Form S-11
Please provide us with copies of any graphics, maps, photographs, and related captions or other artwork including logos that you intend to use in the prospectus. Such graphics and pictorial representations should not be included in any preliminary prospectus distributed to prospective investors prior to our review.
No reply letter found.
Please supplementally provide us with copies of all written communications, as defined in Rule 405 under the Securities Act, that you, or anyone authorized to do so on your behalf, present to potential investors in reliance on Section 5(d) of the Securities Act, whether or not they retain copies of the communications.
No reply letter found.
We note your disclosure on page 6 referencing market data by John Burns Real Estate Consulting. In addition, we note your statement that the company owns and operates the largest portfolio of single-family rental homes in the United States based on revenue.” Please provide us with support for these disclosures. Clearly mark the specific language in the supporting materials.Rest of the question
Please note if the material is being provided pursuant to Rule 418 of the Securities Act of 1933 and if such material should be returned to the registrant upon completion of the staff review process.
No reply letter found.
We note your references to the Case Schiller Index throughout. Please revise to provide a brief description of the index.
No reply letter found.
You define same store portfolio to include homes that have been stabilized for at least 90 days prior to the first day of the prior-year measurement period. Please clarify the application of this definition throughout your prospectus. For example, on page 2 you disclose information about your same store portfolio as of June 30, 2016.Rest of the question
Please disclose the date at which properties must meet the definition of stabilized for inclusion in the same store total. Please also confirm, if true, that the total portfolio amounts in the table on page 2 include all properties, whether or not stabilized.
No reply letter found.
We note your disclosure that you have elected to qualify as a REIT and that you expect to continue to operate so as to qualify as a REIT. However, on page 35 you indicate that affiliates of your Sponsor will continue to control a majority of the combined voting power of all classes of stock. Please tell us how you are not closely held for the purposes of REIT qualification.
No reply letter found.
On page 4 you state that you have underwritten more than one million individual homes since your inception, from which you assembled your high quality portfolio of nearly 50,000 homes. Please clarify if you will acquire the full portfolios of the IH Holding Entities or if you selected only a portion of the portfolios for acquisition.
No reply letter found.
We note your comparison to Multifamily REIT performance data. Please advise why you believe it is appropriate to compare to this measure given the company’s focus on single family homes rentals, rather than apartments.
No reply letter found.
Please revise to include updated financial statements as of and for the period ended September 30, 2016.
No reply letter found.
You discuss risks associated with acquiring homes through an auction process on page 25. In addition, you discuss risks associated with acquiring properties “as is” or at an auction on page 26. To the extent material, please quantify the amount of properties purchased through an auction or “as is” to provide additional context.
No reply letter found.
Please tell us and revise your disclosure to provide a descriptive narrative of the certain mergers and related transactions that will be effected prior to the IPO, including a discussion of the accounting treatment of them.
No reply letter found.
When completing this section, please ensure that the footnotes to the pro forma financial statements provide disaggregated information that clearly discloses each of the components of the adjustments thereto, the amounts related to each of the components and how the amounts were determined.
No reply letter found.
Please revise to provide a description of the new type of residential real estate assetbacked securitization class, including the characteristics that make it new and how those characteristics compare to traditional securitization instruments for residential real estate.
No reply letter found.
Please expand your disclosure to also disclose the average purchase price and the average age of your portfolio. Please also disclose the average length of the leases and the average remaining length of leases in your Same Store portfolios.
No reply letter found.
We note your disclosure that your homes appeal to a resident base that you believe is less transitory than the typical multifamily resident. We also note your disclosure on page 98 of your resident screening process. Please revise your disclosure to provide a breakdown of your resident characteristics.
No reply letter found.
We note your disclosure on page 66 that you have an additional 145 homes in escrow that you expect to acquire. Please revise your disclosure to describe the geographic distribution of these properties.
No reply letter found.
We note your disclosure on page 66 that you have selected locations primarily in the Western United States and Florida. Please expand your disclosure to include a discussion of these target markets. Please also include MD&A disclosure of any changes over the periods presented and expectations for the future, if different.
No reply letter found.
Please revise to discuss the average time to stabilization time as well as the average time from acquisition to renovation and from renovation to leasing. To the extent you experience changes in these metrics in the future, please discuss such trends.
No reply letter found.
Please revise to identify and discuss the primary channels of property acquisitions that you use. Quantify each of those channels as a percentage of total acquisitions in each period presented and discuss any industry trends within those channels.
No reply letter found.
Please identify and discuss any bulk acquisition transactions within each period, including the channels through which they were acquired and types of properties acquired. In addition, please clarify how you account for bulk acquisitions.
No reply letter found.
Please clarify whether the types of properties subject to mortgages in which you may invest will be limited to single family dwellings. Please also describe each type of mortgage activity in which you may engage. See Item 13(b) of Form S-11.
