Edgar Filing: INDEPENDENCE REALTY TRUST, INC

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to .

Commission file number 001-36041

INDEPENDENCE REALTY TRUST, INC.

(Exact name of registrant as specified in its charter)


Maryland		26-4567130
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Cira Centre 2929 Arch St., 17th Floor Philadelphia, PA		19104
(Address of principal executive offices)		(Zip Code)

(215) 243-9000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:


Title of each class		Name of each exchange on which registered
Common Stock		NYSE MKT

Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The aggregate market value of the shares of common stock of the registrant held by non-affiliates of the registrant, based upon the closing price of such shares on June 30, 2014 of $9.46, was approximately $101,447,347.

As of March 13, 2015 there were 31,894,593 outstanding shares of the registrant’s common stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for registrant’s 2015 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.

INDEPENDENCE REALTY TRUST, INC.

TABLE OF CONTENTS


Forward Looking Statements		1

PART I

Item 1.	Business	2
Item 1A.	Risk Factors	6
Item 1B.	Unresolved Staff Comments	28
Item 2.	Properties	29
Item 3.	Legal Proceedings	30
Item 4.	Mine Safety Disclosures	30

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	30
Item 6.	Selected Financial Data	34
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 8.	Financial Statements and Supplementary Data	49
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	75
Item 9A.	Controls and Procedures	75
Item 9B.	Other Information	76

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	77
Item 11.	Executive Compensation	77
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	77
Item 13.	Certain Relationships and Related Transactions, and Director Independence	77
Item 14.	Principal Accountant Fees and Services	77

PART IV

Item 15.	Exhibits and Financial Statement Schedules	78

FORWARD LOOKING STATEMENTS

The Securities and Exchange Commission, or SEC, encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This report contains or incorporates by reference such “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act.

Words such as “anticipates,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. As used herein, the terms “we,” “our” and “us” refer to Independence Realty Trust, Inc. and, as required by context, Independence Realty Operating Partnership, LP, which we refer to as our operating partnership, and their subsidiaries.

We claim the protection of the safe harbor for forward-looking statements provided in the Private Securities Litigation Reform Act of 1995. These statements may be made directly in this report and they may also be incorporated by reference in this report to other documents filed with the SEC, and include, but are not limited to, statements about future financial and operating results and performance, statements about our plans, objectives, expectations and intentions with respect to future operations, products and services, and other statements that are not historical facts. These forward-looking statements are based upon the current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ materially from the anticipated results discussed in these forward-looking statements.

The risk factors discussed and identified in item 1A of this report and in other of our public filings with the SEC, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this filing or to reflect the occurrence of unanticipated events.

PART I

ITEM 1.

Business

Our Company

We are a Maryland corporation that owns apartment properties in geographic submarkets that we believe support strong occupancy and have the potential for growth in rental rates. We seek to provide stockholders with attractive risk-adjusted returns, with an emphasis on distributions and capital appreciation. We are externally advised by a wholly-owned subsidiary of RAIT Financial Trust, or RAIT (NYSE: RAS), a multi-strategy commercial real estate company organized as an internally managed REIT with approximately $4.3 billion of assets under management as of December 31, 2014. RAIT invests in commercial mortgages and commercial real estate. RAIT owned 22.9% of our outstanding common shares as of December 31, 2014. We elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or the Code, commencing with our taxable year ended December 31, 2011.

We seek to acquire and operate apartment properties that:

•

have stable occupancy;

•

are located in submarkets that we do not expect will experience substantial new apartment construction in the foreseeable future;

•

in appropriate circumstances, present opportunities for repositioning or updating through capital expenditures; and

•

present opportunities to apply tailored marketing and management strategies to attract and retain residents and enable rent increases.

2014 Performance

During the year ended December 31, 2014 we completed three underwritten public offerings of our common stock raising gross proceeds of $200.9 million, in the aggregate. We deployed these proceeds during 2014 to acquire twenty properties with 6,029 units for aggregate purchase prices totaling $497.1 million, including the issuance of 1,282,449 limited partnership units in our operating partnership, or LP units, valued at $12.0 million, in the aggregate. These acquisitions contributed to our substantial growth in a number of key financial measures in 2014 when compared to 2013 as follows:

•

investments in real estate at cost increased 262% to $689.1 million from $190.1 million;

•

operating income increased 73% to $8.5 million from $4.9 million; and

•

total revenues grew 147% to $49.2 million from $19.9 million.

