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Item 2. Management’s Discussion and Analysis

2022-10-31 compared with 2022-08-01 · 102 added, 90 removed, 247 unchanged (44% of the section changed)

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

The following discussion and analysis should be read in conjunction with the unaudited Condensed Consolidated Financial Statements included in this report on Form 10-Q for the quarter ended June 30, 2022 (the “Report”), the audited financial statements for the year ended December 31, 2021, which are included in Form 10-K filed with the SEC on February 28, 2022, and the risk factors in Item 1A, “Risk Factors,” of Form 10-K for the year ended December 31, 2021.

The following discussion and analysis should be read in conjunction with the unaudited Condensed Consolidated Financial Statements included in this report on Form 10-Q for the quarter ended September 30, 2022 (the “Report”), the audited financial statements for the year ended December 31, 2021, which are included in Form 10-K filed with the SEC on February 28, 2022, and the risk factors in Item 1A, “Risk Factors,” of Form 10-K for the year ended December 31, 2021.

This discussion and analysis, and other sections of this Report contain 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 (the “Exchange Act”), with respect to the expectations for future periods.

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Any statements contained herein that are not statements of historical fact should be deemed forward-looking statements.

As a result, reliance should not be placed on these forward-looking statements, as these statements are subject to known and unknown risks, uncertainties, and other factors beyond the our control and could differ materially from actual results and performance.

As a result, reliance should not be placed on these forward-looking statements, as these statements are subject to known and unknown risks, uncertainties, and other factors beyond our control and could differ materially from actual results and performance.

The following factors, among others, could cause our future results to differ materially from those expressed in the forward-looking statements:

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• changes in operating costs, including real estate taxes, utilities, insurance costs, and expenses related to complying with COVID-19 restrictions or otherwise responding to the COVID-19 pandemic;

• timely access to material and labor required to renovate apartment communities;

• timely access to material and labor required to renovate and maintain apartment communities;

• adverse changes in our markets, including future demand for apartment homes in those markets, barriers of entry into new markets, limitations on the ability to increase rental rates, inability to identify and consummate attractive acquisitions and dispositions on favorable terms, inability to reinvest sales proceeds successfully, and inability to accommodate any significant decline in the market value of real estate serving as collateral for mortgage obligations;

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Executive Summary

We own, manage, acquire, redevelop, and develop apartment communities.

We are a real estate investment trust, or REIT that owns, manages, acquires, redevelops, and develops apartment communities.

We primarily focus on investing in markets characterized by stable and growing economies, strong employment, and an attractive quality of life that we believe, in combination, lead to higher demand for apartment homes and retention of residents.

As of June 30, 2022, we owned interests in 83 apartment communities consisting of 14,838 apartment homes.

Property owned, as presented in our Condensed Consolidated Balance Sheets at historical cost, was $2.4 billion at June 30, 2022, compared to $2.3 billion at December 31, 2021.

As of September 30, 2022, we owned interests in 84 apartment communities consisting of 15,064 apartment homes.

Property owned, as presented in our Condensed Consolidated Balance Sheets at historical cost, was $2.5 billion at September 30, 2022, compared to $2.3 billion at December 31, 2021.

Renting apartment homes is our primary source of revenue, and our business objective is to provide great homes for our residents.

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We have paid quarterly distributions continuously since our first distribution in 1971.

The COVID-19 pandemic has affected our business since March 2020.

Our first priority continues to be the health and well-being of our residents, team members, and the communities we serve.

While the COVID-19 pandemic has affected our business since March 2020, the extent of the impact has generally decreased.

We continue to monitor the status of COVID-19 and actively manage our response in collaboration with residents, commercial tenants, government officials, and business partners and assessing potential impacts to financial position and operating results, as well as potential adverse impacts on our business .

Despite our efforts to manage our r esponse to the effects of the COVID-19 pandemic, the ultimate impact of the COVID-19 pandemic on rental revenue for 2022 and in future years cannot be determined at present.

The situation surrounding the COVID-19 pandemic remains fluid, and we are actively managing our response in collaboration with residents, commercial tenants, government officials, and business partners and assessing potential impacts to financial position and operating results, as well as potential adverse impacts on our business.

