Item 7. 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 together with Part I. Item 6. “Selected Financial Data,” Part I. Item 1. “Business,” and the consolidated financial statements, including the notes thereto, that are included elsewhere in this Annual Report on Form 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 forth under Part I. Item 1A. “Risk Factors,” “Forward-Looking Statements,” or in other parts of this report.

Unless otherwise indicated or the context otherwise requires, information presented throughout this discussion and analysis of our financial condition and results of operations as of and for the year ended December 31, 2018 includes the impact of the Mergers; however, the discussion of operational information for our total and same store portfolio, including average occupancy, average rent, and net effective rental rate growth, is provided with respect to the Legacy IH portfolio and does not reflect the results of the Legacy SWH portfolio as of and for the year ended December 31, 2017.

Capitalized terms used without definition have the meaning provided elsewhere in this Annual Report on Form 10-K.

Overview

Invitation Homes is a leading owner and operator of single-family homes for lease, offering residents high-quality homes in sought-after neighborhoods across America. With more than 80,000 homes for lease in 17 markets across the country as of December 31, 2018, 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 operate in markets with strong demand drivers, high barriers to entry, and high rent growth potential, primarily in the Western United States, Florida, and 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 enables 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 NOI growth relative to the broader United States housing and rental market. Within our 17 markets, we target attractive neighborhoods in in-fill locations with multiple demand drivers, such as proximity to major employment centers, desirable schools, and transportation corridors. Our homes average approximately 1,850 square feet with three bedrooms and two bathrooms, appealing to a resident base that we believe is less transitory than the typical multifamily resident. We invest in the upfront renovation of homes in our portfolio 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-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 the Pre-IPO Transactions that resulted in INVH LP holding, directly or indirectly, all of the assets, liabilities, and results of operations reflected in our consolidated financial statements, including the full portfolio of homes held by the IH Holding Entities. As a result of the Pre-IPO Transactions, INVH LP became a consolidated subsidiary of INVH. A wholly owned subsidiary of INVH, Invitation Homes OP GP LLC, serves as 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 in our 2017 financial statements. Accordingly, after January 31, 2017, our consolidated financial statements include the accounts of INVH and its wholly owned subsidiaries. Prior to that date, our consolidated financial statements include the combined accounts of INVH LP and the IH Holding Entities and their wholly owned subsidiaries.

On February 6, 2017, Invitation Homes Inc. 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, including stock held by directors, officers, and employees as part of the Pre-IPO Transactions.

Merger with Starwood Waypoint Homes

On November 16, 2017, we completed the Mergers with SWH. We believe that the Mergers provide a number of significant potential strategic benefits and opportunities that will be in the best interests of our stockholders. More specifically, we believe that the Mergers created a diversified and high-quality portfolio of homes in high-growth markets. Potential benefits from economies of scale and the market overlap of INVH’s and SWH’s complementary portfolios may be derived from optimization of operations, reduction of operating costs, and other anticipated synergies.

Our Portfolio

The following table provides summary information regarding our total and Same Store portfolios as of and for the year ended December 31, 2018 as noted below:

Market		Number of Homes(1)		Average Occupancy(2)		Average Monthly Rent(3)		Average Monthly Rent PSF(3)		% of Revenue(4)
Western United States:
Southern California		8,293		95.5%		$2,277		$1.35		13.2	%
Northern California		4,529		96.0%		1,954		1.27		6.5	%
Seattle		3,402		94.1%		2,082		1.09		5.1	%
Phoenix		7,546		95.8%		1,271		0.78		6.9	%
Las Vegas		2,686		96.0%		1,521		0.76		3.0	%
Denver		2,229		93.2%		1,893		1.06		3.0	%
Western United States Subtotal		28,685		95.4%		1,838		1.08		37.7	%
Florida:
South Florida		8,984		94.1%		2,116		1.15		13.4	%
Tampa		8,359		94.4%		1,605		0.87		9.7	%
Orlando		5,919		95.4%		1,568		0.85		6.5	%
Jacksonville		1,910		95.0%		1,617		0.81		2.2	%
Florida Subtotal		25,172		94.6%		1,780		0.96		31.8	%
Southeast United States:
Atlanta		12,250		94.9%		1,445		0.70		12.5	%
Carolinas		4,725		93.7%		1,526		0.72		5.2	%
Nashville		798		91.5%		1,825		0.85		1.0	%
Southeast United States Subtotal		17,773		94.4%		1,483		0.71		18.7	%
Texas:
Houston		2,390		91.9%		1,537		0.79		2.6	%
Dallas		2,187		93.4%		1,722		0.82		2.7	%
Texas Subtotal		4,577		92.6%		1,625		0.80		5.3	%
Midwest United States:
Chicago		3,437		92.3%		1,947		1.19		5.0	%
Minneapolis		1,163		96.0%		1,824		0.92		1.5	%
Midwest United States Subtotal		4,600		93.2%		1,918		1.12		6.5	%
Total/Average		80,807		94.6%		$1,735		$0.94		100.0	%
Same Store Total / Average		68,880		95.9%		$1,741		$0.93		85.2	%

(1)	As of December 31, 2018.

(2)	Represents average occupancy for the year ended December 31, 2018.

(3)	Represents average monthly rent for the year ended December 31, 2018.

(4)	Represents the percentage of rental revenues and other property income generated in each market for the year ended December 31, 2018.

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” 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, 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 69.5% of our revenues during the year ended December 31, 2018. In recent periods, our Western United States and Florida markets have experienced favorable demand fundamentals with employment growth, strong 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 the length of stay of our residents, resident turnover rates, and the number of days a home is unoccupied between residents. Our operating results are also 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, economic conditions, and economic outlook. Increases in turnover rates and the average number of days to re-resident 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 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. The 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.

Financing Arrangements: Financing arrangements directly impact our interest expense, mortgage loans, term loan facility, revolving facility, and convertible debt, as well as our ability to acquire and renovate homes. We have historically utilized indebtedness to fund the acquisition and renovation of new homes. Our current financing arrangements contain financial covenants, and certain financing arrangements contain variable interest rate terms. Interest rates are impacted by market conditions, and the terms of the underlying financing arrangements. See 7A. “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.

Components of Revenues and Expenses

The following is a description of the components of our revenues and 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 we enter into directly with our residents, which typically have a term of one to two years.

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 application and lease termination 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 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-day activities. General and administrative expense also includes IPO related and merger and transaction-related expenses that are of a non-recurring nature.

Share-Based Compensation Expense

All incentive unit and share-based compensation expense is recognized in our statements of operations as components of general and administrative expense and property management expense. In connection with and subsequent to the IPO, we modified certain then-outstanding incentive awards and issued new share-based awards in order to align our employees’ interests with those of our investors. We also assumed share-based awards in connection with the Mergers.

Depreciation and Amortization

We recognize depreciation and amortization expense primarily associated with our homes and other capital expenditures over their expected useful lives.

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 payable on our debt instruments, payments and receipts related to our interest rate swap agreements, related amortization of discounts and deferred financing costs, unrealized gains (losses) on non-designated hedging instruments, and noncash interest expense related to our interest rate swap agreements.

Other, net

Other, net includes interest income, third party management fee income, equity in earnings from an unconsolidated joint venture acquired in the Mergers, and other miscellaneous income and 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.

