Independence Realty Trust, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. The company is an externally managed apartment REIT. Unless noted otherwise, financial amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions.
Business context and operating performance
- At quarter-end, the portfolio comprised 48 apartment properties and 13,502 units. Portfolio occupancy was 93.5%, with average monthly effective rent of $952 per occupied unit.
- Management said it was integrating the growth from the 2015 Trade Street Residential (TSRE) acquisition and pursuing capital recycling to reduce leverage.
- Same-store revenue rose 3.5% to $21.0 million and same-store NOI increased 3.7% to $11.2 million. Average effective monthly rent increased 3.4% to $856; occupancy was unchanged at 93.3%.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Total revenue | $38.7 million | $21.7 million |
| Operating income | $7.4 million | $3.8 million |
| Net loss | $0.05 million | $0.24 million |
| Net loss attributable to common shares | $0.08 million; reported EPS rounded to $0 | $0.23 million; EPS $(0.01) |
| FFO / Core FFO | $9.0 million / $10.3 million; $0.18 / $0.21 per diluted share | $5.8 million / $5.9 million; $0.18 / $0.19 per diluted share |
| Cash from operating activities | $7.5 million | $8.5 million |
- Revenue increased 78.5%, primarily reflecting properties acquired with TSRE; management attributed $16.7 million of the increase to those acquired properties. Consolidated NOI was $21.5 million, up 86.4%.
- Interest expense increased to $10.0 million from $4.0 million, largely due to debt associated with the TSRE acquisition. A $2.45 million gain on a property sale and a $0.09 million TSRE purchase-accounting adjustment contributed to reported results.
- Cash and cash equivalents were $21.9 million at March 31, down from $38.3 million at year-end; restricted cash was $7.0 million. Operating, investing and financing cash flows were $7.5 million, $5.9 million and $(29.7) million, respectively. Capital expenditures were $2.3 million.
- Total assets were $1.345 billion. Debt principal was $948.5 million ($940.3 million carrying amount), at a 3.6% weighted-average effective rate; reported total equity was $381.0 million. The company said it was in compliance with all debt covenants.
- Common dividends were $0.06 per share monthly during the quarter. The company reported $9.1 million of distributions to common stockholders and noncontrolling interests versus $10.0 million of operating cash flow adjusted as described by management.
Material changes, outlook and risks
- The year-over-year increase in revenue and expenses largely reflects the TSRE acquisition and other properties acquired since Q1 2015; same-store NOI growth was more modest at 3.7%.
- Management stated available cash, financing arrangements and operating cash flow should meet liquidity needs for the next 12 months and foreseeable future. It was using asset-sale proceeds to reduce leverage and short-term borrowing, but said it could not assure that planned refinancing would be completed.
- The KeyBank interim facility had $90.2 million outstanding at March 31, 2016, with a September 2016 maturity and an optional six-month extension. Subsequent asset-sale proceeds and repayments reduced the balance to approximately $60 million by May 2016. Management was considering options to refinance or retire the remaining amount; after refinancing, it expected no 2016 or 2017 maturities other than scheduled amortization.
- By the filing date, the company reported four property sales for an aggregate $121.6 million. The filing gives differing net-proceeds figures—$53.9 million in one discussion and $54.3 million in another—and describes the remaining interim-facility balance as both $60.1 million and $60.2 million. Verify these amounts. Two properties were classified as held for sale at quarter-end.
- Interest-rate exposure includes floating-rate debt; a $200 million LIBOR interest-rate cap was designated as a cash-flow hedge. Management described market-risk exposure as limited and reported no material change from year-end disclosures.
- A putative class action related to the TSRE acquisition remained pending. The company accrued estimated legal-defense costs but said it could not reasonably estimate any further possible loss. It reported no material change in previously disclosed risk factors.
- The advisor is a RAIT subsidiary, and RAIT held 15.4% of common shares at quarter-end. Advisory and property-management fees, and some mortgage debt, involve RAIT or its affiliates. Management reported effective disclosure controls.
- No specific earnings or operating guidance was provided. Management cautioned that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Reconcile the reported net proceeds from property sales and the interim-facility balance figures; review the status and terms of the remaining short-term debt and refinancing plans.
- Assess whether same-store rent and NOI growth can continue, and distinguish underlying performance from acquisition-driven growth and sale gains.
- Review cash available after debt service, capital expenditures and distributions, including the company’s adjusted operating-cash-flow measure and its calculation.
- Evaluate floating-rate exposure, debt maturities and covenant headroom, as well as related-party fees and financing arrangements.
- Monitor the TSRE-related litigation and any change in the potential loss estimate.