INDEPENDENCE REALTY TRUST, INC. (IRT) FY 2022 MD&A

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 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;

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

•Competition could limit our ability to lease our units 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;

•Substantial inflationary or deflationary pressures could adversely affect our financial condition or results of operations;

•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.

In 2022, we acquired three wholly-owned communities, totaling 678 units, and disposed of six communities, totaling 1,983 units. We also formed three unconsolidated joint ventures (in which we own an 85% to 90% interest) that are developing communities that will contain, upon completion, 831 units. These acquisitions, dispositions and joint venture

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investments represent the execution of our strategy to gain scale within desired submarkets, while exiting markets in which we lack scale. In 2023, 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.

The STAR Merger was consummated in order to increase the scale and scope of our business, provide enhanced portfolio diversification and exposure to high growth markets, and to unlock synergies. During 2022, we successfully combined teams and integrated our property and revenue management systems across all former STAR communities, including merging human resources systems and benefit plans. We also completed property dispositions identified in conjunction with the STAR Merger that enabled us to delever our combined balance sheet.

We incurred approximately $5.5 million and $47.1 million in merger and integration costs related to the STAR Merger during the years ended December 31, 2022 and 2021. These costs primarily consisted of technology migration and implementation, consulting and professional fees and employee severance costs. These costs are presented in a separate line item, “Merger and integration costs,” in our consolidated statements of operations.

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 of December 31, 2022, we had identified 12,583 units across 38 of our communities for renovations and upgrades as part of our Value Add Initiative. Since January 2018 and through December 31, 2022, we renovated 5,316 of the 12,583 units currently owned while achieving a return on total investment of 19.6% (and approximately 21.6% on the interior portion of such renovation costs). We compute return on cost by measuring our cost against our rent premiums. We expect to complete the remaining projects included in our Value Add Initiative at the selected communities during 2023 and 2024.

See Item 1. Business for an additional discussion regarding developments in our business during 2022.

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Results of Operations

The following discussion is based on our Consolidated Financial Statements for the years ended December 31, 2022 and 2021. As of December 31, 2022, we owned and consolidated 120 multifamily apartment properties, of which 112 comprised the Combined Same-Store Portfolio. We discuss below, under “Non-GAAP Financial Measures,” our methodology for categorizing our 120 properties, as applicable, into IRT Same-Store Portfolio (48 properties as of December 31, 2022), STAR Same-Store Portfolio (64 properties as of December 31, 2022) and Combined Same-Store Portfolio (112 properties as of December 31, 2022). Because of substantial changes in our total property portfolio as the result of the STAR Merger that closed on December 16, 2021, the financial data presented below show significant changes in revenue and expenses from period-to-period. Refer to Item 7, “Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021 for a comparison of the year ended December 31, 2021 to the year ended December 31, 2020.

Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

(1)Represents metrics of the STAR Portfolio, for the year ended December 31, 2021, the period of ownership prior to the consummation of the STAR Merger on December 16, 2021 and is presented for the purpose of reconciling Combined Same-Store Portfolio results to the consolidated results for the year ended December 31, 2021.

•Not meaningful (“NM”).

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Revenue

Rental and other property revenue. Rental and other property revenue increased $377.9 million to $627.4 million for the year ended December 31, 2022 from $249.5 million for the year ended December 31, 2021. The increase was primarily attributable to the STAR Merger, which contributed a pre-merger revenue base of $327.6 million partially offset by our Non Same-Store Portfolio which decreased by $6.4 million. In addition, same-store rental income increased by $56.7 million for the year ended December 31, 2022 driven by a 12.0% increase in average effective monthly rent per unit.

Expenses

Property operating expenses. Property operating expenses increased $139.0 million to $232.3 million for the year ended December 31, 2022 from $93.3 million for the year ended December 31, 2021. The increase was driven by the STAR Merger, which contributed $131.0 million of operating expenses partially offset by our Non Same-Store Portfolio which decreased by $4.1 million. In addition, same-store real estate operating expenses increased by $12.2 million during the year ended December 31, 2022, primarily due to an increase in real estate taxes, utilities, repairs and maintenance, and contract services.

