Independence Realty Trust, Inc.: Form 10-Q for the period ended Sep 30, 2024

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

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act. Such forward-looking statements include, but are not limited to, anticipated enhancements to our financial results and future growth from our Portfolio Optimization and Deleveraging Strategy, our planned use of proceeds from our recent sales of common stock on a forward basis, our unsecured notes in a private placement, and our expectations with respect to the three properties which we are under contract to acquire. 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, and our planned use of proceeds from our recent sales of common stock on a forward basis and our unsecured notes in a private placement, 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, 2023, 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, 2024, we owned and operated 110 multifamily apartment properties (including one owned through a consolidated joint venture) that contain an aggregate of 32,670 units. Our properties are located in Alabama, Colorado, Florida, Georgia, Indiana, Kentucky, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee and Texas. In addition, as of September 30, 2024, we owned and consolidated two investments in real estate under development in Colorado that will, upon completion, contain an aggregate of 621 units. As of September 30, 2024, 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 and developing 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, 2024, we owned and consolidated 110 multifamily apartment properties, totaling 32,670 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 in our Fort Collins, CO and Colorado Springs, CO markets.

Current Developments

Dispositions

On July 17, 2024, we sold one multifamily apartment community in Birmingham, Alabama for a gross sales price of $70.8 million. We used the proceeds from this sale as part of a 1031 exchange to acquire the Gateway at Pinellas property described below.

Acquisitions

On August 13, 2024, we acquired Gateway at Pinellas in Tampa, Florida, a 288-unit multifamily apartment community for $82.0 million. This acquisition expanded our footprint in Tampa-St. Petersburg, Florida from 1,503 units to 1,791 units.

We are currently under contract on acquisitions of three properties in Charlotte, Orlando, and Columbus, which will expand our footprint in each of these markets while providing enhanced scale and synergies. The aggregate purchase price of these three properties is approximately $184 million, which we expect to fund using forward equity sales proceeds and revolver debt. We expect to close on the acquisition of these three properties during the fourth quarter of 2024. While these three properties are under contract, there can be no assurance that these acquisitions will be consummated at expected pricing levels, within expected time frames, or at all.

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, which targeted the sale of ten properties located in seven markets in order to exit or reduce our presence in these markets while also deleveraging our balance sheet.

In 2024, the Portfolio Optimization and Deleveraging Strategy concluded with the sale of six properties in four markets for an aggregate gross sales price of $324.6 million, and proceeds from the sales were used to repay an aggregate of $320.3 million of debt. The Portfolio Optimization and Deleveraging Strategy resulted in the sale of ten properties for an aggregate gross sales price of $525.3 million and proceeds from the sales were used to repay an aggregate of $517.1 million of debt.

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.

No new investments in unconsolidated real estate entities were entered into during the three and nine months ended September 30, 2024. However, we continued to fund commitments to our existing investments in unconsolidated real estate entities. On July 16, 2024, we amended the related joint venture agreement governing the entity that owns The Crockett, which resulted in the return of our invested capital in the amount of $5.5 million and preferred return in the amount of $3.0 million thereon on October 17, 2024, while also providing us with a right of first refusal on any sale of The Crockett. The amendment of the joint venture agreement also converted the right of first offer on the Views of Music City II to a right of first refusal. As of September 30, 2024 and December 31, 2023, we had investments in unconsolidated real estate entities of $95.4 million and $89.0 million, respectively.

Investments in Real Estate Under Development

As part of our merger with Steadfast Apartment REIT, Inc. (the “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, 2024 and December 31, 2023, we had investments in real estate under development of $115.2 million and $98.4 million, respectively, net of $102.2 million and $77.5 million 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 578 units during the three months ended September 30, 2024. From inception of our value add program in January 2018 through

September 30, 2024, we completed renovations on 9,047 of the 13,281 units currently in our value add program, achieving a return on investment of 16.9% (and approximately 18.9% 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 (excluding the impact of concessions) 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

