UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): September 3, 2017
Independence Realty Trust, Inc.
(Exact name of registrant as specified in its charter)
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Maryland |
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001-36041 |
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26-4567130 |
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(State or other jurisdiction |
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(Commission |
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(I.R.S. Employer |
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of incorporation) |
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File Number) |
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Identification No.) |
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Two Liberty Place, 50 S. 16 th Street, Suite 3575 Philadelphia, Pennsylvania |
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19102 |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (267) 270-4800
N/A
Former name or former address, if changed since last report
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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☐ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
Item 1.01 Entry into a Material Definitive Agreement.
On September 3, 2017, Independence Realty Trust, Inc. (“IRT”), through Independence Realty Operating Partnership, LP (“IROP”), the operating partnership of IRT, entered into a purchase agreement (the “Purchase Agreement”) with HPI Live Oak Trace LLC, HPI Tides LLC, HPI Tides Land LLC, HPI Hunterstone LLC, HPI Cherry Grove LLC, HPI Creekside LLC and HPI Real Estate Opportunity Fund III, LLC (collectively the “Sellers”) to acquire a portfolio of nine multi-family properties and a related piece of undeveloped land (the “Property Portfolio”) for an aggregate purchase price of $228.1 million. Pursuant to the Purchase Agreement, IROP will purchase the properties directly from the Sellers, other than with respect to the properties located in Indiana and Ohio, in which case IROP will purchase the existing equity of the limited liability companies that are the fee simple owners of those properties.
The following table presents an overview of the Property Portfolio:
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Property Name |
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Location |
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Year Built / Renovated (a) |
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Units (b) |
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Period End Occupancy (c) |
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Average Effective Rent per Occupied Unit (d) |
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Tides at Calabash |
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Sunset, NC |
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2011 |
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168 |
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97.0 |
% |
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$ |
838 |
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Brunswick Point |
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Leland, NC |
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2005 |
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288 |
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89.2 |
% |
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$ |
817 |
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Cherry Grove Commons |
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North Myrtle Beach, SC |
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2001 |
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172 |
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98.8 |
% |
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$ |
949 |
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Kensington Commons |
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Canal Winchester, OH |
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2004 |
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264 |
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97.7 |
% |
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$ |
852 |
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Schirm Farms |
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Canal Winchester, OH |
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2002 |
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264 |
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97.3 |
% |
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$ |
831 |
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Hartshire Lakes |
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Bargersville, IN |
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2008 |
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272 |
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91.9 |
% |
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$ |
917 |
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Riverchase Apts |
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Indianapolis, IN |
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2000 |
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217 |
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95.8 |
% |
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$ |
800 |
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Creekside Corners Apts |
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Lithonia, GA |
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2001 |
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444 |
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93.7 |
% |
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$ |
931 |
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Live Oak Trace (e) |
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Denham Springs, LA |
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2002/2017 |
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264 |
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96.4 |
% |
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$ |
983 |
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Total |
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2,353 |
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94.9 |
% |
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$ |
884 |
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(a) |
All dates are for the later of the year in which construction was completed or the year in which a significant renovation program was completed. |
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(b) |
Units represent the total number of apartment units available for rent at July 31, 2017. |
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(c) |
Physical occupancy for each property is calculated as (i) total units rented as of July 31, 2017 divided by (ii) total units available as of July 31, 2017, expressed as a percentage. |
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(d) |
Average monthly effective monthly rent, per unit, represents the average monthly rent for all occupied units for the three-month period ended July 31, 2017. |
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(e) |
Property is undergoing renovation. |
The consummation of the acquisition of the Property Portfolio is not subject to a financing condition. The aggregate purchase price for the Property Portfolio will be paid with a combination of cash on hand, borrowings under IRT’s credit facility and the assumption of approximately $58.5 million of debt in the case of the properties located in Lithonia, Georgia, Bargersville, Indiana and Leland, North Carolina (the “Assumption Properties”).
Pursuant to the Purchase Agreement, IRT will deposit $5 million in escrow toward the purchase price of the Property Portfolio. IRT will conduct due diligence of the properties, including inspections, appraisals, environmental surveys and engineering studies. IRT may terminate the Purchase Agreement, in its sole discretion, with or without cause, on or prior to October 3, 2017, the expiration of the due diligence period, and the escrow deposit will be returned to IRT, less $250,000 subject to certain exceptions. Also, upon notice to the Sellers, on or prior to expiration of the due diligence period, IRT has the right to remove Live Oak Trace from the Property Portfolio, which shall result in a purchase price reduction in an amount equal to $26.4 million. Closing on the purchase of the properties (other than the Assumption Properties and Live Oak Trace) is to occur no later than 15 business days after the expiration of the due diligence period or on such earlier date as mutually agreed upon by the parties. Closing on the purchase of the Assumption Properties and Live Oak Trace is to occur no later than 15 days after receipt of assumption approval or on such earlier date after receipt of assumption approval as mutually agreed upon by the parties.
