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Independence Realty Trust Announces Third Quarter 2017 Financial Results

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Independence Realty Trust, Inc. ("IRT") (NYSE:IRT), a multi-family
apartment REIT, today announced its third quarter 2017 financial results.

Results for the Quarter

  • Net income available to common shareholders was $1.1 million for the
    quarter ended September 30, 2017 as compared to $2.3 million for the
    quarter ended September 30, 2016.
  • Core Funds from Operations ("CFFO") per share of $0.19 for the quarter
    ended September 30, 2017 as compared to $0.21 for the quarter ended
    September 30, 2016.
  • Adjusted EBITDA of $20.2 million for the quarter ended September 30,
    2017 as compared to $18.4 million for the quarter ended September 30,
    2016.

Results for the Nine Months

  • Net income available to common shareholders was $23.9 million for the
    nine months ended September 30, 2017 as compared to $31.2 million for
    the nine months ended September 30, 2016.
  • Core Funds from Operations ("CFFO") per share of $0.55 for the nine
    months ended September 30, 2017 as compared to $0.63 for the nine
    months ended September 30, 2016.
  • Adjusted EBITDA of $59.2 million for the nine months ended September
    30, 2017 as compared to $56.0 million for the nine months ended
    September 30, 2016.

Same-Store Property Operating Results

         
   

Third Quarter 2017 Compared
to Third Quarter 2016(1)

 

Nine Months Ended 9/30/17
Compared to Nine Months
Ended
9/30/16(1)

Rental income   2.5% increase   3.5% increase
Total revenues   3.0% increase   4.0% increase
Property level operating expenses   1.5% increase   2.6% increase
Net operating income ("NOI")   4.0% increase   4.9% increase
Portfolio average occupancy   40 bps increase to 94.7%   100 bps increase to 94.5%
Portfolio average rental rate   2.2% increase to $1,020   3.0% increase to $1,014
NOI Margin   60 bps increase to 59.5%   50 bps increase to 59.9%
       

(1)

  Same store portfolio for the three and nine months ended September
30, 2017 and 2016 includes 42 properties, which represent 11,676
units.

"Our third quarter performance reflects our ongoing commitment to drive
organic growth while continuing to transform the portfolio," said Scott
Schaeffer, IRT's Chairman and CEO. "Sound market fundamentals combined
with a proactive approach to property management led to 4.0%
year-over-year same-store NOI growth for the third quarter and 4.9% for
the first nine months of the year. Our recently announced portfolio
acquisition aligns perfectly with our investment strategy and will
enable us to increase scale in core markets and strengthen our balance
sheet over time. The year-to-date execution of our strategic initiatives
has put IRT on track to deliver on our full-year objectives and enter
2018 from a position of strength as we work to unlock additional
portfolio value."

Property Acquisitions

On September 3, 2017, IRT reached an agreement to acquire a portfolio of
nine communities, totaling 2,353 units, for a gross purchase price of
$228.1 million. The acquisition accelerates IRT's penetration into a
number of core existing markets, including Columbus, OH, Indianapolis,
IN, and Atlanta, GA, while providing entry into two new markets. The
portfolio contains nine communities that were built or renovated between
2000 and 2011, had period end occupancy of 95% as of July 31, 2017, and
had an average effective rent per unit of $884 for the three months
ended July 31, 2017. On September 26, 2017, IRT closed on four of these
multifamily apartment communities, totaling 917 units: two in Columbus,
OH, and the remaining two in Indianapolis, IN and Myrtle Beach, SC. On
October 25, 2017, IRT closed on a 264-unit community in Baton Rouge, LA,
representing the fifth community in the portfolio. The acquisition of
the remaining four communities are expected to close in succession
during the fourth quarter of 2017, after and subject to the satisfaction
of customary closing conditions, as well as the debt assumption process
on three of the four.

