UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
       
FORM10-Q
   
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedSeptember 30, 2017
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-38004
Invitation Homes Inc.
(Exact name of registrant as specified in governing instruments)
       
       
 
Maryland
(State or other jurisdiction of incorporation or organization)
 
90-0939055
(I.R.S. Employer Identification No.)
 
     
 
1717 Main Street, Suite 2000
Dallas, Texas 75201
(Address of principal executive offices)(Zip Code)
☑
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   
 
(972) 421-3600
(Registrant’s telephone number, including area code)
 
       
 For the quarterly period ended
N/A
(Former name, former address and former fiscal year, if changed since last report)June 30, 2019
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to 
       
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filero  Accelerated filero
Non-accelerated filerCommission File Numberx(Do not check if a smaller reporting company)Smaller reporting companyo001-38004
    Emerging growth companyx
Invitation Homes Inc.
(Exact name of registrant as specified in its charter)
Maryland90-0939055
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1717 Main Street,Suite 200075201
Dallas,Texas
(Address of principal executive offices)(Zip Code)
(972)421-3600
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 par valueINVHNew York Stock Exchange
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.Yes☑No☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was
required to submit such files).Yes☑No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer☑Accelerated Filer☐
Non-Accelerated Filer☐Smaller Reporting Company☐
Emerging Growth Company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. xo
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x
Yes☐No☑
   
As of November 8, 2017,July 29, 2019, there were 311,354,290537,680,811 shares of common stock, par value $0.01 per share, outstanding.

     






INVITATION HOMES INC.
 Page Page
PART I
Item1.Financial Statements
6
1.
Financial Statements
6
Item2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
43
2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
41
Item3.Quantitative and Qualitative Disclosures About Market Risk
70
3.
Quantitative and Qualitative Disclosures About Market Risk
68
Item4.Controls and Procedures
71
4.
Controls and Procedures
69
  
PART II
Item1.Legal Proceedings
72
1.
Legal Proceedings
70
Item1A.Risk Factors
73
1A.
Risk Factors
70
Item2.Unregistered Sales of Equity Securities and Use of Proceeds
73
2.
Unregistered Sales of Equity Securities and Use of Proceeds
70
Item3.Defaults Upon Senior Securities
73
3.
Defaults Upon Senior Securities
70
Item4.Mine Safety Disclosures
73
4.
Mine Safety Disclosures
70
Item5.Other Information
73
5.
Other Information
70
Item6.Exhibits
73
6.
Exhibits
71
  
SignaturesSignatures 
Signatures
73
   









FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”), which include, but are not limited to, statements related to our expectations regarding the anticipated benefits of the proposed merger with Starwood Waypoint Homes (“SFR”SWH”), the performance of our business, our financial results, our liquidity and capital resources, and other non-historical statements. In some cases, you can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "could," "seeks," "projects," "predicts," "intends," "plans," "estimates," "anticipates"“outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties, including, among others, risks associated with our ability to consummate the merger and the timing of the closing of the merger, risks associated with achieving expected revenue synergies or cost savings from the merger, risks inherent to the single-family rental industry sector and our business model, macroeconomic factors beyond our control, competition in identifying and acquiring our properties, competition in the leasing market for quality residents, increasing property taxes, homeowners’ association (“HOA”) and insurance costs, our dependence on third parties for key services, risks related to the evaluation of properties, poor resident selection and defaults and non-renewals by our residents, performance of our information technology systems, and risks related to our indebtedness. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include, but are not limited to, those described in Exhibit 99.1 to this Quarterly Report on Form 10-Q and under Part I. Item 1A. “Risk Factors,"Factors” in our Annual Report on Form 10-K for the year ended December 31, 20162018 (the “Annual Report on Form 10-K”) as such factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (the “SEC”), which are accessible on the SEC’s website at http://www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included elsewhere in this Quarterly Report on Form 10-Q, in the Annual Report on Form 10-K, and in our other periodic filings. The forward-looking statements speak only as of the date made,of this Quarterly Report on Form 10-Q, and we expressly disclaim any obligation or undertaking to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except to the extent otherwise required by law.








3





DEFINED TERMS
Prior to the completion of our initial public offering, our business was owned by six holding entities: Invitation Homes L.P., Preeminent Holdings Inc.On November 16, 2017 (the “Merger Date”), Invitation Homes 3 L.P.Inc. (“INVH”), Invitation Homes 4Operating Partnership LP (“INVH LP”), IH Merger Sub, LLC, a Delaware limited liability company and direct wholly owned subsidiary of INVH, SWH, and Starwood Waypoint Homes Partnership, L.P., Invitation Homes 5 L.P.a Delaware limited partnership and Invitation Homes 6 L.P. Wea subsidiary of SWH, (“SWH Partnership”) effectuated a series of transactions which resulted in SWH and SWH Partnership being merged into INVH and INVH LP, respectively, with INVH and INVH LP being the surviving entities (the “Mergers”). “Legacy SWH” and “SWH,” as the context requires, refer to these six holding entities collectively as the “IH Holding Entities.” Unlessbusiness practices and operations of SWH prior to the context suggests otherwise, referencesMergers, including the homes owned by SWH. “Legacy IH” refers to “IH1,” “IH2,” “IH3,” “IH4,” “IH5”the business practices and “IH6” referoperations of INVH prior to Invitation Homesthe Mergers, including the homes owned by INVH. THR Property Management L.P., Preeminent Holdings Inc., Invitation Homes 3 L.P., Invitation Homes 4 L.P., Invitation Homes 5 L.P. and Invitation Homes 6 L.P., respectively, in each case including anya wholly owned subsidiaries, if applicable. The IH Holding Entities were under the common controlsubsidiary of Blackstone Real Estate Partners VII L.P.INVH LP (the “Manager”), an investment fund sponsored by The Blackstone Group L.P., and its general partner and certain affiliated funds and investment vehicles. Investment funds and vehicles associated with or designated by The Blackstone Group L.P. are referred to herein as “Blackstone” or “our Sponsor.” We refer to Blackstone, together with ourprovides all management and other equity holders, collectively as our “Pre-IPO Owners.” administrative services with respect to the properties we own.
Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q to “Invitation Homes,” the “Company,” “we,” “our”“our,” and “us” refer (1) prior to the consummation of the reorganization transactions described in Part I. Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (the “Pre-IPO Transactions”), to the combined IH Holding Entities and their consolidated subsidiaries, including Invitation Homes Operating Partnership LP (“INVH LP”) and (2) after the consummation of the Pre-IPO Transactions, to Invitation Homes Inc. and its consolidated subsidiaries (including theincluding INVH LP and all subsidiaries acquired in the IH Holding Entities).Mergers.
In this Quarterly Report on Form 10-Q:
“average monthly rent” represents the average of the contracted monthly rentrental income per home for occupied properties in an identified population of homes forover the relevantmeasurement period and reflects the impact of non-service rent concessions and contractual rent increases amortized over the life of the related lease;
“average occupancy” for an identified population of homes represents (i) the total number of days that the homes available for lease in such population were occupied during the measurement period, divided by (ii) the total number of available days in the measurement period forthat the homes in that population;such population were owned during the measurement period;
“Carolinas” includes Charlotte, NC, Greensboro, NC, Raleigh, NC, and Fort Mill, SC;
“days to re-resident” for an individual home represents the number of days a home is unoccupied between residents, calculated as the number of days between (i) the date the prior resident moves out of a home, and (ii) the date the next resident is granted access to the same home, which is deemed to be the earlier of (x) the next resident’s contractual lease start date and (y) the next resident’s move-in date;
“in-fill” refers to markets, MSAs, submarkets, neighborhoods or other geographic areas that are typified by significant population densities and low availability of land suitable for development into competitive properties, resulting in limited opportunities for new construction;
“Metropolitan Statistical Area” or “MSA” is defined by the U.S.United States Office of Management and Budget as a region associated with at least one urbanized area that has a population of at least 50,000 and comprises the central county or counties containing the core, plus adjacent outlying counties having a high degree of social and economic integration with the central county or counties as measured through commuting;
“net effective rental rate growth” for any home represents the percentage difference between the monthly rent from an expiring lease and the monthly rent from the next lease and, in each case, netreflects the impact of anynon-service rent concessions and contractual rent increases amortized concessions.over the life of the related lease. Leases are either renewal leases, where our current resident chooses to stay for a subsequent lease term, or a new lease, where our previous resident moves out and a new resident signs a lease to occupy the same home;
“Northern California” includes Modesto, CA, Napa, CA, Oakland-Fremont-Hayward, CA, Sacramento-Arden-Arcade-Roseville, CA, San Jose-Sunnyvale-Santa Clara,Francisco-Oakland-Hayward, CA, Stockton-Lodi, CA, Vallejo-Fairfield, CA, and Yuba City, CA;
“PSF” means per square foot;


4



“Same Store” or “Same Store portfolio” includes, for a given reporting period, homes that have been stabilized (definedand seasoned (whether under Invitation Homes ownership or Legacy SWH ownership), excluding homes that have been sold, homes that have been identified for sale to an owner occupant and have become vacant, homes that have been deemed inoperable or significantly impaired by casualty loss events or force majeure, and homes acquired in portfolio transactions that are deemed not to have undergone renovations of sufficiently similar quality and characteristics as homes thatthe existing Invitation Homes Same Store portfolio. Homes are considered stabilized if they have (i) completed an upfrontinitial renovation and (ii) entered into at least one post-renovationpost-initial renovation lease. An acquired portfolio that is both leased and deemed to be of sufficiently similar quality and characteristics as the existing Invitation Homes lease)Same Store portfolio may be considered stabilized at the time of acquisition. Homes are considered to be seasoned once they have been stabilized for at least 90 days15 months prior to the first day of the prior-year measurement period and excludes homes that have been sold and homes that have been designated for sale but have not yet entered into a written sale agreement during such reporting period. Same Store portfolios are established as of January 1st of each calendar year.


4


Therefore, any home includedthe year in which the Same Store portfolio will have satisfied the conditions described in clauses (i) and (ii) above prior to October 3rd of the year prior to the first year of the comparison period.was established. We believe presenting information about the portion of our portfolio that has been fully operational for the entirety of 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;
“Southeast United States” includes our Atlanta, Carolinas, and Nashville markets;
“South Florida” includes Fort Lauderdale-Pompano Beach-DeerfieldMiami-Fort Lauderdale-West Palm Beach, FL, Key West, FL, Miami-Miami Beach-Kendall, FL and West Palm Beach-Boca Raton-Delray Beach,Port St. Lucie, FL;
“Southern California” includes Anaheim-Santa Ana-Irvine, CA, Los Angeles-Long Beach-Glendale,Beach-Anaheim, CA, Oxnard-Thousand Oaks-Ventura, CA, Riverside-San Bernardino-Ontario, CA, and San Diego-Carlsbad-San Marcos,Diego-Carlsbad, CA;
“total homes” or “total portfolio” refers to the total number of homes we own, whether or not stabilized, and excludes any properties previously acquired in purchases that have been subsequently rescinded or vacated. Unless the context otherwise requires, all measures in this prospectusQuarterly Report on Form 10-Q are presented on a total portfolio basis;
“turnover rate” represents the number of instances that homes in an identified population become unoccupied in a given period, divided by the number of homes in such population. To the extent the measurement period shown is less than 12 months, the turnover rate willmay be reflected on an annualized basis; and
“Western United States” includes our Southern California, Northern California, Seattle, Phoenix, and Las Vegas, and Denver markets.





5


PART I
FINANCIAL INFORMATION
ItemITEM 1. Financial Statements.
FINANCIAL STATEMENTS
INVITATION HOMES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except shares and per share data)



 September 30,
2017		 December 31,
2016		 June 30,
2019		 December 31, 2018
Assets: (unaudited)   (unaudited)  
Investments in single-family residential properties:        
Land $2,733,834
 $2,703,388
 $4,522,979
 $4,561,441
Building and improvements 7,169,872
 7,091,457
 13,718,005
 13,668,533
 9,903,706
 9,794,845
 18,240,984

18,229,974
Less: accumulated depreciation (982,463) (792,330) (1,777,457) (1,543,914)
Investments in single-family residential properties, net 8,921,243
 9,002,515
 16,463,527

16,686,060
Cash and cash equivalents 134,441
 198,119
 77,046
 144,940
Restricted cash 153,781
 222,092
 242,409
 215,051
Goodwill 258,207
 258,207
Other assets, net 315,059
 309,625
 672,964
 759,170
Total assets $9,524,524
 $9,732,351
 $17,714,153

$18,063,428
        
Liabilities:        
Mortgage loans, net $4,157,024
 $5,254,738
 $6,509,962
 $7,201,654
Secured term loan, net 400,869
 —
Term loan facility, net 1,487,251
 —
 1,492,304
 1,490,860
Credit facilities, net —
 2,315,541
Revolving facility —
 —
Convertible senior notes, net 561,830
 557,301
Accounts payable and accrued expenses 160,674
 88,052
 227,983
 169,603
Resident security deposits 88,976
 86,513
 151,995
 148,995
Other liabilities 28,586
 30,084
 331,742
 125,829
Total liabilities 5,922,511
 7,774,928
 9,676,685

9,694,242
Commitments and contingencies (Note 14) 


 


        
Equity:        
Shareholders' equity    
Preferred stock, $0.01 par value per share, 900,000,000 shares authorized, none outstanding at September 30, 2017 —
 —
Common stock, $0.01 par value per share, 9,000,000,000 shares authorized, 311,354,290 outstanding at September 30, 2017 3,114
 —
Stockholders' equity    
Preferred stock, $0.01 par value per share, 900,000,000 shares authorized, none outstanding as of June 30, 2019 and December 31, 2018 —
 —
Common stock, $0.01 par value per share, 9,000,000,000 shares authorized, 525,126,947 and 520,647,977 outstanding as of June 30, 2019 and December 31, 2018, respectively 5,251
 5,206
Additional paid-in capital 3,677,182
 —
 8,686,927
 8,629,462
Accumulated deficit (86,450) —
 (469,129) (392,594)
Accumulated other comprehensive income 8,167
 —
Total shareholders' equity 3,602,013
 —
Combined equity —
 1,957,423
Accumulated other comprehensive loss (265,370) (12,963)
Total stockholders' equity 7,957,679

8,229,111
Non-controlling interests 79,789
 140,075
Total equity 3,602,013
 1,957,423
 8,037,468

8,369,186
Total liabilities and equity $9,524,524
 $9,732,351
 $17,714,153

$18,063,428

The accompanying notes are an integral part of these condensed consolidated financial statements.




6


INVITATION HOMES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except shares and per share data)
(unaudited)





  For the Three Months Ended For the Nine Months Ended
  September 30, September 30,
  2017 2016 2017 2016
Revenues:        
Rental revenues $229,375
 $221,049
 $683,975
 $654,726
Other property income 14,161
 11,989
 40,527
 33,310
Total revenues 243,536
 233,038
 724,502
 688,036
         
Operating expenses:        
Property operating and maintenance 93,267
 94,246
 274,275
 270,494
Property management expense 10,852
 7,715
 31,436
 22,638
General and administrative 27,462
 18,811
 104,154
 49,579
Depreciation and amortization 67,466
 66,480
 202,558
 198,261
Impairment and other 14,572
 1,279
 16,482
 1,642
Total operating expenses 213,619
 188,531
 628,905
 542,614
Operating income 29,917
 44,507
 95,597
 145,422
         
Other income (expenses):        
Interest expense (56,796) (68,365) (182,726) (209,165)
Other, net 613
 (1,057) (482) (1,025)
Total other income (expenses) (56,183) (69,422) (183,208) (210,190)
      

  
Loss from continuing operations (26,266) (24,915) (87,611) (64,768)
Gain on sale of property, net of tax 3,756
 2,966
 28,239
 13,178
         
Net loss $(22,510) $(21,949) $(59,372) $(51,590)
         
  Three Months Ended September 30,
2017		   February 1, 2017
through
September 30,
2017		  
Net loss available to common shareholders — basic and diluted (Note 12) $(22,745)   $(42,837)  
         
Weighted average common shares outstanding — basic and diluted 311,559,780
   311,674,226
  
         
Net loss per common share — basic and diluted $(0.07)   $(0.14)  
         
Dividends declared per common share $0.08
   $0.14
  
  For the Three Months Ended June 30, For the Six Months
Ended June 30,
  2019 2018 2019 2018
Rental revenues and other property income $441,582
 $432,426
 $877,082

$856,095
         
Expenses:        
Property operating and maintenance 166,574
 165,423
 326,920
 326,190
Property management expense 16,021
 14,348
 31,181
 31,512
General and administrative 15,956
 24,636
 42,494
 52,272
Interest expense 95,706
 97,226
 189,689
 189,525
Depreciation and amortization 133,031
 146,450
 266,640
 290,950
Impairment and other 1,671
 4,103
 7,063
 10,224
Total expenses 428,959
 452,186
 863,987

900,673
         
Other, net 610
 1,631
 3,735
 3,367
Gain on sale of property, net of tax 26,172
 3,941
 43,744
 9,443
         
Net income (loss) 39,405

(14,188) 60,574

(31,768)
Net (income) loss attributable to non-controlling interests (463) 242
 (810) 553
         
Net income (loss) attributable to common stockholders 38,942

(13,946) 59,764

(31,215)
Net income available to participating securities (109) (209) (215) (431)
         
Net income (loss) available to common stockholders — basic and diluted (Note 12) $38,833

$(14,155) $59,549

$(31,646)
         
Weighted average common shares outstanding — basic 525,070,036
 520,509,058
 523,265,455
 520,087,371
Weighted average common shares outstanding — diluted 525,933,643
 520,509,058
 524,190,469
 520,087,371
         
Net income (loss) per common share — basic
$0.07
 $(0.03) $0.11
 $(0.06)
Net income (loss) per common share — diluted $0.07
 $(0.03) $0.11
 $(0.06)


The accompanying notes are an integral part of these condensed consolidated financial statements.






7


INVITATION HOMES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)




  For the Three Months Ended For the Nine Months Ended
  September 30, September 30,
  2017 2016 2017 2016
Net loss $(22,510) $(21,949) $(59,372) $(51,590)
Other comprehensive loss        
Unrealized losses on interest rate swaps (598) —
 (4,796) —
Losses from interest rate swaps reclassified into earnings from accumulated other comprehensive income 4,193
 —
 12,963
 —
Other comprehensive income 3,595
 —
 8,167

—
Comprehensive loss $(18,915) $(21,949) $(51,205)
$(51,590)
  For the Three Months Ended June 30, For the Six Months
Ended June 30,
  2019 2018 2019 2018
Net income (loss) $39,405
 $(14,188) $60,574
 $(31,768)
         
Other comprehensive income (loss)        
Unrealized gains (losses) on interest rate swaps (148,599) 15,826
 (236,467) 75,726
Gains from interest rate swaps reclassified into earnings from accumulated other comprehensive income (7,891) (3,596) (18,754) (3,325)
Other comprehensive income (loss) (156,490) 12,230
 (255,221)
72,401
Comprehensive income (loss) (117,085)
(1,958) (194,647)
40,633
Comprehensive (income) loss attributable to non-controlling interests 1,312
 48
 2,583
 (705)
         
Comprehensive income (loss) attributable to common stockholders $(115,773)
$(1,910) $(192,064) $39,928


The accompanying notes are an integral part of these condensed consolidated financial statements.





8


INVITATION HOMES INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF EQUITY
For the NineThree and Six Months Ended SeptemberJune 30, 20172019
(in thousands, except share information)and per share data)
(unaudited)




    Common Stock        
  Combined Equity Number of Shares Amount Additional
Paid-in Capital		 Accumulated Deficit Accumulated Other Comprehensive Income Total Equity
Balance as of December 31, 2016 $1,957,423
 —
 $—
 $—
 $—
 $—
 $1,957,423
Net loss (16,879) —
 —
 —
 —
 —
 (16,879)
Redemption of Series A Preferred Stock (1,153) —
 —
 —
 —
 —
 (1,153)
Distribution of Class B notes receivable (19,686) —
 —
 —
 —
 —
 (19,686)
Cancellation/distribution of Class B notes receivable 19,686
 —
 —
 —
 —
 —
 19,686
Share-based compensation expense 12,001
 —
 —
 —
 —
 —
 12,001
Accrued interest on Class B notes 15
 —
 —
 —
 —
 —
 15
Balance as of January 31, 2017 1,951,407
 —
 —
 —
 —
 —
 1,951,407
Pre-IPO Transactions (see Note 1) (1,951,407) 221,826,634
 2,218
 1,949,189
 —
 —
 —
Issuance of common stock — IPO —
 88,550,000
 886
 1,691,172
 —
 —
 1,692,058
IPO costs —
 —
 —
 (5,726) —
 —
 (5,726)
Net loss —
 —
 —
 —
 (42,493) —
 (42,493)
Dividends and dividend equivalents declared —
 —
 —
 —
 (43,957) —
 (43,957)
Issuance of common stock — settlement of RSUs, net of tax —
 977,656
 10
 (9,916) —
 —
 (9,906)
Share-based compensation expense —
 —
 —
 52,463
 —
 —
 52,463
Total other comprehensive income —
 —
 —
 —
 —
 8,167
 8,167
Balance as of September 30, 2017 $—
 311,354,290
 $3,114
 $3,677,182
 $(86,450) $8,167
 $3,602,013
  Common Stock            
  Number of Shares Amount Additional
Paid-in Capital		 Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders' Equity Non-Controlling Interests Total Equity
Balance as of March 31, 2019 524,989,775
 $5,250
 $8,685,058
 $(439,737) $(110,655) $8,139,916
 $81,452
 $8,221,368
Capital distributions —
 —
 —
 —
 —
 —
 (711) (711)
Net income —
 —
 —
 38,942
 —
 38,942
 463
 39,405
Dividends and dividend equivalents declared ($0.13 per share) —
 —
 —
 (68,334) —
 (68,334) —
 (68,334)
Issuance of common stock — settlement of RSUs, net of tax 137,172
 1
 (1,386) —
 —
 (1,385) —
 (1,385)
Share-based compensation expense —
 —
 3,255
 —
 —
 3,255
 360
 3,615
Total other comprehensive loss —
 —
 —
 —
 (154,715) (154,715) (1,775) (156,490)
Balance as of June 30, 2019 525,126,947
 $5,251
 $8,686,927
 $(469,129) $(265,370) $7,957,679
 $79,789
 $8,037,468


  Common Stock            
  Number of Shares Amount Additional
Paid-in Capital		 Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders' Equity Non-Controlling Interests Total Equity
Balance as of December 31, 2018 520,647,977

$5,206

$8,629,462

$(392,594)
$(12,963)
$8,229,111

$140,075

$8,369,186
Capital distributions —
 —
 —
 —
 —
 —
 (1,886) (1,886)
Net income —
 —
 —
 59,764
 —
 59,764
 810
 60,574
Dividends and dividend equivalents declared ($0.26 per share) —
 —
 —
 (136,299) —
 (136,299) —
 (136,299)
Issuance of common stock — settlement of RSUs, net of tax 905,677
 9
 (8,117) —
 —
 (8,108) —
 (8,108)
Share-based compensation expense —
 —
 8,862
 —
 —
 8,862
 360
 9,222
Total other comprehensive loss —
 —
 —
 —
 (251,828) (251,828) (3,393) (255,221)
Redemption of OP Units for common stock 3,573,293
 36
 56,720
 —
 (579) 56,177
 (56,177) —
Balance as of June 30, 2019 525,126,947
 $5,251
 $8,686,927
 $(469,129) $(265,370) $7,957,679
 $79,789
 $8,037,468

The accompanying notes are an integral part of these condensed consolidated financial statements.





9

INVITATION HOMES INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (continued)
For the Three and Six Months Ended June 30, 2018
(in thousands, except share and per share data)
(unaudited)



  Common Stock            
  Number of Shares Amount Additional
Paid-in Capital		 Accumulated Deficit Accumulated Other Comprehensive Income Total Stockholders' Equity Non-Controlling Interests Total Equity
Balance as of March 31, 2018 520,364,636
 $5,204
 $8,612,110
 $(232,296) $106,918
 $8,491,936
 $144,961
 $8,636,897
Capital distributions —
 —
 —
 —
 —
 —
 (996) (996)
Net loss —
 —
 —
 (13,946) —
 (13,946) (242) (14,188)
Dividends and dividend equivalents declared ($0.11 per share) —
 —
 —
 (57,559) —
 (57,559) —
 (57,559)
Issuance of common stock — settlement of RSUs, net of tax 128,733
 1
 (824) —
 —
 (823) —
 (823)
Share-based compensation expense —
 —
 8,016
 —
 —
 8,016
 —
 8,016
Total other comprehensive income —
 —
 —
 —
 12,036
 12,036
 194
 12,230
Balance as of June 30, 2018 520,493,369
 $5,205
 $8,619,302
 $(303,801) $118,954
 $8,439,660
 $143,917
 $8,583,577

  Common Stock            
  Number of Shares Amount Additional
Paid-in Capital		 Accumulated Deficit Accumulated Other Comprehensive Income Total Stockholders' Equity Non-Controlling Interests Total Equity
Balance as of December 31, 2017 519,173,142
 $5,192
 $8,602,603
 $(157,595) $47,885
 $8,498,085
 $151,790
 $8,649,875
Capital distributions —
 —
 —
 —
 —
 —
 (2,033) (2,033)
Net loss —
 —
 —
 (31,215) —
 (31,215) (553) (31,768)
Dividends and dividend equivalents declared ($0.22 per share) —
 —
 —
 (114,991) —
 (114,991) —
 (114,991)
Issuance of common stock — settlement of RSUs, net of tax 915,190
 9
 (7,430) —
 —
 (7,421) —
 (7,421)
Share-based compensation expense —
 —
 17,514
 —
 —
 17,514
 —
 17,514
Total other comprehensive income —
 —
 —
 —
 71,143
 71,143
 1,258
 72,401
Redemption of OP Units for common stock 405,037
 4
 6,615
 —
 (74) 6,545
 (6,545) —
Balance as of June 30, 2018 520,493,369
 $5,205
 $8,619,302
 $(303,801) $118,954
 $8,439,660
 $143,917
 $8,583,577

The accompanying notes are an integral part of these condensed consolidated financial statements.


10


INVITATION HOMES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)



 For the Nine Months Ended
 September 30, 
For the Six Months
Ended June 30,
 2017 2016 2019 2018
Operating Activities:        
Net loss $(59,372) $(51,590)
Net income (loss) $60,574
 $(31,768)
        
Adjustments to reconcile net loss to net cash provided by operating activities:    
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Depreciation and amortization 202,558
 198,261
 266,640
 290,950
Share-based compensation expense 64,464
 13,023
 9,222
 17,514
Amortization of deferred leasing costs 9,249
 10,505
 5,060
 5,833
Amortization of deferred financing costs 19,550
 37,323
 20,158
 9,678
Amortization of discount on mortgage loans 202
 4,158
Amortization of debt discounts 4,709
 4,508
Provisions for impairment 1,556
 1,595
 7,329
 2,274
Gain on sale of property, net of tax (28,239) (13,178) (43,744) (9,443)
Paid in kind interest on warehouse loan —
 1,122
Change in fair value of derivative instruments 3,992
 —
 2,170
 5,852
Other noncash amounts included in net loss (1,907) (1,128)
Change in operating assets and liabilities:    
Restricted cash related to security deposits (3,170) (4,917)
Other noncash amounts included in net income (loss) 785
 (1,638)
Changes in operating assets and liabilities:    
Other assets, net (14,611) (7,010) (9,823) (7,668)
Accounts payable and accrued expenses 71,417
 54,545
 48,771
 29,688
Resident security deposits 2,463
 4,612
 3,000
 5,386
Other liabilities (885) 388
 491
 (10,831)
Net cash provided by operating activities 267,267
 247,709
 375,342
 310,335

        
Investing Activities:        
Changes in amounts deposited and held by others (2,146) 2,559
Amounts deposited and held by others (966) 9,273
Acquisition of single-family residential properties (154,154) (257,108) (246,306) (120,149)
Initial renovations to single-family residential properties (21,500) (47,621) (18,749) (25,750)
Other capital expenditures for single-family residential properties (34,010) (35,454) (70,161) (60,916)
Corporate capital expenditures (2,809) (3,673)
Proceeds from sale of residential properties 152,713
 107,147
Proceeds from sale of single-family residential properties 336,523
 122,820
Purchases of investments in debt securities (51,920) (16,036) —
 (163,719)
Repayment proceeds from retained debt securities 30,916
 —
 35,687
 59,213
Changes in restricted cash 71,481
 (48,599)
Net cash used in investing activities (11,429) (298,785)
Other investing activities 3,163
 (10,146)
Net cash provided by (used in) investing activities 39,191
 (189,374)

        
Financing Activities:        
Cash paid for employee taxes for settlement of RSUs (9,906) —
Contributions —
 138,002
Payment of dividends and dividend equivalents (43,906) —
 (136,299) (114,991)
Redemption of Series A preferred stock (1,153) —
Proceeds from IPO, net of underwriting discounts 1,692,058
 —
Distributions to non-controlling interests (1,886) (2,033)
Payment of taxes related to net share settlement of RSUs (8,108) (7,421)
Proceeds from mortgage loans —
 3,274,179
Payments on mortgage loans (709,383) (3,198,588)
Proceeds from secured term loan 403,464
 —
Proceeds from revolving facility 135,000
 100,000
Payments on revolving facility (135,000) (135,000)
Deferred financing costs paid (2,613) (42,489)
Other financing activities (244) (1,258)
Net cash used in financing activities (455,069) (127,601)
    
Change in cash, cash equivalents, and restricted cash (40,536) (6,640)
Cash, cash equivalents, and restricted cash, beginning of period (Note 4) 359,991
 416,562
Cash, cash equivalents, and restricted cash, end of period (Note 4) $319,455
 $409,922




1011


INVITATION HOMES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
(unaudited)



  For the Nine Months Ended
  September 30,
  2017 2016
IPO costs paid (2,757) —
Proceeds from credit facilities —
 184,682
Payments on credit facilities (2,321,585) (126,675)
Proceeds from mortgage loans 996,420
 —
Payments on mortgage loans (2,086,622) (33,452)
Proceeds from term loan facility 1,500,000
 —
Payments on warehouse loans —
 (103,385)
Deferred financing costs paid (42,065) (8,774)
Net cash (used in) provided by financing activities (319,516) 50,398
     
Change in cash and cash equivalents (63,678) (678)
Cash and cash equivalents, beginning of period 198,119
 274,818
Cash and cash equivalents, end of period $134,441
 $274,140
     
Supplemental cash flow disclosures:    
Interest paid, net of amounts capitalized $164,054
 $165,487
Cash paid for income taxes 1,987
 —
     
Noncash investing and financing activities:    
Accrued renovation improvements at period end $5,537
 $6,303
Accrued residential property capital improvements at period end 4,426
 3,684
Transfer of residential property, net to other assets, net for held for sale assets 52,051
 36,616
Reclassification of IPO costs from other assets to additional paid-in capital 2,969
 —
Change in other comprehensive income from cash flow hedges 8,167
 —
  
For the Six Months
Ended June 30,
  2019 2018
Supplemental cash flow disclosures:    
Interest paid, net of amounts capitalized $164,766
 $174,915
Cash paid for income taxes 1,699
 1,373
Cash paid for amounts included in the measurement of lease liabilities:    
Operating cash flows from operating leases 2,581
 N/A
     
Noncash investing and financing activities:    
Accrued renovation improvements at period end $6,188
 $6,214
Accrued residential property capital improvements at period end 12,617
 8,879
Transfer of residential property, net to other assets, net for held for sale assets 198,138
 93,888
Change in other comprehensive income (loss) from cash flow hedges (257,358) 66,894
ROU assets obtained in exchange for operating lease liabilities 1,721
 N/A
Capital leases N/A
 2,448


The accompanying notes are an integral part of these condensed consolidated financial statements.






1112


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)







 
Note 1—Organization and Formation
Invitation Homes Inc. (“INVH”), a real estate investment trust (“REIT”), conducts its operations through Invitation Homes Operating Partnership LP (“INVH LP”). INVH LP was formed for the purpose of owning, renovating, leasing, and operating single-family residential properties. On February 6, 2017, INVH completed an initial public offering (“IPO”) of 88,550,000 shares of common stock at a price to the public of $20.00 per share. An additional 221,826,634 shares of common stock were issued to the Pre-IPO Owners (as defined below) on January 31, 2017.
Prior to the IPO, we conducted our business through a combination of entities formed by Blackstone Real Estate Partners VII L.P. (“BREP VII”), an investment fund sponsored by The Blackstone Group L.P., along with BREP VII’s affiliated side-by-side funds and co-investment vehicles (“BREP VII and Affiliates”). The first Invitation Homes partnership was formed on June 12, 2012, through the establishment of Invitation Homes L.P. (“IH1”) and its wholly-owned subsidiary,Through THR Property Management L.P., a wholly owned subsidiary of INVH LP (the “Manager”). Preeminent Holdings, Inc. (“IH2”) was created on February 14, 2013, Invitation Homes 3 L.P. (“IH3”) on August 8, 2013, Invitation Homes 4 L.P. (“IH4”) on January 10, 2014, Invitation Homes 5 L.P. (“IH5”) on August 22, 2014, and Invitation Homes 6 L.P. (“IH6”) on June 15, 2015 (collectively with IH1, the “Invitation Homes Partnerships”). Through the Manager,, we provide all management and other administrative services with respect to the properties we own. The collective owners
In preparation for our initial public offering (“IPO”), INVH was incorporated in the State of Delaware on October 4, 2016. From inception through the date of the Invitation Homes Partnerships are referred to as the “Pre-IPO Owners.”
Invitation Homes Operating PartnershipIPO, INVH did not engage in any business or activity. Additionally, INVH LP (“INVH LP”) and its general partner Invitation Homes OP GP LLC (the “OP General Partner”), were formed by one of our Pre-IPO Owners on December 14, 2016.2016, and INVH LP began negotiating and entering into certain debt and hedge instruments upon its inception in anticipation of our IPO.
Prior to the IPO, the Invitation Homes Partnerships and INVH LP were under the common control of BREP VII and Affiliates. BREP VII and Affiliates had the ability to control each of the Invitation Homes Partnerships and manage and operate the Invitation Homes Partnerships through the Manager and a common board of directors. As such prior to the IPO, our historical financial statements include assets, liabilities and results of operations of INVH LP and the Invitation Homes Partnerships and their consolidated subsidiaries on a combined and consolidated basis.
As a result of the Pre-IPO Transactions described below, IH2 was effectively merged into INVH (and the assets and liabilities of IH2 were contributed to INVH LP), and the remaining Invitation Homes Partnerships became wholly owned subsidiaries of INVH through INVH LP.
On October 4, 2016, INVH was incorporated in the State of Delaware and was capitalized as of that date by an investment from one of our Pre-IPO Owners. Since inception, and through the date of the Pre-IPO Transactions (as described below), INVH did not engage in any business or activity. On February 6, 2017, INVH completed the IPO, changed its jurisdiction of incorporation to Maryland. The Pre-IPO Transactions also included amendmentsMaryland, and amended its charter to the INVH charter which provide for the issuance of up to 9,000,000,000 shares of common stock and 900,000,000 shares of preferred stock, $0.01 par value per share. In connection with certain pre-IPO reorganization transactions, INVH LP became (1) owned by INVH directly and through INVH’s wholly owned subsidiary, the OP General Partner, and (2) the owner of all of the assets, liabilities, and operations of certain pre-IPO owners. These transactions were accounted for as a reorganization of entities under common control utilizing historical cost basis.
Our organizational structure includes several wholly owned subsidiaries of INVH LP that were formed to facilitate certain of our financing arrangements (the “Borrower Entities”). These Borrower Entities are used to align the ownership of our single-family residential properties with individualcertain of our debt instruments. Collateral for thecertain of our individual debt instruments ismay be in the form of equity interests in the Borrower Entities or in pools of single-family residential properties owned either directly by the Borrower Entities or indirectly by their wholly owned subsidiaries (see Note 6).
References to “Invitation Homes,” the “Company,” “we,” “our,” and “us” refer, collectively, to INVH, IH1, IH2, IH3, IH4, IH5, IH6,INVH LP, and the Manager,consolidated subsidiaries of INVH LP. References to “SWH” refer to Starwood Waypoint Homes and its subsidiaries.
Merger with Starwood Waypoint Homes
On November 16, 2017 (the “Merger Date”), INVH, INVH LP, IH Merger Sub, LLC, a Delaware limited liability company and direct wholly owned subsidiary of INVH, SWH, and Starwood Waypoint Homes Partnership, L.P., a Delaware limited partnership and a subsidiary of SWH, (“SWH Partnership”) effectuated a series of transactions which resulted in SWH and SWH Partnership being merged into INVH and INVH LP.LP, respectively, with INVH and INVH LP being the surviving entities (the “Mergers”).

In connection with the Mergers, each outstanding SWH common share was converted into shares of our common stock and each outstanding unit of SWH Partnership was converted into common units of limited partnership interests in INVH LP. Our limited partnership interests consist of the aforementioned common units and other classes of limited partnership interests that may be issued (the “OP Units”). As of June 30, 2019, INVH owns a 99.0% partnership interest in INVH LP and has the full, exclusive, and complete responsibility for and discretion over the day to day management and control of INVH LP.



