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. 19 --------------------------------------------------------------------------------
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. Factors that might cause actual results to differ materially from our expectations, many of which may be more likely to impact us as a result of the ongoing COVID-19 pandemic, are set forth in the "Risk Factors" sections of our Annual Report on Form 10-K for the year endedDecember 31, 2019 and our Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2020 , and in other of our public filings with theSEC , among others, and 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 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 form 10-Q and in our other public filings with theSEC . 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 filing 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 ofSeptember 30, 2020 , we owned and operated 58 multifamily apartment properties that contain 15,805 units. Our properties are located inGeorgia ,North Carolina ,Tennessee ,Kentucky ,Ohio ,Oklahoma ,Indiana ,Texas ,Florida ,South Carolina ,Missouri ,Louisiana , andAlabama . We do not have any foreign operations and our business is not seasonal. Our executive offices are located at1835 Market Street , Suite 2601,Philadelphia, PA 19103 and our telephone number is (267) 270-4800. We have offices inPhiladelphia, Pennsylvania andChicago, Illinois .
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 of
(Dollars in thousands, except
per unit data) As of September 30, 2020 For the Three Months Ended September 30, 2020
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 6 2,020 $ 259,584 95.9 % $ 1,216 $ 4,784 15.2 %
Raleigh - Durham, NC 6 1,690 245,106 94.5 % 1,191 3,924 12.4 %
Memphis, TN 4 1,383 148,507 95.4 % 1,165 2,999 9.5 %
Louisville, KY 6 1,710 200,646 88.6 % 1,017 2,766 8.8 %
Columbus, OH 6 1,547 155,847 93.7 % 1,057 2,598 8.2 %
Tampa-St. Petersburg, FL 4 1,104 180,224 93.9 % 1,294 2,543 8.1 %
Dallas, TX 4 985 140,113 95.6 % 1,300 2,106 6.7 %
Oklahoma City, OK 5 1,658 79,087 95.9 % 696 1,994 6.3 %
Indianapolis, IN 4 916 91,655 94.9 % 1,054 1,621 5.1 %
Myrtle Beach, SC - Wilmington,
NC 3 628 64,441 95.3 % 1,046 1,339 4.2 %
Charleston, SC 2 518 80,157 95.0 % 1,299 1,159 3.7 %
Orlando, FL 1 297 49,038 95.1 % 1,457 720 2.3 %
Charlotte, NC 1 208 42,254 94.3 % 1,458 615 1.9 %
Asheville, NC 1 252 28,876 96.0 % 1,140 602 1.9 %
Chattanooga, TN 2 295 27,654 98.7 % 1,003 487 1.5 %
St. Louis, MO 1 152 33,652 95.8 % 1,480 452 1.4 %
Baton Rouge, LA 1 264 27,231 93.2 % 913 424 1.3 %
Huntsville, AL 1 178 16,560 98.4 % 1,062 421 1.3 %
Total/Weighted Average 58 15,805 $ 1,870,632 94.4 % $ 1,113 $ 31,554 100.0 %
As of September 30, 2020 , our same-store portfolio consisted of 51 multifamily
apartment properties, totaling 14,189 units. See "Non-GAAP Financial Measures -
Same Store Portfolio Net Operating Income" below for our definition of same
store and definitions and reconciliations related to our net operating income.
COVID-19 Pandemic
During the nine months endedSeptember 30, 2020 , the outbreak of COVID-19 has disrupted businesses and has slowed economic activity. We have been impacted by the COVID-19 pandemic and, in response, have made operational and policy changes to: (1) comply with governmental mandates on a jurisdiction by jurisdiction basis; (2) protect our employees, residents, and prospective residents; and (3) minimize the financial impact to us. The extent to which COVID-19 impacts our business, operations and financial results will depend on numerous evolving factors, many of which are not within management's control, and that we are unable to predict at this time, including but not limited to: (1) the duration and scope of the pandemic; (2) the pandemic's impact on current and future economic activity; and (3) the actions of governments, businesses and individuals in response to the COVID-19 pandemic. Some of the specific operational and policy changes we have made in response to the COVID-19 pandemic include: (1) delaying or canceling capital recycling activity in order to focus on current operations; (2) delaying or canceling capital spending, including pausing or otherwise delaying spending under our value-add program; and (3) working to support residents impacted by COVID-19 while maximizing occupancy and rent collections. Despite the impact the COVID-19 pandemic has had on our business, we have been able to increase occupancy to a total weighted average of 94.4% as ofSeptember 30, 2020 and have experienced steady rent collections throughSeptember 30, 2020 . In addition, we have supported residents impacted by COVID-19 by entering into 263 deferred payment plans under which residents deferred$0.5 million of rent payments during the nine months endedSeptember 30, 2020 . 21 --------------------------------------------------------------------------------
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.
