Independence Realty Trust, Inc. — Q3 2014 Form 10-Q
Business context and reporting period. This unaudited filing covers the three and nine months ended September 30, 2014. The externally managed REIT owns apartment properties. At quarter-end, it held 22 properties with 6,470 units in 12 states, compared with 10 properties and 2,790 units at December 31, 2013. Dollar amounts below are in millions unless noted.
Financial results and liquidity
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Total revenue | $13.057 | $4.787 | $32.841 | $14.175 |
| Operating income | $2.216 | $1.208 | $5.365 | $3.659 |
| Net income (loss) | $(0.058) | $0.302 | $2.749 | $0.966 |
| Net income (loss) allocable to common shares | $(0.056) | $0.255 | $2.751 | $0.307 |
| Diluted EPS | $(0.00) | $0.03 | $0.14 | $0.08 |
| FFO per diluted share | $0.14 | $0.17 | $0.60 | $0.61 |
| Core FFO per diluted share | $0.17 | $0.17 | $0.52 | $0.62 |
Q3 net operating income was $6.905 million, versus $2.373 million a year earlier. Portfolio occupancy was 92.6%, down from 94.4% a year earlier; weighted-average monthly effective rent per occupied unit was $791, versus $784. The quarterly dividend declared was $0.18 per common share. Core FFO and FFO are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.
- Cash flow, nine months: Operating activities provided $10.497 million; investing activities used $184.107 million, primarily for acquisitions; financing activities provided $205.062 million. Cash and cash equivalents ended at $34.786 million, plus $4.870 million of restricted cash.
- Balance sheet: Total assets were $469.023 million, net real estate $423.202 million, total liabilities $264.042 million, and total equity $204.981 million at September 30, 2014.
- Debt: Reported indebtedness was $253.833 million carrying value; outstanding principal was $251.997 million. Weighted-average interest rate was 3.7%; $43.075 million was floating-rate and $208.922 million fixed-rate. The company reported compliance with debt covenants.
- Liquidity: The revolving facility was expanded from $20 million to $30 million; $25 million was available at quarter-end. Management believed cash, operating cash flow and financing sources would meet existing-portfolio needs for the next 12 months.
Material changes versus comparable periods
- Q3 revenue increased 173% year over year, and operating income increased 83%. Management attributed most revenue growth to acquired properties, with the remainder from improved occupancy and rental rates at existing properties.
- During the first nine months, the company acquired 12 properties with 3,680 units for $168.5 million. Portfolio growth drove higher property expenses, depreciation, asset management fees and interest expense.
- The company raised net proceeds of $62.7 million in a January common-stock offering and $72.0 million in a July offering. Shares outstanding increased to 25.8 million from 9.7 million at year-end 2013.
- Nine-month net income included a $2.882 million gain associated with the OKC Portfolio acquisition. Core FFO for the nine months was $9.908 million, or $0.52 per diluted share, compared with $3.893 million, or $0.62 per share, in 2013.
Outlook, risks and unusual items
- No specific earnings, revenue or acquisition guidance was provided. Management said it expected portfolio income and expenses to rise with anticipated acquisitions and targeted aggregate leverage of 65% of combined initial property purchase prices, while noting there was no formal limit on leverage used.
- On October 20, 2014, the company signed agreements to acquire five Louisville-area properties with 1,549 units for $162.5 million. Closing remained subject to customary conditions and due diligence, and the company could terminate agreements before due-diligence periods expired.
- Other subsequent financing included an October 24 loan of $15.991 million secured by Lenoxplace, at a fixed 3.7% rate and maturing in 2021. Interest-rate exposure, financing availability and cost, acquisition execution, occupancy and rent trends, and the ability to maintain REIT qualification are relevant risks.
- There were no material litigation proceedings reported, no off-balance-sheet arrangements, and no material changes to previously disclosed risk factors. Management reported effective disclosure controls and no significant change in internal control over financial reporting.
- The company is externally managed by a RAIT affiliate and pays management and property-management fees to RAIT-affiliated entities. RAIT owned 28.2% of common shares at quarter-end. The filing reported no material contingencies; acquisition purchase-price allocations were preliminary and may change.
Most important facts for investors to verify
- Whether the Louisville acquisitions closed, their final financing and purchase-price allocations, and the resulting impact on leverage and liquidity.
- Whether occupancy stabilizes or continues to decline, and whether rent growth translates into stronger same-store operating performance.
- How the $0.18 quarterly dividend compares with recurring cash generation; Q3 Core FFO was $0.17 per share, while GAAP common-share earnings were a small loss.
- The timing and refinancing or repayment plan for the OKC mortgage maturing in April 2016 and the revolving facility maturing in October 2016.
- The effect of future equity issuance and acquisition funding on per-share results, and the comparability of the company’s non-GAAP FFO measures with other REITs.