Our Business Objective and Investment Strategies

Our primary business objective is to maximize stockholder value by increasing cash flows at our existing apartment properties and acquiring additional properties that have strong and stable occupancies with the ability to raise rental rates or that have the potential for repositioning through capital expenditures or tailored management strategies. We intend to achieve this objective by executing the following strategies:

•

Use RAIT’s extensive experience lending to, owning and/or managing apartment properties, and its networks of contacts in the apartment industry, to acquire additional apartment properties. RAIT has provided debt financing for apartment owners and operators since 1997 and, as of December 31, 2014, owned 27 apartment properties and 23 commercial real estate properties. RAIT’s property management subsidiary which does business as RAIT Residential, manages over 16,000 apartment units in 19 states (including those owned by us). We believe these factors and RAIT’s commercial real estate relationships and access to off-market transactions, including relationships with the brokerage community, will continue to provide us with a strong pipeline of acquisition opportunities.

•

Focus on properties in markets that have strong apartment demand, reduced competition from national apartment buyers and no substantial new apartment construction. In evaluating potential acquisitions, our advisor analyzes apartment occupancy and trends in rental rates, employment and new construction, among many other factors, and seeks to identify properties located primarily in non-gateway markets where there is strong demand for apartment units, little to no apartment development, stable resident bases and occupancy rates, positive net migration trends and strong employment drivers. We generally will seek to avoid markets where we believe potential yields have decreased as a result of the acquisition and development efforts of large institutional buyers.

•

Acquire properties that have operating upside through targeted management strategies. Both we and our advisor have expertise in acquiring and/or managing properties and maximizing the net operating income of such properties through more effective marketing and leasing, better management of rental rates and more efficient expense management. We will seek to acquire properties that we believe possess significant prospects for increased occupancy and rental revenue growth. Our target profile for acquisitions currently is midrise/garden-style apartments containing 150-500 units with good amenities that we can acquire at less than replacement cost in the $15 million to $50 million price range with a five to fifteen year operating track record. We do not intend to limit ourselves to properties in this target profile and may make acquisitions outside of this profile or change our target profile whenever market conditions warrant.

•

Selectively use our capital to improve apartment properties where we believe the return on such investments is accretive to our stockholders. We have significant experience allocating capital to value-added improvements of apartment properties to produce better occupancy and rental rates. We will selectively deploy our capital into revenue-enhancing capital projects that we and our advisor believe will improve the physical plant or market positioning of particular apartment properties and generate increased income over time.

Financing Strategy

We intend to use prudent amounts of leverage in making our investments, which we define as having total indebtedness of no more than approximately 65% of the combined initial purchase price of all of the properties in our portfolio. However, we are not subject to any limitations on the amount of leverage we may use, and, accordingly, the amount of leverage we use may be significantly less or greater than we currently anticipate. By operating on a leveraged basis, we expect to have more funds available for property acquisitions and other purposes, which we believe will allow us to acquire more properties than would otherwise be possible, resulting in a larger and more diversified portfolio. See “Risk Factors—Risks Associated with Debt Financing” for more information about the risks related to operating on a leveraged basis.

If our board of directors changes our policies regarding our use of leverage, we expect that it will consider many factors, including, among others, the lending standards of government-sponsored enterprises, such as the Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage Corporation, or Freddie Mac, for loans in connection with the financing of apartment properties, the leverage ratios of publicly traded REITs with similar investment strategies, the cost of leverage as compared to expected operating net revenues and general market conditions.

We have no outstanding long-term indebtedness as of March 16, 2015 other than the existing mortgage financing secured by the apartment properties in our portfolio and a $30.0 million secured revolving credit agreement, or the Secured Credit Facility, with The Huntington National Bank, pursuant to which our operating partnership may borrow up to the lesser of (i) $30.0 million, (ii) 60% of the total acquisition costs of all properties acquired with advances under the secured credit facility and (iii) an amount that would not cause our operating partnership to exceed a defined debt service coverage ratio.

Development and Structure of Our Company

We were formed as a Maryland corporation on March 26, 2009. RAIT acquired beneficial ownership of 100% of our outstanding common stock on January 20, 2011 for approximately $2.5 million and we commenced operations on April 29, 2011 upon our acquisition of six properties from RAIT. Since our formation, we have sold 26,448,300 shares of our common stock in five public offerings raising $238.4 million of gross proceeds. Three of these offerings occurred in 2014. In January 2014, we completed an underwritten public offering of 8,050,000 shares of our common stock for total gross proceeds of approximately $66.8 million. On July 21, 2014, we completed an underwritten public offering selling 8,050,000 shares of our common stock for total gross proceeds of approximately $76.5 million. On November 25, 2014 we completed an underwritten public offering selling 6,000,000 shares of our common stock for total gross proceeds of approximately $57.6 million. While RAIT has bought shares in several of these offerings and remains our largest single stockholder, RAIT’s percentage ownership of us has been reduced in each offering since it acquired us. RAIT beneficially owned 22.9% and 22.8% of the outstanding shares of our common stock at December 31, 2014 and as of March 16, 2015 respectively.