Property management expenses. Property management expenses increased $14.5 million to $24.0 million for the year ended December 31, 2022 from $9.5 million for the year ended December 31, 2021 as a result of the increase in costs associated with the additional employees that joined IRT in connection with the STAR Merger.

General and administrative expenses. General and administrative expenses increased $7.7 million to $26.3 million for the year ended December 31, 2022 from $18.6 million for the year ended December 31, 2021. This was due to an increase in professional fees and costs associated with the additional employees that joined IRT in connection with the STAR Merger.

Depreciation and amortization expense. Depreciation and amortization expense increased $175.9 million to $252.8 million for the year ended December 31, 2022 from $76.9 million for the year ended December 31, 2021. The increase was primarily attributable to an increase in depreciation of $128.3 million and approximately $52.6 million of amortization of in-place lease intangibles, from properties acquired in the STAR Merger.

Casualty (gains) losses, net. During the year ended December 31, 2022, we recognized net casualty gains

of $8.9 million as a result of receiving insurance proceeds in excess of the carrying value of the associated damage. During the year ended December 31, 2021, we incurred $0.4 million in casualty losses due to winter storm damage at various properties where the carrying value of the damage exceeded insurance proceeds due to policy deductible levels.

Loss from investments in unconsolidated joint ventures. During the year ended December 31, 2022, we incurred losses of $2.2 million on investments in unconsolidated joint ventures, due to the depreciation and amortization recognized by the unconsolidated real estate entities.

Interest expense. Interest expense increased $50.6 million to $87.0 million for the year ended December 31, 2022 from $36.4 million for the year ended December 31, 2021. This was due primarily due to the assumption of debt in connection with the STAR Merger.

Merger and integration costs. We incurred approximately $5.5 million of STAR Merger-related integration costs during the year ended December 31, 2022 compared to $47.1 million during the year ended December 31, 2021. These costs primarily consist of technology migration and implementation, consulting and professional fees and employee severance costs.

Gain on sale (loss on impairment) of real estate assets, net. During the year ended December 31, 2022, six multi-family properties were sold resulting in net gains of $111.8 million. During the year ended December 31, 2021, three multi-family properties were sold resulting in net gains of $87.7 million.

Loss on extinguishment of debt. During the year ended December 31, 2022, we incurred no losses on the extinguishment of debt compared to $10.3 million during the year ended December 31, 2021, as a result of deleveraging efforts undertaken in contemplation of the STAR Merger.

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Non-GAAP Financial Measures

Funds from Operations and Core Funds from Operations

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

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

CFFO is a computation made by analysts and investors to measure a real estate company’s operating performance by removing the effect of items that do not reflect ongoing property operations, including depreciation and amortization of other items not included in FFO, and other non-cash or non-operating gains or losses related to items such as casualty (gains) losses, abandoned deal costs, loan premium accretion and discount amortization, debt extinguishment costs, and merger and integration costs from the determination of FFO.

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

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Set forth below is a reconciliation of net income to FFO and Core FFO for the years ended December 31, 2022, 2021 and 2020 (in thousands, except share and per share information):

(1)Based on 228,452,958, 109,418,810, and 94,430,935 weighted average shares and units outstanding for the years ended December 31, 2022, December 31, 2021, and December 31, 2020, respectively.

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 and gains, 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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Same-Store Properties and Same-Store Portfolio

We review our same-store portfolio at the beginning of each calendar year. Properties are added into the same-store portfolio if they were owned at the beginning of the previous year. Properties that are held for sale or have been sold are excluded from the same-store portfolio. Because our portfolio of properties changed significantly as a result of our STAR Merger, which closed on December 16, 2021, we may also present, as described below, information on the IRT Same-Store Portfolio, STAR Same-Store Portfolio and Combined Same-Store Portfolio.

IRT Same-Store Portfolio

IRT Same-Store Portfolio represents the 48 properties that we owned and consolidated as of January 1, 2021 and through December 31, 2022 (other than properties held for sale as of December 31, 2022).