Our management remains committed to ensuring the safety of team members, residents, and communities, and to maintaining the financial stability of our business enterprise for the duration of the COVID-19 pandemic.

Overview of the Three Months Ended June 30, 2022

For the three months ended June 30, 2022, revenue increased by $16.5 million to $63.1 million, compared to $46.7 million for the three months ended June 30, 2021, due to same-store communities and 23 non-same-store communities, offset by dispositions.

Total expenses increased by $15.3 million to $59.3 million for the three months ended June 30, 2022, compared to $43.9 million for the three months ended June 30, 2021 due to increased property operating expenses, real estate taxes, depreciation and amortization, and general and administrative expenses.

Non-GAAP Funds from Operations (“FFO”) applicable to common shares and Units for the three months ended June 30, 2022 increased by $5.4 million to $19.1 million compared to $13.7 million for the three months ended June 30, 2021.

Overview of the Three Months Ended September 30, 2022

• On September 30, 2022, we acquired Lyra Apartments, located in Centennial, Colorado, for $95.0 million.

• For the three months ended September 30, 2022, revenue increased by $15.0 million or 29.8% to $65.4 million, compared to $50.4 million for the three months ended September 30, 2021, due to an 11.1% increase from same-store communities and the addition of 24 non-same-store communities.

• Total expenses increased by $9.1 million to $58.4 million for the three months ended September 30, 2022, compared to $49.3 million for the three months ended September 30, 2021 due to increased property operating expenses, real estate taxes, depreciation and amortization, and general and administrative expenses.

• Non-GAAP Funds from Operations (“FFO”) applicable to common shares and Units for the three months ended September 30, 2022 increased by $11.7 million to $21.0 million compared to $9.3 million for the three months ended September 30, 2021.

See the description of FFO on page 27 and the reconciliation of net income available to common shareholders to FFO on page 28.

This increase was primarily due to increased NOI from same-store and non-same-store communities, offset by increased interest, property management, and general and administrative expenses, and decreased interest income and NOI from dispositions.

This increase was primarily due to increased NOI from same-store and non-same-store communities and a $5.4 million loss related to the termination of interest rate swaps in the same period of the prior year that did not occur in the current year, offset by increased interest, property management, and general and administrative expenses, and decreased interest income.

The drivers of these changes are discussed in more detail in the “Results of Operations” section below.

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(in thousands, except percentages)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 $ Change % Change 2022 2021 $ Change % Change

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Consolidated Results of Operations

The following consolidated results of operations cover the three and six months ended June 30, 2022 and 2021.

The following consolidated results of operations cover the three and nine months ended September 30, 2022 and 2021.

(in thousands, except percentages)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 $ Change % Change 2022 2021 $ Change % Change

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* Not a meaningful percentage

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

Weighted Average Occupancy (1)

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Weighted average occupancy may not completely reflect short-term trends in physical occupancy, and the calculation of weighted average occupancy may not be comparable to that disclosed by other REITs.

Number of Apartment Homes June 30, 2022 June 30, 2021

Number of Apartment Homes September 30, 2022 September 30, 2021

Same-store 11,330 11,330

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because it provides a measure of operations that is unaffected by depreciation, amortization, financing, property management overhead, casualty losses, and general and administrative expenses.

NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered an alternative to net income, net income available for common shareholders, or cash flow from operating activities as a measure of financial performance.

NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered an alternative to net income (loss), net income (loss) available for common shareholders, or cash flow from operating activities as a measure of financial performance.

We have provided certain information on a same-store and non-same-store basis.

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The discussion below focuses on the main factors affecting real estate revenue and expenses from same-store apartment communities because changes from one year to another in real estate revenue and expenses from non-same-store apartment communities are generally due to the addition of those properties to the real estate portfolio, and accordingly provide less useful information for evaluating ongoing operational performance of the real estate portfolio.

For the comparison of the six months ended June 30, 2022 and 2021, 23 apartment communities were non-same-store.

For the comparison of the nine months ended September 30, 2022 and 2021, 24 apartment communities were non-same-store.

Sold communities are included in “Dispositions,” while “Other” includes non-multifamily properties and the non-multifamily components of mixed-use properties.