We conduct our business through a traditional umbrella partnership REIT, or UPREIT, structure in which our properties are owned by our operating partnership directly or through subsidiaries. We are the sole general partner of our operating partnership. Our operating partnership was formed as a Delaware limited partnership on March 27, 2009. Substantially all of our assets are held by, and substantially all of our operations are conducted through, our operating partnership. As the sole general partner of our operating partnership, we have the exclusive power under the partnership agreement to manage and conduct its business. In 2014, we issued 1,282,449 LP units to unaffiliated third parties as part of the consideration to acquire four properties in four transactions. These LP units are exchangeable for the equivalent number of shares of common stock or the equivalent value in cash, at our option, in defined circumstances. We refer to these transactions as UPREIT transactions. Limited partners have certain limited approval and voting rights.

We are externally advised by our advisor pursuant to an advisory agreement and subject to the oversight of our board of directors. Our advisor was formed on March 26, 2009 and is responsible for managing our day-to-day business operations and identifying properties for us to acquire. We pay our advisor and its affiliates fees and reimburse them for expenses in connection with their services to us. The items of compensation and reimbursement are outlined below in Item 8-“Financial Statements and Supplementary Data—Note 7. Related Party Transactions and Arrangements.”

RAIT Residential, our property manager, was formed on April 9, 2009 as an indirect subsidiary of Jupiter Realty Corporation, a Chicago-based residential and commercial real estate firm established in 1985. In May 2009, RAIT acquired a 75% controlling equity interest in our property manager. Our property manager is a full-service apartment property management company that, as of December 31, 2014, employs approximately 300 staff and professionals and manages approximately 16,000 apartment units. Our property manager provides services to us in connection with the rental, leasing, operation and management of our properties.

Competition

In attracting and retaining residents to occupy our properties, we compete with numerous other housing alternatives. Our properties compete directly with other rental apartments as well as condominiums and single-family homes that are available for rent or purchase in the sub-markets in which our properties are located. Principal factors of competition include rent or price charged, attractiveness of the location and property and quality and breadth of services and amenities. If our competitors offer leases at rental rates below current market rates, or below the rental rates we currently charge our tenants, we may lose potential tenants.

The number of competitive properties relative to demand in a particular area has a material effect on our ability to lease apartment units at our properties and on the rents we charge. In certain sub-markets there exists an oversupply of single family homes and condominiums and a reduction of households, both of which affect the pricing and occupancy of our rental apartments. Additionally, we compete with other real estate investors, including other apartment REITs, pension and investment funds, partnerships and investment companies in acquiring, redeveloping and managing apartment properties. This competition affects our ability to acquire properties and the price that we pay for such acquisitions.

Regulation

Our investments are subject to various federal, state, and local laws, ordinances, and regulations, including, among other things, zoning regulations, land use controls, environmental controls relating to air and water quality, noise pollution, and indirect environmental impacts such as increased motor vehicle activity. We believe that we have all permits and approvals necessary under current law to operate our investments.

Income Taxes

We have elected to be taxed as a REIT beginning with the taxable year ended December 31, 2011. Accordingly, we recorded no income tax expense for the years ended December 31, 2014, 2013 and 2012.

To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our ordinary taxable income to stockholders. As a REIT, we generally are not subject to federal income tax on taxable income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders; however, we believe that we are organized and operate in such a manner as to qualify and maintain treatment as a REIT and intend to operate in such a manner so that we will remain qualified as a REIT for federal income tax purposes.

For the year ended December 31, 2014, the tax classification of our dividends on common shares was as follows:


Record Date		Payment Date		Dividend Paid		Ordinary Income		Qualified Dividend		Return of Capital
	1/31/2014		2/15/2014	$	0.06	$	0.0209	$	—	$	0.0391
	2/28/2014		3/15/2014		0.06		0.0209		—		0.0391
	3/31/2014		4/15/2014		0.06		0.0209		—		0.0391
	4/30/2014		5/15/2014		0.06		0.0209		—		0.0391
	5/31/2014		6/15/2014		0.06		0.0209		—		0.0391
	6/30/2014		7/15/2014		0.06		0.0209		—		0.0391
	7/31/2014		8/15/2014		0.06		0.0209		—		0.0391
	8/29/2014		9/15/2014		0.06		0.0209		—		0.0391
	9/30/2014		10/15/2014		0.06		0.0209		—		0.0391
	10/31/2014		11/15/2014		0.06		0.0209		—		0.0391
	11/30/2014		12/15/2014		0.06		0.0209		—		0.0391
	12/31/2014		01/15/2015		0.06		0.0209		—		0.0391

