Independence Realty Trust, Inc.: Form 10-Q for the period ended Sep 30, 2023

Forward-Looking Statements

The Securities and Exchange Commission (the “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, and Section 21E of the Securities Exchange Act of 1934, as amended.

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.

This Quarterly report on Form 10-Q contains 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 include, but are not limited to, certain actions that we expect or seek to take in connection with our portfolio optimization and deleveraging strategy and anticipated enhancements to our financial results and future growth from this strategy. All statements in this Quarterly report on Form 10-Q that address financial and operating performance, events or developments that we expect or anticipate will occur or be achieved in the future are forward-looking statements.

Our forward-looking statements are not guarantees of future performance and involve estimates, projections, forecasts and assumptions, including as to matters that are not within our control, and are subject to risks and uncertainties including, without limitation, risks and uncertainties related to changes in market demand for rental apartment homes and pricing pressures, including from competitors, that could lead to declines in occupancy and rent levels, uncertainty and volatility in capital and credit markets, including changes that reduce availability, and increase costs, of capital, unexpected changes in our intention or ability to repay certain debt prior to maturity, increased costs on account of inflation, increased competition in the labor market, failure to realize cost savings, efficiencies and other benefits that we expect to result from our portfolio optimization and deleveraging strategy, inability to sell certain assets, including those assets designated as held for sale, within the time frames or at the pricing levels expected, failure to achieve expected benefits from the redeployment of proceeds from asset sales, delays in completing, and cost overruns incurred in connection with, our value add initiatives and failure to achieve rent increases and occupancy levels on account of the value add initiatives, unexpected impairments or impairments in excess of our estimates, increased regulations generally and specifically on the rental housing market, including legislation that may regulate rents or delay or limit our ability to evict non-paying residents, risks endemic to real estate and the real estate industry generally, the impact of potential outbreaks of infectious diseases and measures intended to prevent the spread or address the effects thereof, the effects of natural and other disasters, unknown or unexpected liabilities, including the cost of legal proceedings, costs and disruptions as the result of a cybersecurity incident or other technology disruption, unexpected capital needs, inability to obtain appropriate insurance coverages at reasonable rates, or at all, or losses from catastrophes in excess of our insurance coverages, and share price fluctuations. Please refer to the documents filed by us with the SEC, including specifically the “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2022, and our other filings with the SEC, which identify additional factors that could cause actual results to differ from those contained in forward-looking statements.

These forward-looking statements are based upon the beliefs and expectations of our management at the time of this Quarterly report on Form 10-Q and our actual results may differ materially from the expectations, intentions, beliefs, plans or predictions of the future expressed or implied by such forward-looking statements. We undertake 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.

Overview

Our Company

We are a self-administered and self-managed Maryland corporation that has elected to be taxed as a real estate investment trust (“REIT”). We are primarily engaged in the ownership, operation, management, improvement, and acquisition of multifamily apartment communities in non-gateway markets. As of September 30, 2023, we owned and operated 120 multifamily apartment properties (including one consolidated joint venture) that contain 35,427 units. Our properties are located in Alabama, Colorado, Florida, Georgia, Illinois, Indiana, Kentucky, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas, and Virginia. In addition, as of September 30, 2023, we owned and consolidated two investments in real estate development in Colorado that will, upon completion, contain an aggregate of 621 units. As of September 30, 2023, we also owned interests in four unconsolidated joint ventures, two that own and operate multifamily apartment communities that contain an aggregate of 810 units and two that are developing multifamily apartment communities that will contain, upon completion, an aggregate of 653 units. We do not have any foreign operations and our business is not seasonal.

Our Business Objective and Investment Strategies

Our primary business objective is to maximize stockholder value through diligent portfolio management, strong operational performance, and a consistent return of capital through distributions and capital appreciation. Our investment strategy is focused on the following:

• gaining scale within key amenity rich submarkets of non-gateway cities that offer good school districts, high-quality retail and major employment centers and are unlikely to experience substantial new apartment construction in the foreseeable future;
• increasing cash flows at our existing apartment properties through prudent property management and strategic renovation projects; and
• acquiring additional properties that have strong and stable occupancies and support a rise in rental rates or that have the potential for repositioning through capital expenditures or tailored management strategies.

