PHILADELPHIA–(BUSINESS WIRE)–Independence Realty Trust, Inc. (“IRT”) (NYSE: IRT), a multifamily apartment REIT, today announced its third quarter 2022 financial results.
Third Quarter Highlights
Net income available to common shares of $16.2 million for the quarter ended September 30, 2022 compared to $11.5 million for the quarter ended September 30, 2021.
Earnings per diluted share of $0.07 for the quarter ended September 30, 2022 compared to $0.11 for the quarter ended September 30, 2021.
Combined same-store portfolio net operating income (“NOI”) growth of 11.5% for the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021.
Core Funds from Operations (“CFFO”) of $64.3 million for the quarter ended September 30, 2022 compared to $22.7 million for the quarter ended September 30, 2021. CFFO per share was $0.28 for the third quarter of 2022, as compared to $0.21 for the third quarter of 2021.
Adjusted EBITDA of $89.3 million for the quarter ended September 30, 2022 compared to $31.4 million for the quarter ended September 30, 2021.
Value add program for the quarter ended September 30, 2022, has completed renovations at 457 units, achieving a weighted average return on investment during the quarter of 22.4%.
Included later in this press release are definitions of NOI, CFFO, Adjusted EBITDA and other Non-GAAP financial measures and reconciliations of such measures to their most comparable financial measures as calculated and presented in accordance with GAAP.
Management Commentary
“We delivered double-digit revenue and NOI growth in the third quarter, as our portfolio of assets in attractive markets continued to exhibit strong fundamentals,” said Scott Schaeffer, Chairman and CEO of IRT. “Our combined same-store portfolio NOI increased by 11.5%, led by blended lease over lease rental growth of 12.7%. We are seeing increasing occupancy levels at our non-value add communities in our fourth quarter-to-date and as a result of our positive year-to-date operating performance, are maintaining our full year NOI and increasing our Core FFO per share growth guidance. Looking into 2023, we continue to believe that IRT is well-positioned in the multifamily sector and will maintain a disciplined approach in growing our business while increasing shareholder value.”
Combined Same-Store Portfolio(1) Operating Results
Third Quarter 2022 Compared to
Third Quarter 2021
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Rental and other property revenue(2)
10.6% increase
11.0% increase
Property operating expenses
9.1% increase
6.4% increase
Net operating income (“NOI”)(2)
11.5% increase
14.0% increase
Portfolio average occupancy
230 bps decrease to 94.2%
100 bps decrease to 95.0%
Portfolio average rental rate
13.3% increase to $1,479
11.9% increase to $1,421
NOI Margin
50 bps increase to 62.6%
160 bps increase to 62.5%
(1)
Combined same-store portfolio includes 113 properties, which represent 33,804 units.
(2)
Reflects upfront concessions recorded on a straight-line basis. With upfront concessions recorded on a cash basis, the change in rental and other property revenue would be 9.2% and 10.5%, for the three and nine months ended September 30, 2022, respectively, and the change in NOI would be 9.3% and 13.2% for the three and nine months ended September 30, 2022, respectively.
Operating Metrics
The table below summarizes operating metrics for the combined same-store portfolio for the applicable periods.
3Q 2022
4Q 2022(3)
Combined Same-Store Portfolio(1)
Average Occupancy
94.2
%
94.2
%
Lease Over Lease Effective Rental Rate Growth:(2)
New Leases
14.1
%
7.1
%
Renewal Leases
11.9
%
8.0
%
Blended
12.7
%
7.7
%
Resident retention rate
56.6
%
50.0
%
Combined Same-Store Portfolio excluding Ongoing Value Add
Average Occupancy(4)
94.7
%
95.0
%
Lease Over Lease Effective Rental Rate Growth:(2)
New Leases
13.5
%
5.8
%
Renewal Leases
11.1
%
7.2
%
Blended
12.0
%
6.7
%
Resident retention rate
56.3
%
51.2
%
Value Add (21 properties with Ongoing Value Add)
Average Occupancy
92.2
%
91.0
%
Lease Over Lease Effective Rental Rate Growth:(2)
New Leases
16.7
%
10.8
%
Renewal Leases
14.1
%
11.2
%
Blended
15.0
%
11.0
%
Resident retention rate
57.8
%
44.9
%
(1)
Combined same-store portfolio includes 113 properties, which represent 33,804 units.
