Item 16. FORM 10-K SUMMARY

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Dallas, Texas, on the 19th day of February 2020.

Invitation Homes Inc.
By:	/s/ Dallas B. Tanner
	Name: Dallas B. Tanner
	Title: President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons in the capacities indicated on the 19th day of February 2020.

Signature		Title
/s/ Dallas B. Tanner		President, Chief Executive Officer, and Director
Dallas B. Tanner		(Principal Executive Officer)
/s/ Ernest M. Freedman		Executive Vice President and Chief Financial Officer
Ernest M. Freedman		(Principal Financial Officer)
/s/ Kimberly K. Norrell		Senior Vice President and Chief Accounting Officer
Kimberly K. Norrell		(Principal Accounting Officer)
/s/ Bryce Blair		Chairman and Director
Bryce Blair
/s/ Jana C. Barbe		Director
Jana C. Barbe
/s/ Richard D. Bronson		Director
Richard D. Bronson
/s/ Kenneth A. Caplan		Director
Kenneth A. Caplan
/s/ Michael D. Fascitelli		Director
Michael D. Fascitelli

Signature		Title
/s/ Robert G. Harper		Director
Robert G. Harper
/s/ Jeffrey E. Kelter		Director
Jeffrey E. Kelter
/s/ John B. Rhea		Director
John B. Rhea
/s/ Janice L. Sears		Director
Janice L. Sears
/s/ William J. Stein		Director
William J. Stein
/s/ Barry S. Sternlicht		Director
Barry S. Sternlicht

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Invitation Homes Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Invitation Homes Inc. and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, other comprehensive income (loss), equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 19, 2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

F-1

Investments in Single-Family Residential Properties**—**Refer to Notes 2 and 3 to the financial statements

Critical Audit Matter Description

The Company owned approximately 80,000 individual single-family residential properties with a net book value of $16.2 billion as of December 31, 2019. The Company capitalizes costs to acquire, stabilize, and prepare single-family residential properties to be leased. The determination of which costs to capitalize, the useful life of the respective capitalized cost, and the classification of assets as held for sale and held for use requires significant management judgment. Furthermore, the Company evaluates investments in single-family residential properties to determine whether there have been any changes in circumstances that may indicate that the carrying value of individual properties may not be recoverable.

Given management’s (1) inputs and assumptions used to determine purchase price allocation based upon the relative fair values of asset components, (2) determination of which costs improve or extend the life of a property, (3) evaluation of single-family residential properties for impairment which requires significant judgment and assessment of factors that are, at times, subject to significant uncertainty, and (4) application of held for sale classification criteria, performing audit procedures to evaluate the accounting for investments in single-family residential properties was challenging and required an increased extent of audit effort.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to whether the investments in single-family residential properties were accounted for appropriately included the following, among others:

•	We tested the effectiveness of relevant controls over investments in single-family residential properties.

•	We selected a sample of properties acquired during the year and evaluated the accuracy of the amounts recorded and appropriate transfer of title.

•	We evaluated the appropriateness of management’s allocation of the initial purchase price for newly acquired properties by developing independent estimates for the purchase price allocation for each residential market in which the properties were acquired and comparing our estimates to the Company’s actual allocation.

•	We selected a sample of costs capitalized during the year and evaluated the accuracy and classification of the recorded amounts. We also evaluated repairs and maintenance costs that were charged to expense.

•	We evaluated management’s analysis of possible impairment indicators for properties by independently assessing trends in the residential markets in which the Company has significant investments in single-family residential properties, trends in gains or losses on sales of properties, and macroeconomic data to identify any indicators that the carrying value of properties may not be recoverable.

•	We selected a sample of properties classified as held for sale and evaluated whether the properties met the criteria to be classified as held for sale as of December 31, 2019. We also selected a sample of properties sold after December 31, 2019 and evaluated whether each property was properly classified as either held for sale or held for use as of December 31, 2019.

•	We selected a sample of properties disposed during the year and evaluated the terms and conditions of the sales contracts to assess whether the sale was properly recorded, including the removal of assets from the accounting records and related gain or loss on sale.

Derivative Instruments**—**Refer to Notes 2, 7, and 11 to the financial statements

Critical Audit Matter Description

The Company uses derivative instruments to manage the economic risk of changes in interest rates. As of December 31, 2019, the Company had derivative instruments of $1.6 million recorded at fair value in other assets and derivative instruments of $275.7 million recorded at fair value in other liabilities.

Given the judgment needed to estimate the fair value of derivative instruments, and the volatility of the fair value based on market conditions, auditing the fair value and related inputs, such as forward yield curves and nonperformance risk, involved especially subjective and complex judgment.

F-2

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the assumptions used by management to estimate the fair value of derivative instruments included the following, among others:

•	We tested the effectiveness of relevant controls, including management’s evaluation of its third party fair value specialist and the results of such specialist’s work.

•	With the assistance of our fair value specialists, we evaluated the appropriateness of management’s valuation of derivative instruments by developing independent fair value estimates for a sample of instruments and comparing our estimates to the Company’s estimates.

/s/ Deloitte & Touche LLP

Dallas, Texas

February 19, 2020

We have served as the Company’s auditor since 2013.

F-3

INVITATION HOMES INC.

CONSOLIDATED BALANCE SHEETS

As of December 31, 2019 and 2018

(in thousands, except shares and per share data)

		2019				2018
Assets:
Investments in single-family residential properties:
Land		$	4,499,346			$	4,561,441
Building and improvements		13,747,818				13,668,533
		18,247,164				18,229,974
Less: accumulated depreciation		(2,003,972		)		(1,543,914		)
Investments in single-family residential properties, net		16,243,192				16,686,060
Cash and cash equivalents		92,258				144,940
Restricted cash		193,987				215,051
Goodwill		258,207				258,207
Other assets, net		605,266				759,170
Total assets		$	17,392,910			$	18,063,428
Liabilities:
Mortgage loans, net		$	6,238,461			$	7,201,654
Secured term loan, net		400,978				—
Term loan facility, net		1,493,747				1,490,860
Revolving facility		—				—
Convertible senior notes, net		334,299				557,301
Accounts payable and accrued expenses		186,110				169,603
Resident security deposits		147,787				148,995
Other liabilities		325,450				125,829
Total liabilities		9,126,832				9,694,242
Commitments and contingencies (Note 14)
Equity:
Stockholders' equity
Preferred stock, $0.01 par value per share, 900,000,000 shares authorized, none outstanding as of December 31, 2019 and 2018		—				—
Common stock, $0.01 par value per share, 9,000,000,000 shares authorized, 541,642,725 and 520,647,977 outstanding as of December 31, 2019 and 2018, respectively		5,416				5,206
Additional paid-in capital		9,010,194				8,629,462
Accumulated deficit		(524,588		)		(392,594		)
Accumulated other comprehensive loss		(276,600		)		(12,963		)
Total stockholders' equity		8,214,422				8,229,111
Non-controlling interests		51,656				140,075
Total equity		8,266,078				8,369,186
Total liabilities and equity		$	17,392,910			$	18,063,428

The accompanying notes are an integral part of these consolidated financial statements.

F-4

INVITATION HOMES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except shares and per share data)

		For the Years Ended December 31,
		2019				2018				2017
Rental revenues and other property income		$	1,764,685			$	1,722,962			$	1,054,456
Expenses:
Property operating and maintenance		669,987				655,411				391,495
Property management expense		61,614				65,485				43,344
General and administrative		74,274				98,764				167,739
Interest expense		367,173				383,595				256,970
Depreciation and amortization		533,719				560,541				309,578
Impairment and other		18,743				20,819				24,093
Total expenses		1,725,510				1,784,615				1,193,219
Other, net		11,600				6,958				(959		)
Gain on sale of property, net of tax		96,336				49,682				33,896
Net income (loss)		147,111				(5,013		)		(105,826		)
Net (income) loss attributable to non-controlling interests		(1,648		)		86				489
Net income (loss) attributable to common stockholders		$	145,463			$	(4,927	)		$	(105,337	)
		For the Year Ended December 31, 2019				For the Year Ended December 31, 2018				February 1, 2017 through December 31, 2017
Net income (loss) available to common stockholders — basic and diluted (Note 12)		$	145,068			$	(5,744	)		$	(89,073	)
Weighted average common shares outstanding — basic		531,235,962				520,376,929				339,423,442
Weighted average common shares outstanding — diluted		532,499,787				520,376,929				339,423,442
Net income (loss) per common share — basic		$	0.27			$	(0.01	)		$	(0.26	)
Net income (loss) per common share — diluted		$	0.27			$	(0.01	)		$	(0.26	)

The accompanying notes are an integral part of these consolidated financial statements.

F-5

INVITATION HOMES INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

		For the Years Ended December 31,
		2019				2018				2017
Net income (loss)		$	147,111			$	(5,013	)		$	(105,826	)
Other comprehensive income (loss)
Unrealized gains (losses) on interest rate swaps		(244,126		)		(43,211		)		31,636
(Gains) losses from interest rate swaps reclassified into earnings from accumulated other comprehensive income (loss)		(20,763		)		(18,627		)		16,708
Other comprehensive income (loss)		(264,889		)		(61,838		)		48,344
Comprehensive loss		(117,778		)		(66,851		)		(57,482		)
Comprehensive loss attributable to non-controlling interests		1,884				1,150				30
Comprehensive loss attributable to common stockholders		$	(115,894	)		$	(65,701	)		$	(57,452	)

The accompanying notes are an integral part of these consolidated financial statements.

F-6

INVITATION HOMES INC.

CONSOLIDATED STATEMENTS OF EQUITY

For the Years Ended December 31, 2019, 2018, and 2017

(in thousands, except share and per share data)

						Common Stock
		Combined Equity				Number of Shares			Amount				Additional Paid-in Capital				Accumulated Deficit				Accumulated Other Comprehensive Loss				Total Stockholders' Equity				Non-Controlling Interests				Total Equity
Balance as of December 31, 2016		$	1,957,423			—			$	—			$	—			$	—			$	—			$	1,957,423			$	—			$	1,957,423
Net loss		(16,879		)		—			—				—				—				—				(16,879		)		—				(16,879		)
Redemption of Series A Preferred Stock		(1,153		)		—			—				—				—				—				(1,153		)		—				(1,153		)
Distribution of Class B notes receivable		(19,686		)		—			—				—				—				—				(19,686		)		—				(19,686		)
Cancellation/distribution of Class B notes receivable		19,686				—			—				—				—				—				19,686				—				19,686
Share-based compensation expense		12,001				—			—				—				—				—				12,001				—				12,001
Accrued interest on Class B notes		15				—			—				—				—				—				15				—				15
Balance as of January 31, 2017		1,951,407				—			—				—				—				—				1,951,407				—				1,951,407
Pre-IPO reorganization transactions		(1,951,407		)		221,826,634			2,218				1,949,189				—				—				—				—				—
Issuance of common stock — IPO		—				88,550,000			886				1,691,172				—				—				1,692,058				—				1,692,058
Stock issuance costs — IPO		—				—			—				(5,726		)		—				—				(5,726		)		—				(5,726		)
Issuance of common stock and INVH LP units — Mergers		—				207,448,958			2,075				4,918,459				—				—				4,920,534				151,881				5,072,415
Stock issuance costs — Mergers		—				—			—				(3,796		)		—				—				(3,796		)		—				(3,796		)
Capital distributions		—				—			—				—				—				—				—				(61		)		(61		)
Net loss		—				—			—				—				(88,458		)		—				(88,458		)		(489		)		(88,947		)
Dividends and dividend equivalents declared ($0.22 per share)		—				—			—				—				(69,137		)		—				(69,137		)		—				(69,137		)
Issuance of common stock — settlement of RSUs, net of tax		—				1,347,550			13				(15,897		)		—				—				(15,884		)		—				(15,884		)
Share-based compensation expense		—				—			—				69,202				—				—				69,202				—				69,202
Total other comprehensive income		—				—			—				—				—				47,885				47,885				459				48,344
Balance as of December 31, 2017		—				519,173,142			5,192				8,602,603				(157,595		)		47,885				8,498,085				151,790				8,649,875
Capital distributions		—				—			—				—				—				—				—				(4,020		)		(4,020		)
Net loss		—				—			—				—				(4,927		)		—				(4,927		)		(86		)		(5,013		)
Dividends and dividend equivalents declared ($0.44 per share)		—				—			—				—				(230,072		)		—				(230,072		)		—				(230,072		)
Issuance of common stock — settlement of RSUs, net of tax		—				1,069,798			10				(9,255		)		—				—				(9,245		)		—				(9,245		)
Share-based compensation expense		—				—			—				29,499				—				—				29,499				—				29,499
Total other comprehensive income		—				—			—				—				—				(60,774		)		(60,774		)		(1,064		)		(61,838		)
Redemption of OP Units for common stock		—				405,037			4				6,615				—				(74		)		6,545				(6,545		)		—
Balance as of December 31, 2018		—				520,647,977			5,206				8,629,462				(392,594		)		(12,963		)		8,229,111				140,075				8,369,186
Capital distributions		—				—			—				—				—				—				—				(3,074		)		(3,074		)
Net income		—				—			—				—				145,463				—				145,463				1,648				147,111
Dividends and dividend equivalents declared ($0.52 per share)		—				—			—				—				(277,457		)		—				(277,457		)		—				(277,457		)
Issuance of common stock — settlement of RSUs, net of tax		—				910,452			9				(8,173		)		—				—				(8,164		)		—				(8,164		)
Issuance of common stock — settlement of 2019 Convertible Notes						12,553,864			126				229,818				—				—				229,944				—				229,944
Issuance of common stock, net						1,957,139			20				55,243				—				—				55,263				—				55,263
Share-based compensation expense		—				—			—				16,724				—				—				16,724				1,434				18,158
Total other comprehensive loss		—				—			—				—				—				(261,357		)		(261,357		)		(3,532		)		(264,889		)
Redemption of OP Units for common stock		—				5,573,293			55				87,120				—				(2,280		)		84,895				(84,895		)		—
Balance as of December 31, 2019		—				541,642,725			$	5,416			$	9,010,194			$	(524,588	)		$	(276,600	)		$	8,214,422			$	51,656			$	8,266,078

The accompanying notes are an integral part of these consolidated financial statements.