No reply letter found.
We note your beneficial ownership tables on page 136 showing the number of shares beneficially owned if the offering prices at the low-point or the high-point of the price range. Please revise to include a column for the percentage ownership of common stock.
No reply letter found.
Please tell us how your presentation of a separate line item for noncash incentive compensation complies with SAB Topic 14F.
No reply letter found.
Please provide us your analysis under ASC 860 performed in determining that not consolidating the depositor entity trusts of subsidiaries was appropriate. In addition, please clarify for us whether any off balance sheet financing exists as a result of these transactions.
No reply letter found.
Please file all required exhibits as promptly as possible. If you are not in a position to file your legal and tax opinions with the next amendment, please provide a draft copy for us to review. In addition, please provide a supplemental copy of the stockholders agreement. The draft exhibits should be filed as EDGAR correspondence.
No reply letter found.
We note your revised disclosure in response to comment 5. Your definition of your same store portfolio appears to exclude properties that have not been renovated and properties that were renovated but have not been leased. Please tell us how you determined it was appropriate to exclude these properties from your same store portfolio. Please also tell us how you classify these excluded properties.
We note your response to comment 1 of our letter dated December 12, 2016 that several peer companies exclude from their same store pool the results of properties that had completed an upfront renovation but had not yet been leased or occupied for a certain period of time. However, your definition of your same store portfolio appears to exclude all properties that have been renovated but have not yet entered into a lease, regardless of how much time has passed since renovation. Please clarify how you determined it was appropriate to exclude all of these properties.Read in the reply ↗Rest of the answer
We note your disclosure on page 111 that for leases starting in the nine months ended September 30, 2016, the average time between renovation completion and initial lease start was 38 days.
Invitation Homes believes that presenting information about the portion of its portfolio that was fully operational – i.e., that had completed an upfront renovation and had been on lease for at least 90 days – for the entirety of a given reporting period, when taken together with the results of its total portfolio, provides investors with meaningful information about the performance of its comparable homes across periods and about trends in its organic business. As disclosed on page 111, for initial Invitation Homes leases starting in the nine months ended September 30, 2016, the average time between renovation completion and initial lease start was 38 days and was 53 days for leases starting in the nine months ended September 30, 2015. As a result, homes that had not commenced an initial post-renovation lease by the determination date in respect of the first year of a two-year Same Store comparison period will typically have been leased for the entirety of the second year of such comparison period, which may render less comparable the results of the periods within the
Same Store comparison period and overstate certain items such as revenue growth and NOI growth. Accordingly, Invitation Homes believes that a supplemental presentation of operating data and results on a basis that excludes these non-comparable homes enhances a reader’s understanding of trends in its organic business.
Invitation Homes supplementally advises the Staff that a definition of Same Store portfolio that included all homes that had completed an upfront renovation and had been available for lease for at least 90 days prior to the applicable determination date would have resulted in the inclusion of fewer than 400 (or approximately 1%) additional homes in its
2015/2016 Same Store portfolio of 36,569 homes and fewer than 250 (or approximately 1%) additional homes in its the 2014/2015 Same Store portfolio of 18,762 homes, and would not have resulted in any material differences from the Same Store metrics presented in the Registration Statement. For example, utilization of this alternative definition of Same Store portfolio would have resulted in Same Store number of homes, average occupancy, and average monthly rent as of and for the nine months ended September 30, 2016 of 36,958, 96.1% and $1,607, respectively, as compared to actual Same Store number of homes, average occupancy, and average monthly rent of 36,569, 96.1%, and $1,603, respectively. As of and for the nine months ended
September 30, 2015, utilization of this alternative definition would have resulted in Same Store number of homes, average occupancy, and average monthly rent of 36,958, 95.8% and $1,541, respectively, as compared to actual Same Store number of homes, average occupancy, and average monthly rent of 36,569, 96.1%, and $1,538, respectively. Invitation Homes advises the Staff that if in future periods the inclusion of such homes would have a material impact on its Same Store results it will consider whether any modification to its presentation of Same Store portfolio information would be appropriate.