1213


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)







Pre-IPO Transactions
On January 31, 2017, we effected certain transactions (the “Pre-IPO Transactions”) that resulted in INVH LP holding, directly or indirectly, all of the assets, liabilities, and results of operations of the Invitation Homes Partnerships, including the full portfolio of homes held by the Invitation Homes Partnerships. As a result of the Pre-IPO Transactions, INVH LP is wholly owned by INVH directly and through its wholly owned subsidiary, the OP General Partner. More specifically:
INVH acquired all of the assets, liabilities, and operations held directly or indirectly by IH2 through certain mergers and related transactions as follows:
IH2 Property Holdings Inc., a parent entity of IH2, merged with and into INVH, with INVH as the entity surviving the merger (the “IH2 Property Holdings Merger”), and the issued and outstanding shares of IH2 Property Holdings Inc., all of which were held by certain of the Pre-IPO Owners, were converted into newly issued shares of common stock of INVH; and
following the IH2 Property Holdings Merger, IH2 merged with and into INVH, with INVH as the entity surviving the merger (the “IH2 Merger”). In the IH2 Merger, all of the shares of common stock of IH2 issued and outstanding immediately prior to such merger, other than the shares held by INVH, were converted into shares of newly issued common stock of INVH. As a result of the IH2 Merger, INVH holds all of the assets and operations held directly or indirectly by IH2 prior to such merger;
prior to the IH2 Merger, our Pre-IPO Owners contributed to INVH their interests in each of the other Invitation Homes Partnerships (other than IH2) in exchange for newly-issued shares of INVH; and
INVH contributed to INVH LP all of the interests in the Invitation Homes Partnerships (other than IH2, the assets, liabilities and operations of which were contributed to INVH LP).
The Pre-IPO Transactions were accounted for as a reorganization of entities under common control utilizing historical cost basis.
Proposed Merger with Starwood Waypoint Homes
On August 9, 2017, we entered into a definitive agreement with Starwood Waypoint Homes (“SFR”) to form a combined company in a stock-for-stock merger of equals transaction (the “Merger Agreement”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, (i) SFR will be merged with and into IH Merger Sub, LLC, a wholly owned subsidiary of the Company (“REIT Merger Sub”), with REIT Merger Sub surviving as our subsidiary (the “REIT Merger”) and (ii) as promptly as practicable after the REIT Merger, Starwood Waypoint Homes Partnership, L.P. (“SFR Partnership”) will be merged with and into INVH LP, with INVH LP surviving as our subsidiary (the “Partnership Merger,” and together with the REIT Merger, the “Mergers”). In connection with the Mergers, we filed with the SEC on October 16, 2017 a definitive joint proxy statement/information statement and prospectus (File No. 333-220543) (the “Merger Proxy”), which includes more detailed information about the Mergers and the related transactions.
Under the terms of the Merger Agreement and as described in the Merger Proxy, each outstanding SFR share will be converted into 1.6140 shares of our common stock (the “Exchange Ratio”), and each outstanding unit of SFR Partnership will be converted into the right to receive 1.6140 common units, representing limited partner interests, in INVH LP. Further, each outstanding restricted share unit of SFR (an “SFR RSU”) that vest as a result of the Mergers or the Merger Agreement will automatically be converted into the right to receive our common stock based on the Exchange Ratio, plus any accrued but unpaid dividends (if any) and less certain taxes (if any). On a pro forma basis giving effect to the Mergers, the combined company will own an approximately 98.2% partnership interest in INVH LP, and the combined company will have the full, exclusive and complete responsibility for and discretion in the day-to-day management and control of INVH LP.
The REIT Merger is intended to qualify as a reorganization for U.S. federal income tax purposes, and the Partnership Merger is intended to be treated as a transaction that is generally tax free to the holders of units of SFR Partnership for U.S. federal income tax purposes. Upon the closing of the Mergers, our stockholders will own approximately 59% of the combined company’s stock, and SFR’s stockholders will own approximately 41% of the combined company’s stock. Based on the closing prices of SFR’s common shares and our common stock on October 13, 2017, the equity market capitalization of the combined company would be approximately $12.0 billion, and the total enterprise value (including debt) would be approximately $21.3 billion.


13

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


The transaction has been approved by our board of directors and SFR’s board of trustees. Completion of the Mergers is subject to, among other things, approval by the holders of the SFR’s common shares. Assuming approval is obtained, the Mergers are expected to close in the fourth quarter of 2017. We can give no assurance that the Mergers and related transactions will be completed in the above timeframe, if at all.
Two putative class actions have been filed by purported shareholders of SFR challenging the Mergers, one of which names us and certain affiliates as defendants. The lawsuits seek, among other things, injunctive relief preventing consummation of the Mergers, rescission of the transactions contemplated by the Merger Agreement should they be consummated and litigation costs, including attorneys’ fees (see Note 14 for additional information).
Note 2—Significant Accounting Policies
Basis of Presentation
The accompanying interim condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our audited combined and consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016. Subsequent to the date of the Pre-IPO Transactions, these2018.
These condensed consolidated financial statements include the accounts of INVH and its wholly ownedconsolidated subsidiaries. Prior to the date of the Pre-IPO Transactions, these combined and consolidated financial statements include the combined accounts of INVH LP and the Invitation Homes Partnerships and their wholly owned subsidiaries.
All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. In the opinion of management, all adjustments whichthat are of a normal recurring nature considered necessary for a fair presentation of our interim financial statements have been included in these condensed consolidated financial statements. Operating results for the ninesix months ended SeptemberJune 30, 20172019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017.2019.
We consolidate entities when we own, directly or indirectly, a majority interest in the entity or are otherwise able to control the entity. We consolidate variable interest entities (“VIEs”) in accordance with Accounting Standards Codification (“ASC”) 810,Consolidation, if we are the primary beneficiary of the VIE as determined by our power to direct the VIE’s activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE. A VIE is broadly defined as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights.
AdoptionAs described in Note 5, as a result of New Accounting Standards
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): ClarifyingMergers we acquired an investment in a joint venture with the Definition of a BusinessFederal National Mortgage Association (“FNMA”), which clarifiesis a voting interest entity. We do not hold a controlling financial interest in the definitionjoint venture but have significant influence over its operating and financial policies. Additionally, FNMA holds certain substantive participating rights that preclude the presumption of a businesscontrol by us; as such, we account for our investment using the equity method. In connection with the objectiveMergers, we initially recorded this investment at fair value in connection with purchase accounting and have subsequently adjusted for our proportionate share of evaluating whether transactions should benet earnings or losses and other comprehensive income or loss, cash contributions made and distributions received, and other adjustments, as appropriate. Distributions of operating profit from the joint venture are reported as part of operating cash flows while distributions related to a capital transaction, such as a refinancing transaction or sale, are reported as investing activities.
Non-controlling interests represent the OP Units held by a third party as a result of the Mergers and any vested OP Units granted in connection with certain share-based compensation awards. Non-controlling interests are presented as a separate component of equity on the condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018, and the condensed consolidated statements of operations for the three and six months ended June 30, 2019 and 2018 include an allocation of the net income (loss) attributable to the non-controlling interest holders. Vested OP Units are redeemable for shares of our common stock on a one-for-one basis or, in our sole discretion, cash, and redemptions of OP Units are accounted for as acquisitions (or disposals)a reduction in non-controlling interests with an offset to stockholders’ equity based on the pro rata number of assets or businesses. Early adoption is permitted only for transactions that occurred before the issuance date of the guidance and has not been previously reported in issued financial statements. Effective January 1, 2017, we adopted ASU 2017-01, and the adoption of this standard had no material impact on our condensed consolidated financial statements for any period presented.OP Units redeemed.
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification




14


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)







Reclassifications
Certain reclassifications have been made to prior periods to conform with current reporting on the statementcondensed consolidated statements of cash flows. Effectiveoperations. We combined other property income of $28,578 and $56,455, respectively, for the three and six months ended June 30, 2018 into rental revenues and other property income. We reclassified interest expense of $97,226 and $189,525, respectively, for the three and six months ended June 30, 2018 into total expenses. We also no longer present loss from continuing operations and have reclassified gain on sale of property, net of tax of $3,941 and $9,443, respectively, for the three and six months ended June 30, 2018 accordingly. These reclassifications did not have any effect on the total reported net loss for the three and six months ended June 30, 2018.
Adoption of New Accounting Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), (the “New Lease Standard”), which requires lessees to recognize assets and liabilities on the condensed balance sheets for the rights and obligations created by all leases with terms of more than one year. Lessor accounting remains similar to previous GAAP, while aligning with ASC 606, Revenue from Contracts with Customers (“ASC 606”).
We adopted the New Lease Standard using the optional transition approach as of January 1, 2017,2019. As such, previously reported financial information was not updated, and additional disclosures required under the New Lease Standard are not provided for periods prior to January 1, 2019. Additionally, we adopted ASU 2016-09,elected the practical expedient package related to lease identification, lease classification, and initial direct costs. As such, we have not reassessed our existing contracts and leases for these items. We did not elect the hindsight practical expedient, which permits entities to use hindsight in determining lease term and assessing impairment.
As a lessor, our leases with residents are classified as operating leases under the New Lease Standard, and thus the pattern of recognition of rental revenue and other property income remains unchanged from previous lease accounting guidance as adjusted by ASC 606. Rental revenues and other property income are recorded net of any concessions and uncollectible amounts for all periods presented.
As a lessee, adoption of this standard had no impactthe New Lease Standard resulted in the recognition of right-of-use (“ROU”) assets and lease liabilities for operating leases on our condensed consolidated financialbalance sheet; however, our accounting for finance leases remains substantially unchanged. On January 1, 2019, we recorded the cumulative effect of adoption of the New Lease Standard on our condensed consolidated balance sheet which resulted in an increase in other assets and other liabilities of $14,118 and $14,118, respectively.
In August 2018, the SEC issued Securities Act Release No. 33-10532, Disclosure Update and Simplification, which amends certain of its disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. The Disclosure Update and Simplification requires us to disclose and analyze changes in stockholders’ equity for the current quarter and year to date interim periods as well as the comparative periods of the prior year. We have conformed the presentation of our condensed consolidated statements of equity with this requirement for any periodall periods presented.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. These estimates are inherently subjective in nature and actual results could differ from those estimates.
Accounting Policies
There have been no changes to our significant accounting policies that have had a material impact on our condensed consolidated financial statements and related notes, compared to those policies disclosed in our audited combined and consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 20162018 other than as disclosed below.
Investments in Single-Family Residential Properties
Upon acquisition, we evaluate our acquired single-family residential properties for purposes of determining whether a transaction should be accounted for as an asset acquisition or business combination. Upon adoption of ASU 2017-01, our purchases of homes are treated as acquisitions and are recorded at their purchase price which is allocated between land, building and improvements, and in-place lease intangibles (when a tenant 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, homeowners’ association (“HOA”), and other mechanic’s and miscellaneous liens, as well as other closing costs. The fair values of acquired in-place lease intangibles, if any, are based on the costs to execute similar leases, including commissions and other related costs. The origination value of in-place lease intangibles also includes an estimate of lost rent revenue at in-place rental rates during the estimated time required to lease the property. The in-place lease intangibles are amortized over the life of the leases and are recorded in other assets, net on our condensed consolidated balance sheets. Prior to our adoption of ASU 2017-01 effective January 1, 2017, acquisition costs for transactions accounted forthe New Lease Standard as business combinations were expensed in the period in which they were incurred and were reflected in other expenses in the accompanying condensed consolidated statements of operations.disclosed above.
Earnings per Share
We use the two-class method to compute basic and diluted earnings (loss) per common share (“EPS”) because certain of our restricted stock units and restricted stock awards (see Share-Based Compensation Expense below) are participating securities as defined by GAAP. We compute basic EPS by dividing net income (loss) available to common shareholders for the period by the weighted-average number of common shares outstanding for the period, adjusted to exclude non-vested restricted stock units (“RSUs”) and restricted shares of common stock (“RSAs”). Diluted EPS is similar to computing basic EPS, except that the denominator is increased to include the dilutive effects of non-vested RSUs and RSAs except when doing so would be anti-dilutive. Prior to the IPO, our business was conducted through the Invitation Homes Partnerships which did not have a common capital structure upon which to compute historical EPS. Accordingly, EPS has not been presented for historical periods prior to the IPO.
Derivatives
We enter into interest rate swap and interest rate cap agreements (collectively, “Hedging Derivatives”) for interest rate risk management purposes. We do not enter into Hedging Derivatives for trading or other speculative purposes, and all of our Hedging Derivatives are carried at fair value on our condensed consolidated balance sheets. Designated hedges are derivatives that meet the criteria for hedge accounting and that we have elected to designate as hedges. Non-designated hedges are derivatives that do not meet the criteria for hedge accounting or that we have not elected to designate as hedges.




15


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)







PursuantRevenue Recognition and Resident Receivables
Rental revenues and other property income, net of any concessions and uncollectible amounts, consists primarily of rents collected under lease agreements related to our single-family residential properties. We enter into leases directly with our residents, and our leases typically have a term of one to two years. We elected the practical expedient not to separate the lease and nonlease components of these operating leases with our residents. Our lease components consist primarily of rental income, pet rent, and smart home system fees. Nonlease components include resident reimbursements for utilities and various other fees, including late fees and lease termination fees, among others. The lease component is the predominant component in these arrangements, and as such, we recognize rental revenues and other property income in accordance with the New Lease Standardfor the three and six months ended June 30, 2019, and in accordance with previous GAAP for the three and six months ended June 30, 2018.
Variable lease payments consist of resident reimbursements for utilities, and various other fees, including late fees and lease termination fees, among others. Variable lease payments are charged based on the terms and conditions included in the resident leases. For thethree and six months ended June 30, 2019, rental revenues and other property income includes $23,253 and $44,583, respectively, of variable lease payments. Sales taxes and other similar taxes assessed by governmental authorities that we collect from residents are excluded from our rental revenues and other property income.
Leases Entered Into as a Lessee
We lease our corporate and regional offices, related office equipment, and a fleet of vehicles for use by our field associates. As of January 1, 2019, these leases are accounted for pursuant to the terms of certainNew Lease Standard (see Note 5 and Note 14).
We account for leases for our corporate and regional offices as operating leases. In addition to monthly rent payments, we reimburse the lessors of our mortgage loans,office spaces for our share of operating expenses as defined in the leases. Such amounts are not included in the measurement of the lease liability but are recognized as a variable lease expense when incurred. At this time, it is not reasonably certain that we are required to maintain interest rate caps. will exercise any of the renewal or termination options on these leases, and the measurement of the ROU asset and lease liability is calculated accordingly.
We have elected the practical expedient under which the lease components of our office and vehicle fleet leases are not to designate these interest cap agreements for hedge accounting (collectively,separated from the “Non-Designated Hedges”).nonlease components. We enter into interest rate swap agreements to hedge the risk arising from changes in our interest payments on variable-rate debt due to changes in the one-month London Interbank Offered Rate (“LIBOR”). In connection with the Pre-IPO Transactions, as of January 31, 2017, we have elected to accountthe short-term lease recognition exemption for our interest rate swap agreements as effective cash flow hedges (collectively, the “Designated Hedges”). We assess the effectiveness ofoffice equipment leases and therefore do not record these interest rate swap cash flow hedging relationships on an ongoing basis. The effect of these interest rate cap agreements and interest rate swap agreements is to reduce the variability of interest payments due to changes in LIBOR.
The fair value of Hedging Derivatives that are in an asset position are included in other assets, net and those in a liability position are included in other liabilitiesleases on our condensed consolidated balance sheets. For Non-Designated Hedges, the related changes in fair valueThese office equipment leases are reflected within interest expense in the condensed consolidated statements of operations. For Designated Hedges, the effective portion of the related changes in fair value is reported as a component of other comprehensive income (loss) onnot material to our condensed consolidated balance sheets and reclassified into earnings as interest expense in our condensed consolidated statements of operations when the hedged transactions affect earnings; the ineffective portion of the changes in fair value is reflected directly within interest expense in the condensed consolidated statements of operations. See Note 7 for further discussion of derivative financial instruments.
Share-Based Compensation Expense
Prior to the IPO, we recognized share-based compensation expense for incentive compensation units granted by the Invitation Homes Partnerships (the “Class B Units”). In connection with and subsequent to the IPO, we issued RSUs that settle in shares of common stock and RSAs for which share-based compensation expense is recognized.
We recognized share-based compensation expense for the Class B Units based on the estimated fair value of the Class B Units and vesting conditions of the related incentive unit agreements. Since the Class B Units granted by IH1 were granted to employees of the Manager, a wholly owned subsidiary of IH1, the related share-based compensation expense was based on the grant-date fair value of the units and recognized in expense over the service period. Because units in IH2, IH3, IH4, IH5, and IH6 were granted to non-employees of those respective partnerships, fair value was remeasured for non-vested units at the end of each reporting period. The fair value of the Class B Units was determined based on a valuation model that took into account discounted cash flows and a market approach based on comparable companies and transactions.
We recognize share-based compensation expense for the RSUs and RSAs based on their grant-date fair value, net of expected forfeitures, over the service period from the grant date to vest date for each tranche or when any applicable performance conditions are met in accordance with the related RSU and RSA agreements. The grant-date fair value of RSUs and RSAs is generally based on the closing price of our common stock on the grant date except for market based RSU grant‑date fair values which are based on Monte-Carlo option pricing models.
Additional compensation expense is recognized if modifications to existing incentive compensation unit, RSU, or RSA agreements result in an increase in the post-modification fair value of the units that exceeds their pre-modification fair value. Share-based compensation expense is presented as a component of general and administrative expense and property management expense in our condensed consolidated statements of operations. See Note 10 for further discussion of share-based compensation expense.
Income Taxes
As a result of the Pre-IPO Transactions more fully described in Note 1, the Invitation Homes Partnerships transferred all assets, liabilities, and operations to INVH through certain mergers and related transactions, including the IH2 Property Holdings Merger. IH2 Property Holdings Inc. had previously elected to qualify as a Real Estate Investment Trust “REIT” for United States federal income tax purposes commencing with its taxable year ended December 31, 2013. Effective upon consummation of the IH2 Property Holdings Merger, INVH became subject to such REIT election.
We intend to continue to operate as a REIT, and our current and continuing qualification as a REIT depends on our ability to meet the various requirements imposed by the Internal Revenue Code of 1986, as amended (the “Code”), which are related to organizational structure, distribution levels, diversity of stock ownership and certain restrictions with regard to owned assets and categories of income. If we qualify for taxation as a REIT, we will generally not be subject to United States federal corporate income tax on our taxable income that is currently distributed to shareholders. This treatment substantially


16

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


eliminates the “double taxation” (at the corporate and stockholder levels) that generally results from an investment in a corporation. If we fail to qualify as a REIT in any taxable year, we will be subject to federal taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for subsequent taxable years.
Even if we qualify as a REIT, we may be subject to United States federal income and excise taxes in various situations, such as on our undistributed income. We also will be required to pay a 100% tax on any net income on non-arm’s length transactions between us and a TRS, defined below, and on any net income from sales of assets that were held for sale to customers in the ordinary course. In addition, we could also be subject to the alternative minimum tax on items of tax preference. State and local tax laws may not conform to the United States federal income tax treatment, and we may be subject to state or local taxation in various state or local jurisdictions, including those in which we transact business. Any taxes imposed on us reduce our operating cash flow and net income.
As part of the formation of INVH, each of the Invitation Homes Partnerships (other than IH2) transferred assets into INVH solely in exchange for shares of common stock. Certain of the assets contributed contained built-in gains. Prior to the Pre-IPO Transactions, the contributing partnerships had indirect C corporation partners to which a portion of the built-in gain would be allocated. As a result, if we dispose of any such assets during the five-year period following the date the REIT acquired such assets, we will be subject to the regulations under Section 337(d) of the Code. In general terms, such regulations subject the REIT to the maximum corporate level tax rate on the lesser of (i) such built-in gains and (ii) the gain recognized by the REIT upon a taxable disposition of the contributed assets. We may, however, choose not to sell such assets during such five-year period or to sell them in a non-taxable transaction. As such, the potential taxes associated with these built-in gains are not estimable.
Certain of our operations or a portion thereof, are conducted through taxable REIT subsidiaries, each of which we refer to as a TRS. A TRS is a subsidiary C-corporation that has not elected REIT status and as such is subject to United States federal and state corporate income tax. We use TRS entities to facilitate our ability to perform non-real estate related activities and/or perform non-customary services for residents that cannot be offered directly by a REIT.
For our TRS entities, deferred income taxes result from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for United States federal income tax purposes and are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. We reduce deferred tax assets by recording a valuation allowance when we determine, based on available evidence, that it is more likely than not that the assets will not be realized. We recognize the tax consequences associated with intercompany transfers between the REIT and TRS entities when the related assets affect our GAAP net income or loss, generally through depreciation, impairment losses, or sales to third-party entities.
Tax benefits associated with uncertain tax positions are recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.
We file income tax returns in the United States federal jurisdiction as well as various state and local jurisdictions. Our filings are subject to normal reviews by regulatory agencies until the related statute of limitations expires, with open tax years varying based upon the date of incorporation of the specific entity. The years open to examination range from 2013 to present.statements.
Recent Accounting Pronouncements
In September 2017,June 2016, the FASB issued ASU No. 2017-13, Revenue Recognition2016-13, Financial Instruments—Credit Losses (Topic 605), Revenue326): Measurement of Credit Losses on Financial Instruments, which changes how companies will measure credit losses for certain financial assets, excluding receivables arising from Contracts with Customers (Topic 606), Leases (Topic 840),operating leases. This guidance requires an entity to estimate its expected credit loss and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcementrecord an allowance based on this estimate so that it is presented at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments. The purpose of this pronouncement isnet amount expected to updatebe collected on the guidance in the SEC paragraphs of the Accounting Standards Codification to align with ASU No. 2014-09. Thisfinancial asset. The new standard will be effective at the same time an entity adopts the new revenue guidance in ASU No. 2014-09, Revenue from Contractsfor annual reporting periods beginning after December 15, 2019, and interim periods within that reporting period, with Customer (Topic 606) which is effective on January 1, 2018.early adoption permitted beginning after December 15, 2018 and interim periods within that reporting period. We do not anticipate that the adoption of this standard will have a material impact on our condensed consolidated financial statements.
In August 2017,2018, the FASB issued ASU No. 2017-12, Derivatives2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which changes the fair value disclosure requirements for certain financial instruments. This guidance reduces the need for certain disclosure language related to our financial instruments and Hedging:Targeted Improvements to Accountingadds additional support for Hedging Activities (Topic 815). The purposeunobservable inputs used in the calculation of fair values. This new standard will be effective for annual reporting periods beginning after December 15, 2019, and interim periods within that reporting period. We do not anticipate that the adoption of this updated guidance is to better alignstandard will have a company’smaterial impact on our condensed consolidated financial reporting for hedging activities with the economic objectives of those activities. The transition guidance provides companies with thestatements.




1716


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)







option of early adopting the new standard using a modified retrospective transition method in any interim period after issuance of the update, or alternatively requires adoption for fiscal years beginning after December 15, 2018. This adoption method will require us to recognize the cumulative effect of initially applying the ASU as an adjustment to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that we adopt the update. While we continue to assess all potential impacts of the standard, we currently expect the adoption to have an immaterial impact on our condensed consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies the definition of modification with the objective of evaluating whether modification accounting should be applied when there are changes to the terms or conditions of a share-based payment award. The guidance will be effective for us for annual reporting periods beginning after December 15, 2017, and for interim periods within those annual periods with early adoption permitted. We are currently assessing the impact of the guidance on our condensed consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires that period changes in the total of cash, cash equivalents, and amounts generally described as restricted cash or cash equivalents are explained in the statement of cash flow. Thus, amounts generally described as restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning and ending balances shown in the statement of cash flows. The guidance will be effective for us for annual reporting periods beginning after December 15, 2017, and for interim periods. The adoption of this standard will modify our current disclosures and classifications within the condensed consolidated statements of cash flows, but is not expected to have a material effect on our condensed consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which clarifies the classification of certain cash receipts and cash payments including debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, proceeds from the settlement of insurance claims, and beneficial interests in securitization transactions. The new standard will be effective for us for annual reporting periods beginning after December 15, 2017, and for interim periods within those annual periods. The adoption of this standard will modify our current disclosures and classifications within the condensed consolidated statements of cash flows, but is not expected to have a material effect on our condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than one year. Lessor accounting will remain similar to lessor accounting under current GAAP, while aligning with the FASB’s new revenue recognition guidance. The new standard will be effective for us for annual reporting periods beginning after December 15, 2018, and for interim periods within those annual periods, with early adoption permitted. We are currently evaluating the impact of the guidance on our condensed consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including the requirement to measure certain equity investments at fair value with changes in fair value recognized in net income. The new standard will be effective for us for annual reporting periods beginning after December 15, 2017, and for interim periods within those annual periods. We are currently evaluating the impact of the guidance on our condensed consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which provides guidance on revenue recognition and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, most industry-specific guidance and some cost guidance included in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts. The standard’s core principle is that a company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. These judgments may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. The guidance will be effective for us for annual


18

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


reporting periods beginning after December 15, 2017, and for interim periods within those annual periods. At that time, we may adopt the full retrospective approach or the modified retrospective approach. We are currently evaluating the method of adoption of this guidance and do not anticipate that the adoption of this guidance will have a material impact on our condensed consolidated financial statements as most of our revenue is from rental revenues, which are not impacted by this standard.
Note 3—Investments in Single-Family Residential Properties
The following table sets forth the net carrying amount associated with our properties by component:
  June 30,
2019		 December 31, 2018
Land $4,522,979
 $4,561,441
Single-family residential property 13,080,759
 13,026,317
Capital improvements 521,531
 525,670
Equipment 115,715
 116,546
Total gross investments in the properties 18,240,984
 18,229,974
Less: accumulated depreciation (1,777,457) (1,543,914)
Investments in single-family residential properties, net $16,463,527
 $16,686,060
  September 30,
2017		 December 31,
2016
Land $2,733,834
 $2,703,388
Single-family residential property 6,908,064
 6,829,579
Capital improvements 229,902
 229,890
Equipment 31,906
 31,988
Total gross investments in the properties 9,903,706
 9,794,845
Less: accumulated depreciation (982,463) (792,330)
Investments in single-family residential properties, net $8,921,243
 $9,002,515


As of SeptemberJune 30, 20172019 and December 31, 2016,2018, the carrying amount of the residential propertyproperties above included $122,158includes $119,574 and $122,009,$120,438, respectively, of capitalized acquisition costs (excluding purchase price), along with $62,296$64,513 and $62,169,$66,449, respectively, of capitalized interest, $25,942$25,216 and $26,050,$25,670, respectively, of capitalized property taxes, $4,722$4,642 and $4,764,$4,694, respectively, of capitalized insurance, and $2,843$2,754 and $2,890,$2,779, respectively, of capitalized HOAhomeowners’ association (“HOA”) fees.
During the three months ended SeptemberJune 30, 20172019 and 2016,2018, we recognized $66,671$131,782 and $65,446,$128,501, respectively, of depreciation expense related to the components of the properties, $0 and $795$16,446, respectively, of amortization related to in-place lease intangible assets, and $1,034,$1,249 and $1,503, respectively, of depreciation and amortization related to corporate furniture and equipment. These amounts are included in depreciation and amortization onin the condensed consolidated statements of operations. Further, during the three months ended SeptemberJune 30, 20172019 and 2016,2018, impairments totaling $424$4,076 and $1,076,$1,671, respectively, have been recognized and are included in impairment and other onin the condensed consolidated statements of operations.
During the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, we recognized $200,023$264,302 and $194,630,$255,162, respectively, of depreciation expense related to the components of the properties, $0 and $2,535$32,893, respectively, of amortization related to in-place lease intangible assets, and $3,631,$2,338 and $2,895, respectively, of depreciation and amortization related to corporate furniture and equipment. These amounts are included in depreciation and amortization onin the condensed consolidated statements of operations. Further, during the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, impairments totaling $1,556$7,329 and $1,595,$2,274, respectively, have been recognized and are included in impairment and other onin the condensed consolidated statements of operations.


17

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)





Note 4—Cash, Cash Equivalents, and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the condensed consolidated balance sheets that sum to the total of such amounts shown in the condensed consolidated statements of cash flows:
  June 30, December 31,
  2019 2018 2018 2017
Cash and cash equivalents $77,046
 $166,874
 $144,940
 $179,878
Restricted cash 242,409
 243,048
 215,051
 236,684
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows $319,455
 $409,922
 $359,991
 $416,562

Pursuant to the terms of the credit facility agreements and the mortgage loans describedand Secured Term Loan (as defined in Note 6,6), we are required to establish, maintain, and fund from time to time (generally either monthly or at the time borrowings are funded) certain specified reserve accounts. These reserve accounts include, but are not limited to, the following types of accounts: (i) completion reserves; (ii) renovation reserves; (iii) leasing commission reserves; (iv) debt service reserves; (v) property tax reserves; (vi)(ii) insurance premiumreserves; (iii) capital expenditure reserves; and deductible reserves; (vii) standing reserves; (viii) special reserves; (ix) termination fee reserves; (x) eligibility reserves; (xi) collections; and (xii) non-conforming property(iv) HOA reserves. In February 2017, the credit facilities were repaid in full and all related reserve accounts were released. Prior to that time, the credit facility reserve accounts were under the sole control of the Administrative Agent, as defined in the credit facility agreements. The reserve accounts associated with theour mortgage loans and Secured Term Loan are under the sole control of the loan servicer. Additionally, we hold security


19

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


deposits pursuant to resident lease agreements that are required to be segregated. Accordingly, amounts fundedWe are also required to these reserve accounts and security deposit accounts have been classified within our condensed consolidated balance sheets as restricted cash. We also hold letters of credit as required by certain of our insurance policies. Accordingly, amounts funded to these reserve accounts, security deposit accounts, and other restricted accounts have been classified on our condensed consolidated balance sheets as restricted cash.
The amounts funded, and to be funded, to the reserve accounts are subject to formulae included in the credit facility agreementsmortgage loan and mortgage loanSecured Term Loan agreements and are to be released to us subject to certain conditions specified thereinin the loan agreements being met. To the extent that an event of default were to occur, the loan servicer (as it relates to the mortgage loans) has discretion to use such funds to either settle the applicable operating expenses to which such reserves relate or reduce the allocated loan amount associated with a residential property of ours.
AsThe balances of September 30, 2017 and December 31, 2016, the balances in our restricted cash accounts, as of June 30, 2019 and December 31, 2018, are as set forth in the table below. AtAs of June 30, 2019 and December 31, 2016,2018, no amounts were funded to the completion, renovation, leasing commission, debt service, termination fee, and nonconforming property reserveinsurance accounts as the conditions specified in the credit facilitymortgage loan and Secured Term Loan agreements that require such funding did not exist, and none are required at September 30, 2017 as the credit facilities had been repaid in full.exist.
  June 30,
2019		 December 31, 2018
Resident security deposits $151,473
 $150,346
Property taxes 53,052
 26,163
Collections 26,830
 26,677
Capital expenditures 4,906
 5,269
Letters of credit 3,452
 3,444
Special and other reserves 2,696
 3,152
Total $242,409
 $215,051



18
  September 30,
2017		 December 31,
2016
Resident security deposits $89,409
 $86,239
Collections 20,354
 42,767
Property taxes 39,375
 52,256
Insurance premium and deductible —
 4,432
Standing and capital expenditure reserves 1,754
 24,409
Special reserves —
 34
Eligibility reserves 398
 9,274
Letters of credit 2,491
 2,681
Total $153,781
 $222,092
Note 5—Other Assets
At September 30, 2017 and December 31, 2016, the balances in other assets, net are as follows:
  September 30,
2017		 December 31,
2016
Investments in debt securities, net $230,619
 $209,337
Held for sale assets(1)
 12,170
 45,062
Prepaid expenses 23,412
 21,883
Deferred leasing costs, net 7,320
 7,710
Rent and other receivables, net 11,986
 11,604
Deferred financing costs, net 8,096
 —
Interest rate swap hedges (see Note 7) 5,529
 —
Corporate fixed assets, net 6,522
 6,247
Other 9,405
 7,782
Total $315,059
 $309,625
(1)As of September 30, 2017 and December 31, 2016 (unaudited), 71 and 391 properties, respectively, were classified as held for sale.


20


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)







Note 5—Other Assets
As of June 30, 2019 and December 31, 2018, the balances in other assets, net are as follows:
  June 30,
2019		 December 31, 2018
Investments in debt securities, net $331,088
 $366,599
Held for sale assets(1)
 151,012
 154,077
Investment in unconsolidated joint venture 56,026
 56,622
Prepaid expenses 39,577
 30,970
Rent and other receivables, net 29,457
 33,117
ROU lease assets — operating and finance, net 15,980
 N/A
Corporate fixed assets, net 10,881
 11,792
Derivative instruments (Note 7) 7,841
 75,405
Deferred leasing costs, net 6,925
 6,316
Amounts deposited and held by others 4,501
 1,010
Deferred financing costs, net 3,949
 5,134
Other 15,727
 18,128
Total $672,964
 $759,170

(1)As of June 30, 2019 and December 31, 2018, 708 and 738 properties, respectively, are classified as held for sale.
Investments in Debt Securities, net
In connection with certain of theour Securitizations as(as defined in Note 6,6), we previously acquired $193,045have retained and purchased certificates totaling $331,088, net of Class G certificates. In 2016, we purchased $16,423unamortized discounts of Class F certificates, which had an unamortized discount of $0 and $131$2,817, as of SeptemberJune 30, 2017 and December 31, 2016, respectively. During the nine months ended September 30, 2017, we purchased $55,500 of Class B certificates, which had an unamortized discount of $3,433 as of September 30, 2017, and received repayments of $30,916 from retained debt securities.2019. These investments in debt securities are classified as held to maturity investments (for additional information about the Securitizations, see Note 6).investments. As of SeptemberJune 30, 20172019 and December 31, 2016,2018, there were no gross unrecognized holding gains or losses, and there were no other than temporary impairments.impairments recognized in accumulated other comprehensive income. As of SeptemberJune 30, 2017, the Class F and G2019, our retained certificates are scheduled to mature over the next 3three months to 12 months,eight years.
Investment in Unconsolidated Joint Venture
We own a 10% interest in a joint venture with FNMA to operate, lease, and manage a portfolio of properties primarily located in Arizona, California, and Nevada. A wholly owned subsidiary of INVH LP is the Class B certificates are scheduledmanaging member of the joint venture and is responsible for the operation and management of the properties, subject to mature in 10 years.FNMA’s approval of major decisions. As of June 30, 2019 and December 31, 2018, the joint venture owned 718 and 754 properties, respectively.
Rent and Other Receivables net
We lease our properties to residents pursuant to leases that generally have an initial contractual term of at least 12 months, provide for monthly payments, and are cancelable by the resident and us under certain conditions specified in the related lease agreements.
Included

19

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in other assets,thousands)
(unaudited)





ROU Lease Assets — Operating and Finance, net within the condensed consolidated balance sheets, is an allowance for doubtful accounts of $1,316 and $1,183,
The following table presents supplemental information related to leases into which we have entered as a lessee as of SeptemberJune 30, 2017 and December 31, 2016, respectively.2019:
  June 30, 2019
  
Operating
Leases
 
Finance
Leases
Other assets $14,510
 $1,470
Other liabilities 15,655
 1,462
Weighted average remaining lease term 4 years
 2 years
Weighted average discount rate 4.0% 4.0%
Deferred Financing Costs, net
In connection with our Revolving Facility (as defined in Note 6), we incurred $9,673 of financing costs during the nine monthsyear ended September 30,December 31, 2017, which have been deferred as other assets, net on our condensed consolidated balance sheet due to the line of credit features of the Revolving Facility.sheets. These deferred financing costs are being amortized as interest expense on a straight linestraight-line basis over the term of the Revolving Facility. As of June 30, 2019 and December 31, 2018, the unamortized balances of these deferred financing costs are $3,949 and $5,134, respectively.


20
Note 6—Debt
Mortgage Loans
As of September 30, 2017, we have completed eight securitization transactions (the “Securitizations” or the “mortgage loans”) collateralized by homes owned by the respective Invitation Homes Borrower Entities. The proceeds from the mortgage loans were used to fund (i) repayments of then-outstanding indebtedness, including credit facilities and prior securitization transactions, (ii) initial deposits in the reserve accounts, (iii) closing costs in connection with the mortgage loans, (iv) general costs associated with our operations, and (v) distributions and dividends to the Pre-IPO Owners.


