Independence Realty Trust (IRT) 10-Q 2021 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission file number 001-36041

INDEPENDENCE REALTY TRUST, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	26-4567130
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
1835 Market Street, Suite 2601 Philadelphia, PA	19103
(Address of Principal Executive Offices)	(Zip Code)

(267) 270-4800

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock	IRT	NYSE

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer	☒	Accelerated filer	☐
Non-Accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No   ☒

As of April 27, 2021 there were 102,147,512 shares of the Registrant’s common stock issued and outstanding.

INDEPENDENCE REALTY TRUST, INC.

INDEX

		Page
PART I—FINANCIAL INFORMATION		3
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020	3
	Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2021 and March 31, 2020	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months ended March 31, 2021 and March 31, 2020	5
	Condensed Consolidated Statements of Changes in Equity for the Three Months ended March 31, 2021 and March 31, 2020	6
	Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2021 and March 31, 2020	7
	Notes to Condensed Consolidated Financial Statements as of March 31, 2021	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	25
Signatures		26

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Independence Realty Trust, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited and dollars in thousands, except share and per share data)

	As of March 31, 2021			As of December 31, 2020
ASSETS:
Investments in real estate:
Investments in real estate, at cost	$	1,922,071		$	1,916,770
Accumulated depreciation		(223,187	)		(208,618	)
Investments in real estate, net		1,698,884			1,708,152
Cash and cash equivalents		8,653			8,751
Restricted cash		4,449			4,864
Other assets		12,824			12,338
Derivative assets		2,810			—
Intangible assets, net of accumulated amortization of $396 and $0, respectively		396			792
Total Assets	$	1,728,016		$	1,734,897
LIABILITIES AND EQUITY:
Indebtedness, net of unamortized deferred financing costs of $3,844 and $4,208, respectively	$	947,631		$	945,686
Accounts payable and accrued expenses		24,535			25,416
Accrued interest payable		1,888			1,976
Dividends payable		12,293			12,257
Derivative liabilities		19,540			29,842
Other liabilities		6,991			6,949
Total Liabilities		1,012,878			1,022,126
Equity:
Stockholders’ equity:
Preferred stock, $0.01 par value; 50,000,000 shares authorized, 0 and 0 shares issued and outstanding, respectively		—			—
Common stock, $0.01 par value; 300,000,000 shares authorized, 102,033,732 and 101,803,762 shares issued and outstanding, including 267,296 and 339,468 unvested restricted common share awards, respectively		1,018			1,018
Additional paid-in capital		920,042			919,615
Accumulated other comprehensive income (loss)		(20,497	)		(33,822	)
Retained earnings (accumulated deficit)		(190,151	)		(178,751	)
Total stockholders’ equity		710,412			708,060
Noncontrolling interests		4,726			4,711
Total Equity		715,138			712,771
Total Liabilities and Equity	$	1,728,016		$	1,734,897

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Independence Realty Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited and dollars in thousands, except share and per share data)

	For the Three Months Ended March 31,
	2021			2020
REVENUE:
Rental and other property revenue	$	54,811		$	51,156
Other revenue		301			194
Total revenue		55,112			51,350
EXPENSES:
Property operating expenses		20,838			19,737
Property management expenses		1,943			2,156
General and administrative expenses		5,942			5,376
Depreciation and amortization expense		16,552			14,828
Abandoned deal costs		—			130
Casualty losses		359			—
Total expenses		45,634			42,227
Interest expense		(8,385	)		(9,497	)
Net income (loss):		1,093			(374	)
(Income) loss allocated to noncontrolling interest		(7	)		2
Net income (loss) allocable to common shares	$	1,086		$	(372	)
Earnings per share:
Basic	$	0.01		$             0.00
Diluted	$	0.01		$             0.00
Weighted-average shares:
Basic		101,678,865			90,895,488
Diluted		102,763,106			90,895,488

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Independence Realty Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited and dollars in thousands)

	For the Three Months Ended March 31,
	2021			2020
Net income (loss)	$	1,093		$	(374	)
Other comprehensive income (loss):
Change in fair value of interest rate hedges		15,173			(23,422	)
Realized (losses) gains on interest rate hedges reclassified to earnings		(1,760	)		(418	)
Total other comprehensive income (loss)		13,413			(23,840	)
Comprehensive income (loss) before allocation to noncontrolling interests		14,506			(24,214	)
Allocation to noncontrolling interests		(95	)		191
Comprehensive income (loss)	$	14,411		$	(24,023	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Independence Realty Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Equity