				$	0.72	$	0.2509	$	—	$	0.4691

For the year ended December 31, 2013, the tax classification of our dividends on common shares was as follows:


Record Date		Payment Date		Dividend Paid		Ordinary Income		Qualified Dividend		Return of Capital
	1/31/2013		2/15/2013	$	0.0508	$	0.0136	$	—	$	0.0372
	2/28/2013		3/15/2013		0.0459		0.0123		—		0.0336
	3/31/2013		4/15/2013		0.0508		0.0136		—		0.0372
	4/30/2013		5/15/2013		0.0514		0.0138		—		0.0376
	5/31/2013		6/15/2013		0.0531		0.0143		—		0.0388
	6/30/2013		7/15/2013		0.0514		0.0138		—		0.0376
	8/5/2013		8/15/2013		0.0533		0.0143		—		0.0390
	8/30/2013		9/13/2013		0.0533		0.0143		—		0.0390
	9/30/2013		10/15/2013		0.0533		0.0143		—		0.0390
	10/31/2013		11/15/2013		0.0533		0.0143		—		0.0390
	11/29/2013		12/16/2013		0.0533		0.0143		—		0.0390
	12/31/2013		1/15/2014		0.0533		0.0143		—		0.0390

				$	0.6232	$	0.1673	$	—	$	0.4559

Financial Information About Industry Segments

Our current business consists of owning, managing, operating, leasing, acquiring, developing, investing in, and disposing of real estate assets. We internally evaluate all of our real estate assets as one industry segment, and, accordingly, we do not report segment information.

Available Information

We file annual, quarterly and current reports, proxy statements and other information with the SEC. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The internet address of the SEC site is http://www.sec.gov. Our internet address is http:// www.irtreit.com. We make our SEC filings available free of charge on or through our internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We are not incorporating by reference in this report any material from our website.

ITEM 1A.

Risk Factors

Stockholders should carefully consider the following risk factors in conjunction with the other information contained in this report. The risks discussed in this report could adversely affect our business, operating results, prospects and financial condition. This could cause the value of our common stock to decline and/or you to lose part or all of any investment in our securities. The risks and uncertainties described below are not the only ones we face, but do represent those risks and uncertainties that we believe are material to us. Additional risks and uncertainties not presently known to us or that, as of the date of this report, we deem immaterial may also harm our business. Some statements in this report, including statements in the following risk factors, constitute forward-looking statements. Please refer to the “Forward-Looking Statements” above contained in this report.

Risks Related to Our Business and Operations

We may be limited in our ability to diversify our investments.

Our ability to diversify our portfolio may be limited both as to the number of investments owned and the geographic regions in which our investments are located. While we will seek to diversify our portfolio by geographic location, we expect to focus on markets with high potential for attractive returns located in the United States and, accordingly, our actual investments may result in concentrations in a limited number of geographic regions. As a result, there is an increased likelihood that the performance of any single property, or the economic performance of a particular region in which our properties are located, could materially affect our operating results.

We may fail to consummate some or all potential property acquisitions we disclose individually or in the aggregate, which could have a material adverse impact on our results of operations, earnings and cash flow.

We may disclose potential property acquisitions, whether individually or in the aggregate, at any time and from time to time. We refer to the aggregate number of potential acquisitions we are considering at any particular time as our pipeline. We generally include a property in our pipeline when our underwriting and due diligence efforts have proceeded to the point where we have issued a letter of intent to acquire a particular property or if we have entered into a purchase and sale agreement. These letters of intent are generally non-binding. If we enter into legally binding purchase and sale agreements to acquire a property, any acquisition may be subject to the satisfaction of various closing conditions, and there can be no assurance that these conditions will be satisfied or that the acquisitions will close on the terms described herein, or at all. If we fail to consummate these acquisitions, to the extent we issued additional securities in order to use the proceeds of the offering to fund any of the acquisitions, we may have issued a significant number of our securities without realizing a corresponding increase in earnings and cash flow from acquiring the properties involved in such acquisitions. In addition, we may have broad authority to use the net proceeds of any offering for other purposes, including the repayment of indebtedness, the acquisition of other properties that we may identify in the future or for other investments, which may not be initially accretive to our results of operations. As a result, failure to consummate one or more of the pending property acquisitions could have a material adverse impact on our financial condition, results of operations and the market price of our common stock.