In
InApril 2020 , we allowed a previously announced non-binding letter of intent related to the acquisition of three Class A communities inAtlanta, GA to expire, without realizing any financial penalty. This decision provided us with greater financial flexibility given the uncertainties surrounding the COVID-19 pandemic. During the three months endedSeptember 30, 2020 , we resumed our capital recycling strategy by classifying three properties as held for sale. OnOctober 27, 2020 , we sold a 172-unit property inChattanooga, TN for$20.0 million . We have entered into separate agreements to sell a 123-unit property inChattanooga, TN for$14.3 million and a 264-unit property inBaton Rouge, LA for 25.4 million. We expect each of these sales to be consummated inNovember 2020 . In earlyNovember 2020 , we expect to close on a 421-unit property inHuntsville, AL for$95.0 million . This acquisition also includes a contiguous land parcel approved for up to 337 additional units. We expect to close this acquisition using proceeds from the dispositions mentioned above, the availability under our line of credit, and a portion of the remaining availability from ourFebruary 2020 Forward Equity commitment.
Forward Sale Agreements
OnFebruary 20, 2020 , we entered into an underwriting agreement withKeyBanc Capital Markets Inc. andBMO Capital Markets Corp. , as representatives of the several underwriters name therein (collectively, the "Underwriters"),BMO Capital Markets Corp. (the "Forward Seller"), and Bank of Montreal (the "Forward Counterparty") relating to the offering of an aggregate of 10.4 million shares of common stock at a price to the Underwriters of$14.688 per share. We completed the offering onFebruary 24, 2020 . We did not initially receive any proceeds from the sale of common stock by the Forward Seller. In connection with the offering, we also entered into two forward sale agreements (collectively, the "Forward Sale Agreements") with the Forward Seller and the Forward Counterparty. In connection with the Forward Sale Agreements, the Forward Seller or its affiliate borrowed from third parties and sold to the Underwriters an aggregate of 10.4 million shares of common stock that was sold in the offering. OnMarch 31, 2020 , we settled$50 million under the Forward Sale Agreements by issuing 3.4 million shares. As ofSeptember 30, 2020 , 6.9 million shares remain to be settled under the Forward Sale Agreements, which if physically settled would provide additional proceeds to us of$98.8 million based on the forward price as ofOctober 22, 2020 . The offering and Forward Sale Agreements provide us with further financial resources and flexibility considering the ongoing COVID-19 pandemic. We expect to physically settle the Forward Sale Agreements and receive proceeds from the sale of those shares upon one or more such physical settlements within approximately twelve months from the date of the prospectus, earlier thanFebruary 24, 2021 , the scheduled maturity date of the Forward Sale Agreements. Although we expect to settle the Forward Sale Agreements entirely by the physical delivery of shares of common stock for cash proceeds, we may also elect to cash or net share settle all or a portion of our obligations under the Forward Sale Agreements, in which case, we may receive or owe cash or shares of common stock from or to the Forward Seller. The Forward Sale Agreements provide for an initial forward sale price of$14.688 per share, subject to certain adjustments pursuant to the terms of each of the Forward Sale Agreements. The Forward Sale Agreements are subject to early termination or settlement under certain circumstances.
