INDEPENDENCE REALTY TRUST, INC. Forward-Looking Statements
The Securities and Exchange Commission (the "SEC"), encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This report contains or incorporates by reference such "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.
Words such as "anticipates," "estimates," "expects," "projects," "intends," "plans," "believes" and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements.
We claim the protection of the safe harbor for forward-looking statements provided in the Private Securities Litigation Reform Act of 1995. These statements may be made directly in this report and they may also be incorporated by reference in this report to other documents filed with theSEC , and include, without limitation, statements about future financial and operating results and performance, statements about our plans, objectives, expectations and intentions with respect to future operations, products and services, and other statements that are not historical facts. 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 beyond 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. Actual results may differ materially from the anticipated results discussed in these forward-looking statements. The risk factors discussed and identified in Item 1A of our 2021 Annual Report on Form 10-K and in Part II, Item 1A of this Quarterly Report, and in other of our public filings with theSEC , among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events.
Overview
Our Company
We are a self-administered and self-managedMaryland real estate investment trust ("REIT"), that acquires, owns, operates, improves and manages multifamily apartment communities across non-gatewayU.S. markets. As ofJune 30, 2022 , we owned and operated 120 multifamily apartment properties that contain 35,594 units. Our properties are located inAlabama ,Colorado ,Florida ,Georgia ,Illinois ,Indiana ,Kentucky ,North Carolina ,Ohio ,Oklahoma ,South Carolina ,Tennessee ,Texas , andVirginia . In addition, as ofJune 30, 2022 , we owned interests in four unconsolidated joint ventures that are developing multifamily apartment communities that will contain, in aggregate, 1,588 units upon completion. We do not have any foreign operations and our business is not seasonal.
Our Business Objective and Investment Strategies
Our primary business objective is to maximize stockholder value through diligent portfolio management, strong operational performance, and a consistent return of capital through distributions and capital appreciation. Our investment strategy is focused on the following: •gaining scale within key amenity rich submarkets of non-gateway cities that offer good school districts, high-quality retail and major employment centers and are unlikely to experience substantial new apartment construction in the foreseeable future;
•increasing cash flows at our existing apartment properties through prudent property management and strategic renovation projects; and
•acquiring additional properties that have strong and stable occupancies and support a rise in rental rates or that have the potential for repositioning through capital expenditures or tailored management strategies.
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Property Portfolio
As ofJune 30, 2022 , we owned and consolidated 120 multifamily apartment properties, totaling 35,594 units. Below is a summary of our consolidated property portfolio by market. (Dollars in thousands, except per unit data) As of June 30, 2022 For the Three Months Ended June 30, Average Gross Real Effective Number of Estate Period End Monthly Rent Net Operating Market Properties Units Assets Occupancy per Unit Income % of NOI Atlanta, GA 13 5,180$ 1,052,005 95.1 %$ 1,510 $ 14,444 15.1 % Dallas, TX 14 4,007 844,430 96.0 % 1,652 11,074 11.6 % Denver, CO 9 2,292 600,811 96.3 % 1,590 7,703 8.1 % Columbus, OH 10 2,510 362,658 95.4 % 1,262 5,941 6.2 % Indianapolis, IN 8 2,256 321,982 95.2 % 1,218 4,905 5.1 % Oklahoma City, OK 8 2,147 314,376 96.3 % 1,083 4,858 5.1 % Raleigh - Durham, NC 6 1,690 253,345 96.7 % 1,366 4,814 5.0 % Nashville, TN 5 1,508 363,042 96.7 % 1,491 4,459 4.7 % Houston, TX 7 1,932 321,372 95.4 % 1,376 4,086 4.3 % Memphis, TN 4 1,383 157,099 94.1 % 1,436 3,898 4.1 % Tampa-St. Petersburg, FL 