Revenue increased by 35.3% to $63.1 million for the three months ended June 30, 2022, compared to $46.7 million in the three months ended June 30, 2021.

Revenue from non-same-store communities increased by $12.1 million and revenue from other properties increased by $251,000, offset by a decrease of $1.0 million from dispositions.

Revenue from same-store communities increased 11.7% or $5.1 million in the three months ended June 30, 2022, compared to the same period in the prior year.

The increase was attributable to 11.8% growth in average monthly revenue per occupied home for the three months ended June 30, 2022, offset by a decrease of 0.1% in occupancy as weighted average occupancy decreased from 94.9% in the three months ended June 30, 2021 to 94.8% for the three months ended June 30, 2022.

Revenue increased by 32.3% to $123.4 million for the six months ended June 30, 2022, compared to $93.3 million in the six months ended June 30, 2021.

Revenue increased by 29.8% to $65.4 million for the three months ended September 30, 2022, compared to $50.4 million in the three months ended September 30, 2021.

Revenue from non-same-store communities increased by $10.3 million and revenue from other properties increased by $186,000, offset by a decrease of $477,000 from dispositions.

Revenue from same-store communities increased 11.1% or $5.0 million in the three months ended September 30, 2022, compared to the same period in the prior year.

The increase was attributable to 10.8% growth in average monthly revenue per occupied home for the three months ended September 30, 2022 and an increase of 0.2% in occupancy as weighted average occupancy increased from 94.3% in the three months ended September 30, 2021 to 94.5% for the three months ended September 30, 2022.

Revenue increased by 31.4% to $188.9 million for the nine months ended September 30, 2022, compared to $143.7 million in the nine months ended September 30, 2021.

Revenue from non-same-store communities increased by $33.9 million and revenue from other properties increased by $686,000, offset by a decrease of $3.3 million from dispositions.

Revenue from same-store communities increased 10.1% or $8.8 million in the six months ended June 30, 2022, compared to the same period in the prior year.

The increase was attributable to 10.6% growth in average monthly revenue per occupied home for the six months ended June 30, 2022, offset by a decrease of 0.5% in occupancy as weighted average occupancy decreased from 94.8% in the six months ended June 30, 2021 to 94.3% for the six months ended June 30, 2022.

Revenue from same-store communities increased 10.4% or $13.8 million in the nine months ended September 30, 2022, compared to the same period in the prior year.

The increase was attributable to 10.7% growth in average monthly revenue per occupied home for the nine months ended September 30, 2022, offset by a decrease of 0.2% in occupancy as weighted average occupancy decreased from 94.6% in the nine months ended September 30, 2021 to 94.4% for the nine months ended September 30, 2022.

Property operating expenses, including real estate taxes .

Property operating expenses, including real estate taxes, increased by 39.7% to $26.2 million in the three months ended June 30, 2022, compared to $18.8 million in the same period of the prior year.

An increase of $5.9 million at non-same-store communities was offset by a decrease $535,000 from dispositions.

Property operating expenses, including real estate taxes, at same-store communities increased by 11.9% or $2.1 million in the three months ended June 30, 2022, compared to the same period in the prior year.

Property operating expenses, including real estate taxes, increased by 34.3% to $27.3 million in the three months ended September 30, 2022, compared to $20.4 million in the same period of the prior year.

Property operating expenses, including real estate taxes at non-same-store communities increased by $5.0 million, whereas the same-store communities increased by 10.6% or $2.0 million in the three months ended September 30, 2022, compared to the same period in the prior year.

At same-store communities, controllable expenses (which exclude insurance and real estate taxes) increased by $1.8 million, primarily due to increased utilities, repairs and maintenance costs, and on-site compensation.

Non-controllable expenses at same-store communities increased by $305,000, due to insurance costs and real estate taxes.

Property operating expenses, including real estate taxes, increased by 37.1% to $52.1 million in the six months ended June 30, 2022, compared to $38.0 million in the same period of the prior year.

Non-controllable expenses at same-store communities increased by $200,000, primarily due to insurance costs.

Property operating expenses, including real estate taxes, increased by 36.1% to $79.4 million in the nine months ended September 30, 2022, compared to $58.4 million in the same period of the prior year.