To clarify the foregoing, Invitation
Homes will revise the Registration Statement to include the additional following disclosure:
“As explained in the glossary of this prospectus, our definition of Same Store portfolio includes only those homes that have both completed an upfront renovation and entered into at least one post-renovation Invitation Homes lease at least 90 days prior to the first day of the prior-year measurement period. Accordingly, our Same Store portfolio excludes homes that had completed an upfront renovation, but which had not yet commenced an initial Invitation Homes lease at or prior to the applicable determination date. As disclosed in
“Business—Our Business Activities—Property Renovations,” for initial Invitation Homes leases starting in the nine months ended September 30, 2016, the average time between renovation completion and initial lease start was 38 days and was 53 days for leases starting in the nine months ended September 30, 2015. As a result, homes that had not commenced an initial post-renovation lease by the determination date in respect of the first year of a two-year Same Store comparison period will typically have been leased for the entirety of the second year of such comparison period, which may render less comparable the results of the periods within the Same Store comparison period and overstate certain items such as revenue growth and NOI growth. Accordingly, we believe that our presentation of Same Store results enhances a reader’s understanding of trends in our organic business. A definition of Same
Store portfolio that included all homes that had completed an upfront renovation and had been available for lease for at least 90 days prior to the applicable determination date would not have resulted in material differences from the Same Store presentation included in this prospectus. For example, utilization of this alternative definition of Same Store portfolio would have resulted in Same Store number of homes, average occupancy, and average monthly rent as of and for the nine months ended September 30, 2016 of 36,958, 96.1% and $1,607, respectively, as compared to actual Same Store number of homes, average occupancy, and average monthly rent of 36,569, 96.1%, and $1,603, respectively. As of and for the nine months ended
September 30, 2015, utilization of this alternative definition would have resulted in Same Store number of homes, average occupancy, and average monthly rent of 36,958, 95.8% and $1,541, respectively, as compared to actual Same Store number of homes, average occupancy, and average monthly rent of 36,569, 96.1%, and $1,538, respectively.”
We note your response to comment 7. We also note you have underwritten more than 1,000,000 individual homes since your inception, but your portfolio will only consist of approximately 50,000 homes. Please tell us the cause for this disparity.
No numbered answer found in the reply. Read the reply ↗
We note your response to comment 8. Please revise your disclosure to include a brief discussion of why you believe multifamily REIT performance data provides a meaningful comparison.
No numbered answer found in the reply. Read the reply ↗
We have considered your response to our prior comment 23. Please revise your presentation in accordance with SAB Topic 14F. Supplemental Response Dated November 23, 2016
No numbered answer found in the reply. Read the reply ↗
We note the assumptions contained in paragraphs 5 and 6 of Exhibit A. Please confirm that you will file an appropriately unqualified opinion, removing these assumptions, by post-effective amendment no later than the closing date of the offering. Please also revise the assumption contained in paragraph 8. As drafted this assumes a conclusion of law which is a necessary requirement of the ultimate legality opinion.Rest of the question
Please revise. Refer to Staff Legal Bulletin 19 for guidance.
No numbered answer found in the reply. Read the reply ↗
We note your response to comment 1 of our letter dated December 12, 2016 that several peer companies exclude from their same store pool the results of properties that had completed an upfront renovation but had not yet been leased or occupied for a certain period of time.Rest of the question
However, your definition of your same store portfolio appears to exclude all properties that have been renovated but have not yet entered into a lease, regardless of how much time has passed since renovation. Please clarify how you determined it was appropriate to exclude all of these properties. We note your disclosure on page 111 that for leases starting in the nine months ended September 30, 2016, the average time between renovation completion and initial lease start was 38 days.
We note your response to comment 1 of our letter dated December 12, 2016 that several peer companies exclude from their same store pool the results of properties that had completed an upfront renovation but had not yet been leased or occupied for a certain period of time. However, your definition of your same store portfolio appears to exclude all properties that have been renovated but have not yet entered into a lease, regardless of how much time has passed since renovation. Please clarify how you determined it was appropriate to exclude all of these properties.Read in the reply ↗Rest of the answer
We note your disclosure on page 111 that for leases starting in the nine months ended September 30, 2016, the average time between renovation completion and initial lease start was 38 days.
Invitation Homes believes that presenting information about the portion of its portfolio that was fully operational – i.e., that had completed an upfront renovation and had been on lease for at least 90 days – for the entirety of a given reporting period, when taken together with the results of its total portfolio, provides investors with meaningful information about the performance of its comparable homes across periods and about trends in its organic business. As disclosed on page 122, for initial Invitation Homes leases starting in the nine months ended September 30, 2016, the average time between renovation completion and initial lease start was 38 days and was 53 days for leases starting in the nine months ended September 30, 2015. As a result, homes that had not commenced an initial post-renovation lease by the determination date in respect of the first year of a two-year Same Store comparison period will typically have been leased for the entirety of the second year of such comparison period, and the inclusion of such homes may render less comparable the results of the periods within the Same Store comparison period and overstate certain items such as revenue growth and NOI growth. Accordingly, Invitation Homes believes that a supplemental presentation of operating data and results on a basis that excludes these non-comparable homes enhances a reader’s understanding of trends in its organic business.