4 1,104 190,063 95.4 % 1,614 3,333 3.5 % Louisville, KY 5 1,550 192,615 94.4 % 1,131 3,293 3.4 % Birmingham, AL 2 1,074 231,529 96.1 % 1,392 2,779 2.9 % Huntsville, AL 3 873 189,963 96.5 % 1,459 2,648 2.8 % Lexington, KY 3 886 159,374 98.4 % 1,196 2,405 2.5 % Cincinnati, OH 2 542 121,656 96.9 % 1,413 1,813 1.9 % Charleston, SC 2 518 81,001 95.9 % 1,478 1,654 1.7 %Myrtle Beach, SC - Wilmington, NC 3 628 67,086 95.7 % 1,261 1,633 1.7 % Charlotte, NC 2 480 109,291 96.2 % 1,583 1,596 1.7 % Greenville, SC 1 702 122,868 94.4 % 1,151 1,491 1.6 % Chicago, IL 1 374 89,929 96.8 % 1,683 1,283 1.3 % Orlando, FL 1 297 50,006 94.3 % 1,616 825 0.9 % San Antonio, TX 1 306 56,997 96.7 % 1,459 788 0.8 % Austin, TX 1 256 54,474 96.5 % 1,599 731 0.8 % Asheville, NC 1 252 29,161 95.2 % 1,325 722 0.8 % Terra Haute, IN 1 250 45,930 90.4 % 1,417 648 0.7 % Fort Wayne, IN 1 222 44,026 95.9 % 1,347 637 0.7 % Norfolk, VA 1 183 53,918 94.0 % 1,776 631 0.7 % Chattanooga, TN 1 192 36,860 98.4 % 1,367 513 0.5 % Total/Weighted Average 120 35,594$ 6,517,867 95.7 %$ 1,414 $ 95,605 100.0 % 23
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Table of Contents Current Developments STAR Merger OnDecember 16, 2021 , we completed our merger with STAR and STAR OP. Through the STAR Merger, we acquired 68 apartment communities that contained 21,394 units and two apartment communities that are under development and that will contain upon completion 621 units. Leading up to and shortly after the closing of the STAR Merger, we delevered our combined balance sheet through a combination of transactions totaling$600 million including theJuly 2021 underwritten offering, the disposition of three STAR properties prior to merger closing, and the disposition of two properties in late 2021 and four properties in the first quarter of 2022 as described below.
2022 Property Sales
During the six months ended
Our capital recycling program consists of disposing of assets in markets where we lack scale and/or markets where management believes that growth is slowing.
As of
OnApril 6, 2022 , we purchased, for$25.4 million , the Views of Music City (Phase 1), a 96-unit community inNashville, TN , from one of our unconsolidated joint ventures (discussed below). On account of our equity interest in this joint venture, we received$4.4 million of the sales proceeds, comprised of$3.4 million as a return of capital and$1.0 million as a preferred return on capital.
Investment in Unconsolidated Real Estate Entities
To create another avenue for accretive capital allocation and to increase our options for capital investment, we partner with developers through preferred equity investments and joint venture relationships focused on new multifamily development. InSeptember 2021 , we formed a joint venture to acquire and own the Views of Music City (comprised of Phase 1 and Phase 2) and The Jackson, each a multifamily community inNashville, TN. As discussed above, onApril 6, 2022 , we purchased Phase 1 of the Views of Music City (comprised of 96 units), following completion of its development, from the joint venture. We expect Phase 2 of the Views of Music City development (comprised of 209 units) to be completed in the fourth quarter of 2023. We expect development of The Jackson (comprised of 199 units) to be completed by year-end 2022. OnMarch 31, 2022 , we formed a joint venture to acquire and own a project comprised of 400 single family home rental units inHuntsville, AL . Development of phase one of this project (comprised of 178 homes) was completed in 2021. Upon acquisition of phase one by the joint venture, 85% of the homes were leased. We expect phase two of the project (comprised of 222 homes) to be completed during the third quarter of 2022. We have committed to invest an aggregate$37.1 million in this joint venture, and, as ofJune 30, 2022 , had funded$16.4 million on account of this commitment. OnJune 3, 2022 , we entered into a joint venture for the development ofLakeline Station , a 378-unit community to be built inAustin, TX. We have committed to invest an aggregate$29.7 million in this joint venture, and, as ofJune 30, 2022 , had funded$14.6 million on account of this commitment. Site improvements began inJune 2022 with completion of the project scheduled for the second quarter of 2024.