Value Add
Value add initiatives, comprised of renovations and upgrades at selected communities to drive increased rental rates, remain a core component of our longer-term growth strategy. We have identified 7,076 units across 23 properties for renovations and upgrades as part of this initiative. As ofSeptember 30, 2020 , we had completed renovations and upgrades at 3,489 of the 7,076 units. Given the COVID-19 pandemic, we are actively monitoring the markets where these value add renovations are occurring and have delayed renovations where warranted. 22
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Results of Operations
Three Months EndedSeptember 30, 2020 compared to the Three Months EndedSeptember 30, 2019 SAME STORE PROPERTIES NON SAME STORE PROPERTIES CONSOLIDATED (Dollars in thousands) Three Months Ended September 30, Three Months Ended September 30, Three Months Ended September 30, Increase Increase Increase 2020 2019 (Decrease) % Change 2020 2019 (Decrease) % Change 2020 2019 (Decrease) % Change Property Data: Number of properties 51 51 7 6 1 16.7 % 58 57 1 1.8 % Number of units 14,189 14,189 1,616 1,347 269 20.0 % 15,805 15,536 269 1.7 % Average occupancy 94.0 % 93.6 % 0.4 % n/a 95.3 % 92.5 % 2.8 % n/a 94.1 % 93.5 % 0.6 % n/a Average effective monthly rent, per unit 1,106 1,082 24 2.2 % 1,167 1,110 57 5.2 % 1,113 1,084 28 2.6 % Revenue: Rental and other property revenue$ 47,881 $ 46,493 $ 1,388 3.0 %$ 6,120 $ 4,564 $ 1,556 34.1 %$ 54,001 $ 51,057 $ 2,944 5.8 % Expenses: Property operating expenses 19,710 18,459 1,251 6.8 % 2,419 2,087 332 15.9 % 22,129 20,546 1,583 7.7 % Net Operating Income$ 28,171 $ 28,034 $ 137 0.5 %$ 3,701 $ 2,477 $ 1,224 49.4 %$ 31,872 $ 30,511 $ 1,361 4.5 % Other Revenue: Other revenue
2,078 1,901 177 9.3 %
General and administrative expenses 2,912 3,113 (201 ) -6.5 %
Depreciation and amortization expense 15,232 13,434 1,798 13.4 %
Total corporate and other expenses 20,222 18,448 1,774 9.6 %
Interest expense (8,917 ) (9,783 ) 866 8.9 %
Gain on sale (loss on impairment) of real estate assets, net (1,840 ) 2,390 (4,230 ) -177.0 %
Net income 1,092 4,912 (3,820 ) -77.8 %
Income allocated to noncontrolling interests (2 ) (49 ) 47 95.9 %
Net income available to common shares $ 1,090 $ 4,863 $ (3,773 ) -77.6 %
Revenue
Rental and other property revenue. Revenue from rental and other property
revenue of the consolidated portfolio increased $2.9 million to $54.0 million
for the three months ended September 30, 2020 from $51.1 million for the three
months ended September 30, 2019 . The increase was primarily attributable to a
$1.4 million increase in same store rental and other property revenue driven by
a 2.2% increase in average effective monthly rents and a 40 basis point increase
in average occupancy compared to the prior year period. In addition, there was a
$1.6 million increase in non-same store rental and other property revenue
primarily driven by our recent property acquisitions having a higher average
effective rent per unit and therefore, generating more revenue than recent
property dispositions, an increase in the number of units in our non-same store
portfolio, and an increase in average occupancy for our non-same store portfolio
compared to the prior year period.
Expenses
Property operating expenses. Property operating expenses increased$1.6 million to$22.1 million for the three months endedSeptember 30, 2020 from$20.5 million for the three months endedSeptember 30, 2019 . The increase was primarily due to a$1.3 million increase in same store property operating expenses, primarily related to an increase in real estate taxes, insurance, utilities, contract services, and personnel costs during the three months endedSeptember 30, 2020 and a$0.3 million increase in the non same store property operating expenses compared to the prior year.