Invitation Homes supplementally advises the Staff that a definition of Same Store portfolio that included all homes that had completed an upfront renovation and had been available for lease for at least 90 days prior to the applicable determination date would have resulted in the inclusion of fewer than 400 (or approximately 1%) additional homes in its 2015/2016 Same Store portfolio of 36,569 homes and fewer than 250 (or approximately 1%) additional homes in its 2014/2015 Same Store portfolio of 18,762 homes, and would not have resulted in any material differences from the Same Store metrics presented in the Registration Statement. For example, utilization of this alternative definition of Same Store portfolio would have resulted in Same Store number of homes, average occupancy, and average monthly rent as of and for the nine months ended September 30, 2016 of 36,958, 96.1% and $1,607, respectively, as compared to actual Same Store number of homes, average occupancy, and average monthly rent of 36,569, 96.1%, and $1,603, respectively. As of and for the nine months ended September 30, 2015, utilization of this alternative definition would have resulted in Same Store number of homes, average occupancy, and average monthly rent of 36,958, 96.1% and $1,541, respectively, as compared to actual Same Store number of homes, average occupancy, and average monthly rent of 36,569, 96.1%, and $1,538, respectively. Invitation Homes advises the Staff that if in future periods the inclusion of such homes would have a material impact on its Same Store results it will consider whether any modification to its presentation of Same Store portfolio information would be appropriate.
To clarify the foregoing, Invitation Homes has revised page 18 to include the following additional disclosure*:
“As explained in the glossary of this prospectus, our definition of Same Store portfolio includes only those homes that have both completed an upfront renovation and entered into at least one post-renovation Invitation Homes lease at least 90 days prior to the first day of the prior-year measurement period. Accordingly, our Same Store portfolio excludes homes that had completed an upfront renovation, but which had not yet commenced an initial Invitation Homes lease at or prior to the applicable determination date. As disclosed in “Business—Our Business Activities—Property Renovations,” for initial Invitation Homes leases starting in the nine months ended September 30, 2016, the average time between renovation completion and initial lease start was 38 days and was 53 days for leases starting in the nine months ended
September 30, 2015. As a result, homes that had not commenced an initial post-renovation lease by the determination date in respect of the first year of a two-year Same Store comparison period will typically have been leased for the entirety of the second year of such comparison period, and the inclusion of such homes may render less comparable the results of the periods within the Same Store comparison period
*
We respectfully advise the Staff that the additional disclosure below varies in two minor respects from the version supplementally submitted to the Staff on January 19, 2017: (1) the fourth sentence includes the words
“and the inclusion of such homes” in lieu of the word “which” and (2) the final sentence reflects that utilization of the alternative definition of Same Store average occupancy would in fact not have resulted in any change to average occupancy for the nine months ended September 30, 2015 rather than a decrease from 96.1% to 95.8%.
and overstate certain items such as revenue growth and NOI growth. Accordingly, we believe that our presentation of Same Store results enhances a reader’s understanding of trends in our organic business. A definition of Same Store portfolio that included all homes that had completed an upfront renovation and had been available for lease for at least 90 days prior to the applicable determination date would not have resulted in material differences from the Same Store presentation included in this prospectus. For example, utilization of this alternative definition of Same Store portfolio would have resulted in Same Store number of homes, average occupancy, and average monthly rent as of and for the nine months ended September 30, 2016 of 36,958, 96.1% and $1,607, respectively, as compared to actual Same Store number of homes, average occupancy, and average monthly rent of 36,569, 96.1%, and $1,603, respectively. As of and for the nine months ended September 30, 2015, utilization of this alternative definition would have resulted in Same Store number of homes, average occupancy, and average monthly rent of 36,958, 96.1% and $1,541, respectively, as compared to actual Same Store number of homes, average occupancy, and average monthly rent of 36,569, 96.1%, and $1,538, respectively.”
Please provide us with an expanded discussion of the attributes of these units by addressing the following: Please describe the circumstances under which the units become exercisable, including a description of the referenced thresholds and liquidity events. Please explain the difference in the weighted average fair values used to value the units issued to employees and to non-employees.Rest of the question
Please explain the circumstances under which these units were issued for nominal consideration.
Please provide us with an expanded discussion of the attributes of these units by addressing the following:
•
Please describe the circumstances under which the units become exercisable, including a description of the referenced thresholds and liquidity events.
Please explain the difference in the weighted average fair values used to value the units issued to employees and to non-employees.
Please explain the circumstances under which these units were issued for nominal consideration.
Invitation Homes advises the Staff that the incentive compensation unit holders are only entitled toRead in the reply ↗Rest of the answer
distributions when and if made by the
Promote Partnerships (as defined on page 140) after certain internal return thresholds by the Class A partners are achieved and, as such, the incentive units are not an exercisable award. In conjunction with this offering, Invitation Homes expects to convert the incentive compensation units held by current officers and employees (except Mr. Tanner) into a combination of vested and unvested shares of the common stock of Invitation Homes Inc. The converted shares will follow similar service-based vesting terms as the underlying partnership units. The converted shares have no transfer restrictions other than as a result of a lock-up under the terms of the underwriting agreement (see
“Management—Executive Compensation—Long-Term Incentive Compensation” starting on page 140 for a description of the conversion and the shares received in the conversion).