Value Add
Our value add program provides us with the opportunity to improve long-term growth through targeted unit renovations at communities where there is the potential for outsized rent growth.
We completed renovations on 195 units during the quarter endedJune 30, 2022 . From inception of our value add program inJanuary 2018 throughJune 2022 , we completed renovations on 4,203 of the 9,233 ongoing and completed units, achieving a return on investment of 21.7% (and approximately 24.8% on the interior portion of such renovation costs) an average monthly rental increase of 24.1%. We compute return on cost by using the rent premium per unit per 24
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month, multiplied by 12, divided by the applicable renovation costs per unit and we compute the rent premium as the difference between the rental rate on the renovated unit and the market rent for a comparable unrenovated unit as of the date presented, as determined by management consistent with its customary rent-setting and evaluation procedures. We expect to complete the remaining value add projects at the selected communities throughout 2022 and 2023.
Capital Markets
Forward Sale Agreements
OnNovember 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$150,000 (the "ATM Program") in negotiated transactions or transactions that are deemed to be "at the market" offerings as defined in Rule 415 under the Securities Act of 1933, as amended. 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. For more information on our forward sale agreements, see Note 6 (Stockholders' Equity and Noncontrolling Interests). No forward sale transactions under the ATM Program were entered into during the three months endedJune 30, 2022 .
Increased Divided to
OnMay 18, 2022 , our board of directors approved a quarterly dividend of$0.14 per share on our common stock, which represents a 17% increase in the dividend over the prior quarterly rate of$0.12 per share. The dividend was paid onJuly 22, 2022 to common stockholders of record as ofJuly 1, 2022 .
Board Authorized a Stock Repurchase Program
OnMay 18, 2022 , our Board of Directors approved the Stock Repurchase Program covering up to$250,000 in shares of our common stock. Under the Stock Repurchase Program, we, in our discretion, may purchase our shares from time to time in the open market or in privately negotiated transactions. The amount and timing of the purchases will depend on a number of factors, including the price and availability of our shares, trading volumes and general market conditions. The Stock Repurchase Program has no time limit and may be suspended or discontinued at any time.
New
OnJuly 25, 2022 , we entered into the Fourth Amended, Restated and Consolidated Credit Agreement (the "Restated Credit Agreement") which amends and restates in its entirety the Third Amended and Restated Credit Agreement dated as ofDecember 14, 2021 (the "Prior Credit Agreement"). The Restated Credit Agreement provides for an aggregate amount available for borrowing of$1.1 billion , which represents an increase of$100 million over the Prior Credit Agreement. The Prior Credit Agreement provided for a$500 million unsecured revolving credit facility (the "Revolving Credit Facility") with aJanuary 31, 2026 scheduled maturity date and three unsecured term loans, specifically: (i) a$200 million term loan with aMay 18, 2026 maturity date (the "2026 Term Loan"); (ii) a$200 million term loan with aJanuary 17, 2024 maturity date (the "January 2024 Term Loan"); and (iii) a$100 million term loan with aNovember 20, 2024 maturity date (the "November 2024 Term Loan" and, together with theJanuary 2024 Term Loan, the "2024 Term Loans"). The Restated Credit Agreement provides for a new$400 million term loan with aJanuary 28, 2028 maturity date (the "2028 Term Loan"). Proceeds of the new 2028 Term Loan were used to (i) repay and retire the 2024 Term Loans, and (ii) reduce$100 million of outstanding borrowings under the Revolving Credit Facility. In addition, the Restated Credit Agreement changes the LIBOR interest rate option to SOFR. The Restated Credit Agreement otherwise continues, without material change, the 