Investing.com -- Invitation Homes Inc (NYSE: INVH ). has shown enduring strong operational trends, maintaining leverage around the mid-5x area, despite cost pressures. As a result, S&P Global Ratings has revised its outlook on the company to positive from stable, while affirming the ’BBB’ issuer and issue-level ratings.

The positive outlook is based on the expectation that Invitation Homes’ operational performance will remain steady as it continues to grow its asset base in a leverage-neutral manner. The company’s business strategy and operational performance continue to benefit from secular trends that favor renting over home ownership.

New home deliveries have started to moderate in many markets, and it is anticipated that the demand drivers for renting will continue to support healthy growth and operational metrics at Invitation Homes. The company’s preliminary January and February blended lease rate growth showed improvement at 3.6%, compared to 2.3% in the fourth quarter of 2024. Average occupancy also showed signs of stabilization at 97.1% from 96.7% over the same period.

Rental housing demand is expected to prove more resilient than other real estate sectors catering to discretionary demand, due to the increasing cost of home ownership in the U.S. S&P Global economists predict that housing affordability will continue to weaken amid high borrowing costs and the impact of inflation on household savings. Landlords, including Invitation Homes, are expected to be able to increase their rents in 2025, as renting remains overall more affordable than buying a home.

During the fourth quarter, Invitation Homes reported a 2.3% increase in its rents for leases on a blended basis. The company’s rent growth is expected to remain healthy, normalizing to the low single-digit percent area in 2025.

Invitation Homes’ commitment to its financial policies was evident in the stability of its credit protection metrics over the past three years. As of year-end 2024, the company’s S&P Global Ratings-adjusted debt to EBITDA was 5.4x, which aligns with the previous two years and shows substantial improvement from 7.2x at year-end 2020. The company is committed to maintaining leverage in the 5x range while continuing to grow, mainly through acquisitions, on a leverage-neutral basis.

The company’s fixed-charge coverage ( FCC (BME: FCC )) ratio remained solid at 3.8x for the 12 months ended Dec. 31, 2024. The FCC is expected to be in the mid-3x range over the next two years, as its positive operating performance will likely partially offset a modest increase in its interest rate expense. Invitation Homes does not face a debt maturity until June 2027.

The positive outlook on Invitation Homes is based on expectations that it will continue to generate good operating metrics while continuing to expand via acquisitions and joint ventures over the next two years. The company is expected to manage its increasing expenses and expand in a leverage-neutral manner, maintaining S&P Global Ratings-adjusted debt to EBITDA in the mid-5x area.

The outlook could be revised to stable if its operating performance deteriorates significantly or if it pursues significant debt-funded acquisitions or increased shareholder-friendly activities, causing its S&P Global Ratings-adjusted debt to EBITDA to rise above 6x. Conversely, the rating on Invitation Homes could be raised if the company continues to expand its market share in the single-family residential market and demonstrates continued good operating metrics, while keeping its S&P Global Ratings-adjusted debt to EBITDA below 6x.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.