The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements
The accompanying notes are an integral part of these condensed consolidated financial statements
Independence Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
As of September 30, 2021
(Unaudited and dollars in thousands, except share and per share data)
NOTE 1: Organization
Independence Realty Trust, Inc. (“IRT”), is a self-administered and self-managed Maryland real estate investment trust (“REIT”) which was formed on March 26, 2009. Our primary purposes are to acquire, own, operate, improve and manage multifamily apartment communities in non-gateway markets. As of September 30, 2021, we owned and operated 57 multifamily apartment properties that contain 16,109 units across non-gateway U.S. markets including Atlanta, Dallas, Louisville, Memphis, Raleigh, and Tampa. We own all of our assets and conduct substantially all of our operations through Independence Realty Operating Partnership, LP (“IROP”), of which we are the sole general partner.
As used herein, the terms “we,” “our” and “us” refer to Independence Realty Trust, Inc. and, as required by context, IROP and their subsidiaries.
Pending Merger
On July 26, 2021, we, together with IROP, and IRSTAR Sub, LLC, a wholly-owned subsidiary of IRT (“IRT Merger Sub”), entered into an agreement and plan of merger (the “Merger Agreement”) with Steadfast Apartment REIT, Inc. (“STAR”) and its operating partnership, Steadfast Apartment REIT Operating Partnership, L.P. (“STAR OP”).
On the terms, and subject to the conditions of, the Merger Agreement, STAR will merge with and into IRT Merger Sub (the “REIT Merger”), with IRT Merger Sub surviving the REIT Merger as a wholly-owned subsidiary of IRT; and immediately thereafter, STAR OP will merge with and into IROP (the “Partnership Merger” and, together with the REIT Merger, the “Mergers”), with IROP surviving the Partnership Merger.
In the REIT Merger, each outstanding share of STAR common stock, par value $0.01 per share (“STAR common stock”) will be converted automatically into the right to receive 0.905 (the “Exchange Ratio”) of a newly issued share of IRT common stock, par value $0.01 per share (“IRT common stock”). In the Partnership Merger, each outstanding unit of limited partnership of STAR OP (each, a “STAR OP common unit”) will be converted into the right to receive the Exchange Ratio of a newly issued common unit of limited partnership of IROP (each, an “IROP common unit”). Consummation of the Mergers is subject to customary closing conditions, including, among others, receipt of IRT stockholder approval and STAR stockholder approval and we currently expect the Mergers to close in December 2021.
In conjunction with the Mergers, we have incurred approximately $5,276 in merger-related transaction costs during the three and nine months ended September 30, 2021. The merger-related costs incurred to date primarily consist of advisory fees, attorney fees, accountant fees and SEC filing fees. These costs are presented in a separate line item on the face of the condensed consolidated statements of operations.
NOTE 2: Summary of Significant Accounting Policies
a. Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared by management in accordance with generally accepted accounting principles in the United States (“GAAP”). Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although we believe that the included disclosures are adequate to make the information presented not misleading. The unaudited interim consolidated financial statements should be read in conjunction with our audited financial statements as of and for the year ended December 31, 2020 included in our 2020 Annual Report on Form 10-K. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial position and consolidated results of operations and cash flows are included. The results of operations for the interim periods presented are not necessarily indicative of the results for the full year.
b. Principles of Consolidation
The consolidated financial statements reflect our accounts and the accounts of IROP and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Pursuant to the Financial Accounting Standards Board (the “FASB”)
9
Accounting Standards Codification Topic 810, “Consolidation”, IROP is considered a variable interest entity to which we are the primary beneficiary. As our significant asset is our investment in IROP, substantially all of our assets and liabilities represent the assets and liabilities of IROP.
c. Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
d. Cash and Cash Equivalents
Cash and cash equivalents include cash held in banks and highly liquid investments with maturities of three months or less when purchased. Cash, including amounts restricted, may at times exceed the Federal Deposit Insurance Corporation deposit insurance limit of $250 per institution. We mitigate credit risk by placing cash and cash equivalents with major financial institutions. To date, we have not experienced any losses on cash and cash equivalents.
e. Restricted Cash
Restricted cash includes escrows of our funds held by lenders to fund certain expenditures, such as real estate taxes and insurance, or to be released at our discretion upon the occurrence of certain pre-specified events. As of September 30, 2021 and December 31, 2020, we had $6,138 and $4,864, respectively, of restricted cash.
f. Investments in Real Estate
Investments in real estate are recorded at cost less accumulated depreciation. Costs that both add value and appreciably extend the useful life of an asset are capitalized. Expenditures for repairs and maintenance are expensed as incurred.
Investments in real estate are classified as held for sale in the period in which certain criteria are met including when management commits to a plan to sell, an active program to locate a buyer has been initiated, the sale is probable, and actions required to complete the plan of sale indicate that it is unlikely that significant changes to the plan of sale will be made or the plan of sale will be withdrawn.