An increase of $16.9 million at non-same-store communities was offset by a decrease of $1.6 million from dispositions.

Property operating expenses, including real estate taxes, at same-store communities increased by 10.7% or $3.8 million in the six months ended June 30, 2022, compared to the same period in the prior year.

Property operating expenses, including real estate taxes, at same-store communities increased by 10.7% or $5.7 million in the nine months ended September 30, 2022, compared to the same period in the prior year.

At same-store communities, controllable expenses (which exclude insurance and real estate taxes) increased by $5.0 million, primarily due to increased utilities, repairs and maintenance costs, and on-site compensation.

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Property management expenses .

Property management expense, consisting of property management overhead and property management fees paid to third parties increased by 30.5% to $2.7 million in the three months ended June 30, 2022, compared to $2.1 million in the same period of the prior year.

The increase is primarily due to $490,000 in compensation costs and $136,000 related to technology initiatives.

Property management expense, consisting of property management overhead and property management fees paid to third parties increased by 29.1% to $5.0 million in the six months ended June 30, 2022, compared to $3.9 million in the same period of the prior year.

The increase is primarily due to $770,000 in compensation costs and $217,000 related to technology initiatives.

Property management expense, consisting of property management overhead and property management fees paid to third parties increased by 16.3% to $2.6 million in the three months ended September 30, 2022, compared to $2.2 million in the same period of the prior year.

The increase is primarily due to $397,000 in compensation costs due to filling open positions, additional staffing, and higher pay rates , offset by a decrease related to technology initiatives.

Property management expense, consisting of property management overhead and property management fees paid to third parties increased by 24.5% to $7.5 million in the nine months ended September 30, 2022, compared to $6.1 million in the same period of the prior year.

The increase is primarily due to $1.1 million in compensation costs due to filling open positions, additional staffing, and higher pay rates and $176,000 related to technology initiatives.

Casualty gain (loss).

Casualty gain (loss) increased to a loss of $382,000 in the three months ended June 30, 2022, compared to a gain of $27,000 in the same period of the prior year.

The increase is due to lower than usual loss experience in the prior year.

Casualty gain (loss) increased to a loss of $980,000 in the six months ended June 30, 2022, compared to a loss of $74,000 in the same period of the prior year.

The increase is due to lower than usual loss experience in the prior year.

Casualty gain (loss) increased to a loss of $276,000 in the three months ended September 30, 2022, compared to a gain of $10,000 in the same period of the prior year.

The increase is due to favorable loss experience in the prior year.

Casualty gain (loss) increased to a loss of $1.3 million in the nine months ended September 30, 2022, compared to a loss of $64,000 in the same period of the prior year.

The increase is due to favorable loss experience in the prior year.

Depreciation and amortization.

Depreciation and amortization increased by 28.3% to $24.8 million in the three months ended June 30, 2022, compared to $19.3 million in the same period of the prior year, attributable to an increase of $6.4 million from non-same-store properties, offset by decreases from same-store and sold properties.

Depreciation and amortization increased by 41.9% to $55.8 million in the six months ended June 30, 2022, compared to $39.3 million in the same period of the prior year, attributable to an increase of $18.6 million from non-same-store properties, offset by decreases from same-store and sold properties.

Depreciation and amortization increased by 5.7% to $23.7 million in the three months ended September 30, 2022, compared to $22.4 million in the same period of the prior year, attributable to an increase of $1.7 million from non-same-store properties, offset by decreases from same-store and sold properties.

Depreciation and amortization increased by 28.7% to $79.5 million in the nine months ended September 30, 2022, compared to $61.7 million in the same period of the prior year, attributable to an increase of $20.4 million from non-same-store properties, offset by decreases from same-store and sold properties.

General and administrative expenses.

General and administrative expenses increased by 37.5% to $5.2 million in the three months ended June 30, 2022, compared to $3.8 million in the same period of the prior year, primarily attributable to $1.1 million from abandoned pursuit costs and increases in professional and consulting fees, travel costs, and salary related expense, offset by a decrease in short-term and long-term incentive costs.

General and administrative expenses increased by 26.2% to $9.7 million in the six months ended June 30, 2022, compared to $7.7 million in the same period of the prior year, primarily attributable to $1.1 million from abandoned pursuit costs, $495,000 in compensation costs and $364,000 in professional and consulting fees.

