Independence Realty Trust Announces Second Quarter 2023 Financial Results

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Jul 26, 2023

Independence Realty Trust, Inc. (“IRT”) (NYSE: IRT), a multifamily apartment REIT, today announced its second quarter 2023 financial results and raised the midpoint of its full year 2023 earnings and Core FFO guidance ranges.

Second Quarter Highlights

  • Net income (loss) available to common shares of $10.7 million for the quarter ended June 30, 2023 compared to $(7.2) million for the quarter ended June 30, 2022.
  • Earnings (loss) per diluted share of $0.05 for the quarter ended June 30, 2023 compared to $(0.03) for the quarter ended June 30, 2022.
  • Same-store portfolio net operating income (“NOI”) growth of 6.3% for the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022.
  • Core Funds from Operations (“CFFO”) of $63.7 million for the quarter ended June 30, 2023 compared to $58.6 million for the quarter ended June 30, 2022. CFFO per share was $0.28 for the second quarter of 2023, as compared to $0.26 for the second quarter of 2022.
  • Adjusted EBITDA of $89.2 million for the quarter ended June 30, 2023 compared to $83.2 million for the quarter ended June 30, 2022.
  • Value add program completed renovations at 625 units during the quarter ended June 30, 2023, achieving a weighted average return on investment during the quarter of 16.2%.

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

“Our second quarter growth of 6.3% in same store NOI and 7.7% in Core FFO per share reflects the strength of our portfolio and ability to successfully deliver operational effectiveness” said Scott Schaeffer, Chairman and CEO of IRT. “We will remain focused on continuing to invest in our value add program and unlocking additional value by leveraging technology and innovation to enhance our management platform. These ongoing efforts, along with our year-to-date performance, allow us to reaffirm our full year operational guidance and increase the midpoint of our Core FFO guidance.”

Same-Store Portfolio(1) Operating Results

Second Quarter 2023

Compared to

Second Quarter 2022

Six Months Ended June 30, 2023 Compared to

Six Months Ended June 30, 2022

Rental and other property revenue

6.2% increase

6.9% increase

Property operating expenses

5.9% increase

6.2% increase

Net operating income (“NOI”)

6.3% increase

7.3% increase

Portfolio average occupancy

130 bps decrease to 94.2%

180 bps decrease to 93.6%

Portfolio average rental rate

8.0% increase to $1,531

9.4% increase to $1,530

NOI Margin

10 bps increase to 62.1%

20 bps increase to 62.7%

(1)

Same-store portfolio includes 115 properties, which represent 34,197 units.

Operating Metrics

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

2Q 2023

3Q 2023(3)

Same-Store Portfolio(1)

Average Occupancy

94.2 %

94.5 %

(4)

Lease Over Lease Effective Rental Rate Growth:(2)

New Leases

2.8 %

2.7 %

Renewal Leases

2.3 %

4.5 %

Blended

2.5 %

3.9 %

Resident retention rate

54.2 %

54.4 %

Same-Store Portfolio excluding Ongoing Value Add

Average Occupancy

94.7 %

95.0 %

(4)

Lease Over Lease Effective Rental Rate Growth:(2)

New Leases

2.4 %

1.9 %

Renewal Leases

2.3 %

4.2 %

Blended

2.3 %

3.5 %

Resident retention rate

53.8 %

54.8 %

Value Add (23 properties with Ongoing Value Add)

Average Occupancy

92.3 %

92.8 %

(4)

Lease Over Lease Effective Rental Rate Growth:(2)

New Leases

4.3 %

5.7 %

Renewal Leases

2.3 %

5.5 %

Blended

3.2 %

5.6 %

Resident retention rate

55.5 %

52.9 %

(1)

Same-store portfolio includes 115 properties, which represent 34,197 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)

3Q 2023 average occupancy and resident retention rates are through July 24, 2023. 3Q 2023 new lease and renewal rates are for leases commencing during 3Q 2023 that were signed as of July 24, 2023.

(4)

As of July 24, 2023, same-store portfolio occupancy was 94.8%, same-store portfolio excluding ongoing value add occupancy was 95.3%, and value add occupancy was 92.9%.

Value Add Program

We completed renovations on 625 units during the quarter ended June 30, 2023, achieving a return on investment of 16.2%, with an average cost per unit renovated of $17,601, and average rent increase per renovated unit of $237. For the six months end June 30, 2023, we have completed renovations on 1,260 units, achieving a return on investment of 17.0%, with an average cost per unit renovated of $16,496, and average rent increase per renovated unit of $232. See the Value Add Summary page of our supplemental for additional information on our projects life to date as of June 30, 2023.

Investment Activity

Held for Sale

During the three months ended June 30, 2023, in connection with our ongoing capital recycling program, we classified one property in Chicago, Illinois, as held for sale. We expect the sale to close in the second half of 2023 and to apply net proceeds from the sale to reduce indebtedness. Consummation of the sale is subject to entry into a definitive agreement and there can be no assurance that the sale will be consummated on expected terms, or at all.

Capital Expenditures

For the three months ended June 30, 2023, recurring capital expenditures for the total portfolio were $6.4 million, or $184 per unit. For the six months ended June 30, 2023, recurring capital expenditures for the total portfolio were $10.5 million, or $301 per unit.