Allocation of Purchase Price of Acquired Assets
The properties we acquire are generally accounted for as asset acquisitions. Under asset acquisition accounting, the costs to acquire real estate, including transaction costs related to the acquisition, are accumulated and then allocated to the individual assets and liabilities acquired based upon their relative fair value. Transaction costs and fees incurred related to the financing of an acquisition are capitalized and amortized over the life of the related financing.
We estimate the fair value of acquired tangible assets (consisting of land, building and improvements), identified intangible assets (consisting of in-place leases), and assumed debt at the date of acquisition, based on the evaluation of information and estimates available at that date.
The aggregate value of in-place leases is determined by evaluating various factors, including the terms of the leases that are in place and assumed lease-up periods. The value assigned to in-place lease assets is amortized over the assumed lease up period, typically six months. During the three and nine months ended September 30, 2021, we acquired in-place leases with a value of $0 and $757, respectively, as part of related property acquisitions that are discussed further in Note 3. For the three and nine months ended September 30, 2021, we recorded $368 and $1,203, respectively, of amortization expense for intangible assets. For the three and nine months ended September 30, 2020, we recorded $73 and $631, respectively, of amortization expense for intangible assets. For the three and nine months ended September 30, 2021, we wrote-off fully amortized intangible assets of $0 and $792, respectively. For the three and nine months ended September 30, 2020, we wrote-off fully amortized intangible assets of $211 and $1,171, respectively. As of September 30, 2021, we expect to record additional amortization expense on current in-place intangible assets of $346 for the remainder of 2021.
10
Impairment of Long-Lived Assets
Management evaluates the recoverability of our investment in real estate assets, including related identifiable intangible assets, in accordance with FASB ASC Topic 360, “Property, Plant and Equipment”. This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that recoverability of the assets is not assured.
Management reviews our long-lived assets on an ongoing basis and evaluates the recoverability of the carrying value when there is an indicator of impairment. An impairment charge is recorded when it is determined that the carrying value of the asset exceeds the fair value. The estimated cash flows used for the impairment analysis and the determination of estimated fair value are based on our plans for the respective assets and our views of market and economic conditions. The estimates consider matters such as current and historical rental rates, occupancies for the respective and/or comparable properties, and recent sales data for comparable properties. Changes in estimated future cash flows due to changes in our plans or views of market and economic conditions could result in recognition of impairment losses, which, under the applicable accounting guidance, could be substantial.
Depreciation Expense
Depreciation expense for real estate assets is computed using a straight-line method based on a life of 40 years for buildings and improvements and five to ten years for equipment and fixtures. For the three and nine months ended September 30, 2021, we recorded $17,016 and $49,496 of depreciation expense, respectively. For the three and nine months ended September 30, 2020, we recorded $15,159 and $44,660 of depreciation expense, respectively.
Casualty Loss
Occasionally, we incur losses at our communities from wind storms, floods, fires and similar hazards. Sometimes, a portion of these losses are not fully covered by our insurance policies due to deductibles. In these cases, we estimate the carrying value of the damaged property and record a casualty loss for the difference between the estimated carrying value and the insurance proceeds. During the three and nine months ended September 30, 2021, we incurred $0 and $359 of casualty losses, respectively. We incurred $0 and $411casualty losses during the three and nine months ended September 30, 2020.
g. Investments in unconsolidated real estate entities
We invest in joint ventures in which we exercise significant influence but do not control the major decisions of the joint venture. Therefore, we account for these investments using the equity method of accounting. Under the equity method of accounting, the investments are carried at cost plus our share of net earnings or losses. As of September 30, 2021 and December 31, 2020, the carrying value of our investments in joint ventures totaled $13,561 and $0, respectively, and was recorded as a separate line item on the face of our consolidated balance sheet. We recognized no income or losses from equity method investments during the three and nine months ended September 30, 2021 and 2020.
h. Revenue and Expenses
Rental and other property revenue
We apply FASB ASC Topic 842, “Leases” with respect to our accounting for rental income. We primarily lease apartment units under operating leases generally with terms of one year or less. Rental payments are generally due monthly and rental revenues are recognized on an accrual basis when earned. We have elected to account for lease (i.e. fixed payments including base rent) and non-lease components (i.e. tenant reimbursements and certain other service fees) as a single combined operating lease component since (1) the timing and pattern of transfer of the lease and non-lease components is the same, (2) the lease component is the predominant element, and (3) the combined single lease component would be classified as an operating lease.
We make ongoing estimates of the collectability of our base rents, tenant reimbursements, and other service fees included within rental and other property revenue. If collectability is not probable, we adjust rental and other property income for the amount of uncollectible revenue.