(2)
Lease-over-lease effective rent growth represents the change in effective monthly rent, as adjusted for concessions, for each unit that had a prior lease and current lease that are for a term of 9-13 months.
(3)
4Q 2022 average occupancy and resident retention rates are as through October 24, 2022. 4Q 2022 new lease and renewal rates are for leases commencing during 4Q 2022 that were signed as of October 24, 2022.
(4)
As of October 24, 2022, period end occupancy at the combined same-store portfolio excluding ongoing value add was 95.4%.
Value Add Program
We completed renovations on 457 units during the quarter ended September 30, 2022, achieving a return on investment of 22.4%, with an average cost per unit renovated of $14,022, and average rent increase per renovated unit of $262. For the nine months ended September 30, 2022, we have completed renovations on 795 units, achieving a return on investment of 27.1%, with an average cost per unit renovated of $13,145, and an average rent increase per renovated unit of $292. See the Value Add Summary page of our supplemental for additional information on our projects life to date as of September 30, 2022.
We announced that 10 additional properties have been added to our value add program with renovations expected to begin in Q4 2022. The ten properties are comprised of 3,350 units and we expect to achieve returns on investment at these properties consistent with prior value add projects.
Investment Activity
Held for Sale
As of September 30, 2022, in connection with our ongoing capital recycling program, we had two properties, Meadows Apartments in Louisville, KY and Sycamore Terrace in Terre Haute, IN, classified as held for sale. We expect both dispositions to close in the fourth quarter of 2022 for an aggregate sales price of $103 million. The proceeds from the dispositions will be used to reduce indebtedness incurred in connection with the acquisition of two properties, as discussed below.
Acquisitions and Joint Ventures
The Enclave at Tranquility Lake in Tampa, FL: On September 13, 2022, we acquired a 348-unit multifamily apartment community for $98.0 million. This acquisition expanded our footprint in Tampa-St. Petersburg, Florida from 1,104 units to 1,452 units.
Cyan Mallard Creek in Charlotte, NC: On August 16, 2022, we acquired a 234-unit multifamily apartment community for $80.0 million. This acquisition expanded our footprint in Charlotte, North Carolina from 480 units to 714 units.
The Mustang Joint Venture Investment: On August 16, 2022, we entered into a joint venture for the development of The Mustang, a to-be-built 275-unit community in Dallas, Texas. The project is scheduled to be completed in Q3 2024. We have committed to invest an aggregate $25.6 million in this joint venture, of which $9.3 million was funded as of September 30, 2022.
Capital Expenditures
For the three months ended September 30, 2022, recurring capital expenditures for the total portfolio were $8.7 million, or $242 per unit. For the nine months ended September 30, 2022, recurring capital expenditures for the total portfolio were $19.7 million, or $556 per unit.
Capital Markets
At-the-Market Offering
On November 13, 2020 we entered into an equity distribution agreement pursuant to which we may from time to time offer and sell shares of our common stock having an aggregate offering price of up to $150 million (the “ATM Program”) in negotiated transactions or transactions that are deemed to be “at the market” offerings. Under the ATM Program, we may also enter into one or more forward sale transactions for the sale of shares of our common stock on a forward basis.
No forward sale transactions under the ATM Program were entered into during the three months ended September 30, 2022. On September 28, 2022, we physically settled in full 2,000,000 shares that were previously sold on a forward basis under the ATM Program. The forward shares were settled at the current weighted average sales price of $24.97 per share and IRT received proceeds, net of sales commissions of approximately $49.9 million.
Dividend Distribution
On September 12, 2022, our Board of Directors declared a quarterly cash dividend of $0.14 per share of our common stock, which was paid on October 21, 2022 to stockholders of record at the close of business on September 30, 2022.
2022 EPS and CFFO Guidance
We increased our EPS and CFFO per share and maintained our same-store NOI targets. Earnings per diluted share is projected to be in the range of $0.49 to $0.50. A reconciliation of IRT’s projected net income allocable to common shares to its projected CFFO per share is included below. See the schedules and definitions at the end of this release for further information regarding how IRT calculates CFFO and for management’s definition and rationale for the usefulness of CFFO.