Capital Markets

Dividend Distribution

On May 10, 2023, our Board of Directors declared a quarterly cash dividend of $0.16 per share of our common stock, which represented a 14% increase in the dividend over the prior quarterly rate of $0.14 per share. This dividend was paid on July 21, 2023 to stockholders of record at the close of business on June 30, 2023.

2023 EPS and CFFO Guidance

We increased the midpoint of our EPS and CFFO per share guidance ranges and reaffirmed the midpoint of our same-store NOI guidance. Earnings per diluted share is projected to be in the range of $0.25 to $0.27. 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

2023 Full Year EPS and CFFO Guidance(1)(2)

Low

High

Low

High

Earnings per share

$

0.23

$

0.27

$

0.25

$

0.27

$

0.01

Adjustments:

Depreciation and amortization

0.95

0.95

0.95

0.95

Gain on sale of real estate assets(3)

(0.01

)

(0.01

)

(0.01

)

(0.01

)

Loan (premium accretion) discount

amortization, net

(0.05

)

(0.05

)

(0.05

)

(0.05

)

Core FFO per share

$

1.12

$

1.16

$

1.14

$

1.16

$

0.01

(1)

This guidance, including the underlying assumptions presented in the table below, constitutes forward-looking information. Actual full year 2023 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 230.4 million weighted average shares and units outstanding.

(3)

Gain on sale of real estate assets includes one asset sale that occurred during the first quarter of 2023 and one property identified as held for sale as of June 30, 2023.

2023 Guidance Assumptions

Our key guidance assumptions for 2023 are enumerated below. See definitions at the end of this release for further information regarding our same-store definitions.

Same-Store Portfolio

Previous 2023 Outlook

Current 2023 Outlook(1)

Change at Midpoint

Number of properties/units

116 properties / 34,571 units

115 properties / 34,179 units

Property revenue growth

5.7% to 7.0%

6.1% to 6.6%

Controllable operating expense growth

3.3% to 5.4%

4.7% to 5.4%

0.7%

Real estate tax and insurance expense

8.1% to 9.1%

7.5% to 8.1%

(0.8)%

Total operating expense growth

5.2% to 6.9%

5.7% to 6.4%

Property NOI growth

5.0% to 8.0%

6.0% to 7.0%

Corporate Expenses

General and administrative & Property

management expenses

$51.5 million to $53.5 million

$50.5 million to $51.5 million

($1.5) million

Interest expense(2)

$104.5 million to $106.5 million

$102.5 million to $103.5 million

($2.5) million

Transaction/Investment Volume(3)

Acquisition volume

None

None

Disposition volume

$35 million to $40 million

$122 million to $127 million

$87 million

Capital Expenditures

Recurring

$19.0 million to $21.0 million

$20.0 million to $22.0 million

$1.0 million

Value add & non-recurring

$78.0 million to $82.0 million

$78.0 million to $82.0 million

Development

$80.0 million to $90.0 million

$80.0 million to $90.0 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)

Includes one asset sale that occurred in the first quarter 2023 and one property identified as held for sale as of June 30, 2023. 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 27, 2023 from the investor relations section of the IRT website at www.irtliving.com or by dialing 1.888.440.3307, access code 1963990. 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 3, 2023 by dialing 1.800.770.2030, access code 1963990.

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, Raleigh-Durham, NC, Oklahoma City, OK, Nashville, TN, Houston, TX, and Tampa, FL. 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 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 that predict or indicate future events and trends and that do not report historical matters.

These forward-looking statements involve estimates, projections, forecasts and assumptions and are subject to risks and uncertainties including, without limitation, risks and uncertainties related to changes in market demand for rental apartment homes and pricing pressures, including from competitors, that could lead to declines in occupancy and rent levels, uncertainty and volatility in capital and credit markets, including changes that reduce availability, and increase costs, of capital, unexpected changes in our intention or ability to repay certain debt prior to maturity, increased costs on account of inflation, increased competition in the labor market, increased regulations generally and specifically on the rental housing market including legislation that may regulate rents or delay or limit our ability to evict non-paying residents, risks endemic to real estate and the real estate industry generally, the impact of potential outbreaks of infectious diseases and measures intended to prevent the spread or address the effects thereof, the effects of natural and other disasters, 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, unknown or unexpected liabilities including the cost of legal proceedings, inability to sell certain assets within the time frames or at the pricing levels expected, costs and disruptions as the result of a cybersecurity incident or other technology disruption, unexpected capital needs, inability to obtain appropriate insurance coverages at reasonable rates, or at all, or losses from catastrophes in excess of our insurance coverages, and 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, 2022, 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.

These forward-looking statements are based upon the beliefs and expectations of our management at the time of this release 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. 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.

Schedule I

Independence Realty Trust, Inc.

Selected Financial Information

Dollars in thousands, except per share data (unaudited)

For the Three Months Ended

Jun 30, 2023

Mar 31, 2023

Dec 31, 2022

Sep 30, 2022

Jun 30, 2022

Selected Financial Information:

Operating Statistics:

Net income (loss) available to common shares

$

10,709

$

8,648

$

33,631

$

16,223

$

(7,205

)

Earnings (loss) per share -- diluted

$

0.05

$

0.04

$

0.15

$

0.07

$

(0.03

)

Rental and other property revenue

$

163,601

$

161,135

$

162,493

$

160,300

$

154,643

Property operating expenses

$

62,071

$

59,255

$

57,450

$

59,967

$

58,976

NOI

$

101,530

$

101,880

$