Public Stock Offering

On September 11, 2017, IRT announced the closing of its public offering
of 12,500,000 shares of its common stock at a public offering price of
$9.25 per share. IRT also closed on the underwriters' option to purchase
an additional 1,875,000 shares of common stock at the public offering
price. As a result of the offering and the exercise of the underwriters'
option, IRT received approximately $126.1 million in net proceeds, after
deducting the underwriting discount and estimated offering expenses. IRT
is using the net proceeds from the offering to pay a portion of the
purchase price for the nine-community portfolio acquisition. Any
remaining proceeds will be used for general corporate purposes.

Capital Expenditures

For the three months ended September 30, 2017, recurring capital
expenditures for the total portfolio were $2.1 million, or $161 per
unit. For the nine months ended September 30, 2017, recurring capital
expenditures for the total portfolio were $5.4 million, or $418 per unit.

2017 EPS and CFFO Guidance

IRT is adjusting 2017 full year EPS per diluted share guidance due to
additional depreciation and acquisition related costs from the
previously announced nine-community portfolio acquisition. EPS per
diluted share is projected to be in a range of $0.38 to $0.41, compared
to $0.54 to $0.57 previously. CFFO per diluted share is projected to be
in the range of $0.73 to $0.76, unchanged from the prior quarter. A
reconciliation of IRT's projected net income available to common shares
to its projected CFFO per share, a non-GAAP financial measure, is
included below. Also included below are the primary assumptions
underlying this estimate. See Schedule II to this release for further
information regarding how IRT calculates CFFO and Schedule V to this
release for management's definition and rationale for the usefulness of
CFFO.

       
2017 Full Year EPS and CFFO Guidance (1)

Low

High

Net income available to common shares $0.38 $0.41
Earnings per share $0.38 $0.41
 
2017 EPS and CFFO Guidance
Net income available to common shares $0.38 $0.41
Adjustments:
Depreciation and amortization 0.47 0.47
Gains on asset sales (0.24) (0.24)
Share base compensation 0.03 0.03
Amortization of deferred financing fees 0.02 0.02
Acquisition, integration, and debt extinguishment expenses 0.07 0.07
CORE FFO per diluted share allocated to common shareholders $0.73 $0.76
        (1)   This guidance, including the underlying assumptions, constitutes
forward-looking information. Actual full 2017 EPS and CFFO could
vary significantly from the projections presented. See
"Forward-Looking Statements" below. Our estimate is based on the
following key operating assumptions for IRT's 2017 performance:
 
Same Store Communities       Previous 2017 Outlook   Revised 2017 Outlook
Number of properties/units 42 properties /11,676 units 42 properties /11,676 units
Property revenue growth 4.0% to 4.5% 4.0%
Controllable property operating expense growth 1.6% to 2.0% 1.6% to 2.0%
Real estate tax and insurance expense increase 4.5% to 5.5% 4.5% to 5.5%
Property NOI growth 4.5% to 5.5% 4.5% to 5.5%
 
Corporate Expenses
General and administrative expenses

(excluding stock based compensation)

$7.3 to $7.7 million $7.3 to $7.7 million
 
Transaction/Investment Volume
Acquisition volume $87 million $315 to $355 million
Disposition volume $87 million $87 million
 
Capital Expenditures
Recurring $6.5 to $6.8 million $6.5 to $6.8 million
Value Add $5.5 to $6.0 million $5.5 to $6.0 million
 

Selected Financial Information

See Schedule I to this Release for selected financial information for
IRT.

Non-GAAP Financial Measures and Definitions

IRT discloses the following non-GAAP financial measures in this release:
FFO, CFFO, Adjusted EBITDA and NOI. A reconciliation of IRT's reported
net income (loss) to its FFO and CFFO is included as Schedule II to this
release. A reconciliation of IRT's same store NOI to its reported net
income (loss) is included as Schedule III to this release. A
reconciliation of IRT's Adjusted EBITDA to net income (loss) is included
as Schedule IV to this release. See Schedule V to this release for
management's respective definitions and rationales for the usefulness of
each of these non-GAAP financial measures and other definitions used in
this release.