Invitation Homes further advises the Staff that the thresholds referenced on page F-56 represent the achievement of certain internal rates of return by the Class A partners as defined and calculated in accordance with the governing documents of each of the individual Promote Partnerships.
Upon achievement of these return hurdles, the unit holders are entitled to receive distributions.
Invitation Homes also advises the Staff that the definition of a liquidity event for the purpose of incentive units subject to performance based vesting is based on the subscription agreements of the individual unit holders, but is generally the first to occur of (x) the date
Blackstone ceases to be the beneficial owner of at least 15% of the outstanding equity capital of the applicable Promote Partnership (or, following this offering, the date Blackstone and its affiliates cease to own 15% or more of the common stock of
Invitation Homes) and (y) if an initial public offering (including this offering) has occurred, the date that is 18 months after the consummation of the initial public offering.
Invitation Homes utilizes the process described on page F-56 to determine the fair value of all incentive unit awards. Differences in weighted average fair value between units issued to employees and to non-employees are primarily the result of the following: (1) the units for each of the Promote
Partnerships are valued on a partnership by partnership basis and consider the actual performance and thresholds of each Promote Partnership individually, (2) the fair value of incentive units awarded in IH1 is equal to the grant date fair value pursuant to ASC 718, Compensation, because they were granted to employees of a wholly owned subsidiary of IH1, whereas the fair value of unvested units awarded in the other Promote Partnerships continues to be remeasured at each reporting period in accordance with ASC 505, Equity, because they were granted to non-employees of the issuing entities, and (3) there has been variability in the timing of the issuance of awards with the employee units being granted primarily in 2012-2013 as compared to the non-employee unit grants that spanned 2013-2016.
Incentive compensation units issued by the Promote Partnerships to a limited number of unit holders who were subject to taxation in the United
Kingdom were transferred in exchange for a cash payment from those unit holders. The cash amount paid was nominal relative to the fair value of these units. The reason for making this payment was to comply with U.K. tax rules related to the transfer of equity securities in connection with services. No other unit holders paid cash for their incentive compensation units.
Please revise the introduction to these financial statements to disclose the accounting basis you will use to record the pre IPO transactions.
to the Staff’s comment, Invitation Homes has revised the description of the Pre-IPO transactions on page 63 to disclose that the Pre-IPO Transactions will be accounted for as transactions under common control utilizing historical cost basis. Read in the reply ↗
Please revise to clarify how you determined that the expectation of entering into a new credit facility is factually supportable such that giving it pro forma effect is appropriate. Compare that determination with your assertion that the binding commitment to enter into a securitization transaction is not factually supportable.
Please revise to clarify how you determined that the expectation of entering into a new credit facility is factually supportable such that giving it pro forma effect is appropriate. Compare that determination with your assertion that the binding commitment to enter into a securitization transaction is not factually supportable.
Invitation Homes advises the Staff that the closing of the New Credit Facility is contingent on the consummation of this offering, and it has entered into a commitment letter with a syndicate of lenders providing for key terms, including the principal amount, baseRead in the reply ↗Rest of the answer
rate, credit spreads, maturity date and covenants. In contrast, Invitation Homes advises the Staff that the commitment letter for the FNMA Loan provides that the principal amount will be determined pursuant to loan-to-value and debt service coverage ratios up to the maximum of
$1,000.0 million and interest will be in part a function of a market determined pass-through rate payable on the Guaranteed Certificates. As a result of these uncertainties, Invitation Homes has determined that an adjustment for the FNMA Loan cannot be factually supported. In addition, the FNMA Loan is a transaction in the normal course of business and is not contingent on completion of this offering. Accordingly, Invitation Homes has not reflected the impact of the FNMA Loan in the unaudited pro forma condensed combined and consolidated financial statements.
Invitation Homes has revised the disclosure on pages 62-63 to clarify the foregoing.