F-7

INVITATION HOMES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

		For the Years Ended December 31,
		2019				2018				2017
Operating Activities:
Net income (loss)		$	147,111			$	(5,013	)		$	(105,826	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		533,719				560,541				309,578
Share-based compensation expense		18,158				29,499				81,203
Amortization of deferred leasing costs		10,621				11,258				12,143
Amortization of deferred financing costs		39,259				27,191				22,271
Amortization of debt discounts		7,343				9,124				1,390
Provisions for impairment		14,210				6,709				2,231
Gain on sale of property, net of tax		(96,336		)		(49,682		)		(33,896		)
Change in fair value of derivative instruments		1,913				12,039				5,845
Other noncash amounts included in net income (loss)		(6,569		)		6,342				(2,940		)
Changes in operating assets and liabilities:
Other assets, net		(10,890		)		(14,083		)		(10,605		)
Accounts payable and accrued expenses		5,207				(26,643		)		(10,294		)
Resident security deposits		(1,208		)		2,306				3,281
Other liabilities		(408		)		(8,347		)		(11,411		)
Net cash provided by operating activities		662,130				561,241				262,970
Investing Activities:
Cash and restricted cash acquired in the Mergers (Note 15)		—				—				203,508
Amounts deposited and held by others		(395		)		9,074				2,513
Acquisition of single-family residential properties		(586,075		)		(252,391		)		(228,499		)
Initial renovations to single-family residential properties		(57,437		)		(45,733		)		(42,625		)
Other capital expenditures for single-family residential properties		(164,244		)		(141,688		)		(58,456		)
Proceeds from sale of single-family residential properties		855,583				490,699				205,980
Purchases of investments in debt securities		—				(211,737		)		(95,174		)
Repayment proceeds from retained debt securities		49,960				224,035				79,292
Other investing activities		4,834				(9,266		)		(1,846		)
Net cash provided by investing activities		102,226				62,993				64,693
Financing Activities:
Proceeds from IPO, net of underwriting discounts		—				—				1,692,058
IPO costs paid		—				—				(2,757		)
Merger costs paid		—				—				(3,796		)
Payment of dividends and dividend equivalents		(276,681		)		(230,072		)		(68,997		)
Distributions to non-controlling interests		(3,074		)		(4,020		)		(61		)
Payment of taxes related to net share settlement of RSUs		(8,164		)		(9,245		)		(15,884		)
Payments on credit facilities		—				—				(2,321,585		)
Proceeds from mortgage loans		—				4,234,483				1,861,447
Payments on mortgage loans		(997,421		)		(4,579,594		)		(2,951,008		)

F-8

INVITATION HOMES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)

		For the Years Ended December 31,
		2019				2018				2017
Proceeds from secured term loan		403,464				—				—
Proceeds from term loan facility		—				—				1,500,000
Proceeds from revolving facility		485,000				285,000				135,000
Payments on revolving facility		(485,000		)		(320,000		)		(100,000		)
Proceeds from issuance of common stock, net		55,263				—				—
Deferred financing costs paid		(2,613		)		(55,681		)		(54,576		)
Other financing activities		(8,876		)		(1,676		)		(1,153		)
Net cash used in financing activities		(838,102		)		(680,805		)		(331,312		)
Change in cash, cash equivalents, and restricted cash		(73,746		)		(56,571		)		(3,649		)
Cash, cash equivalents, and restricted cash, beginning of period (Note 4)		359,991				416,562				420,211
Cash, cash equivalents, and restricted cash, end of period (Note 4)		$	286,245			$	359,991			$	416,562
Supplemental cash flow disclosures:
Interest paid, net of amounts capitalized		$	322,085			$	335,973			$	226,306
Cash paid for income taxes		2,781				2,069				2,525
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		5,365				N/A				N/A
Noncash investing and financing activities:
Accrued renovation improvements at period end		$	13,382			$	7,189			$	8,715
Accrued residential property capital improvements at period end		11,520				7,189				7,282
Transfer of residential property, net to other assets, net for held for sale assets		545,448				441,005				76,801
Reclassification of IPO costs from other assets to additional paid-in capital		—				—				2,969
Change in other comprehensive income (loss) from cash flow hedges		(266,676		)		(73,242		)		46,624
ROU assets obtained in exchange for operating lease liabilities		1,721				N/A				N/A
Capital leases		N/A				2,209				—
Net settlement of 2019 Convertible Notes in shares of common stock		229,944				—				—

The accompanying notes are an integral part of these consolidated financial statements.

F-9

INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

Note 1**—**Organization and Formation

Invitation Homes Inc. (“INVH”), a real estate investment trust (“REIT”), conducts its operations through Invitation Homes Operating Partnership LP (“INVH LP”). INVH LP was formed for the purpose of owning, renovating, leasing, and operating single-family residential properties. Through THR Property Management L.P., a wholly owned subsidiary of INVH LP (the “Manager”), we provide all management and other administrative services with respect to the properties we own.

Prior to our initial public offering (“IPO”), we conducted our business through a combination of entities (the “Invitation Homes Partnerships”) formed by Blackstone Real Estate Partners VII L.P. (“BREP VII”), an investment fund sponsored by The Blackstone Group L.P., along with BREP VII’s affiliated side-by-side funds and co-investment vehicles (“BREP VII and Affiliates”). During this time, the Invitation Homes Partnerships and INVH LP were under the common control of BREP VII and Affiliates. BREP VII and Affiliates had the ability to control each of the Invitation Homes Partnerships and manage and operate the Invitation Homes Partnerships through the Manager and a common board of directors. As such, prior to the IPO our historical financial statements include assets, liabilities, and results of operations of INVH LP and the Invitation Homes Partnerships and their consolidated subsidiaries on a combined and consolidated basis.

In preparation for our IPO, INVH was incorporated in the State of Delaware on October 4, 2016. From inception through the date of the IPO, INVH did not engage in any business or activity. Additionally, INVH LP and its general partner Invitation Homes OP GP LLC (the “OP General Partner”) were formed on December 14, 2016, and INVH LP began negotiating and entering into certain debt and hedge instruments upon its inception in anticipation of our IPO.

On February 6, 2017, INVH completed the IPO, changed its jurisdiction of incorporation to Maryland, and amended its charter to provide for the issuance of up to 9,000,000,000 shares of common stock and 900,000,000 shares of preferred stock, $0.01 par value per share. In connection with certain pre-IPO reorganization transactions, INVH LP became (1) owned by INVH directly and through INVH’s wholly owned subsidiary, the OP General Partner, and (2) the owner of all of the assets, liabilities, and operations of the Invitation Homes Partnerships. These transactions were accounted for as a reorganization of entities under common control utilizing historical cost basis.

Our organizational structure includes several wholly owned subsidiaries of INVH LP that were formed to facilitate certain of our financing arrangements (the “Borrower Entities”). These Borrower Entities are used to align the ownership of our single-family residential properties with certain of our debt instruments. Collateral for certain of our individual debt instruments may be in the form of equity interests in the Borrower Entities or in pools of single-family residential properties owned either directly by the Borrower Entities or indirectly by their wholly owned subsidiaries (see Note 6).

References to “Invitation Homes,” the “Company,” “we,” “our,” and “us” refer, collectively, to INVH, INVH LP, and the consolidated subsidiaries of INVH LP. References to “SWH” refer to Starwood Waypoint Homes and its subsidiaries.

Merger with Starwood Waypoint Homes

On November 16, 2017 (the “Merger Date”), INVH, INVH LP, IH Merger Sub, LLC, a Delaware limited liability company and direct wholly owned subsidiary of INVH, SWH, and Starwood Waypoint Homes Partnership, L.P., a Delaware limited partnership and a subsidiary of SWH, (“SWH Partnership”) effectuated a series of transactions which resulted in SWH and SWH Partnership being merged into INVH and INVH LP, respectively, with INVH and INVH LP being the surviving entities (the “Mergers”).

In connection with the Mergers, each outstanding SWH common share was converted into shares of our common stock and each outstanding unit of SWH Partnership was converted into common units of limited partnership interests in INVH LP. Our limited partnership interests consist of the aforementioned common units and other classes of limited partnership interests that may be issued (the “OP Units”). As of December 31, 2019, INVH owns a 99.4% partnership interest in INVH LP and has the full, exclusive, and complete responsibility for and discretion over the day to day management and control of INVH LP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

Note 2**—**Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the rules and regulations of the Securities and Exchange Commission. Subsequent to the date of the pre-IPO reorganization transactions, these consolidated financial statements include the accounts of INVH and its consolidated subsidiaries. Prior to the date of the pre-IPO reorganization transactions, these consolidated financial statements include the combined accounts of INVH LP and the Invitation Homes Partnerships and their wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in the consolidated financial statements.

We consolidate entities when we own, directly or indirectly, a majority interest in the entity or are otherwise able to control the entity. We consolidate variable interest entities (“VIEs”) in accordance with Accounting Standards Codification (“ASC”) 810, Consolidation, if we are the primary beneficiary of the VIE as determined by our power to direct the VIE’s activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE. A VIE is broadly defined as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights.

As described in Note 5, as a result of the Mergers we acquired an investment in a joint venture with the Federal National Mortgage Association (“FNMA”), which is a voting interest entity. We do not hold a controlling financial interest in the joint venture but have significant influence over its operating and financial policies. Additionally, FNMA holds certain substantive participating rights that preclude the presumption of control by us; as such, we account for our investment using the equity method. In connection with the Mergers, we initially recorded this investment at fair value in connection with purchase accounting as described in Note 15 and have subsequently adjusted for our proportionate share of net earnings or losses and other comprehensive income or loss, cash contributions made and distributions received, and other adjustments, as appropriate. Distributions of operating profit from the joint venture are reported as part of operating cash flows while distributions related to a capital transaction, such as a refinancing transaction or sale, are reported as investing activities in our consolidated statements of cash flows.

Non-controlling interests represent the OP Units held by a third party at the Merger Date and any vested OP Units granted in connection with certain share-based compensation awards. Non-controlling interests are presented as a separate component of equity on the consolidated balance sheets as of December 31, 2019 and 2018, and the consolidated statements of operations for the years ended December 31, 2019, 2018, and 2017 include an allocation of the net income (loss) attributable to the non-controlling interest holders. Vested OP Units are redeemable for shares of our common stock on a one-for-one basis or, in our sole discretion, cash, and redemptions of OP Units are accounted for as a reduction in non-controlling interests with an offset to stockholders’ equity based on the pro rata number of OP Units redeemed.

Adoption of New Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), (the “New Lease Standard”), which requires lessees to recognize assets and liabilities on the balance sheets for the rights and obligations created by all leases with terms of more than one year. Lessor accounting remains similar to previous GAAP, while aligning with ASC 606, Revenue from Contracts with Customers (“ASC 606”).

We adopted the New Lease Standard using the optional transition approach as of January 1, 2019. As such, previously reported financial information was not updated, and additional disclosures required under the New Lease Standard are not provided for periods prior to January 1, 2019. Additionally, we elected the practical expedient package related to lease identification, lease classification, and initial direct costs. As such, we have not reassessed our existing contracts and leases for these items. We did not elect the hindsight practical expedient, which permits entities to use hindsight in determining lease term and assessing impairment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

As a lessor, our leases with residents are classified as operating leases under the New Lease Standard, and thus the pattern of recognition of rental revenue and other property income remains unchanged from previous lease accounting guidance as adjusted by ASC 606. Rental revenues and other property income are recorded net of any concessions and uncollectible amounts for all periods presented.

As a lessee, adoption of the New Lease Standard resulted in the recognition of right-of-use (“ROU”) assets and lease liabilities for operating leases on our consolidated balance sheet; however, our accounting for finance leases remains substantially unchanged. On January 1, 2019, we recorded the cumulative effect of adoption of the New Lease Standard on our consolidated balance sheet which resulted in an increase in other assets and other liabilities of $14,118 and $14,118, respectively.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which changes the fair value disclosure requirements for certain financial instruments. This guidance reduces the need for certain disclosure language related to our Level 3 financial instruments and adds additional disclosure requirements for significant unobservable inputs used in the calculation of fair values of Level 3 financial instruments. We adopted this standard as of October 1, 2019, and it did not have a material impact on our consolidated financial statements.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. These estimates are inherently subjective in nature and actual results could differ from those estimates.

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 16 markets across the United States as of December 31, 2019:

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Acquisition of Real Estate Assets: Upon acquisition, we evaluate our acquired single-family residential properties for purposes of determining whether a transaction should be accounted for as an asset acquisition or business combination. Upon adoption of ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, our purchases of homes are treated as asset acquisitions and 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, homeowners’ association (“HOA”), and other mechanic’s and miscellaneous liens, as well as other closing costs. Properties acquired in the Mergers were recorded at fair value. The fair values of acquired in-place lease intangibles, if any, are based on the costs to execute similar leases, including commissions and other related costs. The origination value of in-place lease intangibles also includes an estimate of lost rent revenue at in-place rental rates during the estimated time required to lease the property. In-place lease intangibles are amortized over the life of the leases and are recorded in other assets, net in our consolidated balance sheets.

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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, including renovation costs and other costs associated with activities that are directly related to preparing our properties for use as rental real estate. Other costs include interest costs, property taxes, property insurance, utilities, HOA fees, and a portion of the salaries and benefits of the Manager’s employees who are directly responsible for the execution of our stabilization activities. 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, a portion of the salaries and benefits of the Manager’s employees who are directly responsible for such improvements,

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(dollar amounts in thousands)

and for certain furniture and fixtures additions. The determination of which costs to capitalize requires significant judgment. Accordingly, many factors are considered as part of our evaluation processes with no one factor necessarily determinative.

•

Depreciation: Costs capitalized in connection with single-family residential property acquisitions, stabilization activities, and on an ongoing basis are depreciated over their estimated useful lives on a straight-line basis. The depreciation period commences upon the completion of stabilization-related activities or upon the completion of improvements made on an ongoing basis. For those costs capitalized in connection with residential property acquisitions and stabilization activities and those capitalized on an ongoing basis, the weighted average useful lives range from 7 years to 28.5 years.

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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. Examples of such events and changes in circumstances that we consider include significant and persistent declines in an individual property’s net operating income, regional changes in home price appreciation as measured by certain independently developed indices, change in expected use of the property, significant adverse legal factors, substantive damage to the individual property as a result of natural disasters and other risks inherent in our business not covered by insurance proceeds, or a current expectation that a property will be disposed of prior to the end of its estimated useful life.