Property Portfolio (1)

As of September 30, 2023, we owned and consolidated 120 multifamily apartment properties, totaling 35,427 units. Below is a summary of our consolidated property portfolio by market.

(Dollars in thousands, except per unit data)

(1) Excludes our development properties. See Non-GAAP financial measures for the definition of a development property.

(2) Includes properties included in our Portfolio Optimization and Deleveraging Strategy. In the case of Denver, CO includes three properties comprised of 895 units, in aggregate, and in the case of Houston, TX includes two properties comprised of 624 units, in the aggregate.

(3) Includes the Virtuoso joint venture consolidated beginning August 1, 2023 as a result of an amendment to the joint venture agreement.

(4) Property held for sale as of September 30, 2023.

Current Developments

Capital Recycling and Portfolio Optimization and Deleveraging Strategy

On October 26, 2023, our Board of Directors approved a plan, which we refer to as our Portfolio Optimization and Deleveraging Strategy, to exit or reduce our presence in certain markets while also deleveraging our balance sheet. Our Portfolio Optimization and Deleveraging Strategy targets sales of up to 10 properties that are located in seven markets including the one property in Chicago, Illinois that was previously identified and continues to be held for sale as of September 30, 2023.

Under the plan, certain properties may be sold for proceeds that are less than the current carrying value. This could result in the recognition of an impairment loss in the fourth quarter 2023 with respect to some of these properties based on the outcome of sale negotiations. During the fourth quarter of 2023, we will continuously reevaluate the properties covered by our Portfolio Optimization and Deleveraging Strategy under the held for sale guidance as additional information becomes available during the sales process. If circumstances indicate a held for sale classification is appropriate for any of these properties, we will classify the identified properties as held for sale as of December 31, 2023 at the lower of carrying value or the expected sales price less transaction costs. The proceeds of these contemplated sales will be utilized to delever the balance sheet.

We are in various stages of marketing, negotiations, and buyer due diligence with respect to the properties targeted for sale. There can be no assurance that any of the sales will be consummated at expected pricing levels, within expected time frames, or at all.

During the three months ended March 31, 2023, we sold one multifamily apartment community for a gross sales price of $37.3 million and recognized a gain on sale of $1.0 million. Proceeds from the sale were used to reduce indebtedness.

Investments in Unconsolidated Real Estate Entities

To create another avenue for accretive capital allocation and to increase our options for capital investment, we have partnered with, and may in the future partner with, developers through preferred equity investments and joint venture relationships focused on new multifamily development.

An amendment to the Virtuoso joint venture agreement on August 1, 2023 provided us with control over the major decisions that most significantly impact the joint venture and removed our joint venture partner’s rights to a promote interest. This caused us to reassess the accounting for Virtuoso, a former unconsolidated real estate entity, that consists of 178 units (unaudited) in Huntsville, Alabama, during the quarter ended September 30, 2023. Because we concluded that Virtuoso is a voting interest entity and that we now control the major decisions that most significantly impact the joint venture through our 90% voting interest, we began consolidating the assets and liabilities and operating results of Virtuoso effective August 1, 2023. In accordance with FASB Topic ASC 805, upon consolidation, we recognized the assets and liabilities of Virtuoso at carryover basis, allocating the individual assets and liabilities based upon their relative fair values on our condensed consolidated balance sheets.

No new investments in unconsolidated real estate entities were made during the three and nine months ended September 30, 2023. However, we continued to fund commitments to our existing investments in unconsolidated real estate entities. As of September 30, 2023 and December 31, 2022, we had investments in unconsolidated real estate of $87,592 and $80,220, respectively.

Investments in Real Estate Under Development

As part of our merger with Steadfast Apartment REIT, Inc. (“STAR Merger”), we acquired two land parcels in Denver, Colorado that are being developed into multifamily properties that will contain 621 units, in the aggregate, upon completion. As of September 30, 2023 and December 31, 2022, we had investments in real estate under development of $83,547 and $105,518, respectively, net of $77,520 and $0 placed in service, respectively.

Value Add

Our value add program provides us with the opportunity to improve long-term growth through targeted unit renovations at communities where there is the potential for outsized rent growth.