21


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)







Note 6—Debt
Mortgage Loans
Our securitization transactions (the “Securitizations” or the “mortgage loans”) are collateralized by certain homes owned by the respective Borrower Entities. We utilize the proceeds from our securitizations to fund: (i) repayments of then-outstanding indebtedness; (ii) initial deposits into Securitization reserve accounts; (iii) closing costs in connection with the mortgage loans; (iv) general costs associated with our operations; and (v) distributions and dividends.
The following table sets forth a summary of theour mortgage loan indebtedness as of SeptemberJune 30, 20172019 and December 31, 2016:2018:
        
Outstanding Principal Balance(3)
  Maturity Date 
Interest Rate(2)
 Range of Spreads 
September 30,
2017(4)
 December 31,
2016
IH1 2013-1 N/A N/A 115-365 bps $—
 $462,431
IH1 2014-1 N/A N/A 100-375 bps —
 978,231
IH1 2014-2(1)(5)
 September 9, 2018 3.13% 110-400 bps 703,241
 710,664
IH1 2014-3(1)(6)
 December 9, 2017 3.56% 120-500 bps 147,323
 766,753
IH2 2015-1, net(1)(7)
 March 9, 2018 3.60% 145-430 bps 529,443
 531,318
IH2 2015-2(1)
 June 9, 2018 3.18% 135-370 bps 628,574
 630,283
IH2 2015-3(1)
 August 9, 2018 3.41% 130-475 bps 1,169,048
 1,184,314
IH 2017-1, net(8)
 June 9, 2027 4.17% N/A 996,365
 —
Total Securitizations 4,173,994
 5,263,994
Less deferred financing costs, net (16,970) (9,256)
Total $4,157,024
 $5,254,738
          
Outstanding Principal Balance(4)
  
Origination
Date
 
Maturity
Date(1)
 
Interest
Rate(2)
 
Range of Spreads(3)
 June 30,
2019		 December 31, 2018
CSH 2016-2 N/A June 7, 2019 —% N/A $—
 $442,614
IH 2017-1(5)
 April 28, 2017 June 9, 2027 4.23% N/A 995,790
 995,826
SWH 2017-1(6)
 September 29, 2017 October 9, 2019 3.95% 102-347 bps 758,893
 764,685
IH 2017-2(6)(7)
 November 9, 2017 December 9, 2019 3.70% 91-231 bps 734,165
 856,238
IH 2018-1(6)
 February 8, 2018 March 9, 2020 3.51% 76-206 bps 809,506
 911,827
IH 2018-2(6)
 May 8, 2018 June 9, 2020 3.80% 95-230 bps 1,020,651
 1,035,749
IH 2018-3(6)
 June 28, 2018 July 9, 2020 3.82% 105-230 bps 1,284,176
 1,296,959
IH 2018-4(6)
 November 7, 2018 January 9, 2021 3.81% 115-225 bps 951,092
 959,578
Total Securitizations 6,554,273
 7,263,476
Less: deferred financing costs, net (44,311) (61,822)
Total $6,509,962
 $7,201,654
 
(1)
The initial maturity term of each of theseMaturity date represents repayment date for mortgage loans is two years, individually subjectwhich have been repaid in full prior to three, one-year extension options at the borrower’s discretion (provided that there is no continuing event of default under the loan agreement and the borrower obtains a replacement interest rate cap agreement in a form reasonably acceptable to the lender)June 30, 2019. Our IH1 2014-3, IH2 2015-1, IH2 2015-2, and IH2 2015-3For all other mortgage loans, have exercised the first extension options, and IH1 2014-2 has exercised the second option.The maturity dates above are reflective ofreflect all extensions that have been exercised.
(2)
For each of our first seven mortgage loans,Except for IH 2017-1, interest rates are based on a weighted average spread to LIBOR;over the London Interbank Offered Rate (“LIBOR”), plus applicable servicing fees; as of SeptemberJune 30, 20172019, LIBOR was 1.23%2.40%. Our IH 2017-1 mortgage loan bears interest at a fixed rate of 4.17%4.23% per annum, equal to the market determined pass-through rate payable on the certificates plusincluding applicable servicing fees.
(3)
Range of spreads is based on outstanding principal balances as of June 30, 2019.
(4)Outstanding Principal Balanceprincipal balance is net of discounts and does not include capitalized deferred financing costs, net.
(4)
From October 1, 2017 to November 2, 2017, we made prepayments of $2,634 on our mortgage loans related to the disposition of properties.
(5)
On October 10, 2017, we submitted a notification to request an extensionNet of the maturityunamortized discount of the IH1 2014-3 mortgage loan from$2,817 and $2,993 as of June 30, 2019 and December 9, 2017 to December 9,31, 2018 upon approval. On November 9, 2017, the outstanding balance of IH1 2014-2 was repaid in full (see Note 15)., respectively.
(6)
On November 9, 2017,The initial maturity term of each of these mortgage loans is two years, individually subject to three to five, one year extension options at the outstanding balanceBorrower Entity’s discretion (provided that there is no continuing event of IH1 2014-3 was repaid in full (see Note 15)default under the mortgage loan agreement and the Borrower Entity obtains and delivers a replacement interest rate cap agreement from an approved counterparty within the required timeframe to the lender). The maturity dates above reflect all extensions that have been exercised.
(7)
NetOn July 9, 2019, we voluntarily prepaid $50,000 of unamortized discountoutstanding borrowings with unrestricted cash on hand against the outstanding balance of $0 and $55 as of September 30, 2017 and December 31, 2016, respectively.
(8)
Net of unamortized discount of $3,433 as of September 30, 2017.
IH 2017-2 (see Note 15).
Securitization Transactions
IH1 2013-1: In November 2013, we completed our first securitization transaction (“IH1 2013-1”), in which 2013-1 IH Borrower L.P. (“S1 Borrower”), a newly-formed special purpose entity and wholly owned subsidiary of IH1, executed a loan agreement with a third-party lender. The third-party lender made a six component term loan to S1 Borrower in the amount of $479,137. All six components of the loan were sold at par. On February 6, 2017, the outstanding balance of IH1 2013-1 was repaid in full.
IH1 2014-1: In May 2014, we completed our second securitization transaction (“IH1 2014-1”), in which 2014-1 IH Borrower L.P. (“S2 Borrower”), a newly-formed special purpose entity and wholly owned subsidiary of IH1, executed a loan agreement with a third-party lender. The third party lender made a six component term loan to S2 Borrower in the amount of $993,738. All six components of the loan were sold at par. On February 6, 2017 and March 9, 2017, we made voluntary prepayments of $291,500 and $260,000, respectively. On April 28, 2017, the outstanding balance of IH1 2014-1 was repaid in full.




2221


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)







IH1 2014-2: In August 2014, we completed our third securitizationSecuritization Transactions
For each Securitization transaction, (“IH1 2014-2”), in which 2014-2 IHthe Borrower L.P. (“S3 Borrower”), a newly-formed special purpose entity and wholly owned subsidiary of IH1,Entity executed a loan agreement with a third-partythird party lender. Except for IH 2017-1, each outstanding mortgage loan consists of six floating rate components. The third-party lender madetwo year initial terms are individually subject to three to five, one year extension options at the Borrower Entity’s discretion. Such extensions are available provided there is no continuing event of default under the respective mortgage loan agreement and the Borrower Entity obtains and delivers a termreplacement interest rate cap agreement from an approved counterparty within the required timeframe to the lender. IH 2017-1 is a 10 year, fixed rate mortgage loan comprised of (1) six floating rate componentstwo components. Certificates issued by the trust in connection with Component A of IH 2017-1 benefit from FNMA’s guaranty of timely payment of principal and (2) one fixed rate component to S3 Borrowerinterest.
Each mortgage loan is secured by a pledge of the equity in the amountassets of $719,935. Of the seven loan components,respective Borrower Entities, as well as first-priority mortgages on the Class A, B, C, Dunderlying properties and G certificates were sold at par; however,a grant of security interests in all of the Class Erelated personal property. As of June 30, 2019 and F certificates were sold atDecember 31, 2018, a total discount of $3,970.37,416 and 41,644 homes, respectively, are pledged pursuant to the mortgage loans. We are obligated to make monthly payments of interest for each mortgage loan.
Transactions with the first payment being due upon the closing of the loan, and subsequent payments beginning October 9, 2014 and continuing monthly thereafter. On November 9, 2017, the outstanding balance of IH1 2014-2 was repaid in full (see Note 15).Trusts
IH1 2014-3: In November 2014, we completed our fourth securitization transaction (“IH1 2014-3”), in which 2014-3 IH Borrower L.P. (“S4 Borrower”), a newly-formed special purpose entity and wholly owned subsidiary of IH1, executed a loan agreement with a third-party lender. The third-party lender issued a term loan comprised of (1) six floating rate components and (2) one fixed rate component to S4 Borrower in the amount of $769,322. Of the seven components, the Class B and G certificates were sold at par; however, the Class A, C, D, E and F certificates were sold at a total discount of $7,235. We are obligated to make monthly payments of interest with the first payment being due upon the closing of the loan, and subsequent payments beginning December 9, 2014 and continuing monthly thereafter. On May 9, 2017 and June 9, 2017, we made voluntary prepayments of $510,000 and $100,000, respectively, from the proceeds of IH 2017-1 securitization transaction and cash flows from operations. On November 9, 2017, the outstanding balance of IH1 2014-3 was repaid in full (see Note 15).
IH2 2015-1: In January 2015, we completed our fifth securitization transaction (“IH2 2015-1”), in which 2015-1 IH2 Borrower L.P. (“S5 Borrower”), a newly-formed special purpose entity and wholly owned subsidiary of IH2, executed a loan agreement with a third-party lender. The third-party lender made a seven component term loan to S5 Borrower in the amount of $540,854. Six of the seven components, the Class A, B, C, D, E, and G certificates were sold at par; however, the Class F certificates were sold at a total discount of $622. The unamortized balance of this discount is included in mortgage loans, net on our condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016. We are obligated to make monthly payments of interest with the first payment being due upon the closing of the loan, and subsequent payments beginning March 9, 2015 and continuing monthly thereafter.
IH2 2015-2: In April 2015, we completed our sixth securitization transaction (“IH2 2015-2”), in which 2015-2 IH2 Borrower L.P. (“S6 Borrower”), a newly-formed special purpose entity and wholly owned subsidiary of IH2, executed a loan agreement with a third-party lender. The third-party lender made a seven component term loan to S6 Borrower in the amount of $636,686. All of the components of the loan were sold at par. We are obligated to make monthly payments of interest with the first payment being due upon the closing of the loan, and subsequent payments beginning June 9, 2015 and continuing monthly thereafter.
IH2 2015-3: In June 2015, we completed our seventh securitization transaction (“IH2 2015-3”), in which 2015-3 IH2 Borrower L.P. (“S7 Borrower”), a newly-formed special purpose entity and wholly owned subsidiary of IH2, executed a loan agreement with a third-party lender. The third-party lender made a seven component term loan to S7 Borrower in the amount of $1,193,950. All of the components of the loan were sold at par. We are obligated to make monthly payments of interest with the first payment being due upon the closing of the loan, and subsequent payments beginning August 7, 2015 and continuing monthly thereafter.
IH 2017-1: In April 2017, we completed our eighth securitization transaction (“IH 2017-1”), in which 2017-1 IH Borrower L.P. (“S9 Borrower”), a special purpose entity previously formed in connection with IH1 2014-1 and wholly owned subsidiary of IH1, entered into a loan agreement with Wells Fargo Bank, National Association (the “FNMA Loan”), providing for a ten-year, fixed rate mortgage loan comprised of two components with a total principal amount of $1,000,000, secured by first priority mortgages on a portfolio of 7,204 of our homes. The Class A certificates, which benefit from Fannie Mae’s guaranty of timely payment of principal and interest, were sold at par. The Class B certificates represent a beneficial interest in the most subordinate component of the FNMA Loan and were sold at a total discount of $3,580. The unamortized balance of this discount is included in mortgage loans, net on our condensed consolidated balance sheet as of September 30, 2017. We are obligated to make monthly payments of interest with the first payment being due upon the closing of the loan, and subsequent payments beginning June 9, 2017 and continuing monthly thereafter.
Concurrent with the execution of each mortgage loan agreement, the respective third-partythird party lender sold each loan it originated with us to individual depositor entities (the “Depositor Entities”) who subsequently transferred each loan to Securitization-specific trust entities (the “Trusts”). The Depositor Entities associated with the IH1 2014-2, IH1 2014-3 and IH 2017-1 securitizations


23

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


for our Securitizations currently outstanding are wholly owned subsidiaries of IH1, the Depositor Entities associated with the IH2 2015-1, IH2 2015-2, and IH2 2015-3 securitizations are wholly owned subsidiaries of IH2, and the Depositor Entities associated with the IH1 2013-1 and IH1 2014-1 securitizations were wholly owned by unaffiliated third parties.
subsidiaries. We accounted for the transfer of the individual Securitizations from the Depositor Entities wholly owned by IH1 and IH2Depositor Entities to the respective Trusts as a salesales under ASC Topic 860, Transfers and Servicing, with no resulting gain or loss as the Securitizations were both originated by the lender and immediately transferred at the same fair market value.
As consideration for the transfer of each loan to the Trusts, the Trusts issued certificate classes which mirror the components of the individual loan agreementsloans (collectively, the “Certificates”) to the Depositor Entities, except that Class R certificates do not have related loan components as they represent residual interests in the Trusts. The Certificates represent the entire beneficial interest in the Trusts. Following receipt of the Certificates, the Depositor Entities sold the Certificates to investors usingand used the proceeds as consideration for the loans sold to the Depositor Entities by the lenders. These transactions had no effect on our condensed consolidated financial statements other than with respect to the Class B certificatesCertificates we retained in connection with Securitizations or purchased by INVH LP, and the Class G certificates purchased by IH1 and IH2.at a later date.
For IH1 2014-2, IH1 2014-3, IH2 2015-1, IH2 2015-2, and IH2 2015-3, the Trusts made the Class A through Class F certificates available for sale to both domestic and foreign investors. With the introduction of foreign investment, IH1 and IH2, as sponsors of the respective loans, are required to retain a portion of the risk that represents a material net economic interest in each loan. The Class G certificates for IH1 2014-2, IH1 2014-3, IH2 2015-1, IH2 2015-2, and IH2 2015-3 are equal to 5% of the original principal amount of the loans in accordance with the agreements. Per the terms of the Securitization agreements, the Class G certificates are restricted certificates and were made available exclusively to IH1 and IH2, as applicable. The Class G certificates are principal only and bear a stated annual interest rate of 0.0005%. The Class G certificates are classified as held to maturity investments and are recorded in other assets, net on the condensed consolidated balance sheets (see Note 5).
For IH 2017-1, the Trust made the Class A certificates available for sale to both domestic and foreign investors. In accordance with risk retention requirements of Regulation RR (the “Risk Retention Rules”) under the Securities Exchange Act of 1934 as amended (the “Exchange Act”), INVH LP, as the loan sponsor, is required to retain a portion of the credit risk that represents not less than 5% of the aggregate fair value of the loan as of the closing date. Per the terms of the agreement, the Class B certificates are restricted certificates that were made available exclusively to INVH LP. The Class B certificates pay interest and bear a stated annual interest rate of 4.17% plus applicable servicing fees. The Class B certificates are classified as held to maturity investments and are recorded in other assets, net on the condensed consolidated balance sheets (see Note 5).
The Trusts are structured as pass throughpass-through entities that receive principal and interest from the Securitizations and distribute those payments to the holders of the Certificates. The assets held by the Trusts are restricted and can only be used to fulfill the obligations of those entities. The obligations of the Trusts do not have any recourse to the general credit of any entities in these condensed consolidated financial statements. We have evaluated our interests in the Class B and Gcertain certificates of the Trusts held by us (discussed below) and determined that they do not create a more than insignificant variable interest in the Trusts. Additionally, the Class B and Gretained certificates do not provide us with any ability to direct the activities that could impact the Trusts’ economic performance. Therefore, we do not consolidate the Trusts.
General Terms Retained Certificates
Beginning in April 2014, the Trusts made Certificates available for sale to both domestic and foreign investors. With the introduction of foreign investment, sponsors of the mortgage loans are required to retain a portion of the risk that represents a material net economic interest in each loan. These requirements were further refined in December 2016 pursuant to Regulation RR (the “Risk Retention Rules”) under the Securities Exchange Act of 1934, as amended. As such, loan sponsors are now required to retain a portion of the credit risk that represents not less than 5% of the aggregate fair value of the loan as of the closing date.
To fulfill these requirements, Class G certificates for CSH 2016-2 were issued in an amount equal to 5% of the original principal amount of the loans. Per the terms of the CSH 2016-2 mortgage loan agreement, the Class G certificates were restricted certificates that were made available exclusively to the sponsor. We retained these Class G certificates during the time the related Securitization was outstanding, and they were principal only, bearing a stated interest rate of 0.0005%.


22

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)





For IH 2017-1, the Class B certificates are restricted certificates that were made available exclusively to INVH LP in order to comply with the Risk Retention Rules. The Class B certificates bear a stated annual interest rate of 4.23%, including applicable servicing fees.
For SWH 2017-1, IH 2017-2, IH 2018-1, IH 2018-2, IH 2018-3, and IH 2018-4, we retain 5% of each certificate class to meet the Risk Retention Rules. These retained certificates accrue interest at a floating rate of LIBOR plus a spread ranging from 0.76% to 3.47%.
The retained certificates total $331,088 and $366,599 as of June 30, 2019 and December 31, 2018, respectively, and are classified as held to maturity investments and recorded in other assets, net on the condensed consolidated balance sheets (see Note 5).
Loan Covenants
The general terms that apply to all of the mortgage loans require useach Borrower Entity to maintain compliance with certain affirmative and negative covenants. Affirmative covenants with which we must comply include our,each Borrower Entity’s, and certain of ourtheir respective affiliates’, compliance with (i) licensing, permitting and legal requirements specified in the mortgage loan agreement,agreements, (ii) organizational requirements of the jurisdictions in which we, and certain of our affiliates,they are organized, (iii) federal and state tax laws, and (iv) books and records requirements specified in the respective mortgage loan agreements. Negative covenants with which we must comply include our,each Borrower Entity’s, and certain of ourtheir affiliates’, compliance with limitations surrounding (i) the amount of oureach Borrower Entity’s indebtedness and the nature of ourtheir investments, (ii) the execution of transactions with affiliates, (iii) the Manager, and (iv) the nature of oureach Borrower Entity’s business activities. At Septemberactivities, and (v) the required maintenance of specified cash reserves. As of June 30, 2017,2019, and through the date our condensed consolidated financial statements were issued, we believe we wereeach Borrower Entity is in compliance with all affirmative and negative covenants.

Prepayments

24

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


Prepayments
For the mortgage loans, prepayments of amounts owed by us are generally not permitted by us under the terms of the respective mortgage loan agreements unless such prepayments are made pursuant to the voluntary election andor mandatory provisions specified in such agreements. The specified mandatory provisions become effective to the extent that a property becomes characterized as a disqualified property, a property is sold, and/or upon the occurrence of a condemnation or casualty event associated with a property. To the extent either a voluntary election is made, or a mandatory prepayment condition exists, in addition to paying all interest and principal, we must also pay certain breakage costs as determined by the loan servicer and a spread maintenance premium if prepayment occurs before the month following the one or two year anniversary of the closing dates of each of the mortgage loans except for IH 2017-1. For IH 2017-1, prepayments on or before December 2026 will require a yield maintenance premium. For the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, we made voluntary and mandatory prepayments totaling $2,086,622of $709,383 and $33,452,$3,198,588, respectively, were made under the terms of the mortgage loan agreements. During the six months ended June 30, 2019, prepayments included the full repayment of the CSH 2016-2 mortgage loan. During the six months ended June 30, 2018, prepayments included full repayment of the CAH 2014-1, CAH 2014-2, IH 2015-1, IH 2015-2, and IH 2015-3 mortgage loans.
Collateral
CollateralSecured Term Loan
On June 7, 2019, 2019-1 IH Borrower L.P., a consolidated subsidiary (“2019-1 IH Borrower” and one of our Borrower Entities), entered into a 12 year loan agreement with a life insurance company (the “Secured Term Loan”). The Secured Term Loan bears interest at a fixed rate of 3.59%, including applicable servicing fees, for the mortgage loans includesfirst 11 years and bears interest at a floating rate based on a spread of 147 bps, including applicable servicing fees, over one month LIBOR (subject to certain adjustments as outlined in the loan agreement) for the twelfth year. The Secured Term Loan is secured by first priority mortgages on certaina portfolio of oursingle-family rental properties andas well as a grant of a security interest in all of our personal property. The following table lists the gross carrying valuesfirst priority pledge of the single-family residential properties, including held for sale properties, pledged as collateral forequity interests of 2019-1 IH Borrower. We utilized the loans asproceeds from the Secured Term Loan to fund: (i) repayments of September 30, 2017then-outstanding indebtedness; (ii) initial deposits into the Secured Term Loan’s reserve accounts; (iii) transaction costs related to the closing of the Secured Term Loan; and December 31, 2016:(iv) general corporate purposes.


  
Number of
Homes(1)
 September 30,
2017		 December 31,
2016
IH1 2013-1 —
 $—
 $533,005
IH1 2014-1 —
 —
 1,124,069
IH1 2014-2 3,611
 783,761
 785,459
IH1 2014-3 3,906
 844,455
 850,056
IH2 2015-1 2,998
 594,360
 594,155
IH2 2015-2 3,505
 744,905
 744,070
IH2 2015-3 6,973
 1,368,925
 1,382,683
IH 2017-1 7,202
 1,243,555
 —
Total 28,195

$5,579,961

$6,013,497
(1)The loans are secured by first priority mortgages on portfolios of single-family residential properties owned by S1 Borrower, S2 Borrower, S3 Borrower, S4 Borrower, S5 Borrower, S6 Borrower, S7 Borrower, and S9 Borrower. The numbers of homes noted above are as of September 30, 2017. As of December 31, 2016, a total of 30,900 homes (unaudited) were secured by the above-mentioned mortgage loans.


2523


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)







Debt Maturities Schedule
Future maturitiesThe following table sets forth a summary of these mortgage loansour Secured Term Loan indebtedness as of SeptemberJune 30, 2017 are set forth in the table below:2019 and December 31, 2018:
Year 
Principal(1)
2017 $147,323
2018 3,030,306
2019 and thereafter 999,798
Total payments 4,177,427
Less discounts (3,433)
Total mortgage loans, net $4,173,994
  
Maturity
Date
 
Interest
Rate(1)
 June 30,
2019		 December 31, 2018
Secured Term Loan June 9, 2031 3.59% $403,464
 $—
Deferred financing costs, net(2,595) —
Secured Term Loan, net$400,869
 $—

 
(1)
EachThe Secured Term Loan bears interest at a fixed rate of the mortgage loans, except IH 2017-1, are subject to three one-year extension options at the borrower's discretion (upon approval from the lender), of which the IH1 2014-3, IH2 2015-1, IH2 2015-2, and IH2 2015-3 mortgage loans have exercised3.59% per annum including applicable servicing fees for the first extension options,11 years and IH1 2014-2 has exercisedbears interest at a floating rate based on a spread of 147 bps, including applicable servicing fees, over one month LIBOR (subject to certain adjustments as outlined in the second option.loan agreement) for the twelfth year. Interest payments are made monthly.
Collateral
As of June 30, 2019, a total of 3,326 homes are included in the Secured Term Loan’s collateral pool. 2019-1 IH Borrower has the right, subject to certain requirements and limitations outlined in the loan agreement, to substitute properties representing up to 20% of the collateral pool annually, and to substitute properties representing up to 100% of the collateral pool over the life of the Secured Term Loan. In addition, four times after the first anniversary of the closing date, 2019-1 IH Borrower has the right, subject to certain requirements and limitations outlined in the loan agreement, to execute a special release of collateral representing up to 15% of the then-outstanding principal balance of the Secured Term Loan in order to bring the loan-to-value ratio back in line with the Secured Term Loan’s loan-to-value ratio as of the closing date. Any such special release of collateral would not change the then-outstanding principal balance of the Secured Term Loan, but rather would reduce the number of single-family rental homes included in the collateral pool.
Loan Covenants
The Secured Term Loan requires 2019-1 IH Borrower to maintain compliance with certain affirmative and negative covenants. Affirmative covenants include 2019-1 IH Borrower’s, and certain of its affiliates’, compliance with (i) licensing, permitting and legal requirements specified in the mortgage loan agreements, (ii) organizational requirements of the jurisdictions in which they are organized, (iii) federal and state tax laws, and (iv) books and records requirements specified in the respective mortgage loan agreements. Negative covenants include 2019-1 IH Borrower’s, and certain of its affiliates’, compliance with limitations surrounding (i) the amount of 2019-1 IH Borrower’s indebtedness and the nature of its investments, (ii) the execution of transactions with affiliates, (iii) the Manager, (iv) the nature of 2019-1 IH Borrower’s business activities, and (v) the required maintenance of specified cash reserves. As of June 30, 2019, and through the date our condensed consolidated financial statements were issued, we believe 2019-1 IH Borrower is in compliance with all affirmative and negative covenants.
Prepayments
Prepayments of the Secured Term Loan are generally not permitted unless such prepayments are made pursuant to the voluntary election or mandatory provisions specified in the loan agreement. The specified mandatory provisions become effective to the extent that a property becomes characterized as a disqualified property, a property is sold, and/or upon the occurrence of a condemnation or casualty event associated with a property. To the extent either a voluntary election is made, or a mandatory prepayment condition exists, in addition to paying all interest and principal, we must also pay certain breakage costs as determined by the loan servicer and a yield maintenance premium if prepayment occurs before June 9, 2030.


24
New Credit

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)





Term Loan Facility and Revolving Facility
On February 6, 2017, we entered into a loancredit agreement with a syndicate of banks, financial institutions, and institutional lenders for a new credit facility (the “New Credit“Credit Facility”)., which was amended on December 18, 2017 to include entities and homes acquired in the Mergers. The New Credit Facility provides $2,500,000 of borrowing capacity and consists of a $1,000,000 revolving facility (the “Revolving Facility”), which will mature on February 6, 2021, with a one-yearone year extension option, and a $1,500,000 term loan facility (the “Term Loan Facility”), which will mature on February 6, 2022. The Revolving Facility also includes borrowing capacity available for letters of credit and for short-term borrowings referred to as swing line borrowings, in each case subject to certain sublimits. The New Credit Facility provides us with the option to enter into additional incremental credit facilities (including an uncommitted incremental facility that provides us with the option to increase the size of the Revolving Facility and/or the Term Loan Facility by an aggregate amount of up to $1,500,000), subject to certain limitations. Proceeds from the Term Loan Facility were used to repay existingthen-outstanding indebtedness and for general corporate purposes. Proceeds from the Revolving Facility are used for general corporate purposes.
The following table sets forth a summary of the outstanding principal amounts under such loansthe Credit Facility as of SeptemberJune 30, 2017:2019 and December 31, 2018:
  Maturity Date 
Interest Rate(1)
 September 30,
2017
Term loan facility February 6, 2022 3.03% $1,500,000
Revolving facility February 6, 2021 N/A —
Total 1,500,000
Less deferred financing costs, net (12,749)
Total $1,487,251
  Maturity
Date		 
Interest
Rate(1)
 June 30,
2019		 December 31, 2018
Term Loan Facility February 6, 2022 4.10% $1,500,000
 $1,500,000
Deferred financing costs, net (7,696) (9,140)
Term Loan Facility, net $1,492,304
 $1,490,860
         
Revolving Facility February 6, 2021 4.15% $—
 $—
 
(1)
Interest raterates for the Term Loan Facility isand the Revolving Facility are based on LIBOR plus an applicable marginmargin. As of 1.80%; as of SeptemberJune 30, 2017,2019, the applicable margins were 1.70% and 1.75%, respectively, and LIBOR was 1.23%2.40%.
Interest Rate and Fees
Borrowings under the New Credit Facility bear interest, at our option, at a rate equal to a margin over either (a) a LIBOR rate determined by reference to the Bloomberg LIBOR rate (or comparable or successor rate) for the interest period relevant to such borrowing, or (b) a base rate determined by reference to the highest of (1) the administrative agent’s prime lending rate, (2) the federal funds effective rate plus 0.50%, and (3) the LIBOR rate that would be payable on such day for a LIBOR rate loan with a one-monthone month interest period plus 1.00%. The margin is based on a total leverage based grid. The margin for the Revolving Facility ranges from 0.75% to 1.30%, in the case of base rate loans, and 1.75% to 2.30%, in the case of LIBOR rate loans. The margin for the Term Loan Facility ranges from 0.70% to 1.30%, in the case of base rate loans, and 1.70% to


26

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


2.30%, in the case of LIBOR rate loans. In addition, the New Credit Facility provides that, upon receiving an investment grade rating on its non-credit enhanced, senior unsecured long term debt of BBB- or better from Standard & Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc., or Baa3 or better from Moody’s Investors Service, Inc. (an “Investment Grade Rating Event”), we may elect to convert to a credit rating based pricing grid.
In addition to paying interest on outstanding principal under the New Credit Facility, we are required to pay a facility fee to the lenders under the Revolving Facility in respect of the unused commitments thereunder. The facility fee rate is based on the daily unused amount of the Revolving Facility and is either 0.350%0.35% or 0.200%0.20% per annum based on the unused facility amount. Upon converting to a credit rating pricing based grid, the unused facility fee will no longer apply;apply and we will be required to pay a facility fee ranging from 0.125% to 0.300%. We are also required to pay customary letter of credit fees.
Prepayments and Amortization
No prepayment or amortization isprincipal reductions are required under the New Credit Facility. We are permitted to voluntarily repay amounts outstanding under the Term Loan Facility at any time without premium or penalty, subject to certain minimum amounts and the payment of customary “breakage” costs with respect to LIBOR loans. Once repaid, no further borrowings will be permitted under the Term Loan Facility.
General Terms

25

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)





Loan Covenants
The New Credit Facility contains certain customary affirmative and negative covenants and events of default. Such covenants will, among other things, restrict, subject to certain exceptions, our ability and that of the Subsidiary Guarantors (as defined below) and their respective subsidiaries to (i) engage in certain mergers, consolidations or liquidations, (ii) sell, lease or transfer all or substantially all of their respective assets, (iii) engage in certain transactions with affiliates, (iv) make changes to the our fiscal year, (v) make changes in the nature of our business and our subsidiaries, and (vi) incur additional indebtedness that is secured on a pari passu basis with the New Credit Facility.
The New Credit Facility also requires us, on a consolidated basis with our subsidiaries, to maintain a (i) maximum total leverage ratio, (ii) maximum secured leverage ratio, (iii) maximum unencumbered leverage ratio, (iv) minimum fixed charge coverage ratio, (v) minimum unencumbered fixed charge coverage ratio, and (vi) minimum tangible net worth. If an event of default occurs, the lenders under the New Credit Facility are entitled to take various actions, including the acceleration of amounts due under the New Credit Facility and all actions permitted to be taken by a secured creditor. At SeptemberAs of June 30, 2017,2019, and through the date our condensed consolidated financial statements were issued, we believe we were in compliance with all affirmative and negative covenants.
Guarantees and Security
The obligations under the New Credit Facility are guaranteed on a joint and several basis by each of our direct and indirect domestic wholly owned subsidiaries that own, directly or indirectly, unencumbered assets (the “Subsidiary Guarantors”), subject to certain exceptions. The guarantee provided by any Subsidiary Guarantor will be automatically released upon the occurrence of certain events, including if it no longer has a direct or indirect interest in an unencumbered asset or as a result of certain non-recourse refinancing transactions pursuant to which such Subsidiary Guarantor becomes contractually prohibited from providing its guaranty of the New Credit Facility. In addition, INVH may be required to provide a guarantee of the New Credit Facility under certain circumstances, including if INVH does not maintain its qualification as a REIT.
The New Credit Facility is collateralized by first priority or equivalent security interests in all the capital stock of, or other equity interests in, any Subsidiary Guarantor held by us and each of the Subsidiary Guarantors. The security interests granted under the New Credit Facility will be automatically released upon the occurrence of certain events, including upon an Investment Grade Rating Event or if the total net leverage ratio is less than or equal to 8.00:1.00 for four consecutive fiscal quarters.

Convertible Senior Notes
In connection with the Mergers, we assumed SWH’s convertible senior notes. In July 2014, SWH issued $230,000 in aggregate principal amount of 3.00% convertible senior notes due 2019 (the “2019 Convertible Notes”). Interest on the 2019 Convertible Notes was payable semiannually in arrears on January 1st and July 1st of each year. On December 28, 2018, we notified note holders of our intent to settle conversions of the 2019 Convertible Notes in shares of common stock. The notes matured on July 1, 2019, and we settled substantially all of the outstanding balance of the 2019 Convertible Notes through the issuance of 12,553,864 shares of our common stock (see Note 15).
In January 2017, SWH issued $345,000 in aggregate principal amount of 3.50% convertible senior notes due 2022 (the “2022 Convertible Notes” and together with the 2019 Convertible Notes, the “Convertible Senior Notes”). Interest on the 2022 Convertible Notes is payable semiannually in arrears on January 15th and July 15th of each year. The 2022 Convertible Notes will mature on January 15, 2022.



2726


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)







Debt Maturities Schedule
Future maturitiesThe following table summarizes the terms of the New Credit FacilityConvertible Senior Notes outstanding as of SeptemberJune 30, 2017 are set forth in the table below:2019 and December 31, 2018:
Year Principal
2022 $1,500,000
Credit Facilities
All of the then-existing credit facilities were paid in full on February 6, 2017 in connection with the closing of our IPO. The following table sets forth a summary of the outstanding principal amounts of these credit facilities as of September 30, 2017 and December 31, 2016:
      
Outstanding Principal Balance(1)
  Origination
Date		 Range of Spreads September 30,
2017		 December 31,
2016
IH1 2015 April 3, 2015 325 bps $—
 $85,492
IH2 2015 September 29, 2015 275 bps —
 43,859
IH3 2013 December 19, 2013 300-425 bps —
 932,583
IH4 2014 May 5, 2014 300-425 bps —
 529,866
IH5 2014 December 5, 2014 275-400 bps —
 564,348
IH6 2016 April 13, 2016 250-375 bps —
 165,437
Total —

2,321,585
Less deferred financing costs, net —
 (6,044)
Total $—
 $2,315,541
            Principal Amount
  Coupon
Rate		 
Effective
Rate(1)
 
Conversion
Rate(2)
 Maturity
Date		 Remaining Amortization
Period		 June 30,
2019		 December 31, 2018
2019 Convertible Notes 3.00% 4.92% 54.5954 July 1, 2019 N/A $229,989
 $229,993
2022 Convertible Notes 3.50% 5.12% 43.7694 January 15, 2022 2.55 years 345,000
 345,000
Total574,989
 574,993
Net unamortized fair value adjustment(13,159) (17,692)
Total$561,830
 $557,301
 
(1)Outstanding Principal Balance does
Effective rate includes the effect of the adjustment to the fair value of the debt as of the Merger Date, the value of which reduced the initial liability recorded to $223,185 and $324,252 for each of the 2019 Convertible Notes and 2022 Convertible Notes, respectively.
(2)
The conversion rate as of June 30, 2019 represents the number of shares of common stock issuable per $1,000 principal amount (actual $) of Convertible Senior Notes converted on such date, as adjusted in accordance with the applicable indentures as a result of cash dividend payments and the effects of the Mergers. Substantially all of the principal amount of the 2019 Convertible Notes was settled on July 1, 2019, through the issuance of 12,553,864 shares of our common stock (see Note 15). As of June 30, 2019, the 2022 Convertible Notes do not include capitalized deferred financing costs, net.meet the criteria for conversion. We have the option to settle the 2022 Convertible Notes in cash, common stock, or a combination thereof.
Terms of Conversion
At the settlement date, the conversion rate applicable to the 2019 Convertible Notes was 54.5954 shares of our common stock per $1,000 principal amount (actual $) of the 2019 Convertible Notes (equivalent to a conversion price of approximately $18.32 per common share — actual $). As of June 30, 2019, the “if-converted” value of the 2019 Convertible Notes exceeded their principal amount by $105,576 as the closing market price of our common stock of $26.73 per common share (actual $) exceeded the implicit conversion price. On July 1, 2019, we settled substantially all of the outstanding balance of the 2019 Convertible Notes with the issuance of 12,553,864 shares of our common stock. For the three months ended June 30, 2019 and 2018, interest expense for the 2019 Convertible Notes, including non-cash amortization of discounts, was $2,783 and $2,751, respectively. For the six months ended June 30, 2019 and 2018, interest expense for the 2019 Convertible Notes, including non-cash amortization of discounts, was $5,586 and $5,503, respectively.


27

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)





As of June 30, 2019, the conversion rate applicable to the 2022 Convertible Notes is 43.7694 shares of our common stock per $1,000 principal amount (actual $) of the 2022 Convertible Notes (equivalent to a conversion price of approximately $22.85 per common share — actual $). The conversion rate for the 2022 Convertible Notes is subject to adjustment in some events, but will not be adjusted for any accrued and unpaid interest. In addition, following certain events that occur prior to the maturity date, we will adjust the conversion rate for a holder who elects to convert its 2022 Convertible Notes in connection with such an event in certain circumstances. At any time prior to July 15, 2021, holders may convert the 2022 Convertible Notes at their option only under specific circumstances as defined in the indenture agreement, dated as of January 10, 2017, between us and our trustee, Wilmington Trust National Association (“the Convertible Notes Trustee”). On or after July 15, 2021 and until maturity, holders may convert all or any portion of the 2022 Convertible Notes at any time. Upon conversion, we will pay or deliver, as the case may be, cash, common stock, or a combination of cash and common stock, at our election. The “if-converted” value of the 2022 Convertible Notes exceeds their principal amount by $58,635 as of June 30, 2019 as the closing market price of our common stock of $26.73 per common share (actual $) exceeds the implicit conversion price. For the three months ended June 30, 2019 and 2018, interest expense for the 2022 Convertible Notes, including non-cash amortization of discounts, was $4,217 and $4,158, respectively. For the six months ended June 30, 2019 and 2018, interest expense for the 2022 Convertible Notes, including non-cash amortization of discounts, was $8,434 and $8,316, respectively.
General Terms
We may not redeem the Convertible Senior Notes prior to their maturity dates except to the extent necessary to preserve our status as a REIT for United States federal income tax purposes, as further described in the indentures. If we undergo a fundamental change as defined in the indentures, holders may require us to repurchase for cash all or any portion of their Convertible Senior Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The indentures contain customary terms and covenants and events of default. If an event of default occurs and is continuing, the Convertible Notes Trustee, by notice to us, or the holders of at least 25% in aggregate principal amount of the outstanding Convertible Senior Notes, by notice to us and the Convertible Notes Trustee, may, and the Convertible Notes Trustee at the request of such holders shall, declare 100% of the principal of and accrued and unpaid interest on all the Convertible Senior Notes to be due and payable. In the case of an event of default arising out of certain events of bankruptcy, insolvency or reorganization in respect to us (as set forth in the indentures), 100% of the principal of and accrued and unpaid interest on the Convertible Senior Notes will automatically become due and payable.


28

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)





Debt Maturities Schedule
The following table summarizes the contractual maturities of our debt as of June 30, 2019:
Year 
Mortgage
Loans(1)
 Secured Term Loan Term Loan Facility Revolving Facility Convertible Senior Notes Total
Remainder of 2019 $1,493,058
 $—
 $—
 $—
 $229,989
 $1,723,047
2020 3,114,333
 —
 —
 —
 —
 3,114,333
2021 951,092
 —
 —
 —
 —
 951,092
2022 —
 —
 1,500,000
 —
 345,000
 1,845,000
2023 —
 —
 —
 —
 —
 —
Thereafter 995,790
 403,464
 —
 —
 —
 1,399,254
Total 6,554,273
 403,464
 1,500,000
 —
 574,989
 9,032,726
Less: deferred financing costs, net (44,311) (2,595) (7,696) —
 —
 (54,602)
Less: unamortized fair value adjustment —
 —
 —
 —
 (13,159) (13,159)
Total $6,509,962
 $400,869
 $1,492,304
 $—
 $561,830
 $8,964,965
(1)The maturity dates of the obligations are reflective of all extensions that have been exercised.
Note 7—Derivative Instruments
From time to time, we enter into Hedging Derivativesderivative instruments to manage the economic risk of changes in interest rates. We do not enter into derivative transactions for speculative or trading purposes. Designated hedges are derivatives that meet the criteria for hedge accounting and for which we have elected to designate them as hedges. Non-Designated HedgesNon-designated hedges are derivatives that do not meet the criteria for hedge accounting or which we havedid not electedelect to designate them as accounting hedges.
Designated Hedges
We have entered into various interest rate swap agreements, as outlined inwhich are used to hedge the table below. Certain of the Invitation Homes Partnerships and certain Borrower Entities guaranteed the obligations under each of thevariable cash flows associated with variable-rate interest ratepayments. Currently, all swaps from the date the swaps were entered into through the date of the IPO. Each of these swaps was accounted for as a non-designated hedge until January 31, 2017, when the criteriaare designated for hedge accounting were met as a result of the Pre-IPO Transactions described in Note 1. At that time, we designated these swaps for hedge accounting purposes;purposes and the effective portion of changes in the fair value of these swaps isare recorded in other comprehensive income subsequentand are subsequently reclassified into earnings in the period in which the hedged forecasted transactions affect earnings. Prior to January 31, 2017, all swaps were accounted for as non-designated hedges as the criteria for designation had not been met at that date.time.

