Independence Realty Trust, Inc. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Unless otherwise noted, financial amounts are in millions of dollars. The filing is unaudited.
Business context
IRT is a REIT that owns and operates multifamily properties in U.S. markets outside major gateway cities. At quarter-end, it owned 50 properties with 13,729 units; its same-store portfolio comprised 42 properties and 11,676 units. The company completed its transition to internal management in June 2017.
Financial and operating performance
- Revenue: Q3 GAAP revenue was $40.1 million, up 4.4% from $38.4 million a year earlier. Nine-month revenue was $118.8 million, up 3.0% from $115.4 million. Rental income was $35.5 million for Q3 and $105.4 million for nine months.
- Property operations: Same-store revenue increased 3.0% in Q3 and 4.0% for nine months; same-store NOI rose 4.0% and 4.9%, respectively. Q3 same-store NOI margin was 59.5%, versus 58.9%; average occupancy was 94.7%, versus 94.3%, and average effective monthly rent per unit was $1,020, versus $999.
- Profit and earnings: Q3 net income attributable to common shares was $1.1 million, or $0.02 per diluted share, versus $2.3 million, or $0.05, in Q3 2016. Nine-month figures were $23.9 million and $0.34 per diluted share, versus $31.2 million and $0.66. Nine-month operating income increased to $34.0 million from $29.0 million.
- Non-GAAP measures: Q3 FFO was $0.13 per share and unit and core FFO was $0.19, compared with $0.20 and $0.21 a year earlier. Nine-month FFO was $0.42 and core FFO $0.55, versus $0.54 and $0.63. The company cautions that these measures are not substitutes for GAAP earnings or operating cash flow and may not be comparable across REITs.
- Cash flow and liquidity: Nine-month operating cash flow was $45.1 million, investing cash flow was negative $145.9 million, and financing cash flow was positive $90.1 million. Cash and cash equivalents were $10.1 million at September 30, down from $20.9 million at year-end; restricted cash was $6.7 million. Management said available cash, financing and operating cash flows should meet existing-portfolio liquidity needs for the next 12 months and foreseeable future.
- Debt: Debt principal totaled $737.3 million ($731.6 million carrying amount), with a 3.5% weighted-average rate and 5.6-year weighted-average maturity. The $300 million unsecured credit facility had $159.7 million outstanding. Fixed-rate mortgages averaged 3.7%; a $150 million interest-rate swap hedged floating-rate exposure through June 2021. IRT reported compliance with all debt covenants.
- Equity and distributions: IRT issued 14.375 million shares in September at $9.25 per share, receiving approximately $126.1 million net. The declared monthly common dividend was $0.06 per share.
Material changes and unusual items
- IRT acquired seven properties during the first nine months for an aggregate stated purchase price of $170.2 million, adding 1,621 units. In September, it began closing a nine-community portfolio for a gross purchase price of $228.1 million; four communities had closed by September 30. One additional community was acquired on October 25, and the remaining closings were expected in succession during Q4, subject to customary conditions and, for three properties, debt assumption.
- Three property dispositions generated $15.9 million of net gains in the first nine months of 2017, compared with $31.8 million in the prior-year period. The 2017 gain was primarily from the Copper Mill sale.
- Q3 included $2.8 million of acquisition-related debt extinguishment costs associated with defeasance for the portfolio acquisition. Nine-month net income also benefited from the property-sale gains; their lower level versus 2016 was a major reason reported earnings declined despite stronger operating income and lower interest expense.
- The company refinanced its former secured credit facility in May with a $300 million unsecured facility, extending maturities and reporting estimated annual savings of 35–40 basis points versus the former facility. Interest expense fell to $7.0 million in Q3 from $8.8 million and to $21.6 million for nine months from $27.8 million.
- Management attributed lower general and administrative costs to internalization savings. It reported no material change in previously disclosed risk factors, no material off-balance-sheet arrangements, and no litigation expected to materially affect financial position, results or cash flows. Disclosure controls were judged effective.
Outlook, risks and contingencies
The filing provides no formal quantitative earnings or operating guidance. Management described Q3 same-store performance as strong and cited rent and occupancy growth alongside expense management. Portfolio acquisition completion and related financing remain subject to stated closing conditions. Risks discussed include interest-rate and financing-market exposure, property impairment estimates, REIT qualification requirements, and ordinary-course legal claims. The filing notes that failure to qualify as a REIT could materially harm income and distributions.
Important facts for investors to verify
- Whether the remaining portfolio acquisitions closed as expected, their final financing and purchase costs, and their subsequent operating contribution.
- How same-store rent, occupancy, expenses and NOI trends developed after September 30, 2017.
- Debt levels, available capacity, maturities and interest-rate exposure, including the effect of the swap and any further rate changes.
- Coverage of the $0.06 monthly dividend by recurring cash generation; reported nine-month distributions were $38.9 million versus $40.4 million of operating cash flow adjusted as described by management.
- The contribution of property-sale gains, acquisition costs and other adjustments to GAAP earnings, FFO and core FFO.