Distributions

On October 17, 2017, IRT's Board of Directors declared monthly cash
dividends for the fourth quarter of 2017 on IRT's shares of common stock
in the amount of $0.06 per share per month. The monthly dividends total
$0.18 per share for the fourth quarter. The month for which each
dividend was declared is set forth below, with the relevant amount per
share, record date and payment date set forth opposite the month:

Month

     

Amount

     

Record Date

     

Payment Date

October 2017 $0.06 10/31/2017 11/15/2017
November 2017 $0.06 11/30/2017 12/15/2017
December 2017 $0.06 12/29/2017 01/15/2018

IRT will be transitioning to a quarterly distribution of cash dividends,
effective the first quarter of 2018.

Conference Call

All interested parties can listen to the live conference call webcast at
9:30 AM ET on Tuesday, October 31, 2017 from the investor relations
section of the IRT website at www.irtliving.com
or by dialing 1.844.775.2542, access code 99812647. For those who are
not available to listen to the live call, the replay will be available
shortly following the live call from the investor relations section of
IRT's website and telephonically until Tuesday, November 7, 2017 by
dialing 1.855.859.2056, access code 99812647.

Supplemental Information

IRT produces supplemental information that includes details regarding
the performance of the portfolio, financial information, non-GAAP
financial measures, same-store information and other useful information
for investors. The supplemental information is available via the
Company's website, www.irtliving.com,
through the "Investor Relations" section.

About Independence Realty Trust, Inc.

Independence Realty Trust (NYSE:IRT) is a real estate investment trust.
Upon completion of the previously announced nine community portfolio
acquisition, IRT will own and operate 55 multifamily apartment
properties, totaling 15,165 units, across non-gateway U.S. markets,
including Louisville, Memphis, Atlanta and Raleigh. IRT's investment
strategy is focused on gaining scale within key amenity rich submarkets
that offer good school districts, high-quality retail and major
employment centers. IRT aims to provide stockholders attractive
risk-adjusted returns through diligent portfolio management, strong
operational performance, and a consistent return of capital through
distributions and capital appreciation.

Forward-Looking Statements

This press release may contain certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements can generally be identified by our use of
forward-looking terminology such as "may," "will," "expect," "intend,"
"anticipate," "estimate," "believe," "seek," "outlook," "assumption,"
"projected," "strategy", "guidance" or other similar words. Because such
statements include risks, uncertainties and contingencies, actual
results may differ materially from the expectations, intentions,
beliefs, plans or predictions of the future expressed or implied by such
forward-looking statements. These forward-looking statements are based
upon the current beliefs and expectations of IRT's management and are
inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are difficult to predict
and generally not within IRT's control. In addition, these
forward-looking statements are subject to assumptions with respect to
future business strategies and decisions that are subject to change.
Such forward-looking statements include, but are not limited to, IRT's
2017 EPS and CFFO guidance; the assumptions underlying such guidance;
the anticipated benefits and the expected financial impact of IRT's
internalization of its management; changes in financial markets and
interest rates, or to the business or financial condition of IRT;
changes in market demand for rental apartment homes and competitive
pricing from projected apartment industry dynamics, demographic and
employment information; IRT's maintenance of real estate investment
trust ("REIT") status; availability of financing and capital; dividends
are subject to the discretion of IRT's Board of Directors, and will
depend on IRT's financial condition, results of operations, capital
requirements, compliance with applicable laws and agreements and any
other factors deemed relevant by IRT's Board; risks associated with
pursuing additional strategic acquisitions, including risks associated
with the need to raise additional capital to fund the acquisitions; and
those additional risks and factors discussed in reports filed with the
Securities and Exchange Commission ("SEC") by IRT from time to time,
including those discussed under the heading "Risk Factors" in IRT's most
recently filed reports on Forms 10-K and 10-Q. IRT undertakes no
obligation to update these forward-looking statements to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events, except as may be required by law.

