are subject to risks from natural disasters such as earthquakes, wildfires, and severe weather, and — We are subject to increasing scrutiny from investors and others regarding our environmental, social, governance, or sustainability responsibilities, which could result in additional costs or risks and adversely impact our reputation, associate retention, and ability to raise capital from such investors” in this Annual Report on Form 10-K. 54 Other Matters In July 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. In October 2021 and January 2022, we received additional congressional inquiries requesting information about our activities in the housing market. We have responded to and have cooperated with these inquiries and information requests. In August 2021, we received a letter from the staff of the Federal 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 responding to and cooperating with this request. In January 2023, we received an inquiry from the staff of the SEC requesting information relating to our compliance with building codes and permitting requirements, related policies and procedures, and other matters. We are in the process of responding to and cooperating with this request. We cannot currently predict the timing, outcome, or scope of the ongoing inquiries. 55 Our Portfolio The following table provides summary information regarding our total and Same Store portfolios as of and for the year ended December 31, 2022 as noted below: [[GREPCENT_TABLE]] [["Market","","Number of Homes(1)","","Average Occupancy(2)","","Average Monthly Rent(3)","","Average Monthly Rent PSF(3)","","% of Revenue(4)"],["Western United States:"],["Southern California","","7,776","","97.6%","","$2,808","","$1.65","","11.9","%"],["Northern California","","4,440","","95.1%","","2,511","","1.61","","6.1","%"],["Seattle","","4,084","","92.2%","","2,626","","1.37","","5.8","%"],["Phoenix","","8,914","","95.4%","","1,836","","1.10","","9.3","%"],["Las Vegas","","3,180","","95.3%","","2,045","","1.03","","3.6","%"],["Denver","","2,670","","89.6%","","2,374","","1.30","","3.4","%"],["Western United States Subtotal","","31,064","","95.0%","","2,350","","1.35","","40.1","%"],["Florida:"],["South Florida","","8,402","","97.3%","","2,607","","1.40","","12.2","%"],["Tampa","","8,637","","96.6%","","2,031","","1.09","","9.9","%"],["Orlando","","6,457","","97.1%","","1,993","","1.07","","7.3","%"],["Jacksonville","","1,928","","97.0%","","1,991","","1.00","","2.2","%"],["Florida Subtotal","","25,424","","97.0%","","2,209","","1.18","","31.6","%"],["Southeast United States:"],["Atlanta","","12,657","","96.8%","","1,813","","0.88","","13.0","%"],["Carolinas","","5,359","","95.5%","","1,860","","0.87","","5.5","%"],["Southeast United States Subtotal","","18,016","","96.4%","","1,827","","0.88","","18.5","%"],["Texas:"],["Houston","","2,104","","96.5%","","1,736","","0.90","","2.1","%"],["Dallas","","2,869","","95.2%","","2,042","","0.99","","3.3","%"],["Texas Subtotal","","4,973","","95.7%","","1,911","","0.95","","5.4","%"],["Midwest United States:"],["Chicago","","2,527","","97.4%","","2,171","","1.35","","3.0","%"],["Minneapolis","","1,109","","95.9%","","2,143","","1.09","","1.4","%"],["Midwest United States Subtotal","","3,636","","96.9%","","2,163","","1.26","","4.4","%"],["Total / Average","","83,113","","96.0%","","$2,158","","$1.15","","100.0","%"],["Same Store Total / Average","","74,646","","97.7%","","$2,151","","$1.15","","91.2","%"]] [[/GREPCENT_TABLE]] (1)As of December 31, 2022. (2)Represents average occupancy for the year ended December 31, 2022. (3)Represents average monthly rent for the year ended December 31, 2022. (4)Represents the percentage of rental revenues and other property income generated in each market for the year ended December 31, 2022. 56 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” 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 current macroeconomic conditions, including rapidly accelerating economic inflation and increasing interest rates. Market Fundamentals: Our results are impacted by housing market fundamentals and supply and demand conditions in our markets, particularly in the Western United States and Florida, which represented 71.7% of our rental revenues and other property income during the year ended December 31, 2022. We actively monitor the impact of macroeconomic conditions 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. Collection Rates: Our rental revenues and other property income are impacted by the rate at which we collect such revenues from our residents. Despite our efforts to assist residents facing financial hardships who need flexibility to fulfill their lease obligations, a portion of amounts receivable may not ultimately be collected. We may also be constrained in our ability to collect resident receivables due to local ordinances restricting residential lease compliance options. 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, 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, and both current economic conditions and future economic outlook, including the impact of rising inflation and interest rates which could adversely affect demand for our properties. 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. As a result of current inflationary trends, we have experienced, and expect to continue to incur, increased costs for certain materials and services necessary to improve and maintain our homes. We continue to actively manage the impact of inflation on these costs, and we believe we are able to purchase goods and services at favorable prices compared to other purchasers due to our size and scale both nationally and locally. 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 current inflationary trends and rising interest rates, 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 57 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, 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 have increased the time required to renovate our homes. As a result of current inflationary trends, we have experienced, and expect to continue to incur, increased costs for certain materials and services necessary to renovate our homes. We continue to actively manage the impact of inflation on the cost of renovations, and we believe we are able to purchase goods and services at favorable prices compared to other purchasers due to our size and scale both nationally and locally. 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 other terms and conditions, including variable interest rates in some cases, that are impacted by market conditions. Current macroeconomic conditions may continue to negatively affect volatility, availability of funds, and transaction costs (including interest rates) within financial markets. These factors may also negatively affect our ability to access financial markets as well as our business, results of operations, and financial condition. See Part II. Item 7A. “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 and lease termination fees, among others. Management Fee Revenues Management fee revenues consist of asset and property management fees from our unconsolidated joint ventures. 