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 June 30, 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 Liberty Place

50 S. 16 th Street, Suite 3575

Philadelphia, PA

19102

(Address of Principal Executive Offices)

(Zip Code)

(267) 270-4800

(Registrant’s Telephone Number, Including Area Code)

N/A

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

 

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 August 2, 2017 there were 69,143,955 shares of the Registrant’s common stock issued and outstanding.

 

 


INDEPENDENCE REAL TY TRUST, INC.

INDEX

 

 

 

 

 

Page

 

 

 

 

 

PART I—FINANCIAL INFORMATION

 

3

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited)

 

3

 

 

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2017 and December 31, 201 6

 

3

 

 

 

 

 

 

 

Consolidated Statements of Operations for the Three and Six Months ended June 30, 2017 and June 30, 201 6

 

4

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months ended June 30, 2017 and June 30, 2016

 

5

 

 

 

 

 

 

 

Consolidated Statements of Changes in Equity for the Six Months ended June 30, 201 7

 

6

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months ended June 30, 2017 and June 30, 201 6

 

7

 

 

 

 

 

 

 

Condensed Notes to Consolidated Financial Statements as of June 30, 2017

 

8

 

 

 

 

 

Item 2.

 

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

 

22

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

31

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

31

 

 

 

 

 

PART II—OTHER INFORMATION

 

32

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

32

 

 

 

 

 

Item 1A.

 

Risk Factors

 

32

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

32

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

32

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

32

 

 

 

 

 

Item 5.

 

Other Information

 

32

 

 

 

 

 

Item 6.

 

Exhibits

 

33

 

 

 

 

 

Signatures

 

34

 

 

 


P ART 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 June 30, 2017

 

 

As of December 31, 2016

 

ASSETS:

 

 

 

 

 

 

 

 

Investments in real estate:

 

 

 

 

 

 

 

 

Investments in real estate, at cost

 

$

1,340,573

 

 

$

1,249,356

 

Accumulated depreciation

 

 

(66,853

)

 

 

(51,511

)

Investments in real estate, net

 

 

1,273,720

 

 

 

1,197,845

 

Real estate held for sale

 

 

21,964

 

 

 

60,786

 

Cash and cash equivalents

 

 

6,271

 

 

 

20,892

 

Restricted cash

 

 

5,690

 

 

 

5,518

 

Accounts receivable and other assets

 

 

5,114

 

 

 

5,211

 

Derivative assets

 

 

3,619

 

 

 

3,867

 

Intangible assets, net of accumulated amortization of $248 and $0, respectively

 

 

799

 

 

 

118

 

Total Assets

 

$

1,317,177

 

 

$

1,294,237

 

LIABILITIES AND EQUITY:

 

 

 

 

 

 

 

 

Indebtedness, net of unamortized deferred financing costs of $5,979 and $6,371, respectively

 

$

764,521

 

 

$

743,817

 

Accounts payable and accrued expenses

 

 

16,940

 

 

 

14,028

 

Accrued interest payable

 

 

176

 

 

 

491

 

Dividends payable

 

 

4,313

 

 

 

4,297

 

Other liabilities

 

 

2,906

 

 

 

2,913

 

Total Liabilities

 

 

788,856

 

 

 

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, 69,143,955 and 68,996,070 shares issued and outstanding, including 296,957 and 281,000 unvested restricted common share awards, respectively

 

 

691

 

 

 

690

 

Additional paid-in capital

 

 

565,372

 

 

 

564,633

 

Accumulated other comprehensive income

 

 

3,468

 

 

 

3,683

 

Retained earnings (accumulated deficit)

 

 

(64,260

)

 

 

(62,181

)

Total stockholders’ equity

 

 

505,271

 

 

 

506,825

 

Noncontrolling interests

 

 

23,050

 

 

 

21,866

 

Total Equity

 

 

528,321

 

 

 

528,691

 

Total Liabilities and Equity

 

$

1,317,177

 

 

$

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 June 30,

 

 

For the Six Months Ended

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

REVENUE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

35,176

 

 

$

34,185

 

 

$

69,913

 

 

$

68,938

 

Tenant reimbursement income

 

 

1,398

 

 

 

1,405

 

 

 

2,859

 

 

 

2,843

 

Other property income

 

 

2,857

 

 

 

2,737

 

 

 

5,554

 

 

 

5,212

 

Property management and other income

 

 

130

 

 

 

-

 

 

 

377

 

 

 

-

 

Total revenue

 

 

39,561

 

 

 

38,327

 

 

 

78,703

 

 

 

76,993

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

 

15,918

 

 

 

15,623

 

 

 

31,910

 

 

 

31,481

 

Property management expenses

 

 

1,444

 

 

 

1,229

 

 

 

2,982

 

 

 

2,491

 

General and administrative expenses

 

 

2,706

 

 

 

2,787

 

 

 

4,806

 

 

 

5,409

 

Acquisition and integration expenses

 

 

265

 

 

 

8

 

 

 

387

 

 

 

18

 

Depreciation and amortization expense

 

 

8,011

 

 

 

7,635

 

 

 

15,618

 

 

 

19,162

 

Total expenses

 

 

28,344

 

 

 

27,282

 

 

 

55,703

 

 

 

58,561

 

Operating income

 

 

11,217

 

 

 

11,045

 

 

 

23,000

 

 

 

18,432

 

Interest expense

 

 

(7,162

)

 

 

(9,018

)

 

 

(14,610

)

 

 

(18,995

)

Hedge ineffectiveness

 

 

(12

)

 

 

 

 

 

(12

)

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

(5

)

 

 

 

Net gains (losses) on sale of assets

 

 

16,050

 

 

 

29,321

 

 

 

15,965

 

 

 

31,774

 

Gains (losses) on extinguishment of debt

 

 

(572

)

 

 

(558

)

 

 

(572

)

 

 

(558

)

Gains (losses) on TSRE merger

 

 

 

 

 

 

 

 

 

 

 

91

 

Net income (loss):

 

 

19,521

 

 

 

30,790

 

 

 

23,766

 

 

 

30,744

 

(Income) loss allocated to noncontrolling interest

 

 

(782

)

 

 

(1,803

)

 

 

(950

)

 

 

(1,832

)

Net income (loss) allocable to common shares

 

$

18,739

 

 

$

28,987

 

 

$

22,816

 

 

$

28,912

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.27

 

 

$

0.61

 

 

$

0.33

 

 

$

0.61

 

Diluted

 

$

0.27

 

 

$

0.61

 

 

$

0.33

 

 

$

0.61

 

Weighted-average shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

68,832,855

 

 

 

47,183,804

 

 

 

68,810,131

 

 

 

47,138,573

 

Diluted

 

 

68,943,869

 

 

 

47,229,736

 

 

 

69,007,862

 

 

 

47,159,220

 

 

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 June 30,

 

 

For the Six Months Ended

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income (loss)

 

$

19,521

 

 

$

30,790

 

 

$

23,766

 

 

$

30,744

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of interest rate hedges

 

 

(706

)

 

 

(1,169

)

 

 

(410

)

 

 

(1,187

)

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

 

 

59

 

 

 

 

 

 

191

 

 

 

 

Total other comprehensive income

 

 

(647

)

 

 

(1,169

)

 

 

(219

)

 

 

(1,187

)

Comprehensive income (loss) before allocation to noncontrolling interests

 

 

18,874

 

 

 

29,621

 

 

 

23,547

 

 

 

29,557

 

Allocation to noncontrolling interests

 

 

(764

)

 

 

(1,803

)

 

 

(946

)

 

 

(1,832

)

Comprehensive income (loss)

 

$

18,110

 

 

$

27,818

 

 

$

22,601

 

 

$

27,725

 

 

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

22,816

 

 

 

22,816

 

 

 

950

 

 

 

23,766

 

Common dividends declared

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(24,895

)

 

 

(24,895

)

 

 

-

 

 

 

(24,895

)

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(215

)

 

 

-

 

 

 

(215

)

 

 

(4

)

 

 

(219

)

Stock compensation expense

 

 

168,010

 

 

 

1

 

 

 

1,125

 

 

 

-

 

 

 

-

 

 

 

1,126

 

 

 

-

 

 

 

1,126

 

Issuance of LP Units related to acquisitions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,654

 

 

 

1,654

 

Repurchase of shares related to equity award tax withholding

 

 

(60,024

)

 

 

(1

)

 

 

(757

)

 

 

-

 

 

 

-

 

 

 

(758

)

 

 

-

 

 

 

(758

)

Conversion of noncontrolling interest to common shares

 

 

39,899

 

 

 

1

 

 

 

371

 

 

 

-

 

 

 

-

 

 

 

372

 

 

 

(372

)

 

 

-

 

Distribution to noncontrolling interest declared

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,044

)

 

 

(1,044

)

Balance, June 30, 2017

 

 

69,143,955

 

 

$

691

 

 

$

565,372

 

 

$

3,468

 

 

$

(64,260

)

 

$

505,271

 

 

$

23,050

 

 

$

528,321

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 Six Months June 30,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

23,766

 

 

$

30,744

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

15,618

 

 

 

19,162

 

Amortization of deferred financing costs

 

 

878

 

 

 

1,639

 

Stock compensation expense

 

 

1,126

 

 

 

585

 

Net (gains) losses on sale of assets

 

 

(15,965

)

 

 

(31,774

)

(Gains) losses on extinguishment of debt

 

 

572

 

 

 

558

 

(Gains) losses on TSRE merger

 

 

-

 

 

 

(91

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable and other assets

 

 

(517

)

 

 

(297

)

Accounts payable and accrued expenses

 

 

2,839

 

 

 

(1,261

)

Accrued interest payable

 

 

(302

)

 

 

(505

)

Other liabilities

 

 

18

 

 

 

87

 

Net cash provided by operating activities

 

 

28,033

 

 

 

18,847

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Disposition of real estate properties

 

 

34,611

 

 

 

39,691

 

Acquisition of real estate properties

 

 

(84,417

)

 

 

-

 

TSRE merger, net of cash acquired

 

 

-

 

 

 

91

 

Capital expenditures

 

 

(5,728

)

 

 

(5,429

)

(Increase) in restricted cash

 

 

(172

)

 

 

(1,366

)

Cash flow (used in) provided by investing activities

 

 

(55,706

)

 

 

32,987

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from unsecured credit facility

 

 

63,190

 

 

 

93,501

 

Unsecured credit facility repayments

 

 

(21,000

)

 

 

(197,666

)

Proceeds from mortgages

 

 

-

 

 

 

105,980

 

Mortgage principal repayments

 

 

(1,291

)

 

 

(44,229

)

Payments for deferred financing costs

 

 

(1,166

)

 

 

(1,449

)

Distributions on common stock

 

 

(24,887

)

 

 

(16,998

)

Distributions to noncontrolling interests

 

 

(1,036

)

 

 

(1,086

)

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

 

 

(758

)

 

 

(137

)

Cash flow provided by (used in) financing activities

 

 

13,052

 

 

 

(62,084

)

Net change in cash and cash equivalents

 

 

(14,621

)

 

 

(10,250

)

Cash and cash equivalents, beginning of period

 

 

20,892

 

 

 

38,301

 

Cash and cash equivalents, end of the period

 

$

6,271

 

 

$

28,051

 

 

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

 

 

 

7


 

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of June 30, 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.  As of June 30, 2017, we own and operate 46 multifamily apartment properties, totaling 12,812 units, across non-gateway U.S markets, including Louisville, Memphis, Atlanta and Raleigh. Our investment strategy is focused on gaining scale within key amenity rich submarkets that offer good school districts, high-quality retail and major employment centers. We aim to provide stockholders with attractive risk-adjusted returns through diligent portfolio management, strong operational performance, and a consistent return through 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.

8


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of June 30, 2017

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

 

d. Cash and Cash Equivalents

Cash and cash equivalents include cash held in banks and highly liquid investments with maturities of three months or less when purchased.  Cash, including amounts restricted, may at times exceed the Federal Deposit Insurance Corporation deposit insurance limit of $250 per institution.  We mitigate credit risk by placing cash and cash equivalents with major financial institutions.  To date, we have not experienced any losses on cash and cash equivalents.

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 June 30, 2017 and December 31, 2016, we had $5,690 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 June 30, 2017 and 2016, we recorded bad debt expense of $255 and $202, respectively. For the six months ended June 30, 2017 and 2016, we recorded bad debt expense of $569 and $421, 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 an 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 after 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 six months ended June 30, 2017, we acquired in-place leases with a value of $929, related property acquisitions that are 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 and six months ended June 30, 2017, we recorded $193 and $248, respectively, of amortization expense for intangible assets. For the three and six months ended June 30, 2016, we recorded $0

9


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of June 30, 2017

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

 

and $3,735, respectively, of amortization expense for intangible assets. As of June 30, 2017, we expect to record additional amortization expense on current in-place intangible assets of $692 for the remainder of 2017.  

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 and six months ended June 30, 2017, we recorded $7,818 and $15,370 of depreciation expense, respectively. For the three and six months ended June 30, 2016, we recorded $7,635 and $15,427 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.  Tenant reimbursement income represents reimbursement from tenants for utility charges while other property income includes parking, trash, late fee, and other miscellaneous property related income

For the three and six months ended June 30, 2017, we recognized revenues of $34 and $85, respectively, related to recoveries of lost rental revenue due to natural disasters and other insurable events from our insurance providers. For the three and six months ended June 30, 2016, we recognized revenues of $38 and $113, respectively, related to recoveries of lost rental revenue due to natural disasters and other insurable events from our insurance providers.

For the three and six months ended June 30, 2017, we incurred $423 and $848 of advertising expenses, respectively. For the three and six months ended June 30, 2016, we incurred $443 and $890 of advertising expenses, respectively.  

For the three months ended June 30, 2017 and 2016, we incurred $0 and $1,863 of asset management and incentive fees, respectively. For the six months ended June 30, 2017 and 2016, we incurred $0 and $3,559 of asset management and incentive fees, respectively. These fees 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 June 30, 2017 and 2016, we incurred $1,444 and $1,229 of property management expenses, respectively. For the six months ended June 30, 2017 and 2016, we incurred $2,982 and $2,491 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.    

10


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of June 30, 2017

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

 

i. Deriv ative Instruments

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

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

11


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of June 30, 2017

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

 

Fair value is a market-based measure considered from the perspective of a market participant who holds the a sset 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 o r 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 r educed for many instruments. This condition could cause an instrument to be transferred from Level 1 to Level 2 or Level 2 to Level 3.

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

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 June 30, 2017

 

 

As of December 31, 2016

 

Financial Instrument

 

Carrying

Amount

 

 

Estimated

Fair Value

 

 

Carrying

Amount

 

 

Estimated

Fair Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,271

 

 

$

6,271

 

 

$

20,892

 

 

$

20,892

 

Restricted cash

 

 

5,690

 

 

 

5,690

 

 

 

5,518

 

 

 

5,518

 

Derivative assets

 

 

3,619

 

 

 

3,619

 

 

 

3,867

 

 

 

3,867

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured credit facility

 

 

189,507

 

 

 

192,190

 

 

 

147,280

 

 

 

150,000

 

Mortgages

 

 

575,014

 

 

 

566,073

 

 

 

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 and six months ended June 30, 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

12


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of June 30, 2017

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

 

income that we distribute to our stockholders.  If we fail to qualif y 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 duri ng 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 bel ieve that we are organized and operate in such a manner as to qualify and maintain treatment as a REIT and intend to operate in such a manner so that we will remain qualified as a REIT for federal income tax purposes.  

m. Recent Accounting Pronouncements

Below is a brief description of recent accounting pronouncements that could have a material effect on our financial statements.  

Adopted Within these Financial Statements

In March 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.

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 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. We are continuing to evaluate the impact that these standards may have on our consolidated financial statements, however, a majority of our revenue is derived from real estate lease contracts, which are specifically excluded from the scope of this standard.  

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.

13


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of June 30, 2017

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

 

Management expects that the updated standard will result in fewer acquisitions of real estate meeting the definition of a business and fewer acq uisition-related costs being expensed in the period incurred.

 

In May 2017, the FASB issued an accounting standard under FASB ASC Topic 718, “Compensation – Stock Compensation.” The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. As a result, the accounting for share-based payment award transactions 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 an award modified on or after the adoption date. Management is currently evaluating the impact that this standard may have on our consolidated financial statements.

 

 

NOTE 3: Investments in Real Estate

As of June 30, 2017, our investments in real estate consisted of 46 apartment properties with 12,812 units (unaudited).  The table below summarizes our investments in real estate:

 

As of June 30, 2017 and December 31, 2016, we had investments in real estate with a carrying value of $21,964 and $60,786, respectively, classified as held for sale.

 

 

As of June 30, 2017

 

 

As of December 31, 2016

 

 

Depreciable Lives

(In years)

 

Land

 

$

178,566

 

 

$

165,120

 

 

 

 

Building

 

 

1,139,176

 

 

 

1,066,611

 

 

 

40

 

Furniture, fixtures and equipment

 

 

22,831

 

 

 

17,625

 

 

5-10

 

Total investment in real estate

 

$

1,340,573

 

 

$

1,249,356

 

 

 

 

 

Accumulated depreciation

 

 

(66,853

)

 

 

(51,511

)

 

 

 

 

Investments in real estate, net

 

$

1,273,720

 

 

$

1,197,845

 

 

 

 

 

Acquisitions

The below table summarizes the acquisitions for the six months ended June 30, 2017:

 

Property Name

 

Date of Purchase

 

Location

 

Units (unaudited)

 

Purchase Price

 

Lakes of Northdale

 

2/27/2017

 

Tampa, FL

 

216

 

$

29,750

 

Haverford Place

 

5/24/2017

 

Lexington, KY

 

160

 

$

14,240

 

South Terrace (1)

 

6/30/2017

 

Durham, NC

 

328

 

$

42,950

 

Total

 

 

 

 

 

704

 

$

86,940

 

 

(1)

This property was acquired from a joint venture of which our former advisor was a controlling member.  See Note 8: Related Party Transactions and Arrangements.  In conjunction with this acquisition, we issued IROP units to third parties that were members of the joint venture that owned the property.  See Note 6: Shareholder Equity and Noncontrolling Interests.  

 

 

 

 

 

 

 

14


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of June 30, 2017

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

 

The following table summarizes the aggregate fair value of the assets and liabilities associated with the properties acquired during the six-month period ended June 30, 2017, on the date of acquisition, accounted for under FASB ASC Topic 805.

 

Description

 

Fair Value

of Assets Acquired

During the

Six-Month Period Ended

June 30,

2017

 

Assets acquired:

 

 

 

 

Investments in real estate

 

$

86,012

 

Accounts receivable and other assets

 

 

331

 

Intangible assets

 

 

928

 

Total assets acquired

 

$

87,271

 

Liabilities assumed:

 

 

 

 

Accounts payable and accrued expenses

 

 

398

 

Other liabilities

 

 

150

 

Total liabilities assumed

 

$

548

 

Estimated fair value of net assets acquired

 

$

86,723

 

 

The table below presents the revenue and net income (loss) for the properties acquired during the six-month period ended June 30, 2017 as reported in our consolidated financial statements.

 

 

 

For the Three-Month Period

Ended June 30, 2017

 

 

For the Six-Month Period

Ended June 30, 2017

 

Property

 

Total revenue

 

 

Net income (loss) allocable to common shares

 

 

Total revenue

 

 

Net income (loss) allocable to common shares

 

Lakes of Northdale

 

$

771

 

 

$

150

 

 

$

1,040

 

 

$

224

 

Haverford Place

 

$

185

 

 

$

71

 

 

$

185

 

 

$

71

 

South Terrace

 

$

10

 

 

$

5

 

 

$

10

 

 

$

5

 

Total

 

$

966

 

 

$

226

 

 

$

1,235

 

 

$

300

 

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

June 30, 2017

 

 

For the

Three-Month

Period Ended

June 30, 2016

 

 

For the

Six-Month

Period Ended

June 30, 2017

 

 

For the

Six-Month

Period Ended

June 30, 2016

 

Pro forma total revenue (unaudited)

 

 

41,162

 

 

 

40,498

 

 

 

81,904

 

 

 

81,334

 

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

 

 

18,999

 

 

 

29,425

 

 

 

23,335

 

 

 

29,788

 

Earnings (loss) per share attributable to common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic-pro forma (unaudited)

 

$

0.28

 

 

$

0.62

 

 

$

0.34

 

 

$

0.63

 

Diluted-pro forma (unaudited)

 

$

0.28

 

 

$

0.62

 

 

$

0.34

 

 

$

0.63

 

 

We did not make any purchase price allocation adjustments during the six month period ended June 30, 2017.

 

 

15


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of June 30, 2017

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

 

Dispositions

The table below summarizes the dispositions for the six months ended June 30, 2017 and also presents each property’s contribution to net income (loss) allocable to common shares, excluding the impact of the gain (loss) on sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) allocable to common shares

 

Property Name

 

Date of Sale

 

Sale Price

 

 

Gain (loss) on sale (1)

 

 

For the Three Months Ended June 30, 2017

 

 

For the Six Months Ended June 30, 2017

 

Copper Mill

 

5/5/2017

 

$

32,000

 

 

$

15,616

 

 

$

109

 

 

$

531

 

Heritage Trace

 

6/1/2017

 

 

11,600

 

 

 

(1,237

)

 

 

76

 

 

 

225

 

Berkshire

 

6/9/2017

 

 

16,000

 

 

 

1,671

 

 

 

54

 

 

 

176

 

Total

 

 

 

$

59,600

 

 

$

16,050

 

 

$

239

 

 

$

932

 

 

(1)

The gain (loss) on sale for these properties is net of $2,748 of defeasance costs.  All properties were previously classified as held for sale.

 

NOTE 4: Indebtedness

The following tables contain summary information concerning our indebtedness as of June 30, 2017:

 

Debt:

 

Outstanding Principal

 

 

Unamortized Discount and Debt Issuance Costs

 

 

Carrying Amount

 

 

Type

 

Weighted Average Rate

 

 

Weighted Average Maturity (in years)

 

     Unsecured credit facility (1)(2)

 

$

192,190

 

 

$

(2,683

)

 

$

189,507

 

 

Floating

 

 

2.7%

 

 

 

4.1

 

     Mortgages-Fixed rate

 

 

578,310

 

 

 

(3,296

)

 

 

575,014

 

 

Fixed

 

 

3.7%

 

 

 

6.3

 

Total Debt

 

$

770,500

 

 

$

(5,979

)

 

$

764,521

 

 

 

 

 

3.5%

 

 

 

5.7

 

 

(1)

The secured credit facility total capacity is $300,000, of which $192,190 was outstanding as of June 30, 2017.

 

(2)

As of June 30, 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 1.1325%, 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

 

 

 

Unsecured credit facility

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

142,190

 

 

$

50,000

 

 

 

Mortgages-Fixed rate

 

 

1,365

 

 

 

3,209

 

 

 

4,660

 

 

 

7,612

 

 

 

102,633

 

 

 

458,831

 

 

 

Total

 

$

1,365

 

 

$

3,209

 

 

$

4,660

 

 

$

7,612

 

 

$

244,823

 

 

$

508,831

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 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)

 

$

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 with the Lakes of Northdale acquisition.  

16


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of June 30, 2017

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

 

On May 1, 2017, we closed on a new $300,000 unsecured credit facility, refinancing and terminating the previous secured credit facility. The new facility is comprised of a $50,000 term loan and a revolving commitment of up to $250,000. 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 S eptember 17, 2018 maturity of the previous secured credit facility. Based on our current leverage levels, our annual interest cost is LIBOR plus 145 basis points under the term loan and LIBOR plus 150 basis points for borrowings outstanding under the revol ving commitments.  We recognized the refinance as a partial extinguishment of our prior secured credit facility and recognized a loss on extinguishment of debt of $572.