(Unaudited and dollars in thousands, except share information)

	Common Shares			Par Value Common Shares			Additional Paid In Capital			Accumulated Other Comprehensive Income (loss)			Retained Earnings (Deficit)			Total Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance, December 31, 2020		101,803,762		$	1,018		$	919,615		$	(33,822	)	$	(178,751	)	$	708,060		$	4,711		$	712,771
Net income (loss)		—			—			—			—			1,086			1,086			7			1,093
Other comprehensive income (loss)		—			—			—			13,325			—			13,325			88			13,413
Stock compensation		286,647			2			3,346			—			—			3,348			—			3,348
Issuance of common shares, net		—			—			(59	)		—			—			(59	)		—			(59	)
Repurchase of shares related to equity award tax withholding		(56,677	)		(2	)		(2,860	)		—			—			(2,862	)		—			(2,862	)
Common dividends declared ($0.12 per share)		—			—			—			—			(12,486	)		(12,486	)		—			(12,486	)
Distribution to noncontrolling interest declared ($0.12 per unit)		—			—			—			—			—			—			(80	)		(80	)
Balance, March 31, 2021		102,033,732		$	1,018		$	920,042		$	(20,497	)	$	(190,151	)	$	710,412		$	4,726		$	715,138

	Common Shares			Par Value Common Shares			Additional Paid In Capital			Accumulated Other Comprehensive Income (loss)			Retained Earnings (Deficit)			Total Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance, December 31, 2019		91,070,637		$	911		$	765,992		$	(12,099	)	$	(141,525	)	$	613,279		$	6,478		$	619,757
Net income (loss)		—			—			—			—			(372	)		(372	)		(2	)		(374	)
Other comprehensive income (loss)		—			—			—			(23,651	)		—			(23,651	)		(189	)		(23,840	)
Stock compensation		183,940			2			2,642			—			—			2,644			—			2,644
Issuance of common shares, net		3,406,000			35			49,729			—			—			49,764			—			49,764
Repurchase of shares related to equity award tax withholding		(51,128	)		(1	)		(1,489	)		—			—			(1,490	)		—			(1,490	)
Conversion of noncontrolling interest to common shares		82,357			—			627			—			-			627			(627	)		-
Common dividends declared ($0.18 per share)		—			—			—			—			(17,148	)		(17,148	)		-			(17,148	)
Distribution to noncontrolling interest declared ($0.18 per unit)		—			—			—			—			—			—			(142	)		(142	)
Balance, March 31, 2020		94,691,806		$	947		$	817,501		$	(35,750	)	$	(159,045	)	$	623,653		$	5,518		$	629,171

The accompanying notes are an integral part of these condensed consolidated financial statements

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Independence Realty Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited and dollars in thousands)

	For the Three Months Ended March 31,
	2021			2020
Cash flows from operating activities:
Net income	$	1,093		$	(374	)
Adjustments to reconcile net income to cash flow from operating activities:
Depreciation and amortization		16,552			14,828
Amortization of deferred financing costs		364			361
Stock compensation		3,326			2,627
Casualty losses		359			—
Amortization related to derivative instruments		302			280
Changes in assets and liabilities:
Other assets		(90	)		(875	)
Accounts payable and accrued expenses		(1,321	)		(5,171	)
Accrued interest payable		(88	)		(59	)
Other liabilities		141			67
Cash flow provided by operating activities		20,638			11,684
Cash flows from investing activities:
Acquisition of real estate properties		(365	)		(50,598	)
Capital expenditures		(6,916	)		(8,572	)
Cash flow used in investing activities		(7,281	)		(59,170	)
Cash flows from financing activities:
Proceeds from unsecured credit facility and term loans		9,500			65,501
Mortgage principal repayments		(7,918	)		(1,843	)
Payments for deferred financing costs		—			(50	)
Proceeds from issuance of common stock, net		(59	)		49,764
Distributions on common stock		(12,450	)		(16,493	)
Distributions to noncontrolling interests		(81	)		(160	)
Repurchase of shares related to equity award tax withholding		(2,862	)		(1,490	)
Cash flow (used in) provided by financing activities		(13,870	)		95,229
Net change in cash and cash equivalents, and restricted cash		(513	)		47,743
Cash and cash equivalents, and restricted cash, beginning of period		13,615			14,433
Cash and cash equivalents, and restricted cash, end of the period	$	13,102		$	62,176
Reconciliation of cash, cash equivalents, and restricted cash to the Consolidated Balance Sheet
Cash and cash equivalents	$	8,653		$	57,436
Restricted cash		4,449			4,740
Total cash, cash equivalents, and restricted cash, end of period	$	13,102		$	62,176

The accompanying notes are an integral part of these condensed consolidated financial statements.