In addition, in connection with the Mergers, we acquired various interest rate swap instruments, which we designated for hedge accounting purposes. On the Merger Date, we recorded these interest rate swaps at their aggregate estimated fair value of $21,135. Over the terms of each of these swaps, an amount equal to the Merger Date fair value will be amortized and reclassified into earnings.



2829


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)







The table below summarizes our interest rate swap instruments as of SeptemberJune 30, 2017:2019:
Agreement Date Forward
Effective Date		 Maturity
Date		 Strike
Rate		 Index Notional
Amount
December 21, 2016 February 28, 2017 January 31, 2022 1.97% One month LIBOR $750,000
December 21, 2016 February 28, 2017 January 31, 2022 1.97% One month LIBOR 750,000
January 12, 2017 February 28, 2017 August 7, 2020 1.59% One month LIBOR 1,100,000
January 13, 2017 February 28, 2017 June 9, 2020 1.63% One month LIBOR 595,000
January 20, 2017 February 28, 2017 March 9, 2020 1.60% One month LIBOR 325,000
June 3, 2016 July 15, 2018 July 15, 2019 1.12% One month LIBOR 450,000
January 10, 2017 January 15, 2019 January 15, 2020 1.93% One month LIBOR 550,000
April 19, 2018 January 31, 2019 January 31, 2025 2.86% One month LIBOR 400,000
February 15, 2019(1)
 March 15, 2019 March 15, 2022 2.23% One month LIBOR 800,000
April 19, 2018 March 15, 2019 November 30, 2024 2.85% One month LIBOR 400,000
April 19, 2018 March 15, 2019 February 28, 2025 2.86% One month LIBOR 400,000
June 3, 2016 July 15, 2019 July 15, 2020 1.30% One month LIBOR 450,000
January 10, 2017 January 15, 2020 January 15, 2021 2.13% One month LIBOR 550,000
April 19, 2018 January 31, 2020 November 30, 2024 2.90% One month LIBOR 400,000
May 8, 2018 March 9, 2020 June 9, 2025 2.99% One month LIBOR 325,000
May 8, 2018 June 9, 2020 June 9, 2025 2.99% One month LIBOR 595,000
June 3, 2016 July 15, 2020 July 15, 2021 1.47% One month LIBOR 450,000
June 28, 2018 August 7, 2020 July 9, 2025 2.90% One month LIBOR 1,100,000
January 10, 2017 January 15, 2021 July 15, 2021 2.23% One month LIBOR 550,000
November 7, 2018 March 15, 2022 July 31, 2025 3.14% One month LIBOR 400,000
November 7, 2018 March 15, 2022 July 31, 2025 3.16% One month LIBOR 400,000

Agreement Date Forward
Effective Date		 Maturity Date Strike Rate Index Notional Amount
December 21, 2016 February 28, 2017 January 31, 2022 1.97% One-month LIBOR $750,000
December 21, 2016 February 28, 2017 January 31, 2022 1.97% One-month LIBOR 750,000
January 12, 2017 February 28, 2017 August 7, 2020 1.59% One-month LIBOR 1,100,000
January 13, 2017 February 28, 2017 June 9, 2020 1.63% One-month LIBOR 595,000
January 20, 2017 February 28, 2017 March 9, 2020 1.60% One-month LIBOR 325,000
(1)
On February 15, 2019, we terminated an interest rate swap instrument and simultaneously entered into a new interest rate swap instrument with identical economic terms, except that the strike rate increased 2 bps, from 2.21% to 2.23%, and collateral posting requirements were removed.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income on the condensed consolidated balance sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the ninethree and six months ended SeptemberJune 30, 2017,2019 and 2018, such derivatives were used to hedge the variable cash flows associated with existing variable-rate interest payments. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. Changes in fair value related to the ineffective portion of our Designated Hedges resulted in an unrealized gain of $201 for the nine months ended September 30, 2017, which is included in interest expense in our condensed consolidated statements of operations.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. During the next twelve12 months, we estimate that an additional $8,094$13,131 will be reclassified to earnings as an increase toa decrease in interest expense. There were no interest rate swap agreements outstanding during the nine months ended September 30, 2016.
Non-Designated Hedges
Concurrent with entering into certain of the mortgage loan agreements and in connection with the Mergers, we entered into or acquired and maintain interest rate cap agreements with terms and notional amounts equivalent to the terms and amounts of the mortgage loans made by the third-party lenders and strike prices ranging from approximately 2.59% to 3.39% (collectively, the “Strike Prices”).third party lenders. To the extent that the maturity date of one or more of the mortgage loans is extended through an exercise of one or more of the extension options, replacement or extension interest rate cap agreements must be executed with terms similar to those associated with the initial interest rate cap agreements and strike prices equal to the greater of the Strike Pricesinterest rate cap strike price and the interest rate at which the debt service coverage ratio (as defined) is not less than 1.2 to 1.0. The interest rate cap agreements, including all of our rights to payments owed by the counterpartycounterparties and all other rights, have been pledged as additional collateral for the mortgage loans.
Changes Additionally, in fair value relatedcertain instances, in order to Non-Designated Hedges resulted in unrealized lossesminimize the cash impact of $3,992 for the nine months ended September 30, 2017, which are included in interest expense in our condensed consolidated statements of operations. Of the unrealized losses, $3,674 related to changes in value onpurchasing required interest rate swaps prior to their designation on January 31, 2017, and $318 related to the non-designatedcaps, we simultaneously sold interest rate caps.caps (which have identical terms and notional amounts) such that the purchase price and sale proceeds of the related interest rate caps are intended to offset each other. The purchased and sold interest rates caps have strike prices ranging from approximately 3.24% to 5.12%.




2930


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)







Tabular Disclosure of Fair Values of Derivative Instruments on the Condensed Consolidated Balance Sheets
The table below presents the fair value of our derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of SeptemberJune 30, 20172019 and December 31, 2016:2018:
  Asset Derivatives Liability Derivatives
    Fair Value as of   Fair Value as of
  Balance
Sheet Location		 June 30,
2019		 December 31, 2018 Balance
Sheet Location		 June 30,
2019		 December 31, 2018
Derivatives designated as
hedging instruments:		            
Interest rate swaps Other
assets		 $7,833
 $74,929
 Other
liabilities		 $280,788
 $90,527
             
Derivatives not designated as
hedging instruments:		            
Interest rate caps Other
assets		 8
 476
 Other
liabilities		 7
 440
Total   $7,841
 $75,405
   $280,795
 $90,967

Offsetting Derivatives
We enter into master netting arrangements, which reduce risk by permitting net settlement of transactions with the same counterparty. The tables below present a gross presentation, the effects of offsetting, and a net presentation of our derivatives as of June 30, 2019 and December 31, 2018:
  June 30, 2019
        Gross Amounts Not Offset in the Condensed Statement of Financial Position  
  Gross Amounts of Recognized Assets/ Liabilities Gross Amounts Offset in the Condensed Statement of Financial Position Net Amounts of Assets/ Liabilities Presented in the Condensed Statement of Financial Position Financial Instruments Cash Collateral Received Net
Amount
Offsetting assets:            
Derivatives $7,841
 $—
 $7,841
 $(2,841) $—
 $5,000
Offsetting liabilities:            
Derivatives $280,795
 $—
 $280,795
 $(2,841) $—
 $277,954




31

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)




 Asset Derivatives Liability Derivatives
   Fair Value at:   Fair Value at:
 Balance
Sheet Location		 September 30,
2017		 December 31,
2016		 Balance
Sheet Location		 September 30,
2017		 December 31,
2016
Derivatives designated as
hedging instruments:		           
Interest rate swapsOther
assets		 $5,529
 $—
 Other
liabilities		 $8,068
 $—
Derivatives not designated as
hedging instruments:		           
Interest rate swapsOther
assets		 —
 —
 Other
liabilities		 —
 8,683
Interest rate capsOther
assets		 —
 29
 Other
liabilities		 —
 —
Total  $5,529
 $29
   $8,068
 $8,683

Tabular Disclosure of the
  December 31, 2018
        Gross Amounts Not Offset in the Condensed Statement of Financial Position  
  Gross Amounts of Recognized Assets/ Liabilities Gross Amounts Offset in the Condensed Statement of Financial Position Net Amounts of Assets/ Liabilities Presented in the Condensed Statement of Financial Position Financial Instruments Cash Collateral Received Net
Amount
Offsetting assets:            
Derivatives $75,405
 $—
 $75,405
 $(30,374) $—
 $45,031
Offsetting liabilities:            
Derivatives $90,967
 $—
 $90,967
 $(30,374) $—
 $60,593


Effect of Derivative Instruments on the Condensed Consolidated Statements of Comprehensive Income (Loss) and the Condensed Consolidated Statements of Operations
The tables below present the effect of our derivative financial instruments onin the condensed consolidated statements of comprehensive income (loss) and the condensed consolidated statements of operations for the three months ended SeptemberJune 30, 20172019 and 2016:2018:
Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion) Location of Gain (Loss) Reclassified from Accumulated OCI into Net Loss (Effective Portion) Amount of Gain (Loss) Reclassified from Accumulated OCI into Net Loss (Effective Portion) Location of Gain (Loss) Recognized in Net Loss on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) Amount of Gain (Loss) Recognized in Net Loss on Derivative (Ineffective Portion and Amounts Excluded from Effectiveness Testing) Amount of Gain (Loss) Recognized in OCI on Derivative Location of Gain Reclassified from Accumulated OCI into Net Income (Loss) Amount of Gain Reclassified from Accumulated OCI into Net Income (Loss) Total Amount of Interest Expense Presented in the Condensed Consolidated Statements of Operations
For the Three
Months Ended
September 30,		   For the Three
Months Ended
September 30,		   For the Three
Months Ended
September 30,		 For the Three Months Ended June 30, For the Three Months Ended June 30, For the Three Months Ended June 30,
2017 2016 2017 2016 2017 2016 2019 2018 2019 2018 2019 2018
Derivatives in cash flow hedging relationships:                       
Interest rate swaps$(598) $—
 Interest
expense		 $(4,193) $—
 Interest
expense		 $163
 $—
 $(148,599) $15,826
 Interest expense $7,891
 $3,596
 $95,706
 $97,226



  Location of
Gain (Loss)
Recognized in
Net Income (Loss)
on Derivative		 Amount of Loss Recognized in Net Income (Loss) on Derivative
   
For the Three Months
Ended June 30,
   2019 2018
Derivatives not designated as hedging instruments:      
Interest rate caps Interest expense $1
 $(598)

30

32


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)







 Location of
Gain (Loss)
Recognized in
Net Loss
on Derivative		 Amount of Gain (Loss) Recognized in Net Loss on Derivative
   For the Three Months Ended
September 30,
   2017 2016
Derivatives not designated as hedging instruments:     
Interest rate swapsInterest
expense		 $—
 $—
Interest rate capsInterest
expense		 (190) —
Total  $(190) $—

The tables below present the effect of our derivative financial instruments onin the condensed consolidated statements of comprehensive income (loss) and the condensed consolidated statements of operations for the ninesix months ended SeptemberJune 30, 20172019 and 2016:2018:
Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion) Location of Gain (Loss) Reclassified from Accumulated OCI into Net Loss (Effective Portion) Amount of Gain (Loss) Reclassified from Accumulated OCI into Net Loss (Effective Portion) Location of Gain (Loss) Recognized in Net Loss on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) Amount of Gain (Loss) Recognized in Net Loss on Derivative (Ineffective Portion and Amounts Excluded from Effectiveness Testing) Amount of Gain (Loss) Recognized in OCI on Derivative Location of Gain Reclassified from Accumulated OCI into Net Income (Loss) Amount of Gain Reclassified from Accumulated OCI into Net Income (Loss) Total Amount of Interest Expense Presented in the Condensed Consolidated Statements of Operations
For the Nine
Months Ended
September 30,		   For the Nine
Months Ended
September 30,		   For the Nine
Months Ended
September 30,		 For the Six Months
Ended June 30,		 For the Six Months
Ended June 30,		 For the Six Months
Ended June 30,
2017 2016 2017 2016 2017 2016 2019 2018 2019 2018 2019 2018
Derivatives in cash flow hedging relationships:                       
Interest rate swaps$(4,796) $—
 Interest
expense		 $(12,963) $—
 Interest
expense		 $201
 $—
 $(236,467) $75,726
 Interest expense $18,754
 $3,325
 $189,689
 $189,525


  Location of
Gain (Loss)
Recognized in
Net Income (Loss)
on Derivative		 Amount of Gain (Loss) Recognized in Net Income (Loss) on Derivative
   For the Six Months
Ended June 30,
   2019 2018
Derivatives not designated as hedging instruments:      
Interest rate caps Interest expense $34
 $(345)
 Location of
Gain (Loss)
Recognized in
Net Loss
on Derivative		 Amount of Gain (Loss) Recognized in Net Loss on Derivative
   For the Nine Months Ended
September 30,
   2017 2016
Derivatives not designated as hedging instruments:     
Interest rate swapsInterest
expense		 $(3,674) $—
Interest rate capsInterest
expense		 (318) —
Total  $(3,992) $—


31

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)



Credit-Risk-Related Contingent Features
We haveThe agreements with our derivative counterparties forwhich govern our interest rate swap agreements that contain a provision where we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on the indebtedness.
As of SeptemberJune 30, 2017,2019, the fair value of interest rate swapcertain derivatives in a net liability position which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $8,595. As of September 30, 2017, we have not posted any collateral related to these agreements.$277,954. If we havehad breached any of these provisions at SeptemberJune 30, 2017,2019, we could have been required to settle itsthe obligations under the agreements at their termination value, which includes accrued interest and excludes the nonperformance risk related to these agreements, of $8,595.$293,771.
As of December 31, 2018, we had not posted any collateral for our interest rate swap agreements as the conditions specified in the derivative agreements that require such funding did not exist. As of June 30, 2019, none of our derivative agreements contain provisions that require us to post collateral deposits.
Note 8—Equity
Shareholders’Stockholders’ Equity
In connection with our IPO,As of June 30, 2019, we have issued 310,376,634525,126,947 shares of common stock to the public, the pre-IPO owners, and the Pre-IPO Owners and 3,290,126 in settlement of restricted stock units (“RSUs, (see” see Note 10),. In addition, we issue OP Units from time to time which are redeemable for shares of our common stock on a one-for-one basis or, in our sole discretion, cash and are reflected as non-controlling interests on our IPO raised $1,692,058, netcondensed consolidated balance sheets and statements of underwriting discount, and before IPO costs of $5,726. equity.
During the ninesix months ended SeptemberJune 30, 2017,2019, we issued 977,6564,478,970 shares of common stock, comprised of 905,677 shares of common stock in net settlement of 1,446,3511,263,448 fully vested RSUs.RSUs and 3,573,293 shares of common stock in exchange for the redemption of the same number of OP Units. As of June 30, 2019, 5,463,285 outstanding OP Units are redeemable.


33

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)





On July 1, 2019, we issued 12,553,864 shares of common stock to settle the full outstanding principal amount of the 2019 Convertible Notes (see Note 15).
Dividends
To qualify as a REIT, we are required to distribute annually to our shareholdersstockholders at least 90% of our REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of our net taxable income. We intend to pay quarterly dividends to our shareholders,stockholders, which in the aggregate are approximately equal to or exceed our net taxable income in the relevant year. The timing, form, and amount of distributions, if any, to our stockholders, will be at the sole discretion of our board of directors.
The following table summarizes our dividends declared from January 1, 20172018 through the nine months ended SeptemberJune 30, 2017:2019:
  Record Date 
Amount
per Share
 Pay Date Total Amount Declared
Q2-2019 May 15, 2019 $0.13
 May 31, 2019 $68,334
Q1-2019 February 13, 2019 0.13
 February 28, 2019 67,965
Q4-2018 November 14, 2018 0.11
 November 30, 2018 57,518
Q3-2018 August 16, 2018 0.11
 August 31, 2018 57,563
Q2-2018 May 15, 2018 0.11
 May 31, 2018 57,559
Q1-2018 February 13, 2018 0.11
 February 28, 2018 57,432
  Record Date 
Amount per
Share(1)
 Pay Date Total Amount
Paid
Q2-2017 5/15/2017 $0.06
 5/31/2017 $18,800
Q3-2017 8/15/2017 0.08
 8/31/2017 25,200
(1)Amounts are displayed in actual dollars and are paid on a per share basis.

On October 13, 2017, we declared an $0.08 dividend per share to stockholders of record on October 24, 2017, which was paid on November 7, 2017.
Combined Equity
Prior to the IPO, our business was conducted through the Invitation Homes Partnerships which did not have a common capital structure. As described in Note 1, IH1, IH3, IH4, IH5, and IH6 are partnerships. These entities each had limited partners and a general partner (the “Class A Partners”), along with a board of directors designated in the respective limited partnership agreements. IH2 was a Delaware corporation and had issued 1,000 shares of common stock and 113 shares of Series A Preferred Stock. IH2 had a board of directors elected by the common shareholders. The same board of directors was responsible for directing the significant activities of the Invitation Homes Partnerships and INVH LP on a combined basis.
The IH2 Series A Preferred Stock ranked, in respect of rights to the payment of dividends and the distribution of assets in the event of any liquidation or dissolution, senior to the IH2 common stock. Holders of such IH2 Series A Preferred Stock shares were entitled to receive cumulative cash dividends at the rate of 12.0% per annum of the total of a liquidation preference. On January 31, 2017, in connection with the Pre-IPO Transactions, the Series A Preferred Stock was redeemed for $1,153, inclusive of the redemption premium and accrued and unpaid dividends to that date. No dividends were declared or paid with respect to the Series A Preferred Stock during the nine months ended September 30, 2016. As of


32

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


December 31, 2016, there were no dividend amounts declared and outstanding related to the 12.0% per annum dividend requirements of the Series A Preferred Stock.
Profits and losses, and cash distributions were allocated in accordance with the terms of the respective entity’s organizational documents. We made no distributions to our equity investors, and we received $138,002 of contributions during the nine months ended September 30, 2016.
As further described in Note 10, we granted certain individuals incentive compensation units in IH1, IH2, IH3, IH4, IH5, and IH6, which consisted of Class B units that were accounted for as a substantive class of equity due to the terms of the agreements and rights of the holders. We previously made distributions to certain Class B unitholders in the form of non-recourse cash advances totaling $11,023. Any amounts distributed to the holders of the Class B units whose Class B units were converted in connection with the Pre-IPO Transactions (see Note 10), reduced the number of converted shares common stock received by amounts previously paid to such Class B unitholders as advance distributions. As a result of the Pre-IPO Transactions, there are no longer any Class B Units outstanding.
We previously executed notes receivables with certain Class B unitholders (the “Class B Notes”) and funded $20,228 pursuant to those note agreements, of which $1,527, including accrued interest had been repaid as of December 31, 2016. On January 5, 2017, $7,723 of Class B Notes, including accrued interest, were canceled, and the transaction was accounted for as a distribution to the underlying unitholder. As part of the Pre-IPO Transactions, IH1 assigned $11,963, including accrued interest, of Class B Notes to a wholly owned subsidiary of the Pre-IPO Owners that was formed in connection with the reorganization described in Note 1, and the transaction was accounted for as a distribution. The Class B Notes were secured by certain of the Class B units of the makers of the Class B Notes and were otherwise non-recourse to the makers. The Class B Notes matured at the earlier of a liquidation event or defined dates in 2024 and bore interest of 1.57% to 1.97% per annum. As such, the Class B Notes were recorded as a component of combined equity on our condensed consolidated balance sheet as of December 31, 2016.
Note 9—Related Party Transactions
Through December 31, 2014, certain related parties provided usManagement Services
One of our consolidated subsidiaries, as the managing member of a joint venture with consulting servicesFNMA (see Note 5), earns a management fee based upon the venture’s gross receipts. For the three months ended June 30, 2019 and 2018, we earned $713 and $692, respectively, and for the six months ended June 30, 2019 and 2018, we earned $1,449 and $1,399, respectively, of management fees which we recorded payables. We also made offsetting income tax payments related to distributions on behalfare included in other, net in the accompanying condensed consolidated statements of these related parties. During the year ended December 31, 2016, we repaid the $1,959 outstanding as of December 31, 2015.operations.
Note 10—Share-Based Compensation
We have share-based compensation programs for the purpose of retaining certain key employees. Prior to the IPO, the program consisted of incentive compensation units, the Class B Units, granted in the form of profits interests in the Invitation Homes Partnerships. In connection with and subsequent to the IPO, we granted awards in the form of RSUs that settle in shares of common stock of INVH and RSAs that are restricted shares of common stock of INVH.
Profits Interests — Class B Units
Prior to the IPO, the Invitation Homes Partnerships granted incentive compensation units to certain key employees, which were profits interests for United States federal income tax purposes. The Class B Units were accounted for as a substantive class of equity and contained both service based and performance based vesting criteria. Recognition of compensation expense was recorded based on whether or not the award recipient was an employee of the Manager, a wholly owned subsidiary of IH1, resulting in some awards being recognized based on grant-date fair value and others being remeasured at each reporting period until the actual vesting date as required for non-employee awards. Prior to the IPO, none of the performance based vesting criteria had been achieved, and as such through the date of the IPO, no compensation expense had been recorded for performance based Class B Units. However, the IPO triggered achievement of the performance based criteria and effectively converted all such awards into service based awards.
2017 New Class B Unit Awards: Pursuant to an amended and restated partnership agreement, on January 5, 2017, IH6 issued certain individuals a total of 9,650 Class B Units that were expected to vest based on terms and conditions similar to all other Class B Units. In January 2017, an additional 188 Class B Units in total were issued from IH1, IH2, and IH3.


33

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


2017 Class B Unit Conversion: The Pre-IPO Transactions described in Note 1 resulted in accelerated vesting of 7,520 Class B Units held by certain unitholders which resulted in additional share-based compensation expense of $11,601 as of the date of the IPO. On January 31, 2017, in connection with the IPO, all of the Class B Units held by current employees of the Manager (except for 3,878 fully vested Class B Units awarded to a certain unitholder) were either converted into shares of INVH common stock or canceled based on the value of the Class B Units implied by the per share price of common stock sold to the public in the IPO. As such, a total of 730 Class B Units were converted into 62,529 RSAs, and 17,669 Class B Units were canceled for no consideration. For the Class B Units converted into RSAs, vesting and other terms of the RSAs delivered in the conversion have the same vesting and other terms applicable to the corresponding Class B Units converted.
Additionally, the obligations under the remaining 40,992 fully vested Class B Units, including those of the unitholders who are not current employees of the Manager and the one employee unitholder noted above that did not convert, were converted into similar units of newly formed subsidiaries of the Pre-IPO Owners. All Class B Units held by former employees of the Manager are fully vested.
The following table summarizes the activity related to the Class B Units for the period from December 31, 2016 through January 31, 2017, the date at which they were all canceled or converted:
  Class B Units

 Employee Non-employee Total Class B Units
  Number of Units Weighted Average Fair Value Number of Units Weighted Average Fair Value Number of Units Weighted Average Fair Value
Balance, December 31, 2016 9,915
 $4.2
 39,638
 $2.5
 49,553
 $2.9
Granted 85
 14.0
 9,753
 —
 9,838
 0.1
Converted to RSAs (245) (3.4) (485) (0.8) (730) (1.7)
Canceled (555) (8.2) (17,114) (0.4) (17,669) (0.6)
Converted to Units of affiliated entities (9,200) (4.0) (31,792) (2.9) (40,992) (3.2)
Balance, January 31, 2017 —
 $—
 —
 $—
 —
 $—

As of January 31, 2017, no Class B Units were outstanding.
RSAs and RSUs Issued by INVH
RSAs: In connection with the conversion of the Class B Units in January 2017, we issued 62,529 RSAs, of which 55,211 were fully vested as of September 30, 2017, and the remaining 7,318 non-vested RSAs will vest in accordance with the original terms of the Class B Unit award agreements. The conversion of the Class B Units into RSAs resulted in a modification of the awards of which some were previously accounted for as non-employee awards. The modification resulted in the reversal of $246 of previously recognized incentive compensation expense with respect to these non-employee awards during the nine months ended September 30, 2017.
RSUs: Prior to the completion of the IPO, our board of directors adopted, and our shareholdersstockholders approved, the Invitation Homes Inc. 2017 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) to provide a means through which to attract and retain key personnel and to provide a means whereby our directors, officers, employees, consultants, and advisors can acquire and maintain an equity interest in us, or be paid incentive compensation, including incentive compensation measured by reference to the value of our common stock, and aligningto align their interests with those of our shareholders.stockholders. Under the Omnibus Incentive Plan, we may issue up to 16,000,000 shares,shares. Our share-based awards consist of time-vesting RSUs, performance and as of September 30, 2017, we have awarded 4,480,982 shares under the Omnibus Incentive Plan pursuant to our annual Long Term Incentive Plan (“LTIP”) awards, Supplemental Bonus Plan, the IH6 Bonus Awards, and certain non-employee director awards.
Annual LTIP Awards: During the nine months ended September 30, 2017, we granted 874,410 RSUs pursuant to LTIP awards (the “LTIP Awards”) each of which is divided into three tranches (“Tranche 1,” “Tranche 2,” and “Tranche 3”). Within each tranche, 25% of the LTIP Award contains time-vesting conditions, approximately 25% of the award contains a market based vesting condition basedRSUs (“PRSUs”), and Outperformance Awards (defined below). Time-vesting RSUs are participating securities for earnings (loss) per common share (“EPS”) purposes and PRSUs and Outperformance Awards are not. For detailed discussion of RSUs and PRSUs issued prior to January 1, 2019, refer to our Annual Report on absolute total shareholder return, and approximately
Form 10-K for the year ended December 31, 2018.





34


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)







50% of the award contains performance based vesting conditions based on compounded annual growth in our same store net operating income and adjusted funds from operations.Share-Based Awards
The time-vesting awards vest in installments based on anniversary dates of March 1, 2017 subject to continued employment through the applicable vesting date as follows: Tranche 1 on the first anniversary; Tranche 2 in two equal installments on each of the first and second anniversaries; and Tranche 3 in four equal installments on each of the first four anniversaries. The time-vesting LTIP awards are participating securities for EPS purposes.
The market and performance based awards may be earned based on the achievement of certain measures over an approximate one-, two-, or three-year performance period, which performance periods correspond, respectively, to the Tranche 1, Tranche 2, and Tranche 3 LTIP Awards. The number of RSUs earned will be determined based on performance achievedfollowing summarizes our share-based award activity during the specified performance period for each measure at certain threshold, target, or maximum levels and corresponding payout ranges. In general, the market and performance based RSUs are earned on the date after the end of the performance period on which the performance results are certified (the “Certification Date”six months ended June 30, 2019.
Annual Long Term Incentive Plan (“LTIP”) by our compensation and management development committee (the “Compensation Committee”). The Tranche 1 and Tranche 2 market and performance based RSUs will vest on the Certification Date subject to continued employment through such date. The Tranche 3 market and performance based RSUs will vest in two equal installments, on the related Certification Date and December 31, 2020, subject to continued employment through such vesting dates. The market and performance based LTIP RSUs are not participating securities for EPS purposes.:
•
Annual LTIP Awards Granted: During the six months ended June 30, 2019, we granted 529,901 RSUs pursuant to LTIP awards (together with previously granted annual LTIP awards, “LTIP Awards”). Each award includes components which vest based on time-vesting conditions, market based vesting conditions, and performance based vesting conditions, each of which is subject to continued employment through the applicable vesting date. The time-vesting RSUs granted during the six months ended June 30, 2019 vest in three equal annual installments based on an anniversary date of March 1, 2019. The PRSUs granted during the six months ended June 30, 2019 may be earned based on the achievement of certain measures over a three year performance period. The number of PRSUs earned will be determined based on performance achieved during the performance period for each measure at certain threshold, target, or maximum levels and corresponding payout ranges. In general, the LTIP PRSUs are earned after the end of the performance period on the date on which the performance results are certified by our compensation and management development committee (the “Compensation Committee”).
All of the LTIP Awards are subject to certain change in control and retirement eligibility provisions that may impact these vesting schedules.
•
PRSU Results: During the six months ended June 30, 2019, the Compensation Committee certified performance achievement with respect to Tranche 2 of our 2017 LTIP Awards. Certain PRSUs vested and achieved performance in excess of the target level, resulting in the issuance of an additional 23,392 shares of common stock. Such awards are reflected as an increase in the number of awards granted and vested in the table below. Certain other PRSUs did not achieve performance criteria, resulting in the cancellation of 52,896 awards. Such awards are reflected as an increase in the number of awards forfeited/canceled below.
Director Awards
Retention Awards: During the ninesix months ended SeptemberJune 30, 2017,2019, we issued 307,327 RSUs in the form of retention awards (the “Retention Awards”) each of which is a time-vesting award with service periods ranging from three to five years. The Retention Awards are participating securities for EPS purposes.
Supplemental Bonus Plan: In October 2016, we established a supplemental bonus plan for certain key executives and employees (the “Supplemental Bonus Plan”). Pursuant to the Supplemental Bonus plan, the awards became payable and the payment amount became determinable upon the completion of the IPO. The $59,776 of awards were converted into 2,988,120granted 53,704 time-vesting RSUs that will generally vest in three equal annual installments, commencing on the completionto members of the INVH IPO and on the first and second anniversaries thereafter. The Supplemental Bonus Plan awards are participating securities for EPS purposes.
IH6 Bonus Awards: In addition to the Class B Units granted by IH6 to certain individuals, these individuals were also granted bonus awards (the “IH6 Bonus Awards”) equal to $0.5 multiplied by the 9,650 IH6 Class B Units granted, entitling the recipients to receive bonus payments in connection with an IPO or exit event. Upon completionour board of the INVH IPO, the IH6 Bonus Awards became payable to the recipients and were converted into the right to receive shares of common stock. The $4,825 of awards were settled in the form of 241,250 RSUs that were fully vested upon issuance. The IH6 Bonus Awards are participating securities for EPS purposes.
Director Awards: INVH issued $1,398 of awards, or 69,875 RSUs, to directors, who are not our employees or employees of BREP VII. Thesewhich awards will fully vest on the date scheduled for INVH’s 20182020 annual shareholdersstockholders meeting, subject to the director’s continued service on the board of directors through such date. 
Outperformance Awards
On May 1, 2019, the Compensation Committee approved one-time equity based awards with market based vesting conditions in the form of PRSUs and OP Units (the “Outperformance Awards”). The DirectorOutperformance Awards are participating securities for EPS purposes.
may be earned based on the achievement of rigorous absolute total shareholder return and relative total shareholder return thresholds over a three year performance period ending on March 31, 2022. Upon completion of the performance period, the dollar value of the awards earned under the absolute and relative total shareholder return components will be separately calculated, and the number of earned Outperformance Awards will be determined based on the earned dollar value of the awards and the stock price at the performance certification date. Earned awards will vest 50% on March 31, 2022 and 25% on each of the first and second anniversaries of such date, subject to continued employment. The aggregate $11,800 grant-date fair value of the Outperformance Awards was determined based on Monte-Carlo option pricing models which estimate the probability of the vesting conditions being satisfied.




35


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)







Summary of Total Share-Based Awards
The following tables summarize the status oftable summarizes activity related to non-vested time-vesting RSUs and RSAs as of September 30, 2017 and changesPRSUs, other than Outperformance Awards, during the period from January 31, 2017 through Septembersix months ended June 30, 2017:2019:
  RSUs RSAs Total Share-Based Awards
  Number Weighted Average
Grant-Date
Fair Value
(Actual $)		 Number Weighted Average
Grant-Date
Fair Value
(Actual $)		 Number Weighted Average
Grant-Date
Fair Value
(Actual $)
Balance, January 1, 2017 —
 $—
 —
 $—
 —
 $—
Granted 4,480,982
 20.53
 62,529
 15.50
 4,543,511
 20.46
Vested(1)
 (1,446,351) (20.00) (55,211) (15.69) (1,501,562) (19.84)
Forfeited (100,345) (20.08) —
 —
 (100,345) (20.08)
Balance, September 30, 2017 2,934,286
 $20.81
 7,318
 $14.05
 2,941,604
 $20.79
  Time-Vesting Awards PRSUs 
Total Share-Based Awards(1)
  Number Weighted
Average Grant
Date Fair Value
(Actual $)		 Number Weighted Average Grant Date Fair Value (Actual $) Number Weighted
Average Grant
Date Fair Value
(Actual $)
Balance, December 31, 2018 1,595,644
 $21.63
 888,733
 $22.09
 2,484,377
 $21.79
Granted 239,412
 23.38
 367,585
 24.26
 606,997
 23.91
Vested(2)
 (1,069,264) (21.46) (83,938) (21.21) (1,153,202) (21.44)
Forfeited / canceled (66,417) (21.95) (231,574) (21.60) (297,991) (21.68)
Balance, June 30, 2019 699,375
 $22.46
 940,806
 $23.14
 1,640,181
 $22.85
 
(1)Total share-based awards excludes Outperformance Awards.
(2)All vested RSAs and RSUsshare-based awards are included in basic EPS for the period during which they are outstanding.periods after each awards vest date. During the six months ended June 30, 2019, 1,069,264 time-vesting RSUs and 83,938 PRSUs with an estimated fair value of $30,107 fully vested. During the six months ended June 30, 2019, vested awards include the acceleration of 296,291 RSUs pursuant to the terms and conditions of the Omnibus Incentive Plan and related award agreements.

Grant-Date Fair Values
During the period from January 31, 2017 through September 30, 2017, 55,211 RSAs and 1,446,351 RSUs with an estimated fair value of $29,851 fully vested. As of September 30, 2017, 649,136 RSUs included performance and market based criteria. The grant-date fair valuevalues of the RSAs, time-vesting RSUs and RSUsPRSUs with performance condition vesting criteria isare generally based on the closing price of our common stock on the grant date. However, for the awards granted in connection with the IPO, the grant-date fair value is the opening offering price per common share, and the grant-date fair values for RSUsLTIP PRSUs and Outperformance Awards with market condition vesting criteria are based on Monte-Carlo option pricing models. The following table summarizes the significant inputs utilized in these models atfor awards with market based vesting conditions granted during the grant date:six months ended June 30, 2019:
  For the Six Months Ended June 23, 201730, 2019
Expected volatility(1)
 25%17.2% - 17.4%
Risk-free rate 1.40%2.25% - 2.42%
Expected holding period (years) 0.52-2.522.84 - 2.92 years
 
(1)Expected volatility iswas estimated based on the leverage adjusted historical volatility of certain of our peer companies over a historical term commensurate withINVH’s realized returns and the remaining expected holding period.applicable index.


Summary of Total Share-Based Compensation Expense
During the three and six months ended June 30, 2019 and 2018, we recognized share-based compensation expense as follows:

  For the Three Months Ended June 30, For the Six Months
Ended June 30,
  2019 2018 2019 2018
General and administrative $2,795
 $6,774
 $7,715
 $14,328
Property management expense 820
 1,242
 1,507
 3,186
Total $3,615
 $8,016
 $9,222
 $17,514

As of June 30, 2019, there is $30,300 of unrecognized share-based compensation expense related to non-vested share-based awards which is expected to be recognized over a weighted average period of 2.48 years.


36


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)







Summary of Total Share-Based Compensation Expense
During the three months ended September 30, 2017 and 2016, we recognized $12,004 and $4,711 respectively, of share-based compensation expense, comprised of the following:
  Share-Based Compensation Expense for the Three Months Ended September 30,
  2017 2016
  General and Administrative Property Management Expense General and Administrative Property Management Expense
Class B Units $—
 $—
 $4,665
 $46
RSUs 9,307
 2,691
 —
 —
RSAs 2
 4
 —
 —
Total $9,309
 $2,695
 $4,665
 $46
During the nine months ended September 30, 2017 and 2016, we recognized $64,464 and $13,023 respectively, of share-based compensation expense, comprised of the following:
  Share-Based Compensation Expense for the Nine Months Ended September 30,  
  2017 2016  
  General and Administrative Property Management Expense General and Administrative Property Management Expense Unrecognized Expense at
September 30, 2017
Class B Units $11,998
 $3
 $12,724
 $299
 $—
RSUs 44,646
 8,047
 —
 —
 40,591
RSAs (184) (46) —
 —
 14
Total $56,460
 $8,004
 $12,724
 $299
 $40,605
As of September 30, 2017, there was $40,605 of unrecognized share-based compensation expense related to non-vested RSUs and RSAs which is expected to be recognized over a weighted average period of 1.72 years.
Note 11—Fair Value Measurements
The carrying amounts of restricted cash, certain components of other assets, accounts payable and accrued expenses, resident security deposits, and certain components of other liabilities approximate fair value due to the short maturity of these amounts. Our interest rate swap agreements and interest rate cap agreements are the only financial instruments recorded at fair value on a recurring basis within our condensed consolidated financial statements. The fair values of our interest rate caps and swaps, which are classified as Level 2 in the fair value hierarchy, are estimated using market values of instruments with similar attributes and maturities. See Note 7 for the details of the condensed balance sheet classification and the fair values for the interest rate caps and swaps.