     
Schedule I

Independence Realty Trust, Inc.

Selected Financial Information

(Dollars in thousands, except share and per share amounts)

(unaudited)

 
As of or For the Three-Month Periods Ended
September 30,

2017

  June 30,

2017

  March 31,

2017

  December 31,

2016

  September 30,

2016

Operating Statistics:
Net income available to common shares $ 1,097 $ 18,739 $ 4,077 $ (40,980 ) $ 2,267
Earnings (loss) per share -- diluted $ 0.02 $ 0.27 $ 0.06 $ (0.61 ) $ 0.05
Total property revenue $ 39,864 $ 39,431 $ 38,895 $ 38,002 $ 38,364
Total property operating expenses $ 16,196 $ 15,918 $ 15,992 $ 15,560 $ 16,107
Net operating income ("NOI") $ 23,668 $ 23,513 $ 22,903 $ 22,442 $ 22,257
NOI margin 59.4 % 59.6 % 58.9 % 59.1 % 58.0 %
Adjusted EBITDA $ 20,220 $ 19,493 $ 19,512 $ 18,544 $ 18,373
Funds from operations ("FFO") per share -- diluted $ 0.13 $ 0.12 $ 0.17 $ (0.50 ) $ 0.20
Core funds from operations ("CFFO") per

share -- diluted

$ 0.19 $ 0.19 $ 0.18 $ 0.17 $ 0.21
Dividends per share $ 0.18 $ 0.18 $ 0.18 $ 0.18 $ 0.18
CORE FFO payout ratio 94.7 % 94.7 % 100.0 % 105.9 % 85.7 %
Portfolio Data:
Total gross assets $ 1,497,546 $ 1,400,864 $ 1,390,589 $ 1,370,243 $ 1,374,353
Total number of properties 50 46 47 46 46
Total units 13,729 12,812 13,198 12,982 12,982
Period end occupancy 94.8 % 94.5 % 94.7 % 94.5 % 94.3 %
Average occupancy 94.7 % 94.9 % 93.8 % 93.8 % 94.1 %
Average monthly effective rent, per unit $ 1,004 $ 1,010 $ 978 $ 977 $ 977
Same store period end occupancy 94.9 % 94.6 % 94.8 % 93.9 % 93.7 %
Same store portfolio average occupancy (a) 94.7 % 95.0 % 93.9 % 93.7 % 94.3 %
Same store portfolio average effective monthly

rent (a)

$ 1,020 $ 1,013 $ 1,007 $ 998 $ 999
Capitalization:
Total debt $ 731,625 $ 764,521 $ 765,695 $ 743,817 $ 880,581
Common share price, period end $ 10.17 $ 9.87 $ 9.37 $ 8.92 $ 9.00
Market equity capitalization $ 880,257 $ 712,413 $ 674,591 $ 641,393 $ 453,823
Total market capitalization $ 1,611,882 $ 1,476,934 $ 1,440,286 $ 1,385,210 $ 1,334,404
Total debt/total gross assets 48.9 % 54.6 % 55.1 % 54.3 % 64.1 %
Net debt to adjusted EBITDA 8.9 x (b) 9.7 x 9.7 x 9.7 x 11.6 x
Interest coverage 2.9 x 2.7 x 2.6 x 2.4 x 2.1 x
Common shares and OP Units:
Shares outstanding 83,518,603 69,143,955 69,125,681 68,996,070 47,509,731
OP units outstanding   3,035,654   3,035,654   2,869,050   2,908,949   2,915,008
Common shares and OP units outstanding 86,554,257 72,179,609 71,994,731 71,905,019 50,424,739
Weighted average common shares and units 75,009,859 71,703,735 71,656,205 70,036,948 50,229,637
 
        (a)   Same store includes 42 properties, which represent 11,676 units.
(b) Net debt to adjusted EBITDA would be 9.2x if adjusted for timing of
acquisitions and the sale of Crossings.
 
