Independence Realty Trust, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. IRT is a self-managed REIT focused on multifamily communities in non-gateway U.S. markets. At quarter-end it owned 57 properties with 16,109 units.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $60.8 million | $54.2 million | $173.3 million | $157.8 million |
| Net income | $11.6 million | $1.1 million | $16.1 million | $1.5 million |
| Net income allocable to common shares | $11.5 million | $1.1 million | $16.0 million | $1.5 million |
| Diluted EPS | $0.11 | $0.01 | $0.15 | $0.02 |
| Same-store NOI | $30.5 million | $26.5 million | $87.4 million | $79.4 million |
| Same-store NOI margin | 62.2% | 59.3% | 61.7% | 60.4% |
| Operating cash flow | Nine months: $73.7 million | Prior-year nine months: $60.6 million |
- Q3 same-store revenue rose 9.4%, driven by 7.3% higher average effective monthly rent and occupancy up 2.2 percentage points to 96.0%. Nine-month same-store revenue increased 7.8%, with rent up 4.6% and occupancy up 2.7 points.
- Management-reported FFO per share was $0.16 in Q3 versus $0.19; Core FFO per share was $0.21 versus $0.19. For nine months, FFO per share was $0.53 versus $0.51 and Core FFO per share was $0.59 versus $0.52. These are non-GAAP measures and may not be comparable across REITs.
- Net income comparisons were materially affected by a $11.5 million gain on sale in 2021 versus a $1.8 million impairment loss in 2020. Q3 2021 also included $5.3 million of merger and integration costs. Thus, the increase in GAAP earnings does not by itself indicate the change in recurring property operations.
Financial position, debt and liquidity
- At September 30, total assets were $1.85 billion and total equity was $750.0 million. Real estate held for sale was $120.4 million.
- Debt principal totaled $1.023 billion, compared with $949.9 million at December 31, 2020; weighted-average rate was 2.3% and weighted-average maturity 2.9 years. Debt included $137.5 million drawn on a $350 million revolving facility, $500 million of floating-rate term loans and $385.5 million of fixed-rate mortgages. IRT reported compliance with all debt covenants.
- Cash and cash equivalents were $8.7 million; restricted cash was $6.1 million. The revolving facility had approximately $212.5 million undrawn, before any borrowing conditions.
- Nine-month investing cash use was $145.4 million, including property acquisitions, joint-venture investments and capital expenditures; financing cash provided was $73.0 million. Cash, cash equivalents and restricted cash ended at $14.9 million.
- Common dividends declared were $0.12 per share in each of the first three quarters. Management stated available cash, financing arrangements and operating cash flows should meet existing-portfolio liquidity needs for the next 12 months and foreseeable future.
Material changes and developments
- IRT entered into a merger agreement with Steadfast Apartment REIT (STAR) on July 26, 2021. Each STAR share is to convert into 0.905 IRT shares, subject to approvals and other closing conditions. IRT expected closing in December 2021; the agreement also allows termination if the merger is not completed by January 31, 2022 under specified terms.
- IRT raised equity through forward sale agreements covering 16.1 million shares. The forward seller sold the shares, but IRT had not received the proceeds as of quarter-end. Physical settlement was expected to generate approximately $272.2 million, subject to adjustments; cash or net-share settlement is also possible.
- During the period, IRT acquired two communities for an aggregate $139.9 million, sold one property for $40.1 million and recorded an $11.5 million gain. Six properties with 2,005 units and a $120.4 million carrying value were classified as held for sale; sales were expected in Q4 2021 or Q1 2022.
- IRT invested in two development joint ventures: a 402-unit Richmond community and a 504-unit Nashville portfolio. Expected total contributions were $16.4 million and $14.4 million, respectively.
- Value-add renovations covered 4,419 units at an average cost of $12,783 per unit; IRT reported a 17.6% return on total renovation costs to date.
Outlook, risks and unusual items
- The filing provides no specific earnings or operating guidance. Management’s stated liquidity outlook relates to the existing portfolio and is subject to business and market uncertainties.
- Key merger risks include failure to obtain stockholder, lender or other required approvals; a fixed exchange ratio that exposes the value of consideration to IRT share-price changes; dilution; integration costs and execution risks; and potential termination fees and expense reimbursement. In certain circumstances, IRT could owe STAR a $74 million termination fee plus up to $10 million of expense reimbursement.
- The filing estimates combined-company debt would have been approximately $3.16 billion at September 30, 2021, including STAR debt, if the merger had closed on that date. STAR loan agreements covering approximately $2.13 billion require lender waivers or consents; there is no assurance these will be obtained.
- COVID-19, eviction restrictions, residents’ ability to pay rent, and economic conditions remain uncertainties. IRT recorded $246,000 of bad-debt provision for the first nine months of 2021; total rental-revenue adjustments were $1.7 million.
- Management said ordinary-course legal proceedings are not expected to have a material adverse effect. The company reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether both companies obtain approvals and required lender consents, and whether the merger closes on the anticipated timeline and terms.
- Actual forward-sale settlement proceeds, timing, share issuance and resulting dilution.
- Execution of planned property sales and intended use of proceeds to repay combined-company debt.
- Operating trends in rents, occupancy, expenses and resident collections, including ongoing COVID-19 effects.
- Combined-company leverage, refinancing requirements, integration costs, and the sustainability of dividends after any merger.
- How much reported earnings growth reflects recurring operations versus the property-sale gain and other unusual items.