In May 2017, IROP drew down $9,000 on the unsecured credit facility in connection with the Haverford Place acquisition.

In June 2017, IROP drew down $31,250 on the unsecured credit facility in connection with the South Terrace acquisition.

In connection with the three property dispositions during the three months ended June 30, 2017, we extinguished, through defeasance, property mortgages totaling $20,586.  

 

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 $150,000, a strike rate of 1.145% and a maturity date of June 17, 2021.  We designated this interest rate swap as a cash flow hedge at inception and determined that the hedge is highly effective in offsetting interest rate fluctuations associated with the identified indebtedness. We have not recognized any ineffectiveness associated with this cash flow hedge through April 2017.  On April 17, 2017, in conjunction with the refinance of our credit facility, we restructured our existing interest rate swap to remove the LIBOR floor.  This resulted in a decrease in the strike rate to 1.1325%.  The notional value and maturity date remained the same.  We designated the restructured interest rate swap as a cash flow hedge at inception and determined that the hedge is highly effective in offsetting interest rate fluctuations associated with the identified indebtedness. However, since the fair value of the swap at inception of the hedging relationship was not zero, we expect some ineffectiveness to be recognized over the life of the instrument.  During the three months ended June 30, 2017, we recognized $12 of ineffectiveness based on the hypothetical derivative method. 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 June 30, 2017 and December 31, 2016:

 

 

 

As of June 30, 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

 

 

$

3,619

 

 

$

 

 

$

150,000

 

 

$

3,867

 

 

$

 

Freestanding derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap

 

 

200,000

 

 

 

 

 

 

 

 

 

200,000

 

 

 

 

 

 

 

Net fair value

 

$

350,000

 

 

$

3,619

 

 

$

 

 

$

350,000

 

 

$

3,867

 

 

$

 

 

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

17


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of June 30, 2017

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

 

For our interest rate swap that is considered a highly effective hedge, we reclassified realized losses of $51 and $183 to earnings within interest expense for the three and six mon ths ended June 30, 2017, respectively, and we expect $315 to be reclassified out of accumulated other comprehensive income to earnings over the next 12 months.

 

 

NOTE 6: Shareholder Equity and Noncontrolling Interests

Stockholder Equity

Common Shares

Our board of directors has declared the following dividends: 

Month

 

Declaration Date

 

Record Date

 

Payment Date

 

Dividend

Declared

Per Share

 

January 2017

 

January 12, 2017

 

January 31, 2017

 

February 15, 2017

 

$

0.06

 

February 2017

 

January 12, 2017

 

February 28, 2017

 

March 15, 2017

 

$

0.06

 

March 2017

 

January 12, 2017

 

March 31, 2017

 

April 17, 2017

 

$

0.06

 

April 2017

 

April 12, 2017

 

April 28, 2017

 

May 15, 2017

 

$

0.06

 

May 2017

 

April 12, 2017

 

May 31, 2017

 

June 15, 2017

 

$

0.06

 

June 2017

 

April 12, 2017

 

June 30, 2017

 

July 17, 2017

 

$

0.06

 

July 2017

 

July 14, 2017

 

July 31, 2017

 

August 15, 2017

 

$

0.06

 

August 2017

 

July 14, 2017

 

August 31, 2017

 

September 15, 2017

 

$

0.06

 

September 2017

 

July 14, 2017

 

September 29, 2017

 

October 13, 2017

 

$

0.06

 

 

During the three and six months ended June 30, 2017, we also paid $0 and $126, respectively, of dividends on restricted common share awards that vested during the period.

On August 4, 2017, we entered into an At-the-Market Issuance Sales Agreement (the “Sales Agreement”) with various sales agents. Pursuant to the Sales Agreement, we may offer and sell shares of our common stock, $0.01 par value per share, having an aggregate offering price of up to $150,000, from time to time through the sales agents. The sales agents are entitled to compensation in an agreed amount not to exceed 2.0% of the gross sales price per share for any shares sold from time to time under the Sales Agreement. We have no obligation to sell any of the shares under the Sales Agreement and may at any time suspend solicitations and offers under the Sales Agreement.

 

Noncontrolling Interest

In June 2017, we issued 166,604 IROP units in connection with our acquisition of South Terrace.  The IROP units were valued at $1,654 based on the stock price of our common stock. See Note 3: Investments in Real Estate for details on the property acquisition.

As of June 30, 2017, 3,035,654 IROP units held by unaffiliated third parties remain outstanding with a redemption value of $29,962, based on IRT’s stock price of $9.87 as of June 30, 2017.  

Our board of directors has declared the following distributions on IROP’s LP units:

Month

 

Declaration Date

 

Record Date

 

Payment Date

 

Dividend

Declared

Per Share

 

January 2017

 

January 12, 2017

 

January 31, 2017

 

February 15, 2017

 

$

0.06

 

February 2017

 

January 12, 2017

 

February 28, 2017

 

March 15, 2017

 

$

0.06

 

March 2017

 

January 12, 2017

 

March 31, 2017

 

April 17, 2017

 

$

0.06

 

April 2017

 

April 12, 2017

 

April 28, 2017

 

May 15, 2017

 

$

0.06

 

May 2017

 

April 12, 2017

 

May 31, 2017

 

June 15, 2017

 

$

0.06

 

June 2017

 

April 12, 2017

 

June 30, 2017

 

July 17, 2017

 

$

0.06

 

July 2017

 

July 14, 2017

 

July 31, 2017

 

August 15, 2017

 

$

0.06

 

August 2017

 

July 14, 2017

 

August 31, 2017

 

September 15, 2017

 

$

0.06

 

September 2017

 

July 14, 2017

 

September 29, 2017

 

October 13, 2017

 

$

0.06

 

18


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of June 30, 2017

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

 

 

NOTE 7: Equity Compensation Plans

Long Term Incentive Plan

In May 2016, our shareholders approved and our board of directors adopted an amended and restated Long Term Incentive Plan, or the incentive plan, which provides for the grants of awards to our directors, officers and full-time employees, full-time employees of our former advisor and its affiliates, full-time employees of entities that provide services to our former advisor, directors of our former advisor or of entities that provide services to it, certain of our consultants and certain consultants to our former advisor and its affiliates or to entities that provide services to our former advisor. The incentive plan authorizes the grant of restricted or unrestricted shares of our common stock, non-qualified and incentive stock options, restricted stock units, stock appreciation rights, dividend equivalents and other stock- or cash-based awards. In conjunction with the amendment, the number of shares of common stock issuable under the incentive plan was increased to 4,300,000 shares, and the term of the incentive plan was extended to May 12, 2026.  

       Under the incentive plan or predecessor incentive plans, we granted restricted shares and stock appreciation rights, or SARs, to our employees and employees of our former advisor.  These awards generally vested over a three-year period.  In addition, we granted unrestricted shares to our directors.  These awards generally vested immediately. 

On February 28, 2017, our compensation committee awarded 143,180 restricted stock awards, valued at $9.19 per share, or $1,316 in the aggregate.  The restricted stock awards vest over a three-year period except for 6,585 awards that vested immediately.  In addition, our compensation committee awarded performance share units, or PSUs, to eligible officers under a newly adopted 2017 Annual Equity Award Program pursuant to the incentive plan.  The number of PSUs awarded will be based on attainment of certain performance criteria over a three-year period, with 226,469 PSUs granted for achieving the maximum performance criteria. The aggregate grant date fair value of the PSUs was $1,076.

On May 16, 2017, our compensation committee granted stock under the incentive plan such that our independent directors received an aggregate of 24,830 shares of our common stock, valued at $225 using our closing stock price of $9.06.  These awards vested immediately.

 

NOTE 8: Related Party Transactions and Arrangements

 

Fees and Expenses Paid to Our Former Advisor

 

On December 20, 2016, in connection with our management internalization, we acquired our former advisor and, therefore, fees and expenses to our former advisor are no longer incurred.

 

For the three months ended June 30, 2017 and 2016, our former advisor earned $0 and $1,784 of asset management fees, respectively, and $0 and $3,415 for the six months ended June 30, 2017 and 2016, respectively. These fees are included within general and administrative expenses in our consolidated statements of operations.

 

For the three months ended June 30, 2017 and 2016, our former advisor earned $0 and $79 of incentive fees, respectively, and $0 and $144 for the six months ended June 30, 2017 and 2016, respectively.  These fees are included within general and administrative expenses in our consolidated statements of operations.

 

For the three months ended June 30, 2017 and 2016, we incurred costs of $340 and $0 with respect to our shared services agreement with our former advisor and $727 and $0 for the six months ended June 30, 2017 and 2016, respectively. These fees are included within general and administrative expenses in our consolidated statements of operations.

 

As of June 30, 2017 and December 31, 2016, we had no liabilities payable to our former advisor for asset management fees, incentive fees, or shared service fees.

 

19


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of June 30, 2017

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

 

Property Management Fees Paid t o Our Former Property Manager

          

On December 20, 2016, in connection with our management internalization, we acquired property management agreements with respect to each of our properties from RAIT Residential, our former property manager, which is wholly owned by RAIT.

 

For the three months ended June 30, 2017 and 2016, our former property manager earned $0 and $1,229, respectively, and $0 and $2,491 for the six months ended June 30, 2017 and 2016, respectively, of property management and leasing fees. As of June 30, 2017 and December 31, 2016, we had no liabilities payable to our property manager for property management and leasing fees.

 

Dividends Paid to Affiliates of Our Former Advisor

 

On October 5, 2016, we repurchased and retired all 7,269,719 shares of our common stock owned by a subsidiary of RAIT.

 

Since October 5, 2016, RAIT has not owned any shares of our common stock.  For the three months ended June 30, 2017 and 2016, we declared and subsequently paid dividends of $0 and $1,308, respectively, and $0 and $2,617 for the six months ended June 30, 2017 and 2016, respectively, related to shares of common stock owned by a subsidiary of RAIT.  

 

RAIT Indebtedness

 

In the second quarter of 2016, we repaid $38,075 of mortgage indebtedness with proceeds from two property dispositions.  This indebtedness was held by RAIT. Total interest expense paid to RAIT for the three and six months ended June 30, 2017 and 2016 was $0 and $486, respectively.

 

Related Party Transaction

 

In June 2017, we acquired South Terrace, a 328-unit property in Durham, NC for $42,950 from a joint venture, of which a subsidiary of RAIT was a controlling member. For further information, see Note 3 – Investment in Real Estate.

 

 

NOTE 9: Earnings (Loss) Per Share

The following table presents a reconciliation of basic and diluted earnings (loss) per share for the three and six months ended June 30, 2017 and 2016:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income (loss)

 

$

19,521

 

 

$

30,790

 

 

$

23,766

 

 

$

30,744

 

(Income) loss allocated to non-controlling interests

 

 

(782

)

 

 

(1,803

)

 

 

(950

)

 

 

(1,832

)

Net income (loss) allocable to common shares

 

 

18,739

 

 

 

28,987

 

 

 

22,816

 

 

 

28,912

 

Weighted-average shares outstanding—Basic

 

 

68,832,855

 

 

 

47,183,804

 

 

 

68,810,131

 

 

 

47,138,573

 

Weighted-average shares outstanding—Diluted

 

 

68,943,869

 

 

 

47,229,736

 

 

 

69,007,862

 

 

 

47,159,220

 

Earnings (loss) per share—Basic

 

$

0.27

 

 

$

0.61

 

 

$

0.33

 

 

$

0.61

 

Earnings (loss) per share—Diluted

 

$

0.27

 

 

$

0.61

 

 

$

0.33

 

 

$

0.61

 

 

Certain IROP units, stock appreciation rights, or SARs, and unvested shares were excluded from the earnings (loss) per share computation because their effect would have been anti-dilutive, totaling 3,037,496 and 3,035,654 for the three and six months ended June 30, 2017, respectively, and 2,950,816 and 3,111,201 for the three and six months ended June 30, 2016, respectively.

 

20


Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of June 30, 2017

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

 

NOTE 10: Other Disclosures

Litigation

We are subject to various other legal proceedings and claims that arise in the ordinary course of our business operations. Matters which arise out of allegations of bodily injury, property damage, and employment practices are generally covered by insurance. While the resolution of these other matters cannot be predicted with certainty, we currently believe the final outcome of such matters will not have a material adverse effect on our financial position, results of operations or cash flows.

Other Matters

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

 

 

 

 

 

21


 

Item 2.

M anagement’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The Securities and Exchange Commission, or SEC, encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This report contains or incorporates by reference such “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act.

Words such as “anticipates,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. As used herein, the terms “we,” “our” and “us” refer to Independence Realty Trust, Inc. and, as required by context, Independence Realty Operating Partnership, LP, which we refer to as IROP, and their subsidiaries.

We claim the protection of the safe harbor for forward-looking statements provided in the Private Securities Litigation Reform Act of 1995. These statements may be made directly in this report and they may also be incorporated by reference in this report to other documents filed with the SEC, and include, but are not limited to, statements about future financial and operating results and performance, statements about our plans, objectives, expectations and intentions with respect to future operations, products and services, and other statements that are not historical facts. These forward-looking statements are based upon the current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ materially from the anticipated results discussed in these forward-looking statements.

The risk factors discussed and identified in Item 1A of our 2016 Annual Report on Form 10-K, this Report and in other of our public filings with the SEC, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this filing or to reflect the occurrence of unanticipated events.

Overview

General

We are a Maryland corporation that owns and operates multifamily apartment properties across non-gateway U.S. markets, including Louisville, Memphis, Atlanta, and Raleigh.  Our investment strategy is focused on gaining scale within key amenity rich submarkets that offer good school districts, high-quality retail, and major employment centers.  We aim to provide stockholders attractive risk-adjusted returns through diligent portfolio management, strong operational performance, and a consistent return of capital through distributions and capital appreciation. We elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or the Code, commencing with our taxable year ended December 31, 2011.

We seek to acquire and operate apartment properties that:

 

have stable occupancy;

 

 

are located in submarkets that we do not expect will experience substantial new apartment construction in the foreseeable future;

 

 

in appropriate circumstances, present opportunities for repositioning or updating through capital expenditures when we see opportunities for increased rents; and

 

 

present opportunities to apply tailored marketing and management strategies to attract and retain residents and enable rent increases.

 

 

 

 

 

22


 

Property Portfolio 

As of June 30, 2017, we owned 46 multifamily apartment properties, totaling 12,812 units.  Below is a summary of our property portfolio by market.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands, except per share data)

 

As of June 30, 2017

 

 

For the Three Months Ended June 30, 2017

 

Market

 

Units

 

 

Gross Real

Estate

Assets

 

 

Period End

Occupancy

 

 

Average

Effective

Monthly Rent

per Unit

 

 

Net Operating

Income (a)

 

 

% of NOI

 

Louisville. KY

 

 

1,709

 

 

$

178,896

 

 

 

96.0

%

 

$

951

 

 

$

2,921

 

 

 

12.6

%

Memphis, TN

 

 

1,383

 

 

 

137,330

 

 

 

94.9

%

 

 

1,017

 

 

 

2,419

 

 

 

10.5

%

Atlanta, GA

 

 

1,092

 

 

 

136,202

 

 

 

94.0

%

 

 

1,087

 

 

 

2,357

 

 

 

10.2

%

Raleigh, NC

 

 

1,372

 

 

 

182,271

 

 

 

94.7

%

 

 

1,073

 

 

 

2,274

 

 

 

9.8

%

Oklahoma City, OK

 

 

1,658

 

 

 

72,764

 

 

 

92.2

%

 

 

646

 

 

 

1,718

 

 

 

7.4

%

Dallas, TX

 

 

734

 

 

 

85,160

 

 

 

97.0

%

 

 

1,117

 

 

 

1,408

 

 

 

6.1

%

Charleston, SC

 

 

518

 

 

 

78,948

 

 

 

94.2

%

 

 

1,310

 

 

 

1,198

 

 

 

5.2

%

Jackson, MS (b)

 

 

602

 

 

 

44,404

 

 

 

92.9

%

 

 

912

 

 

 

948

 

 

 

4.1

%

Little Rock, AR

 

 

462

 

 

 

53,923

 

 

 

95.0

%

 

 

992

 

 

 

911

 

 

 

3.9

%

Orlando, FL

 

 

297

 

 

 

47,465

 

 

 

95.3

%

 

 

1,362

 

 

 

781

 

 

 

3.4

%

Chicago, IL

 

 

370

 

 

 

29,270

 

 

 

94.9

%

 

 

1,004

 

 

 

767

 

 

 

3.3

%

Indianapolis, IN

 

 

428

 

 

 

41,747

 

 

 

91.6

%

 

 

991

 

 

 

759

 

 

 

3.3

%

Greenville, SC

 

 

346

 

 

 

48,124

 

 

 

90.2

%

 

 

1,119

 

 

 

744

 

 

 

3.2

%

Austin, TX

 

 

300

 

 

 

35,387

 

 

 

96.3

%

 

 

1,277

 

 

 

669

 

 

 

2.9

%

Charlotte, NC

 

 

208

 

 

 

41,736

 

 

 

94.2

%

 

 

1,441

 

 

 

661

 

 

 

2.9

%

Asheville, NC

 

 

252

 

 

 

28,243

 

 

 

98.0

%

 

 

1,039

 

 

 

530

 

 

 

2.3

%

Chattanooga, TN

 

 

295

 

 

 

25,885

 

 

 

97.3

%

 

 

955

 

 

 

501

 

 

 

2.2

%

Tampa-St. Petersburg, FL

 

 

216

 

 

 

29,543

 

 

 

94.0

%

 

 

1,207

 

 

 

465

 

 

 

2.0

%

St. Louis, MO

 

 

152

 

 

 

32,900

 

 

 

92.1

%

 

 

1,579

 

 

 

463

 

 

 

2.0

%

Columbus, OH

 

 

240

 

 

 

17,901

 

 

 

95.0

%

 

 

877

 

 

 

352

 

 

 

1.5

%

Huntsville, AL

 

 

178

 

 

 

16,017

 

 

 

98.3

%

 

 

831

 

 

 

261

 

 

 

1.1

%

Total/Weighted Average

 

 

12,812

 

 

$

1,364,116

 

 

 

94.5

%

 

$

1,010

 

 

$

23,107

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

Net operating income for the three months ended June 30, 2017 excludes $406 primarily related to sold properties.

(b)

Includes $ 23,544 of properties classified as held-for-sale.

 

As of June 30, 2017, our same-store portfolio consisted of 42 multifamily apartment properties, totaling 11,676 units.  See “Non-GAAP Financial Measures – Same Store Portfolio Net Operating Income” below for our definition of same store and definitions and reconciliations related to our net operating income margin. 

During the three months ended June 30, 2017, we continued our capital recycling strategy as we seek to shift our portfolio out of our class “C” properties and into higher-quality assets located primarily in non-gateway markets, which we believe have compelling growth fundamentals.  During the second quarter of 2017, we sold three class “C” properties for an aggregate sales price of $59.6 million and recognized an aggregate gain on sale of $16.1 million, and purchased two class “B” properties for an aggregate purchase price of $57.2 million.  

Property Operations

During the three months ended June 30, 2017, we saw strong operational results.  On a same-store basis, our total revenues were up 4.3% as compared to the second quarter of 2016 driven by higher average effective monthly rents and higher average occupancy.  Revenue growth was especially strong in the Memphis, TN and Atlanta, GA markets driven by steady occupancy and higher average effective rent per unit in the second quarter of 2017 as compared to the second quarter of 2016.   

Same-store net operating income increased 5.6% during the second quarter of 2017 as compared to the same period in the prior year drive by the higher revenues and operating expenses that increased just 2.2% as we continued to focus on expense management.  For the six months ended June 30, 2017, our same-store total revenues are 4.5% higher and our same-store net operating income 5.4% higher than the six months ended June 30, 2016.  

23


 

Other Matters

On June 20, 2017, we completed our use of shared services previously provided by RAIT and fully completed our previously disclosed management internalization. The shared services previously provided included certain transitional services such as information technology, human resources, insurance, investor relations, legal, tax and accounting.

On July 31, 2017, we transferred the listing of our common stock to the New York Stock Exchange (“NYSE”) from the NYSE MKT. Our common stock will continue to trade under the ticker symbol “IRT”. 

 

 

Results of Operations

Three Months Ended June 30, 2017 compared to the Three Months Ended June 30, 2016

 

 

 

 

SAME STORE PROPERTIES

 

 

NON SAME STORE PROPERTIES

 

 

CONSOLIDATED

 

(Dollars in thousands)

 

Three Months Ended June 30,

 

 

Three Months Ended June 30,

 

 

Three Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

Increase (Decrease)

 

 

% Change

 

 

2017

 

 

2016

 

 

Increase (Decrease)

 

 

% Change

 

 

2017

 

 

2016

 

 

Increase (Decrease)

 

 

% Change

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

32,342

 

 

$

31,135

 

 

$

1,207

 

 

 

3.9

%

 

$

2,834

 

 

$

3,050

 

 

$

(216

)

 

 

-7.1

%

 

$

35,176

 

 

$

34,185

 

 

$

991

 

 

 

2.9

%

Reimbursement and other income

 

 

3,881

 

 

 

3,610

 

 

 

271

 

 

 

7.5

%

 

 

374

 

 

 

532

 

 

 

(158

)

 

 

-29.7

%

 

 

4,255

 

 

 

4,142

 

 

 

113

 

 

 

2.7

%

Total revenue

 

 

36,223

 

 

 

34,745

 

 

 

1,478

 

 

 

4.3

%

 

 

3,208

 

 

 

3,582

 

 

 

(374

)

 

 

-10.4

%

 

 

39,431

 

 

 

38,327

 

 

 

1,104

 

 

 

2.9

%

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate operating expenses

 

 

14,280

 

 

 

13,966

 

 

 

314

 

 

 

2.2

%

 

 

1,638

 

 

 

1,657

 

 

 

(19

)

 

 

-1.1

%

 

 

15,918

 

 

 

15,623

 

 

 

295

 

 

 

1.9

%

Net Operating Income

 

$

21,943

 

 

$

20,779

 

 

$

1,164

 

 

 

5.6

%

 

$

1,570

 

 

$

1,925

 

 

$

(355

)

 

 

-18.4

%

 

$

23,513

 

 

$

22,704

 

 

$

809

 

 

 

3.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

130

 

 

 

-

 

 

 

130

 

 

 

-

 

Total other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

130

 

 

 

-

 

 

 

130

 

 

 

-

 

Corporate and other expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property management expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,444

 

 

 

1,229

 

 

 

215

 

 

 

17.5

%

General and administrative expenses

 

 

 

2,706

 

 

 

2,787

 

 

 

(81

)

 

 

-2.9

%

Acquisition and integration expenses

 

 

 

265

 

 

 

8

 

 

 

257

 

 

 

3212.5

%

Depreciation and amortization expense

 

 

 

8,011

 

 

 

7,635

 

 

 

376

 

 

 

4.9

%

Total corporate and other expenses

 

 

 

12,426

 

 

 

11,659

 

 

 

767

 

 

 

6.6

%

Operating Income (loss)

 

 

 

11,217

 

 

 

11,045

 

 

 

172

 

 

 

1.6

%

Interest expense

 

 

 

(7,162

)

 

 

(9,018

)

 

 

1,856

 

 

 

20.6

%

Hedge ineffectiveness

 

 

 

(12

)

 

 

-

 

 

 

(12

)

 

N/M

 

Net gains (losses) on sale of assets

 

 

 

16,050

 

 

 

29,321

 

 

 

(13,271

)

 

 

-45.3

%

Gains (losses) on extinguishment of debt

 

 

 

(572

)

 

 

(558

)

 

 

(14

)

 

 

2.5

%

Net income (loss)

 

 

 

19,521

 

 

 

30,790

 

 

 

(11,269

)

 

 

-36.60

%

(Income) loss allocated to noncontrolling interests

 

 

 

(782

)

 

 

(1,803

)

 

 

1,021

 

 

 

56.6

%

Net income (loss) available to common shares

 

 

$

18,739

 

 

$

28,987

 

 

$

(10,248

)

 

 

-35.35

%

Revenue

Rental income . Rental revenue increased $1.0 million to $35.2 million for the three months ended June 30, 2017 from $34.2 million for the three months ended June 30, 2016. The increase was primarily attributable to a $1.2 million increase in same store rental income driven by higher average effective monthly rents and higher occupancy than the prior year period.  