Due to the COVID-19 pandemic, some of our residents have experienced difficulty making rent payments and, as a result, our rent receivables have increased compared to historical levels. This caused us to further evaluate collectability and we recorded $121 and $246 provision for bad debts during the three and nine months ended September 30, 2021, respectively, to appropriately reflect management’s estimate for uncollectible accounts. The provision for bad debts was recorded as a reduction to rental and other property income in our consolidated statements of operations. The total adjustment to rental and other property income for the three and nine months ended September 30, 2021 was $655 and $1,678, respectively. The total adjustment to rental and other property income for the three and nine months ended September 30, 2020 was $340 and $1,428, respectively.
11
To support our residents that were economically impacted and unable to pay their rent in full during 2020, we offered residents deferred rent payment plans whereby the resident could defer between 25% and 75% of their monthly rent for between one and three months. Residents were required to provide evidence of financial hardship and commit to a full 12-month lease term, which provided a longer period over which the deferred rent could be repaid. We accounted for the deferred payment plans as if no change had been made to the original lease agreement and continued to recognize rental income while increasing lease receivables from residents. As of September 30, 2021 and December 31, 2020, deferred rents receivable from residents totaled $0 and $175, respectively.
For the three and nine months ended September 30, 2021, we recognized revenues of $28 and $69, respectively, related to recoveries of lost rental revenue due to natural disasters and other insurable events from our insurance providers. For the three and nine months ended September 30, 2020, we recognized revenues of $32 and $184, respectively, related to recoveries of lost rental revenue due to natural disasters and other insurable events from our insurance providers.
Advertising Expenses
For the three and nine months ended September 30, 2021, we incurred $624 and $1,804 of advertising expenses, respectively. For the three and nine months ended September 30, 2020, we incurred $667 and $1,827 of advertising expenses, respectively.
i. Derivative Instruments
We may use derivative financial instruments to hedge all or a portion of the interest rate risk associated with our borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with our operating and financial structure, as well as to hedge specific anticipated transactions. While these instruments may impact our periodic cash flows, they benefit us by minimizing the risks and/or costs previously described. The counterparties to these contractual arrangements are major financial institutions with which we and our affiliates may also have other financial relationships. In the event of nonperformance by the counterparties, we are potentially exposed to credit loss. However, because of the high credit ratings of the counterparties, we do not anticipate that any of the counterparties will fail to meet their obligations.
12
In accordance with FASB ASC Topic 815, “Derivatives and Hedging”, we measure each derivative instrument at fair value and record such amounts in our consolidated balance sheets as either an asset or liability. For derivatives designated as cash flow hedges, the changes in the fair value of the effective portions of the derivative are reported in other comprehensive income and changes in the fair value of the ineffective portions of cash flow hedges, if any, are recognized in earnings. For derivatives not designated as hedges (or designated as fair value hedges), the changes in fair value of the derivative instrument are recognized in earnings. Any derivatives that we designate in hedge relationships are done so at inception. At inception, we determine whether or not the derivative is highly effective in offsetting changes in the designated interest rate risk associated with the identified indebtedness using regression analysis. At each reporting period, we update our regression analysis and use the hypothetical derivative method to measure any ineffectiveness.
j. Fair Value of Financial Instruments
In accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity for disclosure purposes. Assets and liabilities recorded at fair value in our consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined in FASB ASC Topic 820, “Fair Value Measurements and Disclosures” and directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, are as follows:
|
•
|
Level 1: Valuations are based on unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. The types of assets carried at Level 1 fair value generally are equity securities listed in active markets. As such, valuations of these investments do not entail a significant degree of judgment.
|
|
•
|
Level 2: Valuations are based on quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
|
|
•
|
Level 3: Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
|
FASB ASC Topic 825, “Financial Instruments” requires disclosure of the fair value of financial instruments for which it is practicable to estimate that value. Given that cash and cash equivalents and restricted cash are short term in nature with limited fair value volatility, the carrying amount is deemed to be a reasonable approximation of fair value and the fair value input is classified as a Level 1 fair value measurement. The fair value input for the derivatives is classified as a Level 2 fair value measurement within the fair value hierarchy. The fair value inputs for our unsecured credit facility and term loans are classified as Level 2 fair value measurements within the fair value hierarchy. The fair value of mortgage indebtedness is based on a discounted cash flows valuation technique. As this technique utilizes current credit spreads, which are generally unobservable, this is classified as a Level 3 fair value measurement within the fair value hierarchy. We determine appropriate credit spreads based on the type of debt and its maturity. There were no transfers between levels in the fair value hierarchy for the nine months ended September 30, 2021. The following table summarizes the carrying amount and the fair value of our financial instruments as of the periods indicated:
13
|
|
As of September 30, 2021
|
|
|
As of December 31, 2020
|
|
Financial Instrument
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,720
|
|
|
$
|
8,720
|
|
|
$
|
8,751
|
|
|
$
|
8,751
|
|
Restricted cash
|
|
|
6,138
|
|
|
|
6,138
|
|
|
|
4,864
|
|
|
|
4,864
|
|
Derivative assets
|
|
|
1,168
|
|
|
|
1,168
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured credit facility
|
|
|
136,324
|
|
|
|
137,503
|
|
|
|
183,110
|
|
|
|
184,802
|
|
Unsecured term loans
|
|
|
497,844
|
|
|
|
500,000
|
|
|
|
298,759
|
|
|
|
300,000
|
|
Mortgages (1)
|
|
|
384,561
|
|
|
|
396,504
|
|
|
|
463,817
|
|
|
|
479,929
|
|
Derivative liabilities
|
|
|
17,492
|
|
|
|
17,492
|
|
|
|
29,842
|
|
|
|
29,842
|
|
|
(1)
|
Includes indebtedness associated with real estate held for sale.