The closing of the acquisition of the Property Portfolio is subject to customary closing conditions including accuracy of the representations and warranties and compliance with covenants and obligations under the Purchase Agreement.
Item 7.01 Regulation FD Disclosure.
On September 5, 2017, IRT issued a press release announcing IROP’s entry into the Purchase Agreement. A copy of the press release is attached as Exhibit 99.1 hereto and is incorporated herein by reference.
The information included in this Current Report on Form 8-K under this Item 7.01 (including Exhibit 99.1) shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing made by IRT under the Exchange Act or Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits.
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(a) |
Financial Statements. The following financial information related to the Property Portfolio is set forth in Exhibit 99.2, which is incorporated herein by reference: |
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• |
Independent Auditor’s Report |
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• |
Combined Statements of Revenue and Certain Expenses (the “Combined Financial Statements”) of the multi-family properties located in Georgia, Indiana, Louisiana, North Carolina, Ohio, and South Carolina (the “HPI Portfolio”) for the six-month period ended June 30, 2017 (unaudited) and for the year ended December 31, 2016 |
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• |
Notes to the Combined Financial Statements |
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(d) |
Exhibits |
23.1 Consent of CohnReznick LLP
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99.1 |
Press Release dated September 5, 2017. |
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99.2 |
Combined Statements of Revenue and Certain Expenses of the HPI Portfolio for the six-month period ended June 30, 2017 (unaudited) and for the year ended December 31, 2016 |
Cautionary Statement Regarding Forward-Looking Statements
Certain statements made in this Current Report on Form 8-K contain “forward-looking statements” within the meaning of the federal securities laws and are subject to uncertainties and risks. These forward looking statements include information about the acquisition of the Property Portfolio, including the effects, consummation, and financing thereof. The forward looking statements are based upon our beliefs, assumptions, and expectations of our future performance, taking into account the information currently available to us. These beliefs, assumptions, and expectations may change as a result of many possible events or factors, not all of which are known to us. Readers should carefully review our financial statements and notes thereto, as well as the risk factors described in our most recent Annual Report on Form 10-K and other documents we file from time to time with the Securities and Exchange Commission. The words “will,” “strategy,” “expects,” “seeks,” “believes,” “potential,” or other similar words are intended to identify forward-looking statements. You should not place undue reliance on these forward looking statements, which apply only as of the date of this Current Report on Form 8-K. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise, except as required under U.S. federal securities laws.
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 hereunto duly authorized.
INDEPENDENCE REALTY TRUST, INC.
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/s/ James J. Sebra |
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September 5 , 2017 |
By: |
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Name: James J. Sebra
Title: Chief Financial Officer and Treasurer
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Exhibit No. |
Description |
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23.1 |
Consent of CohnReznick LLP |
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99.1 |
Press Release dated September 5, 2017. |
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99.2 |
Combined Statements of Revenue and Certain Expenses of the HPI Portfolio for the six-month period ended June 30, 2017 (unaudited) and for the year ended December 31, 2016 |
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement No. 333-218130 on Form S-3 and Registration Statement Nos. 333-191612 and 333-211566 on Form S-8 of Independence Realty Trust, Inc. of our report dated September 5, 2017 with respect to the combined statement of revenue and certain expenses of the multi-family properties located in Georgia, Indiana, Louisiana, North Carolina, Ohio and South Carolina (the “HPI Portfolio”) as of December 31, 2016, which includes an explanatory paragraph referring to the purpose of the statement, included in the Current Report on Form 8-K of Independence Realty Trust, Inc.
/s/CohnReznick LLP
Los Angeles, California
September 5, 2017
1
Exhibit 99.1
Independence Realty Trust Announces Agreement to Acquire a Portfolio of Nine Communities
Acquisition Expands IRT’s Portfolio by 18% and Increases Scale Across Key Markets
PHILADELPHIA – (BUSINESS WIRE) – September 5, 2017 – Independence Realty Trust, Inc. (NYSE: IRT) (“IRT”) today announced that on September 3, 2017 it reached an agreement to acquire a portfolio of nine communities, totaling 2,353 units, for a gross purchase price of $228.1 million.