Reimbursement and other income . Reimbursement and other income increased $0.1 million to $4.2 million for the three months ended June 30, 2017 from $4.1 million for the three months ended June 30, 2016. The increase was primarily due to a $0.3 million increase in same store reimbursement and other income attributable to our continued focus on driving non-rental revenue and fee income.

Property management income. Property management income was $0.1 million for the three months ended June 30, 2017 compared to $0.0 million for the three months ended June 30, 2016.  This is due to third party property management income that we receive for managing properties on behalf of third parties.  This service did not exist prior to our management internalization in December 2016.  

Expenses

Real estate operating expenses . Property operating expenses increased $0.3 million to $15.9 million for the three months ended June 30, 2017 from $15.6 million for the three months ended June 30, 2016. The increase was due to higher personnel and real estate tax expenses, which drove a $0.3 million increase in real estate operating expenses at our same store properties.

24


 

Property management expenses: Property management expenses increased $0.2 million to $1.4 million for the three months ended June 30, 2017 from $1.2 million for the three months ended June 30, 2016. This increase coincides with the above-mentioned increase in property managem ent income driven by our internalization.  After our management internalization, property management expenses include costs incurred to directly support on-site management. Prior to this, property management expenses included property and construction mana gement fees paid to our former property manager.

General and administrative expenses . General and administrative expenses decreased $0.1 million to $2.7 million for the three months ended June 30, 2017 from $2.8 million for the three months ended June 30, 2016. The decrease is due to cost savings from our management internalization.

Depreciation and amortization expense . Depreciation and amortization expense increased $0.4 million to $8.0 million for the three months ended June 30, 2017 from $7.6 million for the three months ended June 30, 2016. The increase is primarily attributable to $0.2 million of in-place lease intangible amortization recognized during the three months ended June 30, 2017 related to 2017 property acquisitions.  

Interest expense . Interest expense decreased $1.8 million to $7.2 million for the three months ended June 30, 2017 from $9.0 million for the three months ended June 30, 2016. The decrease is due to debt reductions during 2016 when our term loan was fully repaid and our credit facility balance decreased by $121.5 million.  

Net gains (losses) on sale of asset. Net gains on sale of assets decreased $13.2 million to $16.1 million for the three months ended June 30, 2017 from $29.3 million for the three months ended June 30, 2016.  The 2017 net gains were driven primarily by a $15.7 million gain on the sale of Copper Mill, a 320-unit apartment property in Austin, TX.  The 2016 net gains were driven primarily by gains of $15.1 million and $14.2 million realized upon the sales of Tresa at Arrowhead and Belle Creek.  

 

Six Months Ended June 30, 2017 compared to the Six Months Ended June 30, 2016

 

 

 

SAME STORE PROPERTIES

 

 

NON SAME STORE PROPERTIES

 

 

CONSOLIDATED

 

(Dollars in thousands)

 

Six Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

Increase (Decrease)

 

 

% Change

 

 

2017

 

 

2016

 

 

Increase (Decrease)

 

 

% Change

 

 

2017

 

 

2016

 

 

Increase (Decrease)

 

 

% Change

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

64,104

 

 

$

61,615

 

 

$

2,489

 

 

 

4.0

%

 

$

5,809

 

 

$

7,323

 

 

$

(1,514

)

 

 

-20.7

%

 

$

69,913

 

 

$

68,938

 

 

$

975

 

 

 

1.4

%

Reimbursement and other income

 

 

7,600

 

 

 

6,995

 

 

 

605

 

 

 

8.6

%

 

 

813

 

 

 

1,060

 

 

 

(247

)

 

 

-23.3

%

 

 

8,413

 

 

 

8,055

 

 

 

358

 

 

 

4.4

%

Total revenue

 

 

71,704

 

 

 

68,610

 

 

 

3,094

 

 

 

4.5

%

 

 

6,622

 

 

 

8,383

 

 

 

(1,761

)

 

 

-21.0

%

 

 

78,326

 

 

 

76,993

 

 

 

1,333

 

 

 

1.7

%

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate operating expenses

 

 

28,553

 

 

 

27,679

 

 

 

874

 

 

 

3.2

%

 

 

3,357

 

 

 

3,802

 

 

 

(445

)

 

 

-11.7

%

 

 

31,910

 

 

 

31,481

 

 

 

429

 

 

 

1.4

%

Net Operating Income

 

$

43,151

 

 

$

40,931

 

 

$

2,220

 

 

 

5.4

%

 

$

3,265

 

 

$

4,581

 

 

$

(1,316

)

 

 

-28.7

%

 

$

46,416

 

 

$

45,512

 

 

$

904

 

 

 

2.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

377

 

 

 

-

 

 

 

377

 

 

 

-

 

Total other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

377

 

 

 

-

 

 

 

377

 

 

 

-

 

Corporate and other expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property management expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,982

 

 

 

2,491

 

 

 

491

 

 

 

19.7

%

General and administrative expenses

 

 

 

4,806

 

 

 

5,409

 

 

 

(603

)

 

 

-11.1

%

Acquisition and integration expenses

 

 

 

387

 

 

 

18

 

 

 

369

 

 

 

2050.0

%

Depreciation and amortization expense

 

 

 

15,618

 

 

 

19,162

 

 

 

(3,544

)

 

 

-18.5

%

Total corporate and other expenses

 

 

 

23,793

 

 

 

27,080

 

 

 

(3,287

)

 

 

-12.1

%

Operating Income (loss)

 

 

 

23,000

 

 

 

18,432

 

 

 

4,568

 

 

 

24.8

%

Interest expense

 

 

 

(14,610

)

 

 

(18,995

)

 

 

4,385

 

 

 

23.1

%

Hedge ineffectiveness

 

 

 

(12

)

 

 

-

 

 

 

(12

)

 

N/M

 

Other income (expense)

 

 

 

(5

)

 

 

-

 

 

 

(5

)

 

N/M

 

Net gains (losses) on sale of assets

 

 

 

15,965

 

 

 

31,774

 

 

 

(15,809

)

 

 

-49.8

%

Gains (losses) on extinguishment of debt

 

 

 

(572

)

 

 

(558

)

 

 

(14

)

 

 

2.5

%

Gains (losses) on TSRE merger and property acquisitions

 

 

 

-

 

 

 

91

 

 

 

(91

)

 

N/M

 

Net income (loss)

 

 

 

23,766

 

 

 

30,744

 

 

 

(6,978

)

 

 

-22.70

%

(Income) loss allocated to noncontrolling interests

 

 

 

(950

)

 

 

(1,832

)

 

 

882

 

 

 

48.1

%

Net income (loss) available to common shares

 

 

$

22,816

 

 

$

28,912

 

 

$

(6,096

)

 

 

-21.08

%

Revenue

Rental income . Rental revenue increased $1.0 million to $69.9 million for the six months ended June 30, 2017 from $68.9 million for the six months ended June 30, 2016. The increase was primarily attributable to a $2.5 million increase in same store rental income driven by higher average effective monthly rents and higher occupancy than the year-ago period.  This increase was partially offset by a $1.5 million decrease in non-same store rental income due to the disposition of non-core properties.

25


 

Reimbursement and other income . Reimbursement and other income increased $0.4 million to $8.4 million for the six months ended June 30, 2017 from $8.0 million for the six month s ended June 30, 2016. The increase was primarily due to a $0.6 million increase in same store reimbursement and other income attributable to our continued focus on driving non-rental revenue and fee income.

Property management income. Property management income was $0.4 million for the six months ended June 30, 2017 compared to $0.0 million for the six months ended June 30, 2016. This is due to third party property management income that we receive for managing properties on behalf of third parties.  This service did not exist prior to our management internalization in December 2016.

 

Expenses

Real estate operating expenses . Property operating expenses increased $0.4 million to $31.9 million for the six months ended June 30, 2017 from $31.5 million for the six months ended June 30, 2016. The increase was due to higher personnel and real estate tax expenses, which drove a $0.9 million increase in real estate operating expenses at our same store properties partially offset by lower non-same store real estate operating expenses due to sold properties.

Property management expenses: Property management expenses increased $0.5 million to $3.0 million for the six months ended June 30, 2017 from $2.5 million for the six months ended June 30, 2016. This increase coincides with the above-mentioned increase in property management income driven by our internalization.  After our management internalization, property management expenses include costs incurred to directly support on-site management. Prior to this, property management expenses included property and construction management fees paid to our former property manager.

General and administrative expenses . General and administrative expenses decreased $0.6 million to $4.8 million for the six months ended June 30, 2017 from $5.4 million for the six months ended June 30, 2016. The decrease is due to cost savings from our management internalization.

Depreciation and amortization expense . Depreciation and amortization expense decreased $3.6 million to $15.6 million for the six months ended June 30, 2017 from $19.2 million for the six months ended June 30, 2016. The decrease is primarily due to $3.7 million decrease in amortization of in-place leases as they were fully amortized during 2016.

Interest expense . Interest expense decreased $4.4 million to $14.6 million for the six months ended June 30, 2017 from $19.0 million for the six months ended June 30, 2016. The decrease is due to debt reductions during 2016 when our term loan was fully repaid and our credit facility balance decreased by $121.5 million.

Net gains (losses) on sale of asset. Net gains on sale of assets decreased $15.8 million to $16.0 million for the three months ended June 30, 2017 from $31.8 million for the three months ended June 30, 2016.  The 2017 net gains were driven primarily by a $15.7 million gain on the sale of Copper Mill, a 320-unit apartment property in Austin, TX.  The 2016 net gains were driven primarily by gains of $15.1 million and $14.2 million realized upon the sales of Tresa at Arrowhead and Belle Creek.

 

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 measure, are additional appropriate measures of the operating performance of a REIT and IRT in particular. We compute FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT, as net income or loss (computed in accordance with GAAP), excluding real estate-related depreciation and amortization expense, gains or losses on sales of real estate and the cumulative effect of changes in accounting principles.

CFFO is a computation made by analysts and investors to measure a real estate company’s operating performance by removing the effect of items that do not reflect ongoing property operations, including stock compensation expense, depreciation and amortization of other items not included in FFO, amortization of deferred financing costs, acquisition and integration expenses, and other non-operating gains or losses related to items such as hedge ineffectiveness, defeasance costs we incur when we sell a property subject to secured debt, asset sales, debt extinguishments, gains on the TSRE merger, and management internalization expenses, from the determination of FFO. IRT incurs acquisition expenses in connection with acquisitions of real estate properties and expenses those costs when incurred in accordance with U.S. GAAP. As these expenses are one-time and reflective of investing activities rather than operating performance, IRT adds back these costs to FFO in determining CFFO.  

26


 

Our calculation of CFFO differs from the methodology used for calculating CFFO by certain 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 belie ve they are also useful to investors, because they facilitate an understanding of IRT’s 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 cur rent operating performance and that may not accurately compare 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 accordan ce 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. Neither FFO nor CFFO should be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity.

Set forth below is a reconciliation of net income (loss) to FFO and CFFO for the three and six months ended June 30, 2017 and 2016 (in thousands, except share and per share information):

  

 

 

For the Three Months Ended June 30, 2017

 

 

For the Three Months Ended June 30, 2016

 

 

 

Amount

 

 

Per Share (1)

 

 

Amount

 

 

Per Share (2)

 

Funds From Operations (FFO):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

19,521

 

 

$

0.27

 

 

$

30,790

 

 

$

0.61

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate depreciation and amortization

 

 

7,987

 

 

 

0.11

 

 

 

7,635

 

 

 

0.15

 

Net (gains) losses on sale of assets excluding defeasance costs

 

 

(18,798

)

 

 

(0.26

)

 

 

(29,321

)

 

 

(0.58

)

Funds From Operations (FFO)

 

$

8,710

 

 

$

0.12

 

 

$

9,104

 

 

$

0.18

 

Core Funds From Operations (CFFO):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Funds From Operations (FFO)

 

$

8,710

 

 

$

0.12

 

 

$

9,104

 

 

$

0.18

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

738

 

 

 

0.01

 

 

 

380

 

 

 

0.01

 

Amortization of deferred financing costs

 

 

359

 

 

 

0.01

 

 

 

749

 

 

 

0.02

 

Acquisition and integration expenses

 

 

265

 

 

 

-

 

 

 

8

 

 

 

-

 

Other depreciation and amortization

 

 

24

 

 

 

-

 

 

 

-

 

 

 

-

 

Hedge ineffectiveness

 

 

12

 

 

 

-

 

 

 

-

 

 

 

-

 

Defeasance costs included in net gains (losses) on sale of assets

 

 

2,748

 

 

 

0.04

 

 

 

-

 

 

 

 

 

(Gains) losses on extinguishment of debt

 

 

572

 

 

 

0.01

 

 

 

558

 

 

 

0.01

 

Core Funds From Operations (CFFO)

 

$

13,428

 

 

$

0.19

 

 

$

10,799

 

 

$

0.22

 

27


 

 

 

 

 

For the Six Months Ended

June 30, 2017

 

 

For the Six Months Ended

June 30, 2016

 

 

 

Amount

 

 

Per Share (1)

 

 

Amount

 

 

Per Share (2)

 

Funds From Operations (FFO):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

23,766

 

 

$

0.33

 

 

$

30,744

 

 

$

0.61

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate depreciation and amortization

 

 

15,582

 

 

 

0.22

 

 

 

19,162

 

 

 

0.38

 

Net (gains) losses on sale of assets excluding defeasance costs

 

 

(18,713

)

 

 

(0.26

)

 

 

(33,170

)

 

 

(0.66

)

Funds From Operations (FFO)

 

$

20,635

 

 

$

0.29

 

 

$

16,736

 

 

$

0.33

 

Core Funds From Operations (CFFO):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Funds From Operations (FFO)

 

$

20,635

 

 

$

0.29

 

 

$

16,736

 

 

$

0.33

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

1,126

 

 

 

0.02

 

 

 

585

 

 

 

0.01

 

Amortization of deferred financing costs

 

 

878

 

 

 

0.01

 

 

 

1,946

 

 

 

0.05

 

Acquisition and integration expenses

 

 

387

 

 

 

-

 

 

 

18

 

 

 

-

 

Other depreciation and amortization

 

 

36

 

 

 

-

 

 

 

-

 

 

 

-

 

Hedge ineffectiveness

 

 

12

 

 

 

-

 

 

 

-

 

 

 

-

 

Defeasance costs included in net gains (losses) on sale of assets

 

 

2,748

 

 

 

0.04

 

 

 

1,396

 

 

 

0.03

 

(Gains) losses on extinguishment of debt

 

 

572

 

 

 

0.01

 

 

 

558

 

 

 

0.01

 

(Gains) losses on TSRE merger and property acquisitions

 

 

-

 

 

 

-

 

 

 

(91

)

 

 

(0.01

)

Core Funds From Operations (CFFO)

 

$

26,394

 

 

$

0.37

 

 

$

21,148

 

 

$

0.42

 

 

 

(1)

Based on 71,703,735 and 71,680,542 weighted-average shares and units outstanding for the three and six months ended June 30, 2017, respectively.

 

(2)

Based on 50,134,620 and 50,089,389 weighted-average shares and units outstanding for the three and six months ended June 30, 2016, respectively.

Same Store Portfolio Net Operating Income

We believe that Net Operating Income (“NOI”), a non-GAAP measure, is a useful measure of our operating performance. We define NOI as total property revenues less total property operating expenses, excluding depreciation and amortization, asset management fees, property management fees, acquisition expenses, and general and administrative expenses. In connection with our management internalization which was completed in the fourth quarter of 2016, we modified our calculation of NOI to exclude property management expenses. We retrospectively adjusted previously reported NOI to conform to this change. Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REITs. We believe that this measure provides an operating perspective not immediately apparent from GAAP operating income or net income. We use NOI to evaluate our performance on a same store and non-same store basis because NOI measures the core operations of property performance by excluding corporate level expenses and other items not related to property operating performance and captures trends in rental housing and property operating expenses. However, NOI should only be used as an alternative measure of our financial performance.

28


 

We review our same store properties or portfolio at the beginning of each calendar year.  Properties are added into the same store portfolio if they were owned at the beginning of the previous year.  Properties that have been sold or are classified as held for sale are excluded from the same store portfolio.

 

(Dollars in thousands)

Three Months Ended June 30, (a)

 

Six Months Ended June 30, (a)

 

 

2017

 

 

2016

 

 

% change

 

2017

 

 

2016

 

 

% change

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

$

32,342

 

 

$

31,135

 

 

 

3.9

%

 

 

$

64,104

 

 

$

61,615

 

 

 

4.0

%

Reimbursement and other income

 

3,881

 

 

 

3,610

 

 

 

7.5

%

 

 

 

7,600

 

 

 

6,995

 

 

 

8.6

%

Total revenue

 

36,223

 

 

 

34,745

 

 

 

4.3

%

 

 

 

71,704

 

 

 

68,610

 

 

 

4.5

%

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate taxes

 

4,384

 

 

 

4,277

 

 

 

2.5

%

 

 

 

8,765

 

 

 

8,565

 

 

 

2.3

%

Property insurance

 

781

 

 

 

764

 

 

 

2.2

%

 

 

 

1,601

 

 

 

1,506

 

 

 

6.3

%

Personnel expenses

 

3,483

 

 

 

3,296

 

 

 

5.7

%

 

 

 

6,883

 

 

 

6,589

 

 

 

4.5

%

Utilities

 

2,123

 

 

 

2,061

 

 

 

3.0

%

 

 

 

4,346

 

 

 

4,260

 

 

 

2.0

%

Repairs and maintenance

 

1,334

 

 

 

1,339

 

 

 

-0.4

%

 

 

 

2,567

 

 

 

2,356

 

 

 

9.0

%

Contract services

 

1,090

 

 

 

1,105

 

 

 

-1.4

%

 

 

 

2,133

 

 

 

2,194

 

 

 

-2.8

%

Advertising expenses

 

382

 

 

 

403

 

 

 

-5.2

%

 

 

 

764

 

 

 

799

 

 

 

-4.4

%

Other expenses

 

703

 

 

 

721

 

 

 

-2.5

%

 

 

 

1,494

 

 

 

1,410

 

 

 

6.0

%

Total operating expenses

 

14,280

 

 

 

13,966

 

 

 

2.2

%

 

 

 

28,553

 

 

 

27,679

 

 

 

3.2

%

Net operating income

$

21,943

 

 

$

20,779

 

 

 

5.6

%

 

 

$

43,151

 

 

$

40,931

 

 

 

5.4

%

NOI Margin

 

60.6

%

 

 

59.8

%

 

 

0.8

%

 

 

 

60.2

%

 

 

59.7

%

 

 

0.5

%

Average Occupancy

 

95.0

%

 

 

94.4

%

 

 

0.6

%

 

 

 

94.4

%

 

 

93.4

%

 

 

1.0

%

Average effective monthly rent, per unit

$

1,013

 

 

$

981

 

 

 

3.3

%

 

 

$

1,010

 

 

$

976

 

 

 

3.5

%

Reconciliation of Same-Store Net Operating Income to Net Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same-store portfolio net operating income (a)

$

21,943

 

 

$

20,779

 

 

 

 

 

 

 

$

43,151

 

 

$

40,931

 

 

 

 

 

Non same-store net operating income

 

1,570

 

 

 

1,925

 

 

 

 

 

 

 

 

3,265

 

 

 

4,581

 

 

 

 

 

Property management income

 

130

 

 

 

-

 

 

 

 

 

 

 

 

377

 

 

 

-

 

 

 

 

 

Property management expenses

 

(1,444

)

 

 

(1,229

)

 

 

 

 

 

 

 

(2,982

)

 

 

(2,491

)

 

 

 

 

General and administrative expenses

 

(2,706

)

 

 

(2,787

)

 

 

 

 

 

 

 

(4,806

)

 

 

(5,409

)

 

 

 

 

Acquisition and integration expenses

 

(265

)

 

 

(8

)

 

 

 

 

 

 

 

(387

)

 

 

(18

)

 

 

 

 

Depreciation and amortization

 

(8,011

)

 

 

(7,635

)

 

 

 

 

 

 

 

(15,618

)

 

 

(19,162

)

 

 

 

 

Interest expense

 

(7,162

)

 

 

(9,018

)

 

 

 

 

 

 

 

(14,610

)

 

 

(18,995

)

 

 

 

 

Hedge ineffectiveness

 

(12

)

 

 

-

 

 

 

 

 

 

 

 

(12

)

 

 

-

 

 

 

 

 

Other income (expense)

 

-

 

 

 

-

 

 

 

 

 

 

 

 

(5

)

 

 

-

 

 

 

 

 

Net gains (losses) on sale of assets

 

16,050

 

 

 

29,321

 

 

 

 

 

 

 

 

15,965

 

 

 

31,774

 

 

 

 

 

Gains (losses) on extinguishment of debt

 

(572

)

 

 

(558

)

 

 

 

 

 

 

 

(572

)

 

 

(558

)

 

 

 

 

Net income (loss) available to common shares

$

19,521

 

 

$

30,790

 

 

 

 

 

 

 

$

23,766

 

 

$

30,653

 

 

 

 

 

 

 

(a)

Same store portfolio for the three and six months ended June 30, 2017 and 2016 includes 42 properties containing 11,676 units.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, pay distributions and other general business needs.  We believe our available cash balances, financing arrangements and cash flows from operations will be sufficient to fund our liquidity requirements with respect to our existing portfolio for the next 12 months and the foreseeable future.

Our primary cash requirements are to:

 

make investments and fund the associated costs;

 

repay our indebtedness;

29


 

 

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 these liquidity requirements primarily through:

 

the use of our cash and cash equivalent balance of $6.3 million as of June 30, 2017;

 

existing and future financing secured directly or indirectly by the apartment properties in our portfolio;

 

cash generated from operating activities;

 

net cash proceeds from property sales implementing our capital recycling strategy and other sales;

 

proceeds from the sale of our common stock; and

 

if required, proceeds from future borrowings and offerings.

 

On May 1, 2017, we closed on a new $300.0 million unsecured credit facility refinancing and terminated 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 current leverage levels, our annual interest cost is LIBOR plus 145 basis points under the term loan and LIBOR plus 150 basis points for borrowings outstanding under the revolving commitments, an annual savings of approximately 35 to 40 basis points from our previous secured credit facility.

Cash Flows

As of June 30, 2017 and 2016, we maintained cash and cash equivalents of approximately $6.3 million and $28.1 million, respectively. Our cash and cash equivalents were generated from the following activities (dollars in thousands):

 

 

 

For the Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

Cash flow from operating activities

 

$

28,033

 

 

$

18,847

 

Cash flow from investing activities

 

 

(55,706

)

 

 

32,987

 

Cash flow from financing activities

 

 

13,052

 

 

 

(62,084

)

Net change in cash and cash equivalents

 

 

(14,621

)

 

 

(10,250

)

Cash and cash equivalents at beginning of period

 

 

20,892

 

 

 

38,301

 

Cash and cash equivalents at end of period

 

$

6,271

 

 

$

28,051

 

 

The increase in our cash flow from operating activities between the six months ended June 30, 2017 and 2016 is primarily driven by the increased performance of our property portfolio.

