Independence Realty Trust, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; balance-sheet comparisons are to December 31, 2017. Financial statements are unaudited. Dollar amounts below are in millions unless noted.
Business context
IRT is a REIT focused on multifamily apartments in non-gateway U.S. markets. At quarter-end it owned 56 properties with 15,280 units; portfolio occupancy was 93.5%. The same-store portfolio comprised 42 properties and 11,677 units.
Financial performance and key metrics
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Total revenue | $45.8 | $39.1 | +16.9% |
| Operating income | $11.7 | $11.8 | -0.7% |
| Net income | $3.5 | $4.2 | -17.6% |
| Net income attributable to common shares | $3.4 | $4.1 | -16.3% |
| Diluted EPS | $0.04 | $0.06 | Down |
| FFO per share and unit | $0.17 | $0.17 | Flat |
| Core FFO per share and unit | $0.18 | $0.18 | Flat |
| Same-store NOI | $21.6 | $21.2 | +2.0% |
Same-store revenue grew 2.0%, supported by average occupancy rising to 94.4% from 93.9% and average effective monthly rent per unit increasing to $1,020 from $1,005. Same-store operating expenses rose 2.1%, leaving the NOI margin at 59.7% versus 59.8%. Consolidated NOI rose 18.8%, reflecting portfolio growth as well as same-store improvement.
Depreciation and amortization increased 47.5% to $11.2 million, while interest expense increased 12.0% to $8.3 million. Management attributed the higher depreciation principally to acquisitions and lease-intangible amortization, and higher interest expense primarily to increased credit-facility borrowings.
Cash flow, debt and liquidity
- Operating cash flow was $15.8 million, up from $12.4 million. Investing activities used $94.3 million, principally for property acquisitions and capital expenditures; financing activities provided $79.8 million, mainly from borrowings.
- Cash and cash equivalents were $10.4 million; restricted cash was $5.6 million. Combined cash and restricted cash ended the quarter at $16.0 million.
- Debt principal totaled $909.4 million at quarter-end, versus $784.6 million at year-end; carrying debt was $903.3 million. Weighted-average debt rate was 3.6%, and weighted-average maturity was 5.3 years. Mortgages were fixed-rate; the credit facility and term loan were floating-rate.
- The $300 million unsecured credit facility had $190.0 million outstanding. IRT reported compliance with all debt covenants. It also held interest-rate hedges with $250 million aggregate notional value and $10.5 million fair value.
- Management stated that cash, financing arrangements and operating cash flow should meet liquidity requirements for the next 12 months and the foreseeable future. The company paid $5.4 million in distributions to common stockholders and noncontrolling interests during the quarter.
Material changes and transactions
- IRT acquired four properties totaling 1,263 units for aggregate contract prices of approximately $131.2 million. Two completed the final phase of a nine-community portfolio acquisition announced in 2017; two were in Columbus, Ohio.
- Acquisitions and related borrowing contributed to higher assets and debt. Real estate investments at cost increased to $1.639 billion from $1.504 billion.
- 2.1 million operating partnership units were exchanged for the same number of common shares. Common shares outstanding were 87.0 million at March 31, up from 84.7 million at year-end.
- Beginning in Q1, IRT moved to quarterly common-stock distributions. The board declared $0.18 per share, payable April 20 to holders of record April 4.
Outlook, commentary and risks
Management described operating fundamentals as solid and highlighted rent and occupancy gains in the same-store portfolio. No specific earnings, FFO, acquisition or operating guidance was provided in the supplied filing text. IRT noted that interim results are not necessarily indicative of full-year results.
- Key business exposures include apartment-market competition and conditions, property operating costs, access to real-estate financing, and interest-rate changes. Floating-rate borrowings create rate exposure; hedges are intended to reduce, not eliminate, its effects.
- Management reported $0.1 million of same-store casualty expense associated with severe winter conditions. Ordinary-course litigation was not expected to have a material adverse effect, though outcomes cannot be predicted with certainty.
- IRT said there were no material changes to previously disclosed risk factors and no material off-balance-sheet arrangements. It reported effective disclosure controls and no material change in internal control over financial reporting.
- Adoption of the updated business-combination definition means qualifying property purchases are generally expected to be accounted for as asset acquisitions, with acquisition costs capitalized rather than expensed. The filing says adoption of the revenue standard had no material financial-statement impact.
Important facts for investors to verify
- Whether same-store rent growth and occupancy gains continue, and how new acquisitions perform relative to the existing portfolio.
- How increased debt and floating-rate exposure affect interest expense, covenant headroom and liquidity; verify hedge coverage and maturity timing.
- Whether operating cash flow and FFO/CFFO adequately support distributions and planned property investment. FFO, CFFO and NOI are non-GAAP measures and are not substitutes for GAAP earnings or cash flow.
- How much future equity may be issued under the at-the-market program: $137.9 million remained available at quarter-end.
- Management’s liquidity assessment and the potential effects of casualty events, litigation, REIT qualification requirements and market conditions.