STAR Same-Store Portfolio

STAR Same-Store Portfolio represents the 64 properties that STAR owned and consolidated as of January 1, 2021 and that, following the consummation of the Merger on December 16, 2021, continued to be owned and consolidated by us through December 31, 2022 (other than properties held for sale as of December 31, 2022).

Combined Same-Store Portfolio

Combined Same-Store Portfolio represents the combination of the IRT Same-Store Portfolio and the STAR Same-Store Portfolio considered as a single portfolio of 112 properties which represent 33,527 units.

Combined Non Same-Store Portfolio

Combined Non Same-Store Portfolio represents the combination of five IRT non same-store properties and three STAR non same-store properties considered as a single non same-store portfolio of eight properties which represent 1,999 units acquired after January 1, 2021 (includes one property held for sale as of December 31, 2022).

Pre-Merger STAR Portfolio NOI

In order to reconcile Combined Same-Store Portfolio NOI to net income for periods prior to our December 16, 2021 merger with STAR, our reconciliation excludes NOI generated by the STAR Portfolio because we did not own these properties prior to December 16, 2021.

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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, 2022 and 2021 (in thousands).

(a)Combined Same-Store Portfolio for the years ended December 31, 2022 and 2021 includes 112 properties, which represent 33,527 units.

(b)Included in the twelve months ended December 31, 2022 is a refund of previously paid employer payroll taxes of $0.7 million from a portion of an employee retention credit received.

(c)Represents NOI of the STAR Portfolio for periods prior to the consummation of the STAR Merger on December 16, 2021.

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Combined Same-Store Portfolio

The table below provides the 2022 quarterly and annual property operating results for the 2022 Combined Same-Store Portfolio (in thousands).

(a)Combined Same-Store Portfolio consists of 112 properties, which represent 33,527 units.

(b)Included in the year ended December 31, 2022 is a refund of previously paid employer payroll taxes of $0.7 million from a portion of an employee retention credit received.

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

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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 to continue our value add initiatives to improve the quality and performance of our properties;

•repay our indebtedness;

•fund costs necessary to maintain our properties;

•continue funding our current real estate developments until completion;

•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 $16.1 million as of December 31, 2022;

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

•cash generated from operating activities;

•net cash proceeds from property sales, including sales undertaken as part of our capital recycling strategy and other sales; and

•proceeds from the sales of our common stock and other equity securities, including common stock that may be sold under our ATM Program.

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.

Stock Repurchase Program

On May 18, 2022, our Board of Directors authorized a common stock repurchase program (the “Stock Repurchase Program”) covering up to $250 million in shares of our common stock. Under the Stock Repurchase Program, we, in our discretion, may purchase our shares from time to time in the open market or in privately negotiated transactions. The amount and timing of the purchases will depend on a number of factors, including the price and availability of our shares, trading volumes and general market conditions. The Stock Repurchase Program has no time limit and may be suspended or discontinued at any time. During the year ended December 31, 2022, we had no repurchases of shares under the Stock Repurchase Program.

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Cash Flows

As of December 31, 2022 and 2021, we maintained cash, cash equivalents, and restricted cash of approximately $44.0 million and $65.7 million, respectively. Our cash and cash equivalents were generated from the following activities (dollars in thousands):

Our cash flows provided by operating activities during the year ended December 31, 2022 were primarily driven by an increase in the size of our operating portfolio by the STAR Merger. Our cash flows provided by operating activities during the years ended December 31, 2021 and 2020 were primarily driven by the ongoing operations of our properties.

Our cash flows used in investing activities during the year ended December 31, 2022 were primarily driven by $201.8 million of outflows related to the acquisitions of three multifamily apartment communities, $84.0 million of capital expenditures, $61.8 million in additions to real estate under development, and $60.8 million of outflows related to our investment in five unconsolidated real estate entities, partially offset by $253.6 million of inflows from property dispositions and $15.6 million in proceeds from insurance claims.