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, 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. 58 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 We issue share-based awards to align the interests of our associates with those of our investors, and all share-based compensation expense is recognized in our consolidated statements of operations as components of general and administrative expense and property management expense. 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 in Equity 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 recognized upon 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. Income (Loss) from Investments in Unconsolidated Joint Ventures Income (loss) 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. 59 Results of Operations Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table sets forth a comparison of the results of operations for the years ended December 31, 2022 and 2021: [[GREPCENT_TABLE]] [["","","For the Years Ended December 31,"],["($ in thousands)","","2022","","2021","","$ Change","","% Change"],["Revenues:"],["Rental revenues and other property income","","$","2,226,641","","","$","1,991,722","","","$","234,919","","","11.8","%"],["Management fee revenues","","11,480","","","4,893","","","6,587","","","134.6","%"],["Total revenues","","2,238,121","","","1,996,615","","","241,506","","","12.1","%"],["Expenses:"],["Property operating and maintenance","","786,351","","","706,162","","","80,189","","","11.4","%"],["Property management expense","","87,936","","","71,597","","","16,339","","","22.8","%"],["General and administrative","","74,025","","","75,815","","","(1,790)","","","(2.4)","%"],["Interest expense","","304,092","","","322,661","","","(18,569)","","","(5.8)","%"],["Depreciation and amortization","","638,114","","","592,135","","","45,979","","","7.8","%"],["Impairment and other","","28,697","","","8,676","","","20,021","","","230.8","%"],["Total expenses","","1,919,215","","","1,777,046","","","142,169","","","8.0","%"],["Losses on investments in equity securities, net","","(3,939)","","","(9,420)","","","5,481","","","58.2","%"],["Other, net","","(11,261)","","","(5,835)","","","(5,426)","","","(93.0)","%"],["Gain on sale of property, net of tax","","90,699","","","60,008","","","30,691","","","51.1","%"],["Losses from investments in unconsolidated joint ventures","","(9,606)","","","(1,546)","","","(8,060)","","","(521.3)","%"],["Net income","","$","384,799","","","$","262,776","","","$","122,023","","","46.4","%"]] [[/GREPCENT_TABLE]] Portfolio Information As of December 31, 2022 and 2021, we owned 83,113 and 82,381 single-family rental homes, respectively, in our total portfolio. During the years ended December 31, 2022 and 2021, we acquired 1,423 and 2,938 homes, respectively, and sold 691 and 734 homes, respectively. During the years ended December 31, 2022 and 2021, we owned an average of 82,929 and 80,901 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 of December 31, 2022, our Same Store portfolio consisted of 74,646 single-family rental homes. Revenues For the years ended December 31, 2022 and 2021, total revenues were $2,238.1 million and $1,996.6 million, respectively. Set forth below is a discussion of changes in the individual components of total revenues. For the years ended December 31, 2022 and 2021, total portfolio rental revenues and other property income totaled $2,226.6 million and $1,991.7 million, respectively, an increase of 11.8%, driven by an increase in average monthly rent per occupied home and a 2,028 home increase between periods in the average number of homes owned, partially offset by a 100 bps reduction in occupancy. 60 Average occupancy for the years ended December 31, 2022 and 2021 for the total portfolio was 96.0% and 97.0%, respectively. Average monthly rent per occupied home for the total portfolio for the years ended December 31, 2022 and 2021 was $2,158 and $1,972, respectively, a 9.4% increase. For our Same Store portfolio, average occupancy was 97.7% and 98.2% for the years ended December 31, 2022 and 2021, respectively, and average monthly rent per occupied home for the years ended December 31, 2022 and 2021 was $2,151 and $1,970, respectively, a 9.2% increase. The annual turnover rate for the Same Store portfolio for the years ended December 31, 2022 and 2021 was 21.8% and 23.1%, respectively. For the Same Store portfolio, an average home remained unoccupied for 37 and 27 days between residents for the years ended December 31, 2022 and 2021, respectively. The decrease in annual turnover only partially offset the increase in days to re-resident resulting in an overall decrease in average occupancy on a year over year basis. During the years ended December 31, 2022 and 2021, our turnover rate may have been impacted by the effects of the COVID-19 pandemic (e.g., eviction moratoriums and residents who were not inclined to relocate during a pandemic). These moratoriums have now generally been lifted in the vast majority of our markets. 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 9.9% and 6.7% for the years ended December 31, 2022 and 2021, respectively, and new lease net effective rental rate growth for the total portfolio averaged 13.1% and 14.3% for the years ended December 31, 2022 and 2021, respectively. For our Same Store portfolio, renewal lease net effective rental rate growth averaged 10.0% and 6.7% for the years ended December 31, 2022 and 2021, respectively, and new lease net effective rental rate growth averaged 13.5% and 14.4% for the years ended December 31, 2022 and 2021, respectively. Other property income for the year ended December 31, 2022 increased compared to December 31, 2021, primarily due to increased utility billbacks as new leases are entered into, increased collections of late fees, and enhanced ancillary revenue programs, among other things. For the years ended December 31, 2022 and 2021, management fee revenues totaled $11.5 million and $4.9 million, respectively. These fees increased as a result of the formation of new joint ventures and an increase in the number of homes generating revenues within our joint ventures. Expenses For the years ended December 31, 2022 and 2021, total expenses were $1,919.2 million and $1,777.0 million, respectively. Set forth below is a discussion of changes in the individual components of total expenses. For the year ended December 31, 2022, property operating and maintenance expense increased to $786.4 million from $706.2 million for the year ended December 31, 2021. In addition to a 2,028 home increase between periods in the average number of homes owned, increases in property taxes, repairs and maintenance, utilities, and property administrative costs resulted in the overall 11.4% net increase in property operating and maintenance expense. Property management expense