The acquisition accelerates IRT’s penetration into a number of core existing markets, including Columbus, OH, Indianapolis, IN, and Atlanta, GA, while providing entry into two new markets. The portfolio contains nine communities that were built or renovated between 2000 and 2011, had period end occupancy of 95% as of July 31, 2017, and had an average effective rent per unit of $884 for the three months ended July 31, 2017.
“This acquisition represents another key milestone for IRT, bolstering our current portfolio with a collection of high-quality communities located in amenity-rich, non-gateway markets that are core to our investment thesis,” said Scott Schaeffer, Chairman and CEO of IRT. “This is a tremendous opportunity to increase our economies of scale and drive margin-enhancing operational efficiencies. Additionally, we have identified value-add projects across the acquired communities that will enable us to replicate our proven redevelopment playbook, drive rent growth, and ultimately deliver outsized returns on our investment.”
The transaction is expected to close in two stages: five of the nine communities will close on or before September 30, 2017, with the remaining four communities closing shortly after the debt assumption process is complete in the fourth quarter of 2017, subject to customary closing conditions.
About Independence Realty Trust, Inc.
Independence Realty Trust (NYSE: IRT) is a real estate investment trust. After the close of the announced portfolio acquisition, IRT will own and operate 55 multifamily apartment properties, totaling 15,165 units, across non-gateway U.S. markets, including Louisville, Memphis, Atlanta and Raleigh. IRT’s investment strategy is focused on gaining scale within key amenity rich submarkets that offer good school districts, high-quality retail and major employment centers. IRT aims 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.
Forward-Looking Statements
This press release may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “will,” “strategy,” “expects,” “seeks,” “believes,” “potential,” or other similar words. Because such statements include risks, uncertainties and contingencies, actual results may differ materially from the expectations, intentions, beliefs, plans or predictions of the future expressed or implied by such forward-looking statements. These forward-looking statements are based upon the current beliefs and expectations of IRT’s management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally not within IRT’s control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. These risks, uncertainties and contingencies include, but are not limited to, how IRT will use the net cash proceeds of the sale, whether and how IRT will be able to implement its strategy to sell properties, the ultimate accounting treatment of the property sale and those disclosed in IRT’s filings with the Securities and Exchange Commission. IRT undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as may be required by law.
Corporate Headquarters
Two Liberty Place
50 S. 16th Street, Suite 3575
Philadelphia, PA 19102
267-270-4800
Independence Realty Trust, Inc.
Edelman Financial Communications & Capital Markets
Ted McHugh and Lauren Tarola
212-277-4322
IRT@edelman.com
Exhibit 99.2
Independent Auditor’s Report
The Board of Directors and Stockholders
Independence Realty Trust, Inc.
We have audited the accompanying combined statement of revenue and certain expenses (the “combined financial statement”) of the multi-family properties located in Georgia, Indiana, Louisiana, North Carolina, Ohio, and South Carolina (the “HPI Portfolio”) for the year ended December 31, 2016, and the related notes to the financial statement.
Management’s Responsibility for the Financial Statements
Management of the sellers of the HPI Portfolio is responsible for the preparation and fair presentation of the combined financial statement in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the combined financial statement that is free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the combined financial statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statement is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statement. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the combined financial statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the combined financial statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statement.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the combined financial statement referred to above presents fairly, in all material respects, the revenue and certain expenses as described in Note 1 to the combined financial statement of the HPI Portfolio for the year ended December 31, 2016, in accordance with accounting principles generally accepted in the United States of America.
Other Matter
The accompanying combined financial statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (for inclusion in Form 8-K of Independence Realty Trust, Inc.) as described in Note 1 and is not intended to be a complete presentation of HPI Portfolio’s revenue and expenses. Our opinion is not modified with respect to that matter.
/s/ CohnReznick LLP
Los Angeles, California
September 5, 2017
COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
For the Six-Month Period Ended June 30, 2017 (unaudited) and
for the Year Ended December 31, 2016
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For the Six Months Ended June 30, 2017 (unaudited) |
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Year Ended December 31, 2016 |
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REVENUE: |
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Rental income |
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$ |
10,407,959 |
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$ |
20,666,775 |
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Tenant reimbursement income |
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464,090 |
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1,003,477 |
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Other property income |
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660,359 |
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1,283,044 |
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Total revenue |
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11,532,408 |
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22,953,296 |
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CERTAIN EXPENSES: |
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Property operating expenses |
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3,016,200 |
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5,991,554 |
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Taxes and insurance |
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1,683,795 |
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3,251,750 |
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Property management expenses |
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457,685 |
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913,822 |
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Total certain expenses |
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5,157,680 |
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10,157,126 |
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Revenue in excess of certain expenses |
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$ |
6,374,728 |
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$ |
12,796,170 |
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The accompanying notes are an integral part of these statements.