|
k. Deferred Financing Costs
Costs incurred in connection with debt financing are deferred and classified within indebtedness and charged to interest expense over the terms of the related debt agreements, under the effective interest method.
l. Office Leases
In accordance with FASB ASC Topic 842, “Leases”, lessees are required to recognize a right-of-use asset and a lease liability on the balance sheet at the lease commencement date for all leases, except those leases with terms of less than a year. We lease corporate office space under leases with terms of up to 10 years and that may include extension options, but that do not include any residual value guarantees or restrictive covenants. As of September 30, 2021, we have $2,360 of operating lease right-of-use assets and $2,701 of operating lease liabilities related to our corporate office leases. The operating lease right-of-use assets are presented within other assets and the operating lease liabilities are presented within other liabilities in our consolidated balance sheet. We recorded $172 and $510 of total operating lease expense during the three and nine months ended September 30, 2021, which is recorded within property management expense and general and administrative expenses in our condensed consolidated statements of operations.
m. Income Taxes
We have elected to be taxed as a REIT. Accordingly, we recorded no income tax expense for the three and nine months ended September 30, 2021 and 2020.
To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our ordinary taxable income to stockholders. As a REIT, we generally are not subject to federal income tax on taxable income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders; however, we believe that we are organized and operate in such a manner as to qualify and maintain treatment as a REIT and intend to operate in such a manner so that we will remain qualified as a REIT for federal income tax purposes.
14
n. Recent Accounting Pronouncements
Below is a brief description of recent accounting pronouncements that could have a material effect on our financial statements.
Adopted Within these Financial Statements
In March 2020, the FASB issued an accounting standard classified under FASB ASC Topic 848, “Reference Rate Reform.” The amendments in this update contain practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASC 848 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, we have elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. We will continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
NOTE 3: Investments in Real Estate
As of September 30, 2021, our investments in real estate consisted of 57 apartment properties that contain 16,109 units. The following table summarizes our investments in real estate:
|
|
As of September 30, 2021
|
|
|
As of
December 31, 2020
|
|
|
Depreciable Lives
(In years)
|
|
Land
|
|
$
|
238,221
|
|
|
$
|
251,365
|
|
|
|
—
|
|
Building
|
|
|
1,525,395
|
|
|
|
1,527,535
|
|
|
|
40
|
|
Furniture, fixtures and equipment
|
|
|
141,144
|
|
|
|
137,870
|
|
|
5-10
|
|
Total investment in real estate
|
|
$
|
1,904,760
|
|
|
$
|
1,916,770
|
|
|
|
|
|
Accumulated depreciation
|
|
|
(223,244
|
)
|
|
|
(208,618
|
)
|
|
|
|
|
Investments in real estate, net
|
|
$
|
1,681,516
|
|
|
$
|
1,708,152
|
|
|
|
|
|
As of September 30, 2021, we owned six properties that were classified as held for sale. We expect the sale of these properties to close in the fourth quarter of 2021 or first quarter of 2022. The table below summarizes our held for sale properties.
Property Name
|
|
Location
|
|
Units
|
|
|
Net Carrying Value
|
|
Crestmont
|
|
Atlanta, GA
|
|
228
|
|
|
$
|
14,791
|
|
Creekside Corners
|
|
Atlanta, GA
|
|
444
|
|
|
|
44,478
|
|
Riverchase
|
|
Indianapolis, IN
|
|
216
|
|
|
|
17,672
|
|
Heritage Park
|
|
Oklahoma City, OK
|
|
453
|
|
|
|
16,405
|
|
Raindance
|
|
Oklahoma City, OK
|
|
504
|
|
|
|
13,163
|
|
Haverford Place
|
|
Louisville, KY
|
|
160
|
|
|
|
13,900
|
|
Total
|
|
|
|
|
2,005
|
|
|
$
|
120,409
|
|
15
Acquisitions
The following table summarizes the aggregate relative fair value of the assets and liabilities associated with the properties acquired during the nine-month period ended September 30, 2021, on the date of acquisition, accounted for under FASB ASC Topic 805-50-15-3.
