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ONE BIG THING

FTC Fines Invitation Homes $48 Million For Unfair Tenant Practices

What: On September 24, the Federal Trade Commission announced it took action against Invitation Homes Inc (NYSE: INVH) for several unlawful actions against consumers. The charges included allegations of:

• Deceiving renters on lease costs

• Charging undisclosed junk fees

• Failing to inspect homes before tenants move in

• Unfairly withholding security deposits when tenants move out

• Using unfair eviction practices, even during COVID-19 when many national and state restrictions against evictions were in place.

As a result, Invitation Homes has agreed to a settlement of $48 million that the REIT must turn over in a refund to all consumers harmed by its alleged actions. In addition, Invitation Homes will be required to disclose all leasing prices, establish new policies and procedures to handle security deposit refunds fairly and stop other unlawful behavior.

Who: Invitation Homes is a Dallas, TX-based residential REIT and the largest landlord of single-family homes in the United States with nearly 80,000 homes for lease. Between July and August 2024, Invitation Homes purchased another 580 newly constructed single-family homes from two homebuilders for $216 million.

Why: The FTC alleged that Invitation Homes did not include mandatory junk fees when it advertised its monthly rental rates. The FTC said those junk fees could total over $1700 annually. Consumers only learned of these fees after paying application and reservation fees, and sometimes not until they had signed a lease. Fees for things such as “smart home” technology, “utility management” and “air filter delivery” were mandatory and tenants could not opt out of them.

When: The FTC claims that between 2021-2023, Invitation Homes charged tenants tens of millions of dollars in junk fees as part of the monthly rent payments. In addition, the failure of Invitation Homes to properly inspect the homes as per their marketing materials led to 33,328 properties that submitted at least one work order within the first week of tenancy over five years. The work orders were for plumbing, electrical and heating and air complaints.

Some residents reported dirty homes with mold, broken appliances, rodent feces, or exposed wiring. There were complaints that after making repair requests, Invitation dragged its feet for days or weeks, versus the “24/7 emergency maintenance” it told prospective tenants they would have.

Another issue the FTC cited Invitation Homes for was unfair security deposit refund practices, alleging that Invitation Homes charged tenants for normal wear and tear and damage that previous tenants had created. These improper charges were done by default and reviewed only if and when tenants disputed them. The FTC noted that between 2020-2022, Invitation Homes only returned 39.2% of consumers’ total security deposit, whereas the national average is about 64%.

Takeaway: The FTC report, and a downgrade from Bank of America Securities analyst Jeffrey Spector from Buy to Neutral with a price target cut from $39 to $37 dropped Invitation Homes 2.55% in one day. It could have been worse, and perhaps it will be in the future. $48 million could take a chunk out of next quarter’s FFO and the new regulations that Invitation Homes has agreed to follow will likely pare future earnings from what they’ve been in recent quarters.

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REIT Roundup:

EPR Properties (NYSE: EPR) September 23, announced it has secured a new amended $1.0 billion unsecured revolving credit facility to mature on October 2, 2028, replacing its existing $1.0 billion senior unsecured revolving credit facility. The new facility also has an “accordion” feature in which EPR can increase the total maximum principal amount by another $1.0 billion.

Invitation Homes Inc: September 23, announced that Fitch Ratings has upgraded Invitation Homes’ issuer and issue-level credit ratings to “BBB+” from “BBB” with a stable outlook.

Terreno Realty Corp (NYSE: TRNO) September 25, announced it has closed an $800 million senior amended and restated unsecured credit facility to replace its existing $600 million senior unsecured credit facility, with an extension to January 2029.

Upgrades:  

Annaly Capital Management, Inc. (NYSE: NLY) September 20, Wells Fargo analyst Donald Fandetti upgraded Annaly Capital Management from Equal-Weight to Overweight and raised the price target from $19 to $23.

AGNC Investment Corp (Nasdaq: AGNC) On September 20, Wells Fargo analyst Donald Fandetti upgraded Annaly Capital Management from Equal-Weight to Overweight and raised the price target from $10 to $12.

Downgrades

Claros Mortgage Trust Inc (NYSE: CMTG) On September 20, Wells Fargo analyst Donald Fandetti downgraded Claros Mortgage Trust from Equal-Weight to Underweight and announced an $8 price target.

Equinix Inc (Nasdaq: EQIX) On September 24, CFRA analyst Kenneth Leon downgraded Equinix from Buy to Hold. No price target was given.

