Independence Realty Trust Announces First Quarter 2019 Financial Results

Independence Realty Trust, Inc. (IRT) (NYSE:IRT), a multifamily apartment REIT, today announced its first quarter 2019 financial results.

First Quarter Highlights

  • Net income allocable to common shares of $2.5 million for the quarter ended March 31, 2019 as compared to $3.4 million for the quarter ended March 31, 2018. Earnings per diluted share of $0.03 for the quarter ended March 31, 2019 as compared to $0.04 for the quarter ended March 31, 2018.
  • Core Funds from Operations (CFFO) of $16.0 million for the quarter ended March 31, 2019 as compared to $15.6 million for the quarter ended March 31, 2018. CFFO per share was $0.18 for the first quarter of 2019 and for the first quarter of 2018.
  • Same store NOI growth of 5.1% for the quarter ended March 31, 2019 compared to the quarter ended March 31, 2018.
  • Adjusted EBITDA of $24.7 million for the quarter ended March 31, 2019 as compared to $23.0 million for the quarter ended March 31, 2018.
  • Since the inception of the value add program, IRT has completed renovations in 1,590 units, achieving a weighted average return on investment of 16%.

Included later in this press release are definitions of CFFO, Adjusted EBITDA and other Non-GAAP financial measures and reconciliations of such measures to their most comparable financial measures as calculated and presented under GAAP.

Management Commentary:

We are pleased with our Q1 performance as the value add renovation program is producing tangible results, said Scott Schaeffer, IRTs Chairman and CEO. Our strategic decision to allocate capital and invest in upgrading the interiors and exteriors of these communities is increasing their value. This is only the beginning. In addition, we are also seeing sizable lease-over-lease rent growth in the balance of our portfolio. As we look ahead, we will continue to execute on our business plan, which will drive NOI growth and increase shareholder value.

Same Store Property Operating Results

 

First Quarter 2019 Compared to First Quarter 2018(1)

Rental and other property revenue 4.0% increase
Property operating expenses 2.5% increase
Net operating income (NOI) 5.1% increase
Portfolio average occupancy 120 bps decrease to 92.5%
Portfolio average rental rate 4.4% increase to $1,044
NOI Margin 60 bps increase to 60.4%

(1) Same store portfolio for the three months ended March 31, 2019 includes 50 properties, which represent 13,697 units.

Same Store Property Operating Results, Excluding Value Add

The same store portfolio results below exclude twelve communities that are both part of the same store portfolio and are actively undergoing Value Add renovations during the three months ended March 31, 2019.

 

First Quarter 2019 Compared to First Quarter 2018, Excluding Value Add (1)

Rental and other property revenue 3.8% increase
Property operating expenses 5.4% increase (2)
Net operating income (NOI) 2.7% increase
Portfolio average occupancy 10 bps decrease to 93.7%
Portfolio average rental rate 3.2% increase to $1,048
NOI Margin 70 bps decrease to 59.3%

(1) Same store portfolio, excluding value add, includes 38 properties, which represent 9,748 units for the three months ended March 31, 2019.

(2) As communicated previously, this increase is primarily the result of increased real estate taxes. Please refer to the 2019 EPS and CFFO Guidance section for additional details on the change in property level operating expenses.

Capital Recycling

Acquisitions:

  • On April 30, 2019, IRT acquired a 224-unit community in Atlanta for $28.0 million. As of April 17, 2019, the community was 98.2% occupied with average rent per unit of $990.

Dispositions:

  • As of March 31, 2019, IRT had three properties in its portfolio that were identified as held for sale. Subsequent to quarter-end, on April 30, 2019, IRT sold a 370-unit community located outside of Chicago, Illinois for $42.0 million. Associated with this disposition, IRT repaid indebtedness totaling $38 million and expects to record a gain on sale of approximately $12.5 million.
  • The two remaining communities held for sale in Little Rock, Arkansas are under contract at a price of $56.5 million, and IRT expects the sales to close by the end of the second quarter in 2019. IRT intends to use the net proceeds of the sales to repay indebtedness.