37

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


The following table displays the carrying values and fair values of financial instruments as of SeptemberJune 30, 20172019 and December 31, 2016:2018:
    September 30, 2017 December 31, 2016
    Carrying
Value		 Fair
Value		 Carrying
Value		 Fair
Value
Assets carried at historical cost on the consolidated balance sheets          
Investments in debt securities Level 2 $230,619
 $234,514
 $209,337
 $209,390
           
Liabilities carried at historical cost on the consolidated balance sheets          
Mortgage loans(1)
 Level 2 $4,173,994
 $4,196,400
 $5,263,994
 $5,265,180
Term loan facility(2)
 Level 3 1,500,000
 1,501,030
 —
 —
Credit facilities(3)
 Level 3 —
 —
 2,321,585
 2,329,551
    June 30, 2019 December 31, 2018
    Carrying
Value		 Fair
Value		 Carrying
Value		 Fair
Value
Assets carried at historical cost on the condensed consolidated balance sheets:          
Investments in debt securities(1)
 Level 2 $331,088
 $332,229
 $366,599
 $365,196
           
Liabilities carried at historical cost on the condensed consolidated balance sheets:          
Mortgage loans(2)
 Level 2 $6,554,273
 $6,576,873
 $7,263,476
 $7,235,685
Secured Term Loan(3)
 Level 3 403,464
 407,300
 —
 —
Term Loan Facility(4)
 Level 3 1,500,000
 1,501,037
 1,500,000
 1,500,773
Convertible Senior Notes(5)
 Level 3 561,830
 558,344
 557,301
 544,249
 
(1)The carrying values of investments in debt securities are shown net of discount.
(2)The carrying values of the mortgage loans are shown net of discount and exclude $16,970$44,311 and $9,256$61,822 of deferred financing costs as of SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively.
(2)The carrying value of the term loan facility excludes $12,749 of deferred financing costs as of September 30, 2017.
(3)The carrying valuesvalue of the credit facilities exclude $6,044Secured Term Loan excludes $2,595 of deferred financing costs as of June 30, 2019.
(4)The carrying value of the Term Loan Facility excludes $7,696 and $9,140 of deferred financing costs as of June 30, 2019 and December 31, 2016.2018, respectively.
(5)The carrying values of the Convertible Senior Notes include unamortized discounts of $13,159 and $17,692 as of June 30, 2019 and December 31, 2018, respectively.


The fair values of our investmentsinvestment in debt securities and of our mortgage loans, which are classified as Level 2 in the fair value hierarchy, are estimated based on market bid prices of comparable instruments at the end of the period. The fair values of our credit facilitiesSecured Term Loan, Term Loan Facility, and Term LoanRevolving Facility, which are classified as Level 3 in the fair value hierarchy, are estimated using a discounted cash flow methodology based on market interest rate data and other market factors available at the end of the period. The fair value of the 2022 Convertible Notes, which is classified as Level 3 in the fair value hierarchy, is estimated by discounting contractual cash flows at the interest rate we estimate the notes would bear if sold in the current market and excludes the value associated with the conversion feature. The fair value of the 2019 Convertible Notes is determined based on the outstanding principal balance immediately prior to the July 1, 2019 conversion (see Note 6 and Note 15).


37

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)





Our assets measured at fair value on a nonrecurring basis are those assets for which we have recorded impairments. The assets for which we have recorded impairments, measured at fair value on a nonrecurring basis, are summarized below:
 Three Months Ended September 30, Nine Months Ended
September 30,		 For the Three Months Ended June 30, For the Six Months Ended
June 30,
��2017 2016 2017 2016 2019 2018 2019 2018
Investments in single-family residential properties, net held for use (Level 3)        
Investments in single-family residential properties, net held for use (Level 3):        
Pre-impairment amount $1,827
 $1,350
 $2,323
 $2,407
 $7,313
 $764
 $7,553
 $764
Total impairments (360) (421) (627) (650) (1,788) (176) (1,818) (176)
Fair value $1,467
 $929
 $1,696
 $1,757
 $5,525
 $588
 $5,735
 $588
  For the Three Months Ended June 30, For the Six Months Ended
June 30,
  2019 2018 2019 2018
Investments in single-family residential properties, net held for sale (Level 3):        
Pre-impairment amount $12,090
 $9,183
 $31,114
 $12,408
Total impairments (2,288) (1,495) (5,511) (2,098)
Fair value $9,802
 $7,688
 $25,603
 $10,310
  Three Months Ended September 30, Nine Months Ended
September 30,
  2017 2016 2017 2016
Investments in single-family residential properties, net held for sale (Level 3)        
Pre-impairment amount $988
 $36,698
 $9,115
 $40,657
Total impairments (64) (655) (929) (945)
Fair value $924

$36,043

$8,186
 $39,712


For additional information related to our single-family residential properties during the threeas of June 30, 2019 and nine months ended September 30, 2017 and 2016,December 31, 2018, refer to Note 3.

Note 12—Earnings per Share
Basic and diluted EPS are calculated as follows:

  For the Three Months
Ended June 30,		 For the Six Months
Ended June 30,
(in thousands, except share and per share data) 2019 2018 2019 2018
Numerator:        
Net income (loss) available to common stockholders — basic and diluted $38,833
 $(14,155) $59,549
 $(31,646)
         
Denominator:        
Weighted average common shares outstanding — basic 525,070,036
 520,509,058
 523,265,455
 520,087,371
Effect of dilutive securities:        
Incremental shares attributed to non-vested share-based awards 863,607
 —
 925,014
 —
Weighted average common shares outstanding — diluted 525,933,643
 520,509,058
 524,190,469
 520,087,371
         
Net income (loss) per common share — basic $0.07
 $(0.03) $0.11
 $(0.06)
Net income (loss) per common share — diluted $0.07
 $(0.03) $0.11
 $(0.06)

Incremental shares attributed to non-vested share-based awards are excluded from the computation of diluted EPS when they are anti-dilutive. For the three months ended June 30, 2019, there were no incremental shares attributed to non-vested share-based awards. For the six months ended June 30, 2019, 9,495 incremental shares attributed to non-vested share-based awards are excluded from the denominator as their inclusion would have been anti-dilutive. For the three and six months ended June 30, 2018, 1,129,465 and 1,242,853, respectively, incremental shares attributed to non-vested share-based awards are excluded from the computation of diluted EPS because we had a net loss for the periods.


38


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)






Note 12—Earnings per Share
We compute EPS only for the period our common stock was outstanding during 2017, referred to as the Post-IPO period. We have defined the Post-IPO period as February 1, 2017, the date our shares began trading on the New York Stock Exchange, through September 30, 2017, or 92 and 242 days of activity, respectively, for the three months ended September 30, 2017, and for the Post-IPO period. Basic EPS is computed by dividing the net loss available to common shareholders for the Post-IPO period by the weighted average number of shares outstanding during the Post-IPO period, adjusted for non-vested shares of RSUs and RSAs. Diluted EPS is similar to computing basic EPS, except that the denominator is increased to include the dilutive effects of non-vested RSUs and RSAs except when doing so would be anti-dilutive.
All outstanding non-vested RSUs and RSAs that have nonforfeitable rights to dividends or dividend equivalents that participate in undistributed earnings with common stock are considered participating securities and are included in computing EPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating securities according to dividends or dividend equivalent and participation rights in undistributed earnings in periods when we have net income. Certain of our non-vested RSUs and RSAs are considered participating securities as identified in Note 10.
Basic and diluted EPS are calculated as follows:
(in thousands, except share and per share data) Three Months Ended September 30,
2017		 February 1, 2017
through
September 30,
2017
Numerator:    
Net loss available to common shareholders — basic and diluted $(22,745) $(42,837)
     
Denominator:    
Weighted average common shares outstanding — basic and diluted 311,559,780
 311,674,226
     
Net loss per common share — basic and diluted $(0.07) $(0.14)


For the three and six months ended SeptemberJune 30, 20172019 and for2018, the periodvested OP Units have been excluded from February 1, 2017 through Septemberthe computation of EPS because all income (loss) attributable to the OP Units has been recorded as non-controlling interest and thus excluded from net income (loss) available to common stockholders.
For the three and six months ended June 30, 2017, incremental2019, 12,553,864 potential shares of 951,217 and 623,375, respectively, attributed to non-vested RSUs and RSAs werecommon stock issuable upon the conversion of the 2019 Convertible Notes, calculated using the “if-converted” method, are excluded from the computation of diluted EPS because we had a net lossas they would be anti-dilutive. For the three and six months ended June 30, 2019, 15,100,443 potential shares of common stock issuable upon the conversion of the 2022 Convertible Notes are also excluded from the computation of diluted EPS. Additionally, no adjustment is included to the numerator for the periods.interest expense related to the Convertible Senior Notes for the three and six months ended June 30, 2019. For the three and six months ended June 30, 2018, we asserted our intent and ability to fully settle the Convertible Senior Notes in cash and as a result, the Convertible Senior Notes did not impact diluted EPS during that period. See Note 6 for further discussion about the Convertible Senior Notes.
Note 13—Income Tax
We account for income taxes under the asset and liability method. For the TRSs,our taxable REIT subsidiaries (“TRS”), deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. We provide a valuation allowance, from time to time, for deferred tax assets for which we do not consider realization of such assets to be more likely than not.
As of SeptemberJune 30, 2017, there were no2019 and December 31, 2018, we have not recorded any deferred tax assets and liabilities or unrecognized tax benefits recorded.benefits. We do not anticipate a significant change in unrecognized tax benefits within the next 12 months.
During the nine months ended September 30, 2017, weWe have sold assets that were either subject to Section 337(d) of the Internal Revenue Code (see additional discussion in Note 2).of 1986, as amended, or were held by TRSs. These transactions resulted in $2,506$844 and $455 of current income tax expense for the three months ended June 30, 2019 and 2018, respectively, and $1,605 and $849 of current income tax expense for the six months ended June 30, 2019 and 2018, respectively, which has been recorded in gain on sale of property, net of tax onin the condensed consolidated statementstatements of operations.

Note 14—Commitments and Contingencies
Leasing Commitments
The following table sets forth our fixed lease payment commitments as a lessee as of June 30, 2019, for the periods below:

  
Operating
Leases
 
Finance
Leases
Remainder of 2019 $2,238
 $316
2020 4,552
 621
2021 4,169
 543
2022 2,713
 41
2023 1,565
 —
Thereafter 1,835
 —
Total lease payments 17,072
 1,521
Less: imputed interest (1,417) (59)
Total lease liability $15,655
 $1,462

As of June 30, 2019, approximately $9,600 of finance leases for fleet vehicles with a lease term of 50 months have been entered into and are anticipated to commence during the next nine months.


39


INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)







Note 14—CommitmentsThe components of lease expense for the three and Contingenciessix months ended June 30, 2019 are as follows:
  For the Three Months Ended June 30, 2019 For the Six Months Ended June 30, 2019
Operating lease cost:    
Fixed lease cost $916
 $1,897
Variable lease cost 356
 699
Total operating lease cost $1,272
 $2,596

Future minimum rental revenues under leases existing on our single-family residential properties as of June 30, 2019 are as follows:
  Lease Payments to be Received
Remainder of 2019 $645,097
2020 417,831
2021 42,085
2022 —
2023 —
Thereafter —
Total $1,105,013

Insurance Policies
Pursuant to the terms of our credit facility agreementsCredit Facility and the mortgage loan agreements (see Note 6), laws and regulations of the jurisdictions in which our properties are located, and general business practices, we are required to procure insurance on our properties. For the nine months ended SeptemberAs of June 30, 2017 and 2016,2019, there are no material contingent liabilities related to uninsured losses have been incurred with respect to the properties except as described below.
Effects of Hurricane Irma
On September 10, 2017, Hurricane Irma made landfall in Southern Florida and traveled through Florida before entering Georgia as a tropical storm. We estimate that damages caused by Hurricane Irma totaled approximately $16,000 which we have accrued at September 30, 2017 and is included in impairment and other in our condensed consolidated statements of operations for the three and nine months ended September 30, 2017. A portion of the foregoing damages may be recoverable through our insurance policies that provide coverage for wind damage, flood damage and business interruption, which are subject to deductibles and limits.properties.
Legal Matters
We are subject to various legal proceedings and claims that arise in the ordinary course of our business. We accrue a liability when we believe that it is both probable that a liability has been incurred and that we can reasonably estimate the amount of the loss. We do not believe that the following litigationfinal outcome of these proceedings or matters will have a materiallymaterial adverse impacteffect on our condensed consolidated financial statements, and no accruals for the following items have been recorded in our condensed consolidated financial statements, as we have not determined that any loss is probable, nor is the amount of any potential loss estimable.
Litigation Relating to the Mergers
Two putative class actions have been filed by purported shareholders of SFR challenging the Mergers. The first suit, styled as Berg v. Starwood Waypoint Homes, et. al., No. 1:17-cv-02896, was filed in the United States District Court for the District of Maryland on September 29, 2017, and is against SFR, SFR Partnership, SFR’s trustees, us, INVH LP, and REIT Merger Sub (the “Berg Lawsuit”). The second suit, styled as Bushansky v. Starwood Waypoint Homes, et. al., No. 1:17-cv-02936, was filed in the United States District Court for the District of Maryland on October 4, 2017, and is against SFR, SFR Partnership and SFR’s trustees (the “Bushansky Lawsuit” and, collectively with the Berg Lawsuit, the “Lawsuits”). The Bushansky Lawsuit does not name the Company or any of its affiliates as defendants. The Lawsuits allege that SFR and its trustees violated Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder by allegedly disseminating a false and misleading Form S-4 containing a joint proxy statement/prospectus. The Lawsuits further allege that SFR’s trustees allegedly violated Section 20(a) of the Exchange Act by failing to exercise proper control over the person(s) who violated Section 14(a) of the Exchange Act. The Berg Lawsuit additionally alleges that we violated Section 20(a) of the Exchange Act. The Lawsuits seek, among other things, injunctive relief preventing consummation of the Mergers, rescission of the transactions contemplated by the Merger Agreement should they be consummated and litigation costs, including attorneys’ fees. The Berg Lawsuit also seeks injunctive relief directing SFR’s trustees to disseminate a registration statement that does not contain any untrue statements of material fact and declaratory relief that defendants violated Sections 14(a) and/or 20(a) of the Exchange Act. The Bushansky Lawsuit also seeks rescissory damages in the event of a merger and requests that the action be maintained as a class action. We and SFR intend to defend vigorously against the Lawsuits.
Other Matters
SEC Investigation “In the Matter of Certain Single Family Rental Securitizations”
Radian Group Inc. (“Radian”),the indirect parent company of Green River Capital LLC (“GRC”), which is a service provider that provides certain broker price opinions (“BPO”) to the Company, disclosed in its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017 that GRC had received a letter in March 2017 from the staff of the SEC stating that it is conducting an investigation captioned “In the Matter of Certain Single Family Rental Securitizations” and requesting information from market participants. Radian disclosed that the letter asked GRC to provide information regarding BPOs that GRC provided on properties included in single family rental securitization transactions.


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INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


In September 2017, we received a letter from the staff of the SEC stating that it is conducting an investigation captioned “In the Matter of Certain Single Family Rental Securitizations.” The letter enclosed a subpoena that requests the production of certain documents and communications related to our Securitizations, including, without limitation, those related to BPOs provided on our properties included in our Securitizations. The SEC letter indicates that its investigation is a fact-finding inquiry and does not mean that the SEC has a negative opinion of any person or security. We are cooperating with the SEC. We understand that other transaction parties in securitizations have received requests in this matter. As the SEC’s investigation is ongoing, we cannot currently predict the timing, the outcome or the scope of such investigation.
Severance and Retention
In June 2017, our board of directors, upon recommendation of our Compensation Committee, approved and adopted our Invitation Homes Inc. Executive Severance Plan (the “Executive Severance Plan”); and, in September 2017, adopted severance guidelines for those not covered by the Executive Severance Plan (the “Severance Guidelines” and, together with the Executive Severance Plan, the “Severance Plans”). The Severance Plans provide all qualified employees specified benefits following such person’s qualifying termination of employment.
In addition, and in connection with the Mergers, in August 2017, we entered into agreements with several of our executives, which provide the executives, as applicable, with benefits in the event the Mergers are consummated and/or where the executive experiences a qualifying termination within a specified period of time following such consummation. If the Mergers are consummated and a participant under either a Severance Plan or an executive agreements experiences a qualifying termination, such person will be entitled to specified benefits.statements.
Note 15—Subsequent Events
In connection with the preparation of the accompanying condensed consolidated financial statements, we have evaluated events and transactions occurring after SeptemberJune 30, 2017,2019, for potential recognition or disclosure.
ExtensionsSettlement of Existing Mortgage Loansthe 2019 Convertible Notes
On October 10, 2017,July 1, 2019, we submitted a notification to request an extensionsettled substantially all of the maturity of the IH1 2014-3 mortgage loan from December 9, 2017 to December 9, 2018 upon approval.
Dividend Declaration
On October 13, 2017, the board of directors declared an $0.08 dividend per share to stockholders of record on October 24, 2017, which was paid on November 7, 2017.
IH 2017-2 Securitization
On November 9, 2017, we completed a securitization transaction in connection with which we entered into a loan agreement with a third-party lender, providing for a new mortgage loan comprised of six components with a totaloutstanding principal amount of $865,027 (“the 2019 Convertible Notes through the issuance of 12,553,864 shares of common stock.
Voluntary Mortgage Loan Prepayment
On July 9, 2019, we voluntarily prepaid $50,000 of outstanding borrowings with unrestricted cash on hand against the outstanding balance of IH 2017-2”). IH 2017-2 has a stated maturity in December 2019, with five one-year extension options, and is secured by first priority mortgages on a portfolio of 4,419 of our homes. Each2017-2. The prepayment was applied to Component E of the six componentsloan with an interest rate of IH 2017-2 bears interest at a floating rate equal to LIBOR plus an applicablea spread that ranges from 85 to 300 bps, with a weighted average spread to LIBOR of 144231 bps. IH 2017-2 was subsequently transferred to a trust in exchange for pass-through certificates issued by the trust. In connection with IH 2017-2, we purchased and will retain 5% of each class of certificates for risk-retention purposes, totaling $43,254.
We utilized proceeds from IH 2017-2 to repay IH1 2014-2 and IH1 2014-3, to fund certain reserves, and for general corporate purposes.
Residential Property Dispositions
Between October 1, 2017 and November 2, 2017, we disposed of 55 homes with a net carrying amount of $8,996 as of September 30, 2017, for an aggregate net sales price of $11,546. A portion of the proceeds were used to make various prepayments on our mortgage loans totaling $2,634. At September 30, 2017, 44 of these properties were classified as held for




41

INVITATION HOMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(unaudited)


sale and presented in other assets, net and 11 were classified as investments in single-family residential properties on our condensed consolidated balance sheet.


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ITEM 2. 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 in conjunction with the information appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2016.10-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 further as described in Exhibit 99.1 to this Quarterly Report on Form 10-Q andforth under Part I. Item 1A. “Risk Factors"” in our Annual Report on Form 10-K for the year ended December 31, 2016.10-K.
Capitalized terms used without definition have the meaning provided elsewhere in this Quarterly Report on Form 10-Q.
Overview
Invitation Homes is a leading owner and operator of single-family homes for lease, offering residents high-quality homes in desirablesought-after neighborhoods across America. With nearly 50,000more than 80,000 homes for lease in 1317 markets across the country as of SeptemberJune 30, 2017,2019, Invitation Homes is meeting changing lifestyle demands by providing residents access to updated homes with features they value, such as close proximity to jobs and access to good schools. Our mission statement, “Together with you, we make a house a home,” reflects our commitment to high-touch service that continuously enhances residents’ living experiences and provides homes where individuals and families can thrive.
We have selected locationsoperate in markets with strong demand drivers, high barriers to entry, and high rent-growthrent growth potential, primarily in the Western United States, Florida, and Florida.the Southeast United States. Through disciplined market and asset selection, as well as through the Mergers, 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 allowsenables us to effectively and efficiently acquire, renovate, lease, maintain, and manage our homes.
We invest in markets that we expect will exhibit lower new supply, stronger job and household formation growth, and superior NOInet operating income (“NOI”) growth relative to the broader U.S.United States housing and rental market. Within our 1317 markets, we target attractive neighborhoods in in-fill locations with multiple demand generators,drivers, such as proximity to major employment centers, desirable schools, and transportation corridors. Our homes average approximately 1,8601,850 square feet with three bedrooms and two bathrooms, appealing to a resident base that we believe is less transitory than the typical multifamily resident. As of September 30, 2017, we had made approximately $1.2 billion ofWe invest in the upfront renovation investment in theof homes in our portfolio representing approximately $25,000 per home, in order to address capital needs, reduce ongoing maintenance costs, and drive resident demand. As a result, our portfolio benefits from high occupancy and low turnover rates, and we are well positionedwell-positioned to drive strong rent growth, attractive margins, and predictable cash flows.
Reorganization and Initial Public Offering
On January 31, 2017, we and our Pre-IPO Owners effected certain transactions (the “Pre-IPO Transactions”) that resulted in the INVH LP holding, directly or indirectly, all of the assets, liabilities, and results of operations reflected in our condensed consolidated financial statements, including the full portfolio of homes held by the IH Holding Entities. As a result of the Pre-IPO Transactions, the INVH LP is wholly owned by Invitation Homes Inc. (“INVH”) directly and through its wholly owned subsidiary, Invitation Homes OP GP LLC, which serves as the INVH LP’s sole general partner.
The Pre-IPO Transactions have been accounted for as a reorganization of entities under common control utilizing historical cost basis. Accordingly, after January 31, 2017, our condensed consolidated financial statements include the accounts of INVH and its wholly owned subsidiaries. Prior to that date, our condensed combined financial statements include the combined accounts of the INVH LP and the IH Holding Entities and their wholly owned subsidiaries.
On February 6, 2017, INVH completed an initial public offering of 88,550,000 shares of common stock at a price to the public of $20.00 per share (the “IPO”). An additional 221,826,634 shares of common stock were issued to the Pre-IPO Owners.





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Our Portfolio
The following table provides summary information regarding our total and Same Store portfolioportfolios as of and for the periodthree months ended SeptemberJune 30, 20172019 as noted below:
Market 
Number
of Homes(1)
 
Average
Occupancy(2)
 
Average Monthly
Rent(3)
 
Average Monthly
Rent PSF(3)
 
% of
Revenue(4)
 
Number of Homes(1)
 
Average
Occupancy(2)
 
Average Monthly
Rent(3)
 
Average Monthly
Rent PSF(3)
 
% of
Revenue(4)
Western United States          
Western United States:  
Southern California 4,631
 95.5% $2,288
 $1.34
 12.8% 8,163 95.1% $2,397 $1.42 13.3%
Northern California 2,857
 95.4% 1,801
 1.14
 6.7% 4,449 95.6% 2,066 1.34 6.5%
Seattle 3,246
 94.0% 1,975
 1.04
 8.3% 3,412 94.9% 2,177 1.14 5.3%
Phoenix 5,443
 94.4% 1,188
 0.75
 8.2% 7,592 95.5% 1,350 0.83 7.4%
Las Vegas 961
 95.7% 1,475
 0.76
 1.8% 2,963 96.4% 1,603 0.80 3.3%
Denver 2,240 92.7% 1,971 1.10 3.1%
Western United States Subtotal 17,138
 94.9% 1,754
 1.04
 37.8% 28,819 95.2% 1,930 1.12 38.9%
            
Florida          
Florida:  
South Florida 5,577
 92.9% 2,198
 1.14
 14.5% 8,789 93.3% 2,183 1.17 13.0%
Tampa 4,915
 94.3% 1,602
 0.82
 9.6% 8,211 94.9% 1,660 0.89 9.5%
Orlando 3,736
 95.2% 1,539
 0.81
 7.1% 5,943 94.5% 1,644 0.89 6.8%
Jacksonville 1,953
 94.8% 1,577
 0.79
 3.8% 1,877 95.3% 1,660 0.84 2.2%
Florida Subtotal 16,181
 94.1% 1,787
 0.92
 35.0% 24,820 94.2% 1,840 0.99 31.5%
            
Southeast United States          
Southeast United States:  
Atlanta 7,337
 94.7% 1,402
 0.68
 12.5% 12,430 95.1% 1,498 0.73 12.8%
Charlotte 3,132
 94.2% 1,395
 0.70
 5.2%
Carolinas 4,693 94.7% 1,576 0.73 5.1%
Nashville 797 94.5% 1,861 0.87 1.0%
Southeast United States Subtotal 10,469
 94.6% 1,400
 0.68
 17.7% 17,920 94.9% 1,535 0.74 18.9%
            
Midwest United States          
Texas:  
Houston 2,313 92.5% 1,550 0.79 2.4%
Dallas 2,202 92.6% 1,778 0.84 2.7%
Texas Subtotal 4,515 92.5% 1,660 0.82 5.1%
  
Midwest United States:  
Chicago 2,898
 93.0% 2,029
 1.21
 6.9% 3,095 91.6% 1,977 1.21 4.0%
Minneapolis 1,181
 94.5% 1,786
 0.90
 2.6% 1,153 96.3% 1,878 0.95 1.6%
Midwest United States Subtotal 4,079
 93.4% 1,958
 1.11
 9.5% 4,248 92.8% 1,950 1.13 5.6%
Total/Average 47,867
 94.4% $1,705
 $0.92
 100.0%
              
Same Store Portfolio Total/Average 42,795
 95.4% $1,706
 $0.92
 90.5%
Total / Average 80,322 94.6% $1,800 $0.97 100.0%
Same Store Total / Average 72,787 96.5% $1,804 $0.97 92.4%
 
(1)As of SeptemberJune 30, 2017.2019.
(2)Represents average occupancy for the three months ended SeptemberJune 30, 2017.2019.
(3)Represents average monthly rent for the three months ended SeptemberJune 30, 2017.2019.
(4)
Represents the percentage of total revenuerental revenues and other property income generated in each market for the three months ended SeptemberJune 30, 2017.2019.




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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” in our Annual Report on Form 10-K for more information regarding factors that could materially adversely affect our results of operations and financial condition. Key factors that impact our results of operations and financial condition include market fundamentals, property acquisitions and renovations, rental rates and occupancy levels, turnover rates and days to re-resident homes, property improvements and maintenance, property acquisitions and renovations, and financing arrangements.
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 72.8%70.4% of our rental revenues and other property income during the three months ended SeptemberJune 30, 2017.2019. In recent periods, our Western United States and Florida markets have experienced favorable demand fundamentals in the form ofwith employment growth, andstrong household formation rates, and favorable supply fundamentals such as the rate of new supply delivery. We believe these supply and demand fundamentals have driven favorable rental rate growth and home price appreciation for our Western United States and Florida markets in recent periods, and we expect these trends to continue in the near to intermediate term.
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.
Turnover Rates and Days to Re-Resident: Other drivers of rental revenues and property operating and maintenance expense include increasing the length of stay of our residents, minimizing resident turnover rates, and reducing the number of days a home is unoccupied between residents. Our operating results are also are impacted by the amount of time it takes to market and lease a property. The period of time to market and lease a property can vary greatly and is impacted by local demand, our marketing techniques, the size of our available inventory, and economic conditions, and economic outlook. Increases in turnover rates and the average number of days to re-resident increase property operating and maintenance expenses and reduce rental revenues as the homes are not generating income during this period.
Property Improvements and Maintenance: Property improvements and maintenance impact capital expenditures, property operating and maintenance expense, and rental revenues. We actively manage our homes on a total portfolio basis to determine what capital and maintenance needs may be required, and what opportunities we may have to generate additional revenues or expense savings from such expenditures. Due to our size and scale both nationally and locally, we believe we are able to purchase goods and services at favorable prices.
Property Acquisitions and Renovations: Future growth in rental revenues and operatingother 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. 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. RenovationThe scope of renovation work varies, but may include paint, flooring, carpeting, cabinetry, appliances, plumbing hardware, roof replacement, HVAC replacement, and other items required to prepare the home for rental. The time and cost involved in accessing our homes and preparing them for rental can significantly impact our financial performance. The time to renovate a newly acquired property can vary significantly among homes for several reasons, including the property’s acquisition channel, the condition of the property, and whether the property was vacant when acquired. Due to our size and scale both nationally and locally, we believe we are able to purchase goods and services at favorable prices.


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Financing Arrangements: Financing arrangements directly impact our interest expense, mortgage loans, secured term loan, term loan facility, and revolving facility, and convertible debt, as well as our ability to acquire and renovate homes. We have historically utilized indebtedness to acquirefund the acquisition and renovaterenovation of new homes. Our current financing arrangements contain financial covenants, and certain financing arrangements contain variable interest rate terms. Interest rates are impacted by the characteristics of our homes, market conditions, and the terms of the underlying financing arrangements. See Part I. Item 3. “Quantitative and Qualitative Disclosures about Market Risk” for further discussion regarding interest rate risk. Our future financing arrangements may not have similar terms with respect to amounts, interest rates, financial covenants, and durations.


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Recent Events
Initial Public Offering
On February 6, 2017, we completed our IPO in which we sold 88,550,000 shares of common stock at an initial public offering price of $20.00 per share. The shares offered and sold in the offering were registered under the Securities Act pursuant to our Registration Statement on Form S-11, which was declared effective by the SEC on January 31, 2017. The common stock is listed on the NYSE under the symbol "INVH" and began trading publicly on February 1, 2017. The offering generated net proceeds of $1,692.1 million to us after underwriting discounts, but before other transaction costs. We used a portion of the net proceeds, together with the borrowings under the Term Loan Facility of our New Credit Facility (described below), to repay all of our existing credit facilities and our mortgage loan relating to the IH1 2013-1 securitization and a portion of the mortgage loan relating to the IH1 2014-1 securitization transaction, and to pay fees and expenses related to the offering.
In March 2017, we used the remaining IPO proceeds, together with cash on hand, to voluntarily prepay approximately $260.0 million of additional borrowings outstanding under the mortgage loan relating to the IH1 2014-1 securitization transaction, reducing the outstanding principal balance to approximately $421.0 million.
New Credit Facility
On February 6, 2017, INVH LP entered into a new credit agreement with the lenders party thereto, Bank of America, N.A., as administrative agent and the other parties party thereto. The new credit agreement provides for senior secured credit facilities (together, collectively, the “New Credit Facility”) consisting of (i) a $1,000.0 million revolving facility (the “Revolving Facility”), which will mature on February 6, 2021, with a one-year extension option subject to certain conditions and (ii) a $1,500.0 million “Term Loan Facility,” which will mature on February 6, 2022. See “—Liquidity and Capital Resources.”
Fannie Mae Securitization Transaction
On April  28, 2017, we completed a securitization transaction pursuant to which we entered into a loan agreement, providing for a new ten-year, fixed rate mortgage loan comprised of two components with a total principal amount of $1,000.0 million (the “FNMA Loan”). The FNMA Loan will mature June 9, 2027 and is secured by first priority mortgages on a portfolio of 7,204 of our homes. See “—Liquidity and Capital Resources.”
We used proceeds from the FNMA Loan to repay the remaining $420.0 million outstanding under our mortgage loan relating to the IH1 2014-1 securitization transaction, to fund certain reserves and to pay transaction fees and expenses incurred with respect to the FNMA Loan. The IH1 2014-1 mortgage loan outstanding balance had been reduced as of April 28, 2017 due to prepayments from IPO proceeds and application of proceeds from sales of homes. On May 9, 2017, we used the remaining proceeds to voluntarily prepay $510.0 million of our mortgage loan relating to the IH1 2014-3 securitization transaction. On June 9, 2017, we made a $100.0 million prepayment, reducing the outstanding principal balance to approximately $151.0 million.
Proposed Merger with SFR
On August 9, 2017, we entered into a definitive agreement with SFR to form a combined company in a stock-for-stock merger of equals transaction (the “Merger Agreement”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, (i) SFR will be merged with and into IH Merger Sub, LLC, a wholly owned subsidiary of the Company (“REIT Merger Sub”)re, with REIT Merger Sub surviving as our subsidiary (the “REIT Merger”) and (ii) as promptly as practicable after the REIT Merger, Starwood Waypoint Homes Partnership, L.P. (“SFR Partnership”) will be merged with and into INVH LP, with INVH LP surviving as our wholly owned subsidiary (the “Partnership Merger,” and together with the REIT Merger, the “Mergers”). In connection with the Mergers, we filed with the SEC on October 16, 2017 a definitive joint proxy statement/information statement and prospectus (File No. 333-220543) (the “Merger Proxy”), which includes more detailed information about the Mergers and the related transactions.
Under the terms of the Merger Agreement and as described in the Merger Proxy, each outstanding SFR share will be converted into 1.6140 shares of our common stock (the “Exchange Ratio”), and each outstanding unit of SFR Partnership will be converted into the right to receive 1.6140 common units, representing limited partner interests, in INVH LP. Further, each


46


outstanding restricted share unit of SFR (an “SFR RSU”) that vest as a result of the Mergers or the Merger Agreement will automatically be converted into the right to receive our common stock based on the Exchange Ratio, plus any accrued but unpaid dividends (if any) and less certain taxes (if any). At the effective time of the REIT Merger, each SFR RSU that does not vest as a result of the Mergers or the Merger Agreement will be automatically assumed by us and converted into an equivalent stock-based incentive award unit with respect to our common stock and be subject to the same terms and conditions as applicable to such awards. On a pro forma basis giving effect to the Mergers, the combined company will own an approximately 98.2% partnership interest in INVH LP and the combined company will have the full, exclusive and complete responsibility for and discretion in the day-to-day management and control of INVH LP.
The REIT Merger is intended to qualify as a reorganization for U.S. federal income tax purposes, and the Partnership Merger is intended to be treated as a transaction that is generally tax free to the holders of units of SFR Partnership for U.S. federal income tax purposes. Upon the closing of the Mergers, our stockholders will own approximately 59% of the combined company’s stock, and SFR’s stockholders will own approximately 41% of the combined company’s stock. Based on the closing prices of SFR’s common shares and our common stock on October 13, 2017, the equity market capitalization of the combined company would be approximately $12.0 billion, and the total enterprise value (including debt) would be approximately $21.3 billion.
The transaction has been approved by our board of directors and SFR’s board of trustees. Completion of the Mergers is subject to, among other things, approval by the holders of the SFR’s common shares. Assuming approval is obtained, the Mergers are expected to close in the fourth quarter of 2017. We can give no assurance that the Mergers and related transactions will be completed in the above timeframe, if at all. During the third quarter of 2017, we incurred $4.9 million of fees and expenses related to the Mergers, which are included in general and administrative for the three and nine months ended September 30, 2017 in the condensed consolidated statements of operations and $2.7 million of direct offering costs which will be charged to equity upon completion of the Mergers and are included in other assets, net on the condensed consolidated balance sheet as of September 30, 2017. Other transaction costs are expected to be incurred in the fourth quarter of 2017 and in 2018 in connection with the closing of the Mergers.
Two putative class actions have been filed by purported shareholders of SFR challenging the Mergers, one of which names us and certain affiliates as defendants. The lawsuits seek, among other things, injunctive relief preventing consummation of the Mergers, rescission of the transactions contemplated by the Merger Agreement should they be consummated and litigation costs, including attorneys’ fees. Please see Part II, Item  I. Legal Proceedings “Litigation Relating to the Mergers” in this Quarterly Report on Form 10-Q for more details.
Dividend Declaration
On October 13, 2017, the board of directors declared an $0.08 dividend per share to stockholders of record on October 24, 2017, which was paid on November 7, 2017.
IH 2017-2 Securitization
On November 9, 2017, we completed a securitization transaction in connection with which we entered into a loan agreement with a third-party lender, providing for a new mortgage loan comprised of six components with a total principal amount of $865.0 million (“IH 2017-2”). IH 2017-2 has a stated maturity in December 2019, with five one-year extension options, and is secured by first priority mortgages on a portfolio of 4,419 of our homes. Each of the six components of IH 2017-2 bears interest at a floating rate equal to LIBOR plus an applicable spread that ranges from 85 to 300 bps, with a weighted average spread to LIBOR of 144 bps. IH 2017-2 was subsequently transferred to a trust in exchange for pass-through certificates issued by the trust. In connection with IH 2017-2, we purchased and will retain 5% of each class of certificates for risk-retention purposes, totaling $43.3 million.
We utilized proceeds from IH 2017-2 to repay IH1 2014-2 and IH1 2014-3, to fund certain reserves, and for general corporate purposes.


47


Components of Revenues and Expenses
The following is a description of the components of our revenues and expenses:expenses.
Revenues
Rental Revenues and Other Property Income
Rental revenues, net of any concessions and uncollectible amounts, consist of rents collected under lease agreements related to our single-family homes for lease. These include leases that weWe enter into leases directly with our residents, whichand the leases typically have a term of one to two years.
Other Property Income
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; and (iii) various other fees, including applicationlate fees and lease termination fees.fees, among others.
Expenses
Property Operating and Maintenance
Once a property is available for its initial lease, which we refer to as “rent-ready,” we incur ongoing property-related expenses, which consist primarily of property taxes, insurance, HOA fees (when applicable), market-level personnel expenses, utility expenses, repairs and maintenance, leasing costs, marketing expenses, and marketing.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 maintenance and repairs 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. All of our homes are managed through our internal property manager.
General and Administrative
General and administrative expense represents personnel costs, professional fees, and other costs associated with our day to dayday-to-day activities. We have incurred additional legal, accounting and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements. General and administrative expense also includes IPO related and merger and transaction-related costsexpenses that are of a non-recurring nature. As a result,
Share-Based Compensation Expense
All share-based compensation expense is recognized in our condensed consolidated statements of operations as components of general and administrative expense in the historical periods discussed in “—Results of Operations” may not be comparable to general and administrative expense in periods from and after the IPO and the REIT Merger.
Share-Based Compensation Expense
Certain current and former employees, as well as certain of our founders, were granted Class B incentive units in certain of the IH Holding Entities or their parent entities. In connection with the IPO, all of the Class B units were converted into shares of common stock, canceled, or converted into similar units of newly formed subsidiaries of the Pre-IPO Owners.property management expense. We have recognized incentive compensation expense related to the value of those units in our results of operations. In connection with and subsequent to the IPO, we modified certain of our incentiveissue share-based awards and issued new awards in order to align our employees’ interests with those of our investors. All incentive unit andWe also assumed share-based compensation expense is recognized on our statements of operations as a component of general and administrative expense and property management expense.awards in connection with the Mergers.
Depreciation and Amortization
We recognize depreciation and amortization expense primarily associated primarily with our homes and other capital expenditures over their expected useful lives.




4844





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 losses, net of any insurance recoveries.
Interest Expense
Interest expense includes interest expense as well aspayable on our debt instruments, payments and receipts related to our interest rate swap agreements, related amortization of discounts and deferred financing costs, from our financing arrangements, and unrealized gains (losses) on non-designated hedging instruments. Interestinstruments, and noncash interest expense for periods priorrelated to the IPO and our 2017 refinancing activity discussed in “—Recent Events” does not reflect the impact of the following: (i) certain financing transactions that we completed concurrently with the completion of the IPO; (ii) certain hedging instruments; (iii) the FNMA Loan that was entered into on April 28, 2017 as defined in “—Liquidity and Capital Resources”; or (iv) the repayment of certain indebtedness with a portion of the net proceeds from the IPO, the New Credit Facility, and the FNMA Loan.interest rate swap agreements.
Other, net
Other, net includes interest income, third party management fee income, equity in earnings from an unconsolidated joint venture, and other miscellaneous income and expenses, and acquisition costs (in periods prior to January 1, 2017).expenses.
Gain (Loss) on Sale of Property, net of tax
Gain (loss) on sale of property, net of tax consists of net gains and losses resulting from sales of our homes.


