Independence Realty Trust, Inc. — 2021 Form 10-K
Reporting period: Year ended December 31, 2021. IRT is a U.S. multifamily REIT focused on non-gateway markets. Unless noted otherwise, financial amounts below are in millions of dollars.
Business context
IRT owned and operated 123 apartment communities with 36,831 units at year-end. On December 16, 2021, it completed its merger with Steadfast Apartment REIT (STAR), adding 68 communities and 21,394 units, plus two developments expected to total 621 units. STAR’s operating results are included only from the closing date, so reported year-over-year comparisons are materially affected by the merger.
Financial performance and condition
| Metric | 2021 | 2020 | Change / context |
|---|---|---|---|
| Total revenue | $250.3 | $211.9 | Up 18.1%; includes STAR only from December 16 |
| Net income | $45.5 | $14.9 | Up $30.7; includes significant property-sale gains and merger costs |
| Net income attributable to common shares | $44.6 | $14.8 | Basic and diluted EPS were $0.41 and $0.16, respectively |
| Same-store revenue | $191.5 | $176.7 | Up 8.4% across 47 properties |
| Same-store NOI | $120.1 | $107.8 | Up 11.4%; NOI margin rose to 62.7% from 61.0% |
| Operating cash flow | $52.3 | $75.0 | Down $22.7; 2021 included $47.1 of merger and integration costs |
| FFO / Core FFO | $31.7 / $92.0 | $67.7 / $68.9 | Per share: FFO $0.29 / $0.72; Core FFO $0.84 / $0.73 |
Same-store average occupancy increased to 95.7% from 93.4%, and average effective monthly rent per occupied unit rose 5.9% to $1,209. Across the broader year-end portfolio, period-end occupancy was 95.6%. These operating comparisons exclude STAR from IRT’s 2021 same-store set; a separate pro forma combined portfolio reported 2021 NOI of $332.9 and a 61.3% margin.
Year-end cash and cash equivalents were $36.0, with restricted cash of $29.7. Total debt carrying value was $2,705.3, compared with $945.7 a year earlier; weighted-average debt rate was 3.2%, and weighted-average maturity was 5.6 years. Of $2,650.7 principal outstanding, $826.5 was variable-rate. IRT reported compliance with debt covenants. A 100-basis-point rate increase was estimated to add $3.5 to annual interest expense after hedges.
Material changes and unusual items
- The STAR merger was valued at approximately $2,883.9 of consideration transferred; IRT issued 99.7 million common shares and 6.4 million operating partnership units. The acquired assets and assumed liabilities were reported at approximately $4,770.7 and $1,886.8, respectively.
- IRT recorded $47.1 of merger and integration costs and $10.3 of losses on debt extinguishment. STAR contributed $15.6 of revenue and a net loss of $18.4 from closing through year-end, including merger-related items.
- Three property sales generated $179.6 of gross proceeds and $87.7 of net gains. Four additional communities, totaling 1,333 units, were classified as held for sale at year-end and sold in January and February 2022 for $158.1; management expected approximately $95.2 of net gain.
- IRT acquired two non-STAR communities totaling 594 units for $139.9 and invested $25.0 in two development joint ventures. It reported $43.0 of capital expenditures.
- Cash flow from investing was negative $216.1; financing cash flow was positive $215.9, including $317.0 from common-stock issuances and $594.5 in term-loan and credit-facility proceeds, partly offset by debt repayments and distributions.
Outlook, risks and contingencies
IRT said available cash, financing arrangements and operating cash flows should cover liquidity needs for the next 12 months and foreseeable future. It plans to continue its value-add renovations, pursue acquisitions selectively, and reduce leverage over time. Of 7,851 units identified for renovation, 4,672 had been renovated by year-end; reported return on total renovation cost was 18.0%. The remaining projects were expected to be completed during 2022 and 2023. No specific earnings or revenue guidance was provided.
Key risks include merger integration and execution, inflation and rising labor, materials, insurance and property-tax costs, variable interest rates and refinancing, short-term leases and rent collection, competition and new supply, COVID-19 effects, natural disasters and insurance limits, cybersecurity, and changing landlord-tenant or rent regulations. IRT also depends on maintaining REIT qualification and meeting distribution requirements. Ordinary-course legal matters were not expected by management to have a material adverse effect.
KPMG gave unqualified opinions on the financial statements and on the effectiveness of IRT’s internal control over financial reporting. The internal-control assessment excluded STAR operations acquired during the year; the acquired operations represented approximately $4.7 billion of assets and $15.6 million of revenue included in the consolidated financial statements. The auditor identified real-estate impairment hold-period judgments and fair-value estimates for STAR properties as critical audit matters.
Investor verification priorities
- Assess post-merger operating performance, cost synergies and integration progress; 2021 includes only 15 days of STAR results.
- Reconcile GAAP earnings, FFO and Core FFO, especially the effects of property-sale gains, merger costs and debt-extinguishment losses.
- Review debt maturities, floating-rate exposure, hedges, covenants and the capacity to refinance or repay obligations.
- Confirm the completed held-for-sale property transactions and realized proceeds and gains against the year-end estimates.
- Track renovation returns and remaining project spending, and compare rent growth with operating-cost inflation.
- Review integration of STAR into internal controls and monitor REIT qualification, distributions and liquidity.