Independence Realty Trust Announces Fourth Quarter and Full Year 2020 Financial Results

PHILADELPHIA--(BUSINESS WIRE)--Independence Realty Trust, Inc. (“IRT”) (NYSE: IRT), a multifamily apartment REIT, today announced its fourth quarter and full year 2020 financial results.

Fourth Quarter Highlights

• Net income available to common shares of $13.3 million for the quarter ended December 31, 2020 compared to $23.8 million for the quarter ended December 31, 2019. Earnings per diluted share of $0.14 for the quarter ended December 31, 2020 compared to $0.26 for the quarter ended December 31, 2019. The quarter ended December 31, 2020 included $9.4 million of gains on sale of real estate assets, net, whereas the quarter ended December 31, 2019 included $20.7 million of gains on sale of real estate assets, net.

• Same store net operating income (“NOI”) growth of 4.4% for the quarter ended December 31, 2020 compared to the quarter ended December 31, 2019.

• Core Funds from Operations (“CFFO”) of $20.8 million for the quarter ended December 31, 2020 compared to $18.6 million for the quarter ended December 31, 2019. CFFO per share was $0.22 for the fourth quarter of 2020, as compared to $0.20 for the fourth quarter of 2019.

• Adjusted EBITDA of $28.5 million for the quarter ended December 31, 2020 compared to $27.4 million for the quarter ended December 31, 2019.

• Collected 98.7% of rents billed during the quarter ended December 31, 2020.

Full Year Highlights

• Since the inception of our value add program in January 2018 through December 31, 2020, IRT has completed renovations at 3,719 units, achieving a weighted average return on investment of 18.3% on interior renovations and 15.9% on total renovation costs.

• Net income available to common shares of $14.8 million for the year ended December 31, 2020 compared to $45.9 million for the year ended December 31, 2019. Earnings per diluted share of $0.16 for the year ended December 31, 2020 compared to $0.51 for the year ended December 31, 2019. The year ended December 31, 2020 included $7.6 million of gains on sale of real estate assets, net, whereas the year ended December 31, 2019 included $35.2 million of gains on sale of real estate assets, net.

• Same store net operating income (“NOI”) growth of 3.1% for the year ended December 31, 2020 compared to the year ended December 31, 2019.

• Core Funds from Operations (“CFFO”) of $75.9 million for the year ended December 31, 2020 compared to $68.5 million for the year ended December 31, 2019. CFFO per share was $0.80 for the full year 2020, as compared to $0.76 for the full year 2019.

• Adjusted EBITDA of $105.3 million for the year ended December 31, 2020 compared to $103.2 million for the year ended December 31, 2019.

• Collected 99.3% of rents billed during the year ended December 31, 2020.

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

“Throughout 2020, the IRT team remained steadfast in our response to the unexpected challenges brought on by the global pandemic. We focused on maintaining occupancy and strengthening our balance sheet while providing payment flexibility to our financially impacted residents. This response supported our ability to deliver strong fourth quarter and full year results,” said Scott Schaeffer, Chairman and CEO of IRT. “We increased same store NOI by 4.4% in the fourth quarter and 3.1% for the full year, led by improvements in both average occupancy rates and rental income. We made advancements in our value add and capital recycling programs, including adding to our portfolio of multifamily communities in non-gateway markets that have yielded favorable business performance throughout various cycles.”

“Based on the successful execution of our key priorities in 2020 to support our residents and employees, maintain occupancy and drive leasing traffic while maintaining ample liquidity, IRT is well-positioned to further grow and strengthen our business for near and long-term success. In 2021, we will continue to focus our efforts on increasing our return on investment at existing properties, assessing investments in new properties that fit our criteria, and rotating capital out of non-core markets with limited growth potential. Our strong balance sheet with $186 million in total liquidity and reduced debt levels at year-end will support our growth strategy, as we continue to deliver value to our stakeholders.”

Same Store Property Operating Results

Same Store Property Operating Results, Excluding Value Add

The same store portfolio results below exclude 16 communities that are both part of the same store portfolio and were actively undergoing Value Add renovations during the three and twelve months ended December 31, 2020.

COVID-19 Metrics ⁽¹⁾⁽²⁾

As a result of the COVID-19 pandemic, we recorded a provision for bad debts of $124,000 and $927,000 for during the fourth quarter and full year of 2020, respectively. The table below presents additional details on the components of bad debt:

Lease-Over-Lease Effective Rent Growth ⁽¹⁾

The table below depicts lease-over-lease effective rent growth for all new and renewal leases entered into during the respective periods for the 51-property same store portfolio.

