Independence Realty Trust, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. The company is an externally managed apartment REIT; RAIT Financial Trust owns approximately 39.3% of its common shares and is the parent of its advisor.
Financial and operating performance
- Revenue: $8.135 million, up 74% from $4.688 million in Q1 2013. Rental income was $7.353 million versus $4.178 million.
- Profit: GAAP net income was $2.935 million versus $0.340 million; net income allocable to common shares was $2.935 million versus $0.004 million. Diluted EPS was $0.19 versus $0.00 (basic EPS was $0.19 versus $0.01).
- Operating results: Operating income rose 10% to $1.348 million. Property NOI was $4.147 million. Property operating expenses were $3.988 million; depreciation and amortization was $2.123 million; interest expense was $1.299 million.
- REIT supplemental measures: FFO was $5.058 million, or $0.33 per diluted share, versus $1.284 million, or $0.23, in Q1 2013. Core FFO was $2.569 million, or $0.17 per diluted share, versus $1.284 million, or $0.23. These are non-GAAP measures and are not substitutes for GAAP earnings or cash flow.
- Cash flow and liquidity: Operating cash flow was $2.652 million, compared with $1.381 million. Investing activities used $60.250 million, primarily for acquisitions; financing provided $78.899 million. Cash and cash equivalents ended at $24.635 million, versus $3.334 million at year-end 2013. The $20 million revolving credit facility had $17.5 million available.
- Debt: Total debt carrying amount was $191.350 million, up from $103.303 million at year-end; principal outstanding was approximately $188.9 million. Weighted-average debt interest rate was 3.6%. Approximately $40.6 million was floating-rate and $148.3 million fixed-rate. The company reported compliance with credit-facility covenants.
- Portfolio and distributions: The company reported 17 properties and 4,970 units, with 93.9% occupancy. The declared Q1 dividend was $0.06 per share monthly, or $0.18 for the quarter.
Material changes versus the prior comparable period
- Q1 acquisitions added seven properties with 2,180 units for an aggregate purchase price of $126.7 million. These included the 370-unit Reserve at Eagle Ridge, the five-property Oklahoma portfolio, and King’s Landing.
- The January public offering issued 8.05 million shares at $8.30 each, generating $63.0 million of net proceeds. Shares outstanding increased to 17.74 million from 9.65 million at December 31, 2013.
- Revenue and operating cash flow increased substantially with the expanded portfolio. Management attributed most revenue growth to acquisitions, with the remainder from improved occupancy and rental rates at existing properties.
- Weighted average occupancy was 93.9%, down from 94.2% in Q1 2013. Portfolio-wide effective monthly rent per occupied unit was $730 versus $786, reflecting portfolio mix; same-store effective rent increased to $795 from $786.
Outlook, risks, contingencies, and unusual items
- Management said available cash, operating cash flow, and financing arrangements were expected to meet liquidity needs for the next 12 months. It intends generally to limit leverage to 65% of the combined initial property purchase price, while noting leverage could be higher during portfolio expansion.
- No specific earnings or acquisition guidance was provided. Management expects income and expenses to rise as it makes further property acquisitions.
- Q1 net income included a $2.882 million gain related to the Oklahoma portfolio acquisition, where acquired property fair value exceeded purchase price. Core FFO excludes this gain and adds back acquisition expenses and share-based compensation.
- Interest-rate changes, financing availability and cost, acquisition execution, and the ability to obtain acceptable additional financing are identified risks. No interest-rate derivatives were outstanding at quarter-end.
- The company reported no material litigation, no material changes to previously disclosed risk factors, and no off-balance-sheet arrangements. A $21.5 million acquisition of a 202-unit Arkansas property closed on May 7, 2014, after quarter-end.
- Management reported effective disclosure controls and no significant changes in internal control over financial reporting. Related-party arrangements include external advisory and property-management services provided by RAIT affiliates.
Most important facts for investors to verify
- Reconcile the filing’s portfolio unit counts: the organization note says 4,970 units, while the real-estate note says 4,790; the portfolio table reports 4,970.
- Review the Oklahoma portfolio purchase-price allocation and the $2.882 million acquisition gain, which management described as preliminary and subject to adjustment.
- Assess whether acquisition-driven growth and the $0.17 Core FFO per share support the dividend, particularly since quarterly declared dividends were $0.18 per share.
- Monitor debt growth, the Oklahoma loan’s April 2016 maturity, floating-rate exposure, and the company’s reliance on future financing for expansion.
- Consider share dilution from the offering and related-party governance and fees, including RAIT’s ownership, debt holdings, and affiliated management relationships.