and general and administrative expense increased to $162.0 million from $147.4 million for the years ended December 31, 2022 and 2021, respectively. The increase is primarily due to increased property management expense, including personnel and technology costs related to expansion of our platform that provides services to both our wholly owned portfolio and our joint ventures. Interest expense decreased from $322.7 million for the year ended December 31, 2021 to $304.1 million for the year ended December 31, 2022. The decrease in interest expense was primarily due to refinancing activities since December 31, 2021. The $228.7 million decrease in gross debt outstanding from December 31, 2021 to December 31, 2022 was partially offset by a 18 bps increase in our weighted average interest rate at each period end. Depreciation and amortization expense increased to $638.1 million for the year ended December 31, 2022 from $592.1 million for the year ended December 31, 2021 due to an increase in cumulative capital expenditures and an increase in the average number of homes owned during the year ended December 31, 2022 compared to the year ended December 31, 2021. 61 Impairment and other expenses were $28.7 million and $8.7 million for the years ended December 31, 2022 and 2021, respectively. During the year ended December 31, 2022, impairment and other expenses were comprised of net casualty losses of $28.4 million, including the recognition of $24.0 million for estimated losses and damages related to Hurricanes Ian and Nicole, net of estimated insurance proceeds, and impairment losses of $0.3 million on our single-family residential properties. During the year ended December 31, 2021, impairment and other expenses were comprised of net casualty losses of $8.0 million and impairment losses of $0.7 million on our single-family residential properties. Losses on Investments in Equity Securities, net For the year ended December 31, 2022, losses on investments in equity securities, net of $3.9 million was comprised of $7.2 million of unrealized losses from reversals of previously recorded unrealized gains on equity securities sold during the period and marking investments still held at period end to market, partially offset by a $3.3 million gain from the sale of equity securities compared to the actual amount originally invested. For the year ended December 31, 2021, $9.4 million of losses on investments in equity securities, net was comprised of $5.5 million of net losses recognized on investments sold during the year, including the reversal of unrealized gains recognized during the year ended December 31, 2020, and $3.9 million net unrealized losses recognized on investments held as of December 31, 2021. Other, net Other, net increased to $11.3 million for the year ended December 31, 2022 from $5.8 million for the year ended December 31, 2021, primarily due to a global settlement of a multistate putative class action regarding resident late fees in 2022 and other increases in administrative costs between those periods. The global settlement remains subject to court approval. Gain on Sale of Property, net of tax Gain on sale of property, net of tax was $90.7 million and $60.0 million for the years ended December 31, 2022 and 2021, respectively. The primary driver of the increase was an increase in disposition proceeds received per home between periods, partially offset by a decrease in the number of homes sold from 734 for the year ended December 31, 2021 to 691 for the year ended December 31, 2022. Losses from Investments in Unconsolidated Joint Ventures Our share of equity in earnings and/or losses from unconsolidated joint ventures was a loss of $9.6 million for the year ended December 31, 2022 compared to a loss of $1.5 million for the year ended December 31, 2021. This change is a result of the formation of and commencement of operations in new joint ventures, an increase in the number of homes within our joint venture investments, and the incurrence of interest expense on new financing arrangements within the joint venture investments. These increased costs, including a $4.5 million increase in our share of depreciation expense year over year, were partially offset by a non-cash increase in the fair value of underlying derivative instruments for certain of the joint ventures. Our share of this fair value change was $2.7 million for the year ended December 31, 2022. Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 For similar operating and financial data and discussion of our year ended December 31, 2021 results compared to our year ended December 31, 2020 results, refer to Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 10-K. 62 Liquidity and Capital Resources Our liquidity and capital resources as of December 31, 2022 and 2021 include unrestricted cash and cash equivalents of $262.9 million and $610.2 million, respectively, a 56.9% decrease primarily due to the funding of acquisitions of single-family residential properties and investments in our joint ventures, partially offset by issuance of common stock as further described below. In addition to our day-to-day business operations, including ongoing acquisitions of and investments in single-family residential properties, funding of commitments, and quarterly dividend and distribution payments, the following activity has occurred during the year ended December 31, 2022: •In January 2022, we settled $141.5 million of the 2022 Convertible Notes through the issuance of 6,216,261 shares of our common stock and a cash payment of $0.3 million. •In March 2022, we entered into an agreement with Rockpoint Group, L.L.C. to form a joint venture that will acquire homes in premium locations and at higher price points relative to our other investments in single-family residential properties (the “2022 Rockpoint JV”). As of December 31, 2022, we have funded $10.0 million to the 2022 Rockpoint JV, and our remaining equity commitment is $40.0 million. •On April 5, 2022, in a public offering under our existing shelf registration statement, we issued $600.0 million aggregate principal amount of 4.15% Senior Notes which mature on April 15, 2032 (the “2032 Unsecured Notes”). •On June 22, 2022, we entered into the 2022 Term Loan Facility that provided $725.0 million of borrowing capacity, consisting of a $150.0 million initial term loan (the “Initial Term Loan”) and delayed draw term loans totaling $575.0 million (the “Delayed Draw Term Loans”) which were fully drawn on December 8, 2022. The Initial Term Loan and the Delayed Draw Term Loans (together, the “2022 Term Loans”) mature on June 22, 2029. •During the year ended December 31, 2022, we used the proceeds from the 2032 Unsecured Notes and the 2022 Term Loans to make voluntary prepayments of the then-outstanding balances of IH 2018-1, IH 2018-2, and IH 2018-3, which resulted in a release of each loan’s collateral. •During the year ended December 31, 2022, we sold 2,438,927 shares of our common stock under our 2021 ATM Equity Program, generating net proceeds of $98.4 million. As of December 31, 2022, our $1,000.0 million revolving facility (the “Revolving Facility”) remains undrawn, and there are no restrictions on our ability to draw funds thereunder provided we remain in compliance with all covenants. We have no debt reaching final maturity until January 2026, provided all extension options are exercised. Our ability to access capital as well as to use cash from operations to continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted, could be affected by various risks and uncertainties, including, but not limited to, the effects of general economic conditions, including rising inflation and interest rates, as detailed in Part I. Item 1A. “Risk Factors.” 