Please revise the footnotes to these financial statements to provide a reconciliation of the components of each adjustment to the amount of the adjustment reflected in the pro forma financial statements. Your revisions should allow a reader to easily trace the amounts of the adjustments reflected in the footnotes to the pro forma financial statements and to easily see how the adjustment was calculated.Rest of the question
Refer, for instance, to adjustment A to the pro forma balance sheet. It does not appear that the components identified and quantified in the footnote can be easily traced into the amount of the related adjustments reflected in the pro forma balance sheet nor can those adjustments be easily calculated.
to the Staff’s comment, Invitation Homes has revised the footnotes to the unaudited pro forma condensed combined and consolidated financial statements to include a detailed schedule of the components of each adjustment to the respective financial statement account. Please see revised footnotes A, F, I, N, and O to the unaudited pro forma condensed combined and consolidated financial statements on pages 68, 70-71 and 74 for these reconciliations. Read in the reply ↗
Please refer to adjustments D, E and F to pro forma balance sheet and the related adjustments to the pro forma income statement and revise to clarify how the swap agreements and the related adjustments are directly attributable to the offering and the related transactions. Absent such attribution, please limit your discussion and disclosure of them to the footnotes, without adjustment to the financial statements.
to the Staff’s comment, Invitation Homes has revised the unaudited pro forma condensed combined and consolidated financial statements and footnotes thereto to limit the discussion and disclosure of these swap agreements to the footnotes, without adjustment to the financial statements. Please see revised footnote E to the unaudited pro forma condensed combined and consolidated balance sheet on page 69. Read in the reply ↗
Please refer to adjustment H to the pro forma balance sheet and revise to quantify the referenced loans, how they were reflected in your historical financial statements and how they were settled.
to the Staff’s comment, Invitation Homes has revised adjustment H to the unaudited pro forma condensed combined and consolidated balance sheet on pages 70-71 to quantify the referenced loans and describe how they were reflected in the historical combined and consolidated financial statements and settled. Read in the reply ↗
Please refer to adjustment I to the pro forma balance sheet. When reconciling the components in the footnote to the adjustments reflected in the pro forma balance sheet, please ensure you include a reconciliation of the IPO share price to the gross proceeds.
to the Staff’s comment, Invitation Homes has revised footnote J to the unaudited pro forma condensed combined and consolidated balance sheet on pages 71-72 to reconcile the assumed share price for the offering based on the midpoint of the price range to the gross proceeds. Read in the reply ↗
Please refer to adjustment J to the pro forma balance sheet and, in connection with providing a reconciliation of the amounts of the related adjustments and how those amounts were calculated, ensure you provide transparent information as to how you calculated the amounts at which the units will convert into shares of Invitation Homes Inc. We may have further comment once we have reviewed your revised disclosure.
to the Staff’s comment, Invitation Homes has revised footnote K to the unaudited pro forma condensed combined and consolidated balance sheet to describe how the adjustments were calculated and has added footnote I to provide a reconciliation of these amounts to the unaudited pro forma condensed combined and consolidated balance sheet. Read in the reply ↗
Please refer to adjustment J to the pro forma balance sheet and revise to quantify the incentive units and bonus awards granted in January, 2017 and to disclose the amounts at which they were issued. See the comment immediately preceding this one and ensure your revisions include how you determined the amount of the incremental compensation expense.
to the Staff’s comment, Invitation Homes has revised footnote K to the unaudited pro forma condensed combined and consolidated balance sheet to quantify the incentive units and bonus awards granted in January 2017 and their issuance values and to describe how the adjustment for incremental compensation expense was calculated. Read in the reply ↗
We note your disclosure that you did not give pro forma effect to your financial statements for any incremental cost related to the modification of the existing awards or establishment of new awards because they are not reflective of your expectations regarding future incentive compensation expense.Rest of the question
Please clarify for us whether the transactions discussed in this footnote are expected to have a continuing impact on your operations and explain to us the basis for your conclusions.
Invitation Homes advises the Staff that it expects to record compensation expense relating to the conversion of the supplemental bonus plan awards and bonus awards in IH6, as described in footnote K to the unaudited pro forma condensed combined and consolidated balance sheet, of $22.5 million on the date of the offering and an incremental
$30.9 million over the 24-month period following the offering, and that the amount of any incremental compensation expense relating to the conversion of incentive units in the Promote Partnerships described in footnote K will not exceed $1.1 million.Read in the reply ↗Rest of the answer
Invitation Homes further advises the Staff that it views the incentive units, bonus awards and existing supplemental bonus plan as legacy compensation programs designed and implemented for a private company. Following the offering, Invitation Homes anticipates implementing new compensation arrangements appropriate for a public company. Accordingly, Invitation Homes does not expect the compensation expense associated with the one-time resolution of these legacy compensation programs to have a continuing impact on its operations, and accordingly has not reflected adjustments relating thereto in its unaudited pro forma condensed combined and consolidated statement of operations. Instead, consistent with the principles of Article 11, the impact from these events has only been reflected within the unaudited pro forma condensed combined and consolidated balance sheet. Invitation Homes has revised its disclosure in footnote K to disclose the compensation expense it expects to record relating to the conversion of incentive units, the supplemental bonus plan awards and bonus awards in IH6 and to further clarify the foregoing.