.

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Independence Realty Trust, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

As of March 31, 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 March 31, 2021, we owned and operated 56 multifamily apartment properties, that contain 15,667 units across non-gateway U.S markets, including Atlanta, Dallas, Louisville, Memphis, and Raleigh. 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 of March 31, 2021, IRT owned 99.3% interest in IROP. The remaining 0.7% consists of common units of limited partnership interest issued to third parties in exchange for contributions of properties to IROP.  

   As used herein, the terms “we,” “our” and “us” refer to Independence Realty Trust, Inc. and, as required by context, IROP and their subsidiaries.

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”) Accounting Standards Codification Topic 810, “Consolidation”, IROP is considered a variable interest entity as to which we are the primary beneficiary.  As IRT’s only material asset is its equity interest 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.

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e. Restricted Cash

Restricted cash includes funds in escrow 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 March 31, 2021 and December 31, 2020, we had $4,449 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 the sale of the asset 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 months ended March 31, 2021, we did not acquire any in-place leases. For the three months ended March 31, 2021 and 2020, we recorded $396 and $371, respectively, of amortization expense for intangible assets. For the three months ended March 31, 2021 and 2020, we wrote-off fully amortized intangible assets of $0 and $447, respectively. As of March 31, 2021, we expect to record additional amortization expense on current in-place intangible assets of $396 for the remainder of 2021.  

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 months ended March 31, 2021 and 2020, we recorded $16,156 and $14,457 of depreciation expense, respectively. For the three months ended March 31, 2021 and 2020, we wrote-off fully depreciated fixed assets of $1,506 and $0, respectively.

Casualty Loss

Occasionally, we incur losses at our communities from wind storms, floods, fires and similar hazards. A portion of these losses are not 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 months ended March 31, 2021, we incurred $359 of casualty losses.

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g. 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 a $47 provision for bad debts during the three months ended March 31, 2021 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 months ended March 31, 2021 and 2020 were $433 and $337, respectively.

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 March 31, 2021, deferred rents receivable from residents totaled $41.

For the three months ended March 31, 2021 and 2020, we recognized gains of $23 and $3, 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 months ended March 31, 2021 and 2020, we incurred $544 and $608 of advertising expenses, respectively.

h. 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.

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.

10

i. 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.

The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors, including, for example, the type of investment, whether the investment is new, whether the investment is traded on an active exchange or in the secondary market, and the current market condition. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level 3.

Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, our own assumptions are set to reflect those that management believes market participants would use in pricing the asset or liability at the measurement date. We use prices and inputs that management believes are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be transferred from Level 1 to Level 2 or Level 2 to Level 3.

Fair value for certain of our Level 3 financial instruments is derived using internal valuation models. These internal valuation models include discounted cash flow analyses developed by management using current interest rates, estimates of the term of the particular instrument, specific issuer information and other market data for securities without an active market. In accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, the impact of our own credit spreads is also considered when measuring the fair value of financial assets or liabilities, including derivative contracts. Where appropriate, valuation adjustments are made to account for various factors, including bid-ask spreads, credit quality and market liquidity. These adjustments are applied on a consistent basis and are based on observable inputs where available. Management’s estimate of fair value requires significant management judgment and is subject to a high degree of variability based upon market conditions, the availability of specific issuer information and management’s assumptions.

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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 0 transfers between levels in the fair value hierarchy for the three months ended March 31, 2021. The following table summarizes the carrying amount and the fair value of our financial instruments as of the periods indicated:

	As of March 31, 2021				As of December 31, 2020
Financial Instrument	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets
Cash and cash equivalents	$	8,653	$	8,653	$	8,751	$	8,751
Restricted cash		4,449		4,449		4,864		4,864
Derivative assets		2,810		2,810		-		-
Liabilities
Debt:
Unsecured credit facility		192,782		194,302		183,110		184,802
Term loans		298,846		300,000		298,759		300,000
Mortgages		456,003		470,234		463,817		479,929
Derivative liabilities		19,540		19,540		29,842		29,842

j. 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.

k. 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 March 31, 2021, we have $2,553 of operating lease right-of-use assets and $2,903 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 of total operating lease expense during the three months ended March 31, 2021, which is recorded within property management expense and general and administrative expenses in our consolidated statements of operations.    

l. Income Taxes

We have elected to be taxed as a REIT.  Accordingly, we recorded 0 income tax expense for the three months ended March 31, 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.  