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. Cash flow projections are prepared using internal analyses based on current rental, renewal, and occupancy rates, operating expenses, and inputs from our annual planning process that give consideration to each property’s historical results, current operating trends, and current market conditions. To the extent an impairment has occurred, the carrying amount of our investment in a property is adjusted to its estimated fair value. To determine the estimated fair value, we consider local broker price opinions (“BPOs”) and automated valuation model (“AVM”) data, each of which are important components of our process with no one information source being necessarily determinative. In order to validate the BPOs and AVM data received and used in our assessment of fair value of real estate, we perform an internal review to determine if an acceptable valuation approach was used to estimate fair value in compliance with guidance provided by ASC 820, Fair Value Measurements. Additionally, we undertake an internal review to assess the relevance and appropriateness of comparable transactions that have been used, and any adjustments to comparable transactions made, in reaching the value opinions.

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.

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Single-Family Residential Properties Held for Sale: From time to time, we may identify single-family residential properties to be sold. At the time that any such properties are identified, we perform an evaluation to determine whether or not such properties should be classified as held for sale in accordance with GAAP. Factors considered as part of our held for sale evaluation process include whether the following conditions have been met: (i) we have committed to a plan to sell a property; (ii) the property is immediately available for sale in its present condition; (iii) an active program to locate a buyer and other actions required to complete the plan to sell a property have been initiated; (iv) the sale of a property is probable within one year (generally determined based upon listing for sale); (v) the property is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (vi) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. To the extent that these factors are all present, we cease 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. As of December 31, 2019 and 2018, we classified $116,529 and $154,077, respectively, as held for sale assets in our consolidated balance sheets (see Note 5).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

Cash and Cash Equivalents

For purposes of presentation on both the consolidated balance sheets and statements of cash flows, we consider financial instruments with an original maturity of three months or less to be cash and cash equivalents. We maintain our cash and cash equivalents in multiple financial institutions and, at times, these balances exceed federally insurable limits. As a result, there is a concentration of credit risk related to amounts on deposit. We believe any risks are mitigated through the size of the financial institution at which our cash balances are held.

Restricted Cash

Restricted cash represents cash deposited in accounts related to certain rent deposits and collections, security deposits, property taxes, insurance premiums and deductibles, and capital expenditures (see Note 4). Amounts deposited in the reserve accounts associated with the mortgage loans and secured term loan can only be used as provided for in the respective loan agreements (see Note 6), and security deposits held pursuant to lease agreements are required to be segregated. Accordingly, these items are separately presented within our consolidated balance sheets.

Held to Maturity Investments

Investments in debt securities that we have a positive intent and ability to hold to maturity are classified as held to maturity and are presented within other assets, net on our consolidated balance sheets (see Note 5). These investments are recorded at amortized cost. Investments are reviewed at each reporting period for declines in fair value below the amortized cost basis that are other than temporary. Interest income, including amortization of any premium or discount, is classified as other in the consolidated statements of operations. For purposes of classification within the consolidated statements of cash flows, purchases of and repayments from these securities are classified as investing activities.

Investments in Equity Securities

Investments in equity securities without a readily determinable fair value are presented within other assets, net on our consolidated balance sheets (see Note 5). These investments are measured at cost, less any impairment, plus or minus changes resulting from observable price changes for identical or similar investment in the same issuer. Unrealized gains and losses are included in other, net in the consolidated statements of operations.

Deferred Financing Costs

Costs incurred that are directly attributable to procuring external financing are deferred and amortized over the term of the related financing arrangement as interest expense in the consolidated statements of operations. Costs that are deferred for the procurement of such financing are presented either as an asset in other assets, net when associated with a revolving debt instrument and prior to funding of a loan or as a liability in mortgage loans, net, secured term loan, net, or term loan facility, net, when associated with other indebtedness. Unamortized financing costs are charged to earnings when debt is retired before the maturity date.

Convertible Senior Notes

ASC 470-20, Debt with Conversion and Other Options, requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The initial proceeds from the issuance of convertible notes are allocated between a liability component and an equity component in a manner that reflects interest expense at the rate of similar nonconvertible debt that could have been issued at such time. The equity component represents the excess initial proceeds received over the fair value of the liability component of the notes as of the date of issuance. We measure the fair value of the debt component of our convertible senior notes as of the issuance date based on our nonconvertible debt borrowing rate. In connection with Mergers, we assumed convertible senior notes that were recorded at their estimated fair value based on our nonconvertible debt borrowing rate as of the Merger Date (see Note 6). The resulting discount from the outstanding principal balance of the convertible senior notes is being amortized using the effective interest rate method over the periods to maturity. Amortization of this discount is recorded as interest expense in the consolidated statement of operations for the years ended December 31, 2019, 2018, and 2017.

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INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

Revenue Recognition and Resident Receivables

Rental revenues and other property income, net of any concessions and uncollectible amounts, consists primarily of rents collected under lease agreements related to our single-family residential properties. We enter into leases directly with our residents, and our leases typically have a term of one to two years. We elected the practical expedient not to separate the lease and nonlease components of these operating leases with our residents. Our lease components consist primarily of rental income, pet rent, and smart home system fees. Nonlease components include resident reimbursements for utilities and various other fees, including late fees and lease termination fees, among others. The lease component is the predominant component in these arrangements, and as such, we recognize rental revenues and other property income in accordance with the New Lease Standard for the year ended December 31, 2019, and in accordance with previous GAAP for the years ended December 31, 2018 and 2017.

Variable lease payments consist of resident reimbursements for utilities, and various other fees, including late fees and lease termination fees, among others. Variable lease payments are charged based on the terms and conditions included in the resident leases. For the year ended December 31, 2019, rental revenues and other property income includes $92,759 of variable lease payments. Sales taxes and other similar taxes assessed by governmental authorities that we collect from residents are excluded from our rental revenues and other property income.

Leases Entered Into as a Lessee

We lease our corporate and regional offices, related office equipment, and a fleet of vehicles for use by our field associates. As of January 1, 2019, these leases are accounted for pursuant to the New Lease Standard (see Note 5 and Note 14).

We account for leases for our corporate and regional offices as operating leases. In addition to monthly rent payments, we reimburse the lessors of our office spaces for our share of operating expenses as defined in the leases. Such amounts are not included in the measurement of the lease liability but are recognized as a variable lease expense when incurred. At this time, it is not reasonably certain that we will exercise any of the renewal or termination options on these leases, and the measurement of the ROU asset and lease liability is calculated accordingly.

We have elected the practical expedient under which the lease components of our office and vehicle fleet leases are not separated from the nonlease components. ROU assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. We use our incremental borrowing rate to calculate the present value of our lease payments.

We have elected the short-term lease recognition exemption for our office equipment leases and therefore do not record these leases on our consolidated balance sheets. These office equipment leases are not material to our consolidated financial statements.

Deferred Leasing Costs

Costs associated with leasing our single-family residential properties, which consist primarily of commissions paid to leasing agents, are deferred in the period in which they are incurred as a component of deferred leasing costs and are subsequently amortized over the lease term. Deferred leasing costs are included as a component of other assets, net within our consolidated balance sheets and their amortization is classified as property operating and maintenance within the consolidated statements of operations (see Note 5). Costs incurred in connection with our leasing activities that do not result in the execution of a lease are expensed in the period incurred.

Goodwill

In connection with the Mergers, we recorded goodwill, which is not amortized as it has an indefinite life. We test goodwill for impairment annually, on October 31st, or more frequently if circumstances indicate that the goodwill carrying value may exceed its fair value. As of December 31, 2019, no impairment of goodwill has been recorded.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

Fair Value Measurements

The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between two willing parties. This amount is determined based on an exit price approach, which contemplates the price that would be received to sell an asset (or paid to transfer a liability) in an orderly transaction between market participants at the measurement date. GAAP has established a valuation hierarchy based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:

Level 1—Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;

Level 2—Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and

Level 3—Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

See Note 11 for further information related to our fair value measurements.

Earnings Per Share

We present both basic and diluted earnings (loss) per common share (“EPS”) in our consolidated financial statements. Basic EPS excludes dilution and is computed by dividing net income (loss) available to common stockholders for the period by the weighted-average number of shares of common stock outstanding for the period, excluding non-vested share-based awards. Our share-based awards consist of restricted stock units (“RSUs”), including certain RSUs that contain performance and market based vesting conditions (“PRSUs”), and Outperformance Awards (as defined in Note 10) (see Share-Based Compensation Expense below). Diluted EPS reflects the maximum potential dilution that could occur from non-vested share-based awards and the convertible senior notes using the “if-converted” method. For diluted EPS, the numerator is adjusted for any changes in net income (loss) that would result from the assumed conversion of these potential shares of common stock. Potential dilutive shares are excluded from the calculation if they have an anti-dilutive effect in the period.

All outstanding non-vested share-based awards with nonforfeitable rights to dividends or dividend equivalents that participate in undistributed earnings with common stock are considered participating securities, as identified in Note 10. As such, the two-class method of computing EPS is required, unless another method is determined to be more dilutive. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating securities according to dividends or dividend equivalents and participation rights in undistributed earnings in periods when we have net income.

Prior to the IPO, our business was conducted through the Invitation Homes Partnerships, which did not have a common capital structure upon which to compute historical EPS. Accordingly, EPS has not been presented for historical periods prior to the IPO.

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.

Pursuant to the terms of certain of our mortgage loans, we are required to maintain interest rate caps. Additionally, in certain instances, in order to minimize the cash impact of purchasing required interest rate caps, we simultaneously sell interest rate caps (which have identical terms and notional amounts) such that the purchase price and sale proceeds of the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

related interest rate caps are intended to offset each other. We have elected not to designate these interest cap agreements for hedge accounting (collectively, the “Non-Designated Hedges”). We enter into interest rate swap agreements to hedge the risk arising from changes in our interest payments on variable-rate debt due to changes in the one-month London Interbank Offered Rate (“LIBOR”) (or a comparable or successor rate). We have elected to account for our interest rate swap agreements as effective cash flow hedges (collectively, the “Designated Hedges”). We assess the effectiveness of these interest rate swap cash flow hedging relationships on an ongoing basis. The effect of these interest rate cap agreements and interest rate swap agreements is to reduce the variability of interest payments due to changes in LIBOR.

The fair value of Hedging Derivatives that are in an asset position are included in other assets, net and those in a liability position are included in other liabilities in our consolidated balance sheets. For Non-Designated Hedges, changes in fair value are reflected within interest expense in the consolidated statements of operations. For Designated Hedges, changes in fair value are reported as a component of other comprehensive income (loss) in our consolidated balance sheets and reclassified into earnings as interest expense in our consolidated statements of operations when the hedged transactions affect earnings. See Note 7 for further discussion of derivative financial instruments.

Share-Based Compensation Expense

Prior to the IPO, we recognized share-based compensation expense for incentive compensation units granted by the Invitation Homes Partnerships (the “Class B Units”), all of which were canceled or converted into other interests in connection with the IPO (see Note 10). Subsequent to the IPO, we have issued shared-based awards that settle in shares of common stock.

We recognize share-based compensation expense for share-based awards based on their grant-date fair value, net of expected forfeitures, over the service period from the grant date to vest date for each tranche. The grant-date fair value of RSUs and PRSUs with performance condition vesting criteria are generally based on the closing price of our common stock on the grant date. However, the grant-date fair values for PRSUs and Outperformance Awards with market condition vesting criteria are based on Monte-Carlo option pricing models. Compensation expense for shared-based awards with performance conditions is adjusted based on the probable outcome of the performance conditions as of each reporting period.

Additional compensation expense is recognized if modifications to existing share-based award agreements result in an increase in the post-modification fair value of the units that exceeds their pre-modification fair value. Share-based compensation expense is presented as components of general and administrative expense and property management expense in our consolidated statements of operations. See Note 10 for further discussion of share-based compensation expense.

Income Taxes

As a result of the pre-IPO reorganization transactions, the following occurred: (1) the Invitation Homes Partnerships transferred all assets, liabilities, and operations to INVH through certain mergers and related transactions; and (2) INVH became subject to the REIT election made by one of the Invitation Homes Partnerships (the “Predecessor REIT”) during the taxable year ended December 31, 2013. Following the Mergers on November 16, 2017, the assets and income derived from the assets acquired from SWH became the assets and income of INVH.

We intend to continue to operate as a REIT, and our current and continuing qualification as a REIT depends on our ability to meet the various requirements imposed by the Internal Revenue Code of 1986, as amended (the “Code”), which are related to organizational structure, distribution levels, diversity of stock ownership and certain restrictions with regard to owned assets and categories of income. If we qualify for taxation as a REIT, we will generally not be subject to United States federal corporate income tax on our taxable income that is currently distributed to stockholders. This treatment substantially eliminates the “double taxation” (at the corporate and stockholder levels) that generally results from an investment in a corporation. If we fail to qualify as a REIT in any taxable year, we will be subject to United States federal income taxes at regular corporate rates (including, for taxable years beginning prior to January 1, 2018, any applicable alternative minimum tax) and may not be able to qualify as a REIT for subsequent taxable years.

Even if we qualify as a REIT, we may be subject to United States federal income and excise taxes in various situations, such as on our undistributed income. We also will be required to pay a 100% tax on any net income on non-arm’s length transactions between us and a TRS, defined below, and on any net income from sales of assets that were held for sale to customers in the ordinary course. In addition, for taxable years beginning prior to January 1, 2018, we could also be subject to the alternative minimum tax on items of tax preference. State and local tax laws may not conform to the United States

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

federal income tax treatment, and we may be subject to state or local taxation in various state or local jurisdictions, including those in which we transact business. Any taxes imposed on us reduce our operating cash flow and net income.

As part of the formation of INVH, each of the Invitation Homes Partnerships (excluding the Predecessor REIT) transferred assets into INVH solely in exchange for shares of common stock. Certain of the assets contributed contained built-in gains. Prior to the pre-IPO reorganization transactions, the contributing partnerships had indirect C corporation partners to which a portion of the built-in gain would be allocated. As a result, if we dispose of any such assets during the five-year period following the date the REIT acquired such assets, we will be subject to the regulations under Section 337(d) of the Code. In general terms, such regulations subject the REIT to the maximum corporate level tax rate on the lesser of (i) such built-in gains and (ii) the gain recognized by the REIT upon a taxable disposition of the contributed assets. We may, however, choose not to sell such assets during such five-year period or to sell them in a non-taxable transaction. As such, the potential taxes associated with these built-in gains are not estimable.