Description
|
|
Fair Value
of Assets Acquired
During the Nine Months Ended September 30, 2021
|
|
Assets acquired:
|
|
|
|
|
Investments in real estate (a)
|
|
$
|
139,336
|
|
Other assets
|
|
|
33
|
|
Intangible assets
|
|
|
757
|
|
Total assets acquired
|
|
$
|
140,126
|
|
Liabilities assumed:
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
795
|
|
Other liabilities
|
|
|
100
|
|
Total liabilities assumed
|
|
|
895
|
|
Estimated fair value of net assets acquired
|
|
$
|
139,231
|
|
|
(a)
|
Included $177 of property related acquisition costs capitalized during the nine months ended September 30, 2021.
|
Dispositions
The following table summarizes the dispositions for the nine months ended September 30, 2021:
Property Name
|
|
Date of Sale
|
|
Sale Price
|
|
|
Gain on sale (1)
|
|
Kings Landing
|
|
07/28/2021
|
|
$
|
40,100
|
|
|
$
|
11,492
|
|
Total
|
|
|
|
$
|
40,100
|
|
|
$
|
11,492
|
|
|
(1)
|
The gain for this property is net of $295 of debt prepayment costs.
|
NOTE 4: Indebtedness
The following tables contain summary information concerning our indebtedness as of September 30, 2021:
Debt:
|
|
Outstanding Principal
|
|
|
Unamortized Debt Issuance Costs
|
|
|
Carrying Amount
|
|
|
Type
|
|
Weighted Average Rate
|
|
|
Weighted Average Maturity (in years)
|
|
Unsecured credit facility (1)
|
|
$
|
137,503
|
|
|
$
|
(1,179
|
)
|
|
$
|
136,324
|
|
|
Floating
|
|
1.4%
|
|
|
|
1.6
|
|
Unsecured term loans
|
|
|
500,000
|
|
|
|
(2,156
|
)
|
|
|
497,844
|
|
|
Floating
|
|
1.3%
|
|
|
|
3.4
|
|
Mortgages (2)
|
|
|
385,508
|
|
|
|
(947
|
)
|
|
|
384,561
|
|
|
Fixed
|
|
3.8%
|
|
|
|
2.8
|
|
Total Debt
|
|
$
|
1,023,011
|
|
|
$
|
(4,282
|
)
|
|
$
|
1,018,729
|
|
|
|
|
2.3%
|
|
|
|
2.9
|
|
|
(1)
|
The unsecured credit facility total capacity is $350,000, of which $137,503 was outstanding as of September 30, 2021.
|
|
(2)
|
Includes indebtedness associated with real estate held for sale.
|
On March 1, 2021, we drew down on our unsecured credit facility to extinguish a property mortgage totaling $5,975. The property mortgage had a weighted-average rate of 5.7%.
On April 5, 2021, we drew down on our unsecured credit facility to extinguish a property mortgage and made partial
paydowns on another mortgage totaling $13,666. The property mortgages had a weighted-average rate of 4.2%.
On May 18, 2021, we entered into a Second Amended and Restated Credit Agreement which provided for a $550,000 unsecured credit facility (the “Facility) that consists of a $350,000 revolving line of credit (the “Unsecured Revolving Line of Credit”) and a new $200,000 senior term loan (the “New Unsecured Term Loan”). Additionally, we have the right to increase the aggregate amount of the Facility to up to $600,000, subject to certain terms and conditions. The maturity date on borrowings outstanding under the Unsecured Revolving Line of Credit is May 9, 2023, subject to our option to extend the revolving commitment for two additional 6-month periods under certain circumstances, including a payment of an extension fee. The maturity date on the New Unsecured Term Loan is May 18, 2026. We may prepay the Facility, in whole or in part, at any time without prepayment fee or penalty. At our option, borrowings under the Unsecured Revolving Line of Credit will bear interest at a rate equal to either (i) the 1-month LIBOR 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 borrowings under the New Unsecured
16
Term Loan will bear interest at a rate equal to either (i) the LIBOR 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 margin is determined based upon our total consolidated leverage ratio. Substantially all of the proceeds of the New Unsecured Term Loan were applied at closing to repay the outstanding balance under the revolving credit facility established under the prior credit agreement. We recognized the refinance of the Unsecured Revolving Line of Credit as a modification of debt. The New Unsecured Term Loan was accounted for as an issuance of new debt. We incurred upfront costs of $1,200 associated with this transaction.
