Invitation Homes Gives Notice of Intent for Physical Settlement of 2022 Convertible Notes

Rhea-AI Summary

Invitation Homes (NYSE: INVH) has announced its intent to settle conversions of $345 million in 3.50% convertible senior notes due January 15, 2022, with common stock. For holders converting by this date, the conversion ratio is 43.9448 shares per $1,000 of notes, potentially leading to approximately 15 million new shares issued. This conversion is expected to reduce annual cash interest expenses by about $12 million. A pro forma analysis shows an improvement in net debt to trailing twelve months EBITDAre from 7.1x to 6.8x following the conversion.

Positive

• Reduction of cash interest expense by approximately $12 million annually.
• Pro forma improvement in net debt/TTM Adjusted EBITDAre from 7.1x to 6.8x.

Negative

• None.

Invitation Homes Inc. (NYSE: INVH) ("Invitation Homes" or the "Company") today announced that the Company has notified holders of its 3.50% convertible senior notes due 2022 (the “Notes”) of the Company’s intent to settle conversions of the Notes with common stock. The Notes mature on January 15, 2022, and have a par value of $345 million.

For holders electing conversion on or before January 15, 2022, the Notes will be exchanged for common stock according to a prescribed conversion ratio. As of June 30, 2021, the conversion ratio was 43.9448 shares per $1,000 principal amount of Notes. The actual conversion ratio is subject to adjustment through the date of maturity for cash dividends paid to common stockholders and other potential transactions and certain circumstances.

Assuming the June 30, 2021, conversion ratio of 43.9448 shares per $1,000 principal amount of Notes, settlement of the $345 million (par value) of Notes would result in the issuance of approximately 15 million common shares and a reduction in cash interest expense of approximately $12 million on an annualized basis.

On a pro forma basis, whereby net debt is reduced for the impact of the conversion of the Notes, net debt / Trailing Twelve Months Adjusted EBITDAre at March 31, 2021, would have been 6.8x versus 7.1x as reported by the Company in its first quarter 2021 Earnings Release and Supplemental Information.

Reconciliation of Net Debt / Trailing Twelve Months Adjusted EBITDAre
(in thousands, unaudited)
		3/31/21					Pro Forma					3/31/21
		As Reported					Adjustments(1)					Pro Forma
Mortgage loans, net		$	4,808,085				$	—				$	4,808,085
Secured term loan, net		401,149					—					401,149
Term loan facility, net		2,472,718					—					2,472,718
Convertible senior notes, net		340,730					(340,730		)			—
Total Debt per Balance Sheet		8,022,682					(340,730		)			7,681,952
Retained and repurchased certificates		(246,798		)			—					(246,798		)
Cash, ex-security deposits and letters of credit		(247,041		)			—					(247,041		)
Deferred financing costs, net		40,610					—					40,610
Unamortized discounts on notes payable		6,471					(4,270		)			2,201
Net Debt (A)		$	7,575,924				$	(345,000	)			$	7,230,924
		Trailing Twelve Months (TTM) Ended
		3/31/21					Pro Forma					3/31/21
		As Reported					Adjustments					Pro Forma
Net income available to common stockholders(2)		$	203,182				$	17,246				$	220,428
Net income available to participating securities		441					—					441
Non-controlling interests		1,272					—					1,272
Interest expense		352,572					(17,246		)			335,326
Interest expense in unconsolidated joint ventures		74					—					74
Depreciation and amortization		562,004					—					562,004
Depreciation and amortization of real estate assets in unconsolidated joint ventures		104					—					104
EBITDA		1,119,649					—					1,119,649
Gain on sale of property, net of tax		(53,878		)			—					(53,878		)
Impairment on depreciated real estate investments		2,538					—					2,538
Net gain on sale of investments in unconsolidated joint ventures		(336		)			—					(336		)
EBITDAre		1,067,973					—					1,067,973
Share-based compensation expense		18,803					—					18,803
Severance		715					—					715
Casualty (gains) losses, net		(4,613		)			—					(4,613		)
Unrealized (gains) losses on investments in equity securities		(26,549		)			—					(26,549		)
Other, net		3,536					—					3,536
Adjusted EBITDAre (B)		1,059,865					$	—				$	1,059,865
Net debt / TTM Adjusted EBITDAre (A/B)		7.1			x							6.8			x

1. Does not include adjustments for refinancing or voluntary prepayments of securitized loans after 3/31/2021.
2. Pro forma adjustment for $17,246 of interest expense associated with the Notes for TTM ended 3/31/2021 includes $5,171 of non-cash amortization of fair value discount. Cash interest expense associated with the Notes for TTM ended 3/31/2021 was $12,075.

About Invitation Homes:

Invitation Homes is the nation's premier single-family home leasing company, meeting changing lifestyle demands by providing access to high-quality, updated homes with valued features such as close proximity to jobs and access to good schools. The company's mission, "Together with you, we make a house a home," reflects its commitment to providing homes where individuals and families can thrive and high-touch service that continuously enhances residents' living experiences.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210714005823/en/

FAQ

What is the significance of the convertible senior notes due 2022 for INVH?

The convertible senior notes due January 15, 2022, allow holders to convert their notes into common stock, impacting INVH's capital structure and potentially reducing debt.

How many shares will be issued from the conversion of INVH's notes?

Approximately 15 million common shares will be issued if the $345 million in convertible senior notes is converted.

What is the current conversion ratio for INVH's convertible notes?

As of June 30, 2021, the conversion ratio is 43.9448 shares per $1,000 principal amount of notes.

How will the conversion affect INVH's financials?

The conversion is expected to reduce annual cash interest expenses by about $12 million and improve the net debt/TTM Adjusted EBITDAre ratio.