Certain of our operations, or a portion thereof, are conducted through taxable REIT subsidiaries (“TRSs”). A TRS is a subsidiary C corporation that has not elected REIT status and as such is subject to United States federal and state corporate income tax. We use TRS entities to facilitate our ability to perform non-real estate related activities and/or perform non-customary services for residents that cannot be offered directly by a REIT.

For our TRS entities, deferred income taxes result from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for United States federal income tax purposes and are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. We reduce deferred tax assets by recording a valuation allowance when we determine, based on available evidence, that it is more likely than not that the assets will not be realized. We recognize the tax consequences associated with intercompany transfers between the REIT and TRS entities when the related assets affect our net income or loss, generally through depreciation, impairment losses, or sales to third party entities.

Tax benefits associated with uncertain tax positions are recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.

We file income tax returns in the United States federal jurisdiction as well as various state and local jurisdictions. Our filings are subject to normal reviews by regulatory agencies until the related statute of limitations expires, with open tax years varying based upon the date of incorporation of the specific entity. The years open to examination range from 2016 to present.

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. The CODM evaluates operating performance and allocates resources on a total portfolio basis. The CODM utilizes net operating income 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 with a focus on growing accretively in high-growth locations where we have greater scale and density.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes how companies will measure credit losses for certain financial assets, excluding receivables arising from operating leases. This guidance requires an entity to estimate its expected credit loss and record an allowance based on this estimate so that it is presented at the net amount expected to be collected on the financial asset. The new standard will be effective for annual reporting periods beginning after December 15, 2019, and interim periods within that reporting period, with early adoption permitted beginning after December 15, 2018 and interim periods within that reporting period. We do not anticipate the adoption of this standard to have a material impact on our consolidated financial statements.

F-18

INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

Note 3**—**Investments in Single-Family Residential Properties

The following table sets forth the net carrying amount associated with our properties by component:

		December 31, 2019				December 31, 2018
Land		$	4,499,346			$	4,561,441
Single-family residential property		13,121,179				13,026,317
Capital improvements		513,269				525,670
Equipment		113,370				116,546
Total gross investments in the properties		18,247,164				18,229,974
Less: accumulated depreciation		(2,003,972		)		(1,543,914		)
Investments in single-family residential properties, net		$	16,243,192			$	16,686,060

As of December 31, 2019 and 2018, the carrying amount of the residential properties above includes $119,608 and $120,438, respectively, of capitalized acquisition costs (excluding purchase price), along with $65,747 and $66,449, respectively, of capitalized interest, $25,565 and $25,670, respectively, of capitalized property taxes, $4,616 and $4,694, respectively, of capitalized insurance, and $2,836 and $2,779, respectively, of capitalized HOA fees.

During the years ended December 31, 2019, 2018, and 2017, we recognized $529,205, $511,988, and $297,627, respectively, of depreciation expense related to the components of the properties, $0, $37,517, and $8,223, respectively, of amortization related to in-place lease intangible assets, and $4,514, $11,036, and $3,728, respectively, of depreciation and amortization related to corporate furniture and equipment. These amounts are included in depreciation and amortization in the consolidated statements of operations. Further, during the years ended December 31, 2019, 2018, and 2017, impairments totaling $14,210, $6,709, and $2,231, respectively, have been recognized and are included in impairment and other in the consolidated statements of operations.

Note 4**—**Cash, Cash Equivalents, and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the consolidated balance sheets that sum to the total of such amounts shown in the consolidated statements of cash flows:

		December 31, 2019				December 31, 2018
Cash and cash equivalents		$	92,258			$	144,940
Restricted cash		193,987				215,051
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows		$	286,245			$	359,991

Pursuant to the terms of the mortgage loans and Secured Term Loan (as defined in Note 6), we are required to establish, maintain, and fund from time to time (generally either monthly or at the time borrowings are funded) certain specified reserve accounts. These reserve accounts include, but are not limited to, the following types of accounts: (i) property tax reserves; (ii) insurance reserves; (iii) capital expenditure reserves; and (iv) HOA reserves. The reserve accounts associated with our mortgage loans and Secured Term Loan are under the sole control of the loan servicer. Additionally, we hold security deposits pursuant to resident lease agreements that we are required to segregate. We are also required to hold letters of credit by certain of our insurance policies. Accordingly, amounts funded to these reserve accounts, security deposit accounts, and other restricted accounts have been classified on our consolidated balance sheets as restricted cash.

The amounts funded, and to be funded, to the reserve accounts are subject to formulae included in the mortgage loan and Secured Term Loan agreements and are to be released to us subject to certain conditions specified in the loan agreements being met. To the extent that an event of default were to occur, the loan servicer has discretion to use such funds to either

settle the applicable operating expenses to which such reserves relate or reduce the allocated loan amount associated with a residential property of ours.

The balances of our restricted cash accounts, as of December 31, 2019 and 2018, are set forth in the table below. As of December 31, 2019 and 2018, no amounts were funded to the insurance accounts as the conditions specified in the mortgage loan and Secured Term Loan agreements that require such funding did not exist.

		December 31, 2019				December 31, 2018
Resident security deposits		$	148,186			$	150,346
Collections		24,034				26,677
Property taxes		10,443				26,163
Capital expenditures		5,627				5,269
Letters of credit		3,459				3,444
Special and other reserves		2,238				3,152
Total		$	193,987			$	215,051

Note 5**—**Other Assets

As of December 31, 2019 and 2018, the balances in other assets, net are as follows:

		December 31, 2019				December 31, 2018
Investments in debt securities, net		$	316,991			$	366,599
Held for sale assets(1)		116,529				154,077
Investment in unconsolidated joint venture		54,778				56,622
Prepaid expenses		32,106				30,970
Rent and other receivables, net		25,244				33,117
ROU lease assets — operating and finance, net		13,768				N/A
Corporate fixed assets, net		9,825				11,792
Deferred leasing costs, net		7,427				6,316
Deferred financing costs, net		2,765				5,134
Derivative instruments (Note 7)		1,643				75,405
Amounts deposited and held by others		1,348				1,010
Other		22,842				18,128
Total		$	605,266			$	759,170

(1)	As of December 31, 2019 and 2018, 478 and 738 properties, respectively, are classified as held for sale.

Investments in Debt Securities, net

In connection with certain of our Securitizations (as defined in Note 6), we have retained and purchased certificates totaling $316,991, net of unamortized discounts of $2,641, as of December 31, 2019. These investments in debt securities are classified as held to maturity investments. As of December 31, 2019 and 2018, there were no gross unrecognized holding gains or losses, and there were no other than temporary impairments recognized in accumulated other comprehensive loss. As of December 31, 2019, our retained certificates are scheduled to mature over the next two months to eight years.

F-19

INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

Investment in Unconsolidated Joint Venture

We own a 10% interest in a joint venture with FNMA to operate, lease, and manage a portfolio of properties primarily located in Arizona, California, and Nevada. A wholly owned subsidiary of INVH LP is the managing member of the joint venture and is responsible for the operation and management of the properties, subject to FNMA’s approval of major decisions. As of December 31, 2019 and 2018, the joint venture owned 641 and 754 properties, respectively.

Rent and Other Receivables

We lease our properties to residents pursuant to leases that generally have an initial contractual term of at least 12 months, provide for monthly payments, and are cancelable by the resident and us under certain conditions specified in the related lease agreements.

ROU Lease Assets — Operating and Finance, net

The following table presents supplemental information related to leases into which we have entered as a lessee as of December 31, 2019:

		December 31, 2019
		Operating Leases				Finance Leases
Other assets		$	12,552			$	1,216
Other liabilities		13,787				1,210
Weighted average remaining lease term		3.8 years				2.0 years
Weighted average discount rate		4.0		%		4.0		%

Deferred Financing Costs, net

In connection with our Revolving Facility (as defined in Note 6), we incurred $9,673 of financing costs during the year ended December 31, 2017, which have been deferred as other assets, net on our consolidated balance sheets. These deferred financing costs are being amortized as interest expense on a straight-line basis over the term of the Revolving Facility. As of December 31, 2019 and 2018, the unamortized balances of these deferred financing costs are $2,765 and $5,134, respectively.

Investment in Equity Securities

On May 15, 2018, a convertible promissory note that we acquired on March 12, 2018 converted into equity securities without a readily determinable fair value. We have elected to measure the investment at cost, less any impairment, plus or minus changes resulting from observable price changes for an identical or similar investment in the same issuer. As of December 31, 2019 and 2018, the carrying amount of our investment in equity securities was $16,650 and $10,170, respectively, and is included within other in the table above. During the year ended December 31, 2019, we recorded $6,480 of unrealized gains on our investment in equity securities which is included in other, net in the consolidated statement of operations. No unrealized gains or losses were recorded during the year ended December 31, 2018.

Note 6**—**Debt

Mortgage Loans

Our securitization transactions (the “Securitizations” or the “mortgage loans”) are collateralized by certain homes owned by the respective 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; and (iv) general costs associated with our operations.

The following table sets forth a summary of our mortgage loan indebtedness as of December 31, 2019 and 2018:

										Outstanding Principal Balance**(4)**
		Origination Date		Maturity Date**(1)**		Interest Rate**(2)**		Range of Spreads**(3)**		December 31, 2019				December 31, 2018
CSH 2016-2		N/A		June 7, 2019		—%		N/A		$	—			$	442,614
IH 2017-1(5)		April 28, 2017		June 9, 2027		4.23%		N/A		995,520				995,826
SWH 2017-1(6)		September 29, 2017		October 9, 2020		3.32%		102-347 bps		744,092				764,685
IH 2017-2(6)		November 9, 2017		December 9, 2020		2.90%		91-186 bps		624,475				856,238
IH 2018-1(6)(7)		February 8, 2018		March 9, 2020		2.87%		76-206 bps		793,720				911,827
IH 2018-2(6)(8)		May 8, 2018		June 9, 2020		3.11%		95-230 bps		957,135				1,035,749
IH 2018-3(6)(8)		June 28, 2018		July 9, 2020		3.15%		105-230 bps		1,213,035				1,296,959
IH 2018-4(6)		November 7, 2018		January 9, 2021		3.18%		115-225 bps		938,430				959,578
Total Securitizations										6,266,407				7,263,476
Less: deferred financing costs, net										(27,946		)		(61,822		)
Total										$	6,238,461			$	7,201,654

(1)	Maturity date represents repayment date for mortgage loans which have been repaid in full prior to December 31, 2019. For all other mortgage loans, the maturity dates above reflect all extensions that have been exercised.

(2)

Except for IH 2017-1, interest rates are based on a weighted average spread over LIBOR (or a comparable or successor rate as provided for in our loan agreements), plus applicable servicing fees; as of December 31, 2019, LIBOR was 1.76%. 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.

(3)	Range of spreads is based on outstanding principal balances as of December 31, 2019.

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

(5)	Net of unamortized discount of $2,641 and $2,993 as of December 31, 2019 and 2018, respectively.

(6)

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 SWH 2017-1 and IH 2017-2 mortgage loans have exercised the first extension option. The maturity dates above reflect all extensions that have been exercised.

(7)	On December 3, 2019, we submitted a notification to request an extension of the maturity of the IH 2018-1 mortgage loan from March 9, 2020 to March 9, 2021 upon approval.

(8)	On February 7, 2020, we made voluntary prepayments of $15,000 and $60,000 on outstanding borrowings with unrestricted cash on hand against the outstanding balances of IH 2018-2 and IH 2018-3, respectively (see Note 17).

F-20

INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

Securitization Transactions

For each Securitization transaction, the Borrower Entity executed a loan agreement with a third party lender. Except for IH 2017-1, each outstanding mortgage loan originally consisted of six floating rate components. 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 FNMA’s guaranty of timely payment of principal and interest.

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, 2019 and 2018, a total of 37,040 and 41,644 homes, respectively, with a net book value of $7,137,576 and $8,385,430, respectively, are pledged pursuant to the mortgage loans. Each Borrower Entity has the right, subject to certain requirements and limitations outlined in the respective loan agreements, to substitute properties. We are obligated to make monthly payments of interest for each mortgage loan.

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 currently outstanding Securitizations are wholly owned subsidiaries. We accounted for the transfers of the individual Securitizations from the wholly owned Depositor Entities to the respective Trusts as sales under ASC 860, Transfers and Servicing, with no resulting gain or loss as the Securitizations were both originated by the lender and immediately transferred at the same fair market value.

As consideration for the transfer of each loan to the Trusts, the Trusts issued classes of certificates which mirror the components of the individual loans (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 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

As the Trusts made Certificates available for sale to both domestic and foreign investors, sponsors of the mortgage loans are required to retain a portion of the risk that represents a material net economic interest in each loan pursuant to Regulation RR (the “Risk Retention Rules”) under the Securities Exchange Act of 1934, as amended. As such, loan sponsors are 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 CSH 2016-2 were issued in an amount equal to 5% of the original principal amount of the loans. Per the terms of the CSH 2016-2 mortgage loan agreement, the Class G certificates were restricted certificates that were made available exclusively to the sponsor. We retained these Class G certificates during the time the related Securitization was outstanding, and they were principal only, bearing a stated interest rate of 0.0005%.

F-21

INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

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 retain 5% of each class of certificates 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 $316,991 and $366,599 as of December 31, 2019 and 2018, respectively, and are classified as held to maturity investments and recorded in other assets, net on the consolidated balance sheets (see Note 5).