We note the revisions made in response to comment 5; however, we are unable to trace the amounts included in adjustment J to the components identified in the related footnote. Please revise to provide additional transparency as to how those components tie into the adjustments reflected in the pro forma balance sheet.Rest of the question
Specifically, please provide reconciliation between the gross proceeds expected to be received and the net cash reflected in this adjustment.
to the Staff’s comment, Invitation Homes has revised pages 71-72 to provide a reconciliation of the amounts included in adjustment J to the unaudited pro forma condensed combined and consolidated balance sheet to the components identified in the related footnote, including a reconciliation between the gross proceeds expected to be received and the net cash and cash equivalents reflected in this adjustment. Read in the reply ↗
We note the revisions made in response to prior comment 10. Please address the following with respect to the transactions reflected in adjustment K: Please revise your disclosure throughout to clarify how you determined the number of shares that will be issued for the conversion of Incentive Units and the payment of bonuses.Rest of the question
Based on review of your financial statements for the period ended September 30, 2016, it appears that incentive units outstanding as of that date had an aggregate value of approximately $159,000. Based on your disclosure related to adjustment K, it appears that these units will convert into shares with an aggregate value of approximately $1.1 million. Please provide us with an explanation for the apparent increase in value. Particularly, explain the reasons for the increase in value (if any) from the issuance date to the IPO date for incentive units issued during the nine month period ended September 30, 2016. Please revise your disclosure to provide a reconciliation of the $22.5 million in compensation expense expected to be recorded on the date of the offering. The revised disclosure should provide the compensation expense expected to be recorded for (a) the conversion of Incentive Units into shares of common stock (b) the initial compensation expense incurred upon the bonus payment under the supplemental bonus plan and (c) the payment of Bonus Awards in January 2017. Tell us whether you have accrued any portion of the bonus payment under the supplemental bonus plan as of September 30, 2016 and the basis for your conclusions. It appears that you expect to continue to recognize expense related to your supplemental bonus plan for a 24 month period following your offering. Please revise your pro forma financial statements accordingly.
Invitation Homes advises the Staff that, as disclosed on pages 72-73, the number of shares to be received in the conversion of Incentive Units will be determined in a manner intended to replicate the respective economic value associated with the corresponding Incentive Units. In order to determine the pre-conversion economic value associated with the Incentive Units, Invitation Homes first determined the total enterprise value of the Company (i.e., the amount of its equity and net debt) implied by the assumed initial public offering price of $19.50 per share.Read in the reply ↗Rest of the answer
Invitation Homes then determined the portion of such total enterprise value allocable to each Promote Partnership by comparing the estimated market value of the homes owned by each Promote Partnership to the estimated market value of the Company’s total portfolio. This value was then adjusted for each Promote
Partnership’s respective amount of cash, debt, other assets and liabilities and its ratable portion of the expenses of this offering to arrive at its implied equity value. The pre-conversion economic value of the Incentive Units represents the portion of such equity value that the unitholder would be entitled to receive upon a hypothetical liquidation of the respective Promote Partnership calculated in accordance with its respective governing documents, which require the achievement of certain internal rates of return by the Class A partners before the holders of Incentive Units are entitled to receive distributions. Finally, the pre-conversion economic value of the Incentive Units was translated into a number of shares using the assumed initial public offering price of $19.50 per share. In summary, each Incentive Unit holder will receive a number of shares that is equal in value (based on the initial public offering price) to the payment the Incentive Unit holder would have received if all of the Promote Partnerships were sold for cash equal to the valuation of Invitation Homes implied by the initial public offering price.
Invitation Homes advises the Staff that the number of shares to be issued in conversion of the cash bonuses awarded in the IH6 Bonus Awards and under the supplemental bonus plan was determined by translating the dollar amount of such bonuses into a number of shares with equivalent value based on the assumed initial public offering price of
$19.50 per share.
Invitation Homes has revised pages 72-73 to reflect the foregoing.
Based on review of your financial statements for the period ended September 30, 2016, it appears that incentive units outstanding as of that date had an aggregate value of approximately $159,000. Based on your disclosure related to adjustment K, it appears that these units will convert into shares with an aggregate value of approximately $1.1 million. Please provide us with an explanation for the apparent increase in value. Particularly, explain the reasons for the increase in value (if any) from the issuance date to the IPO date for incentive units issued during the nine month period ended September 30, 2016.
