# INDEPENDENCE REALTY TRUST, INC. (IRT) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from INDEPENDENCE REALTY TRUST, INC.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1466085/000146608524000023/irt-20231231.htm
Accession: 0001466085-24-000023
Filing date: 2024-02-28
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/IRT/
All MD&A years: /company/IRT/mda/
Previous year: /company/IRT/mda/fy2022/ (FY 2022)
Next year: /company/IRT/mda/fy2024/ (FY 2024)

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;

•Impairment charges;

•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 and for an additional discussion regarding developments in our business during 2023.

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Results of Operations

The following discussion is based on our Consolidated Financial Statements for the years ended December 31, 2023 and 2022. Refer to Item 7, “Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022 for a comparison of the year ended December 31, 2022 to the year ended December 31, 2021.

Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

[[GREPCENT_TABLE]]
[["","SAME-STORE PROPERTIES","","NON SAME-STORE PROPERTIES","","CONSOLIDATED"],["(Dollars in thousands except per unit data)","2023","","2022","","Increase (Decrease)","","% Change","","2023","","2022","","Increase (Decrease)","","% Change","","2023","","2022","","Increase (Decrease)","","% Change"],["Statistical Property Data:"],["Number of properties (1)","106","","106","","\u2014","","\u2014","","10","","14","","(4)","","(28.6)%","","116","","120","","(4)","","(3.3)%"],["Number of units (1)","31,829","","31,829","","\u2014","","\u2014","","2,602","","3,697","","(1,095)","","(29.6)%","","34,431","","35,526","","(1,095)","","(3.1)%"],["Average occupancy (1)","94.0%","","94.7%","","(0.7)%","","(0.7)%","","93.6%","","94.3%","","(0.7)%","","(0.7)%","","94.0%","","94.6%","","(0.6)%","","(0.6)%"],["Average effective monthly rent, per unit (1)","$1,537","","$1,445","","$92","","6.4%","","$1,627","","$1,496","","$131","","8.7%","","$1,543","","$1,431","","$112","","7.9%"],["Revenue:"],["Rental and other property revenue","$589,749","","$558,203","","$31,546","","5.7%","","$70,092","","$69,211","","$881","","1.3%","","$659,841","","$627,414","","$32,427","","5.2%"],["Expenses:"],["Property operating expenses","218,209","","206,687","","11,522","","5.6%","","26,121","","25,588","","533","","2.1%","","244,330","","232,275","","12,055","","5.2%"],["Net Operating Income","$371,540","","$351,516","","$20,024","","5.7%","","$43,971","","$43,623","","$348","","0.8%","","$415,511","","$395,139","","$20,372","","5.2%"],["Other Revenue:"],["Other revenue","","","","","","","","","","","","","","","","","$1,142","","$1,111","","$31","","2.8%"],["Corporate and other expenses:"],["Property management expenses","","","","","","","","","","","","","","","","","27,081","","24,033","","3,048","","12.7%"],["General and administrative expenses","","","","","","","","","","","","","","","","","22,766","","26,260","","(3,494)","","(13.3)%"],["Depreciation and amortization expense","","","","","","","","","","","","","","","","","218,968","","252,849","","(33,881)","","(13.4)%"],["Casualty losses (gains), net","","","","","","","","","","","","","","","","","925","","(8,866)","","9,791","","(110.4)%"],["Interest expense","","","","","","","","","","","","","","","","","(89,921)","","(86,955)","","(2,966)","","3.4%"],["(Loss on impairment) gain on sale of real estate assets, net","","","","","","","","","","","","(66,547)","","111,756","","(178,303)","","(159.5)%"],["Loss on extinguishment of debt","","","","","","","","","","","","","","","","","(124)","","\u2014","","(124)","","100.0%"],["Merger and integration costs","","","","","","","","","","","","","","","","","\u2014","","(5,505)","","5,505","","(100.0)%"],["Other (loss) income, net","","","","","","","","","","","","(427)","","1,558","","(1,985)","","(127.4)%"],["Loss from investments in unconsolidated real estate entities","","","","","","","","","","","","","","(4,488)","","(2,169)","","(2,319)","","106.9%"],["Restructuring costs","","","","","","","","","","","","","","","","","(3,213)","","\u2014","","(3,213)","","100.0%"],["Net (loss) income","","","","","","","","","","","","","","","","","(17,807)","","120,659","","(138,466)","","(114.8)%"],["Loss (income) allocated to noncontrolling interests","","","","","","","","","","","","","","580","","(3,410)","","3,990","","(117.0)%"],["Net (loss) income available to common shares","","","","","","","","","","","","","","$(17,227)","","$117,249","","$(134,476)","","(114.7)%"]]
[[/GREPCENT_TABLE]]