       
Schedule II

Independence Realty Trust, Inc.

Reconciliation of Net Income (loss) to

Funds From Operations and

Core Funds From Operations

(Dollars in thousands, except share and per share amounts)

(unaudited)

 

For the Three Months
Ended September 30,

For the Nine Months Ended
September 30,

2017   2016 2017   2016
Funds From Operations (FFO):
Net Income (loss) $ 1,156 $ 2,407 $ 24,922 $ 33,151
Adjustments:
Real estate depreciation and amortization 8,645 7,765 24,227 26,927
Net (gains) losses on sale of assets excluding defeasance costs   92   1   (18,621 )   (33,169 )
Funds From Operations $ 9,893 $ 10,173 $ 30,528 $ 26,909
FFO per share--diluted   0.13   0.20   0.42   0.54
Core Funds From Operations (CFFO):
Funds From Operations 9,893 10,173 30,528 26,909
Adjustments:
Stock compensation expense 422 247 1,548 832
Amortization of deferred financing costs 282 597 1,160 2,543
Acquisition and integration expenses 569 19 956 37
Other depreciation and amortization 26 - 62 -
Hedge ineffectiveness (12 ) - - -
(Gains) losses on extinguishment of debt - - 572 558
Defeasance costs included in net gains (losses) on sale of assets - - 2,748 1,396
Acquisition related debt extinguishment expenses 2,781 - 2,781 -
Gains (losses) on TSRE merger   -   (641 )   -   (732 )
Core Funds From Operations $ 13,961 $ 10,395 $ 40,355 $ 31,543
CFFO per share--diluted 0.19 0.21 0.55 0.63
Weighted-average shares and units outstanding   75,009,859   50,229,637   72,801,899   50,105,147
 
     
Schedule III

Independence Realty Trust, Inc.

Reconciliation of Same-Store Net Operating Income to Net Income
(loss)

(Dollars in thousands)

(unaudited)

 
For the Three-Months Ended (a)
September 30,

2017

  June 30,

2017

  March 31,

2017

  December 31,

2016

  September 30,

2016

Reconciliation of same-store net operating income to net income
(loss)
Same store $ 21,652 $ 21,943 $ 21,208 $ 21,011 $ 20,823
Non same store 2,016 1,570 1,695 1,431 1,434
Property management income 202 130 247 29
Property management expenses (1,328 ) (1,444 ) (1,538 ) (1,137 ) (1,219 )
General and administrative expenses (2,322 ) (2,706 ) (2,100 ) (2,790 ) (2,665 )
Acquisition and integration expenses (569 ) (265 ) (122 ) (6 ) (19 )
Depreciation and amortization expense (8,671 ) (8,011 ) 7,607 (7,897 ) (7,765 )
Interest expense (6,963 ) (7,162 ) (7,448 ) (7,720 ) (8,820 )
Hedge ineffectiveness 12 (12 )
Other income (expense) - (5 ) (2 ) (2 )
Net gains (losses) on sale of assets (92 ) 16,050 (85 ) 3 (1 )
Gains (losses) on extinguishment on debt (572 ) (652 )
Acquisition related debt extinguishment expenses (2,781 )
Gains (losses) on TSRE merger 641
Management internalization expense         (44,976 )  
Net income (loss) $ 1,156 $ 19,521 $ 4,245 $ (42,706 ) $ 2,407
        (a)   Same store portfolio includes 42 properties, which represent 11,676
units.
 