Our cash outflow from investing activities during the six months ended June 30, 2017 is primarily due to three property acquisitions partially offset by three property dispositions. Our cash inflow from investing activities during the six months ended June 30, 2016 is primarily due to the disposition of three properties.  

Our cash inflow from financing activities during the six months ended June 30, 2017 was primarily due to draws on our senior credit facility related to the acquisitions of three properties. Our cash outflow from financing activities during the six months ended June 30, 2016 was primarily due to repayments of mortgage indebtedness and the interim facility with proceeds from the three property dispositions  

As a REIT, we evaluate our dividend coverage based on our cash flow from operating activities, excluding acquisition and integration expenses and changes in other assets and liabilities.  During the six months ended June 30, 2017, we paid distributions to our common stockholders and noncontrolling interests of $25.9 million and generated cash flow from operating activities excluding acquisition and integration expenses and changes in other assets and liabilities of $26.3 million.

30


 

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements during the six months ended June 30, 2017 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our interests.

Critical Accounting Estimates and Policies

Our 2016 Annual Report on Form 10-K contains a discussion of our critical accounting policies. On January 1, 2016, we adopted three new accounting pronouncements and revised our accounting policies as described in Note 2 to the Consolidated Financial Statements included in Part I, Item 1 of this report. Management discusses our critical accounting policies and management’s judgments and estimates with the audit committee of our board of trustees.

 

 

Item 3.

Qualitative and Quantitative Disclosure About Market Risk.

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

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

There have been no material changes in quantitative and qualitative market risks during the six months ended June 30, 2017 from the disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2016.

Item 4.

Controls and Procedures.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

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

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting or in other factors during the quarter ended June 30, 2017, that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

31


 

 

 

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings.

We are subject to various legal proceedings and claims that arise in the ordinary course of our business operations. Matters which arise out of allegations of bodily injury, property damage, and employment practices are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, we currently believe the final outcome of such matters will not have a material adverse effect on our financial position, results of operations or cash flows .

 

Item 1A.

Risk Factors.

There have not been any material changes from the risk factors previously disclosed in Item 1A—“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

We have previously disclosed four “UPREIT” transactions completed in May 2014, August 2014, November 2014 and December 2014 wherein IROP issued, in the aggregate, 1,282,449 common units, or units, to unaffiliated entities or persons in order to acquire properties. In addition, we have previously disclosed that in September 2015, IROP issued 1,925,419 units, plus cash in lieu of fractional TSR OP units, in a transaction related to the TSRE acquisition.  In June 2017, IROP issued 166,604 units in connection with our acquisition of South Terrace. All such issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act. As previously disclosed, these units are subject to exchange agreements containing the terms and conditions under which the units could be exchanged for cash in an amount equal to the value of an equivalent number of shares of our common stock as of the date IROP receives the holder’s notice of its desire to exchange the units for cash or, at IROP’s option, for the equivalent number of shares of our common stock. During the first half of 2017, IROP exchanged 39,899 units for 39,899 shares of our common stock (with fractional units being settled in cash). At June 30, 2017, there were 3,035,654 units held by unaffiliated third parties outstanding.  The issuance of the shares of our common stock in these exchanges was exempt from registration pursuant to Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D; all the persons receiving such shares were accredited investors.

 

Item 3.

Defaults Upon Senior Securities.

None.

 

Item 4.

Mine Safety Disclosures.

None.

 

Item 5.

Other Information.

 

On August 4, 2017, we and our subsidiary, IROP, entered into an At-the-Market Issuance Sales Agreement (the “Sales Agreement”) with Citigroup Global Markets Inc., Capital One Securities, Inc., KeyBanc Capital Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Robert W. Baird & Co. Incorporated and Stifel, Nicolaus & Company, Incorporated (collectively, the “Sales Agents”). Pursuant to the Sales Agreement, we may offer and sell shares of our common stock, $0.01 par value per share, having an aggregate offering price of up to $150 million (the “Shares”), from time to time through the Sales Agents. The Sales Agents are entitled to compensation in an agreed amount not to exceed 2.0% of the gross sales price per share for any Shares sold from time to time under the Sales Agreement. We also agreed to provide each Sales Agent with customary indemnification rights under the Sales Agreement. Sales of the Shares, if any, under the program will depend upon market conditions and other factors to be determined by us. Any such sales of the Shares will be made by means of transactions that are deemed to be “at-the-market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), including by sales made directly on or through the New York Stock Exchange or another market for our common stock, sales made to or through a market maker other than on an exchange or otherwise, in negotiated transactions at market prices prevailing at the time of sale or at negotiated prices, or as otherwise agreed with the applicable Sales Agent. We have no obligation to sell any of the Shares under the Sales Agreement and may at any time suspend solicitations and offers under the Sales Agreement. No Sales Agent is required to sell any specific number or dollar amount of Shares.

 

32


 

The Shares sold under the Sales Agreement will be issued pursuant to our registration s tatement on Form S-3 (File No. 333-218130), which became effective under the Securities Act, on June 16, 2017. We will file a prospectus supplement with the Securities and Exchange Commission in connection with the offer and sale of the Shares.

 

The foregoing description of the Sales Agreement is not complete and is qualified in its entirety by reference to the full text of the Sales Agreement, which is filed as Exhibit 1.1 to this Quarterly Report on Form 10-Q and incorporated herein by reference.

 

This Quarterly Report on Form 10-Q does not constitute an offer to sell or a solicitation of an offer to buy the Shares, and there shall not be any sale of the Shares in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. The sale of the Shares is being made only by means of a prospectus and related prospectus supplement.

Item 6.

Exhibits.

The exhibits listed on the Exhibit Index (following the signatures section of this Quarterly Report on Form 10-Q) are included herewith.

 

33


 

S IGNATURES

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

 

 

 

Independence Realty Trust, Inc.

 

 

 

 

 

Date: August 4, 2017

 

By:

 

/s/ Scott f . Schaeffer  

 

 

 

 

Scott F. Schaeffer

 

 

 

 

Chairman of the Board and Chief Executive Officer

 

 

 

 

(Principal Executive Officer)

 

 

 

 

 

Date: August 4, 2017

 

By:

 

/s/ James J. Sebra

 

 

 

 

James J. Sebra

 

 

 

 

Chief Financial Officer and Treasurer

 

 

 

 

(Principal Financial Officer and Principal Accounting Officer)

 

34


 

EXHIBIT INDEX

 

Exhibit

 

Description

 

 

 

1.1

 

At-the-Market Issuance Agreement dated August 4, 2017, among Independence Realty Trust, Inc., Independence Realty Operating Partnership, LP, Citigroup Global Markets Inc., Robert W. Baird & Co. Incorporated, Capital One Securities, Inc., KeyBanc Capital Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Stifel, Nicolaus & Company, Incorporated, filed herewith.

 

 

 

10.1

 

Credit Agreement dated as of May 1, 2017 by and among Independence Realty Operating Partnership, LP and the subsidiary borrowers named therein, collectively, as borrower, Citibank, N.A. and KeyBank National Association, as the initial lenders, issuing lenders and swing loan lenders, the other lenders party thereto, KeyBank National Association, as administrative agent, Citigroup Global Markets Inc. and The Huntington National Bank, as co-syndication agents, and Bank of America, N.A., Capital One, National Association, Citizens Bank, N.A., Comerica Bank and Regions Bank,  as co-documentation agents, Citigroup Global Markets Inc. and KeyBank Capital Markets, as joint bookrunners and Citigroup Global Markets Inc., KeyBank Capital Markets and The Huntington National Bank, as joint lead arrangers, incorporated by reference to Exhibit 10.22.1 to IRT’s Current Report on Form 8-K filed on May 4, 2017.

 

 

 

10.2

 

Amendment No. 1 dated as of May 2, 2017 to the IRT Long Term Incentive Plan, incorporated by reference to Exhibit 10.9 to IRT’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.

 

 

 

10.3

 

Notice of Amendment of Outstanding Awards as of May 2, 2017, incorporated by reference to Exhibit 10.10 to IRT’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.

 

 

 

12.1

 

Statements regarding computation of ratios as of June 30, 2017, filed herewith.

 

 

 

31.1

 

Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

 

 

 

31.2

 

Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

 

 

 

32.1

 

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

 

 

 

32.2

 

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

 

 

 

101

 

XBRL (eXtensible Business Reporting Language). The following materials, formatted in XBRL: (i) Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016, (ii) Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016, (iii) Consolidated Statement of Comprehensive Income (Loss) for the three and six months ended June 30, 2017 and 2016, (iv) Consolidated Statements of Changes in Equity for the six months ended June 30, 2017, (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016 and (vi) notes to the consolidated financial statements as of June 30, 2017.

 

 

 

 

 

 

 

 

 

 

 

35

Exhibit 1.1

INDEPENDENCE REALTY TRUST, INC.

Common Stock

At-the-Market Issuance Sales Agreement

August 4, 2017

Citigroup Global Markets Inc.

388 Greenwich Street

36 th Floor

New York, New York  10013

 

Robert W. Baird & Co. Incorporated

777 Wisconsin Avenue

Milwaukee, Wisconsin  53202

 

Capital One Securities, Inc.

299 Park Avenue

29 th & 31 st Floor

New York, New York  10171

 

KeyBanc Capital Markets Inc.

127 Public Square, 4 th Floor

Cleveland, Ohio 44114

 

 

Merrill Lynch, Pierce, Fenner & Smith
         Incorporated

One Bryant Park

New York, New York  10036

 

Stifel, Nicolaus & Company, Incorporated

One South Street, 15th Floor

Baltimore, Maryland 21202

 

Ladies and Gentlemen:

Independence Realty Trust, Inc., a Maryland corporation (the “ Company ”) and Independence Realty Operating Partnership, LP, a Delaware limited partnership (the “ Operating Partnership ”) each confirms its agreement (this “ Agreement ”) with Citigroup Global Markets Inc. (“ Citigroup ”), Robert W. Baird & Co. Incorporated (“ Baird ”), Capital One Securities, Inc. (“ Capital One ”), KeyBanc Capital Markets Inc. (“ KeyBanc ”), Merrill Lynch, Pierce, Fenner & Smith Incorporated (“ Merrill Lynch ”) and Stifel, Nicolaus & Company, Incorporated (“ Stifel ”), each of Citigroup, Baird, Capital One, KeyBanc, Merrill Lynch and Stifel individually an “ Agent ” and collectively, the “ Agents ”), as follows:

 


 

1. Issuance and Sale of Shares .  Each of the Company and the Operating Partnership agrees that, from time to time during the term of this Agreement, on the terms and subject to the conditions set forth herein, it may issue and sell through the Agents shares having an aggregate gross sales price of up to $150,000,000 (the “Placement Shares”) of the Company’s common stock, par value $0.01 per share (the “Common Stock”); provided , however , that in no event shall the Company issue or sell through the Agents such number of Placement Shares that would (a) cause the aggregate offering price of such shares of Common Stock to exceed the remaining maximum aggregate offering price of securities of the Company registered on the effective Registration Statement (as defined below) pursuant to which the offering is being made, or (b) exceed the number of the Company’s authorized but unissued shares of Common Stock (the lesser of (a) and (b), the “Maximum Amount”).  Notwithstanding anything to the contrary contained herein, the parties hereto agree that compliance with the limitations set forth in this Section 1 on the amount of Placement Shares issued and sold under this Agreement shall be the sole responsibility of the Company and that the Agents shall have no obligation in connection with such compliance.  The issuance and sale of Placement Shares through the Agents will be effected pursuant to the Registration Statement (as defined below), although nothing in this Agreement shall be construed as requiring the Company to use the Registration Statement to issue Placement Shares.

The Company has filed, in accordance with the provisions of the Securities Act of 1933, as amended (the “ Securities Act ”) and the rules and regulations thereunder (the “ Securities Act Regulations ”), with the Securities and Exchange Commission (the “ Commission ”), a registration statement on Form S-3 (File No. 333-218130) (the “ Registration Statement ”), including a base prospectus (the “ Base Prospectus ”), relating to certain securities, including the Placement Shares to be issued from time to time by the Company, and which incorporates by reference documents that the Company has filed or will file in accordance with the provisions of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and the rules and regulations thereunder (the “ Exchange Act Regulations ”).  The Company will prepare a prospectus supplement specifically relating to the Placement Shares (the “ Prospectus Supplement ”) to the Base Prospectus included as part of such Registration Statement.  The Company will furnish to the Agents, for use by the Agents, copies of the prospectus included as part of such registration statement, as supplemented by the Prospectus Supplement, relating to the Placement Shares.  Except where the context otherwise requires, such registration statement, including (a) all documents filed as part thereof or incorporated by reference therein, and (b) any information contained in a Prospectus (as defined below) subsequently filed with the Commission pursuant to Rule 424(b) under the Securities Act Regulations or deemed to be a part of such registration statement pursuant to Rule 430B of the Securities Act Regulations.  The Base Prospectus, including all documents incorporated therein by reference, included in the Registration Statement, as it may be supplemented by the Prospectus Supplement, in the form in which such prospectus and/or Prospectus Supplement have most recently been filed by the Company with the Commission pursuant to Rule 424(b) under the Securities Act Regulations, together with any then issued Issuer Free Writing Prospectus(es) related to the offering of Placement Shares, is herein called the “ Prospectus .”  The Registration Statement, as of the date of this Agreement, each such time this representation is repeated or deemed to be made, and at all times during which a prospectus is required by the Securities Act to be delivered (whether physically or through compliance with Rule 172 or any similar rule) in connection with any offer or sale of Placement Shares, meets the requirements set forth in Rule 415(a)(1)(x).  The initial date of

2


 

effectiveness of the Registration Statement was not earlier than the date three years before the date of this Agreement. Any reference herein to the Registration Statement, the Prospectus or any amendment or supplement thereto shall be deemed to refer to and include the documents incorporated by reference therein, and any reference herein to the terms “amend,” “amendment” or “supplement” with respect to the Registration Statement or the Prospectus shall be deemed to refer to and include the filing after the execution hereof of any document with the Commission deemed to be incorporated by reference therein (the “ Incorporated Documents ”).

For purposes of this Agreement, all references to the Registration Statement, the Prospectus or to any amendment or supplement thereto shall be deemed to include the most recent copy filed with the Commission pursuant to its Electronic Data Gathering Analysis and Retrieval System, or if applicable, the Interactive Data Electronic Application system when used by the Commission (collectively, “ EDGAR ”).

2. Placements.  Each time that the Company wishes to issue and sell Placement Shares hereunder (each, a “Placement”), it will notify an Agent determined in the sole discretion of the Company (the “Designated Agent”) by email notice (or other method mutually agreed to in writing by the Parties) of the number of Placement Shares, the time period during which sales are requested to be made, any limitation on the number of Placement Shares that may be sold in any one day, and any minimum price below which sales may not be made (a “Placement Notice”), the form of which is attached hereto as Schedule 1.  The Placement Notice shall originate from any of the individuals from the Company set forth on Schedule 2 (with a copy to each of the other individuals from the Company listed on such schedule), and shall be addressed to each of the individuals from the Designated Agent set forth on Schedule 2, as such Schedule 2 may be amended from time to time.  The Placement Notice shall be effective unless and until (i) the Designated Agent declines to accept the terms contained therein for any reason, in its sole discretion, (ii) the entire amount of the Placement Shares thereunder have been sold, (iii) the Company suspends or terminates the Placement Notice, (iv) the Company issues a subsequent Placement Notice with parameters superseding those on the earlier dated Placement Notice, or (v) this Agreement has been terminated under the provisions of Section 13.  The amount of any discount, commission or other compensation to be paid by the Company to the Agents in connection with the sale of the Placement Shares shall be calculated in accordance with the terms set forth in Schedule 3 and the applicable Placement Notice.  It is expressly acknowledged and agreed that neither the Company nor the Agents will have any obligation whatsoever with respect to a Placement or any Placement Shares unless and until the Company delivers a Placement Notice to the Designated Agent and the Designated Agent does not decline such Placement Notice pursuant to the terms set forth above, and then only upon the terms specified therein and herein.  In the event of a conflict between the terms of this Agreement and the terms of a Placement Notice, the terms of the Placement Notice will control.

3. Sale of Placement Shares by the Agents.

(a) On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell through or to the Agent, as sales agent and/or principal, as and when it provides instructions, in its discretion, for the sale of Placement Shares, and the Agent agrees to use its commercially reasonable efforts consistent with its normal trading and sales practices and

3


 

applicable state and federal laws, rules and regulations and the rules of the New York Stock Exchange (the “ Exchange ”), to sell the Placement Shares up to the amount specified, and otherwise in accordance with the terms of such Placement Notice.  The Designated Agent will provide written confirmation to the Company no later than the opening of the Trading Day (as defined below) immediately following the Trading Day on which it has made sales of Placement Shares hereunder setting forth the number of Placement Shares sold on such day, the compensation payable by the Company to the Designated Agent pursuant to Section 2 with respect to such sales, and the Net Proceeds (as defined below) payable to the Company, with an itemization of the deductions made by the Designated Agent (as set forth in Section 5(b) ) from the gross proceeds that it receives from such sales.  Subject to the terms of the Placement Notice, the Designated Agent may sell Placement Shares by any method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415 of the Securities Act Regulations, including without limitation sales made directly on the Exchange, on any other existing trading market for the Common Stock or to or through a market maker.  Subject to the terms of a Placement Notice, the Designated Agent may also sell Placement Shares by any other method permitted by law and consistent with Exchange rules, including, but not limited to, privately negotiated transactions, with the Company’s prior written consent.  

(b) The Company agrees that any offer to sell, any solicitation of an offer to buy, or any sales of Placement Shares shall only be effected by or through one Agent on any single given day, and the Company shall in no event request that more than one Agent sell Placement Shares on the same day.

(c) The Company shall not authorize the issuance and sale of, and the Designated Agent shall not be obligated to use its commercially reasonable efforts to sell, any Placement Shares (i) at a price lower than the minimum price therefor designated from time to time by the Company, and notified to the Designated Agent in writing or (ii) during any period in which the Company is, or could be deemed to be, in possession of material non-public information.

4. Suspension of Sales.  The Company or the Designated Agent may, upon notice to the other party in writing (including by email correspondence to each of the individuals of the other party set forth on Schedule 2) or by telephone (confirmed immediately by verifiable facsimile transmission or email correspondence to each of the individuals of the other party set forth on Schedule 2), suspend any sale of Placement Shares; provided , however , that such suspension shall not affect or impair any party’s obligations with respect to any Placement Shares sold hereunder prior to the receipt of such notice.  Each of the parties agrees that no such notice under this Section 4 shall be effective against any other party unless it is made to one of the individuals named on Schedule 2 hereto, as such schedule may be amended from time to time.

5. Sale and Delivery to the Agents; Settlement .

(a) Sale of Placement Shares.  On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, upon the Designated Agent’s acceptance of the terms of a Placement Notice, and unless the sale of the Placement Shares described therein has been declined, suspended, or otherwise terminated in

4


 

accordance with the terms of this Agreement, the Designated Agent, for the period specified in the Placement Notice, will use its commercially reasonable efforts consistent with its normal trading and sales practices to sell such Placement Shares up to the amount specified, and otherwise in accordance with the terms of such Placement Notice.  The Company acknowledges and agrees that (i) there can be no assurance that the Designated Agent will be successful in selling Placement Shares, (ii) the Designated Agent will incur no liability or obligation to the Company or any other person or entity if it does not sell Placement Shares for any reason other than a failure by the Designated Agent to use its commercially reasonable efforts consistent with its normal trading and sales practices and applicable law and regulations to sell such Placement Shares as required under this Agreement and (iii) the Designated Agent shall be under no obligation to purchase Placement Shares on a principal basis pursuant to this Agreement, except as otherwise agreed by the Designated Agent and the Company.

(b) Settlement of Placement Shares.  Unless otherwise specified in the applicable Placement Notice, settlement for sales of Placement Shares will occur, (i) prior to September 5, 2017, on the third (3rd) business day that is also a Trading Day following the date on which such sales are made, and (ii) on or after September 5, 2017, on the second (2nd) business day that is also a Trading Day following the date on which such sales are made, in either case unless another date shall be agreed to in writing by the Company and the Designated Agent (each, a “ Settlement Date ”).  The amount of proceeds to be delivered to the Company on a Settlement Date against receipt of the Placement Shares sold will be (a) equal to (the “ Net Proceeds ”) the aggregate sales price received by the Designated Agent, after deduction for (i) the Designated Agent’s commission, discount or other compensation for such sales payable by the Company pursuant to Section 2 hereof, and (ii) any transaction fees imposed by any governmental or self-regulatory organization in respect of such sales, or (b) equal to (the “ Gross Proceeds ”) the proceeds from the gross sales price form the sale of such Placement Shares, at the option of the Company. If the Company elects to deliver the Placement Shares to the Designated Agent against payment of the Gross Proceeds, the Designated Agent shall itemize, set forth and invoice, in a periodic statement from the Designated Agent to the Company, all such amounts to be deducted from the Gross Proceeds, which shall include the compensation payable to the Designated Agent for sales of the Placement Shares and applicable transaction fees, transfer taxes or similar taxes or fees described in Section 2 hereof and payment  of such amounts shall be made promptly by the Company after its receipt of such periodic statement.

(c) Delivery of Placement Shares.  On or before each Settlement Date, the Company will, or will cause its transfer agent to, electronically transfer the Placement Shares being sold by crediting the Designated Agent’s or its designee’s account (provided the Designated Agent shall have given the Company written notice of such designee prior to the Settlement Date) at The Depository Trust Company through its Deposit and Withdrawal at Custodian System or by such other means of delivery as may be mutually agreed upon by the parties hereto which in all cases shall be freely tradable, transferable, registered shares in good deliverable form.  On each Settlement Date, the Designated Agent will deliver the related Net Proceeds or Gross Proceeds in same day funds to an account designated by the Company on, or prior to, the Settlement Date.  The Company agrees that if the Company, or its transfer agent (if applicable), defaults in its obligation to deliver Placement Shares on a Settlement Date, the Company agrees that in addition to and in no way limiting the rights and obligations set forth in Section 11 hereto, it will (i) indemnify and hold the Designated Agent harmless against any loss,

5


 

claim, damage, or expense (including reasonable legal fees and expenses), as incurred, arising out of or in connection with such default by the Company or its transfer agent (if applicable) and (ii) pay to the Agents any commission, discount, or other compensation to which it would otherwise have been entitled absent such default.

(d) Limitations on Offering Size.  Under no circumstances shall the Company cause or request the offer or sale of any Placement Shares if, after giving effect to the sale of such Placement Shares, the aggregate gross sales proceeds of Placement Shares sold pursuant to this Agreement would exceed the lesser of (A) together with all sales of Placement Shares under this Agreement, the Maximum Amount, (B) the amount available for offer and sale under the currently effective Registration Statement and (C) the amount authorized from time to time to be issued and sold under this Agreement by the Company’s board of directors, a duly authorized committee thereof or a duly authorized executive committee, and notified to the Agent in writing.  

(e) Affirmation of Representations and Warranties.  At each Applicable Time (as defined below), Settlement Date and Representation Date, the Company shall be deemed to have affirmed each representation and warranty contained in Section 6 of this Agreement as if such representation and warranty were made as of such date, modified as necessary to relate to the Registration Statement and the Prospectus as amended as of such date.  Any obligation of the Designated Agent to use its commercially reasonable efforts to sell the Placement Shares on behalf of the Company shall be subject to the continuing accuracy of the representations and warranties of the Company herein, to the performance by the Company of its obligations hereunder and to the continuing satisfaction of the additional conditions specified in Section 7 of this Agreement.

