Q3 2020 Independence Realty Trust Inc Earnings Call
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Thank you and good morning, everyone. Thank you for joining us to review Independence Realty Trust third quarter Twentytwenty financial result.
On the call with me today are Scott Schafer, our Chief Executive Officer, Jim Sebra, <unk>, our Chief Financial Officer, and Farrell Ender President of IR team.
Today's call is being webcast on our website at www Dot IR t. living dot com, there will be a replay of the call available via webcast on our Investor Relations website and Telephonically beginning at approximately 12 PM Eastern time today.
Before I turn the call over to Scott I'd like to remind everyone that there may be forward looking statements made in this call. These forward looking statements reflect IR team <unk> current views with respect to future events and financial performance.
Actual results could differ substantially and materially from what I R. T has projected.
Such statements are made in good faith pursuant to the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Please refer to Iraqis press release supplemental information and filings with the FCC for factors that could affect the accuracy of our expectations or cause our future results to differ materially from those expectations.
Participants may discuss non-GAAP financial measures during this call.
A copy of IR Tees press release, and supplemental information containing financial information other statistical information and a reconciliation of non-GAAP financial measure measures to the most directly comparable GAAP financial measure is attached to IR T. His most recent current report on the <unk>.
Form 8-K available at <unk> website under Investor Relations.
IR team other FCC filings are also through this link IR T. does not undertake to update forward looking statements in this call or with respect to matters described herein, except as maybe required by law with that it's my pleasure to turn the call over to Scott Schafer.
Thank you Lorne and thank you all for joining US this morning I'd.
I'd like to start off today's call by thanking our team for their dedication and diligence during a year, which we could never have anticipated by our team's execution of that strategy has been steadfast, enabling us to continue to deliver value to all of our stakeholders.
We focused on protecting the health and well being of our employees and residents providing flexibility to those residents demonstrating financial hardship driving leasing traffic and growing occupancy all while sustaining our financial flexibility and strengthening our balance sheet.
Our successful execution against these key priorities as evidenced in our third quarter performance.
Our total portfolio average occupancy increased 60 basis points from a year ago to 94.1% and we collected 98.9% of third quarter rent.
Our same store NOI grew one half a percent on a year over year basis, our core FFO improved more than 14% to 19.4 million with the core EPS AFFO per share of 20 cents and we ended the quarter with 217 million of total liquidity.
We continue to see strong results through October 27th or.
Current occupancy now stands at 95% by 250 basis point improvement compared to the end of October last year. We have collected approximately 96.7% of October rents, which is consistent with collections in September and given our low lease expirations high occupancy in the fourth quarter, we've been able to drive rent growth.
We're also encouraged by the pickup in activity in our value added capital recycling programs, well Starlin, Jim will speak about them in greater detail I'm pleased to note that we are taking a formal approach to reallocating our capital into markets with strong demographics that offer healthy rent growth and steady or increasing occupancy levels, while exiting we're reducing our presence can best viable markets.
As it relates to our investment strategy. We are proud to highlight that our t. has a strong presence in a number of cities that were named in a recent ranking of the top 100 Best places to live in 2020 conducted by Livability Dot Com, which explores why small to medium sized cities are great places to live some of these higher rank cities include Asheville dorm in Charlotte North Carolina.
As well as Columbus, Ohio in Orlando, Florida.
In closing Iraqis quarterly and year to date results reflect our ability to manage near term volatility while planning for the long term success of our business. We will close out 2020 focused on resident retention, resulting in stable high occupancy levels as we always strive toward providing our residents with communities have the highest quality and while there are concerns over a resurgence of the buyers we will be.
Mindful of any changes in restrictions on a state by state basis, and as always adhere to strict safety measures and protect the well being of our employees and residents are flexible operating and investment model supported by our strong capital position will enable us to continue to successfully navigate the current environment.
With that I'd like to turn the call over to federal for an operational update.
Thanks, Scott and good morning, everyone.
No doubt 2020, but its fair share of challenges and our team reacted with resiliency and determination of our on site teams an effort to improve total portfolio average occupancy in the third quarter to 94.1% from 92.9% in the second quarter and 93.5% a year ago.
Currently our occupancy rate is 95% up 90 basis points from third quarter levels, and 250 basis points from the end of October last year.
The average occupancy across our same store portfolio, not including our value add communities in the third quarter was 94.6% as of today is 95.3%.
This increase is due to a coordinated effort to drive resident retention higher and go occupancy during the pandemic.