Completed Public Offering of 11.5 Million Shares of Common Stock

On September 3, 2024, we entered into an underwriting agreement with Citigroup Global Markets Inc., KeyBanc Capital Markets Inc. and RBC Capital Markets LLC as representatives of the several underwriters named therein, (collectively, the “Underwriters”), and Citigroup Global Markets Inc. in its capacity as agent (in such capacity, the “Forward Seller”) for Citibank, N.A., as forward counterparty (the “Forward Counterparty”) and the Forward Counterparty related to the offering of an aggregate of 11,500,000 shares of our common stock, par value $0.01 per share, at a price of $18.96 per share consisting of 11,500,000 shares of our common stock offered by the Forward Seller in connection with the forward sale agreements described below (including 1,500,000 shares offered pursuant to the Underwriter’s option to purchase additional shares, which was exercised in full). We did not initially receive any proceeds from the sale of our common stock by the Forward Seller. We completed the offering on September 5, 2024.

In connection with the offering, we also entered into two forward sale agreements. The first forward sale agreement (the “Initial Forward Sale Agreement”), dated September 3, 2024, with the Forward Seller and Forward Counterparty, and the second forward sale agreement (the “Additional Forward Sale Agreement”, together with the Initial Forward Sale Agreement, the “Forward Sale Agreements”), dated September 4, 2024, with the Forward Seller and the Forward Counterparty. In connection with the Forward Sale Agreements, the Forward Seller (or its affiliate) borrowed from third parties and sold to the Underwriters an aggregate of 11,500,000 shares of our common stock that was sold in the offering. As of September 30, 2024, 11,500,000 shares of our common stock remain to be settled under the Forward Sale Agreements, which if physically settled would provide additional proceeds to us of $216.8 million based on the forward price as of September 30, 2024. We expect to physically settle the Forward Sale Agreements and receive proceeds, subject to certain adjustments, from the sale of those shares upon one or more such physical settlements within approximately twelve months from the date of the prospectus supplement, no later than September 5, 2025, the scheduled maturity date of the Forward Sale Agreements. Although we expect to settle the Forward Sale Agreements entirely by the physical delivery of shares of our common stock for cash proceeds, we may also elect to cash or net share settle all or a portion of our obligations under the Forward Sale Agreements, in which case, we may receive or owe cash or shares of our common stock from or to the Forward Seller. The Forward Sale Agreements provide for an initial forward sale price of $18.96 per share, subject to certain adjustments pursuant to the terms of each of the Forward Sale Agreements. The Forward Sale Agreements are subject to early termination or settlement under certain circumstances.

Private Placement of $150 Million of Unsecured Notes

On August 19, 2024, we entered into a Note and Guaranty Agreement granting us the right to sell up to $150 million of unsecured notes (the “Private Placement”), consisting of $75 million aggregate principal amount of unsecured notes due October 1, 2031 and $75 million aggregate principal amount of unsecured notes due October 1, 2034, to an institutional investor in a Private Placement at fixed annual interest rates of 5.32% and 5.53%, respectively. On October 1, 2024, the Private Placement was funded with proceeds to be used to repay approximately $132 million of property mortgages maturing in late 2024 and early 2025, with the remaining $18 million to reduce the borrowings under our unsecured credit facility. Upon completion of the full repayment of the foregoing approximately $132 million of our maturing property mortgages, it is expected that over 60% of our assets’ NOI will be unencumbered.

Shelf Registration Statement and ATM Program

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 million (the “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 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.

During the three months ended September 30, 2024, we entered into forward sale transactions under the ATM Program for the forward sale of an aggregate 1,500,000 shares of our common stock. The forward sale transactions have not yet settled as of the date of this Quarterly Report on Form 10-Q, and we have not received any net proceeds from the offering as of the date of this Quarterly Report on Form 10-Q. Subject to our right to elect net share settlement, we expect to physically settle the forward sale transactions by the maturity date of September 30, 2025 as set forth in the forward sale transactions placement notice. As of September 30, 2024, 1,500,000 shares of our common stock remain to be settled under the forward sale transactions, which if physically settled would provide additional proceeds to us of $29.1 million, net of sales commissions, based on the forward price as of September 30, 2024, subject to adjustment in accordance with the forward sale transactions. As of September 30, 2024, approximately $420.4 million remained available for issuance under the ATM Program.

