Independence Realty Trust, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Dollar amounts below are in millions unless stated otherwise. IRT is a self-managed REIT focused on multifamily communities in non-gateway U.S. markets; it owned 57 properties with 15,536 units at quarter-end.
Financial results and operating performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $51.3 | $48.8 | $151.8 | $141.4 |
| Net income | $4.9 | $4.8 | $22.3 | $11.9 |
| Net income per diluted share | $0.05 | $0.05 | $0.25 | $0.13 |
| Operating cash flow | Not separately provided | Not separately provided | $59.4 | $57.3 |
| Capital expenditures | Not separately provided | Not separately provided | $33.8 | $28.3 |
| FFO per share | $0.14 | $0.18 | $0.45 | $0.52 |
| Core FFO per share | $0.19 | $0.19 | $0.55 | $0.55 |
Q3 same-store revenue rose 6.6% and same-store NOI rose 8.1%; same-store NOI margin improved to 60.5% from 59.6%. Average effective monthly rent increased 5.7% to $1,078, while average occupancy was unchanged at 93.4%. For the first nine months, same-store revenue increased 5.5% and NOI increased 7.0%; rent rose 5.2% to $1,058, but average occupancy declined 0.4 percentage points to 93.3%. Same-store NOI margin rose to 60.6% from 59.7%.
Cash from operations increased to $59.4 million for the nine months. Investing used $75.2 million, mainly for acquisitions and capital spending, partly offset by asset-sale proceeds. Financing provided $15.3 million. Cash, cash equivalents and restricted cash totaled $15.5 million at period-end, including $6.6 million unrestricted cash.
Balance sheet, debt and liquidity
- Total assets were $1.653 billion; total liabilities were $1.049 billion and total equity was $604.4 million.
- Debt principal was $985.0 million ($979.3 million carrying value), versus $991.4 million principal at December 31, 2018. Weighted average rate was 3.7% and weighted average maturity was 4.3 years.
- Debt included $156.3 million on the unsecured revolving facility and $300.0 million in unsecured term loans, both floating-rate at a 3.5% weighted average rate, and $528.7 million in fixed-rate mortgages averaging 3.8%.
- The $350 million revolving facility had $156.3 million outstanding and may be increased to $600 million. It matures in May 2023, with two possible six-month extensions. IRT reported compliance with all debt covenants.
- IRT reported $12.4 million of derivative liabilities and $982,000 of derivative assets, compared with no derivative liabilities and $8.3 million of derivative assets at year-end. Nine-month hedge-related other comprehensive loss was $19.3 million.
Material changes, outlook and risks
- Revenue growth reflected higher rents and portfolio changes. Nine-month property operating expenses rose 6.3%; management cited higher property taxes as a key same-store cost driver. Interest expense increased 12.6% to $29.4 million, primarily reflecting higher facility and term-loan balances associated with acquisitions and renovation spending.
- Nine-month net income benefited from $14.5 million of reported gains on asset sales. IRT sold properties for $98.5 million in total; the reported gains were net of $5.2 million of debt prepayment costs. Accordingly, net income growth did not translate into higher FFO: nine-month FFO declined to $0.45 per share from $0.52, while Core FFO per share was unchanged at $0.55.
- IRT acquired two properties for $76.0 million during the first nine months and, in October, acquired a 318-unit Raleigh property for $52.9 million. One 300-unit Austin property, with a $32.4 million carrying value, was classified as held for sale.
- The value-add program covered 20 properties and 6,331 units, or 41% of the portfolio. At quarter-end, renovations were underway at 14 properties; 2,364 of 4,553 units at those properties were completed. Management expected to substantially complete remaining Phase I and II renovations in the first half of 2020 and begin Phase III renovations during the remainder of 2019 and first half of 2020.
- Management said available cash, financing and operating cash flows should meet portfolio liquidity needs for the next 12 months and foreseeable future. This is not earnings guidance; the filing provides no specific full-year financial forecast.
- Risk factors were reported as unchanged from the 2018 Form 10-K. Ordinary-course legal matters were not expected by management to have a material adverse effect. The filing identifies REIT qualification, leverage and interest-rate exposure, execution of renovations and portfolio strategy, and possible impairment from changes in market conditions as relevant considerations.
- After quarter-end, stockholders gained concurrent authority with the board to amend the bylaws. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Key facts for investors to verify
- How rent growth, occupancy and property-tax increases are affecting same-store NOI and margins.
- Whether renovation spending and completion timelines deliver the expected rent increases and operating efficiencies.
- How much reported earnings growth depends on property-sale gains, and how FFO and Core FFO compare with the $0.18 quarterly distribution per share.
- Debt maturities, floating-rate exposure, remaining revolver capacity, covenant headroom and the effect of hedge valuations.
- Progress and proceeds on the Austin property sale, and the operating and financing impact of the October Raleigh acquisition.