At-the-Market Offering

During the first quarter of 2019, IRT issued 510,000 shares of common stock under its at-the-market sales program at a weighted average per share price of $10.61, yielding net proceeds of approximately $5.3 million.

Capital Expenditures

For the three months ended March 31, 2019, recurring capital expenditures for the total portfolio were $1.8 million, or $115 per unit.

Distributions

On March 18, 2019, IRTs Board of Directors declared a quarterly cash dividend for the first quarter of 2019 of $0.18 per share of IRT common stock, payable on April 25, 2019 to stockholders of record on March 29, 2019.

2019 EPS and CFFO Guidance

IRT is reiterating 2019 full year guidance. EPS per diluted share is projected to be in a range of $0.76 to $0.80. CFFO per diluted share, a non-GAAP financial measure, is projected to be in the range of $0.74 to $0.78. A reconciliation of IRT’s projected net income allocable to common shares to its projected CFFO per share, is included below. Also, included below are the primary assumptions underlying these estimates. See the schedules and definitions at the end of this release for further information regarding how IRT calculates CFFO and for managements definition and rationale for the usefulness of CFFO.

2019 Full Year EPS and CFFO Guidance (1)(2)   Low   High
Earnings per share   $ 0.76     $ 0.80  
Adjustments:        
Depreciation and amortization     0.43       0.47  
Gains on sale of assets     (0.51 )     (0.55 )
Share base compensation     0.04       0.04  
Amortization of deferred financing fees     0.02       0.02  
CORE FFO per share allocated to common shareholders   $ 0.74     $ 0.78  

(1) This guidance, including the underlying assumptions presented in the table below, constitutes forward-looking information. Actual full year 2019 EPS and CFFO could vary significantly from the projections presented. See Forward-Looking Statements below.

(2) Per share guidance is based on weighted average shares and units outstanding of 90.2 million.

Same Store Communities

  2019 Outlook
Number of properties/units   50 properties / 13,697 units
Property revenue growth   4.0% to 6.0%
Controllable property operating expense growth   2.5% to 3.5%
Real estate tax and insurance expense increase (1)   6.0% to 12.0%
Total property operating expense growth   4.0% to 6.0%
Same store property NOI growth   3.5% to 5.5%
     
Corporate Expenses    
General and administrative expenses

(excluding stock based compensation)

  $9.0 to $10.0 million
     
Transaction/Investment Volume    
Acquisition volume (2)   $30.0 to $110.0 million
Disposition volume (3)   $100.0 to $180.0 million
     
Capital Expenditures    
Recurring   $8.0 to $9.0 million
Value add & non-recurring   $30.0 to $38.0 million

(1) In 2019, IRT is expecting increases in real estate tax expense at several recently acquired communities that are new to the same store portfolio. IRTs underwriting contemplates tax increases due to re-assessments, however, the ultimate timing is difficult to predict.

(2) Acquisition volume includes the April 2019 acquisition and potential additional capital recycling acquisitions in 2019.

(3) Dispositions include the April 2019 disposition, the two pending dispositions referred to above, and potential additional capital recycling dispositions in 2019.

Selected Financial Information

See the schedules at the end of this earnings release for selected financial information for IRT.

Non-GAAP Financial Measures and Definitions

IRT discloses the following non-GAAP financial measures in this earnings release: FFO, CFFO, Adjusted EBITDA and NOI. Included at the end of this release is a reconciliation of IRTs reported net income to its FFO and CFFO, a reconciliation of IRTs same store NOI to its reported net income, a reconciliation of IRTs Adjusted EBITDA to net income, and managements respective definitions and rationales for the usefulness of each of these non-GAAP financial measures and other definitions used in this release.

Conference Call

All interested parties can listen to the live conference call webcast at 9:00 AM ET on Thursday, May 2, 2019 from the investor relations section of the IRT website at www.irtliving.com or by dialing 1.844.775.2542, access code 7240939. For those who are not available to listen to the live call, the replay will be available shortly following the live call from the investor relations section of IRTs website and telephonically until Thursday, May 9, 2019 by dialing 1.855.859.2056, access code 7240939.

