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EX-32.2 - EX-32.2 - INDEPENDENCE REALTY TRUST, INC.irt-ex322_9.htm
EX-32.1 - EX-32.1 - INDEPENDENCE REALTY TRUST, INC.irt-ex321_6.htm
EX-31.2 - EX-31.2 - INDEPENDENCE REALTY TRUST, INC.irt-ex312_8.htm
EX-31.1 - EX-31.1 - INDEPENDENCE REALTY TRUST, INC.irt-ex311_10.htm
EX-12.1 - EX-12.1 - INDEPENDENCE REALTY TRUST, INC.irt-ex121_7.htm
EX-10.10 - EX-10.10 - INDEPENDENCE REALTY TRUST, INC.irt-ex1010_444.htm
EX-10.9 - EX-10.9 - INDEPENDENCE REALTY TRUST, INC.irt-ex109_443.htm
EX-10.7 - EX-10.7 - INDEPENDENCE REALTY TRUST, INC.irt-ex107_445.htm
EX-10.6 - EX-10.6 - INDEPENDENCE REALTY TRUST, INC.irt-ex106_446.htm
EX-10.5 - EX-10.5 - INDEPENDENCE REALTY TRUST, INC.irt-ex105_447.htm
EX-10.4 - EX-10.4 - INDEPENDENCE REALTY TRUST, INC.irt-ex104_448.htm
EX-10.3 - EX-10.3 - INDEPENDENCE REALTY TRUST, INC.irt-ex103_449.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2017

OR

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

For the transition period from                      to                     

Commission file number 001-36041

 

INDEPENDENCE REALTY TRUST, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Maryland

26-4567130

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

 

Two Logan Square

100 N. 18th St., 23rd Floor

Philadelphia, PA

19103

(Address of Principal Executive Offices)

(Zip Code)

(215) 207-2100

(Registrant’s Telephone Number, Including Area Code)

N/A

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

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

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

 

Large Accelerated filer

Accelerated filer

 

 

 

 

Non-Accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

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

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

As of May 3, 2017 there were 69,125,681, shares of the Registrant’s common stock issued and outstanding.

 

 


 

 

INDEPENDENCE REALTY TRUST, INC.

INDEX

 

 

 

 

 

Page

 

 

 

 

 

PART I—FINANCIAL INFORMATION

 

3

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited)

 

3

 

 

 

 

 

 

 

Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016

 

3

 

 

 

 

 

 

 

Consolidated Statements of Operations for the Three Months ended March 31, 2017 and March 31, 2016

 

4

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the Three Months ended March 31, 2017 and March 31, 2016

 

5

 

 

 

 

 

 

 

Consolidated Statements of Changes in Equity for the Three Months ended March 31, 2017

 

6

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Three Months ended March 31, 2017 and March 31, 2016

 

7

 

 

 

 

 

 

 

Condensed Notes to Consolidated Financial Statements as of March 31, 2017

 

8

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

21

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

27

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

27

 

 

 

 

 

PART II—OTHER INFORMATION

 

28

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

28

 

 

 

 

 

Item 1A.

 

Risk Factors

 

28

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

28

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

28

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

28

 

 

 

 

 

Item 5.

 

Other Information

 

29

 

 

 

 

 

Item 6.

 

Exhibits

 

29

 

 

 

 

 

Signatures

 

30

 

 

 

 


 

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

Independence Realty Trust, Inc. and Subsidiaries

Consolidated Balance Sheets

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

 

 

 

As of March 31, 2017

 

 

As of December 31, 2016

 

ASSETS:

 

 

 

 

 

 

 

 

Investments in real estate:

 

 

 

 

 

 

 

 

Investments in real estate, at cost

 

$

1,280,840

 

 

$

1,249,356

 

Accumulated depreciation

 

 

(59,055

)

 

 

(51,511

)

Investments in real estate, net

 

 

1,221,785

 

 

 

1,197,845

 

Real estate held for sale (see Note 3)

 

 

61,102

 

 

 

60,786

 

Cash and cash equivalents

 

 

10,065

 

 

 

20,892

 

Restricted cash

 

 

5,575

 

 

 

5,518

 

Accounts receivable and other assets

 

 

3,794

 

 

 

5,211

 

Derivative assets

 

 

4,292

 

 

 

3,867

 

Intangible assets, net of accumulated amortization of $55 and $0 respectively

 

 

373

 

 

 

118

 

Total Assets

 

$

1,306,986

 

 

$

1,294,237

 

LIABILITIES AND EQUITY:

 

 

 

 

 

 

 

 

Indebtedness, net of unamortized deferred financing costs of $5,858 and $6,371, respectively

 

$

765,695

 

 

$

743,817

 

Accounts payable and accrued expenses

 

 

13,154

 

 

 

14,028

 

Accrued interest payable

 

 

540

 

 

 

491

 

Dividends payable

 

 

4,301

 

 

 

4,297

 

Other liabilities

 

 

2,952

 

 

 

2,913

 