Results of Operations

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

The following table sets forth a comparison of the results of operations for the years ended December 31, 2018 and 2017:

		For the Years Ended December 31,
($ in thousands)		2018				2017				$ Change				% Change
Rental revenues and other property income		$	1,722,962			$	1,054,456			$	668,506			63.4	%
Expenses:
Property operating and maintenance		655,411				391,495				263,916				67.4	%
Property management expense		65,485				43,344				22,141				51.1	%
General and administrative		98,764				167,739				(68,975		)		(41.1	)%
Interest expense		383,595				256,970				126,625				49.3	%
Depreciation and amortization		560,541				309,578				250,963				81.1	%
Impairment and other		20,819				24,093				(3,274		)		(13.6	)%
Total expenses		1,784,615				1,193,219				591,396				49.6	%
Other, net		6,958				(959		)		(7,917		)		N/M
Gain on sale of property, net of tax		49,682				33,896				(15,786		)		(46.6	)%
Net loss		$	(5,013	)		$	(105,826	)		$	(100,813	)		(95.3	)%

Portfolio Information

As of December 31, 2018 and 2017, we owned 80,807 and 82,570 single-family rental homes, respectively, in our total portfolio. As a result of the Mergers, an additional 34,670 homes were added to our portfolio in the fourth quarter of 2017. During the years ended December 31, 2018 and 2017, we acquired 938 and 910 homes, respectively, and sold 2,701 and 1,308 homes, respectively. During the years ended December 31, 2018 and 2017, we owned an average of 82,171 and 52,275 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 December 31, 2018, our Same Store portfolio consisted of 68,880 single-family rental homes. In order to provide meaningful comparative information across periods that, in some cases, pre-date the Mergers, all information regarding the performance of the Same Store portfolio for the year ended December 31, 2018 compared to the year ended December 31, 2017 is presented as though the Mergers were consummated on January 1, 2017 (i.e., as though the single-family rental homes owned by Legacy SWH prior to the Mergers that are included in our Same Store portfolio had been owned by Legacy IH for the entirety of such periods).

Rental Revenues and Other Property Income

For the years ended December 31, 2018 and 2017, total portfolio rental revenues and other property income totaled $1,723.0 million and $1,054.5 million, respectively, an increase of 63.4%, driven by the significant increase in the average number of homes owned, an increase in average monthly rent per occupied home, an increase in average occupancy, and an increase in utilities expense recoveries. For the years ended December 31, 2018 and 2017, total portfolio rental revenues totaled $1,607.5 million and $994.9 million, respectively, an increase of 61.6% and other property income was $115.4 million and $59.5 million, respectively, an increase of 93.9%.

Average occupancy for the total portfolio was 94.6% for the year ended December 31, 2018 and 94.7% for the Legacy IH total portfolio for year ended December 31, 2017. Average monthly rent per occupied home for the total portfolio for the year ended December 31, 2018 was $1,735, compared to $1,691 for the Legacy IH total portfolio for the year ended December 31, 2017, a 2.6% increase. For our Same Store portfolio, average occupancy was 95.9% and 95.4% for the years ended December 31, 2018 and 2017, respectively, and average monthly rent per occupied home for the year ended December 31, 2018 was $1,741, compared to $1,676 for the year ended December 31, 2017, a 3.9% 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, to calculate net effective rental rate growth. Leases are either renewal leases, where our current resident stays non-service rent for a subsequent lease term, or new leases, where our previous resident moves out and a new resident signs a lease to occupy the same home.

Renewal lease net effective rental rate growth for the total portfolio averaged 4.8% and 5.2% for the years ended December 31, 2018 and 2017, respectively, and new lease net effective rental rate growth for the total portfolio averaged 3.3% and 3.6% for the years ended December 31, 2018 and 2017, respectively. For our Same Store portfolio, renewal lease net effective rental rate growth averaged 4.8% and 5.2% for the years ended December 31, 2018 and 2017, respectively, and new lease net effective rental rate growth averaged 3.3% and 3.5% for the years ended December 31, 2018 and 2017, respectively.

The annual turnover rate for the Same Store portfolio for the years ended December 31, 2018 and 2017 was 32.7% and 35.8%, respectively. For the Same Store portfolio, an average home remained unoccupied for 47 and 46 days between residents for the years ended December 31, 2018 and 2017, respectively.

For the years ended December 31, 2018 and 2017, the increase in other property income was driven by the significant increase in the average number of homes owned. Another primary driver of the increase was utilities expense recoveries, which 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.

Expenses

For the years ended December 31, 2018 and 2017, total expenses were $1,784.6 million and $1,193.2 million, respectively. Set forth below is a discussion of changes in the individual components of total expenses.

Property operating and maintenance expense increased to $655.4 million for the year ended December 31, 2018 from $391.5 million for the year ended December 31, 2017, driven by the significant increase in the average number of homes owned.

Property management expense and general and administrative expense decreased to $164.2 million for the year ended December 31, 2018 from $211.1 million for the year ended December 31, 2017, primarily due to a decrease in share-based compensation expense of $51.7 million, which was driven by $12.0 million of vesting of Class B Units and $56.9 million of awards issued in connection with the IPO during the year ended December 31, 2017. Property management expense and general and administrative expense decreased for the year ended December 31, 2018 by an additional $8.3 million due to IPO related costs during the year ended December 31, 2017, and a $16.7 million decrease of merger and transaction-related expenses, including severance, incurred during the year ended December 31, 2018 compared to the previous year. These decreases were partially offset by additional expenses due to the increase in the number of homes owned.

Interest expense was $383.6 million and $257.0 million for the years ended December 31, 2018 and 2017, respectively. The increase in interest expense was due to an increase in average debt balances outstanding during the year ended December 31, 2018, primarily related to debt assumed in connection with the Mergers. Due to refinancing of and prepayments made on the mortgage loans during the year ended December 31, 2018, debt outstanding, net of deferred financing costs and discounts, decreased to $9,249.8 million as of December 31, 2018 from $9,651.7 million as of December 31, 2017. Additionally, the average one-month LIBOR rate increased by 88 bps to 2.02% during the year ended December 31, 2018 from 1.14% during the year ended December 31, 2017, which was partially offset by reductions in the weighted average spread (inclusive of servicing fees) over LIBOR resulting from refinancing activity.

Depreciation and amortization expense increased to $560.5 million for the year ended December 31, 2018 from $309.6 million for the year ended December 31, 2017, primarily due to the addition of 34,670 homes acquired in the Mergers and the amortization of in-place leases.

Impairment and other expenses decreased to $20.8 million for the year ended December 31, 2018 from $24.1 million for the year ended December 31, 2017. Losses and damages related to Hurricanes Irma and Harvey of $8.0 million and $21.5 million for the years ended December 31, 2018 and 2017, respectively, are included within impairment and other expenses.

Gain on Sale of Property, net of tax

Gain on sale of property was $49.7 million and $33.9 million for the years ended December 31, 2018 and 2017, respectively. The primary driver for the difference in the gain on sale between periods was the number of and composition of the portfolio of homes sold during the respective periods. Of the 2,701 homes sold during the year ended December 31, 2018, 1,497 homes were sold in bulk sales for a gain of $24.2 million. The additional 1,204 homes sold during the year ended December 31, 2018 sold for a net gain of $25.5 million. Of the 1,308 homes sold during the year ended December 31, 2017, 454 homes were sold in two bulk sales for a gain of $9.5 million. The additional 597 homes sold in the year ended December 31, 2017 were sold for a net gain of $24.4 million.