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m. 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 March 31, 2021, our investments in real estate consisted of 56 apartment properties that contain 15,667 units.  The following table summarizes our investments in real estate:   

	As of March 31, 2021			As of December 31, 2020			Depreciable Lives (In years)
Land	$	251,425		$	251,365			—
Building		1,527,535			1,527,535			40
Furniture, fixtures and equipment		143,111			137,870		5-10
Total investment in real estate	$	1,922,071		$	1,916,770
Accumulated depreciation		(223,187	)		(208,618	)
Investments in real estate, net	$	1,698,884		$	1,708,152

NOTE 4: Indebtedness

The following tables contain summary information concerning our indebtedness as of March 31, 2021:

Debt:	Outstanding Principal		Unamortized Debt Issuance Costs			Carrying Amount		Type	Weighted Average Rate	Weighted Average Maturity (in years)
Unsecured credit facility (1)	$	194,302	$	(1,520	)	$	192,782	Floating	1.6%		2.1
Unsecured term loans		300,000		(1,154	)		298,846	Floating	1.5%		3.1
Mortgages		457,173		(1,170	)		456,003	Fixed	3.8%		3.0
Total Debt	$	951,475	$	(3,844	)	$	947,631		2.6%		2.8

(1) The unsecured credit facility total capacity is $350,000, of which $194,302 was outstanding as of March 31, 2021.   

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 other mortgages totaling $13,666. The property mortgages had a weighted-average rate of 4.2%.

As of March 31, 2021, we were in compliance with all financial covenants contained in the documents governing our indebtedness.

	Scheduled maturities on or before March 31,
Debt:	2021		2022		2023		2024		2025		Thereafter
Unsecured credit facility	$	—	$	—	$	194,302	$	—	$	—	$	—
Unsecured term loans		—		—		—		300,000		—		—
Mortgages		42,489		66,311		107,056		36,798		161,741		42,778
Total	$	42,489	$	66,311	$	301,358	$	336,798	$	161,741	$	42,778

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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.

NOTE 5: Derivative Financial Instruments

The following table summarizes the aggregate notional amounts and estimated net fair values of our derivative instruments as of March 31, 2021 and December 31, 2020:

	As of March 31, 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	$	—		326	$	150,000	$	—	$	694
Interest rate collars		250,000		—		10,570		250,000		—		13,331
Forward interest rate swaps		—		2,810		8,644		—		—		15,817
Total	$	400,000	$	2,810		19,540	$	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 included in other assets or other liabilities.

For our interest rate swap and collars that are considered highly effective hedges, we reclassified realized gains of $1,458 to earnings within interest expense for the three months ended March 31, 2021, and we expect ($8,294) to be reclassified out of accumulated other comprehensive income (loss) into earnings over the next 12 months.

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.

During the three months ended March 31, 2021, we also paid $274 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.  The following table summarizes our ATM Program activity, including associated forward sale transactions, since inception.

During the three months ended	Number of Shares Sold		Current forward price		Net proceeds		Expiration Date of Forward Contract
December 31, 2020		900	$	13.53	$	12,177	December 13, 2021
March 31, 2021		2,000		14.50		29,000	March 31, 2022
Total		2,900	$	14.20	$	41,177

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.   

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Noncontrolling Interest

During the three months ended March 31, 2021, 0 IROP unitholders exchanged any units for shares of our common stock or cash. Subsequent to the three months ended March 31, 2021, IROP unit holders exchanged 110,938 units for 110,938 shares of our common stock.

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.

NOTE 7: Equity Compensation Plans

Long Term Incentive Plan

In May 2016, our stockholders 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 directors, employees, officers, and consultants. The Incentive Plan authorizes the grant of time-vested 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		171,059			14.01
Vested		(165,632	)		11.21
Forfeited		(9,614	)		12.33
Balance, March 31, (1)		402,662		$	12.84

(1) The outstanding award balance above included 135,366 and 67,381 RSUs as of March 31, 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 three months ended March 31, 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.

