Good day ladies and gentlemen, and welcome to your Q2 2015 Independence Realty Trust Earnings Conference Call. My name is Grant and I'll be your operator for today. At this time, all participants are in listen-only mode. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Andres Viroslav. Please go ahead.

Thank you, Grant, and good morning to everyone. Thank you for joining us today to review Independence Realty Trust's second quarter 2015 financial results. On the call with me today are Scott Schaeffer, IRT's Chief Executive Officer; Jim Sebra, IRT's Chief Financial Officer; and Farrell Ender, President of Independence Realty Trust. This morning's call is being webcast on our website at www.irtreit.com. There will be a replay of the call available via webcast on our website and telephonically beginning at approximately 1:00 p.m. Eastern Time today. The dial in for the replay is (888) 286-8010 with a confirmation code of 40907553. Before I turn the call over to Scott, I would like to remind everyone that there may be forward-looking statements made in this call. These forward-looking statements reflect IRT's current views with respect to future events and financial performance. Actual results could differ substantially and materially from what IRT has projected. Such statements are made in good faith pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Please refer to IRT's press release and filings with the SEC for factors that could affect the accuracy of our expectations or cause our future results to differ materially from those expectations. Participants may discuss non-GAAP financial measures in this call. A copy of IRT's press release containing financial information, other statistical information, and a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measure is attached to IRT's most recent current report on Form 8-K available at IRT's website www.irtreit.com under Investor Relations. IRT's other SEC filings are also available through this link. IRT does not undertake to update forward-looking statements in this call or with respect to matters described herein except as may be required by law. Now, I'd like to turn the call over to IRT's Chief Executive Officer, Scott Schaeffer. Scott?

Thanks, Andres, and thank you all for joining our call today. First of all, we believe there is an absolute disconnect between the fundamentals of our business and the recent performance of IRTs common stock. The portfolio is performing well and good things are happening highlighted by our previously announced acquisition of Trade Street Residential, and continuing opportunities to grow the way we have over the past two years. The second quarter total revenues grew, occupancies remained stable, and we continue to push run rates when impossible. Jim will share these details shortly. On May 11, 2015, we announced that we entered into an agreement to acquire Trade Street Residential, the S4 has been filed and we expect it to be declared effective by the SEC shortly. The transaction is expected to close by the end of the third quarter. We also recently received the commitment from KeyBanc on a new credit facility plus a 120 million interim facility. We expect to use both of these facilities to fund the Trade Street acquisition. The acquisition provides many positives to IRT and moves us to a step closer to our goal of building IRT into a leading owner of multi-family properties and predominantly non-gateway markets. First, IRT will have an enhanced scale as our asset base will increase by approximately $650 million to $1.4 billion as the portfolio increases from 31 to 50 properties and our number of units will increase 55% to 14,044 units. Also liquidity in IRT shares should improve since half the merger consideration will in the form of IRT stock approximately 16 million shares will issue to current Trade Street shareholders at closing. Second, the addition of Trade Street's high quality apartment communities will reduce IRTs average property age to 20 years while improving average base rent…

Thank you, Scott. I will discuss our operating results for the quarter first and end with a discussion of our merger with Trade Street. During the quarter core FFO is $0.19 per share or $6.3 million up 85% to $3.4 million for the same quarter last year. This quarter we are reporting a GAAP net income of $337,000. During the quarter revenue was up $11.2 million as compared to last year, this increase is primarily for $9.9 million of revenue from 12 properties that were required after the second quarter of last year. Property operating expenses increased $5 million this quarter as compared to last quarter most of which was associated with properties acquired since Q2 of last year. NOI for the portfolio was $12.2 million with an NOI margin of approximately 53%. At quarter-end, the portfolio's occupancy was 92.5% with a weighted average monthly rental rate of $840. As discussed on previous calls when we acquire a property some transition occurs resulting in tenant turnover which is anticipated in our underwriting. Most of the properties acquired had to set way transition whereas that transition is still in progress. With regard to the same store portfolio, rental revenue was $11.7 million up 5.1% this quarter as compared to last year as rental rates picked up across the same store portfolio. Operating expenses at the same store properties were $5.6 million up $200,000 or 3.5%. Same store NOI was $6.1 million this quarter, an increase of 6.5% over the second quarter of last year. At quarter end the same store portfolio reported occupancy at 92.2% with a weighted average monthly rental rate of $787. During the quarter we closed on our previously announced acquisition of a 236 unit property in Indianapolis for $25.3 million. The property was 91% occupied at closing…

