Independence Realty Trust, Inc. — Q2 2019 Form 10-Q
Business context and period. This REIT owns and operates multifamily apartment communities in non-gateway U.S. markets. At June 30, 2019, it held 58 properties with 15,734 units. The filing covers the quarter and six months ended June 30, 2019; financial statement amounts below are in millions unless noted.
Financial results and operating metrics
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $51.0 | $46.9 | $100.5 | $92.6 |
| Net income | $14.9 | $3.5 | $17.4 | $7.0 |
| Net income per diluted share | $0.16 | $0.04 | $0.19 | $0.08 |
| Same-store NOI | $26.7 | $25.0 | $52.5 | $49.5 |
| Same-store NOI growth | 6.9% | 6.0% | ||
| Same-store NOI margin | 60.4% | 59.5% | 60.4% | 59.7% |
| FFO per share and unit | $0.15 | $0.17 | $0.31 | $0.34 |
| Core FFO per share and unit | $0.19 | $0.19 | $0.36 | $0.37 |
- Q2 same-store rent per unit rose 5.3% year over year and average occupancy was 94.1%, up 0.1 percentage point. For the first half, rent per unit increased 4.8%, while occupancy declined 0.5 percentage point to 93.3%.
- Q2 operating cash flow was not separately provided; for the six months it was $36.1 million, versus $35.7 million. Investing activities used $28.2 million, and financing activities used $5.2 million. Cash and restricted cash totaled $18.8 million at period end.
- At June 30, total debt principal was $995.6 million (carrying value $989.5 million), compared with $991.4 million principal at year-end 2018. The weighted-average debt rate was 3.9%, with a 4.6-year weighted-average maturity. Cash and cash equivalents were $11.1 million; restricted cash was $7.8 million.
Material changes and notable items
- Revenue increased 8.8% in Q2 and 8.6% in the first half. Growth reflected same-store rent gains and contributions from properties acquired or sold at different times in the comparison periods.
- GAAP net income included a $12.1 million gain on the April sale of a 370-unit Chicago property. The reported gain was net of $2.0 million in debt-extinguishment costs. Excluding the property-sale gain and related adjustments, FFO per share declined year over year; core FFO per share was flat in Q2 and lower for the first half.
- Interest expense rose 14.6% in Q2 and 15.6% in the first half. Management attributed the increase primarily to a $131.8 million increase in unsecured credit facility and term-loan balances versus June 30, 2018, associated with acquisitions and value-add spending.
- Same-store property operating expenses increased 3.1% in Q2 and 2.8% in the first half, with higher real estate taxes a primary driver. Management also cited higher staffing, technology and corporate support costs.
Outlook, financing, and risks
- Management said available cash, financing arrangements and operating cash flow should meet existing-portfolio liquidity needs for the next 12 months and foreseeable future. No numeric earnings or FFO guidance was provided.
- The May 2019 refinancing established a $350 million unsecured revolving credit facility, with capacity potentially expandable to $600 million. It matures in May 2023, subject to extension options. At June 30, $130.8 million was drawn, leaving approximately $219.2 million of stated capacity before other limitations.
- The company was in compliance with debt covenants at June 30. It had $430.8 million of floating-rate principal and $564.8 million of fixed-rate mortgage principal. Interest-rate hedges had $400 million aggregate notional value; their net fair value was a $5.8 million liability, versus an $8.3 million asset at year-end. Hedge fair-value changes reduced first-half other comprehensive income by $14.9 million.
- The value-add program covered 3,929 units at 12 properties; 1,950 units had been renovated, with the balance expected through the remainder of 2019 and first half of 2020. An additional 2,402 units were identified for a subsequent phase in July.
- After quarter-end, the company sold two Little Rock properties for $56.5 million and acquired a 264-unit Tampa property for $48.0 million. The filing cites ordinary-course legal matters, generally insured, and says their outcome is not expected to materially adversely affect the company. It reported no material changes to previously disclosed risk factors.
- Distributions declared were $0.18 per share for each of the first two quarters. For the first half, distributions to common stockholders and noncontrolling interests totaled $32.6 million; operating cash flow excluding changes in other assets and liabilities was $33.1 million.
Important facts for investors to verify
- How much of reported earnings and year-over-year growth reflects the Chicago asset-sale gain, and how do recurring FFO and core FFO trends compare with GAAP net income?
- Whether rent growth and occupancy can be sustained, particularly given the first-half same-store occupancy decline and rising property taxes and operating costs.
- Actual renovation spending, completion pace, rental premiums and returns from the value-add program.
- Debt availability and covenant headroom, refinancing needs, and exposure to floating rates; confirm hedge terms and the effect of future fair-value changes.
- Whether cash generation continues to cover distributions and capital requirements, and the financial impact of the July property sales and Tampa acquisition.