2026 Term Loan and the Revolving Credit Facility. IROP has the right to request an increase in the aggregate amount of the Restated Credit Agreement from$1.1 billion to up to$1.5 billion , subject to certain terms and conditions, including receipt of commitments from one or more lenders, whether or not currently parties to the Restated Credit Agreement, to provide such increased amounts, which increase may be allocated, at IROP's option, to the Revolving Credit Facility and/or to one or more of the Term Loans, in accordance with the Restated Credit Agreement. Borrowings under the 2028 Term Loan bear interest at a rate equal to either (i) the SOFR rate plus a margin of 115 to 180 basis points, or (ii) a base rate plus a margin of 15 to 80 basis points. These margins represent a 5-basis point decrease from those applicable to the term loans that were repaid and retired. The margin for borrowings under the Revolving Credit Facility and the 2026 Term Loan remained unchanged, with (1) Revolving Credit Facility borrowings bearing interest at a rate equal to either (i) the SOFR rate plus a margin of 125 to 200 basis points, or (ii) a base rate plus a margin of 25 to 100 basis points; and (2) 2026 Term Loan borrowings bearing interest at a rate equal to either (i) the SOFR rate plus a margin of 120 to 190 basis points, or (ii) a base rate plus a margin of 20 to 90 basis points. The applicable 25
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margin will be determined based upon IROP's consolidated leverage ratio. At the
time of closing, based on IROP's consolidated leverage ratio, the applicable
margin was 125 basis points for the Revolving Credit Facility, 120 basis points
for the 2026 Term Loan and 115 basis points for the 2028 Term Loan.
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Results of Operations
As ofJune 30, 2022 , we owned and consolidated 120 multifamily apartment properties, of which 113 comprised the Combined Same-Store Portfolio. We discuss below, under "Non-GAAP Financial Measures," our methodology for categorizing our 120 properties, as applicable, into IRT Same-Store Portfolio (48 properties as ofJune 30, 2022 ), STAR Same-Store Portfolio (65 properties as ofJune 30, 2022 ) and Combined Same-Store Portfolio (113 properties as ofJune 30, 2022 ). Because of substantial changes in our total property portfolio as the result of the STAR Merger that closed onDecember 16, 2021 , the financial data presented below show significant changes in revenue and expenses from period-to-period. Three Months EndedJune 30, 2022 compared to the Three Months EndedJune 30, 2021 COMBINED SAME-STORE PROPERTIES COMBINED NON SAME-STORE PROPERTIES Q2 2021
CONSOLIDATED
(Dollars in thousands) Three Months EndedJune 30 , Three Months EndedJune 30 , Pre-Merger STAR Three Months Ended
2022 2021 Increase (Decrease) % Change 2022 2021 Increase (Decrease) % Change Portfolio(1) 2022 2021 Increase (Decrease) % Change
Property Data:
Number of properties 113 113 - -% 7 11 (4) (36.4)% (66) 120 58 62 106.9%
Number of units 33,804 33,804 - -% 1,790 3,257 (1,467) (45.0)% (20,800) 35,594 16,261 19,333 118.9%
Average occupancy 95.5% 96.2% (0.7)% (0.7)% 93.4% 92.9% 0.5% 0.6% NM 95.5% 95.9% (0.4)% (0.5)%Average effective monthly rent, per unit 1,412 1,261 151 12.0% 1,443 936 507 54.1% NM 1,413 1,171 242 20.6% Revenue: Rental and other property revenue 146,556 131,544 15,012 11.4% 8,087 9,260 (1,173) (12.7)%$(83,518) $154,643 $57,286 $97,357 169.9%
Expenses:
Property operating expenses 55,821 52,229 3,592 6.9% 3,155 4,081 (926) (22.7)% (34,012) 58,976 22,298 36,678 164.5% Net Operating Income$90,735 $79,315 $11,420 14.4%$4,932 $5,179 $(247) (4.8)%$(49,506) $95,667 $34,988 $60,679 173.4% Other Revenue: Other revenue$120 $158 $(38) -24.1%