We may suffer from delays in locating suitable investments or, because of our public company status, may be unable to acquire otherwise suitable investments, which could adversely affect our growth prospects and results of operations.

Our ability to achieve our investment objectives and to make distributions to our stockholders depends upon our advisor’s ability to locate, obtain financing for and consummate the acquisition of apartment properties that meet our investment criteria. The current market for apartment properties that meet our investment criteria is highly competitive. We cannot be sure that our advisor will be successful in obtaining suitable investments on financially attractive terms or at all.

Additionally, as a public company, we are subject to the ongoing reporting requirements under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Pursuant to the Exchange Act, we may be required to file with the SEC financial statements of properties we acquire. To the extent any required financial statements are not available or cannot be obtained, we may not be able to acquire the property. As a result, we may be unable to acquire certain properties that otherwise would be suitable investments.

If we are unable to invest the proceeds of any offering of our securities in real properties in a timely manner, we may invest the proceeds in short-term, investment-grade investments which typically will yield significantly less than what we expect our investments will yield. As a result, delays we encounter in identifying and consummating potential acquisitions may adversely affect our growth prospects, results of operations and our ability to make distributions to our stockholders.

We have not established a minimum dividend payment level and we cannot assure you of our ability to pay dividends in the future or the amount of any dividends.

Our board of directors will determine the amount and timing of distributions. In making this determination, our directors will consider all relevant factors, including REIT minimum distribution requirements, the amount of cash available for distribution, restrictions under Maryland law, capital expenditures and reserve requirements and general operational requirements. We cannot assure you that we will be able to make distributions in the future or in amounts similar to our past distributions. We may need to fund distributions through borrowings, returning capital or selling assets, which may be available only at commercially unattractive terms, if at all. Any of the foregoing could adversely affect the market price of our common stock.

Your percentage of ownership may be diluted if we issue new shares of stock.

Stockholders have no rights to buy additional shares of stock if we issue new shares of stock. We may issue common stock, convertible debt or preferred stock pursuant to a public offering or a private placement, to sellers of properties we directly or indirectly acquire instead of, or in addition to, cash consideration, or to our advisor in payment of some or all of the quarterly base or incentive fee that may be earned by our advisor or in payment of some or all of the termination fee that may be payable to our advisor. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Investors purchasing our common stock who do not participate in any future stock issuances will experience dilution in the percentage of the issued and outstanding stock they own.

We may decide to borrow funds to satisfy our REIT minimum distribution requirements, which could adversely affect our overall financial performance.

We may decide to borrow funds in order to meet the REIT minimum distribution requirements even if our management believes that the then prevailing market conditions generally are not favorable for such borrowings or that such borrowings would not be advisable in the absence of such tax considerations. If we borrow money to meet the REIT minimum distribution requirements or for other working capital needs, our expenses will increase, our net income will be reduced by the amount of interest we pay on the money we borrow and we will be obligated to repay the money we borrow from future earnings or by selling assets, any or all of which may decrease future distributions to stockholders.

To maintain our qualification as a REIT, we may be forced to forego otherwise attractive opportunities, which may delay or hinder our ability to meet our investment objectives and adversely affect the trading price of our common stock.

To maintain our qualification as a REIT, we must satisfy certain tests on an ongoing basis concerning, among other things, the sources of our income, nature of our assets and the amounts we distribute to our stockholders. We may be required to make distributions to stockholders at times when it would be more advantageous to reinvest cash in our business or when we do not have funds readily available for distribution. Compliance with the REIT qualification requirements may hinder our ability to operate solely on the basis of maximizing profits and adversely affect the trading price of our common stock.

We have identified, and may identify in the future, a material weakness in our internal control over financial reporting, which may require us to incur substantial costs and divert management resources in connection with our efforts to remediate this material weakness.

We have determined that a material weakness in internal controls over financial reporting existed as of December 31, 2014. A detailed description of this material weakness is provided in Part II, Item 9A—“Controls and Procedures” of this Annual Report on Form 10-K. Due solely to this material weakness, management has concluded that we did not maintain an effective internal control over financial reporting as of December 31, 2014 (and, solely as a result of this material weakness, we have concluded that our disclosure controls and procedures were not effective as of December 31, 2014). We are in the process of developing and implementing new processes and procedures to remediate this material weakness. We cannot be certain that any remedial measures we take will ensure that we design, implement and maintain adequate controls over our financial processes and reporting in the future and, accordingly, additional material weaknesses may occur in the future. It is possible that additional control deficiencies may be identified in addition to, or that are unrelated to, the material weakness described above. These control deficiencies may represent one or more material weaknesses. Our inability to remedy any additional deficiencies or material weaknesses that may be identified in the future could, among other things, cause us to fail to file timely our periodic reports with the SEC (which may have a material adverse effect on our ability to access the capital markets); prevent us from providing reliable and accurate financial information and forecasts or from avoiding or detecting fraud; or require us to incur additional costs or divert management resources to, among other things, comply with Section 404 of the Sarbanes-Oxley Act of 2002.