63 Long-Term Debt Strategy The following table summarizes certain information about our debt obligations as of December 31, 2022 ($ in thousands): [[GREPCENT_TABLE]] [["Debt Instruments(1)","","Balance (Gross of Retained Certificates and Unamortized Discounts)","","Balance (Net of Retained Certificates)","","Weighted Average Interest Rate(2)","","Weighted Average Years to Maturity(3)","","Amount Freely Prepayable (Gross)"],["Secured:"],["IH 2017-1(4)","","$","994,279","","","$","938,779","","","4.23%","","4.4","","$","\u2014"],["IH 2018-4(5)","","661,029","","","627,965","","","L + 123 bps","","3.0","","661,029"],["Secured Term Loan(6)","","403,363","","","403,363","","","3.59%","","8.4","","\u2014"],["Total secured(7)","","2,058,671","","","$","1,970,107","","","4.08%","","4.8","","661,029"],["Unsecured:"],["2020 Term Loan Facility(8)","","$","2,500,000","","","","","L + 100 bps","","3.1","","$","2,500,000"],["2022 Term Loan Facility(9)","","725,000","","","","","S + 124 bps","","6.5","","\u2014"],["Revolving Facility(8)","","\u2014","","","","","L + 89 bps","","3.1","","\u2014"],["Unsecured Notes \u2014 May 2028","","150,000","","","","","2.46%","","5.4","","\u2014"],["Unsecured Notes \u2014 November 2028","","600,000","","","","","2.30%","","5.9","","\u2014"],["Unsecured Notes \u2014 August 2031","","650,000","","","","","2.00%","","8.6","","\u2014"],["Unsecured Notes \u2014 April 2032","","600,000","","","","","4.15%","","9.3","","\u2014"],["Unsecured Notes \u2014 January 2034","","400,000","","","","","2.70%","","11.0","","\u2014"],["Unsecured Notes \u2014 May 2036","","150,000","","","","","3.18%","","13.4","","\u2014"],["Total unsecured(7)","","5,775,000","","","","","3.47%","","6.0","","2,500,000"],["Total debt(7)","","7,833,671","","","","","3.63%","","5.6","","$","3,161,029"],["Unamortized discounts","","(13,518)"],["Deferred financing costs, net","","(51,076)"],["Total debt per balance sheet","","7,769,077"],["Retained certificates","","(88,564)"],["Cash and restricted cash, excluding security deposits and letters of credit","","(275,989)"],["Deferred financing costs, net","","51,076"],["Unamortized discounts","","13,518"],["Net debt","","$","7,469,118"]] [[/GREPCENT_TABLE]] (1)For detailed information about and definition of each of our financing arrangements see Part IV. Item 15. “Exhibits and Financial Statements — Note 7 of Notes to Consolidated Financial Statements.” For information about our derivative instruments that hedge floating rate debt, see Part IV. Item 15. “Exhibits and Financial Statements — Note 8 of Notes to Consolidated Financial Statements.” (2)Variable interest rate loans are either LIBOR-based (“L” in the table above) or SOFR-based, including any adjustments provided for in the terms of the underlying agreement (“Adjusted SOFR,” or “S” in the table above). (3)Weighted average years to maturity assumes all extension options are exercised, which are subject to certain conditions being met. (4)IH 2017-1 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. (5)Interest rate is based on the weighted average spread over LIBOR, or a comparable or successor rate as provided for in our loan agreement, plus applicable servicing fees; as of December 31, 2022, LIBOR was 4.39%. 64 (6)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. (7)For secured debt, unsecured debt, and total debt, the weighted average interest rate is calculated based on December 31, 2022, LIBOR of 4.39% or Adjusted SOFR of 4.46% (inclusive of a 0.10% credit spread adjustment), as appropriate, and includes the impact of interest rate swap agreements effective as of that date. (8)Interest rate is based on LIBOR plus an applicable margin. As of December 31, 2022, LIBOR was 4.39%. (9)Interest rate is based on Adjusted SOFR plus the applicable margin. As of December 31, 2022, Adjusted SOFR was 4.46%. As part of our long-term debt strategy, our goal is to improve our credit ratings, and, over time, we generally intend to target net debt that is approximately 5.5 to 6.0 times trailing twelve months Adjusted EBITDAre (see “— Non-GAAP Measures — EBITDA, EBITDAre, and Adjusted EBITDAre”), secured debt that is less than 20% of gross assets, and unencumbered assets that are 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 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 adhering to our targets in the short or medium term or at all, or that we will not change our strategy or targets in the future. We may from time to time fall outside of our target ranges. 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 Related 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.” 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: •acquisition of homes currently under contract; •renovation of newly-acquired homes; •repairs of homes damaged by Hurricanes Ian and Nicole; •HOA fees (as applicable), property taxes, insurance premiums, and the ongoing maintenance of our homes; •property management and general and administrative expenses; •interest expense; •dividend payments to our stockholders; and •required contributions to our joint ventures. 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 financing of certain of our joint ventures. We do not expect these guarantees to have a material current or future effect on our liquidity. See Part IV. Item 15. “Exhibits and Financial Statements — Note 5 of Notes to Consolidated Financial Statements” for additional information about our investments in unconsolidated joint ventures. 