Corporate and other expenses: Property management expenses 6,139 2,176 3,963 182.1% General and administrative expenses 6,968 4,241 2,727 64.3% Depreciation and amortization expense 72,793 16,763 56,030 334.2% Casualty (gains) losses, net (5,592) - (5,592) 100.0% Other (income) expense (294) - (294) 100.0% Loss from investments in unconsolidated real estate entities 871 - 871 100.0% Interest expense (20,994) (8,559) (12,435) 145.3% Merger and integration costs (1,307) - (1,307) 100.0% Net (loss) income$(7,399) $3,407 $(10,806) (317.2)% Income allocated to noncontrolling interests 194 (21) 215 (1023.8)% Net (loss) income available to common shares$(7,205) $3,386 $(10,591) (312.8)% (1)Represents metrics of the STAR Portfolio for the three months endedJune 30, 2021 , the period of ownership prior to the consummation of the STAR Merger onDecember 16, 2021 and is presented for the purpose of reconciling combined same-store results to the consolidated results for the three months endedJune 30, 2021 . 27 -------------------------------------------------------------------------------- Table of Contents Revenue Rental and other property revenue. Revenue from rental and other property revenue of the consolidated portfolio increased$97.4 million to$154.6 million for the three months endedJune 30, 2022 from$57.3 million for the three months endedJune 30, 2021 . The increase was primarily attributable to the STAR Merger, which contributed a pre-merger revenue base of$83.5 million . In addition, there was year-over-year rental and other property revenue growth of$15.0 million , driven primarily by a 12.0% increase in average effective monthly rents and higher other property revenue compared to the prior year period.
Expenses
Property operating expenses. Property operating expenses increased$36.7 million to$59.0 million for the three months endedJune 30, 2022 from$22.3 million for the three months endedJune 30, 2021 . The increase was primarily due to the STAR Merger, which contributed a pre-merger property operating expense base of$34.0 million .
Property management expenses. Property management expenses increased
General and administrative expenses. General and administrative expenses increased$2.7 million to$7.0 million for the three months endedJune 30, 2022 from$4.2 million for the three months endedJune 30, 2021 . This increase was primarily due to the increase in costs associated with the employees that joined IRT in connection with the STAR Merger. Depreciation and amortization expense. Depreciation and amortization expense increased$56.0 million to$72.8 million for the three months endedJune 30, 2022 from$16.8 million for the three months endedJune 30, 2021 . The increase was primarily attributable to higher depreciation and amortization, including approximately$24.2 million of amortization of in-place lease intangibles, from properties acquired in the STAR Merger. Casualty (gains) losses, net. During the three months endedJune 30, 2022 , we recognized net casualty gains of$5.6 million as a result of receiving insurance proceeds in excess of losses incurred. Loss from investments in unconsolidated real estate entities. During the three months endedJune 30, 2022 , we picked up our portion of the losses on the Ramston and Virtuoso investments in unconsolidated real estate totaling$0.9 million , which were driven by depreciation recognized by the unconsolidated real estate entities. Interest expense. Interest expense increased$12.4 million to$21.0 million for the three months endedJune 30, 2022 from$8.6 million for the three months endedJune 30, 2021 primarily due to the assumption of debt in connection with the STAR Merger. Merger and integration costs. We incurred approximately$1.3 million of STAR merger-related integration costs during the three months endedJune 30, 2022 . These costs primarily consist of technology migration and implementation, consulting and professional fees. 28
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Results of Operations
Six Months Ended
COMBINED SAME-STORE PROPERTIES COMBINED NON SAME-STORE PROPERTIES Q1/2 2021 CONSOLIDATED
(Dollars in thousands) Six Months EndedJune 30 , Six Months EndedJune 30 , Pre-Merger STAR Six Months Ended
2022 2021 Increase (Decrease) % Change 2022
2021 Increase (Decrease) % Change Portfolio(1) 2022 2021 Increase (Decrease) % Change
Property Data:
Number of properties 113 113 - -% 7 11 (4) (36.4)% (66) 120 58 62 106.9%
Number of units 33,804 33,804 - -% 1,790 3,257 (1,467) (45.0)% (20,800) 35,594 16,261 19,333 118.9%
Average occupancy 95.4% 95.7% (0.3)% (0.3)% 93.4% 94.8% (1.4)% (1.5)% NM 95.3% 95.7% (0.4)% (0.4)%