6. Representations and Warranties of the Company and the Operating Partnership.  Except as disclosed in the Registration Statement or Prospectus (including the Incorporated Documents), the Company and the Operating Partnership, jointly and severally, represent and warrant to, and agree with each of the Agents that as of the date of this Agreement and as of each Applicable Time and Settlement Date, unless such representation, warranty or agreement specifies a different time or time:

(a) Registration Statement and Prospectus.  The Company and, assuming no act or omission on the part of the Agents that would make such statement untrue, the transactions contemplated by this Agreement, meet the requirements for and comply with the conditions for the use of a registration statement (File No. 333-218130) on Form S-3, including a related Base Prospectus, for registration under the Securities Act of the offering and sale of the Placement Shares.  The Registration Statement has been filed with the Commission and has been declared effective under the Securities Act.  The Prospectus Supplement will name Citigroup, Baird, Capital One, KeyBanc, Merrill Lynch and Stifel as agents in the section entitled “Plan of Distribution.”  No order suspending the effectiveness of the Registration Statement has been issued by the Commission, and, to the knowledge of the Company, no proceeding for that purpose or pursuant to Section 8A of the Securities Act against the Company or related to the offering of the Placement Shares has been initiated or threatened by the Commission.  The Registration Statement and the offer and sale of Placement Shares as contemplated hereby meet the requirements of Rule 415 under the Act and comply in all material respects with said Rule.  

6


 

Any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement have been so described or filed.  Copies of the Registration Statement, the Prospectus, and any such amendments or supplements and all documents incorporated by reference therein that were filed with the Commission on or prior to the date of this Agreement have been delivered, or are available through EDGAR, to the Agents and their counsel.  The Company has not distributed and, prior to the later to occur of each Settlement Date and completion of the distribution of the Placement Shares, will not distribute any offering material in connection with the offering or sale of the Placement Shares other than the Registration Statement and the Prospectus and any Issuer Free Writing Prospectus (as defined below) to which the Agents have consented, such consent not to be unreasonably withheld, conditioned or delayed.  The shares of Common Stock are currently quoted on the Exchange under the trading symbol “IRT.”  Except as disclosed in the Registration Statement, including the Incorporated Documents, the Company has not, in the 12 months preceding the date hereof, received notice from the Exchange to the effect that the Company is not in compliance with the listing or maintenance requirements.  Except as disclosed in the Registration Statement, including the Incorporated Documents, or the Prospectus, the Company has no reason to believe that it will not in the foreseeable future continue to be in compliance with all such listing and maintenance requirements.

(b) No Misstatement or Omission. The Registration Statement, when it became effective, and the Prospectus, and any amendment or supplement thereto, on the date of such Prospectus or amendment or supplement, conformed and will conform in all material respects with the requirements of the Securities Act.  As of the date of this Agreement, and as of each Applicable Time and Settlement Date, the Registration Statement and the Prospectus, complied and will comply in all material respects with the requirements of the Securities Act.  The Registration Statement, when it became effective, did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.  The Prospectus and any amendment and supplement thereto and any Issuer Free Writing Prospectus (as defined below), on the date thereof, at each Applicable Time and on each Settlement Date, and at all times during which a prospectus is required by the Securities Act to be delivered (whether physically or through compliance with Rule 172 or any similar rule) in connection with any offer or sale of Placement Shares,  did not and will not include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  The documents incorporated by reference in the Registration Statement, Prospectus or any Prospectus Supplement did not, and any further documents filed and incorporated by reference therein will not, when filed with the Commission, contain an untrue statement of a material fact or omit to state a material fact required to be stated in such document or necessary to make the statements in such document, in light of the circumstances under which they were made, not misleading.  The foregoing shall not apply to statements in, or omissions from, any such document made in reliance upon, and in conformity with, information furnished to the Company by an Agent specifically for use in the preparation thereof.

(c) Conformity with Securities Act and Exchange Act.  The Registration Statement, the Prospectus, any Issuer Free Writing Prospectus or any amendment or supplement thereto, and the Incorporated Documents, when such documents were or are filed with the Commission under the Securities Act or the Exchange Act or became or become effective under

7


 

the Securities Act, as the case may be, complied or will comply in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and the respective rules thereunder.

(d) Financial Information.  The consolidated financial statements of the Company included or incorporated by reference in the Registration Statement, the Prospectus and the Issuer Free Writing Prospectuses, if any, together with the related notes and schedules, present fairly, in all material respects, the consolidated financial position of the Company and the Subsidiaries (as defined below) as of the dates indicated and the consolidated results of operations, cash flows and changes in stockholders’ equity of the Company for the periods specified and have been prepared in compliance with the requirements of the Securities Act and Exchange Act, as applicable, and in conformity with GAAP (as defined below) applied on a consistent basis (except for such adjustments to accounting standards and practices as are noted therein) during the periods involved; the other financial and statistical data with respect to the Company and the Subsidiaries contained or incorporated by reference in the Registration Statement, the Prospectus and the Issuer Free Writing Prospectuses, if any, are accurately and fairly presented and prepared on a basis materially consistent with the financial statements and books and records of the Company; there are no financial statements (historical or pro forma) that are required to be included or incorporated by reference in the Registration Statement, or the Prospectus that are not included or incorporated by reference as required; the Company and the Subsidiaries do not have any material liabilities or obligations, direct or contingent (including any off-balance sheet obligations), not described in the Registration Statement (excluding the exhibits thereto and Incorporated Documents), and the Prospectus which are required to be described in the Registration Statement or the Prospectus (including Exhibits thereto and Incorporated Documents); and all disclosures contained or incorporated by reference in the Registration Statement, the Prospectus and the Issuer Free Writing Prospectuses, if any, regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission) comply with Regulation G of the Exchange Act and Item 10 of Regulation S-K under the Securities Act, to the extent applicable.  

(e) Conformity with EDGAR Filing.  The Prospectus delivered to the Agents for use in connection with the sale of the Placement Shares pursuant to this Agreement will be identical to the versions of the Prospectus created to be transmitted to the Commission for filing via EDGAR, except to the extent permitted by Regulation S-T.

(f) Organization.  The Company and any subsidiary that is a significant subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X promulgated by the Commission) (collectively, the “ Subsidiaries ”) are, and will be, duly organized, validly existing and in good standing under the laws of their respective jurisdictions of organization, except where the failure to be in good standing would not, individually or in the aggregate, have a Material Adverse Effect (as defined below) or would reasonably be expected to have a Material Adverse Effect.  The Company and each of its Subsidiaries are, and will be, duly licensed or qualified as a foreign corporation for transaction of business and in good standing under the laws of each other jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such license or qualification, and have all trust, corporate, limited liability company or partnership, as the case may be, power and authority necessary to own or hold their respective properties and to conduct their respective businesses as described in

8


 

the Registration Statement and the Prospectus, except where the failure to be so qualified or in good standing or have such power or authority would not, individually or in the aggregate, have a material adverse effect or would reasonably be expected to have a material adverse effect on the assets, business, operations, earnings, properties, condition (financial or otherwise), prospects, stockholders’ equity or results of operations of the Company and the Subsidiaries taken as a whole, whether or not arising from transactions in the ordinary course of business, or prevent or materially interfere with consummation of the transactions contemplated hereby (a “ Material Adverse Effect ”).

(g) Loss; Changes in Capitalization.  None of the Company, the Operating Partnership or any of their respective subsidiaries has sustained since the date of the latest audited financial statements included or incorporated by reference in the Registration Statement or the Prospectus any loss or interference with its business or any properties described in the Registration Statement or the Prospectus or in any document incorporated by reference therein (the “Properties”) from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, in each case, that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, otherwise than as set forth or contemplated in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus.  Since the respective dates as of which information is given in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus, there has not been any change in the capital stock of the Company or any OP Units (as defined below) or long term debt of the Company, the Operating Partnership or any of their subsidiaries or any change that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, otherwise than as set forth or contemplated in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus.

(h) Subsidiaries.  As of the date hereof, the Company’s only Subsidiaries are set forth on Schedule 4 .  Except as set forth in the Registration Statement and in the Prospectus or on Schedule 4 , the Company owns, directly or indirectly, all of the equity interests of the Subsidiaries, including its general partnership interest in the Operating Partnership and approximately 96% of the common units of limited partnership interest of the Operating Partnership (“ OP Units ”), free and clear of any lien, charge, security interest, encumbrance, right of first refusal or other restriction, and all the equity interests of the Subsidiaries are validly issued and are fully paid, non-assessable and free of preemptive and similar rights.

(i) No Violation or Default.  Neither the Company nor any of its Subsidiaries is (i) in violation of its charter or by-laws or similar organizational documents; (ii) in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound or to which any of the property or assets of the Company or any of its Subsidiaries are subject; or (iii) in violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority having jurisdiction over the Company, except, in the case of each of clauses (ii) and (iii) above, for any such violation or default that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, including, without limitation, any

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default of indebtedness issued by any bankruptcy remote, special purpose entity used to securitize assets, and consolidated by the Company, whose indebtedness is without recourse to the Company.  Except as described in the Prospectus, the Prospectus Supplement or the Incorporated Documents, to the Company’s knowledge, no other party under any material contract or other agreement to which it or any of its Subsidiaries is a party is in default in any respect thereunder where such default would reasonably be expected to have a Material Adverse Effect.

(j) No Material Adverse Effect.  Subsequent to the respective dates as of which information is given in the Registration Statement, the Prospectus and the Issuer Free Writing Prospectuses, if any (including any document deemed incorporated by reference therein), there has not been (i) any Material Adverse Effect, (ii) any transaction which is material to the Company and the Subsidiaries taken as a whole, (iii) any obligation or liability, direct or contingent (including any off-balance sheet obligations), incurred by the Company or any Subsidiary, which is material to the Company and the Subsidiaries taken as a whole, (iv) any material change in the capital stock of the Company other than changes resulting from any of the following transactions (each a “ Permitted Transaction ”):  (1) sales of Placement Shares, (2) any issuances of Common Shares of the Company (“ Common Shares ”) or securities convertible into,  or exercisable for, Common Shares, and (3) any transaction described in a proxy statement filed on Schedule 14A or a Registration Statement on Form S-4 and otherwise publicly announced) or (v) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company or any Subsidiary, other than in each case above in the ordinary course of business or as otherwise disclosed in the Registration Statement or Prospectus or Issuer Free Writing Prospectuses, if any (including any document deemed incorporated by reference therein).

(k) Capitalization.  The issued and outstanding shares of capital stock of the Company have been duly and validly issued, are fully paid and non-assessable and, other than as disclosed in the Registration Statement or the Prospectus, are not subject to any preemptive rights, rights of first refusal or similar rights.  The Company has an authorized, issued and outstanding capitalization as set forth in the Registration Statement and the Prospectus as of the dates referred to therein (other than changes resulting from Permitted Transactions) and such authorized capital stock conforms to the description thereof set forth in the Registration Statement and the Prospectus.  The description of the Common Stock in the Registration Statement and the Prospectus is complete and accurate in all material respects.  Except as disclosed in or contemplated by the Registration Statement or the Prospectus or pursuant to any Permitted Transactions, as of the date referred to therein, the Company did not have outstanding any options to purchase, or any rights or warrants to subscribe for, or any securities or obligations convertible into, or exchangeable for, or any contracts or commitments to issue or sell, any shares of capital stock or other securities.

(l) OP Units; Distributions.  The OP Units to be issued by the Operating Partnership in connection with the Company’s contribution of the Net Proceeds from the sale of the Placement Shares pursuant to this Agreement to the Operating Partnership have been duly authorized for issuance by the Operating Partnership and its general partner to the Company, will be validly issued and fully paid, and the issuance of such OP Units is not subject to the preemptive or other similar rights of any partner of the Operating Partnership or other person or entity; the issuance by the Operating Partnership of the OP Units in connection with the

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transactions contemplated by this Agreement is exempt from the registration requirements of the Securities Act and applicable state securities, real estate syndication and blue sky laws; and the terms of the OP Units conform in all material respects to all statements relating thereto contained in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus. Except as disclosed in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus, (i) the Company is not currently prohibited, directly or indirectly, from making any distributions to its stockholders, and (ii) neither the Operating Partnership nor any subsidiary thereof is prohibited, directly or indirectly, from making any distributions to the Company, the Operating Partnership or any subsidiary of the Operating Partnership, or from making any other distribution on any of its equity interests or from repaying any loans or advances made by the Company, the Operating Partnership or any subsidiary of the Operating Partnership.

(m) Authorization; Enforceability.  The Company has full legal right, power and authority to enter into this Agreement and perform the transactions contemplated hereby and the Operating Partnership has full limited partnership power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by the Company and the Operating Partnership and is a legal, valid and binding agreement of the Company and the Operating Partnership enforceable in accordance with its terms, except to the extent that (i) enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally and by general equitable principles and (ii) the indemnification and contribution provisions of Section 11 hereof may be limited by federal or state securities laws and public policy considerations in respect thereof. All issued and outstanding OP Units have been duly authorized for issuance by the Operating Partnership and its general partner and are validly issued.  All issued and outstanding OP Units, when issued, were exempt from the registration requirements of the Act and applicable state securities, real estate syndication and blue sky laws.

(n) Authorization of Placement Shares.  The Placement Shares, when issued and delivered pursuant to the terms approved by the board of directors of the Company or a duly authorized committee thereof, or a duly authorized executive committee, against payment therefor as provided herein, will be duly and validly authorized and issued and fully paid and non-assessable, free and clear of any pledge, lien, encumbrance, security interest or other claim (other than any pledge, lien, encumbrance, security interest or other claim arising from an act or omission of an Agent or a purchaser), including any statutory or contractual preemptive rights, resale rights, rights of first refusal or other similar rights, and will be registered pursuant to Section 12 of the Exchange Act.  The Placement Shares, when issued, will conform in all material respects to the description thereof set forth in or incorporated into the Prospectus or any Issuer Free Writing Prospectus, if any, the articles of restatement of the Company, the amended and restated bylaws of the Company and the requirements of the Exchange.

(o) No Consents Required.  No consent, approval, authorization, order, registration or qualification of or with any court or arbitrator or governmental or regulatory authority is required for the execution, delivery and performance by the Company and the Operating Partnership of this Agreement, and the issuance and sale by the Company of the Placement Shares as contemplated hereby, and the consummation by the Company and the Operating Partnership of the transactions contemplated hereby, except for such consents,

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approvals, authorizations, orders and registrations or qualifications as may be required under applicable state securities laws or by the by-laws and rules of the Financial Industry Regulatory Authority (“FINRA”) or the Exchange in connection with the sale of the Placement Shares by an Agent .

(p) No Preferential Rights.  Except as set forth in the Registration Statement and the Prospectus and except as contemplated by any Permitted Transactions, (i) no person, as such term is defined in Rule 1-02 of Regulation S-X promulgated under the Securities Act (each, a “ Person ”), has the right, contractual or otherwise, to cause the Company to issue or sell to such Person any Common Stock or shares of any other capital stock or other securities of the Company, (ii) no Person has any preemptive rights, resale rights, rights of first refusal, or any other rights (whether pursuant to a “poison pill” provision or otherwise) to purchase any Common Stock or shares of any other capital stock or other securities of the Company, (iii) no Person has the right to act as an underwriter or as a financial advisor to the Company in connection with the offer and sale of the Common Stock, and (iv) no Person has the right, contractual or otherwise, to require the Company to register under the Securities Act any Common Stock or shares of any other capital stock or other securities of the Company, or to include any such shares or other securities in the Registration Statement or the offering contemplated thereby, whether as a result of the filing or effectiveness of the Registration Statement or the sale of the Placement Shares as contemplated thereby or otherwise.

(q) Independent Public Accountant.  KPMG LLP (the “ Accountant ”), who has certified certain financial statements of the Company and whose report on the consolidated financial statements of the Company is filed with the Commission as part of the Company’s most recent Annual Report on Form 10-K filed with the Commission and incorporated into the Registration Statement and the Prospectus, are and, during the periods covered by their report, was an independent public accountant within the meaning of the Securities Act and the Public Company Accounting Oversight Board (United States).  To the Company’s knowledge, after due inquiry, the Accountant is not in violation of the auditor independence requirements of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”) with respect to the Company.  

(r) Enforceability of Agreements.  All agreements between the Company and third parties expressly referenced in the Prospectus, other than such agreements that have expired by their terms or whose termination is disclosed in documents filed by the Company on EDGAR, are legal, valid and binding obligations of the Company enforceable in accordance with their respective terms, except to the extent that (i) enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally and by general equitable principles and (ii) the indemnification provisions of certain agreements may be limited be federal or state securities laws or public policy considerations in respect thereof, except for any unenforceability that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.

(s) No Litigation.  Except as set forth in the Registration Statement or the Prospectus, there are no legal, governmental or regulatory actions, suits or proceedings pending, nor, to the Company’s knowledge, threatened, nor, to the Company’s knowledge, any legal, governmental or regulatory investigations, to which the Company or a Subsidiary is a party or to which any property of the Company or any of its Subsidiaries is the subject that, individually or

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in the aggregate, if determined adversely to the Company or any of its Subsidiaries, would reasonably be expected to have a Material Adverse Effect or materially and adversely affect the ability of the Company to perform its obligations under this Agreement or the ability of the Company to consummate the transactions contemplated hereby; to the Company’s knowledge, no such actions, suits or proceedings are threatened or contemplated by any governmental or regulatory authority or threatened by others that, individually or in the aggregate, if determined adversely to the Company or any of its Subsidiaries, would reasonably be expected to have a Material Adverse Effect, except as set forth or contemplated in the Registration Statement or Prospectus; there are no current or pending legal, governmental or regulatory investigations, actions, suits or proceedings that are required under the Act to be described in the Prospectus that are not described in the Prospectus including any Incorporated Document; and there are no contracts or other documents that are required under the Securities Act to be filed as exhibits to the Registration Statement that are not so filed.

(t) Licenses and Permits.  Except as set forth in the Registration Statement or the Prospectus, the Company and each of its Subsidiaries possess or have obtained, all licenses, certificates, consents, orders, approvals, permits and other authorizations issued by, and have made all declarations and filings with, the appropriate federal, state, local or foreign governmental or regulatory authorities that are necessary for the ownership or lease of their respective properties or the conduct of their respective businesses as described in the Registration Statement and the Prospectus (the “ Permits ”), except where the failure to possess, obtain or make the same would not, individually or in the aggregate, have a Material Adverse Effect.  Except as disclosed in the Registration Statement or the Prospectus, neither the Company nor any of its Subsidiaries have received written notice of any proceeding relating to revocation or modification of any such Permit or has any reason to believe that such Permit will not be renewed in the ordinary course, except where the failure to obtain any such renewal would not, individually or in the aggregate, have a Material Adverse Effect.

(u) No Material Defaults.  Neither the Company nor any of the Subsidiaries has defaulted on any installment on indebtedness for borrowed money or on any rental on one or more long-term leases, which defaults, individually or in the aggregate, have a Material Adverse Effect.  The Company has not filed a report pursuant to Section 13(a) or 15(d) of the Exchange Act since the filing of its last Annual Report on Form 10-K, indicating that it (i) has failed to pay any dividend or sinking fund installment on preferred stock or (ii) has defaulted on any installment on indebtedness for borrowed money or on any rental on one or more long-term leases, which defaults, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

(v) Certain Market Activities.  Neither the Company, nor any of the Subsidiaries, nor any of their respective directors, officers or controlling persons has taken, directly or indirectly, any action designed, or that has constituted or might reasonably be expected to cause or result in, under the Exchange Act or otherwise, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Placement Shares.

(w) Broker/Dealer Relationships.  Neither the Company nor any of the Subsidiaries or any related entities (i) is required to register as a “broker” or “dealer” in

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accordance with the provisions of the Exchange Act or (ii) directly or indirectly through one or more intermediaries, controls or is a “person associated with a member” or “associated person of a member” (within the meaning set forth in the FINRA Manual).

(x) No Reliance.  The Company has not relied upon an Agent or legal counsel for an Agent for any legal, tax or accounting advice in connection with the offering and sale of the Placement Shares.

(y) Taxes.  The Company and each of the Subsidiaries have filed in a timely manner, and accurately and completely, all federal, state, local and foreign tax returns, reports, information returns and statements required to be filed or have properly requested and been granted extensions thereof. The Company and each of the Subsidiaries have paid all material taxes required to be paid by them, including any material tax assessment, fine or penalty levied against the Company or any of the Subsidiaries, except for any taxes that are being contested in good faith and by appropriate proceeding. There is no material tax deficiency that has been asserted against any such entity, nor does any such entity know of any material tax deficiency which is likely to be asserted against any such entity. All material tax liabilities are adequately provided for in the Company’s financial statements.

(z) Title to Real and Personal Property.  Except as set forth in the Registration Statement or the Prospectus, the Company and its Subsidiaries have good and valid title in fee simple to all items of real property and good and valid title to all personal property described in the Registration Statement or Prospectus as being owned by them that are material to the businesses of the Company or such Subsidiary, in each case free and clear of all liens, encumbrances and claims, except those that (i) do not materially interfere with the use made and proposed to be made of such property by the Company and any of its Subsidiaries or (ii) would individually or in the aggregate, have a Material Adverse Effect.  Any real property described in the Registration Statement or Prospectus as being leased by the Company and any of its Subsidiaries is held by them under valid, existing and enforceable leases, except those that (A) do not materially interfere with the use made or proposed to be made of such property by the Company or any of its Subsidiaries or (B) would not have a Material Adverse Effect .

(aa) Intellectual Property.  Except as set forth in the Registration Statement or the Prospectus, the Company and its Subsidiaries own or possess adequate enforceable rights to use all patents, patent applications, trademarks (both registered and unregistered), service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses and know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) (collectively, the “ Intellectual Property ”), necessary for the conduct of their respective businesses as conducted as of the date hereof, except to the extent that the failure to own or possess adequate rights to use such Intellectual Property would not, individually or in the aggregate, have a Material Adverse Effect; the Company and any of its Subsidiaries have not received any written notice of any claim of infringement or conflict which asserted Intellectual Property rights of others, which infringement or conflict, if the subject of an unfavorable decision, would result in a Material Adverse Effect; there are no pending, or to the Company’s knowledge, threatened judicial proceedings or interference proceedings challenging the Company’s or its Subsidiaries’ rights in or to or the validity of the scope of any of the Company’s or its Subsidiaries’ patents, patent applications or proprietary information.

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(bb) Environmental Laws .  Except as set forth in the Registration Statement or the Prospectus, the Company and its Subsidiaries (i) are in compliance with any and all applicable federal, state, local and foreign laws, rules, regulations, decisions and orders relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (collectively, “ Environmental Laws ”); (ii) have received and are in compliance with all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses as described in the Registration Statement and the Prospectus; and (iii) have not received notice of any actual or potential liability for the investigation or remediation of any disposal or release of hazardous or toxic substances or wastes, pollutants or contaminants, except, in the case of any of clauses (i), (ii) or (iii) above, for any such failure to comply or failure to receive required permits, licenses, other approvals or liability as would not, individually or in the aggregate, have a Material Adverse Effect. Except as set forth in the Registration Statement and the Prospectus, neither the Company nor any of the Subsidiaries has been named as a “potentially responsible party” under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended.  Based on the business, operations and properties of the Company, the Company has reasonably concluded that the costs and liabilities associated with the effect of Environmental Laws on the business, operations and properties of the Company, would not, singly or in the aggregate, have a Material Adverse Effect, except as set forth in or contemplated in the Registration Statement and the Prospectus.