Thanks, Jim. Scott mentioned the current IRT portfolios performing well including the two outliers. Windrush one of our communities in Oklahoma City is located two miles from the University of Central Oklahoma and has exposure to its student volume [ph]. So for this reason the property historically experiences a short term drop in occupancy in June with occupancy ramping back up in July and August as schools open for session. The community is 94% pre-lease and has experienced an average occupancy of 94% over the past 12 months. In regards to the Bay View which we purchased in May the previous management entered into a corporate lease program at the local hospital in 2010, the 29 units or 12% of the property at below market rents. Prior to closing we came in terms with the hospital to terminate this contract and phase up the corporate units. We have recognized an average monthly rental increase of $191,000 equal to 23% on the seven units we have released to-date. As the portfolio continues to scale and becomes more granular these fluctuations will have less and less of impact on any given quarter. We are continuing to see strong fundamentals in the multi-family sector. Our markets are experience stable occupancy and continued rent growth both year-over-year and quarter-over-quarter. On a macro level total deliveries for 2015 are reaching pre-recession levels but in a much different environment. There are significantly more renters in the rental pool by choice and necessity. The Urban Institute projected between 2010 - 2030 growth in rental households will exceed that of home loan by an increase of $13 million directly compared to $9 million home owner households through several factors that are contributing to this. Millenials are finally working, creating households and generally postponing the decision to [indiscernible] spend…

Thank you, Farrell. At this point Grant, let's open the call up for questions.

Thank you. [Operator Instructions] First question comes from the line of Wilkes Graham from Compass Point. Please go ahead.

Good morning, everyone.

Good morning, Wil.

I appreciate all the detail on the financing of the TSRE deal. Can we just go over the numbers again on that? Jim, I think you said that the KeyBanc facilities, $325 million of capacity, it's three years and it's LIBOR plus 165 to 245. Is that correct?

That's correct. Spread data on our corporate leverage.

Right. And you're going to draw $276 million right away?

That's correct and that includes us paying back or repaying or refinancing the bank line of credit which has around $14 million outstanding today.

Okay. And then there is the $100 million bridge loan, LIBOR plus 500, what was the term on that?

It's $120 million interim term loan. It's got a 12-months term with a six month extension option, so 18 months old.

Okay. And then you've got the $161 million of mortgages, do you know the weighted average rate on this?

To begin, 3.8%.

Okay, great.

This ranges from 3.2% to 4.3%.

And Scott, I was just trying to jot down everything you were saying, where do you have debt-to-total assets sort of day one when the deal closes relative to the 50% you want to get to in two years?

71%.

Okay. And so…

And we think we can reduce that down to about 66% or 67%, relatively quickly after closing by selling the number of properties that we've identified as I said we believe they have reached their value potential and they are really not within the company's footprint post Trade Street closing.

Okay. And so your point is, obviously the stock has disconnected from fundamentals, you're comfortable just staying at a higher leverage range until the stock prices are at a level that makes us stable [ph].

We are, and we have again, we've identified these properties for sale, there is a couple of properties within the TSRE portfolio that we think we probably were not going to hold long term. So we will appropriately generate cash of capital from other areas that rather than issuing common stock to start to reduce leverage.

How far down do you think you can get that leverage number in the next couple of years?

I would like it to be about 50%, and I think we can get there.

And do you think you can get there all the way there without raising equity at all?

Probably not, probably down to the 50% leverage, but remember at the same time we want to continue to grow the portfolio. I mean it all is determined on where the equity is trading. And we have no preferred stock outstanding at all, other peers of ours are growing and growing and growing ridiculously amounts of preferred stock, we haven't done that, so that's an opportunity in the future. I don't like where our commonstock is trading, I think it makes no sense and I've made the point directly and I reiterated again, we are not going to issue shares anywhere near this level.

Okay, I appreciate that. And Jim, just to confirm, the maintenance CapEx was $1.2 million for the quarter?

That's correct, about $133 per unit.

Okay. I think that's it for me, thank you.

Thanks, Wil.

Thank you for your question. Our next question comes from the line of Daniel Donlan from Ladenburg. Please go ahead.

