Independence Realty Trust, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Amounts are in millions of dollars except per-share data. IRT is a self-managed REIT focused on multifamily apartments in non-gateway U.S. markets. At quarter-end it owned 58 properties with 15,880 units; portfolio occupancy was 93.9%.
Financial performance
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenue | $49.5 | $45.8 | +8.3% |
| Operating income | $12.3 | $11.7 | +5.1% |
| Net income | $2.6 | $3.5 | −26.7% |
| Net income attributable to common shares | $2.5 | $3.4 | −25.6% |
| Diluted EPS | $0.03 | $0.04 | Down $0.01 |
| Operating cash flow | $14.2 | $15.8 | −10.3% |
| FFO per share | $0.17 | $0.17 | Unchanged |
| Core FFO per share | $0.18 | $0.18 | Unchanged |
Same-store revenue increased 4.0% and same-store NOI rose 5.1% to $25.8 million. Same-store NOI margin improved to 60.4% from 59.8%, while average effective monthly rent per unit increased 4.4% to $1,044. Average same-store occupancy declined to 92.5% from 93.7%. FFO and Core FFO are non-GAAP measures and are not substitutes for GAAP earnings or cash flow.
Balance sheet, debt and liquidity
- At March 31, 2019, total assets were $1,655.8 million and total equity was $617.1 million. Debt carrying value was $990.9 million; outstanding principal was $996.5 million.
- Debt carried a 3.9% weighted-average rate and 4.7-year weighted-average maturity. $411.7 million of principal was floating-rate unsecured credit-facility and term-loan debt; $584.8 million was fixed-rate mortgages.
- Cash and cash equivalents were $9.0 million, with another $7.1 million restricted. The $300 million unsecured credit facility had $111.7 million outstanding.
- Operating cash flow was $14.2 million; investing cash outflow was $8.1 million, including $8.7 million of capital expenditures; financing cash outflow was $6.0 million. Cash and restricted cash ended at $16.2 million.
- Cash distributions to common stockholders and noncontrolling interests were $16.4 million. Management reported $16.1 million of operating cash flow excluding changes in other assets and liabilities for its dividend-coverage assessment.
IRT declared a quarterly distribution of $0.18 per share, paid April 25, 2019. During the quarter it sold 510,000 shares through its at-the-market program for net proceeds of approximately $5.3 million.
Changes, outlook and risks
- Revenue growth reflected higher same-store rents and differences in the properties included in the periods. Same-store operating expenses increased 2.5%; real estate taxes and repairs and maintenance were notable increases.
- Net income fell despite higher revenue and operating income, primarily as interest expense increased 16.6% to $9.7 million and depreciation and amortization increased 10.9% to $12.4 million. Management linked higher interest expense in part to increased unsecured facility and term-loan balances used for acquisitions and value-add capital expenditures.
- Unrealized changes in interest-rate hedges reduced other comprehensive income by $4.4 million in Q1 2019, versus a $3.2 million gain in Q1 2018. Hedge fair value included $5.3 million of assets and $1.5 million of liabilities at quarter-end.
- Management said existing cash, financing arrangements and operating cash flows should meet liquidity needs for the next 12 months and foreseeable future. No quantitative earnings or FFO guidance was provided.
- Value-add renovations were identified for 4,297 units across 14 properties; 1,590 units were complete at quarter-end. Management expected the remaining projects to be completed during 2019 and through the first half of 2020.
- After quarter-end, IRT acquired a 224-unit Atlanta property for $28.0 million and sold a 370-unit Chicago property for $42.0 million, expecting an approximately $12.5 million gain. It expected to sell its remaining two held-for-sale properties in Q2 2019.
- IRT reported compliance with debt covenants, no material change in previously disclosed risk factors, and no material off-balance-sheet arrangements. It stated ordinary-course legal matters were not expected to have a material adverse effect. The filing cautions that estimates, property values, leasing conditions, financing costs and forward-looking plans may differ from actual outcomes.
Important facts for investors to verify
- Whether rent growth can continue and occupancy recover, particularly given lower same-store occupancy and market-level variation.
- Debt maturities, floating-rate exposure, hedge coverage and the effect of interest costs on earnings and distribution coverage.
- Execution, cost and returns of the value-add program, and completion of the planned property sales and reported gain.
- Cash available after capital spending and distributions; reported operating cash flow was below total cash distributions in the quarter.
- Share issuance under the ATM program and its potential effect on per-share results.