Supplemental Information

IRT produces supplemental information that includes details regarding the performance of the portfolio, financial information, non-GAAP financial measures, same store information and other useful information for investors. The supplemental information is available via the Company’s website, www.irtliving.com, through the “Investor Relations” section.

About Independence Realty Trust, Inc.

Independence Realty Trust (NYSE: IRT) is a real estate investment trust that currently owns and operates 58 multifamily apartment properties, totaling 15,880 units, across non-gateway U.S. markets, including Atlanta, Louisville, Memphis, and Raleigh. IRTs investment strategy is focused on gaining scale within key amenity rich submarkets that offer good school districts, high-quality retail and major employment centers. IRT aims to provide stockholders attractive risk-adjusted returns through diligent portfolio management, strong operational performance, and a consistent return of capital through distributions and capital appreciation.

Forward-Looking Statements

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as may, will, expect, intend, anticipate, estimate, believe, seek, outlook, assumption, projected, strategy, guidance or other, similar words. Because such forward-looking statements involve significant risks, uncertainties and contingencies, many of which are not within IRTs control, actual results may differ materially from the expectations, intentions, beliefs, plans or predictions of the future expressed or implied by such statements. These forward-looking statements are based upon the current judgements and expectations of IRTs management. Risks and uncertainties that might cause IRTs actual results to differ materially from those expressed or implied by forward-looking statements include, but are not limited to: adverse changes in national, regional and local economic climates; changes in market demand for rental apartment homes and pricing pressures from competitors that could limit our ability to lease units or increase rents; competition that could adversely affect our ability to acquire additional properties; volatility in capital and credit markets, including changes that reduce availability, and increase costs, of capital; unexpected changes in the assumptions underlying our 2019 EPS, CFFO and same store NOI growth guidance; delays in completing, and cost overruns incurred in connection with, our value add initiatives and failure to achieve projected rent increases and occupancy levels on account of the initiatives; risks associated with pursuit of strategic acquisitions, including risks associated with the need to raise additional capital to fund the acquisitions and failure of acquisitions to produce expected returns; unexpected costs of REIT qualification compliance; costs and disruptions as the result of a cybersecurity incident or other technology disruption; and share price fluctuations. Additional risks and uncertainties that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements in this press release are discussed in IRTs filings with the Securities and Exchange Commission (SEC), including those under the heading Risk Factors in IRTs most recently filed Annual Report on Form 10-K. Dividends are subject to the discretion of IRTs Board of Directors, and will depend on IRTs financial condition, results of operations, capital requirements, compliance with applicable laws and agreements and any other factors deemed relevant by IRTs Board. IRT undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as may be required by law.

Schedule I

Independence Realty Trust, Inc.

Selected Financial Information

(Dollars in thousands, except share and per share amounts)

(unaudited)

 
  For the Three Months Ended
March 31,

2019

  December 31,

2018

  September 30,

2018

  June 30,

2018

  March 31,

2018

Selected Financial Information:        
Operating Statistics:
Net income available to common shares $ 2,540 $ 14,580 $ 4,787 $ 3,509 $ 3,412
Earnings (loss) per share — diluted $ 0.03 $ 0.16 $ 0.05 $ 0.04 $ 0.04
Rental and other property revenue $ 49,465 $ 49,718 $ 48,644 $ 46,734 $ 45,616
Property operating expenses $ 19,886 $ 19,450 $ 19,792 $ 18,703 $ 18,418
Net operating income $ 29,579 $ 30,268 $ 28,852 $ 28,031 $ 27,198
NOI margin 59.8 % 60.9 % 59.3 % 60.0 % 59.6 %
Adjusted EBITDA $ 24,734 $ 25,653 $ 24,748 $ 23,722 $ 23,012
FFO per share $ 0.17 $ 0.16 $ 0.18 $ 0.17 $ 0.17
CORE FFO per share $ 0.18 $ 0.19 $ 0.19 $ 0.19 $ 0.18
Dividends per share $ 0.18 $ 0.18 $ 0.18 $ 0.18 $ 0.18
CORE FFO payout ratio 100.0 % 94.7 % 94.7 % 94.7 % 100.0 %
Portfolio Data:
Total gross assets $ 1,807,955 $ 1,798,736 $ 1,782,186 $ 1,706,465 $ 1,689,689
Total number of properties 58 58 58 56 56
Total units 15,880 15,880 15,860 15,280 15,280
Period end occupancy 93.9 % 92.5 % 92.3 % 93.8 % 93.5 %
Total portfolio average occupancy 92.9 % 92.3 % 93.5 % 94.1 % 93.7 %
Total portfolio average effective monthly rent, per

