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Independence Realty Trust Announces Second Quarter 2022 Financial Results and Closing of New Term Loan

·22-min read

Raises Full Year 2022 Guidance

PHILADELPHIA, July 27, 2022--(BUSINESS WIRE)--Independence Realty Trust, Inc. ("IRT") (NYSE: IRT), a multifamily apartment REIT, today announced its second quarter 2022 financial results.

Second Quarter Highlights

  • On July 25, 2022, IRT restructured its debt to secure a new $400 million term loan maturing in 2028, swapped LIBOR for SOFR across its unsecured floating rate credit facility, paid off $300 million of term loans maturing in 2024 and paid down the revolving credit facility by $100 million. The $400 million of term loan carries a lower interest rate spread than the debt repaid.

  • Net (loss) income available to common shares of $(7.2) million for the quarter ended June 30, 2022 compared to $3.4 million for the quarter ended June 30, 2021.

  • (Loss) Earnings per diluted share of $(0.03) for the quarter ended June 30, 2022 compared to $0.03 for the quarter ended June 30, 2021.

  • Combined same-store net operating income ("NOI") growth of 14.4% for the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021.

  • Core Funds from Operations ("CFFO") of $58.6 million for the quarter ended June 30, 2022 compared to $20.2 million for the quarter ended June 30, 2021. CFFO per share was $0.26 for the second quarter of 2022, as compared to $0.20 for the second quarter of 2021.

  • Adjusted EBITDA of $83.2 million for the quarter ended June 30, 2022 compared to $28.7 million for the quarter ended June 30, 2021.

  • Value add program for the quarter ended June 30, 2022, has completed renovations at 195 units, achieving a weighted average return on investment during the quarter of 34.6%.

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

"Strong momentum continues at IRT, as evidenced by our quarterly performance that reflects our high-quality portfolio in non-gateway markets with outsized growth fundamentals," said Scott Schaeffer, Chairman and CEO of IRT. "In the second quarter, we delivered 14.4% same store NOI growth, with blended lease over lease rental growth of 12.7%. We continue to accelerate our organic growth profile through our value add program and expand our presence in core markets through our capital recycling and joint venture development initiatives. While we are mindful of current economic headwinds, we remain confident in our strategy and have strong visibility delivering on our raised full year 2022 guidance."

Combined Same-Store Portfolio(1) Operating Results

Second Quarter 2022

Compared to

Second Quarter 2021

Six Months Ended June 30, 2022

Compared to

Six Months Ended June 30, 2021

Rental and other property revenue

11.4% increase

11.2% increase

Property operating expenses

6.9% increase

5.0% increase

Net operating income ("NOI")

14.4% increase

15.3% increase

Portfolio average occupancy

61 bps decrease to 95.5%

27 bps decrease to 95.4%

Portfolio average rental rate

12.0% increase to $1,412

11.2% increase to $1,392

NOI Margin

162 bps increase to 61.9%

220 bps increase to 62.4%

(1)

Combined same-store portfolio includes 113 properties, which represent 33,804 units.

Operating Metrics

The table below summarizes operating metrics for the combined same-store portfolio for the applicable periods.

2Q 2022

3Q 2022(4)

Combined Same-Store Portfolio(1)

Average Occupancy (2)

95.5 %

95.0 %

Lease Over Lease Effective Rental Rate Growth:(3)

New Leases

17.2 %

20.8 %

Renewal Leases

9.7 %

11.4 %

Blended

12.7 %

13.4 %

Resident retention rate

54.6 %

59.8 %

(1)

Combined same-store portfolio includes 113 properties, which represent 33,804 units.

(2)

Average occupancy excluding the 13 properties with ongoing value add projects was 95.7% and 95.3% for 2Q 2022 and 3Q 2022, respectively.

(3)

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.

(4)

3Q 2022 average occupancy and resident retention rates are as through July 22, 2022. 3Q 2022 new lease and renewal rates are for leases commencing during 3Q 2022 that were signed as of July 22, 2022.