Total Liabilities

 

 

786,642

 

 

 

765,546

 

Equity:

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 50,000,000 shares authorized, 0 and 0 shares issued and outstanding, respectively

 

 

 

 

 

 

Common stock, $0.01 par value; 300,000,000 shares authorized, 69,125,681 and 68,996,070 shares issued and outstanding, including 306,266 and 281,000 unvested restricted common share awards, respectively

 

 

691

 

 

 

690

 

Additional paid-in capital

 

 

565,006

 

 

 

564,633

 

Accumulated other comprehensive income

 

 

4,097

 

 

 

3,683

 

Retained earnings (accumulated deficit)

 

 

(70,608

)

 

 

(62,181

)

Total stockholders’ equity

 

 

499,186

 

 

 

506,825

 

Noncontrolling interests

 

 

21,158

 

 

 

21,866

 

Total Equity

 

 

520,344

 

 

 

528,691

 

Total Liabilities and Equity

 

$

1,306,986

 

 

$

1,294,237

 

 

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

 

 

3


 

Independence Realty Trust, Inc. and Subsidiaries

Consolidated Statements of Operations

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

 

 

 

For the Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

REVENUE:

 

 

 

 

 

 

 

 

Rental income

 

$

34,737

 

 

$

34,753

 

Tenant reimbursement income

 

 

1,461

 

 

 

1,438

 

Other property income

 

 

2,697

 

 

 

2,475

 

Property management and other income

 

 

247

 

 

 

-

 

Total revenue

 

 

39,142

 

 

 

38,666

 

EXPENSES:

 

 

 

 

 

 

 

 

Property operating expenses

 

 

15,992

 

 

 

15,858

 

Property management expenses

 

 

1,538

 

 

 

1,262

 

General and administrative expenses

 

 

2,100

 

 

 

2,622

 

Acquisition and integration expenses

 

 

122

 

 

 

10

 

Depreciation and amortization expense

 

 

7,607

 

 

 

11,527

 

Total expenses

 

 

27,359

 

 

 

31,279

 

Operating income

 

 

11,783

 

 

 

7,387

 

Interest expense

 

 

(7,448

)

 

 

(9,977

)

Interest income

 

 

(5

)

 

 

 

Net gains (losses) on sale of assets

 

 

(85

)

 

 

2,453

 

Gains (losses) on TSRE merger

 

 

 

 

 

91

 

Net income (loss):

 

 

4,245

 

 

 

(46

)

(Income) loss allocated to noncontrolling interest

 

 

(168

)

 

 

(29

)

Net income (loss) allocable to common shares

 

$

4,077

 

 

$

(75

)

Earnings (loss) per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.06

 

 

$

-

 

Diluted

 

$

0.06

 

 

$

-

 

Weighted-average shares:

 

 

 

 

 

 

 

 

Basic

 

 

68,787,155

 

 

 

47,093,343

 

Diluted

 

 

68,958,786

 

 

 

47,093,343

 

 

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

 

 

4


 

Independence Realty Trust, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited and dollars in thousands)

 

 

 

For the Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Net income (loss)

 

$

4,245

 

 

$

(46

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Change in fair value of interest rate hedges

 

 

296

 

 

 

(18

)

Realized (gains) losses on interest rate hedges reclassified to earnings

 

 

132

 

 

 

 

Total other comprehensive income

 

 

428

 

 

 

(18

)

Comprehensive income (loss) before allocation to noncontrolling interests

 

 

4,673

 

 

 

(64

)

Allocation to noncontrolling interests

 

 

(182

)

 

 

(29

)

Comprehensive income (loss)

 

$

4,491

 

 

$

(93

)

 

 

 

 

 

 

 

 

 

 

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

 

 

5


 

Independence Realty Trust, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity

(Unaudited and dollars in thousands, except share information)

 

 

 

Common

Shares

 

 

Par

Value

Common

Shares

 

 

Additional

Paid In

Capital

 

 

Accumulated Other Comprehensive Income

 

 

Retained

Earnings

(Deficit)

 

 

Total

Stockholders’

Equity

 

 

Noncontrolling

Interests

 

 

Total

Equity

 

Balance, January 1, 2017

 

 

68,996,070

 

 

$

690

 

 

$

564,633

 

 

$

3,683

 

 

$

(62,181

)

 

$

506,825

 

 

$

21,866

 

 

$

528,691

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,077

 

 

 

4,077

 

 

 

168

 

 

 

4,245

 

Common dividends declared

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(12,504

)

 

 

(12,504

)

 

 

-

 

 

 

(12,504

)

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

414

 

 

 

-

 

 

 

414

 

 

 

14

 

 

 

428

 

Stock compensation expense

 

 

143,180

 

 

 

1

 

 

 

480

 

 

 

-

 

 

 

-

 

 

 

481

 

 

 

-

 

 

 

481

 

Repurchase of shares related to equity award tax withholding

 

 

(53,468

)

 

 

(1

)

 

 

(478

)