On a lease over lease basis for the same store portfolio during the third quarter, new lease rates increased 1.8% and renewals were up half a percent yielding a combined lease over lease rental rate increase of 1.1%.
As of today as Scott mentioned, we've been able to drive rent growth in the fourth quarter, our new leases have increased 7.4%, while renewed leases are up 1.3% with a blended lease over lease rental rate increase of 3.9% for our same store portfolio.
Now I'd like to provide an update on our value add and capital recycling programs, where we resumed activity.
First on our value add program, we completed renovations on 237 units in the third quarter and 774 units year to date, realizing average rent premiums of more than 18% as compared to Unrenovated unit.
We perform renovations at 17 of our communities and as of today, we've classified for US complete having renovated 85% or more of these units at each property.
Prior to the pandemic, we had identified an additional six communities and our value add program we.
We will commence for the communities and the first half of 2021, and we'll continue to evaluate the offer opportunity of the remaining two.
We anticipate completing approximately 275 units in the fourth quarter, bringing our total renovation for full year 2022, approximately 1050 units.
Beyond the identified communities. We believe there are additional value add opportunities within the remaining portfolio.
In the third quarter, we Reengaged, our capital recycling program, which is focused on reallocating capital from markets, where we have a small presence and do not plan to grow and invest those dollars into markets with better long term fundamentals, where we have a larger presence and are looking to expand.
With that said, we made the decision to exit the Chattanooga and Baton Rouge markets. We sold one of our Chattanooga assets trails, accessing signal mountain and expect to close on a sales our remaining asset in this market Lakeshore under held in November.
Also in November we expect to sell our single asset in Baton Rouge, Louisiana light of trace.
The gross sales and the adjusted blended economic cap rate for these three assets are $59 million and 5% respectively.
On the acquisition front Weve placed a 421 unit property in Huntsville, Alabama under contract for a gross price of $95 million, which represents a 5% cap rate on our year one underwriting.
This acquisition will expand our footprint in Huntsville from 178 units to 599 units.
The two faced property was completed in 2014 and 2019 and is located in the South Madison, Submarket, which I see no new supply in the past five years other than this property is phase two rollout.
Property is 99% occupied and we are well positioned to unlock value through a combination of organic market rent growth, which has averaged 6.6% for the past three years as well as growth from the ample to implementation of our revenue management and institutional ownership.
We note that hospital is an attractive market for expansion due to its highly educated and compensated workforce, coupled with population growth and job opportunities.
City benefits from the Redstone Arsenal, which employs 40000 high technology personnel, Nasa's Marshall Space Flight Center, and Cummings Research Park, the second largest research park in the country.
In addition to Yoda Mazhar, completing a $1.6 billion assembly plant in 2021 that will employ 4000 people and the F.B. I announced that it will be building a 1 billion dollar second headquarters and the Redstone Arsenal that will bring a thousand jobs next year and 4000 over the next 10 years.
Lastly, we acquired a parcel of land adjacent to our advantage on Hillsboro property in Tampa, Florida, which.
Which improves our street frontage and visibility and argue distinct property of our existing property and allows us to add up to 51 units subject to zoning approvals.
Now I'd like to turn the call over to Jeff. Thanks, Phil and good morning, everyone I'd like to begin with an overview of our third quarter results higher Ti recorded net income available to common shareholders of $1.1 million down from a net income of $4.9 million in the third quarter of 2018. It is important to note that net income this quarter was impacted by a.
$1.8 million asset impairment associated with property held for sale, while a year ago net income benefited from a $2.4 million net gain on the sale of assets.
During the third quarter core FFO grew to $19.4 million up 14.3% from $17 million in Q3 2019 core.
Core FFO per share during Q3 was 20 cents, 5.2% higher than Q3 last year at 19 cents per share.
Turning to our same store property operating results and a lot of growth was 50 basis points in the quarter driven by revenue growth of 3% rental rates increased year over year with an average monthly rent of $1106. This quarter up 2.2% since the third quarter of last year. While this includes the value add coming.
Ladies we did see rental rate growth at or non value add same store communities with rental rates in Q3, increasing 80 basis points over the prior year.
We continue to closely evaluate the impact of the pandemic on collections in the third quarter, we collected 98.9% of our billings as a result, we evaluated our outstanding receivables for a collectibility and increased our reserve for bad debts by $80000 during the third quarter to a total reserve of 803.
Thousand dollars as of September Thirtyth.