(1)Excludes our development projects. See Non-GAAP Financial Measures for our definition of a development property and our methodology for determining same-store properties.

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Revenue

Rental and other property revenue. Rental and other property revenue increased $32.4 million to $659.8 million for the year ended December 31, 2023 from $627.4 million for the year ended December 31, 2022. The increase was primarily attributable to a $31.5 million increase in same-store rental and other property revenue driven by a 6.4% increase in average effective monthly rents and partially offset by a 0.7% decrease in average occupancy compared to the prior year period.

Expenses

Property operating expenses. Property operating expenses increased $12.1 million to $244.3 million for the year ended December 31, 2023 from $232.3 million for the year ended December 31, 2022. The increase was primarily due to the $11.5 million increase in same-store property operating expenses, primarily due to inflationary pressures resulting in higher contract services, insurance expense, and repairs and maintenance during the year ended December 31, 2023. In addition, advertising expenses increased 31% during the year ended December 31, 2023 compared to the prior year period, as we increased investment in our brand.

Property management expenses. Property management expenses increased $3.1 million to $27.1 million for the year ended December 31, 2023 from $24.0 million for the year ended December 31, 2022. The increase was primarily due to higher personnel costs, stock compensation, and subscription costs related to the rollout of community call centers, compared to the prior year.

General and administrative expenses. General and administrative expenses decreased $3.5 million to $22.8 million for the year ended December 31, 2023 from $26.3 million for the year ended December 31, 2022. The decrease was primarily due to lower personnel costs from the departure of executives in 2023, including from the forfeiture of their bonus and stock awards.

Depreciation and amortization expense. Depreciation and amortization expense decreased $33.9 million to $219.0 million for the year ended December 31, 2023 from $252.8 million for the year ended December 31, 2022. The decrease was primarily due to lower intangible asset amortization expenses during the year ended December 31, 2023 compared to the prior year period as a result of the full amortization in 2022 of the intangible assets acquired in the STAR merger on December 16, 2021.

Casualty losses (gains), net. During the year ended December 31, 2023, we incurred $0.9 million in net casualty losses due to fires at three properties and winter storm damage at various properties where the carrying value of the damage exceeded insurance proceeds due to policy deductible levels. 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.

Interest expense. Interest expense increased $3.0 million to $89.9 million for the year ended December 31, 2023 from $86.9 million for the year ended December 31, 2022. The increase was primarily driven by a 0.3% increase in our weighted average effective interest rate from 3.9% for the full year 2022 to 4.2% for the full year 2023.

(Loss on impairment) gain on sale of real estate assets, net. During the year ended December 31, 2023, we sold five multifamily properties resulting in a loss on impairment of $33.5 million. In addition, as of December 31, 2023, we identified six multifamily properties as held for sale and recorded a loss on impairment of $33.0 million as a result of the carrying value of the real estate exceeding the expected sales price, less transaction costs. During the year ended December 31, 2022, six multifamily properties were sold resulting in a gain on sale of real estate, net of $111.8 million.

Merger and integration costs. We incurred no STAR Merger-related integration costs during the year ended December 31, 2023 compared to $5.5 million during the year ended December 31, 2022. These costs in the prior year period primarily consisted of technology migration and implementation costs, consulting and professional fees and employee severance costs.

Loss from investments in unconsolidated joint ventures. Loss from investments in unconsolidated joint ventures increased $2.3 million to $4.5 million for the year ended December 31, 2023, from $2.2 million for the year ended December 31, 2022, primarily due to an increase in our proportionate share of net losses of unconsolidated real estate entities, which primarily included increases in interest expense and depreciation and amortization recognized by the unconsolidated real estate entities.