We completed renovations on 709 units during the three months ended September 30, 2023. From inception of our value add program in January 2018 through September 30, 2023, we completed renovations on 7,285 of the 11,856 units currently in our value add program, achieving a return on investment of 17.9% (and approximately 19.5% on the interior portion of such renovation costs). We compute return on cost by using the rent premium per unit per month, multiplied by 12, divided by the applicable renovation costs per unit and we compute the rent premium as the difference between the rental rate on the renovated unit and the market rent for a comparable unrenovated unit as of the date presented, as determined by management consistent with its customary rent-setting and evaluation procedures.

Capital Markets

Shelf Registration Statement

On June 14, 2023, we replaced our previous shelf registration statement with our new shelf registration statement. On July 28, 2023, we entered into an equity distribution agreement pursuant to which we may from time to time offer and sell shares of our common stock under our shelf registration statement having an aggregate offering price of up to $450,000 (the “2023 ATM Program”) in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act. Under the 2023 ATM Program, we may also enter into one or more forward sale transactions for the sale of shares of our common stock on a forward basis. There were no forward sale transactions as of September 30, 2023, and no shares of our common stock were sold under the 2023 ATM Program during the three and nine months ended September 30, 2023.

Swap Agreement

On March 16, 2023, we entered into an interest rate swap contract with a notional value of $200,000, a strike rate of 3.39% and a maturity date of March 17, 2030. We designated this interest rate swap as a cash flow hedge at inception and determined that the hedge is highly effective in offsetting interest rate fluctuations associated with the identified indebtedness.

Results of Operations

As of September 30, 2023, we owned and consolidated 120 multifamily apartment properties, of which 115 comprised the Same-Store Portfolio.

Three Months Ended September 30, 2023 compared to the Three Months Ended September 30, 2022

(Dollars in thousands)

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

Revenue

Rental and other property revenue. Revenue from rental and other property revenue of the consolidated portfolio increased $8.1 million to $168.4 million for the three months ended September 30, 2023 from $160.3 million for the three months ended September 30, 2022. The increase was primarily attributable to a $8.2 million increase in same-store rental and other property revenue driven by an 4.4% increase in average effective monthly rents and 0.4% increase in average occupancy compared to the prior year period.

Expenses

Property operating expenses. Property operating expenses increased $3.3 million to $63.3 million for the three months ended September 30, 2023 from $60.0 million for the three months ended September 30, 2022. The increase was due to a $3.6 million increase in same-store property operating expense, primarily due to inflationary pressures resulting in higher insurance premiums and contract services, personnel expenses, real estate taxes, and advertising expenses.

Property management expenses. Property management expenses increased $1.5 million to $7.2 million for the three months ended September 30, 2023 from $5.7 million for the three months ended September 30, 2022 primarily due to higher personnel costs and stock compensation due to the centralization of staff at the property management level who support multiple properties, along with costs related to the rollout of community call centers, compared to the prior year.

General and administrative expenses. General and administrative expenses decreased $2.0 million to $3.7 million for the three months ended September 30, 2023 from $5.7 million for the three months ended September 30, 2022. The decrease was primarily due to lower personnel costs from executive departures in 2023 compared to prior year.

Depreciation and amortization expense. Depreciation and amortization expense increased $5.8 million to $55.5 million for the three months ended September 30, 2023 from $49.7 million for the three months ended September 30, 2022. The increase was primarily attributable to higher depreciation expenses during the three months ended September 30, 2023 compared to the three months ended September 30, 2022 as a result of timing of properties acquired and depreciated.

Other (loss) income, net. During the three months ended September 30, 2023 we recorded $0.4 million of loss from the change in fair value of our interest rates compared to a $0.8 million gain during the three months ended September 30, 2022.

Loss from investments in unconsolidated real estate entities. During the three months ended September 30, 2023, we recognized $1.2 million of losses on investments in unconsolidated real estate primarily attributable to interest and depreciation expenses of one investment which began operations during the period. During the three months ended September 30, 2022, we recognized $1.5 million of losses in unconsolidated real estate primarily driven by interest and depreciation expenses recognized during the period.

(Loss on impairment) gain on sale of real estate assets, net. During the three months ended June 30, 2023, we classified one of our properties (The Meadows at River Run, with 374 units (unaudited) in Chicago, Illinois) as held for sale. Initially, we expected the sale to close in the second half of 2023 and at a sales price, less transaction costs, in excess of our carrying value for this property. In connection with the results of our sales activity associated with this property during the three months ended September 30, 2023, we recorded a $11.3 million impairment charge during the three months ended September 30, 2023.