65 Overall macroeconomic conditions, including rising inflation and interest rates, 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 debt instrument under whose loan agreement such 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 undrawn balances of $1,000.0 million as of December 31, 2022. Our long-term liquidity requirements consist primarily of funds necessary to pay for the acquisition of, and non-recurring capital expenditures for, our homes, and principal and interest payments of our indebtedness. We intend to satisfy our long-term liquidity needs through cash provided by operations, long-term secured and unsecured borrowings, the issuance of debt and equity securities, and property dispositions. As a REIT, we are required to distribute to our stockholders at least 90% of our taxable income, excluding net capital gain, on an annual basis. Therefore, as a general matter, it is unlikely that we will be able to retain substantial cash balances from our annual taxable income that could be used to meet our liquidity needs. Instead, we will need to meet these needs from external sources of capital and amounts, if any, by which our cash flow generated from operations exceeds taxable income. Cash Flows Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table summarizes our cash flows for the years ended December 31, 2022 and 2021: [[GREPCENT_TABLE]] [["","","For the Years Ended December 31,"],["($ in thousands)","","2022","","2021","","$ Change","","% Change"],["Net cash provided by operating activities","","$","1,023,587","","","$","907,660","","","$","115,927","","","12.8","%"],["Net cash used in investing activities","","(814,413)","","","(1,159,558)","","","345,145","","","29.8","%"],["Net cash provided by (used in) financing activities","","(574,105)","","","658,988","","","(1,233,093)","","","(187.1)","%"],["Change in cash, cash equivalents, and restricted cash","","$","(364,931)","","","$","407,090","","","$","(772,021)","","","(189.6)","%"]] [[/GREPCENT_TABLE]] 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 $1,023.6 million and $907.7 million for the years ended December 31, 2022 and 2021, respectively, an increase of 12.8%. The increase in cash provided by operating activities is primarily due to (1) improved operational profitability, including a $161.3 million increase in total revenues net of property operating and maintenance expense from period to period, partially offset by (2) a net $35.1 million use of cash between periods 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, proceeds from property sales, and investments in our joint ventures. Net cash used in investing activities was $814.4 million and $1,159.6 million for the years ended December 31, 2022 and 2021, respectively, a decrease of $345.1 million. The decrease in net cash used in investing activities resulted primarily from the combined effect of the following significant changes in cash flows during the year ended December 31, 2022 compared to the year ended December 31, 2021: (1) an increase in cash used for investments in joint ventures; (2) a decrease in cash used for the acquisition of homes; (3) an increase in cash used for initial renovations of homes; and (4) an increase in cash used for other capital expenditures for our homes. More specifically, investments in joint ventures increased $102.7 million as a result of the formation of new joint ventures and increased acquisition activity in our existing joint ventures during the year ended December 31, 2022 compared to the year 66 ended December 31, 2021. Acquisition spend decreased $562.1 million due to a decrease in the number of homes acquired from 2,938 during the year ended December 31, 2021 to 1,423 homes acquired during the year ended December 31, 2022. Renovation spend increased by $45.0 million due to more renovations being completed during the year ended December 31, 2022 compared to the year ended December 31, 2021, and other capital expenditures for our homes increased by $45.2 million year over year due to increased average home count and other increases in costs to maintain per home, including the impact of inflation. Financing Activities Net cash provided by (used in) financing activities was $(574.1) million and $659.0 million for the years ended December 31, 2022 and 2021, respectively. During the year ended December 31, 2022, issuances and sales of stock under our 2021 ATM Equity Program generated $98.4 million of net proceeds which were used primarily for acquisitions. During that period, we also issued $598.4 million of unsecured notes and borrowed $725.0 million on a new term loan facility. The proceeds from this financing activity along with cash from operations were used to repay $1,412.2 million of mortgage loans, including full repayments of IH 2018-1, IH 2018-2, and IH 2018-3. During that period, we also made $541.4 million of dividend and distribution payments. During the year ended December 31, 2021, we received $1,938.0 million of net proceeds from the issuance and sale of unsecured notes which were used to repay $1,766.9 million of principal on our mortgage loans, including full repayment of IH 2017-2 and partial repayments of IH 2018-1, IH 2018-2, IH 2018-3, and IH 2018-4. Issuances and sales of stock under our terminated 2019 ATM Equity Program and the 2021 Public Offering generated $933.8 million of net proceeds during the year ended December 31, 2021. During that period, we also made $395.9 million of dividend and distribution payments. Contractual Obligations Our contractual obligations as of December 31, 2022, consist of the following: [[GREPCENT_TABLE]] [["($ in thousands)","","Total","","2023","","2024-2025","","2026-2027","","Thereafter"],["Mortgage loans(1)(2)(3)(4)","","$","1,955,876","","","$","79,688","","","$","159,478","","","$","1,716,710","","","$","\u2014"],["Secured Term Loan(1)(2)(3)","","525,482","","","14,472","","","28,944","","","28,944","","","453,122"],["Unsecured Notes(1)(2)(3)","","3,177,603","","","70,960","","","141,920","","","141,920","","","2,822,803"],["Term Loan Facilities(1)(2)(3)(4)","","3,918,355","","","178,546","","","357,581","","","2,595,376","","","786,852"],["Revolving Facility(1)(2)(3)(4)(5)","","6,261","","","2,028","","","4,061","","","172","","","\u2014"],["Derivative instruments(6)","","(130,460)","","","(56,976)","","","(73,484)","","","\u2014","","","\u2014"],["Purchase commitments(7)","","18,717","","","18,717","","","\u2014","","","\u2014","","","\u2014"],["Operating leases","","15,916","","","4,523","","","7,701","","","3,263","","","429"],["Finance leases","","3,589","","","2,603","","","980","","","6","","","\u2014"],["Total","","$","9,491,339","","","$","314,561","","","$","627,181","","","$","4,486,391","","","$","4,063,206"]] [[/GREPCENT_TABLE]] (1)For detailed information about each of our financing arrangements and derivative instruments see Part IV. Item 15. “Exhibits and Financial Statements — Note 7 of Notes to Consolidated Financial Statements” and “— Note 8 of Notes to Consolidated Financial Statements (2)Includes estimated interest payments through the extended maturity date, as applicable, based on the principal amount outstanding as of December 31, 2022. (3)Interest is calculated at rates in effect as of December 31, 2022, including the indexed rate and any applicable margin, and that rate is held constant until the maturity date. As of December 31, 2022, LIBOR was 4.39%, and Adjusted SOFR was 4.46%. (4)Calculated based on the maturity date if we exercise each of the remaining extension options available, which are subject to certain conditions being met. See Part IV. Item 15. “Exhibits and Financial Statements — Note 7 of Notes to Consolidated Financial Statements” for a description of maturity dates without consideration of extension options. (5)Includes the related unused commitment fee, as applicable. 