UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One) 

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

For the fiscal year ended December 31, 2020

or

☐ 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)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

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

Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐ 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ☐    No  ☒

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, a 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 checkmark 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.   ☒

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

The aggregate market value of the shares of common stock of the registrant held by non-affiliates of the registrant, based upon the closing price of such shares on June 30, 2020 of $11.45, was approximately $1,084,726,741.

As of February 12, 2021 there were 101,856,947 outstanding shares of the registrant’s common stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for registrant’s 2021 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.

INDEPENDENCE REALTY TRUST, INC.

TABLE OF CONTENTS

Forward Looking Statements		1
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	8
Item 1B.	Unresolved Staff Comments	33
Item 2.	Properties	34
Item 3.	Legal Proceedings	34
Item 4.	Mine Safety Disclosures	34
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	35
Item 6.	Selected Financial Data	37
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 8.	Financial Statements and Supplementary Data	49
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	76
Item 9A.	Controls and Procedures	76
Item 9B.	Other Information	76
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	76
Item 11.	Executive Compensation	76
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	77
Item 13.	Certain Relationships and Related Transactions, and Director Independence	77
Item 14.	Principal Accountant Fees and Services	77
PART IV
Item 15.	Exhibits and Financial Statement Schedules	77
Item 16	Form 10-K Summary	80

EXPLANATORY NOTE

As used herein, the terms “we,” “our” “us” and “IRT” refer to Independence Realty Trust, Inc. and, as required by context, Independence Realty Operating Partnership, LP, which we refer to as IROP, and their subsidiaries. Our multifamily apartment communities are referred to as “communities,” “properties,” “apartment properties,” and “multifamily properties.”

CAUTIONARY STATEMENT REGARDING 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 annual report on Form 10-K 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 annual report on Form 10-K and they may also be incorporated by reference in this annual report on Form 10-K 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 this annual report on Form 10-K and in other of our public filings with the SEC 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 annual report on Form 10-K. 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 filing or to reflect the occurrence of unanticipated events.

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PART I

ITEM 1. Business

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 December 31, 2020, 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, PA 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

• 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.

We seek to achieve these objectives by executing the following strategies:

• Focus on properties in markets that have strong apartment demand, reduced competition from national apartment buyers and no substantial new apartment construction. In evaluating potential acquisitions, we analyze apartment occupancy and trends in rental rates, employment and new construction, among many other factors, and seek to identify properties located primarily in non-gateway markets where there is strong demand for apartment units, less apartment development relative to demand, stable resident bases and occupancy rates, positive net migration trends and strong employment drivers. We generally seek to avoid markets where we believe potential yields have decreased as a result of the acquisition and development efforts of large institutional buyers.

• Acquire properties that have operating upside through professional property management strategies. We have expertise in acquiring and managing properties to maximize the net operating income of such properties through effective marketing and leasing, disciplined management of rental rates and efficient expense management. We seek to acquire properties that we believe possess significant prospects for increased occupancy and rental revenue growth. Our target profile for acquisitions currently is midrise/garden-style apartments containing 150-500 units with high quality amenities that we can acquire at less than replacement cost in the $15 million to $50 million price range with a five to fifteen-year operating track record. We do not intend to limit ourselves to properties in this target profile, however, and may make acquisitions outside of this profile or change our target profile whenever market conditions warrant.

• Selectively use our capital to improve apartment properties where we believe the return on our investment will be accretive to stockholders. We have significant experience allocating capital to value-added improvements of apartment properties to produce better occupancy and rental rates. We will selectively deploy our capital into revenue-enhancing capital projects that we believe will improve the physical plant or market positioning of particular apartment properties and generate increased income over time. This value add initiative is a core component of our growth strategy.

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• Selectively dispose of properties that no longer meet our long-term strategy or when market conditions are favorable. Dispositions also allow us to realize a portion of the value created through our investments and provide additional liquidity. In evaluating potential dispositions, we evaluate the opportunity to strategically exit markets where we lack scale and redeploy sales proceeds to fund acquisitions and renovations and to reduce our leverage in lieu of raising additional capital.

2020 Developments

COVID-19 Pandemic

During the year ended December 31, 2020, the outbreak of COVID-19 has disrupted businesses and has slowed economic activity. We have been impacted by the COVID-19 pandemic and, in response, have made operational and policy changes to: (1) comply with governmental mandates on a jurisdiction by jurisdiction basis; (2) protect our employees, residents, and prospective residents; and (3) minimize the financial impact on us. The extent to which COVID-19 impacts our business, operations and financial results has depended and will continue to depend on numerous evolving factors, many of which are not within management’s control, and that we are unable to predict at this time, including but not limited to: (1) the duration and scope of the pandemic; (2) the pandemic’s impact on current and future economic activity; and (3) the actions of governments, businesses and individuals in response to the COVID-19 pandemic.

Some of the specific operational and policy changes we have made in response to the COVID-19 pandemic include: (1) delaying or canceling capital recycling activity in order to focus on current operations; (2) delaying or canceling capital spending, including pausing or otherwise delaying spending under our value-add program; and (3) working to support residents impacted by COVID-19 while maximizing occupancy and rent collections.

Despite the impact the COVID-19 pandemic has had on our business, we have been able to increase occupancy to a total weighted average of 95.0% as of December 31, 2020 from 92.5% as of December 31, 2019, and have experienced steady rent collections through December 31, 2020. In addition, we have supported residents impacted by COVID-19 by entering into 276 deferred payment plans under which residents deferred over $0.5 million of rent payments during the year ended December 31, 2020.

Value Add Initiative

As of December 31, 2020, 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 December 31, 2020, we had incurred an aggregate of $13.1 million in renovation costs at 3,719 of the 7,076 units and achieved a return on our total renovation costs for these units of 15.9% (and approximately 18.3% 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.  

2020 Property Acquisitions

During 2020, we acquired two communities, totaling 672 units, for a gross purchase price of $145.2 million. The acquisitions expand our reach in Dallas, TX, and Huntsville, AL. The property in Dallas, TX was built in 2019 and in lease-up with average rent per unit of $1,552 at the time of our acquisition on February 11, 2020. The Huntsville, AL property was built in two phases in 2014 and 2019 and had an average occupancy of 98.1% and an average effective monthly rent per occupied unit of $1,383 at the time of acquisition on December 1, 2020.

2020 Property Dispositions

During 2020, we disposed of three communities, totaling 559 units for a gross sale price of $59.7 million and recognized a total net gain on sale of $7.8 million. The dispositions represent our exit from the Chattanooga, TN, and Baton Rouge, LA markets.

2020 Forward Sale Agreements

On February 20, 2020, we entered into forward equity sales agreements to sell an aggregate of 10,350,000 shares of our common stock at a price of $14.688, net of underwriting discounts and commissions.  On March 31, 2020, we physically settled $50.0 million by issuing 3,406,000 shares of our common stock.  On December 28, 2020, we physically settled $98.8 million by issuing the remaining 6,944,000 shares of our common stock.

ATM Program

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.  On November 13, 2020, we entered into a forward sale transaction under the ATM

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Program for the forward sale of 900,000 shares of our common stock that have not yet been settled.  Subject to our right to elect net share settlement, we expect to physically settle the forward sale transaction by the maturity date (December 13, 2021) set forth in the forward sale transaction placement notice.  Assuming the forward sales transaction is physically settled in full utilizing the initial forward sale price of $14.00 per share, net of sales commissions, we expect to receive net proceeds of approximately $12.4 million, subject to adjustment in accordance with the forward sale transaction.  

Financing Strategy

We use a combination of debt and equity sources to fund our business objectives. We seek to maintain a capital structure that provides us with the flexibility to manage our business and pursue our growth strategies, while allowing us to service our debt requirements and generate appropriate risk-adjusted returns for our stockholders. We believe these objectives are best achieved by a capital structure that consists of common equity and prudent amounts of debt financing. However, we may raise capital in any form and under terms that we deem acceptable and in our best interests.  Our longer-term goal is to reduce our leverage ratio by growing the net operating income at our communities through rental increases, including those driven by value add initiatives, and prudent expense management. If our Board of Directors changes our policies regarding our use of leverage, we expect that it will consider many factors, including, our long-term strategic plan, the leverage ratios of publicly traded REITs with similar investment strategies, the cost of leverage as compared to expected operating net revenues and general market conditions. For further description of our indebtedness at December 31, 2020, see “Part II-Item 8, Financial Statements and Supplementary Data-Note 5: Indebtedness” below, or the financial statement indebtedness note. See also “Part I-Item 1A. Risk Factors – Risks Associated with Debt Financing” below for more information about the risks related to operating on a leveraged basis.

Development and Structure of Our Company; Segment

We were formed as a Maryland corporation on March 26, 2009 and conduct our business through a traditional umbrella partnership REIT (“UPREIT”) structure in which all of our assets are held by, and substantially all of our operations are conducted through, our operating partnership, Independence Realty Operating Partnership, LP (“IROP”), and subsidiaries of IROP. IROP was formed as a Delaware limited partnership on March 27, 2009. We are the sole general partner of IROP and manage and control its business.  As of December 31, 2020, we owned a 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.  We refer to these transactions as UPREIT transactions. Limited partners have certain limited approval and voting rights and their common units are exchangeable, in defined circumstances, for the equivalent number of shares of common stock or, at our option, the equivalent value in cash.

We are an internally managed REIT. Our wholly owned subsidiary, IRT Management, LLC (“IRT Management”), which was formed on October 26, 2016, is a full-service apartment property management company that, as of December 31, 2020, employed 444 staff and professionals and managed 15,667 apartment units, all of which are owned by us. IRT Management provides services to us in connection with the rental, leasing, operation and management of our properties. Substantially all of our assets are comprised of multifamily real estate assets generally leased to residents for a term of one-year or less. Therefore, we aggregate our real estate assets for reporting purposes and operate in one reportable segment, see “Part II-Item 8, Financial Statements and Supplementary Data-Note 11: Segment Reporting” below.

Competition

In attracting and retaining residents to occupy our properties, we compete with numerous other housing alternatives. Our properties compete directly with other rental apartments as well as condominiums and single-family homes that are available for rent or purchase in the sub-markets in which our properties are located. Principal factors of competition include rent or price charged, attractiveness of the location and property, and quality and breadth of services and amenities. If our competitors offer leases at rental rates below current market rates, or below the rental rates we currently charge our residents, we may lose potential residents.

The number of competitive properties relative to demand in a particular area has a material effect on our ability to lease apartment units at our properties and on the rents we charge. In certain sub-markets there exists an oversupply of single family homes and condominiums and a reduction of households, both of which affect the pricing and occupancy of our rental apartments. Additionally, we compete with other real estate investors, including other apartment REITs, pension and investment funds, partnerships and investment companies in acquiring, redeveloping and managing apartment properties. This competition affects our ability to acquire properties and the price that we pay for such acquisitions.

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Human Capital

Our mission is to provide our residents with an exceptional living experience and deliver superior customer service – all in an effort to make our residents feel “at home.”  We believe empowering our employees and fostering a workplace that is built on optimism, trust, passion and quality, our core values, is important to our long-term success.

Our People. As of February 8, 2021, we had 444 employees, all of whom were employed in the United States, and none of whom are covered by collective bargaining agreements. We have experienced no material interruptions of our operations due to disputes with our employees.

Diversity and Inclusion. We consider diversity and inclusion to be an essential part of our foundation, culture and identity, and we believe that our commitment to diversity and inclusion not only advances humanity but also truly unites us with our co-workers and the residents we serve. We are proud to have a diverse workforce, who self-identify with the genders, races and ethnicities identified below.

In order to cultivate a culture that supports our diversity, we provide training on the importance of diversity, equity and inclusion and celebrate the diversity of our employees and residents throughout the year by recognizing and celebrating appreciation days and heritage months such Black History Month, International Women’s Day, Pride Month and Hispanic Heritage Month. Additionally, we support our female employees through a program known as IRT WOMEN, whose mission is to provide a network for advancing the individual and professional needs of women within IRT. We promote pay equity with clear and consistent performance criteria, frequent performance reviews and non-discriminatory pay practices.  In 2020, we formed a Diversity and Inclusion Committee whose mission is to formulate and propose diversity and inclusion initiatives that integrate with our mission, operations, strategies, and business objectives. The Diversity and Inclusion Committee has prioritized the recruitment, engagement, training, and retention of diverse talent.

Training and Development and Program.  We are committed to providing the resources to engage our employees and enhance their educational and professional growth.  We provide technical and leadership training to employees in a number of formats, including through an on-line resource library with over 550 on-demand courses.  Our maintenance teams are trained through a mixture of online courses, simulation training and on-site, hands-on training.  In addition, we define education benefits and guidelines under which our team members may receive financial assistance for certifications and continued education.  In 2020, 11 of our approximately 60 community managers became newly-certified apartment managers through our tuition reimbursement program. In addition, we are pleased to promote approximately 13% of our staff to more senior positions.

Compensation, Benefits, Safety and Wellness. In addition to offering market competitive salaries and wages, we offer comprehensive health and retirement benefits to eligible employees. Our core health and welfare benefits are supplemented with specific programs to manage or improve common health conditions, a variety of voluntary benefits and paid time away from work programs. We also provide a number of innovative programs designed to promote our employees’ well-being.  Throughout the COVID-19 pandemic, we have been and will continue to be committed to the health and wellness of our employees.  Our corporate offices are operating in a remote work environment and for our on-site community teams, we enforce strict social distancing, provide necessary PPE, require repetitive deep cleaning of commonly used surfaces, as well as take other precautionary measures.

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Regulation

Governmental Regulations

Our properties are subject to various federal, state and local regulatory laws and requirements, including, but not limited to, the Americans with Disabilities Act of 1990, the Fair Housing Amendments Act of 1988, the Families First Coronavirus Response Act, the Coronavirus Aid, Relief, and Economic Security Act, the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, the Center for Disease Control and Prevention’s Order under Section 361 of the Public Health Service Act, environmental regulations, zoning regulations, building codes and land use laws, and building, operation, occupancy and other permit and licensure requirements. Noncompliance with these or other laws could result in the imposition of governmental fines or the award of damages to private litigants. While we believe that we are currently in material compliance with these laws and regulatory requirements, the requirements may change or new requirements may be imposed that could require significant unanticipated expenditures by us. Additionally, local zoning and land use laws, environmental statutes and other governmental requirements may restrict, or negatively impact, our property operations, or renovation and reconstruction activities and such regulations may prevent us from taking advantage of economic opportunities. Future changes in federal, state or local tax regulations applicable to REITs, real property or income derived from our real estate could impact the financial performance, operations, and value of our properties and the Company.

Qualification as a Real Estate Investment Trust

We elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, (the “Code”), commencing with our taxable year ended December 31, 2011. We recorded no income tax expense for the years ended December 31, 2020, 2019, and 2018.

To continue to qualify as a REIT, we must continue to meet certain tests which, among other things, generally require that our assets consist primarily of real estate assets, our income be derived primarily from real estate assets, and that we distribute at least 90% of our REIT taxable income (other than our net capital gains) to our stockholders annually. If we maintain our qualification as a REIT, we generally will not be subject to U.S. federal income taxes at the corporate level on our net income to the extent we distribute such net income to our stockholders annually. Even if we continue to qualify as a REIT, we will continue to be subject to certain federal, state and local taxes on our income and our property. We believe that we are organized and operate in such a manner as to continue to qualify and maintain treatment as a REIT and we intend to operate in such a manner so that we will remain qualified as a REIT for federal income tax purposes.   For a discussion of the tax implications of our REIT status to us and our stockholders, see “Material U.S. Federal Income Tax Considerations” contained in Exhibit 99.1 to this Annual Report on Form 10-K.

The table below reconciles the differences between reported net income, total taxable income and estimated REIT taxable income for the three years ended December 31, 2020 (dollars in thousands):

	For the Years Ended December 31
	2020			2019			2018
Net income	$	14,877		$	46,354		$	26,610
Add (deduct):
Depreciation and amortization differences		(1,092	)		(5,329	)		(8,007	)
Gain/loss differences		6,003			19,447			8,984
Other book to tax differences:
Share-based compensation expense		1,050			(242	)		984
Other		3,944			1,874			2,070
Total taxable income	$	24,782		$	62,104		$	30,641
Deductible capital gain distribution		(13,696	)		(62,236	)		(20,545	)
Taxable income allocable to noncontrolling interest		(804	)		(675	)		(163	)
Estimated REIT taxable income (loss) before dividends paid deduction	$	10,282		$	(807	)	$	9,933

For the year ended December 31, 2020, the tax classification of our dividends on common shares was as follows:

Record Date	Payment Date	Dividend Paid		Ordinary Income		Total Capital Gain Distribution		Unrecaptured Section 1250 Gain		Return of Capital		Section 199A
12/26/2019	1/24/2020	$	0.1800	$	0.0674	$	0.0355	$	0.0207	$	0.0771	$	0.0674
4/2/2020	4/24/2020		0.1800		0.0674		0.0355		0.0207		0.0771		0.0674
7/2/2020	7/24/2020		0.1200		0.0450		0.0237		0.0138		0.0514		0.0450
10/2/2020	10/23/2020		0.1200		0.0450		0.0237		0.0138		0.0514		0.0450
		$	0.6000	$	0.2248	$	0.1184	$	0.0690	$	0.2570	$	0.2248

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The dividend paid on January 22, 2021 to holders of record on December 30, 2020 will be treated as a 2021 distribution for tax purposes.

For the year ended December 31, 2019, the tax classification of our dividends on common shares was as follows:

Record Date	Payment Date	Dividend Paid		Ordinary Income		Total Capital Gain Distribution		Unrecaptured Section 1250 Gain		Return of Capital		Section 199A
12/27/2018	1/24/2019	$	0.1800	$	0.0279	$	0.1247	$	0.0563	$	0.0274	$	0.0279
3/29/2019	4/25/2019		0.1800		0.0279		0.1247		0.0563		0.0274		0.0279
6/28/2019	7/25/2019		0.1800		0.0279		0.1247		0.0563		0.0274		0.0279
9/27/2019	10/25/2019		0.1800		0.0279		0.1247		0.0563		0.0274		0.0279
		$	0.7200	$	0.1117	$	0.4988	$	0.2253	$	0.1094	$	0.1117

The dividend paid on January 24, 2020 to holders of record on December 26, 2019 was treated as a 2020 distribution for tax purposes.

Environmental Matters

Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, an owner, lessee or operator of real property may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under such property as well as certain other potential costs relating to hazardous or toxic substances. These liabilities may include government fines and penalties and damages for injuries to persons and adjacent property. Such laws often impose liability without regard to whether the owner, lessee or operator knew of, or was responsible for, the presence or disposal of such substances.  As a part of our standard due diligence process for acquisitions, we generally obtain environmental studies of the sites from outside environmental engineering firms. The purpose of these studies is to identify potential sources of contamination at the site and to assess the status of environmental regulatory compliance. These studies generally include historical reviews of the site, reviews of certain public records, preliminary investigations of the site and surrounding properties, inspection for the presence of asbestos, poly-chlorinated biphenyls (“PCBs”), and underground storage tanks and the preparation and issuance of written reports. Depending on the results of these studies, more invasive procedures, such as soil sampling or ground water analysis, may be performed to investigate potential sources of contamination. The environmental studies we received on properties that we have acquired have not revealed any material environmental liabilities. Should any potential environmental risks or conditions be discovered during our due diligence process, the potential costs of remediation will be assessed carefully and factored into the cost of acquisition, assuming the identified risks and factors are deemed to be manageable and within reason. We are not aware of any existing conditions that we believe would be considered a material environmental liability. Nevertheless, it is possible that the studies do not reveal all environmental risks or that there are material environmental liabilities of which we are not aware. Moreover, no assurance can be given concerning future laws, ordinances or regulations, or the potential introduction of hazardous or toxic substances by neighboring properties or residents.

Available Information

We file annual, quarterly and current reports, proxy statements and other information with the SEC. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The internet address of the SEC site is http://www.sec.gov. Our internet address is http://www.irtliving.com. We make our SEC filings available free of charge on or through our internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. In addition, the charters of our Board’s Compensation Committee, Audit Committee, and Nominating and Governance Committee, as well as, our Corporate Governance Guidelines, Insider Trading Policy, Whistle Blower Policy, Code of Ethics, Stock Ownership Guidelines, Clawback Policy, and Section 16 Reporting Compliance Procedures are available on our website free of charge. We are not incorporating by reference into this report any material from our website. The reference to our website is an inactive textual reference to the uniform resource locator (URL) and is for your reference only.

Code of Ethics

We maintain a Code of Ethics applicable to our Board of Directors and all of our officers and employees, including our principal executive officer, principal financial officer, principal accounting officer, controller and persons performing similar functions. A copy of our Code of Ethics is available on our website, www.irtliving.com. In addition to being accessible through our website, copies of our Code of Ethics can be obtained, free of charge, upon written request to Investor Relations, 1835 Market Street, Philadelphia, PA 19103. Any amendments to or waivers of our Code of Ethics that apply to our principal executive officer, principal financial officer, principal accounting officer, controller and persons performing similar functions and that relate to any matter enumerated in Item 406(b) of Regulation S-K promulgated by the SEC will be disclosed on our website.

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ITEM 1A.  Risk Factors

You should carefully consider these risk factors, together with all of the other information included in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes thereto, before you decide whether to make an investment in our securities. The Risk Factor Summary that follows should be read in conjunction with the detailed description of risk factors below. The risks set forth below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, prospects, financial condition, cash flows, liquidity, funds from operations, results of operations, stock price, ability to service our indebtedness, and/or ability to make cash distributions to our security holders (including those necessary to maintain our REIT qualification).  In such case, the value of our common stock and the trading price of our securities could decline, and you may lose all or a significant part of your investment. Some statements in the following risk factors constitute forward looking statements. Please refer to the explanation of the qualifications and limitations on forward-looking statements under “Forward-Looking Statements” of this Form 10-K.

RISK FACTOR SUMMARY

Risks Related to Our Business and Operations

• The COVID-19 pandemic could have a material adverse effect on our business, results of operations and financial condition in the future.

• We depend on residents for revenue and if residents fail to pay rent it may cause a material decline in our operating results.  The COVID-19 pandemic has caused an increase in the number of residents who are unable to pay rent and the related CDC Eviction Moratorium has negatively impacted and will continue to negatively impact our ability to evict non-paying residents.

• Future unfavorable changes in economic conditions could adversely impact us.

• Our concentration of investments in a single asset class makes our results of operations more vulnerable to a downturn in the multifamily sector.

• Competition could limit our ability to lease apartments or increase or maintain rental income, and short-term leases make us more susceptible to these risks.

• Redevelopment risks may cause our revenues and expenses to fluctuate significantly from one period to another which may result in losses.

• Labor and materials required for maintenance, repair, renovation or capital expenditure may be more expensive than anticipated or significantly delayed.

• Capital expenditure costs, and other costs of operating real estate assets, may be greater than anticipated which may adversely affect our results of operations.

• Increasing real estate taxes, utilities and insurance costs may negatively impact operating results.

• We may fail to grow our portfolio through acquisitions or such acquisitions may not yield the cash flows expected.  

• A cybersecurity incident and other technology disruptions could negatively impact our business.

• Damage from catastrophic weather and other natural events could result in losses.

• We may be subject to contingent or unknown uninsurable liabilities related to properties or businesses that we have acquired.

• We may be adversely affected by changes in state and local tax laws and may become subject to tax audits from time to time.

• We may fail to produce accurate and timely financial statements.

• We may acquire or develop properties through joint ventures, which may be riskier than our typical acquisitions.

Risks Associated with Debt Financing

• Debt financing and other required capital may not be available to us or may only be available on adverse terms.

• Rising interest rates could both increase our borrowing costs, thereby adversely affecting our cash flows and the amounts available for distribution to our stockholders, and decrease our share price, if investors seek higher yields through other investments.

• Failure to hedge effectively against interest rates may adversely affect our results of operations.

• Lender-imposed restrictions may affect our ability to make distributions to our stockholders and otherwise affect our operating policies.

• We may guaranty certain debt made to the entities that own our properties.  In certain circumstances, we may be responsible for the satisfaction of the debt which could negatively impact our business.

Risks Related to Regulation and Compliance with Laws

• We are subject to significant regulations, which could adversely affect our results of operations.

• The costs of compliance with laws and regulations may adversely affect our net income and the cash available for any distributions.

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United States Federal Income Tax Risks

• Legislative or regulatory action could adversely affect the returns to our investors.

• Dividends paid by REITs do not qualify for the reduced tax rates provided under current law.

• Failure to qualify as a REIT could have adverse consequences.

• We may take action to maintain our REIT status which could adversely affect our overall financial performance.

Risks Related to Our Organization and Structure

• Our structure as a Maryland real estate investment trust may make it more difficult for us to be acquired.

• Stockholders have limited control over changes in our policies and operations.

• Our holding company structure may limit our ability to get cash from our operating company and its subsidiaries.

• Our authorized but unissued shares of common and preferred stock may prevent a change in our control.

• Rights to recover on claims against our directors are limited. 

DETAILED DISCUSSION OF RISK FACTORS

Risks Related to Our Business and Operations

The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations, cash flows and financial condition.

In December 2019, COVID-19 was first reported, and in March 2020, the World Health Organization declared COVID-19 a pandemic. The outbreak has led governments and other authorities around the world, including federal, state and local authorities in the United States, including where we own properties and where our corporate headquarters is located, to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, school closures, quarantines and shelter-in-place orders.

The impact of the COVID-19 pandemic and measures to prevent its spread could negatively impact our businesses in a number of ways, including our residents’ ability or willingness to pay rents. In some cases, we may waive fees or restructure residents’ rent obligations including in the form of deferred payment arrangements, and may do so on terms less favorable to us than those currently in place.  The Centers for Disease Control and Prevention (“CDC”) issued an Order under Section 361 of the Public Health Service Act to temporarily halt residential evictions to prevent the further spread of COVID-19 effective September 4, 2020.  The CDC’s order materially restricts our ability to enforce tenants’ contractual rental obligations through evictions.  In addition, violations of the CDC’s order could result in the imposition of fines, awards of damages to private litigants, and substantial litigation costs.  The CDC’s order is currently in effect through March 31, 2021.  In addition, many local authorities have enacted measures imposing restrictions on our ability to enforce tenants’ contractual rental obligations.  The CDC and local authorities may expand or extend these measures. When evictions are permitted, we may incur costs in protecting our investment and re-leasing our property.

Restrictions inhibiting our employees’ ability to meet with existing and potential residents has disrupted and could in the future further disrupt our ability to lease apartments which could adversely impact our rental rate and occupancy levels.  In addition, social distancing efforts, including limiting contractors on-site and in residential apartment units, could reduce our ability to operate our properties as effectively and efficiently as we have in the past.

In response to executive orders issued by state and local authorities, most of our employees based at our headquarters are currently working remotely. The effects of these executive orders, including an extended period of remote work arrangements, could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business.

The potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during this disruption.

The COVID-19 pandemic has also caused, and is likely to continue to cause, severe economic, market and other disruptions worldwide. We cannot assure you that conditions will not continue to deteriorate as a result of the pandemic. In addition, the deterioration of global economic conditions as a result of the pandemic may ultimately decrease the demand for multifamily communities within the markets in which we operate and may adversely impact occupancy levels and rental rates across our portfolio.

