Independence Realty Trust, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; filed May 7, 2020. IRT is a self-managed REIT focused on multifamily communities in non-gateway U.S. markets. At quarter-end it owned 58 properties with 15,805 units. Dollar figures below are in millions unless stated otherwise.
Key financial results
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $51.35 | $49.54 | +$1.81; +3.7% |
| Net income (loss) | $(0.37) | $2.57 | Down $2.94 |
| Net income (loss) per diluted share | $0.00 | $0.03 | — |
| Operating cash flow | $11.68 | $14.20 | Down $2.52 |
| FFO | $14.35 | $14.88 | Down $0.53 |
| Core FFO | $17.57 | $15.97 | Up $1.60 |
- Same-store revenue increased 4.7% to $47.89 million; same-store NOI rose 7.0% to $29.46 million. Same-store NOI margin was 61.5%, versus 60.2%. Average occupancy was 92.7%, versus 92.8%, while effective monthly rent per unit increased 4.9% to $1,089.
- Consolidated NOI was $31.42 million. Property operating expenses declined 0.7% to $19.74 million, but corporate and other costs increased, including general and administrative expense up 73% to $5.38 million. The company attributed much of that increase to $1.7 million of accelerated stock-compensation expense for retirement-eligible employees.
- Cash and cash equivalents were $57.44 million; restricted cash was $4.74 million. Total cash and restricted cash increased to $62.18 million from $14.43 million at year-end.
- Debt principal was $1,054.84 million ($1,049.54 million carrying value), compared with $991.18 million principal at year-end. Weighted-average debt rate was 3.0%, versus 3.5%; weighted-average maturity was 3.7 years. IRT reported compliance with all debt covenants. Its $350 million credit facility had $251.80 million outstanding.
- Cash used in investing was $59.17 million, principally for the $51.2 million McKinney, Texas acquisition and $8.57 million of capital expenditures. Financing cash flow was $95.23 million, including $65.50 million of credit-facility and term-loan proceeds and $50 million from forward-sale settlement, partly offset by distributions.
Material changes and unusual items
- Despite higher rents and same-store NOI, IRT reported a quarterly net loss, compared with net income a year earlier. Depreciation and amortization rose $2.38 million to $14.83 million; interest expense declined $0.22 million to $9.50 million.
- Comprehensive loss was $24.02 million, largely reflecting a $23.84 million other-comprehensive loss on interest-rate hedges. Derivative liabilities increased to $30.94 million from $7.77 million; this fair-value movement is not the same as a current-period cash loss.
- IRT acquired a 251-unit McKinney property in February. It issued 3.406 million shares to settle $50 million of forward sales; 6.944 million shares remained unsettled at March 31. The company estimated those remaining shares could yield about $100.75 million based on the forward price as of May 4, 2020.
Outlook, risks and contingencies
- Management said available cash, financing arrangements and operating cash flows were expected to meet liquidity needs for the next 12 months and the foreseeable future. This assessment is subject to the significant uncertainty of the COVID-19 pandemic.
- On May 6, IRT announced it expected to reduce the quarterly dividend from $0.18 to $0.12 per share, beginning with the second-quarter 2020 dividend. Management said the reduction was expected to retain approximately $23 million annually for potential deleveraging.
- COVID-19 had disrupted business and economic activity. IRT cited possible effects on rent payment and collections, leasing, occupancy, rental rates, operating efficiency, capital access, covenant compliance and property values. It paused or delayed some value-add renovations and capital spending and delayed or canceled capital-recycling activity. In April, it allowed a non-binding letter of intent for three Atlanta communities to expire without penalty.
- Management did not provide a quantified estimate of the pandemic’s financial impact. It warned that the impact could be material and said it could not predict the duration or extent of the disruption. The company also identified possible real-estate impairment and debt-covenant risks.
- Ordinary-course legal proceedings were disclosed; management did not expect their resolution to materially adversely affect financial position, results or cash flows. No material off-balance-sheet arrangements or material changes to contractual commitments were reported.
Important facts for investors to verify
- Subsequent rent collections, delinquencies, concessions and occupancy trends, including any pandemic-related changes.
- Whether the announced dividend reduction took effect and how it affects coverage and cash retained for debt reduction.
- Settlement timing and proceeds from the remaining forward-sale shares, and the resulting dilution.
- Debt maturities, floating-rate exposure, covenant headroom and availability under the credit facility.
- Effects of paused renovations and capital spending on future NOI, property condition and planned growth.
- Whether hedge fair-value movements, pandemic conditions or market assumptions lead to further derivative changes or real-estate impairment charges.