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NOTE 8: Earnings Per Share

The following table presents a reconciliation of basic and diluted earnings (loss) per share for the three months ended March 31, 2021 and 2020:

	For the Three Months Ended March 31,
	2021			2020
Net income (loss)	$	1,093		$	(374	)
(Income) loss allocated to noncontrolling interest		(7	)		2
Net income (loss) allocable to common shares		1,086			(372	)
Weighted-average shares outstanding—Basic		101,678,865			90,895,488
Weighted-average shares outstanding—Diluted		102,763,106			90,895,488
Earnings per share—Basic	$	0.01		$             0.00
Earnings per share—Diluted	$	0.01		$             0.00

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 3,574,515 and 9,009,167 for the three months ended March 31, 2021 and 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 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.

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.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 the SEC, 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 2020 Annual Report on Form 10-K and in Part II, Item 1A of this Quarterly Report, and in other of our public filings with the SEC, 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-managed Maryland real estate investment trust (“REIT”), that acquires, owns, operates, improves and manages multifamily apartment communities across non-gateway U.S. markets.  As of March 31, 2021, we owned and operated 56 multifamily apartment properties that contain 15,667 units. Our properties are located in Georgia, North Carolina, Tennessee, Kentucky, Ohio, Oklahoma, Indiana, Texas, Florida, South Carolina, Missouri, and Alabama. We do not have any foreign operations and our business is not seasonal. Our executive offices are located at 1835 Market Street, Suite 2601, Philadelphia, Pennsylvania 19103 and our telephone number is (267) 270-4800. We have offices in Philadelphia, Pennsylvania and Chicago, 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

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• 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.

Property Portfolio 

As of March 31, 2021, we owned 56 multifamily apartment properties, totaling 15,667 units.  Below is a summary of our property portfolio by market.  

(Dollars in thousands, except per unit data)	As of March 31, 2021									For the Three Months Ended March 31, 2021
Market	Number of Properties		Units		Gross Real Estate Assets		Period End Occupancy			Average Effective Monthly Rent per Unit		Net Operating Income		% of NOI
Atlanta, GA		6		2,020	$	262,107		96.2	%	$	1,243	$	5,083		14.9	%
Raleigh - Durham, NC		6		1,690		246,802		95.9	%		1,207		4,215		12.4	%
Memphis, TN		4		1,383		149,703		97.3	%		1,207		3,315		9.7	%
Louisville, KY		6		1,710		202,289		92.7	%		1,020		3,144		9.2	%
Columbus, OH		6		1,547		157,729		95.0	%		1,082		2,812		8.3	%
Tampa-St. Petersburg, FL		4		1,104		182,026		92.9	%		1,308		2,492		7.3	%
Dallas, TX		4		985		140,505		95.3	%		1,316		2,143		6.3	%
Oklahoma City, OK		5		1,658		79,516		96.9	%		703		2,098		6.2	%
Huntsville, AL		2		599		33,657		98.0	%		1,275		1,855		5.5	%
Indianapolis, IN		4		916		110,057		97.2	%		1,070		1,788		5.3	%
Myrtle Beach, SC - Wilmington, NC		3		628		91,977		94.6	%		1,058		1,343		3.9	%
Charleston, SC		2		518		64,953		95.0	%		1,320		1,210		3.6	%
Orlando, FL		1		297		80,246		95.6	%		1,438		756		2.2	%
Charlotte, NC		1		208		49,194		95.7	%		1,519		708		2.1	%
Asheville, NC		1		252		42,325		96.8	%		1,148		625		1.8	%
St. Louis, MO		1		152		28,985		97.4	%		1,467		443		1.3	%
Total/Weighted Average		56		15,667	$	1,922,071		95.5	%	$	1,142	$	34,030		100.0	%

As of March 31, 2021, our same-store portfolio consisted of 54 multifamily apartment properties, totaling 14,995 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 and net operating income margin. 

COVID-19 Pandemic

In 2020, the outbreak of COVID-19 disrupted businesses and slowed economic activity. We were and continue to be impacted by the COVID-19 pandemic and, in response, made numerous 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.

In 2021, we continue to manage our business in response to the COVID-19 pandemic by seeking to maintain occupancy levels and by maximizing collections while supporting residents impacted by the COVID-19 pandemic.  Our support of residents included entering into 278 deferred payment plans, mostly during 2020, under which residents deferred $0.5 million of rent payments.  As of March 31, 2021, there were 104 active deferred payment plans remaining with $0.1 million of deferred rent receivables outstanding.  

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. As of March 31, 2021, we had identified 7,076 units across 23 properties for renovations and upgrades as part of our value add initiative. During 2020, we temporarily paused projects at 1,864 units due to the COVID-19 pandemic and expect to resume renovations and upgrades at these properties in 2021. These changes reflect the flexibility of our value add program and allowed us to build occupancy. As of March 31, 2021, we had incurred an aggregate of $13.0 million in renovation costs at 3,861 of the 7,076 units and achieved a return on our total renovation costs for these units of 16.1% (and approximately 18.5% on the interior portion of such renovation costs).  We expect to complete the remaining value add projects at the selected communities throughout 2021 and 2022.  

