Business context and reporting period
Independence Realty Trust, Inc. (IRT) is a self-managed REIT focused on multifamily communities in non-gateway U.S. markets. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2021. At quarter-end, IRT owned 58 properties with 16,261 units; same-store results covered 53 properties and 14,843 units.
Financial results and key metrics
Dollars are in millions except per-share data and where noted.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $57.4 | $52.3 | $112.6 | $103.6 |
| Net income | $3.4 | $0.8 | $4.5 | $0.4 |
| Net income allocable to common shares | $3.4 | $0.8 | $4.5 | $0.4 |
| Diluted EPS | $0.03 | $0.01 | $0.04 | $0.00 |
| Same-store NOI | $32.0 | $29.2 | $63.5 | $59.1 |
| Same-store NOI margin | 60.7% | 60.1% | 61.1% | 60.9% |
- Q2 same-store average occupancy was 96.1%, up 3.0 percentage points; average effective monthly rent per unit was $1,146, up 3.9% year over year.
- For the six months, operating cash flow was $43.3 million, compared with $34.3 million. Investing used $166.7 million, including property acquisitions, a joint-venture investment and capital expenditures; financing provided $123.8 million. Cash and restricted cash totaled $14.0 million at June 30.
- Debt carrying value was approximately $1.06 billion, including $19.6 million associated with real estate held for sale, versus $945.7 million at year-end 2020. Principal outstanding was $1.06 billion; weighted-average rate was 2.4% and weighted-average maturity 3.1 years. The company reported compliance with debt covenants.
- Quarter-end assets were $1.88 billion and total equity was $747.3 million. Common dividends declared were $0.12 per share for each of the first two quarters.
Material changes versus prior comparable periods
- Q2 revenue rose 10.0%; same-store revenue increased 8.5%, reflecting higher rents and occupancy. Same-store NOI rose 9.6%.
- Q2 property operating expenses increased 6.3%, partly because maintenance work delayed during 2020 resumed. General and administrative expense rose 18.7%, while interest expense fell 7.0%, primarily due to lower interest rates.
- For the first half, revenue increased 8.6% and same-store NOI rose 7.5%. Net income improved from $0.4 million to $4.5 million.
- IRT acquired properties in Charlotte, North Carolina, and McKinney, Texas, for approximately $66.5 million and $73.4 million, respectively. It also invested $10.2 million in a Richmond, Virginia development joint venture, with total expected contributions of $16.4 million.
- IRT settled forward equity sales in June, issuing 2.932 million shares for approximately $41.7 million net proceeds. Common shares outstanding increased to 105.1 million from 101.8 million at year-end.
Outlook, commentary, risks and unusual items
- Management stated that available cash, financing arrangements and operating cash flow should fund existing-portfolio liquidity needs for the next 12 months and the foreseeable future. No specific earnings or operating guidance was provided.
- IRT expects to sell its 152-unit King’s Landing property in St. Louis in Q3 2021. It expected to complete remaining identified value-add renovations during 2021 and 2022; 4,089 of 7,076 identified units had been renovated, with a reported 17.1% return on total renovation costs.
- On July 26, 2021, IRT agreed to merge with Steadfast Apartment REIT (STAR), subject to customary conditions and approvals, with closing expected in Q4 2021. STAR shares would convert at a fixed 0.905 IRT share per STAR share; STAR holders were expected to receive about 99.8 million IRT shares, and STAR OP holders about 6.4 million IRT OP units. The filing estimated legacy IRT and STAR holders would each own approximately 50% of the combined company on a fully diluted basis.
- The merger would materially increase leverage: pro forma combined debt was estimated at approximately $3.32 billion as of June 30, 2021. Risks include required stockholder approvals and lender consents, integration costs and execution, dilution, potential refinancing needs, and a possible $74 million termination fee plus up to $10 million of expense reimbursement in specified circumstances.
- COVID-19 remains a risk, including possible effects from resident payment difficulties and government eviction restrictions. IRT recorded $78,000 of bad-debt provision in Q2 and $125,000 in the first half of 2021; it reported $12,000 of deferred rent receivable at quarter-end.
- Other items include $0.36 million of first-half casualty losses and fair-value movements in interest-rate hedges. IRT reported no material off-balance-sheet arrangements and no legal proceedings expected to materially affect its financial position, results or cash flows.
Important facts for investors to verify
- Progress toward merger approvals, lender consents, expected closing, final financing terms, integration costs and actual post-merger leverage and dilution.
- Whether occupancy, rent growth and collections remain strong, and how operating costs and bad debts affect same-store NOI and margins.
- Debt maturities, floating-rate exposure, hedge coverage, covenant headroom and available liquidity, including the effect of the planned merger.
- Completion and proceeds of the King’s Landing sale, and actual spending and returns on renovation and development investments.
- Dividend sustainability and the combined company’s ability to maintain distributions while funding debt service, capital needs and merger-related costs.