Schedule IV
Independence Realty Trust, Inc.
Reconciliation
of Net Income (Loss) to Adjusted EBITDA
And Interest Coverage Ratio
(Dollars
in thousands)
(unaudited)

     
Three Months Ended
ADJUSTED EBITDA: September 30,

2017

  June 30,

2017

  March 31,

2017

  December 31,

2016

  September 30,

2016

Net income (loss) $ 1,156 $ 19,521 $ 4,245 $ (42,706 ) $ 2,407
Add-Back (Deduct):
Depreciation and amortization 8,671 8,011 7,607 7,897 7,765
Interest expense 6,963 7,162 7,448 7,720 8,820
Hedging ineffectiveness (12 ) 12
Other (income) expense 5 2 2
Acquisition and integration expenses 569 265 122 6 19
Net (gains) losses on sale of assets 92 (16,050 ) 85 (3 ) 1
(Gains) losses on extinguishment of debt 572 652
Management internalization expense 44,976
Acquisition related debt extinguishment expenses 2,781
Gains (losses) on TSRE merger         -   (641 )
Adjusted EBITDA $ 20,220 $ 19,493 $ 19,512 $ 18,544 $ 18,373
 
INTEREST COST:
Interest expense $ 6,963 $ 7,162 $ 7,448 $ 7,720 $ 8,820
 
INTEREST COVERAGE: 2.9 x 2.7 x 2.6 x 2.4 x 2.1 x
 
       
Three Months Ended September 30,   Nine Months Ended September 30,
ADJUSTED EBITDA: 2017   2016 2017 2016
Net income (loss) $ 1,156 $ 2,407 $ 24,922 $ 33,151
Add-Back (Deduct):
Depreciation and amortization 8,671 7,765 24,289 26,927
Interest expense 6,963 8,820 21,573 27,815
Hedging ineffectiveness (12 ) -
Other (income) expense 2 5 2
Acquisition and integration expenses 569 19 956 37
Net (gains) losses on sale of assets 92 1 (15,873 ) (31,773 )
(Gains) losses on extinguishment of debt 572 558
Management internalization expense
Acquisition related debt extinguishment expenses 2,781 2,781
Gains (losses) on TSRE merger     (641 )     (732 )
Adjusted EBITDA $ 20,220 $ 18,373 $ 59,225 $ 55,985
 
INTEREST COST:
Interest expense $ 6,963   $ 8,820 $ 21,573 $ 27,815
 
INTEREST COVERAGE: 2.9 x 2.1 x 2.7 x 2.0 x
 

Schedule V
Independence Realty Trust, Inc.
Definitions

Average Effective Monthly Rent per Unit

Average effective rent per unit represents the average of gross rent
amounts, 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 of the daily physical occupancy
for the period presented.

Adjusted EBITDA

EBITDA is defined as net income before interest expense including
amortization of deferred financing costs, income tax expense, and
depreciation and amortization expenses. Adjusted EBITDA is EBITDA before
acquisition and integration expenses and certain other non-operating
gains or losses related to items such as asset sales, debt
extinguishments, acquisition related debt extinguishment expenses, gains
on the TSRE merger, and management internalization expenses. EBITDA and
Adjusted EBITDA are each non-GAAP measures. We consider each of EBITDA
and Adjusted EBITDA to be an appropriate supplemental measure of our
performance because it eliminates interest, income taxes, depreciation
and amortization, acquisition and integration expenses and other
non-operating gains and losses, which permits investors to view income
from operations without these non-cash or non-operating items. IRT's
calculation of Adjusted EBITDA differs from the methodology used for
calculating Adjusted EBITDA by certain other REITs and, accordingly,
IRT's Adjusted EBITDA may not be comparable to Adjusted EBITDA reported
by other REITs.

Funds From Operations ("FFO") and Core Funds From Operations ("CFFO")

IRT believes that FFO and CFFO, each of which is a non-GAAP measure, are
additional appropriate measures of the operating performance of a REIT
and IRT in particular. IRT computes FFO in accordance with the standards
established by the National Association of Real Estate Investment
Trusts, or NAREIT, as net income or loss (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.

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 stock
compensation expense, depreciation and amortization of other items not
included in FFO, amortization of deferred financing costs, acquisition
and integration expenses, and other non-operating gains or losses
related to items such as hedge ineffectiveness, defeasance costs we
incur when we sell a property subject to secured debt, asset sales, debt
extinguishments, acquisition related debt extinguishment expenses, gains
on the TSRE merger, and management internalization expenses, from the
determination of FFO. IRT incurs acquisition expenses in connection with
acquisitions of real estate properties and expenses those costs when
incurred in accordance with U.S. GAAP. As these expenses are one-time
and reflective of investing activities rather than operating
performance, IRT adds back these costs to FFO in determining CFFO.