Our cash flows used in investing activities during the year ended December 31, 2021 were primarily driven by $186.1 million of outflows related to the STAR Merger, $139.5 million of outflows related to two property acquisitions, $25.0 million of outflows related to our investment in two unconsolidated real estate entities, and capital expenditures of $43.0 million, partially offset by $177.5 million of inflows from property dispositions.

Our cash flow used in investing activities during the year ended December 31, 2020 were 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 flows used in financing activities during the year ended December 31, 2022 were primarily driven by distributions on our common stock of $105.8 million, and mortgage principal repayments of $53.4 million partially offset by proceeds from the issuance of common stock of $48.7 million.

Our cash flows provided by financing activities during the year ended December 31, 2021 were primarily driven by $594.5 million of term loan and credit facility proceeds and $317.0 million of proceeds from sales of common stock partially offset by $312.9 million of mortgage repayments, $302.3 million of credit facility repayments, and $49.8 million of distributions on our common stock.

Our cash flows provided by financing activities during the year ended December 31, 2020 were 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.

Capitalization

New $400 Million Term Loan

On July 25, 2022, we entered into the Fourth Amended, Restated and Consolidated Credit Agreement (the “Fourth Restated Credit Agreement”) which amended and restated in its entirety the Third Amended and Restated Credit Agreement dated as of December 14, 2021 (the “Third Restated Credit Agreement”). The Fourth Restated Credit Agreement provides for an aggregate amount available for borrowing of $1.1 billion, which consists of (i) a $500.0 million unsecured revolving credit facility with a January 31, 2026 maturity date (the “Revolving Credit Facility”), (ii) a $400.0

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million term loan with a January 28, 2028 maturity date (the “2028 Term Loan”); and (iii) a $200.0 million term loan with a May 18, 2026 maturity date (the “2026 Term Loan”). The Fourth Restated Credit Agreement represents an increase of $100.0 million over the Third Restated Credit Agreement which provided for (i) the Revolving Credit Facility, (ii) the 2026 Term Loan, and (iii) two additional term loans of $200.0 million and $100.0 million, which had maturity dates of January 17, 2024 and November 20, 2024, respectively (collectively, the “2024 Term Loans”). Proceeds from the 2028 Term Loan were used to (i) repay and retire the 2024 Term Loans, and (ii) reduce $100.0 million of outstanding borrowings under the Revolving Credit Facility. In addition, the Restated Credit Agreement changed the LIBOR interest rate option to SOFR. The Restated Credit Agreement otherwise continues, without material change, the 2026 Term Loan and the Revolving Credit Facility. We recognized the restructuring of the Fourth Restated Credit Agreement as a modification of debt for all lenders except for one and incurred deferred financing costs of $1.5 million associated with the transaction. We recognized the portion of debt associated with the lender no longer participating in the Fourth Restated Credit Agreement as an extinguishment of debt and wrote off their de minimis deferred financing costs.

Borrowings under the 2028 Term Loan bear interest at a rate equal to either (i) the SOFR rate plus a margin of 115 to 180 basis points, or (ii) a base rate plus a margin of 15 to 80 basis points. These margins represent a 5-basis point decrease from those applicable to the 2024 Term Loans that were repaid and retired. The margin for borrowings under the Revolving Credit Facility and the 2026 Term Loan remained unchanged, with (1) Revolving Credit Facility borrowings bearing interest at a rate equal to either (i) the SOFR rate plus a margin of 125 to 200 basis points, or (ii) a base rate plus a margin of 25 to 100 basis points; and (2) 2026 Term Loan borrowings bearing interest at a rate equal to either (i) the SOFR rate plus a margin of 120 to 190 basis points, or (ii) a base rate plus a margin of 20 to 90 basis points. The applicable margin will be determined based upon IROP’s consolidated leverage ratio. At the time of closing, based on IROP’s consolidated leverage ratio, the applicable margin was 125 basis points for the Revolving Credit Facility, 120 basis points for the 2026 Term Loan and 115 basis points for the 2028 Term Loan.