Average effective monthly
rent, per
unit 1,392 1,252 140 11.2% 1,443 975 468 48.0% NM 1,392 1,157 235 20.3%
Revenue:
Rental and other property
revenue 288,262 259,211 29,051 11.2% 16,359 17,539 (1,180) (6.7)% $(164,652) $304,621 $112,097 $192,524 171.7%
Expenses:
Property operating expenses 108,358 103,149 5,209 5.0% 6,500 7,555 (1,055) (14.0)% (67,567) 114,858 43,136 71,722 166.3%
Net Operating Income $179,904 $156,062 $23,842 15.3% $9,859 $9,984 $(125) (1.3)% $(97,085) $189,763 $68,961 $120,802 175.2%
Other Revenue:
Other revenue $505 $459 $46 10.0%
Corporate and other expenses:
Property management expenses 11,696 4,119 7,577 184.0%
General and administrative
expenses 14,896 10,183 4,713 46.3%
Depreciation and amortization expense 150,966 33,315 117,651 353.1%
Casualty (gains) losses, net (6,985) 359 (7,344) (2045.7)%
Other (income) expense (736) - (736) 100.0%
Loss from investments in unconsolidated real estate entities 934 - 934 100.0%
Interest expense (41,525) (16,944) (24,581) 145.1%
Merger and integration costs (3,202) - (3,202) 100.0%
Gain on sale of real estate
assets, net 94,712 - 94,712 100.0%
Net income $69,482 $4,500 $64,982 1444.0%
Income allocated to noncontrolling interests (2,087) (28) (2,059) 7353.6%
Net income available to common shares $67,395 $4,472 $62,923 1407.0%
(1)Represents metrics of the STAR Portfolio for the six months ended June 30,
2021 , the period of ownership prior to the consummation of the STAR Merger on
December 16, 2021 and is presented for the purpose of reconciling combined
same-store results to the consolidated results for the six months ended June 30,
2021 .
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Revenue
Rental and other property revenue. Revenue from rental and other property
revenue of the consolidated portfolio increased $192.5 million to $304.6 million
for the six months ended June 30, 2022 from $112.1 million for the six months
ended June 30, 2021 . The increase was primarily attributable to the STAR Merger,
which contributed a pre-merger revenue base of $164.7 million . In addition,
there was year-over-year rental and other property revenue growth of $29.1
million , driven primarily by a 11.2% increase in average effective monthly rents
and higher other property revenue compared to the prior year period.
Expenses
Property operating expenses. Property operating expenses increased$71.7 million to$114.9 million for the six months endedJune 30, 2022 from$43.1 million for the six months endedJune 30, 2021 . The increase was primarily due to the STAR Merger, which contributed a pre-merger property operating expense base of$67.6 million .
Property management expenses. Property management expenses increased
General and administrative expenses. General and administrative expenses increased$4.7 million to$14.9 million for the six months endedJune 30, 2022 from$10.2 million for the six months endedJune 30, 2021 . This increase was primarily due to the increase in costs associated with the employees that joined IRT in connection with the STAR Merger. Depreciation and amortization expense. Depreciation and amortization expense increased$117.7 million to$151.0 million for the six months endedJune 30, 2022 from$33.3 million for the six months endedJune 30, 2021 . The increase was primarily attributable to higher depreciation and amortization, including approximately$53.3 million of amortization of in-place lease intangibles, from properties acquired in the STAR Merger. Casualty (gains) losses, net. During the six months endedJune 30, 2022 , we recognized net casualty gains of$7.0 million as a result of receiving insurance proceeds in excess of losses incurred. During the six months endedJune 30, 2021 , we incurred casualty losses incurred of$0.4 million related to severe winter storms at ourTexas andOklahoma properties.
Loss from unconsolidated joint venture. During the six months ended
Interest expense. Interest expense increased$24.6 million to$41.5 million for the six months endedJune 30, 2022 from$16.9 million for the six months endedJune 30, 2021 primarily due to the assumption of debt in connection with the STAR Merger.