Previous Guidance
Current Guidance
Change at Midpoint
2022 Full Year EPS and CFFO Guidance (1)(2)
Low
High
Low
High
Earnings per share
$0.48
$0.50
$0.49
$0.50
$0.005
Adjustments:
Depreciation and amortization (3)
1.09
1.09
1.09
1.09
—
Gain on sale of real estate assets (4)
(0.51)
(0.51)
(0.51)
(0.51)
—
Core FFO per share
$1.06
$1.08
$1.07
$1.08
$0.005
(1)
This guidance, including the underlying assumptions presented in the table below, constitutes forward-looking information. Actual full year 2022 EPS and CFFO could vary significantly from the projections presented. See “Forward-Looking Statements” below. Our guidance is based on the key guidance assumptions detailed below.
(2)
Per share guidance is based on 228.0 million weighted average shares and units outstanding.
(3)
Depreciation and amortization includes $53.3 million ($0.23 per share) of amortization related to STAR in-place lease intangibles that are a result of GAAP purchase accounting. These intangibles were fully amortized as of September 30, 2022.
(4)
Gains on sale of real estate assets include the four asset sales that occurred during the first quarter of 2022 and the two properties identified as held for sale as of September 30, 2022.
2022 Guidance Assumptions
Our key guidance assumptions for 2022 are enumerated below. See definitions at the end of this release for further information regarding our same-store definitions.
Combined Same-Store Portfolio
Previous 2022 Outlook
Current 2022 Outlook (1)
Change at Midpoint
Number of properties/units
113 properties / 33,804 units
113 properties / 33,804 units
—
Property revenue growth
10.7% to 11.1%
10.6% to 10.8%
(0.2)%
Controllable operating expense growth
4.2% to 5.2%
3.8% to 4.3%
(0.6)%
Real estate tax and insurance expense growth
8.6% to 9.2%
7.8% to 8.4%
(0.8)%
Total operating expense growth
5.9% to 6.7%
5.3% to 5.8%
(0.8)%
Property NOI growth
13.25% to 14.25%
13.25% to 14.25%
—%
Corporate Expenses
General and administrative & Property management expenses
$50.0 to $51.0 million
$50.0 to $51.0 million
$—
Interest expense (2)
$98.0 to $100.0 million
$98.0 to $99.0 million
$(0.5) million
Transaction/Investment Volume (3)
Acquisition volume
$25 to $250 million
$203 million
$65.5 million
Disposition volume
$157 to $400 million
$157 to $260 million
$(70) million
Capital Expenditures
Recurring
$18.5 to $21.5 million
$21.0 to $23.0 million
$2.0 million
Value add & non-recurring
$42.5 to $47.5 million
$40.0 to $43.0 million
$(3.5) million
Development
$65.0 to $75.0 million
$65.0 to $75.0 million
$—
(1)
This guidance, including the underlying assumptions, constitutes forward-looking information. Actual results could vary significantly from the projections presented. See “Forward-Looking Statements” below.
(2)
Interest expense includes amortization of deferred financing costs but excludes loan premium accretion, net. As a result of purchase accounting, we recorded a $72.1 million loan premium, net, related to STAR debt. This loan premium will be accreted into and reduce GAAP interest expense over the remaining term of the associated debt. However, loan premium accretion will be excluded from CFFO.
(3)
We continue to evaluate our portfolio for capital recycling opportunities so actual acquisitions and dispositions could vary significantly from our projections. We undertake no duty to update these assumptions. See “Forward-Looking Statements” below.
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
We disclose the following non-GAAP financial measures in this earnings release: FFO, CFFO, NOI and Adjusted EBITDA. Included at the end of this release are definitions of these non-GAAP financial measures and a reconciliation of our reported net income to our FFO and CFFO, a reconciliation of our same-store NOI to our reported net income, a reconciliation of our Adjusted EBITDA to net income, and management’s rationales for the usefulness of each of these and other non-GAAP financial measures used in this release.
