Independence Realty Trust, Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. The company is a REIT focused on multifamily properties in non-gateway U.S. markets. At quarter-end it owned 46 properties with 12,812 units and reported 94.5% period-end occupancy. Financial statement amounts below are in millions, except per-share data.
Financial performance
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| GAAP revenue | $39.6 | $38.3 | $78.7 | $77.0 |
| Operating income | $11.2 | $11.0 | $23.0 | $18.4 |
| Net income | $19.5 | $30.8 | $23.8 | $30.7 |
| Net income allocable to common shares | $18.7 | $29.0 | $22.8 | $28.9 |
| Diluted EPS | $0.27 | $0.61 | $0.33 | $0.61 |
| Same-store revenue growth | 4.3% | — | 4.5% | — |
| Same-store NOI growth | 5.6% | — | 5.4% | — |
| Same-store NOI margin | 60.6% | 59.8% | 60.2% | 59.7% |
| FFO per share and unit | $0.12 | $0.18 | $0.29 | $0.33 |
| Core FFO per share and unit | $0.19 | $0.22 | $0.37 | $0.42 |
Cash from operations was $28.0 million for the first half, versus $18.8 million a year earlier. Investing used $55.7 million, principally reflecting acquisitions net of dispositions; financing provided $13.1 million. Cash and equivalents were $6.3 million at June 30, down from $20.9 million at year-end 2016; restricted cash was $5.7 million. The company reported $25.9 million of distributions to common stockholders and noncontrolling interests in the first half, compared with $26.3 million of operating cash flow excluding acquisition and integration costs and changes in other assets and liabilities.
Debt, liquidity and capital
- Outstanding debt principal was $770.5 million ($764.5 million carrying value), compared with $750.2 million principal at December 31, 2016. Weighted-average debt rate was 3.5%, with 5.7 years’ weighted-average maturity.
- Debt included $192.2 million drawn on a new $300 million unsecured credit facility and $578.3 million of fixed-rate mortgages. A $150 million interest-rate swap hedged a portion of floating-rate debt. The company said it was in compliance with all financial covenants.
- The May 2017 refinancing extended facility maturities to 2021 for revolver borrowings and 2022 for the term loan; management estimated interest-cost savings of 35–40 basis points versus the prior facility.
- The company said available cash, financing and operating cash flows should meet liquidity needs for the next 12 months and the foreseeable future. It reported no material off-balance-sheet arrangements.
Changes, transactions and management commentary
- Same-store average occupancy increased to 95.0% from 94.4% in Q2 2016; average effective monthly rent per unit rose 3.3% to $1,013. Management attributed same-store NOI growth to higher rents and occupancy, with same-store operating expenses up 2.2% in the quarter.
- In the first half, the company acquired three properties for an aggregate purchase price of $86.9 million and sold three for $59.6 million. Q2 asset-sale gains were $16.1 million, versus $29.3 million in the prior-year quarter; these gains materially affected reported GAAP earnings.
- Management described the portfolio strategy as recycling capital out of Class C properties into higher-quality assets. It completed its management internalization, including transition from RAIT shared services, on June 20, 2017.
- On August 4, after quarter-end, the company entered an at-the-market agreement allowing sales of up to $150 million of common stock. It is not obligated to sell shares; any issuance could dilute existing holders.
- No specific financial guidance was provided. Management’s liquidity outlook is subject to risks, including operating and property-market conditions, access to financing, interest rates and execution of acquisitions and dispositions.
Risks, contingencies and unusual items
- Interest-rate exposure remains relevant, although the company uses a swap and cap; changes in rates can affect borrowing costs and cash flows. Management reported no material change in market risk from its 2016 annual filing.
- Ordinary-course legal claims and proceedings were disclosed; management did not expect them to have a material adverse effect. The filing reported no material changes to previously disclosed risk factors.
- Q2 debt-refinancing costs included a $0.6 million loss on extinguishment. Property-sale gains were net of $2.7 million of defeasance costs. These and other nonrecurring items affect comparisons and non-GAAP measures.
Important facts for investors to verify
- Reconcile earnings to ongoing performance: GAAP net income and EPS declined year over year while same-store NOI grew; sale gains and share-count changes influenced comparisons. Review the company’s FFO and Core FFO reconciliations and methodology.
- Confirm available liquidity under the new credit facility, upcoming debt maturities, covenant headroom and the sensitivity of floating-rate borrowings after hedging.
- Monitor whether same-store rent and occupancy growth continues to exceed operating-cost growth, and assess the performance and integration of acquired properties.
- Track any common-stock sales under the $150 million ATM program and their effect on shares outstanding and per-share results.
- The filing’s MD&A table reports Q2 consolidated revenue of $39.431 million, while the GAAP statement reports $39.561 million; the $0.130 million difference corresponds to property-management income shown separately in the statements. Verify the presentation when comparing reported figures.