Merger and integration costs. We incurred approximately
Gain on sale of real estate assets, net. During the six months ended
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Non-GAAP Financial Measures
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 depreciation and amortization of
other items not included in FFO, and other non-cash or non-operating gains or
losses related to items such as casualty (gains) losses, loan premium accretion
and discount amortization, debt extinguishment costs, and merger and integration
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.
Set forth below is a reconciliation of net income to FFO and CFFO for the three
and six months ended June 30, 2022 and 2021 (in thousands, except share and per
share information):
For the Three Months Ended June 30, For the Three Months Ended June 30,
2022 2021
Amount Per Share(1) Amount Per Share(2)
Funds From Operations (FFO):
Net (loss) income $ (7,399) $
(0.03)
72,298 0.32 16,683 0.17
Real estate depreciation and amortization
from investments
in unconsolidated real estate entities 515 - - -
FFO $ 65,414 $
0.29
$ 65,414 $
0.29
495 - 80 -
Casualty (gains) losses, net (5,592) (0.02) - -
Loan (premium accretion) discount
amortization, net (2,741) (0.01) - -
Other (income) expense (294) - - -
Merger and integration costs 1,307 - - -
CFFO $ 58,589 $ 0.26 $ 20,170 $ 0.20
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For the Six Months Ended June 30, For the Six Months Ended June 30,
2022 2021
Amount Per Share(1) Amount Per Share(2)
Funds From Operations (FFO):
Net income $ 69,482 $
0.30
150,241 0.66 33,155 0.33
Real estate depreciation and amortization
from investments
in unconsolidated real estate entities 515 - - -
Net gain on sale of real estate assets
excluding debt
extinguishment costs (94,712) (0.42) - -
FFO 125,526 $ 0.54 37,655 $ 0.37
Core Funds From Operations (CFFO):
FFO $ 125,526 $
0.55
725 - 160 -
Casualty (gains) losses, net (6,985) (0.03) 359 -
Loan (premium accretion) discount
amortization, net (5,495) (0.02) - -
Other (income) expense (673) - - -
Merger and integration costs 3,202 0.01 - -
CFFO $ 116,300 $ 0.51 $ 38,174 $ 0.37 (1)Based on 227,966,261 and 227,873,108 weighted-average shares and units
outstanding for the three and six months ended
(2)Based on 102,584,809 and 102,465,624 weighted-average shares and units
outstanding for the three and six months ended
Same-Store Portfolio Net Operating Income
We believe that Net Operating Income ("NOI"), a non-GAAP financial measure, is a
useful supplemental measure of our operating performance. We define NOI as total
property revenues less total property operating expenses, excluding interest
expenses, depreciation and amortization, property management expenses, and
general and administrative expenses. 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 insofar as the
measure reflects only operating income and expense at the property level. We use
NOI to evaluate performance on a same-store and non same-store basis because NOI
measures the core operations of property performance by excluding corporate
level expenses, financing 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.
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. Because our portfolio of properties changed significantly as the result of our STAR Merger, which closed onDecember 16, 2021 , we present, as described below, information on the IRT Same-Store Portfolio, STAR Same-Store Portfolio and Combined Same-Store Portfolio.
IRT Same-Store Portfolio
IRT Same-Store Portfolio represents the 48 properties that IRT owned and
consolidated as of
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STAR Same-Store Portfolio
STAR Same-Store Portfolio represents the 65 properties that STAR owned and
consolidated as of
Combined Same-Store Portfolio
Combined Same-Store Portfolio represents the combination of the IRT Same-Store Portfolio and the STAR Same-Store Portfolio considered as a single portfolio of 113 properties.