General and administrative expenses increased by 5.6% to $4.5 million in the three months ended September 30, 2022, compared to $4.3 million in the same period of the prior year, primarily attributable to increases in professional and consulting fees and salary related expense, offset by a decrease in technology initiatives.

General and administrative expenses increased by 18.8% to $14.2 million in the nine months ended September 30, 2022, compared to $12.0 million in the same period of the prior year, primarily attributable to $1.2 million from abandoned pursuit costs, $950,000 in compensation costs and $430,000 in professional and consulting fees, offset by decreases related to technology initiatives.

Gain (loss) on sale of real estate and other investments.

Gain on sale of real estate and other investments decreased to $27,000 in the nine months ended September 30, 2022, compared to $26.8 million in the same period of the prior year, primarily due to the sale of apartment communities in the prior year that did not occur in the current year.

Interest expense.

Interest expense increased by 6.7% to $7.6 million in the three months ended June 30, 2022, compared to $7.1 million in the same period of the prior year, primarily due to the addition of new unsecured senior notes and the Fannie Mae credit facility, offset by a lower weighted average interest rate.

Interest expense increased by 6.7% to $15.3 million in the six months ended June 30, 2022, compared to $14.3 million in the same period of the prior year, primarily due to the addition of new unsecured senior notes and the Fannie Mae credit facility, offset by a lower weighted average interest rate.

Interest expense increased by 7.8% to $7.9 million in the three months ended September 30, 2022, compared to $7.3 million in the same period of the prior year, primarily due to the addition of new unsecured senior notes and the Fannie Mae credit facility.

Interest expense increased by 7.1% to $23.1 million in the nine months ended September 30, 2022, compared to $21.6 million in the same period of the prior year, primarily due to the addition of new unsecured senior notes and the Fannie Mae credit facility.

Interest and other income (loss).

Interest and other income decreased to a loss of $17,000 in the three months ended June 30, 2022, compared to income of $619,000 in the same period of the prior year.

The decrease was primarily due to interest income on mortgages receivable that were outstanding in the prior year.

Interest and other income decreased to $1.0 million in the six months ended June 30, 2022, compared to $1.1 million in the same period of the prior year.

The decrease was primarily due to interest income on mortgages receivable outstanding in the prior year, offset by a gain on the mark to market adjustment for an interest rate swap contract.

Interest and other income increased to income of $70,000 in the three months ended September 30, 2022, compared to a loss of $5.1 million in the same period of the prior year.

The increase was primarily due to a $5.4 million loss related to the termination of interest rate swaps in the prior year.

Interest and other income increased to income of $1.1 million in the nine months ended September 30, 2022, compared to a loss of $4.0 million in the same period of the prior year.

The increase was primarily due to a $5.4 million loss related to the termination of interest rate swaps that occurred in the prior year.

Net income (loss) available to common shareholders.

Net loss available to common shareholders decreased to a loss of $4.6 million for the three months ended June 30, 2022, compared to net income of $19.9 million in the three months ended June 30, 2021.

Net loss available to common shareholders decreased to a loss of $14.8 million for the six months ended June 30, 2022, compared to net income of $13.5 million in the six months ended June 30, 2021.

Net loss available to common shareholders improved $9.0 million to a loss of $2.1 million for the three months ended September 30, 2022, compared to $11.1 million in the three months ended September 30, 2021.

Net income (loss) available to common shareholders decreased to a loss of $16.9 million for the nine months ended September 30, 2022, compared to net income of $2.4 million in the nine months ended September 30, 2021.

Funds from Operations and Core Funds from Operations .

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Core FFO is a non-GAAP and non-standardized financial measure that may be calculated differently by other REITs and that should not be considered a substitute for operating results determined in accordance with GAAP.

FFO applicable to common shares and Units for the three months ended June 30, 2022, increased to $19.1 million compared to $13.7 million for the comparable period of the prior year, an increase of 39.6%.

FFO applicable to common shares and Units for the six months ended June 30, 2022, increased to $37.6 million compared to $26.6 million for the comparable period of the prior year, an increase of 41.4%.