The extent of the COVID-19 pandemic’s effect on our operational and financial performance will depend on future developments including the duration, spread and intensity of the outbreak, all of which are uncertain and difficult to predict. Due to

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the speed with which the situation is developing, we are not able at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material.

We are dependent on a concentration of our investments in a single asset class, making our results of operations more vulnerable to a downturn in the sector.

As of December 31, 2020, substantially all of our investments are concentrated in the multifamily apartment sector.  As a result, we are subject to risks inherent in investments in a single type of property. A downturn or slowdown in the demand for multifamily housing may have more pronounced effects on our results of operations or on the value of our assets than if we had diversified our investments into more than one asset class.

Our operations are concentrated in the Southeast region of the United States; we are subject to general economic conditions in the regions in which we operate.

Our portfolio of properties consists primarily of apartment communities geographically concentrated in the Southeastern United States, including Atlanta, Georgia, Raleigh-Durham, North Carolina, Louisville, Kentucky, Memphis, Tennessee, Columbus, Ohio, Tampa, Florida, and Oklahoma City, Oklahoma.  Our performance could be adversely affected by economic conditions in, and other factors relating to, these geographic areas, including supply and demand for apartments in these areas, zoning and other regulatory conditions and competition from other communities and alternative forms of housing. In particular our performance is disproportionately influenced by job growth and unemployment. To the extent the economic conditions, job growth and unemployment in any of these markets deteriorate or any of these areas experiences natural disasters, the value of our portfolio, our results of operations and our ability to make payments on our debt and to make distributions could be adversely affected.

Adverse economic conditions may reduce or eliminate our returns and profitability and, as a result, our ability to make distributions to our stockholders.

Our operating results may be materially and adversely affected by market and economic challenges, which may reduce or eliminate our returns and profitability and, as a result, our ability to make distributions to our stockholders.  These market and economic challenges include, principally, the following:

• adverse conditions in the real estate industry could harm our business and financial condition by reducing the value of our existing assets, limiting our access to debt and equity capital and otherwise negatively impacting our operations;

• any future downturn in the U.S. economy and the related reduction in spending, reduced home prices and high unemployment may result in resident defaults under leases, vacancies at our apartment communities and concessions or reduced rental rates under new leases due to reduced demand;

• the rate of household formation or population growth in our markets or a continued or exacerbated economic slow-down experienced by the local economies where our properties are located or by the real estate industry generally may result in changes in supply of, or demand for, apartment units in our markets; and

• the failure of the real estate market to attract the same level of capital investment in the future that it attracts at the time of our purchases, or a reduction in the number of companies seeking to acquire properties, may result in the value of our investments not appreciating or decreasing significantly below the amount we pay for these investments.

The length and severity of any economic slow-down or downturn cannot be predicted.  Our results of operations financial condition and ability to make distributions to our stockholders could be negatively affected to the extent that an economic slow-down or downturn is prolonged or severe.

We depend on residents for revenue, and vacancies, resident defaults or lease terminations may cause a material decline in our operating results.

The success of our investments depends upon the occupancy levels, rental revenue and operating expenses of our apartment communities.  Our revenues may be adversely affected by the general or local economic climate, local real estate considerations (such as oversupply of or reduced demand for apartment units), the perception by prospective residents of the safety, convenience and attractiveness of the areas in which our apartment communities are located (including the quality of local schools and other amenities) and increased operating costs (including real estate taxes and utilities).

Occupancy rates and rents at a community, including apartment communities that are newly constructed or renovated and in the lease-up phase, may fail to meet our original expectations for a number of reasons, including changes in market and economic conditions beyond our control and the development by competitors of competing communities, and we may be unable to complete

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lease-up of a community on schedule, resulting in increased construction and financing costs and a decrease or delay in expected rental revenues.

Vacancy rates may increase in the future and we may be unable to lease vacant units or renew expiring leases on attractive terms, or at all, and we may be required to offer reduced rental rates or other concessions to residents.  Our revenues may be lower as a result of lower occupancy rates, increased turnover, reduced rental rates, increased economic concessions and potential increases in uncollectible rent.  In addition, we will continue to incur expenses, including maintenance costs, insurance costs and property taxes, even though a property maintains a high vacancy rate, and our financial performance will suffer if our revenues decrease or our costs increase. The COVID-19 pandemic has caused an increase in the number of residents who are unable to pay rent and the related CDC Eviction Moratorium has negatively impacted and will likely continue to negatively impact our ability to evict non-paying residents.

The underlying value of our properties and our ability to make distributions to our stockholders will depend upon our ability to lease our available apartment units and the ability of our residents to generate enough income to pay their rents in a timely manner.  Our residents’ inability to pay rents may be impacted by employment and other constraints on their personal finances, including debts, purchases and other factors.  Upon a resident default, we will attempt to remove the resident from the premises and re-lease the unit as promptly as possible.  Our ability and the time required to evict a resident, however, will depend on applicable law.  Substantially all of the leases for our properties are short-term leases (generally, one year or less in duration).  As a result, our rental income and our cash flow are impacted by declines in market conditions more quickly than if our leases were for longer terms.

Short-term resident leases expose us to the effects of declining market rent, which could adversely impact our ability to make cash distributions to our stockholders.

We expect that most of our resident leases will be for a term of one year or less.  Because these leases generally permit the residents to leave at the end of the lease term without any penalty, our rental revenues may be impacted by declines in market rents more quickly than if our leases were for longer terms.

We will face competition from third parties, including other apartment properties, which may limit our profitability and the return on any investment in our securities.

The apartment industry is highly competitive.  This competition may limit our ability to increase revenue and could reduce occupancy levels and revenues at our apartment properties.  We compete with many other entities engaged in real estate investment activities, including individuals, corporations, bank and insurance company investment accounts, other REITs, real estate limited partnerships, and other entities engaged in real estate investment activities.  Many of these entities have significant financial and other resources, including operating experience, allowing them to compete effectively with us.  Competitors with substantially greater financial resources than us may be able to accept more risk than we can effectively manage.  In addition, those competitors that are not REITs may be at an advantage to the extent they can use working capital to finance projects, while we (and our competitors that are REITs) will be required by the annual distribution provisions under the Code to distribute significant amounts of cash from operations to our stockholders.  Competition may also result in overbuilding of apartment properties, causing an increase in the number of apartment units available which could potentially decrease our occupancy and apartment rental rates.  We may also be required to expend substantial sums to attract new residents.  The resale value of the property could be diminished because the market value of a particular property will depend principally upon the net revenues generated by the property.  In addition, increases in operating costs due to inflation may not be offset by increased apartment rental rates.  Further, costs associated with real estate investment, such as real estate taxes and maintenance costs, generally are not reduced when circumstances cause a reduction in income from the investment.  These events would cause a significant decrease in revenues and the trading price of our common stock, and could cause us to reduce the amount of distributions to our stockholders.

Our investment strategy may limit an increase in the diversification of our investments.

Our ability to diversify our portfolio may be limited both as to the number of investments owned and the geographic regions in which our investments are located.  While we will seek to diversify our portfolio by geographic location, we expect to continue to focus on markets with high potential for attractive returns located in the United States and, accordingly, our actual investments may continue to result in concentrations in a limited number of geographic regions.  As a result, there is an increased likelihood that the performance of any single property, or the economic performance of a particular region in which our properties are located, could materially affect our operating results.

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We may fail to consummate one or more property acquisitions or dispositions that we anticipate, whether as part of our capital recycling strategy or otherwise, and this failure could have a material adverse impact on our financial results.

We may disclose anticipated property acquisitions or dispositions, including prior to our entry into a letter of intent or definitive agreement for such acquisition or disposition and prior to our completion of due diligence or satisfaction of closing conditions.  Acquisitions and dispositions are inherently subject to a number of factors and conditions, some of which are outside of our control, and there can be no assurance that we will be able to consummate acquisitions or dispositions that we anticipate. If we fail to consummate a disposition that we anticipated, we will not have the use of the proceeds from the disposition and may not be able to carry out our intended plans for use of such proceeds and may be required to obtain alternative sources of funds on less favorable terms.  If we fail to consummate a targeted acquisition and have issued additional securities to fund such acquisition, then we will have issued securities without realizing a corresponding increase in earnings and cash flow from the targeted acquisition. In addition, we may have broad authority to use the net proceeds of an offering of securities for other purposes, including the repayment of indebtedness, the acquisition of other properties or for other investments, which may not be initially accretive to our results of operations. As a result, failure to consummate one or more anticipated acquisitions or dispositions could have a material adverse impact on our financial condition, results of operations and the market price of our common stock.

We may suffer from delays in locating suitable investments or, because of our public company status, may be unable to acquire otherwise suitable investments, which could adversely affect our growth prospects and results of operations.

Our ability to achieve our investment objectives and to make distributions to our stockholders depends upon our ability to locate, obtain financing for and consummate the acquisition of apartment properties that meet our investment criteria.  The current market for apartment properties that meet our investment criteria is highly competitive.  We cannot be sure that we will be successful in obtaining suitable investments on financially attractive terms or at all.

Additionally, as a public company, we are subject to the ongoing reporting requirements under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”).  Pursuant to the Exchange Act, we may be required to file with the SEC financial statements for the properties we acquire.  To the extent any required financial statements are not available or cannot be obtained, we may not be able to acquire the property.  As a result, we may be unable to acquire certain properties that otherwise would be suitable investments.

If we are unable to invest the proceeds of any offering of our securities in real properties in a timely manner, we may invest the proceeds in short-term, investment-grade investments which typically will yield significantly less than what we expect our investments will yield.  As a result, delays we encounter in identifying and consummating potential acquisitions may adversely affect our growth prospects, results of operations and our ability to make distributions to our stockholders.

If we fail to maintain an effective system of integrated internal controls, we may not be able to accurately report our financial results and may be required to incur additional costs and divert management resources.

We depend on our ability to produce accurate and timely financial statements in order to run our business.  If we fail to do so, our business could be negatively affected and our independent registered public accounting firm may be unable to attest to the accuracy of our financial statements.  A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis.  A significant deficiency is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of a registrant’s financial reporting.  A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected, on a timely basis by the company’s internal controls.

Although we continuously monitor the design, implementation and operating effectiveness of our internal controls over financial reporting and disclosure controls and procedures, there can be no assurance that significant deficiencies or material weaknesses will not occur in the future.  If we fail to maintain effective internal controls and disclosure controls in the future, it could result in a material misstatement of our financial statements that may not be prevented or detected on a timely basis, which could cause investors, analysts and others to lose confidence in our reported financial information.  Our inability to remedy any additional deficiencies or material weaknesses that may be identified in the future could, among other things, cause us to fail to file timely our periodic reports with the SEC (which may have a material adverse effect on our ability to access the capital markets); prevent us from providing reliable and accurate financial information and forecasts or from avoiding or detecting fraud; or require us to incur additional costs or divert management resources to achieve compliance.

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We may be adversely affected by changes in state and local tax laws and may become subject to tax audits from time to time. 

Because we are organized and qualified as a REIT, we are generally not subject to federal income taxes, but we are subject to certain state and local taxes. From time to time, changes in state and local tax laws or regulations are enacted, which may result in an increase in our tax liability. A shortfall in tax revenues for states and local jurisdictions in which we own apartment communities may lead to an increase in the frequency and size of such changes. If such changes occur, we may be required to pay additional state and local taxes. These increased tax costs could adversely affect our financial condition and the amount of cash available for distribution to our stockholders. In the normal course of business, we or our affiliates (including entities through which we own real estate) may also become subject to federal, state or local tax audits. If we (or such entities) become subject to federal, state or local tax audits, the ultimate result of such audits could have an adverse effect on our financial condition.

If we are not able to cost-effectively maximize the life of our properties, we may incur greater than anticipated capital expenditure costs, which may adversely affect our ability to make distributions to our stockholders.

As of December 31, 2020, the average age of our apartment communities was approximately 20 years, after adjusting for significant renovations.  While the majority of our properties are newly-constructed or have undergone substantial renovations since they were constructed, older properties may carry certain risks including unanticipated repair costs, increased maintenance costs as older properties continue to age, and cost overruns due to the need for special materials and/or fixtures specific to older properties.  Although we take a proactive approach to property preservation, utilizing a preventative maintenance plan, and selective improvements that mitigate the cost impact of maintaining exterior building features and aging building components, if we are not able to cost-effectively maximize the life of our properties, we may incur greater than anticipated capital expenditure costs which may adversely affect our ability to make distributions to our stockholders.

Our growth will depend upon future acquisitions of multifamily apartment communities, and we may be unable to complete acquisitions on advantageous terms or acquisitions may not perform as we expect.

Our growth will depend upon future acquisitions of multifamily apartment communities, which entails various risks, including risks that our investments may not perform as we expect.  Further, we will face competition for attractive investment opportunities from other real estate investors, including local real estate investors and developers, as well as other multifamily REITs, income-oriented non-traded REITs, and private real estate fund managers, and these competitors may have greater financial resources than us and a greater ability to borrow funds to acquire properties.  This competition may increase as investments in real estate become increasingly attractive relative to other forms of investment.  As a result of competition, we may be unable to acquire additional properties as we desire or the purchase price may be significantly elevated.  In addition, our acquisition activities pose the following risks to our ongoing operations:

• we may not achieve the increased occupancy, cost savings and operational efficiencies projected at the time of acquiring a property;

• management may incur significant costs and expend significant resources evaluating and negotiating potential acquisitions, including those that we subsequently are unable to complete;

• we may acquire properties that are not initially accretive to our results upon acquisition, and we may not successfully manage and operate those properties to meet our expectations;

• we may acquire properties outside of our existing markets where we are less familiar with local economic and market conditions;

• some properties may be worth less or may generate less revenue than, or simply not perform as well as, we believed at the time of the acquisition;

• we may be unable to assume mortgage indebtedness with respect to properties we seek to acquire or obtain financing for acquisitions on favorable terms or at all;

• we may forfeit earnest money deposits with respect to acquisitions we are unable to complete due to lack of financing, failure to satisfy closing conditions or certain other reasons;

• we may spend more than budgeted to make necessary improvements or renovations to acquired properties; and

• we may acquire properties without any recourse, or with only limited recourse, for liabilities, whether known or unknown, such as clean-up of environmental contamination, claims by residents, vendors or other persons against the former owners of the properties, and claims for indemnification by general partners, trustees, officers, and others indemnified by the former owners of the properties.

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Our investment in property development or redevelopment may be more costly or difficult to complete than we anticipate, and development and construction risks could adversely affect our profitability.

We may develop or redevelop properties where market conditions warrant such investment. Development and redevelopment activities may be more costly or difficult to complete than we anticipate, and once made, investments in these activities may not produce results in accordance with our expectations. Risks associated with development, redevelopment and associated construction activities include:

• unavailability of favorable financing sources in the debt and equity markets;

• construction cost overruns, including on account of rising interest rates, diminished availability of materials and labor, and increases in the costs of materials and labor;

• construction and lease-up delays, including on account of delays in obtaining materials, and failure to achieve target occupancy levels and rental rates, resulting in increased debt service and lower than projected returns on our investment;

• complications in obtaining, or inability to obtain, necessary zoning, land-use, building occupancy and other governmental or quasi-governmental permits and authorizations, which could result in increased costs or the delay or abandonment of opportunities and impairment charges;

• unexpected environmental remediation costs;

• potential disputes with, and negligent performance by, construction contractors, architects, engineers and other service providers with which we may contract as part of a development or redevelopment project, which would expose us to unexpected costs, delays and potential liabilities; and

• occupancy rates, rents and concessions at a newly developed community may fluctuate depending on a number of factors, including market and economic conditions, preventing us from meeting our expected return on our investment and our overall profitability goals.

Our growth depends on securing external sources of capital that are outside of our control, which may affect our ability to take advantage of strategic opportunities, satisfy debt obligations and make distributions to our stockholders.

In order to maintain our qualification as a REIT, we are generally required under the Code to distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain.  In addition, we will be subject to income tax at regular corporate rates to the extent that we distribute less than 100% of our net taxable income, including any net capital gains.  Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition financing, from operating cash flow.  Consequently, we may rely on third-party sources to fund our capital needs.  We may not be able to obtain financing on favorable terms or at all.  Any additional debt we incur may increase our leverage or impose additional and more stringent restrictions on our operations than we currently have. If we issue additional equity securities to finance developments and acquisitions instead of incurring debt, the interests of our existing stockholders could be diluted.  Our access to third-party sources of capital depends, in part, on:

• general market conditions;

• the market’s perception of our growth potential;

• our current debt levels;

• our current and expected future earnings;

• our cash flow and cash distributions; and

• the market price per share of our common stock

If we cannot obtain capital from third-party sources, we may not be able to acquire properties when strategic opportunities exist, meet the capital and operating needs of our existing properties or satisfy our debt service obligations.  Further, in order to meet the REIT distribution requirements and maintain our REIT status and to avoid the payment of income and excise taxes, we may need to borrow funds on a short-term basis even if the then-prevailing market conditions are not favorable for these borrowings.  These short-term borrowing needs could result from differences in timing between the actual receipt of cash and inclusion of income for U.S. federal income tax purposes or the effect of non-deductible capital expenditures, the creation of reserves, certain restrictions on distributions under loan documents or required debt or amortization payments.

To the extent that capital is not available to acquire properties, profits may not be realized or their realization may be delayed, which could result in an earnings stream that is less predictable than some of our competitors and result in us not meeting our projected earnings and distributable cash flow levels in a particular reporting period.  Failure to meet our projected earnings and distributable cash flow levels in a particular reporting period could have an adverse effect on our financial condition and on the market price of our common stock.

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We may be subject to contingent or unknown uninsurable liabilities related to properties or businesses that we have acquired or may acquire for which we may have limited or no recourse against the sellers.

The properties or businesses that we have acquired or may acquire may be subject to unknown or contingent liabilities for which we have limited or no recourse against the sellers.  Unknown liabilities might include liabilities for, among other things, cleanup or remediation of undisclosed environmental conditions, liabilities under the Employee Retirement Income Security Act of 1974, as amended, (“ERISA”), claims of residents, vendors or other persons dealing with the entities prior to the acquisition of such property, tax liabilities, and accrued but unpaid liabilities whether incurred in the ordinary course of business or otherwise.  Because many liabilities, including tax liabilities, may not be identified within the applicable contractual indemnification period, we may have no recourse against any of the owners from whom we acquired such properties for these liabilities.  The existence of such liabilities could significantly adversely affect the value of the property subject to such liability.  As a result, if a liability was asserted against us based on ownership of any of such properties, then we might have to pay substantial sums to settle it, which could adversely affect our cash flows.

Representations and warranties made by us in connection with sales of our properties may subject us to liability that could result in losses and could harm our operating results and, therefore distributions we make to our stockholders.

When we sell a property, we may be required to make representations and warranties regarding the property and other customary items.  In the event of a breach of such representations or warranties, the purchaser of the property may have claims for damages against us, rights to indemnification from us or otherwise have remedies against us.  In any such case, we may incur liabilities that could result in losses and could harm our operating results and, therefore distributions we make to our stockholders.

We rely on information technology systems in our operations, and any breach or security failure of those systems could materially adversely affect our business, results of operations, financial condition and reputation.

Our information technology networks and related systems are essential to our ability to conduct our day to day operations.  In addition, our business requires us to collect and hold personally identifiable information of our residents and prospective residents, and our employees and their dependents, in connection with our leasing and property management activities.  As a result, we face risks associated with security breaches, whether through cyber-attacks or cyber intrusions over the internet, malware, computer viruses, attachments to emails, persons who access our systems from inside or outside our organization and other significant disruptions of our information technology networks and related systems.  We undertake various actions to maintain the security and integrity of our information technology networks and related systems and have implemented various measures to manage the risk of a security breach or disruption.  We also maintain cyber liability insurance to provide some coverage for certain risks arising out data and network breaches.  However, we cannot be sure that our security efforts and measures will be effective or that our cyber liability insurance coverage will be sufficient in the event of a cyber incident.

Furthermore, certain components of our information technology network are dependent upon third-party service providers and we share personally identifiable information with many of these service providers so they can assist us with certain aspects of our business.  Our third-party service providers are primarily responsible for the security of their own information technology environments and in certain instances, we rely significantly on third-party service providers to supply and store our sensitive data in a secure manner.  All of these third-parties face risks relating to cybersecurity similar to ours which could disrupt their businesses or result in the disclosure of personally identifiable information that has been shared with them, and therefore adversely impact us.  While we provide guidance and specific requirements in some cases, we do not directly control any of such parties’ information technology security operations, or the amount of investment they place in guarding against cybersecurity threats.  Accordingly, we are subject to any flaws in or breaches to their information technology systems or those which they operate for us. 

A security breach or other significant disruption involving our information technology networks and related systems or those of our vendors could:  disrupt our operations; result in the unauthorized access to, and the destruction, loss, theft, misappropriation or release of, proprietary, personally identifiable, confidential, sensitive or otherwise valuable information including resident information and lease data, which others could use to compete against us or which could expose us to damage claims by third parties for disruptive, destructive or otherwise harmful outcomes; require significant management attention and resources to remedy any damages that result; subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other agreements; or damage our business relationships or reputation generally.   Any or all of the foregoing could materially and adversely affect our business and the value of our stock.

In addition, the collection and use of personally identifiable information is governed by federal and state laws and regulations.  Privacy and information security laws continue to evolve and may be inconsistent from one jurisdiction to another.  Compliance with all such laws and regulations may be difficult due to the uncertainty surrounding the interpretation of such laws. Such laws may also increase our operating costs and adversely impact our ability to market our properties and

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services.  Noncompliance with such laws could result in the imposition of fines, awards of damages to private litigants, payment of attorneys’ fees and other costs to plaintiffs, and substantial litigation costs.

A change in the United States government policy with regard to Fannie Mae and Freddie Mac could impact our financial condition.

Fannie Mae and Freddie Mac are a major source of financing for the multifamily residential real estate sector.  Many multifamily companies depend heavily on Fannie Mae and Freddie Mac to finance growth by purchasing or guarantying apartment loans and to refinance outstanding indebtedness as it matures.

If new U.S. government regulations (i) heighten Fannie Mae’s and Freddie Mac’s underwriting standards, (ii) adversely affect interest rates and (iii) continue to reduce the amount of capital they can make available to the multifamily sector, it could reduce or remove entirely a vital resource for multifamily financing.  Any potential reduction in loans, guarantees and credit-enhancement arrangements from Fannie Mae and Freddie Mac could jeopardize the effectiveness of the multifamily sector’s available financing and decrease the amount of available liquidity and credit that could be used to acquire and diversify our portfolio of multifamily assets, as well as dispose of our multifamily assets upon our liquidation, and our ability to refinance our existing mortgage obligations as they come due and obtain additional long-term financing for the acquisition of additional multifamily apartment communities on favorable terms or at all.  In addition, the members of the current presidential administration have announced that restructuring and privatizing Fannie Mae and Freddie Mac is a priority of the current administration, and there is uncertainty regarding the impact of this action on us and buyers of our properties.

Bankruptcy or defaults of our counterparties could adversely affect our performance. 

We have relationships with and, from time to time, we execute transactions with or receive services from many counterparties, such as general contractors engaged in connection with our redevelopment activities. As a result, bankruptcies or defaults by these counterparties could result in services not being provided, projects not being completed on time, or on budget, or at all, or volatility in the financial markets and economic weakness could affect the counterparties’ ability to complete transactions with us as intended, both of which could result in disruptions to our operations that may materially adversely affect our business and results of operations.

Severe or inclement weather and climate change could result in losses to us.

Certain of our properties are located in areas that may experience catastrophic weather and other natural events from time to time, including fires, snow or ice storms, windstorms or hurricanes, earthquakes, flooding or other severe weather. To the extent that extreme weather or natural events become more common or severe in areas where our communities are located, as a result of changes in the climate or otherwise, we could experience a significant increase in insurance premiums and deductibles, or a decrease in the availability of coverage, which may adversely affect our financial condition or results of operations. These adverse weather and natural events could cause damage or losses that may be greater than insured levels.  In the event of a loss in excess of insured limits, we could lose our capital invested in the affected property, as well as anticipated future revenue related to the property.  We could also continue to be obligated to repay any mortgage indebtedness related to the property.

In the event extreme weather conditions such as prolonged changes in precipitation and temperature become more common or severe in areas where our communities are located, we may experience a decrease in demand for our communities located in these areas or affected by these conditions, which may lead to a decline in the value of these communities.  We may also see an increase in costs resulting from increased maintenance related to water damage, wind and hail, or the removal of snow and ice, or we may be required to increase capital expenditures on resiliency measures designed to lessen the impact of severe weather.  In addition, changes in federal, state, and local legislation and regulation based on concerns about climate change could result in increased capital expenditures to improve the energy efficiency of our existing properties without a corresponding increase in revenues. 

We face numerous risks associated with the real estate industry that could adversely affect our results of operations through decreased revenues or increased costs.

As a real estate company, we are subject to various changes in real estate conditions and any negative trends in such real estate conditions may adversely affect our results of operations through decreased revenues or increased costs.  These conditions include:

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• changes in national, regional and local economic conditions, which may be negatively impacted by concerns about inflation, deflation, government deficits, high unemployment rates, decreased consumer confidence and liquidity concerns, particularly in markets in which we have a high concentration of properties;

• fluctuations in interest rates, which could adversely affect our ability to obtain financing on favorable terms or at all, or could reduce our ability to deploy capital in investments that are accretive to our stockholders;

• the inability of our residents to pay rent timely, or at all;

• the existence and quality of the competition, such as the attractiveness of our properties as compared to our competitors’ properties based on considerations such as convenience of location, rental rates, amenities and safety record;

• increased operating costs, including increased real property taxes, maintenance, insurance and utilities costs;

• weather conditions that may increase or decrease energy costs and other weather-related expenses;

• civil unrest, acts of God, including earthquakes, floods, hurricanes and other natural disasters, which may result in uninsured losses, acts of war or terrorism, or other natural or human causes beyond our control, which may disrupt or interrupt our operations;

• oversupply of multifamily housing or a reduction in demand for real estate in the markets in which our properties are located;

• a favorable interest rate environment that may result in a significant number of potential residents of our multifamily apartment communities deciding to purchase homes instead of renting;

• changes in, or increased costs of compliance with, laws and/or governmental regulations, including those governing usage, zoning, the environment and taxes; and

• rent control or stabilization laws, or other laws regulating rental housing, which could prevent us from raising rents to offset increases in operating costs.

Economic conditions may adversely affect the residential real estate market and our income.

A residential property’s income and value may be adversely affected by international, national and regional economic conditions.  The COVID-19 pandemic has disrupted financial markets and significantly impacted worldwide economic activity resulting in a global economic recession. If such conditions do not improve or if new economic or capital markets problems arise, the value of our portfolio may decline significantly.  A deterioration in economic conditions may also have an adverse effect on our operations if they result in our residents or prospective residents being unable to afford the rents we need to charge to be profitable.

In addition, local real estate conditions such as an oversupply of properties or a reduction in demand for properties, availability of “for sale” properties and competition from other similar properties, our ability to provide adequate maintenance, insurance and management services, increased operating costs (including real estate taxes), the attractiveness and location of the property and changes in market rental rates, may adversely affect a property’s income and value.  A rise in energy costs could result in higher operating costs, which may affect our results from operations.  In addition, local conditions in the markets in which we own or intend to own properties may significantly affect occupancy or rental rates at such properties.  Layoffs, plant closings, relocations of significant local employers and other events reducing local employment rates and the local economy; an oversupply of, or a lack of demand for, apartments; a decline in household formation; the inability or unwillingness of residents to pay rent increases; and rent control, rent stabilization and other housing laws, all could prevent us from raising or maintaining rents, and could cause us to reduce rents.