IROP has the right to request an increase in the aggregate amount of the Fourth Restated Credit Agreement from $1.1 billion to up to $1.5 billion, subject to certain terms and conditions, including receipt of commitments from one or more lenders, whether or not currently parties to the Fourth Restated Credit Agreement, to provide such increased amounts, which increase may be allocated, at IROP’s option, to the Revolving Credit Facility and/or to one or more of the Term Loans, in accordance with the Fourth Restated Credit Agreement.

Increased Dividend to $0.14

On May 18, 2022, our board of directors approved a quarterly dividend of $0.14 per share on our common stock, which represented a 17% increase in the dividend over the prior quarterly rate of $0.12 per share.

Board Authorized a Stock Repurchase Program

On May 18, 2022, our Board of Directors approved the Stock Repurchase Program covering up to $250 million in shares of our common stock. Under the Stock Repurchase Program, we, in our discretion, may purchase our shares from time to time in the open market or in privately negotiated transactions. The amount and timing of the purchases will depend on a number of factors, including the price and availability of our shares, trading volumes and general market conditions. The Stock Repurchase Program has no time limit and may be suspended or discontinued at any time. During the year ended December 31, 2022, we had no repurchases of shares under the Stock Repurchase Program.

Equity

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 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. Under the ATM Program, we may also enter into one or more forward sale transactions for the sale of shares of our common stock on a forward basis. During the fourth quarter of 2021 and the first quarter of 2022, we sold 2.0 million shares on a forward basis under the ATM program. On September 28, 2022, the forward shares were settled at the current weighted average sales price of $24.97 per share and we received proceeds, net of sales commissions, of approximately $49.9 million. There were no forward sale transactions that had not settled as of December 31, 2022. As of December 31, 2022, approximately $56.8 million remained available for issuance under the ATM Program.

We evaluated the accounting for the forward sale transactions under FASB ASC Topic 480 “Distinguishing Liabilities from Equity” and FASB ASC Topic 815 “Derivatives and Hedging”. As the forward sale transactions are

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considered indexed to our own equity and since they meet the equity classification conditions in ASC 815-40-25, the forward sale transactions have been classified as equity.

Debt

The following tables contain summary information concerning our consolidated indebtedness as of December 31, 2022 (dollars in thousands):

(1)The unsecured credit facility total capacity is $500,000, of which $165,978 was outstanding as of December 31, 2022.

As of December 31, 2022 we were in compliance with all financial covenants contained in our consolidated indebtedness.

PNC Secured Credit Facility

On December 16, 2021, in connection with the STAR Merger, we assumed the PNC MCFA, a fixed rate multifamily note and other loan documents for the benefit of PNC Bank. The PNC MCFA provided for a fixed rate loan in the aggregate principal amount of $79,170 that accrues interest at 2.82% per annum. The PNC MCFA has a maturity date of July 1, 2030, unless the maturity date is accelerated in accordance with the terms of the loan documents. Interest only payments are payable monthly through the maturity date. As of December 31, 2022, and 2021 the outstanding principal balance was $76,248 and $76,248, respectively.

Newmark Secured Credit Facility

On December 16, 2021, in connection with the STAR Merger, we assumed the Newmark secured credit facility (“Newmark MCFA”), which includes four tranches: (1) a fixed rate loan in the aggregate principal amount of $331,001 that accrues interest at 4.43% per annum; (2) a fixed rate loan in the aggregate principal amount of $137,917 that accrues interest at 4.57% per annum; (3) a variable rate loan in the aggregate principal amount of $49,493 that accrues interest at the one-month LIBOR plus 1.70% per annum; and (4) a fixed rate loan in the aggregate principal amount of $40,468 that accrues interest at 3.34% per annum. The first three tranches have a maturity date of August 1, 2028, and the fourth tranche has a maturity date of March 1, 2030, unless in each case the maturity date is accelerated in accordance with the terms of the loan documents. Interest only payments are payable monthly through August 1, 2025 and April 1, 2027 on the first three tranches and fourth tranche, respectively, with interest and principal payments due monthly thereafter. As of December 31, 2022, and 2021, the outstanding principal balance under the Newmark MCFA was $558,880 and $558,880, respectively.