Investment Grade Ratings

On March 4, 2024, we received an investment grade rating from Fitch Ratings (“Fitch”). Fitch has assigned a Long-Term Issuer Default Rating of ‘BBB’ to IRT with a stable outlook. In addition, Fitch has assigned a rating of ‘BBB’ to our subsidiary, Independence Realty Operating Partnership, LP and our senior unsecured debt, which includes credit facilities and unsecured term loans.

On October 30, 2024, we received a ‘BBB’ issuer credit rating and stable outlook from S&P Global Ratings. The rating is for IRT and our operating partnership Independence Realty Operating Partnership L.P.

Results of Operations

As of September 30, 2024, we owned and consolidated 110 multifamily apartment properties, of which 108 comprised the Same-Store Portfolio.

Three Months Ended September 30, 2024 compared to the Three Months Ended September 30, 2023

(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 decreased $8.5 million to $159.9 million for the three months ended September 30, 2024 from $168.4 million for the three months ended September 30, 2023. The decrease was primarily attributable to a $12.3 million decrease in non same-store rental and other property revenue driven by the sale of ten properties under the Portfolio Optimization and Deleveraging Strategy, partially offset by an increase in same-store rental and other property revenue of $3.8 million driven by a 1.2% increase in average effective monthly rents and a 0.9% increase in average occupancy compared to the prior year period.

Expenses

Property operating expenses. Property operating expenses decreased $2.8 million to $60.5 million for the three months ended September 30, 2024 from $63.3 million for the three months ended September 30, 2023. The decrease was due to a $4.4 million decrease in property operating expenses due to the sale of ten properties under our Portfolio Optimization and Deleveraging Strategy partially offset by a net $1.6 million increase in same-store property operating expense, driven by an increase in personnel expenses, repairs and maintenance, and utilities partially offset by a decrease in real estate taxes.

General and administrative expenses. General and administrative expenses increased $1.1 million to $4.8 million for the three months ended September 30, 2024 from $3.7 million for the three months ended September 30, 2023. The increase was primarily due to the prior year period including the reversal of stock compensation and bonus expense related to executive departures that occurred in 2023.

Casualty losses. During the three months ended September 30, 2024, we incurred $1.2 million in net casualty losses primarily due to fire damage at one property where the carrying value of the damage exceeded insurance proceeds due to policy deductibles.

Interest expense. Interest expense decreased $3.7 million to $18.3 million for the three months ended September 30, 2024 from $22.0 million for the three months ended September 30, 2023. The decrease was primarily driven by the reduction of debt associated with the sale of ten properties under the Portfolio Optimization and Deleveraging Strategy.

Gain on sale (loss on impairment) of real estate assets, net. During the three months ended September 30, 2024, we sold one multi-family property resulting in a small gain on sale of real estate assets, net. Previously, during the three months ended March 31, 2024, we had recorded a loss on impairment of $15.1 million related to that property. During the three months September 30, 2023, we recorded a $11.3 million impairment charge in connection with a property that was held for sale.

Results of Operations

Nine Months Ended September 30, 2024 compared to the Nine Months Ended September 30, 2023

(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 decreased $14.8 million to $478.3 million for the nine months ended September 30, 2024 from $493.1 million for the nine months ended September 30, 2023. The decrease was primarily attributable to a $28.8 million decrease in non same-store rental and other property revenue driven by the sale of ten properties under the Portfolio Optimization and Deleveraging Strategy. This decrease in non same-store rental and other property revenue was partially offset by an increase in same-store rental and other property revenue of $14.0 million driven by a 1.4% increase in average effective monthly rents and a 1.1% increase in average occupancy compared to the prior year period.

Expenses

Property operating expenses. Property operating expenses decreased $3.2 million to $181.4 million for the nine months ended September 30, 2024 from $184.6 million for the nine months ended September 30, 2023. The decrease was primarily due to the $10.3 million decrease in property operating expenses due to the sale of ten properties under our Portfolio Optimization and Deleveraging Strategy partially offset by a net $7.1 million increase in same-store property operating expenses, primarily due to higher personnel expenses, utilities, property insurance, and advertising expenses, partially offset by a decrease in real estate taxes.

Property management expenses. Property management expenses increased $2.1 million to $22.5 million for the nine months ended September 30, 2024 from $20.4 million for the nine months ended September 30, 2023 primarily due to higher personnel costs driven by employee retention credits recognized in 2023 and higher software costs driven by centralization efforts.