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Forward Sale Agreements

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 $150.0 million (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 (the “Securities Act”).  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. The following table summarizes our ATM Program activity, including associated forward sale transactions, since inception.

(Dollars in thousands)
During the three months ended	Number of Shares Sold		Current forward price		Net proceeds		Expiration Date of Forward Contract
December 31, 2020		900	$	13.53	$	12,177	December 13, 2021
March 31, 2021		2,000		14.50		29,000	March 31, 2022
Total		2,900	$	14.20	$	41,177

Results of Operations

Three Months Ended March 31, 2021 compared to the Three Months Ended March 31, 2020

	SAME STORE PROPERTIES												NON SAME STORE PROPERTIES												CONSOLIDATED
(Dollars in thousands)	Three Months Ended March 31,												Three Months Ended March 31,												Three Months Ended March 31,
	2021			2020			Increase (Decrease)			% Change			2021			2020			Increase (Decrease)			% Change			2021			2020			Increase (Decrease)			% Change
Property Data:
Number of properties	54			54									2			4				(2	)		-50.0	%	56			58				(2	)		-3.4	%
Number of units		14,995			14,995									672			810			(138	)		-17.0	%		15,667			15,805			(138	)		-0.9	%
Average occupancy		95.3	%		92.7	%		2.6	%	n/a				96.8	%		89.9	%		6.9	%	n/a				95.4	%		92.5	%		2.8	%	n/a
Average effective monthly rent, per unit		1,129			1,097			32			2.9	%		1,441			1,147			294			25.6	%		1,142			1,100			42			3.8	%
Revenue:
Rental and other property revenue		51,878			49,121			2,757			5.6	%		2,933			2,035			898			44.1	%	$	54,811		$	51,156		$	3,655			7.1	%
Expenses:
Property operating expenses		19,955			18,791			1,164			6.2	%		883			946			(63	)		-6.7	%	$	20,838		$	19,737			1,101			5.6	%
Net Operating Income		31,923			30,330			1,593			5.3	%		2,050			1,089			961			88.2	%	$	33,973		$	31,419		$	2,554			8.1	%
Other Revenue:
Other revenue																									$	301		$	194		$	107			55.2	%
Corporate and other expenses:
Property management expenses																									$	1,943		$	2,156			(213	)		-9.9	%
General and administrative expenses																									$	5,942		$	5,376			566			10.5	%
Depreciation and amortization expense																									$	16,552		$	14,828			1,724			11.6	%
Abandoned deal costs																									$	-		$	130			(130	)		-100.0	%
Casualty losses																									$	359		$	-			359		nm
Total corporate and other expenses																									$	24,796		$	22,490			2,306			10.3	%
Interest expense																									$	(8,385	)	$	(9,497	)		1,112			11.7	%
Net income																									$	1,093		$	(374	)		1,467			392.2	%
Income allocated to noncontrolling interests																									$	(7	)	$	2			(9	)		-450.0	%
Net income available to common shares																									$	1,086		$	(372	)	$	1,458			391.9	%

Revenue

Rental and other property revenue. Revenue from rental and other property revenue of the consolidated portfolio increased $3.6 million to $54.8 million for the three months ended March 31, 2021 from $51.2 million for the three months ended March 31, 2020. The increase was primarily attributable to a $2.8 million increase in same store rental and other property revenue driven by a 2.6% increase in average occupancy and a 2.9% increase in average effective monthly rents compared to the prior year period. In addition, there was a $0.8 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 higher occupancy than recent property dispositions.  

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Expenses

Property operating expenses. Property operating expenses increased $1.1 million to $20.8 million for the three months ended March 31, 2021 from $19.7 million for the three months ended March 31, 2020. The increase was primarily due to a $1.2 million increase in same store property operating expenses, primarily due to an increase in real estate taxes and property insurance.

Property management expenses. Property management expenses decreased $0.3 million to $1.9 million for the three months ended March 31, 2021 from $2.2 million for the three months ended March 31, 2020. This decrease was primarily due to lower personnel costs and lower professional fees compared to the prior year.