Loan Covenants

The general terms that apply to all of the mortgage loans require each Borrower Entity to maintain compliance with certain affirmative and negative covenants. Affirmative covenants include each Borrower Entity’s, and certain of their respective affiliates’, compliance with (i) licensing, permitting and legal requirements specified in the mortgage loan agreements, (ii) organizational requirements of the jurisdictions in which they are organized, (iii) federal and state tax laws, and (iv) books and records requirements specified in the respective mortgage loan agreements. Negative covenants include each Borrower Entity’s, and certain of their affiliates’, compliance with limitations surrounding (i) the amount of each Borrower Entity’s indebtedness and the nature of their investments, (ii) the execution of transactions with affiliates, (iii) the Manager, (iv) the nature of each Borrower Entity’s business activities, and (v) the required maintenance of specified cash reserves. As of December 31, 2019, and through the date our consolidated financial statements were issued, we believe each Borrower Entity is 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, 2019, 2018, and 2017, we made voluntary and mandatory prepayments of $997,421, $4,579,594, and $2,951,008, respectively, under the terms of the mortgage loan agreements. During the year ended December 31, 2019, prepayments included the full repayment of the CSH 2016-2 mortgage loan. During the year ended December 31, 2018, prepayments included 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. During the year ended December 31, 2017, prepayments included the full repayment of the IH 2013-1, IH 2014-1, IH 2014-2, and IH 2014-3 mortgage loans.

Secured Term Loan

On June 7, 2019, 2019-1 IH Borrower LP, a consolidated subsidiary (“2019-1 IH Borrower” and one of our Borrower Entities), entered into a 12 year loan agreement with a life insurance company (the “Secured Term Loan”). The Secured Term Loan bears interest at a fixed rate of 3.59%, including applicable servicing fees, for the first 11 years and bears interest at a floating rate based on a spread of 147 bps, including applicable servicing fees, over one month LIBOR (subject to certain adjustments as outlined in the loan agreement) for the twelfth year. The Secured Term Loan is secured by first priority mortgages on a portfolio of single-family rental properties as well as a first priority pledge of the equity interests of 2019-1 IH Borrower. We utilized the proceeds from the Secured Term Loan to fund: (i) repayments of then-outstanding indebtedness; (ii) initial deposits into the Secured Term Loan’s reserve accounts; (iii) transaction costs related to the closing of the Secured Term Loan; and (iv) general corporate purposes.

F-22

INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

The following table sets forth a summary of our Secured Term Loan indebtedness as of December 31, 2019 and 2018:

		Maturity Date		Interest Rate**(1)**		December 31, 2019				December 31, 2018
Secured Term Loan		June 9, 2031		3.59%		$	403,464			$	—
Deferred financing costs, net						(2,486		)		—
Secured Term Loan, net						$	400,978			$	—

(1)

The Secured Term Loan bears interest at a fixed rate of 3.59% per annum including applicable servicing fees for the first 11 years and for the twelfth year bears interest at a floating rate based on a spread of 147 bps over one month LIBOR (or a comparable or successor rate as provided for in our loan agreement), including applicable servicing fees, subject to certain adjustments as outlined in the loan agreement. Interest payments are made monthly.

Collateral

As of December 31, 2019, a total of 3,333 homes with a net book value of $734,759 are included in the Secured Term Loan’s collateral pool. 2019-1 IH Borrower has the right, subject to certain requirements and limitations outlined in the loan agreement, to substitute properties representing up to 20% of the collateral pool annually, and to substitute properties representing up to 100% of the collateral pool over the life of the Secured Term Loan. In addition, four times after the first anniversary of the closing date, 2019-1 IH Borrower has the right, subject to certain requirements and limitations outlined in the loan agreement, to execute a special release of collateral representing up to 15% of the then-outstanding principal balance of the Secured Term Loan in order to bring the loan-to-value ratio back in line with the Secured Term Loan’s loan-to-value ratio as of the closing date. Any such special release of collateral would not change the then-outstanding principal balance of the Secured Term Loan, but rather would reduce the number of single-family rental homes included in the collateral pool.

Loan Covenants

The Secured Term Loan requires 2019-1 IH Borrower to maintain compliance with certain affirmative and negative covenants. Affirmative covenants include 2019-1 IH Borrower’s, and certain of its affiliates’, compliance with (i) licensing, permitting and legal requirements specified in the mortgage loan agreements, (ii) organizational requirements of the jurisdictions in which they are organized, (iii) federal and state tax laws, and (iv) books and records requirements specified in the respective mortgage loan agreements. Negative covenants include 2019-1 IH Borrower’s, and certain of its affiliates’, compliance with limitations surrounding (i) the amount of 2019-1 IH Borrower’s indebtedness and the nature of its investments, (ii) the execution of transactions with affiliates, (iii) the Manager, (iv) the nature of 2019-1 IH Borrower’s business activities, and (v) the required maintenance of specified cash reserves. As of December 31, 2019, and through the date our consolidated financial statements were issued, we believe 2019-1 IH Borrower is in compliance with all affirmative and negative covenants.

Prepayments

Prepayments of the Secured Term Loan are generally not permitted unless such prepayments are made pursuant to the voluntary election or mandatory provisions specified in the loan agreement. 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 yield maintenance premium if prepayment occurs before June 9, 2030. As of December 31, 2019, no such prepayments have been made.

F-23

INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

Term Loan Facility and Revolving Facility

On February 6, 2017, we entered into a credit agreement with a syndicate of banks, financial institutions, and institutional lenders for 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 $2,500,000 of borrowing capacity and consists of a $1,000,000 revolving facility (the “Revolving Facility”), which will mature on February 6, 2021, with a one year extension option, and a $1,500,000 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 $1,500,000), 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, 2019 and 2018:

		Maturity Date		Interest Rate**(1)**		December 31, 2019				December 31, 2018
Term Loan Facility		February 6, 2022		3.46%		$	1,500,000			$	1,500,000
Deferred financing costs, net						(6,253		)		(9,140		)
Term Loan Facility, net						$	1,493,747			$	1,490,860
Revolving Facility		February 6, 2021		3.51%		$	—			$	—

(1)	Interest rates for the Term Loan Facility and the Revolving Facility are based on LIBOR plus an applicable margin. As of December 31, 2019, the applicable margins were 1.70% and 1.75%, respectively, and LIBOR was 1.76%.

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 a comparable or successor rate as provided for in our loan agreement) 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.

F-24

INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

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, 2019, 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 $230,000 in aggregate principal amount of 3.00% convertible senior notes due 2019 (the “2019 Convertible Notes”). Interest on the 2019 Convertible Notes was payable semiannually in arrears on January 1st and July 1st of each year. 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 notes matured on July 1, 2019, and we settled substantially all of the outstanding balance of the 2019 Convertible Notes through the issuance of 12,553,864 shares of our common stock.

In January 2017, SWH issued $345,000 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, 2019 and 2018:

												Principal Amount
		Coupon Rate		Effective Rate**(1)**		Conversion Rate**(2)**		Maturity Date		Remaining Amortization Period		December 31, 2019				December 31, 2018
2019 Convertible Notes		—%		—%		N/A		July 1, 2019		N/A		$	—			$	229,993
2022 Convertible Notes		3.50%		5.12%		43.7694		January 15, 2022		2.04 years		345,000				345,000
Total												345,000				574,993
Net unamortized fair value adjustment												(10,701		)		(17,692		)
Total												$	334,299			$	557,301

(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 $324,252 for the 2022 Convertible Notes. For the 2019 Convertible Notes, the effective interest rate was 4.92%. This rate included the effect of the adjustment to the fair value of the debt as of the Merger Date and reduced the initial liability recorded to $223,185.

(2)

The conversion rate as of December 31, 2019 represents the number of shares of common stock issuable per $1,000 principal amount (actual $) of the 2022 Convertible Notes converted on such date, as adjusted in accordance with the indenture as a result of cash dividend payments and the effects of the Mergers. As of December 31, 2019, the 2022 Convertible Notes do not meet the criteria for conversion. We have the option to settle the 2022 Convertible Notes in cash, common stock, or a combination thereof.

Terms of Conversion

At the settlement date, the conversion rate applicable to the 2019 Convertible Notes was 54.5954 shares of our common stock per $1,000 principal amount (actual $) of the 2019 Convertible Notes (equivalent to a conversion price of approximately $18.32 per common share — actual $). On July 1, 2019, we settled substantially all of the outstanding balance of the 2019 Convertible Notes with the issuance of 12,553,864 shares of our common stock. For the years ended December 31, 2019, 2018, and 2017, interest expense for the 2019 Convertible Notes, including non-cash amortization of discounts, was $5,586, $11,057, and $1,384, respectively.

As of December 31, 2019, 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 our trustee, Wilmington Trust National Association (the “Convertible Notes Trustee”). 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 exceeds their principal amount by $107,560 as of December 31, 2019 as the closing market price of our common stock of $29.97 per common share (actual $) exceeds the implicit conversion price. For the years ended December 31, 2019, 2018, and 2017, interest expense for the 2022 Convertible Notes, including non-cash amortization of discounts, was $16,929, $16,690, and $2,088, respectively.

F-25

INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

General Terms

We may not redeem the 2022 Convertible Notes prior to their maturity date except to the extent necessary to preserve our status as a REIT for United States federal income tax purposes, as further described in the indenture. If we undergo a fundamental change as defined in the indenture, holders may require us to repurchase for cash all or any portion of their 2022 Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2022 Convertible Notes to be repurchased, plus accrued and unpaid interest up to, but excluding, the fundamental change repurchase date.

The indenture contains 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 2022 Convertible 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 2022 Convertible 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 indenture), 100% of the principal of and accrued and unpaid interest on the 2022 Convertible Notes will automatically become due and payable.

Debt Maturities Schedule

The following table summarizes the contractual maturities of our debt as of December 31, 2019:

Year		Mortgage Loans**(1)**				Secured Term Loan				Term Loan Facility				Revolving Facility				Convertible Senior Notes				Total
2020		$	4,332,457			$	—			$	—			$	—			$	—			$	4,332,457
2021		938,430				—				—				—				—				938,430
2022		—				—				1,500,000				—				345,000				1,845,000
2023		—				—				—				—				—				—
2024		—				—				—				—				—				—
Thereafter		995,520				403,464				—				—				—				1,398,984
Total		6,266,407				403,464				1,500,000				—				345,000				8,514,871
Less: deferred financing costs, net		(27,946		)		(2,486		)		(6,253		)		—				—				(36,685		)
Less: unamortized fair value adjustment		—				—				—				—				(10,701		)		(10,701		)
Total		$	6,238,461			$	400,978			$	1,493,747			$	—			$	334,299			$	8,467,485

(1)	The maturity dates of the obligations are reflective of all extensions that have been exercised.

Note 7**—**Derivative Instruments

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 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 did not elect to designate as 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. Currently, each of our swap agreements is indexed to LIBOR and is designated for hedge accounting purposes. LIBOR is set to expire at the end of 2021, and we will work with the counterparties to our swap agreements to adjust each floating rate to a comparable or successor rate. 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

F-26

INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

forecasted transactions affect earnings. Prior to January 31, 2017, all swaps were accounted for as non-designated hedges as the criteria for designation had not been met at that time.

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 $21,135. Over the terms of each of these swaps, an amount equal to the Merger Date fair value will be amortized and reclassified into earnings.

The table below summarizes our interest rate swap instruments as of December 31, 2019:

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 11, 2019(1)		February 28, 2017		December 31, 2024		1.74%		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, 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
February 15, 2019(2)		March 15, 2019		March 15, 2022		2.23%		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
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
December 9, 2019(3)		July 15, 2021		November 30, 2024		2.90%		One month LIBOR		400,000
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

(1)	On December 11, 2019, we modified an interest rate swap instrument to extend the maturity date from January 31, 2022 to December 31, 2024 with a decrease in the strike rate from 1.97% to 1.74%.

(2)	On February 15, 2019, we terminated an interest rate swap instrument and simultaneously entered into a new interest rate swap instrument with identical economic terms, except that the strike rate increased 2 bps, from 2.21% to 2.23%, and collateral posting requirements were removed.

(3)	On December 9, 2019, we modified the start date of an interest rate swap instrument from January 31, 2020 to July 15, 2021. We paid the counterparty $8,239 in connection with this modification.

During the years ended December 31, 2019, 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 $44,887 will be reclassified to earnings as a decrease in interest expense.

F-27

INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

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. Currently, each of our cap agreements is indexed to LIBOR, which is set to expire at the end of 2021. We will work with the counterparties to our cap agreements to adjust each floating rate to a comparable or successor rate. To the extent that the maturity date of one or more of the mortgage loans is extended through an exercise of one or more 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 sell interest rate caps (which have identical terms and notional amounts) such that the purchase price and sales proceeds of the related interest rate caps are intended to offset each other. The purchased and sold interest rate caps have strike prices ranging from approximately 3.24% to 5.31%.

Fair Values of Derivative Instruments on the Consolidated Balance Sheets

The table below presents the fair value of our derivative financial instruments as well as their classification on the consolidated balance sheets as of December 31, 2019 and 2018:

		Asset Derivatives										Liability Derivatives
				Fair Value as of										Fair Value as of
		Balance Sheet Location		December 31, 2019				December 31, 2018				Balance Sheet Location		December 31, 2019				December 31, 2018
Derivatives designated as hedging instruments:
Interest rate swaps		Other assets		$	1,643			$	74,929			Other liabilities		$	275,679			$	90,527
Derivatives not designated as hedging instruments:
Interest rate caps		Other assets		—				476				Other liabilities		—				440
Total				$	1,643			$	75,405					$	275,679			$	90,967

F-28

INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

Offsetting Derivatives

We enter into master netting arrangements, which reduce risk by permitting net settlement of transactions with the same counterparty. The tables below present a gross presentation, the effects of offsetting, and a net presentation of our derivatives as of December 31, 2019 and 2018:

		December 31, 2019
														Gross Amounts Not Offset in the Statement of Financial Position
		Gross Amounts of Recognized Assets/ Liabilities				Gross Amounts Offset in the Statement of Financial Position				Net Amounts of Assets/ Liabilities Presented in the Statement of Financial Position				Financial Instruments				Cash Collateral Received				Net Amount
Offsetting assets:
Derivatives		$	1,643			$	—			$	1,643			$	(1,054	)		$	—			$	589
Offsetting liabilities:
Derivatives		$	275,679			$	—			$	275,679			$	(1,054	)		$	—			$	274,625

		December 31, 2018
														Gross Amounts Not Offset in the Statement of Financial Position
		Gross Amounts of Recognized Assets/ Liabilities				Gross Amounts Offset in the Statement of Financial Position				Net Amounts of Assets/ Liabilities Presented in the Statement of Financial Position				Financial Instruments				Cash Collateral Received				Net Amount
Offsetting assets:
Derivatives		$	75,405			$	—			$	75,405			$	(30,374	)		$	—			$	45,031
Offsetting liabilities:
Derivatives		$	90,967			$	—			$	90,967			$	(30,374	)		$	—			$	60,593

F-29

INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

Effect of Derivative Instruments on the Consolidated Statements of Comprehensive Loss and the Consolidated Statements of Operations

The tables below present the effect of our derivative financial instruments in the consolidated statements of comprehensive loss and the consolidated statements of operations for the years ended December 31, 2019, 2018, and 2017:

		Amount of Gain (Loss) Recognized in OCI on Derivative												Location of Gain (Loss) Reclassified from Accumulated OCI into Net Income (Loss)		Amount of Gain (Loss) Reclassified from Accumulated OCI into Net Income (Loss)												Total Amount of Interest Expense Presented in the Consolidated Statements of Operations
		For the Years Ended December 31,													For the Years Ended December 31,												For the Years Ended December 31,
		2019				2018				2017					2019				2018				2017				2019				2018				2017
Derivatives in cash flow hedging relationships:
Interest rate swaps		$	(244,126	)		$	(43,211	)		$	31,636			Interest expense		$	20,763			$	18,627			$	(16,708	)		$	367,173			$	383,595			$	256,970

		Location of Loss Recognized in Net Income (Loss) on Derivative		Amount of Loss Recognized in Net Income (Loss) on Derivative
			For the Years Ended December 31,
			2019				2018				2017
Derivatives not designated as hedging instruments:
Interest rate swaps		Interest expense		$	—			$	—			$	(3,674	)
Interest rate caps		Interest expense		(126		)		(641		)		(364		)
Total				$	(126	)		$	(641	)		$	(4,038	)

Credit-Risk-Related Contingent Features

The agreements with our derivative counterparties which govern our interest rate swap agreements contain a provision where we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on the indebtedness.