unit

$ 1,042 $ 1,035 $ 1,024 $ 1,009 $ 1,002
Same store period end occupancy (a) 93.6 % 92.0 % 92.2 % 93.6 % 93.4 %
Same store portfolio average occupancy (a) 92.5 % 92.0 % 93.4 % 94.0 % 93.7 %
Same store portfolio average effective monthly rent,

per unit (a)

$ 1,044 $ 1,039 $ 1,025 $ 1,008 $ 1,000
Capitalization:
Total debt $ 990,920 $ 985,488 $ 963,238 $ 911,772 $ 903,286
Common share price, period end $ 10.79 $ 9.18 $ 10.53 $ 10.31 $ 9.18
Market equity capitalization $ 978,825 $ 826,802 $ 945,615 $ 906,696 $ 806,671
Total market capitalization $ 1,969,745 $ 1,812,290 $ 1,908,853 $ 1,818,468 $ 1,709,957
Total debt/total gross assets 54.8 % 54.8 % 54.0 % 53.4 % 53.5 %
Net debt to adjusted EBITDA (pro forma) (b) 9.2 x 9.2 x 9.3 x 9.4 x 9.4 x
Interest coverage 2.5 x 2.6 x 2.7 x 2.8 x 2.8 x
Common shares and OP Units:
Shares outstanding 89,834,793 89,184,443 88,920,879 87,044,121 86,973,397
OP units outstanding   881,107   881,107   881,107   899,215   899,215
Common shares and OP units outstanding 90,715,900 90,065,550 89,801,986 87,943,336 87,872,612
Weighted average common shares and units 89,870,556 89,532,373 88,585,940 87,543,931 87,466,518

(a) Same store portfolio consists of 50 properties, which represent 13,697 units.

(b) Reflects pro forma net debt to adjusted EBITDA for each period presented, which includes adjustments for the timing of acquisitions, the full quarter effect of current value add initiatives, and the projected completion of the announced capital recycling activities including paydown of associated indebtedness. Actual net debt to adjusted EBITDA for the five quarters ended March 31, 2019 was 9.9x, 9.5x, 9.7x, 9.5x, and 9.7x, respectively.

Schedule II

Independence Realty Trust, Inc.

Reconciliation of Net Income (loss) to

Funds From Operations and

Core Funds From Operations

(Dollars in thousands, except share and per share amounts)

(unaudited)

 
  For the Three Months Ended March 31,
2019     2018
Funds From Operations (FFO):
Net Income (loss) $ 2,566 $ 3,500
Adjustments:
Real estate depreciation and amortization 12,318 11,201
Net (gains) losses on sale of assets excluding defeasance costs    
Funds From Operations $ 14,884 $ 14,701
FFO per share $ 0.17 $ 0.17
Core Funds From Operations (CFFO):
Funds From Operations $ 14,884 $ 14,701
Adjustments:
Stock compensation expense 622 470
Amortization of deferred financing costs 339 444
Other depreciation and amortization 129 23
Other expense (income)     (52 )
Core Funds From Operations $ 15,974 $ 15,586
CFFO per share $ 0.18 $ 0.18
Weighted-average shares and units outstanding   89,870,556   87,466,518

Schedule III

Independence Realty Trust, Inc.