Property management expenses. Property management expenses increased
General and administrative expenses. General and administrative expenses
decreased
Depreciation and amortization expense. Depreciation and amortization expense increased$1.8 million to$15.2 million for the three months endedSeptember 30, 2020 from$13.4 million for the three months endedSeptember 30, 2019 . The increase was primarily attributable to a$1.3 million increase in depreciation expense at our value add properties for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 and$0.6 million in depreciation expense for properties acquired sinceSeptember 30, 2019 . 23 -------------------------------------------------------------------------------- Interest expense. Interest expense decreased$0.9 million to$8.9 million for the three months endedSeptember 30, 2020 from$9.8 million for the three months endedSeptember 30, 2019 . The decrease was primarily due to lower interest rates during the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 . Gain on sale (loss on impairment) of real estate assets, net. During the three months endedSeptember 30, 2020 , we recorded a$1.8 million impairment charge due to the expected sale of ourBaton Rouge, LA property. During the three months endedSeptember 30, 2019 , we recorded a$2.4 million gain due to the sale of two properties inLittle Rock, AR. Nine Months EndedSeptember 30, 2020 compared to the Nine Months EndedSeptember 30, 2019 SAME STORE PROPERTIES NON SAME STORE PROPERTIES CONSOLIDATED (Dollars in thousands) For the Nine Months EndedSeptember 30 , For the Nine Months EndedSeptember 30 , For the Nine Months EndedSeptember 30 , Increase Increase Increase 2020 2019 (Decrease) % Change 2020 2019 (Decrease) % Change 2020 2019 (Decrease) % Change Property Data: Number of properties 51 51 7 6 1 16.7 % 58 57 1 1.8 % Number of units 14,189 14,189 1,616 1,347 269 20.0 % 15,805 15,536 269 1.7 % Average occupancy 93.3 % 93.7 % -0.4 % n/a 92.6 % 92.2 % 0.4 % n/a 93.2 % 93.6 % -0.4 % n/a Average effective monthly rent, per unit 1,101 1,061 40 3.7 % 1,157 1,061 97 9.1 % 1,110 1,061 49 4.6 % Revenue: Rental and other property revenue$ 140,823 $ 136,710 $ 4,113 3.0 %$ 16,421 $ 14,660 $ 1,761 12.0 %$ 157,244 $ 151,370 $ 5,874 3.9 %
Expenses:
Property operating expenses 55,980 54,025 1,955 3.6 % 6,860 6,479 381 5.9 % 62,840 60,504 2,336 3.9 % Net Operating Income$ 84,843 $ 82,685 $ 2,158 2.6 %$ 9,561 $ 8,181 $ 1,380 16.9 %$ 94,404 $ 90,866 $ 3,538 3.9 % Other Revenue: Other revenue$ 574 $ 425 $ 149 35.1 % Corporate and other expenses: Property management expenses 6,311 5,776 535 9.3 % General and administrative expenses 11,862 9,758 2,104 21.6 % Depreciation and amortization expense 45,291 38,602 6,689 17.3 % Abandoned deal costs 130 - 130 nm Casualty losses 411 - 411 nm Total corporate and other expenses 64,005 54,136 9,869 18.2 % Interest expense (27,616 ) (29,353 ) 1,737 5.9 % Gain on sale (loss on impairment) of real estate assets, net (1,840 ) 14,532 (16,372 ) -112.7 % Net income 1,517 22,334 (20,817 ) -93.2 % Income allocated to noncontrolling interests (10 ) (222 ) 212 95.5 % Net income available to common shares$ 1,507 $ 22,112 $ (20,605 ) -93.2 % Revenue Rental and other property revenue. Revenue from rental and other property revenue of the consolidated portfolio increased$5.8 million to$157.2 million for the nine months endedSeptember 30, 2020 from$151.4 million for the nine months endedSeptember 30, 2019 . The increase was primarily attributable to a$4.1 million increase in same store rental and other property revenue driven by a 3.7% increase in average effective monthly rents compared to the prior year period. This was partially offset by$0.8 million increase in bad debt compared to the prior year primarily due to a provision for bad debt recorded in the nine months endedSeptember 30, 2020 . In addition, there was a$1.7 million increase in non-same store rental and other property revenue primarily driven by our recent property acquisitions having a higher average effective rent per unit and therefore, generating more revenue than recent property dispositions and an increase in the number of units in our non-same store portfolio.