As of December 31, 2019, the fair value of certain derivatives in a net liability position was $274,625. If we had breached any of these provisions at December 31, 2019, we could have been required to settle the obligations under the agreements at their termination value, which includes accrued interest and excludes the nonperformance risk related to these agreements, of $289,228.

As of December 31, 2018, we had not posted any collateral for our interest rate swap agreements as the conditions specified in the derivative agreements that require such funding did not exist. As of December 31, 2019, none of our derivative agreements contain provisions that require us to post collateral deposits.

Note 8**—**Equity

Stockholders’ Equity

As of December 31, 2019, we have issued 541,642,725 shares of common stock to the public, the pre-IPO owners, in settlement of RSUs (see Note 10), and in conversion of the 2019 Convertible Notes and vested OP Units. In addition, we issue OP Units from time to time which, upon vesting, are redeemable for shares of our common stock on a one-for-one basis or, in our sole discretion, cash and are reflected as non-controlling interests on our consolidated balance sheets and statements of equity.

F-30

INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

During the years ended December 31, 2019, 2018, and 2017, we issued 20,994,748, 1,474,835, and 519,173,142 shares of common stock, respectively. As of December 31, 2019, 3,463,285 outstanding OP Units are redeemable.

Dividends

To qualify as a REIT, we are required to distribute annually to our stockholders at least 90% of our REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of our net taxable income. We intend to pay quarterly dividends to our stockholders, which in the aggregate are approximately equal to or exceed our net taxable income in the relevant year. The timing, form, and amount of distributions, if any, to our stockholders, will be at the sole discretion of our board of directors.

The following table summarizes our dividends declared from January 1, 2018 through December 31, 2019:

		Record Date		Amount per Share				Pay Date		Total Amount Declared
Q4-2019		November 13, 2019		$	0.13			November 27, 2019		$	70,693
Q3-2019		August 15, 2019		0.13				August 30, 2019		70,465
Q2-2019		May 15, 2019		0.13				May 31, 2019		68,334
Q1-2019		February 13, 2019		0.13				February 28, 2019		67,965
Q4-2018		November 14, 2018		0.11				November 30, 2018		57,518
Q3-2018		August 16, 2018		0.11				August 31, 2018		57,563
Q2-2018		May 15, 2018		0.11				May 31, 2018		57,559
Q1-2018		February 13, 2018		0.11				February 28, 2018		57,432

On January 30, 2020, our board of directors declared a dividend of $0.15 per share to stockholders of record on February 12, 2020, which is payable on February 28, 2020 (see Note 17).

At the Market Equity Program

On August 22, 2019, we entered into distribution agreements with a syndicate of banks (the “Agents”), pursuant to which we may sell, from time to time, up to an aggregate sales price of $800,000 of our common stock through the Agents (the “ATM Equity Program”). During the year ended December 31, 2019, we sold 1,957,139 shares of our common stock under our ATM Equity Program, generating net proceeds of $55,263 after giving effect to Agent commissions and other costs totaling $1,696. As of December 31, 2019, $743,041 remains available for future offerings under the ATM Equity Program.

Combined Equity

Prior to the IPO, our business was conducted through the Invitation Homes Partnerships, which did not have a common capital structure. However, the same board of directors was responsible for directing the significant activities of the Invitation Homes Partnerships and INVH LP on a combined basis. Profits and losses, and cash distributions were allocated in accordance with the terms of each entity’s respective organizational documents.

As further described in Note 10, we granted certain individuals incentive compensation units in the Invitation Homes Partnerships, the Class B Units, that were accounted for as a substantive class of equity due to the terms of the agreements and rights of the holders. As a result of the pre-IPO reorganization transactions, all components of this combined equity were converted into shares of our common stock, and all Class B Units were either canceled or converted into interests in other entities.

F-31

INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

Note 9**—**Related Party Transactions

Management Services

One of our consolidated subsidiaries, as the managing member of a joint venture with FNMA (see Note 5), earns a management fee based upon the venture’s gross receipts. For the years ended December 31, 2019, 2018, and 2017, we earned $2,823, $2,834, and $385, respectively, of management fees which are included in other, net in the accompanying consolidated statements of operations.

Note 10**—**Share-Based Compensation

Prior to completion of the IPO, our board of directors adopted, and our stockholders approved, the Invitation Homes Inc. 2017 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) to provide a means through which to attract and retain key personnel and to provide a means whereby our directors, officers, employees, consultants, and advisors can acquire and maintain an equity interest in us, or be paid incentive compensation, including incentive compensation measured by reference to the value of our common stock, and to align their interests with those of our stockholders. Under the Omnibus Incentive Plan, we may issue up to 16,000,000 shares. Our share-based awards consist of time-vesting RSUs, PRSUs, and Outperformance Awards (defined below). Time-vesting RSUs are participating securities for EPS purposes, and PRSUs and Outperformance Awards are not.

Share-Based Awards

The following summarizes our share-based award activity since the IPO, including annual and other award activity, RSUs and restricted stock awards (“RSAs”) issued in connection with the IPO, RSUs issued and assumed in connection with the Mergers, and the Outperformance Awards.

Annual Long Term Incentive Plan (“LTIP”):

•

Annual LTIP Awards Granted: During the years ended December 31, 2019, 2018, and 2017, we granted 534,547, 644,733, and 874,410 RSUs, respectively, pursuant to LTIP awards. Each award includes components which vest based on time-vesting conditions, market based vesting conditions, and performance based vesting conditions, each of which is subject to continued employment through the applicable vesting date. The LTIP awards issued during the year ended December 31, 2017 are divided into three tranches (“Tranche 1,” “Tranche 2,” and “Tranche 3”), which vest over periods ranging from one to four years.

The time-vesting RSUs granted during the years ended December 31, 2019 and 2018 vest in three equal annual installments based on an anniversary date of March 1, 2019 and March 31, 2018, respectively. The time-vesting RSUs granted during the year ended December 31, 2017 vest in installments based on an anniversary date of March 1, 2017 as follows: Tranche 1 on the first anniversary; Tranche 2 in two equal installments on each of the first and second anniversaries; and Tranche 3 in four equal installments on each of the first four anniversaries.

The PRSUs granted during the years ended December 31, 2019 and 2018 may be earned based on the achievement of certain measures over a three year performance period. The PRSUs granted during the year ended December 31, 2017 may be earned based on the achievement of certain measures over an approximate one year, two year, or three year performance period, correlated to Tranche 1, Tranche 2, and Tranche 3, respectively. The number of PRSUs earned will be determined based on performance achieved during the performance period for each measure at certain threshold, target, or maximum levels and corresponding payout ranges. In general, the LTIP PRSUs are earned and vest after the end of the performance period on the date on which the performance results are certified (a “Certification Date”) by our compensation and management development committee (the “Compensation Committee”), except for Tranche 3 of the 2017 LTIP Awards of which 50% vests at the Certification Date and 50% on December 31, 2020.

All of the LTIP Awards are subject to certain change in control and retirement eligibility provisions that may impact these vesting schedules.

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INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

•

PRSU Results: During the years ended December 31, 2019 and 2018, certain PRSUs vested and achieved performance in excess of the target level, resulting in the issuance of an additional 23,392 and 39,871 shares of common stock, respectively. Such awards are reflected as an increase in the number of awards granted and vested in the table below. Certain other PRSUs did not achieve performance criteria, resulting in the cancellation of 52,896 awards during the year ended December 31, 2019. Such awards are reflected as an increase in the number of awards forfeited/canceled in the table below.

Other Awards

•

Director Awards: During the year ended December 31, 2019, we granted 53,704 time-vesting RSUs to members of our board of directors, which awards will fully vest on the date of INVH’s 2020 annual stockholders meeting, subject to continued service on the board of directors through such date. During the years ended December 31, 2018 and 2017, INVH issued 52,114 and 69,875 time-vesting RSUs, which awards fully vested on the dates of INVH’s 2019 and 2018 annual stockholders meetings, respectively.

•

Merger-Related Awards: During the year ended December 31, 2018, the grant date was established for 168,184 PRSUs issued in connection with the Mergers. These Merger-related PRSUs may be earned based on the achievement of certain measures over performance periods that began on the Merger Date and end approximately one and a half to three years thereafter. The number of Merger-related PRSUs earned will be determined based on performance achieved during the performance period for each measure at certain threshold, target, or maximum levels and corresponding payout ranges. During the year ended December 31, 2019, 77,926 of such PRSUs were forfeited, and 90,258 remain outstanding as of December 31, 2019. In general, the remaining outstanding Merger-related PRSUs are earned on the applicable Certification Date and will vest on the later of the Certification Date or the originally scheduled vesting date. During the year ended December 31, 2017, in connection with the Mergers, INVH issued 150,927 time-vesting awards which were scheduled to vest over a three year service period beginning on the Merger Date. During the year ended December 31, 2019, vesting of all remaining time-vesting merger-related awards was accelerated in accordance with the terms of the award agreement; and no such time-vesting merger-related awards remain outstanding as of December 31, 2019.

•

Bonus and Retention Awards: During the year ended December 31, 2018, we granted 136,941 RSUs to employees (the “2018 Bonus Awards”). Each of the 2018 Bonus Awards is a time-vesting award which vests in three equal annual installments based on an anniversary date of March 1, 2018, subject to continued employment through the applicable vesting date. During the year ended December 31, 2017, we granted 307,327 RSUs (the “Retention Awards”) each of which award is a time-vesting award with service periods, as amended, ranging from two years to four years.

IPO Related: In connection with the IPO, we issued the following RSAs and RSUs:

•	Conversion of Pre-IPO Awards: In January 2017, as more fully described below, certain of the Class B Units were converted into 62,529 RSAs, all of which have vested in accordance with the original terms of the Class B Unit award agreements as of December 31, 2019.

Recipients of certain Class B Units were also granted bonus awards (the “IH Bonus Awards”) entitling the recipients to receive bonus payments in connection with an IPO or exit event. Upon completion of the INVH IPO, the $4,825 of IH Bonus Awards were settled in the form of 241,250 RSUs that were fully vested upon issuance.

•

Supplemental Bonus Plan: In October 2016, we established a supplemental bonus plan for certain key executives and employees (the “Supplemental Bonus Plan”). Pursuant to the Supplemental Bonus Plan, the awards became payable and the payment amount became determinable upon the completion of the IPO. In January 2017, the $59,797 of awards were converted into 2,988,120 time-vesting RSUs that generally vested in three equal annual installments, commencing on the completion of the INVH IPO and on the first and second anniversaries thereafter, unless modified in connection with the Mergers or the resulting integration. As of December 31, 2019, all Supplemental Bonus Plan awards have vested or have been forfeited.

Assumed Awards

In connection with the Mergers, we assumed the terms of award agreements governing 949,698 (as calculated in number of INVH shares of common stock) non-vested RSUs granted prior to the Mergers under SWH’s equity incentive plans. Each

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INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

assumed award is a time-vesting award that was issued with service periods ranging from three years to four years, unless accelerated pursuant to the original agreement or otherwise modified in connection with the Mergers or the resulting integration. As of December 31, 2019, 61,561 awards remain outstanding and are scheduled to vest in March 2020.

Outperformance Awards

On May 1, 2019, the Compensation Committee approved one-time equity based awards with market based vesting conditions in the form of PRSUs and OP Units (the “Outperformance Awards”). The Outperformance Awards may be earned based on the achievement of rigorous absolute total shareholder return and relative total shareholder return thresholds over a three year performance period ending on March 31, 2022. Upon completion of the performance period, the dollar value of the awards earned under the absolute and relative total shareholder return components will be separately calculated, and the number of earned Outperformance Awards will be determined based on the earned dollar value of the awards and the stock price at the performance certification date. Earned awards will vest 50% on March 31, 2022 and 25% on each of the first and second anniversaries of such date, subject to continued employment. The current aggregate $11,770 grant-date fair value of the Outperformance Awards still outstanding was determined based on Monte-Carlo option pricing models which estimate the probability of the vesting conditions being satisfied.