Value Add Program

We completed renovations on 230 units and 1,004 units during the quarter ended and year ended December 31, 2020, respectively. From inception of our value add program in January 2018 through December 31, 2020, we completed renovations on 3,719 units, achieving a return on investment of 15.9% (18.3% on interior renovation costs) and an average monthly rental increase of 18.5%.

Capital Recycling

In fourth quarter 2020, we continued our capital recycling activity in support of our ongoing initiative to establish and grow our presence in markets where we see long-term growth opportunities and reevaluate those that may not be attractive long-term investments.

Completed Acquisitions:

• Legacy at Jones Farms in Huntsville, AL: On December 1, 2020, we acquired this 421-unit property built in two phases in 2014 and 2019 for $94.0 million. This acquisition expanded our footprint in Huntsville from 178 units to 599 units, at an average rent per unit above that of our existing total portfolio effective monthly rent per unit.

Completed Dispositions:

• Trails at Signal Mountain in Chattanooga, TN: On October 27, 2020, we sold this 172-unit property for $20.0 million and recognized a $6.2 million gain on sale in fourth quarter 2020.
• Live Oak Trace in Baton Rouge, LA: On November 10, 2020, we sold this 264-unit property for $25.4 million and as a result, exited the Baton Rouge market. We recognized a $1.8 million impairment charge in third quarter 2020.
• Lakeshore on the Hill in Chattanooga, TN: On November 23, 2020, we sold this 123-unit property for $14.3 million and recognized a $3.5 million gain on sale in fourth quarter 2020. As a result of this sale, we exited the Chattanooga market.

Financial Flexibility – Total Liquidity and Debt Reduction

As of December 31, 2020, we had a total liquidity position of approximately $186 million, which includes unrestricted cash, additional capacity under our unsecured line of credit, and approximately $12.4 million of proceeds that we will receive upon settlement of a forward sale agreement covering 900,000 shares of common stock, as discussed below.

During the fourth quarter, we issued the remaining 6,944,000 shares of common stock and received the remaining $98.9 million of proceeds from our February 24, 2020 forward equity sale. We used the proceeds to partially fund our Huntsville, AL acquisition and pay down debt. As of December 31, 2020, our pro forma net debt to Adjusted EBITDA was 8.2x, down from 9.1x and 8.9x on a quarter-over-quarter and year-over-basis, respectively. We remain focused on reducing leverage and achieving our mid-term net debt to adjusted EBITDA target of mid-7’s.

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. On November 13, 2020, we entered into a forward sale transaction under the ATM Program for the forward sale of 900,000 shares of our common stock. We expect to physically settle the forward sale transaction by the maturity date (December 15, 2021) of the forward sale transaction. Assuming the forward sale transaction is physically settled in full utilizing the initial forward sale price of $14.00 per share, net of sales commissions, we expect to receive net proceeds of approximately $12.4 million, subject to adjustment in accordance with the forward sale transaction.

Capital Expenditures

For the three months ended December 31, 2020, recurring capital expenditures for the total portfolio were $2.0 million, or $124 per unit. For the year ended December 30, 2020, recurring capital expenditures for the total portfolio were $6.5 million, or $413 per unit.

Distributions

On December 14, 2020, our Board of Directors declared a quarterly cash dividend of $0.12 per share of our common stock, which was paid on January 22, 2021 to stockholders of record at the close of business on December 30, 2020.

Board Appointment

On January 5, 2021, we announced the appointment of Lisa Washington as an independent director to our Board of Directors, increasing the size of the Board from six to seven directors. Ms. Washington has more than 25 years of experience in corporate governance and public company compliance and brings to IRT her expertise as an accomplished legal executive and corporate officer. The appointment represents our ongoing commitment to Board refreshment and diversity.

2021 EPS and CFFO Guidance

Based on increasing clarity surrounding business, industry and broader economic conditions, we are introducing 2021 full year guidance. EPS per diluted share is projected to be in the range of $0.04 to $0.08. 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.

2021 Guidance Assumptions

Our key assumptions for 2021 guidance are enumerated below. Our per share guidance above is based on the assumption of 102.6 million common shares, which is an increase of 8.2 million shares over our 2020 weighted average share count. This increase is a result of the shares issued during 2020, from the February 2020 forward equity raise, where the proceeds were used to fund our Huntsville acquisition in December 2020 with the remaining used to reduce outstanding indebtedness. Our 2021 guidance assumes we do not engage in acquisitions, related borrowings or dispositions.