67 (6)Includes payments (receipts) related to interest rate swap and interest rate cap obligations, calculated using LIBOR as of December 31, 2022, or 4.39%. (7)Represents commitments to acquire 46 single-family rental homes. The amounts above do not include commitments pursuant to binding purchase agreements with certain homebuilders for the purchase of 2,370 homes over the next six years. Estimated remaining commitments under these agreements total approximately $770.0 million as of December 31, 2022. Additionally, we have commitments, which are not reflected in the table above, to make additional capital contributions to our joint ventures. As of December 31, 2022, our remaining equity commitments to the joint ventures total $128.3 million. LIBOR Transition Certain securitizations, the Secured Term Loan, the 2020 Term Loan Facility, and the Revolving Facility (collectively, the “LIBOR-Based Loans”) use one month LIBOR as a benchmark for establishing interest rates. Our derivative instruments are also indexed to one month LIBOR. The Financial Conduct Authority of the United Kingdom, which has statutory powers to require panel banks to contribute to LIBOR, has announced that it will cease publication of one month USD LIBOR immediately after June 30, 2023. Further, on March 15, 2022, the Consolidated Appropriations Act of 2022, which includes the Adjustable Interest Rate (LIBOR) Act, was signed into law in the United States. This legislation establishes a uniform benchmark replacement process for financial contracts that mature after June 30, 2023 which do not contain clearly defined or practicable fallback provisions. The legislation also creates a safe harbor that shields lenders from litigation if they choose to utilize a replacement rate recommended by the Board of Governors of the Federal Reserve. Once one month LIBOR is phased out on June 30, 2023, the interest rates for our LIBOR-Based Loans will be indexed to a comparable or successor rate as provided for in our loan agreements. Although our existing variable rate debt and derivative agreements provide for a prescribed transition to an alternate rate (SOFR), we are engaging with each of the respective counterparties to modify the existing provisions to better align the application of the terms of these debt and derivative agreements with respect to the SOFR index. We anticipate completing the transition to SOFR prior to the expiration of LIBOR on June 30, 2023. Furthermore, we will continue to make the appropriate elections available within ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting to ease the impact of transition from LIBOR to comparable or successor rates on hedge accounting. As more fully described in Part IV. Item 15. “Exhibits and Financial Statements — Note 2 of Notes to Consolidated Financial Statements,” we have elected and may continue to elect to apply practical expedients related to contract modifications, changes in critical terms, and updates to the designated hedged risk(s) as qualifying changes are made to applicable debt and derivative instruments. 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 In March 2020, the SEC 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 on January 4, 2021. INVH, INVH LP, the General Partner, and IH Merger Sub, LLC (“IH Merger Sub”) have filed a registration statement on Form S-3 with the SEC registering, among other securities, debt securities of INVH LP, fully and unconditionally guaranteed, on a joint and several basis, by INVH, the General Partner, and/or IH 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 of INVH LP, the General Partner, and IH Merger Sub have not been presented. 68 Furthermore, as permitted under Rule 13-01(a)(4)(vi) of Regulation S-X, we have excluded the summarized financial information for the INVH LP, the General Partner, and IH Merger Sub, because the combined assets, liabilities, and results of operations of INVH, INVH LP, the General Partner, and IH Merger Sub are not materially different than the corresponding amounts in our consolidated financial statements, and management believes such summarized financial information would be repetitive and would not provide incremental value to investors. Purchase of Outstanding 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 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 for United 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. Critical Accounting Policies and Estimates Our discussion and analysis of our historical financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about the effect of matters that are inherently uncertain and that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could ultimately differ from those estimates. For a discussion of recently-issued and adopted accounting standards, see Part IV. Item 15. “Exhibits and Financial Statement Schedules — Note 2 of Notes to Consolidated Financial Statements.” Investments in Single-Family Residential Properties The following significant accounting policies affect the acquisition, disposition, recognition, classification, and fair value measurements (on a nonrecurring basis) related to our portfolio of over 80,000 single-family residential properties in 16 markets across the United States. For a complete discussion of our accounting policy and other factors related to each category below, see Part IV. Item 15. “Exhibits and Financial Statement Schedules — Note 2 of Notes to Consolidated Financial Statements.” •Acquisition of Real Estate Assets: Our purchases of homes are generally treated as asset acquisitions unless acquired in connection with a business combination. For asset acquisitions, homes are recorded at their purchase price, which is allocated between land, building and improvements, and in-place lease intangibles (when a resident is in place at the acquisition date) based upon their relative fair values at the date of acquisition. The purchase price for purposes of this allocation is inclusive of acquisition costs which typically include legal fees, bidding service and title fees, payments made to cure tax, utility, HOA, and other mechanic’s and miscellaneous liens, as well as other closing costs. The attributes and location of each home acquired are considered at the individual home level when determining the percentage of purchase price allocated to building and improvements versus land. As such, these allocation percentages vary based on the homes acquired during each reporting period. If the percentage allocated to buildings and improvements versus land for the homes acquired during the year ended December 31, 2022 was increased or decreased by 500 bps, our annualized depreciation expense would have changed by approximately $0.9 million. •Cost Capitalization: We incur costs to acquire, stabilize, and prepare our single-family residential properties to be leased. We capitalize these costs as a component of our investment in each single-family residential property, using specific identification and relative allocation methodologies. The capitalization period associated with our stabilization activities begins at the time that such activities commence and concludes at the time that a single-family residential property is available to be leased. 