The illiquidity of real estate investments could make it difficult for us to respond to changing economic, financial, and investment conditions or changes in the operating performance of our properties, which could reduce our cash flows and adversely affect results of operations.

Real estate investments are relatively illiquid and may become even more illiquid during periods of economic downturn.  As a result, we will have a limited ability to vary our portfolio in response to changes in economic, financial and investment conditions or changes in the operating performance of our properties.  We may not be able to sell a property or properties quickly or on favorable terms in response to changes in the economy or other conditions when it otherwise may be prudent to do so.  This inability to respond quickly to changes in the performance of our properties as a result of an economic or market downturn could adversely affect our results of operations if we cannot sell an unprofitable property.

We will also have a limited ability to sell assets in order to fund working capital, repay debt and similar capital needs.  Our financial condition could be adversely affected if we were, for example, unable to sell one or more of our properties in order to meet our debt obligations upon maturity.  We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us.  We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property.  We also may be required to expend funds to correct defects or to make improvements before a property can be sold, and we cannot assure you that we will have funds available to

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correct those defects or to make those improvements.  Our inability to dispose of assets at opportune times or on favorable terms could adversely affect our cash flows and results of operations.

Moreover, the Code imposes restrictions on a REIT’s ability to dispose of properties that are not applicable to other types of real estate companies.  In particular, the tax laws applicable to REITs require that we hold our properties for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forego or defer sales of properties that otherwise would be in our best interests.

Therefore, we may not be able to vary our portfolio promptly in response to economic or other conditions or on favorable terms, which may adversely affect our cash flows, our ability to make distributions to our stockholders and the market price of our common stock.

Properties we purchase may not appreciate or may decrease in value.

The residential real estate market may experience substantial influxes of capital from investors.  A substantial flow of capital, combined with significant competition for real estate, may result in inflated purchase prices for such assets.  To the extent we purchase real estate in such an environment, we are subject to the risk that, if the real estate market subsequently ceases to attract the same level of capital investment, or if the number of investors seeking to acquire such assets decreases, our returns will be lower and the value of our assets may not appreciate or may decrease significantly below the amount we paid for such assets.  In addition, if interest rates applicable to financing apartment properties rise, that may negatively affect the values of our properties in any period when capitalization rates for our properties, an important valuation metric, do not make corresponding adjustments.

We may incur liabilities in connection with properties we acquire.

We may acquire properties that are subject to liabilities or that have problems relating to environmental condition, state of title, physical condition or compliance with zoning laws, building codes, or other legal requirements, many of which may not be known to us at the time of acquisition.  In each case, our acquisition may be without any, or with only limited, recourse with respect to unknown liabilities or conditions.  If any liability were asserted against us relating to those properties or entities, or if any adverse condition existed with respect to the properties or entities, we might have to pay substantial sums to settle or cure it, which could adversely affect our cash flow and operating results.  While we will attempt to obtain appropriate representations and undertakings from the sellers of the properties or entities we acquire, the sellers may not have the resources to satisfy their indemnification obligations if a liability arises.

Increasing real estate taxes, utilities and insurance costs may negatively impact operating results.

Our properties may be subject to increases in tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance, administrative and other expenses.  Real estate taxes, utilities costs and insurance premiums, in particular, are subject to significant increases and fluctuations, which can be widely outside of our control. A number of our markets had tax reassessments in 2020 and we expect this to continue in future years.  If our costs continue to rise, without being offset by a corresponding increase in rental rates, our results of operations could be negatively impacted, and our ability to pay our dividends and distributions and senior debt could be affected.

We may be unable to secure funds for property improvements, which could reduce cash distributions to our stockholders.

When residents do not renew their leases or otherwise vacate, we may be required to expend funds for capital improvements to the vacated apartment units in order to attract replacement residents.  In addition, we may require substantial funds to renovate an apartment property in order to sell, upgrade or reposition it in the market.  If our reserves are insufficient to fund these improvements, we may have to obtain financing.  We cannot assure you that sufficient financing will be available or, if available, will be available on economically feasible terms or on terms acceptable to us.  Moreover, some reserves required by lenders may be designated for specific uses and may not be available for capital improvements to other properties.  Additional borrowing will increase our interest expense, and

The profitability of our acquisitions is uncertain.

We intend to acquire properties selectively.  Acquisition of properties entails risks that investments will fail to perform in accordance with expectations.  In undertaking acquisitions, we will incur certain risks, including the expenditure of funds on, and the devotion of management’s time to, transactions that may not come to fruition.  Additional risks inherent in acquisitions include risks that the properties will not achieve anticipated occupancy levels and that estimates of the costs of improvements to bring an acquired property up to standards established for the market position intended for that property may prove inaccurate.

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Acquiring or attempting to acquire multiple properties in a single transaction may adversely affect our operations.

We have and may in the future acquire multiple properties in a single transaction.  Such portfolio acquisitions are more complex and expensive than single-property acquisitions, and the risk that a multiple-property acquisition does not close may be greater than in a single-property acquisition.  Portfolio acquisitions may also result in us owning investments in geographically dispersed markets, placing additional demands on our ability to manage the properties in the portfolio.  In addition, a seller may require that a group of properties be purchased as a package even though we may not want to purchase one or more properties in the portfolio.  In these situations, if we are unable to identify another person or entity to acquire the unwanted properties, we may be required to operate, or attempt to dispose of, these properties.  To acquire multiple properties in a single transaction, we may be required to accumulate a large amount of cash.  We expect the returns that we can earn on such cash to be less than the ultimate returns on real property, and therefore, accumulating such cash could reduce the funds available for distributions.  Any of the foregoing events may have an adverse effect on our operations.

If we sell properties by providing financing to purchasers, we will bear the risk of default by the purchaser.

If we decide to sell any of our properties, we intend to use commercially reasonable efforts to sell them for cash.  However, in some instances, we may sell our properties by providing financing to purchasers.  If we provide financing to purchasers, we will bear the risk of default by the purchaser which would reduce the value of our assets, impair our ability to make distributions to our stockholders and reduce the price of our common stock.

Our revenue and net income may vary significantly from one period to another due to investments in value-add properties and portfolio acquisitions, which could increase the variability of our cash distributions.

We may make investments in properties that have existing cash flow which are in various phases of development, redevelopment or repositioning and where we believe that, through capital expenditures, we can achieve enhanced returns (which we refer to as value-add properties), which may cause our revenues and net income to fluctuate significantly from one period to another.  Projects do not produce revenue while in development or redevelopment.  We have identified a number of properties in our portfolio as value-add properties and intend to make capital expenditures on such properties.  During any period when the number of our projects in development or redevelopment or those with significant capital requirements increases without a corresponding increase in stable revenue-producing properties, our revenues and net income will likely decrease, and we could have losses.

Moreover, value-add properties subject us to the risks of higher than expected construction costs, failure to complete projects on a timely basis, failure of the properties to perform at expected levels upon completion of development or redevelopment, and increased borrowings necessary to fund higher than expected construction or other costs related to the project.  There can be no assurance that our value-add properties will be developed or repositioned in accordance with the anticipated timing or at the anticipated cost, or that we will achieve the results we expect from these value-add properties.  Failure to achieve anticipated results could materially and adversely affect our financial condition and results of operations and ability to make distributions to stockholders.

We may acquire or develop properties through joint ventures, and any investment that we may make in joint ventures could be adversely affected by our lack of sole decision-making authority regarding major decisions, our reliance on our joint venture partners’ financial condition, any disputes that may arise between us and our joint venture partners and our exposure to potential losses from the actions of our joint ventures.

We may enter into joint ventures with third parties to acquire or develop properties.  We may also purchase properties in partnerships, co-tenancies or other co-ownership arrangements.  Such investments may involve risks not otherwise present when we acquire or develop properties without third parties, including the following:

• a co-venturer or partner may have certain approval rights over major decisions, including as to forms, amounts and timing of equity and debt financing, operating and capital budgets, and timing of sales and liquidations, which may prevent us from taking actions that we believe are in the best interest of our stockholders but are opposed by our co-venturers or partners;

• a co-venturer or partner may at any time have economic or business interests or goals which are or become inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in the joint venture or the timing of termination or liquidation of the joint venture;

• a co-venturer or partner might experience financial distress, become insolvent or bankrupt or fail to fund its share of required capital contributions, which may delay construction or development of a property or increase our financial commitment to the joint venture;

• we may incur liabilities as a result of an action taken by our co-venturer or partner;

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• a co-venturer or partner may be in a position to take actions contrary to our instructions, requests, objectives or policies, including our policy with respect to qualifying and maintaining our qualification as a REIT;

• agreements governing joint ventures, limited liability companies and partnerships often contain restrictions on the transfer of a member’s or partner’s interest or “buy-sell” or other provisions that may result in a purchase or sale of the interest at a disadvantageous time or on disadvantageous terms;

• disputes between us and our co-venturer or partner may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business and result in subjecting the properties owned by the joint venture to additional risk; and

• under certain joint venture arrangements, neither venture partner may have the power to control the venture, and an impasse could be reached which may result in a delay of key decisions and such delay may have a negative effect on the joint venture.

Any of these risks could materially and adversely affect our ability to generate and recognize attractive returns on joint venture investments, which could have a material adverse effect on our results of operations, financial condition and distributions to our stockholders.

Risks Associated with Debt Financing

We plan to incur mortgage indebtedness and other borrowings and are not limited in the amount or percentage of indebtedness that we may incur, which may increase our business risks.

We intend to acquire properties subject to existing financing or by borrowing new funds.  In addition, we intend to incur additional mortgage debt by obtaining loans secured by some, or all, of our real properties to obtain funds to acquire additional real properties and/or make capital improvements to properties.  We may also borrow funds, if necessary, to satisfy the requirement that we generally distribute to stockholders as dividends at least 90% of our annual REIT taxable income (computed without regard to dividends paid and excluding net capital gain), or otherwise as is necessary or advisable to assure that we maintain our qualification as a REIT for U.S. federal income tax purposes.

Our Articles of Restatement, which we refer to as our Charter, and our bylaws do not limit the amount or percentage of indebtedness that we may incur.  We are subject to risks normally associated with debt financing, including the risk that our cash flows will be insufficient to meet required payments of principal and interest.  There can be no assurance that we will be able to refinance any maturing indebtedness, that such refinancing would be on terms as favorable as the terms of the maturing indebtedness or that we will be able to otherwise obtain funds by selling assets or raising equity to make required payments on maturing indebtedness.

In particular, loans obtained to fund property acquisitions may be secured by mortgages or deeds in trust on such properties.  If we are unable to make our debt service payments as required, a lender could foreclose on the property or properties securing its debt.

In addition, for U.S. federal income tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage.  If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds.  We may, in some circumstances, give a guaranty on behalf of an entity that owns one or more of our properties.  In these cases, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity.  If any mortgages contain cross-collateralization or cross-default provisions, there is a risk that we could lose part or all of our investment in multiple properties.  Each of these events could in turn cause the value of our common stock and distributions payable to stockholders to be reduced.

Any mortgage debt which we place on properties may prohibit prepayment and/or impose a prepayment penalty upon the sale of a mortgaged property.  If a lender invokes these prohibitions or penalties upon the sale of a property or prepayment of a mortgage on a property, the cost to us to sell the property could increase substantially.  This could decrease the proceeds from a sale or refinancing or make the sale or refinancing impractical, which may lead to a reduction in our income, reduce our cash flows and adversely impact our ability to make distributions to stockholders.

We may also finance our property acquisitions using interest-only mortgage indebtedness.  During the interest-only period, the amount of each scheduled payment will be less than that of a traditional amortizing mortgage loan.  The principal balance of the mortgage loan will not be reduced (except in the case of prepayments) because there are no scheduled monthly payments of principal during this period.  After the interest-only period, we will be required either to make scheduled payments of amortized principal and interest or to make a lump-sum or “balloon” payment at maturity.  These required principal or balloon payments will increase the

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amount of our scheduled payments and may increase our risk of default under the related mortgage loan.  If the mortgage loan has an adjustable interest rate, the amount of our scheduled payments also may increase at a time of rising interest rates.  Increased payments and substantial principal or balloon maturity payments will reduce the funds available for distribution to our stockholders because cash otherwise available for distribution will be required to pay principal and interest associated with these mortgage loans.

Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders.

In providing financing to us, a lender may impose restrictions on us that would affect our ability to incur additional debt, make certain investments, reduce liquidity below certain levels, make distributions to our stockholders and otherwise affect our distribution and operating policies.  Our unsecured credit facility and unsecured term loans include restrictions and requirements relating to the incurrence of debt, permitted investments, maximum level of distributions, maintenance of insurance, mergers and sales of assets and transactions with affiliates.  We expect that any other loan agreements we enter into will contain similar covenants and may also impose other restrictions and limitations.  Any such covenants, restrictions or limitations may limit our ability to make distributions to you and could make it difficult for us to satisfy the requirements necessary to maintain our qualification as a REIT for U.S. federal income tax purposes.

Lenders may be able to recover against our other properties under our mortgage loans.

In financing our property acquisitions, we may seek to obtain secured nonrecourse loans.  However, only recourse financing may be available, in which event, in addition to the property securing the loan, the lender would have the ability to look to our other assets for satisfaction of the debt if the proceeds from the sale or other disposition of the property securing the loan are insufficient to fully repay it.  Also, in order to facilitate the sale of a property, we may allow the buyer to purchase the property subject to an existing loan whereby we remain responsible for certain liabilities associated with the debt.

If we are required to make payments under any “bad boy” carve-out guaranties that we may provide in connection with certain mortgages and related loans, our business and financial results could be materially adversely affected.

In obtaining certain nonrecourse loans, we may provide standard carve-out guaranties.  These guaranties are only applicable if and when the borrower directly, or indirectly through agreement with an affiliate, joint venture partner or other third party, voluntarily files a bankruptcy or similar liquidation or reorganization action or takes other actions that are fraudulent or improper (commonly referred to as “bad boy” guaranties).  Although we believe that “bad boy” carve-out guaranties are not guaranties of payment in the event of foreclosure or other actions of the foreclosing lender that are beyond the borrower’s control, some lenders in the real estate industry have recently sought to make claims for payment under such guaranties.  In the event such a claim were made against us under a “bad boy” carve-out guaranty following foreclosure on mortgages or related loan, and such claim were successful, our business and financial results could be materially adversely affected.

Our variable rate indebtedness subjects us to interest rate risk, and interest rate hedges that we may obtain may be costly and ineffective.

As of December 31, 2020, $484.8 million of our $945.7 million of total outstanding indebtedness bore interest at variable rates.  If interest rates were to increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed would remain the same, and our net income and cash flows would correspondingly decrease. In order to partially mitigate our exposure to increases in interest rates, we have entered into interest rate swaps and collars on $400.0 million of our variable rate debt, which involve the exchange of variable for fixed rate interest payments. Taking into account our current interest rate swap and collar agreements, a 100-basis point increase in interest rates would result in a $0.8 million increase in annual interest expense. See Item 7., “Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Interest Rate Risk and Sensitivity.” To the extent that we use derivative financial instruments to hedge our exposure to variable rate indebtedness, we may be exposed to credit, basis and legal enforceability risks.  Derivative financial instruments may include interest rate swap contracts, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements.  In this context, credit risk is the failure of the counterparty to perform under the terms of the derivative contract.  If the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us.  Basis risk occurs when the index upon which the contract is based is more or less variable than the index upon which the hedged asset or liability is based, thereby making the hedge less effective.  Finally, legal enforceability risks encompass general contractual risks, including the risk that the counterparty will breach the terms of, or fail to perform its obligations under, the derivative contract.  Moreover, hedging strategies involve transaction and other costs.  If we are unable to manage these risks and costs effectively, our results of operations, financial condition and ability to make distributions may be adversely affected.

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Some of our outstanding mortgage indebtedness contains, and we may in the future acquire or finance properties with, lock-out provisions, which may prohibit us from selling a property, or may require us to maintain specified debt levels for a period of years on some properties.

A lock-out provision is a provision that prohibits the prepayment of a loan during a specified period of time.  Lock-out provisions may include terms that provide strong financial disincentives for borrowers to prepay their outstanding loan balance and exist in order to protect the yield expectations of lenders.  Some of our outstanding mortgage indebtedness is, and we expect that many of our properties will be, subject to lock-out provisions.  Lock-out provisions could materially restrict us from selling or otherwise disposing of or refinancing properties when we may desire to do so.  Lock-out provisions may prohibit us from reducing the outstanding indebtedness with respect to any properties, refinancing such indebtedness on a non-recourse basis at maturity, or increasing the amount of indebtedness with respect to such properties.  Lock-out provisions could impair our ability to take other actions during the lock-out period that could be in the best interests of our stockholders and, therefore, may have an adverse impact on the value of our shares relative to the value that would result if the lock-out provisions did not exist.  In particular, lock-out provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in the best interests of our stockholders.

Complying with REIT requirements may limit our ability to hedge risk effectively.

The REIT provisions of the Code may limit our ability to hedge the risks inherent to our operations.  Any income or gain derived by us from transactions that hedge certain risks, such as the risk of changes in interest rates, will not be treated as gross income for purposes of either the 75% or the 95% Gross Income Test, as defined in Exhibit 99.1 “Material U.S. Federal Income Tax Considerations” of this report, provided specific requirements are met.  Such requirements include that the hedging transaction be properly identified within prescribed time periods and that the transaction either (i) hedges risks associated with indebtedness issued by us that is incurred to acquire or carry real estate assets or (ii) manages the risks of currency fluctuations with respect to income or gain that qualifies under the 75% or 95% Gross Income Test (or assets that generate such income).  To the extent that we do not properly identify such transactions as hedges, hedge with other types of financial instruments, or hedge other types of indebtedness, the income from those transactions will not be treated as qualifying income for purposes of the 75% and 95% Gross Income Tests.  As a result of these rules, we may have to limit the use of hedging techniques that might otherwise be advantageous, which could result in greater risks associated with interest rate or other changes than we would otherwise incur.

There is refinancing risk associated with our debt.

We expect that we will incur additional indebtedness in the future. Certain of our outstanding debt contains, and we may in the future acquire or finance properties with debt containing, limited or no principal amortization, which would require that the principal be repaid at the maturity of the loan in a so-called “balloon payment.” As of December 31, 2020, the financing arrangements of our outstanding indebtedness could require us to make lump-sum or “balloon” payments of approximately $921.3 million at maturity dates that range from 2021 to 2026.  At the maturity of these loans, assuming we do not have sufficient funds to repay the debt, we will need to refinance the debt.  If the credit environment is constrained at the time of our debt maturities, we would have a very difficult time refinancing debt.  In addition, for certain loans, we locked in our fixed-rate debt at a point in time when we were able to obtain favorable interest rate, principal payments and other terms.  When we refinance our debt, prevailing interest rates and other factors may result in us paying a greater amount of debt service, which will adversely affect our cash flow and our ability to make distributions to our stockholders.  If we are unable to refinance our debt on acceptable terms, we may be forced to choose from a number of unfavorable options, including agreeing to otherwise unfavorable financing terms on one or more of our unencumbered assets, selling one or more properties at disadvantageous terms, including unattractive prices, or defaulting on the mortgage and permitting the lender to foreclose.  Any one of these options could have a material adverse effect on our business, financial condition, results of operations and our ability to make distributions to our stockholders.

High mortgage rates and/or unavailability of mortgage debt may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our net income and the amount of cash distributions we can make.

If mortgage debt is unavailable at reasonable rates, we may not be able to finance the purchase of properties. If we place mortgage debt on properties, we may be unable to refinance the properties when the loans become due, or to refinance on favorable terms. If interest rates are higher when we refinance our properties, our income could be reduced. If any of these events occur, our cash flow could be reduced. This, in turn, could reduce cash available for distribution to our security holders and may hinder our ability to raise more capital by issuing more stock or by borrowing more money.

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Some of our mortgage loans may have “due on sale” provisions, which may impact the manner in which we acquire, sell and/or finance our properties.

In purchasing properties subject to financing, we may obtain financing with “due-on-sale” and/or “due-on-encumbrance” clauses.  Due-on-sale clauses in mortgages allow a mortgage lender to demand full repayment of the mortgage loan if the borrower sells the mortgaged property.  Similarly, due-on-encumbrance clauses allow a mortgage lender to demand full repayment if the borrower uses the real estate securing the mortgage loan as security for another loan.  In such event, we may be required to sell our properties on an all-cash basis, to acquire new financing in connection with the sale, or to provide seller financing which may make it more difficult to sell the property or reduce the selling price.

We may be adversely affected by changes in LIBOR reporting practices, the method in which LIBOR is determined or the use of alternative reference rates.

In July 2017, the United Kingdom regulator that regulates LIBOR announced its intention to phase out LIBOR rates by the end of 2021. It is impossible to predict the further effect of this announcement, any changes in the methods by which LIBOR is determined or other reforms to LIBOR that may be enacted. In April 2018, the New York Federal Reserve commenced publishing an alternative reference rate, the Secured Overnight Financing Rate (“SOFR”), proposed by a group of major market participants (the Alternative Reference Rates Committee (“ARRC”)), and convened by the U.S. Federal Reserve with participation by SEC Staff and other regulators. SOFR is based on transactions in the more robust U.S. Treasury repurchase market and has been proposed as the alternative to LIBOR for use in derivatives and other financial contracts that currently rely on LIBOR as a reference rate. ARRC has proposed a paced market transition plan to SOFR from LIBOR and organizations are currently working on industry-wide and company-specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. At this time, no consensus exists as to what rate or rates may become accepted alternatives to LIBOR, and it is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or supported before or after 2021 or whether additional reforms to LIBOR may be enacted. Such developments and any other legal or regulatory changes in the method by which LIBOR is determined or the transition from LIBOR to a successor benchmark may result in, among other things, a sudden or prolonged increase or decrease in LIBOR, a delay in the publication of LIBOR, and changes in the rules or methodologies of LIBOR, which may discourage market participants from continuing to administer or to participate in LIBOR’s determination and, in certain situations, could result in LIBOR no longer being determined and published.  If a published U.S. dollar LIBOR rate is unavailable after 2021, the benchmark interest rate for our debt which is currently indexed to LIBOR (“LIBOR Debt”) will be determined using an alternate rate of interest established pursuant to the provisions set forth in the documents governing our LIBOR Debt and the spread will be adjusted to account for any initial difference between such alternate rate of interest and the LIBOR rate most recently in effect, as more specifically provided in our LIBOR Debt documents.  Despite the initial adjustment in the our spread, uncertainty as to the extent and manner of future changes in the alternate rate of interest may result in interest rates and/or payments that are higher than, lower than or that do not otherwise correlate over time with the interest rates and/or payments that would have been made on our obligations if LIBOR rate was available in its current form. Further, the same costs and risks that may lead to the unavailability of U.S. dollar LIBOR may make one or more of the alternative methods impossible or impracticable to determine. Any of these proposals or consequences could have a material adverse effect on our financing costs, and consequently, on our financial condition, operating results and cash flows.

Compliance with Laws

We are subject to significant regulations, which could adversely affect our results of operations through increased costs and/or an inability to pursue business opportunities.

Local zoning and land use laws, environmental statutes and other governmental requirements may restrict or increase the costs of our development, expansion, renovation and reconstruction activities and thus may prevent or delay us from taking advantage of business opportunities.  Failure to comply with these requirements could result in the imposition of fines, awards to private litigants of damages against us, substantial litigation costs and substantial costs of remediation or compliance.  In addition, we cannot predict what requirements may be enacted in the future or that such requirements will not increase our costs of regulatory compliance or prohibit us from pursuing business opportunities that could be profitable to us, which could adversely affect our results of operations.

The costs of compliance with environmental laws and regulations may adversely affect our net income and the cash available for any distributions.

All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety.  Examples of federal laws include:  the National Environmental Policy Act, the Comprehensive Environmental Response, Compensation, and Liability Act, the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act, the Federal Water Pollution Control Act, the Federal Clean Air Act, the Toxic

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Substances Control Act, the Emergency Planning and Community Right to Know Act and the Hazard Communication Act.  These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and aboveground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals.  Some of these laws and regulations may impose joint and several liability on residents, owners or operators for the costs of investigation or remediation of contaminated properties, regardless of fault or the legality of the original disposal.

Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the cost of removal or remediation of hazardous or toxic substances on, under or in such property.  The costs of removal or remediation could be substantial.  These laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of the hazardous or toxic substances.  In addition, the presence of these substances, or the failure to properly remediate these substances, may adversely affect our ability to sell or rent the property or to use the property as collateral for future borrowing.

Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures.  Environmental laws provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties.  Certain environmental laws and common law principles govern the presence, maintenance, removal and disposal of certain building materials, including asbestos and lead-based paint.  Such hazardous substances could be released into the air and third parties may seek recovery from owners or operators of real properties for personal injury or property damage associated with exposure to released hazardous substances.

In addition, if any property in our portfolio is not properly connected to a water or sewer system, or if the integrity of such systems is breached, microbial matter or other contamination can develop.  If this were to occur, we could incur significant remedial costs and we may also be subject to private damage claims and awards, which could be material.  If we become subject to claims in this regard, it could materially and adversely affect us.

Property values may also be affected by the proximity of such properties to electric transmission lines.  Electric transmission lines are one of many sources of electro-magnetic fields (“EMFs”), to which people may be exposed.  Research completed regarding potential health concerns associated with exposure to EMFs has produced inconclusive results.  Notwithstanding the lack of conclusive scientific evidence, some states now regulate the strength of electric and magnetic fields emanating from electric transmission lines and other states have required transmission facilities to measure for levels of EMFs.  On occasion, lawsuits have been filed (primarily against electric utilities) that allege personal injuries from exposure to transmission lines and EMFs, as well as from fear of adverse health effects due to such exposure.  This fear of adverse health effects from transmission lines may be considered both when property values are determined to obtain financing and in condemnation proceedings.  We may not, in certain circumstances, search for electric transmission lines near our properties, but are aware of the potential exposure to damage claims by persons exposed to EMFs.

The cost of defending against such claims of liability, of compliance with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could materially adversely affect our business, assets or results of operations and, consequently, amounts available for distribution to our stockholders.

We cannot provide any assurance properties which we acquire will not have any material environmental conditions, liabilities or compliance concerns.  Accordingly, we have no way of determining at this time the magnitude of any potential liability to which we may be subject arising out of environmental conditions or violations with respect to the properties we own.

Costs associated with addressing indoor air quality issues, moisture infiltration and resulting mold remediation may be costly.

As a general matter, concern about indoor exposure to mold or other air contaminants has been increasing as such exposure has been alleged to have a variety of adverse effects on health.  As a result, there have been a number of lawsuits in our industry against owners and managers of apartment communities relating to indoor air quality, moisture infiltration and resulting mold.  Some of our properties may contain microbial matter such as mold and mildew.  The terms of our property and general liability policies generally exclude certain mold-related claims.  Should an uninsured loss arise against us, we would be required to use our funds to resolve the issue, including litigation costs.  We can offer no assurance that liabilities resulting from indoor air quality, moisture infiltration and the presence of or exposure to mold will not have a future impact on our business, results of operations and financial condition.