Conference Call
All interested parties can listen to the live conference call webcast at 9:00 AM ET on Thursday, October 27, 2022 from the investor relations section of the IRT website at www.irtliving.com or by dialing 1.844.200.6205, access code 647671. 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 IRT’s website until the next earnings release. A playback of the conference call can also be accessed telephonically until Thursday, November 3, 2022 by dialing 1.866.813.9403, access code 833708.
Supplemental Information
We produce 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 our website, www.irtliving.com, through the “Investor Relations” section.
About Independence Realty Trust, Inc.
Independence Realty Trust, Inc. (NYSE: IRT) is a real estate investment trust that owns and operates multifamily communities, across non-gateway U.S. markets including Atlanta, GA, Dallas, TX, Denver, CO, Columbus, OH, Indianapolis, IN, Oklahoma City, OK, Raleigh-Durham, NC, Houston, TX, Nashville, TN, and Memphis, TN. IRT’s investment strategy is focused on gaining scale near major employment centers within key amenity rich submarkets that offer good school districts and high-quality retail. IRT aims to provide stockholders attractive risk-adjusted returns through diligent portfolio management, strong operational performance, and a consistent return on capital through distributions and capital appreciation. More information may be found on the Company’s website www.irtliving.com.
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 “will,” “strategy,” “expects,” “seeks,” “believes,” “potential,” or other similar words. These forward-looking statements include, without limitation, our expectations with respect to our operating performance and financial results, including our 2022 earnings guidance, timing and amount of future dividends, timing and terms of property acquisitions, dispositions, joint venture investments, developments and redevelopments and other capital expenditures, timing and terms of capital raising and other financing activity, lease pricing, revenue and expense growth, occupancy levels, supply levels, job growth, interest rates and other economic expectations, and anticipated benefits of our recently completed merger (the “STAR Merger”) with Steadfast Apartment REIT, Inc. (“STAR”), including as to the amount of synergies from the STAR Merger. Such forward-looking statements involve risks, uncertainties, estimates and assumptions and our actual results may differ materially from the expectations, intentions, beliefs, plans or predictions of the future expressed or implied by such forward-looking statements. These forward-looking statements are based upon the current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and not within our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Risks and uncertainties that might cause our future actual results and/or future dividends to differ materially from those expressed or implied by forward-looking statements include, but are not limited to: (i) risks related to the impact of COVID-19 and other potential outbreaks of infectious diseases on our financial condition, results of operations, cash flows and the impact of such risks on the financial condition of our residents and their ability to pay rent; (ii) the nature and duration of measures taken by federal, state and local government authorities to combat the spread of disease; (iii) changes in market demand for rental apartment homes and pricing pressures, including from competitors, that could limit our ability to lease units or increase rents or that could lead to declines in occupancy and rent levels; (iv) uncertainty and volatility in capital and credit markets, including changes that reduce availability, and increase costs, of capital; (v) increased costs on account of inflation; (vi) inability of tenants to meet their rent and other lease obligations and charge-offs in excess of our allowance for bad debt; (vii) legislative restrictions that may regulate rents or delay or limit collections of past due rents; (viii) risks endemic to real estate and the real estate industry generally; (ix) impairment charges; (x) the effects of natural and other disasters; (xi) 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; (xii) failure to realize the cost savings, synergies and other benefits expected to result from the STAR Merger; (xiii) unexpected costs or delays in integration of the IRT and STAR businesses; (xiv) unknown or unexpected liabilities related to the STAR Merger; (xv) unexpected costs of REIT qualification compliance; (xvi) unexpected changes in our intention or ability to repay certain debt prior to maturity; (xvii) inability to sell certain assets within the time frames or at the pricing levels expected; (xviii) costs and disruptions as the result of a cybersecurity incident or other technology disruption; and (xix) share price fluctuations. Please refer to the documents filed by us with the SEC, including specifically the “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2021, and our other filings with the SEC, which identify additional factors that could cause actual results to differ from those contained in forward-looking statements. We undertake 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. In addition, the declaration of dividends on our common stock is subject to the discretion of our Board of Directors and depends upon a broad range of factors, including our results of operations, financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended, applicable legal requirements and such other factors as our Board of Directors may from time to time deem relevant.