Results of Operations

Nine Months Ended September 30, 2023 compared to the Nine Months Ended September 30, 2022

(Dollars in thousands)

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

Revenue

Rental and other property revenue. Revenue from rental and other property revenue of the consolidated portfolio increased $28.2 million to $493.1 million for the nine months ended September 30, 2023 from $464.9 million for the nine months ended September 30, 2022. The increase was primarily attributable to a $28.3 million increase in same-store rental and other property revenue driven by a 7.7% increase in average effective monthly rents and partially offset by a 1.2% decrease in average occupancy compared to the prior year period.

Expenses

Property operating expenses. Property operating expenses increased $9.8 million to $184.6 million for the nine months ended September 30, 2023 from $174.8 million for the nine months ended September 30, 2022. The increase was primarily due to the $10.4 million increase in same-store property operating expense, primarily due to inflationary pressures resulting in higher insurance premiums and contract services, repairs and maintenance, advertising, and utilities.

Property management expenses. Property management expenses increased $3.0 million to $20.4 million for the nine months ended September 30, 2023 from $17.4 million for the nine months ended September 30, 2022 primarily due to higher personnel costs and stock compensation due to the centralization of staff at the property management level who support multiple properties, along with costs related to the rollout of community call centers, compared to the prior year.

General and administrative expenses. General and administrative expenses decreased $2.8 million to $17.7 million for the nine months ended September 30, 2023 from $20.5 million for the nine months ended September 30, 2022. The decrease was primarily due to lower personnel costs from the departure of executives in 2023, including from the forfeiture of their bonus and stock awards.

Depreciation and amortization expense. Depreciation and amortization expense decreased $37.6 million to $163.1 million for the nine months ended September 30, 2023 from $200.7 million for the nine months ended September 30, 2022. The decrease was primarily attributable to lower intangible asset amortization expenses during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 as a result of the intangible assets acquired in the STAR Merger being fully amortized.

Casualty losses (gains), net. During the nine months ended September 30, 2023, we incurred $0.9 million in casualty losses due to fires at three properties where the carrying value of the damage exceeded insurance proceeds due to policy deductible levels. During the nine months ended September 30, 2022, we recognized net casualty gains of $7.2 million as a result of receiving insurance proceeds in excess of the carrying value of losses incurred.

Interest expense. Interest expense increased $2.8 million to $66.4 million for the nine months ended September 30, 2023 from $63.6 million for the nine months ended September 30, 2022 primarily due to higher interest rates impacting our variable rate loans.

(Loss on impairment) gain on sale of real estate assets, net. During the nine months ended September 30, 2023, one multi-family property was sold resulting in gains of $1.0 million and we recorded a $11.3 million impairment charge due to the carrying value exceeding the expected sales price less transaction costs of our Chicago, Illinois property. During the nine months ended September 30, 2022, four multi-family properties were sold resulting in a gain of $94.7 million.

Merger and integration costs. We incurred approximately $3.5 million of STAR merger-related integration costs during the nine months ended September 30, 2022. These costs primarily consist of technology migration and implementation, consulting and professional fees and employee severance costs.

Restructuring costs. During the nine months ended September 30, 2023, we incurred approximately $3.2 million of severance costs related to the reorganization of certain departments that impacted a limited number of employees.

Non-GAAP Financial Measures

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

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

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

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

Set forth below is a reconciliation of net income to FFO and CFFO for the three and nine months ended September 30, 2023 and 2022 (in thousands, except share and per share information):

(1) Based on 230,444,945 and 230,334,398 weighted-average shares and units outstanding for the three and nine months ended September 30, 2023.

(2) Based on 228,051,780 and 227,933,320 weighted-average shares and units outstanding for the three and nine months ended September 30, 2022.

Same-Store Portfolio Net Operating Income

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

Same-Store Properties and Same-Store Portfolio

We review our same-store portfolio at the beginning of each calendar year. Properties are added into the same-store portfolio if they were owned and not a development property at the beginning of the previous year. Properties that are held for sale or have been sold are excluded from the same-store portfolio.