(cc) Accounting Controls and Disclosure Controls .  The Company and each of its Subsidiaries maintain effective internal control over financial reporting (as defined under Exchange Act Rules 13-a15 and 15d-15) and a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences; and (v) the interactive data in eXtensible Business Reporting Language incorporated by reference in the Registration Statement and the Prospectus fairly presents the required information and is prepared in accordance with the Commission's rules and guidelines applicable thereto.  The Company is not aware of any material weaknesses in its internal control over financial reporting (other than as set forth in the Prospectus).  Since the date of the latest audited financial statements of the Company included in the Prospectus, there has been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting (other than as set forth in the Prospectus).  The Company and each of its Subsidiaries maintain an effective system of disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

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(dd) Sarbanes-Oxley .  There is and has been no failure on the part of the Company or, to the knowledge of the Company, any of the Company’s directors or officers, in their capacities as such, to comply with any applicable provisions of the Sarbanes-Oxley Act and the applicable rules and regulations promulgated thereunder in all material respects.  Each of the principal executive officer and the principal financial officer of the Company (or each former principal executive officer of the Company and each former principal financial officer of the Company as applicable) has made all certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act with respect to all reports, schedules, forms, statements and other documents required to be filed by it or furnished by it to the Commission.  For purposes of the preceding sentence, “principal executive officer” and “principal financial officer” shall have the meanings given to such terms in the Sarbanes-Oxley Act.

(ee) Finder’s Fees.  Neither the Company nor any of the Subsidiaries has incurred any liability for any finder’s fees, brokerage commissions or similar payments in connection with the transactions herein contemplated, except as may otherwise exist with respect to the Agents pursuant to this Agreement.

(ff) Labor Disputes.  Neither the Company nor any of its Subsidiaries is involved in any labor dispute (other than routine individual employee grievances which are not material).  There are no strikes or walkouts or union organization of any employees of the Company or its Subsidiaries in existence, threatened in writing, or to the Company’s knowledge, imminent, and no labor contract exists other than the employment agreements disclosed in the Registration Statement or the Prospectus.

(gg) Investment Company Act.  Neither the Company nor any of the Subsidiaries is or, after giving effect to the offering and sale of the Placement Shares, will be an “investment company” or an entity “controlled” by an “investment company,” as such terms are defined in the Investment Company Act of 1940, as amended (the “ Investment Company Act ”).

(hh) Operations.  The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions to which the Company or its Subsidiaries are subject, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “ Money Laundering Laws ”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its Subsidiaries with respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened.

(ii) Off-Balance Sheet Arrangements.  There are no transactions, arrangements and other relationships between and/or among the Company, and/or, to the knowledge of the Company, any of its affiliates and any unconsolidated entity, including, but not limited to, any structural finance, special purpose or limited purpose entity (each, an “ Off Balance Sheet Transaction ”) that could reasonably be expected to affect materially the Company’s liquidity or the availability of or requirements for its capital resources, including those Off Balance Sheet Transactions described in the Commission’s Statement about

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Management’s Discussion and Analysis of Financial Conditions and Results of Operations (Release Nos. 33-8056; 34-45321; FR-61), required to be described in the Prospectus which have not been described as required.

(jj) Underwriter Agreements.  Other than this Agreement, the Company is not a party to any agreement with an agent or underwriter for any other “at-the-market” or continuous equity transaction in accordance with Rule 415(a)(4) of the Securities Act.

(kk) ERISA.  None of the following events has occurred or exists:  (i) a failure to fulfill the obligations, if any, under the minimum funding standards of Section 302 of the United States Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”), and the regulations and published interpretations thereunder with respect to a Plan, determined without regard to any waiver of such obligations or extension of any amortization period; (ii) an audit or investigation by the Internal Revenue Service, the U.S. Department of Labor, the Pension Benefit Guaranty Corporation or any other federal or state governmental agency or any foreign regulatory agency with respect to the employment or compensation of employees by any of the Company or any of its Subsidiaries that could have a Material Adverse Effect; (iii) any breach of any contractual obligation, or any violation of law or applicable qualification standards, with respect to the employment or compensation of employees by the Company or any of its subsidiaries that could have a Material Adverse Effect.  None of the following events has occurred or, to the Company’s knowledge after due inquiry, is reasonably likely to occur:  (i) a material increase in the aggregate amount of contributions required to be made to all Plans in the current fiscal year of the Company and its Subsidiaries compared to the amount of such contributions made in the most recently completed fiscal year of the Company and its Subsidiaries; (ii) a material increase in the “accumulated post-retirement benefit obligations” (within the meaning of Statement of Financial Accounting Standards 106) of the Company and its Subsidiaries compared to the amount of such obligations in the most recently completed fiscal year of the Company and its Subsidiaries; (iii) any event or condition giving rise to a liability under Title IV of ERISA that could have a Material Adverse Effect; or (iv) the filing of a claim by one or more employees or former employees of the Company or any of its Subsidiaries related to their employment that could have a Material Adverse Effect.  For purposes of this paragraph, the term “Plan” means a plan (within the meaning of Section 3(3) of ERISA) subject to Title IV of ERISA with respect to which the Company or any of its Subsidiaries have any liability.

(ll) REIT Status. The Company has been organized and has operated in conformity with the requirements for qualification and taxation as a real estate investment trust (a “ REIT ”) under the Internal Revenue Code of 1986, as amended (the “ Code ”), for its taxable years ended December 31, 2011 through December 31, 2016, and the Company’s organization and method of operation (as described in the Registration Statement, the Prospectus and the Time of Sale Prospectus) will enable the Company to continue to meet the requirements for qualification and taxation as a REIT under the Code for its taxable year ending December 31, 2017 and thereafter.

(mm) Forward Looking Statements.  No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) (a “ Forward Looking Statement ”) contained in the Registration Statement and the Prospectus has been made

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or reaffirmed without a reasonable basis or has been disclosed other than in good faith.  The Forward Looking Statements incorporated by reference in the Registration Statement and the Prospectus from the Company’s Annual Report on Form 10-K for the fiscal year most recently ended (i) are within the coverage of the safe harbor for forward looking statements set forth in Section 27A of the Securities Act, Rule 175(b) under the Securities Act or Rule 3b-6 under the Exchange Act, as applicable, (ii) were made by the Company with a reasonable basis and in good faith and reflect the Company’s good faith commercially reasonable best estimate of the matters described therein, and (iii) have been prepared in accordance with Item 10 of Regulation S-K under the Securities Act.

(nn) Margin Rules.  Neither the issuance, sale and delivery of the Placement Shares nor the application of the proceeds thereof by the Company as described in the Registration Statement and the Prospectus will violate Regulation T, U or X of the Board of Governors of the Federal Reserve System or any other regulation of such Board of Governors.

(oo) Insurance.  The Company and each of its Subsidiaries carry, or are covered by, insurance by insurers of recognized financial responsibility in such amounts and covering such losses and risks as the Company and each of its Subsidiaries reasonably believe are adequate for the conduct of their properties and as is customary for companies of similar size engaged in similar businesses in similar industries; all policies of insurance and fidelity or surety bonds insuring the Company or any of its Subsidiaries or their respective businesses, assets, employees, officers and directors are in full force and effect; the Company and its Subsidiaries are in compliance with the terms of such policies and instruments in all material respects; there are no claims by the Company or any of its Subsidiaries under any such policy or instrument as to which any insurance company is denying liability or defending under a reservation of rights clause; neither the Company nor any such Subsidiary has been refused any insurance coverage sought or applied for; and neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect, except as set forth in or contemplated in the Registration Statement and the Prospectus.

(pp) No Improper Practices.  (i) Neither the Company nor any of its Subsidiaries, nor to the Company’s knowledge, any of their respective directors, executive officers, employees, affiliates or other persons acting on behalf of the Company or any of its Subsidiaries has, in the past five years, made any unlawful contributions to any candidate for any political office (or failed fully to disclose any contribution in violation of law) or made any contribution or other payment to any official of, or candidate for, any federal, state, municipal, or foreign office or other person charged with similar public or quasi-public duty in violation of any law or of the character required to be disclosed in the Registration Statement and the Prospectus; (ii) no relationship, direct or indirect, exists between or among the Company or, to the Company’s knowledge, any Subsidiary or any affiliate of any of them, on the one hand, and the trustees, directors, officers and stockholders of the Company or, to the Company’s knowledge, any Subsidiary, on the other hand, that is required by the Securities Act to be described in the Registration Statement and the Prospectus that is not so described; (iii) no relationship, direct or indirect, exists between or among the Company or any Subsidiary or any affiliate of them, on the one hand, and the trustees, directors, officers or stockholders of the Company or, to the

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Company’s knowledge, any Subsidiary, on the other hand, that is required by the rules of FINRA to be described in the Registration Statement and the Prospectus that is not so described; (iv) except as described in the Prospectus, there are no material outstanding loans or advances or material guarantees of indebtedness by the Company or, to the Company’s knowledge, any Subsidiary to or for the benefit of any of their respective officers, trustees or directors or any of the members of the families of any of them; and (v) the Company has not offered, or caused any placement agent to offer, Common Stock to any person with the intent to influence unlawfully (A) a customer or supplier of the Company or any Subsidiary to alter the customer’s or supplier’s level or type of business with the Company or any Subsidiary or (B) a trade journalist or publication to write or publish favorable information about the Company or any Subsidiary or any of their respective products or services, and, (vi) neither the Company nor any of its Subsidiaries nor, to the Company’s knowledge, any of their respective directors, executive officers, employees, affiliates or other persons acting on behalf of the Company or any of its Subsidiaries has taken any action, directly or indirectly, that could result in a violation or a sanction for violation by such persons of the Foreign Corrupt Practices Act of 1977 or the U.K. Bribery Act 2010, each as may be amended, or similar law of any other relevant jurisdiction, or the rules or regulations thereunder; and the Company and its Subsidiaries have instituted and maintain policies and procedures to ensure compliance therewith.  No part of the proceeds of the sale of the Placement Shares will be used, directly or indirectly, in violation of the Foreign Corrupt Practices Act of 1977 or the U.K. Bribery Act 2010, each as may be amended, or similar law of any other relevant jurisdiction, or the rules or regulations thereunder.

(qq) FINRA.  To the Company’s knowledge, there are no affiliations or associations between (i) any member of FINRA and (ii) the Company or the Operating Partnership or any of the Company’s or the Operating Partnership’s directors or officers, except as disclosed in the Registration Statement (excluding the exhibits thereto) and the Prospectus.

(rr) Status Under the Securities Act.  The Company was not and is not an ineligible issuer as defined in Rule 405 under the Securities Act at the times specified in Rules 164 and 433 under the Act in connection with the offering of the Placement Shares.

(ss) No Misstatement or Omission in an Issuer Free Writing Prospectus.  Each Issuer Free Writing Prospectus, as of its issue date, as of each Applicable Time and the Settlement Date, did not, does not and will not include any information that conflicted, conflicts or will conflict with the information contained in the Registration Statement or the Prospectus, including any incorporated document deemed to be a part thereof that has not been superseded or modified.  The foregoing sentence does not apply to statements in or omissions from any Issuer Free Writing Prospectus based upon and in conformity with written information furnished to the Company by an Agent specifically for use therein.

(tt) No Conflicts.  Neither the execution, delivery and performance of this Agreement by the Company and the Operating Partnership, nor the issuance, offering or sale of the Placement Shares by the Company, nor the consummation of any of the transactions contemplated herein by the Company, nor the compliance by the Company with the terms and provisions hereof will conflict with, or will result in a breach of, any of the terms and provisions of, or has constituted or will constitute a default under, or has resulted in or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the

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Company pursuant to the terms of any contract or other agreement to which the Company may be bound or to which any of the property or assets of the Company is subject, except (i) such conflicts, breaches or defaults as may have been waived and (ii) such conflicts, breaches and defaults that would not have a Material Adverse Effect; nor will such action result (x) in any violation of the provisions of the organizational or governing documents of the Company, or (y) in any material violation of the provisions of any statute or any order, rule or regulation applicable to the Company or of any court or of any federal, state or other regulatory authority or other government body having jurisdiction over the Company, except where such violation would not reasonably be expected to have a Material Adverse Effect.

(uu) OFAC.  Neither the Company nor any of its Subsidiaries nor, to the knowledge of the Company, any director, officer, employee or affiliate of the Company or any of its Subsidiaries (i) is, or is controlled or 50% or more owned in the aggregate by or is acting on behalf of, one or more individuals or entities that are currently the subject of any sanctions administered or enforced by the United States (including any administered or enforced by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State or the Bureau of Industry and Security of the U.S. Department of Commerce), the United Nations Security Council, the European Union, a member state of the European Union (including sanctions administered or enforced by Her Majesty’s Treasury of the United Kingdom) or other relevant sanctions authority (collectively, “ Sanctions ” and such persons, “ Sanctioned Persons ” and each such person, a “ Sanctioned Person ”), (ii) is located, organized or resident in a country or territory that is, or whose government is, the subject of Sanctions that broadly prohibit dealings with that country or territory (collectively, “ Sanctioned Countries ” and each, a “ Sanctioned Country ”) or (iii) will, directly or indirectly, use the proceeds of the sale of Placement Shares, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other individual or entity in any manner that would result in a violation of any Sanctions by, or could result in the imposition of Sanctions against, any individual or entity (including any individual or entity participating in the offering, whether as underwriter, advisor, investor or otherwise). Neither the Company nor any of its Subsidiaries has engaged in any dealings or transactions with or for the benefit of a Sanctioned Person, or with or in a Sanctioned Country, in the preceding 3 years, nor does the Company or any of its Subsidiaries have any plans to engage in dealings or transactions with or for the benefit of a Sanctioned Person, or with or in a Sanctioned Country.

(vv) Fair Summaries. The statements set forth in the Registration Statement and the Prospectus under the captions “Description of Securities” and “Description of Capital Stock”, insofar as they summarize the terms of the Common Stock, and under the caption “Tax Considerations”, insofar as they summarize certain provisions of the laws and documents referred to therein, are accurate, complete and fair summaries of the matters referred to therein.

(ww) Stock Transfer Taxes.  On each Settlement Date, all stock transfer or other taxes (other than income taxes) which are required to be paid in connection with the sale and transfer of the Placement Shares to be sold hereunder will be, or will have been, fully paid or provided for by the Company and all laws imposing such taxes will be or will have been fully complied with.

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(xx) Actively-Traded Security .  The Common Stock is an "actively-traded" security excepted from the requirements of Rule 101(c)(1) of Regulation M under the Exchange Act.

(yy) Interactive Data.  The interactive data in the eXtensible Business Reporting Language (“ XBRL ”) included as an exhibit to the Registration Statement fairly presents the information called for in all material respects and has been prepared in accordance with the Commission’s rules and guidelines applicable thereto.  

(zz) Registration Rights.  There are no persons with registration or other similar rights to have any securities registered by the Company under the Securities Act, or included in the offering contemplated by this Agreement, except for such rights as have been duly waived.

Any certificate signed by an officer of the Company and delivered to an Agent or to counsel for the Agent pursuant to or in connection with this Agreement shall be deemed to be a representation and warranty by the Company, as applicable, to the Agents as to the matters set forth therein.

7. Covenants of the Company.  The Company covenants and agrees with the Agents that:

(a) Registration Statement Amendments.  After the date of this Agreement and during any period in which a Prospectus relating to any Placement Shares is required to be delivered by the Agents under the Securities Act (including in circumstances where such requirement may be satisfied pursuant to Rule 172 under the Securities Act), (i) the Company will notify the Agents promptly of the time when any subsequent amendment to the Registration Statement, other than documents incorporated by reference, has been filed with the Commission and/or has become effective or any subsequent supplement to the Prospectus has been filed and of any request by the Commission for any amendment or supplement to the Registration Statement or Prospectus or for additional information, (ii) the Company will prepare and file with the Commission, promptly upon the Agents’ request, any amendments or supplements to the Registration Statement or Prospectus that, in the Agents’ reasonable opinion, may be necessary or advisable in connection with the distribution of the Placement Shares by an Agent ( provided , however , that the failure of the Agents to make such request shall not relieve the Company of any obligation or liability hereunder, or affect the Agents’ right to rely on the representations and warranties made by the Company in this Agreement and provided, further, that the only remedy an Agent shall have with respect to the failure to make such filing shall be to cease making sales under this Agreement until such amendment or supplement is filed); (iii) the Company will not file any amendment or supplement to the Registration Statement or Prospectus relating to the Placement Shares or a security convertible into the Placement Shares unless a copy thereof has been submitted to the Agents within a reasonable period of time before the filing and the Agents have no reasonably and in good faith objected thereto ( provided , however , that (A) the failure of the Agents to make such objection shall not relieve the Company of any obligation or liability hereunder, or affect the Agents’ right to rely on the representations and warranties made by the Company in this Agreement and (B) the Company has no obligation to provide the Agents any advance copy of such filing or to provide the Agents an opportunity to object to such filing if the filing does not name the Agents or does not relate to the transaction

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herein provided; and provided, further, that the only remedy the Agents shall have with respect to the failure to by the Company to obtain such consent shall be to cease making sales under this Agreement) and the Company will furnish to the Agents at the time of filing thereof a copy of any document that upon filing is deemed to be incorporated by reference into the Registration Statement or Prospectus, except for those documents available via EDGAR; and (iv) the Company will cause each amendment or supplement to the Prospectus to be filed with the Commission as required pursuant to the applicable paragraph of Rule 424(b) of the Securities Act or any Rule 462(b) Registration Statement, or, in the case of any document to be incorporated therein by reference, to be filed with the Commission as required pursuant to the Exchange Act, within the time period prescribed (the determination to file or not file any amendment or supplement with the Commission under this Section 7(a) , based on the Company’s reasonable opinion or reasonable objections, shall be made exclusively by the Company).

(b) Notice of Commission Stop Orders.  The Company will advise the Agents, promptly after it receives notice or obtains knowledge thereof, of the issuance or threatened issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement, of the suspension of the qualification of the Placement Shares for offering or sale in any jurisdiction, or of the initiation or threatening of any proceeding for any such purpose; and it will promptly use its commercially reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal if such a stop order should be issued.  The Company will advise the Agents promptly after it receives any request by the Commission for any amendments to the Registration Statement or any amendment or supplements to the Prospectus or any Issuer Free Writing Prospectus or for additional information related to the offering of the Placement Shares or for additional information related to the Registration Statement, the Prospectus or any Issuer Free Writing Prospectus.

(c) Delivery of Prospectus; Subsequent Changes.  During any period in which a Prospectus relating to the Placement Shares is required to be delivered by an Agent under the Securities Act with respect to the offer and sale of the Placement Shares, (including in circumstances where such requirement may be satisfied pursuant to Rule 172 under the Securities Act), the Company will comply with all requirements imposed upon it by the Securities Act, as from time to time in force, and to file on or before their respective due dates all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Sections 13(a), 13(c), 14, 15(d) or any other provision of or under the Exchange Act.  If the Company has omitted any information from the Registration Statement pursuant to Rule 430A under the Securities Act, it will use its commercially reasonable efforts to comply with the provisions of and make all requisite filings with the Commission pursuant to said Rule 430A and to notify the Agent promptly of all such filings.  If during such period any event occurs as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances then existing, not misleading, or if during such period it is necessary to amend or supplement the Registration Statement or Prospectus to comply with the Securities Act, the Company will promptly notify the Designated Agent to suspend the offering of Placement Shares during such period and the Company will promptly amend or supplement the Registration Statement or Prospectus (at the expense of the Company) so as to correct such statement or omission or effect such compliance

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and supply any amendment or supplement to the Agent in such quantities as the Agent may reasonably request ; provided, however, that the Company may delay the filing of any amendment or supplement if, in the judgment of the Company, it is in the best interest of the Company to do so.

(d) Listing of Placement Shares.  During any period in which the Prospectus relating to the Placement Shares is required to be delivered by an Agent under the Securities Act with respect to the offer and sale of the Placement Shares, the Company will use commercially reasonable efforts to cause the Placement Shares to be listed on the Exchange and to qualify the Placement Shares for sale under the securities laws of such jurisdictions in the United States as such Agent reasonably designates and to continue such qualifications in effect so long as required for the distribution of the Placement Shares; provided , however , that the Company shall not be required in connection therewith to qualify as a foreign corporation or dealer in securities or file a general consent to service of process in any jurisdiction.

(e) Delivery of Registration Statement and Prospectus.  The Company will furnish to the Agents and their counsel (at the reasonable expense of the Company) signed copies of the Registration Statement, the Prospectus (including all documents incorporated by reference therein) and all amendments and supplements to the Registration Statement or Prospectus that are filed with the Commission during any period in which a Prospectus relating to the Placement Shares is required to be delivered under the Securities Act (including all documents filed with the Commission during such period that are deemed to be incorporated by reference therein), in each case as soon as reasonably practicable and in such quantities as the Agents may from time to time reasonably request and, at the Agents’ request, will also furnish copies of the Prospectus to each exchange or market on which sales of the Placement Shares may be made; provided , however , that the Company shall not be required to furnish any document (other than the Prospectus) to the Agents to the extent such document is available on EDGAR. The Company will pay the expenses of printing or other production of all documents relating to the offering.

(f) Earnings Statement.  The Company will make generally available to its security holders as soon as practicable, but in any event not later than 15 months after the end of the Company’s current fiscal quarter, an earnings statement covering a 12-month period that satisfies the provisions of Section 11 and Rule 158 of the Securities Act.

(g) Use of Proceeds.  The Company will use the Net Proceeds as described in the Prospectus in the section entitled “Use of Proceeds.”

(h) Notice of Other Sales.  Without the prior written notice to the Agents, the Company will not, directly or indirectly, offer to sell, sell, contract to sell, grant any option to sell or otherwise dispose of any Common Stock (other than the Placement Shares offered pursuant to this Agreement) or securities convertible into or exchangeable for Common Stock, warrants or any rights to purchase or acquire, Common Stock during the period beginning on the date on which any Placement Notice is delivered to the Agents hereunder and ending on the third (3rd) Trading Day immediately following the final Settlement Date with respect to Placement Shares sold pursuant to such Placement Notice (or, if the Placement Notice has been terminated or suspended prior to the sale of all Placement Shares covered by a Placement Notice, the date of such suspension or termination); and will not directly or indirectly in any other “at-the-market”

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or continuous equity transaction offer to sell, sell, contract to sell, grant any option to sell or otherwise dispose of any Common Stock (other than the Placement Shares offered pursuant to this Agreement) or securities convertible into or exchangeable for Common Stock, warrants or any rights to purchase or acquire, Common Stock prior to the termination of this Agreement; provided , however , that such restrictions will not be required in connection with the Company’s issuance or sale of (i) Common Stock, restricted stock units, options to purchase Common Stock or Common Stock issuable upon the exercise of options, pursuant to any employee or director stock option, incentive or benefits plan, stock ownership plan or dividend reinvestment plan (but not Common Stock subject to a waiver to exceed plan limits in its dividend reinvestment plan) of the Company whether now in effect or hereafter implemented; (ii) Common Stock issuable upon conversion of securities or the exercise of warrants, options or other rights in effect or outstanding, and disclosed in filings by the Company available on EDGAR or otherwise in writing to the Agents and (iii) Common Stock, or securities convertible into or exercisable for Common Stock, offered and sold in a privately negotiated transaction to vendors, customers, strategic partners or potential strategic partners  or other investors conducted in a manner so as not to be integrated with the offering of Common Stock hereby.