Value Add Program

We completed renovations on 195 units during the quarter ended June 30, 2022, achieving a return on investment of 34.6%, with an average cost per unit renovated of $11,610, and average rent increase per renovated unit of $335. For the six months ended June 30, 2022, we have completed renovations on 338 units, achieving a return on investment of 33.5%, with an average cost per unit renovated of $11,959, and an average rent increase per renovated unit of $333. See the Value Add Summary page of our supplemental for additional information.

Investment Activity

Held for Sale

As of June 30, 2022, in connection with our ongoing capital recycling program, we had two properties, Meadows Apartments in Louisville, KY and Sycamore Terrace in Terra Haute, IN, classified as held for sale. We expect the Meadows Apartments disposition to close in the third quarter of 2022 and we continue to market Sycamore Terrace for sale. We intend to recycle the net proceeds from the sales into the acquisition of properties in markets that we believe have better long-term growth prospects.

Lakeline Station Joint Venture Investment

On June 3, 2022, we entered into a joint venture for the development of Lakeline Station, a to-be-built 378-unit community in Austin, TX. Site improvements began in June 2022 with completion of the project scheduled for May 2024. We have committed to invest an aggregate $29.7 million in this joint venture, of which $14.7 million was funded as of June 30, 2022.

Views of Music City Joint Venture Investment

On April 6, 2022, we purchased for $25.4 million the Views of Music City (Phase 1), a 96-unit community in Nashville, TN from one of our unconsolidated joint ventures. The property was developed by our joint venture partner and was completed in January 2022. The Views of Music City (Phase 1) has an average rent per occupied unit of $1,483 and a period end occupancy of 94.8%. The acquisition represents the exercise of our purchase option under the terms of the joint venture agreement entered into on September 3, 2021. Development of Phase 2, which consists of 209 units, is expected to be completed during Q4 2023.

Capital Expenditures

For the three months ended June 30, 2022, recurring capital expenditures for the total portfolio were $7.1 million, or $201 per unit. For the six months ended June 30, 2022, recurring capital expenditures for the total portfolio were $11.1 million, or $312 per unit.

Capital Markets

New $400 Million Term Loan

On July 25, 2022, we entered into an amended and restated credit agreement (the "Restated Credit Agreement") which restructured our existing debt to provide for a new $400 million term loan with a January 28, 2028 maturity date (the "2028 Term Loan"), resulting in an aggregate increase, after debt repayments, of $100 million in borrowing capacity. Proceeds of the new 2028 Term Loan were used to (i) repay and retire $300 million of existing term loans maturing in 2024, and (ii) reduce $100 million of outstanding borrowings under our revolving credit facility. In addition, the Restated Credit Agreement changes the LIBOR interest rate option to SOFR for our entire $1.1 billion unsecured floating rate credit facility and otherwise continues, without material change, our $200 million term loan and our $500 million revolving credit facility, both of which mature in 2026.

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.

During the three months ended March 31, 2022, we entered into a forward sale transaction under the ATM Program for the forward sale of 1,000,000 shares of our common stock. We expect to physically settle the forward sale transaction by the maturity date (March 31, 2023) of the forward sale transaction. Assuming the forward sale transaction is physically settled in full utilizing the current forward sale price of $26.22 per share, we expect to receive proceeds, net of sales commissions, of approximately $26.2 million, subject to adjustment in accordance with the forward sale transaction.

No forward sale transactions under the ATM Program were entered into during the three months ended June 30, 2022. As of June 30, 2022, and in addition to the Q1 2022 forward sale of 1,000,000 shares, IRT sold an aggregate of 1,000,000 shares on a forward basis in Q4 2021 and these forward sales transactions have an outside maturity date in December 2022 and that, assuming these forward sales are physically settled in full at the current weighted average sales price of $23.49 per shares, IRT expects to receive proceeds, net of sales commissions of approximately $23.5 million.