49


Results of Operations
Portfolio Information
As of June 30, 2019 and 2018, we owned 80,322 and 82,424 single-family rental homes, respectively, in our total portfolio. During the three months ended June 30, 2019 and 2018, we acquired 740 and 263 homes, respectively, and sold 779 and 348 homes, respectively. During the three months ended June 30, 2019 and 2018, we owned an average of 80,455 and 82,464 single-family rental homes, respectively. During the six months ended June 30, 2019 and 2018, we acquired 948 and 453 homes, respectively, and sold 1,433 and 599 homes, respectively. During the six months ended June 30, 2019 and 2018, we owned an average of 80,559 and 82,506 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 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 June 30, 2019, our Same Store portfolio consisted of 72,787 single-family rental homes.


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Three Months Ended SeptemberJune 30, 20172019 Compared to Three Months Ended SeptemberJune 30, 20162018
The following table sets forth a comparison of the results of operations for the three months ended SeptemberJune 30, 20172019 and 2016:2018:
  Three Months Ended
September 30,		    
($ in thousands) 2017 2016 $ Change % Change
Revenues:        
Rental revenues $229,375
 $221,049
 $8,326
 3.8 %
Other property income 14,161
 11,989
 2,172
 18.1 %
Total revenues 243,536
 233,038
 10,498
 4.5 %
         
Operating expenses:        
Property operating and maintenance 93,267
 94,246
 (979) (1.0)%
Property management expense 10,852
 7,715
 3,137
 40.7 %
General and administrative 27,462
 18,811
 8,651
 46.0 %
Depreciation and amortization 67,466
 66,480
 986
 1.5 %
Impairment and other 14,572
 1,279
 13,293
 N/M
Total operating expenses 213,619
 188,531
 25,088
 13.3 %
Operating income 29,917
 44,507
 (14,590) (32.8)%
         
Other income (expenses):        
Interest expense (56,796) (68,365) (11,569) (16.9)%
Other, net 613
 (1,057) (1,670) (158.0)%
Total other income (expenses) (56,183) (69,422) (13,239) (19.1)%
         
Loss from continuing operations $(26,266) $(24,915) $1,351
 5.4 %
  For the Three Months
Ended June 30,		    
($ in thousands) 2019 2018 $ Change % Change
Rental revenues and other property income $441,582
 $432,426
 $9,156
 2.1 %
         
Expenses:        
Property operating and maintenance 166,574
 165,423
 1,151
 0.7 %
Property management expense 16,021
 14,348
 1,673
 11.7 %
General and administrative 15,956
 24,636
 (8,680) (35.2)%
Interest expense 95,706
 97,226
 (1,520) (1.6)%
Depreciation and amortization 133,031
 146,450
 (13,419) (9.2)%
Impairment and other 1,671
 4,103
 (2,432) (59.3)%
Total expenses 428,959
 452,186
 (23,227) (5.1)%
         
Other, net 610
 1,631
 (1,021) (62.6)%
Gain on sale of property, net of tax 26,172
 3,941
 22,231
 564.1 %
         
Net income (loss) $39,405
 $(14,188) $53,593
 377.7 %
Rental Revenues and Other Property Income
As of September 30, 2017 and 2016, we owned 47,867 and 48,431 single-family homes for lease, respectively, generating rental revenue of $229.4 million and $221.0 million, respectively, forFor the three months then ended. Rentalended June 30, 2019 and 2018, total portfolio rental revenues increased 3.8% due toand other property income totaled $441.6 million and $432.4 million, respectively, an increase of 2.1%, driven by an increase in average monthly rent per occupied home despiteand an increase in utilities reimbursements, partially offset by a 2,009 home decrease in the average number of homes owned and a relatively flat occupancy. During the three months ended September 30, 2017 and 2016, we acquired 270 and 209 homes, respectively, and sold 128 and 131 homes, respectively.between periods.
Average occupancy for the three months ended June 30, 2019 and 2018 for the total portfolio was 94.4%94.6% and 94.3%95.1%, respectively. Average monthly rent per occupied home for the total portfolio for the three months ended SeptemberJune 30, 20172019 and 2016, respectively. Average rent per occupied home in actual dollars2018 was $1,800 and $1,725, respectively, a 4.3% increase. For our Same Store portfolio, average occupancy was 96.5% and 96.1% for the three months ended SeptemberJune 30, 2017 was $1,705, compared to $1,6232019 and 2018, respectively, and average monthly rent per occupied home for the three months ended SeptemberJune 30, 2016,2019 and 2018 was $1,804 and $1,734, respectively, a 5.1% increase.
For our Same Store portfolio, our average occupancy was 95.4% and 95.5% for the three months ended September 30, 2017 and 2016, respectively, and our average rent per occupied home in actual dollars for the three months ended September 30, 2017 was $1,706, compared to $1,637 for the three months ended September 30, 2016, a 4.2%4.0% increase.
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 concessions.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 a new lease,leases, where our previous resident moves out and a new resident signs a lease to occupy the same home. The following information regarding our renewal leases
Renewal lease net effective rental rate growth for the total portfolio averaged 5.4% and new leases is with respect to our total portfolio. For4.7% for the three months ended SeptemberJune 30, 20172019 and 2016, the blended


50


average between renewal lease2018, respectively, and new lease net effective rental rate growth for the total portfolio averaged 4.4%5.3% and 6.2%,4.8% for the three months ended June 30, 2019 and 2018, respectively. This totalFor our Same Store portfolio, blended rate is comprised of an average renewal lease net effective rental rate growth of 5.0%averaged 5.4% and 5.8%4.7% for the three months ended June 30, 2019 and an average2018, respectively, and new lease net effective rental rate growth of 3.6%averaged 5.2% and 6.5%4.8% for the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively.
ForThe annualized turnover rate for the Same Store portfolio for the three months ended SeptemberJune 30, 20172019 and 2016, the turnover rate for our Same Store portfolio2018 was 38.1%34.1% and 39.6%37.8%, respectively. For our totalthe Same Store portfolio, an average home remained unoccupied for 42 and 3843 days between residents for the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively.
Other Property Income

46



Utilities reimbursements increased as more utilities remained in our name compared to prior year. Additionally, the terms of new leases require residents to reimburse us for those costs. This increase was partially offset by a decrease in the average number of homes owned during the respective periods.
Expenses
For the three months ended SeptemberJune 30, 20172019 and 2016, other property income was $14.22018, total expenses were $429.0 million and $12.0$452.2 million, respectively, an 18.1% increase. The primary drivers of the increase were pet rent and late fee income attributable to the implementation of our national lease for all leases written beginning in February 2016 and the automation and consistent application of these fees beginning in March 2017.
Operating Expenses
Operating expenses were $213.6 million and $188.5 million for the three months ended September 30, 2017 and 2016, respectively, a 13.3% increase. Of the $25.1 million increase in expenses, $7.3 million relates to share-based compensation expense and $4.9 million relates to merger and transaction-related expenses as more fully described below.respectively. Set forth below is a discussion of changes in the individual components of operatingtotal expenses.
Property operating and maintenance expense decreasedincreased to $93.3$166.6 million for the three months ended SeptemberJune 30, 20172019 from $94.2$165.4 million for the three months ended SeptemberJune 30, 2016 primarily due2018, driven by increases related to property taxes and insurance premiums, partially offset by decreases in controllable expenses created by continued process improvements, lower turnover, property-level synergies from the Mergers, and a decrease in personnel and other services of $2.1 million due to operating efficiencies that resulted in lower personnel costs, which represents a 16.3% decrease in those costs. This decrease was partially offset by a $1.0 million increase in property taxes attributable to increased California property taxes resulting from our IPO, which represents a 2.4% increase in those costs.average home count.
Property management expense and general and administrative expense increaseddecreased to $38.3$32.0 million for the three months ended SeptemberJune 30, 20172019 from $26.5$39.0 million for the three months ended SeptemberJune 30, 2016. The year over year increase is2018, primarily due to increasesdecreases in share-based compensation expense of $7.3$4.4 million and incurrence of merger and transaction-related expenses of $4.9$2.7 million.
Interest expense was $95.7 million that did not occur in the three months ended September 30, 2016.
Depreciation and amortization expense increased slightly due to a higher average cost basis per home at September 30, 2017 compared to September 30, 2016.
Impairment and other expenses increased to $14.6$97.2 million for the three months ended SeptemberJune 30, 2017 from $1.3 million for the three months ended September 30, 2016 due to $16.0 million of accrued costs for losses/damages related to Hurricane Irma.
Interest Expense
Interest expense was $56.8 million2019 and $68.4 million for the three months ended September 30, 2017 and 2016, respectively, a 16.9% decrease.2018, respectively. The decrease in interest expense was primarily due to various prepayments on, and refinancings of, the mortgage loans, which resulted in a reductiondecrease in the average debt balances outstanding. Thebalance outstanding during the three months ended June 30, 2019 as compared to the three months ended June 30, 2018. This decrease in interest expense was partially offset by an increase in our weightedthe average costone month London Interbank Offered Rate (“LIBOR”) rate of debt by 9047 bps from 1.97% during the three months ended June 30, 2018 to 2.44% during the three months ended June 30, 2019.
Depreciation and amortization expense decreased to $133.0 million for the three months ended SeptemberJune 30, 20172019 from $146.5 million for the three months ended June 30, 2018, primarily due to $16.4 million of amortization of in-place leases during the three months ended June 30, 2018 that were fully amortized over the remainder of 2018. Additionally, the average number of homes owned during the three months ended June 30, 2019 decreased as compared to 2016 due tothe three months ended June 30, 2018. These decreases were partially offset by an increase in LIBOR, a fixed ratedepreciation due to higher capital expenditures.
Impairment and other expenses were $1.7 million and $4.1 million for the three months ended June 30, 2019 and 2018, respectively. During the three months ended June 30, 2019, impairment and other expenses were primarily comprised of impairment losses of $4.1 million on our IH 2017-1 mortgage loan which was at a higher rate than prior year variable rate debt,single-family residential properties, partially offset by net gains on casualty losses of $2.4 million. During the three months ended June 30, 2018, impairment and the impactother expenses were primarily comprised of interest rate swaps. Asimpairment losses of September 30, 2017, we had $5,644.3$1.7 million of debt outstanding, net of deferred financing costs and discounts, compared to $7,681.0 million as of September 30, 2016, a 26.3% decrease. The decrease in debt outstanding was attributable to the $2,321.6 million payoff of our credit facilities, as well as $2,086.6 million of prepayments on our mortgage loanssingle-family residential properties and casualty losses of $2.4 million, including losses and damages related to Hurricane Irma of $1.2 million.
Other, net
Other, net decreased to $0.6 million for the three months ended June 30, 2019 from cash from IPO proceeds, operations, and proceeds from home sales, net$1.6 million for the three months ended June 30, 2018, primarily due to expenses associated with secondary offerings of borrowings of $1,500.0 million fromcommon stock completed during the Term Loan Facility, and $996.4 million from the IH 2017-1 mortgage loan.


51


three months ended June 30, 2019.
Gain on Sale of Property, Netnet of Taxtax
Gain on sale of property, net of tax was $3.8$26.2 million and $3.0$3.9 million for the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. The primary driver forof the difference was an increase in the gain on sale between periods was the volume and compositionnumber of homes sold during the respective periods.three months ended June 30, 2019 as compared to the three months ended June 30, 2018. For the three months ended June 30, 2019 and 2018, the number of homes sold was 779 and 348, respectively.


47



Results of Operations
NineSix Months Ended SeptemberJune 30, 20172019 Compared to NineSix Months Ended SeptemberJune 30, 20162018
The following table sets forth a comparison of the results of operations for the ninesix months ended SeptemberJune 30, 20172019 and 2016:2018:
  Nine Months Ended
September 30,		    
($ in thousands) 2017 2016 $ Change % Change
Revenues:        
Rental revenues $683,975
 $654,726
 $29,249
 4.5 %
Other property income 40,527
 33,310
 7,217
 21.7 %
Total revenues 724,502
 688,036
 36,466
 5.3 %
         
Operating expenses:        
Property operating and maintenance 274,275
 270,494
 3,781
 1.4 %
Property management expense 31,436
 22,638
 8,798
 38.9 %
General and administrative 104,154
 49,579
 54,575
 110.1 %
Depreciation and amortization 202,558
 198,261
 4,297
 2.2 %
Impairment and other 16,482
 1,642
 14,840
 N/M
Total operating expenses 628,905
 542,614
 86,291
 15.9 %
Operating income 95,597
 145,422
 (49,825) (34.3)%
         
Other income (expenses):        
Interest expense (182,726) (209,165) (26,439) (12.6)%
Other, net (482) (1,025) (543) (53.0)%
Total other income (expenses) (183,208) (210,190) (26,982) (12.8)%
         
Loss from continuing operations $(87,611) $(64,768) $22,843
 35.3 %
  For the Six Months
Ended June 30,		    
($ in thousands) 2019 2018 $ Change % Change
Rental revenues and other property income $877,082
 $856,095
 $20,987
 2.5 %
         
Expenses:        
Property operating and maintenance 326,920
 326,190
 730
 0.2 %
Property management expense 31,181
 31,512
 (331) (1.1)%
General and administrative 42,494
 52,272
 (9,778) (18.7)%
Interest expense 189,689
 189,525
 164
 0.1 %
Depreciation and amortization 266,640
 290,950
 (24,310) (8.4)%
Impairment and other 7,063
 10,224
 (3,161) (30.9)%
Total expenses 863,987
 900,673
 (36,686) (4.1)%
         
Other, net 3,735
 3,367
 368
 10.9 %
Gain on sale of property, net of tax 43,744
 9,443
 34,301
 363.2 %
         
Net income (loss) $60,574
 $(31,768) $92,342
 290.7 %
Rental Revenues and Other Property Income
As of SeptemberFor the six months ended June 30, 20172019 and 2016, we owned 47,8672018, total portfolio rental revenues and 48,431 single-family homes for lease, respectively, generating rental revenue of $684.0other property income totaled $877.1 million and $654.7$856.1 million, respectively, for the nine months then ended. Rental revenues increased 4.5% due toan increase of 2.5%, driven by an increase in bothaverage monthly rent per occupied home and an increase in utilities reimbursements, partially offset by a 1,947 home decrease in the average number of homes owned between periods.
Average occupancy for the six months ended June 30, 2019 and 2018 for the total portfolio was 94.7% and 94.8%, respectively. Average monthly rent per occupied home for the total portfolio for the six months ended June 30, 2019 and 2018 was $1,791 and $1,715, respectively, a 4.4% increase. For our Same Store portfolio, average occupancy was 96.5% and 95.9% for the six months ended June 30, 2019 and 2018, respectively, and average monthly rent per occupied home despite a slight decrease in number of homes owned. Duringfor the ninesix months ended SeptemberJune 30, 20172019 and 2016, we acquired 6202018 was $1,794 and 1,135 homes,$1,723, respectively, and sold 1,051 and 842 homes, respectively.
Average occupancy for the total portfolio was 94.8% and 94.6% for the nine months ended September 30, 2017 and 2016, respectively. The increase in average occupancy correlates with the decrease in the number of homes acquired during 2017 compared to 2016 as newly acquired homes are unoccupied for a longer period of time during initial renovations than during a re-resident period. Average rent per occupied home in actual dollars for the nine months ended September 30, 2017 was $1,683, compared to $1,600 for the nine months ended September 30, 2016, a 5.2% increase.


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For our Same Store portfolio, our average occupancy was 95.8% and 96.1% for the nine months ended September 30, 2017 and 2016, respectively, and our average rent per occupied home in actual dollars for the nine months ended September 30, 2017, was $1,686, compared to $1,617 for the nine months ended September 30, 2016, a 4.3%4.1% increase.
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 concessions.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 a new lease,leases, where our previous resident moves out and a new resident signs a lease to occupy the same home. The following information regarding our renewal leases
Renewal lease net effective rental rate growth for the total portfolio averaged 5.3% and new leases is with respect to our total portfolio. For4.8% for the ninesix months ended SeptemberJune 30, 20172019 and 2016, the blended average between renewal lease2018, respectively, and new lease net effective rental rate growth for the total portfolio averaged 4.7%4.5% and 5.8%,3.7% for the six months ended June 30, 2019 and 2018, respectively. This totalFor our Same Store portfolio, blended rate is comprised of an average renewal lease net effective rental rate growth of 5.1%averaged 5.3% and 5.5%4.8% for the six months ended June 30, 2019 and an average2018, respectively, and new lease net effective rental rate growth of 4.1%averaged 4.5% and 6.2%3.7% for the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively.
For the nine months ended September 30, 2017 and 2016, theThe annualized turnover rate for ourthe Same Store portfolio for the six months ended June 30, 2019 and 2018 was 36.2%29.6% and 37.2%34.3%, respectively. For our totalthe Same Store portfolio, an average home remained unoccupied for 46 and 4048 days between residents for each of the ninesix months ended SeptemberJune 30, 20172019 and 2016, respectively.2018.
Other Property Income

48



Utilities reimbursements increased as more utilities remained in our name compared to prior year. Additionally, the terms of new leases require residents to reimburse us for those costs. This increase was partially offset by a decrease in the average number of homes owned during the respective periods.
Expenses
For the ninesix months ended SeptemberJune 30, 20172019 and 2016, other property income was $40.52018, total expenses were $864.0 million and $33.3$900.7 million, respectively, a 21.7% increase. The primary drivers of the increase were pet rent and late fee income attributable to the implementation of our national lease for all leases written beginning in February 2016 and the automation and consistent application of these fees beginning in March 2017.
Operating Expenses
Operating expenses were $628.9 million and $542.6 million for the nine months ended September 30, 2017 and 2016, respectively, a 15.9% increase. Of the $86.3 million increase in expenses, $51.4 million relates to share-based compensation expense, $8.3 million relates to IPO related costs, and $4.9 million relates to merger and transaction-related expenses as more fully described below.respectively. Set forth below is a discussion of changes in the individual components of operatingtotal expenses.
Property operating and maintenance expense increased to $274.3$326.9 million for the ninesix months ended SeptemberJune 30, 20172019 from $270.5$326.2 million for the ninesix months ended SeptemberJune 30, 2016 primarily due to an increase in2018, driven by both property taxes of $8.2 million which represents a 7.2% increase in those costs, with $3.6 million of the increase being attributable to increased California property taxes resulting from our IPO. This increase wasand HOA assessments, partially offset by decreases in controllable expenses created by continued process improvements, lower turnover, and property-level synergies from the Mergers, and a $6.5 million decrease in personnel expenses due to operating efficiencies that resulted in lower personnel costs, which represents a 17.0% decrease in those costs.average home count.
Property management expense and general and administrative expense increaseddecreased to $135.6$73.7 million for the ninesix months ended SeptemberJune 30, 20172019 from $72.2$83.8 million for the ninesix months ended SeptemberJune 30, 2016. An increase2018, primarily due to decreases in share-based compensation expense of $51.4 million for the nine months ended September 30, 2017, was driven by $12.0 million of vesting of Class B Units and $45.9 million of awards issued in connection with the IPO. Additionally, $8.3 million of IPO readiness costs and other IPO costs as well as $4.9 million ofa decrease in merger and transaction-related expenses were incurredof $4.3 million.
Interest expense was $189.7 million and $189.5 million for the six months ended June 30, 2019 and 2018, respectively. The increase in interest expense was primarily due to an increase in the average one month LIBOR rate of 66 bps from 1.81% during the ninesix months ended SeptemberJune 30, 2017.2018 to 2.47% during the six months ended June 30, 2019, partially offset by a decrease in the average debt balance outstanding during the six months ended June 30, 2019 as compared to the six months ended June 30, 2018.
Depreciation and amortization expense decreased to $266.6 million for the six months ended June 30, 2019 from $291.0 million for the six months ended June 30, 2018, primarily due to $32.9 million of amortization of in-place leases during the six months ended June 30, 2018 that were fully amortized over the remainder of 2018. Additionally, the average number of homes owned during the six months ended June 30, 2019 decreased as compared to the six months ended June 30, 2018. These decreases were partially offset by an increase in depreciation due to higher capital expenditures.
Impairment and other expenses increased to $16.5were $7.1 million and $10.2 million for the ninesix months ended SeptemberJune 30, 2017 from $1.62019 and 2018, respectively. During the six months ended June 30, 2019, impairment and other expenses were primarily comprised of impairment losses of $7.3 million on our single-family residential properties, partially offset by net gains on casualty losses of $0.3 million. During the six months ended June 30, 2018, impairment and other expenses were primarily comprised of impairment losses of $2.3 million on our single-family residential properties and casualty losses of $8.0 million, including losses and damages related to Hurricanes Irma and Harvey of $5.4 million.
Other, net
Other, net increased to $3.7 million for the ninesix months ended SeptemberJune 30, 2016 due to $16.0 million of accrued losses/damages related to Hurricane Irma.
Depreciation and amortization expense increased due to a higher average cost basis per home at September 30, 2017 compared to September 30, 2016 driven by improvements capitalized over the past 12 months.
Interest Expense
Interest expense was $182.7 million and $209.22019 from $3.4 million for the ninesix months ended SeptemberJune 30, 2017 and 2016, respectively, a 12.6% decrease. The decrease in interest expense was2018, due to a reduction in average debt balances outstanding, which washigher interest income, partially offset by an increase in our weighted average costexpenses associated with secondary offerings of debt by 80 bps forcommon stock completed during the ninesix months ended SeptemberJune 30,


53


2017 compared to 2016 due to an increase in LIBOR, a fixed rate on our IH 2017-1 mortgage loan which was at a higher rate than prior year variable rate debt, and the impact of interest rate swaps. Additionally, there was an increase in the fair value mark to market adjustment of $3.7 million related to the interest rate swaps during 2017. As of September 30, 2017, we had $5,644.3 million of debt outstanding, net of deferred financing costs and discounts, compared to $7,681.0 million as of September 30, 2016, a 26.3% decrease. The decrease in debt outstanding was attributable to the $2,321.6 million payoff of our credit facilities, as well as $2,086.6 million of prepayments on our mortgage loans from cash from IPO proceeds, operations, and proceeds from home sales, net of borrowings of $1,500.0 million from the Term Loan Facility, and $996.4 million from the IH 2017-1 mortgage loan. 2019.
Gain on Sale of Property, Netnet of Taxtax
Gain on sale of property, net of tax was $28.2$43.7 million and $13.2$9.4 million for the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. Of the 1,051 homes sold during the nine months ended September 30, 2017, 454 were sold in two bulk transactions for a gain of $9.5 million. The additional 597 homes sold in the nine months ended September 30, 2017, sold for a net gain of $18.7 million. Of the 842 homes sold during the nine months ended September 30, 2016, 590 homes were sold in one bulk sale transaction for a gain of $9.4 million. The additional 252 homes sold in the nine months ended September 30, 2016 sold at a net gain of $3.8 million. The primary driver forof the difference was an increase in the gain on sale between periods was the compositionnumber of homes sold during the respective periods.six months ended June 30, 2019 as compared to the six months ended June 30, 2018. For the six months ended June 30, 2019 and 2018, the number of homes sold was 1,433 and 599, respectively.
Liquidity and Capital Resources
Our liquidity and capital resources as of SeptemberJune 30, 20172019 and December 31, 2016 included2018 includes unrestricted cash and cash equivalents of $134.4$77.0 million and $198.1$144.9 million, respectively, a 32.1% decrease due primarily46.9% decrease. We use excess cash flows for the repayment of outstanding indebtedness and strive to repaymentsminimize the level of certain of our indebtedness which is discussed in further detail in “—Cash Flows.” As of September 30, 2017 and through the date of this filing, the total balance ofcash held for working capital requirements. Additionally, our $1,000.0 million Revolving Facility is available for any liquidity requirements.revolving credit facility (the “Revolving Facility”) remains undrawn as of June 30, 2019.


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Liquidity is a measure of our ability to meet potential cash requirements, maintain our assets, fund our operations, make distributions and dividend payments to our equity investorsstockholders, and meet other general requirements of our business. Our liquidity, to a certain extent, is subject to general economic, financial, competitive, and other factors beyond our control. Our near-term liquidity requirements consist primarily of: (i) renovating newly-acquired homes; (ii) funding HOA fees (as applicable), real estateproperty taxes, insurance premiums, and the ongoing maintenance forof our homes; (iii) interest expense; and (iv) payment of dividends to our equity investors. Our long-term liquidity requirements consist primarily of funds necessary to pay for the acquisition of, and non-recurring capital expenditures for, our homes and principal payments on our indebtedness.
We will seekintend 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. We have financed our operations and acquisitions to date through cash provided by operations, capital contributions from the Pre-IPO Owners, and financing arrangements. We believe our rental income, net of operatingtotal expenses, will generally provide cash flow sufficient to fund our operations and distributions and dividend payments on a near-term basis. 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 alternatives, such as the Revolving Facility.Facility which had an undrawn balance of $1,000.0 million as of June 30, 2019.
As a REIT, INVH iswe are required to distribute to its shareholdersour stockholders at least 90% of itsour 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 from our annual taxable income.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.
We have historically utilized credit facilities, mortgage loans and warehouse loans fromThe following describes the key terms of our Sponsor to fund acquisitions and renovation improvements. As of September 30, 2017, we have repaid all outstanding borrowings under the credit facilities, the IH1 2013-1 mortgage loan, the IH1 2014-1 mortgage loan, and the warehouse loans. As further described and defined below, we entered into a New Credit Facility on February 6, 2017 which includes a $1,000.0 million revolving line of credit component that is currently undrawn and a fully drawn $1,500.0 million term loan component. On April 28, 2017, we entered into a $1,000.0 million FNMA Loan (as defined in “—Securitization Transactions”) and used net proceeds to repay


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all obligations outstanding under the existing IH1 2014-1 mortgage loan and to make voluntary prepayments totaling $510.0 million on the IH1 2014-3 mortgage loan.current indebtedness.
Mortgage Loans
As of September 30, 2017, we have completed eightOur securitization transactions (the “Securitizations” or the “mortgage loans”) are collateralized by certain homes owned by wholly owned subsidiaries of INVH LP that were formed to facilitate certain of our financing arrangements (the “Borrower Entities”). We utilize the respective Invitation Homes Borrower Entities. The proceeds from the mortgage loans were usedour securitizations to fundfund: (i) repayments of then-outstanding indebtedness, including credit facilities and prior securitization transactions,indebtedness; (ii) initial deposits in theinto Securitization reserve accounts,accounts; (iii) closing costs in connection with the mortgage loans,loans; (iv) general costs associated with our operations,operations; and (v) distributions and dividends to the Pre-IPO Owners.


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dividends.
The following table sets forth a summary of theour mortgage loan indebtedness as of SeptemberJune 30, 20172019 and December 31, 2016:2018:
          
Outstanding Principal Balance(4)
($ in thousands) Maturity Date 
Maturity Date if Fully Extended(2)
 
Rate(3)
 Range of Spreads 
September 30,
2017(5)
 December 31,
2016
IH1 2013-1 N/A N/A N/A 115-365 bps $—
 $462,431
IH1 2014-1 N/A N/A N/A 100-375 bps —
 978,231
IH1 2014-2(1)(6)
 September 9, 2018 September 9, 2019 3.13% 110-400 bps 703,241
 710,664
IH1 2014-3(1)(7)
 December 9, 2017 December 9, 2019 3.56% 120-500 bps 147,323
 766,753
IH2 2015-1, net(1)(8)
 March 9, 2018 March 9, 2020 3.60% 145-430 bps 529,443
 531,318
IH2 2015-2(1)
 June 9, 2018 June 9, 2020 3.18% 135-370 bps 628,574
 630,283
IH2 2015-3(1)
 August 9, 2018 August 7, 2020 3.41% 130-475 bps 1,169,048
 1,184,314
IH 2017-1, net(9)
 June 9, 2027 N/A 4.17% N/A 996,365
 —
Total Securitizations 4,173,994

5,263,994
Less deferred financing costs, net (16,970) (9,256)
Total $4,157,024
 $5,254,738
          
Outstanding Principal Balance(5)
($ in thousands) 
Maturity
Date(1)
 
Maturity Date if
Fully Extended(2)
 
Interest
Rate(3)
 
Range of Spreads(4)
 June 30,
2019		 December 31, 2018
CSH 2016-2 June 7, 2019 N/A —% N/A $—
 $442,614
IH 2017-1(6)
 June 9, 2027 June 9, 2027 4.23% N/A 995,790
 995,826
SWH 2017-1(7)
 October 9, 2019 January 9, 2023 3.95% 102-347 bps 758,893
 764,685
IH 2017-2(7)(8)
 December 9, 2019 December 9, 2024 3.70% 91-231 bps 734,165
 856,238
IH 2018-1(7)
 March 9, 2020 March 9, 2025 3.51% 76-206 bps 809,506
 911,827
IH 2018-2(7)
 June 9, 2020 June 9, 2025 3.80% 95-230 bps 1,020,651
 1,035,749
IH 2018-3(7)
 July 9, 2020 July 9, 2025 3.82% 105-230 bps 1,284,176
 1,296,959
IH 2018-4(6)
 January 9, 2021 January 9, 2026 3.81% 115-225 bps 951,092
 959,578
Total Securitizations 6,554,273
 7,263,476
Less: deferred financing costs, net (44,311) (61,822)
Total $6,509,962
 $7,201,654
 
(1)
The initial maturity term of each of theseMaturity date represents repayment date for mortgage loans is two years, individually subjectwhich have been repaid in full prior to three, one-year extension options at the borrower’s discretion (provided that there is no continuing event of default under the loan agreement and the borrower obtains a replacement interest rate cap agreement in a form reasonably acceptable to the lender)June 30, 2019. Our IH1 2014-3, IH2 2015-1, IH2 2015-2, and IH2 2015-3For all other mortgage loans, have exercised the first extension options, and IH1 2014-2 has exercised the second option.The maturity dates above are reflective ofreflect all extensions that have been exercised.


50



(2)Represents the maturity date if we exercise each of the remaining one-yearone year extension options available, which are subject to certain conditions being met.
(3)
For each of our first seven mortgage loans,Except for IH 2017-1, interest rates are based on a weighted average spread to LIBOR;over LIBOR, plus applicable servicing fees; as of SeptemberJune 30, 20172019, LIBOR was 1.23%2.40%. Our IH 2017-1 mortgage loan bears interest at a fixed rate of 4.17%4.23% per annum, equal to the market determined pass-through rate payable on the certificates plusincluding applicable servicing fees.
(4)
Range of spreads is based on outstanding principal balances as of June 30, 2019.
(5)Outstanding Principal Balanceprincipal balance is net of discounts and does not include capitalized deferred financing costs, net.
(5)
From October 1, 2017 to November 2, 2017, we made prepayments of $2.6 million on our mortgage loans related to the disposition of properties.
(6)
On October 10, 2017, we submitted a notification to request an extensionNet of the maturityunamortized discount of the IH1 2014-3 mortgage loan from$2.8 million and $3.0 million as of June 30, 2019 and December 9, 2017 to December 9,31, 2018 upon approval. On November 9, 2017, the outstanding balance of IH1 2014-2 was repaid in full., respectively.
(7)
On November 9, 2017,The initial maturity term of each of these mortgage loans is two years, individually subject to three to five, one year extension options at the outstanding balanceBorrower Entity’s discretion (provided that there is no continuing event of IH1 2014-3 was repaid in fulldefault under the mortgage loan agreement and the Borrower Entity obtains and delivers a replacement interest rate cap agreement from an approved counterparty within the required timeframe to the lender). The maturity dates above reflect all extensions that have been exercised.
(8)
NetOn July 9, 2019, we voluntarily prepaid $50.0 million of unamortized discountoutstanding borrowings with unrestricted cash on hand against the outstanding balance of $0.0 million and $0.1 million as of September 30, 2017 and December 31, 2016, respectively.
(9)
Net of unamortized discount of $3.4 million as of September 30, 2017.
IH 2017-2.
Securitization Transactions
IH1 2013-1: In November 2013, we completed our first securitizationFor each Securitization transaction, (“IH1 2013-1”), in which 2013-1 IHthe Borrower L.P. (“S1 Borrower”), a newly-formed special purpose entity and wholly owned subsidiary of IH1,Entity executed a loan agreement with a third-partythird party lender. Except for IH 2017-1, each outstanding mortgage loan consists of six floating rate components. The third-party lender made a six component term loantwo year initial terms are individually subject to S1three to five, one year extension options at the Borrower inEntity’s discretion. Such extensions are available provided there is no continuing event of default under the amount of $479.1 million. All six components of the loan were sold at par. On February 6, 2017, the outstanding balance of IH1 2013-1 was repaid in full.
IH1 2014-1: In May 2014, we completed our second securitization transaction (“IH1 2014-1”), in which 2014-1 IH Borrower L.P. (“S2 Borrower”), a newly-formed special purpose entity and wholly owned subsidiary of IH1, executed arespective mortgage loan agreement withand the Borrower Entity obtains and delivers a third-partyreplacement interest rate cap agreement from an approved counterparty within the required timeframe to the lender. The third party lender madeIH 2017-1 is a six component term loan to S2 Borrower in the amount of


56


$993.7 million. All six components of the loan were sold at par. On February 6, 2017 and March 9, 2017, we made voluntary prepayments of $291.5 million and $260.0 million, respectively. On April 28, 2017, the outstanding balance of IH1 2014-1 was repaid in full.
IH1 2014-2: In August 2014, we completed our third securitization transaction (“IH1 2014-2”), in which 2014-2 IH Borrower L.P. (“S3 Borrower”), a newly-formed special purpose entity and wholly owned subsidiary of IH1, executed a loan agreement with a third-party lender. The third-party lender made a term10 year, fixed rate mortgage loan comprised of (1) six floating rate componentstwo components. Certificates issued by the trust in connection with Component A of IH 2017-1 benefit from the Federal National Mortgage Association’s guaranty of timely payment of principal and (2) one fixed rate component to S3 Borrowerinterest.
Each mortgage loan is secured by a pledge of the equity in the amountassets of $719.9 million. Of the seven loan components,respective Borrower Entities, as well as first-priority mortgages on the Class A, B, C, Dunderlying properties and G certificates were sold at par; however,a grant of security interests in all of the Class Erelated personal property. As of June 30, 2019 and F certificates were sold atDecember 31, 2018, a total discount of $4.0 million.37,416 and 41,644 homes, respectively, are pledged pursuant to the mortgage loans. We are obligated to make monthly payments of interest for each mortgage loan.
Transactions with the first payment being due upon the closing of the loan, and subsequent payments beginning October 9, 2014 and continuing monthly thereafter. On November 9, 2017, the outstanding balance of IH1 2014-2 was repaid in full.Trusts
IH1 2014-3: In November 2014, we completed our fourth securitization transaction (“IH1 2014-3”), in which 2014-3 IH Borrower L.P. (“S4 Borrower”), a newly-formed special purpose entity and wholly owned subsidiary of IH1, executed a loan agreement with a third-party lender. The third-party lender issued a term loan comprised of (1) six floating rate components and (2) one fixed rate component to S4 Borrower in the amount of $769.3 million. Of the seven components, the Class B and G certificates were sold at par; however, the Class A, C, D, E and F certificates were sold at a total discount of $7.2 million. We are obligated to make monthly payments of interest with the first payment being due upon the closing of the loan, and subsequent payments beginning December 9, 2014 and continuing monthly thereafter. On May 9, 2017 and June 9, 2017, we made voluntary prepayments of $510.0 million and $100.0 million, respectively, from the proceeds of IH 2017-1 securitization transaction and cash flows from operations. On November 9, 2017, the outstanding balance of IH1 2014-3 was repaid in full.
IH2 2015-1: In January 2015, we completed our fifth securitization transaction (“IH2 2015-1”), in which 2015-1 IH2 Borrower L.P. (“S5 Borrower”), a newly-formed special purpose entity and wholly owned subsidiary of IH2, executed a loan agreement with a third-party lender. The third-party lender made a seven component term loan to S5 Borrower in the amount of $540.9 million. Six of the seven components, the Class A, B, C, D, E, and G certificates were sold at par; however, the Class F certificates were sold at a total discount of $0.6 million. The unamortized balance of this discount is included in mortgage loans, net on our condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016. We are obligated to make monthly payments of interest with the first payment being due upon the closing of the loan, and subsequent payments beginning March 9, 2015 and continuing monthly thereafter.
IH2 2015-2: In April 2015, we completed our sixth securitization transaction (“IH2 2015-2”), in which 2015-2 IH2 Borrower L.P. (“S6 Borrower”), a newly-formed special purpose entity and wholly owned subsidiary of IH2, executed a loan agreement with a third-party lender. The third-party lender made a seven component term loan to S6 Borrower in the amount of $636.7 million. All of the components of the loan were sold at par. We are obligated to make monthly payments of interest with the first payment being due upon the closing of the loan, and subsequent payments beginning June 9, 2015 and continuing monthly thereafter.
IH2 2015-3: In June 2015, we completed our seventh securitization transaction (“IH2 2015-3”), in which 2015-3 IH2 Borrower L.P. (“S7 Borrower”), a newly-formed special purpose entity and wholly owned subsidiary of IH2, executed a loan agreement with a third-party lender. The third-party lender made a seven component term loan to S7 Borrower in the amount of $1,194.0 million. All of the components of the loan were sold at par. We are obligated to make monthly payments of interest with the first payment being due upon the closing of the loan, and subsequent payments beginning August 7, 2015 and continuing monthly thereafter.
IH 2017-1: In April 2017, we completed our eighth securitization transaction (“IH 2017-1”), in which 2017-1 IH Borrower L.P. (“S9 Borrower”), a special purpose entity previously formed in connection with IH1 2014-1 and wholly owned subsidiary of IH1, entered into a loan agreement with Wells Fargo Bank, National Association (the “FNMA Loan”), providing for a ten-year, fixed rate mortgage loan comprised of two components with a total principal amount of $1,000.0 million, secured by first priority mortgages on a portfolio of 7,204 of our homes. The Class A certificates, which benefit from Fannie Mae’s guaranty of timely payment of principal and interest, were sold at par. The Class B certificates represent a beneficial interest in the most subordinate component of the FNMA Loan and were sold at a total discount of $3.6 million. The unamortized balance of this discount is included in mortgage loans, net on our condensed consolidated