Reconciliation of Same-Store Net Operating Income to Net Income (loss)

(Dollars in thousands)

(unaudited)

 
  For the Three-Months Ended (a)
March 31, 2019   December 31, 2018   September 30, 2018   June 30, 2018   March 31, 2018
Reconciliation of same-store net operating income to net income (loss)
Same-store net operating income $ 25,777 $ 25,693 $ 25,067 $ 24,999 $ 24,531
Non same-store net operating income 3,802 4,575 3,785 3,032 2,667
Other revenue 75 91 135 155 139
Property management expenses (1,813 ) (2,027 ) (1,661 ) (1,592 ) (1,683 )
General and administrative expenses (3,107 ) (2,633 ) (2,578 ) (2,872 ) (2,734 )
Depreciation and amortization expense (12,447 ) (11,631 ) (10,783 ) (11,583 ) (11,224 )
Interest expense (9,721 ) (9,943 ) (9,129 ) (8,594 ) (8,340 )
Casualty relates costs (46 )
Other income (expense) 144
Net gains (losses) on sale of assets     10,650      
Net income (loss) $ 2,566 $ 14,729 $ 4,836 $ 3,545 $ 3,500

(a) Same store portfolio includes 50 properties, which represent 13,697 units.

Schedule IV

Independence Realty Trust, Inc.

Reconciliation of Net Income (Loss) to Adjusted EBITDA

And Interest Coverage Ratio

(Dollars in thousands)

(unaudited)

 
  Three Months Ended
ADJUSTED EBITDA: March 31,

2019

  December 31,

2018

  September 30,

2018

  June 30,

2018

  March 31,

2018

Net income (loss) $ 2,566   $ 14,729   $ 4,836   $ 3,545   $ 3,500
Add-Back (Deduct):
Depreciation and amortization 12,447 11,631 10,783 11,583 11,224
Interest expense 9,721 9,943 9,129 8,594 8,340
Other (income) expense (52 )
Net (gains) losses on sale of assets     (10,650 )      
Adjusted EBITDA $ 24,734 $ 25,653 $ 24,748 $ 23,722 $ 23,012
 
INTEREST COST:
Interest expense $ 9,721 $ 9,943 $ 9,129 $ 8,594 $ 8,340
 
INTEREST COVERAGE: 2.5 x 2.6 x 2.7 x 2.8 x 2.8 x

Schedule V Independence Realty Trust, Inc. Definitions

Average Effective Monthly Rent per Unit

Average effective rent per unit represents the average of gross rent amounts, divided by the average occupancy (in units) for the period presented. IRT believes average effective rent is a helpful measurement in evaluating average pricing. This metric, when presented, reflects the average effective rent per month.

Average Occupancy

Average occupancy represents the average of the daily physical occupancy for the period presented.

EBITDA and Adjusted EBITDA

EBITDA is defined as net income before interest expense including amortization of deferred financing costs, income tax expense, and depreciation and amortization expenses. Adjusted EBITDA is EBITDA before certain other non-cash or non-operating gains or losses related to items such as acquisition and integration expenses, asset sales, debt extinguishments and acquisition related debt extinguishment expenses. EBITDA and Adjusted EBITDA are each non-GAAP measures. IRT considers each of EBITDA and Adjusted EBITDA to be an appropriate supplemental measure of performance because it eliminates interest, income taxes, depreciation and amortization, and other non-cash or non-operating gains and losses, which permits investors to view income from operations without these non-cash or non-operating items. IRTs calculation of Adjusted EBITDA differs from the methodology used for calculating Adjusted EBITDA by certain other REITs and, accordingly, IRTs Adjusted EBITDA may not be comparable to Adjusted EBITDA reported by other REITs.

Funds From Operations (FFO) and Core Funds From Operations (CFFO)

IRT believes that FFO and CFFO, each of which is a non-GAAP financial measure, are additional appropriate measures of the operating performance of a REIT and IRT in particular. IRT computes FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT, as net income or loss (computed in accordance with GAAP), excluding real estate-related depreciation and amortization expense, gains or losses on sales of real estate and the cumulative effect of changes in accounting principles.

CFFO is a computation made by analysts and investors to measure a real estate companys operating performance by removing the effect of items that do not reflect ongoing property operations, including stock compensation expense, depreciation and amortization of other items not included in FFO, amortization of deferred financing costs, acquisition and integration expenses, and other non-cash or non-operating gains or losses related to items such as defeasance costs IRT incurs when it sells a property subject to secured debt, asset sales, debt extinguishments, and acquisition related debt extinguishment expenses from the determination of FFO.