Year Ended December 31, 2017 Compared to Year Ended December 31, 2016

The following table sets forth a comparison of the results of operations for the years ended December 31, 2017 and 2016:

		For the Years Ended December 31,
($ in thousands)		2017				2016				$ Change				% Change
Rental revenues and other property income		$	1,054,456			$	922,587			$	131,869			14.3	%
Expenses:
Property operating and maintenance		391,495				360,327				31,168				8.6	%
Property management expense		43,344				30,493				12,851				42.1	%
General and administrative		167,739				69,102				98,637				142.7	%
Interest expense		256,970				286,048				(29,078		)		(10.2	)%
Depreciation and amortization		309,578				267,681				41,897				15.7	%
Impairment and other		24,093				4,207				19,886				472.7	%
Total expenses		1,193,219				1,017,858				175,361				17.2	%
Other, net		(959		)		(1,558		)		(599		)		(38.4	)%
Gain on sale of property, net of tax		33,896				18,590				(15,306		)		(82.3	)%
Net loss		$	(105,826	)		$	(78,239	)		$	27,587			35.3	%

Portfolio Information

As of December 31, 2017 and 2016, we owned 82,570 and 48,298 single-family rental homes, respectively, in our total portfolio. As of December 31, 2017, the Legacy IH portfolio accounted for 47,917 of the 82,570 total owned homes. As a result of the Mergers, an additional 34,670 homes were added to our portfolio in the fourth quarter of 2017. In addition to the impact of the Mergers, during the years ended December 31, 2017 and 2016, we acquired 910 and 1,253 homes, respectively, and we sold 1,308 and 1,093 homes during the years ended December 31, 2017 and 2016, respectively. As of December 31, 2017, our Same Store portfolio was comprised of 42,689 homes from the Legacy IH portfolio.

Rental Revenues and Other Property Income

For the years ended December 31, 2017 and 2016, total portfolio rental revenues and other property income totaled $1,054.5 million and $922.6 million, respectively, an increase of 14.3%, driven by increases in average occupancy, average monthly rent per occupied home, and revenues generated from properties acquired in the Mergers, partially offset by a decrease in the number of homes owned in the Legacy IH total portfolio.

For the years ended December 31, 2017 and 2016, we generated rental revenues of $994.9 million and $878.0 million, respectively. During the year ended December 31, 2017, the Legacy IH total portfolio contributed $915.7 million of our total rental revenues, an increase of 4.3% due to an increase in both average occupancy and average monthly rent per occupied home, partially offset by a decrease in number of homes owned. The Mergers generated rental revenues of $79.2 million for the year ended December 31, 2017.

Average occupancy for the Legacy IH total portfolio was 94.7% and 94.5% for the years ended December 31, 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 homes are unoccupied for a longer period of time during initial renovations than during a re-resident period. Average monthly rent per occupied home for the Legacy IH total portfolio for the year ended December 31, 2017 was $1,691, compared to $1,611 for the year ended December 31, 2016, a 5.0% increase.

For our Legacy IH Same Store portfolio, our average occupancy was 95.7% and 96.1% for the years ended December 31, 2017 and 2016, respectively, and our average monthly rent per occupied home for the year ended December 31, 2017, was $1,694, compared to $1,626 for the year ended December 31, 2016, a 4.2% increase.

To monitor prospective changes in average rent per occupied home, we compare the monthly rent from an expiring lease to the monthly rent from the next lease for the monthly same home, in each case, net of any amortized rent concessions. Leases are either renewal leases, where our current resident stays for a subsequent lease term, or new 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 and new leases is with respect to the Legacy IH total portfolio. For the years ended December 31, 2017 and 2016, renewal lease net effective rental rate growth for the Legacy IH total portfolio averaged 5.1% and 5.5%, respectively. For the years ended December 31, 2017 and 2016, new lease net effective rental rate growth for the Legacy IH total portfolio averaged 3.6% and 5.5%, respectively.

For the years ended December 31, 2017 and 2016, the turnover rate for the Legacy IH Same Store portfolio was 34.6% and 34.9%, respectively. For the Legacy IH total portfolio, an average home remained unoccupied for 47 and 42 days between residents for each of the years ended December 31, 2017 and 2016, respectively.

For the years ended December 31, 2017 and 2016, other property income was $59.5 million and $44.6 million, respectively, with the Legacy IH portfolio comprising $54.1 million of other property income for the year ended December 31, 2017, an increase of 21.3%. 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. Other property income of $5.4 million was attributable to the homes acquired in the Mergers.

Expenses

Total expenses were $1,193.2 million and $1,017.9 million for the years ended December 31, 2017 and 2016, respectively. Set forth below is a discussion of changes in the individual components of total expenses.

Property operating and maintenance expense increased to $391.5 million for the year ended December 31, 2017 from $360.3 million for the year ended December 31, 2016 due to the increase in the number of homes owned in 2017. The Legacy IH portfolio comprised $360.5 million of the property operating and maintenance expenses for the year ended December 31, 2017, which is relatively unchanged from 2016. Legacy IH portfolio expenses were relatively flat as increases in property taxes for homes owned in both periods were offset by reduced market-level personnel expense. Property operating and maintenance expenses of $31.0 million is attributable to homes acquired in the Mergers.

Property management expense and general and administrative expense increased to $211.1 million for the year ended December 31, 2017 from $99.6 million for the year ended December 31, 2016 primarily due to an increase in share-based compensation expense of $71.0 million and merger and transaction-related expenses of $29.8 million incurred during the year ended December 31, 2017.

Interest expense was $257.0 million and $286.0 million for the years ended December 31, 2017 and 2016, respectively, with interest expense related to indebtedness incurred prior to the Mergers comprising $239.7 million, a decrease of 16.2% from the year ended December 31, 2016. The decrease in interest expense was due to a reduction in average debt balances outstanding during 2017. This was partially offset by an increase in our weighted average cost of debt due to an increase in the average monthly LIBOR rates of 63 bps from 0.51% to 1.14% during the years ended December 31, 2016 and 2017, respectively. The decrease in average debt balances outstanding during the year ended December 31, 2017 was primarily attributable to net reductions in debt from the use of a portion of our net IPO proceeds, together with the borrowings under the Term Loan Facility, to repay all of our then existing credit facilities and certain of our mortgage loans. As of December 31, 2017, we had $9,651.7 million of debt outstanding, net of deferred financing costs and discounts, compared to $7,570.3 million as of December 31, 2016.

Depreciation and amortization expense increased due to higher average cost basis per home as of December 31, 2017 compared to December 31, 2016 and the addition of 34,670 homes acquired in the Mergers.

Impairment and other expenses increased to $24.1 million for the year ended December 31, 2017 from $4.2 million for the year ended December 31, 2016 primarily due to losses and damages related to Hurricane Irma.

Gain on Sale of Property, Net of Tax

Gain on sale of property was $33.9 million and $18.6 million for the years ended December 31, 2017 and 2016, respectively, an increase of 82.3%. Of the 1,308 homes sold during the year ended December 31, 2017, 454 were sold in bulk

sales for a gain of $9.5 million. Of the 1,093 homes sold during the year ended December 31, 2016, 590 homes were sold in bulk sales for a gain of $9.4 million. The primary driver for the difference in the gain on sale between periods was the composition of homes sold during the respective periods.

Liquidity and Capital Resources

Our liquidity and capital resources as of December 31, 2018 and 2017 included unrestricted cash and cash equivalents of $144.9 million and $179.9 million, respectively, a 19.4% decrease due primarily to payments on our mortgage loans and investments in single-family residential properties, which is discussed in further detail in “—Cash Flows.” Additionally, the total balance of our $1,000.0 million revolving credit facility (the “Revolving Facility”) remained undrawn as of December 31, 2018.

