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Independence Realty Trust Inc. - Initiation Note

Independence Realty Trust, Inc.

BUY (IRT, $9.73)

IRT, The Growth Model to Follow. Initiating With A BUY Rating and $11 Price Target

August 12, 2014

John R. Benda


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Investment Conclusion. We are initiating coverage of Independence Realty Trust, Inc. with a BUY rating and $11.0 price target. Since completing its IPO nary a year ago, IRT has successfully priced two secondary offerings, grown its apartment portfolio 126.5%, is slated to post Y/Y quarterly revenue growth of 152%, and increased its dividend 12.5% all while maintaining a net-debt-to-cap ratio of under 60%. Essentially, we believe IRT has set the precedent for the successful growth road map for small-cap MF rental REITs to follow. In July, IRT raised $76 mln of equity it has yet to deploy, capital to continue to grow IRT’s portfolio driving value for investors. Our price target is derived from a 50/50 blend of our $11.09 Net Asset Value (“NAV”) estimate and $10.44 Dividend Discount Model (“DDM”) estimate. Our $11 price target implies an annual total return, including the current 7.42% dividend yield, of 20.5% at the current stock price of $9.73.

IRTSource: Capital IQ, Company reports, National Securities Corporation Estimates

Significant Portfolio Growth Since IPO with Healthy Pipeline. Since its IPO in 3Q13 to the most recently available data available from IRT, it has posted an apartment unit growth figure of 126.5%, adding 2,984 units to its August 2013 IPO portfolio of 2,358. With another fresh capital raise in July 2014with proceeds that have not yet been deployed, IRT’s stock is likely to be boosted by another acquisition announcement of a potential additional 3,419 units. At the time of the secondary offering in July IRT had multiple properties either under contract, with a letter of intent signed or which they were negotiating a purchase price, totaling 1,110 units for $87.9 mln and were evaluating a pipeline of another 3,484 units worth $310.3 mln. When investors look to analyze Y/Y unit growth at the end of 2014, IRTs growth statistics should surely stand out from its peers.

Attractive Market Footprint In Secondary and Tertiary Markets – And That’s OKAY. Oklahoma City, OK, Little Rock, AR, Creve Coeur, MO, Ridgeland, MI...although not the most common names to hear when listening to REIT management teams talking about new property acquisitions, we feel IRT’s secondary and tertiary market strategy is a competitive advantage. In secondary and tertiary markets what will be distinctively...

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