(i) [RESERVED]

(j) Change of Circumstances.  The Company will, at any time during the pendency of a Placement Notice advise the Agents promptly after it shall have received notice or obtained knowledge thereof, of any information or fact that would alter or affect in any material respect any opinion, certificate, letter or other document required to be provided to the Agents pursuant to this Agreement.

(k) Due Diligence Cooperation.  During the term of this Agreement, the Company will cooperate with any reasonable due diligence review conducted by the Agents or their representatives in connection with the transactions contemplated hereby, including, without limitation, providing information and making available documents and senior corporate officers, during regular business hours and at the Company’s principal offices, as the Agents may reasonably request.

(l) Required Filings Relating to Placement of Placement Shares.  The Company will, if applicable, disclose in its Quarterly Reports on Form 10-Q and in its Annual Report on Form 10-K the number of Placement Shares sold through the Agents during the most recent fiscal quarter, the Net Proceeds to the Company and the compensation paid or payable by the Company to the Agents with respect to such Placement Shares.  For the avoidance of doubt, the Company shall not be required to comply with any obligation contained in this paragraph with respect to any quarterly period or year, as the case may be, if no sale of Common Stock was made pursuant to this Agreement within such quarterly period or year.

(m) Representation Dates; Certificate.  Each time during the term of this Agreement that the Company:

(i) files a Prospectus relating to the Placement Shares or amends or supplements (other than a prospectus supplement relating solely to an offering of securities other than the Placement Shares) the Registration Statement or the Prospectus relating to the

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Placement Shares by means of a post-effective amendment, sticker, or supplement but not by means of incorporation of documents by reference into the Registration Statement or the Prospectus relating to the Placement Shares;

(ii) files an Annual Report on Form 10-K under the Exchange Act (including any Form 10-K/A containing amended financial information or a material amendment to the previously filed Form 10-K);

(iii) files its Quarterly Reports on Form 10-Q under the Exchange Act; or

(iv) files a current report on Form 8-K containing amended financial information (other than information “furnished” pursuant to Items 2.02 or 7.01 of Form 8-K or to provide disclosure pursuant to Item 8.01 of Form 8-K relating to the reclassification of certain properties as discontinued operations in accordance with Statement of Financial Accounting Standards No. 144) under the Exchange Act;

(Each date of filing of one or more of the documents referred to in clauses (i) through (iv) shall be a “ Representation Date ”).  The Company shall furnish the Agents (but in the case of clause (iv) above only if any Agent reasonably determines that the information contained in such Form 8-K is material) with a certificate, in the form attached hereto as Exhibit A within five (5) Trading Days of the Representation Date.  The requirement to provide a certificate under this Section 7(m) shall be waived for any Representation Date occurring at a time at which no Placement Notice is pending, which waiver shall continue until the earlier to occur of the date the Company delivers a Placement Notice hereunder (which for such calendar quarter shall be considered a Representation Date) and the next occurring Representation Date; provided , however , that such waiver shall not apply for any Representation Date on which the Company files its annual report on Form 10-K.  Notwithstanding the foregoing, if the Company subsequently decides to sell Placement Shares following a Representation Date when the Company relied on such waiver and did not provide the Agents with a certificate under this Section 7(m) , then before the Company delivers the Placement Notice or the Agents sell any Placement Shares, the Company shall provide the Agents with a certificate, in the form attached hereto as Exhibit A , dated the date of the Placement Notice.

(n) Legal Opinions.  Upon commencement of the offering of the Placement Shares (and upon the recommencement of the offering of the Placement Shares under this Agreement following the termination of a suspension of sales hereunder) and on each Representation Date with respect to which the Company is obligated to deliver a certificate in the form attached hereto as Exhibit A for which no waiver is applicable, the Company shall cause to be furnished to the Agents (i) a written opinion of Ledgewood, a professional corporation or other counsel selected by Company and reasonably acceptable to Agents (“ Company Counsel ”) as to corporate and securities matters in form and substance satisfactory to the Agents, dated as of the date of such commencement or recommencement, as applicable (it being understood that as to matters of Maryland law, Company Counsel may rely on Maryland counsel reasonably acceptable to the Agents, such opinion modified, as necessary to relate to the Registration Statement and the Prospectus as then amended or supplemented and with customary assumptions and exceptions), (ii) a negative assurance letter from Company Counsel in form and

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substance satisfactory to the Agents, dated as of the date of such commencement or recommencement, as applicable, and (iii) a written opinion of Company Counsel as to tax matters in form and substance satisfactory to the Agents, dated as of the date of such commencement or recommencement, as applicable; provided , however , that in lieu of such opinions for subsequent periodic filings under the Exchange Act, Company Counsel may furnish the Agents with a letter (a “ Reliance Letter ”) substantially to the effect that the Agents may rely on a prior opinion delivered under this Section 7(n) to the same extent as if it were dated the date of such Reliance Letter (except that statements in such prior opinion shall be deemed to relate to the Registration Statement and the Prospectus as amended or supplemented as of the date of the Reliance Letter). The obligation of the Company under this Section 7(n) shall be deferred for any period of suspension of sales hereunder and shall recommence upon the termination of any such period of suspension of sales hereunder.

(o) Comfort Letter.  (1) Upon commencement of the offering of the Placement Shares (and upon the recommencement of the offering of the Placement Shares under this Agreement following the termination of a suspension of sales hereunder) and on each Representation Date, other than pursuant to Section 7(m )(iii), with respect to which the Company is obligated to deliver a certificate in the form attached hereto as Exhibit A for which no waiver is applicable, the Company shall cause one or more of its independent public accountants to furnish to the Agents a letter or letters with respect to certain financial information of the Company (collectively, the “ Comfort Letter ”), each dated as of the date of such commencement or recommencement or such Representation Date, as applicable, which shall meet the requirements set forth in this Section 7(o) ; provided , that if requested by the Agents, the Company shall cause such Comfort Letter to be furnished to the Agents within ten (10) Trading Days of the date of occurrence of any material transaction or event, including the restatement of the Company’s financial statements.  The Comfort Letter shall be in a form and substance satisfactory to the Agents, (i) confirming that the firm issuing such Comfort Letter is an independent public accounting firm within the meaning of the Securities Act and the PCAOB, (ii) stating, as of such date, the conclusions and findings of such firm with respect to the financial information and other matters ordinarily covered by accountants’ “comfort letters” to underwriters in connection with registered public offerings (the first such letter, the “ Initial Comfort Lette r”) and (iii) updating the Initial Comfort Letter with any information that would have been included in the Initial Comfort Letter had it been given on such date and modified as necessary to relate to the Registration Statement and the Prospectus, as amended and supplemented to the date of such letter. The obligation of the Company under this Section 7(o) shall be deferred for any period of suspension of sales hereunder and shall recommence upon the termination of any such period of suspension of sales hereunder.

(p) Market Activities.  The Company will not, directly or indirectly, (i) take any action designed to cause or result in, or that constitutes or would reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of Common Stock or (ii) sell, bid for, or purchase Common Stock in violation of Regulation M, or pay anyone any compensation for soliciting purchases of the Placement Shares other than the Agents.

(q) Qualification as a REIT.  The Company will continue to use its commercially reasonable efforts to meet the requirements to qualify as a real estate investment

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trust under the Code until the Board of Directors of the Company determines it is no longer in the best interests of the Company to continue to so qualify.

(r) Investment Company Act.  The Company will conduct its affairs in such a manner so as to reasonably ensure that neither it nor any of its Subsidiaries will be or become, at any time prior to the termination of this Agreement, an “investment company,” as such term is defined in the Investment Company Act.

(s) No Offer to Sell.  Other than the Registration Statement, the Prospectus, any amendment or supplement thereto, or an Issuer Free Writing Prospectus approved in advance by the Company and the Agents in their capacity as agent hereunder, neither the Agents nor the Company (including its agents and representatives, other than the Agents in their capacity as agent hereunder) will make, use, prepare, authorize, approve or refer to any written communication (as defined in Rule 405 under the Act), required to be filed with the Commission, that constitutes an offer to sell or solicitation of an offer to buy Placement Shares hereunder.

(t) Sarbanes-Oxley Act.  The Company and the Subsidiaries will maintain and keep accurate books and records reflecting their assets and maintain internal accounting controls in a manner designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and including those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of the Company’s consolidated financial statements in accordance with generally accepted accounting principles, (iii) that receipts and expenditures of the Company are being made only in accordance with management’s and the Company’s directors’ authorization, and (iv) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on its financial statements.  The Company and the Subsidiaries will use commercially reasonable efforts to maintain such controls and other procedures, including, without limitation, those required by Sections 302 and 906 of the Sarbanes-Oxley Act, and the applicable regulations thereunder that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, including, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure and to ensure that material information relating to the Company or the Subsidiaries is made known to them by others within those entities, particularly during the period in which such periodic reports are being prepared.

(u) Renewal of Registration Statement.  If immediately prior to the third anniversary (the “Renewal Deadline”) of the initial effective date of the Registration Statement, any of the Placement Shares remain unsold by the Agents, the Company will, prior to the Renewal

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Deadline file, if it has not already done so and is eligible to do so, file a new shelf registration statement relating to the Placement Shares, in a form reasonably satisfactory to the Agents, and will use its commercially reasonable efforts to cause such registration statement to be declared effective within 180 days after the Renewal Deadline. The Company will take all other action necessary or appropriate to permit the public offering and sale of the Placement Shares to continue as contemplated in the expired registration statement. References herein to the Registration Statement shall refer to such new shelf registration statement from the date of effectiveness thereof.

(v) Filing Fees.  The Company shall pay the fees applicable to the Registration Statement in connection with the offering of the Placement Shares within the time required by Rule 456(b)(1)(i) under the Securities Act (without reliance on the proviso to Rule 456(b)(1)(i) under the Securities Act) and in compliance with Rule 456(b) and Rule 457(r) under the Securities Act.

(w) Reservation of Common Stock. The Company shall reserve and keep available sufficient Common Stock to provide for the issuance, free of any preemptive rights, out of its authorized but unissued Common Stock, of the maximum aggregate number of shares of Common Stock authorized for issuance by the Company’s board of directors pursuant to the terms of this Agreement.

(x) Eligibility.  The Company shall cooperate with the Agents and use its commercially reasonable efforts to permit the Placement Shares to be eligible for clearance and settlement through the facilities of The Depository Trust Company.

8. Representations and Covenants of the Agents.  Each of the Agents represents and warrants that it is duly registered as a broker-dealer under FINRA, the Exchange Act and the applicable statutes and regulations of each state in which the Placement Shares will be offered and sold, except such states in which such Agent is exempt from registration or such registration is not otherwise required.  Each of the Agents shall continue, for the term of this Agreement, to be duly registered as a broker-dealer under FINRA, the Exchange Act and the applicable statutes and regulations of each state in which the Placement Shares will be offered and sold, except such states in which it is exempt from registration or such registration is not otherwise required, during the term of this Agreement.  Each of the Agents shall comply with all applicable law and regulations, including but not limited to Regulation M, in connection with the transactions contemplated by this Agreement, including the issuance and sale through the Agents of the Placement Shares.

9. Payment of Expenses.  

(a) The Company will pay all costs and expenses incident to the performance of its obligations under this Agreement, whether or not the transactions contemplated hereby are consummated, including without limitation, including (i) the preparation, filing, including any fees required by the Commission, and printing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment and supplement thereto and each Issuer Free Writing Prospectus, in such number as the Agents reasonably shall deem necessary, (ii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) to the Agents of this Agreement and of such copies of

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the Registration Statement, the Prospectus, and each Issuer Free Writing Prospectus, and all amendments or supplements to any of them, as may, in each case, be reasonably requested for use in connection with the offering and sale of the Placement Shares and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Placement Shares, (iii) the preparation, printing, authentication, issuance and delivery of the certificates, if any, for the Placement Shares to the Agents, including any stock or other transfer taxes and any capital duties, stamp duties or other duties or taxes payable upon the sale, issuance or delivery of the Placement Shares to the Agents, (iv) the fees and disbursements of the counsel, accountants and other advisors to the Company, (v) the fees and expenses of the transfer agent and registrar for the Common Stock, (vi) the filing fees incident to any review by FINRA of the terms of the sale of the Placement Shares, (vii) the fees and expenses incurred in connection with the registration of the Placement Shares under the Exchange Act and the listing of the Placement Shares on the Exchange; (viii) the transportation and other expenses incurred by or on behalf of Company representatives in connection with presentations to prospective purchasers of the Placement Shares; and (ix) all other costs and expenses incident to the performance by the Company of its obligations hereunder.

(b) If an aggregate of $40,000,000 of Placement Shares have not been offered and sold under this Agreement by the 18 month anniversary of the date of this Agreement (or such earlier date on which the Company terminates this Agreement) (the “ Reimbursement Date ”), the Company shall reimburse the Agents for their reasonable out-of-pocket expenses, including the reasonable fees and disbursements of a single counsel for the Agents incurred by it in connection with the offering contemplated by this Agreement.  The Agents shall promptly provide an accounting of their out-of-pocket expenses incurred to date upon the request of the Company from time to time prior to the Reimbursement Date.

10. Conditions to the Agents’ Obligations.  The obligations of a Designated Agent hereunder with respect to a Placement will be subject to the continuing accuracy and completeness of the representations and warranties made by the Company herein, to the due performance by the Company of its obligations hereunder, to the completion by such Agent of a due diligence review satisfactory to it in its reasonable judgment, and to the continuing satisfaction (or waiver by the Designated Agent in its sole discretion) of the following additional conditions:

(a) Registration Statement Effective.  The Registration Statement shall have become effective and shall be available for the sale of all Placement Shares contemplated to be issued by any Placement Notice.

(b) No Material Notices.  None of the following events shall have occurred and be continuing: (i) receipt by the Company of any request for additional information from the Commission or any other federal or state governmental authority during the period of effectiveness of the Registration Statement, the response to which would require any post-effective amendments or supplements to the Registration Statement or the Prospectus which have not, as of the time of such Placement, been so made; (ii) the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt by the Company of any notification with respect to the suspension of the qualification or exemption

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from qualification of any of the Placement Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; or (iv) the occurrence of any event that makes any material statement made in the Registration Statement or the Prospectus or any material document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement or the Prospectus so that, in the case of the Registration Statement, it will not contain any materially untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and, that in the case of the Prospectus, it will not contain any materially untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(c) No Misstatement or Material Omission.  The Agents shall not have advised the Company that the Registration Statement or Prospectus, or any amendment or supplement thereto, contains an untrue statement of fact that in the Agents’ reasonable opinion is material, or omits to state a fact that in the Agents’ opinion is material and is required to be stated therein or is necessary to make the statements therein not misleading.

(d) Material Changes.  Except as contemplated in the Prospectus, or disclosed in the Company’s reports filed with the Commission, there shall not have been any Material Adverse Effect, or any development that could reasonably be expected to cause a Material Adverse Effect, or a downgrading in or withdrawal of the rating assigned to any of the Company’s securities (other than asset backed securities) by any rating organization or a public announcement by any rating organization that it has under surveillance or review its rating of any of the Company’s securities (other than asset backed securities), the effect of which, in the case of any such action by a rating organization described above, in the reasonable judgment of the Agents (without relieving the Company of any obligation or liability it may otherwise have), is so material as to make it impracticable or inadvisable to proceed with the offering of the Placement Shares on the terms and in the manner contemplated in the Prospectus.

(e) Legal Opinion.  The Agents shall have received the opinions of Company Counsel required to be delivered pursuant to Section 7(n) on or before the date on which such delivery of such opinions are required pursuant to Section 7(n).

(f) Comfort Letters.  the Agents shall have received the Comfort Letters required to be delivered pursuant to Section 7(o) on or before the date on which such delivery of such letter is required pursuant to Section 7(o).

(g) Representation Certificate.  The Agents shall have received the certificate required to be delivered pursuant to Section 7(m) on or before the date on which delivery of such certificate is required pursuant to Section 7(m).

(h) Opinion of Counsel for the Agents.  Upon the commencement of the offering of the Placement Shares under this Agreement (and upon the recommencement of the offering of the Placement Shares under this Agreement following the termination of a period of suspension), and on any such date that the Company is obligated to deliver a legal opinion under Section 7(n) hereof, the Agents shall have received the favorable written opinion or opinions of

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Hogan Lovells US LLP, counsel for the Agents, dated such date, with respect to such matters as the Agents may reasonably request.

(i) No Suspension.  Trading in the Common Stock shall not have been suspended or delisted on the Exchange.

(j) Other Materials.  On each date on which the Company is required to deliver a certificate pursuant to Section 7(m) , the Company shall have furnished to the Agents such appropriate further information, certificates and documents as the Agents may reasonably request.  All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof.  The Company will furnish the Agents with such conformed copies of such opinions, certificates, letters and other documents as the Agents shall reasonably request.

(k) Securities Act Filings Made.  All filings with the Commission required by Rule 424 under the Securities Act to have been filed prior to the issuance of any Placement Notice hereunder shall have been made within the applicable time period prescribed for such filing by Rule 424.

(l) Approval for Listing.  The Placement Shares shall either have been approved for listing on the Exchange, subject only to notice of issuance, or the Company shall have filed an application for listing of the Placement Shares on the Exchange at, or prior to, the issuance of any Placement Notice.

(m) No Termination Event.  There shall not have occurred any event that would permit the Agents to terminate this Agreement pursuant to Section 13(a).

11. Indemnification and Contribution.

(a) Company and Operating Partnership Indemnification.  The Company and the Operating Partnership agree, jointly and severally, to indemnify and hold harmless the Agents, their partners, members, directors, officers, employees, affiliates and agents and each person, if any, who controls or is under common control with such Agents within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act as follows:

(i) to the extent that any such expense is not paid under clause (i) of this Section 11(a) , against any and all loss, liability, claim, damage and expense whatsoever, as incurred, joint or several, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of any untrue statement or alleged untrue statement of a material fact included in any related Issuer Free Writing Prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;

(ii) to the extent that any such expense is not paid under clause (i) of this Section 11(a) , against any and all loss, liability, claim, damage and expense whatsoever, as incurred, joint or several, to the extent of the aggregate amount paid in settlement of any

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litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 11(f) below) any such settlement is effected with the written consent of the Company, which consent shall not unreasonably be delayed or withheld; and

(iii) to the extent that any such expense is not paid under clause (i) of this Section 11(a) , against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission,

provided , however , that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made solely in reliance upon and in conformity with written information furnished to the Company by any Agent or its agents and attorneys expressly for use in the Registration Statement (or any amendment thereto), or in any related Issuer Free Writing Prospectus or the Prospectus (or any amendment or supplement thereto).

(b) Indemnification by the Agents.  Each Agent agrees, severally and not jointly, to indemnify and hold harmless the Company, the Operating Partnership, and its directors and each officer of the Company who signed the Registration Statement, and each person, if any, who (i) controls the Company or the Operating Partnership within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act or (ii) is controlled by or is under common control with the Company or the Operating Partnership against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 11(a) , as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendments thereto) or any related Issuer Free Writing Prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with information relating to an Agent and furnished to the Company and the Operating Partnership in writing by such Agent or its agents and attorneys expressly for use therein.

(c) Procedure.  Any party that proposes to assert the right to be indemnified under this Section 11 will, as promptly as is reasonably practicable after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties under this Section 11 , notify each such indemnifying party of the commencement of such action, enclosing a copy of all papers served, but the omission so to notify such indemnifying party will not relieve the indemnifying party from (i) any liability that it might have to any indemnified party otherwise than under this Section 11 and (ii) any liability that it may have to any indemnified party under the foregoing provision of this Section 11 unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the indemnifying party.  If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the

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indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel reasonably satisfactory to the indemnified party, and after notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable costs of investigation subsequently incurred by the indemnified party in connection with the defense.  The indemnified party will have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties.  It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm admitted to practice in such jurisdiction at any one time for all such indemnified party or parties.  All such fees, disbursements and other charges will be reimbursed by the indemnifying party promptly after the indemnifying party receives a written invoice relating to fees, disbursements and other charges in reasonable detail.  An indemnifying party will not, in any event, be liable for any settlement of any action or claim effected without its written consent.  No indemnifying party shall, without the prior written consent of each indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated by this Section 11 (whether or not any indemnified party is a party thereto), unless such settlement, compromise or consent (1) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (2) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.

(d) Contribution.  In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in the foregoing paragraphs of this Section 11 is applicable in accordance with its terms but for any reason is held to be unavailable from the Company and the Operating Partnership or an Agent, the Company and the Operating Partnership, on the one hand, and such Agent, on the other hand, will contribute to the total losses, claims, liabilities, expenses and damages (including any investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, but after deducting any contribution received by the Company and the Operating Partnership from persons other than the Agents, such as persons who control the Company and the Operating Partnership within the meaning of the Securities Act or the Exchange Act, officers of the Company who signed the Registration Statement and directors of the Company and the Operating Partnership, who also may be liable for contribution) to which the Company and the Operating Partnership, on the one hand, and the

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Agents, on the other hand, may be subject in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Agents on the other hand.  The relative benefits received by the Company and the Operating Partnership, on the one hand, and the Agents, on the other hand, shall be deemed to be in the same proportion as the Net Proceeds from the sale of the Placement Shares (before deducting expenses) received by the Company bear to the total compensation received by the Agents (before deducting expenses) from the sale of Placement Shares on behalf of the Company.  If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such proportion as is appropriate to reflect not only the relative benefits referred to in the foregoing sentence but also the relative fault of the Company and the Operating Partnership, on the one hand, and an Agent, on the other hand, with respect to the statements or omission that resulted in such loss, claim, liability, expense or damage, or action in respect thereof, as well as any other relevant equitable considerations with respect to such offering.  Such relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or such Agent, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission.  The Company and the Operating Partnership, on the one hand, and each Agent, on the other hand, agree that it would not be just and equitable if contributions pursuant to this Section 11(d) were to be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein.  The amount paid or payable by an indemnified party as a result of the loss, claim, liability, expense, or damage, or action in respect thereof, referred to above in this Section 11(d) shall be deemed to include, for the purpose of this Section 11(d) , any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim to the extent consistent with Section 11(c) hereof.  Notwithstanding the foregoing provisions of this Section 11(d) , an Agent shall not be required to contribute any amount in excess of the commissions received by it under this Agreement and no person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.  For purposes of this Section 11(d) , any person who controls a party to this Agreement within the meaning of the Securities Act, and any officers, directors, partners, employees or agents of each of the Agents, will have the same rights to contribution as that party, and each officer and director of the Company who signed the Registration Statement will have the same rights to contribution as the Company and the Operating Partnership, subject in each case to the provisions hereof.  Any party entitled to contribution, promptly after receipt of notice of commencement of any action against such party in respect of which a claim for contribution may be made under this Section 11(d), will notify any such party or parties from whom contribution may be sought, but the omission to so notify will not relieve that party or parties from whom contribution may be sought from any other obligation it or they may have under this Section 11(d) except to the extent that the failure to so notify such other party materially prejudiced the substantive rights or defenses of the party from whom contribution is sought.  Except for a settlement entered into pursuant to the last sentence of Section 11(c) hereof, no party will be liable for contribution with respect to any action or claim settled without its written consent if such consent is required pursuant to Section 11(c) hereof.

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(e) Other Agreements with Respect to Indemnification and Contribution.   The provisions of this Section 11 shall not affect any agreements among the Company and the Operating Partnership, on the one hand, and the Agents, on the other hand, or their partners, members, directors, officers, employees, affiliates and agents and each person with respect to indemnification of each other or contribution between themselves.

(f) Settlement Without Consent if Failure to Reimburse.  If an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for reasonable fees and expenses of counsel for which it is entitled to be reimbursed under Section 11(a)(i), Section 11(a)(ii) or Section 11(a)(iii), such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 11(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into, and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement or not have advised the indemnified party in good faith that the Company is contesting the amount of such reimbursement request.

