Independence Realty Trust, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. IRT is a self-managed multifamily REIT focused on non-gateway U.S. markets. At year-end it owned 56 communities with 15,667 units, primarily in the Southeast and Midwest.
Financial and operating performance
- Revenue: $211.9 million, up 4.3% from $203.2 million in 2019. Rental and other property revenue rose 4.2% to $211.2 million.
- Property operations: Same-store revenue grew 3.6% and same-store property operating expenses rose 4.5%, lifting same-store NOI 3.1% to $115.0 million. Same-store NOI margin eased to 60.8% from 61.1%. Average effective monthly rent per unit increased 3.5% to $1,105; average occupancy was 93.6% versus 93.4%.
- Portfolio occupancy: Period-end occupancy was 95.3%, compared with 92.5% at year-end 2019. Management reported steady rent collections, although bad-debt provisions increased.
- Profit: GAAP net income fell 67.9% to $14.9 million from $46.4 million; diluted EPS was $0.16 versus $0.51. The principal comparison was lower property-sale gains: $7.6 million in 2020 versus $35.2 million in 2019. Depreciation and amortization rose $7.9 million and total expenses rose 10.0%; interest expense declined 7.0% to $36.5 million as rates fell.
- Non-GAAP measures: FFO was $67.7 million, or $0.72 per share/unit, versus $56.2 million, or $0.62, in 2019. Core FFO was $75.9 million, or $0.80, versus $68.5 million, or $0.76. These company-defined measures are not GAAP earnings or cash available for distribution.
- Cash flow and investment: Operating cash flow was $75.0 million, nearly unchanged from 2019. Investing cash outflow was $124.5 million, including $145.3 million for acquisitions and $37.4 million of capital expenditures, partly offset by $58.1 million from property sales. Financing cash flow was $48.8 million, principally reflecting equity proceeds and debt activity.
- Liquidity and debt: Cash and cash equivalents were $8.8 million; restricted cash was $4.9 million. Debt carrying value was $945.7 million, down from $985.6 million, with $949.9 million principal outstanding, a 2.7% weighted-average rate and 3.1-year weighted-average maturity. Of principal, $484.8 million was floating-rate and $465.1 million fixed-rate. The $350 million revolver had $184.8 million drawn. IRT reported covenant compliance at year-end.
- Capital and distributions: IRT settled forward equity sales by issuing 10.35 million shares, receiving approximately $148.8 million net. Shares outstanding rose to 101.8 million from 91.1 million. The 2020 declared dividend was $0.54 per share, down from $0.72 in 2019; the quarterly rate was reduced from $0.18 to $0.12 during 2020.
Material changes and notable items
- IRT acquired two communities totaling 672 units for a gross purchase price of $145.2 million and sold three communities totaling 559 units for $59.7 million. The sales generated reported net gains of $7.8 million, including a $1.8 million impairment charge related to one property.
- The company paused or delayed renovation work at 1,864 units because of COVID-19. Across 3,719 renovated units, it reported a 15.9% return on total renovation costs; remaining selected projects were expected to continue through 2021 and 2022.
- Operating expenses included $0.7 million of casualty losses from fires and $0.1 million of abandoned deal costs. Stock-based compensation increased, including expense associated with retirement-eligible employees.
- Other comprehensive loss was $21.8 million, principally reflecting changes in the fair value of interest-rate hedges. Derivative liabilities were $29.8 million at year-end.
Outlook, commentary and risks
Management said available cash, financing arrangements and operating cash flows should meet liquidity requirements for the next 12 months and foreseeable future. It intends to pursue acquisitions in existing markets, continue value-add renovations, recycle assets and reduce leverage over time. The filing provides no quantified earnings or same-store growth guidance. A 900,000-share forward sale under the ATM program remained unsettled; management estimated approximately $12.4 million of net proceeds if physically settled in full, subject to adjustment.
COVID-19 effects remained uncertain. Risks identified include resident payment difficulties, eviction restrictions (the CDC order was then in effect through March 31, 2021), economic weakness, short-term lease exposure, operating-cost increases, regional and multifamily concentration, and competition. IRT also highlighted refinancing and interest-rate risks: approximately $921.3 million of debt principal was scheduled to mature from 2021 through 2026. A 100-basis-point rate increase was estimated to raise annual interest expense by about $0.8 million after hedging. Other risks include property impairment, casualty and environmental exposures, capital-market access, and maintaining REIT qualification.
The financial statements received an unqualified audit opinion, and the auditor reported effective internal control over financial reporting. The auditor identified real-estate impairment evaluation as a critical audit matter because of judgment involved in estimated holding periods, property NOI, occupancy and market values. Ordinary-course legal proceedings were disclosed; management did not expect them to have a material adverse effect.
Key facts for investors to verify
- Whether occupancy and rent collection remain strong, and how bad debt and deferred resident balances develop after 2020.
- Whether renovation projects resume on schedule and achieve the disclosed returns, and whether property expenses outpace rent growth.
- How the debt maturity schedule will be refinanced, including floating-rate exposure, hedge effectiveness and covenant headroom.
- Whether reduced dividends are supported by recurring cash generation and capital requirements; reconcile GAAP earnings, FFO and Core FFO.
- The effects of share issuance and the unsettled ATM forward sale on dilution, proceeds and per-share performance.
- Subsequent developments in COVID-related eviction restrictions, impairment indicators and the property-sale pipeline.