Schedule I
Independence Realty Trust, Inc.
Selected Financial Information
(Dollars in thousands, except per share amounts)
(unaudited)
For the Three Months Ended
Sep 30, 2022
Jun 30, 2022
Mar 31, 2022
Dec 31, 2021
Sep 30, 2021
Selected Financial Information:
Operating Statistics:
Net income (loss) available to common shares
$
16,223
$
(7,205
)
$
74,600
$
28,615
$
11,502
Earnings (loss) per share — diluted
$
0.07
$
(0.03
)
$
0.34
$
0.23
$
0.11
Rental and other property revenue
$
160,300
$
154,643
$
149,977
$
76,803
$
60,592
Property operating expenses
$
59,967
$
58,976
$
55,883
$
26,952
$
23,164
NOI
$
100,333
$
95,667
$
94,094
$
49,851
$
37,428
NOI margin
62.6
%
61.9
%
62.7
%
64.9
%
61.8
%
Adjusted EBITDA
$
89,264
$
83,228
$
81,375
$
42,301
$
31,432
CORE FFO per share
$
0.28
$
0.26
$
0.25
$
0.24
$
0.21
Dividends per share
$
0.14
$
0.14
$
0.12
$
0.12
$
0.12
CORE FFO payout ratio
50.0
%
53.8
%
48.0
%
50.0
%
57.1
%
Portfolio Data:
Total gross assets
$
7,097,280
$
6,801,034
$
6,731,377
$
6,785,648
$
2,114,743
Total number of operating properties
122
120
119
123
57
Total units
36,176
35,594
35,498
36,831
16,109
Period end occupancy
94.6
%
95.7
%
95.4
%
95.6
%
96.0
%
Total portfolio average occupancy
94.2
%
95.5
%
95.2
%
96.0
%
96.1
%
Total portfolio average effective monthly rent, per unit
$
1,484
$
1,414
$
1,374
$
1,329
$
1,212
Combined same-store portfolio period end occupancy (a)
94.6
%
95.4
%
95.5
%
95.7
%
96.2
%
Combined same-store portfolio average occupancy (a)
94.2
%
95.5
%
95.4
%
96.0
%
96.5
%
Combined same-store portfolio average effective monthly rent, per unit (a)
$
1,479
$
1,412
$
1,373
$
1,346
$
1,305
Capitalization:
Total debt (b)
$
2,713,625
$
2,552,936
$
2,542,088
$
2,705,336
$
996,270
Common share price, period end
$
16.73
$
20.73
$
26.44
$
25.83
$
20.35
Market equity capitalization
$
3,850,365
$
4,729,580
$
6,031,873
$
5,882,410
$
2,150,162
Total market capitalization
$
6,563,990
$
7,282,516
$
8,573,961
$
8,587,746
$
3,146,432
Total debt/total gross assets
38.2
%
37.5
%
37.8
%
39.9
%
47.1
%
Net debt to Adjusted EBITDA (pro forma) (c)
7.2x
7.4x
7.6x
7.7x
8.2x
Interest coverage
4.0x
4.0x
4.0x
3.9x
3.6x
Common shares and OP Units:
Shares outstanding
224,056,179
222,060,280
221,163,391
220,753,735
105,106,714
OP units outstanding
6,091,171
6,091,171
6,970,993
6,981,841
552,360
Common shares and OP units outstanding
230,147,350
228,151,451
228,134,384
227,735,577
105,659,074
Weighted average common shares and OP units
228,051,780
227,964,753
227,778,484
127,046,225
107,094,044
(a)
Combined same-store portfolio consists of 113 properties, which represent 33,804 units.
(b)
Includes indebtedness associated with real estate held for sale.
(c)
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, the completion of capital recycling activities including paydown of associated indebtedness, and the normalization of items impacting quarterly EBITDA. Actual net debt to Adjusted EBITDA multiples for the five quarters ended September 30, 2022 were 7.4x, 7.4x, 7.5x, 15.4x, and 8.0x, respectively.
Contacts
Independence Realty Trust, Inc.
Edelman Smithfield
Ted McHugh and Lauren Torres
917-365-7979
IRT@edelman.com