Expenses
Property operating expenses. Property operating expenses increased$2.3 million to$62.8 million for the nine months endedSeptember 30, 2020 from$60.5 million for the nine months endedSeptember 30, 2019 . The increase was primarily due to a$2.0 million increase in the same store property operating expenses, primarily related to an increase in real estate taxes, insurance, utilities, contract services, and personnel costs during the nine months endedSeptember 30, 2020 . This increase was partially offset by lower repairs and maintenance costs during the nine months endedSeptember 30, 2020 .
Property management expenses. Property management expenses increased
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General and administrative expenses. General and administrative expenses
increased $2.1 million to $11.9 million for the nine months ended September 30,
2020 from $9.8 million for the nine months ended September 30, 2019 . This
increase was primarily due to $1.7 million in stock based compensation
recognized during the nine months ended September 30, 2020 related to
performance share units and restricted stock units granted to employees who are
retirement eligible.
Depreciation and amortization expense. Depreciation and amortization expense
increased $6.7 million to $45.3 million for the nine months ended September 30,
2020 from $38.6 million for the nine months ended September 30, 2019 . The
increase was primarily attributable to a $4.2 million increase in depreciation
expense at our value add properties for the nine months ended September 30, 2020
compared to the nine months ended September 30, 2019 and $1.9 million in
depreciation expense for properties acquired since September 30, 2019 .
Interest expense. Interest expense decreased $1.8 million to $27.6 million for
the nine months ended September 30, 2020 from $29.4 million for the nine months
ended September 30, 2019 . The decrease was primarily due to lower interest rates
during the nine months ended September 30, 2020 compared to the nine months
ended September 30, 2019 .
Gain on sale (loss on impairment) of real estate assets, net. During the nine
months ended September 30, 2020 , we recorded a $1.8 million impairment charge
due to the expected sale of our Baton Rouge, LA property. During the nine months
ended September 30, 2019 , we recorded a $14.5 million gain due to the sale of
two properties in Little Rock, AR and one property in Chicago, IL.
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Non-GAAP Financial Measures
Funds from Operations (FFO) and Core Funds from Operations (CFFO)
We believe that FFO and CFFO, each of which is a non-GAAP financial measure, are additional appropriate measures of the operating performance of a REIT and IRT in particular. We compute FFO in accordance with the standards established by theNational Association of Real Estate Investment Trusts , or NAREIT, as net income or loss (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. 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 and abandoned deal costs. Our calculation of CFFO differs from the methodology used for calculating CFFO by certain 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 believes they are also useful to investors, because they facilitate an understanding of our operating performance after adjustment for certain non-cash or non-operating items that are required by GAAP to be expensed but may not necessarily be indicative of current operating performance and that may not accurately compare 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 provide investors with additional useful measures 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. Neither FFO nor CFFO should be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity. Set forth below is a reconciliation of net income (loss) to FFO and CFFO for the three and nine months endedSeptember 30, 2020 and 2019 (in thousands, except share and per share information): For the Three Months Ended For the Three Months Ended September 30, 2020 September 30, 2019 Per Share Per Share Amount (1) Amount (2) Funds From Operations (FFO): Net income (loss)$ 1,092 $ 0.01 $ 4,912 $ 0.05 Adjustments: Real estate depreciation and amortization 15,155 0.16 13,313 0.15 Net loss on impairment (gain on sale) of real estate assets excluding debt extinguishment costs 1,840 0.02 (5,594 ) (0.06 ) FFO$ 18,087 $ 0.19 $ 12,631 $ 0.14 Core Funds From Operations (CFFO): FFO$ 18,087 $ 0.19 $ 12,631 $ 0.14 Adjustments: Stock compensation expense 901 0.01 692 0.01 Amortization of deferred financing costs 362 - 351 - Other depreciation and amortization 77 - 121 - Defeasance costs included in net gains (losses) on sale of assets - - 3,204 0.04 CFFO$ 19,427 $ 0.20 $ 16,999 $ 0.19 26
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For the Nine Months Ended For the Nine Months Ended
September 30, 2020 September 30, 2019
Per Share Per Share
Amount (1) Amount (2)
Funds From Operations (FFO):
Net income (loss) $ 1,517 $ 0.02 $ 22,334 $ 0.25
Adjustments:
Real estate depreciation and amortization 45,036 0.48 38,306 0.42
Net loss on impairment (gain on sale) of real
estate assets excluding debt extinguishment
costs 1,840 0.01 (19,765 ) (0.22 )
FFO $ 48,393 $ 0.51 $ 40,875 $ 0.45
Core Funds From Operations (CFFO):
FFO $ 48,393 $ 0.51 $ 40,875 $ 0.45
Adjustments:
Stock compensation expense 4,761 0.07 2,400 0.03
Amortization of deferred financing costs 1,085 0.01 1,052 0.01
Other depreciation and amortization 255 - 296 -
Abandoned deal costs 130 - - -
Casualty losses 411 - - -
Defeasance costs included in net gains
(losses) on sale of assets - - 5,233 0.06
CFFO $ 55,035 $ 0.59 $ 49,856 $ 0.55
(1) Based on 95,227,176 and 94,061,963 weighted-average shares and units
outstanding for the three and nine months ended September 30, 2020 ,
respectively.
