Independence Realty Trust, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. Dollar amounts below are USD millions unless stated otherwise.
Business context
IRT is a self-managed REIT focused on multifamily apartment communities in non-gateway U.S. markets. At quarter-end it owned and operated 120 properties with 35,427 units, and had two Denver development projects planned for 621 units. It also held interests in unconsolidated joint ventures. During the quarter, IRT began consolidating Virtuoso, a 178-unit Huntsville property, after gaining control of its major decisions.
Financial and operating performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $168.6 | $160.6 | $493.9 | $465.7 |
| Net income | $4.0 | $16.7 | $23.8 | $86.1 |
| Net income attributable to common shares | $3.9 | $16.2 | $23.3 | $83.6 |
| Diluted EPS | $0.02 | $0.07 | $0.10 | $0.38 |
| FFO per share | $0.31 | $0.30 | $0.86 | $0.85 |
| Core FFO per share | $0.30 | $0.28 | $0.85 | $0.79 |
| Same-store NOI | $101.0 | $96.4 | $297.2 | $279.3 |
Q3 same-store revenue rose 5.4%, supported by 4.4% rent growth and occupancy of 94.6%, up 0.4 percentage points. Same-store NOI increased 4.8%; its margin was 62.4%, down 0.4 points. For the nine-month period, same-store revenue rose 6.3% and NOI rose 6.4%, while average occupancy fell 1.2 points to 93.9% and rent per unit rose 7.7%.
Net income declined sharply year over year, especially for the nine-month period, when 2022 included a $94.7 million gain on property sales. In 2023, results included an $11.3 million impairment on the Chicago property held for sale. Nine-month interest expense rose 4.3% to $66.4 million, primarily due to higher rates on variable-rate debt.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $203.0 million, versus $191.2 million. Investing used $142.6 million, including $111.9 million of capital expenditures and $48.5 million for development, partly offset by property-sale proceeds. Financing used $55.4 million, including $99.0 million of common dividends and $2.6 million of distributions to noncontrolling interests.
- Cash and cash equivalents were $17.2 million and restricted cash was $31.8 million at September 30, 2023, totaling $49.0 million.
- Balance-sheet indebtedness, net, was $2.675 billion, plus $40.6 million of debt associated with property held for sale. The debt table reports total carrying debt of $2.716 billion, including that held-for-sale debt. Consolidated debt had a 4.9% weighted-average contractual rate and 4.2% effective rate for Q3 after swaps and collars; weighted-average maturity was 4.2 years. Variable-rate debt creates exposure to higher interest rates.
- The $500 million unsecured revolver had $241.5 million outstanding at quarter-end. IRT reported compliance with all debt covenants and said available cash, financing arrangements and operating cash flows should cover liquidity needs for the next 12 months and foreseeable future.
- Common dividends declared were $0.16 per share for Q2 and Q3 2023; the Q3 dividend was paid October 20, 2023.
Material developments, outlook and risks
- On October 26, 2023, after quarter-end, the board approved a Portfolio Optimization and Deleveraging Strategy targeting sales of up to 10 properties in seven markets, including the Chicago property already held for sale. Proceeds are intended to reduce debt. Sales are in varying stages; timing and pricing are uncertain, and additional impairment losses may result.
- IRT expected the Chicago property sale to close in Q4 2023 and anticipated repayment of $40.6 million of related mortgage debt. The company sold one Indianapolis property in February for $37.3 million and recorded a $1.0 million gain.
- No formal earnings or operating guidance is provided in the supplied filing text. Management’s stated liquidity outlook is based on expected cash, financing access, operating cash flow and property-sale proceeds.
- Inflation increased property operating costs, including insurance, contract services and personnel. Q3 property operating expenses rose 5.6% year over year. Management also cited higher property-management staffing and call-center costs.
- IRT recorded $3.2 million of restructuring costs in Q1 2023. It recorded $0.9 million of casualty losses for the first nine months, compared with $7.2 million of casualty gains in the prior-year period. No merger and integration costs were recorded in 2023.
- The company is a defendant in putative class litigation alleging collusion with RealPage and other rental-housing owners or managers in violation of antitrust law. IRT denies wrongdoing and says it will vigorously defend the action. Management believes other ordinary-course legal matters will not materially affect results.
- Other stated risks include rental demand and pricing pressure, capital-market availability and cost, failure to complete property sales at expected prices or timing, development delays or cost overruns, impairment risk, inflation, regulation, disasters, insurance limitations and cybersecurity or technology disruptions.
Important facts for investors to verify
- Progress, pricing, closing dates and debt-reduction proceeds under the post-quarter portfolio-sale plan, including any resulting impairment charges.
- Variable-rate debt exposure, upcoming maturities, hedge coverage and the effect of interest rates on interest expense and liquidity.
- Whether rent growth can continue to offset operating-cost inflation and occupancy changes across the same-store portfolio.
- The status and potential financial impact of the RealPage antitrust litigation and any other material legal developments.
- FFO and Core FFO are non-GAAP measures and are not substitutes for GAAP earnings or cash available after debt service and capital needs.