Thank you, and good morning. Jim, can you walk through - I think you said that same-store in line was up 6.5% on the quarter, I wasn't able to find that number in the press release, could you just kind of walk through the components of what's driving that increase?

Sure, it's primarily driven by just increase in revenues, so the same-store revenues for the quarter was $11.7 million, and that was up about 5.1% since the second quarter of last year.

Okay. But then, expenses - go ahead.

Probably our banks was $5.6 million, and that was up $200,000.

So, I guess maybe the March, I guess that - so what's that - why is the same-store NOI up more than the revenues if the expenses went up, is that just NOI margins having some hard time?

Yes, the NOI margin improved in that quarter from Q2 last year to Q2 this year.

Okay, alright. Okay, that's helpful. And as talking about the merger, I think you said that you saw those run rate between $0.21 and $0.22, is that right?

That's correct.

And what does that contemplate in terms of - I assume that it contemplates no equity issuance, and then does that contemplate that you keep the bridge loan and the line of credit outstanding the amounts that you guys just discussed?

It does not include any equity related capital raising and it does also factor in, as Scott mentioned, recycling some capital to regain the bridge facility.

Okay, that makes sense. But it doesn't have any terming out of the credit facility that you guys are going to pay?

That's correct.

Okay. And then as far as a pro forma dividend, you're yielding like 9.7% right now I think Trade Streets in the mid sixes, it seems like you're not getting credit at all for the dividend that you're paying. Any thoughts that kind of - you discussed you wanted to lever one of the easiest ways, delever would be to lower your yield or lower the dividend that you're paying, could you provide us any color on that? Should we expect a more of a reasonable yield going forward on the featured company?

We have no intention will we reduce the dividend. We think that the yield should be lower because the share price should be higher. The company pro formed for the TSRE closing, as Jim said, has a core FFO that's $0.22 but there is more than enough to cover the $0.18 dividend and that’s where you expect it to be as of now.

But I just also want to clear one thing up. Your first question regarding the growth in NOI and same store, the revenues were up 5.1% year-over-year the expenses were 3.5%, so that’s where you get the 6% growth in NOI.

And then one of the things that Trade Street did is they had a nice supplemental that provided all the metrics of same store NOI and what went into that, is this something that you guys are going to contemplate doing it, I think it would very much help investors be able to underwrite the portfolio and better understand the metrics because 6.5% same store NOI growth is something that is really positive relative to some of the other names and it wasn’t mentioned in the press release.

We will be putting out a supplemental after the completion of the Trade Street transaction and it will be part of the quarterly process going forward.

And our next question comes from the line of Craig Kucera from Wunderlich. Please go ahead.

I was revisiting your comments from last quarter and I think it was before you announced Trade Street of course but you did mention you had a $140 million pipeline. Is there any contemplation or ability to do that and are you committed to purchase any of those or have all those transaction sort of enabled for the near term?

We’re not committed at this point, we closed on one of them which we announced and we have enough capacity after the Trade Street closing to acquire another 2 or 3 properties without raising additional capital, let me be clear about that and that’s how we’re managing the pipeline forward. So we can close Trade Street, we will close Trade Street we have the capacity to close another 2 or 3. We’re managing through that pipeline. We have not committed to it yet but we expect that to happen before the end of the year.

And is that - any future acquisitions beyond Trade Street, is that component of your guidance or is your guidance sort of the acquisition of Trade Street on a standalone basis?

The guidance is the acquisition of Trade Street's only, not another acquisition.

And it sounds like as you were discussing some of the assets that you’re looking to sell I think [indiscernible] those are likely to be Trade Street dispositions as opposed to existing IRT assets?

No they are existing IRT assets that if you look at the in our investor presentation if you look at the map there is a number of properties that don’t appear on the map and they are in a footnote and the reason they don’t appear on the map is because they are - we will call them outliers they are not in the - the combined company is geographic focus at the moment. So we think it would be appropriate to sell those not only because of where they like but because we also believe they have really reached their economic potential. They are in markets that have seen strong growth values are extremely high and they are performing very well. So it's the time to sell. I didn’t want to for Trade Street because I don’t want to be reducing the company that’s already considered too small. So after we close Trade Street these then become properties, they are easy to sell and again use those proceeds to deliver.

And just lastly kind of what kind of cap rate do you think you’re get on those dispositions?