 

 

-

 

 

 

-

 

 

 

(479

)

 

 

-

 

 

 

(479

)

Conversion of noncontrolling interest to common shares

 

 

39,899

 

 

 

1

 

 

 

371

 

 

 

-

 

 

 

-

 

 

 

372

 

 

 

(372

)

 

 

-

 

Distribution to noncontrolling interest declared

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(518

)

 

 

(518

)

Balance, March 31, 2017

 

 

69,125,681

 

 

$

691

 

 

$

565,006

 

 

$

4,097

 

 

$

(70,608

)

 

$

499,186

 

 

$

21,158

 

 

$

520,344

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

6


 

Independence Realty Trust, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited and dollars in thousands)

 

 

 

For the Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

4,245

 

 

$

(46

)

Adjustments to reconcile net income (loss) to cash flow from operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

7,607

 

 

 

11,527

 

Amortization of deferred financing costs

 

 

513

 

 

 

890

 

Stock compensation expense

 

 

481

 

 

 

205

 

Net (gains) losses on sale of assets

 

 

85

 

 

 

(2,453

)

(Gains) losses on TSRE merger

 

 

-

 

 

 

(91

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable and other assets

 

 

503

 

 

 

597

 

Accounts payable and accrued expenses

 

 

(1,020

)

 

 

(3,192

)

Accrued interest payable

 

 

49

 

 

 

(64

)

Other liabilities

 

 

(42

)

 

 

84

 

Net cash provided by operating activities

 

 

12,421

 

 

 

7,457

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Disposition of real estate properties

 

 

-

 

 

 

9,684

 

Acquisition of real estate properties

 

 

(28,700

)

 

 

-

 

TSRE merger, net of cash acquired

 

 

-

 

 

 

91

 

Capital expenditures

 

 

(2,359

)

 

 

(2,273

)

(Increase) in restricted cash

 

 

(57

)

 

 

(1,602

)

Cash flow (used in) provided by investing activities

 

 

(31,116

)

 

 

5,900

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from Secured Credit Facility

 

 

22,000

 

 

 

53,477

 

Secured Credit Facility repayments

 

 

-

 

 

 

(29,784

)

Mortgage principal repayments

 

 

(635

)

 

 

(44,042

)

Payments for deferred financing costs

 

 

-

 

 

 

(187

)

Distributions on common stock

 

 

(12,498

)

 

 

(8,506

)

Distributions to noncontrolling interests

 

 

(520

)

 

 

(555

)

Payments for tax withholding related to vesting/exercise of equity compensation

 

 

(479

)

 

 

(137

)

Cash flow (used in) provided by financing activities

 

 

7,868

 

 

 

(29,734

)

Net change in cash and cash equivalents

 

 

(10,827

)

 

 

(16,377

)

Cash and cash equivalents, beginning of period

 

 

20,892

 

 

 

38,301

 

Cash and cash equivalents, end of the period

 

$

10,065

 

 

$

21,924

 

 

 

 

7


 

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of March 31, 2017

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

 

NOTE 1: Organization

Independence Realty Trust, Inc. was formed on March 26, 2009 as a Maryland corporation that has elected to be taxed as a real estate investment trust, or REIT, commencing with the taxable year ended December 31, 2011. We own apartment properties in geographic non-gateway markets that we believe support strong occupancy and have the potential for growth in rental rates. We seek to provide stockholders with attractive risk-adjusted returns, with an emphasis on distributions and capital appreciation. We own substantially all of our assets and conduct our operations through Independence Realty Operating Partnership, LP, which we refer to as IROP, of which we are the sole general partner.

 

We became an internally managed REIT in December 2016. Prior to that date, we were externally managed by a subsidiary of RAIT Financial Trust, or RAIT, a publicly traded Maryland REIT whose common shares are listed on the New York Stock Exchange under the symbol “RAS” (referred to as our former advisor).  On December 20, 2016, we completed our management internalization, which was announced on September 27, 2016 as part of the agreement, or the internalization agreement, with RAIT and RAIT affiliates that provided for transactions which changed us from being externally managed to being internally managed and separated us from RAIT.  The management internalization consisted of two parts: (i) our acquisition of our former advisor, which was a subsidiary of RAIT, and (ii) our acquisition of substantially all of the assets and the assumption of certain liabilities relating to the multifamily property management business of RAIT, including property management contracts relating to apartment properties owned by us, RAIT and third parties. Also, pursuant to the internalization agreement, on October 5, 2016, we repurchased all of the 7,269,719 shares of our common stock owned by certain of RAIT’s subsidiaries and retired these shares.  