Beginning in the first quarter of 2021, we expect to change our definition of CFFO such that we will no longer exclude stock compensation expense or amortization of deferred financing costs from our computation of CFFO. When we adopt this change, we will present all historical results and 2021 guidance in accordance with the new definition. We expect stock compensation expense and amortization of deferred financing costs to total approximately $7.9 million in 2021 broken down by quarter as follows: $3.0 million, $1.9 million, $1.5 million, and $1.5 million in Q1, Q2, Q3, and Q4 2021, respectively.

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, February 11, 2021 from the investor relations section of the IRT website at www.irtliving.com or by dialing 1.833.789.1330. 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 and telephonically until Thursday, February 18, 2021 by dialing 1.800.585.8367, access code 9394295.

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 apartment properties across non-gateway U.S. markets, including Atlanta, Dallas, Louisville, Memphis, Raleigh and Tampa. 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 IRT’s website at 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 capital allocations, including as to the timing and amount of future dividends. Because such statements include risks, uncertainties and contingencies, 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 generally 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 actual results and/or future dividends to differ materially from those expressed or implied by forward-looking statements include, but are not limited to: risks related to the impact of COVID-19 and other potential future outbreaks of infectious diseases on our financial condition, results of operations, cash flows and performance and those of our residents as well as on the economy and real estate and financial markets; 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; uncertainty and volatility in capital and credit markets, including changes that reduce availability, and increase costs, of capital; inability of tenants to meet their rent and other lease obligations and charge-offs in excess of our allowance for bad debt; legislative restrictions that may delay or limit collections of past due rents; risks endemic to real estate and the real estate industry generally; 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; unexpected costs of REIT qualification compliance; costs and disruptions as the result of a cybersecurity incident or other technology disruption; and share price fluctuations. Please refer to the documents filed by us with the SEC, including specifically the “Risk Factors” sections of our Form 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, 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. For these reasons, as well as others, there can be no assurance that dividends in the future will be equal or similar to the amount of the quarterly dividend described in this press release.

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. We believe 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 occupied units for the reporting period divided by the average of total units available for rent for the reporting period.

EBITDA and Adjusted EBITDA

Each of EBITDA and Adjusted EBITDA is a non-GAAP financial measure. 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 asset sales, debt extinguishments and acquisition related debt extinguishment expenses, casualty losses, and abandoned deal costs. We consider 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. Our calculation of Adjusted EBITDA differs from the methodology used for calculating Adjusted EBITDA by certain other REITs and, accordingly, our Adjusted EBITDA may not be comparable to Adjusted EBITDA reported by other REITs.

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

We believe that FFO and Core FFO (“CFFO”), each of which is a non-GAAP financial measure, are additional appropriate measures of the operating performance of a REIT and us in particular. We compute FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”), as net income or loss allocated to common shares (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. While our calculation of FFO is in accordance with NAREIT’s definition, it may differ from the methodology for calculating FFO utilized by other REITs and, accordingly, may not be comparable to FFO computations of such other REITs.

CFFO is a computation made by analysts and investors to measure a real estate company’s 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, and other non-cash or non-operating gains or losses related to items such as casualty losses, abandoned deal costs and debt extinguishment costs from the determination of FFO.

Our calculation of CFFO may differ from the methodology used for calculating CFFO by other REITs and, accordingly, our CFFO may not be comparable to CFFO reported by other REITs. Our management utilizes FFO and CFFO as measures of our operating performance, and believe they are also useful to investors, because they facilitate an understanding of our operating performance after adjustment for certain non-cash or non-recurring items that are required by GAAP to be expensed but may not necessarily be indicative of current operating performance and our operating performance between periods. Furthermore, although FFO, CFFO and other supplemental performance measures are defined in various ways throughout the REIT industry, we believe that FFO and CFFO may provide us and our investors with an additional useful measure to compare our 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 management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Accordingly, FFO and CFFO do not measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization and capital improvements. Neither FFO nor CFFO should be considered as an alternative to net income or any other GAAP measurement as an indicator of our operating performance or as an alternative to cash flow from operating, investing, and financing activities as a measure of our 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).

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

Same Store Portfolio Net Operating Income

We believe that Net Operating Income (“NOI”), a non-GAAP financial measure, is a useful measure of our operating performance. We define NOI as total property revenues less total property operating expenses, excluding depreciation and amortization, casualty related costs, property management expenses, general administrative expenses, interest expense, and net gains on sale of assets.

Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REITs. We believe that this measure provides an operating perspective not immediately apparent from GAAP operating income or net income. We use NOI to evaluate our performance on a same store and non same store basis because NOI measures the core operations of property performance by excluding corporate level 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 our financial performance.

Same Store Properties and Same Store Portfolio

We review our 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).

(IRT – ER)