On July 1, 2021, we drew down on our unsecured credit facility to extinguish a property mortgage totaling $18,650. The property mortgage had a weighted-average rate of 3.4%. On July 30, 2021, we drew down on our unsecured credit facility to extinguish a property mortgage totaling $15,991. The property mortgage had a weighted-average rate of 3.7%.
The following table contains summary information concerning our indebtedness as of September 30, 2021:
|
|
Scheduled maturities on our indebtedness outstanding as of September 30, 2021
|
|
Debt:
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
Thereafter
|
|
Unsecured credit facility
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
137,503
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Unsecured term loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
300,000
|
|
|
|
—
|
|
|
|
200,000
|
|
Mortgages (1)
|
|
|
7,428
|
|
|
|
35,003
|
|
|
|
105,879
|
|
|
|
34,754
|
|
|
|
160,152
|
|
|
|
42,292
|
|
Total
|
|
$
|
7,428
|
|
|
$
|
35,003
|
|
|
$
|
243,382
|
|
|
$
|
334,754
|
|
|
$
|
160,152
|
|
|
$
|
242,292
|
|
|
(1)
|
Includes indebtedness associated with real estate held for sale.
|
The following table contains summary information concerning our indebtedness as of December 31, 2020:
Debt:
|
|
Outstanding Principal
|
|
|
Unamortized Debt Issuance Costs
|
|
|
Carrying Amount
|
|
|
Type
|
|
Weighted
Average Rate
|
|
|
Weighted
Average
Maturity
(in years)
|
|
Unsecured credit facility (1)
|
|
$
|
184,802
|
|
|
$
|
(1,692
|
)
|
|
$
|
183,110
|
|
|
Floating
|
|
1.6%
|
|
|
|
2.4
|
|
Unsecured term loans
|
|
|
300,000
|
|
|
|
(1,241
|
)
|
|
|
298,759
|
|
|
Floating
|
|
1.5%
|
|
|
|
3.3
|
|
Mortgages
|
|
|
465,092
|
|
|
|
(1,275
|
)
|
|
|
463,817
|
|
|
Fixed
|
|
3.9%
|
|
|
|
3.2
|
|
Total Debt
|
|
$
|
949,894
|
|
|
$
|
(4,208
|
)
|
|
$
|
945,686
|
|
|
|
|
2.7%
|
|
|
|
3.1
|
|
|
(1)
|
The unsecured credit facility total capacity was $350,000, of which $184,802 was outstanding as of December 31, 2020.
|
During the nine months ended September 30, 2021, in connection with a property disposition, we extinguished a property mortgage totaling $19,618.
As of September 30, 2021, we were in compliance with all financial covenants contained in the documents governing our indebtedness.
On October 1, 2021, we drew down on our unsecured credit facility to extinguish a property mortgage totaling $19,370. The property mortgage had a weighted-average rate of 3.4%.
NOTE 5: Derivative Financial Instruments
The following table summarizes the aggregate notional amounts and estimated net fair values of our derivative instruments as of September 30, 2021 and December 31, 2020:
|
|
As of September 30, 2021
|
|
|
As of December 31, 2020
|
|
|
|
Notional
|
|
|
Fair Value of
Assets
|
|
|
Fair Value of
Liabilities
|
|
|
Notional
|
|
|
Fair Value of
Assets
|
|
|
Fair Value of
Liabilities
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
$
|
150,000
|
|
|
$
|
—
|
|
|
|
8,852
|
|
|
$
|
150,000
|
|
|
$
|
—
|
|
|
$
|
694
|
|
Interest rate collars
|
|
|
250,000
|
|
|
|
—
|
|
|
|
8,640
|
|
|
|
250,000
|
|
|
|
—
|
|
|
|
13,331
|
|
Forward interest rate swaps
|
|
|
—
|
|
|
|
1,168
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,817
|
|
Total
|
|
$
|
400,000
|
|
|
$
|
1,168
|
|
|
|
17,492
|
|
|
$
|
400,000
|
|
|
$
|
—
|
|
|
$
|
29,842
|
|
Effective interest rate swaps and caps are reported in accumulated other comprehensive income, and the fair value of these hedge agreements is recorded as derivative assets or liabilities on the face of our consolidated balance sheet.
For our interest rate swap and collars that are considered highly effective hedges, we reclassified realized losses of $1,926 and $4,939 to earnings within interest expense for the three and nine months ended September 30, 2021, respectively, and we expect $9,173 to be reclassified out of accumulated other comprehensive income to earnings over the next 12 months.
17
NOTE 6: Stockholders’ Equity and Noncontrolling Interests
Stockholders’ Equity
On March 15, 2021, our board of directors declared a dividend of $0.12 per share on our common stock, which was paid on April 23, 2021 to common stockholders of record as of April 2, 2021.