General and administrative expenses. General and administrative expenses increased $1.7 million to $19.4 million for the nine months ended September 30, 2024 from $17.7 million for the nine months ended September 30, 2023. The increase was primarily due to the prior year period including the reversal of stock compensation and bonus expense related to executive departures that occurred in 2023 and employee retention credits recognized in 2023.

Casualty losses. During the nine months ended September 30, 2024, we incurred $4.0 million in casualty losses due to winter storm damage and fire at various properties where the carrying value of the damage exceeded insurance proceeds due to policy deductibles. 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 deductibles.

Interest expense. Interest expense decreased $10.0 million to $56.4 million for the nine months ended September 30, 2024 from $66.4 million for the nine months ended September 30, 2023 primarily due to the reduction of debt associated with the sale of ten properties under the Portfolio Optimization and Deleveraging Strategy.

Gain on sale (loss on impairment) of real estate assets, net. During the nine months ended September 30, 2024, we sold seven multi-family properties and recognized a gain on sale of real estate, net of $11.1 million comprised of a $26.2 million gain on sale of real estate, net, partially offset by a loss on impairment of $15.1 million for one property. During the nine months ended September 30, 2023, one multifamily property in Chicago, Illinois was sold for a gain 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.

Restructuring costs. During the nine months ended September 30, 2024, we incurred no 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, 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, 2024 and 2023 (in thousands, except share and per share information):

(1) Based on 230,762,299 and 230,689,617 weighted-average shares and units outstanding for the three and nine months ended September 30, 2024, respectively.

(2) 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, respectively.

Same-Store Portfolio Net Operating Income

We believe that Net Operating Income (“NOI”), a non-GAAP financial measure, is a useful supplemental measure of our operating performance. We define NOI as total property revenues less total property operating expenses, excluding interest expenses, depreciation and amortization, casualty related costs and gains, property management expenses, general and administrative expense, net gains on sale of assets, 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, 2024 and 2023 (in thousands):

(a) Same-Store Portfolio for the three and nine months ended September 30, 2024 and 2023 included 108 properties containing 32,153 units.

Average Effective Monthly Rent per Unit

Average effective rent per unit represents the average of net rent amounts, after concessions amortized over the life of the lease, divided by the average occupancy (in units) for the period presented. We believe average effective rent is a helpful measurement in evaluating average pricing. This metric, when presented, reflects the average effective rent per month.

Average Occupancy

Average occupancy represents the average occupied units for the reporting period divided by the average of total units available for rent for the reporting period.

Set forth below is Same-Store Portfolio (a) NOI for the three and nine months ended September 30, 2024 and 2023 (in thousands, except per unit data):

**Average effective monthly rent, per unit $**1,566 $1,548 1.2 % $1,557 $1,536 1.4 %

(a) Same-Store Portfolio for the three and nine months ended September 30, 2024 and 2023 included 108 properties containing 32,153 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 $17.6 million as of September 30, 2024;
• 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, 2024 and 2023, we maintained cash and cash equivalents, and restricted cash of approximately $48.2 million and $49.0 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, 2024 and 2023 were primarily driven by ongoing operations of our properties.

Our cash inflows from investing activities during the nine months ended September 30, 2024 were primarily due to $390.8 million of proceeds from the disposition of seven properties, which included six properties targeted for sale under our Portfolio Optimization and Deleveraging Strategy, and $4.0 million of proceeds from insurance claims, partially offset by $92.1 million of capital expenditures, $81.2 million to acquire one multifamily property, $41.9 million of investments in real estate under development and $8.9 million of investments in unconsolidated real estate entities. 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 financing activities during the nine months ended September 30, 2024 were primarily due to mortgage principal repayments of $211.1 million, net repayments on our unsecured credit facility of $43.7 million and payment of dividends on our common stock and noncontrolling interests of $110.9 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 credit facility.

Contractual Obligations

Our 2023 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 2023 Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements during the nine months ended September 30, 2024 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 2023 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 Annual Report on Form 10-K.

Our 2023 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, 2024 from the disclosures included in our 2023 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 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, 2024, 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, 2024 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 2023 Annual Report on Form 10-K.