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Unsecured Credit Facility and Revolving Line of Credit

On December 14, 2021, we entered into the Third Amended, Restated and Consolidated Credit Agreement (the “Third Restated Credit Agreement”) which provided for a $1.0 billion unsecured credit facility (the “Facility”) that consisted of a $500.0 million revolving line of credit (the “Unsecured Revolver”), a $200.0 million senior term loan, a $200.0 million term loan and a $100.0 million term loan, (together, the “Unsecured Term Loans”), primarily to (1) increase the borrowing capacity under the Unsecured Revolver from $350.0 million to $500.0 million, (2) extend the maturity date of the Unsecured Revolver from May 9, 2023 to January 31, 2026 and (3) consolidate the Unsecured Term Loans into one combined agreement. We had the right to increase the aggregate amount of the Third Restated Credit Agreement from $1.0 billion to $1.5 billion, subject to certain terms and conditions. We recognized the restructuring of the Third Restated Credit Agreement as a modification of debt and incurred deferred financing costs of $1.9 million associated with the transaction. The Third Restated Credit Agreement was replaced by the Fourth Restated Credit Agreement described above.

In addition to certain negative covenants, the Fourth Restated Credit Agreement has financial covenants that require us to (i) maintain a consolidated leverage ratio below specified thresholds, (ii) maintain a minimum consolidated fixed charge coverage ratio, and (iii) maintain a minimum consolidated tangible net worth, (iv) and maintain secured and unsecured leverage ratios below specified thresholds. Additionally, the covenants (i) limit (a) the amount of distributions that we could make to a percentage of Funds from Operations (as such term was described in the debt agreement), (b) and the ratio of unencumbered asset adjusted net operating income to unsecured interest expense.

Contractual Obligations

The table below summarizes our material cash requirement related to contractual obligations, which primarily consist of principal and interest payments on our outstanding consolidated debt obligations and operating lease obligations as of December 31, 2022 (dollars in thousands):

(1)Our unsecured credit facility and term loans assumed a SOFR rate of 4.32% as of December 31, 2022.

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 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.

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 the replacement cost for each building and business interruption and rental loss insurance. 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

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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. In addition, we generally obtain title insurance policies when we acquire a property, with each policy covering an amount equal to the initial purchase price of each property. Accordingly, any of our title insurance policies may be in an amount less than the current value of the related property.

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 has generally served to reduce our risk to adverse effects of inflation. However, substantial inflationary pressures could have a negative effect on rental rates and property operating expenses. The general risk of inflation is that interest on our debt, general and administrative expenses and other expenses, including our costs of capital improvements and expenditures, increase at a rate faster than increases in our residential rental rates, which would adversely affect our financial condition or results of operations. Additionally, substantial inflationary pressures may dampen consumer spending, which may negatively impact the demand for resident leases at our apartment communities. While there is debate among economists as to whether inflationary pressures, coupled with recent periods of economic contractions in the U.S., indicate that the U.S. has entered, or in the near term will enter, a recession, it remains difficult to predict the full impact of any future changes in 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.

Investments in Real Estate

Allocation of Purchase Price of Acquired Assets

In accordance with FASB ASC Topic 805, we evaluate our real estate acquisitions to determine if they should be accounted for as a business or a group of assets. The evaluation includes an initial screen to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single asset or group of similar assets. If the screen is met, the acquisition is not a business. The properties we have acquired met the screen test and are 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.

Business Combinations

On December 16, 2021, we acquired Steadfast Apartment REIT, Inc. and Steadfast Apartment REIT Operating Partnership, L.P., as discussed in Note 3 to the consolidated financial statements. The transaction was accounted for as a business combination whereby we measured the identifiable assets acquired and liabilities assumed at fair value. The identifiable assets acquired in the business combination included investments in real estate properties measured using a combination of income, market and cost approaches.

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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 (e.g., hold period) 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.