Independence Realty Trust, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. IRT is a multifamily REIT focused on non-gateway U.S. markets. At quarter-end, it owned and operated 122 properties with 36,176 units and held interests in five development joint ventures. Dollar figures below are in millions unless stated otherwise.
Financial results and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $160.6 | $60.8 | $465.7 | $173.3 |
| Net income | $16.7 | $11.6 | $86.1 | $16.1 |
| Net income allocable to common shares | $16.2 | $11.5 | $83.6 | $16.0 |
| Diluted EPS | $0.07 | $0.11 | $0.38 | $0.15 |
| Cash provided by operating activities | Not stated for quarter | Not stated for quarter | $191.2 | $73.7 |
- Same-store operations: Combined same-store rental and other property revenue rose 10.6% to $151.0 million in Q3; same-store NOI increased 11.5% to $94.6 million. For the nine-month period, revenue rose 11.0% to $439.3 million and NOI increased 14.0% to $274.5 million. Average effective monthly rent per unit increased 13.3% in Q3 and 11.9% year to date, while occupancy fell 2.3 and 1.0 percentage points, respectively. Nine-month same-store NOI margin was 62.5%, up from 60.9%.
- Cash flow and investment: Nine-month investing cash outflow was $174.2 million and financing cash outflow was $23.2 million; cash and restricted cash declined $6.1 million to $59.6 million. Investing included $201.8 million of acquisitions, $55.6 million of capital expenditures and $51.4 million of JV investments, offset in part by $155.6 million of property-sale proceeds and $15.7 million of insurance proceeds.
- Debt and liquidity: Total debt principal was $2.666 billion; carrying value was $2.714 billion including debt associated with properties held for sale. Weighted-average debt rate was 3.8%, with 5.3 years’ weighted-average maturity. Cash and cash equivalents were $23.8 million, plus $35.8 million restricted cash. IRT reported compliance with debt covenants.
- Balance sheet: Total assets were $6.634 billion and total equity was $3.737 billion at September 30, 2022. Net indebtedness on the balance sheet was $2.667 billion, with a separate $46.4 million liability for debt associated with real estate held for sale.
- Distributions: Quarterly common dividend declared was $0.14 per share. The company received approximately $49.9 million net proceeds by settling 2.0 million forward-sale shares in September.
Material changes versus the prior comparable period
- Year-over-year consolidated revenue and expenses are not directly comparable because the STAR merger closed in December 2021. The merger added 68 apartment communities and two developments; management attributed most of the increase in consolidated revenue and operating costs to the acquired portfolio.
- Same-store rent growth lifted NOI, but occupancy declined and property operating costs rose. Year-to-date same-store real estate taxes increased 6.2% and repairs and maintenance increased 14.4%, with management citing inflationary pressures.
- Q3 net income increased 44% year over year, but diluted EPS declined from $0.11 to $0.07. For the nine months, net income increased substantially, supported by $94.7 million in gains on property sales; diluted EPS was $0.38 versus $0.15.
- Interest expense rose to $22.1 million in Q3 and $63.6 million for the nine months, primarily due to debt assumed in the STAR merger. Depreciation and amortization also increased substantially, including merger-related property depreciation and $53.3 million of nine-month amortization of in-place lease intangibles.
- Operating cash flow increased to $191.2 million from $73.7 million for the nine months. Financing cash flow shifted from $73.0 million provided in 2021 to $23.2 million used in 2022, reflecting debt repayments, dividends and equity proceeds.
Outlook, commentary, risks and unusual items
- Outlook: No specific earnings or operating guidance is provided in the filing. Management believes cash, financing arrangements and operating cash flow will meet liquidity needs for the next 12 months and foreseeable future.
- Debt refinancing: A July 2022 credit agreement increased aggregate borrowing availability to $1.1 billion and established a $400 million term loan maturing in January 2028. Proceeds repaid the 2024 term loans and reduced revolver borrowings by $100 million. The agreement transitioned the rate option from LIBOR to SOFR; a further increase to $1.5 billion is subject to conditions and lender commitments.
- Interest-rate exposure: Unsecured revolver and term loans carry floating rates. IRT had $750 million notional of interest-rate swaps and collars, reported $44.0 million of derivative assets, and expected $11.9 million of hedge gains to be reclassified from accumulated other comprehensive income into earnings over the next 12 months.
- Portfolio plans: Four communities were sold during the first nine months for $158.1 million, generating a $94.7 million gain. Two additional properties were held for sale at quarter-end; one sale closed October 26, and the company expected the other to close in Q4. Acquisitions during the period totaled approximately $203.4 million across three properties, including a purchase from a JV.
- Development and renovations: The company reported $86.8 million invested in development and $70.6 million in unconsolidated real estate entities. It had committed $92.4 million to three described JV projects, of which $44.2 million had been funded by quarter-end. Management reported a 21.6% return on investment for completed value-add renovations since 2018; these are company-calculated measures.
- Unusual items: Nine-month results included $94.7 million of property-sale gains and $7.2 million of net casualty gains. IRT also received $6.2 million of employee retention credit refunds, with amounts recognized as payroll-cost reimbursements and interest under its stated accounting policy. Merger and integration costs were $3.5 million for the nine months.
- Risks and contingencies: Management cited inflationary property costs and cautioned that actual results may differ from forward-looking statements. Ordinary-course legal matters are generally insured; management did not expect their resolution to materially adversely affect financial position, results or cash flows. The filing reports no material change to previously disclosed risk factors and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Separate the impact of the STAR merger and asset sales from ongoing same-store operating trends, including occupancy and expense growth.
- Review recurring cash generation against dividends, capital expenditures, debt service and development commitments; GAAP net income includes significant sale and casualty gains.
- Assess floating-rate debt exposure, hedge coverage, the SOFR-based borrowing margins, covenant headroom and upcoming maturities.
- Confirm completion and proceeds from the remaining held-for-sale property, and monitor development funding, schedules and leasing.
- Reconcile reported GAAP results with management’s non-GAAP FFO and Core FFO measures; these are not substitutes for cash flow or amounts available for distribution.