57


balance sheets as of September 30, 2017. We are obligated to make monthly payments of interest with the first payment being due upon the closing of the loan, and subsequent payments beginning June 9, 2017 and continuing monthly thereafter.
Concurrent with the execution of each mortgage loan agreement, the respective third-partythird party lender sold each loan it originated with us to individual depositor entities (the “Depositor Entities”) who subsequently transferred each loan to Securitization-specific trust entities (the “Trusts”). The Depositor Entities associated with the IH1 2014-2, IH1 2014-3 and IH 2017-1 securitizationsfor our Securitizations currently outstanding are wholly owned subsidiaries of IH1, the Depositor Entities associated with the IH2 2015-1, IH2 2015-2, and IH2 2015-3 securitizations are wholly owned subsidiaries of IH2, and the Depositor Entities associated with the IH1 2013-1 and IH1 2014-1 securitizations were wholly owned by unaffiliated third parties.subsidiaries.
As consideration for the transfer of each loan to the Trusts, the Trusts issued certificate classes which mirror the components of the individual loan agreementsloans (collectively, the “Certificates”) to the Depositor Entities, except that Class R certificates do not have related loan components as they represent residual interests in the Trusts. The Certificates represent the entire beneficial interest in the Trusts. Following receipt of the Certificates, the Depositor Entities sold the Certificates to investors usingand used the proceeds as consideration for the loans sold to the Depositor Entities by the lenders. These transactions had no effect on our condensed consolidated financial statements other than with respect to the Class B certificatesCertificates we retained in connection with Securitizations or purchased by INVH LP, and the Class G certificates purchased by IH1 and IH2.at a later date.
For IH1 2014-2, IH1 2014-3, IH2 2015-1, IH2 2015-2, and IH2 2015-3, the Trusts made the Class A through Class F certificates available for sale to both domestic and foreign investors. With the introduction of foreign investment, IH1 and IH2, as sponsors of the respective loans, are required to retain a portion of the risk that represents a material net economic interest in each loan. The Class G certificates for IH1 2014-2, IH1 2014-3, IH2 2015-1, IH2 2015-2, and IH2 2015-3 are equal to 5% of the original principal amount of the loans in accordance with the agreements. Per the terms of the Securitization agreements, the Class G certificates are restricted certificates and were made available exclusively to IH1 and IH2, as applicable. The Class G certificates are principal only and bear a stated annual interest rate of 0.0005%. The Class G certificates are classified as held to maturity investments and are recorded in other assets, net on the condensed consolidated balance sheets.
For IH 2017-1, the Trust made the Class A certificates available for sale to both domestic and foreign investors. In accordance with risk retention requirements of Regulation RR (the “Risk Retention Rules”) under the Securities Exchange Act of 1934 as amended (the “Exchange Act”), INVH LP, as the loan sponsor, is required to retain a portion of the credit risk that represents not less than 5% of the aggregate fair value of the loan as of the closing date. Per the terms of the agreement, the Class B certificates are restricted certificates that were made available exclusively to INVH LP. The Class B certificates pay interest and bear a stated annual interest rate of 4.17% plus applicable servicing fees. The Class B certificates are classified as held to maturity investments and are recorded in other assets, net on the condensed consolidated balance sheets.
The Trusts are structured as pass throughpass-through entities that receive principal and interest from the Securitizations and distribute those payments to the holders of the Certificates. The assets held by the Trusts are restricted and can only be used to fulfill the obligations of those entities. The obligations of the Trusts do not have any recourse to the general credit of any entities in these condensed consolidated financial statements. We have evaluated our interests in the Class B and Gcertain certificates of the Trusts held by us (discussed below) and determined that they do not create a more than insignificant variable interest in the Trusts. Additionally, the Class B and Gretained certificates do not provide us with any ability to direct the activities that could impact the Trusts’ economic performance. Therefore, we do not consolidate the Trusts.
General Terms

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Retained Certificates
Beginning in April 2014, the Trusts made Certificates available for sale to both domestic and foreign investors. With the introduction of foreign investment, sponsors of the mortgage loans are required to retain a portion of the risk that represents a material net economic interest in each loan. These requirements were further refined in December 2016 pursuant to Regulation RR (the “Risk Retention Rules”) under the Securities Exchange Act of 1934, as amended. As such, loan sponsors are now required to retain a portion of the credit risk that represents not less than 5% of the aggregate fair value of the loan as of the closing date.
To fulfill these requirements, Class G certificates for CSH 2016-2 were issued in an amount equal to 5% of the original principal amount of the loans. Per the terms of the CSH 2016-2 mortgage loan agreement, the Class G certificates were restricted certificates that were made available exclusively to the sponsor. We retained these Class G certificates during the time the related Securitization was outstanding, and they were principal only, bearing a stated interest rate of 0.0005%.
For IH 2017-1, the Class B certificates are restricted certificates that were made available exclusively to INVH LP in order to comply with the Risk Retention Rules. The Class B certificates bear a stated annual interest rate of 4.23%, including applicable servicing fees.
For SWH 2017-1, IH 2017-2, IH 2018-1, IH 2018-2, IH 2018-3, and IH 2018-4, we retain 5% of each certificate class to meet the Risk Retention Rules. These retained certificates accrue interest at a floating rate of LIBOR plus a spread ranging from 0.76% to 3.47%.
The retained certificates total $331.1 million and $366.6 million as of June 30, 2019 and December 31, 2018, respectively, and are classified as held to maturity investments and recorded in other assets, net on the condensed consolidated balance sheets.
Loan Covenants
The general terms that apply to all of the mortgage loans require useach Borrower Entity to maintain compliance with certain affirmative and negative covenants. Affirmative covenants with which we must comply include our,each Borrower Entity’s, and certain of ourtheir respective affiliates’, compliance with (i) licensing, permitting and legal requirements specified in the mortgage loan agreement,agreements, (ii) organizational requirements of the jurisdictions in which we, and certain of our affiliates,they are organized, (iii) federal and state tax laws, and (iv) books and records requirements specified in the respective mortgage loan agreements. Negative covenants with which we must comply include our,each Borrower Entity’s, and certain of ourtheir affiliates’, compliance with limitations surrounding (i) the amount of oureach Borrower Entity’s indebtedness and the nature of ourtheir investments, (ii) the execution of transactions with affiliates, (iii) the Manager, and (iv) the nature of oureach Borrower Entity’s business activities. At Septemberactivities, and (v) the required maintenance of specified cash reserves. As of June 30, 2017,2019, and through the date our condensed consolidated financial statements were issued, we believe we wereeach Borrower Entity is in compliance with all affirmative and negative covenants.

Prepayments

58




Prepayments
For the mortgage loans, prepayments of amounts owed by us are generally not permitted by us under the terms of the respective mortgage loan agreements unless such prepayments are made pursuant to the voluntary election andor mandatory provisions specified in such agreements. The specified mandatory provisions become effective to the extent that a property becomes characterized as a disqualified property, a property is sold, and/or upon the occurrence of a condemnation or casualty event associated with a property. To the extent either a voluntary election is made, or a mandatory prepayment condition exists, in addition to paying all interest and principal, we must also pay certain breakage costs as determined by the loan servicer and a spread maintenance premium if prepayment occurs before the month following the one or two year anniversary of the closing dates of each of the mortgage loans except for IH 2017-1. For IH 2017-1, prepayments on or before December 2026 will require a yield maintenance premium. For the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, we made voluntary and mandatory prepayments totaling $2,086.6of $709.4 million and $33.5$3,198.6 million, respectively, were made under the terms of the mortgage loan agreements. During the six months ended June 30, 2019, prepayments included the full repayment of the CSH 2016-2 mortgage loan. During the six months ended June 30, 2018, prepayments included full repayment of the CAH 2014-1, CAH 2014-2, IH 2015-1, IH 2015-2, and IH 2015-3 mortgage loans.
New Credit

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Secured Term Loan
On June 7, 2019, 2019-1 IH Borrower L.P., a consolidated subsidiary (“2019-1 IH Borrower” and one of our Borrower Entities), entered into a 12 year loan agreement with a life insurance company (the “Secured Term Loan”). The Secured Term Loan bears interest at a fixed rate of 3.59%, including applicable servicing fees, for the first 11 years and bears interest at a floating rate based on a spread of 147 bps, including applicable servicing fees, over one month LIBOR (subject to certain adjustments as outlined in the loan agreement) for the twelfth year. The Secured Term Loan is secured by first priority mortgages on a portfolio of single-family rental properties as well as a first priority pledge of the equity interests of 2019-1 IH Borrower. We utilized the proceeds from the Secured Term Loan to fund: (i) repayments of then-outstanding indebtedness; (ii) initial deposits into the Secured Term Loan’s reserve accounts; (iii) transaction costs related to the closing of the Secured Term Loan; and (iv) general corporate purposes.
The following table sets forth a summary of our Secured Term Loan indebtedness as of June 30, 2019 and December 31, 2018:
($ in thousands) 
Maturity
Date
 
Interest
Rate(1)
 June 30,
2019		 December 31, 2018
Secured Term Loan June 9, 2031 3.59% $403,464
 $—
Deferred financing costs, net(2,595) —
Secured Term Loan, net$400,869
 $—

(1)
The Secured Term Loan bears interest at a fixed rate of 3.59% per annum including applicable servicing fees for the first 11 years and bears interest at a floating rate based on a spread of 147 bps, including applicable servicing fees, over one month LIBOR (subject to certain adjustments as outlined in the loan agreement) for the twelfth year. Interest payments are made monthly.
Collateral
As of June 30, 2019, a total of 3,326 homes are included in the Secured Term Loan’s collateral pool. 2019-1 IH Borrower has the right, subject to certain requirements and limitations outlined in the loan agreement, to substitute properties representing up to 20% of the collateral pool annually, and to substitute properties representing up to 100% of the collateral pool over the life of the Secured Term Loan. In addition, four times after the first anniversary of the closing date, 2019-1 IH Borrower has the right, subject to certain requirements and limitations outlined in the loan agreement, to execute a special release of collateral representing up to 15% of the then-outstanding principal balance of the Secured Term Loan in order to bring the loan-to-value ratio back in line with the Secured Term Loan’s loan-to-value ratio as of the closing date. Any such special release of collateral would not change the then-outstanding principal balance of the Secured Term Loan, but rather would reduce the number of single-family rental homes included in the collateral pool.
Loan Covenants
The Secured Term Loan requires 2019-1 IH Borrower to maintain compliance with certain affirmative and negative covenants. Affirmative covenants include 2019-1 IH Borrower’s, and certain of its affiliates’, compliance with (i) licensing, permitting and legal requirements specified in the mortgage loan agreements, (ii) organizational requirements of the jurisdictions in which they are organized, (iii) federal and state tax laws, and (iv) books and records requirements specified in the respective mortgage loan agreements. Negative covenants include 2019-1 IH Borrower’s, and certain of its affiliates’, compliance with limitations surrounding (i) the amount of 2019-1 IH Borrower’s indebtedness and the nature of its investments, (ii) the execution of transactions with affiliates, (iii) the Manager, (iv) the nature of 2019-1 IH Borrower’s business activities, and (v) the required maintenance of specified cash reserves. As of June 30, 2019, and through the date our condensed consolidated financial statements were issued, we believe 2019-1 IH Borrower is in compliance with all affirmative and negative covenants.


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Prepayments
Prepayments of the Secured Term Loan are generally not permitted unless such prepayments are made pursuant to the voluntary election or mandatory provisions specified in the loan agreement. The specified mandatory provisions become effective to the extent that a property becomes characterized as a disqualified property, a property is sold, and/or upon the occurrence of a condemnation or casualty event associated with a property. To the extent either a voluntary election is made, or a mandatory prepayment condition exists, in addition to paying all interest and principal, we must also pay certain breakage costs as determined by the loan servicer and a yield maintenance premium if prepayment occurs before June 9, 2030.
Term Loan Facility and Revolving Facility
On February 6, 2017, we entered into a loan agreement with a syndicate of banks, financial institutions and institutional lenders for a new credit facility (the “New Credit“Credit Facility”)., which was amended on December 18, 2017 to include entities and homes acquired in the Mergers. The New Credit Facility provides $2,500.0 million of borrowing capacity and consists of athe $1,000.0 million revolving facility (the “Revolving Facility”),Revolving Facility, which will mature on February 6, 2021, with a one-yearone year extension option, and a $1,500.0 million term loan facility (the “Term Loan Facility”), which will mature on February 6, 2022. The Revolving Facility also includes borrowing capacity available for letters of credit and for short-term borrowings referred to as swing line borrowings, in each case subject to certain sublimits. The New Credit Facility provides us with the option to enter into additional incremental credit facilities (including an uncommitted incremental facility that provides us with the option to increase the size of the Revolving Facility and/or the Term Loan Facility by an aggregate amount of up to $1,500.0 million), subject to certain limitations. Proceeds from the Term Loan Facility were used to repay existingthen-outstanding indebtedness and for general corporate purposes. Proceeds from the Revolving Facility are used for general corporate purposes.
The following table sets forth a summary of the new credit facility indebtednessoutstanding principal amounts under the Credit Facility as of SeptemberJune 30, 2017:2019 and December 31, 2018:
      Outstanding Principle Balance
($ in thousands) Origination Date Maturity Date 
Interest Rate(1)
 September 30,
2017
Term loan facility February 6, 2017 February 6, 2022 3.03% $1,500,000
Revolving facility February 6, 2017 February 6, 2021 N/A —
Total 1,500,000
Less deferred financing costs, net (12,749)
Total $1,487,251
($ in thousands) Maturity
Date		 
Interest
Rate(1)
 June 30,
2019		 December 31, 2018
Term Loan Facility February 6, 2022 4.10% $1,500,000
 $1,500,000
Deferred financing costs, net(7,696) (9,140)
Term Loan Facility, net$1,492,304
 $1,490,860
    
Revolving FacilityFebruary 6, 2021 4.15% $—
 $—
 
(1)
Interest raterates for the Term Loan Facility isand the Revolving Facility are based on LIBOR plus an applicable marginmargin. As of 1.80%; as of SeptemberJune 30, 2017,2019, the applicable margins were 1.70% and 1.75%, respectively, and LIBOR was 1.23%2.40%.
Interest Rate and Fees
Borrowings under the New Credit Facility bear interest, at our option, at a rate equal to a margin over either (a) a LIBOR rate determined by reference to the Bloomberg LIBOR rate (or comparable or successor rate) for the interest period relevant to such borrowing, or (b) a base rate determined by reference to the highest of (1) the administrative agent’s prime lending rate, (2) the federal funds effective rate plus 0.50%, and (3) the LIBOR rate that would be payable on such day for a LIBOR rate loan with a one-monthone month interest period plus 1.00%. The margin is based on a total leverage based grid. The margin for the Revolving Facility ranges from 0.75% to 1.30%, in the case of base rate loans, and 1.75% to 2.30%, in the case of LIBOR rate loans. The margin for the Term Loan Facility ranges from 0.70% to 1.30%, in the case of base rate loans, and 1.70% to


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2.30%, in the case of LIBOR rate loans. In addition, the New Credit Facility provides that, upon receiving an investment grade rating on its non-credit enhanced, senior unsecured long term debt of BBB- or better from Standard & Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc., or Baa3 or better from Moody’s Investors Service, Inc. (an “Investment Grade Rating Event”), we may elect to convert to a credit rating based pricing grid.


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In addition to paying interest on outstanding principal under the New Credit Facility, we are required to pay a facility fee to the lenders under the Revolving Facility in respect of the unused commitments thereunder. The facility fee rate is based on the daily unused amount of the Revolving Facility and is either 0.350%0.35% or 0.200%0.20% per annum based on the unused facility amount. Upon converting to a credit rating pricing based grid, the unused facility fee will no longer apply;apply and we will be required to pay a facility fee ranging from 0.125% to 0.300%. We are also required to pay customary letter of credit fees.
Prepayments and Amortization
No prepayment or amortization isprincipal reductions are required under the New Credit Facility. We are permitted to voluntarily repay amounts outstanding under the Term Loan Facility at any time without premium or penalty, subject to certain minimum amounts and the payment of customary “breakage” costs with respect to LIBOR loans. Once repaid, no further borrowings will be permitted under the Term Loan Facility.
General TermsLoan Covenants
The New Credit Facility contains certain customary affirmative and negative covenants and events of default. Such covenants will, among other things, restrict, subject to certain exceptions, our ability and that of the Subsidiary Guarantors (as defined below) and their respective subsidiaries to (i) engage in certain mergers, consolidations or liquidations, (ii) sell, lease or transfer all or substantially all of their respective assets, (iii) engage in certain transactions with affiliates, (iv) make changes to the our fiscal year, (v) make changes in the nature of our business and our subsidiaries, and (vi) incur additional indebtedness that is secured on a pari passu basis with the New Credit Facility.
The New Credit Facility also requires us, on a consolidated basis with our subsidiaries, to maintain a (i) maximum total leverage ratio, (ii) maximum secured leverage ratio, (iii) maximum unencumbered leverage ratio, (iv) minimum fixed charge coverage ratio, (v) minimum unencumbered fixed charge coverage ratio, and (vi) minimum tangible net worth. If an event of default occurs, the lenders under the New Credit Facility are entitled to take various actions, including the acceleration of amounts due under the New Credit Facility and all actions permitted to be taken by a secured creditor. At SeptemberAs of June 30, 2017,2019, and through the date our condensed consolidated financial statements were issued, we believe we were in compliance with all affirmative and negative covenants.
Guarantees and Security
The obligations under the New Credit Facility are guaranteed on a joint and several basis by each of our direct and indirect domestic wholly owned subsidiaries that own, directly or indirectly, unencumbered assets (the “Subsidiary Guarantors”), subject to certain exceptions. The guarantee provided by any Subsidiary Guarantor will be automatically released upon the occurrence of certain events, including if it no longer has a direct or indirect interest in an unencumbered asset or as a result of certain non-recourse refinancing transactions pursuant to which such Subsidiary Guarantor becomes contractually prohibited from providing its guaranty of the New Credit Facility. In addition, INVH may be required to provide a guarantee of the New Credit Facility under certain circumstances, including if INVH does not maintain its qualification as a REIT.
The New Credit Facility is collateralized by first priority or equivalent security interests in all the capital stock of, or other equity interests in, any Subsidiary Guarantor held by us and each of the Subsidiary Guarantors. The security interests granted under the New Credit Facility will be automatically released upon the occurrence of certain events, including upon an Investment Grade Rating Event or if the total net leverage ratio is less than or equal to 8.00:1.00 for four consecutive fiscal quarters.

Convertible Senior Notes

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Credit Facilities
All of the then-existing credit facilities were paid in full on February 6, 2017 inIn connection with the closingMergers, we assumed SWH’s convertible senior notes. In July 2014, SWH issued $230.0 million in aggregate principal amount of 3.00% convertible senior notes due 2019 (the “2019 Convertible Notes”). Interest on the 2019 Convertible Notes was payable semiannually in arrears on January 1st and July 1st of each year. On December 28, 2018, we notified note holders of our IPO. intent to settle conversions of the 2019 Convertible Notes in shares of common stock. The notes matured on July 1, 2019, and we settled substantially all of the outstanding balance of the 2019 Convertible Notes through the issuance of 12,553,864 shares of our common stock.
In January 2017, SWH issued $345.0 million in aggregate principal amount of 3.50% convertible senior notes due 2022 (the “2022 Convertible Notes” and together with the 2019 Convertible Notes, the “Convertible Senior Notes”). Interest on the


55



2022 Convertible Notes is payable semiannually in arrears on January 15th and July 15th of each year. The 2022 Convertible Notes will mature on January 15, 2022.
The following table sets forth a summarysummarizes the terms of the Convertible Senior Notes outstanding principal amounts of these credit facilities as of SeptemberJune 30, 20172019 and December 31, 2016:2018:
      
Outstanding Principal Balance(1)
($ in thousands) Origination
Date		 Range of Spreads September 30,
2017		 December 31,
2016
IH1 2015 April 3, 2015 325 bps $—
 $85,492
IH2 2015 September 29, 2015 275 bps —
 43,859
IH3 2013 December 19, 2013 300-425 bps —
 932,583
IH4 2014 May 5, 2014 300-425 bps —
 529,866
IH5 2014 December 5, 2014 275-400 bps —
 564,348
IH6 2016 April 13, 2016 250-375 bps —
 165,437
Total —
 2,321,585
Less deferred financing costs, net —
 (6,044)
Total $—
 $2,315,541
            Principal Amount
($ in thousands) Coupon
Rate		 
Effective
Rate(1)
 
Conversion
Rate(2)
 Maturity
Date		 Remaining Amortization
Period		 June 30,
2019		 December 31, 2018
2019 Convertible Notes 3.00% 4.92% 54.5954 July 1, 2019 N/A $229,989
 $229,993
2022 Convertible Notes 3.50% 5.12% 43.7694 January 15, 2022 2.55 years 345,000
 345,000
Total574,989
 574,993
Net unamortized fair value adjustment(13,159) (17,692)
Total$561,830
 $557,301
 
(1)Outstanding Principal Balance does
Effective rate includes the effect of the adjustment to the fair value of the debt as of the Merger Date, the value of which reduced the initial liability recorded to $223.2 million and $324.3 million for each of the 2019 Convertible Notes and 2022 Convertible Notes, respectively.
(2)
The conversion rate as of June 30, 2019 represents the number of shares of common stock issuable per $1,000 principal amount (actual $) of Convertible Senior Notes converted on such date, as adjusted in accordance with the applicable indentures as a result of cash dividend payments and the effects of the Mergers. Substantially all of the principal amount of the 2019 Convertible Notes was settled on July 1, 2019, through the issuance of 12,553,864 shares of our common stock. As of June 30, 2019, the 2022 Convertible Notes do not include capitalized deferred financing costs, net.meet the criteria for conversion. We have the option to settle the 2022 Convertible Notes in cash, common stock, or a combination thereof.
Terms of Conversion
At the settlement date, the conversion rate applicable to the 2019 Convertible Notes was 54.5954 shares of our common stock per $1,000 principal amount (actual $) of the 2019 Convertible Notes (equivalent to a conversion price of approximately $18.32 per common share — actual $). As of June 30, 2019, the “if-converted” value of the 2019 Convertible Notes exceeded their principal amount by $105.6 million as the closing market price of our common stock of $26.73 per common share (actual $) exceeded the implicit conversion price. On July 1, 2019, we settled substantially all of the outstanding balance of the 2019 Convertible Notes with the issuance of 12,553,864 shares of our common stock. For the three months ended June 30, 2019 and 2018, interest expense for the 2019 Convertible Notes, including non-cash amortization of discounts, was $2.8 million and $2.8 million, respectively. For the six months ended June 30, 2019 and 2018, interest expense for the 2019 Convertible Notes, including non-cash amortization of discounts, was $5.6 million and $5.5 million, respectively.


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As of June 30, 2019, the conversion rate applicable to the 2022 Convertible Notes is 43.7694 shares of our common stock per $1,000 principal amount (actual $) of the 2022 Convertible Notes (equivalent to a conversion price of approximately $22.85 per common share — actual $). The conversion rate for the 2022 Convertible Notes is subject to adjustment in some events, but will not be adjusted for any accrued and unpaid interest. In addition, following certain events that occur prior to the maturity date, we will adjust the conversion rate for a holder who elects to convert its 2022 Convertible Notes in connection with such an event in certain circumstances. At any time prior to July 15, 2021, holders may convert the 2022 Convertible Notes at their option only under specific circumstances as defined in the indenture agreement, dated as of January 10, 2017, between us and our trustee, Wilmington Trust National Association (“the Convertible Notes Trustee”). On or after July 15, 2021 and until maturity, holders may convert all or any portion of the 2022 Convertible Notes at any time. Upon conversion, we will pay or deliver, as the case may be, cash, common stock, or a combination of cash and common stock, at our election. The “if-converted” value of the 2022 Convertible Notes exceeds their principal amount by $58.6 million as of June 30, 2019 as the closing market price of our common stock of $26.73 per common share (actual $) exceeds the implicit conversion price. For the three months ended June 30, 2019 and 2018, interest expense for the 2022 Convertible Notes, including non-cash amortization of discounts, was $4.2 million and $4.2 million, respectively. For the six months ended June 30, 2019 and 2018, interest expense for the 2022 Convertible Notes, including non-cash amortization of discounts, was $8.4 million and $8.3 million, respectively.
General Terms
We may not redeem the 2022 Convertible Notes prior to their maturity date except to the extent necessary to preserve our status as a REIT for United States federal income tax purposes, as further described in the indenture. If we undergo a fundamental change as defined in the indenture, holders may require us to repurchase for cash all or any portion of their 2022 Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2022 Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The indenture contains customary terms and covenants and events of default. If an event of default occurs and is continuing, the Convertible Notes Trustee, by notice to us, or the holders of at least 25% in aggregate principal amount of the outstanding 2022 Convertible Notes, by notice to us and the Convertible Notes Trustee, may, and the Convertible Notes Trustee at the request of such holders shall, declare 100% of the principal of and accrued and unpaid interest on all the 2022 Convertible Notes to be due and payable. In the case of an event of default arising out of certain events of bankruptcy, insolvency or reorganization in respect to us (as set forth in the indenture), 100% of the principal of and accrued and unpaid interest on the 2022 Convertible Notes will automatically become due and payable.
Certain Hedging Arrangements
From time to time, we enter into derivative instruments to manage the economic risk of changes in interest rates. We do not enter into derivative transactions for speculative or trading purposes. Designated hedges are derivatives that meet the criteria for hedge accounting and for which we have elected to designate them as hedges. Non-designated hedges are derivatives that do not meet the criteria for hedge accounting or which we did not elect to designate as accounting hedges.
Designated Hedges
We have entered into various interest rate swap agreements, as outlinedwhich are used to hedge the variable cash flows associated with variable-rate interest payments. Currently, all swaps are designated for hedge accounting purposes and changes in the table below. Eachfair value of these swaps are recorded in other comprehensive income and are subsequently reclassified into earnings in the period in which the hedged forecasted transactions affect earnings. Prior to January 31, 2017, all swaps were accounted for as non-designated hedges until January 31, 2017, whenas the criteria for hedge accounting weredesignation had not been met as a result ofat that time.
In addition, in connection with the Pre-IPO Transactions described in “—Overview.” At that time,Mergers, we acquired various interest rate swap instruments, which we designated these swaps for hedge accounting purposes;purposes. On the Merger Date, we recorded these interest rate swaps at their aggregate estimated fair value of $21.1 million. Over the terms of each of these swaps, an amount equal to the Merger Date fair value will be amortized and the effective portion thereof is recorded in other comprehensive income subsequent to that date.reclassified into earnings.


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The table below summarizes our interest rate swap instruments as of SeptemberJune 30, 20172019 ($ in thousands):
Agreement Date Forward
Effective Date		 Maturity Date Strike Rate Index Notional Amount Forward
Effective Date		 Maturity
Date		 Strike
Rate		 Index Notional
Amount
December 21, 2016 February 28, 2017 January 31, 2022 1.97% One-month LIBOR $750,000
 February 28, 2017 January 31, 2022 1.97% One month LIBOR $750,000
December 21, 2016 February 28, 2017 January 31, 2022 1.97% One-month LIBOR 750,000
 February 28, 2017 January 31, 2022 1.97% One month LIBOR 750,000
January 12, 2017 February 28, 2017 August 7, 2020 1.59% One-month LIBOR 1,100,000
 February 28, 2017 August 7, 2020 1.59% One month LIBOR 1,100,000
January 13, 2017 February 28, 2017 June 9, 2020 1.63% One-month LIBOR 595,000
 February 28, 2017 June 9, 2020 1.63% One month LIBOR 595,000
January 20, 2017 February 28, 2017 March 9, 2020 1.60% One-month LIBOR 325,000
 February 28, 2017 March 9, 2020 1.60% One month LIBOR 325,000
June 3, 2016 July 15, 2018 July 15, 2019 1.12% One month LIBOR 450,000
January 10, 2017 January 15, 2019 January 15, 2020 1.93% One month LIBOR 550,000
April 19, 2018 January 31, 2019 January 31, 2025 2.86% One month LIBOR 400,000
February 15, 2019(1)
 March 15, 2019 March 15, 2022 2.23% One month LIBOR 800,000
April 19, 2018 March 15, 2019 November 30, 2024 2.85% One month LIBOR 400,000
April 19, 2018 March 15, 2019 February 28, 2025 2.86% One month LIBOR 400,000
June 3, 2016 July 15, 2019 July 15, 2020 1.30% One month LIBOR 450,000
January 10, 2017 January 15, 2020 January 15, 2021 2.13% One month LIBOR 550,000
April 19, 2018 January 31, 2020 November 30, 2024 2.90% One month LIBOR 400,000
May 8, 2018 March 9, 2020 June 9, 2025 2.99% One month LIBOR 325,000
May 8, 2018 June 9, 2020 June 9, 2025 2.99% One month LIBOR 595,000
June 3, 2016 July 15, 2020 July 15, 2021 1.47% One month LIBOR 450,000
June 28, 2018 August 7, 2020 July 9, 2025 2.90% One month LIBOR 1,100,000
January 10, 2017 January 15, 2021 July 15, 2021 2.23% One month LIBOR 550,000
November 7, 2018 March 15, 2022 July 31, 2025 3.14% One month LIBOR 400,000
November 7, 2018 March 15, 2022 July 31, 2025 3.16% One month LIBOR 400,000
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income on the condensed consolidated balance sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
(1)
On February 15, 2019, we terminated an interest rate swap instrument and simultaneously entered into a new interest rate swap instrument with identical economic terms, except that the strike rate increased 2 bps, from 2.21% to 2.23%, and collateral posting requirements were removed.

During the ninethree and six months ended SeptemberJune 30, 2017,2019 and 2018, such derivatives were used to hedge the variable cash flows associated with existing variable-rate interest payments. The ineffective portion of the changeAmounts reported in fair value of the derivatives is recognized directly in earnings. Changes in fair valueaccumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. During the ineffective portion of our Designated Hedges resulted in an unrealized gain of less than $0.3next 12 months, we estimate that $13.1 million for the nine months ended September 30, 2017, which is includedwill be reclassified to earnings as a decrease in interest expense in our condensed consolidated statements of operations.expense.
Non-Designated Hedges
Concurrent with entering into certain of the mortgage loan agreements and in connection with the Mergers, we entered into or acquired and maintain interest rate cap agreements with terms and notional amounts equivalent to the terms and amounts of the mortgage loans made by the third-party lenders


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and strike prices ranging from approximately 2.59% to 3.39% (collectively, the “Strike Prices”).third party lenders. To the extent that the maturity date of one or more of the mortgage loans is extended through an exercise of one or more of the extension options, replacement or extension interest rate cap agreements must be executed with terms similar to those associated with the initial interest rate cap agreements and strike prices equal to the greater of the Strike Pricesinterest rate cap strike price and the interest rate at which the debt service coverage ratio (as defined) is not less than 1.2 to 1.0. The interest rate cap agreements, including all of our rights to payments owed by the counterpartycounterparties and all other rights, have been pledged as additional collateral for the mortgage loans. Additionally, in certain instances, in order to minimize the cash impact of purchasing required interest rate caps, we simultaneously sold interest rate caps (which have identical terms and notional amounts) such that the purchase price and sale proceeds of the related interest rate caps are intended to offset each other. The purchased and sold interest rates caps have strike prices ranging from approximately 3.24% to 5.12%.


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Purchase of Outstanding Debt Securities or Loans
As market conditions warrant, we and our equity investors, including our Sponsor, its affiliates, and members of our management, may from time to time seek to purchase our outstanding debt, including borrowings under our credit facilities and mortgage loans or debt securities that we may issue in the future, in privately negotiated or open market transactions, by tender offer or otherwise. Subject to any applicable limitations contained in the agreements governing our indebtedness, any purchases made by us may be funded by the use of cash on our condensed balance sheet or the incurrence of new secured or unsecured debt, including borrowings under our credit facilities and mortgage loans. 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 U.S.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.
Cash Flows
NineSix Months Ended SeptemberJune 30, 20172019 Compared to NineSix Months Ended SeptemberJune 30, 20162018
The following table summarizes our cash flows for the ninesix months ended SeptemberJune 30, 20172019 and 2016:2018:
 Nine Months Ended September 30,    
($ in thousands)2017 2016 $ Change % Change
Net cash provided by operating activities$267,267
 $247,709
 $19,558
 7.9%
Net cash used in investing activities(11,429) (298,785) 287,356
 96.2%
Net cash (used in) provided by financing activities(319,516) 50,398
 (369,914) N/M
Change in cash and cash equivalents$(63,678) $(678) $(63,000) N/M
  For the Six Months
Ended June 30,		    
($ in thousands) 2019 2018 $ Change % Change
Net cash provided by operating activities $375,342
 $310,335
 $65,007
 20.9 %
Net cash provided by (used in) investing activities 39,191
 (189,374) 228,565
 120.7 %
Net cash used in financing activities (455,069) (127,601) (327,468) (256.6)%
Change in cash, cash equivalents, and restricted cash $(40,536)
$(6,640)
$(33,896) (510.5)%
Operating Activities
Net cash provided by operating activities was $267.3 million and $247.7 million for the nine months ended September 30, 2017 and 2016, respectively, an increase of 7.9%. The increase was primarily driven by an increase in net operating income from $417.5 million for the nine months ended September 30, 2016 to $450.2 million for the nine months ended September 30, 2017 due to revenue growth higher than operating expense growth. Our net loss increased from $(51.6) million for the nine months ended September 30, 2016 to $(59.4) million for the nine months ended September 30, 2017, which was offset by a $51.4 million increase in share-based compensation expense. 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 $375.3 million and $310.3 million for the six months ended June 30, 2019 and 2018 , respectively, an increase of 20.9%. The increase in cash provided by operating activities was driven by improved operational profitability and an increase in net working capital created by changes in operating assets and liabilities.


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Investing Activities
Net cash used inprovided by (used in) investing activities consists primarily consists of the acquisition costs of homes, capital improvements, changes in restricted cash, and proceeds from property sales. sales, and purchases of investments in debt securities and the receipt of repayment proceeds from investments in debt securities. Net cash provided by (used in) investing activities was $39.2 million and $(189.4) million for the six months ended June 30, 2019 and 2018, respectively, an increase of $228.6 million. The increase in net cash provided by (used in) investing activities primarily resulted from the following: (1) an increase in proceeds from the sale of homes during the six months ended June 30, 2019 compared to the six months ended June 30, 2018; (2) an increase in net cash flows from our investments in debt securities from period to period; and (3) an increase in cash used due to an increase in the number of homes acquired during the six months ended June 30, 2019 compared to the six months ended June 30, 2018. More specifically, proceeds from sales of homes increased $213.7 million from the six months ended June 30, 2018 to the six months ended June 30, 2019 due to a significant increase in the number of homes sold from 599 to 1,433, respectively, and an increase in the average proceeds per home sold. Net cash flows from our purchases of/receipt of repayment proceeds from investments in debt securities increased by $140.2 million from the six months ended June 30, 2018 to the six months ended June 30, 2019, primarily due to entering into our IH 2018-1, IH 2018-2, and IH 2018-3 mortgage loans during the six months ended June 30, 2018, offset by the refinancing of our CSH 2016-2 mortgage loan during the six months ended June 30, 2019. Acquisition spend increased $126.2 million due to a significant increase in the number of homes acquired from 453 homes during the six months ended June 30, 2018 to 948 homes during the six months ended June 30, 2019.
Financing Activities
Net cash used in investingfinancing activities was $11.4$455.1 million and $298.8$127.6 million for the ninesix months ended SeptemberJune 30, 20172019 and 2016, respectively, leading to an increase in cash provided by investing activities of $287.4 million between2018, respectively. During the periods. The increase was partially due to the release of restricted cash in connection with the repayment of our credit facilities and the IH1 2013-1 and IH1 2014-1 mortgage loans during the


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ninesix months ended SeptemberJune 30, 2017 resulting in an increase of $120.1 million. Additionally, there was a decrease in the number homes acquired, from 1,135 homes during the nine months ended September 30, 2016 to 620 homes during the nine months ended September 30, 2017, which resulted in $130.5 million less in acquisition, renovation and capital expenditure spend. The increase in number of homes sold during 2017 of 1,051 compared to 842 homes during the nine months ended September 30, 2016 resulted in an increase in the amount of2019, proceeds from sale of residential properties of $45.6 million.
Financing Activities
Net cash (used in) provided by financing activities was $(319.5) million and $50.4 million for the nine months ended September 30, 2017 and 2016, respectively, or a decrease of $369.9 million. For the nine months ended September 30, 2017 we received $1,692.1 million in proceeds, net of underwriting discounts, from our IPO, while during the nine months ended September 30, 2016 equity investors contributed $138.0 million of capital. Proceeds from our IPO,Secured Term Loan Facility and the IH 2017-1 mortgage loan of $4,188.5$403.5 million, along with proceeds from home sales and operating cash flows were used to repay $2,321.6$709.4 million of then-outstanding credit facilitiesour mortgage loans, including full repayment of CSH 2016-2, partial repayments of IH 2017-2 and $2,086.6IH 2018-1, and for dividend payments which totaled $136.3 million. For the six months ended June 30, 2018, proceeds from our IH 2018-1, IH 2018-2, and IH 2018-3 mortgage loans of $3,274.2 million, along with proceeds from home sales and operating cash flows, were used to repay $3,198.6 million of our mortgage loans, including full repayment of the IH1 2013-1CAH 2014-1, CAH 2014-2, IH 2015-1, IH 2015-2, and IH1 2014-1IH 2015-3 mortgage loans, and $610.0$35.0 million, on the IH1 2014-3 mortgage loan, andnet, of our Revolving Facility, to fund $42.1$42.5 million of deferred financing costs associated with the Term Loan FacilityIH 2018-1, IH 2018-2, and IH 2017-12018-3 mortgage loan.loans, and for dividend payments which totaled $115.0 million.
Off-Balance Sheet Arrangements
We have no obligations, assets, or liabilities that would be consideredmaterial off-balance sheet arrangements.arrangements as defined in Item 303(a)(4) of Regulation S-K.