Invitation Homes supplementally advises the Staff that the weighted average fair value of outstanding incentive units reflected in its condensed combined and consolidated statement of operations for the nine months ended September 30, 2016 was approximately $3,200 per unit or $159 million in the aggregate. Please see the first table set forth in Note 9—Incentive Compensation
Units to the unaudited condensed combined and consolidated financial statements as of and for the nine months ended September 30, 2016 and 2015, which specifies the weighted average fair value per unit of the incentive units outstanding as of
September 30, 2016 in thousands of dollars. The difference between the historical weighted average fair value of $159 million and the estimated conversion value of $1.1 million is primarily explained by the fact that only 8,242 of the 49,605 total incentive units outstanding as of September 30, 2016 will be converted for shares at the time of the offering, which accounts for approximately 90% of such difference. The holders of incentive units that will not be converted for shares will receive similar limited partner interests in partnerships that will hold shares of common stock of Invitation Homes Inc. As described on pages 143 and 152, the interests in such partnerships held by Mr. Tanner and Mr. Gould will be fully vested. None of the other holders of such non-converting incentive units are current employees of Invitation Homes under generally accepted accounting principles.
With respect to the portion of the incentive units that will be converted for shares, Invitation Homes advises the Staff that the aggregate estimated conversion value of such incentive units as disclosed in footnote K does not represent any increase from the aggregate fair value of such incentive units as reflected in the unaudited condensed combined and consolidated financial statements of Invitation Homes as of and for the nine months ended September 30, 2016. The valuation derived from the assumed initial public offering price of $19.50 per share, resulting in the expected conversion value of $1.1 million, was lower than the valuation derived from the assumptions used to determine the weighted average fair value of the incentive units as of September 30, 2016. Invitation Homes further advises the Staff that with respect to incentive units issued during the nine months ended September 30, 2016, there has been no increase from their fair value at the issuance date to their estimated conversion value at the IPO date.
Please revise your disclosure to provide a reconciliation of the $22.5 million in compensation expense expected to be recorded on the date of the offering. The revised disclosure should provide the compensation expense expected to be recorded for (a) the conversion of Incentive Units into shares of common stock (b) the initial compensation expense incurred upon the bonus payment under the supplemental bonus plan and (c) the payment of Bonus
Awards in January 2017.
Invitation Homes has revised page 74 to provide a reconciliation of the total amount of one-time compensation expense expected to be recorded on the date of the offering allocable to the items identified in the Staff’s comment.
Tell us whether you have accrued any portion of the bonus payment under the supplemental bonus plan as of September 30, 2016 and the basis for your conclusions.
Invitation Homes advises the Staff that, as disclosed in Note 12—Subsequent Events to the unaudited condensed combined and consolidated balance sheet as of September 30, 2016, payment of a bonus under the supplemental bonus plan is triggered upon an initial public offering or exit event. As of September 30, 2016, the occurrence of a triggering event was not yet probable, and accordingly no accrual was required.
It appears that you expect to continue to recognize expense related to your supplemental bonus plan for a 24 month period following your offering. Please revise your pro forma financial statements accordingly.
Invitation Homes has revised its unaudited pro forma condensed combined and consolidated statements of operations and the pro forma summary financial data derived therefrom to give pro forma effect to the incremental compensation expense related to the supplemental bonus plan. See footnote O on page 76.
Please revise adjustment N to provide the information necessary for a reader to understand how the amounts disclosed were calculated, including any material assumptions.
Invitation Homes has revised footnote L on pages 74-75 to more clearly explain how the interest expense adjustments associated with the Term
Loan Facility and associated interest rate swaps, as well as the amortization of deferred financing costs attributable to the Term Loan Facility and Revolving Credit Facility were calculated, including all material assumptions. Read in the reply ↗
We note the revision made to adjustment N in response to comment 6. It appears that you have determined that none of the interest rate swap transactions are directly attributable to the transactions reflected in your pro forma financial statements. Please clarify for us whether any of the swaps were entered into in contemplation of the term loan reflected in adjustment B.
Invitation Homes advises the Staff that the two interest rate swap agreements that were entered into on December 21, 2016 were entered into in contemplation of its New Credit Facility. As discussed with the Staff on January 26, 2017, Invitation Homes has revised its unaudited pro forma condensed combined and consolidated statements of operations and the pro forma summary financial data derived therefrom to reflect the pro forma impact of these swap agreements. Read in the reply ↗
Please update paragraphs 5 and 6 of your opinion when the Company obtains stockholder approval and files relevant corporate documents. In this regard, these assumptions currently appear overly broad and assume material facts underlying your opinion that the securities will be legally issued. In the alternative, please provide analysis for counsel’s belief that the assumptions are necessary and appropriate.
As discussed with the Staff on January 26, 2017, Invitation Homes advises the Staff that it will file by post-effective amendment no later than the closing date of the offering an opinion that does not contain the assumptions contained in paragraphs 5 and 6 of the version filed as Exhibit 5.1 to Amendment No. 1. Read in the reply ↗
Please confirm that the Officer’s Certificate is limited to factual matters.
Invitation Homes advises the Staff that the Officer’s Certificate referenced in the opinion filed as Exhibit 8.1 to Amendment No. 1 is limited to factual matters. Read in the reply ↗
Also in this review: company letter, 2017-01-06, company letter, 2017-01-17