69 Once a property is ready for its intended use, expenditures for ordinary maintenance and repairs thereafter are expensed to operations as incurred, and we capitalize expenditures that improve or extend the life of a home and for certain furniture and fixtures additions. The capitalized costs are depreciated on a straight-line basis over their estimated useful lives, which are reviewed on an annual basis. For additions to our single-family residential properties place in service after December 31, 2021, the weighted average useful lives range from 7 to 32 years. Prior to that date, the weighted average useful lives ranged from 7 to 28.5 years. If the useful lives for costs capitalized during the year ended December 31, 2022 were increased or decreased by 10%, our annualized depreciation expense would have changed by approximately $5.0 million. •Provisions for Impairment: We continuously evaluate, by property, whether there are any events or changes in circumstances indicating that the carrying amount of our single-family residential properties may not be recoverable. To the extent an event or change in circumstance is identified, a residential property is considered to be impaired only if its carrying value cannot be recovered through estimated future undiscounted cash flows from the use and eventual disposition of the property. To the extent an impairment has occurred, the carrying amount of our investment in a property is adjusted to its estimated fair value. The process whereby we assess our single-family residential properties for impairment requires significant judgment and assessment of factors that are, at times, subject to significant uncertainty. We evaluate multiple information sources and perform a number of internal analyses, each of which are important components of our process with no one information source or analysis being necessarily determinative. There have not been any significant process changes in our review for impairment during the current reporting period. For those homes for which a change in an event or circumstance was identified in the most recent impairment analysis, a 10% decrease in the estimated fair value of those homes may have resulted in an increase in impairment expense of $2.0 million. •Single-Family Residential Properties Held for Sale: From time to time, we may identify single-family residential properties to be sold. Once we identify a property to be sold pursuant to GAAP requirements, we cease depreciating the property, measure the property at the lower of its carrying amount or its fair value less estimated costs to sell, and present the property separately within other assets, net on our consolidated balance sheets. As of December 31, 2022, 131 homes, less than 0.2% of our portfolio, were held for sale, compared to 80 homes as of December 31, 2021. If market values less disposal costs for our properties that were classified as held for sale as of December 31, 2022 were 10% lower or higher, our impairment expense related to those properties would have changed by approximately $0.1 million. Segment Reporting Operating segments are defined as components of an enterprise for which discrete financial information is available that is evaluated regularly by the 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. 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. Consistent with the Nareit definition, we define EBITDAre 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. 70 Adjusted EBITDAre is defined as EBITDAre before the following items: share-based compensation expense; severance; casualty (gains) 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 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 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: [[GREPCENT_TABLE]] [["","","","","","","For the Years Ended December 31,"],["($ in thousands)","","","","","","2022","","2021","","2020"],["Net income available to common stockholders","","","","","","$","382,668","","","$","261,098","","","$","195,764"],["Net income available to participating securities","","","","","","661","","","327","","","448"],["Non-controlling interests","","","","","","1,470","","","1,351","","","1,237"],["Interest expense","","","","","","304,092","","","322,661","","","353,923"],["Interest expense in unconsolidated joint ventures","","","","","","3,581","","","1,209","","","\u2014"],["Depreciation and amortization","","","","","","638,114","","","592,135","","","552,530"],["Depreciation and amortization of investments in unconsolidated joint ventures","","","","","","5,838","","","1,304","","","\u2014"],["EBITDA","","","","","","1,336,424","","","1,180,085","","","1,103,902"],["Gain on sale of property, net of tax","","","","","","(90,699)","","","(60,008)","","","(54,594)"],["Impairment on depreciated real estate investments","","","","","","310","","","650","","","4,578"],["Net gain on sale of investments in unconsolidated joint ventures","","","","","","(865)","","","(1,050)","","","\u2014"],["EBITDAre","","","","","","1,245,170","","","1,119,677","","","1,053,886"],["Share-based compensation expense(1)","","","","","","28,962","","","27,170","","","17,090"],["Severance","","","","","","314","","","1,057","","","601"],["Casualty (gains) losses, net (2)(3)","","","","","","28,485","","","8,026","","","(3,882)"],["(Gains) losses on investments in equity securities, net","","","","","","3,939","","","9,420","","","(29,723)"],["Other, net(4)","","","","","","11,261","","","5,835","","","86"],["Adjusted EBITDAre","","","","","","$","1,318,131","","","$","1,171,185","","","$","1,038,058"]] [[/GREPCENT_TABLE]] (1)For the years ended December 31, 2022, 2021, and 2020, $6,493, $5,427, and $3,511 was recorded in property management expense, respectively, and $22,469, $21,743, and $13,579 was recorded in general and administrative expense, respectively. (2)Includes $24,000 of net estimated losses and damages related to Hurricanes Ian and Nicole. (3)Includes our share from unconsolidated joint ventures. (4)Includes interest income and other miscellaneous income and expenses. 71 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, utility expenses, repairs and maintenance, and property administration). 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; management fee revenues; and losses from investments in unconsolidated joint ventures. 