Risks Related to Our Organization, Structure and Management

We depend upon RAIT, our advisor and their affiliates to conduct our operations and, therefore, any adverse changes in the financial health of RAIT, our advisor or their affiliates, or our relationship with any of them, could hinder our operating performance and adversely affect the trading price of our common stock.

We depend on RAIT, our advisor and their affiliates, including our property manager, to manage our operations and acquire and manage our portfolio of real estate assets. Our advisor will make all decisions with respect to the management of our company, subject to the supervision of, and any guidelines established by, our board of directors. Our advisor will depend upon the fees and other compensation that it will receive from us in connection with the management of our business and sale of our properties to conduct its operations. Any adverse changes in the financial condition of, or our relationship with, RAIT, our advisor or our property manager could hinder their ability to successfully manage our operations and our portfolio of investments.

The nature of RAIT’s business, and our dependence on RAIT and our advisor, makes us subject to certain risks to which we would not ordinarily be subject based on our targeted investments.

RAIT conducts a substantial real estate and real estate finance business which has, in the past, resulted in substantial losses. If these losses were to recur, the ability of RAIT and its affiliates, including our advisor and our property manager, to provide us with the services we need to operate our business could be impaired and we could be required to seek alternative service providers. We cannot assure you that we would be able to obtain alternative service providers on acceptable terms, or at all, which would reduce or eliminate our ability to make distributions and, possibly, if we could not find acceptable alternative service providers, require us to liquidate our portfolio.

If our advisor loses or is unable to retain or obtain key personnel, our ability to implement our investment strategies could be hindered, which could reduce our ability to make distributions and adversely affect the trading price of our common stock.

Our success depends to a significant degree upon the contributions of certain of the officers and other key personnel of our advisor, all of whom are officers or employees of RAIT. We cannot guarantee that all, or any, will remain affiliated with us, our advisor or RAIT. If any of our key personnel were to cease their affiliation with our advisor, our operating results could suffer. Further, we do not intend to maintain key person life insurance that would provide us with proceeds in the event of death or disability of any of our key personnel.

We believe our future success depends upon our advisor’s ability to hire and retain highly skilled managerial, operational and marketing personnel. Competition for such personnel is intense, and we cannot assure you that our advisor will be successful in attracting and retaining such skilled personnel. If our advisor loses or is unable to obtain the services of key personnel, our ability to implement our investment strategies could be delayed or hindered, and the trading price of our common stock may be adversely affected.

Termination of our advisory agreement, even for poor performance, could be difficult and costly, including as a result of termination fees, and may cause us to be unable to execute our business plan.

Termination of our advisory agreement without cause, even for poor performance, could be difficult and costly. Our advisory agreement provides that we may terminate the advisory agreement only for cause upon the affirmative vote of two-thirds of our independent directors or a majority of our outstanding common stock or a change of control of RAIT or the advisor (each as defined in the advisory agreement) if a majority of our independent directors determine that such a change of control of RAIT or our advisor is materially detrimental to us. If we terminate the agreement without cause, or if the advisor terminates the agreement because of a material breach of the agreement by us or as a result of a change of control of our company, we must pay our advisor a termination fee, which is payable in cash, shares of our common stock or any combination thereof at the election of our advisor. The termination fee, if any, will be equal to four times the sum of (i) the average annual base management fee and (ii) the average annual incentive fee, in each case earned by the advisor during the eight full calendar quarters immediately preceding the termination date. These provisions may substantially restrict our ability to terminate the advisory agreement without cause and would cause us to incur substantial costs in connection with such a termination. Furthermore, if our advisory agreement is terminated and we are unable to identify a suitable replacement to manage us, our ability to execute our business plan could be adversely affected.

The Maryland General Corporation Law prohibits certain business combinations, which may make it more difficult for us to be acquired.

Under the Maryland General Corporation Law, “business combinations” between a Maryland corporation and an “interested stockholder” or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder became an interested stockholder. These business combinations include a merger, consolidation, share exchange, or in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as (i) any person who beneficially owns 10% or more of the voting power of the then outstanding voting stock of the corporation; or (ii) an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding stock of the corporation.

