Independence Realty Trust (IRT) risk factors, FY2024 10-K

Risks Related to Our Business and Operations

1. 01We are dependent on a concentration of our investments in a single asset class, making our results of operations more vulnerable to a downturn in the sector
2. 02Our operations are concentrated in the Southeast region of the United States; we are subject to general economic conditions in the regions in which we operate
3. 03Adverse economic conditions may reduce or eliminate our returns and profitability and, as a result, our ability to make distributions to our stockholders
4. 04We depend on residents for revenue, and vacancies, resident defaults or lease terminations may cause a material decline in our operating results
5. 05maintenance costs, insurance costs and property taxes, even though a property maintains a high vacancy rate, and our financial performance will suffer if our revenues decrease or our costs increase
6. 06Short-term resident leases expose us to the effects of declining market rent, which could adversely impact our ability to make cash distributions to our stockholders
7. 07Substantial inflationary pressures could have a negative effect on our rental rates and have had and could continue to have a negative effect on our property operating expenses
8. 08Monetary policy actions by the U.S. Federal Reserve could adversely impact our financial condition and our ability to make distributions to our stockholders
9. 09We face competition from third parties, including other multifamily properties, which may limit our profitability and the return on any investment in our securities
10. 10Our investment strategy may limit an increase in the diversification of our investments
11. 11We may fail to consummate one or more property acquisitions or dispositions that we anticipate, whether as part of our capital recycling strategy or otherwise, and this failure could have a material adverse impact on our financial results
12. 12We may suffer from delays in locating suitable investments or, because of our public company status, may be unable to acquire otherwise suitable investments, which could adversely affect our growth prospects and results of operations
13. 13If we fail to maintain an effective system of integrated internal controls, we may not be able to accurately report our financial results and may be required to incur additional costs and divert management resources
14. 14We may be adversely affected by changes in state and local tax laws and may become subject to tax audits from time to time
15. 15If we are not able to cost-effectively maximize the life of our properties, we may incur greater than anticipated capital expenditure costs, which may adversely affect our ability to make distributions to our stockholders
16. 16We face the risk of fluctuations in the cost, availability and quality of our materials and products, which could adversely affect our results of operations
17. 17Our growth will depend upon future acquisitions of multifamily communities, and we may be unable to complete acquisitions on advantageous terms or acquisitions may not perform as we expect
18. 18Our investment in property development or redevelopment may be more costly or difficult to complete than we anticipate, and development and construction risks could adversely affect our profitability
19. 19Our growth depends on securing external sources of capital that are outside of our control, which may affect our ability to take advantage of strategic opportunities, satisfy debt obligations and make distributions to our stockholders
20. 20We may be subject to contingent or unknown uninsurable liabilities related to properties or businesses that we have acquired or may acquire for which we may have limited or no recourse against the sellers
21. 21Representations and warranties made by us in connection with sales of our properties may subject us to liability that could result in losses and could harm our operating results and, therefore distributions we make to our stockholders
22. 22We rely on information technology systems in our operations, and any breach or security failure of those systems could materially adversely affect our business, results of operations, financial condition and reputation
23. 23Fannie Mae and Freddie Mac are a major source of financing for the multifamily residential real estate sector. Many multifamily companies depend heavily on Fannie Mae and Freddie Mac to finance growth by purchasing or guarantying multifamily loans and to refinance outstanding indebtedness as it matures
24. 24Bankruptcy or defaults of our counterparties could adversely affect our performance
25. 25Severe or inclement weather and climate change could result in losses to us
26. 26We are subject to Environmental, Social, and Governance ("ESG") risks that could adversely affect our reputation and the market price of our securities
27. 27Global pandemics could have a material adverse effect on our business, results of operations, cash flows and financial condition
28. 28The potential negative impact of outbreaks or pandemics of infectious diseases on the health of our personnel, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during a disruption
29. 29We face numerous risks associated with the real estate industry that could adversely affect our results of operations through decreased revenues or increased costs
30. 30The illiquidity of real estate investments could make it difficult for us to respond to changing economic, financial, and investment conditions or changes in the operating performance of our properties, which could reduce our cash flows and adversely affect results of operations
31. 31Properties we purchase may not appreciate or may decrease in value
32. 32Increasing real estate taxes, utilities and insurance costs may negatively impact operating results
33. 33We may be unable to secure funds for property improvements, which could reduce cash distributions to our stockholders
34. 34The profitability of our acquisitions is uncertain
35. 35Acquiring or attempting to acquire multiple properties in a single transaction may adversely affect our operations
36. 36If we sell properties by providing financing to purchasers, we will bear the risk of default by the purchaser
37. 37Our revenue and net income may vary significantly from one period to another due to investments in value-add properties and portfolio acquisitions, which could increase the variability of our cash distributions
38. 38We have incurred, and may in the future, incur mortgage indebtedness and other borrowings and are not limited in the amount or percentage of indebtedness that we may incur, which may increase our business risks
39. 39In particular, loans obtained to fund property acquisitions may be secured by mortgages or deeds in trust on such properties. If we are unable to make our debt service payments as required, a lender could foreclose on the property or properties securing its debt
40. 40Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders
41. 41Lenders may be able to recover against our other properties under our mortgage loans
42. 42If we are required to make payments under any “bad boy” carve-out guaranties that we may provide in connection with certain mortgages and related loans, our business and financial results could be materially adversely affected
43. 43Our variable rate indebtedness subjects us to interest rate risk, and interest rate hedges that we may obtain may be costly and ineffective
44. 44Some of our outstanding mortgage indebtedness contains, and we may in the future acquire or finance properties with debt that contains, lock-out provisions, which may prohibit us from selling a property, or may require us to maintain specified debt levels for a period of years on some properties
45. 45Complying with REIT requirements may limit our ability to hedge risk effectively
46. 46There is refinancing risk associated with our debt
47. 47High mortgage rates and/or unavailability of mortgage debt may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our net income and the amount of cash distributions we can make
48. 48Some of our mortgage loans may have “due on sale” provisions, which may impact the manner in which we acquire, sell and/or finance our properties
49. 49The credit agreement governing our unsecured revolving credit facility and unsecured term loans (the “Unsecured Credit Agreement”) provides that the benchmark for our debt is determined using the Secured Overnight Financing Rate (“SOFR”), unless SOFR was unavailable
50. 50Issuances of additional debt may adversely impact our financial condition
51. 51Failure to maintain our current credit ratings could adversely affect our cost of funds, related margins, liquidity and access to capital markets
52. 52We are subject to significant regulations, which could adversely affect our results of operations through increased costs and/or an inability to pursue business opportunities
53. 53The costs of compliance with environmental laws and regulations may adversely affect our net income and the cash available for any distributions
54. 54Costs associated with addressing indoor air quality issues, moisture infiltration and resulting mold remediation may be costly
55. 55Our costs associated with and the risk of failing to comply with the Americans with Disabilities Act may affect our net income
56. 56We must comply with the Fair Housing Amendments Act of 1988 (the “FHAA”), and failure to comply could result in substantial costs
57. 57The adoption of, or changes to, rent control, rent stabilization, eviction, tenants’ rights and similar laws and regulations in our markets could have an adverse effect on our results of operations and property values
58. 58Legislative or regulatory action could adversely affect the returns to our investors
59. 59Dividends paid by REITs do not qualify for the reduced tax rates provided under current law
60. 60We may decide to borrow funds to satisfy our REIT minimum distribution requirements, which could adversely affect our overall financial performance
61. 61If we fail to maintain our qualification as a REIT, we will be subject to tax on our income, and the amount of distributions we make to our stockholders will be less
62. 62The ability of our Board of Directors to revoke our REIT election without stockholder approval may cause adverse consequences to our stockholders
63. 63To maintain our qualification as a REIT, we must meet annual distribution requirements, which may result in our distributing amounts that may otherwise be used for our operations
64. 64Complying with REIT requirements may cause us to forgo otherwise attractive opportunities
65. 65Certain of our business activities are potentially subject to the prohibited transaction tax, which could reduce the return on any investment in our securities
66. 66The use of TRSs would increase our overall tax liability
67. 67If our operating partnership, IROP, is not treated as a partnership or disregarded entity for U.S. federal income tax purposes, its income may be subject to taxation
68. 68Distributions to tax-exempt investors may be classified as unrelated business taxable income, or UBTI, and tax-exempt investors would be required to pay tax on such income and to file income tax returns
69. 69Distributions to foreign investors may be treated as an ordinary income distribution to the extent that it is made out of current or accumulated earnings and profits
70. 70Foreign investors may be subject to FIRPTA tax upon the sale of their shares of our stock
71. 71Foreign investors may be subject to FIRPTA tax upon a capital gain dividend
72. 72We may make distributions consisting of both stock and cash, in which case stockholders may be required to pay income taxes in excess of the cash distributions they receive
73. 73Our stockholders may be restricted from acquiring or transferring certain amounts of our common stock

