Independence Realty Trust, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Amounts are in millions of dollars unless otherwise noted. IRT is a multifamily REIT; at quarter-end it owned 58 properties with 15,805 units across U.S. non-gateway markets.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $52.3 | $51.0 | $103.6 | $100.5 |
| Net income | $0.8 | $14.9 | $0.4 | $17.4 |
| Net income per diluted share | $0.01 | $0.16 | $0.00 | $0.19 |
| Interest expense | $9.2 | $9.8 | $18.7 | $19.6 |
| Operating cash flow | Not separately reported | Not separately reported | $34.3 | $36.1 |
| FFO per share | $0.17 | $0.15 | $0.32 | $0.31 |
| Core FFO per share | $0.19 | $0.19 | $0.38 | $0.36 |
Q2 same-store NOI was $29.0 million, up 1.2%; same-store NOI margin was 60.1%, versus 60.4%. Average same-store occupancy fell to 93.0% from 94.2%, while average effective monthly rent per unit rose 4.0% to $1,098. For the first half, same-store NOI increased 4.0% to $58.4 million, with a 60.8% margin versus 60.3%; occupancy was 92.8%, down 0.7 percentage points, and rent per unit rose 4.4% to $1,093.
First-half investing cash outflow was $67.7 million, mainly for the McKinney, Texas acquisition and capital expenditures. Financing cash inflow was $37.1 million. Cash, cash equivalents and restricted cash totaled $18.2 million at June 30, 2020.
At June 30, debt carrying value was $1,008.9 million, against $985.6 million at year-end 2019. Principal outstanding was $1,013.8 million: $212.8 million on the unsecured credit facility, $300.0 million of term loans and $501.0 million of mortgages. Weighted-average debt rate was 2.7%, with 3.5 years weighted-average maturity. The $350 million credit facility had $212.8 million drawn. IRT reported compliance with all debt covenants.
Changes and notable items
- Q2 revenue increased 2.6%, but net income fell sharply year over year. The prior-year comparison included a $12.1 million gain on asset sales; there was no comparable gain in 2020.
- First-half consolidated revenue rose 3.1%, while net income declined 97.6%. Lower interest expense partly offset higher property, depreciation and corporate costs; first-half G&A rose 34.7%, including accelerated stock compensation for retirement-eligible employees.
- COVID-19-related collection concerns led to a $0.7 million bad-debt provision in Q2. Residents entered 260 rent-deferral plans in the quarter, with $0.4 million of deferred rent receivables at June 30. Management reported steady rent collections and maintained occupancy during Q2.
- IRT acquired a 251-unit property in McKinney for approximately $51.2 million. It allowed a non-binding proposal to acquire three Atlanta communities to expire, citing pandemic uncertainty and the value of financial flexibility.
- Capital expenditures and value-add renovations were paused or delayed where warranted. Renovations had been completed on 3,252 of 7,136 identified units across 23 properties.
- IRT raised $50.0 million through partial settlement of forward equity sales in March. At June 30, 6.9 million shares remained to be settled, expected to provide approximately $99.8 million based on the forward price cited in the filing. Settlement may result in share dilution; cash or net-share settlement is also possible.
- The declared common dividend was reduced from $0.18 per share for the first quarter to $0.12 for the second quarter. The second-quarter dividend was paid July 24, 2020.
Outlook, risks and contingencies
IRT gave no quantitative earnings or operating guidance. Management stated that available cash, financing arrangements and operating cash flows should be sufficient for liquidity needs over the next 12 months and the foreseeable future. The filing emphasizes that COVID-19’s duration, economic effects and impact on resident rent payments remain uncertain and outside management’s control. IRT also identifies potential property impairment if market conditions or expected cash flows deteriorate. Ordinary-course legal matters were not expected by management to materially affect financial position, results or cash flows. No material changes to contractual commitments or market-risk disclosures were reported.
Key facts for investors to verify
- Subsequent rent collections, delinquencies, bad-debt provisions and the repayment status of deferred rents.
- Occupancy, effective rents and same-store NOI trends as pandemic conditions evolve.
- Available liquidity, covenant headroom, scheduled debt maturities and the July 9 mortgage refinancing/paydown disclosed in the filing.
- Timing and final settlement method for the remaining forward-sale shares, including proceeds and dilution.
- Dividend sustainability relative to cash generation, capital spending and REIT distribution requirements.
- Potential property valuation or impairment effects if economic conditions weaken.