I would think in the 5% range.

Our next question comes from the line of Brian Hogan from William Blair. Please go ahead.

What were the cap rates that you bought those properties at?

They were part of the original portfolio so I think it's back to - it's above 6%.

Above 6%, above 7% probably. These are properties that IRT has had since the beginning.

Yes since mid-2011.

I guess what are the NOI from those three properties and then are those dispositions included in your guidance as well of 21, 22?

Yes the dispositions are included in the guidance.

As in like removed or? Sorry.

It is.

Okay. And so the NOI where you can kind of back into that or continue to?

Well we’re estimating about $50 million in cash proceeds from the sale of those three assets.

The occupancy rates obviously they got to move around from quarter to quarter and you mentioned that couple of factors but broadly occupancy rates were down across most of the portfolio, what do you attribute that to just pushing these rates or?

It's pushing these rates and it's also timing it, you’re looking at a 630 date at the end of the month and occupancies are usually lower as you move out but there is nothing specific if you can point to and we’re managing to 94% - 95% if we take out the two properties that I mentioned that you got blended 94% occupancy on the entire portfolio.

And what do you think you’re ability to continue to push these rates?

We think it's very positive as you mentioned all the factors that are going into markets. I mean everybody is focused on deliveries but it's really not having significant impact on the ability to push rents. So we’re going to continue to do till we can.

We believe we have another two years - a clear two years of rent increases within these market.

Of how much, about 3% per year?

3 to 5, depending on the property.

The two Trade Street properties that you mentioned that potential sale, are those included in that 21 - 22?

We were looking at the portfolio of what we might discuss but we didn’t talk about the sale, the two properties I mentioned were older properties one at Atlanta and one at Dallas, the ability to increase rents with the small value add program so that’s where we anticipate doing with this too.

Our next question comes from the line of John Bender [ph] from National Securities. Please go ahead.

So just on your thoughts of 3% to 5% rent increases over the next two years, I think a lot of larger group usually demographics and the Trade Street acquisition, what is your forwardability to pursue additional one-off acquisitions as you see opportunities develop. I know you guys have a leverage goal that you want to meet, you’re also selling properties and so how are you going to address your [indiscernible] that might come where property is very attractively priced you want to add it to the portfolio but you don’t want to get in the way of [indiscernible].

Well I think it's a for lack a better of term, the gain time decision if the property is not attractive. We will find a way again we have no preferred shares again many of our peers have been funding their growth through that type of issuance. We have an Oklahoma City portfolio that we acquired that is very lowly levered at very high rates relative to its value today and again it has to - we will have to wait how attractive an opportunity is. As I stated even after the Trade Street closing without any new capital we still have an up-drive power to another 2 to 3 acquisitions that will take us through the end of the year. And we will manage from that point forward. I have to stress, this company started two years ago with a $160 million of assets when we IPOed in August of 2013. We’re now $700 million worth of assets, we have done multiple one-offs and we have done it in a way by putting the money to work quickly without having to be diluted to earnings at all. So we have accomplished exactly what we set out to do and think we will continue to do that going forward. We have to get through the closing of this Trade Street acquisition and hopefully the markets will settle down and we will continue on with our plan.

And then also would you comment on the properties that are being sold, is it the portfolio kind of reaching their peak in terms of occupancy, I thought you pushed rents. How many more of those may move on over the next 18 - 24 months that will give you that additional opportunities to recycle capital?

Well there is more, there is definitely more.

Again we want to grow so these are outliers and not what we have identified these now but there are more.

Our next question comes from the line of Rob Stevenson from Jay [ph]. Please go ahead.

Good morning guys, just one quick question. Does the body agreements we sender [ph] and Monarch have any sort of break provision if IRT stock price drops below certain threshold?

It does. Now see - the agreement which, the merger agreement, not within specifically, it's the merger agreement. 15% below the RMZ, a change down to more than 15% of the change in new RMZ.

Okay, thank you guys.

Thank you.

Thank you for your question now. I would now like to turn the call back over to Scott for closing remarks.

Well, thank you for joining our call today. As we've mentioned multiple times, we look forward to moving this TSRE transaction forward in closing, and then speaking with you after the end of the third quarter. Have a good day everyone.

Thank you, ladies and gentlemen for your participation in today's conference. This now concludes your presentation. You may now disconnect. Have a good day.