Independence Realty Trust, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. IRT is a self-managed REIT focused on multifamily apartments in non-gateway U.S. markets. At quarter-end it owned 58 properties with 15,805 units.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $54.2m | $51.3m | $157.8m | $151.8m |
| Net income | $1.1m | $4.9m | $1.5m | $22.3m |
| Net income per diluted share | $0.01 | $0.05 | $0.02 | $0.25 |
| Net operating income (NOI) | $31.9m | $30.5m | $94.4m | $90.9m |
| Funds from operations (FFO), non-GAAP | $18.1m | $12.6m | $48.4m | $40.9m |
| Core FFO (CFFO), non-GAAP | $19.4m | $17.0m | $55.0m | $49.9m |
- Property operations: Q3 same-store revenue increased 3.0%, but same-store operating expenses rose 6.8%; same-store NOI increased only 0.5% and its margin declined to 58.8% from 60.3%. Same-store average occupancy was 94.0%, up 0.4 percentage points, and average effective monthly rent per unit rose 2.2% to $1,106.
- Cash flow: Nine-month operating cash flow was $60.6m, investing cash outflow $78.4m, and financing cash inflow $20.5m. Cash and restricted cash totaled $17.1m at September 30, 2020.
- Debt and liquidity: Debt principal was $1.009bn (carrying amount $1.004bn), with a weighted-average rate of 2.6% and maturity of 3.3 years. The $350m unsecured revolver had $241.8m outstanding. Cash and cash equivalents were $9.9m; restricted cash was $7.2m. IRT reported compliance with all debt covenants.
- Balance sheet: Total assets were $1.700bn and total equity $608.3m at September 30, versus $1.664bn and $619.8m, respectively, at December 31, 2019.
Material changes versus comparable periods
- Revenue grew 5.8% in Q3 year over year, reflecting same-store rent and occupancy gains and higher revenue from acquired properties. Q3 net income fell 77.8%, mainly because of a $1.8m impairment charge versus a $2.4m property-sale gain in Q3 2019, as well as higher depreciation and operating costs.
- Nine-month net income declined 93.2%; the prior-year period included $14.5m in real estate sale gains, while 2020 included a $1.8m impairment, $0.4m of casualty losses, and $0.1m of abandoned deal costs. Lower interest expense partly offset cost increases.
- Same-store NOI rose 2.6% for the first nine months, while same-store average occupancy declined 0.4 percentage points to 93.3%. Rent per unit increased 3.7%.
- Debt carrying amount increased from $985.6m at year-end 2019 to $1.004bn. Derivative liabilities rose to $33.5m from $7.8m, reflecting fair-value movements in interest-rate hedges.
- Quarterly common dividends declared were reduced from $0.18 per share in March to $0.12 in June and September. In February, IRT arranged a forward equity offering; it physically settled $50m by issuing 3.406m shares in March, with 6.944m shares remaining to settle as of September 30.
Outlook, commentary, and risks
- Management said rent collections had remained steady through September and quarter-end weighted-average occupancy was 94.4%. COVID-19 effects remain uncertain and depend on the pandemic’s duration, economic impact, and responses by governments, businesses, and individuals.
- IRT offered rent deferral plans to residents experiencing hardship: 263 plans deferred $479,000 during the first nine months, with $295,000 still receivable at quarter-end. It recorded an $803,000 bad-debt provision for the period.
- Management paused or delayed some capital spending and value-add renovations, and delayed or canceled capital-recycling activity, to preserve flexibility. It stated available cash, financing arrangements, and operating cash flows should meet existing-portfolio liquidity needs for the next 12 months and foreseeable future; this is not earnings guidance.
- Three properties with 559 units were classified as held for sale. One Chattanooga property sold in October for $20.0m; agreements were in place for the other Chattanooga and Baton Rouge properties, with November closings expected. IRT also expected to close on a 421-unit Huntsville, Alabama acquisition for $95.0m in early November, using sale proceeds, revolver availability, and remaining forward equity proceeds.
- IRT expected to settle the remaining forward sale shares for cash within approximately 12 months of the prospectus date, but may instead elect cash or net-share settlement. Future issuance could dilute existing shareholders.
- Legal matters arising in the ordinary course were not expected by management to have a material adverse effect. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Subsequent completion and proceeds of the two remaining property sales and the Huntsville acquisition, including the final funding mix.
- Rent collections, delinquencies, deferred-rent recovery, and bad-debt provisions as pandemic conditions evolve.
- Settlement timing and form of the remaining forward equity agreements, proceeds received, and resulting share dilution.
- Debt maturities, revolver availability, covenant headroom, and the effects of floating-rate debt and hedge valuations.
- Whether operating cash flow and FFO support distributions and planned capital spending; FFO and CFFO are non-GAAP measures and are not substitutes for cash flow or net income.