On June 14, 2021, our board of directors declared a dividend of $0.12 per share on our common stock, which was paid on July 23, 2021 to common stockholders of record as of July 2, 2021.
On September 13, 2021, our board of directors declared a dividend of $0.12 per share on our common stock, which was paid on October 22, 2021 to common stockholders of record as of October 1, 2021.
During the three and nine months ended September 30, 2021, we also paid $0 and $278, respectively, of dividends on restricted common share awards that vested during the period.
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 $150,000 (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. During the fourth quarter of 2020 and the first half of 2021, we sold 2,932,000 shares on a forward basis under the ATM program. On June 29, 2021, the forward sale transactions were all physically settled and we issued 2,932,000 shares of common stock for a total of $41,671 in net proceeds.
On July 27, 2021, we entered into an underwriting agreement with Barclays Capital Inc. and BMO Capital Markets Corp., as representatives of the several underwriters named therein (collectively, the “Underwriters”), BMO Capital Markets Corp., in its capacity as agent (in such capacity, the “Forward Seller”) for Bank of Montreal, as forward counterparty (the “Forward Counterparty”) related to the offering of an aggregate of 16,100,000 shares of our common stock at a price to the Underwriters of $17.04 per share consisting of 16,100,000 shares of common stock offered by the Forward Seller in connection with the forward sale agreements described below (inclusive of 2,100,000 shares offered pursuant to the Underwriter’s option to purchase additional shares, which was exercised in full). We did not initially receive any proceeds from the sale of our common stock by the Forward Seller. We completed the offering on July 30, 2021.
In connection with the offering, we also entered into two forward sale agreements. The first forward sale agreement (the “Initial Forward Sale Agreement”), dated July 27, 2021, with the Forward Seller and Forward Counterparty, and the second forward sale agreement (the “Additional Forward Sale Agreement”, together with the Initial Forward Sale Agreement, the “Forward Sale Agreements”), dated July 29, 2021, with the Forward Seller and the Forward Counterparty. In connection with the Forward Sale Agreements, the Forward Seller borrowed from third parties and sold to the Underwriters an aggregate of 16,100,000 shares of our common stock that was sold in the offering. As of September 30, 2021, 16,100,000 shares of our common stock remain to be settled under the Forward Sale Agreements, which if physically settled would provide additional proceeds to us of $272,156 based on the forward price as of September 30, 2021. 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, or July 30, 2022, 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 our 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 our common stock from or to the Forward Seller. The Forward Sale Agreements provide for an initial forward sale price of $17.04 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.
We evaluated the accounting for the forward sale transactions under FASB ASC Topic 480 “Distinguishing Liabilities from Equity” and FASB ASC Topic 815 “Derivatives and Hedging”. As the forward sale transactions are considered indexed to our own equity and since they meet the equity classification conditions in ASC 815-40-25, the forward sale transactions have been classified as equity.
We filed Articles of Amendment with the State Department of Assessments and Taxation of Maryland to increase the number of authorized shares of common stock, $0.01 par value, from 300,000,000 shares to 500,000,000 shares, effective July 27, 2021.
18
Noncontrolling Interest
During the nine months ended September 30, 2021, holders of IROP units exchanged 122,155 units for 122,155 shares of our common stock. As of September 30, 2021, 552,360 IROP units held by unaffiliated third parties remain outstanding.
On March 15, 2021, our board of directors declared a dividend of $0.12 per unit, which was paid on April 23, 2021 to IROP LP unitholders of record as of April 2, 2021.
On June 14, 2021, our board of directors declared a dividend of $0.12 per unit, which was paid on July 23, 2021 to IROP LP unitholders of record as of July 2, 2021.
On September 13, 2021, our board of directors declared a dividend of $0.12 per unit, which was paid on October 22, 2021 to IROP LP unitholders of record as of October 1, 2021.
NOTE 7: Equity Compensation Plans
Long Term Incentive Plan
In May 2016, our shareholders approved and our board of directors adopted an amended and restated Long Term Incentive Plan (the “Incentive Plan”), which provides for the grants of awards to our employees, officers, directors, trustees, consultants or advisors (and those of our affiliates). The Incentive Plan authorizes the grant of restricted or unrestricted shares of our common stock, performance-based restricted share units (“PSUs”), non-qualified and incentive stock options, restricted stock units (“RSUs”), stock appreciation rights (“SARs”), dividend equivalents and other stock- or cash-based awards. In conjunction with the amendment, the number of shares of common stock issuable under the Incentive Plan was increased to 4,300,000 shares and the term of the incentive plan was extended to May 12, 2026.