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Our costs associated with and the risk of failing to comply with the Americans with Disabilities Act may affect our net income.

We generally expect that our properties will be subject to the Americans with Disabilities Act of 1990, as amended (the “Disabilities Act”).  Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons.  The Disabilities Act has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities.  The Disabilities Act does not, however, consider residential properties, such as apartment properties, to be public accommodations or commercial facilities, except to the extent portions of such facilities, such as a leasing office, are open to the public.  The Disabilities Act’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages.  We will attempt to acquire properties that comply with the Disabilities Act or place the burden on the seller or a third party to ensure compliance with such laws.  However, we cannot assure you that we will be able to acquire properties or allocate responsibilities in this manner.  If we cannot, costs in complying with these laws may adversely affect our results of operations financial condition and ability to make distributions to our stockholders.

We must comply with the Fair Housing Amendments Act of 1988 (the “FHAA”), and failure to comply could result in substantial costs.

We must comply with the FHAA, which requires that apartment properties first occupied after March 13, 1991 be accessible to handicapped residents and visitors.  As with the Disabilities Act, compliance with the FHAA could require removal of structural barriers to handicapped access in a community, including the interiors of apartment units covered under the FHAA.  Recently there has been heightened scrutiny of apartment housing properties for compliance with the requirements of the FHAA and the Disabilities Act and an increasing number of substantial enforcement actions and private lawsuits have been brought against apartment communities to ensure compliance with these requirements.  Noncompliance with the FHAA could result in the imposition of fines, awards of damages to private litigants, payment of attorneys’ fees and other costs to plaintiffs, substantial litigation costs and substantial costs of remediation.

We must comply with various federal, state, and local laws, ordinances and regulations enacted in response to the COVID-19 pandemic, and failure to comply which such laws could result in substantial costs or disruptions to our business.

The COVID-19 pandemic has prompted the enactment of various federal, state, and local laws, ordinances and regulations, including, among other things, the Families First Coronavirus Response Act (the “FFCRA”), the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 and the Center for Disease Control and Prevention’s Order under Section 361 of the Public Health Service Act.  These various laws, ordinances and regulations impose restrictions on the manner in which businesses may be operated, and these restrictions may require substantial expenditures, and failure to comply which such laws, ordinances and regulations could result in substantial costs or disruptions to our business.

United States Federal Income Tax Risks

Legislative or regulatory action could adversely affect the returns to our investors.

Legislative, regulatory or administrative changes could be enacted or promulgated at any time, either prospectively or with retroactive effect, and may adversely affect us and/or our stockholders.

For example, on December 22, 2017, a bill informally known as the Tax Cuts and Jobs Act (the “TCJA”) was signed into law.  The TCJA made significant changes to the U.S. federal income tax rules for taxation of individuals and corporations, generally effective for taxable years beginning after December 31, 2017.  In addition to reducing corporate and individual tax rates, the TCJA eliminated or restricted various deductions.  One such deduction limitation was a general limitation of the deduction for net business interest expense in excess of 30% of a business’s “adjusted taxable income,” except for taxpayers that engage in certain real estate businesses and elect out of this rule (provided that such electing taxpayers must use an alternative depreciation system with longer depreciation periods). This 30% limitation was subsequently modified by the CARES Act (see Exhibit 99.1-“Material U.S. Federal Income Tax Considerations” for additional details). Most of the changes applicable to individuals were temporary and apply only to taxable years beginning after December 31, 2017 and before January 1, 2026.  The TCJA made numerous large and small changes to the tax rules that do not affect the REIT qualification rules directly but may otherwise affect us or our stockholders.

We urge you to consult with your own tax advisor with respect to the status of the TCJA and other legislative, regulatory or administrative developments and proposals and their potential effect on an investment in shares of our common stock.

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Dividends paid by REITs do not qualify for the reduced tax rates provided under current law.

Dividends paid by REITs are generally not eligible for the reduced 15% maximum tax rate for dividends paid to individuals (20% for those with taxable income above certain thresholds that are adjusted annually under current law).  The more favorable rates applicable to regular corporate dividends could cause stockholders who are individuals to perceive investments in REITs to be relatively less attractive than investments in the stock of non-REIT corporations that pay dividends to which more favorable rates apply, which could reduce the value of the stocks of REITs.  However, under the TCJA regular dividends from REITs are treated as income from a pass-through entity and are eligible for a 20% deduction.  As a result, our regular dividends will be taxed at 80% of an individual’s marginal tax rate.  The current maximum rate is 37% resulting in a maximum tax rate of 29.6% on our dividends.  Dividends from REITs as well as regular corporate dividends will also be subject to a 3.8% Medicare surtax for taxpayers with modified adjusted gross income above $200,000 (if single) or $250,000 (if married and filing jointly).

We may decide to borrow funds to satisfy our REIT minimum distribution requirements, which could adversely affect our overall financial performance.

We may decide to borrow funds in order to meet the REIT minimum distribution requirements even if our management believes that the then prevailing market conditions generally are not favorable for such borrowings or that such borrowings would not be advisable in the absence of such tax considerations.  If we borrow money to meet the REIT minimum distribution requirements or for other working capital needs, our expenses will increase, our net income will be reduced by the amount of interest we pay on the money we borrow and we will be obligated to repay the money we borrow from future earnings or by selling assets, any or all of which may decrease future distributions to stockholders.

If we fail to maintain our qualification as a REIT, we will be subject to tax on our income, and the amount of distributions we make to our stockholders will be less.

We intend to maintain our qualification as a REIT under the Code.  A REIT generally is not taxed at the corporate level on income and gains that it distributes to its stockholders on a timely basis.  We do not intend to request a ruling from the Internal Revenue Service (the “IRS”), as to our REIT status.  Qualification as a REIT involves the application of highly technical and complex rules for which there are only limited judicial or administrative interpretations.  The determination of various factual matters and circumstances not entirely within our control may affect our ability to continue to qualify as a REIT.  In addition, new legislation, regulations, administrative interpretations or court decisions could significantly change the tax laws with respect to qualification as a REIT or the U.S. federal income tax consequences of such qualification, including changes with retroactive effect.

If we fail to qualify as a REIT in any taxable year:

• we would not be allowed to deduct our distributions to our stockholders when computing our taxable income;

• we would be subject to U.S. federal income tax (including any applicable alternative minimum tax in tax years beginning before January 1, 2018) on our taxable income at regular corporate rates;

• we generally would be disqualified from being taxed as a REIT for the four taxable years following the year during which qualification was lost, unless entitled to relief under certain statutory provisions;

• we would have less cash to make distributions to our stockholders; and

• we might be required to borrow additional funds or sell some of our assets in order to pay corporate tax obligations we may incur as a result of our disqualification.

Although our organization and current and proposed method of operation is intended to enable us to maintain our qualification to be taxed as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause our board of directors to revoke our REIT election.  Even if we maintain our qualification to be taxed as a REIT, we expect to incur some taxes, such as state and local taxes, taxes imposed on certain subsidiaries and potential U.S. federal excise taxes.

We encourage you to read Exhibit 99.1-“Material U.S. Federal Income Tax Considerations” to this report for further discussion of the tax issues related to an investment in us.

The ability of our Board of Directors to revoke our REIT election without stockholder approval may cause adverse consequences to our stockholders.

Our Charter provides that our Board of Directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to maintain our qualification as a REIT.  If we cease to maintain our qualification as a REIT, we would become subject to U.S. federal income tax on our taxable income without the

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benefit of the dividends paid deduction and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse consequences on the total return to our stockholders.

To maintain our qualification as a REIT, we must meet annual distribution requirements, which may result in our distributing amounts that may otherwise be used for our operations.

To obtain the favorable tax treatment accorded to REITs, we generally are required each year to distribute to our stockholders at least 90% of our REIT taxable income (excluding net capital gain), determined without regard to the deduction for distributions paid.  We are subject to U.S. federal income tax on our undistributed taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (i) 85% of our ordinary income, (ii) 95% of our capital gain net income and (iii) 100% of our undistributed income from prior years.  These requirements could cause us to distribute amounts that otherwise would be spent on investments in real estate assets, and it is possible that we might be required to borrow funds, possibly at unfavorable rates, or sell assets to fund these distributions.  Although we intend to make distributions sufficient to meet the annual distribution requirements and to avoid U.S. federal income and excise taxes on our earnings, it is possible that we might not always be able to do so.

Complying with REIT requirements may cause us to forgo otherwise attractive opportunities.

To maintain our qualification as a REIT, we must continually satisfy various tests regarding sources of income, nature and diversification of assets, amounts distributed to stockholders and the ownership of shares of our capital stock.  In order to satisfy these tests, we may be required to forgo investments that might otherwise be made.  We may be required to make distributions to stockholders at times when it would be more advantageous to reinvest cash in our business or when we do not have funds readily available for distribution.  Accordingly, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits and adversely affect the trading price of our common stock.

In particular, at least 75% of our total assets at the end of each calendar quarter must consist of real estate assets, government securities, and cash or cash items.  For this purpose, “real estate assets” generally include interests in real property, such as land, buildings, leasehold interests in real property, stock of other entities that qualify as REITs, interests in mortgage loans secured by real property, investments in stock or debt instruments during the one-year period following the receipt of new capital and regular or residual interests in a real estate mortgage investment conduit.  In addition, the amount of securities of a single issuer that we hold, other than securities qualifying under the 75% asset test and certain other securities, must generally not exceed either 5% of the value of our gross assets or 10% of the vote or value of such issuer’s outstanding securities.

A REIT’s net income from prohibited transactions is subject to a 100% penalty tax.  In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held in inventory or primarily for sale to customers in the ordinary course of business.  It may be possible to reduce the impact of the prohibited transaction tax and the holding of assets not qualifying as real estate assets for purposes of the REIT asset tests by conducting certain activities, or holding non-qualifying REIT assets through a taxable REIT subsidiary (a “TRS”), subject to certain limitations as described below.  To the extent that we engage in such activities through a TRS, the income associated with such activities will be subject to full U.S. federal corporate income tax.

Certain of our business activities are potentially subject to the prohibited transaction tax, which could reduce the return on any investment in our securities.

Our ability to dispose of property is restricted to a substantial extent as a result of our REIT status.  Under applicable provisions of the Code regarding prohibited transactions by REITs, we will be subject to a 100% tax on any gain recognized on the sale or other disposition of any property (other than foreclosure property) that we own, directly or through any subsidiary entity, including IROP, but excluding a TRS, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of trade or business.  Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property.  No assurance can be given that any particular property we own, directly or through any subsidiary entity, including IROP, but excluding a “TRS”, will not be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.

The use of TRSs would increase our overall tax liability.

Some of our assets may need to be owned or sold, or some of our operations may need to be conducted by TRSs.  We do not currently have significant operations through a TRS but may in the future.  A TRS will be subject to U.S. federal and state income tax on its taxable income.  The after-tax net income of a TRS would be available for distribution to us.  Further, we will incur a 100% excise tax on transactions with a TRS that are not conducted on an arm’s-length basis.  For example, to the extent that the rent paid by a TRS exceeds an arm’s-length rental amount, such amount is potentially subject to the excise tax.  We intend that all transactions

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between us and any TRS we form will be conducted on an arm’s-length basis, and, therefore, any amounts paid by any TRS we form to us will not be subject to the excise tax.  However, no assurance can be given that no excise tax would arise from such transactions.

If our operating partnership, IROP, is not treated as a partnership or disregarded entity for U.S. federal income tax purposes, its income may be subject to taxation.

We intend to maintain the status of IROP as a partnership or disregarded entity for U.S. federal income tax purposes.  However, if the IRS were to successfully challenge the status of IROP as a partnership or disregarded entity for such purposes, it would be taxable as a corporation.  In such event, this would reduce the amount of distributions that IROP could make to us.  This would also result in our losing REIT status, and becoming subject to a corporate level tax on our own income.  This would substantially reduce our cash available to pay distributions and the yield on any investment in our securities.  In addition, if any of the partnerships or limited liability companies through which IROP owns its properties, in whole or in part, loses its characterization as a partnership for U.S. federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to IROP.  Such a recharacterization of an underlying property owner could also threaten our ability to maintain REIT status.

Distributions to tax-exempt investors may be classified as unrelated business taxable income, or UBTI, and tax-exempt investors would be required to pay tax on such income and to file income tax returns.

Neither ordinary nor capital gain distributions with respect to our common stock nor gain from the sale of stock should generally constitute UBTI to a tax-exempt investor.  However, there are certain exceptions to this rule, including:

• under certain circumstances, part of the income and gain recognized by certain qualified employee pension trusts with respect to our stock may be treated as UBTI if our stock is predominately held by qualified employee pension trusts, such that we are a “pension-held” REIT (which we do not expect to be the case);

• part of the income and gain recognized by a tax-exempt investor with respect to our stock would constitute UBTI if such investor incurs debt in order to acquire our common stock; and

• part or all of the income or gain recognized with respect to our stock held by social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans which are exempt from U.S. federal income taxation under Sections 501(c)(7), (9), (17) or (20) of the Code may be treated as UBTI.

We encourage you to consult your own tax advisor to determine the tax consequences applicable to you if you are a tax-exempt investor.

Distributions to foreign investors may be treated as an ordinary income distribution to the extent that it is made out of current or accumulated earnings and profits.

In general, foreign investors will be subject to regular U.S. federal income tax with respect to their investment in our stock if the income derived therefrom is “effectively connected” with the foreign investor’s conduct of a trade or business in the United States.  A distribution to a foreign investor that is not attributable to gain realized by us from the sale or exchange of a “U.S. real property interest” within the meaning of the Foreign Investment in Real Property Tax Act of 1980, as amended, “FIRPTA” will be treated as an ordinary income distribution to the extent that it is made out of current or accumulated earnings and profits (as determined for U.S. federal income tax purposes).  Generally, any ordinary income distribution will be subject to a U.S. withholding tax equal to 30% of the gross amount of the distribution, unless this tax is reduced by the provisions of an applicable treaty.

Foreign investors may be subject to FIRPTA tax upon the sale of their shares of our stock.

A foreign investor disposing of a U.S. real property interest, including shares of stock of a U.S. corporation whose assets consist principally of U.S. real property interests, is generally subject to FIRPTA tax on the gain recognized on the disposition.  Such FIRPTA tax does not apply, however, to the disposition of stock in a REIT if the REIT is “domestically controlled.” A REIT is “domestically controlled” if less than 50% of the REIT’s stock, by value, has been owned directly or indirectly by persons who are not U.S. persons during a continuous five-year period ending on the date of disposition or, if shorter, during the entire period of the REIT’s existence.  While we intend to qualify as “domestically controlled,” we cannot assure you that we will.  If we were to fail to so qualify, gain realized by foreign investors on a sale of shares of our stock would be subject to FIRPTA tax, unless the shares of our stock were traded on an established securities market and the foreign investor did not at any time during a specified testing period directly or indirectly own more than 10% of the value of our outstanding common stock.

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Foreign investors may be subject to FIRPTA tax upon a capital gain dividend.

A foreign investor may be subject to FIRPTA tax upon the payment of any capital gain dividend by us if such dividend is attributable to gain from sales or exchanges of U.S. real property interests, unless the shares of our stock were traded on an established securities market and the foreign investor did not at any time during a specified testing period directly or indirectly own more than 10% of the value of our outstanding common stock.

We encourage you to consult your own tax advisor to determine the tax consequences applicable to you if you are a foreign investor.

We may make distributions consisting of both stock and cash, in which case stockholders may be required to pay income taxes in excess of the cash distributions they receive.

We may make distributions that are paid in cash and stock at the election of each stockholder and may distribute other forms of taxable stock dividends.  Taxable stockholders receiving such distributions will be required to include the full amount of the distributions as ordinary income to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes.  As a result, stockholders may be required to pay income taxes with respect to such distributions in excess of the cash received.  If a stockholder sells the stock that it receives in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the distribution, depending on the market price of our stock at the time of the sale.  Furthermore, in the case of certain non-U.S. stockholders, we may be required to withhold federal income tax with respect to taxable dividends, including taxable dividends that are paid in stock.  In addition, if a significant number of our stockholders decide to sell their shares in order to pay taxes owed with respect to taxable stock dividends, it may put downward pressure on the trading price of our stock.

If our operating partnership, IROP, were classified as a “publicly traded partnership” taxable as a corporation for U.S. federal income tax purposes under the Code, we would cease to maintain our qualification as a REIT and would suffer other adverse tax consequences.

We intend for IROP to be treated as a partnership for U.S. federal income tax purposes.  If the IRS were to successfully challenge the status of IROP as a partnership, however, IROP generally would be taxable as a corporation.  In such event, we likely would fail to maintain our status as a REIT for U.S. federal income tax purposes, and the resulting corporate income tax burden would reduce the amount of distributions that IROP could make to us.  This would substantially reduce the cash available to pay distributions to our stockholders.  In addition, if any of the partnerships or limited liability companies through which the operating partnership owns its properties, in whole or in part, loses its characterization as a partnership and is not otherwise disregarded for U.S. federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to the operating partnership.  Such a recharacterization of an underlying property owner could also threaten our ability to maintain our REIT qualification.

Our stockholders may be restricted from acquiring or transferring certain amounts of our common stock.

Certain provisions of the Code and the stock ownership limits in our Charter may inhibit market activity in our capital stock and restrict our business combination opportunities.  In order to maintain our qualification as a REIT, five or fewer individuals, as defined in the Code, may not own, beneficially or constructively, more than 50% in value of our issued and outstanding stock at any time during the last half of a taxable year.  Attribution rules in the Code determine if any individual or entity beneficially or constructively owns our capital stock under this requirement.  Additionally, at least 100 persons must beneficially own our capital stock during at least 335 days of a taxable year.  To help ensure that we meet these tests, our Charter restricts the acquisition and ownership of shares of our stock.

Our Charter, with certain exceptions, authorizes our Board of Directors to take such actions as are necessary and desirable to preserve our qualification as a REIT.  Unless exempted by our Board of Directors, our Charter prohibits any person from beneficially or constructively owning more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of our common stock or capital stock.  Our Board of Directors may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of ownership limits would result in our failing to maintain our qualification as a REIT.  These restrictions on transferability and ownership will not apply, however, if our Board of Directors determines that it is no longer in our best interest to continue to maintain our qualification as a REIT.

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Risks Related to Our Organization and Structure

The Maryland General Corporation Law prohibits certain business combinations, which may make it more difficult for us to be acquired.

Under the Maryland General Corporation Law, “business combinations” between a Maryland corporation and an “interested stockholder” or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder became an interested stockholder.  These business combinations include a merger, consolidation, share exchange, or in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities.  An interested stockholder is defined as (i) any person who beneficially owns 10% or more of the voting power of the then outstanding voting stock of the corporation; or (ii) an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding stock of the corporation.

A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder.  However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.

After the expiration of the five-year period described above, any business combination between the Maryland corporation and an interested stockholder must generally be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:

• 80% of the votes entitled to be cast by holders of the then outstanding shares of voting stock of the corporation; and

• two-thirds of the votes entitled to be cast by holders of voting stock of the corporation, other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected, or held by an affiliate or associate of the interested stockholder.

These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under the Maryland General Corporation Law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.  The Maryland General Corporation Law also permits various exemptions from these provisions, including business combinations that are exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder.  Pursuant to the statute, our board of directors has by resolution exempted business combinations between us and any other person from these provisions of the Maryland General Corporation Law, provided that the business combination is first approved by our board of directors and, consequently, the five year prohibition and the supermajority vote requirements will not apply to such business combinations.  As a result, any person approved by our board of directors will be able to enter into business combinations with us that may not be in the best interests of our stockholders without compliance by us with the supermajority vote requirements and other provisions of the statute.  This resolution, however, may be altered or repealed in whole or in part at any time.  If this resolution is repealed, or our board of directors does not otherwise approve a business combination, the statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.

Stockholders have limited control over changes in our policies and operations.

Our board of directors determines our major policies, including those regarding our investment objectives and strategies, financing, growth, debt capitalization, REIT qualification and distributions.  Our board of directors may amend or revise these and other policies without a vote of the stockholders. Under our Charter, and bylaws and the Maryland General Corporation Law, our stockholders generally have a right to vote only on the following matters:

• the election or removal of directors;

• certain mergers, consolidations, statutory share exchanges and transfers of assets;

• our dissolution;

• adoption, amendment, alteration or repeal of provisions in our bylaws;

• the amendment of our charter, except that our board of directors may amend our charter without stockholder approval to:

• change our name;

• change the name or other designation or the par value of any class or series of stock and the aggregate par value of our stock;

• increase or decrease the aggregate number of our authorized shares;

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• increase or decrease the number of our shares of any class or series of stock that we have the authority to issue; and

• effect certain reverse stock splits.

All other matters are subject to the discretion of our board of directors.

Our authorized but unissued shares of common and preferred stock may prevent a change in our control.

Our Charter authorizes us to issue additional authorized but unissued shares of common or preferred stock.  In addition, our board of directors may, without stockholder approval, amend our Charter from time to time to increase or decrease the aggregate number of shares of our stock or the number of shares of stock of any class or series that we have authority to issue and classify or reclassify any unissued shares of common or preferred stock into other classes or series of stock and set the preferences, rights and other terms of the classified or reclassified shares.  As a result, our board of directors may establish a series of common or preferred stock that could delay or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.

Because of our holding company structure, we depend on our operating partnership, IROP, and its subsidiaries for cash flow; however, we will be structurally subordinated in right of payment to the obligations of IROP and its subsidiaries.

We are a holding company with no business operations of our own.  Our only significant asset is and will be the partnership interests in IROP.  We conduct, and intend to continue to conduct, all of our business operations through IROP.  Accordingly, our only source of cash to pay our obligations is distributions from IROP and its subsidiaries of their net earnings and cash flows.  We cannot assure you that IROP or its subsidiaries will be able to, or be permitted to, make distributions to us that will enable us to make distributions to our stockholders from cash flows from operations.  Each of IROP’s subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from such entities.  In addition, because we are a holding company, your claims as stockholders will be structurally subordinated to all existing and future liabilities and obligations of IROP and its subsidiaries.  Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of IROP and its subsidiaries will be able to satisfy your claims as stockholders only after all of our and IROP’s and its subsidiaries’ liabilities and obligations have been paid in full.

Our rights and the rights of our stockholders to recover on claims against our directors are limited, which could reduce your and our recovery against them if they negligently cause us to incur losses.

The Maryland General Corporation Law provides that a director has no liability in such capacity if he performs his duties in good faith, in a manner he reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances.  In addition, our directors and officers will not be liable to us or our stockholders for monetary damages unless the director or officer actually received an improper benefit or profit in money, property or services, or is adjudged to be liable to us or our stockholders based on a finding that his or her action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding.  We will indemnify and advance expenses to our directors and officers to the maximum extent permitted by the Maryland General Corporation Law and we are permitted to purchase and maintain insurance or provide similar protection on behalf of any directors, officers, employees and agents, against any liability asserted which was incurred in any such capacity with us or arising out of such status.

General Risk Factors

If we are unable to retain or obtain key personnel, our ability to implement our investment strategies could be hindered, which could reduce our ability to make distributions and adversely affect the trading price of our common stock.

Our success depends to a significant degree upon the contributions of certain of our officers and other key personnel.  If any of our key personnel were to terminate their employment with us, our operating results could suffer.  Further, we do not have and do not intend to maintain key person life insurance that would provide us with proceeds in the event of death or disability of any of our key personnel.  We believe our future success depends upon our ability to hire and retain highly skilled managerial, operational and marketing personnel.  Competition for such personnel is intense, and we cannot assure you that we will be successful in attracting and retaining such skilled personnel.  If we lose or are unable to obtain the services of key personnel, our ability to implement our investment strategies could be delayed or hindered, and the trading price of our common stock may be adversely affected.

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We may suffer losses that are not covered by insurance.

If we suffer losses that are not covered by insurance or that are in excess of our insurance coverage, we could lose invested capital and anticipated profits.  We maintain comprehensive insurance for our properties, including casualty, liability, fire, extended coverage, terrorism, earthquakes, hurricanes and rental loss customarily obtained for similar properties in amounts which our advisor determines are sufficient to cover reasonably foreseeable losses, and with policy specifications and insured limits that we believe are adequate and appropriate under the circumstances.  Material losses may occur in excess of insurance proceeds with respect to any property, and there are types of losses, generally of a catastrophic nature, such as losses due to wars, pollution, environmental matters (such as snow or ice storms, windstorms, tornadoes, hurricanes, earthquakes, flooding or other severe weather) and mold, which are either uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments.  Moreover, we cannot predict whether all of the coverage that we currently maintain will be available to us in the future, or what the future costs or limitations on any coverage that is available to us will be.  We rely on third party insurance providers for our property, general liability and worker’s compensation insurance.  While there has yet to be any non-performance by these major insurance providers, should any of them experience liquidity issues or other financial distress, it could negatively impact us.  In addition, we annually assess our insurance needs based on the cost of coverage and other factors.  We may choose to self-insure a greater portion of this risks in the future or may choose to have higher deductibles or lesser policy terms.

We may experience a decline in the fair value of our assets and be forced to recognize impairment charges, which could materially and adversely impact our financial condition, liquidity and results of operations and the market price of our common stock. 

A decline in the fair value of our assets may require us to recognize an impairment against such assets under generally accepted accounting principles as in effect in the United States (“GAAP”), if we were to determine that, with respect to any assets in unrealized loss positions, we do not have the ability and intent to hold such assets to maturity or for a period of time sufficient to allow for recovery to the amortized cost of such assets. If such a determination were to be made, we would recognize unrealized losses through earnings and write down the amortized cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be impaired. Such impairment charges reflect non-cash losses at the time of recognition; subsequent disposition or sale of such assets could further affect our future losses or gains, as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale. If we are required to recognize asset impairment charges in the future, these charges could materially and adversely affect our financial condition, liquidity, results of operations and the per share trading price of our common stock.

Changes in U.S. accounting standards may materially and adversely affect our reported results of operations. 

Accounting for public companies in the United States is in accordance with GAAP, which is established by the Financial Accounting Standards Board (the “FASB”), an independent body whose standards are recognized by the SEC as authoritative for publicly held companies. Uncertainties posed by various initiatives of accounting standard-setting by the FASB and the SEC, which create and interpret applicable accounting standards for U.S. companies, may change the financial accounting and reporting standards or their interpretation and application of these standards that govern the preparation of our financial statements. These changes could have a material impact on our reported financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in potentially material restatements of prior period financial statements.

Our use of social media presents risks. 

Our use of social media could cause us to suffer brand damage or unintended information disclosure. Negative posts or communications about us on a social networking website could damage our reputation. Further, employees or others may disclose non-public information regarding us or our business or otherwise make negative comments regarding us on social networking or other websites, which could adversely affect our business and results of operations. As social media evolves we will be presented with new risks and challenges.

Lawsuits or other legal proceedings could result in substantial costs.

We are subject to various lawsuits and other legal proceedings and claims that arise in the ordinary course of our business operations.  The defense or settlement of any lawsuit or claim may adversely affect our business, financial condition, or results of operations or result in increased insurance premiums.

The percentage of ownership of any of our common stockholders may be diluted if we issue new shares of common stock.

Stockholders have no rights to buy additional shares of stock if we issue new shares of stock.  We may issue common stock, convertible debt or preferred stock pursuant to a public offering or a private placement, to sellers of properties we directly or indirectly

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acquire instead of, or in addition to, cash consideration.  Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings.  Any of our common stockholders who do not participate in any future stock issuances will experience dilution in the percentage of the issued and outstanding stock they own.