Risks Related to Our Organization and Structure

1. 74The Maryland General Corporation Law prohibits certain business combinations, which may make it more difficult for us to be acquired
2. 75Stockholders have limited control over changes in our policies and operations
3. 76Our authorized but unissued shares of common and preferred stock may prevent a change in our control
4. 77Because of our holding company structure, we depend on our operating partnership, IROP, and its subsidiaries for cash flow; however, we will be structurally subordinated in right of payment to the obligations of IROP and its subsidiaries
5. 78Our rights and the rights of our stockholders to recover on claims against our directors are limited, which could reduce your and our recovery against them if they negligently cause us to incur losses
6. 79If we are unable to retain or obtain key personnel, our ability to implement our investment strategies could be hindered, which could reduce our ability to make distributions and adversely affect the trading price of our common stock
7. 80We may suffer losses that are not covered by insurance
8. 81Changes in U.S. accounting standards may materially and adversely affect our reported results of operations
9. 82Our use of social media presents risks
10. 83Lawsuits or other legal proceedings could result in substantial costs
11. 84The percentage of ownership of any of our common stockholders may be diluted if we issue new shares of common stock
12. 85Sales of our common stock, or the perception that such sales will occur, may have adverse effects on our share price
13. 86An increase in market interest rates may have an adverse effect on the market price of our common stock
14. 87Some of our distributions may include a return of capital for U.S. federal income tax purposes
15. 88Future issuances of debt securities, which would rank senior to our common stock upon liquidation, or future issuances of preferred equity securities, may adversely affect the trading price of our common stock
16. 89The market prices for our common stock may be volatile
17. 90We have not established a minimum dividend payment level and we cannot assure you of our ability to pay dividends in the future or the amount of any dividends
18. 91Social, political and economic changes or instability, or other circumstances beyond our control could affect our business operations