12. Representations and Agreements to Survive Delivery.  The indemnity and contribution agreements contained in Section 11 of this Agreement and all representations and warranties of the Company and the Operating Partnership herein or in certificates delivered pursuant hereto shall survive, as of their respective dates, regardless of (i) any investigation made by or on behalf of the Agents, any controlling persons, or the Company or the Operating Partnership (or any of their respective officers, trustees, directors or controlling persons), (ii) delivery and acceptance of the Placement Shares and payment therefor or (iii) any termination of this Agreement.

13. Termination.

(a) An Agent may terminate this Agreement with respect to itself, but not with respect to any other Agent, by notice to the Company, as hereinafter specified at any time (1) if, since the time of execution of this Agreement or since the date as of which information is given in the Prospectus, any Material Adverse Effect has occurred, or any development that is reasonably likely to have a Material Adverse Effect has occurred or, in the sole and reasonable judgment of such Agent, is material and adverse and makes it impractical or inadvisable to market the Placement Shares or to enforce contracts for the sale of the Placement Shares, (2) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of such Agent, impracticable or inadvisable to market the Placement Shares or to enforce contracts for the sale of the Placement Shares, (3) if trading in the Common Stock has been suspended or limited by the Commission or the Exchange, or if trading generally on the Exchange has been suspended or limited, or minimum prices for trading have been fixed on the Exchange, (4) if any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market shall have occurred and be continuing, (5) if a

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major disruption of securities settlements or clearance services in the United States shall have occurred and be continuing, or (6) if a banking moratorium has been declared by either U.S. Federal or New York authorities.  Any such termination shall be without liability of any party to any other party except that the provisions of Section 9 (Payment of Expenses), Section 11 (Indemnification and Contribution), Section 12 (Representations and Agreements to Survive Delivery), Section 18 (Governing Law and Time; Waiver of Jury Trial) and Section 19 (Consent to Jurisdiction) hereof shall remain in full force and effect notwithstanding such termination.  If an Agent elects to terminate this Agreement as provided in this Section 13(a) , such Agent shall provide the required notice as specified in Section 14 (Notices).

(b) The Company shall have the right, by giving ten (10) days’ notice as hereinafter specified to terminate this Agreement in its sole discretion at any time after the date of this Agreement.  Any such termination shall be without liability of any party to any other party except that the provisions of Section 9 , Section 11 , Section 12 , Section 18 and Section 19 hereof shall remain in full force and effect notwithstanding such termination.

(c) Each of the Agents shall have the right, by giving ten (10) days’ notice as hereinafter specified to terminate this Agreement in its sole discretion with respect to itself but not with respect to any other Agent, at any time after the date of this Agreement.  Any such termination shall be without liability of any party to any other party except that the provisions of Section 9 , Section 11 , Section 12 , Section 18 and Section 19 hereof shall remain in full force and effect notwithstanding such termination.

(d) Unless earlier terminated pursuant to this Section 13 , this Agreement shall automatically terminate upon the issuance and sale of all of the Placement Shares through the Agents on the terms and subject to the conditions set forth herein except that the provisions of Section 9 , Section 11 , Section 12 , Section 18 and Section 19 hereof shall remain in full force and effect notwithstanding such termination.

(e) This Agreement shall remain in full force and effect unless terminated pursuant to Sections 13(a) , (b) , (c) , or (d) above or otherwise by mutual agreement of the parties; provided , however , that any such termination by mutual agreement shall in all cases be deemed to provide that Section 9 , Section 11 , Section 12 , Section 18 and Section 19 shall remain in full force and effect unless the Parties shall otherwise agree in writing.  Upon termination of this Agreement, the Company shall not have any liability to the Agents for any discount, commission or other compensation with respect to any Placement Shares not otherwise sold by an Agent under this Agreement.

(f) Any termination of this Agreement shall be effective on the date specified in such notice of termination.  If such termination shall occur prior to the Settlement Date for any sale of Placement Shares, such Placement Shares shall settle in accordance with the provisions of this Agreement.

14. Notices.  All notices or other communications required or permitted to be given by any party to any other party pursuant to the terms of this Agreement shall be in writing, unless otherwise specified, and if sent to the Agents, shall be delivered to:

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Citigroup Global Markets Inc.

388 Greenwich Street

New York, New York, 10013

Attention: General Counsel

Fax: 1-646-291-1469

 

Robert W. Baird & Co. Incorporated

777 E. Wisconsin Avenue

Milwaukee, Wisconsin  53202
Attention:  Syndicate Department
Fax:  (414) 298-1058

 

Capital One Securities, Inc.
201 St. Charles Avenue

Suite 1830

New Orleans, Louisiana 70170
Attention: Jennifer Bosso and Sean Benoit
Fax:

 

KeyBanc Capital Markets Inc.

127 Public Square

4 th Floor

Cleveland, Ohio 44114
Attention:  Equity Syndicate Department
Fax:  (216) 689-0845

 

Merrill Lynch, Pierce, Fenner & Smith
                     Incorporated
One Bryant Park
New York, New York  10036
Attention:  Syndicate Department
Fax:  (646) 855-3073

with a copy to :

Attention:  ECM Legal
Fax:  (212) 230-8730

 

Stifel, Nicolaus & Company, Incorporated
One South Street, 15th Floor
Baltimore, Maryland 21202
Attention: Syndicate Department
Fax: 443-224-1273

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with a copy to:

Hogan Lovells US LLP

555 13 th Street NW

Washington D.C. 20004

Attention: Stuart A. Barr

Email:  stuart.barr@hoganlovells.com

and if to the Company, shall be delivered to:

Independence Realty Trust, Inc.

Two Logan Square

100 N. 18 th Street

23 rd Floor

Philadelphia, PA 19103

Attention: James Sebra and Jessica K. Norman

Email:   jsebra@irtliving.com ; jnorman@irtliving.com

with a copy to:

Ledgewood, a professional corporation

Two Commerce Square

2001 Market Street, Suite 3400

Philadelphia, PA 19103

Attention: Mark Rosenstein

Email:  mrosenstein@ledgewood.com

Each party to this Agreement may change such address for notices by sending to the parties to this Agreement written notice of a new address for such purpose.  Each party to this Agreement may change the contact information on Schedule 2 for any of such party’s contacts by sending to the other Party to this Agreement written notice of any new contact information.  Each such notice or other communication shall be deemed given (i) when delivered personally, by electronic mail or by verifiable facsimile transmission (with an original to follow) on or before 4:30 p.m., New York City time, on a Business Day or, if such day is not a Business Day, on the next succeeding Business Day, (ii) on the next Business Day after timely delivery to a nationally-recognized overnight courier and (iii) on the Business Day actually received if deposited in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid).  For purposes of this Agreement, “ Business Day ” shall mean any day on which the Exchange and commercial banks in the City of New York are open for business.

An electronic communication (“ Electronic Notice ”) shall be deemed written notice for purposes of this Section 14 if sent to the electronic mail address specified by the receiving party under separate cover.  Electronic Notice shall be deemed received at the time the party sending Electronic Notice receives confirmation of receipt by the receiving party.  Any party receiving Electronic Notice may request and shall be entitled to receive the notice on paper, in a nonelectronic form (“ Nonelectronic Notice ”) which shall be sent to the requesting party within ten (10) days of receipt of the written request for Nonelectronic Notice.

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15. Successors and Assigns .  This Agreement shall inure to the benefit of and be binding upon the Company, the Operating Partnership and the Agents and their respective successors and the affiliates, controlling persons, officers, trustees and directors referred to in Section 11 hereof.  References to any of the parties contained in this Agreement shall be deemed to include the successors and permitted assigns of such party.  Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.  No party may assign its rights or obligations under this Agreement without the prior written consent of the other parties, except as expressly set forth on Schedule 5 hereto.  No purchaser of Placement Shares from the Agents shall be deemed to be a successor by reason merely of such purchase.

16. Adjustments for Stock Splits.  The parties acknowledge and agree that all share-related numbers contained in this Agreement shall be adjusted to take into account any share consolidation, stock split, stock dividend or similar event effected with respect to the Placement Shares. .  

17. Entire Agreement; Amendment; Severability.  This Agreement (including all schedules and exhibits attached hereto and Placement Notices issued pursuant hereto) constitutes the entire agreement and supersedes all other prior and contemporaneous agreements and undertakings, both written and oral, among the parties hereto with regard to the subject matter hereof.  Neither this Agreement nor any term hereof may be amended except pursuant to a written instrument executed by the Company, the Operating Partnership and the Agents.  In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable as written by a court of competent jurisdiction, then such provision shall be given full force and effect to the fullest possible extent that it is valid, legal and enforceable, and the remainder of the terms and provisions herein shall be construed as if such invalid, illegal or unenforceable term or provision was not contained herein, but only to the extent that giving effect to such provision and the remainder of the terms and provisions hereof shall be in accordance with the intent of the parties as reflected in this Agreement.

18. GOVERNING LAW AND TIME; WAIVER OF JURY TRIAL.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.  SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.  THE COMPANY (ON ITS BEHALF AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ON BEHALF OF ITS STOCKHOLDERS AND AFFILIATES), THE OPERATING PARTNERSHIP AND THE AGENTS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

19. CONSENT TO JURISDICTION.  EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF

39


 

MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH ANY TRANSACTION CONTEMPLATED HEREBY, AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER.  EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF (CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF.  NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.

20. Use of Information.  the Agents may not use any information gained in connection with this Agreement and the transactions contemplated by this Agreement, including due diligence, to advise any party with respect to transactions not expressly approved by the Company.

21. Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  Delivery of an executed Agreement by one party to the other may be made by facsimile transmission.

22. Effect of Headings.  The section and Exhibit headings herein are for convenience only and shall not affect the construction hereof.

23. Permitted Free Writing Prospectuses.  The Company represents, warrants and agrees that, unless it obtains the prior consent of the Agents, which consent shall not be unreasonably withheld, conditioned or delayed, and each Agent represents, warrants and agrees that, unless it obtains the prior consent of the Company, which consent shall not be unreasonably withheld, conditioned or delayed, it has not made and will not make any offer relating to the Placement Shares that would constitute an Issuer Free Writing Prospectus, or that would otherwise constitute a “free writing prospectus,” as defined in Rule 405, required to be filed with the Commission.  Any such free writing prospectus consented to by the Agents or by the Company, as the case may be, is hereinafter referred to as a “Permitted Free Writing Prospectus.”  The Company represents and warrants that it has treated and agrees that it will treat each Permitted Free Writing Prospectus as an “issuer free writing prospectus,” as defined in Rule 433, and has complied and will comply with the requirements of Rule 433 applicable to any Permitted Free Writing Prospectus, including timely filing with the Commission where required, legending and record keeping.  For the purposes of clarity, the parties hereto agree that all free writing prospectuses, if any, listed in Exhibit B hereto are Permitted Free Writing Prospectuses.

40


 

24. Absence of Fiduciary Relationship .  Each of the Company and the Operating Partnership acknowledge and agrees that:

(a) Each Agent is acting solely as agent in connection with the public offering of the Placement Shares and in connection with each transaction contemplated by this Agreement and the process leading to such transactions, and no fiduciary or advisory relationship between the Company, the Operating Partnership or any of their respective affiliates, stockholders (or other equity holders), creditors or employees or any other party, on the one hand, and the Agents, on the other hand, has been or will be created in respect of any of the transactions contemplated by this Agreement, irrespective of whether or not an Agent has advised or is advising the Company on other matters, and an Agent has no obligation to the Company or the Operating Partnership with respect to the transactions contemplated by this Agreement except the obligations expressly set forth in this Agreement;

(b) it is capable of evaluating and understanding, and understands and accepts, the terms, risks and conditions of the transactions contemplated by this Agreement;

(c) the Agents have not provided any legal, accounting, regulatory or tax advice with respect to the transactions contemplated by this Agreement and it has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate;

(d) it is aware that the Agents and their respective affiliates are engaged in a broad range of transactions which may involve interests that differ from those of the Company and the Operating Partnership and the Agents have no obligation to disclose such interests and transactions to the Company or the Operating Partnership by virtue of any fiduciary, advisory or agency relationship or otherwise; and

(e) it waives, to the fullest extent permitted by law, any claims it may have against the Agents for breach of fiduciary duty or alleged breach of fiduciary duty in connection with the sale of Placement Shares under this Agreement and agrees that the Agents shall not have any liability (whether direct or indirect, in contract, tort or otherwise) to it in respect of such a fiduciary duty claim or to any person asserting a fiduciary duty claim on its behalf or in right of it or the Company or the Operating Partnership, employees or creditors of the Company or the Operating Partnership, other than in respect of the Agents’ obligations under this Agreement and to keep information provided by the Company and the Operating Partnership to the Agents and their counsel confidential to the extent not otherwise publicly-available.

25. Definitions.  As used in this Agreement, the following terms have the respective meanings set forth below:

Applicable Time ” means (i) each Representation Date and (ii) the time of each sale of any Placement Shares pursuant to this Agreement.

Issuer Free Writing Prospectus ” means any “issuer free writing prospectus,” as defined in Rule 433, relating to the Placement Shares that (1) is required to be filed with the Commission by the Company, (2) is a “road show” that is a “written communication” within the meaning of Rule 433(d)(8)(i) whether or not required to be filed with the Commission, or (3) is exempt from filing pursuant to Rule 433(d)(5)(i) because it contains a description of the Placement Shares or

41


 

of the offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g) under the Securities Act Regulations.

Rule 163 ,” “ Rule 164 ,” “ Rule 172 ,” “ Rule 405 ,” “ Rule 415 ,” “ Rule 424 ,” “ Rule 424(b) ,” “ Rule 430B ,” and “ Rule 433 ” refer to such rules under the Securities Act Regulations.

Trading Day ” means any day on which shares of Common Stock are purchased and sold on the Exchange.

All references in this Agreement to financial statements and schedules and other information that is “contained,” “included” or “stated” in the Registration Statement or the Prospectus (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information that is incorporated by reference in the Registration Statement or the Prospectus, as the case may be.

All references in this Agreement to the Registration Statement, the Prospectus or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to EDGAR; all references in this Agreement to any Issuer Free Writing Prospectus (other than any Issuer Free Writing Prospectuses that, pursuant to Rule 433, are not required to be filed with the Commission) shall be deemed to include the copy thereof filed with the Commission pursuant to EDGAR; and all references in this Agreement to “supplements” to the Prospectus shall include, without limitation, any supplements, “wrappers” or similar materials prepared in connection with any offering, sale or private placement of any Placement Shares by the Agents outside of the United States.

[Remainder of the page intentionally left blank]


42


 

 

If the foregoing correctly sets forth the understanding between the Company, the Operating Partnership and the Agents, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between the Company, the Operating Partnership and the Agents.

Very truly yours,

 

INDEPENDENCE REALTY TRUST, INC.

 

 

 

By:     /s/ James J. Sebra

Name:  James J. Sebra

Title:  Chief Financial Officer

 

INDEPENDENCE REALTY OPERATING PARTNERSHIP, LP

 

By:  Independence Realty Trust, Inc., as its general partner

 

 

By:     /s/ James J. Sebra

Name:  James J. Sebra

Title:  Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

43


 

ACCEPTED as of the date first-above written:

CITIGROUP GLOBAL MARKETS INC.

By: /s/ Jared Nutt

Name: Jared Nutt

Title: Vice President

 

ROBERT W. BAIRD & CO. INCORPORATED

 

By: /s/ Jim O’Brien

Name: Jim O’Brien

Title: Managing Director

 

CAPITAL ONE SECURITIES, INC.

 

By: /s/ Sam Baruch

Name: Sam Baruch

Title: Managing Director

 

KEYBANC CAPITAL MARKETS INC.

 

By: /s/ David Gruber

Name: David Gruber

Title: Managing Director

 

MERRILL LYNCH, PIERCE, FENNER & SMITH
                              INCORPORATED

 

By: /s/ Timothy J. Olsen

Name: Timothy J. Olsen

Title: Managing Director

 

 

STIFEL, NICOLAUS & COMPANY, INCORPORATED

 

By: /s/ Chad M. Gorsuch

Name: Chad M. Gorsuch

Title: Managing Director

 

 

 

 

44


Exhibit 1.1

SCHEDULE 1

PLACEMENT NOTICE

Date: [Date]

From: Independence Realty Trust, Inc.

 

To:

[Agent]
Attention:  

Subject: At-the-Market Issuance–Placement Notice

Gentlemen:

Pursuant to the terms and subject to the conditions contained in the At-the-Market Issuance Sales Agreement among Independence Realty Trust, Inc., a Maryland real estate investment trust (the “ Company ”), Independence Realty Operating Partnership, LP, a Delaware limited partnership (the “ Operating Partnership ”) and the several agents party thereto, dated [ ], 2017, the Company hereby requests that [] sell up to ____________ of the Company’s Common Stock, $0.01 par value per share (the “ Placement Securities ”), at a minimum market price of $_______ per share, during the time period beginning [month, day, time] and ending on the earlier of [month, day, time] or such time as all such shares are sold.    The Agents shall be paid compensation in an amount equal to [__]% of the gross proceeds from the sale of the Placement Securities, which compensation shall be allocated among all the Agents in accordance with the following allocation schedule:

 

Agent

 

Percentage

Citigroup Global Markets Inc.

 

16.666666%

Robert W. Baird & Co. Incorporated

 

16.666666%

Capital One Securities, Inc.

 

16.666666%

KeyBanc Capital Markets Inc.

 

16.666666%

Merrill Lynch, Pierce, Fenner & Smith Incorporated

 

16.666666%

Stifel, Nicolaus & Company, Incorporated

 

16.666666%

 

 

Total                     100%

 

 

 

 


Exhibit 1.1

SCHEDULE 2

NOTICE PARTIES

The Company

James Sebra
Jessica K. Norman

 

[The Banks]

 

 

 


Exhibit 1.1

SCHEDULE 3

COMPENSATION

The Company shall pay to the Agent in cash, upon each sale of Placement Shares pursuant to this Agreement, an amount up to 2% of the gross proceeds from each sale of Placement Shares.

 

 


Exhibit 1.1

SCHEDULE 4

SIGNIFICANT SUBSIDIARIES

 

Independence Realty Operating Partnership, LP

IR TS OP Co, LLC

   

 


 

 


Exhibit 1.1

SCHEDULE 5

SUCCESSORS AND ASSIGNS

The parties hereby agree that Merrill Lynch may assign its rights and obligations under this Agreement to any other registered broker dealer wholly-owned by Bank of America Corporation to which all or substantially all of Merrill Lynch’s investment banking or related business may be transferred following the date of this Agreement.

 

 

 


Exhibit 1.1

 

EXHIBIT A
Form of Representation Date Certificate

___________, 20___

This Representation Date Certificate (this “ Certificate ”) is executed and delivered in connection with Section 7(m) of the At-the-Market Issuance Sales Agreement (the “ Agreement ”), dated [ ], 2017, and entered into among Independence Realty Trust, Inc. (the “ Company ”), Independence Realty Operating Partnership, LP and [ ]. All capitalized terms used but not defined herein shall have the meanings given to such terms in the Agreement.

The Company hereby certifies as follows:

1. The representations and warranties of the Company in Section 6 of the Agreement (A) to the extent such representations and warranties are subject to qualifications and exceptions contained therein relating to materiality or Material Adverse Effect, are true and correct on and as of the date hereof with the same force and effect as if expressly made on and as of the date hereof, except for those representations and warranties that speak solely as of a specific date and which were true and correct as of such date, and (B) to the extent such representations and warranties are not subject to any qualifications or exceptions, are true and correct in all material respects as of the date hereof as if made on and as of the date hereof with the same force and effect as if expressly made on and as of the date hereof, except for those representations and warranties that speak solely as of a specific date and which were true and correct as of such date.

2. The Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied pursuant to the Agreement at or prior to the date hereof.

 

The undersigned has executed this Officer’s Certificate as of the date first written above.

INDEPENDENCE REALTY TRUST, INC.

By:

Name:
Title:


 


 

EXHIBIT B

Permitted Issuer Free Writing Prospectuses

 

None.

 

 

 

 

 

 

51

Exhibit 12.1

RATIO OF EARNINGS TO FIXED CHARGES

Our ratio of earnings to fixed charges for the periods indicated are set forth below. For purposes of calculating the ratios set forth below, earnings represent net income from our consolidated statements of operations, as adjusted for fixed charges; fixed charges represent interest expense.

The following table presents our ratio of earnings to fixed charges for the six-month period ended June 30, 2017 and for the five years ended December 31, 2016, 2015, 2014, 2013 and 2012 (dollars in thousands):

 

For the Six

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Months Ended

 

 

For the Years Ended December 31,

 

 

June 30, 2017

 

 

2016

 

 

 

 

2015

 

 

2014

 

 

2013

 

 

2012

 

Net income (loss)

$

23,766

 

 

$

(9,555

)

 

 

 

$

30,156

 

 

$

2,944

 

 

$

1,274

 

 

$

427

 

Add back fixed charges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

14,610

 

 

 

35,535

 

 

 

 

 

23,553

 

 

 

8,469

 

 

 

3,659

 

 

 

3,305

 

Earnings before fixed charges and preferred share dividends

$

38,376

 

 

$

25,980

 

 

 

 

$

53,709

 

 

$

11,413

 

 

 

4,933

 

 

 

3,732

 

Fixed charges and preferred share dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

14,610

 

 

 

35,535

 

 

 

 

 

23,553

 

 

 

8,469

 

 

 

3,659

 

 

 

3,305

 

Preferred share dividends

 

-

 

 

 

-

 

 

 

 

 

-

 

 

 

10

 

 

 

15

 

 

 

-

 

Total fixed charges and preferred share dividends

$

14,610

 

 

$

35,535

 

 

 

 

$

23,553

 

 

$

8,479

 

 

$

3,674

 

 

$

3,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratio of earnings to fixed charges

 

2.6

x

 

 

-

 

 

(1

)

 

2.3

x

 

1.3x

 

 

1.3x

 

 

1.1x

 

Ratio of earnings to fixed charges and preferred share dividends

 

2.6

x

 

 

-

 

 

(1

)

 

2.3

x

 

1.3x

 

 

1.3x

 

 

1.1x

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The dollar amount of the deficiency for the year ended December 31, 2016 was $9.6 million.

 

Exhibit 31.1

Certification of Chief Executive Officer Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Scott F. Schaeffer, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Independence Realty Trust, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2017

 

By:

 

/s/ Scott f. Schaeffer  

 

 

Scott F. Schaeffer

 

 

Chairman of the Board and Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

Exhibit 31.2

Certification of Chief Financial Officer Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, James J. Sebra, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Independence Realty Trust, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2017

 

By:

 

/s/ James J. Sebra

 

 

James J. Sebra

 

 

Chief Financial Officer and Treasurer

 

 

(Principal Financial Officer and Principal Accounting Officer)

 

 

 

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Quarterly Report on Form 10-Q of Independence Realty Trust, Inc. (the “Company”) for the period ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Chairman of the Board, Chief Executive Officer and President of the Company, certifies, to his knowledge, that:

 

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 4, 2017

 

By:

 

/s/ Scott f. Schaeffer  

 

 

Scott F. Schaeffer

 

 

Chairman of the Board and Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Quarterly Report on Form 10-Q of Independence Realty Trust, Inc. (the “Company”) for the period ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Chief Financial Officer and Treasurer of the Company, certifies, to his knowledge, that:

 

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 4, 2017

 

By:

 

/s/ James J. Sebra

 

 

James J. Sebra

 

 

Chief Financial Officer and Treasurer

 

 

(Principal Financial Officer and Principal Accounting Officer)