This increase was primarily due to increased NOI from same-store and non-same-store communities, offset by increased interest, property management, general and administrative expenses, and casualty loss, and decreased NOI from dispositions.

FFO applicable to common shares and Units for the three months ended September 30, 2022, increased to $21.0 million compared to $9.3 million for the comparable period of the prior year, an increase of 125.9%.

FFO applicable to common shares and Units for the nine months ended September 30, 2022, increased to $58.7 million compared to $35.9 million for the comparable period of the prior year, an increase of 63.3%.

This increase was primarily due to increased NOI from same-store and non-same-store communities and a $5.4 million loss related to the termination of interest rate swaps in the same period of the prior year that did not occur in the current year, offset by increased casualty loss, interest, property management, and general and administrative expenses, and decreased NOI from dispositions.

Reconciliation of Net Income Available to Common Shareholders to Funds from Operations and Core Funds from Operations

(in thousands, except per share and unit amounts)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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234 625 784 1,485

Commercial lease termination proceeds — (450) — (450)

Interest rate swap termination, amortization, and mark-to-market 204 5,353 (204) 5,353

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Per Share Data

Earnings (loss) per common share - diluted $ (0.30) $ 1.48 $ (0.97) $ 1.02

Net income (loss) per common share - diluted $ (0.14) $ (0.79) $ (1.11) $ 0.12

FFO per share and Unit - diluted $ 1.13 $ 0.60 $ 3.16 $ 2.44

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Acquisitions and Dispositions

We had no acquisitions or dispositions during the three months ended June 30, 2022.

On September 30, 2022, we acquired Lyra Apartments, located in Centennial, Colorado for an aggregate purchase price of $95.0 million.

We had no dispositions during the nine months ended September 30, 2022.

Distributions Declared

Distributions of $0.73 and $1.46 per common share and Unit were declared during the three and six months ended June 30, 2022, respectively.

Distributions of $0.70 and $1.40 per common share and Unit were declared during the three and six months ended June 30, 2021, respectively.

Distributions of $0.4140625 and $0.828125 per Series C preferred share were declared during the three and six months ended June 30, 2022 and 2021.

Distributions of $0.9655 and $1.931 per Series D preferred unit

were declared during the three and six months ended June 30, 2022 and 2021.

Distributions of $0.968750 and $1.937500 per Series E preferred unit were declared during the three and six months ended June 30, 2022.

Distributions of $0.73 and $2.19 per common share and Unit were declared during the three and nine months ended September 30, 2022, respectively.

Distributions of $0.72 and $2.12 per common share and Unit were declared during the three

and nine months ended September 30, 2021, respectively.

Distributions of $0.4140625 and $1.2421875 per Series C preferred share were declared during the three and nine months ended September 30, 2022 and 2021, respectively.

Distributions of $0.9655 and $2.8965 per Series D preferred unit were declared during the three and nine months ended September 30, 2022 and 2021, respectively.

Distributions of $0.96875 and $2.90625 per Series E preferred unit were declared during the three and nine months ended September 30, 2022, respectively.

Distributions of $0.322917 per Series E preferred unit were declared during the three and nine months ended September 30, 2021.

Liquidity and Capital Resources

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Our primary sources of liquidity are cash and cash equivalents on hand and cash flows generated from operations.

Other sources include availability under the unsecured lines of credit, proceeds from property dispositions, including restricted cash related to net tax deferred proceeds, offerings of preferred and common shares under the shelf registration statement, including offerings of common shares under the 2021 ATM Program, and long-term unsecured debt and secured mortgages.

Other sources include availability under the unsecured lines of credit, proceeds from property dispositions, including restricted cash related to net tax deferred proceeds, offerings of preferred and common shares under the shelf registration statement, including offerings of common shares under the 2021 at-the-market offering (“2021 ATM Program”), and long-term unsecured debt and secured mortgages.

Our primary liquidity demands are normally-recurring operating and overhead expenses, debt service and repayments, capital improvements to communities, distributions to the holders of preferred shares, common shares, Series D and Series E preferred units, and Units, value-add redevelopment, common and preferred share buybacks and Unit redemptions, and acquisitions of additional communities.