 

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

 

NOTE 2: Summary of Significant Accounting Policies

a. Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared by management in accordance with generally accepted accounting principles in the United States, or GAAP. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although we believe that the included disclosures are adequate to make the information presented not misleading. The unaudited interim consolidated financial statements should be read in conjunction with our audited financial statements as of and for the year ended December 31, 2016 included in our Annual Report on Form 10-K or the 2016 annual report. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial position and consolidated results of operations and cash flows are included. The results of operations for the interim periods presented are not necessarily indicative of the results for the full year.

b. Principles of Consolidation

The consolidated financial statements reflect our accounts and the accounts of IROP and other wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.  Pursuant to FASB Accounting Standards Codification Topic 810, “Consolidation”, IROP is considered a variable interest entity.  As our significant asset is our investment in IROP, substantially all of our assets and liabilities represent the assets and liabilities of IROP.

c. Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

d. Cash and Cash Equivalents

Cash and cash equivalents include cash held in banks and highly liquid investments with maturities of three months or less when purchased.  Cash, including amounts restricted, may at times exceed the Federal Deposit Insurance Corporation deposit insurance limit

8


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of March 31, 2017

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

 

of $250 per institution.  We mitigate credit risk by placing cash and cash equivalents with major financial institutions.  To date, we have not experienced any losses on cash and cash equivalents.

e. Restricted Cash

Restricted cash includes escrows of our funds held by lenders to fund certain expenditures, such as real estate taxes and insurance, or to be released at our discretion upon the occurrence of certain pre-specified events.  As of March 31, 2017 and December 31, 2016, we had $5,575 and $5,518, respectively, of restricted cash.

f. Accounts Receivable and Allowance for Bad Debts

We make estimates of the collectability of our accounts receivable related to base rents, expense reimbursements and other revenue.  We analyze accounts receivable and historical bad debt levels, tenant credit worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts.  In addition, tenants experiencing financial difficulties are analyzed and estimates are made in connection with expected uncollectible receivables.  Our reported operating results are affected by management’s estimate of the collectability of accounts receivable. For the three months ended March 31, 2017 and 2016, we recorded bad debt expense of $314 and $219, respectively.  

g. Investments in Real Estate

Investments in real estate are recorded at cost less accumulated depreciation. Costs that both add value and appreciably extend the useful life of an asset are capitalized. Expenditures for repairs and maintenance are expensed as incurred.

Investments in real estate are classified as held for sale in the period in which certain criteria are met including when the sale of the asset is probable and actions required to complete the plan of sale indicate that it is unlikely that significant changes to the plan of sale will be made or the plan of sale will be withdrawn.

Allocation of Purchase Price of Acquired Assets

We account for acquisitions of properties that meet the definition of a business pursuant to Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 805, “Business Combinations”. The fair value of the real estate acquired is allocated to the acquired tangible assets, generally consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases for acquired in-place leases and the value of tenant relationships, based in each case on their fair values. Purchase accounting is applied to assets and liabilities associated with the real estate acquired. Transaction costs and fees incurred related to acquisition are expensed as incurred. Transaction costs and fees incurred related to the financing of an acquisition are capitalized and amortized over the life of the related financing.

Upon the acquisition of properties, we estimate the fair value of acquired tangible assets (consisting of land, building and improvements) and 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.  Based on these estimates, we allocate the initial purchase price to the applicable assets and liabilities. As final information regarding fair value of the assets acquired and liabilities assumed is received and estimates are refined, appropriate adjustments will be made to the purchase price allocation, in no case later than twelve months of the acquisition date.  

The aggregate value of in-place leases is determined by evaluating various factors, including the terms of the leases that are in place and assumed lease-up periods.  During the three months ended March 31, 2017, we acquired in-place leases with a value of $309, related to the Lakes of Northdale acquisition that is discussed further in Note 3. The value assigned to this intangible asset is amortized over the assumed lease up period, typically six months. For the three months ended March 31, 2017 and 2016, we recorded $55 and $3,735, respectively, of amortization expense for intangible assets. As of March 31, 2017, we expect to record additional amortization expense on current in-place intangible assets of $269 for the remainder of 2017.  

9


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of March 31, 2017

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

 

Impairment of Long-Lived Assets

Management evaluates the recoverability of our investment in real estate assets, including related identifiable intangible assets, in accordance with FASB ASC Topic 360, “Property, Plant and Equipment”. This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that recoverability of the assets is not assured.

Management reviews its long-lived assets on an ongoing basis and evaluates the recoverability of the carrying value when there is an indicator of impairment. An impairment charge is recorded when it is determined that the carrying value of the asset exceeds the fair value. The estimated cash flows used for the impairment analysis and the determination of estimated fair value are based on our plans for the respective assets and our views of market and economic conditions. The estimates consider matters such as current and historical rental rates, occupancies for the respective and/or comparable properties, and recent sales data for comparable properties. Changes in estimated future cash flows due to changes in our plans or views of market and economic conditions could result in recognition of impairment losses, which, under the applicable accounting guidance, could be substantial.

Depreciation Expense

Depreciation expense for real estate assets is computed using a straight-line method based on a life of 40 years for buildings and improvements and five to ten years for equipment and fixtures. For the three months ended March 31, 2017 and 2016, we recorded $7,552 and $7,791 of depreciation expense, respectively.

h. Revenue and Expenses

 

Rental revenues are recognized on an accrual basis when due from residents.  We primarily lease apartments units under operating leases generally with terms of one year or less. Rental payments are generally due monthly and recognized when earned.  Rental income represents gross market rent less adjustments for concessions and vacancy loss. 

