Independence Realty Trust, Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. Financial statements are unaudited; dollar amounts below are in millions unless stated otherwise. The company is a REIT owning and operating multifamily properties. At quarter-end it held 58 properties with 15,860 units.
Financial performance and operating metrics
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Total revenue | $48.8 | $40.1 | $141.4 | $118.8 |
| Operating income | $14.0 | $11.0 | $37.8 | $34.0 |
| Net income | $4.8 | $1.2 | $11.9 | $24.9 |
| Net income allocable to common shares | $4.8 | $1.1 | $11.7 | $23.9 |
| Diluted EPS | $0.05 | $0.02 | $0.13 | $0.34 |
| Interest expense | $9.1 | $7.0 | $26.1 | $21.6 |
- Q3 same-store revenue and NOI each rose 1.9% year over year. Same-store NOI was $19.4 million; NOI margin was 59.2%. Average effective monthly rent increased 2.5% to $1,041, while average occupancy eased to 94.1% from 94.9%.
- For the first nine months, same-store revenue rose 2.0% and same-store NOI rose 2.2%. Management reported same-store NOI growth of 3.0% for Q3 and 2.3% year to date excluding seven properties undergoing renovations.
- Consolidated Q3 revenue growth mainly reflected acquired properties: non-same-store rental income increased $7.4 million. Portfolio size increased from 46 properties and 12,812 units in the prior-year comparison to 58 and 15,860.
- Nine-month net income fell 52% year over year despite higher operating income. The prior-year period included $15.9 million of gains on asset sales; 2018 had no such gains. Q3 net income increased, with the prior-year quarter also including $2.8 million of acquisition-related debt extinguishment expense.
- FFO was $15.6 million, or $0.18 per share and unit, in Q3 versus $9.9 million, or $0.13, a year earlier. Nine-month FFO rose to $45.4 million, or $0.52, from $30.5 million, or $0.42. CFFO was $16.5 million, or $0.19, in Q3 and $48.5 million, or $0.55, year to date; year-to-date CFFO per share and unit was unchanged from 2017. These are non-GAAP measures defined by the company.
- Cash provided by operating activities for the first nine months was $57.3 million, versus $45.1 million. Investing used $182.4 million, chiefly for acquisitions and capital expenditures; financing provided $126.4 million. Cash, cash equivalents and restricted cash totaled $15.9 million at September 30.
Balance sheet, debt and liquidity
- Total assets were $1.648 billion, including $1.470 billion of net real estate and $141.9 million of real estate held for sale. Total liabilities were $1.012 billion and total equity was $636.0 million.
- Debt principal was $968.7 million ($963.2 million carrying value), up from $784.6 million principal at December 31, 2017. Debt had a 3.8% weighted-average rate and 4.6-year weighted-average maturity. Mortgages were fixed-rate; the unsecured credit facility and term loan were floating-rate.
- The $300 million unsecured credit facility had $251.0 million outstanding at quarter-end. The company reported compliance with all debt covenants. It had $12.4 million of derivative assets, including interest-rate swaps and collars.
- Management said available cash, financing arrangements and operating cash flow should be sufficient for existing portfolio needs over the next 12 months and foreseeable future. It reported $48.5 million of operating cash flow excluding changes in other assets and liabilities against $37.0 million of distributions paid during the nine months.
Material developments, outlook and risks
- IRT acquired six properties totaling 1,843 units during the first nine months for aggregate contract prices of about $195.4 million. It also acquired a 260-unit Georgia property for $30.5 million in October and expected to acquire a 276-unit Florida property for $47.0 million in November.
- As part of a capital-recycling initiative, five properties totaling 1,348 units were classified as held for sale, with a combined net carrying value of $141.9 million. Management expected sales within 12 months and described the strategy as exiting smaller or slower-growth markets. Acquisitions in the second half of 2018 were funded with credit-facility borrowings ahead of planned dispositions.
- Value-add renovations were planned across 4,317 units at 14 properties; work was completed or underway on 3,949 units at 12 properties during Q3.
- On October 30, 2018, the company entered a new $200 million unsecured term loan, due January 2024. It drew $150 million, principally to reduce revolving credit-facility borrowings; the remaining $50 million was available for 12 months. The loan’s pricing varies with leverage and LIBOR or the base rate. October financing and acquisitions occurred after quarter-end.
- The company moved to quarterly common dividends in 2018 and declared $0.18 per share for Q3, payable October 19. It issued 1.9 million shares through its at-the-market program during the first nine months, generating $19.4 million net proceeds; $118.1 million remained available under the program at quarter-end.
- Key exposures include variable-rate debt and interest-rate movements, property operating and renovation execution, and the timing and proceeds of planned property sales. Management said ordinary-course legal matters were not expected to have a material adverse effect; it reported no material changes to previously disclosed risk factors. Forward-looking statements are subject to uncertainties and are not guarantees.
Important facts for investors to verify
- Whether planned sales of the five held-for-sale properties close on schedule and at values consistent with carrying amounts.
- How post-quarter acquisitions, the new term loan and credit-facility repayments affect leverage, interest expense and debt maturities.
- Whether same-store rent and NOI growth persists as occupancy and renovation activity evolve.
- Capital needs and returns from the renovation program, and how distributions compare with recurring cash flow after capital expenditures and debt service.
- The comparability and calculation of company-defined FFO, CFFO and NOI; these non-GAAP measures are not substitutes for GAAP earnings or cash flow.