Although we believe that our financial condition and liquidity are sufficient to meet our reasonably anticipated liquidity demands, factors that could impact our future liquidity include, but are not limited to, volatility in capital and credit markets, the ability to access capital and credit markets, the effects of the COVID-19 pandemic, including its potential impact on our ability to access the capital and credit markets on reasonable terms (or at all), the minimum REIT dividend requirements, and our ability to complete asset purchases, sales, or developments.

As of June 30, 2022, we had total liquidity of approximately $196.2 million, which included $183.0 million available on the lines of credit and $13.2 million of cash and cash equivalents.

Although we believe that our financial condition and liquidity are sufficient to meet our reasonably anticipated liquidity demands, factors that could impact our future liquidity include, but are not limited to, volatility in capital and credit markets, interest rate increases, the ability to access capital and credit markets, the effects of the COVID-19 pandemic, including its potential impact on our ability to access the capital and credit markets on reasonable terms (or at all), the minimum REIT dividend requirements, and our ability to complete asset purchases, sales, or developments.

As of September 30, 2022, we had total liquidity of approximately $99.5 million, which included $84.5 million available on the lines of credit and $15.0 million of cash and cash equivalents.

As of December 31, 2021, we had total liquidity of approximately $211.3 million, which included $180.0 million on the lines of credit and $31.3 million of cash and cash equivalents.

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The amended agreement provides for a revolving line of credit for $250.0 million, an accordion option to increase borrowing capacity up to $400.0 million, and extended the maturity date to September 2025.

As of June 30, 2022, the line of credit had total commitments and borrowing capacity of $250.0 million, based on the value of unencumbered properties.

As of June 30, 2022, the additional borrowing availability was $177.0 million beyond the $73.0 million drawn.

As of September 30, 2022, the line of credit had total commitments and borrowing capacity of $250.0 million, based on the value of unencumbered properties.

As of September 30, 2022, the additional borrowing availability was $78.5 million beyond the $171.5 million drawn.

At December 31, 2021, the line of credit borrowing capacity was $250.0 million based on the value of unencumbered properties, of which $76.0 million was drawn on the line.

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The FMCF is currently secured by mortgages on those apartment communities.

The notes are

interest-only, have varying maturity dates of 7, 10, and 12 years, and a blended, weighted average interest rate of 2.78%.

As of June 30, 2022 and December 31, 2021, the FMCF had a balance of $198.9 million.

The notes are interest-only, have varying maturity dates of 7, 10, and 12 years, and a blended, weighted average interest rate of 2.78%.

As of September 30, 2022 and December 31, 2021, the FMCF had a balance of $198.9 million.

The FMCF is included within mortgages payable on the Condensed Consolidated Balance Sheets.

Mortgage loan indebtedness, excluding the FMCF, was $302.4 million and $284.9 million at June 30, 2022 and December 31, 2021, respectively.

All of our mortgage debt is at fixed rates of interest, with staggered maturities.

Mortgage loan indebtedness, excluding the FMCF, was $301.0 million and $284.9 million at September 30, 2022 and December 31, 2021, respectively.

All of our mortgage debt is collateralized by apartment communities and is non-recourse at fixed rates of interest, with staggered maturities.

This decreases the exposure to changes in interest rates, which reduces the effect of interest rate fluctuations on our results of operations and cash flows.

As of June 30, 2022, the weighted average interest rate on mortgage debt was 3.85%, compared to 3.81% as of December 31, 2021.

As of September 30, 2022, the weighted average interest rate on mortgage debt was 3.85%, compared to 3.81% as of December 31, 2021.

We also have a $6.0 million operating line of credit.

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This operating line matures on November 29, 2022, with pricing based on a market spread plus the one-month LIBOR index rate.

We had an equity distribution agreement in connection with the 2019 ATM Program through which we could offer and sell common shares having an aggregate gross sales price of up to $150.0 million.

We replaced the 2019 ATM Program with the 2021 ATM Program, through which we may offer and sell common shares having an aggregate sales price of up to $250.0 million, in amounts and at times determined by management.

We have an equity distribution agreement in connection with 2021 ATM Program through which we may offer and sell common shares having an aggregate gross sales price of up to $250.0 million, in amounts and at times determined by management.