Share Repurchase Authorization and Dividend Distribution

On May 18, 2022, our Board of Directors authorized a repurchase program of up to $250 million of the Company’s common stock and approved a quarterly dividend of $0.14 per share of IRT common stock, which represented a 17% increase in the dividend over the prior quarterly rate of $0.12 per share. This dividend was paid on July 22, 2022 to stockholders of record at the close of business on July 1, 2022.

2022 EPS and CFFO Guidance

We raised our 2022 full year guidance. Earnings per diluted share is projected to be in the range of $0.48 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

$

0.50

$

0.52

$

0.48

$

0.50

$

(0.02

)

Adjustments:

Depreciation and amortization (3)

1.12

1.12

1.09

1.09

(0.03

)

Gain on sale of real estate assets (4)

(0.58

)

(0.58

)

(0.51

)

(0.51

)

0.07

Core FFO per share

$

1.04

$

1.06

$

1.06

$

1.08

$

0.02

(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 are expected to be amortized over less than one year.

(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 June 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

9.1% to 10.1%

10.7% to 11.1%

1.3%

Controllable operating expense growth

3.0% to 4.0%

4.2% to 5.2%

1.2%

Real estate tax and insurance expense growth

6.5% to 8.5%

8.6% to 9.2%

1.4%

Total operating expense growth

4.25% to 5.75%

5.9% to 6.7%

1.3%

Property NOI growth

11.5% to 13.5%

13.25% to 14.25%

1.25%

Corporate Expenses

General and administrative & Property management expenses

$48.0 to $51.0 million

$50.0 to $51.0 million

$1.0 million

Interest expense (2)

$98.0 to $100.0 million

$98.0 to $100.0 million

Transaction/Investment Volume (3)

Acquisition volume

$25 to $250 million

$25 to $250 million

Disposition volume

$157 to $400 million

$157 to $400 million

Capital Expenditures

Recurring

$18.5 to $21.5 million

$18.5 to $21.5 million

Value add & non-recurring

$42.5 to $47.5 million

$42.5 to $47.5 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, July 28, 2022 from the investor relations section of the IRT website at www.irtliving.com or by dialing 1.844.200.6205, access code 994624. 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, August 4, 2022 by dialing 1.866.813.9403, access code 231272.

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 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 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.

FINANCIAL & OPERATING HIGHLIGHTS

Dollars in thousands, except per share data

For the Three Months Ended

Jun 30, 2022

Mar 31, 2022

Dec 31, 2021

Sep 30, 2021

Jun 30, 2021

Selected Financial Information:

Operating Statistics:

Net (loss) income available to common shares

$

(7,205

)

$

74,600

$

28,615

$

11,502

$

3,386

(Loss) earnings per share -- diluted

$

(0.03

)

$

0.34

$

0.23

$

0.11

$

0.03

Rental and other property revenue

$

154,643

$

149,977

$

76,803

$

60,592

$

57,286

Property operating expenses

$

58,976

$

55,883

$

26,952

$

23,164

$

22,298

NOI

$

95,667

$

94,094

$

49,851

$

37,428

$

34,988

NOI margin

61.9

%

62.7

%

64.9

%

61.8

%

61.1

%

Adjusted EBITDA

$

83,228

$

81,375

$

42,301

$

31,432

$

28,729

CORE FFO per share

$

0.26

$

0.25

$

0.24

$

0.21

$

0.20

Dividends per share

$

0.14

$

0.12

$

0.12

$

0.12

$

0.12

CORE FFO payout ratio

53.8

%

48.0

%

50.0

%

57.1

%

60.0

%

Portfolio Data:

Total gross assets

$

6,801,034

$

6,731,377

$

6,785,648

$

2,114,743

$

2,133,021

Total number of operating properties

120

119

123

57

58

Total units

35,594

35,498

36,831

16,109

16,261

Period end occupancy

95.7

%

95.4

%

95.6

%

96.0

%

95.6

%

Total portfolio average occupancy

95.5

%

95.2

%

96.0

%

96.1

%

95.9

%

Total portfolio average effective monthly rent, per unit

$

1,414

$

1,374

$

1,329

$

1,212

$

1,171

Combined same store period end occupancy (a)