Summary of Total Share-Based Awards

The following table summarizes activity related to non-vested time-vesting RSUs (including RSAs) and PRSUs, other than Outperformance Awards, during the years ended December 31, 2019 and 2018 and the period from January 31, 2017 through December 31, 2017:

		Time-Vesting Awards							PRSUs							Total Share-Based Awards(1)
		Number			Weighted Average Grant Date Fair Value (Actual $)				Number			Weighted Average Grant Date Fair Value (Actual $)				Number			Weighted Average Grant Date Fair Value (Actual $)
Balance, January 31, 2017		—			$	—			—			$	—			—			$	—
Granted		4,042,601			20.28				651,837			22.25				4,694,438			20.56
Assumed in the Mergers		949,698			23.01				—			—				949,698			23.01
Vested(2)		(2,147,554	)		(19.93		)		(101,448	)		(22.34		)		(2,249,002	)		(20.04		)
Forfeited / canceled		(148,843	)		(20.42		)		(142,287	)		(22.18		)		(291,130	)		(21.28		)
Balance, December 31, 2017		2,695,902			21.51				408,102			22.25				3,104,004			20.79
Granted		387,746			21.94				654,137			22.22				1,041,883			22.12
Vested(2)		(1,351,019	)		(21.38		)		(133,496	)		(23.11		)		(1,484,515	)		(21.54		)
Forfeited / canceled		(136,985	)		(22.69		)		(40,010	)		(22.44		)		(176,995	)		(22.63		)
Balance, December 31, 2018		1,595,644			21.63				888,733			22.09				2,484,377			21.79
Granted		242,224			23.44				369,419			24.27				611,643			23.94
Vested(2)		(1,076,025	)		(21.46		)		(83,938	)		(21.21		)		(1,159,963	)		(21.45		)
Forfeited / canceled		(76,774	)		(22.03		)		(249,138	)		(21.75		)		(325,912	)		(21.81		)
Balance, December 31, 2019		685,069			$	22.48			925,076			$	23.13			1,610,145			$	22.86

(1)	Total share-based awards excludes Outperformance Awards.

(2)

All vested share-based awards are included in basic EPS for the periods after each award’s vesting date. The estimated fair value of share-based awards that fully vested during the years ended December 31, 2019, 2018, and 2017 was $30,526, $33,106, and $45,528, respectively. During the years ended December 31, 2019, 2018, and 2017, vested awards include the acceleration of 295,459, 374,162, and 652,368 RSUs, respectively, pursuant to the terms and conditions of the Omnibus Incentive Plan and related award agreements.

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INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

Grant-Date Fair Values

The grant-date fair values of the RSAs, time-vesting RSUs and PRSUs with performance condition vesting criteria are generally based on the closing price of our common stock on the grant date. However, the grant-date fair values for share-based awards with market condition vesting criteria are based on Monte-Carlo option pricing models. The following table summarizes the significant inputs utilized in these models for such awards granted during the years ended December 31, 2019, 2018, and 2017:

		For the Years Ended December 31,
		2019					2018					2017
Expected volatility(1)		17.2	%	—	17.4%		14.5	%	—	17.3%		25.0%
Risk-free rate		2.25	%	—	2.42%		2.38%					1.40%
Expected holding period (years)		2.84		—	2.92		2.71		—	2.84		0.52	—	2.52

(1)

Expected volatility for awards granted during the years ended December 31, 2019 and 2018 was estimated based on the historical volatility of INVH’s realized returns and the applicable index. Expected volatility for awards granted during the year ended December 31, 2017 was estimated based on the leverage adjusted historical volatility of certain of our peer companies over a historical term commensurate with the remaining expected holding period.

Profits Interests — Class B Units

Prior to the IPO, the Invitation Homes Partnerships granted incentive compensation units to certain key employees and directors, which were profits interests for United States federal income tax purposes. The Class B Units were accounted for as a substantive class of equity and contained both service based and performance based vesting criteria. Recognition of compensation expense was recorded based on whether or not the award recipient was an employee of the Manager, a wholly owned subsidiary of one of the Invitation Homes Partnerships, resulting in some awards being recognized based on grant-date fair value and others being remeasured at each reporting period until the actual vesting date as required for non-employee awards. Prior to the IPO, none of the performance based vesting criteria had been achieved, and as such through the date of the IPO, no compensation expense had been recorded for performance based Class B Units. However, the IPO triggered achievement of the performance based criteria and effectively converted all such awards into service based awards.

2017 New Class B Unit Awards: In January 2017, certain of the Invitation Homes Partnerships issued certain individuals a total of 9,838 Class B Units that were expected to vest based on terms and conditions similar to all other Class B Units.

2017 Class B Unit Conversion: The pre-IPO reorganization transactions resulted in accelerated vesting of 7,520 Class B Units held by certain unitholders which resulted in additional share-based compensation expense of $11,601 as of the date of the IPO. On January 31, 2017, in connection with the IPO, all of the Class B Units held by current employees of the Manager and certain directors (except for 3,878 fully vested Class B Units awarded to a certain unitholder) were either converted into shares of INVH common stock or canceled based on the value of the Class B Units implied by the per share price of common stock sold to the public in the IPO. As such, a total of 730 Class B Units were converted into 62,529 RSAs, and 17,669 Class B Units were canceled for no consideration. For the Class B Units converted into RSAs, vesting and other terms of the RSAs delivered in the conversion have the same vesting and other terms applicable to the corresponding Class B Units converted.

Additionally, the obligations under the remaining 40,992 fully vested Class B Units, including those of the unitholders who are not current employees of the Manager, certain directors, and the one employee unitholder noted above that did not convert, were converted into similar fully vested units of newly formed subsidiaries of the pre-IPO owners.

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INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

The following table summarizes the activity related to the Class B Units for the period from December 31, 2016 through January 31, 2017, the date at which they were all canceled or converted:

		Class B Units
		Employee							Non-employee							Total Class B Units
		Number of Units			Weighted Average Fair Value				Number of Units			Weighted Average Fair Value				Number of Units			Weighted Average Fair Value
Balance, December 31, 2016		9,915			$	4.2			39,638			$	2.5			49,553			$	2.9
Granted		85			14.0				9,753			—				9,838			0.1
Converted to RSAs		(245	)		(3.4		)		(485	)		(0.8		)		(730	)		(1.7		)
Canceled		(555	)		(8.2		)		(17,114	)		(0.4		)		(17,669	)		(0.6		)
Converted to units of affiliated entities		(9,200	)		(4.0		)		(31,792	)		(2.9		)		(40,992	)		(3.2		)
Balance, January 31, 2017		—			$	—			—			$	—			—			$	—

As of January 31, 2017, no Class B Units were outstanding.

Summary of Total Share-Based Compensation Expense

During the years ended December 31, 2019, 2018, and 2017, we recognized share-based compensation expense as follows:

		For the Years Ended December 31,
		2019				2018				2017
General and administrative		$	15,083			$	23,999			$	70,906
Property management expense		3,075				5,500				10,297
Total		$	18,158			$	29,499			$	81,203

As of December 31, 2019, there is $22,550 of unrecognized share-based compensation expense related to non-vested share-based awards which is expected to be recognized over a weighted average period of 2.19 years.

Note 11**—**Fair Value Measurements

The carrying amounts of restricted cash, certain components of other assets, accounts payable and accrued expenses, resident security deposits, and certain components of other liabilities approximate fair value due to the short maturity of these amounts. Our interest rate swap agreements and interest rate cap agreements are the only financial instruments recorded at fair value on a recurring basis within our consolidated financial statements. The fair values of our interest rate caps and swaps, which are classified as Level 2 in the fair value hierarchy, are estimated using market values of instruments with similar attributes and maturities. See Note 7 for the details of the balance sheet classification and the fair values for the interest rate caps and swaps.

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INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

The following table displays the carrying values and fair values of financial instruments as of December 31, 2019 and 2018:

				December 31, 2019								December 31, 2018
				Carrying Value				Fair Value				Carrying Value				Fair Value
Assets carried at historical cost on the consolidated balance sheets:
Investments in debt securities(1)		Level 2		$	316,991			$	318,299			$	366,599			$	365,196
Liabilities carried at historical cost on the consolidated balance sheets:
Mortgage loans(2)		Level 2		$	6,266,407			$	6,292,261			$	7,263,476			$	7,235,685
Secured Term Loan(3)		Level 3		403,464				411,213				—				—
Term Loan Facility(4)		Level 3		1,500,000				1,500,444				1,500,000				1,500,773
Convertible Senior Notes(5)		Level 3		334,299				346,489				557,301				544,249

(1)	The carrying values of investments in debt securities are shown net of discount.

(2)	The carrying values of the mortgage loans are shown net of discount and exclude $27,946 and $61,822 of deferred financing costs as of December 31, 2019 and 2018, respectively.

(3)	The carrying value of the Secured Term Loan excludes $2,486 of deferred financing costs as of December 31, 2019.

(4)	The carrying value of the Term Loan Facility excludes $6,253 and $9,140 of deferred financing costs as of December 31, 2019 and 2018, respectively.

(5)	The carrying values of the Convertible Senior Notes include unamortized discounts of $10,701 and $17,692 as of December 31, 2019 and 2018, respectively.

The fair values of our investment in debt securities and mortgage loans, which are classified as Level 2 in the fair value hierarchy, are estimated based on market bid prices of comparable instruments at the end of the period. The following table displays the significant unobserverable inputs used to develop our Level 3 fair value measurements as of December 31, 2019:

		Quantitative Information about Level 3 Fair Value Measurement**(1)**
		Fair Value				Valuation Technique		Unobservable Input		Rate
Secured Term Loan		$	411,213			Discounted Cash Flow		Effective Rate		3.39%
Term Loan Facility		1,500,444				Discounted Cash Flow		Effective Rate		3.16	%	—	3.50%
Convertible Senior Notes		346,489				Discounted Cash Flow		Effective Rate		3.28%

(1)	Our Level 3 fair value instruments require interest only monthly payments.

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INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

Our assets measured at fair value on a nonrecurring basis are those assets for which we have recorded impairments. The assets for which we have recorded impairments, measured at fair value on a nonrecurring basis, are summarized below:

		For the Years Ended December 31,
		2019				2018				2017
Investments in single-family residential properties, net held for use (Level 3):
Pre-impairment amount		$	9,255			$	2,179			$	2,942
Total impairments		(2,193		)		(507		)		(861		)
Fair value		$	7,062			$	1,672			$	2,081

		For the Years Ended December 31,
		2019				2018				2017
Investments in single-family residential properties, net held for sale (Level 3):
Pre-impairment amount		$	61,061			$	33,609			$	13,112
Total impairments		(12,017		)		(6,202		)		(1,370		)
Fair value		$	49,044			$	27,407			$	11,742

For additional information related to our single-family residential properties as of December 31, 2019 and 2018, refer to Note 3.

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INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

Note 12**—**Earnings per Share

We compute EPS only for the period after February 1, 2017, the date on which our common stock began trading on the New York Stock Exchange. Basic and diluted EPS are calculated as follows:

		For the Year Ended December 31, 2019				For the Year Ended December 31, 2018				February 1, 2017 through December 31, 2017
(in thousands, except share and per share data)
Numerator:
Net income (loss)		$	147,111			$	(5,013	)		$	(105,826	)
Net loss for the period January 1, 2017 through January 31, 2017		—				—				16,879
Net (income) loss attributable to non-controlling interests		(1,648		)		86				489
Net income (loss) attributable to common stockholders		145,463				(4,927		)		(88,458		)
Less: net income available to participating securities		(395		)		(817		)		(615		)
Net income (loss) available to common stockholders — basic and diluted		$	145,068			$	(5,744	)		$	(89,073	)
Denominator:
Weighted average common shares outstanding — basic		531,235,962				520,376,929				339,423,442
Effect of dilutive securities:
Incremental shares attributed to non-vested share-based awards		1,263,825				—				—
Weighted average common shares outstanding — diluted		532,499,787				520,376,929				339,423,442
Net income (loss) per common share — basic		$	0.27			$	(0.01	)		$	(0.26	)
Net income (loss) per common share — diluted		$	0.27			$	(0.01	)		$	(0.26	)

Incremental shares attributed to non-vested share-based awards are excluded from the computation of diluted EPS when they are anti-dilutive. For the year ended December 31, 2019, 121 incremental shares attributed to non-vested share-based awards are excluded from the denominator as their inclusion would have been anti-dilutive. For the year ended December 31, 2018 and the period from February 1, 2017 through December 31, 2017, 1,267,175, and 896,993 incremental shares attributed to non-vested share-based awards, respectively, are excluded from the computation of diluted EPS because they are anti-dilutive.

For the years ended December 31, 2019, 2018, and 2017, the vested OP Units have been excluded from the computation of EPS because all income (loss) attributable to the OP Units has been recorded as non-controlling interest and thus excluded from net income (loss) available to common stockholders.

For the years ended December 31, 2019 and 2018, using the “if-converted” method, 6,225,341 and 12,420,013, respectively, potential shares of common stock for the 2019 Convertible Notes for the period prior to conversion are excluded from the computation of diluted EPS as they are anti-dilutive. For the years ended December 31, 2019 and 2018, 15,100,443 potential shares of common stock issuable upon the conversion of the 2022 Convertible Notes are also excluded from the computation of diluted EPS as they are anti-dilutive. Additionally, no adjustment to the numerator is required for interest expense related to the Convertible Senior Notes for the years ended December 31, 2019 and 2018. For the period from February 1, 2017 through December 31, 2017, we asserted our intent and ability to fully settle the Convertible Senior Notes in cash; and as a result, the Convertible Senior Notes did not impact diluted EPS during that period. See Note 6 for further discussion about the Convertible Senior Notes.

F-39

INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

Note 13**—**Income Tax

We account for income taxes under the asset and liability method. For our TRSs, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. We provide a valuation allowance, from time to time, for deferred tax assets for which we do not consider realization of such assets to be more likely than not.

As of December 31, 2019 and 2018, we have not recorded any deferred tax assets and liabilities or unrecognized tax benefits. We do not anticipate a significant change in unrecognized tax benefits within the next 12 months.

We have sold assets that were either subject to Section 337(d) of the Internal Revenue Code of 1986, as amended, or were held by TRSs. These transactions resulted in $2,490, $1,241, and $3,195 of current income tax expense for the years ended December 31, 2019, 2018, and 2017, respectively, which has been recorded in gain on sale of property, net of tax in the consolidated statements of operations.