For the three months ended March 31, 2017 and 2016, we recognized revenues of $51 and $75, respectively, related to recoveries of lost rental revenue due to natural disasters and other insurable events from our insurance providers.

For the three months ended March 31, 2017 and 2016, we incurred $426 and $447 of advertising expenses, respectively.  

For the three months ended March 31, 2017 and 2016, we incurred $0 and $1,696 of asset management and incentive fees, respectively, which are now included in general and administrative expenses since as an internally-managed REIT we will no longer incur asset management fees and the compensation cost of our employees who now perform this function are recorded within general and administrative expenses.  See Note 8: Related Party Transactions.  

For the three months ended March 31, 2017 and 2016, we incurred $1,538 and $1,262 of property management expenses, respectively.  Subsequent to our management internalization, property management expenses include payroll and related expenses that directly support on-site property management.  Prior to our management internalization, property management expenses included property and construction management fees paid to our former property manager.  See Note 8: Related Party Transactions.    

i. Derivative Instruments

We may use derivative financial instruments to hedge all or a portion of the interest rate risk associated with our borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with our operating and financial structure, as well as, to hedge specific anticipated transactions. While these instruments may impact our periodic cash flows, they benefit us by minimizing the risks and/or costs previously described.  The counterparties to these contractual arrangements are major financial institutions with which we and our affiliates may also have other financial relationships. In the event of nonperformance by the counterparties, we are potentially exposed to credit loss. However, because of the high credit ratings of the counterparties, we do not anticipate that any of the counterparties will fail to meet their obligations.

In accordance with FASB ASC Topic 815, “Derivatives and Hedging”, we measure each derivative instrument (including certain derivative instruments embedded in other contracts) at fair value and record such amounts in our consolidated balance sheet as either an asset or liability.  For derivatives designated as cash flow hedges, the changes in the fair value of the effective portions of the

10


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of March 31, 2017

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

 

derivative are reported in other comprehensive income and changes in the fair value of the ineffective portions of cash flow hedges, if any, are recognized in earnings.  For derivatives not designated as hedges (or designated as fair value hedges), or for derivatives designated as cash flow hedges associated with debt for which we elected the fair value option under FASB ASC Topic 825, “Financial Instruments”, the changes in fair value of the derivative instrument are recognized in earnings.  Any derivatives that we designate in hedge relationships are done so at inception.  At inception, we determine whether or not the derivative is highly effective in offsetting changes in the designated interest rate risk associated with the identified indebtedness using regression analysis.  At each reporting period, we update our regression analysis and use the hypothetical derivative method to measure any ineffectiveness.

j. Fair Value of Financial Instruments

In accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity for disclosure purposes. Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined in FASB ASC Topic 820, “Fair Value Measurements and Disclosures” and directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, are as follows:

 

Level 1: Valuations are based on unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. The types of assets carried at Level 1 fair value generally are equity securities listed in active markets. As such, valuations of these investments do not entail a significant degree of judgment.

 

Level 2: Valuations are based on quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

 

Level 3: Inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset.

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

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

11


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of March 31, 2017

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

 

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

FASB ASC Topic 825, “Financial Instruments” requires disclosure of the fair value of financial instruments for which it is practicable to estimate that value. Given that cash and cash equivalents and restricted cash are short term in nature with limited fair value volatility, the carrying amount is deemed to be a reasonable approximation of fair value and the fair value input is classified as a Level 1 fair value measurement. The fair value input for the derivatives is classified as a Level 2 fair value measurement within the fair value hierarchy. The fair value inputs for the secured credit facility is classified as Level 2 fair value measurements within the fair value hierarchy. The fair value of mortgage indebtedness is based on a discounted cash flows valuation technique. As this technique utilizes current credit spreads, which are generally unobservable, this is classified as a Level 3 fair value measurement within the fair value hierarchy.  We determine appropriate credit spreads based on the type of debt and its maturity. The following table summarizes the carrying amount and the fair value of our financial instruments as of the periods indicated:

 

 

 

As of March 31, 2017

 

 

As of December 31, 2016

 

Financial Instrument

 

Carrying

Amount

 

 

Estimated

Fair Value

 

 

Carrying

Amount

 

 

Estimated

Fair Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,065

 

 

$

10,065

 

 

$

20,892

 

 

$

20,892

 

Restricted cash

 

 

5,575

 

 

 

5,575

 

 

 

5,518

 

 

 

5,518

 

Derivative assets

 

 

4,292

 

 

 

4,292

 

 

 

3,867

 

 

 

3,867

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured credit facility

 

 

169,669

 

 

 

172,000

 

 

 

147,280

 

 

 

150,000

 

Mortgages

 

 

596,026

 

 

 

586,100

 

 

 

596,537

 

 

 

588,523

 

 

k. Deferred Financing Costs

Costs incurred in connection with debt financing are deferred and classified within indebtedness and charged to interest expense over the terms of the related debt agreements, under the effective interest method. As of January 1, 2016, we adopted the accounting standard classified under FASB ASC Topic 835, “Interest” which required deferred financing costs to be presented on the balance sheet as a direct deduction from indebtedness.

l. Income Taxes

We have elected to be taxed as a REIT beginning with the taxable year ended December 31, 2011.  Accordingly, we recorded no income tax expense for the three months ended March 31, 2017 and 2016.