General and administrative expenses. General and administrative expenses increased $0.5 million to $5.9 million for the three months ended March 31, 2021 from $5.4 million for the three months ended March 31, 2020. This increase was primarily due to a $0.6 million increase in stock based compensation expense driven by our higher stock price and a higher volatility assumption used in valuing the performance share units awarded during the three months ended March 31, 2021.

Depreciation and amortization expense. Depreciation and amortization expense increased $1.8 million to $16.6 million for the three months ended March 31, 2021 from $14.8 million for the three months ended March 31, 2020. The increase was primarily attributable to a $1.0 million increase in depreciation expense at our value add properties for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 and $0.7 million in depreciation expense for properties acquired since the prior year.

Casualty losses. During the three months ended March 31, 2021, we incurred $0.4 million in casualty losses due to severe snow storms at our Texas and Oklahoma properties.

Interest expense. Interest expense decreased $1.1 million to $8.4 million for the three months ended March 31, 2021 from $9.5 million for the three months ended March 31, 2020. The decrease was primarily due to lower interest rates during the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

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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.

We updated our definition of CFFO during the three months ended March 31, 2021 to the definition described below. All prior periods have been adjusted to conform to the current CFFO definition.  

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 losses, abandoned deal costs and debt extinguishment costs from the determination of FFO.

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

Set forth below is a reconciliation of net income (loss) to FFO and CFFO for the three months ended March 31, 2021 and 2020 (in thousands, except share and per share information):

	For the Three Months Ended March 31, 2021				For the Three Months Ended March 31, 2020
	Amount		Per Share (1)		Amount			Per Share (2)
Funds From Operations (FFO):
Net income (loss)	$	1,093	$	0.01	$	(374	)	$	0.00
Adjustments:
Real estate depreciation and amortization		16,472		0.16		14,725			0.16
FFO	$	17,565	$	0.17	$	14,351		$	0.16
Core Funds From Operations (CFFO):
FFO	$	17,565	$	0.17	$	14,351		$	0.16
Adjustments:
Other depreciation and amortization		80		—		103			—
Casualty losses		359		0.01		—			—
Abandoned deal costs		—		—		130			—
CFFO	$	18,004	$	0.18	$	14,584		$	0.16

(1) Based on 102,353,380 weighted-average shares and units outstanding for the three months ended March 31, 2021.

(2) Based on 91,737,113 weighted-average shares and units outstanding for the three months ended March 31, 2020.

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Same Store Portfolio Net Operating Income

We believe that Net Operating Income (“NOI”), a non-GAAP financial measure, is an additional 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, casualty related costs, 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 operating income and net income as determined in accordance with GAAP. We use NOI to evaluate our performance on a same store and non-same store basis because NOI measures the core operations of property performance by excluding corporate level expenses, 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 supplemental measure of our financial performance.

We review our same store properties or 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 have been sold or are classified as held for sale are excluded from the same store portfolio.

Set forth below is a reconciliation of same store net operating income to net income (loss) available to common shares for the three months ended March 31, 2021 and 2020 (in thousands, except per unit data):

	Three Months Ended March 31, (a)
	2021			2020			% change
Revenue:
Rental and other property revenue	$	51,878		$	49,121			5.6	%
Property Operating Expenses
Real estate taxes		6,457			6,018			7.3	%
Property insurance		1,188			916			29.7	%
Personnel expenses		4,593			4,464			2.9	%
Utilities		2,920			2,793			4.5	%
Repairs and maintenance		1,653			1,547			6.9	%
Contract services		2,029			1,849			9.7	%
Advertising expenses		525			532			-1.3	%
Other expenses		590			672			-12.2	%
Total property operating expenses		19,955			18,791			6.2	%
Net operating income	$	31,923		$	30,330			5.3	%
NOI Margin		61.5	%		61.7	%		-0.2	%
Average Occupancy		95.3	%		92.7	%		2.6	%
Average effective monthly rent, per unit	$	1,129		$	1,097			2.9	%
Reconciliation of Same-Store Net Operating Income to Net Income (Loss)
Same-store portfolio net operating income (a)	$	31,923		$	30,330
Non same-store net operating income		2,050			1,089
Other revenue		301			194
Property management expenses		(1,943	)		(2,156	)
General and administrative expenses		(5,942	)		(5,376	)
Depreciation and amortization		(16,552	)		(14,828	)
Abandoned deal costs		—			(130	)
Casualty losses		(359	)		—
Interest expense		(8,385	)		(9,497	)
Net income (loss)	$	1,093		$	(374	)

(a) Same store portfolio included 54 properties containing 14,995 units.