Sales of our common stock, or the perception that such sales will occur, may have adverse effects on our share price.

We cannot predict the effect, if any, of future sales of common stock, or the availability of shares for future sales, on the market price of our common stock.  Sales of substantial amounts of common stock, including shares of common stock issuable upon the exchange of units of our operating partnership, IROP, that we may issue from time to time, the sale of shares of common stock held by our current stockholders and the sale of any shares we may issue under our long-term incentive plan, or the perception that these sales could occur, may adversely affect prevailing market prices for our common stock.

An increase in market interest rates may have an adverse effect on the market price of our common stock.

One of the factors that investors may consider in deciding whether to buy or sell our common stock is our distribution yield, which is our distribution rate as a percentage of our share price, relative to market interest rates.  If market interest rates increase, prospective investors may desire a higher distribution yield on our common stock or may seek securities paying higher dividends or interest.  The market price of our common stock likely will be based primarily on the earnings that we derive from rental income with respect to our properties and our related distributions to stockholders, and not from the underlying appraised value of the properties themselves.  As a result, interest rate fluctuations and capital market conditions are likely to affect the market price of our common stock, and such effects could be significant.  For example, if interest rates rise without an increase in our distribution rate, the market price of our common stock could decrease because potential investors may require a higher distribution yield on our common stock as market rates on interest-bearing securities, such as bonds, rise.

Some of our distributions may include a return of capital for U.S. federal income tax purposes.

Some of our distributions may include a return of capital.  To the extent that we decide to make distributions in excess of our current and accumulated earnings and profits, such distributions would generally be considered a return of capital for U.S. federal income tax purposes to the extent of the holder’s adjusted tax basis in its shares, and thereafter as gain on a sale or exchange of such shares.

Future issuances of debt securities, which would rank senior to our common stock upon liquidation, or future issuances of preferred equity securities, may adversely affect the trading price of our common stock.

In the future, we may issue debt or equity securities or incur other borrowings.  Upon our liquidation, holders of our debt securities, other loans and preferred stock will receive a distribution of our available assets before common stockholders.  Any preferred stock, if issued, likely will also have a preference on periodic distribution payments, which could eliminate or otherwise limit our ability to make distributions to common stockholders.  Common stockholders bear the risk that our future issuances of debt or equity securities or our incurrence of other borrowings may negatively affect the trading price of our common stock.

The market prices for our common stock may be volatile.

The prices at which our common stock may sell in the public market may be volatile.  Fluctuations in the market prices of our common stock may not be correlated in a predictable way to our performance or operating results.  The prices at which our common stock trade may fluctuate as a result of factors that are beyond our control or unrelated to our performance or operating results.

We have not established a minimum dividend payment level and we cannot assure you of our ability to pay dividends in the future or the amount of any dividends.

Our board of directors will determine the amount and timing of distributions.  In making this determination, our directors will consider all relevant factors, including REIT minimum distribution requirements, the amount of core funds from operation, restrictions under Maryland law, capital expenditures and reserve requirements and general operational requirements.  We cannot assure you that we will be able to make distributions in the future or in amounts similar to our past distributions.  We may need to fund distributions through borrowings, returning capital or selling assets, which may be available only at commercially unattractive terms, if at all.  Any of the foregoing could adversely affect the market price of our common stock.

ITEM 1B. Unresolved Staff Comments

None.

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ITEM 2. Properties

We hold fee title to all of the apartment properties in our portfolio. The following table presents an overview of our portfolio as of December 31, 2020.

Market	Property Count		Units (a)		Gross Cost		Accumulated Depreciation			Net Book Value		Period End Occupancy (b)	Average Occupancy (c)	Average Effective Rent per Occupied Unit (d)
Atlanta, GA		6		2,020		260,863		(31,037	)		229,826	97.3%	96.5%		1,229
Raleigh - Durham, NC		6		1,690		246,094		(25,363	)		220,731	95.6%	95.7%		1,197
Louisville, KY		6		1,710		201,586		(30,897	)		170,689	91.8%	90.6%		1,016
Tampa-St. Petersburg, FL		4		1,104		181,143		(10,500	)		170,643	94.6%	94.6%		1,307
Columbus, OH		6		1,547		156,980		(13,689	)		143,291	92.5%	93.1%		1,076
Memphis, TN		4		1,383		149,552		(22,464	)		127,088	96.7%	96.1%		1,193
Indianapolis, IN		4		916		91,834		(10,834	)		81,000	96.6%	96.1%		1,065
Dallas, TX		4		985		140,443		(11,859	)		128,584	95.9%	95.0%		1,309
Charleston, SC		2		518		80,186		(9,850	)		70,336	96.0%	95.8%		1,310
Oklahoma City, OK		5		1,658		79,478		(13,631	)		65,847	96.7%	96.2%		700
Myrtle Beach, SC - Wilmington, NC		3		628		64,582		(5,638	)		58,944	94.1%	94.8%		1,052
Orlando, FL		1		297		49,112		(6,148	)		42,964	97.0%	96.1%		1,446
Charlotte, NC		1		208		42,304		(5,123	)		37,181	95.9%	96.5%		1,489
St. Louis, MO		1		152		33,663		(5,632	)		28,031	92.8%	92.6%		1,483
Asheville, NC		1		252		28,951		(3,728	)		25,223	95.4%	95.5%		1,137
Huntsville, AL		2		599		109,999		(2,225	)		107,774	97.3%	97.2%		1,290
TOTAL		56		15,667	$	1,916,770	$	(208,618	)	$	1,708,152	95.3%	95.0%	$	1,136

(a) Units represent the total number of apartment units available for rent at December 31, 2020.

(b) Period end occupancy for each of our properties is calculated as (i) total units rented as of December 31, 2020 divided by (ii) total units available for rent as of December 31, 2020, expressed as a percentage.

(c) Average occupancy represents the daily average occupancy of available units for the three-month period ended December 31, 2020.

(d) Average effective monthly rent, per unit, represents the average monthly rent for all occupied units for the three-month period ended December 31, 2020.

Additional information on our consolidated properties is contained in “Schedule III - Real Estate and Accumulated Depreciation” in this Annual Report on Form 10-K, which is incorporated herein by reference.

ITEM 3. 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 4. Mine Safety Disclosures

Not applicable.

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PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information; Holders

Our common stock is listed and traded on the NYSE under the symbol “IRT”. At the close of business on February 12, 2021, the closing price for our common stock was $14.56 per share and there were 58 holders of record, one of which is the holder for all beneficial owners who hold in street name.

Dividends

Our quarterly dividend rate is currently $0.12 per common share. Our Board of Directors reviews and declares the dividend rate quarterly. Actual dividends paid by us will be affected by a number of factors, including, but not limited to, the revenues received from our apartment communities, our operating expenses, the interest expense incurred on borrowings and unanticipated capital expenditures. We expect to make future quarterly distributions to stockholders; however, future distributions will be at the discretion of our Board of Directors and will depend on our actual funds from operations, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code (see "Business - Qualification as a Real Estate Investment Trust" above) and such other factors as our Board of Directors deems relevant.

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 PERFORMANCE GRAPH

On August 13, 2013, our common stock commenced trading on the NYSE MKT. On July 31, 2017 we transferred the listing of our common stock to the New York Stock Exchange (“NYSE”) from the NYSE MKT. The following graph compares the index of the cumulative total stockholder return on our common shares for the measurement period beginning December 31, 2015 and ending December 31, 2020 with the cumulative total returns of the National Association of Real Estate Investment Trusts (NAREIT) Equity REIT index and the Russell 3000 Index. The following graph assumes that each index was 100 on the initial day of the relevant measurement period and that all dividends were reinvested.

Unregistered Sales of Equity Securities

As of January 1, 2020, an aggregate of 871,491 common units in IROP were outstanding and held by unaffiliated entities or persons who received the units in exchange for property contributions.  We did not issue any units in IROP in calendar year 2020.  As previously disclosed, the units in IROP are subject to exchange agreements that permit the holders of the units to tender the units to us for cash in an amount equal to the market price (based on a trailing average computation) of an equivalent number of shares of our common stock at the time we receive notice of the exchange.  We have the option, in lieu of paying cash, to settle the exchange for a number of shares of our common stock equal to the number of units tendered for exchange.  On February 28, 2020, we issued 82,357 shares of common stock in exchange for an equal number of units. On September 11, 2020, we issued 87,148 shares of common stock in exchange for an equal number of units. On October 30, 2020, we issued 16,262 shares of common stock in exchange for an equal number of units. On November 1, 2020, we issued 11,207 shares of common stock in exchange for an equal number of units. Our issuances of the shares of common stock were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. As a result of the foregoing exchanges an aggregate of 674,517 units held by unaffiliated third parties remained outstanding at December 31, 2020 (and at February 11, 2021).

Issuer Purchases of Equity Securities

None.  

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ITEM 6. Selected Financial Data

The following table summarizes selected financial data about our company (dollars in thousands, except share and per share data). The following selected financial data information should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements, including the notes thereto, included elsewhere herein.

	As of and for the years ended December 31
	2020			2019			2018			2017			2016
Operating Data:
Total revenue	$	211,906		$	203,223		$	191,232		$	161,216		$	153,388
Property operating expenses		(82,978	)		(79,568	)		(76,363	)		(64,716	)		(63,148	)
Total expenses		(168,095	)		(152,854	)		(139,410	)		(115,791	)		(113,726	)
Interest expense		(36,488	)		(39,226	)		(36,006	)		(28,702	)		(35,535	)
Net income (loss)		14,877			46,354			26,610			31,441			(9,555	)
Net income (loss) allocable to common shares		14,768			45,896			26,288			30,206			(9,801	)
Earnings (loss) per share:
Basic	$	0.16		$	0.51		$	0.30		$	0.41		$	(0.19	)
Diluted	$	0.16		$	0.51		$	0.30		$	0.41		$	(0.19	)
Balance Sheet Data:
Investments in real estate, net	$	1,708,152		$	1,637,930		$	1,548,153		$	1,420,059		$	1,197,845
Total assets		1,734,897			1,664,106			1,659,336			1,450,624			1,294,237
Total indebtedness, net		945,686			985,572			985,488			778,442			743,817
Total liabilities		1,022,126			1,044,349			1,029,291			804,505			765,546
Total equity		712,771			619,757			630,045			646,119			528,691

	As of and for the years ended December 31
	2020			2019			2018			2017			2016
Other Data:
Property portfolio occupancy		95.3	%		92.5	%		92.5	%		94.0	%		94.5	%
Common shares outstanding		101,803,762			91,070,637			89,184,443			84,708,551			68,996,070
Limited partnership units outstanding (1)		674,517			871,491			881,107			3,011,351			2,908,949
Total common shares and limited partnership units outstanding		102,478,279			91,942,128			90,065,550			87,719,902			71,905,019
Cash distributions declared per common share/unit	$	0.5400		$	0.7200		$	0.7200		$	0.7200		$	0.7200

(1) Held by persons other than IRT and its subsidiaries.

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help provide an understanding of our business, financial condition and results of operations. This MD&A should be read in conjunction with our Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included elsewhere in this report. This report, including the following MD&A, contains forward-looking statements regarding future events or trends that are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

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. We assume no obligation to update or supplement forward-looking statements because of subsequent events.  Actual results may differ materially from the anticipated results discussed in these forward-looking statements.  Factors which may cause our actual results or performance to differ materially from those contemplated by forward-looking statements include, but are not limited to, the risk the following:

• Unfavorable changes in economic conditions, either nationally or regionally in one or more of the markets in which we operate, could adversely impact us;

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• Short-term leases expose us to the effects of declining rents.

• Competition could limit our ability to lease apartments or increase or maintain rental income;

• Redevelopment risks could impact our profitability;

• Labor and materials required for maintenance, repair, renovation or capital expenditure may be more expensive than anticipated or significantly delayed;

• Competition could adversely affect our ability to acquire properties;

• Our acquisition strategy may not produce the cash flows expected;

• Failure to qualify as a REIT could have adverse consequences;

• Litigation risks could affect our business;

• A cybersecurity incident and other technology disruptions could negatively impact our business;

• Damage from catastrophic weather and other natural events could result in losses;

• Volatility in capital markets may result in fluctuations in our share price;

• Debt financing and other required capital may not be available to us or may only be available on adverse terms;

• Rising interest rates could both increase our borrowing costs, thereby adversely affecting our cash flows and the amounts available for distribution to our stockholders, and decrease our share price, if investors seek higher yields through other investments;

• Failure to hedge effectively against interest rates may adversely affect results of operations; and

• Additional factors as discussed in Item 1A. “Risk Factors”.

Forward-looking statements and related uncertainties are also included in the Notes to Consolidated Financial Statements in this report.

Overview

See Item 1. Business for an overview of our company.

Business Objective and Investment Strategies

See Item 1. Business for discussion regarding our business objective and investment strategies.

Recent Trends

An important part of our investment strategy is to strengthen our balance sheet and drive long-term growth and unlock value through portfolio enhancements.  Our value add initiative, which is comprised of renovations and upgrades at selected communities to drive increased rental rates, is a core component of this strategy. As discussed earlier, as of December 31, 2020, we had identified 7,076 units across 23 of our communities for renovations and upgrades as part of value add initiative. As of December 31, 2020, we had completed renovations and upgrades at 3,719 of the 7,076 units while achieving a return on total investment of 15.9%. During 2020, we temporarily paused projects due to the COVID-19 pandemic. Several projects that were supposed to start in 2020 were delayed to 2021. We expect to complete the remaining value add projects at the selected communities during 2021 and 2022.

In 2020, we acquired two communities, totaling 672 units and disposed of three communities, totaling 559 units. These acquisitions and dispositions represent the execution of our strategy to gain scale within desired submarkets, while exiting markets we lack scale. In 2021, subject to market conditions, we intend to continue to seek opportunities to gain scale within our existing markets through acquisitions of communities which fit within our investment strategy. We face competition for attractive investment opportunities from other real estate investors and, as a result, we may be unable to acquire additional properties on desirable terms, or at all.

See Item 1. Business for an additional discussion regarding developments in our business during 2020.

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Results of Operations

The following discussion is based on our Consolidated Financial Statements for the years ended December 31, 2020 and 2019. Refer to Item 7, “Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019 for a comparison of the year ended December 31, 2019 to the year ended December 31, 2018.

Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019

	SAME STORE PROPERTIES												NON SAME STORE PROPERTIES												CONSOLIDATED
	2020			2019			Increase (Decrease)			% Change			2020			2019			Increase (Decrease)			% Change			2020			2019			Increase (Decrease)			% Change
Period-end Property Data:
Number of properties	51				51									5			6			(1	)		-16.7	%	56				57			(1	)		-1.8	%
Number of units		14,189			14,189									1,478			1,365			113			8.3	%		15,667			15,554			113			0.7	%
Average occupancy		93.7	%		93.4	%		0.3	%		0.3	%		93.4	%		92.4	%		1.0	%		1.1	%		93.6	%		93.3	%		0.3	%		0.3	%
Average effective monthly rent, per unit	$	1,105		$	1,068		$	37			3.5	%	$	1,191		$	1,065		$	126			11.8	%	$	1,114		$	1,068		$	47			4.4	%
Revenue:
Rental and other property revenue	$	189,214		$	182,599		$	6,615			3.6	%	$	21,953		$	20,021		$	1,932			9.6	%	$	211,167		$	202,620		$	8,547			4.2	%
Expenses:
Property operating expenses		74,201			71,005			3,196			4.5	%		8,777			8,563			214			2.5	%		82,978			79,568			3,410			4.3	%
Net Operating Income	$	115,013		$	111,594		$	3,419			3.1	%	$	13,176		$	11,458		$	1,718			15.0	%	$	128,189		$	123,052		$	5,137			4.2	%
Other Revenue:
Other revenue																									$	739		$	603		$	136			22.6	%
Corporate and other expenses:
Property management expenses																										8,494			7,726			768			9.9	%
General and administrative expenses																										15,095			12,745			2,350			18.4	%
Depreciation and amortization expense																										60,687			52,815			7,872			14.9	%
Abandoned deal costs																										130			-			130			-
Casualty related costs																										711			-			711		-
Total corporate and other expenses																										85,117			73,286			11,831			16.1	%
Interest expense																										(36,488	)		(39,226	)		2,738			-7.0	%
Gain on sale (loss on impairment) of real estate assets, net																										7,554			35,211			(27,657	)		-78.5	%
Net income (loss)																										14,877			46,354			(31,477	)		-67.9	%
Income allocated to noncontrolling interests																										(109	)		(458	)		349			-76.2	%
Net income (loss) available to common shares																									$	14,768		$	45,896		$	(31,128	)		-67.8	%

Revenue

Rental and other property revenue. Rental and other property revenue increased $8.5 million to $211.2 million for the year ended December 31, 2020 from $202.6 million for the year ended December 31, 2019. The increase was primarily attributable to a $6.6 million increase in same store rental income driven by a 3.5% increase in average effective monthly rents compared to the prior year period and a $1.9 million increase in our non same store portfolio due to timing of acquisitions and dispositions during the year. These increases were partially offset by a $0.6 million increase in bad debt compared to the prior year primarily due to a provision for bad debt recorded in the year ended December 31, 2020.

Other revenue. Other revenue increased $0.1 million to $0.7 million for the year ended December 31, 2020 compared to $0.6 million for the year ended December 31, 2019.

Expenses

Property operating expenses. Property operating expenses increased $3.4 million to $83.0 million for the year ended December 31, 2020 from $79.6 million for the year ended December 31, 2019. The increase was primarily due to a $3.2 million increase in same store real estate operating expenses primarily due to an increase in real estate taxes, contract services, personnel, and utility costs. In addition, non same store real estate operating expenses increased $0.2 million.

Property management expenses. Property management expenses increased $0.8 million to $8.5 million for the year ended December 31, 2020 from $7.7 million for the year ended December 31, 2019. This increase was primarily due to an increase in personnel costs as we sought and continue to seek to attract and retain the best talent to support our management platform.

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General and administrative expenses. General and administrative expenses increased $2.4 million to $15.1 million for the year ended December 31, 2020 from $12.7 million for the year ended December 31, 2019. This increase was primarily due to $1.7 million in stock based compensation recognized during the year ended December 31, 2020 related to performance share units and restricted stock units granted to employees who are retirement eligible.

Depreciation and amortization expense. Depreciation and amortization expense increased $7.9 million to $60.7 million for the year ended December 31, 2020 from $52.8 million for the year ended December 31, 2019. The increase was attributable to a $5.5 million increase in depreciation expense from capital expenditures related to our value add initiative and a $2.4 million increase in depreciation expense due to property acquisitions in 2019 and 2020.

Casualty losses. During the year ended December 31, 2020, we incurred $0.7 million in casualty losses due to fires at three of our properties where the carrying value of the damage exceeds our expected insurance proceeds due to policy deductibles.

Interest expense. Interest expense decreased $2.7 million to $36.5 million for the year ended December 31, 2020 from $39.2 million for the year ended December 31, 2019.  This was primarily due to lower interest rates during the year ended December 31, 2020 compared to the prior year.

Gain on sale (loss on impairment) of real estate assets, net. During the year ended December 31, 2020, three multi-family properties were sold resulting in net gains of $7.6 million. During the year ended December 31, 2019, four multi-family properties were sold resulting in gains of $35.2 million.

Non-GAAP Financial Measures

Funds from Operations and Core Funds from Operations

We believe that FFO and Core FFO (“CFFO”), each of which is a non-GAAP financial measure, are additional appropriate measures of the operating performance of a REIT and us in particular. We compute FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”), as net income or loss allocated to common shares (computed in accordance with GAAP), excluding real estate-related depreciation and amortization expense, gains or losses on sales of real estate and the cumulative effect of changes in accounting principles. While our calculation of FFO is in accordance with NAREIT’s definition, it may differ from the methodology for calculating FFO utilized by other REITs and, accordingly, may not be comparable to FFO computations of such other REITs.

CFFO is a computation made by analysts and investors to measure a real estate company’s operating performance by removing the effect of items that do not reflect ongoing property operations, including stock compensation expense, depreciation and amortization of other items not included in FFO, amortization of deferred financing costs, and other non-cash or non-operating gains or losses related to items such as casualty losses, 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.

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 Set forth below is a reconciliation of net income (loss) to FFO and Core FFO for the years ended December 31, 2020, 2019 and 2018 (in thousands, except share and per share information):

	For the Year Ended December 31, 2020						For the Year Ended December 31, 2019						For the Year Ended December 31, 2018
	Amount			Per Share (1)			Amount			Per Share (1)			Amount			Per Share (1)
Funds From Operations:
Net income	$	14,877		$	0.16		$	46,354		$	0.51		$	26,610		$	0.30
Adjustments:
Real estate depreciation and amortization		60,352			0.64			52,482			0.58			45,067			0.51
Loss on impairment (gain on sale) of real estate assets, net, excluding debt extinguishment costs		(7,554	)		(0.08	)		(42,628	)		(0.47	)		(11,561	)		(0.13	)
Funds From Operations	$	67,675		$	0.72		$	56,208		$	0.62		$	60,116		$	0.68
Core Funds From Operations:
Funds From Operations	$	67,675		$	0.72		$	56,208		$	0.62		$	60,116		$	0.68
Adjustments:
Stock-based compensation		5,564			0.06			3,116			0.03			2,524			0.03
Amortization of deferred financing costs		1,448			0.02			1,423			0.02			1,430			0.02
Other depreciation and amortization		335			-			333			0.01			154			-
Other expense (income)		-			-			-			-			(52	)		-
Abandoned deal costs		130			-			-			-			-			-
Casualty losses		711			-			-			-			-			-
Debt extinguishment costs included in net gains on sale of assets		-			-			7,417			0.08			911			0.01
Core Funds From Operations	$	75,863		$	0.80		$	68,497		$	0.76		$	65,083		$	0.74

(1) Based on 94,430,935, 90,680,212 and 88,289,110 weighted average shares and units outstanding for the years ended December 31, 2020, 2019, and 2018, respectively.

Beginning in the first quarter of 2021, we expect to change our definition of CFFO such that we will no longer exclude stock compensation expense or amortization of deferred financing costs from our computation of CFFO.  When we adopt this change, we will present all historical results in accordance with the new definition.

Same Store Portfolio Net Operating Income

We believe that Net Operating Income (“NOI”), a non-GAAP financial measure, is a useful measure of our operating performance. We define NOI as total property revenues less total property operating expenses, excluding depreciation and amortization, casualty related costs, property management expenses, general administrative expenses, interest expense, and net gains on sale of assets.

Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REITs. We believe that this measure provides an operating perspective not immediately apparent from GAAP operating income or net income. 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 and other items not related to property operating performance and captures trends in rental housing and property operating expenses. However, NOI should only be used as an alternative measure of our financial performance.

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We review our same store portfolio at the beginning of each calendar year.  Properties are added into the same store portfolio if they were owned at the beginning of the previous year. Properties that are held-for-sale or have been sold are excluded from the same store portfolio. The table below presents our same store results for the years ended December 31, 2020 and 2019 (in thousands).

	Twelve-Months Ended December 31 (a)
	2020			2019			% change
Revenue:
Rental and other property revenue	$	189,214		$	182,599			3.6	%
Property Operating Expenses
Real estate taxes		23,619			22,726			3.9	%
Property insurance		4,123			3,688			11.8	%
Personnel expenses		17,820			17,179			3.7	%
Utilities		10,490			9,882			6.2	%
Repairs and maintenance		6,561			6,354			3.3	%
Contract services		7,433			6,749			10.1	%
Advertising expenses		1,974			1,930			2.3	%
Other expenses		2,181			2,497			-12.7	%
Total operating expenses		74,201			71,005			4.5	%
Net operating income	$	115,013		$	111,594			3.1	%
NOI Margin		60.8	%		61.1	%		-0.3	%
Average Occupancy		93.6	%		93.4	%		0.2	%
Average effective monthly rent, per unit	$	1,105		$	1,068			3.5	%
Reconciliation of Same-Store Net Operating    Income to Net income
Same-store portfolio net operating income (a)	$	115,013		$	111,594
Non same-store net operating income		13,176			11,458
Other revenue		739			603
Property management expenses		(8,494	)		(7,726	)
General and administrative expenses		(15,095	)		(12,745	)
Depreciation and amortization		(60,687	)		(52,815	)
Abandoned deal costs		(130	)		—
Casualty losses		(711	)		—
Interest expense		(36,488	)		(39,226	)
Gain on sale (loss on impairment) of real estate assets, net		7,554			35,211
Net income	$	14,877		$	46,354

(a) Same store portfolio for the years ended December 31, 2020 and 2019 includes 51 properties, which represent 14,189 units.

Liquidity and Capital Resources

Overview

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 12 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;

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• 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 $8.8 million as of December 31, 2020;

• existing and future unsecured financing and financing secured directly or indirectly by the apartment properties in our portfolio including advances under our unsecured credit facility;

• 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 at-the-market program and/or issued on a forward basis.

We continue to seek to reduce our leverage ratio over time through the execution of various strategies. These strategies include using the proceeds from sales of properties which are outside our core geographic footprint in the Southeastern United States or which we believe have limited potential for further improvements to their operating results to repay a portion of our indebtedness or to acquire new properties at a lower leverage and selectively raising capital through the sale of common stock under our at-the-market program and re-investing the proceeds into our value add initiative in order to increase our portfolio’s gross asset value. We have successfully continued to implement these strategies to reduce our leverage and reduce our exposure to short term indebtedness.

• During 2020, we continued our capital recycling initiative aimed at disposing of assets in markets where we lack scale, in order to invest in attractive non-gateway markets where scale has been, or can be, achieved. As part of this capital recycling initiative, we sold three properties for $59.7 million, in the aggregate, generating net cash proceeds of $58.4 million, in the aggregate, after costs.

• During 2020, we issued 10,350,000 shares of common stock under forward sale agreements at an average price per share of $14.38, generating proceeds to us approximately $148.8 million.

• During 2020, we entered into an equity distribution agreement (referred to above as our ATM Program) 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. In November 2020, we entered into a forward sale transaction under the ATM Program for the forward sale of 900,000 shares of our common stock that have not yet been settled.  Subject to our right to elect net share settlement, we expect to physically settle the forward sale transaction by the maturity date (December 2021) set forth in the forward sale transaction placement notice.  Assuming the forward sales transaction is physically settled in full utilizing the initial forward sale price of $14.00 per share, net of sales commissions, we expect to receive net proceeds of approximately $12.4 million, subject to adjustment in accordance with the forward sale transaction.

Cash Flows

As of December 31, 2020 and 2019, we maintained cash, cash equivalents, and restricted cash of approximately $13.6 million and $14.4 million, respectively. Our cash and cash equivalents were generated from the following activities (dollars in thousands):

	For the Years Ended December 31
	2020			2019			2018
Cash flow from operating activities	$	74,959		$	75,001		$	68,530
Cash flow from investing activities		(124,540	)		(106,396	)		(229,457	)
Cash flow from financing activities		48,763			29,783			162,353
Net change in cash and cash equivalents, and restricted cash		(818	)		(1,612	)		1,426
Cash and cash equivalents, and restricted cash, beginning of period		14,433			16,045			14,619
Cash and cash equivalents, and restricted cash, end of the period	$	13,615		$	14,433		$	16,045

Our cash inflow from operating activities during the years ended December 31, 2020, 2019 and 2018 were primarily driven by ongoing operations of our properties.  