Note 14**—**Commitments and Contingencies

Leasing Commitments

The following table sets forth our fixed lease payment commitments as a lessee as of December 31, 2019, for the periods below:

		Operating Leases				Finance Leases
2020		$	4,501			$	646
2021		4,271				569
2022		2,713				43
2023		1,565				—
2024		1,409				—
Thereafter		463				—
Total lease payments		14,922				1,258
Less: imputed interest		(1,135		)		(48		)
Total lease liability		$	13,787			$	1,210

As of December 31, 2019, approximately $10,000 of finance leases for fleet vehicles with a lease term of 50 months have been entered into and are anticipated to commence during the next three months, and approximately $3,100 of operating leases for our office spaces with lease terms of 60 to 72 months have been entered into and are anticipated to commence during the next 12 months.

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INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

The components of lease expense for the year ended December 31, 2019 are as follows:

		For the Year Ended December 31, 2019
Operating lease cost:
Fixed lease cost		$	4,059
Variable lease cost		1,294
Total operating lease cost		$	5,353

Future minimum rental revenues under leases existing on our single-family residential properties as of December 31, 2019 are as follows:

		Lease Payments to be Received
2020		$	952,132
2021		148,775
2022		—
2023		—
2024		—
Thereafter		—
Total		$	1,100,907

During the years ended December 31, 2018 and 2017, we incurred rent and other related occupancy expenses of $6,306 and $5,203, respectively. In accordance with previously applicable lease accounting guidance, ASC 840, Leases, the following table displays annual base rental commitments associated with our operating lease commitments, excluding operating expense reimbursements, month-to-month lease payments, and other related fees and expenses during the remaining lease terms as of December 31, 2018:

Year		Payments
2019		$	4,251
2020		4,463
2021		4,237
2022		2,747
2023		1,583
Thereafter		1,803
Total		$	19,084

Insurance Policies

Pursuant to the terms of certain of our loan agreements (see Note 6), laws and regulations of the jurisdictions in which our properties are located, and general business practices, we are required to procure insurance on our properties. As of December 31, 2019, there are no material contingent liabilities related to uninsured losses with respect to our properties.

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INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

Legal Matters

We are subject to various legal proceedings and claims that arise in the ordinary course of our business. We accrue a liability when we believe that it is both probable that a liability has been incurred and that we can reasonably estimate the amount of the loss. We do not believe that the final outcome of these proceedings or matters will have a material adverse effect on our consolidated financial statements.

Note 15**—**Business Combinations

On November 16, 2017, we completed the Mergers with SWH. The Mergers were accounted for as a business combination in accordance with ASC Topic 805, Business Combinations, and INVH was designated as the accounting acquirer. Because INVH was designated as the accounting acquirer, our historical financial statements for periods prior to November 16, 2017 represent only the historical financial information of INVH and its consolidated subsidiaries.

Purchase Price Allocation

The total purchase price has been allocated based upon (1) the amounts reported in the SWH historical financial statements for any assets that were reported at fair value in accordance with SWH’s historical accounting policies or (2) management’s estimates of fair value.

Management’s estimates of fair value for SWH’s investments in real estate properties were based upon a progressive method that incorporated three value sources: automated valuation model data, BPOs, and internal desktop valuations (Level 3 measurements).

The fair value of our investment in the unconsolidated joint venture represents the estimated fair value of our equity interest in the joint venture with FNMA. We determined the fair value based on the estimated fair value of the underlying investments in single-family residential properties after giving consideration to the terms and conditions of the related joint venture agreement (Level 3 measurement).

The fair value of other assets includes the estimated fair value of in-place leases in the amount of $45,740, which was estimated based on lost rent and avoidable costs over an assumed vacancy period (Level 3 measurements). Also included in other assets is the estimated fair value of interest rate swap agreements in the aggregate amount of $21,135.

The fair value of SWH’s debt was determined by comparison of contractual terms of SWH’s existing debt obligations to the current market rates on a risk-adjusted basis as of the Merger Date. The associated future debt cash flows were then discounted back to present value to arrive at an estimated fair value of SWH’s debt (Level 3 measurements).

F-42

INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

The allocation of the total purchase price to SWH’s tangible and intangible assets and liabilities under this methodology is as follows:

Consideration transferred		$	4,920,534
Assets acquired:
Land		1,920,400
Buildings and improvements		6,487,505
Cash and cash equivalents		84,952
Restricted cash		118,556
Other assets		389,449
Liabilities assumed:
Mortgage loans, net		(3,433,506		)
Convertible senior notes, net		(547,437		)
Accounts payable and accrued expenses		(112,505		)
Resident security deposits		(56,895		)
Other liabilities		(36,311		)
Non-controlling interests		(151,881		)
Net assets acquired		4,662,327
Goodwill		$	258,207

The goodwill recorded is primarily attributable to the value of synergies after the Mergers.

Merger and Transaction-Related Expenses

We incurred $4,347, $16,895, and $29,802 of merger and transaction-related expenses related to the Mergers during the years ended December 31, 2019, 2018, and 2017, respectively, included in general and administrative expenses in the consolidated statements of operations. Merger and transaction-related expenses are expensed as incurred and are comprised primarily of transaction fees and direct acquisition costs, including legal, finance, consulting, professional fees, and other third party costs. The costs that were obligations of SWH and expensed by SWH prior to the Merger Date are not included in our consolidated financial statements.

In addition, and in connection with the Mergers and the resulting integration, we have incurred severance costs for terminated and transitional employees, and such costs were accrued over the related remaining service periods. More specifically, in August 2017, we entered into agreements with several of our executives, which provided the executives, as applicable, with benefits upon the consummation of the Mergers and/or where the executive experienced a qualifying termination within a specified period of time following such consummation. After the consummation of the Mergers, if a severance plan participant experienced a qualifying termination, such person was entitled to specified benefits. During the years ended December 31, 2019, 2018 and 2017, we incurred $1,041, $8,238, and $11,631, respectively, of employee severance pursuant to severance plans and executive agreements, and these costs are included in general and administrative expenses in the consolidated statements of operations.

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INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

Pro Forma Information

SWH contributed rental revenues and other property income of $84,702 and net loss of $8,262 for the period from November 16, 2017 to December 31, 2017. The following table provides the pro forma consolidated operational data as if the Mergers had occurred on January 1, 2016 (unaudited):

		For the Year Ended December 31, 2017
Rental revenues and other property income		$	1,608,574
Net loss		(142,816		)

The pro forma consolidated operational data is based on assumptions and estimates considered appropriate by our management; however, these pro forma results are not necessarily indicative of the results of operations that would have been obtained had the Mergers occurred on January 1, 2016, the beginning of the comparable annual period that was presented when the Mergers occurred. The pro forma consolidated operational data does not include the impact of any synergies that were achieved from the Mergers or any strategies that management considered in order to continue to efficiently manage operations.

Note 16**—**Summarized Quarterly Financial Data (Unaudited)

The following tables present summarized consolidated quarterly financial data for each of the eight quarters in the two year period ended December 31, 2019:

(in thousands, except share and per share data)	Quarter
2019	First				Second				Third				Fourth
Rental revenues and other property income	$	435,500			$	441,582			$	443,326			$	444,277
Net income	21,169				39,405				33,983				52,554
Net income available to common stockholders	20,716				38,833				33,616				51,903
Net income per share — basic	0.04				0.07				0.06				0.10
Net income per share — diluted	0.04				0.07				0.06				0.10
Dividends declared per common share	0.13				0.13				0.13				0.13
Shares used in calculation — basic	521,440,822				525,070,036				537,771,245				540,218,045
Shares used in calculation — diluted	521,817,494				525,933,643				538,644,888				541,505,031

(in thousands, except share and per share data)	Quarter
2018	First				Second				Third				Fourth
Rental revenues and other property income	$	423,669			$	432,426			$	434,251			$	432,616
Net income (loss)	(17,580		)		(14,188		)		1,041				25,714
Net income (loss) available to common stockholders	(17,491		)		(14,155		)		824				25,078
Net income (loss) per share — basic	(0.03		)		(0.03		)		—				0.05
Net income (loss) per share — diluted	(0.03		)		(0.03		)		—				0.05
Dividends declared per common share	0.11				0.11				0.11				0.11
Shares used in calculation — basic	519,660,998				520,509,058				520,620,519				520,703,045
Shares used in calculation — diluted	519,660,998				520,509,058				521,761,076				520,844,475

F-44

INVITATION HOMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands)

Note 17**—**Subsequent Events

In connection with the preparation of the accompanying consolidated financial statements, we have evaluated events and transactions occurring after December 31, 2019, for potential recognition or disclosure.

Dividend Declaration

On January 30, 2020, our board of directors declared a dividend of $0.15 per share to stockholders of record on February 12, 2020, which is payable on February 28, 2020.

Voluntary Mortgage Loan Payments

On February 7, 2020, we made voluntary prepayments of $15,000 and $60,000 on outstanding borrowings with unrestricted cash on hand against the outstanding balances of IH 2018-2 and IH 2018-3, respectively.

INVITATION HOMES INC.

Schedule III Real Estate and Accumulated Depreciation

As of December 31, 2019

(dollar amounts in thousands)

												Initial Cost to Company								Cost Capitalized Subsequent to Acquisition								Gross Amount at Close of Period
Market		Number of Properties**(1)**			Number of Encumbered Properties**(2)**			Encumbrances**(2)**				Land				Depreciable Properties				Land				Depreciable Properties				Land				Depreciable Properties				Total**(3)**				Accumulated Depreciation				Date of Construction				Date Acquired				Depreciable Period
Atlanta		12,472			6,740			$	833,078			$	323,365			$	1,592,842			$	—			$	242,484			$	323,365			$	1,835,326			$	2,158,691			$	(267,323	)		1920	-	2019		2012	-	2019		7	-	28.5 years
Carolinas		4,665			2,581			367,957				163,639				687,605				—				82,093				163,639				769,698				933,337				(102,112		)		1900	-	2019		2012	-	2019		7	-	28.5 years
Chicago		2,766			347			45,615				141,753				346,020				—				112,706				141,753				458,726				600,479				(85,112		)		1869	-	2015		2012	-	2017		7	-	28.5 years
Dallas		2,315			1,452			200,892				103,271				407,485				—				16,648				103,271				424,133				527,404				(29,758		)		1952	-	2019		2017	-	2019		7	-	28.5 years
Denver		2,294			1,484			288,886				186,555				529,892				—				23,017				186,555				552,909				739,464				(37,556		)		1885	-	2019		2017	-	2019		7	-	28.5 years
Houston		2,214			739			80,564				65,974				321,301				—				10,611				65,974				331,912				397,886				(25,351		)		1954	-	2015		2017				7	-	28.5 years
Jacksonville		1,862			991			149,136				86,293				218,321				—				52,343				86,293				270,664				356,957				(59,487		)		1955	-	2014		2012	-	2016		7	-	28.5 years
Las Vegas		2,989			1,991			356,737				129,529				567,311				—				34,006				129,529				601,317				730,846				(61,271		)		1953	-	2019		2012	-	2019		7	-	28.5 years
Minneapolis		1,140			69			8,961				68,011				140,337				—				51,398				68,011				191,735				259,746				(42,117		)		1886	-	2015		2013	-	2015		7	-	28.5 years
Northern California		4,364			2,768			602,486				352,669				746,440				—				102,358				352,669				848,798				1,201,467				(133,602		)		1900	-	2012		2012	-	2019		7	-	28.5 years
Orlando		6,057			3,239			431,794				208,772				826,485				—				132,512				208,772				958,997				1,167,769				(141,715		)		1947	-	2018		2012	-	2019		7	-	28.5 years
Phoenix		7,730			4,942			647,199				287,191				890,024				—				151,253				287,191				1,041,277				1,328,468				(169,240		)		1925	-	2019		2012	-	2019		7	-	28.5 years
Seattle		3,523			1,389			306,622				278,470				534,814				—				138,717				278,470				673,531				952,001				(109,925		)		1890	-	2018		2012	-	2019		7	-	28.5 years
South Florida		8,509			2,410			490,850				736,571				1,522,497				—				201,806				736,571				1,724,303				2,460,874				(272,342		)		1922	-	2019		2012	-	2019		7	-	28.5 years
Southern California		8,037			5,020			1,289,218				1,042,555				1,540,312				—				209,596				1,042,555				1,749,908				2,792,463				(264,285		)		1900	-	2014		2012	-	2019		7	-	28.5 years
Tampa		8,090			4,080			546,956				324,728				1,152,963				—				161,621				324,728				1,314,584				1,639,312				(202,776		)		1923	-	2018		2012	-	2019		7	-	28.5 years
Total		79,027			40,242			$	6,646,951			$	4,499,346			$	12,024,649			$	—			$	1,723,169			$	4,499,346			$	13,747,818			$	18,247,164			$	(2,003,972	)

(1)	Number of properties represents 79,505 total properties owned less 478 properties classified as held for sale and recorded in other assets, net on the consolidated balance sheet as of December 31, 2019.

(2)	Number of encumbered properties and encumbrances include the number of properties secured by first priority mortgages under the mortgage loans and the Secured Term Loan, as well as the aggregate value of outstanding debt attributable to such properties. Excluded from this is original issue discount, deferred financing costs, and 131 held for sale properties with an encumbered balance of $25,561.

(3)	The gross aggregate cost of total real estate in the table above for federal income tax purposes was approximately $16,410,719 (unaudited) as of December 31, 2019.

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INVITATION HOMES INC.

Schedule III Real Estate and Accumulated Depreciation

(dollar amounts in thousands)

		For the Years Ended December 31,
		2019				2018				2017
Residential Real Estate
Balance at beginning of period		$	18,229,974			$	18,387,898			$	9,794,845
Additions during the period
Acquisitions related to the Mergers		—				—				8,407,905
Acquisitions		586,075				252,391				228,499
Initial renovations		63,630				44,207				44,371
Other capital expenditures		168,575				141,595				59,111
Deductions during the period
Dispositions and other		(839,873		)		(472,168		)		(189,351		)
Reclassifications
Properties held for sale, net of dispositions		38,783				(123,949		)		42,518
Balance at close of period		$	18,247,164			$	18,229,974			$	18,387,898
Accumulated Depreciation
Balance at beginning of period		$	(1,543,914	)		$	(1,075,634	)		$	(792,330	)
Depreciation expense		(529,205		)		(511,988		)		(297,627		)
Dispositions and other		70,382				32,429				16,264
Reclassifications
Properties held for sale, net of dispositions		(1,235		)		11,279				(1,941		)
Balance at close of period		$	(2,003,972	)		$	(1,543,914	)		$	(1,075,634	)

F-46