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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 and fund the associated costs, including expenditures to continue our value add initiatives to improve the quality and performance of our properties;

• repay our indebtedness;

• fund recurring maintenance 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 $8.7 million as of March 31, 2021;

• 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 may be sold under our ATM Program and/or issued on a forward basis.

Cash Flows

As of March 31, 2021 and 2020, we maintained cash and cash equivalents, and restricted cash of approximately $13.1 million and $62.1 million, respectively. Our cash and cash equivalents were generated from the following activities (dollars in thousands):

	For the Three Months Ended March 31,
	2021			2020
Cash flow from operating activities	$	20,638		$	11,684
Cash flow from investing activities		(7,281	)		(59,170	)
Cash flow from financing activities		(13,870	)		95,229
Net change in cash and cash equivalents, and restricted cash		(513	)		47,743
Cash and cash equivalents, and restricted cash, beginning of period		13,615			14,433
Cash and cash equivalents, and restricted cash, end of the period	$	13,102		$	62,176

Our cash inflow from operating activities during the three months ended March 31, 2021 and 2020 were primarily driven by ongoing operations of our properties.  

Our cash outflow from investing activities during the three months ended March 31, 2021 was primarily due to our capital expenditures. Our cash outflow from investing activities during the three months ended March 31, 2020 was primarily due to a property acquisition and our capital expenditures.

Our cash outflow from financing activities during the three months ended March 31, 2021 was primarily due to the distribution of dividends of our common stock. Our cash inflow from financing activities during the three months ended March 31, 2020 was primarily due to $65.5 million of draws on our unsecured credit facility and a $50.0 million settlement on our forward sale agreements, partially offset by the distribution of dividends of our common stock.

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Contractual Commitments

Our 2020 Annual Report on Form 10-K includes a table of contractual commitments. There were no material changes to these commitments since the filing of our Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements during the three months ended March 31, 2021 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our interests.

Critical Accounting Estimates and Policies

Our 2020 Annual Report on Form 10-K contains a discussion of our critical accounting policies. Management discusses our critical accounting policies and management’s judgments and estimates with the audit committee of our board of directors. There were no material changes to our critical accounting policies since the filing of our Annual Report on Form 10-K.

Item 3. Qualitative and Quantitative Disclosure About Market Risk.

Our 2020 Annual Report on Form 10-K contains a discussion of qualitative and quantitative market risks. There have been no material changes in quantitative and qualitative market risks during the three months ended March 31, 2021 from the disclosures included in our 2020 Annual Report on Form 10-K.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.  

Effective as of March 31, 2021, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by us in our Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation referred to above during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

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.

Item 1A. Risk Factors.

There have not been any material changes from the risk factors disclosed in Part 1, Item A of our 2020 Annual Report on Form 10-K.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the three months ended March 31, 2021, no IROP unitholders exchanged any units for shares of our common stock or cash.

During the three months ended March 31, 2021, we withheld shares of common stock to satisfy employee tax withholding obligations payable upon the vesting of restricted common stock awards, as follows:

Period	Total Number of Shares Purchased		Price Paid per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
01/01/2021 to 01/31/2021		8,537	$	13.43		—		—
02/01/2021 to 02/28/2021		22,649		14.25		—		—
03/01/2021 to 03/31/2021		25,491		14.62		—		—
Total		56,677	$	14.30		—		—

(1) The price reported is the average price paid per share using our closing price on the NYSE on the vesting date of the relevant award.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
31.2	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
101	iXBRL (Inline eXtensible Business Reporting Language). The following materials, formatted in iXBRL: (i) Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020, (ii) Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020, (iii) Consolidated Statement of Comprehensive Income (Loss) for the three months ended March 31, 2021 and 2020, (iv) Consolidated Statements of Changes in Equity for the three months ended March 31, 2021 and 2020, (v) Consolidated Statements of Cash Flows for the three months March 31, 2021 and 2020 and (vi) notes to the consolidated financial statements as of March 31, 2021.
104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Independence Realty Trust, Inc.
Date: April 30, 2021	By:	/s/ Scott f. Schaeffer
		Scott F. Schaeffer
		Chairman of the Board and Chief Executive Officer
		(Principal Executive Officer)
Date: April 30, 2021	By:	/s/ James J. Sebra
		James J. Sebra
		Chief Financial Officer and Treasurer
		(Principal Financial Officer)
Date: April 30, 2021	By:	/s/ Jason R. Delozier
		Jason R. Delozier
		Chief Accounting Officer
		(Principal Accounting Officer)

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