A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.

After the expiration of the five-year period described above, any business combination between the Maryland corporation and an interested stockholder must generally be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:

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80% of the votes entitled to be cast by holders of the then outstanding shares of voting stock of the corporation; and

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two-thirds of the votes entitled to be cast by holders of voting stock of the corporation, other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected, or held by an affiliate or associate of the interested stockholder.

These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under the Maryland General Corporation Law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares. The Maryland General Corporation Law also permits various exemptions from these provisions, including business combinations that are exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder. Pursuant to the statute, our board of directors has by resolution exempted business combinations between us and any other person from these provisions of the Maryland General Corporation Law, provided that the business combination is first approved by our board of directors and, consequently, the five year prohibition and the supermajority vote requirements will not apply to such business combinations. As a result, any person approved by our board of directors will be able to enter into business combinations with us that may not be in the best interests of our stockholders without compliance by us with the supermajority vote requirements and other provisions of the statute. This resolution, however, may be altered or repealed in whole or in part at any time. If this resolution is repealed, or our board of directors does not otherwise approve a business combination, the statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.

Stockholders have limited control over changes in our policies and operations.

Our board of directors determines our major policies, including those regarding financing, growth, debt capitalization, REIT qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of the stockholders. Under our charter and the Maryland General Corporation Law, our stockholders generally have a right to vote only on the following matters:

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the election or removal of directors;

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the amendment of our charter, except that our board of directors may amend our charter without stockholder approval to:

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change our name;

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change the name or other designation or the par value of any class or series of stock and the aggregate par value of our stock;

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increase or decrease the aggregate number of our authorized shares;

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increase or decrease the number of our shares of any class or series of stock that we have the authority to issue; and

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effect certain reverse stock splits;

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our dissolution; and

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our being a party to any merger, consolidation, sale or other disposition of substantially all of our assets or statutory share exchange.

All other matters are subject to the discretion of our board of directors.

Our authorized but unissued shares of common and preferred stock may prevent a change in our control.

Our charter authorizes us to issue additional authorized but unissued shares of common or preferred stock. In addition, our board of directors may, without stockholder approval, amend our charter from time to time to increase or decrease the aggregate number of shares of our stock or the number of shares of stock of any class or series that we have authority to issue and classify or reclassify any unissued shares of common or preferred stock into other classes or series of stock and set the preferences, rights and other terms of the classified or reclassified shares. As a result, our board of directors may establish a series of common or preferred stock that could delay or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.

Because of our holding company structure, we depend on our operating partnership and its subsidiaries for cash flow; however, we will be structurally subordinated in right of payment to the obligations of our operating partnership and its subsidiaries.

We are a holding company with no business operations of our own. Our only significant asset is and will be the partnership interests in our operating partnership. We conduct, and intend to continue to conduct, all of our business operations through our operating partnership. Accordingly, our only source of cash to pay our obligations is distributions from our operating partnership and its subsidiaries of their net earnings and cash flows. We cannot assure you that our operating partnership or its subsidiaries will be able to, or be permitted to, make distributions to us that will enable us to make distributions to our stockholders from cash flows from operations. Each of our operating partnership’s subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from such entities. In addition, because we are a holding company, your claims as stockholders will be structurally subordinated to all existing and future liabilities and obligations of our operating partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our operating partnership and its subsidiaries will be able to satisfy your claims as stockholders only after all of our and our operating partnership’s and its subsidiaries’ liabilities and obligations have been paid in full.

Our rights and the rights of our stockholders to recover on claims against our directors are limited, which could reduce your and our recovery against them if they negligently cause us to incur losses.

The Maryland General Corporation Law provides that a director has no liability in such capacity if he performs his duties in good faith, in a manner he reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, our directors and officers will not be liable to us or our stockholders for monetary damages unless the director or officer actually received an improper benefit or profit in money, property or services, or is adjudged to be liable to us or our stockholders based on a finding that his or her action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. We will indemnify and advance expenses to our directors and officers to the maximum extent permitted by the Maryland General Corporation Law and we are permitted to purchase and maintain insurance or provide similar protection on behalf of any directors, officers, employees and agents, including our advisor and its affiliates, against any liability asserted which was incurred in any such capacity with us or arising out of such status. Prior to January 29, 2014, we were insured under RAIT’s directors’ and officers’ insurance policy as a majority-owned subsidiary of RAIT. During January 2014 RAIT’s ownership of us was reduced below 50% of our outstanding equity interests as a result of the completion of an offering of our common stock and we were no longer be covered by RAIT’s policy. As of January 29, 2014, we obtained our own directors’ and officers’ insurance policy which will result in us having to expend funds, which will reduce the amount of cash available for distribution to our stockholders.