Non Same-Store Properties and Non Same-Store Portfolio

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

Development Property

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

Set forth below is a reconciliation of GAAP net income to Same-Store Portfolio NOI for the three and nine months ended September 30, 2023 and 2022 (in thousands):

(a) Same-Store Portfolio for the three and nine months ended September 30, 2023 and 2022 included 115 properties containing 34,197 units.

Set forth below is Same-Store Portfolio NOI for the three and nine months ended September 30, 2023 and 2022 (in thousands, except per unit data):

**Average effective monthly rent, per unit $**1,549 $1,484 4.4 % $1,536 $1,426 7.7 %

(a) Same-Store Portfolio for the three and nine months ended September 30, 2023 and 2022 included 115 properties containing 34,197 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 twelve months and the foreseeable future.

Our primary cash requirements are to:

• make investments to continue our value add initiatives to improve the quality and performance of our properties;
• repay our indebtedness;
• fund costs necessary to maintain our properties;
• continue funding our current real estate developments until completion;
• pay our operating expenses; and
• distribute a minimum of 90% of our REIT taxable income (determined without regard to the deduction for dividends paid and excluding net capital gain) and to make investments in a manner that enables us to maintain our qualification as a REIT.

We intend to meet our liquidity requirements primarily through a combination of one or more of the following:

• the use of our cash and cash equivalents of $17.2 million as of September 30, 2023;
• existing and future unsecured financing, including advances under our unsecured credit facility, and financing secured directly or indirectly by the apartment properties in our portfolio;
• cash generated from operating activities;
• net cash proceeds from property sales, including sales undertaken as part of our capital recycling strategy and other sales; and
• proceeds from the sales of our common stock and other equity securities, including common stock that may be sold under our ATM program.

Cash Flows

As of September 30, 2023 and 2022, we maintained cash and cash equivalents, and restricted cash of approximately $49.0 million and $59.6 million, respectively. Our cash and cash equivalents were generated from the following activities (dollars in thousands):

Our cash inflows from operating activities during the nine months ended September 30, 2023 and 2022 were primarily driven by ongoing operations of our properties.

Our cash outflows from investing activities during the nine months ended September 30, 2023 were primarily due to $111.9 million of capital expenditures, $23.2 million of investments in unconsolidated real estate entities, and $48.5 million of investments in real estate under development, partially offset by $35.6 million of proceeds from one property disposition. Our cash outflows from investing activities during the nine months ended September 30, 2022 were primarily due $201.8 million of acquisitions of real estate properties, $55.6 million of capital expenditures, $51.4 million of investments in unconsolidated real estate entities, and $40.0 million of investments in real estate under development partially offset by $155.6 million of proceeds from four property dispositions and proceeds from insurance claims of $15.7 million.

Our cash outflows from financing activities during the nine months ended September 30, 2023 were primarily due to payment of dividends on our common stock and noncontrolling interests of $101.6 million partially offset by $57.5 million of net draws on our unsecured revolver. Our cash outflows from financing activities during the nine months ended September 30, 2022 were primarily due to credit facility and term loan repayments of $666.5 million and payment of dividends on our common stock and noncontrolling interests of $76.4 million partially offset by $687.5 million of proceeds from unsecured credit facilities and term loan restructurings and $48.8 million of proceeds from the issuance of common stock.

Contractual Obligations

Our 2022 Annual Report on Form 10-K includes a table of contractual obligations. There were no material changes to these obligations since the filing of our 2022 Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements during the nine months ended September 30, 2023 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 2022 Annual Report on Form 10-K contains a discussion of our critical accounting policies. Management discusses our critical accounting policies and management’s judgments and estimates with the audit committee of our board of directors. There were no material changes to our critical accounting policies since the filing of our 2022 Annual Report on Form 10-K.

Our 2022 Annual Report on Form 10-K contains a discussion of qualitative and quantitative market risks. There have been no material changes in quantitative and qualitative market risks during the nine months ended September 30, 2023 from the disclosures included in our 2022 Annual Report on Form 10-K.

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.

Effective as of September 30, 2023, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by us in our Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation referred to above during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have not been any material changes from the risk factors disclosed in Part 1, Item 1A of our 2022 Annual Report on Form 10-K.