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Contractual Obligations
We have updated ourOur contractual obligations previously provided in our Annual Report on Form 10-K foras of June 30, 2019, consist of the year ended December 31, 2016 for material changes to our financing arrangements that occurred during the nine months ended September 30, 2017:following:
($ in thousands)Total 
2017(1)
 2018-2019 2020-2021 Thereafter
Mortgage loans(2)
$4,612,759
 $184,234
 $3,123,257
 $83,056
 $1,222,212
Term loan facility(2)
1,697,739
 11,456
 90,900
 90,900
 1,504,483
Interest rate swaps(3)
216,651
 15,486
 123,888
 74,814
 2,463
Totals$6,527,149
 $211,176
 $3,338,045
 $248,770
 $2,729,158
($ in thousands) Total 
2019(1)
 2020-2021 2022-2023 Thereafter
Mortgage loans, net(2)(3)
 $8,088,460
 $128,466
 $510,373
 $1,238,898
 $6,210,723
Secured Term Loan 576,456
 7,297
 28,991
 28,951
 511,217
Term Loan Facility, net(2)
 1,662,633
 31,433
 124,879
 1,506,321
 —
Revolving Facility(2)(3)(4)
 9,256
 1,789
 7,107
 360
 —
Convertible Senior Notes(5)
 614,664
 239,476
 24,150
 351,038
 —
Derivative instruments(6)
 116,728
 2,801
 31,892
 48,247
 33,788
Purchase commitments(7)
 39,579
 39,579
 —
 —
 —
Operating leases 17,072
 2,238
 8,721
 4,278
 1,835
Finance leases(8)
 11,113
 700
 5,768
 4,645
 —
Total $11,135,961
 $453,779
 $741,881
 $3,182,738
 $6,757,563
 
(1)Includes estimated payments for the remaining threesix months of 2017.2019.
(2)Includes estimated interest payments on the respective debt based on amounts outstanding as of SeptemberJune 30, 20172019 at rates in effect as of such date.date; as of June 30, 2019, LIBOR was 2.40%.
(3)Gross obligationRepresents the maturity date if we exercise each of the remaining one year extension options available, which are subject to certain conditions being met. See Part I. Item 1. “Financial Statements — Note 6 of Notes to Condensed Consolidated Financial Statements” for a description of maturity dates without consideration of extension options.
(4)Includes the related unused commitment fee.
(5)
Represents the principal amount of the Convertible Senior Notes and interest obligations which are calculated using strike prices established by each instrument.coupon rates of the Convertible Senior Notes. The 2019 Convertible Notes principal amount of $230.0 million included in 2019 maturities presented above was settled on July 1, 2019 through the issuance of 12,553,864 shares of common stock.
(6)Includes interest rate swap and interest rate cap obligations calculated using LIBOR as of June 30, 2019, or 2.40%.
(7)Represents commitments to acquire 146 single-family rental homes as of June 30, 2019.
(8)Includes approximately $9.6 million of finance leases for fleet vehicles which have been entered into and are anticipated to commence during the next nine months.
Critical Accounting Policies and Estimates
Critical accounting policies are those accounting policies that management believes are important to the portrayal of our financial condition and results and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. TheWe believe that our critical accounting policies pertain to the following: (i) our investments in single-family residential properties, including acquisition of real estate assets, related cost capitalization, provisions for impairment, and single-family residential properties held for sale; and (ii) derivative financial instruments. These critical policies and estimates are summarized in Management’sPart II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations” in our Annual Report on Form 10-K for the year ended December 31, 2016 with respect to cost capitalization, provisions for impairment, and revenue recognition and resident receivables. Material10-K. There were no material changes during the nine months ended September 30, 2017 to our critical accounting policies are presented below:


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Investments in Single-Family Residential Properties
Upon acquisition, we evaluate our acquired single-family residential properties for purposes of determining whether a transaction should be accounted for as an asset acquisition or business combination. Upon adoption of ASU 2017-01, our purchases of homes are treated as acquisitions and are recorded at their purchase price which is allocated between land, building and improvements, and in-place lease intangibles (when a tenant 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, homeowners’ association (“HOA”), and other mechanic’s and miscellaneous liens, as well as other closing costs. The fair values of acquired in-place lease intangibles, if any, are based on the costs to execute similar leases, including commissions and other related costs. The origination value of in-place lease intangibles also includes an estimate of lost rent revenue at in-place rental rates during the estimated time required to lease the property. The in-place lease intangibles are amortized over the life of the leases and are recorded in other assets, net on our condensed consolidated balance sheets.six months ended June 30, 2019.
Prior to our adoption of ASU 2017-01 effective January 1, 2017, acquisition costs for transactions accounted for as business combinations were expensed in the period in which they were incurred and were reflected in other expenses in the accompanying condensed consolidated statements of operations.
Derivatives
We enter into interest rate swap and interest rate cap agreements (collectively, “Hedging Derivatives”) for interest rate risk management purposes. We do not enter into Hedging Derivatives for trading or other speculative purposes, and all of our Hedging Derivatives are carried at fair value on our condensed consolidated balance sheets. Designated hedges are derivatives that meet the criteria for hedge accounting and that we have elected to designate as hedges. Non-designated hedges are derivatives that do not meet the criteria for hedge accounting or that we have not elected to designate as hedges.
Pursuant to the terms of certain of our mortgage loans, we are required to maintain interest rate caps. We have elected not to designate these interest cap agreements for hedge accounting (collectively, the “Non-Designated Hedges”). We enter into interest rate swap agreements to hedge the risk arising from changes in our interest payments on variable-rate debt due to changes in the one-month London Interbank Offered Rate (“LIBOR”). In connection with the Pre-IPO Transactions, as of January 31, 2017, we have elected to account for our interest rate swap agreements as effective cash flow hedges (collectively, the “Designated Hedges”). We assess the effectiveness of these interest rate swap cash flow hedging relationships on an ongoing basis. The effect of these interest rate cap agreements and interest rate swap agreements is to reduce the variability of interest payments due to changes in LIBOR.
The fair value of Hedging Derivatives that are in an asset position are included in other assets, net and those inFor a liability position are included in other liabilities on our condensed consolidated balance sheets. For Non-Designated Hedges, the related changes in fair value are reflected within interest expense in the condensed consolidated statements of operations. For Designated Hedges, the effective portion of the related changes in fair value is reported as a component of other comprehensive income (loss) on our condensed consolidated balance sheets and reclassified into earnings as interest expense in our condensed consolidated statements of operations when the hedged transactions affect earnings; the ineffective portion of the changes in fair value is reflected directly within interest expense in the condensed consolidated statements of operations. See “—Liquidity and Capital Resources” for further discussion of derivative financial instruments.recently adopted accounting standards, see Part I. Item 1. “Financial Statements — Note 2 of Notes to Condensed Consolidated Financial Statements.”
Share-Based Compensation Expense
Prior to the IPO, we recognized share-based compensation expense for incentive compensation units granted by the Invitation Homes Partnerships (the “Class B Units”). In connection with and subsequent to the IPO, we issued restricted stock units (“RSUs”) that settle in shares of common stock and restricted shares of common stock (“RSAs”) for which share-based compensation expense is recognized.
We recognized share-based compensation expense for the Class B Units based on the estimated fair value of the Class B Units and vesting conditions of the related incentive unit agreements. Since the Class B Units granted by IH1 were granted to employees of the Manager, a wholly owned subsidiary of IH1, the related share-based compensation expense was based on the grant-date fair value of the units and recognized in expense over the service period. Because units in IH2, IH3, IH4, IH5, and IH6 were granted to non-employees of those respective partnerships, fair value was remeasured for non-vested units at




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the end of each reporting period. The fair value of the Class B Units was determined based on a valuation model that took into account discounted cash flows and a market approach based on comparable companies and transactions.
We recognize share-based compensation expense for the RSUs and RSAs based on their grant-date fair value, net of expected forfeitures, over the service period from the grant date to vest date for each tranche or when any applicable performance conditions are met in accordance with the related RSU and RSA agreements. The grant-date fair value of RSUs and RSAs is generally based on the closing price of our common stock on the grant date except for market based RSU grant‑date fair values which are based on Monte-Carlo option pricing models.
Additional compensation expense is recognized if modifications to existing incentive compensation unit, RSU, or RSA agreements result in an increase in the post-modification fair value of the units that exceeds their pre-modification fair value.



Segment Reporting
Operating segments are defined as components of an enterprise for which discrete financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. Our CODM is the Chief Executive Officer.
Under the provision 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, including single-family homes in planned unit developments. The CODM evaluates operating performance and allocates resources on a total portfolio basis. The CODM utilizes net operating incomeNOI as the primary measure to evaluate performance of the total portfolio. The aggregation of individual homes constitutes the total portfolio. Decisions regarding acquisitions and dispositions of homes are made at the individual home level.
Non-GAAP Measures
EBITDA, EBITDAre, and Adjusted EBITDAre
EBITDA, EBITDAre, and Adjusted EBITDA
EBITDA and Adjusted EBITDAre are supplemental, non-GAAP measures often utilized to evaluate the performance of real estate companies. We define EBITDA as net income (loss)or loss computed in accordance with accounting principles generally accepted in the United States (“GAAP”) before the following items: interest expense; income tax expense; and depreciation and amortization. The National Association of Real Estate Investment Trusts (“Nareit”) recommends as a best practice that REITs that report an EBITDA performance measure also report EBITDAre. We define EBITDAre, consistent with the Nareit definition, as EBITDA, further adjusted for gain on sale of property, net of tax and impairment on depreciated real estate investments.
Adjusted EBITDAre is defined as EBITDAre before the following items: share-based compensation expense; IPO related expenses, impairmentmerger and other; acquisition costs; gain (loss) on sale of property, net of tax;transaction-related expenses; severance; casualty losses, net; and interest income and other miscellaneous income and expenses. EBITDA, EBITDAre, and Adjusted EBITDAre are used as supplemental financial performance measures by management and by external users of our financial statements, such as investors and commercial banks. Set forth below is additional detail on how management uses EBITDA, EBITDAre, and Adjusted EBITDAre as measures of performance.
Our management uses EBITDA, EBITDAre, and Adjusted EBITDAre in a number of ways to assess our condensed consolidated financial and operating performance, and we believe these measures are helpful to management and external users in identifying trends in our performance. EBITDA, EBITDAre, and Adjusted EBITDAre help management identify controllable expenses and make decisions designed to help us meet our current financial goals and optimize our financial performance, while neutralizing the impact of capital structure on results. Accordingly, we believe these metrics measure our financial performance based on operational factors that management can impact in the short-term, namely our cost structure and expenses.


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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 EBITDA.EBITDAre. Accordingly, there can be no assurance that our basis for computing these non-GAAP measures is comparable with that of other companies.


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The following table presents a reconciliation of GAAP net income (loss) (as determined in accordance with GAAP) to EBITDA, EBITDAre, and Adjusted EBITDA on a historical basisre for each of the periods indicated:
  Three Months Ended September 30, Nine Months Ended September 30,
($ in thousands) 2017 2016 2017 2016
Net loss available to common shareholders $(22,745) $(21,949) $(59,716) $(51,590)
Net loss available to participating securities 235
 —
 344
 —
Interest expense 56,796
 68,365
 182,726
 209,165
Depreciation and amortization 67,466
 66,480
 202,558
 198,261
EBITDA 101,752

112,896

325,912

355,836
Share-based compensation expense(1)
 12,004
 4,711
 64,464
 13,023
IPO related expenses —
 4,081
 8,287
 4,081
Merger and transaction-related 4,944
 —
 4,944
 —
Impairment and other(2)
 14,572
 1,279
 16,482
 1,642
Acquisition costs —
 —
 —
 42
Gain on sale of property, net of tax (3,756) (2,966) (28,239) (13,178)
Other, net(3)
 (613) 1,057
 482
 983
Adjusted EBITDA $128,903

$121,058

$392,332

$362,429
  For the Three Months
Ended June 30,		 For the Six Months
Ended June 30,
($ in thousands) 2019 2018 2019 2018
Net income (loss) available to common stockholders $38,833
 $(14,155) $59,549
 $(31,646)
Net income available to participating securities 109
 209
 215
 431
Non-controlling interests 463
 (242) 810
 (553)
Interest expense 95,706
 97,226
 189,689
 189,525
Depreciation and amortization 133,031
 146,450
 266,640
 290,950
EBITDA 268,142
 229,488
 516,903

448,707
Gain on sale of property, net of tax (26,172) (3,941) (43,744) (9,443)
Impairment on depreciated real estate investments 4,076
 1,671
 7,329
 2,274
EBITDAre
 246,046
 227,218
 480,488

441,538
Share-based compensation expense(1)
 3,615
 8,016
 9,222
 17,514
Merger and transaction-related expenses(2)
 1,552
 4,236
 4,347
 8,603
Severance 375
 1,681
 7,344
 4,340
Casualty losses, net(3)
 (2,405) 2,432
 (266) 7,950
Other, net(4)
 (610) (1,631) (3,735) (3,367)
Adjusted EBITDAre
 $248,573
 $241,952
 $497,400

$476,578
 
(1)For the three months ended SeptemberJune 30, 20172019 and 2016, $9,3092018, $2,795 and $4,665$6,774 was recorded in general and administrative expense, respectively, and $2,695$820 and $46$1,242 was recorded in property management expense, respectively. For the ninesix months ended SeptemberJune 30, 20172019 and 2016, $56,4602018, $7,715 and $12,724$14,328 was recorded in general and administrative expense, respectively, and $8,004$1,507 and $299$3,186 was recorded in property management expense, respectively.
(2)
Includes accrual of $16,000 merger and transaction-related expenses included within general and administrative.
(3)
Includes $1,238 and $5,421 for losses/damages related to HurricaneHurricanes Irma and Harvey for the three and ninesix months ended September June 30, 2017.2018, respectively.
(3)(4)Includes interest income and other miscellaneous income and expenses.
Net Operating Income (“NOI”)
NOI is a non-GAAP measure often used to evaluate the performance of real estate companies. We define NOI for an identified population of homes as rental revenues and other property income less property operating and maintenance expense (which consists primarily of property taxes, insurance, HOA fees (when applicable), market-level personnel expenses, repairs and maintenance, leasing costs, and marketing)marketing expense). NOI excludes: interest expense; depreciation and amortization; general and administrative expense; property management expense; impairment and other; acquisition costs; (gain) lossgain on sale of property, net of tax; and interest income and other miscellaneous income and expenses.


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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.


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The following table presents a reconciliation of GAAP net income (loss) (as determined in accordance with GAAP) to NOI for our total portfolio and NOI for our Same Store portfolio on a historical basis for each of the periods indicated:
 Three Months Ended September 30, Nine Months Ended September 30, For the Three Months
Ended June 30,		 For the Six Months
Ended June 30,
($ in thousands) 2017 2016 2017 2016 2019 2018 2019 2018
Net loss available to common shareholders $(22,745) $(21,949) $(59,716) $(51,590)
Net loss available to participating securities 235
 —
 344
 —
Net income (loss) available to common stockholders $38,833
 $(14,155) $59,549
 $(31,646)
Net income available to participating securities 109
 209
 215
 431
Non-controlling interests 463
 (242) 810
 (553)
Interest expense 56,796
 68,365
 182,726
 209,165
 95,706
 97,226
 189,689
 189,525
Depreciation and amortization 67,466
 66,480
 202,558
 198,261
 133,031
 146,450
 266,640
 290,950
General and administrative(1)
 27,462
 18,811
 104,154
 49,579
 15,956
 24,636
 42,494
 52,272
Property management expense(2)
 10,852
 7,715
 31,436
 22,638
 16,021
 14,348
 31,181
 31,512
Impairment and other(3)
 14,572
 1,279
 16,482
 1,642
 1,671
 4,103
 7,063
 10,224
Acquisition costs —
 —
 —
 42
Gain on sale of property, net of tax (3,756) (2,966) (28,239) (13,178) (26,172) (3,941) (43,744) (9,443)
Other, net(4)
 (613) 1,057
 482
 983
 (610) (1,631) (3,735) (3,367)
NOI (total portfolio) 150,269
 138,792
 450,227
 417,542
 275,008
 267,003
 550,162

529,905
Non-Same Store NOI (14,500) (13,183) (42,562) (35,652) (17,993) (24,797) (35,507)
(47,943)
NOI (Same Store portfolio)(5)
 $135,769
 $125,609
 $407,665
 $381,890
 $257,015
 $242,206
 $514,655
 $481,962
 
(1)Includes $9,309$2,795 and $4,665$6,774 of share-based compensation expense for the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. Includes $56,460$7,715 and $12,724$14,328 of share-based compensation expense for the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively.
(2)Includes $2,695$820 and $46$1,242 of share-based compensation expense for the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. Includes $8,004$1,507 and $299$3,186 of share-based compensation expense for the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively.
(3)
Includes accrual of $16,000 $1,238 and $5,421 for losses/damages related to HurricaneHurricanes Irma and Harvey for the three and ninesix months ended September June 30, 2017.2018, respectively.
(4)Includes interest income and other miscellaneous income and expenses.
(5)The Same Store (consisting ofportfolio totaled 72,787 homes which had commenced their initial post-renovation lease prior to October 3rd offor the year prior to the first year of the comparison period) homes are 42,795.six months ended June 30, 2019 and 2018.


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Funds from Operations, (“FFO”), Core Funds from Operations, and Adjusted Funds from Operations
FFO,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 the National Association of Real Estate Investment TrustsNareit as net income or loss (computed in accordance with GAAP) excluding net gains or losses from sales of previously depreciated real estate assets, plus depreciation, amortization and impairment of real estate assets, and adjustments for unconsolidated partnerships and 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, as well as gains or losses related to sales of previously depreciated homes, as well non-controlling interests, from GAAP net income or loss.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.


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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 providesprovide 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 noncash interest expense related to amortization of deferred financing costs, andloan discounts, related to our financing arrangements, noncash interest expense for derivatives, share-based compensation expense, IPOoffering related expenses, merger and transaction-related expenses, severance expenses,expense, and casualty losses, net, and acquisition costs, as applicable. We define Adjusted FFO as Core FFO less recurring capital expenditures that are necessary to help preserve the value, of 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 contingently issuable shares of common stock related to the Convertible Senior Notes. Accordingly, there can be no assurance that our basis for computing this non-GAAP measures is comparable with that of other companies.




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The following table presents a reconciliation of GAAP net income (loss) (as determined in accordance with GAAP) to FFO, Core FFO, and Adjusted FFO on a historical basis for each of the periods indicated:
  Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except share and per share data) 2017 2016 2017 2016
Net loss available to common shareholders $(22,745) $(21,949) $(59,716) $(51,590)
Add (deduct) adjustments from net loss available to common shareholders to derive FFO:        
Net loss available to participating securities 235
 —
 344
 —
Depreciation and amortization on real estate assets 66,671
 65,446
 200,023
 194,630
Impairment on depreciated real estate investments 424
 1,076
 1,556
 1,595
Net gain on sale of previously depreciated investments in real estate (3,756) (2,966) (28,239) (13,178)
FFO 40,829
 41,607
 113,968
 131,457
Noncash interest expense related to amortization of deferred financing costs, mortgage loan discounts and noncash interest expense from derivatives 3,473
 11,665
 23,744
 41,481
Share-based compensation expense(1)
 12,004
 4,711
 64,464
 13,023
IPO related expenses —
 4,081
 8,287
 4,081
Merger and transaction-related 4,944
 —
 4,944
 —
Severance expense (20) 377
 417
 2,285
Casualty losses, net(2)
 14,148
 203
 14,926
 47
Acquisition costs —
 —
 —
 42
Core FFO 75,378
 62,644
 230,750
 192,416
Recurring capital expenditures (13,391) (14,324) (34,225) (37,231)
Adjusted FFO $61,987
 $48,320
 $196,525
 $155,185
         
         
  Three Months Ended September 30,
2017		   February 1, 2017
through
September 30,
2017		  
Weighted average common shares outstanding — diluted(3)
 311,559,780
   311,674,226
  
         
FFO per common share – diluted $0.13
   $0.37
  
Core FFO per common share – diluted $0.24
   $0.74
  
AFFO per common share – diluted $0.20
   $0.63
  
  For the Three Months
Ended June 30,		 For the Six Months
Ended June 30,
(in thousands, except shares and per share data) 2019 2018 2019 2018
Net income (loss) available to common stockholders $38,833
 $(14,155) $59,549
 $(31,646)
Add (deduct) adjustments from net income (loss) to derive FFO:        
Net income available to participating securities 109
 209
 215
 431
Non-controlling interests 463
 (242) 810
 (553)
Depreciation and amortization on real estate assets 131,782
 144,947
 264,302
 288,055
Impairment on depreciated real estate investments 4,076
 1,671
 7,329
 2,274
Net gain on sale of previously depreciated investments in real estate (26,172) (3,941) (43,744) (9,443)
FFO 149,091
 128,489
 288,461

249,118
Noncash interest expense related to amortization of deferred financing costs, loan discounts, and noncash interest expense from derivatives 12,172
 11,543
 27,037
 20,038
Share-based compensation expense(1)
 3,615
 8,016
 9,222
 17,514
Offering related expenses(2)
 476
 —
 2,019
 —
Merger and transaction-related expenses(3)
 1,552
 4,236
 4,347
 8,603
Severance expense 375
 1,681
 7,344
 4,340
Casualty losses, net(4)
 (2,405) 2,432
 (266) 7,950
Core FFO 164,876
 156,397
 338,164

307,563
Recurring capital expenditures (31,799) (28,848) (56,910) (54,241)
Adjusted FFO $133,077
 $127,549
 $281,254

$253,322
         
Net income (loss) available to common stockholders        
Weighted average common shares outstanding — diluted(5)(6)(7)(8)
 525,933,643
 520,509,058
 524,190,469
 520,087,371
         
Net income (loss) per common share — diluted(6)(7)(8)
 $0.07
 $(0.03) $0.11
 $(0.06)
         
FFO        
Numerator for FFO per common share — diluted(6)
 $151,874
 $128,489
 $294,047
 $249,118
Weighted average common shares and OP Units outstanding — diluted(6)(7)(8)
 544,335,990
 530,509,568
 544,365,617
 530,417,389
         
FFO per common share — diluted(6)(7)(8)
 $0.28
 $0.24
 $0.54
 $0.47
         
Core FFO and Adjusted FFO        
Weighted average common shares and OP Units outstanding — diluted(6)(7)(8)
 531,782,126
 530,509,568
 531,811,753
 530,417,389
         
Core FFO per common share — diluted(6)(7)(8)
 $0.31
 $0.29
 $0.64
 $0.58
AFFO per common share — diluted(6)(7)(8)
 $0.25
 $0.24
 $0.53
 $0.48
 
(1)For the three months ended SeptemberJune 30, 20172019 and 2016, $9,3092018, $2,795 and $4,665$6,774 was recorded in general and administrative expense, respectively, and $2,695$820 and $46$1,242 was recorded in property management expense, respectively. For the ninesix months ended SeptemberJune 30, 20172019 and 2016, $56,4602018, and $12,724$7,715 and $14,328 was recorded in general and administrative expense, respectively, and $8,004$1,507 and $299$3,186 was recorded in property management expense, respectively.


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(2)
Includes accrualexpenses associated with secondary offerings of $16,000 for losses/damages related to Hurricane Irma for common stock completed during the three and ninesix months ended September June 30, 2017.
2019 included within other, net.
(3)Includes merger and transaction-related expenses included within general and administrative.
(4)
Includes $1,238 and $5,421 for losses/damages related to Hurricanes Irma and Harvey for the three and six months ended June 30, 2018, respectively.
(5)Weighted average common shares outstanding –— diluted wasis calculated usingin accordance with GAAP and is used in the two-class method and representscalculation of net income (loss) per common share equivalents that— diluted.
(6)On July 1, 2019, we settled the full outstanding balance of the 2019 Convertible Notes with the issuance of 12,553,864 shares. The 2019 Convertible Notes have no impact on net income per common share — diluted as the potential shares of common stock would be anti-dilutive to such computation for the three and six months ended June 30, 2019, calculated in accordance with the “if-converted” method. The impact of the 2019 Convertible Notes is reflected in the FFO per common share — diluted computation above in accordance with the “if-converted” method consistent with Nareit’s guidance for calculating FFO per share. For the three and six months ended June 30, 2019, the numerator for FFO per common share — diluted is adjusted for interest expense on the 2019 Convertible Notes of $2,783 and $5,586, respectively, including non-cash amortization of discounts. The denominator is adjusted for 12,553,864 shares of common stock issued on July 1, 2019 upon the conversion of the 2019 Convertible Notes. No such adjustments were made to Core FFO and AFFO per common share — diluted for the 2019 Convertible Notes. For the three and six months ended June 30, 2019, 15,100,443 potential shares of common stock issuable upon the conversion of the 2022 Convertible Notes are dilutive foralso excluded from the computation of net income or loss, FFO, Core FFO, and AFFO.AFFO per common share — diluted. For the three and six months ended June 30, 2018, we asserted our intent and ability to fully settle the Convertible Senior Notes in cash; and as a result, the Convertible Senior Notes did not impact net loss, FFO, Core FFO, and AFFO per common share — diluted for those periods.
(7)Incremental shares attributed to non-vested share-based awards totaling 863,607 shares and 925,014 shares, respectively, are included in the denominator for net income per common share — diluted for the three and six months ended June 30, 2019. For the three and six months ended June 30, 2018, incremental shares attributed to non-vested share-based awards do not impact the denominator for net loss per common share — diluted since we had a net loss and inclusion of such incremental shares would be anti-dilutive to such computation. For the computations of FFO, Core FFO, and AFFO per common share — diluted, common share equivalents of 1,248,805 and 963,932 for the three months ended June 30, 2019 and 2018, respectively, and 1,479,272 and 1,132,320 for the six months ended June 30, 2019 and 2018, respectively, related to incremental shares attributed to non-vested share-based awards are included in the denominator.
(8)Vested units of partnership interests in INVH LP (“OP Units”) have been excluded from the computation of net income (loss) per common share — diluted for the periods above because all net income (loss) attributable to the vested OP Units has been recorded as non-controlling interest and thus excluded from net income (loss) available to common stockholders. Weighted average vested OP Units of 5,463,285 and 9,036,578 for the three months ended June 30, 2019 and 2018, and 7,067,026 and 9,197,698 for the six months ended June 30, 2019 and 2018, respectively, are included in the denominator for the computations of FFO, Core FFO, and AFFO per common share — diluted.





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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our future income, cash flows, and fair values relevant to financial instruments are dependent upon prevalent market interest rates. Market risk refers to the risk of loss from adverse changes in interest rates, seasonality, market prices, commodity prices, and inflation. The primary market risks to which we are exposed are interest rate risk and seasonality. We may in the future use derivative financial instruments to manage, or hedge, interest rate risks related to any borrowings we may have. We may enter into such contracts only with major financial institutions based on their credit ratings and other factors. Our exposure to market risk has not materially changed from what we previously disclosed in Part II. Item 7A. “Quantitative and Qualitative Disclosures about Market Risk" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 except as noted below.
Interest Rate Risk
A primary market risk to which we believe we are exposed is interest rate risk, which may result from many factors, including government monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control. We may incur additional variable rate debt in the future, including additional amounts that we may borrow under our credit facilities.the Credit Facility. In addition, decreases in interest rates may lead to additional competition for the acquisition of single-family homes, which may lead to future acquisitions being more costly and resulting in lower yields on single-family homes targeted for acquisition. Significant increases in interest rates may also have an adverse impact on our earnings if we are unable to increase rents on expired leases or acquire single-family homes with rental rates high enough to offset the increase in interest rates on our borrowings.
At December 31, 2016, the total outstanding balance of our variable-rate debt was comprised of borrowings on our mortgage loans of $5,264.0 million and our credit facilities of $2,321.6 million. As of SeptemberJune 30, 2017,2019, our outstanding variable-rate debt was comprised of borrowings on our mortgage loans of $3,177.6$5,558.5 million and Term Loan Facility of $1,500.0 million, for a combined total of which 75.3% was$7,058.5 million. We effectively converted 92.4% of these borrowings to a fixed rate through interest rate swap agreements. Additionally, all borrowings bear interest at LIBOR plus the applicable spread. Assuming no change in the outstanding balance of our existing debt, the following table illustrates the projected effect of a 100 basis pointbps increase or decrease in the LIBOR rate on our annual interest expense aswould be an estimated increase or decrease of September 30, 2017$4.9 million or $5.4 million, respectively. This estimate considers the impact of our interest rate swap agreements, interest rate cap agreements, and December 31, 2016:
($ in thousands)
Change in Interest Expense(1)
Impact to future earnings due to variable rate debt:As of
September 30, 2017		 As of
December 31, 2016
Rate increase of 1%(2)
$11,576
 $75,856
Rate decrease of 1%(3)
(11,576) (52,323)
(1)The interest rate swap agreements were factored into the September 30, 2017 disclosure, but were not factored into the December 31, 2016 disclosure as the forward looking swaps did not begin until February 28, 2017.
(2)Calculation of additional projected annual interest expense as a result of a 100 basis point increase considers the potential impact of our interest rate cap agreements as of September 30, 2017.
(3)Calculation of projected decrease in annual interest expense as a result of a 100 basis point decrease is reflective of any LIBOR floors or minimum interest rates stated in the agreements of the respective borrowings.

This analysis does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, we may consider taking actions to further mitigate our exposure to the change. However, because of the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our capital structure.
Seasonality
Our business and related operating results have been, and we believe that they will continue to be, impacted by seasonal factors throughout the year. In particular, we have experienced higher levels of resident move-outs during the summer months, which impacts both our rental revenues and related turnover costs. Further, our property operating costs are


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seasonally impacted in certain markets by increases in expenses such as HVAC repairs, costs to re-resident, and landscaping expenses during the summer season.



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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that information required to be disclosed in reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. The design of any disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of SeptemberJune 30, 2017.2019. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of SeptemberJune 30, 2017,2019, the design and operation of our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There werehas been no changeschange in our internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act during theour most recent fiscal quarter ended September 30, 2017 that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.




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PART II



ITEM 1. LEGAL PROCEEDINGS
Litigation RelatingThe Company currently is not subject to the Mergers
Two putative class actions have been filed by purported shareholders of SFR challenging the Mergers, one of which names us and certain affiliates as defendants. The first suit, styled as Berg v. Starwood Waypoint Homes, et al., No. 1:17-cv-02896 (the “Berg Lawsuit”), was filed in the United States District Court for the District of Maryland on September 29, 2017, andany material litigation nor, to management’s knowledge, is any material litigation currently threatened against SFR, SFR Partnership, SFR’s trustees, the Company INVH LP and REIT Merger Sub. The second suit, styled as Bushansky v. Starwood Waypoint Homes, et al., No. 1:17-cv-02936 (the “Bushansky Lawsuit” and, collectively with the Berg Lawsuit, the “Lawsuits”), was filed in the United States District Court for the District of Maryland on October 4, 2017, and is against SFR, SFR Partnership and SFR’s trustees. The Bushansky Lawsuit does not name the Company or any of its affiliates as defendants. The Lawsuits allege that SFR and its trustees violated Section 14(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 14a-9 promulgated thereunder by allegedly disseminating a false and misleading Form S-4 containing a joint proxy statement/prospectus. The Lawsuits further allege that SFR’s trustees allegedly violated Section 20(a) of the Exchange Act by failing to exercise proper control over the person(s) who violated Section 14(a) of the Exchange Act. The Berg Lawsuit additionally alleges that the Company violated Section 20(a) of the Exchange Act. The Lawsuits seek, among other things, injunctive relief preventing consummation of the Mergers, rescission of the transactions contemplated by the Merger Agreement should they be consummated and litigation costs, including attorneys’ fees. The Berg Lawsuit also seeks injunctive relief directing SFR’s trustees to disseminate a registration statement that does not contain any untrue statements of material fact and declaratory relief that defendants violated Sections 14(a) and/or 20(a) of the Exchange Act. The Bushansky Lawsuit also seeks rescissory damages in the event of a merger. The Company and SFR intend to defend vigorously against the Lawsuits.
SEC Investigation “In the Matter of Certain Single Family Rental Securitizations”
Radian Group Inc. (“Radian”), the indirect parent company of Green River Capital LLC (“GRC”), which is a service provider that provides certain broker price opinions (“BPO”) to us, disclosed in its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017 that GRC had received a letter in March 2017 from the staff of the SEC stating that it is conducting an investigation captioned “In the Matter of Certain Single Family Rental Securitizations” and requesting information from market participants. Radian disclosed that the letter asked GRC to provide information regarding BPOs that GRC provided on properties included in single family rental securitization transactions (“Securitizations”).
In September 2017, we received a letter from the staff of the SEC stating that it is conducting an investigation captioned “In the Matter of Certain Single Family Rental Securitizations.” The letter enclosed a subpoena that requests the production of certain documents and communications related to our Securitizations, including, without limitation: transaction documents and offering materials; agreements with providers of BPOs and/or due diligence services for Securitizations; identification of employees primarily responsible for handling BPOs; documents provided to rating agencies or third-party BPO providers regarding capital expenditures and/or renovation costs for properties underlying Securitizations; communications with certain transaction parties regarding BPOs in Securitizations; and documents regarding BPO orders and documents and communications with BPO providers regarding requests that a BPO be reviewed, re-done, analyzed, modified, corrected and/or adjusted. The SEC’s letter indicates that its investigation is a fact-finding inquiry and does not mean that the SEC has a negative opinion of any person or security. We are cooperating with the SEC. We understand that other transaction parties in securitizations have received requests in this matter. Please refer to the risk factor entitled, “SEC investigation “In the Matter of Certain Single Family Rental Securitizations” described in Exhibit 99.1 to this Quarterly Report on Form 10-Q.
The Company is also subject tothan routine litigation and administrative proceedings arising in the ordinary course of business.



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ITEM 1A. RISK FACTORS
For a discussion of our potential risks or uncertainties, you should carefully read and consider risk factors previously disclosed under (i) Part I. Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and (ii) the caption “Risk Factors” in our Merger Proxy, which risk factors referenced in clause (ii) are filed as Exhibit 99.1 to this Quarterly Report on Form 10-Q and incorporated herein by reference.10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

ITEM 5. OTHER INFORMATION
None.



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ITEM 6. EXHIBITS
Exhibit Number 
number
 Description
2.1
Agreement and Plan of Merger, dated August 9, 2017, by and among Invitation Homes Inc., Invitation Homes Operating Partnership LP, IH Merger Sub, LLC, Starwood Waypoint Homes and Starwood Waypoint Homes Partnership, L.P. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K (File No. 1-38004) filed on August 14, 2017).
   
3.1
 
Charter of Invitation Homes Inc., dated as of February 6, 2017 (incorporated by reference to Exhibit 3.1 to the Company'sCompany’s Current Report on Form 8-K (File No. 1-38004) filed on February 6, 2017).
   
3.2
 
Amended and Restated Bylaws of Invitation Homes Inc., dated as of February 6, 2017 (incorporated by reference to Exhibit 3.2 to the Company'sCompany’s Current Report on Form 8-K (File No. 1-38004) filed on February 6, 2017).
   
10.1
 Amended
Loan Agreement, dated as of June 7, 2019, between 2019-1 IH Borrower LP, as Borrower, and Restated Stockholders Agreement by and among Invitation Homes Inc., each of the parties from time to time party thereto and, solely for the purposes of Section 4.1, Blackstone Real Estate Advisors L.P.Rothesay Life PLC, as Lender (incorporated by reference to Exhibit 10.1 to the Company'sCompany’s Current Report on Form 8-K (File No. 1-38004) filed on August 14, 2017)June 10, 2019).
   
10.2
 Amended and Restated
2019 Outperformance Award Agreement of Limited Partnership of Invitation Homes Operating Partnership LP, dated as of August 9, 2017, by and among Invitation Homes OP GP LLC and Invitation Homes Inc. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K (File No. 1-38004) filed on August 14, 2017)(LTIP Units) (filed herewith).


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10.3†
Letter Agreement, dated August 9, 2017 by and between Invitation Homes Inc. and John Bartling (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K (File No. 1-38004) filed on August 14, 2017). †
   
10.4
31.1		 Letter Agreement, dated August 9, 2017 by and between Invitation Homes Inc. and Ernest Freedman (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K (File No. 1-38004) filed on August 14, 2017). †
10.5
Letter Agreement, dated August 9, 2017 by and between Invitation Homes Inc. and Dallas Tanner (incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K (File No. 1-38004) filed on August 14, 2017). †
10.6
Term Sheet, dated September 19, 2017, between Invitation Homes Inc. and Frederick C. Tuomi (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 1-38004) filed on September 19, 2017). †
31.1
Certificate of JohnDallas B. Bartling Jr.,Tanner, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-­OxleySarbanes-Oxley Act of 2002.
   
31.2
 
Certificate of Ernest M. Freedman, Executive Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1
 
Certificate of JohnDallas B. Bartling Jr.,Tanner, President and Chief Executive Officer, pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
   
32.2
 
Certificate of Ernest M. Freedman, Executive Vice President and Chief Financial Officer, pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
99.1
The section entitled “Risk Factors” in the Company’s Joint Proxy Statement/Information Statement and Prospectus.
   
101.INS XBRL Instance Document.Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
   
101.SCH XBRL Taxonomy Extension Schema Document.
   
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
   
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
   
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
   
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.
104
 The cover page in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019, formatted in Inline XBRL.
† This document has been identified as a management contract or compensatory plan or arrangement.


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Certain agreements and other documents filed as exhibits to this Quarterly Report on Form 10-Q contain representations and warranties that the parties thereto made to each other. These representations and warranties have been made solely for the


74


benefit of the other parties to such agreements and may have been qualified by certain information that has been disclosed to the other parties to such agreements and other documents and that may not be reflected in such agreements and other documents. In addition, these representations and warranties may be intended as a way of allocating risks among parties if the statements contained therein prove to be incorrect, rather than as actual statements of fact. Accordingly, there can be no reliance on any such representations and warranties as characterizations of the actual state of facts. Moreover, information concerning the subject matter of any such representations and warranties may have changed since the date of such agreements and other documents.






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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Invitation Homes Inc.
  
By:/s/ Ernest M. Freedman
 Name: Ernest M. Freedman
 Title: Executive Vice President and Chief Financial Officer
 (Principal Financial Officer)
 Date: July 31, 2019
 
By:/s/ Kimberly K. Norrell
 Name: Kimberly K. Norrell
 Title: Senior Vice President and Chief Accounting Officer
 (Principal Accounting Officer)
Date: July 31, 2019


Date: November 9, 2017




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