IRT's calculation of CFFO differs from the methodology used for
calculating CFFO by certain other REITs and, accordingly, IRT's CFFO may
not be comparable to CFFO reported by other REITs. IRT's management
utilizes FFO and CFFO as measures of IRT's operating performance, and
believes they are also useful to investors, because they facilitate an
understanding of IRT's operating performance after adjustment for
certain non-cash or non-operating items that are required by GAAP to be
expensed but may not necessarily be indicative of current operating
performance and that may not accurately compare IRT's operating
performance between periods. Furthermore, although FFO, CFFO and other
supplemental performance measures are defined in various ways throughout
the REIT industry, IRT believes that FFO and CFFO may provide IRT and
our investors with an additional useful measure to compare IRT's
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. Neither FFO nor CFFO should be
considered as an alternative to net income as an indicator of IRT's
operating performance or as an alternative to cash flow from operating
activities as a measure of IRT's liquidity.

Interest Coverage

Interest coverage is a ratio computed by dividing our Adjusted EBITDA by
our interest expense.

Net Debt

Net debt, a non-GAAP measure, equals total debt less cash and cash
equivalents. The following table provides a reconciliation of total debt
to net debt.

IRT presents net debt because management believes it is a useful measure
of IRT's credit position and progress toward reducing leverage. The
calculation is limited in that IRT may not always be able to use cash to
repay debt on a dollar for dollar basis (Dollars in thousands).

     
As of
September 30,

2017

  June 30,

2017

  March 31,

2017

  December 31,

2016

  September 30,

2016

Total debt $ 731,625 $ 764,521 $ 765,695 $ 743,817 $ 880,581
Less: cash and cash equivalents   (10,128 )   (6,271 )   (10,065 )   (20,892 )   (29,247 )
Total net debt $ 721,497 $ 758,250 $ 755,630 $ 722,925 $ 851,334
 

Net Operating Income

IRT believes that Net Operating Income ("NOI"), a non-GAAP measure, is a
useful measure of its operating performance. IRT defines NOI as total
property revenues less total property operating expenses, excluding
depreciation and amortization, asset management fees, property
management fees, acquisition expenses and general administrative
expenses. In connection with our management internalization which was
completed in the fourth quarter of 2016, we modified our calculation of
NOI to exclude property management expenses. We retrospectively adjusted
previously reported NOI to conform to this change. 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. We use NOI to evaluate our performance
on a same store and non-same store basis because NOI measures the core
operations of property performance by excluding corporate level 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

IRT reviews its same store properties or portfolio at the beginning of
each calendar year. Properties are added into the same store portfolio
if they were owned at the beginning of the previous year. Properties
that are held-for-sale or have been sold are excluded from the same
store portfolio.

Total Gross Assets

Total Gross Assets equals total assets plus accumulated depreciation and
accumulated amortization, including fully depreciated or amortized real
estate and real estate related assets. The following table provides a
reconciliation of total assets to total gross assets (Dollars in
thousands).

     
As of
September 30,

2017

    June 30,

2017

    March 31,

2017

    December 31,

2016

    September 30,

2016

Total assets $ 1,405,212 $ 1,317,177 $ 1,306,986 $ 1,294,237 $ 1,306,242
Plus: accumulated depreciation (a) 76,664 68,433 68,262 60,719 52,824
Plus: accumulated amortization   15,670   15,254   15,341   15,287   15,287
Total gross assets $ 1,497,546 $ 1,400,864 $ 1,390,589 $ 1,370,243 $ 1,374,353
 
        (a)   Includes previously recognized depreciation on properties that are
classified as held-for-sale

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