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 stockholders, 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), property taxes, insurance premiums, and the ongoing maintenance of 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 intend 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 believe our rental income net of total expenses will generally provide cash flow sufficient to fund operations, 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 which had an undrawn balance of $1,000.0 million as of December 31, 2018.

As a REIT, we are required to distribute to our stockholders at least 90% of our 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. 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.

The following describes the key terms of our current indebtedness.

Mortgage Loans

Our securitization transactions (the “Securitizations” or the “mortgage loans”) are collateralized by certain homes owned by wholly owned subsidiaries that were formed to facilitate certain of our financing arrangements (the “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. In addition to the Securitization transactions we initiated, we assumed certain mortgage loans from SWH in connection with the Mergers.

The following table sets forth a summary of our mortgage loan indebtedness as of December 31, 2018 and 2017:

										Outstanding Principal Balance(4)
($ in thousands)		Maturity Date(1)		Maturity Date if Fully Extended(2)		Interest Rate(3)		Range of Spreads		December 31, 2018				December 31, 2017
CAH 2014-1		February 8, 2018		N/A		—%		N/A		$	—			$	473,384
CAH 2014-2		February 8, 2018		N/A		—%		N/A		—				385,401
IH 2015-1, net		May 8, 2018		N/A		—%		N/A		—				528,795
IH 2015-2		May 8, 2018		N/A		—%		N/A		—				627,259
IH 2015-3		June 28, 2018		N/A		—%		N/A		—				1,165,886
CAH 2015-1		November 7, 2018		N/A		—%		N/A		—				656,551
CSH 2016-1		November 7, 2018		N/A		—%		N/A		—				531,517
CSH 2016-2(5)(6)		December 9, 2019		December 9, 2021		4.38%		133-423 bps		442,614				609,815
IH 2017-1(7)		June 9, 2027		June 9, 2027		4.23%		N/A		995,826				996,453
SWH 2017-1(5)		October 9, 2019		January 9, 2023		4.07%		102-347 bps		764,685				769,754
IH 2017-2(5)		December 9, 2019		December 9, 2024		4.03%		91-306 bps		856,238				863,413
IH 2018-1(5)		March 9, 2020		March 9, 2025		3.76%		76-256 bps		911,827				—
IH 2018-2(5)		June 9, 2020		June 9, 2025		3.91%		95-230 bps		1,035,749				—
IH 2018-3(5)		July 9, 2020		July 9, 2025		3.94%		105-230 bps		1,296,959				—
IH 2018-4(5)		January 9, 2021		January 9, 2026		3.93%		115-225 bps		959,578				—
Total Securitizations										7,263,476				7,608,228
Less: deferred financing costs, net										(61,822		)		(28,075		)
Total										$	7,201,654			$	7,580,153

(1)	Maturity date represents repayment date for mortgage loans which have been repaid in full prior to December 31, 2018. For all other mortgage loans, the maturity dates above are reflective of all extensions that have been exercised.

(2)	Represents the maturity date if we exercise each of the remaining one-year extension options available, which are subject to certain conditions being met.

(3)	Except for IH 2017-1, interest rates are based on a weighted average spread over LIBOR, plus applicable servicing fees; as of December 31, 2018, LIBOR was 2.52%. Our IH 2017-1 mortgage loan bears interest at a fixed rate of 4.23% per annum, equal to the market determined pass-through rate payable on the certificates including applicable servicing fees.

(4)	Outstanding principal balance is net of discounts and does not include deferred financing costs, net.

(5)

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 Borrower Entity’s discretion (provided that there is no continuing event of 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). Our CSH 2016-2 mortgage loan has exercised the first extension option. The maturity dates above are reflective of all extensions that have been exercised.

(6)	On January 9, 2019, we made a voluntary prepayment of $70.0 million against the outstanding balance of CSH 2016-2 with unrestricted cash on hand.

(7)	Net of unamortized discount of $3.0 million and $3.3 million as of December 31, 2018 and 2017, respectively.

Securitization Transactions

For each Securitization transaction, the Borrower Entity executed a loan agreement with a third party lender. Except for IH 2017-1, each mortgage loan consists of five to seven components. The components are floating rate except with respect to certain components we were required to retain in connection with risk retention rules. The two 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 replacement 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 two 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 interest.

Certain components of our mortgage loans were sold at a discount, and $3.0 million and $3.3 million of unamortized discount is included in mortgage loans, net on our consolidated balance sheets as of both December 31, 2018 and 2017, respectively.

Each mortgage loan is secured by a pledge of the equity in the assets of the respective Borrower Entities, as well as first-priority mortgages on the underlying properties and a grant of security interests in all of the related personal property. As of December 31, 2018 and 2017, a total of 41,644 and 47,616 homes, respectively, were pledged pursuant to the mortgage loans. We are obligated to make monthly payments of interest for each mortgage loan, and CAH 2014-1 also required monthly payments of principal.

Transactions with Trusts

Concurrent with the execution of each mortgage loan agreement, the respective third party lender sold each loan it originated to individual depositor entities (the “Depositor Entities”) who subsequently transferred each loan to Securitization-specific trust entities (the “Trusts”). The Depositor Entities for our Securitizations currently outstanding are wholly owned 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 agreements (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 and used the proceeds as consideration for the loans sold to the Depositor Entities by the lenders. These transactions had no effect on our consolidated financial statements other than with respect to Certificates we retained in connection with Securitizations or purchased at a later date.

The Trusts are structured as pass-through entities that receive interest, and in the case of CAH 2014-1 principal payments, 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 consolidated financial statements. We have evaluated our interests in certain 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 retained 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.

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 IH 2015-1, IH 2015-2, IH 2015-3, CAH 2015-1, CSH 2016-1, and CSH 2016-2 were issued in an amount equal to 5% of the original principal amount of the loans. Per the terms of the mortgage loan agreements, the Class G certificates were restricted certificates that were made available exclusively to the sponsor, as applicable. We retained these Class G certificates during the time the related Securitizations were outstanding, and they were principal only, bearing a stated interest rate of 0.0005%. Additionally, in certain instances, we elected to purchase certain Class F certificates, which bore a stated annual interest rate of LIBOR plus a spread ranging from 3.73% to 5.08%.

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 retained 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 $366.6 million and $378.5 million as of December 31, 2018 and 2017, respectively, and are classified as held to maturity investments and recorded in other assets, net on the consolidated balance sheets.

Loan Covenants

The general terms that apply to all of the mortgage loans require us to maintain compliance with certain affirmative and negative covenants. Affirmative covenants with which we must comply include our, and certain of our affiliates’, compliance with (i) licensing, permitting and legal requirements specified in the mortgage loan agreements, (ii) organizational requirements of the jurisdictions in which we, and certain of our affiliates, 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, and certain of our affiliates’, compliance with limitations surrounding (i) the amount of our indebtedness and the nature of our investments, (ii) the execution of transactions with affiliates, (iii) the Manager, and (iv) the nature of our business activities. As of December 31, 2018, and through the date our consolidated financial statements were issued, we believe we are in compliance with all affirmative and negative covenants.

Prepayments

For the mortgage loans, prepayments of amounts owed by us are generally not permitted under the terms of the respective mortgage loan agreements unless such prepayments are made pursuant to the voluntary election or 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 years ended December 31, 2018, 2017, and 2016, we made voluntary and mandatory prepayments of $4,579.6 million, $2,951.0 million, and $42.1 million, respectively, under the terms of the mortgage loan agreements.

Term Loan Facility and Revolving Facility

On February 6, 2017, we entered into a credit facility (the “Credit Facility”), which was amended on December 18, 2017 to include entities and homes acquired in the Mergers. The Credit Facility provides $2,500.0 million of borrowing capacity and consists of the $1,000.0 million Revolving Facility, which will mature on February 6, 2021, with a one-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 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 then-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 the Credit Facility as of December 31, 2018 and 2017:

($ in thousands)		Maturity Date		Interest Rate(1)		December 31, 2018				December 31, 2017
Term Loan Facility		February 6, 2022		4.22%		$	1,500,000			$	1,500,000
Deferred financing costs, net						(9,140		)		(12,027		)
Term Loan Facility, net						$	1,490,860			$	1,487,973
Revolving Facility		February 6, 2021		4.27%		$	—			$	35,000

(1)	Interest rates for the Term Loan Facility and the Revolving Facility are based on LIBOR plus an applicable margin. As of December 31, 2018, the applicable margins were 1.70% and 1.75%, respectively, and LIBOR was 2.52%.

Interest Rate and Fees

Borrowings under the 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-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 2.30% in the case of LIBOR rate loans. In addition, the 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 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 0.35% or 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; 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 principal reductions are required under the 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.

Loan Covenants

The 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 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 Credit Facility.

The 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 Credit Facility are entitled to take various actions, including the acceleration of amounts

due under the Credit Facility and all actions permitted to be taken by a secured creditor. As of December 31, 2018, and through the date our consolidated financial statements were issued, we believe we were in compliance with all affirmative and negative covenants.

Guarantees and Security

The obligations under the 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 Credit Facility. In addition, INVH may be required to provide a guarantee of the Credit Facility under certain circumstances, including if INVH does not maintain its qualification as a REIT.

The 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 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 $230.0 million in aggregate principal amount of 3.00% convertible senior notes due 2019 (the “2019 Convertible Notes”). Interest on the 2019 Convertible Notes is payable semiannually in arrears on January 1st and July 1st of each year. The 2019 Convertible Notes will mature on July 1, 2019. On December 28, 2018, we notified note holders of our intent to settle conversions of the 2019 Convertible Notes in shares of 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 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 summarizes the terms of the Convertible Senior Notes outstanding as of December 31, 2018 and 2017:

															Principal Amount
($ in thousands)		Coupon Rate			Effective Rate(1)			Conversion Rate(2)			Maturity Date		Remaining Amortization Period		December 31, 2018				December 31, 2017
2019 Convertible Notes		3.00	%		4.92	%		54.0017			7/1/2019		0.50 years		$	229,993			$	230,000
2022 Convertible Notes		3.50	%		5.12	%		43.7694			1/15/2022		3.04 years		345,000				345,000
Total															574,993				575,000
Net unamortized fair value adjustment															(17,692		)		(26,464		)
Total															$	557,301			$	548,536

(1)	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)

We generally have the option to settle any conversions in cash, common stock or a combination thereof. The conversion rate represents the number of shares of common stock issuable per $1,000 principal amount (actual $) of Convertible Senior Notes converted as of December 31, 2018, as adjusted in accordance with the applicable indentures as a result of cash dividend payments and the effects of the Mergers. The Convertible Senior Notes do not meet the criteria for conversion as of December 31, 2018.

Terms of Conversion

As of December 31, 2018, the conversion rate applicable to the 2019 Convertible Notes is 54.0017 shares of our common stock per $1,000 principal amount (actual $) of the 2019 Convertible Notes (equivalent to a conversion price of approximately $18.52 per common share — actual $). The conversion rate for the 2019 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 2019 Convertible Notes in connection with such an event in certain circumstances. At any time prior to January 1, 2019, holders were able to convert the 2019 Convertible Notes at their option only under specific circumstances as defined in the indenture agreement, dated as of July 7, 2014, between us and our trustee, Wilmington Trust, National Association (“the Convertible Notes Trustee”). As a result of the completion of the Mergers, the 2019 Convertible Notes were convertible for a 35 trading day period, which expired January 8, 2018. On or after January 1, 2019 and until maturity, holders may convert all or any portion of the 2019 Convertible Notes at any time. 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 “if-converted” value of the 2019 Convertible Notes exceeded their principal amount by $19.4 million as of December 31, 2018 as the closing market price of the Company’s common stock of $20.08 per share exceeded the implicit conversion price. For the years ended December 31, 2018 and 2017, interest expense for the 2019 Convertible Notes, including non-cash amortization of discounts, was $11.1 million and $1.4 million, respectively.

As of December 31, 2018, 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 the Convertible Notes Trustee. As a result of the completion of the Mergers, the 2022 Convertible Notes were convertible for a 35 trading day period, which expired January 8, 2018. 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 was less than their principal amount by $41.8 million as of December 31, 2018 as the closing market price of the Company’s common stock of $20.08 per share was less than the implicit conversion price. For the years ended December 31, 2018 and 2017, interest expense for the 2022 Convertible Notes, including non-cash amortization of discounts, was $16.7 million and $2.1 million, 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.

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, which are used to hedge the variable cash flows associated with variable-rate interest payments. Certain of the Invitation Homes Partnerships and certain Borrower Entities guaranteed the obligations under each of the interest rate 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 criteria for hedge accounting were met as a result of the Pre-IPO Transactions. At that time, we designated these swaps for hedge accounting purposes. Subsequent to that date, changes in the fair 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.

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 $21.1 million. Over the terms of each of these swaps, an amount equal to the Merger Date fair value will be amortized and recorded as an increase in interest expense and accumulated other comprehensive income.

The table below summarizes our interest rate swap instruments as of December 31, 2018 ($ in thousands):

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
January 10, 2017		January 15, 2018		January 15, 2019		1.58%		One-month LIBOR		550,000
February 23, 2016		March 15, 2018		March 15, 2019		1.10%		One-month LIBOR		800,000
February 23, 2016		March 15, 2018		March 15, 2019		1.06%		One-month LIBOR		800,000
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
March 29, 2017		March 15, 2019		March 15, 2022		2.21%		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

During the years ended December 31, 2018 and 2017, such derivatives were used to hedge the variable cash flows associated with existing variable-rate interest payments. 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 12 months, we estimate that $38.7 million will be reclassified to earnings as a decrease in interest 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. 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 interest 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 counterparties 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 3.00% to 5.12%.

Purchase of Outstanding Debt Securities or Loans

As market conditions warrant, we and our equity investors, 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 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 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

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

The following table summarizes our cash flows for the years ended December 31, 2018 and 2017:

		For the Years Ended December 31,
($ in thousands)		2018				2017				$ Change				% Change
Net cash provided by operating activities		$	561,241			$	262,970			$	298,271			113.4	%
Net cash provided by investing activities		62,993				64,693				(1,700		)		(2.6	)%
Net cash used in financing activities		(680,805		)		(331,312		)		(349,493		)		(105.5	)%
Change in cash, cash equivalents, and restricted cash		$	(56,571	)		$	(3,649	)		$	(52,922	)		N/M

Operating Activities

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 $561.2 million and $263.0 million for the years ended December 31, 2018 and 2017, respectively, an increase of 113.4%. The increase in cash provided by operating activities was

primarily driven by the significant increase in the number of homes owned during the year ended December 31, 2018 compared to the previous year.

Investing Activities

Net cash provided by investing activities primarily consists of the acquisition costs of homes, capital improvements, proceeds from property sales, and the impact of cash acquired in the Mergers. Net cash provided by investing activities was $63.0 million and $64.7 million for the years ended December 31, 2018 and 2017, respectively, a decrease of 2.6%. The slight decrease in net cash provided by investing activities primarily resulted from several factors which offset each other: (1) $203.5 million of cash and restricted cash we acquired as a result of the Mergers during the year ended December 31, 2017; (2) higher acquisition and capital expenditure spend for the year ended December 31, 2018; (3) an increase in proceeds from the sale of homes during the year ended December 31, 2018; and (4) net change in the balance of our investments in debt securities. Acquisition and renovation spend increased $27.0 million due to an increase in the number and costs of homes acquired, from 910 homes during the year ended December 31, 2017 to 938 homes during the year ended December 31, 2018, and the completion of initial renovations for homes acquired prior to December 31, 2017. The $83.2 million increase in other capital expenditures was driven by the significant increase in the number of homes owned during the year ended December 31, 2018 and higher capital expenditures on a per home basis. These changes were partially offset by proceeds from sales of homes that increased $284.7 million from the year ended December 31, 2017 to the year ended December 31, 2018 due to an increase in the average proceeds per home sold and a significant increase in the number of homes sold from 1,308 to 2,701, respectively. Additionally, net cash flows from our purchases of investments in debt securities and receipt of repayment proceeds from investments in debt securities increased by $28.2 million due to refinancing of and prepayments made on the mortgage loans during the year ended December 31, 2018.

Financing Activities

Net cash used in financing activities was $680.8 million and $331.3 million for the years ended December 31, 2018 and 2017, respectively. During the year ended December 31, 2018, proceeds from our IH 2018-1, IH 2018-2, IH 2018-3, and IH 2018-4 mortgage loans of $4,234.5 million, along with proceeds from home sales and operating cash flows, were used to repay $4,579.6 million of our mortgage loans, including full repayment of the CAH 2014-1, CAH 2014-2, CAH 2015-1, CSH 2016-1, IH 2015-1, IH 2015-2, and IH 2015-3 mortgage loans and partial repayments on CSH 2016-2, $35.0 million of our Revolving Facility, to fund $55.7 million of deferred financing costs associated with the IH 2018-1, IH 2018-2, IH 2018-3, and IH 2018-4 mortgage loans, and for dividend payments which totaled $230.1 million. For the year ended December 31, 2017, proceeds from our IPO, Term Loan Facility, Revolving Facility, and the IH 2017-1 and IH 2017-2 mortgage loans of $5,188.5 million, along with proceeds from home sales and, operating cash flows, were used to repay $2,321.6 million of then-outstanding credit facilities and $2,951.0 million of then-outstanding mortgage loans, including full repayment of the IH 2013-1, IH 2014-1, IH 2014-2, and IH 2014-3 mortgage loans, to fund $54.6 million of deferred financing costs associated with the Term Loan Facility, the Revolving Facility, and the IH 2017-1 and IH 2017-2 mortgage loans, and for dividend payments which totaled $69.0 million.

Year Ended December 31, 2017 Compared to Year Ended December 31, 2016

The following table summarizes our cash flows for the years ended December 31, 2017 and 2016:

		For the Years Ended December 31,
($ in thousands)		2017				2016				$ Change				% Change
Net cash provided by operating activities		$	262,970			$	256,054			$	6,916			2.7	%
Net cash provided by (used in) investing activities		64,693				(258,047		)		322,740				125.1	%
Net cash used in financing activities		(331,312		)		(71,788		)		(259,524		)		(361.5	)%
Change in cash and cash equivalents		$	(3,649	)		$	(73,781	)		$	70,132			95.1	%

Operating Activities

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 $263.0 million and $256.1 million for the years ended December 31, 2017 and 2016, respectively, an increase of 2.7%. Cash provided by operating activities included cash from operations of $292.0 million and $256.4 million, and $(29.0) million and $(0.3) million from other changes in operating assets and liabilities, for the years ended December 31, 2017 and 2016, respectively. The increase in cash from operations was primarily attributable to an increase of $100.7 million in net operating income, partially offset by $25.1 million of incremental IPO and merger and transaction-related expenses compared to 2016 and $21.5 million of hurricane related damages recorded in 2017.

Investing Activities

Net cash provided by (used in) investing activities primarily consists of the acquisition costs of homes, capital improvements, proceeds from property sales, and the impact of cash acquired in the Mergers. Net cash provided by (used in) investing activities was $64.7 million and $(258.0) million for the years ended December 31, 2017 and 2016, respectively, leading to an increase in cash provided by investing activities of $322.7 million between the years. The increase was primarily due to the cash and restricted cash we acquired as a result of the Mergers of $203.5 million; and repayment proceeds received from our retained debt securities of $79.3 million. Additionally, there was a decrease in the number of homes acquired, from 1,253 homes during the year ended December 31, 2016 to 910 homes during the year ended December 31, 2017, which resulted in $57.4 million less in acquisition, renovation, and capital expenditure spend. The increase in number of homes sold during 2017 of 1,308 compared to 1,093 homes during the year ended December 31, 2016 resulted in an increase in the amount of proceeds from sale of residential properties of $62.9 million. The changes above were partially offset by an increase in investments in debt securities of $79.1 million resulting from the application of risk retention rules to our IH 2017-1 and IH 2017-2 mortgage loans.

Financing Activities

Net cash used in financing activities was $331.3 million and $71.8 million for the years ended December 31, 2017 and 2016, respectively, or a decrease in cash of $259.5 million. For the year ended December 31, 2017, we received $1,692.1 million in proceeds, net of underwriting discounts, from our IPO, while during the year ended December 31, 2016, equity investors contributed $138.0 million of capital.

During the year ended December 31, 2017, proceeds from our IPO, Term Loan Facility, Revolving Facility, and the IH 2017-1 and IH 2017-2 mortgage loans of $5,188.5 million, along with proceeds from home sales and operating cash flows, were used to repay $2,321.6 million of then-outstanding credit facilities and $2,951.0 million of then-outstanding mortgage loans, including full repayment of the IH1 2013-1, IH1 2014-1, IH 2014-2, and IH1 2014-3 mortgage loans, to fund $54.6 million of deferred financing costs associated with the Term Loan Facility, the Revolving Facility, and the IH 2017-1 and IH 2017-2 mortgage loans, and for dividend payments which totaled $69.0 million. During the year ended December 31, 2016, proceeds from our equity investors and credit facilities of $322.7 million, along with proceeds from operating cash flows, were used to repay $381.1 million of debt.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

Contractual Obligations

Our contractual obligations as of December 31, 2018, consisted of the following:

($ in thousands)		Total				2019				2020-2021				2022-2023				Thereafter
Mortgage loans, net(1)(2)		$	10,101,295			$	292,473			$	1,027,218			$	1,281,047			$	7,500,557
Term Loan Facility, net(1)		1,698,275				63,875				127,925				1,506,475				—
Revolving Facility(1)(2)(3)		11,016				3,549				7,107				360				—
Convertible Senior Notes(4)		615,164				245,518				24,150				345,496				—
Derivative instruments(5)		92,110				3,439				24,346				37,703				26,622
Purchase commitments(6)		12,985				12,985				—				—				—
Operating lease obligations		19,084				4,251				8,700				4,330				1,803
Capital lease obligations		1,707				587				1,082				38				—
Total		$	12,551,636			$	626,677			$	1,220,528			$	3,175,449			$	7,528,982

(1)	Includes estimated interest payments on the respective debt based on amounts outstanding as of December 31, 2018 at rates in effect as of such date; as of December 31, 2018, LIBOR was 2.52%.