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Our cash outflow from investing activities during the year ended December 31, 2020 was primarily driven by $145.3 million of outflows related to two property acquisitions and capital expenditures of $37.4 million. This was partially offset by cash inflows of $58.1 million related to three property dispositions. Our cash outflow from investing activities during the year ended December 31, 2019 was primarily driven by $128.9 million of outflows related to three property acquisitions and capital expenditures of $45.6 million. This was partially offset by cash inflows of $68.1 million related to four property dispositions.  Our cash outflow from investing activities during the year ended December 31, 2018 was primarily driven by $215.8 million of outflows related to eight property acquisitions.

Our cash inflow from financing activities during the year ended December 31, 2020 was primarily driven by $148.2 million of proceeds from common stock issuances and was partially offset by $56.1 million of distributions on our common stock and mortgage repayments of $39.8 million.  Our cash inflow from financing activities during the year ended December 31, 2019 was primarily driven by net borrowings under our unsecured credit facility and term loans totaling $80.6 million plus $21.0 million of proceeds from common stock issuances and was partially offset by $64.7 million of distributions on our common stock. Our cash inflow from financing activities during the year ended December 31, 2018 was primarily driven by proceeds from our unsecured credit facility and term loans of $400.0 million. This was partially offset by $198.3 million of repayments of our unsecured credit facility and $52.5 million of distributions of our common stock.

Capitalization

Equity

On February 20, 2020, we entered into an underwriting agreement with KeyBanc Capital Markets Inc. and BMO Capital Markets Corp., as representatives of the several underwriters named therein (collectively, the “Underwriters”), BMO Capital Markets Corp. (the “Forward Seller”), and Bank of Montreal (the “Forward Counterparty”) relating to the offering of an aggregate of 10,350,000 shares of common stock at a price to the Underwriters of $14.688 per share, consisting of 10,350,000 shares of our common stock offered by the Forward Seller in connection with the forward sale agreements described below (including 1,350,000 shares of our common stock offered pursuant to the Underwriters’ option to purchase additional shares of our common stock, which was exercised in full). We completed the offering on February 24, 2020. We did not initially receive any proceeds from the sale of our common stock by the Forward Seller.

In connection with the offering, we also entered into two forward sale agreements. The first forward sale agreement (the “Initial Forward Sale Agreement”), dated February 20, 2020, 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 February 20, 2020, with the Forward Seller and the Forward Counterparty. In connection with the Forward Sale Agreements, the Forward Seller or its affiliate borrowed from third parties and sold to the Underwriters an aggregate of 10,350,000 shares of our common stock that was sold in the offering. On March 31, 2020, we physically settled $50.0 million under the Forward Sale Agreements by issuing 3,406,000 shares of our common stock. On December 28, 2020, we settled $98.8 million by issuing the remaining 6,944,000 shares of our common stock.

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.  On November 13, 2020, we entered into a forward sale transaction under the ATM Program for the forward sale of 900,000 shares of our common stock that have not yet been settled.  Subject to our right to elect net share settlement, we expect to physically settle the forward sale transaction by the maturity date (December 21, 2021) set forth in the forward sale transaction placement notice.  Assuming the forward sales transaction is physically settled in full utilizing the initial forward sale price of $14.00 per share, net of sales commissions, we expect to receive net proceeds of approximately $12.4 million, subject to adjustment in accordance with the forward sale transaction.  

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Debt

The following tables 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 is $350.0 million, of which $184.8 million was outstanding as of December 31, 2020.  

	Original maturities on or before December 31,
Debt:	2021		2022		2023		2024		2025		Thereafter
Unsecured credit facility	$	-	$	-	$	184,802	$	-	$	-	$	-
Unsecured term loans		-		-		-		300,000		-		-
Mortgages		48,484		66,478		107,636		36,913		162,562		43,019
Total	$	48,484	$	66,478	$	292,438	$	336,913	$	162,562	$	43,019

As of December 31, 2020 we were in compliance with all financial covenants contained in our indebtedness.

On July 9, 2020, we drew down on our unsecured credit facility to prepay and extinguish a property mortgage and make partial paydowns on certain other property mortgages totaling $32.1 million. The property mortgages had a weighted-average interest rate of 3.9% compared to the 1.6% interest rate on our unsecured credit facility as of June 30, 2020.

 Contractual Obligations

The table below summarizes our contractual obligations as of December 31, 2020 (dollars in thousands):

	Payment due by Year
		2021		2022		2023		2024		2025		Thereafter		Total
Principal payments on outstanding debt obligations		$	48,484	$	66,478	$	292,438	$	336,913	$	162,562	$	43,019	$	949,894
Interest payments on outstanding debt obligations (1)			24,745		21,785		17,030		10,754		3,183		908		78,405
Operating lease obligations			511		375		382		388		395		1,996		4,047
Total		$	73,740	$	88,638	$	309,850	$	348,055	$	166,140	$	45,923	$	1,032,346

(1) Our unsecured credit facility and term loans assume a 30-day LIBOR rate of 0.15% as of December 31, 2020.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements during the year ended December 31, 2020 that have or are 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 resource that is material to our interests.  

Terms of Leases and Resident Characteristics

The leases for our portfolio typically follow standard forms customarily used between landlords and residents in the geographic area in which the relevant property is located. Under such leases, the resident typically agrees to pay an initial deposit (generally one month’s rent) and/or associated application and move in-fees, and then pays rent on a monthly basis during the term of the lease. As landlord, we are directly responsible for all real estate taxes, sales and use taxes, special assessments, property-level utilities, insurance and building repairs, and other building operation and management costs. Individual residents are generally responsible for the utility costs of their unit. Our lease terms are generally for one year or less and average twelve months.

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Our apartment resident composition varies across the regions in which we operate, includes singles, roommates and family renters and is generally reflective of the principal employers in the relevant region. Our apartment properties predominantly consist of one-bedroom and two-bedroom units, although some of our apartment properties also have studio and three-bedroom units.

Insurance

Our multifamily properties are covered by all risk property insurance covering 110% of the replacement cost for each building and business interruption and rental loss insurance (covering up to twelve months of loss). On a case-by-case basis, based on an assessment of the likelihood of the risk, availability and cost of insurance, and in accordance with standard market practice, we obtain earthquake, windstorm, flood, terrorism and boiler and machinery insurance. We carry comprehensive liability insurance and umbrella policies for each of our properties at levels which we believe are prudent in light of our business activities and are in accordance with standard market practice. We seek certain extensions of coverage, valuation clauses, and deductibles in accordance with standard market practice and availability. Although we may carry insurance for potential losses associated with our multifamily properties, we may still incur losses due to uninsured risks, deductibles, co-payments or losses in excess of applicable insurance coverage and those losses may be material.

Inflation

Our resident leases at our apartment communities allow, at the time of renewal, for adjustments in the rent payable thereunder, and thus may enable us to seek rent increases. Almost all leases are for one year or less. The short-term nature of these leases generally serves to reduce our risk to adverse effects of inflation.

Critical Accounting Estimates and Policies

We consider the accounting policies discussed below to be critical to an understanding of how we report our financial condition and results of operations because their application places the most significant demands on the judgment and estimates of our management.

Our financial statements are prepared on the accrual basis of accounting in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make use of 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.

Revenue Recognition

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.  Effective January 1, 2019, if collectability is not probable for revenue streams accounted for under FASB ASC Topic 842, we adjust rental and other property income for the amount of uncollectible revenue. Prior to January 1, 2019, we maintained an allowance for doubtful accounts based on an ongoing analysis of collectability and recorded changes in the allowance for doubtful accounts as bad debt expense within property operating expenses.  

Investments in Real Estate

Allocation of Purchase Price of Acquired Assets

In accordance with ASC 805 Topic 805, 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.

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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.

  Impairment of Long-Lived Assets

Management evaluates the recoverability of its 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 its 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.

Share-Based Compensation

We account for stock-based compensation in accordance with FASB ASC Topic 718, “Compensation - Stock Compensation”. Any stock-based compensation awards granted are measured based on the grant-date fair value of the award and compensation expense for the entire award is recognized on a straight-line basis over the requisite service period, which is the vesting period, for the entire award.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. We may be exposed to interest rate changes primarily as a result of long-term debt used to maintain liquidity, fund capital expenditures and expand our real estate investment portfolio and operations. Market fluctuations in real estate financing may affect the availability and cost of funds needed to expand our investment portfolio. In addition, restrictions upon the availability of real estate financing or high interest rates for real estate loans could adversely affect our ability to dispose of real estate in the future. We seek to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. We currently and may in the future use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our assets. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. With regard to variable rate financing, we assess our interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. We maintain risk management control systems to monitor interest rate cash flow risk attributable to both our outstanding and forecasted debt obligations as well as our potential offsetting hedge positions. While this hedging strategy is designed to minimize the impact on our net income and funds from operations of changes in interest rates, the overall returns on any investment in our securities may be reduced. We currently have limited exposure to financial market risks.

We may also be exposed to credit risk in derivative contracts we may use. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us. If the fair value of a derivative contract is negative, we will owe the counterparty and, therefore, do not have credit risk. We seek to minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties.

Interest Rate Risk and Sensitivity

Interest rates may be affected by economic, geo-political, monetary and fiscal policy, market supply and demand and other factors generally outside our control, and such factors may be highly volatile. A change in market interest rates applicable to the fixed-rate portion of our indebtedness affects the fair value, but it has no effect on interest incurred or cash flows. A change in market interest rates applicable to the variable portion of our indebtedness affects the interest incurred and cash flows, but does not affect the fair value.

As of December 31, 2020, our only interest rate sensitive assets or liabilities related to our principal amount of $949.9 million of outstanding indebtedness, of which $465.1 million was fixed rate and $484.8 million was floating rate, three float-to-fixed interest rate swaps with a total notional amount of $450.0 million, and two interest rate collars with a total notional amount of $250.0 million. As of December 31, 2019, our only interest rate sensitive assets or liabilities related to our principal amount of $991.2 million of

47

outstanding indebtedness, of which $504.9 million was fixed rate and $486.3 million was floating rate, was two float-to-fixed interest rate swaps with a total notional amount of $300.0 million, and two interest rate collars with a total notional amount of $250.0 million. We monitor interest rate risk routinely and seek to minimize the possibility that a change in interest rates would impact the interest incurred and our cash flows. To mitigate such risk, we may use interest rate derivative contracts.

As of December 31, 2020, and 2019, the fair value of our fixed-rate indebtedness was $479.9 million and $505.5 million, respectively. The fair value of our fixed rate indebtedness was estimated using a discounted cash flow analysis utilizing rates that we believe a market participant would expect to pay for debt of a similar type and remaining maturity as if the debt was originated at December 31, 2020 and 2019, respectively. As we expect to remain obligated on our fixed rate instruments to maturity and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate instruments, would have a significant impact on our operations.

As of December 31, 2020, our interest rate swap and interest rate collars had a combined liability fair value of $29.8 million.  The fair values of our interest rate swaps and interest rate collars were estimated using a discounted cash flow analysis based on forward interest rate curves.  The impact of the interest rate swaps and interest rate collars have been included in the table below.

The following table summarizes our indebtedness, and the impact to interest expense for a 12-month period, and the change in the net fair value of our indebtedness assuming an instantaneous increase or decrease of 100 basis points in the LIBOR interest rate curve (dollars in thousands):

	Liabilities Subject to Interest Rate Sensitivity (a)		100 Basis Point Increase			100 Basis Point Decrease
Interest expense from variable-rate indebtedness	$	484,802	$	848		$	(848	)
Fair value of fixed-rate indebtedness		479,929		(13,600	)		14,107

(a)   Unpaid balance of variable-rate indebtedness as of December 31, 2020 is shown. Fair value of fixed-rate indebtedness as of December 31, 2020 is shown.

48

ITEM 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

OF INDEPENDENCE REALTY TRUST, INC.

(A Maryland Corporation)

Report of Independent Registered Public Accounting Firm	50
Consolidated Balance Sheets as of December 31, 2020 and 2019	53
Consolidated Statements of Operations for the Three Years Ended December 31, 2020, 2019 and 2018	54
Statement of Comprehensive Income (Loss) for the Three Years Ended December 31, 2020, 2019 and 2018	55
Consolidated Statements of Changes in Equity for the Three Years Ended December 31, 2020, 2019 and 2018	56
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2020, 2019 and 2018	57
Notes to Consolidated Financial Statements	58
Supplemental Schedule
Schedule III: Real Estate and Accumulated Depreciation	74

49

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Independence Realty Trust, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Independence Realty Trust, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 18, 2021, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of real estate assets for potential impairment

As discussed in Note 3 to the consolidated financial statements, the Company had $1,708,152 thousand of investments in real estate, net as of December 31, 2020. As discussed in Note 2, the Company evaluates the recoverability of real estate assets whenever events or changes in circumstances indicate that the carrying amount of a real estate asset may exceed fair value.

We identified the evaluation of real estate assets for potential impairment as a critical audit matter. There is a high degree of subjective and complex auditor judgement in evaluating the relevant events or changes in circumstances that may indicate the carrying value of the asset may not be recoverable. In particular, the judgments regarding the Company’s plans for the respective assets, net operating income, occupancy rates, and the impact of changes in market conditions or other factors on the fair value of the real estate asset. Changes in these judgments could have a significant impact on the determination of the recoverability of the real estate assets.

50

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter. This included controls related to evaluation of external market conditions, determining the period the Company will hold the real estate asset, net operating income and occupancy rates. We inquired of Company officials and inspected documents including Board of Directors minutes, purchase and sale agreements and plans for the respective assets to evaluate the likelihood that a real estate asset would be sold prior to the estimated holding period. We also performed independent evaluations, including examining property operating statements, property rental rates, occupancy levels, and third-party market reports for 1) indications of a significant decrease in the fair value of the real estate assets 2) decreases in current net operating income of the real estate assets and 3) the Company’s ability to carry out their plans for holding the real estate asset for the estimated holding period.

/s/ KPMG LLP

We have served as the Company’s auditor since 2014.

Philadelphia, Pennsylvania

February 18, 2021

51

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Independence Realty Trust, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Independence Realty Trust, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule III (collectively, the consolidated financial statements), and our report dated February 18, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Philadelphia, Pennsylvania

February 18, 2021 

52

Independence Realty Trust, Inc. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except share and per share data)

	As of December 31, 2020			As of December 31, 2019
ASSETS:
Investments in real estate:
Investments in real estate, at cost	$	1,916,770		$	1,796,365
Accumulated depreciation		(208,618	)		(158,435	)
Investments in real estate, net		1,708,152			1,637,930
Cash and cash equivalents		8,751			9,888
Restricted cash		4,864			4,545
Other assets		12,338			10,380
Derivative assets		—			953
Intangible assets, net of accumulated amortization of $0 and $540, respectively		792			410
Total Assets	$	1,734,897		$	1,664,106
LIABILITIES AND EQUITY:
Indebtedness, net of unamortized deferred financing costs of $4,208 and $5,606, respectively	$	945,686		$	985,572
Accounts payable and accrued expenses		25,416			25,399
Accrued interest payable		1,976			2,196
Dividends payable		12,257			16,491
Derivative liabilities		29,842			7,769
Other liabilities		6,949			6,922
Total Liabilities		1,022,126			1,044,349
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, 101,803,762 and 91,070,637 shares issued and outstanding, including 339,468 and 326,541 unvested restricted common share awards, respectively		1,018			911
Additional paid-in capital		919,615			765,992
Accumulated other comprehensive income (loss)		(33,822	)		(12,099	)
Retained earnings (accumulated deficit)		(178,751	)		(141,525	)
Total stockholders’ equity		708,060			613,279
Noncontrolling interests		4,711			6,478
Total Equity		712,771			619,757
Total Liabilities and Equity	$	1,734,897		$	1,664,106

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

53

Independence Realty Trust, Inc. and Subsidiaries

Consolidated Statements of Operations

(Dollars in thousands, except share and per share information)

	For the Years Ended December 31,
	2020			2019			2018
REVENUE:
Rental and other property revenue	$	211,167		$	202,620		$	190,712
Other revenue		739			603			520
Total revenue		211,906			203,223			191,232
EXPENSES:
Property operating expenses		82,978			79,568			76,363
Property management expenses		8,494			7,726			6,963
General and administrative expenses		15,095			12,745			10,817
Depreciation and amortization expense		60,687			52,815			45,221
Abandoned deal costs		130			—			—
Casualty losses		711			—			46
Total expenses		168,095			152,854			139,410
Interest expense		(36,488	)		(39,226	)		(36,006	)
Other income		—			—			144
Gain on sale (loss on impairment) of real estate assets, net		7,554			35,211			10,650
Net income:		14,877			46,354			26,610
Income allocated to noncontrolling interest		(109	)		(458	)		(322	)
Net income allocable to common shares	$	14,768		$	45,896		$	26,288
Earnings per share:
Basic	$	0.16		$	0.51		$	0.30
Diluted	$	0.16		$	0.51		$	0.30
Weighted-average shares:
Basic		93,660,086			89,799,238			87,086,585
Diluted		94,688,440			90,417,486			87,376,991

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

54

Independence Realty Trust, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(Dollars in thousands)

	For the Years Ended December 31,
	2020			2019			2018
Net income	$	14,877		$	46,354		$	26,610
Other comprehensive income (loss):
Change in fair value of interest rate hedges		(16,472	)		(15,571	)		(1,382	)
Realized gains (losses) on interest rate hedges reclassified to earnings		(5,352	)		1,139			(1,372	)
Total other comprehensive income (loss)		(21,824	)		(14,432	)		(2,754	)
Comprehensive income (loss) before allocation to noncontrolling    interests		(6,947	)		31,922			23,856
Allocation to noncontrolling interests		(8	)		(141	)		(178	)
Comprehensive income (loss)	$	(6,955	)	$	31,781		$	23,678

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

55

Independence Realty Trust, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity

(Dollars in thousands, except share and per share data)

	Preferred Shares		Par Value Preferred Shares		Common Shares			Par Value Common Shares			Additional Paid In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)			Total Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance, December 31, 2017		-	$	-		84,708,551		$	846		$	703,849		$	4,626		$	(85,221	)	$	624,100		$	22,019		$	646,119
Net income		-		-		-			-			-			-			26,288			26,288			322			26,610
Common dividends declared ($0.72 per share)		-		-		-			-			-			-			(63,409	)		(63,409	)		-			(63,409	)
Other comprehensive income		-		-		-			-			-			(2,610	)		-			(2,610	)		(144	)		(2,754	)
Stock compensation		-		-		188,196			2			2,558			-			-			2,560			-			2,560
Repurchase of shares related to equity award tax withholding		-		-		(38,712	)		-			(354	)		-			-			(354	)		-			(354	)
Conversion of noncontrolling interest to common shares		-		-		2,130,244			21			14,485			-			-			14,506			(14,506	)		-
Issuance of common shares, net		-		-		2,196,164			23			21,891			-			-			21,914			-			21,914
Distribution to noncontrolling interest declared ($0.72 per unit)		-		-		-			-			-			-			-			-			(641	)		(641	)
Balance, December 31, 2018		-	$	-		89,184,443		$	892		$	742,429		$	2,016		$	(122,342	)	$	622,995		$	7,050		$	630,045
Net income		-		-		-			-			-			-			45,896			45,896			458			46,354
Common dividends declared ($0.72 per share)		-		-		-			-			-			-			(65,079	)		(65,079	)		-			(65,079	)
Other comprehensive income		-		-		-			-			-			(14,115	)		-			(14,115	)		(317	)		(14,432	)
Stock compensation		-		-		209,215			1			3,165			-			-			3,166			-			3,166
Repurchase of shares related to equity award tax withholding		-		-		(49,928	)		-			(642	)		-			-			(642	)		-			(642	)
Conversion of noncontrolling interest to common shares		-		-		9,616			-			78			-			-			78			(78	)		-
Issuance of common shares, net		-		-		1,717,291			18			20,962			-			-			20,980			-			20,980
Distribution to noncontrolling interest declared ($0.72 per unit)		-		-		-			-			-			-			-			-			(635	)		(635	)
Balance, December 31, 2019		-	$	-		91,070,637		$	911		$	765,992		$	(12,099	)	$	(141,525	)	$	613,279		$	6,478		$	619,757
Net income		-		-		-			-			-			-			14,768			14,768			109			14,877
Common dividends declared ($0.54 per share)		-		-		-			-			-			-			(51,994	)		(51,994	)		-			(51,994	)
Other comprehensive income		-		-		-			-			-			(21,723	)		-			(21,723	)		(101	)		(21,824	)
Stock compensation		-		-		237,683			2			5,633			-			-			5,635			-			5,635
Repurchase of shares related to equity award tax withholding		-		-		(51,532	)		(1	)		(1,489	)		-			-			(1,490	)		-			(1,490	)
Conversion of noncontrolling interest to common shares		-		-		196,974			1			1,371			-			-			1,372			(1,372	)		-
Issuance of common shares, net		-		-		10,350,000			105			148,108			-			-			148,213			-			148,213
Distribution to noncontrolling interest declared ($0.54 per unit)		-		-		-			-			-			-			-			-			(403	)		(403	)
Balance, December 31, 2020		-	$	-		101,803,762		$	1,018		$	919,615		$	(33,822	)	$	(178,751	)	$	708,060		$	4,711		$	712,771

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

56

Independence Realty Trust, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in thousands)

	For the Years Ended December 31,
	2020			2019			2018
Cash flows from operating activities:
Net income	$	14,877		$	46,354		$	26,610
Adjustments to reconcile net income to cash flow from operating activities:
Depreciation and amortization		60,687			52,815			45,221
Amortization of deferred financing costs, net		1,448			1,423			1,430
Stock compensation expense		5,564			3,116			2,524
(Gain on sale) loss on impairment of real estate assets, net		(7,554	)		(35,211	)		(10,650	)
Amortization related to derivative instruments		1,200			690			(40	)
Casualty losses		711			-			-
Changes in assets and liabilities:
Other assets		(2,428	)		1,344			(514	)
Accounts payable and accrued expenses		754			3,490			3,284
Accrued interest payable		(182	)		1,542			469
Other liabilities		(118	)		(562	)		196
Net cash provided by operating activities		74,959			75,001			68,530
Cash flows from investing activities:
Acquisition of real estate properties		(145,278	)		(128,908	)		(215,833	)
Disposition of real estate properties		58,137			68,137			26,802
Capital expenditures		(37,399	)		(45,625	)		(40,426	)
Cash flow (used in) investing activities		(124,540	)		(106,396	)		(229,457	)
Cash flows from financing activities:
Proceeds from issuance of common stock		148,213			20,981			21,914
Proceeds from unsecured credit facility and term loan		195,501			234,059			400,000
Unsecured credit facility repayments		(197,000	)		(153,500	)		(198,262	)
Mortgage principal repayments		(39,785	)		(4,284	)		(3,191	)
Payments for deferred financing costs		(50	)		(1,446	)		(890	)
Distributions on common stock		(56,146	)		(64,745	)		(52,476	)
Distributions to noncontrolling interests		(480	)		(640	)		(658	)
Payment for interest rate collars		-			-			(3,730	)
Repurchase of shares related to equity award tax withholding		(1,490	)		(642	)		(354	)
Net cash provided by financing activities		48,763			29,783			162,353
Net change in cash and cash equivalents, and restricted cash		(818	)		(1,612	)		1,426
Cash and cash equivalents, and restricted cash, beginning of period		14,433			16,045			14,619
Cash and cash equivalents, and restricted cash, end of the period	$	13,615		$	14,433		$	16,045
Reconciliation of cash, cash equivalents, and restricted cash to the Consolidated Balance Sheet
Cash and cash equivalents	$	8,751		$	9,888		$	9,316
Restricted cash		4,864			4,545			6,729
Total cash, cash equivalents, and restricted cash, end of period	$	13,615		$	14,433		$	16,045
Supplemental cash flow information:
Cash paid for interest	$	34,105		$	37,531		$	36,002
Supplemental disclosure of noncash investing and financing activities:
Decrease in noncontrolling interest from conversion of common limited    partnership units to shares of common stock	$	1,372		$	78		$	14,506
Distributions declared but not paid	$	12,257		$	16,491		$	16,162
Mortgage debt assumed	$	-		$	-		$	54,756
Initial measurement of operating lease right of use assets	$	169		$	2,812		$	-
Initial measurement of operating lease liabilities	$	169		$	3,176		$	-
Debt extinguishment costs included in net gains (losses) on sale of assets	$	-		$	7,417		$	911
Capital expenditure accrual	$	413		$	804		$	1,750

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

57

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2020

(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 December 31, 2020, we owned and operated 56 (unaudited) multifamily apartment properties, totaling 15,667 (unaudited) units across non-gateway U.S markets, including Atlanta, Dallas, Louisville, Memphis, Raleigh, and Tampa. We own substantially all of our assets and conduct 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 IRT and, as required by context, IROP and their subsidiaries.

NOTE 2: Summary of Significant Accounting Policies

a. Basis of Presentation

The consolidated financial statements have been prepared by management in accordance with generally accepted accounting principles in the United States (“GAAP”).  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.  

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 FASB Accounting Standards Codification Topic 810, “Consolidation”, IROP is considered a variable interest entity of 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 original 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 or to be released at our discretion upon the occurrence of certain pre-specified events. As of December 31, 2020 and 2019, we had $4,864 and $4,545, respectively, of restricted cash.

f. Investments in Real Estate

Investments in real estate are recorded at cost less accumulated depreciation. Costs, including internal 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.

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Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2020

(Dollars in thousands, except share and per share data)

Allocation of Purchase Price of Acquired Assets

In accordance with FASB ASC Topic 805, 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.  During the year ended December 31, 2020 and 2019, we acquired in-place leases with a value of $1,013 and $1,265, respectively, related to our acquisitions that are discussed further in Note 3: Investments in Real Estate. The value assigned to these intangible assets is amortized over the assumed lease up period, typically six months.  For the years ended December 31, 2020, 2019 and 2018 we recorded $631, $1,599 and $3,433 of amortization expense for intangible assets, respectively. For the years ended December 31, 2020, 2019, and 2018 we wrote-off fully amortized intangible assets of $1,171, $1,846, and $4,153, respectively. Based on the intangible assets identified above, we expect to record amortization expense of intangible assets of $781 for 2020.

Impairment of Long-Lived Assets

Management evaluates the recoverability of its 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 its 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

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 furniture, fixtures, and equipment. For the years ended December 31, 2020, 2019 and 2018, we recorded $60,056, $51,216 and $41,788 of depreciation expense, respectively. For the years ended December 31, 2020 and 2019, we wrote-off fully depreciated fixed assets of $3,921 and $940, respectively.

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 year ended December 31, 2020, 2019 and 2018, we incurred $711, $0, and $46 of casualty losses.

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)

59

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2020

(Dollars in thousands, except share and per share data)

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.

The table below presents our revenues disaggregated by revenue source.

	For the year ended December 31,
	2020		2019		2018
Rental revenue (1)	$	203,512	$	195,120	$	184,330
Other property revenue (2)		7,655		7,500		6,382
Other revenue		739		603		520
Total revenue	$	211,906	$	203,223	$	191,232

(1) Amounts include all revenue streams derived from lease and non-lease components accounted for under FASB ASC Topic 842.

