This under-the-radar REIT is experiencing explosive growth


OWhen it comes to residential real estate investment trusts (REITs), most investors focus on the big names like Avalon Bay Where Residential Equity. But smaller, under-the-radar REITs like Invitation houses (NYSE: INVH) often surpass and eclipse the biggest names.

That’s certainly been the case lately for Invitation Homes, which specializes in owning and renting single-family rental properties. The company has seen explosive growth in 2021 and appears to be well positioned for another strong year. Here’s a look at the business today and why this up-and-coming REIT should be on your radar.

Image source: Getty Images.

Single Family Rentals in Sunny States

As of early 2022, Invitation Homes has ownership or an interest in over 80,000 single-family rental properties across the Sun Belt of the United States – an ideal business model for today’s pandemic times. Remote work has opened the door to new living possibilities, prompting record numbers of families to relocate to the American South.

Additionally, tenant preferences have shifted to wanting larger, more private spaces, such as single-family homes. These demands, when combined, have created the perfect storm for Invitation Homes to explode over the past year.

In 2021, its net operating income (NOI) increased by 9.4% for the full year. Revenues jumped 9.5% on record rent growth of 8.8% in a single year. Its funds from operations (FFO), which is commonly used to indicate a REIT’s profitability, rose 16.2%. The REIT collected 98% of all rents and the occupancy rate remains at 98.1%. In 2021, the company added 4,802 homes to its portfolio by buying homes directly but also through strategic joint ventures.

The company took advantage of this explosive growth to improve its financial situation by lowering its debt ratios. At the end of 2021, its net debt is now 6.2 times earnings before interest, tax, depreciation and amortization (EBITDA), a marked improvement from just a year ago, when it was 7.3 times EBITDA. It also has $1.6 million in cash and cash equivalents with no debt maturities through 2024. This puts it in a better position to continue its expansion.

Gloomy looking person in front of stock charts on a computer screen.

Image source: Getty Images.

Current market volatility benefits investors

Demand for Single-Family Rental Housing don’t slow down. On the contrary, it is accelerating as families continue to deal with rising house prices. As it is still a relatively smaller company with a market capitalization of just $23 billion, there is plenty of room for it to grow over the next few years. Given its recovery rate, growth in rental rates and occupancy, there is plenty of room to maneuver in the event of a downturn in the economy or housing markets.

Today Market volatility has caused Invitation Homes’ share price to fall nearly 15% year-to-date despite its incredible performance in Q4 2021. Its current price is around 28 times its FFO, meaning the company is still a little richly appreciated. Still, this is similar to the valuations of its competitors, and it offers exposure to a high-demand, high-growth market that few others. Residential REITs can.

I’ve been bullish on this company for some time, and its deflated values ​​were the perfect time to jump in. Although still on the decline, I believe in the company’s business model and that this under-the-radar real estate stock will still soar in the near future.

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Liz Brumer Smith owns Invitation Homes Inc. The Motley Fool owns and recommends Invitation Homes Inc. The Motley Fool recommends AvalonBay Communities. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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