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Restructuring costs. During the year ended December 31, 2023, we incurred approximately $3.2 million of severance costs related to the reorganization of certain departments that impacted a limited number of employees.

Non-GAAP Financial Measures

Funds from Operations (FFO) and Core Funds from Operations (CFFO)

We believe that FFO and CFFO, each of which is a non-GAAP financial measure, are additional appropriate measures of the operating performance of a REIT and 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, loss on impairment (gain on sale) 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 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, loan premium accretion and discount amortization, debt extinguishment costs, merger and integration costs, and restructuring 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 (loss) income to FFO and CFFO for the years ended December 31, 2023, 2022 and 2021 (in thousands, except share and per share information):

[[GREPCENT_TABLE]]
[["","For the Year Ended December 31, 2023","","For the Year Ended December 31, 2022","","For the Year Ended December 31, 2021"],["","Amount","","Per Share (1)","","Amount","","Per Share (1)","","Amount","","Per Share (1)"],["Net (loss) income","$","(17,807)","","","$","(0.08)","","","$","120,659","","","$","0.53","","","$","45,529","","","$","0.41"],["Adjustments:"],["Real estate depreciation and amortization","217,716","","","0.94","","","251,545","","","1.10","","76,487","","","0.70"],["Our share of real estate depreciation and amortization from investments in unconsolidated real estate entities","2,115","","","0.01","","","2,320","","","0.01","","\u2014","","","\u2014"],["Loss on impairment (gain on sale) of real estate assets, net, excluding prepayment gains","68,447","","","0.30","","","(111,347)","","","(0.49)","","(90,277)","","","(0.82)"],["FFO","$","270,471","","","$","1.17","","","$","263,177","","","$","1.15","","","$","31,739","","","$","0.29"],["FFO","$","270,471","","","$","1.17","","","$","263,177","","","$","1.15","","","$","31,739","","","$","0.29"],["Adjustments:"],["Other depreciation and amortization","1,252","","","0.01","","","1,304","","","0.01","","423","","","\u2014"],["Casualty losses (gains), net","925","","","0.01","","","(8,866)","","","(0.04)","","","359","","","\u2014"],["Loan (premium accretion) discount amortization, net","(10,899)","","","(0.04)","","","(11,005)","","","(0.05)","","","(501)","","","\u2014"],["Prepayment (gains) losses on asset dispositions","(1,900)","","","(0.01)","","","(409)","","","\u2014","","2,607","","","0.02"],["Loss on extinguishment of debt","124","","","\u2014","","","\u2014","","","\u2014","","10,261","","","0.09"],["Other expense (income)","743","","","\u2014","","","(2,298)","","","(0.01)","","","\u2014","","","\u2014"],["Merger and integration costs","\u2014","","","\u2014","","","5,505","","","0.02","","47,063","","","0.44"],["Restructuring costs","3,213","","","0.01","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["CFFO","$","263,929","","","$","1.15","","","$","247,408","","","$","1.08","","","$","91,951","","","$","0.84"]]
[[/GREPCENT_TABLE]]

(1)Based on 230,364,184, 228,452,958, and 109,418,810 weighted average shares and units outstanding for the years ended December 31, 2023, 2022, and 2021, respectively.

Same-Store Portfolio Net Operating Income

We believe that Net Operating Income (“NOI”), a non-GAAP financial measure, is a useful supplemental measure of our operating performance. We define NOI as total property revenues less total property operating expenses, excluding interest expenses, depreciation and amortization, casualty related costs and gains, property management expenses, general and administrative expense, net gains on sale of assets, merger and integration costs, and restructuring costs. Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REITs. We believe that this measure provides an operating perspective not immediately apparent from GAAP operating income or net income insofar as the measure reflects only operating income and expense at the property level. We use NOI to evaluate our performance on a same-store and non same-store basis because NOI measures the core operations of property performance by excluding corporate level expenses, financing expenses, and other items not related to property operating performance and captures trends in rental housing and property operating expenses. However, NOI should only be used as an alternative measure of our financial performance.