95.4

%

95.5

%

95.7

%

96.2

%

96.1

%

Combined same store portfolio average occupancy (a)

95.5

%

95.4

%

96.0

%

96.5

%

96.2

%

Combined same store portfolio average effective monthly rent, per unit (a)

$

1,412

$

1,373

$

1,346

$

1,305

$

1,261

Capitalization:

Total debt (b)

$

2,552,936

$

2,542,088

$

2,705,336

$

996,270

$

1,036,841

Common share price, period end

$

20.73

$

26.44

$

25.83

$

20.35

$

18.23

Market equity capitalization

$

4,729,580

$

6,031,873

$

5,882,410

$

2,150,162

$

1,926,218

Total market capitalization

$

7,282,516

$

8,573,961

$

8,587,746

$

3,146,432

$

2,963,059

Total debt/total gross assets

37.5

%

37.8

%

39.9

%

47.1

%

48.6

%

Net debt to Adjusted EBITDA (pro forma) (c)

7.4x

7.6x

7.7x

8.2x

8.5x

Interest coverage

4.0x

4.0x

3.9x

3.6x

3.4x

Common shares and OP Units:

Shares outstanding

222,060,280

221,163,391

220,753,735

105,106,714

105,109,649

OP units outstanding

6,091,171

6,970,993

6,981,841

552,360

552,360

Common shares and OP units outstanding

228,151,451

228,134,384

227,735,577

105,659,074

105,662,009

Weighted average common shares and OP units

227,964,753

227,778,484

127,046,225

107,094,044

102,584,809

(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 June 30, 2022 were 7.4x, 7.5x, 15.4x, 8.0x, and 9.1x, respectively.

STATEMENTS OF OPERATIONS, FFO & CORE FFO

THREE AND SIX MONTHS ENDED JUNE 30, 2022 and 2021

Dollars in thousands, except per share data

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2022

2021

2022

2021

Revenue:

Rental and other property revenue

$

154,643

$

57,286

$

304,621

$

112,097

Other revenue

120

158

505

459

Total revenue

154,763

57,444

305,126

112,556

Expenses:

Property operating expenses

58,976

22,298

114,858

43,136

Property management expenses

6,139

2,176

11,696

4,119

General and administrative expenses (a)

6,968

4,241

14,896

10,183

Depreciation and amortization expense

72,793

16,763

150,966

33,315

Casualty (gains) losses, net

(5,592

)

(6,985

)

359

Total expenses

139,284

45,478

285,431

91,112

Interest expense

(20,994

)

(8,559

)

(41,525

)

(16,944

)

Gain on sale of real estate assets, net

94,712

Other income (expense)

294

736

Loss from investments in unconsolidated real estate entities

(871

)

(934

)

Merger and integration costs

(1,307

)

(3,202

)

Net (loss) income

(7,399

)

3,407

69,482

4,500

Loss (income) allocated to noncontrolling interests

194

(21

)

(2,087

)

(28

)

Net (loss) income available to common shares

$

(7,205

)

$

3,386

$

67,395

$

4,472

EPS - basic

$

(0.03

)

$

0.03

$

0.30

$

0.04

Weighted-average shares outstanding - Basic

221,164,284

102,023,204

220,982,714

101,847,876

EPS - diluted

$

(0.03

)

$

0.03

$

0.30

$

0.04

Weighted-average shares outstanding - Diluted

221,164,284

102,923,924

222,033,857

102,822,099

Funds From Operations (FFO):

Net (loss) income

$

(7,399

)

$

3,407

$

69,482

$

4,500

Add-Back (Deduct):

Real estate depreciation and amortization

72,298

16,683

150,241

33,155

Real estate depreciation and amortization from investments in unconsolidated real estate entities

515

...