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: [[GREPCENT_TABLE]] [["","","For the Years Ended December 31,"],["($ in thousands)","","2022","","2021","","2020"],["Net income available to common stockholders","","$","382,668","","","$","261,098","","","$","195,764"],["Net income available to participating securities","","661","","","327","","","448"],["Non-controlling interests","","1,470","","","1,351","","","1,237"],["Interest expense","","304,092","","","322,661","","","353,923"],["Depreciation and amortization","","638,114","","","592,135","","","552,530"],["Property management expense(1)","","87,936","","","71,597","","","58,613"],["General and administrative(2)","","74,025","","","75,815","","","63,305"],["Impairment and other(3)","","28,697","","","8,676","","","696"],["Gain on sale of property, net of tax","","(90,699)","","","(60,008)","","","(54,594)"],["(Gains) losses on investments in equity securities, net","","3,939","","","9,420","","","(29,723)"],["Other, net(4)","","11,261","","","5,835","","","86"],["Management fee revenues","","(11,480)","","","(4,893)","","","\u2014"],["Losses from investments in unconsolidated joint ventures","","9,606","","","1,546","","","\u2014"],["NOI (total portfolio)","","1,440,290","","","1,285,560","","","$","1,142,285"],["Non-Same Store NOI","","(128,172)","","","(82,858)"],["NOI (Same Store portfolio)(5)","","$","1,312,118","","","$","1,202,702"]] [[/GREPCENT_TABLE]] (1)Includes $6,493, $5,427, and $3,511 of share-based compensation expense for the years ended December 31, 2022, 2021, and 2020, respectively. (2)Includes $22,469, $21,743, and $13,579 of share-based compensation expense for the years ended December 31, 2022, 2021, and 2020, respectively. (3)Includes $24,000 of net estimated losses and damages related to Hurricanes Ian and Nicole. (4)Includes interest income and other miscellaneous income and expenses. (5)The Same Store portfolio totaled 74,646 homes for the years ended December 31, 2022 and 2021. 72 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. 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; legal settlements; severance expense; casualty (gains) 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 during the periods the notes were outstanding. Accordingly, there can be no assurance that our basis for computing this non-GAAP measures is comparable with that of other companies. 73 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: [[GREPCENT_TABLE]] [["","","For the Years Ended December 31,"],["(in thousands, except shares and per share data)","","2022","","2021","","2020"],["Net income available to common stockholders","","$","382,668","","","$","261,098","","","$","195,764"],["Add (deduct) adjustments from net income to derive FFO:"],["Net income available to participating securities","","661","","","327","","","448"],["Non-controlling interests","","1,470","","","1,351","","","1,237"],["Depreciation and amortization on real estate assets","","629,301","","","585,101","","","546,419"],["Impairment on depreciated real estate investments","","310","","","650","","","4,578"],["Net gain on sale of previously depreciated investments in real estate","","(90,699)","","","(60,008)","","","(54,594)"],["Depreciation and net gain on sale of investments in unconsolidated joint ventures","","4,907","","","254","","","\u2014"],["FFO","","928,618","","","788,773","","","693,852"],["Non-cash interest expense related to amortization of deferred financing costs, loan discounts, and non-cash interest expense from derivatives(1)","","24,326","","","34,520","","","40,415"],["Share-based compensation expense(2)","","28,962","","","27,170","","","17,090"],["Legal settlements(3)","","7,400","","","\u2014","","","\u2014"],["Severance expense","","314","","","1,057","","","601"],["Casualty (gains) losses, net(1)(4)","","28,485","","","8,026","","","(3,882)"],["(Gains) losses on investments in equity securities, net","","3,939","","","9,420","","","(29,723)"],["Core FFO","","1,022,044","","","868,966","","","718,353"],["Recurring capital expenditures(1)","","(156,147)","","","(123,405)","","","(115,951)"],["Adjusted FFO","","$","865,897","","","$","745,561","","","$","602,402"],["Net income available to common stockholders"],["Weighted average common shares outstanding \u2014 diluted(5)(6)(7)","","611,112,396","","","579,209,523","","","555,458,607"],["Net income per common share \u2014 diluted(5)(6)(7)","","$","0.63","","","$","0.45","","","$","0.35"],["FFO"],["Numerator for FFO per common share \u2014 diluted(5)","","$","928,618","","","$","803,137","","","$","711,033"],["Weighted average common shares and OP Units outstanding \u2014 diluted(5)(6)(7)","","613,669,133","","","593,735,669","","","574,408,346"],["FFO per common share \u2014 diluted(5)(6)(7)","","$","1.51","","","$","1.35","","","$","1.24"],["Core FFO and Adjusted FFO"],["Weighted average common shares and OP Units outstanding \u2014 diluted(5)(6)(7)","","613,669,133","","","582,442,466","","","559,307,903"],["Core FFO per common share \u2014 diluted(5)(6)(7)","","$","1.67","","","$","1.49","","","$","1.28"],["AFFO per common share \u2014 diluted(5)(6)(7)","","$","1.41","","","$","1.28","","","$","1.08"]] [[/GREPCENT_TABLE]] (1)Includes our share from unconsolidated joint ventures. (2)For the years ended December 31, 2022, 2021, and 2020, $6,493, $5,427, and $3,511 was recorded in property management expense, respectively, and $22,469, $21,743, and $13,579 was recorded in general and administrative expense, respectively. (3)Represents the estimated cost of a global settlement of a multistate putative class action regarding resident late fees. The settlement remains subject to court approval. (4)Includes $24,000 of net estimated losses and damages related to Hurricanes Ian and Nicole. 74 (5)On January 18, 2022, we settled the $141,490 outstanding principal balance of the 2022 Convertible Notes with the issuance of 6,216,261 shares of our common stock. For the year ended December 31, 2022, the shares of common stock issued with respect to this settlement are included within all net income, FFO, Core FFO, and AFFO per common share calculations subsequent to the conversion date. With respect to the 2022 Convertible Notes, during the year ended December 31, 2021, at the election of the note holders, we settled $203,510 of principal outstanding for the 2022 Convertible Notes with the issuance of 8,943,374 shares of common stock. 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 years ended December 31, 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 $14,364 and $17,181, respectively, and the denominator is adjusted for 11,293,203 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. (6)Incremental shares attributed to non-vested share-based awards totaling 1,341,786, 1,528,453, and 1,465,286 for the years ended December 31, 2022, 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 1,559,524, 1,822,015 and 1,851,297 for the years ended December 31, 2022, 2021, and 2020, respectively, related to incremental shares attributed to non-vested share-based awards are included in the denominator. (7)Vested units of partnership interests in INVH 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 2,338,999, 2,939,381, and 3,463,285 for the years ended December 31, 2022, 2021, and 2020, respectively, are included in the denominator for the computations of FFO, Core FFO, and AFFO per common share — diluted. 75