To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our ordinary taxable income to stockholders.  As a REIT, we generally are not subject to federal income tax on taxable income that we distribute to our stockholders.  If we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions.  Such an event could materially adversely affect our net income and net cash available for distribution to stockholders; however, we believe that we are organized and operate in such a manner as to qualify and maintain

12


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of March 31, 2017

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

 

treatment as a REIT and intend to operate in such a manner so that we will remain qualified as a REIT for federal income tax purposes.  

m. Recent Accounting Pronouncements

Adopted Within these Financial Statements

In March 2016, the FASB issued an accounting standard classified under FASB ASC Topic 815, “Derivatives and Hedging”.  This accounting standard clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met.  This standard is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those fiscal years. The adoption of this accounting standard did not have an impact on our consolidated financial statements.

In March 2016, the FASB issued an accounting standard classified under FASB ASC Topic 815, “Derivatives and Hedging”. This accounting standard clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts.  This accounting standard clarifies what steps are required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative.  Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks.  This standard is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those fiscal years.  The adoption of this accounting standard did not have an impact on our consolidated financial statements.

In March 2016, the FASB issued an accounting standard classified under FASB ASC Topic 718, “Compensation – Stock Compensation”.  This accounting standard simplifies several aspects of the accounting for share-based payment award transactions, including: (i) income tax consequences; (ii) classification of awards as either equity or liabilities; and (iii) classification on the statement of cash flows.  This standard is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The adoption of this accounting standard did not have a material impact on our consolidated financial statements.

In October 2016, the FASB issued an accounting standard classified under FASB ASC Topic 810, “Consolidation”.  The amendments in this accounting standard provide guidance on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE.  The amendments in this accounting standard do not change the characteristics of a primary beneficiary in current GAAP.  A primary beneficiary of a VIE has both of the following characteristics: (i) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.  If a reporting entity satisfies the first characteristic of a primary beneficiary (such that it is the single decision maker of a VIE), the amendments in this accounting standard require that the reporting entity, in determining whether it satisfies the second characteristic of a primary beneficiary, to include all of its direct variable interest in a VIE and, on a proportionate basis, its indirect variable interest in a VIE held through related parties, including related parties that are under common control with the reporting entity.  If after performing that assessment, a reporting entity that is the single decision maker of a VIE concludes that it does not have the characteristics of a primary beneficiary, the amendments continue to require that the reporting entity to evaluate whether it and one or more of its related parties under common control, as a group, have the characteristics of a primary beneficiary.  The amendments in this accounting standard are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.  The adoption of this accounting standard did not have an impact on our consolidated financial statements.

Not Yet Adopted Within these Financial Statements

In May 2014, the FASB issued an accounting standard classified under FASB ASC Topic 606, “Revenue from Contracts with Customers”. This accounting standard generally replaces existing guidance by requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This accounting standard applies to all

13


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of March 31, 2017

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

 

contracts with customers, except those that are within the scope of other Topics in the FASB ASC. During 2016, the FASB issued three amendments to this accounting standard which provide further clarification to this accounting standard. These standards amending FASB ASC Topic 606 are currently effective for annual reporting periods beginning after December 15, 2017. Management is currently evaluating the impact that these standards may have on our consolidated financial statements.

In January 2016, the FASB issued an accounting standard classified under FASB ASC Topic 825, “Financial Instruments”. This accounting standard addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.  Among other things, the amendment (i) eliminates certain disclosure requirements for financial instruments measured at amortized cost; (ii) requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (iii) requires separate presentation, in other comprehensive income, of the change in fair value of a liability, when the fair value option has been elected, resulting from a change in the instrument-specific credit risk; and (iv) requires separate presentation of financial instruments by measurement category and form.  This standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years.  Early adoption is permitted for the separate presentation of changes in fair value due to changes in instrument-specific credit risk. Management is currently evaluating the impact that this standard may have on our consolidated financial statements.

In February 2016, the FASB issued an accounting standard classified under FASB ASC Topic 842, “Leases”.  This accounting standard amends lease accounting by requiring the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases on the balance sheet and disclosing key information about leasing arrangements.  This standard is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years.  Early application of the amendments in this standard is permitted.  Management is currently evaluating the impact that this standard may have on our consolidated financial statements.