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 and not a development property at the beginning of the previous year. Properties that are held for sale or have been sold are excluded from the same-store portfolio.

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Non Same-Store Properties and Non Same-Store Portfolio

Properties that did not meet the definition of a same-store property as of the beginning of the previous year are added into the non same-store portfolio.

Development Property

A development property is a property that is either currently under development or is in lease-up prior to reaching overall occupancy of 90%.

Set forth below is a reconciliation of GAAP net (loss) income to Same-Store Portfolio(a) NOI for the years ended December 31, 2023 and 2022 (in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022","","% change"],["Net (loss) income","$","(17,807)","","","$","120,659","","","(114.8)","%"],["Other revenue","(1,142)","","","(1,111)","","","2.8","%"],["Property management expenses","27,081","","","24,033","","","12.7","%"],["General and administrative expenses","22,766","","","26,260","","","(13.3)","%"],["Depreciation and amortization expense","218,968","","","252,849","","","(13.4)","%"],["Casualty losses (gains), net","925","","","(8,866)","","","(110.4)","%"],["Interest expense","89,921","","","86,955","","","3.4","%"],["Loss on impairment (gain on sale) of real estate assets, net","66,547","","","(111,756)","","","(159.5)","%"],["Loss on extinguishment of debt","124","","","\u2014","","","100.0","%"],["Other loss (income), net","427","","","(1,558)","","","(127.4)","%"],["Loss from investments in unconsolidated real estate entities","4,488","","","2,169","","","106.9","%"],["Merger and integration costs","\u2014","","","5,505","","","(100.0)","%"],["Restructuring costs","3,213","","","\u2014","","","100.0","%"],["NOI","415,511","","","395,139","","","5.2","%"],["Less: Non same-store portfolio NOI","43,971","","","43,623","","","0.8","%"],["Same-store portfolio(a) NOI","$","371,540","","","$","351,516","","","5.7","%"]]
[[/GREPCENT_TABLE]]

(a)Same-Store Portfolio for the years ended December 31, 2023 and 2022 included 106 properties containing 31,829 units.

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Set forth below is Same-Store Portfolio (a) NOI for the years ended December 31, 2023 and 2022 (in thousands, except per unit data):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022","","% change"],["Revenue:"],["Rental and other property revenue","$","589,749","","","$","558,203","","","5.7","%"],["Property Operating Expenses"],["Real estate taxes","72,947","","","72,406","","","0.7","%"],["Property insurance","14,647","","","11,683","","","25.4","%"],["Personnel expenses","46,179","","","45,347","","","1.8","%"],["Utilities","29,277","","","28,026","","","4.5","%"],["Repairs and maintenance","20,545","","","18,484","","","11.2","%"],["Contract services","21,612","","","18,998","","","13.8","%"],["Advertising expenses","6,350","","","4,852","","","30.9","%"],["Other expenses","6,652","","","6,891","","","(3.5)","%"],["Total property operating expenses","218,209","","","206,687","","","5.6","%"],["Same-store portfolio(a) NOI","$","371,540","","","$","351,516","","","5.7","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Same-store portfolio NOI Margin","63.0","%","","63.0","%","","0.0","%"],["Average Occupancy","94.0","%","","94.7","%","","(0.7)","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Average effective monthly rent, per unit","$","1,537","","","$","1,445","","","6.4","%"]]
[[/GREPCENT_TABLE]]

(a)Same-Store Portfolio for the years ended December 31, 2023 and 2022 included 106 properties containing 31,829 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 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 $22.9 million as of December 31, 2023;

•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;

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•cash generated from operating activities;

•net cash proceeds from property sales, including sales undertaken as part of our capital recycling strategy, Portfolio Optimization and Deleveraging 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 2023 ATM Program (as defined below).

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 2023 ATM Program and re-investing the proceeds into our value add initiatives 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, 2023, we had no repurchases of shares under the Stock Repurchase Program.