Essex Property Trust (NYSE: ESS) On September 24, Bank of America Securities analyst Joshua Dennerlein downgraded Essex Property Trust from Buy to Neutral, while raising the price target from $307 to $321.

Equity Residential (NYSE: EQR): On September 24, Bank of America Securities analyst Jeffrey Spector downgraded Equity Residential from Buy to Neutral, while raising the price target from $78 to $82.

RLJ Lodging Trust (NYSE: RLJ) On September 26, Wolfe Research analyst Keegan Carl downgraded RLJ Lodging from Outperform to Peer Perform.

Park Hotels & Resorts Inc (NYSE: PK) On September 26, Wolfe Research analyst Keegan Carl downgraded Park Hotels & Resorts from Outperform to Peer Perform.

Regency Centers Corp (Nasdaq: REG) On September 26, Deutsche Bank analyst Derek Johnston downgraded Regency Centers from Buy to Hold and raised the price target from $70 to $75.

Dividends:

WP Carey Inc (NYSE: WPC) On September 19, announced an increase to its quarterly dividend from $0.87 to $0.875 per share, payable on October 15 to shareholders of record as of September 30.

Chimera Investment Corp (NYSE: CIM) On September 19, announced an increase to its quarterly dividend from $0.35 to $0.37 per share, payable on October 15 to shareholders of record as of September 30.

Insider Transactions:

Equity Lifestyle Properties Inc (NYSE ELS) On September 19, Executive VP and CFO, Paul Seavey sold 31,988 shares of Equity Lifestyle Properties company common stock for $2,393,662.

Winners & Losers

📈 Biggest Winners This Week: Healthcare and Retail REITs

• Strawberry Fields REIT Inc (NYSEAMERICAN: STRW) Up 8.66%

• Bridge Investment Group Holdings Inc (NYSE: BRDG) Up 7.85%

• American Healthcare REIT Inc (NYSE: AHR) Up 3.38%

• Realty Income Corp (NYSE: O) Up 3.20%

• Iron Mountain Inc (NYSE: IRM) Up 3.01%

• Ventas Inc (NYSE: VTR) Up 3.05%

• Medical Properties Trust Inc (NYSE: MPW) Up 2.95%

📉 Biggest Losers This Week: Office, Residential, Mortgage REITs

• Wheeler Real Estate Investment Trust Inc (Nasdaq: WHLR) Down 54.92%

• Hudson Pacific Properties Inc (NYSE: HPP) Down 11.34%

• Claros Mortgage Trust Inc (NYSE: HPP) Down 11.07%

• Armada Hoffler Properties Inc (NYSE: AHH) Down 10.61%

• SUI Communities Inc (NYSE: SUI) Down 6.48%

• Park Hotels & Resorts Inc (NYSE: HPP) Down 7.01%

• BrightSpire Capital Inc (NYSE: HPP) Down 6.46%

• Peakstone Realty Trust (NYSE: HPP) Down 6.30%

• City Office REIT Inc (NYSE: CIO) Down 6.27%

ONE FOR THE ROAD

Landlords Be Warned: Renters Changing Old Demands For New Ones

What: Recent data from Zillow saves and share numbers indicates that renters are looking for new amenities in rental units they are considering. Today’s renter wants turfed pet areas, co-working spaces and community happy hours, rather than more traditional amenities such as fitness centers or a pool. The most in-demand amenities saved this month were off-street parking and in-unit laundry areas, with 85% and 76% saves respectively. Also saved quite often were listings that mentioned happy hours in the community.

Why: Emily Mcdonald, Zillow’s rental trends expert, noted that tenants spend more time and money renting than ever. She said, “They are prioritizing amenities while also seeking community-focused perks like co-working spaces and social events.”

Interestingly, renters no longer care about fitness centers and pools as much as previously, and listings that mention those amenities are getting fewer saves and shares per day on Zillow. According to the data, renters now prefer communities to have Bowling alleys and putting greens.

Takeaway: Perhaps prospective tenants don’t save listings with pools or fitness centers because they expect each rental community will have one. But landlords are in a quandary. It’s not like a landlord can fill in a pool and transform it into a bowling alley. And next year’s tenant whims could be completely different from this year’s. But presently, the data shows this is what tenants are looking for, so landlords whose properties don’t have the current preferred amenities may have to lower their rents to compete with newer communities that do. But newly constructed communities are apt to be more expensive than older ones. Will tenants be willing and able to spend even more on rent for amenities they prefer? Time will tell.