Overview

Invitation Homes LP (Pending:INVH) expects to raise $1.61 billion in its upcoming IPO (if underwriters exercise their option to purchase additional shares).

Based in Dallas, Texas, Invitation Homes owns and manages renovated single-family homes in several key markets in the United States. We previewed this deal on our IPO Insights platform.

Invitation Homes will offer 77.0 million shares at an expected price range of $18 to $21. If the underwriters price the IPO at the midpoint of that range, INVH will have a market capitalization of $6.1 billion.

INVH filed for the IPO on January 6, 2017.

Joint Bookrunners: Deutsche Bank, J.P. Morgan Securities, BofA Merrill Lynch, Goldman Sachs, Wells Fargo Securities, Credit Suisse, Morgan Stanley, RBC Capital Group

Underwriters: Blackstone Advisory Partners, BTIG LLC, Evercore Group, FBR Capital Markets, JMP Securities, Keefe Bruyette & Woods, Raymond James, Siebert Cisneros Shank & Co., Zelman Partners

Business Summary: Owner and Operator of Rental Homes

As described in its SEC Filings, Invitation Homes LP owns and manages renovated single-family homes for rent in the western U.S. and Florida. Founded in 2012, the Dallas, TX-based company is a subdivision of Blackstone Group LP (NYSE:BX) and oversees approximately 50,000 properties.

Blackstone developed the company following the housing crash, making large investments in properties at depressed prices. This was in an attempt to institutionalize the business of leasing single-family homes. Invitation is the first company to begin offering residents a chance at becoming homeowners.

Financial Overview

For the nine months ended September 30, 2016, the company booked rental revenues of $654,726,000, up 11% from $587,913,000 in 2015. Invitation Homes plans to use the proceeds from its IPO to pay down its debt, as well as for general corporate purposes.

Beginning in 2012, with a Phoenix home worth $100,000, Blackstone engaged in a multi-year homebuying surge throughout 14 metropolitan regions. At its high point, the company spent over $150 million per week on foreclosed homes. Currently, Invitation Homes manages an estimated 50,000 residences.

Portfolio Details & Financing Notes

Invitation's portfolio of homes is wholly owned and located in submarkets of major metropolitan statistical areas. These are often described as places in high demand, with high barriers to entry, and high rent growth potential. Since its inception, INVH has invested approximately $1.2 billion in property improvements. As of September 30, 2016, INVH owned 48,431 single-family rental homes and had an additional 73 homes in escrow.

INVH has funded the acquisitions and renovations with a combination of equity capital, borrowings under a credit facility, and warehouse loans from its sponsor. INVH is the first company to securitize loans on single-family homes. Similar to conventional residential mortgage-backed securities, the underlying asset is real estate, and similar to conventional commercial mortgage-backed securities, the underlying borrower is a business. The initial mortgage loan financing totaled $479.1 million, and to date, INVH has executed a total of $5,334.0 million in mortgage loan financings.

Potential Competition: Altisource Residential Corporation, Colony Starwood Homes, American Homes 4 Rent, and Others

INVH faces competition from a variety of sources, which includes REITs, individual investors, small private investment partnerships, and larger investors. In addition, a few publicly traded REITs invest in single-family homes such as Altisource Residential Corporation (NYSE:RESI), American Homes 4 Rent (NYSE:AMH), Colony Starwood Homes (NYSE:SFR), and Silver Bay Realty Trust (NYSE:SBY).

Using last 12 months' sales ended September 30, 2016, INVH reflects a 6.76 price/sales multiple. This compares with AMH (5.9), RESI (4.05), SFR (4.2), and SBY (4.8).

Executive Management

The outcome of the IPO could firmly establish the place of Jonathan Gray, who currently handles the real estate aspect of the business, worth approximately $102 billion, and who is in queue to assume the role of chief executive after co-founder Stephen Schwarzman steps down. Although Mr. Gray was in the running to serve as President-elect Donald Trump's Treasury secretary, Gray maintained he still had work to finish at Blackstone first.

President and CEO John Bartling has served in his position since November 2014. His previous experience includes positions at Ares Management, AllBridge Investments, Walden Residential, Lexford Residential Trust, and Credit Suisse First Boston.

Conclusion: Consider An IPO Allocation

2016 was a strong year for publicly traded REITs, and an IPO from Invitation Homes would happen when homeownership rates are at a low for the past 50 years. At the same time, prices for homes have increased to all-time highs, indicating a good possibility that rental housing demand will remain strong and healthy.

Despite being valued slightly above its peer group, INVH is shaping up to be a strong deal, having been accelerated to Tuesday from Wednesday and being oversubscribed.

We suggest investors consider an allocation.