Cash Flows

As of December 31, 2023 and 2022, we maintained cash, cash equivalents, and restricted cash of approximately $50.7 million and $44.0 million, respectively. Our cash and cash equivalents were generated from the following activities (dollars in thousands):

[[GREPCENT_TABLE]]
[["","For the Years Ended December 31,"],["","2023","","2022","","2021"],["Cash flows provided by operating activities","$","262,170","","","$","249,537","","","$","52,257"],["Cash flows used in investing activities","(1,712)","","","(135,766)","","","(216,124)"],["Cash flows (used in) provided by financing activities","(253,743)","","","(135,425)","","","215,923"],["Net change in cash and cash equivalents, and restricted cash","6,715","","","(21,654)","","","52,056"],["Cash and cash equivalents, and restricted cash, beginning of period","44,017","","","65,671","","","13,615"],["Cash and cash equivalents, and restricted cash, end of the period","$","50,732","","","$","44,017","","","$","65,671"]]
[[/GREPCENT_TABLE]]

Our cash flows provided by operating activities during the year ended December 31, 2023 were primarily driven by the ongoing operations of our properties. Our cash flows provided by operating activities during the years ended December 31, 2022 and 2021 were primarily driven by an increase in the size of our operating portfolio by the STAR Merger and ongoing operations of our properties, respectively.

Our cash flows used in investing activities during the year ended December 31, 2023 were primarily driven by $146.6 million of capital expenditures, $66.2 million in additions to real estate under development, and $26.0 million of outflows related to our investments in four unconsolidated real estate entities, partially offset by $230.8 million of inflows from property dispositions and $4.2 million in proceeds from insurance claims.

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.

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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 flows used in financing activities during the year ended December 31, 2023 were primarily driven by distributions of $138.5 million and mortgage principal repayments of $129.6 million partially offset by new borrowings on the unsecured credit facility, net of repayments of $19.7 million.

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.

Capitalization

Shelf Registration Statement

On June 14, 2023, we replaced our previous shelf registration statement with our new shelf registration statement. On July 28, 2023, we entered into an equity distribution agreement pursuant to which we may from time to time offer and sell shares of our common stock under our shelf registration statement having an aggregate offering price of up to $450,000 (the “2023 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. Under the 2023 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. There were no forward sale transactions as of December 31, 2023, and no shares of our common stock were sold under the 2023 ATM Program during the year ended December 31, 2023.

Swap Agreement

On March 16, 2023, we entered into an interest rate swap contract with a notional value of $200,000, a strike rate of 3.39% and a maturity date of March 17, 2030. 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.

Dividend Distribution

On December 11, 2023, our board of directors declared a quarterly dividend of $0.16 per share of common stock. The fourth quarter dividend was paid on January 19, 2024 to stockholders of record at the close of business on December 29, 2023.

On May 10, 2023, our board of directors approved a quarterly dividend of $0.16 per share on our common stock, which represented a 14% increase in the dividend over the prior quarterly rate of $0.14 per share.

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Consolidated Debt

The following tables contain summary information concerning our consolidated indebtedness as of December 31, 2023 (dollars in thousands):

[[GREPCENT_TABLE]]
[["Debt:","Outstanding Principal","","Unamortized Debt Issuance Costs","","Unamortized Loan (Discount)/Premiums","","Carrying Amount","","Type","","WeightedAverage Contractual Rate(3)","","Weighted Average Effective Rate(4)","","Weighted Average Maturity (in years)"],["Unsecured revolver(1)","$","234,479","","","$","(1,117)","","","$","\u2014","","","$","233,362","","","Floating","","6.6%","","5.4%","","2.1"],["Unsecured term loans","600,000","","","(2,456)","","","\u2014","","","597,544","","","Floating","","6.5%","","3.9%","","3.5"],["Secured credit facilities","586,286","","","(1,949)","","","21,762","","","606,099","","","Floating/Fixed","","4.2%","","4.6%","","4.9"],["Mortgages(2)","1,094,933","","","(5,250)","","","22,721","","","1,112,404","","","Fixed","","3.8%","","4.0%","","4.3"],["Total Debt","$","2,515,698","","","$","(10,772)","","","$","44,483","","","$","2,549,409","","","","","4.8%","","4.2%","","4.0"]]
[[/GREPCENT_TABLE]]

(1)The unsecured credit facility total capacity is $500,000, of which $234,479 was outstanding as of December 31, 2023.