(2) Amounts include revenue related to activities that are not considered components of a lease, including application fees and administrative fees, as well as revenue not related to leasing activities, including vendor revenue sharing. All amounts are accounted for under FASB ASC Topic 606.

Our portfolio of properties consists primarily of apartment communities geographically concentrated in the Southeastern United States. North Carolina, Georgia, Tennessee, Florida, Kentucky, Ohio, and Texas comprised 16.88%, 14.08%, 10.73%, 10.46%, 9.30%, 9.24%, and 7.07%, respectively, of our rental revenue for the year ended December 31, 2020. We have no single customer that accounts for 10% or more of revenue.

We make ongoing estimates of the collectability of our base rents, tenant reimbursements, and other service fees included within rental and other property revenue.  Effective January 1, 2019, if collectability is not probable for revenue streams accounted for under FASB ASC Topic 842, we adjust rental and other property income for the amount of uncollectible revenue. Prior to January 1, 2019, we maintained an allowance for doubtful accounts based on an ongoing analysis of collectability and recorded changes in the allowance for doubtful accounts as bad debt expense within property operating expenses.  For the year ended December 31, 2018, we recorded bad debt expense of $644 within property operating expenses in the consolidated statements of operations. For revenue streams accounted for under FASB ASC Topic 606, we apply FASB ASC Topic 326 to establish an allowance for estimated expected credit losses.

Due to the COVID-19 pandemic, some residents have experienced difficulty making rent payments and our rent receivables have increased compared to historical levels. This caused us to further evaluate collectability and we recorded a $927 provision for bad debts during the year ended December 31, 2020 to appropriately reflect management’s estimate for uncollectible accounts. The provision for bad debts was recorded as a reduction to rental and other property revenue in our consolidated statements of operations. The total adjustment to rental and other property income for the years ended December 31, 2020 and 2019 were $1,842 and $1,142, respectively.

To support our residents who were economically impacted and unable to pay their rent in full, 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. During the year ended December 31, 2020, we entered into 276 deferred payment plans under which residents deferred a total of $515 in rental payments. As of December 31, 2020, deferred rent receivable from residents totaled $175.

For the years ended December 31, 2020, 2019, and 2018, we recognized revenues of $208, $156, and $195, respectively, related to recoveries of lost rental revenue due to natural disasters and other insurable events from our insurance providers.

Advertising Expenses

For the years ended December 31, 2020, 2019 and 2018, we incurred $2,338, $2,350, and $2,172 of advertising expenses, respectively.

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Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2020

(Dollars in thousands, except share and per share data)

h. 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. 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.

61

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2020

(Dollars in thousands, except share and per share data)

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 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 our 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. The following table summarizes the carrying amount and the fair value of our financial instruments as of the periods indicated: 

	As of December 31, 2020				As of December 31, 2019
Financial Instrument	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets
Cash and cash equivalents	$	8,751	$	8,751	$	9,888	$	9,888
Restricted cash		4,864		4,864		4,545		4,545
Derivative assets		—		—		953		953
Liabilities
Debt:
Unsecured credit facility		183,110		184,802		183,966		186,302
Term loans		298,759		300,000		298,418		300,000
Mortgages		463,817		479,929		503,188		505,510
Derivative liabilities		29,842		29,842		7,769		7,769

i. 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.  

j. Income Taxes

We have elected to be taxed as a REIT. Accordingly, we recorded no income tax expense for the years ended December 31, 2020, 2019 and 2018.

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.

62

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2020

(Dollars in thousands, except share and per share data)

For the year ended December 31, 2020, 20% of dividends were characterized as capital gain distributions, 37% were characterized as ordinary income and 43% were characterized as return of capital.  For the year ended December 31, 2019, 69% of dividends were characterized as capital gain distributions, 16% were characterized as ordinary income and 15% were characterized as return of capital.  For the year ended December 31, 2018, 37% of dividends were characterized as capital gain distributions, 39% were characterized as ordinary income and 24% were characterized as return of capital.

k. Share-Based Compensation

We account for stock-based compensation in accordance with FASB ASC Topic 718, “Compensation - Stock Compensation”. Any stock-based compensation awards granted are measured based on the grant-date fair value of the award and compensation expense for the entire award is recognized on a straight-line basis over the requisite service period, which is the vesting period, for the entire award. Certain of our stock-based compensation awards provide for accelerated vesting upon retirement.  In these cases, we recognize compensation expense on a straight-line basis over the period from grant date to the date the employee will become retirement eligible.  If the grantee is retirement eligible at the time they receive an award, the full amount of compensation expense is recognized immediately on the grant date.

l. Noncontrolling Interest

Our noncontrolling interest represents limited partnership units of our operating partnership that were issued in connection with certain property acquisitions. We record limited partnership units issued in an acquisition at their fair value on the closing date of the acquisition. The holders of the limited partnership units have the right to redeem their limited partnership units for either shares of our common stock or for cash at our discretion. As the settlement of a redemption is in our sole discretion, we present noncontrolling interest in our consolidated balance sheet within equity but separate from stockholders’ equity. Any noncontrolling interests that fail to qualify as permanent equity will be presented as temporary equity and be carried at the greater of historical cost or their redemption value.    

m. 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 (including certain derivative instruments embedded in other contracts) at fair value and record such amounts in our consolidated balance sheet 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 (loss) and changes in the ineffective portions of cash flow hedges, if any, are recognized in earnings.  For derivatives not designated as 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.

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Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2020

(Dollars in thousands, except share and per share data)

n. Office Leases

We apply FASB ASC Topic 842, “Leases”, which requires a lessee 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 December 31, 2020, we had $2,649 of operating lease right-of-use assets and $3,002 of operating lease liabilities related to our corporate office leases. As of December 31, 2019, we had $2,812 of operating lease right-of-use assets and $3,176 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 $616 and $589, respectively, of total operating lease expense for years ended December 31, 2020 and 2019, which is recorded within property management expense and general and administrative expenses in our consolidated statements of operations.    

    o. 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. Beginning in the first quarter of 2020, we 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 December 31, 2020, our investments in real estate consisted of 56 apartment properties (unaudited). The table below summarizes our investments in real estate:  

	2020			2019			Depreciable Lives (In years)
Land	$	251,365		$	234,050		-
Building		1,527,535			1,453,052		40
Furniture, fixtures and equipment		137,870			109,263		5-10
Total investments in real estate	$	1,916,770		$	1,796,365
Accumulated depreciation		(208,618	)		(158,435	)
Investments in real estate, net	$	1,708,152		$	1,637,930

Acquisitions

The below table summarizes the acquisitions for the year ended December 31, 2020:

Property Name	Date of Purchase	Market	Units (unaudited)		Purchase Price
Adley at Craig Ranch	02/11/2020	Dallas, TX		251	$	51,204
Legacy at Jones Farm	12/01/2020	Huntsville, AL		421	$	94,027
Total				672	$	145,231

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Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2020

(Dollars in thousands, except share and per share data)

The following table summarizes the aggregate fair value of the assets and liabilities associated with the properties acquired during the year ended December 31, 2020, on the date of acquisition.

Description	Fair Value of Asset Acquired During the Year Ended December 31, 2020
Assets acquired:
Investments in real estate (a)	$	145,340
Other assets		89
Intangible assets		1,013
Total assets acquired	$	146,442
Liabilities assumed:
Accounts payable and accrued expenses		261
Other liabilities		382
Total liabilities assumed	$	643
Estimated fair value of net assets acquired	$	145,799

(a) Includes $84 of property related acquisition costs capitalized during the year ended December 31, 2020.

The below table summarizes the acquisitions for the year ended December 31, 2019:

Property Name	Date of Purchase	Market	Units (unaudited)		Purchase Price
North Park	04/30/2019	Atlanta, GA		224	$	28,000
Rocky Creek	07/11/2019	Tampa, FL		264		48,000
Thornhill	10/01/2019	Raleigh, NC		318		52,925
Total				806	$	128,925

Dispositions

The below table summarizes the dispositions for the year ended December 31, 2020:

Property Name	Date of Sale	Sale Price		Gain (impairment loss) on sale
Trails at Signal Mountain	10/27/2020	$	20,000	$	6,237
Live Oak Trace (1)	11/10/2020		25,400		(1,931	)
Lakeshore on the Hill	11/23/2020		14,330		3,537
Total		$	59,730	$	7,843

(1) Includes a $1,840 impairment charge recorded in the three months ended September 30, 2020.

The below table summarizes the dispositions for the year ended December 31, 2019:

Property Name	Date of Sale	Sale Price		Gain on sale (1)
Reserve at Eagle Ridge	04/30/2019	$	42,000	$	12,294
Little Rock, AR Portfolio	07/18/2019		56,500		2,220
Iron Rock	12/17/2019		56,000		20,683
Total		$	154,500	$	35,197

(1) The gain for these properties is net of $7,417 of defeasance and debt prepayment costs.

The below table summarizes the dispositions for the year ended December 31, 2018:        

Property Name	Date of Sale	Sale Price		Gain on sale (1)
Aventine Greenville	12/20/2018	$	52,500	$	6,119
Arbors at the Reservoir	12/27/2018		24,800		4,445
Total		$	77,300	$	10,564

(1) The gain for these properties is net of $911 of debt prepayment costs.

65

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2020

(Dollars in thousands, except share and per share data)

NOTE 4: Indebtedness

The following tables 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 is $350,000, of which $184,802 was outstanding as of December 31, 2020.  

	Original maturities on or before December 31,
Debt:	2021		2022		2023		2024		2025		Thereafter
Unsecured credit facility	$	-	$	-	$	184,802	$	-	$	-	$	-
Unsecured term loans		-		-		-		300,000		-		-
Mortgages		48,484		66,478		107,636		36,913		162,562		43,019
Total	$	48,484	$	66,478	$	292,438	$	336,913	$	162,562	$	43,019

As of December 31, 2020 we were in compliance with all financial covenants contained in our indebtedness.

The following tables contains summary information concerning our indebtedness as of December 31, 2019:

Debt:	Outstanding Principal		Unamortized Debt Issuance Costs			Carrying Amount		Type	Weighted Average Rate	Weighted Average Maturity (in years)
Unsecured credit facility (1)	$	186,302	$	(2,336	)	$	183,966	Floating	3.2%		3.4
Unsecured term loans		300,000		(1,582	)		298,418	Floating	3.1%		4.3
Mortgages		504,876		(1,688	)		503,188	Fixed	3.9%		4.0
Total Debt	$	991,178	$	(5,606	)	$	985,572		3.5%		4.0

(1) The secured credit facility total capacity was $350,000, of which $186,302 was outstanding as of December 31, 2019.

Unsecured Credit Facility and Revolving Line of Credit

On May 9, 2019, we entered into a new $350,000 unsecured credit facility that consists entirely of a revolving line of credit (the “Unsecured Credit Facility”), refinancing and terminating a previous unsecured credit facility. We have the right to increase the aggregate amount of the Unsecured Credit Facility to up to $600,000.  The maturity date on borrowings outstanding under the Unsecured Credit Facility is May 9, 2023, subject to our option to extend the revolving commitment for two additional 6-month periods under certain circumstances, including the payment of an extension fee.  We may prepay the Unsecured Credit Facility, in whole or in part, at any time without a prepayment fee or penalty.  At our option, borrowings under the Unsecured Credit Facility 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. The applicable margin is determined based upon our total consolidated leverage ratio, as defined in the debt agreement. We recognized the refinance as a modification of our prior unsecured credit facility and incurred deferred financing costs of $1,129 associated with this transaction.

In addition to certain negative covenants, our Unsecured Credit Facility has financial covenants that require us to (i) maintain a consolidated leverage ratio below thresholds described in the debt agreement, (ii) maintain a minimum consolidated fixed charge coverage ratio, and (iii) maintain a minimum consolidated tangible net worth. Additionally, the covenants (i) limit (a) the amount of distributions that IRT can make to a percentage of Funds from Operations (as such term is described in the debt agreement), and (b) the amount of unhedged variable rate indebtedness that may be incurred by us, and (ii) requires us to maintain a pool of unencumbered properties with a total value of at least $100,000.

66

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2020

(Dollars in thousands, except share and per share data)

Term Loans

On November 20, 2017, we entered into an agreement for a $100,000 unsecured term loan that matures on November 20, 2024. We incurred upfront deferred costs of $917 associated with this facility. In November 2019, the unsecured term loan was amended, which reduced the interest spread. We incurred $257 of upfront deferred costs associated with the amendment. The interest rate on the unsecured term loan is LIBOR plus a spread of 1.20% – 1.90% based on our consolidated leverage ratio.

On October 30, 2018, we entered into an agreement for a $200,000 unsecured term loan that matures on January 17, 2024. We incurred upfront deferred costs of $821 associated with this facility. The interest rate on the unsecured term loan is LIBOR plus a spread of 1.20% – 1.90% based on our consolidated leverage ratio. At closing, we drew $150,000 under the loan. The remaining $50,000 was drawn in February 2019. We applied proceeds of both draws to reduce outstanding borrowings under our Unsecured Credit Facility.

Mortgages

On July 9, 2020, we drew down on our Unsecured Credit Facility to prepay and extinguish a property mortgage and make partial paydowns on certain other property mortgages totaling $32,117. The property mortgages had a weighted-average interest rate of 3.9% compared to the 1.6% interest rate on our unsecured credit facility as of June 30, 2020.

During the year ended December 31, 2019, in connection with three property dispositions, we extinguished property mortgages totaling $76,512.

NOTE 5: Derivative Financial Instruments

The following table summarizes the aggregate notional amount and estimated net fair value of our derivative instruments as of December 31, 2020 and 2019:

	As of December 31, 2020						As of December 31, 2019
	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	$	—		694	$	150,000	$	953	$	—
Interest rate collars		250,000		—		13,331		250,000		—		4,330
Forward interest rate swaps		—		—		15,817		—		—		3,439
Total	$	400,000	$	—		29,842	$	400,000	$	953	$	7,769

Interest rate swap

On June 24, 2016, we entered into an interest rate swap contract with a notional value of $150,000, a strike rate of 1.145% and a maturity date of June 17, 2021.  We designated this interest rate swap as a cash flow hedge at inception and determined that the hedge is highly effective in offsetting interest rate fluctuations associated with the identified indebtedness. We did not recognize any ineffectiveness associated with this cash flow hedge through April 2017.  On April 17, 2017, in conjunction with the refinancing of our credit facility, we restructured our existing interest rate swap to remove the LIBOR floor.  This resulted in a decrease in the strike rate to 1.1325%.  The notional value and maturity date remained the same.  We designated the restructured interest rate swap as a cash flow hedge at inception and determined that the hedge is highly effective in offsetting interest rate fluctuations associated with the identified indebtedness. Upon our early adoption of accounting standard updates to ASC Topic 815, “Derivatives and Hedging,” ineffectiveness is no longer measured or reported.

Interest rate collar

On October 17, 2018, we purchased an interest rate collar with an initial notional value of $100,000, a 2.50% cap and 2.25% floor, and a maturity date of January 17, 2024. The notional value was adjusted to $150,000 in November 2018. We designated this interest rate collar as a cash flow hedge at inception and determined that the hedge is highly effective in offsetting interest rate fluctuations associated with the identified indebtedness. We concluded that this hedging relationship was and will continue to be highly effective using the hypothetical derivative method.

67

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2020

(Dollars in thousands, except share and per share data)

On November 17, 2017, we purchased an interest rate collar with a notional value of $100,000, a 2.00% cap and 1.25% floor, and a maturity date of November 17, 2024. We designated $50,000 of the interest rate collar as a cash flow hedge at inception and determined that the hedge is highly effective in offsetting interest rate fluctuations associated with the identified indebtedness. We concluded that this hedging relationship was and will continue to be highly effective using the hypothetical derivative method.

The other $50,000 notional value interest rate collar was accounted for as a freestanding derivative from inception. On January 4, 2018, we designated this other $50,000 notional value interest rate collar as a cash flow hedge and determined that the hedge is highly effective in offsetting interest rate fluctuations associated with the identified indebtedness. We concluded that this hedging relationship was and will continue to be highly effective using the hypothetical derivative method.

Forward interest rate swaps

On March 2, 2020, we entered into a forward-starting interest rate swap with a notional value of $150,000 and a strike rate of 0.985%. This forward interest rate swap has an effective date of May 17, 2022 and a maturity date of May 17, 2027. We designated this forward interest rate swap as a cash flow hedge at inception and determined that the hedge is highly effective in offsetting interest rate fluctuations associated with the identified indebtedness.

On May 9, 2019, we entered into a forward-starting interest rate swap contract with a notional value of $150,000 and a strike rate of 2.176%. The forward interest rate swap has an effective date of June 17, 2021 and a maturity date of June 17, 2026. We designated this forward interest rate swap as a cash flow hedge at inception and determined that the hedge is highly effective in offsetting interest rate fluctuations associated with the identified indebtedness.

Effective interest rate swaps and collars are reported in accumulated other comprehensive income (loss) and the fair value of these hedge agreements is included in other assets or other liabilities.

For interest rate swaps and collars that are considered effective hedges, we reclassified realized gains (losses) of ($5,352), $1,139 and $1,372 to earnings within interest expense for the years ended December 31, 2020, 2019 and 2018, respectively. For interest rate swaps that are considered effective hedges, we expect ($7,934) to be reclassified out of accumulated other comprehensive income (loss) to earnings over the next 12 months.

NOTE 6: Stockholder Equity and Noncontrolling Interest

Stockholder Equity

On February 20, 2020, we entered into an underwriting agreement with KeyBanc Capital Markets Inc. and BMO Capital Markets Corp., as representatives of the several underwriters named therein (collectively, the “Underwriters”), BMO Capital Markets Corp. (the “Forward Seller”), and Bank of Montreal (the “Forward Counterparty”) relating to the offering of an aggregate of 10,350,000 shares of our common stock at a price to the Underwriters of $14.688 per share, consisting of 10,350,000 shares of our common stock offered by the Forward Seller in connection with the forward sale agreements described below (including 1,350,000 shares of our common stock offered pursuant to the Underwriters’ option to purchase additional shares of our common stock, which was exercised in full). We completed the offering on February 24, 2020. We did not initially receive any proceeds from the sale of our common stock by the Forward Seller.

In connection with the offering, we also entered into two forward sale agreements, the first forward sale agreement (the “Initial Forward Sale Agreement”), dated February 20, 2020, 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 February 20, 2020, with the Forward Seller and the Forward Counterparty. In connection with the Forward Sale Agreements, the Forward Seller or its affiliate borrowed from third parties and sold to the Underwriters an aggregate of 10,350,000 shares of our common stock that was sold in the offering. On March 31, 2020, we physically settled $50,000 under the Forward Sale Agreements by issuing 3,406,000 shares of our common stock. On December 28, 2020, we settled $98,775 by issuing the remaining 6,944,000 shares of our common stock.

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.  

68

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2020

(Dollars in thousands, except share and per share data)

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.  On November 13, 2020, we entered into a forward sale transaction under the ATM Program for the forward sale of 900,000 shares of our common stock that have not yet been settled.  Subject to our right to elect net share settlement, we expect to physically settle the forward sale transaction by the maturity date (December 21, 2021) set forth in the forward sale transaction placement notice.  Assuming the forward sales transaction is physically settled in full utilizing the initial forward sale price of $14.00 per share, net of sales commissions, we expect to receive net proceeds of approximately $12,400, subject to adjustment in accordance with the forward sale transaction.  

We evaluated the accounting for forward sale agreements under FASB ASC Topic 480 “Distinguishing Liabilities from Equity” and FASB ASC Topic 815 “Derivatives and Hedging”. As the Forward Sale Agreements are considered indexed to our own equity and since they meet the equity classification conditions in ASC 815, the Forward Sale Agreements have been classified as equity.

Our board of directors declared the following dividends in 2020:

Quarter	Declaration Date	Record Date	Payment Date	Dividend Declared Per Share
First quarter 2020	March 16, 2020	April 2,2020	April 24, 2020	$	0.18
Second quarter 2020	June 15, 2020	July 2, 2020	July 24, 2020	$	0.12
Third quarter 2020	September 15, 2020	October 2, 2020	October 23, 2020	$	0.12
Fourth quarter 2020	December 14, 2020	December 30, 2020	January 22, 2021	$	0.12

Our board of directors declared the following dividends in 2019:

Quarter	Declaration Date	Record Date	Payment Date	Dividend Declared Per Share
First quarter 2019	March 18, 2019	March 29 2019	April 25, 2019	$	0.18
Second quarter 2019	June 17, 2019	June 28, 2019	July 25, 2019	$	0.18
Third quarter 2019	September 12, 2019	September 27, 2019	October 25, 2019	$	0.18
Fourth quarter 2019	December 16, 2019	December 26, 2019	January 24, 2020	$	0.18

Noncontrolling Interest

During 2020, holders of IROP units exchanged 196,974 units for 196,974 shares of our common stock. As of December 31, 2020, 674,517 IROP units held by unaffiliated third parties remain outstanding as of December 31, 2020. 

During 2019, holders of IROP units exchanged 9,616 units for 9,616 shares of our common stock. As of December 31, 2019, 871,491 IROP units held by unaffiliated third parties remain outstanding as of December 31, 2019.  

Our board of directors declared the following distributions on our operating partnership’s LP units during 2020:

Quarter	Declaration Date	Record Date	Payment Date	Dividend Declared Per Share
First quarter 2020	March 16, 2020	April 2, 2020	April 24, 2020	$	0.18
Second quarter 2020	June 15, 2020	July 2, 2020	July 24, 2020	$	0.12
Third quarter 2020	September 15, 2020	October 2, 2020	October 23, 2020	$	0.12
Fourth quarter 2020	December 14, 2020	December 30, 2020	January 22, 2021	$	0.12

Our board of directors declared the following distributions on our operating partnership’s LP units during 2019:

Quarter	Declaration Date	Record Date	Payment Date	Dividend Declared Per Share
First quarter 2019	March 18, 2019	March 29 2019	April 25, 2019	$	0.18
Second quarter 2019	June 17, 2019	June 28, 2019	July 25, 2019	$	0.18
Third quarter 2019	September 12, 2019	September 27, 2019	October 25, 2019	$	0.18
Fourth quarter 2019	December 16, 2019	December 26, 2019	January 24, 2020	$	0.18

69

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2020

(Dollars in thousands, except share and per share data)

NOTE 7: Equity Compensation Plans

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, officers, employees, and consultants. The Incentive Plan authorizes the grant of restricted or unrestricted shares of our common stock, performance 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, SARs, and PSUs. For the years ended December 31, 2020, 2019 and 2018 we recognized $5,635, $3,166 and $2,524 of stock compensation expense, respectively. In 2020, our PSU and RSU award agreements were revised to provide for accelerated vesting upon retirement, as defined in the award agreements. Due to this revision, the stock compensation expense associated with any such award granted to a retirement eligible employee is recognized in full on the date of grant. During the year ended December 31, 2020, $1,667 of stock compensation was recognized with respect to awards granted to retirement eligible employees.   

The restricted shares and RSUs granted under the Incentive Plan generally vest over a two, three, or four year period. In addition, we have granted unrestricted shares to our directors.  These awards generally vested immediately. A summary of restricted common share award and RSU activity is presented below.

	2020					2019					2018
	Number of Shares			Weighted Average Grant Date Fair Value Per Share		Number of Shares			Weighted Average Grant Date Fair Value Per Share		Number of Shares			Weighted Average Grant Date Fair Value Per Share
Balance, January 1,		326,541		$	9.54		303,819		$	8.22		295,847		$	7.84
Granted		282,735			12.85		213,744			10.39		233,706			8.64
Vested		(164,026	)		9.32		(174,367	)		9.27		(175,555	)		7.99
Forfeited		(38,401	)		12.20		(16,655	)		9.75		(50,179	)		8.45
Balance, December 31, (1)		406,849		$	11.68		326,541		$	9.54		303,819		$	8.22

(1) The outstanding award balance above included 67,381, 0, and 0 RSUs as of December 31, 2020, 2019, and 2018, respectively.

Subsequent to December 31, 2020, 86,591 restricted stock awards and RSUs valued at a weighted-average price of $14.17, or $1,227 in the aggregate were awarded to employees.  These awards vest over a two or three-year period.

As of December 31, 2020, the unearned compensation cost relating to unvested restricted common share awards and RSUs was $2,437, which will be recognized over a weighted-average period of 1.8 years. The estimated fair value of restricted common share awards, and RSUs, vested during 2020, 2019, and 2018 was $2,076, $1,836, and $1,539, respectively.     

The PSUs granted under the Incentive Plan have a three-year performance period and are generally based on (1) market performance as measured by total stockholder return for 70% of the award and (2) a subjective performance condition tied to achievement of specified individual criteria for 30% of the award. The PSUs vest 50% upon the Compensation Committee’s determination as to the satisfaction of the performance criteria (which shall be within two months of the last day of the performance period) and 50% on the first anniversary of the last day of the performance period, subject to continued service through such dates.  A summary of PSU activity is presented below.

70

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2020

(Dollars in thousands, except share and per share data)

	2020					2019				2018
	Number of Shares			Weighted Average Grant Date Fair Value Per Share		Number of Shares		Weighted Average Grant Date Fair Value Per Share		Number of Shares		Weighted Average Grant Date Fair Value Per Share
Balance, January 1,		717,677		$	7.52		453,748	$	7.04		150,980	$	7.12
Granted (1)		202,145			11.77		263,929		8.35		302,768		7.00
Change in awards based on performance (2)		75,488		$	7.12		—		0.00		—		0.00
Vested		(113,234	)		7.12		—		0.00		—		0.00
Balance, December 31,		882,076		$	8.21		717,677	$	7.52		453,748	$	7.04

(1) PSUs granted reflects the number of awards assuming target performance. The actual number of awards earned is based on actual performance during the three-year performance period and ranges from 0%-150% of target.

(2) Represents the change in the numbers of PSUs earned based on performance achievement for the performance period.

Our assumptions used in computing the fair value of the PSUs at the dates of their respective awards, using the Monte Carlo method, were as follows:

	For the year ended December 31,
	2020	2019	2018
Dividend yield	6.1%	7.6%	8.2%
Volatility (a)	22.0%	21.0%	28.0%
Expected term	2.8 years	2.8 years	2.9 years

(a) This represents the volatility assumption used for IRT.  The volatility assumptions used for our peer group and the NAREIT Mortgage Index ranged from 15% to 41%.

The Company estimates future expenses associated with PSUs outstanding at December 31, 2020 to be $2,131, which will be recognized over a weighted-average period of 2.3 years. The estimated fair value of PSUs vested during 2020, 2019, and 2018 was $1,862, $0, and $0.

A summary of the SARs activity of the Incentive Plan is presented below.  

	2020					2019					2018
	SARs			Weighted Average Exercise Price		SARs			Weighted Average Exercise Price		SARs			Weighted Average Exercise Price
Outstanding, January 1,		9,000		$	9.35		195,000		$	9.35		250,000		$	9.28
Granted		—			—		—			—		—			—
Expired		(9,000	)		9.35		—			—		—			—
Exercised		—			—		(186,000	)		9.35		(55,000	)		9.02
Forfeited		—			—		—			—		—			—
Outstanding, December 31,		—		$	9.35		9,000		$	9.35		195,000		$	9.35
SARs exercisable at December 31,		—					9,000					195,000

71

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2020

(Dollars in thousands, except share and per share data)

NOTE 8: Related Party Transactions and Arrangements

Property Management Fees Earned from our Former External Advisor

On December 20, 2016, in connection with our management internalization, we acquired property management agreements with respect to each of our properties from our former property manager, which was affiliated with our former external advisor. Subsequent to this transaction, we earned $0, $0, and $63 of property management fees from our former external advisor for the years ended December 31, 2020, 2019, and 2018, respectively.