(2)	Represents 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 IV. Item 15. “Exhibits and Financial Statement Schedules — Note 6 of Notes to Consolidated Financial Statements” for a description of maturity dates without consideration of extension options.

(3)	Includes the related unused commitment fee.

(4)

Represents the principal amount of the Convertible Senior Notes and interest obligations which are calculated using coupon rates of the Convertible Senior Notes. The 2019 Convertible Notes principal amount of $230.0 million is included in 2019 maturities presented above. On December 28, 2018, we notified note holders of our intent to settle conversions of the 2019 Convertible Notes in shares of common stock.

(5)	Includes interest rate swap and interest rate cap obligations calculated using LIBOR as of December 31, 2018, or 2.52%.

(6)	Represents commitments to acquire 50 single-family rental homes, as of December 31, 2018.

Critical Accounting Policies and Estimates

Our discussion and analysis of our historical financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about the effect of matters that are inherently uncertain and that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could ultimately differ from those estimates. For a discussion of recently-issued and adopted accounting standards, see Part IV. Item 15. “Exhibits and Financial Statement Schedules — Note 2 of Notes to Consolidated Financial Statements.”

Investments in Single-Family Residential Properties

The following significant accounting policies affect the acquisition, disposition, recognition, classification, and fair value measurements (on a nonrecurring basis) related to our portfolio of approximately 80,000 single-family residential properties in 17 markets across the United States. For a complete discussion of our accounting policy and other factors related to each category below, see Part IV. Item 15. “Exhibits and Financial Statement Schedules — Note 2 of Notes to Consolidated Financial Statements.”

•

Acquisition of Real Estate Assets: Our purchases of homes are generally treated as asset acquisitions unless acquired in connection with a business combination. For asset acquisitions, homes are recorded at their purchase price, which is allocated between land, building and improvements, and in-place lease intangibles (when a resident 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, HOA, and other mechanic’s and miscellaneous liens, as well as other closing costs. If the percentage allocated to buildings and improvements versus land for the homes acquired during the year ended December 31, 2018 was increased or decreased by 500 bps, our annualized depreciation expense would have changed by less than $0.5 million.

•

Cost Capitalization: We incur costs to acquire, stabilize, and prepare our single-family residential properties to be leased. We capitalize these costs as a component of our investment in each single-family residential property, using specific identification and relative allocation methodologies. The capitalization period associated with our stabilization activities begins at the time that such activities commence and concludes at the time that a single-family residential property is available to be leased.

Once a property is ready for its intended use, expenditures for ordinary maintenance and repairs thereafter are expensed to operations as incurred, and we capitalize expenditures that improve or extend the life of a home and for certain furniture and fixtures additions.

The capitalized costs are depreciated over their estimated useful lives on a straight-line basis. The weighted average useful lives range from 7 years to 28.5 years. If the useful lives for costs capitalized during the year ended December 31, 2018 were increased or decreased by 10%, our annualized depreciation expense would have changed by approximately $3.0 million.

•

Provisions for Impairment: We continuously evaluate, by property, whether there are any events or changes in circumstances indicating that the carrying amount of our single-family residential properties may not be recoverable. To the extent an event or change in circumstance is identified, a residential property is considered to be impaired only if its carrying value cannot be recovered through estimated future undiscounted cash flows from the use and eventual disposition of the property. To the extent an impairment has occurred, the carrying amount of our investment in a property is adjusted to its estimated fair value. The process whereby we assess our single-family residential properties for impairment requires significant judgment and assessment of factors that are, at times, subject to significant uncertainty. We evaluate multiple information sources and perform a number of internal analyses, each of which are important components of our process with no one information source or analysis being necessarily determinative. For those homes for which a change in an event or circumstance was identified in the most recent impairment analysis, a 5% change in the estimated fair value of those homes may have resulted in a decrease or increase in impairment expense of less than $1.0 million.

•

Single-Family Residential Properties Held for Sale: From time to time, we may identify single-family residential properties to be sold. Once we identify a property to be sold pursuant to GAAP requirements, we discontinue depreciating the property, measure the property at the lower of its carrying amount or its fair value less estimated costs to sell, and present the property separately within other assets, net on our consolidated balance sheets. If market values less disposal costs for our properties that were classified as held for sale as of December 31, 2018 were 10% lower, our impairment expense related to those properties would have increased by approximately $5.0 million. If the market values less disposal costs were 10% higher, our impairment expense would have been approximately $2.0 million lower.

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 in our 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.

We utilize third party specialists who use modeling techniques and assumptions to estimate the fair value of derivative instruments. Assumptions include forward yield curves and nonperformance risk. If interest rates had increased or decreased by 50 bps, the termination value of our net derivative asset/liability would have changed by approximately $160.0 million. As our interest rate swap agreements are designated as hedges, this change would be reflected in other comprehensive income and subsequently reclassified into earnings in the period in which the hedged forecasted transactions affect earnings. Our interest rates caps would not be materially affected.

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 NOI 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 EBITDAre are supplemental, non-GAAP measures often utilized to evaluate the performance of real estate companies. We define EBITDA as net income or loss computed in accordance with 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 in all financial reports for periods beginning after December 31, 2017. We define EBITDAre, consistent with the Nareit definition, as EBITDA, further adjusted for gain / loss 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; merger and transaction-related expenses; severance; casualty losses, net; acquisition costs; 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 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.

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

The following table presents a reconciliation of net loss (as determined in accordance with GAAP) to EBITDA, EBITDAre, and Adjusted EBITDAre for each of the periods indicated:

		For the Years Ended December 31,
($ in thousands)		2018				2017				2016
Net loss available to common stockholders		$	(5,744	)		$	(105,952	)		$	(78,239	)
Net income available to participating securities		817				615				—
Non-controlling interests		(86		)		(489		)		—
Interest expense		383,595				256,970				286,048
Depreciation and amortization		560,541				309,578				267,681
EBITDA		939,123				460,722				475,490
Gain on sale of property, net of tax		(49,682		)		(33,896		)		(18,590		)
Impairment on depreciated real estate investments		6,709				2,231				2,282
EBITDAre		896,150				429,057				459,182
Share-based compensation expense(1)		29,499				81,203				10,210
IPO related expenses		—				8,287				12,979
Merger and transaction-related expenses(2)		16,895				29,802				—
Severance		8,238				12,048				—
Casualty losses, net(3)		14,110				21,862				1,925
Acquisition costs		—				—				50
Other, net(4)		(6,958		)		959				1,508
Adjusted EBITDAre		$	957,934			$	583,218			$	485,854

(1)	For the years ended December 31, 2018, 2017, and 2016, $23,999, $70,906, and $10,014 was recorded in general and administrative expense, respectively, and $5,500, $10,297, and $196 was recorded in property management expense, respectively.

(2)	Includes merger and transaction-related expenses included within general and administrative, but excludes merger and transaction-related expenses included within depreciation and amortization.

(3)	Includes $8,013 and $21,500 for losses/damages related to Hurricanes Irma and Harvey for the years ended December 31, 2018 and 2017, respectively.

(4)	Includes interest income and other miscellaneous income and expenses.

Net Operating Income

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 expense). NOI excludes: interest expense; depreciation and amortization; general and administrative expense; property management expense; impairment and other; acquisition costs; gain on sale of property, net of tax; and interest income and other miscellaneous income and expenses.

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.