(2)Includes indebtedness secured by real estate held for sale of $122,621.

(3)Represents the weighted average of the contractual interest rates in effect as of year-end without regard to any interest rate swaps or collars.

(4)Represents the total weighted average effective interest rate for the full year ended December 31, 2023, after giving effect to all components of interest expense including the impact of interest rate swaps and collars, but excluding the impact of loan premium amortization, discount accretion, and interest capitalization.

[[GREPCENT_TABLE]]
[["","Original maturities on or before December 31,"],["Debt:","2024","","2025","","2026","","2027","","2028","","Thereafter"],["Unsecured revolver","$","\u2014","","","$","\u2014","","","$","234,479","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["Unsecured term loans","\u2014","","","\u2014","","","200,000","","","\u2014","","","400,000","","","\u2014"],["Secured credit facilities","\u2014","","","3,065","","","9,111","","","10,081","","","454,589","","","109,440"],["Mortgages(1)","66,827","","","135,924","","","144,235","","","15,198","","","200,659","","","532,090"],["Total","$","66,827","","","$","138,989","","","$","587,825","","","$","25,279","","","$","1,055,248","","","$","641,530"]]
[[/GREPCENT_TABLE]]

(1)Includes indebtedness secured by real estate held for sale of $122,621.

As of December 31, 2023 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 multifamily credit facility agreement (“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, 2023, and 2022 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

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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, 2023, and 2022, the outstanding principal balance under the Newmark MCFA was $510,038 and $558,880, respectively. As of December 31, 2023, the outstanding balance on tranche 3 was $652. In January 2024, tranche 3 was repaid and retired with proceeds from the 2023 property sales.

Unsecured Revolving Credit Facility and Term Loans

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 $1,100,000, which consists of (i) a $500,000 unsecured revolving credit facility with a January 31, 2026 scheduled maturity date (the “Revolving Credit Facility”), (ii) a $400,000 term loan with a January 28, 2028 maturity date (the “2028 Term Loan”); and (iii) a $200,000 term loan with a May 18, 2026 maturity date (the “2026 Term Loan”). The Fourth Restated Credit Agreement represents an increase of $100,000 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 $200,000 and $100,000, which had maturity dates of January 17, 2024 and November 20, 2024, respectively (collectively, the “2024 Term Loans”). Proceeds of the new 2028 Term Loan were used to (i) repay and retire the 2024 Term Loans, and (ii) reduce $100,000 of outstanding borrowings under the Revolving Credit Facility. In addition, the Fourth Restated Credit Agreement changed the LIBOR interest rate option to SOFR. The Fourth 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 $1,477 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.

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, 2023 (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","2024","","2025","","2026","","2027","","2028","","Thereafter","","Total"],["Principal payments on outstanding debt obligations","","$","66,827","","","$","138,989","","","$","587,825","","","$","25,279","","","$","1,055,248","","","$","641,530","","","$","2,515,698"],["Interest payments on outstanding debt obligations (1)","","120,521","","","114,718","","","90,260","","","80,475","","","45,968","","","20,735","","","472,677"],["Operating lease obligations","","692","","","482","","","480","","","486","","","492","","","383","","","3,015"],["Total","","$","188,040","","","$","254,189","","","$","678,565","","","$","106,240","","","$","1,101,708","","","$","662,648","","","$","2,991,390"]]
[[/GREPCENT_TABLE]]

(1)Our unsecured credit facility and term loans assumed a SOFR rate of 5.32% as of December 31, 2023.

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

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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 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 have had and could continue to 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

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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.

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 accounting standard requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that recoverability of the assets is not assured.

We review our long-lived assets on an ongoing basis and evaluate the recoverability of the carrying value when there is an indicator of impairment. An impairment charge is recognized when it is determined that the carrying value of the asset exceeds the fair value. The estimated cash flows and estimated fair value used in the impairment analysis are determined based on our plans for the respective assets, including the expected hold period, and our assessment 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 our plans or views of market and economic conditions may result in adjustments to estimated future cash flows, which could lead to recognition of impairment losses. These losses, as guided by the applicable accounting standards, could be significant.