IRTs calculation of CFFO differs from the methodology used for calculating CFFO by certain other REITs and, accordingly, IRTs CFFO may not be comparable to CFFO reported by other REITs. IRTs management utilizes FFO and CFFO as measures of IRTs operating performance, and believes they are also useful to investors, because they facilitate an understanding of IRTs operating performance after adjustment for certain non-cash or non-operating items that are required by GAAP to be expensed but may not necessarily be indicative of current operating performance and that may not accurately compare IRTs operating performance between periods. Furthermore, although FFO, CFFO and other supplemental performance measures are defined in various ways throughout the REIT industry, IRT believes that FFO and CFFO provide investors with additional useful measures to compare IRTs financial performance to certain other REITs. Neither FFO nor CFFO is equivalent to net income or cash generated from operating activities determined in accordance with GAAP. Furthermore, FFO and CFFO do not represent amounts available for managements discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Neither FFO nor CFFO should be considered as an alternative to net income as an indicator of IRTs operating performance or as an alternative to cash flow from operating activities as a measure of IRTs liquidity.

Interest Coverage

Interest coverage is a ratio computed by dividing Adjusted EBITDA by interest expense.

Net Debt

Net debt, a non-GAAP financial measure, equals total debt less cash and cash equivalents. The following table provides a reconciliation of total debt to net debt. (Dollars in thousands).

  As of
March 31,

2019

  December 31,

2018

  September 30,

2018

  June 30,

2018

  March 31,

2018

Total debt $ 990,920   $ 985,488   $ 963,238   $ 911,772   $ 903,286
Less: cash and cash equivalents   (9,030 )   (9,316 )   (7,645 )   (10,896 )   (10,399 )
Total net debt $ 981,890 $ 976,172 $ 955,593 $ 900,876 $ 892,887

IRT presents net debt because management believes it is a useful measure of IRTs credit position and progress toward reducing leverage. The calculation is limited because IRT may not always be able to use cash to repay debt on a dollar for dollar basis

Net Operating Income

IRT believes that Net Operating Income (NOI), a non-GAAP financial measure, is a useful supplemental measure of its operating performance. IRT defines NOI as total property revenues less total property operating expenses, excluding interest expenses, depreciation and amortization, acquisition expenses, property management expenses, and general and administrative expenses. Other REITs may use different methodologies for calculating NOI, and accordingly, IRTs NOI may not be comparable to other REITs. IRT believes that this measure provides an operating perspective not immediately apparent from GAAP operating income or net income insofar as the measure reflects only operating income and expense at the property level. IRT uses NOI to evaluate performance on a same store and non-same store basis because NOI measures the core operations of property performance by excluding corporate level expenses, financing expenses, and other items not related to property operating performance and captures trends in rental housing and property operating expenses. However, NOI should only be used as an alternative measure of IRTs financial performance.

Same Store Properties and Same Store Portfolio

IRT reviews its same store portfolio at the beginning of each calendar year. Properties are added into the same store portfolio if they were owned at the beginning of the previous year. Properties that are held-for-sale or have been sold are excluded from the same store portfolio.

Total Gross Assets

Total Gross Assets equals total assets plus accumulated depreciation and accumulated amortization, including fully depreciated or amortized real estate and real estate related assets. The following table provides a reconciliation of total assets to total gross assets (Dollars in thousands).

  As of
March 31,

2019

    December 31,

2018

    September 30,

2018

    June 30,

2018

    March 31,

2018

Total assets $ 1,655,849 $ 1,659,336 $ 1,648,108 $ 1,583,117 $ 1,577,879
Plus: accumulated depreciation (a) 132,448 120,202 114,660 104,496 94,001
Plus: accumulated amortization   19,658   19,198   19,418   18,852   17,809
Total gross assets $ 1,807,955 $ 1,798,736 $ 1,782,186 $ 1,706,465 $ 1,689,689

(a) Includes previously recognized depreciation on properties that are classified as held-for-sale

Independence Realty Trust, Inc.
Edelman Financial
Communications & Capital Markets
Ted McHugh and Lauren Tarola
917.530.7792
[email protected]