The following table presents a reconciliation of net loss (as determined in accordance with GAAP) to NOI for our total portfolio and NOI for our Same Store portfolio for each of the periods indicated:

		For the Years Ended December 31,
($ in thousands)		2018				2017				2016
Net loss available to common stockholders		$	(5,744	)		$	(105,952	)		$	(78,239	)
Net income available to participating securities		817				615				—
Non-controlling interests		(86		)		(489		)		—
Interest expense		383,595				256,970				286,048
Depreciation and amortization		560,541				309,578				267,681
General and administrative(1)		98,764				167,739				69,102
Property management expense(2)		65,485				43,344				30,493
Impairment and other(3)		20,819				24,093				4,207
Acquisition costs		—				—				50
Gain on sale of property, net of tax		(49,682		)		(33,896		)		(18,590		)
Other, net(4)		(6,958		)		959				1,508
NOI (total portfolio)		1,067,551				662,961				$	562,260
Starwood Waypoint Homes NOI(5)		N/A				334,734
Non-Same Store NOI		(152,664		)		(121,026		)
NOI (Same Store portfolio)(6)		$	914,887			$	876,669

(1)	Includes $23,999, $70,906, and $10,014 of share-based compensation expense for the years ended December 31, 2018, 2017, and 2016, respectively.

(2)	Includes $5,500, $10,297, and $196 of share-based compensation expense for the years ended December 31, 2018, 2017, and 2016, respectively.

(3)	Includes $8,013 and $21,500 for losses/damages related to Hurricanes Irma and Harvey for the for the years ended December 31, 2018 and 2017, respectively.

(4)	Includes interest income and other miscellaneous income and expenses.

(5)	Represents NOI generated by SWH prior to its merger with Invitation Homes, expressed using Invitation Homes' definition of NOI.

(6)	The Same Store portfolio (consisting of homes which had commenced their initial post-renovation lease prior to October 1st of the year prior to the first year of the comparison period) totaled 68,880 homes for the years ended December 31, 2018 and 2017.

Funds from Operations, Core Funds from Operations, and Adjusted Funds from Operations

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 Nareit as net income or loss (computed in accordance

with GAAP) excluding 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, gains or losses related to sales of previously depreciated homes, as well non-controlling interests, from net income or 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.

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 provide 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, loan discounts, noncash interest expense for derivatives, share-based compensation expense, IPO related expenses, merger and transaction-related expenses, severance expense, 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, 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.

The following table presents a reconciliation of net loss (as determined in accordance with GAAP) to FFO, Core FFO, and Adjusted FFO for each of the periods indicated:

		For the Years Ended December 31,
(in thousands, except shares and per share data)		2018				2017				2016
Net loss available to common stockholders		$	(5,744	)		$	(105,952	)		$	(78,239	)
Add (deduct) adjustments from net loss to derive FFO:
Net income available to participating securities		817				615				—
Non-controlling interests		(86		)		(489		)		—
Depreciation and amortization on real estate assets		549,505				305,851				263,093
Impairment on depreciated real estate investments		6,709				2,231				2,282
Net gain on sale of previously depreciated investments in real estate		(49,682		)		(33,896		)		(18,590		)
FFO		501,519				168,360				168,546
Noncash interest expense related to amortization of deferred financing costs, loan discounts and noncash interest expense from derivatives		48,354				29,506				59,402
Share-based compensation expense(1)		29,499				81,203				10,210
IPO related expenses		—				8,287				12,979
Merger and transaction-related expenses(2)		22,962				29,802				—
Severance expense		8,238				12,048				2,363
Casualty losses, net(3)		14,110				21,862				1,925
Acquisition costs		—				—				50
Core FFO		624,682				351,068				255,475
Recurring capital expenditures		(122,733		)		(54,423		)		(47,877		)
Adjusted FFO		$	501,949			$	296,645			$	207,598
Net loss available to common stockholders
Weighted average common shares outstanding — diluted(4)(6)(7)(8)		520,376,929				339,423,442
Net loss per common share — diluted(5)(6)(7)(8)		$	(0.01	)		$	(0.26	)
FFO
Numerator for FFO per common share — diluted(6)		$	512,576			$	168,360
Weighted average common shares and OP Units outstanding — diluted(6)(7)(8)		543,063,802				338,933,198
FFO per common share — diluted(6)(7)(8)		$	0.94			$	0.50
Core FFO and Adjusted FFO
Weighted average common shares and OP Units outstanding — diluted(6)(7)(8)		530,643,789				338,933,198
Core FFO per common share — diluted(6)(7)(8)		$	1.18			$	1.04
AFFO per common share — diluted(6)(7)(8)		$	0.95			$	0.88

(1)	For the years ended December 31, 2018, 2017, and 2016, $23,999, $70,906, and $10,014 was recorded in general and administrative expense, respectively, and $5,500, $10,297, and $196 was recorded in property management expense, respectively.

(2)	Includes merger and transaction-related expenses included within general and administrative and accelerated depreciation and amortization of certain corporate assets included in depreciation and amortization.

(3)	Includes $8,013 and $21,500 for losses/damages related to Hurricanes Irma and Harvey for the years ended December 31, 2018 and 2017, respectively.

(4)

Weighted average common shares outstanding — diluted is calculated in accordance with GAAP and is used in the calculation of net loss per common share — diluted. As we had a net loss for the periods above, the inclusion of incremental shares would be anti-dilutive for purposes of computing net loss per common share — diluted. See Part IV. Item 15. “Exhibits and Financial Statement Schedules — Note 12 of Notes to Consolidated Financial Statements” for a complete description of this calculation.

(5)

Net loss per common share — diluted is calculated based on net loss available to common stockholders for only the period after February 1, 2017, the date on which our common stock began trading on the NYSE. For the period from February 1, 2017 through December 31, 2017, we had a net loss available to common stockholders of $89,073. See Part IV. Item 15. “Exhibits and Financial Statement Schedules — Note 12 of Notes to Consolidated Financial Statements.”

(6)

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 2019 Convertible Notes have no impact on net loss per common share — diluted as inclusion of the contingently issuable shares of common stock would be anti-dilutive to such computation for the year ended December 31, 2018, 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 year ended December 31, 2018, the numerator for FFO per common share — diluted is adjusted for interest expense on the 2019 Convertible Notes of $11,057, including non-cash amortization of discounts. The denominator is adjusted for 12,420,013 potential shares of common stock contingently issuable 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 year ended December 31, 2018, 15,100,443 potential shares of common stock contingently issuable upon the conversion of the 2022 Convertible Notes are also excluded from the computation of net loss, FFO, Core FFO, and AFFO per common share — diluted.

(7)

Incremental shares attributed to non-vested RSUs and RSAs do not impact the denominator for net loss per common share — diluted since we had a net loss for the periods above and inclusion of such incremental shares would be anti-dilutive to such computation. Common share equivalents of 1,150,384 and 786,791 for the years ended December 31, 2018 and 2017, respectively, related to incremental shares attributed to non-vested RSUs and RSAs are included in the denominator for the computations of FFO, Core FFO, and AFFO per common share — diluted.

(8)

Units of partnership interests in INVH LP (“OP Units”) have been excluded from the computation of net loss per common share — diluted for the periods above because all loss attributable to the OP Units has been recorded as non-controlling interest and thus excluded from net loss available to common stockholders. OP Units of 9,116,476 and 1,189,902 for the years ended December 31, 2018 and 2017, respectively, are included in the denominator for the computations of FFO, Core FFO, and AFFO per common share — diluted.