"Falsehood flies, and the truth comes limping after it."
---- Hatchet job ----
Two years ago the Washington Post ran a big story that claimed Invitation Homes was putting tenants at risk by cutting corners during renovations.
“We’re paying $4,000 a month to live in hell…”
“They hire people who will just do anything without doing it to code.”
---- "Sell Invitation Homes" ----
...then a widely-followed hedgefund pundit labeled Invitation Homes as a top short idea, concluding...
"As clearly as we can state it: THIS IS REALLY BAD."
And...
"An independent and highly credible third-party news organization conducted its own research and due diligence and found enough data and evidence to publish this very high-profile and damaging story."
The pundit's analysis suggested that Invitation could take an $80-100M hit to NOI. i.e., $2B on a capitalized basis.
---- Voice of reason? ----
At the time, Green Street told its clients: "[this] appears to be a case of social media and a retail trading community blowing a sensational headline out of proportion.”
Nevertheless, Invitation's market cap fell by about $5 billion following the report.
---- A resolution ----
Earlier this week, Invitation issued a press release saying the firm had agreed to settle all claims related to the WaPo investigative report.
So how bad was it for Invitation Homes?
The stock market's prediction of damages was a few billion dollars, perhaps influenced by the hedge fund pundit.
And, if these renovations were as egregious as reported, you might think Invitation couldn't escape this without admitting fault.
But the final judgment was less than $20M. i.e., less than 1/10 of 1% of Invitation's current market capitalization. And INVH admitted no wrongdoing.
---- Interesting backstory ----
Where will the $20M payment from INVH go?
-- $4M to the plaintiff's attorneys
-- $7.5M to various California municipalities
-- $7.5M to Blackbird Ventures
Blackbird Ventures is 'serial entrepreneur,' Neil Senturia's investment firm. Neil is the big winner here. He spearheaded these claims against Invitation Homes under California's whistleblowing laws, which reward legal vigilantes for identifying corporate falsities.
---- Our takeaways ----
1. WaPo's report got a lot of attention, and the fallout is a good example of how sentiment can outrun value.
2. How did Green Street get it right? A framework-based approach to evaluating real estate value.
3. Was this story really about renovation quality or permitting or was it about an easy villain?
PS - Although the recent judgment confirms actual liabilities were materially less than originally implied, we haven't seen any retractions, clarifications, or marginal distancing from original positions. WaPo ran the settlement story under the following headline: "One of nation’s largest corporate landlords to pay Calif. cities $20 million"
Read our full analysis here.
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