Under the Incentive Plan, we have granted restricted shares, RSUs, and PSUs to our employees. These awards generally vest or vested over a two- to four-year period. In addition, we have granted unrestricted shares to our non-employee directors. These awards generally vest or vested immediately. A summary of restricted common share award and RSU activity is presented below.
|
2021
|
|
|
Number of Shares
|
|
|
Weighted Average Grant Date Fair
Value Per Share
|
|
Balance, January 1,
|
|
406,849
|
|
|
$
|
11.68
|
|
Granted
|
|
212,438
|
|
|
|
14.42
|
|
Vested
|
|
(200,559
|
)
|
|
|
11.74
|
|
Forfeited
|
|
(29,664
|
)
|
|
|
13.45
|
|
Balance, September 30, (1)
|
|
389,064
|
|
|
$
|
13.01
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The outstanding award balance above included 135,366 and 67,381 RSUs as of September 30, 2021 and December 31, 2020, respectively.
|
On February 18, 2021, our compensation committee awarded 254,493 PSUs to our named executive officers. The number of PSUs earned will be based on attainment of certain performance criteria over a three-year period, with the actual number of shares issuable ranging between 0 and 150% of the number of PSUs granted. Half of any PSUs earned will vest, and shares will be issued in respect thereof, immediately following the end of the three-year performance period; the remaining half of any PSUs earned will vest, and shares will be issued in respect thereof, after an additional one-year period of service.
During the nine months ended September 30, 2021 and 2020, a portion of the RSUs and PSUs granted were issued to employees who are retirement eligible. The fact that the grantees are retirement eligible resulted in immediate recognition of the associated stock-based compensation expense totaling $2,112 and $1,667, respectively.
19
NOTE 8: Earnings Per Share
The following table presents a reconciliation of basic and diluted earnings (loss) per share for the three and nine months ended September 30, 2021 and 2020:
|
|
For the Three Months Ended September 30,
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net income
|
|
$
|
11,564
|
|
|
$
|
1,092
|
|
|
$
|
16,064
|
|
|
$
|
1,517
|
|
Income allocated to noncontrolling interest
|
|
|
(62
|
)
|
|
|
(2
|
)
|
|
|
(90
|
)
|
|
|
(10
|
)
|
Net income allocable to common shares
|
|
|
11,502
|
|
|
|
1,090
|
|
|
|
15,974
|
|
|
|
1,507
|
|
Weighted-average shares outstanding—Basic
|
|
|
104,918,674
|
|
|
|
94,456,987
|
|
|
|
102,882,723
|
|
|
|
93,261,757
|
|
Weighted-average shares outstanding—Diluted
|
|
|
107,668,675
|
|
|
|
95,222,623
|
|
|
|
104,062,661
|
|
|
|
94,099,091
|
|
Earnings per share—Basic
|
|
$
|
0.11
|
|
|
$
|
0.01
|
|
|
$
|
0.16
|
|
|
$
|
0.02
|
|
Earnings per share—Diluted
|
|
$
|
0.11
|
|
|
$
|
0.01
|
|
|
$
|
0.15
|
|
|
$
|
0.02
|
|
Certain IROP units, restricted stock awards, RSUs, PSUs, and forward sale agreements were excluded from the earnings (loss) per share computation because their effect would have been anti-dilutive, totaling 552,360 and 552,360 for the three and nine months ended September 30, 2021, respectively, and 7,653,516 and 7,645,986 for the three and nine months ended September 30, 2020, respectively.
NOTE 9: Other Disclosures
Risks and Uncertainties
Currently, one of the most significant risks and uncertainties is the duration and scope of the ongoing COVID-19 pandemic, which has disrupted businesses and slowed economic activity. In response to the COVID-19 pandemic, we have made operational and policy changes to: (1) comply with governmental mandates, including eviction moratoria, on a jurisdiction by jurisdiction basis; (2) protect our employees, residents, and prospective residents; and (3) minimize the adverse financial impact to us. The extent to which the COVID-19 pandemic 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 COVID-19 pandemic; (2) the COVID-19 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.
Litigation
We are subject to various legal proceedings and claims that arise in the ordinary course of our business operations. Matters which arise out of allegations of bodily injury, property damage, and employment practices are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, we currently believe the final outcome of such matters will not have a material adverse effect on our financial position, results of operations or cash flows.
Loss Contingencies
We record an accrual for loss contingencies when a loss is probable and the amount of the loss can be reasonably estimated. Management reviews these accruals quarterly and makes revisions based on changes in facts and circumstances. When a loss contingency is not both probable and reasonably estimable, management does not accrue the loss. However, if the loss (or an additional loss in excess of an earlier accrual) is at least a reasonable possibility and material, then management discloses a reasonable estimate of the possible loss, or range of loss, if such reasonable estimate can be made. If we cannot make a reasonable estimate of the possible loss, or range of loss, then a statement to that effect is disclosed.