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
For the Six-Month Period Ended June 30, 2017 (unaudited) and
for the Year Ended December 31, 2016
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined statements of revenue and certain expenses (the “combined financial statements”) include the revenue and certain expenses of the following properties (the “HPI Portfolio”):
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Property Name |
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Location |
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Year Built / Renovated (a) (unaudited) |
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Units (b) (unaudited) |
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Tides at Calabash |
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Sunset, NC |
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2011 |
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168 |
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Brunswick Point |
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Leland, NC |
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2005 |
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288 |
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Cherry Grove Commons |
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North Myrtle Beach, SC |
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2001 |
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172 |
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Kensington Commons |
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Canal Winchester, OH |
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2004 |
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264 |
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Schirm Farms |
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Canal Winchester, OH |
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2002 |
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264 |
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Hartshire Lakes |
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Bargersville, IN |
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2008 |
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272 |
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Riverchase Apts |
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Indianapolis, IN |
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2000 |
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217 |
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Creekside Corners Apts |
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Lithonia, GA |
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2001 |
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444 |
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Live Oak Trace (e) |
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Denham Springs, LA |
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2002/2017 |
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264 |
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Total |
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2,353 |
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(a) |
All dates are for the later of the year in which a construction was completed or the year in which a significant renovation program was completed. |
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(b) |
Units represent the total number of apartment units available for rent at June 30, 2017. |
On September 3, 2017 Independence Realty Trust, Inc. (IRT) agreed to acquire a portfolio of nine multi-family properties (the HPI Portfolio) for a purchase price equal to $228.1 million.
The combined financial statements are presented in conformity with accounting principles generally accepted in the United States and have been prepared for the purpose of complying with the provisions of Rule 3-14 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”), which requires certain information with respect to real estate operations to be included with certain filings with the SEC. The combined financial statements include the historical revenue and certain expenses of the HPI Portfolio, exclusive of items which may not be comparable to the proposed future operations of the HPI Portfolio. Material amounts that would not be directly attributable to future operating results of the HPI Portfolio are excluded, and the combined financial statements are not intended to be a complete presentation of the HPI Portfolio’s revenue and expenses. Items excluded consist principally of interest on mortgages and depreciation for the HPI Portfolio.
The combined financial statements present the revenue and certain expenses of the HPI Portfolio during the identified periods and may not be comparable to future periods. Management of the seller is not aware of any material factors relating to the HPI Portfolio other than those already described above that would cause the reported financial information not to be necessarily indicative of future operating results. In the opinion of management of the seller, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the interim periods results of operations are included. The results of operations for the interim periods presented are not necessarily indicative of the results for the full year.
In the preparation of the combined financial statements, subsequent events were evaluated through September 5, 2017, the date the combined financial statements were available to be issued.
HPI PORTFOLIO
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
For the Six-Month Period Ended June 30, 2017 (unaudited) and
for the Year Ended December 31, 2016
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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a. |
Basis of Accounting |
The combined financial statements have been prepared using the accrual method of accounting on the basis of presentation described in Note 1. As such, revenue is recorded when earned and expenses are recognized when incurred.
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b. |
Revenue Recognition |
Rental income attributable to residential leases is recorded when due from residents, generally upon the first day of the month. Leases are for periods of up to one year, with rental payments due monthly. Other property income results from fees for, including but not limited to, lease terminations, late payments, cable fees, washer and dryer rentals, and parking and is recorded when earned.
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c. |
Property operations |
Certain operating expenses represent the direct expenses of operating the HPI Portfolio and consist primarily of repairs and maintenance, utilities, real estate taxes, property insurance, salaries, property management fees and other operating expenses that are expected to continue in the ongoing operation of the HPI Portfolio.
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d. |
Property Management Expenses |
Property management services were provided to the properties by an affiliate of the previous owner. For the six-month period ended June 30, 2017, property management expenses were $457,685 (unaudited). For the year ended December 31, 2016, property management expenses were $913,822.
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e. |
Estimates |
The preparation of the combined financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates.
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f. |
Advertising |
Advertising costs are charged to expense as incurred and are included in property operating expenses on the combined financial statements. For the six-month period ended June 30, 2017, advertising costs were $116,623 (unaudited). For the year ended December 31, 2016, advertising costs were $237,946.
NOTE 3: COMMITMENTS AND CONTINGENCIES
Litigation
The HPI Portfolio may be subject to various claims and legal proceedings that arise in the ordinary course of its business activities. Management believes that any liability that may ultimately result from the resolution of these matters will not have a material adverse effect on the financial condition or results of operations of the HPI Portfolio.