The 803000, our reserve for bad debts recorded as of September Thirtyth reduces the future risk of any build revenue that we have not collected to put it in context, we ended the quarter with $1.4 million of gross receivables, including those that were part of our deferred payment plans subsequent to September thirtyth, we collect.
The $267000 of those gross receivables and after considering the reserve for bad debt. Our net accounts receivable left over as of September Thirtyth is $327000 about a third of a penny per share as a result, we believe that we are adequately reserved and feel good about collecting those remaining that receivable.
Yes.
In the third quarter same store property operating expenses increased 6.8%.
Primarily due to the timing of controllable expenses hitting in Q3 revenue in Q2 as you'd expect there were delays in interruptions during the height of the pandemic in the second quarter as businesses return those beliefs services were completed in the third quarter on a year to date basis total operating expenses grew a more modest threepi.
6% with that increase primarily driven by higher real estate taxes, and property insurance, which we will continue to monitor going into next year I just want to reiterate that the increase in expenses. This quarter was heavily impacted by the timing of expenses rather than the start of a trend and we still expect that our total operating expenses for two.
2020 will be less than our original guidance that we gave at the beginning of this year.
Turning to our balance sheet as of September Thirtyth, our liquidity position was $217 million, we had approximately $10 million of unrestricted cash $108 million of additional capacity through our unsecured credit facility and $99 million of remaining proceeds from our forward equity raise.
We closed the third quarter carrying just over $1 billion of debt with no significant debt maturities until 2023, our normalized net debt to adjusted EBITDA was 9.1 times at the end of Q3 down from 9.2 times in Q2 2020.
With respect to our capital recycling program, we have three assets identified as held for sale in the third quarter and as a result, we excluded the results from our same store metrics. If we had included them same store NOI growth would have been 90 basis points for Q3, and 3% on a year to date basis.
An improvement of 40 basis points for both periods over what we've already reported.
As Tom mentioned, we recently sold our trails and say go mountain property in Chattanooga at a price of $20 million and expect to recognize a $6.3 million a gain on the sale in the fourth quarter. Other planned sales include Vivek trace in Baton Rouge, which we plan to close in November at a sale price of $25.4 million and we have already record.
Added a $1.8 million impairment on this transaction in accordance with GAAP during the third quarter.
Lastly, we are scheduled to sell our lakeshore on that help property in Chattanooga for $14.3 million in the fourth quarter and expect to recognize a $3.6 million gain on sale in total we're expecting to generate $59 million in proceeds from these three sales and a total net gain on sale of a push.
$1 million.
On the acquisition front, we are under contract to purchase a property in Huntsville, Alabama for 95 million.
This transaction is scheduled to close in late November and Weve and will be funded by $59 million in proceeds from the after mentioned sales availability under our unsecured line of credit and a portion of the remaining availability from our February 2020 forward equity raise after all said and done our capital recycling program will result, a 30.
$6 million net increase in real estate investment, we're expecting to use about $25 million of our forward equity forward to close the transaction, which means we will have approximately $75 million remaining after those transactions are complete if we were to use that $75 million to de lever our normalized net debt to adjusted.
EBITDA would drop to about 8.4 times.
Regarding our dividend Iraqis board of directors declared a quarterly cash dividend of 12 cents per share paid on October 20, Threerd, which equates to a 63% payout ratio on 19 cents of AFFO for the third quarter.
With respect to guidance, we continue to believe it's prudent to keep the suspended at this time and anticipate resuming the practice of providing guidance when there is sufficient clarity on economic conditions.
Let's turn the call back to Scott Scott.
Thanks, Jim I'd like to close out by saying that the IR team has stepped up to the challenge and produced favorable year to date results. During these uncertain times Weve rightly focused on supporting our employees and residents while safeguarding our properties and communities.
Also like to congratulate the IR team for being named shelters to shutters industry partner of the year shelters to shutters is a great organization, which helps local communities with employment and housing opportunities in effort to reduce situational homelessness, which has become a national growing concern I'm proud of the team's efforts and look forward to our continued success as we look to strengthen and grow our business while learning from our.
Experiences.
Operator at this time I would like to open the call for questions.
Ladies and gentlemen, if you have a.
Question at this time, please press the star and the number one key on your Touchtone Salus Helen.
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I am showing no questions at this time I would now like to turn the conference back this car cheaper.
Well, thank you for joining us today, and we look forward to speaking with you again it may reach virtual conference later in November and everyone have a good day.
Thank you.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.
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