In August 2016, the FASB issued an accounting standard classified under FASB ASC Topic 230, “Statement of Cash Flows”.  This accounting standard provides guidance on eight specific cash flow issues: (i) debt prepayment or debt extinguishment costs; (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (iii) contingent consideration payments made after a business combination; (iv) proceeds from the settlement of insurance claims; (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (vi) distributions received from equity method investees; (vii) beneficial interests in securitization transactions; and (viii) separately identifiable cash flows and application of the predominance principle.  The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period.  Management is currently evaluating the impact that this standard may have on our consolidated statement of cash flows.

 

In January 2017, the FASB issued an accounting standard under FASB ASC Topic 805, “Business Combinations” that changes the definition of a business to assist entities with evaluating whether a set of transferred assets is a business. As a result, the accounting for acquisitions of real estate could be impacted. The updated standard will be effective for the Company on January 1, 2018 with early adoption permitted. The new definition will be applied prospectively to any transactions occurring within the period of adoption. Management expects that the updated standard will result in fewer acquisitions of real estate meeting the definition of a business and fewer acquisition-related costs being expensed in the period incurred.

 

 

14


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of March 31, 2017

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

 

 

NOTE 3: Investments in Real Estate

As of March 31, 2017, our investments in real estate consisted of 47 apartment properties with 13,198 units (unaudited).  The table below summarizes our investments in real estate:

 

 

 

As of March 31, 2017

 

 

As of December 31, 2016

 

 

Depreciable Lives

(In years)

 

Land

 

$

169,018

 

 

$

165,120

 

 

 

 

Building

 

 

1,092,153

 

 

 

1,066,611

 

 

 

40

 

Furniture, fixtures and equipment

 

 

19,669

 

 

 

17,625

 

 

5-10

 

Total investment in real estate

 

$

1,280,840

 

 

$

1,249,356

 

 

 

 

 

Accumulated depreciation

 

 

(59,055

)

 

 

(51,511

)

 

 

 

 

Investments in real estate, net

 

$

1,221,785

 

 

$

1,197,845

 

 

 

 

 

As of March 31, 2017 and December 31, 2016, we had investments in real estate with a carrying value of $61,102 and $60,786, respectively, classified as held for sale.

Acquisitions

On February 27, 2017, we acquired a 216-unit (unaudited) apartment residential community located in Tampa, Florida known as Lakes of Northdale. We acquired the property for an aggregate purchase price of $29,750 exclusive of closing costs. Upon acquisition, we recorded the investment in real estate, including any related working capital and intangible assets, at fair value of $29,750.

The following table summarizes the aggregate fair value of the assets and liabilities associated with the property acquired during the three-month period ended March 31, 2017, on the date of acquisition, accounted for under FASB ASC Topic 805.

 

Description

 

Fair Value

of Assets Acquired

During the

Three-Month Period Ended

March 31,

2017

 

Assets acquired:

 

 

 

 

Investments in real estate

 

$

29,441

 

Accounts receivable and other assets

 

 

95

 

Intangible assets

 

 

309

 

Total assets acquired

 

$

29,845

 

Liabilities assumed:

 

 

 

 

Accounts payable and accrued expenses

 

 

54

 

Other liabilities

 

 

41

 

Total liabilities assumed

 

$

95

 

Estimated fair value of net assets acquired

 

$

29,750

 

 

The table below presents the revenue and net income (loss) for the properties acquired during the three-month period ended March 31, 2017 as reported in our consolidated financial statements.

 

 

For the Three-Month Period

Ended March 31, 2017

 

 

Property

 

Total revenue

 

 

Net income (loss) allocable to common shares

 

 

Lakes of Northdale

 

$

269

 

 

$

41

 

 

Total

 

$

269

 

 

$

41

 

 

 

15


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of March 31, 2017

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

 

The table below represents the revenue, net income and earnings per share effect of the acquired property, as reported in our consolidated financial statements and on a pro forma basis as if the acquisition occurred on January 1, 2016. These pro forma results are not necessarily indicative of the results that actually would have occurred if the acquisition had occurred on the first day of the periods presented, nor does the pro forma financial information purport to represent the results of operations for future periods.

 

Description

 

For the

Three-Month

Period Ended

March 31, 2017

 

 

For the

Three-Month

Period Ended

March 31, 2016

 

Pro forma total revenue (unaudited)

 

$

39,632

 

 

$

39,418

 

Pro forma net income (loss) allocable to common shares (unaudited)

 

$

4,282

 

 

$

93

 

Earnings (loss) per share attributable to common shareholders:

 

 

 

 

 

 

 

 

Basic-pro forma (unaudited)

 

$

0.06

 

 

$

0.00

 

Diluted-pro forma (unaudited)

 

$

0.06

 

 

$

0.00

 

We did not make any purchase price allocation adjustments during the three month period ended March 31, 2017.