(2) Based on 90,908,646 and 90,394,941 weighted-average shares and units
outstanding for the three and nine months ended September 30, 2019 ,
respectively.
Same Store Portfolio Net Operating Income
We believe that Net Operating Income ("NOI"), a non-GAAP financial measure, is a
useful supplemental measure of its 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.
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Set forth below is a reconciliation of same store net operating income to net
income (loss) available to common shares for the three and nine months ended
September 30, 2020 and 2019 (in thousands, except per unit data):
Three Months Ended September 30, (a) Nine Months Ended September 30, (a)
2020 2019 % change 2020 2019 % change
Revenue:
Rental and other property revenue
3.0 %$ 140,823 $ 136,710 3.0 % Property Operating Expenses Real estate taxes 6,053 5,768 4.9 % 17,866 17,440 2.4 % Property insurance 1,097 933 17.6 % 3,001 2,743 9.4 % Personnel expenses 4,753 4,509 5.4 % 13,410 12,949 3.6 % Utilities 2,789 2,537 9.9 % 7,897 7,361 7.3 % Repairs and maintenance 2,031 1,889 7.5 % 5,090 5,154 -1.2 % Contract services 1,911 1,695 12.7 % 5,553 5,051 9.9 % Advertising expenses 554 499 11.0 % 1,523 1,433 6.3 % Other expenses 522 629 -17.0 % 1,640 1,894 -13.4 % Total property operating expenses 19,710 18,459 6.8 % 55,980 54,025 3.6 % Net operating income$ 28,171 $ 28,034 0.5 %$ 84,843 $ 82,685 2.6 % NOI Margin 58.8 % 60.3 % -1.5 % 60.2 % 60.5 % -0.2 % Average Occupancy 94.0 % 93.6 % 0.4 % 93.3 % 93.7 % -0.4 %
Average effective monthly rent, per unit
2.2 %$ 1,101 $ 1,061 3.7 % Reconciliation of Same-Store Net Operating Income to Net Income (Loss) Same-store portfolio net operating income (a)$ 28,171 $ 28,034 $ 84,843 $ 82,685 Non same-store net operating income 3,701 2,477 9,561 8,181 Other revenue 199 242 574 425 Property management expenses (2,078 ) (1,901 ) (6,311 ) (5,776 ) General and administrative expenses (2,912 ) (3,113 ) (11,862 ) (9,758 ) Depreciation and amortization (15,232 ) (13,434 ) (45,291 ) (38,602 ) Abandoned deal costs - - (130 ) - Casualty losses - - (411 ) - Interest expense (8,917 ) (9,783 ) (27,616 ) (29,353 ) Gain on sale (loss on impairment) of real estate assets, net (1,840 ) 2,390 (1,840 ) 14,532 Net income (loss)$ 1,092 $ 4,912 $ 1,517 $ 22,334
(a) Same store portfolio for the three and nine months ended
and 2019 included 51 properties containing 14,189 units.
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.
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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
30, 2020;
• 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.
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