Pre-Merger STAR Portfolio NOI
In order to reconcile Combined Same-Store NOI to net income for periods prior to ourDecember 16, 2021 merger with STAR, our reconciliation excludes NOI generated by the STAR Portfolio because IRT did not own these properties prior toDecember 16, 2021 . 33
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Set forth below is a reconciliation of Combined Same-Store Portfolio net operating income to net income (loss) available to common shares for the three and six months endedJune 30, 2022 and 2021 (in thousands, except per unit data): Three Months Ended June 30,(a) Six Months Ended June 30,(a) 2022 2021 % change 2022 2021 % change Revenue: Rental and other property revenue$ 146,556 $ 131,544 11.4 %$ 288,262 $ 259,211 11.2 % Property Operating Expenses Real estate taxes 19,351 18,917 2.3 % 38,077 37,050 2.8 % Property insurance 3,002 2,712 10.7 % 5,786 5,373 7.7 % Personnel expenses 12,248 11,758 4.2 % 24,300 23,218 4.7 % Utilities 7,078 6,719 5.3 % 14,386 13,926 3.3 % Repairs and maintenance 6,031 4,574 31.9 % 10,241 8,824 16.1 % Contract services 5,126 4,726 8.5 % 9,848 9,091 8.3 % Advertising expenses 1,223 1,308 (6.6) % 2,402 2,566 (6.4) % Other expenses 1,762 1,515 16.3 % 3,317 3,102 6.9 % Total property operating expenses 55,821 52,229 6.9 % 108,358 103,149 5.0 % Net operating income$ 90,735 $ 79,315 14.4 %$ 179,904 $ 156,062 15.3 % NOI Margin 61.9 % 60.3 % 1.6 % 62.4 % 60.2 % 2.2 % Average Occupancy 95.5 % 96.2 % (0.7) % 95.4 % 95.7 % (0.3) % Average effective monthly rent, per unit$ 1,412 $ 1,261 12.0 %$ 1,392 $ 1,252 11.2 % Reconciliation of Combined Same-Store NOI to Net (Loss) Income: Combined Same-Store Portfolio NOI(a)$ 90,735 $ 79,315 $ 179,904 $ 156,062 Combined non same-store NOI 4,932 5,179 9,859 9,984 Pre-Merger STAR Portfolio NOI(b) - (49,506) - (97,085) Other revenue 120 158 505 459 Property management expenses (6,139) (2,176) (11,696) (4,119) General and administrative expenses (6,968) (4,241) (14,896) (10,183) Depreciation and amortization (72,793) (16,763) (150,966) (33,315) Casualty gains (losses), net 5,592 - 6,985 (359) 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
(a)Combined Same-Store Portfolio for the three and six months ended
(b)Represents NOI of the STAR Portfolio for periods prior to the consummation of
the STAR Merger on
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Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, pay distributions and other general business needs. We believe our available cash balances, financing arrangements and cash flows from operations will be sufficient to fund our liquidity requirements with respect to our existing portfolio for the next twelve months and the foreseeable future.
Our primary cash requirements are to:
•make investments to continue our value add initiatives to improve the quality and performance of our properties;
•repay our indebtedness;
•fund costs necessary to maintain our properties;
•pay our operating expenses; and
•distribute a minimum of 90% of our REIT taxable income (determined without regard to the deduction for dividends paid and excluding net capital gain) and to make investments in a manner that enables us to maintain our qualification as a REIT.
We intend to meet our liquidity requirements primarily through a combination of one or more of the following:
•the use of our cash and cash equivalents of
•existing and future unsecured financing, including advances under our unsecured credit facility, and financing secured directly or indirectly by the apartment properties in our portfolio;
•cash generated from operating activities;
•net cash proceeds from property sales, including sales undertaken as part of our capital recycling strategy and other sales; and
•proceeds from the sales of our common stock and other equity securities, including common stock that we expect to issue in settlement of our forward sale agreement.
Stock Repurchase Program OnMay 18, 2022 , our Board of Directors authorized a common stock repurchase program (the "Stock Repurchase Program") covering up to$250,000 in shares of our common stock. Under the Stock Repurchase Program, we, in our discretion, may purchase our shares from time to time in the open market or in privately negotiated transactions. The amount and timing of the purchases will depend on a number of factors, including the price and availability of our shares, trading volumes and general market conditions. The Stock Repurchase Program has no time limit and may be suspended or discontinued at any time.
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