 

 

NOTE 4: Indebtedness

The following tables contain summary information concerning our indebtedness as of March 31, 2017:

 

Debt:

 

Outstanding Principal

 

 

Unamortized Discount and Debt Issuance Costs

 

 

Carrying Amount

 

 

Type

 

Weighted Average Rate

 

 

Weighted Average Maturity (in years)

 

     Secured credit facility (1)(2)

 

$

172,000

 

 

$

(2,331

)

 

$

169,669

 

 

Floating

 

 

2.8%

 

 

 

1.5

 

     Mortgages-Fixed rate

 

 

599,553

 

 

 

(3,527

)

 

 

596,026

 

 

Fixed

 

 

3.8%

 

 

 

6.5

 

Total Debt

 

$

771,553

 

 

$

(5,858

)

 

$

765,695

 

 

 

 

 

3.6%

 

 

 

5.3

 

 

(1)

The secured credit facility total capacity is $312,500, of which $172,000 was outstanding as of March 31, 2017.

 

(2)

As of March 31, 2017, IRT maintained a float-to-fixed interest rate swap with a $150,000 notional amount. This swap, which expires on June 17, 2021 and has a fixed rate of 1.145%, has converted $150,000 of our floating rate debt to fixed rate debt.

 

 

 

Original maturities on or before December 31,

 

 

 

Debt:

 

2017

 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

Thereafter

 

 

 

Secured credit facility

 

$

-

 

 

$

172,000

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

 

Mortgages-Fixed rate

 

 

2,227

 

 

 

3,562

 

 

 

5,032

 

 

 

15,872

 

 

 

114,028

 

 

 

458,832

 

 

 

Total

 

$

2,227

 

 

$

175,562

 

 

$

5,032

 

 

$

15,872

 

 

$

114,028

 

 

$

458,832

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2017, we were in compliance with all financial covenants contained in our indebtedness.

The following table contains summary information concerning our indebtedness as of December 31, 2016:

 

Debt:

 

Outstanding Principal

 

 

Unamortized Discount and Debt Issuance Costs

 

 

Carrying Amount

 

 

Type

 

Weighted Average Rate

 

 

Weighted Average Maturity (in years)

 

     Secured credit facility (1)(2)

 

$

150,000

 

 

$

(2,720

)

 

$

147,280

 

 

Floating

 

 

3.0%

 

 

 

1.7

 

     Mortgages-Fixed rate

 

 

600,188

 

 

 

(3,651

)

 

 

596,537

 

 

Fixed

 

 

3.8%

 

 

 

6.7

 

Total Debt

 

$

750,188

 

 

$

(6,371

)

 

$

743,817

 

 

 

 

 

3.6%

 

 

 

5.7

 

 

(1)

The secured credit facility total capacity was $312,500, of which $150,000 was outstanding as of December 31, 2016.

In February 2017, IROP drew down $22,000 on the secured credit facility in connection the Lakes of Northdale acquisition.  

16


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of March 31, 2017

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

 

On May 1, 2017, we closed on a new $300.0 million unsecured credit facility refinancing and terminating the previous secured credit facility. The new facility is comprised of a $50.0 million term loan and a revolving commitment of up to $250.0 million. The maturity date on the new term loan is May 1, 2022 and the maturity date on borrowings outstanding under the revolving commitment is May 1, 2021, extending the September 17, 2018 maturity of the previous secured credit facility. Based on our leverage levels as of closing, our annual interest cost would be LIBOR plus 145 basis points under the term loan and LIBOR plus 150 basis points for borrowings outstanding under the revolving commitments.

 

NOTE 5: Derivative Financial Instruments

We may use derivative financial instruments to hedge all or a portion of the interest rate risk associated with our borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with our operating and financial structure as well as to hedge specific anticipated transactions. While these instruments may impact our periodic cash flows, they benefit us by minimizing the risks and/or costs previously described.  

Interest Rate Swaps and Caps

We have entered into an interest rate cap contract and an interest rate swap contract to hedge interest rate exposure on floating rate indebtedness.          

On June 24, 2016, we entered into an interest rate swap contract with a notional value of $150 million, a strike rate of 1.145% and a maturity date of June 17, 2021.  We designated this interest rate swap as a cash flow hedge at inception and determined that the hedge is highly effective in offsetting interest rate fluctuations associated with the identified indebtedness. We concluded that this hedging relationship was and will continue to be highly effective, and using the hypothetical derivative method, did not recognize any ineffectiveness. Our interest rate cap is not designated as a cash flow hedge.  

The following table summarizes the aggregate notional amount and estimated net fair value of our derivative instruments as of March 31, 2017 and December 31, 2016:

 

 

 

As of March 31, 2017

 

 

As of December 31, 2016

 

 

 

Notional

 

 

Fair Value of

Assets

 

 

Fair Value of

Liabilities

 

 

Notional

 

 

Fair Value of

Assets

 

 

Fair Value of

Liabilities

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap

 

$

150,000

 

 

$

4,292

 

 

$

 

 

$

150,000

 

 

$

3,867

 

 

$

 

Freestanding derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap

 

 

200,000

 

 

 

 

 

 

 

 

 

200,000