The proceeds from the sale of common shares under the 2021 ATM program may be used for general corporate purposes, including the funding of acquisitions and the repayment of indebtedness.

During the six months ended June 30, 2022, we issued 321,000 common shares under the 2021 ATM program at an average price of $98.89 per share, net of commissions.

During the nine months ended September 30, 2022, we issued 321,000 common shares under the 2021 ATM program at an average price of $98.89 per share, net of commissions.

Total consideration, net of commissions and issuance costs, was $31.7 million.

As of June 30, 2022, common shares having an aggregate offering price of up to $126.6 million remained available under the 2021 ATM Program.

As of September 30, 2022, common shares having an aggregate offering price of up to $126.6 million remained available under the 2021 ATM Program.

Further information can be found in Note 4 - Equity and Mezzanine Equity in the Condensed Consolidated notes.

On June 13, 2022, the Board of Trustees approved a new share repurchase program (the “Share Repurchase Program”), providing for the repurchase of up to an aggregate of $50.0 million of the Company's outstanding common shares.

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The specific timing and amount of repurchases will vary based on available capital resources or other financial and operational performance, market conditions, securities law limitations, and other factors.

During the six months ended June 30, 2022, the Company had no share repurchases under this program.

As of June 30, 2022, the Company had $50.0 million remaining authorized for purchase under this program.

The table below provides details on the shares repurchased during the three and nine months ended September 30, 2022.

As of September 30, 2022, the Company had $49.6 million remaining authorized for purchase under this program.

(in thousands, except per share amounts)

Number of Common Shares Total Consideration (1)

Average Net Price Per Share (1)

Three and Nine Months Ended September 30, 2022

5 $ 359 $ 65.97

(1) Amount includes commissions.

Changes in Cash, Cash Equivalents, and Restricted Cash

The following discussion relates to changes in consolidated cash, cash equivalents, and restricted cash which are presented in the Condensed Consolidated Statements of Cash Flows in Part I, Item 1 above.

In addition to cash flow from operations, during the six months ended June 30, 2022, we generated capital from various activities, including:

In addition to cash flow from operations, during the nine months ended September 30, 2022, we generated capital from various activities, including:

• Receiving $31.5 million in net proceeds from the issuance of 321,000 common shares under the 2021 ATM Program;

During the six months ended June 30, 2022, we used capital for various activities, including:

• Receiving $95.5 million in net proceeds from the line of credit.

During the nine months ended September 30, 2022, we used capital for various activities, including:

• Acquiring four apartment communities in Minneapolis, Minnesota for $9.1 million in cash with the remainder of the purchase price in issuance of Units, assumption of mortgage debt, and the exchange of mortgages receivable which we financed;

• Acquiring Lyra Apartments, a 215 home apartment community located in Centennial, Colorado for $95.0 million;

• Repaying $27.4 million of mortgage principal;

• Repaying $3.0 million on the line of credit;

• Paying $3.2 million for the termination of interest rate swaps;

• Repurchased 42,000 operating partnership units for $3.8 million;

• Funding capital improvements for apartment communities of approximately $33.6 million.

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Contractual obligations and other commitments were disclosed in our Form 10-K for the year ended December 31, 2021.

Refer to Note 10 of the Notes to the Condensed Consolidated Financial Statements for additional details.

There have been no material changes to our contractual obligations and other commitments since that report was filed.

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A worsening of the current environment could contribute to delays in obtaining construction materials and result in higher than anticipated costs, which could prevent us from obtaining expected returns on value add projects.

Access to the financial markets remains strong;

We continue to have access to the financial markets;

however, a prolonged disruption of the markets or a decline in credit and financing conditions could negatively affect our ability to access capital necessary to fund our operations or refinance maturing debt in the future.

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Off-Balance Sheet Arrangements

As of June 30, 2022, we had no significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

As of September 30, 2022, we had no significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Critical Accounting Policies

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A summary of critical accounting policies is included in our Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022 under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Refer to Note 2 of the Notes to Condensed Consolidated Financial Statements in this report for additional information.

There have been no other significant changes to the our critical accounting policies during the six months ended June 30, 2022.

There have been no other significant changes to the our critical accounting policies during the nine months ended September 30, 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis