Independence Realty Trust, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; financial statements are unaudited. The company is an externally managed REIT focused on apartment properties. At quarter-end it owned eight properties with 2,004 units across six states.
Financial performance and position
Amounts below are in thousands of dollars, except per-share data and percentages.
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Total revenue | $4,688 | $3,990 | +17.5% |
| Operating income | $1,228 | $953 | +28.9% |
| Net income | $340 | $153 | +122.2% |
| Net income (loss) allocable to common shares | $4 | ($26) | Improved |
| Operating cash flow | $1,381 | $1,164 | +18.6% |
| Capital expenditures | $244 | $260 | Lower by $16 |
- Operating margin was approximately 26.2%, versus 23.9% a year earlier. Property operating expenses rose to $2,165 from $1,885; depreciation and amortization increased to $1,036 from $820. Interest expense rose to $888 from $800.
- FFO and Core FFO, non-GAAP measures, were each $1,284, or $0.23 per diluted weighted-average share, compared with FFO of $973 and Core FFO of $1,000, or $0.18 per share, in Q1 2012. The filing cautions that these measures are not substitutes for GAAP earnings or operating cash flow.
- At March 31, cash and cash equivalents were $2,728 and restricted cash was $1,176. Total assets were $145,547; mortgage debt was $92,413, unchanged from year-end 2012. Debt was approximately 63.5% of total assets. Total equity was $50,372.
- Weighted-average mortgage interest was 3.8%. RAIT held $38,075 of company debt; third parties held $54,338.
- Cash increased $195 during the quarter, from $2,533 to $2,728. Financing cash flow was a $916 outflow, including $866 of distributions to non-controlling interests.
- Portfolio occupancy was 93.6% at quarter-end, and average monthly effective rent per occupied unit was $791. Management reported average occupancy of 94% in its overview.
Changes versus the prior comparable period
- Revenue growth primarily reflected the October 2012 acquisition of Runaway Bay Apartments, along with improved occupancy and rental rates. The acquisition also contributed to higher property costs, depreciation and interest expense.
- Common-share earnings moved from a $26 loss to $4 of income. The company declared $0.15 per common share in dividends in both periods.
- Operating cash flow increased, while the prior-year period included $3,000 of common-stock proceeds; Q1 2013 financing instead showed net cash outflow.
Outlook, material events and risks
- Management said existing cash, operating cash flow and financing arrangements should meet liquidity needs for the next 12 months. It also expects future acquisitions and growth in income and expenses, subject to raising equity and obtaining debt financing; additional financing may not be available on acceptable terms.
- The company intended to terminate its continuous offering and pursue an underwritten public offering. The amended registration statement had not yet been declared effective, and completion was not assured. Through March 31, net proceeds from the continuous offering were approximately $3.293 million.
- After quarter-end, on May 7, RAIT-related entities exchanged 5,274,900 operating-partnership units for the same number of common shares. The filing reported 5,643,540 common shares outstanding as of May 8.
- Also effective May 7, a revised advisory agreement set a 0.75% annual base management fee and an incentive fee equal to 20% of pre-incentive Core FFO above a 7% annualized equity-capital hurdle. The company is externally managed, and RAIT affiliates also provide property management and other services.
- Common distributions were declared at annualized rates of 6.0% for January–March 2013 and 6.25% for April–June, based on a $10 share price; preferred shares carry a 12.5% annualized rate based on a $1,000 share price.
- Management cited risks including a limited operating history, ability to deploy offering proceeds, real-estate and economic conditions, capital availability, interest rates and REIT regulatory or tax changes. Management reported effective disclosure controls; there were no material risk-factor changes, legal proceedings or off-balance-sheet arrangements reported.
Most important facts for investors to verify
- Whether the underwritten offering became effective and was completed, and the resulting proceeds, dilution and planned use of capital.
- Whether portfolio occupancy, rents and property-level performance improved beyond the reported 93.6% occupancy and $791 average monthly effective rent.
- Debt terms and refinancing exposure, including floating-rate exposure after fixed-rate periods and related-party debt held by RAIT.
- The impact of the May 2013 share conversion on ownership, per-share results and distributions, and the economics of the revised advisor incentive-fee arrangement.
- Distribution sustainability relative to operating cash flow, capital needs, debt service and REIT distribution requirements.