Independence Realty Trust, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; the filing also reports fourth-quarter results. IRT is a self-managed REIT focused on multifamily properties in non-gateway U.S. markets. At year-end, it reported 116 operating properties with 34,431 units, plus two Denver development projects expected to add 621 units. The company operates as one reportable segment.
Financial and operating performance
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue | $661.0 million | $628.5 million |
| Net income (loss) | $(17.8) million | $120.7 million |
| Net income (loss) attributable to common shares | $(17.2) million; $(0.08) per share | $117.2 million; $0.53 per share |
| Operating cash flow | $262.2 million | $249.5 million |
| FFO | $270.5 million; $1.17 per share | $263.2 million; $1.15 per share |
| Core FFO | $263.9 million; $1.15 per share | $247.4 million; $1.08 per share |
| Same-store NOI | $371.5 million, up 5.7% | $351.5 million |
| Same-store NOI margin | 63.0% | 63.0% |
Revenue growth was primarily driven by a 6.4% increase in same-store effective monthly rent, partly offset by a 0.7 percentage-point decline in average same-store occupancy to 94.0%. Same-store property operating expenses rose 5.6%, with higher insurance, contract services, repairs and maintenance, and advertising. For the fourth quarter, revenue was $167.0 million and net loss was $41.7 million, or $(0.18) per share.
Cash flows used in investing activities were $1.7 million, reflecting $146.6 million of capital expenditures and $66.2 million of development spending, largely offset by $230.8 million of property-sale proceeds. Financing activities used $253.7 million, including $134.9 million of common distributions and $129.6 million of mortgage principal repayments.
Debt, liquidity and distributions
Year-end outstanding debt principal was $2.516 billion (carrying amount $2.549 billion before separating debt associated with assets held for sale). The balance sheet reported $2.427 billion of indebtedness, plus $122.6 million associated with real estate held for sale. Total assets were $6.280 billion and total equity was $3.567 billion. Unrestricted cash and cash equivalents were $22.9 million; cash, cash equivalents and restricted cash totaled $50.7 million. The $500 million revolving facility had $234.5 million drawn, leaving $265.5 million of stated capacity. Management said available cash, financing arrangements and operating cash flow should meet liquidity requirements for the next 12 months.
Debt had a 4.2% weighted-average effective rate for 2023 and a four-year weighted-average maturity. Approximately $835 million of debt was variable-rate; swaps and collars covered $750 million. The filing estimates a 100-basis-point rate increase would add about $0.9 million to annual interest expense after hedging. Scheduled principal maturities include $587.8 million in 2026 and $1.055 billion in 2028. IRT reported compliance with all financial covenants at year-end.
The annual common dividend was $0.62 per share, compared with $0.54 in 2022; the quarterly rate increased from $0.14 to $0.16 during 2023. The board determines future distributions, which are not guaranteed.
Material changes, outlook and risks
- Portfolio optimization and deleveraging: The board approved a plan to sell 10 properties. Four were sold in fourth-quarter 2023 for $200.7 million gross proceeds, with an aggregate $34.8 million impairment loss on those sales. Six remaining properties were classified as held for sale at year-end; two were sold after year-end for $128 million, and contracts were signed for the last four, with closings expected in first-quarter 2024. IRT projected about $525 million of gross proceeds and approximately $519 million of debt reduction upon completion; closings and pricing are not assured.
- Net income comparability: The shift from 2022 net income to a 2023 net loss chiefly reflects a $66.5 million net impairment/loss-on-sale charge in 2023 versus a $111.8 million net gain on property sales in 2022. 2023 also included $3.2 million of restructuring costs and $0.9 million of casualty losses; 2022 included $8.9 million of net casualty gains. Depreciation and amortization fell as STAR merger-related intangible assets became fully amortized.
- Value-add program and development: IRT reported 7,771 renovated units out of a 13,281-unit pipeline across 41 properties, at an average cost of $15,716 per renovated unit and a reported 17.7% return on total renovation cost. It expected to begin work on remaining selected projects during 2024. The filing provides no quantified full-year 2024 earnings or FFO guidance.
- Other portfolio change: An amendment gave IRT control of the Virtuoso joint venture; it began consolidating the 178-unit Huntsville property from August 1, 2023. No new unconsolidated-entity investments were made during 2023.
- Key risks: Multifamily and regional concentration, short-term leases, occupancy and rent competition, inflation-driven operating and insurance costs, interest rates and refinancing needs, development and renovation execution, severe weather and insurance limitations, cybersecurity, and REIT qualification. IRT is a defendant in consolidated federal antitrust litigation alleging rent coordination involving RealPage and multifamily operators; IRT denies wrongdoing and says it intends to defend the claims. The filing does not provide a clear estimate of potential exposure.
KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. The auditor identified evaluation of real estate asset hold periods in impairment testing as a critical audit matter.
Important facts for investors to verify
- Whether the remaining four contracted property sales closed on schedule and at expected prices, and whether proceeds reduced debt as planned.
- The timing, pricing and funding of the 2026 and 2028 debt maturities, alongside interest-rate exposure and covenant headroom.
- Whether rent growth and occupancy can offset rising insurance, maintenance and other property costs.
- Progress, costs and realized rent premiums from the remaining value-add projects and Denver developments.
- Developments in the RealPage antitrust case and any material change in legal or other contingencies.
- The sustainability of the $0.16 quarterly dividend relative to operating cash flow, capital needs and debt obligations.