NOTE 9: Earnings (Loss) Per Share

The following table presents a reconciliation of basic and diluted earnings (loss) per share for the years ended December 31, 2020, 2019 and 2018:

	For the Years Ended December 31,
	2020			2019			2018
Net Income (loss)	$	14,877		$	46,354		$	26,610
(Income) loss allocated to non-controlling interests		(109	)		(458	)		(322	)
Net Income (loss) allocable to common shares		14,768			45,896			26,288
Weighted-average shares outstanding—Basic		93,660,086			89,799,238			87,086,585
Dilutive securities		1,028,354			618,248			290,406
Weighted-average shares outstanding—Diluted		94,688,440			90,417,486			87,376,991
Earnings per share—Basic	$	0.16		$	0.51		$	0.30
Earnings per share—Diluted	$	0.16		$	0.51		$	0.30

Certain IROP units and shares deliverable under the forward sale agreements totaling 1,574,517, 871,491, and 881,107 for the years ended December 31, 2020, 2019 and 2018, respectively, were excluded from the earnings per share computation because their effect would have been anti-dilutive.

NOTE 10: Quarterly Financial Data (Unaudited)

The following table summarizes our quarterly financial data which, in the opinion of management, reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our results of operations:

	For the Three-Month Periods Ended
	March 31			June 30		September 30		December 31
2020
Total revenue	$	51,350		$	52,268	$	54,200	$	54,088
Net income (loss)		(374	)		799		1,092		13,360
Net income (loss) allocable to common shares		(372	)		789		1,090		13,261
Total earnings per share—Basic (1)	$          0.00			$	0.01	$	0.01	$	0.14
Total earnings per share—Diluted (1)	$          0.00			$	0.01	$	0.01	$	0.14
2019
Total revenue	$	49,540		$	50,956	$	51,299	$	51,428
Net income (loss)		2,566			14,856		4,912		24,020
Net income (loss) allocable to common shares		2,540			14,709		4,863		23,784
Total earnings per share—Basic (1)	$	0.03		$	0.16	$	0.05	$	0.26
Total earnings per share—Diluted (1)	$	0.03		$	0.16	$	0.05	$	0.26

(1) The summation of quarterly per share amounts may not equal the full year amounts due to rounding.

72

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2020

(Dollars in thousands, except share and per share data)

NOTE 11: Segment Reporting

We have identified one operating segment and have determined that we have one reportable segment. As a group, our executive officers act as the Chief Operating Decision Maker (“CODM”). The CODM reviews operating results to make decisions about all investments and resources and to assess performance for the entire company. Our portfolio consists of one reportable segment, investments in real estate through the mechanism of ownership. The CODM manages and reviews our operations as one unit. Resources are allocated without regard to the underlying structure of any investment, but rather after evaluating such economic characteristics as returns on investment, leverage ratios, current portfolio mix, degrees of risk, income tax consequences and opportunities for growth.

NOTE 12: Commitments and Contingencies

Risks and Uncertainties

Currently, one of the most significant risks and uncertainties is the duration and scope of the current global COVID-19 pandemic, which has disrupted businesses and slowed economic activity. We have been impacted by the COVID-19 pandemic and, in response, we have made operational and policy changes to: (1) comply with governmental mandates on a jurisdiction by jurisdiction basis; (2) protect our employees, residents, and prospective residents; and (3) minimize the adverse financial impact to us. The extent to which COVID-19 continues to impact 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.

Other Matters

To the extent that a natural disaster or similar event occurs with more than a remote risk of having a material impact on the consolidated financial statements, we will disclose the estimated range of possible outcomes, and, if an outcome is probable, accrue an appropriate liability.

Lease Obligations

We lease office space in Philadelphia, PA and Chicago, IL.  As of December 31, 2020, the annual minimum rent due pursuant to these leases for each of the next five years and thereafter is estimated to be $511, $375, $382, $388, $394, and $1,996 respectively.

73

Independence Realty Trust

Schedule III - Real Estate and Accumulated Depreciation

As of December 31, 2020

(Dollars in thousands)

						Cost of				Gross Carrying				Accumulated			Encumbrances
Property		Initial Cost				Improvements,				Amount				Depreciation-			(Unpaid			Year of
Name	Location	Land		Building		Land		Building		Land		Building		Building			Principal)			Acquisition
Crestmont	Marietta, GA	$	3,254	$	13,017	$	-	$	6,006	$	3,254	$	19,023	$	(6,863	)	$	(5,996	)	2011
Runaway Bay	Indianapolis, IN		3,079		12,318		-		1,434		3,079		13,752		(3,115	)		(8,745	)	2012
Windrush	Edmond, OK		1,677		7,464		-		1,011		1,677		8,475		(1,673	)		-		2014
Heritage Park	Oklahoma, OK		4,234		12,232		-		3,365		4,234		15,597		(3,447	)		-		2014
Raindance	Oklahoma, OK		3,503		10,051		-		2,344		3,503		12,395		(2,690	)		-		2014
Augusta	Oklahoma, OK		1,296		9,930		-		1,468		1,296		11,398		(2,191	)		-		2014
Invitational	Oklahoma, OK		1,924		16,852		-		2,127		1,924		18,979		(3,630	)		-		2014
Kings Landing	Creve Coeur, MO		2,513		29,873		-		1,278		2,513		31,151		(5,632	)		(19,862	)	2014
Walnut Hill	Cordova, TN		2,230		25,251		-		2,307		2,230		27,558		(4,684	)		(18,650	)	2014
Lenox Place	Raleigh, NC		3,480		20,482		-		1,212		3,480		21,694		(3,746	)		(15,991	)	2014
Stonebridge Crossing	Memphis, TN		3,100		26,223		-		7,852		3,100		34,075		(6,662	)		(19,370	)	2014
Bennington Pond	Groveport, OH		2,400		14,828		-		1,421		2,400		16,249		(2,923	)		(11,375	)	2014
Prospect Park	Louisville, KY		2,837		11,193		-		1,001		2,837		12,194		(2,035	)		(9,075	)	2014
Brookside	Louisville, KY		3,947		16,503		-		876		3,947		17,379		(2,980	)		(13,229	)	2014
Jamestown	Louisville, KY		7,034		27,730		-		10,775		7,034		38,505		(8,467	)		(22,496	)	2014
Oxmoor	Louisville, KY		7,411		47,095		-		9,898		7,411		56,993		(10,262	)		(35,213	)	2014
Meadows	Louisville, KY		6,857		30,030		-		2,669		6,857		32,699		(5,578	)		(23,838	)	2014
Bayview Club	Indianapolis, IN		2,525		22,506		-		1,733		2,525		24,239		(3,888	)		-		2015
Arbors River Oaks	Memphis, TN		2,100		19,045		-		3,721		2,100		22,766		(3,797	)		-		2015
Aston	Wake Forest, NC		3,450		34,333		-		963		3,450		35,296		(4,860	)		(24,561	)	2015
Avenues at Craig Ranch	McKinney, TX		5,500		42,054		-		1,313		5,500		43,367		(5,948	)		(30,309	)	2015
Bridge Pointe	Huntsville, AL		1,500		14,306		-		780		1,500		15,086		(2,225	)		-		2015
Creekstone at RTP	Durham, NC		5,376		32,727		-		861		5,376		33,588		(4,630	)		(21,234	)	2015
Fountains Southend	Charlotte, NC		4,368		37,254		-		682		4,368		37,936		(5,123	)		(22,134	)	2015
Fox Trails	Plano, TX		5,700		21,944		-		2,988		5,700		24,932		(3,926	)		-		2015
Millenia 700	Orlando, FL		5,500		41,752		-		1,860		5,500		43,612		(6,148	)		-		2015
Miller Creek at German Town	Memphis, TN		3,300		53,504		-		919		3,300		54,423		(7,321	)		-		2015
Pointe at Canyon Ridge	Atlanta, GA		11,100		36,995		-		8,480		11,100		45,475		(8,252	)		-		2015
St James at Goose Creek	Goose Creek, SC		3,780		27,695		-		923		3,780		28,618		(4,054	)		-		2015
Talison Row at Daniel Island	Daniel Island, SC		5,480		41,409		-		899		5,480		42,308		(5,796	)		(30,971	)	2015
Vue at Knoll Trail	Dallas, TX		3,100		6,077		-		665		3,100		6,742		(1,016	)		-		2015
Waterstone at Brier Creek	Raleigh, NC		4,200		34,651		-		733		4,200		35,384		(4,811	)		(11,850	)	2015
Waterstone Big Creek	Alpharetta, GA		7,600		61,971		-		740		7,600		62,711		(8,395	)		(48,285	)	2015
Westmont Commons	Asheville, NC		2,750		25,225		-		975		2,750		26,200		(3,728	)		-		2015
Lakes at Northdale	Tampa, FL		3,898		25,543		-		1,378		3,898		26,921		(2,891	)		-		2017
Haverford Place	Lexington, KY		3,927		10,100		-		1,703		3,927		11,803		(1,575	)		-		2017
Village at Auburn Hills	Durham, NC		5,621		36,923		-		7,645		5,621		44,568		(6,077	)		-		2017
Cherry Grove	North Myrtle Beach, SC		550		15,369		-		1,523		550		16,892		(1,711	)		-		2017
Commons at Canal Winchester	Canal Winchester, OH		3,400		20,703		-		3,441		3,400		24,144		(2,581	)		-		2017
Schirm Farms	Canal Winchester, OH		3,960		19,488		-		2,886		3,960		22,374		(2,464	)		-		2017
Riverchase	Indianapolis, IN		1,460		17,250		-		1,014		1,460		18,264		(1,704	)		-		2017
Tides at Calabash	Wilmington, NC		1,880		12,214		-		536		1,880		12,750		(1,117	)		-		2017
Brunswick Point	Wilmington, NC		2,150		28,214		-		2,146		2,150		30,360		(2,810	)		(18,522	)	2017
Creekside Corners	Lithonia, GA		6,140		37,285		-		5,987		6,140		43,272		(4,408	)		(22,796	)	2018
Hartshire Lakes	Bargersville, IN		3,070		24,210		-		1,236		3,070		25,446		(2,127	)		(15,532	)	2018
The Chelsea	Columbus, OH		2,739		33,698		-		661		2,739		34,359		(2,630	)		-		2018
Avalon Oaks	Columbus, OH		4,189		18,301		-		3,096		4,189		21,397		(1,780	)		-		2018
Vantage on Hillsborough	Tampa, FL		10,671		31,953		967		7,853		11,638		39,806		(3,374	)		-		2018
Collier Park	Grove City, OH		2,325		18,688		-		757		2,325		19,445		(1,311	)		-		2018
Waterford Landing	McDonough, GA		2,867		27,477		-		2,551		2,867		30,028		(1,888	)		(15,058	)	2018
Lucerne	Brandon, FL		3,114		43,540		-		3,589		3,114		47,129		(3,006	)		-		2018
North Park	Stockbridge, GA		2,848		24,933		-		1,613		2,848		26,546		(1,231	)		-		2019
Rocky Creek	Tampa, FL		15,669		31,979		-		989		15,669		32,968		(1,229	)		-		2019
Thornhill	Raleigh, NC		12,282		40,207		-		947		12,282		41,154		(1,239	)		-		2019
The Adley	McKinney, TX		4,673		46,389		-		39		4,673		46,428		(969	)		-		2020
Legacy at Jones Farm	Huntsville, AL		14,860		78,552		-		-		14,860		78,552		-			-		2020
Total Investment in Real Estate		$	250,398	$	1,527,536	$	967	$	137,869	$	251,365	$	1,665,405	$	(208,618	)	$	(465,092	)

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Investments in Real Estate	December 31, 2020			December 31, 2019			December 31, 2018 (a)
Balance, beginning of period	$	1,796,365		$	1,745,640		$	1,504,156
Additions during period:
Acquisitions		145,340			127,908			270,220
Improvements to land and building		35,783			45,623			41,587
Deductions during period:
Dispositions of real estate		(56,797	)		(121,865	)		(69,915	)
Asset write-offs		(3,921	)		(941	)		(408	)
Balance, end of period:	$	1,916,770		$	1,796,365		$	1,745,640

	For the year ended
Accumulated Depreciation	December 31, 2020			December 31, 2019			December 31, 2018 (a)
Balance, beginning of period	$	158,435		$	120,202		$	84,097
Depreciation expense		59,717			50,955			41,652
Dispositions of real estate		(5,613	)		(11,781	)		(5,139	)
Asset write-off		(3,921	)		(941	)		(408	)
Balance, end of period:	$	208,618		$	158,435		$	120,202

(a) Includes properties classified as held for sale as of December 31, 2018.

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ITEM 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

ITEM 9A.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, (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. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision of our chief executive officer and chief financial officer and with the participation of our disclosure committee, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our chief executive officer and chief financial officer determined that our disclosure controls and procedures are effective at the reasonable assurance level.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013 Framework). Based on this assessment, management believes that, as of December 31, 2020, our internal control over financial reporting is effective.

Our independent registered public accounting firm has issued an attestation report on our internal control over financial reporting. This report is included as part of Item 8 in this annual report on Form 10-K.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting or in other factors during our last fiscal quarter that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.Other Information

None.

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance

The information required by this item will be set forth in our definitive proxy statement with respect to our 2021 annual meeting of stockholders, and is incorporated herein by reference.

ITEM 11. Executive Compensation

The information required by this item will be set forth in our definitive proxy statement with respect to our 2021 annual meeting of stockholders, and is incorporated herein by reference.

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ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item will be set forth in our definitive proxy statement with respect to our 2021 annual meeting of stockholders, and is incorporated herein by reference.

ITEM 13. Certain Relationships and Related Transactions and Director Independence

The information required by this item will be set forth in our definitive proxy statement with respect to our 2021 annual meeting of stockholders, and is incorporated herein by reference.

ITEM 14. Principal Accountant Fees and Services

The information required by this item will be set forth in our definitive proxy statement with respect to our 2021 annual meeting of stockholders, and is incorporated herein by reference.

PART IV

ITEM 15. Exhibits and Financial Statement Schedules

The following documents are filed as part of this report:

1. Consolidated Financial Statements

Index to Consolidated Financial Statements

Independence Realty Trust, Inc.

Report of Independent Registered Public Accounting Firm.

Consolidated Balance Sheets as of December 31, 2020 and 2019.

Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018.

Consolidated Statements of Changes in Equity for the years ended December 31, 2020, 2019 and 2018.

Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018.

Notes to Consolidated Financial Statements.

2. Financial Statement Schedules

Schedule III: Real Estate and Accumulated Depreciation

All other schedules are not applicable.

3. Exhibits

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

	EXHIBIT INDEX
Exhibit	Description
3.1	Articles of Restatement of Independence Realty Trust, Inc., dated as of August 20, 2013, incorporated by reference to Exhibit 3.1 to IRT’s Current Report on Form 8-K filed on August 20, 2013.
3.2	Amended and Restated Bylaws of IRT, dated as of October 30, 2019, incorporated by reference to Exhibit 3.2 to IRT’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019.
4.1	Exchange Rights Agreement dated as of August 28, 2014 among IRT, IROP and the limited partners named therein, incorporated by reference to Exhibit 4.6 to IRT’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014.

77

	EXHIBIT INDEX
4.2	Exchange Rights Agreement dated as of December 30, 2014 among IRT, IROP and the limited partners named therein, incorporated by reference to Exhibit 4.1.9 to IRT’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (the “2014 10-K”).
4.3	Fifth Amended and Restated Agreement of Limited Partnership of IROP, dated as of March 3, 2017, incorporated by reference to Exhibit 4.1.12 to the 2016 10-K.
4.4	Exchange Rights Agreement dated June 30, 2017, incorporated by reference to Exhibit 4.1.13 to IRT’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017.
4.5	Description of Independence Realty Trust, Inc.’s Securities, incorporated by reference to Exhibit 4.5 to IRT’s Annual Report on Form 10-K for the year ended December 31, 2019.
10.1	Equity Distribution Agreement, dated November 13, 2020, by and among IRT, IROP and each Bank of Montreal, BofA Securities, Inc., BMO Capital Markets Corp., Capital One Securities, Inc., Citigroup Global Markets Inc., Jefferies LLC, KeyBanc Capital Markets Inc., Robert W. Baird & Co. Incorporated, Stifel, Nicolaus & Company, Incorporated and Truist Securities (including Form of Master Confirmation), incorporated by reference to Exhibit 1.1 to IRT’s Current Report on Form 8-K filed on November 13, 2020.
10.2	Independence Realty Trust, Inc. Long Term Incentive Plan Form of Stock Appreciation Rights Award Certificate adopted January 31, 2014, incorporated by reference to Exhibit 10.1 to IRT’s Current Report on Form 8-K filed on February 6, 2014 (the “2/6/14 Form 8-K”).*
10.3	IRT 2016 Long Term Incentive Plan, as amended and restated as of May 12, 2016 incorporated by reference to Exhibit 10.1 to IRT’s Current Report on Form 8-K filed on May 17, 2016.*
10.4	Amendment No. 1 dated as of May 2, 2017 to the IRT Long Term Incentive Plan, incorporated by reference to Exhibit 10.9 to IRT’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (the “2017 Q1 10-Q”).*
10.5	Notice of Amendment of Outstanding Awards as of May 2, 2017, incorporated by reference to Exhibit 10.10 to the 2017 Q1 10-Q.
10.6	Term Loan Agreement dated as of November 20, 2017 by and among Independence Realty Operating Partnership, LP and the subsidiary borrowers named therein, collectively, as borrower, KeyBank National Association (“KeyBank”), as an initial lender thereunder together with the other lenders named therein, KeyBank, as administrative agent, Capital One, National Association (“Capital One”) and The Huntington National Bank (“HNB”), as co-syndication agents, and KeyBank Capital Markets (“KeyBank Markets”), Capital One and HNB, as joint bookrunners and KeyBank Markets, Capital One and HNB, as joint lead arrangers, incorporated by reference to Exhibit 10.1 to IRT’s Current Report on Form 8-K filed on November 21, 2017.
10.7	Employment Agreement, dated December 20, 2016, by and between IRT and Scott F. Schaeffer, incorporated by reference to Exhibit 10.4 to the 12/22/16 Form 8-K.*
10.8	Employment Agreement, dated December 20, 2016, by and between IRT and James J. Sebra, incorporated by reference to Exhibit 10.5 to the 12/22/16 Form 8-K. *
10.9	Employment Agreement, dated December 20, 2016, by and between IRT and Farrell M. Ender, incorporated by reference to Exhibit 10.6 to the 12/22/16 Form 8-K. *
10.11	Form of 2017 Performance Share Unit Award Grant Agreement adopted as of February 28, 2017, incorporated by reference to Exhibit 10.4 to the 2017 Q1 10-Q. *
10.12	Form of Restricted Stock Award Certificate for Eligible Officers adopted as of February 28, 2017, incorporated by reference to Exhibit 10.5 to the 2017 Q1 10-Q. *
10.15	Term Loan Agreement dated as of October 30, 2018 by and among IROP and the subsidiary borrowers named therein, collectively, as borrower, KeyBank National Association (“KeyBank”), as an initial lender thereunder together with the other lenders named therein, KeyBank, as administrative agent, Citibank, N.A. (“Citibank”), as syndication agent, Citibank and KeyBank Capital Markets (“KeyBank Markets”), as joint bookrunners and Citibank and KeyBank Markets, as joint lead arrangers, incorporated by reference to Exhibit 10.1 to IRT’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018.
10.16	Summary of Non-Employee Director Compensation, incorporated by reference to Exhibit 10.16 to IRT’s Annual Report on Form 10-K for the year ended December 31, 2019*

78

	EXHIBIT INDEX
10.17	Form of Cash Bonus Award Grant Agreement under the Independence Realty Trust, Inc. 2016 Long Term Incentive Plan, incorporated by reference to Exhibit 10.23 to IRT’s Annual Report on Form 10-K for the year ended December 31, 2018.*
10.18	Form of Performance Share Unit Award Grant Agreement under the Independence Realty Trust, Inc. 2016 Long Term Incentive Plan (for awards prior to 2020), incorporated by reference to Exhibit 10.24 to IRT’s Annual Report on Form 10-K for the year ended December 31, 2018.*
10.19	Form of Restricted Stock Award Certificate for Eligible Officers under the Independence Realty Trust, Inc. 2016 Long Term Incentive Plan, incorporated by reference to Exhibit 10.25 to IRT’s Annual Report on Form 10-K for the year ended December 31, 2018.*
10.20	Amended and Restated Credit Agreement dated as of May 9, 2019, by and among Independence Realty Operating Partnership, LP and the subsidiary borrowers named therein, collectively, as borrower, Citibank, N.A. (“Citibank”) and KeyBank National Association (“KeyBank”), as the initial lenders, issuing lenders and swing loan lenders, the other lending institutions party thereto, KeyBank, as administrative agent, Citibank and the Huntington National Bank ("HNB") as Co-Syndication Agents, Bank of American, N.A., Capital One, National Association, Citizens Bank, NA, Comerica Bank, PNC Bank, National Association, Regions Bank and SunTrust Bank as Co-Documentation Agents, Citibank and KeyBanc Capital Markets (“KeyBanc Capital”) as Joint Bookrunners and Citibank, KeyBanc Capital and HNB as Joint Lead Arrangers, incorporated by reference to Exhibit 10.1 to IRT’s Current Report on Form 8-K filed on May 9, 2019.
10.21	Form of Indemnification Agreement for IRT directors and executive officers, together with the schedule required by Instruction 2 of Item 601 of Regulation S-K, listing the parties to substantially identical agreements, incorporated by reference to Exhibit 10.7 to IRT’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.
10.22	Amendment No. 2 dated as of October 23, 2019 to the Independence Realty Trust, Inc. Long Term Incentive Plan (Amended and Restated as of May 12, 2016), incorporated by reference to Exhibit 10.1 to IRT’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019.
10.23	First Amendment dated as of June 18, 2019 to the Term Loan Agreement dated as of November 20, 2017 by and among Independence Realty Operating Partnership, LP and the subsidiary borrowers named therein, collectively, as borrower, KeyBank National Association (“KeyBank”), as an initial lender thereunder together with the other lenders named therein, KeyBank, as administrative agent, Capital One, National Association (“Capital One”) and The Huntington National Bank (“HNB”), as co-syndication agents, and KeyBank Capital Markets (“KeyBank Markets”), Capital One and HNB, as joint bookrunners and KeyBank Markets, Capital One and HNB, as joint lead arrangers, incorporated by reference to Exhibit 10.23 to IRT’s Annual Report on Form 10-K for the year ended December 31, 2019.
10.24	Second Amendment dated as of November 21, 2019 to the Term Loan Agreement dated as of November 20, 2017 by and among Independence Realty Operating Partnership, LP and the subsidiary borrowers named therein, collectively, as borrower, KeyBank National Association (“KeyBank”), as an initial lender thereunder together with the other lenders named therein, KeyBank, as administrative agent, Capital One, National Association (“Capital One”) and The Huntington National Bank (“HNB”), as co-syndication agents, and KeyBank Capital Markets (“KeyBank Markets”), Capital One and HNB, as joint bookrunners and KeyBank Markets, Capital One and HNB, as joint lead arrangers, incorporated by reference to Exhibit 10.24 to IRT’s Annual Report on Form 10-K for the year ended December 31, 2019.
10.25	First Amendment dated as of June 18, 2019 to the Term Loan Agreement dated as of October 30, 2018 by and among IROP and the subsidiary borrowers named therein, collectively, as borrower, KeyBank National Association (“KeyBank”), as an initial lender thereunder together with the other lenders named therein, KeyBank, as administrative agent, Citibank, N.A. (“Citibank”), as syndication agent, Citibank and KeyBank Capital Markets (“KeyBank Markets”), as joint bookrunners and Citibank and KeyBank Markets, as joint lead arrangers, incorporated by reference to Exhibit 10.25 to IRT’s Annual Report on Form 10-K for the year ended December 31, 2019.
10.26	Form of Independence Realty Trust, Inc. 2016 Long Term Incentive Plan Restricted Share Unit Grant Agreement (for 2020 and later awards), incorporated by reference to Exhibit 10.26 to IRT’s Annual Report on Form 10-K for the year ended December 31, 2019.*
10.27	Form of Independence Realty Trust, Inc. 2016 Long Term Incentive Plan Performance Share Unit Award Grant Agreement (for 2020 and later awards), incorporated by reference to Exhibit 10.27 to IRT’s Annual Report on Form 10-K for the year ended December 31, 2019.*

79

	EXHIBIT INDEX
10.28	Confirmation of Issuer Forward Sale Transaction, dated February 20, 2020, by and among IRT, Bank of Montreal and BMO Capital Markets Inc., incorporated by reference to Exhibit 1.2 to IRT’s Current Report on Form 8-K filed on February 24, 2020.
10.29	Confirmation of Issuer Forward Sale Transaction, dated February 20, 2020, by and among IRT, Bank of Montreal and BMO Capital Markets Inc., incorporated by reference to Exhibit 1.3 to IRT’s Current Report on Form 8-K filed on February 24, 2020.
10.30	Employment Agreement, dated March 1, 2020, by and between IRT and Jessica Norman, incorporated by reference to Exhibit 10.3 to IRT’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.*
10.31	Employment Agreement, dated March 1, 2020, by and between IRT and Jason R. Delozier, incorporated by reference to Exhibit 10.4 to IRT’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.*
21.1	Subsidiaries of IRT, filed herewith.
23.1	Consent of KPMG LLP, filed herewith.
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 the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.
32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.
99.1	Material U.S. Federal Income Tax Considerations filed herewith.
101	The following materials, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019, (ii) Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018. (iii) Consolidated Statements of Equity for the years ended December 31, 2020, 2019 and 2018, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019, and 2018, and (v) notes to the consolidated financial statements as of December 31, 2020, filed herewith.
104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

* Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.

ITEM 16. Form 10-K Summary

None.

80

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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:	February 18, 2021	By:	/S/ SCOTT F. SCHAEFFER
			Scott F. Schaeffer
			Chairman of the Board and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/S/    SCOTT F. SCHAEFFER	Chairman of the Board and Chief Executive Officer (Principal Executive Officer)	February 18, 2021
Scott F. Schaeffer
/S/    JAMES J. SEBRA	Chief Financial Officer and Treasurer (Principal Financial Officer)	February 18, 2021
James J. Sebra
/S/    JASON R. DELOZIER	Chief Accounting Officer	February 18, 2021
Jason R. Delozier	(Principal Accounting Officer)
/S/     WILLIAM C. DUNKELBERG	Director	February 18, 2021
William C. Dunkelberg
	Director	February 18, 2021
/s/    Richard D. Gebert
Richard D. Gebert
	Director	February 18, 2021
/S/    Mack D. Pridgen III
Mack D. Pridgen III
	Director	February 18, 2021
/S/    DEFOREST B. SOARIES, JR.
DeForest B. Soaries, Jr.
/S/    MELINDA H. McCLURE	Director	February 18, 2021
Melinda H. McClure
/S/    LISA WASHINGTON	Director	February 18, 2021
Lisa Washington

81