If we internalize our management functions, your interest in our company could be diluted, and we could incur other significant costs associated with being self-managed.

In the future, our board of directors may consider internalizing the functions performed for us by our advisor by, among other methods, acquiring our advisor’s assets. The method by which we could internalize these functions could take many forms, subject to certain limitations set forth in our advisory agreement. We cannot assure you that internalizing our management functions will be beneficial to us or our stockholders. If we internalize our advisor, certain key personnel of our advisor may remain employees of RAIT or its affiliates rather than becoming our employees, which could make it difficult for us to manage our business effectively. An acquisition of our advisor could also result in dilution of your interests as a stockholder and could reduce earnings per share and funds from operations per share. Additionally, we may not realize the perceived benefits or we may not be able to properly integrate the advisor’s operations with ours, or we may not be able to effectively replicate the services provided previously by our advisor, our property manager or their affiliates. In addition, if we become internally managed, our overhead costs may increase by an amount that is greater than the costs of the advisory fees and reimbursements currently paid to our advisor, as we would be responsible for compensation and benefits of all of our officers and other employees, including those who were previously paid by our advisor, as well as new employees. Internalization transactions, including without limitation, transactions involving the acquisition of advisors or property managers affiliated with entity sponsors, have also, in some cases, been the subject of litigation. Even if these claims are without merit, we could be forced to spend significant amounts of money defending claims which would reduce the amount of funds available for us to invest in properties or other investments and to pay distributions. All of these factors could have a material adverse effect on our results of operations, financial condition and ability to pay distributions.

If our advisor is acquired by a non-affiliated third party, we could incur significant costs and we could be in competition for the acquisition and leasing of properties with such third party or its affiliates.

If there is a change of control of our advisor (as defined in our advisory agreement), our advisory agreement provides that we may terminate the advisory agreement; however, we may incur substantial costs in connection with such a termination. If we terminate the advisory agreement upon a change of control of our advisor, unless a majority of our independent directors determines that such a change of control is materially detrimental to us, we must pay our advisor a termination fee payable in cash, shares of our common stock or any combination thereof at the election of our advisor. The termination fee, if any, will be equal to four times the sum of (i) the average annual base management fee and (ii) the average annual incentive fee, in each case earned by the advisor during the eight full calendar quarters immediately preceding the termination date. Furthermore, if our advisor is acquired by a non-affiliated third party, we could be in competition with such third party or its affiliates for the acquisition or leasing of properties. Moreover, such an acquisition could cause our advisor to devote significantly less time to the management of our business. Although our advisory agreement may allow us to terminate the advisory agreement if the advisor is acquired by a non-affiliated third party, any termination by us could adversely impact our ability to execute our business plan if we are unable to identify a suitable replacement to manage us.

Our investment objectives and strategies may be changed without stockholder consent.

We may change our investment objectives and strategies, and our policies with respect to investments, operations, indebtedness, capitalization and distributions, at any time without the consent of our stockholders, which could result in our making investments that are different from, and possibly riskier or more highly leveraged than, the types of investments described in this report. A change in our investment strategy may, among other things, increase our exposure to interest rate risk, default risk and real estate market fluctuations, all of which could adversely affect our ability to achieve our investment objectives and the market value of our common stock.

General Risks Related to Investments in Real Estate

There are inherent risks associated with real estate investments and with the real estate industry, each of which could have an adverse impact on our financial performance and the value of our properties.

By owning our common stock, you will be subject to the risks associated with the ownership and operation of real properties, including risks related to:

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changes in national, regional and local conditions, which may be affected by concerns about inflation, deflation, government deficits, high unemployment rates, decreased consumer confidence, liquidity concerns and other adverse business concerns;

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changes in local real estate conditions, such as an oversupply of space or reduction in demand for rental properties;

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changes in interest rates and the availability of financing;

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changes in property-level operating expenses, including increased real property taxes, maintenance, insurance and utilities costs;

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the existence and quality of the competition, such as the attractiveness of our properties as compared to our competitors’ properties based on considerations such as convenience of location, property design and appearance, rental rates, amenities and safety record;

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a favorable interest rate environment that may result in a significant number of potential residents of our apartment properties deciding to purchase homes instead of renting; and

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changes in laws and governmental regulations, including those governing real estate usage, zoning and taxes.

Any of these changes could cause our net revenues and the value of our assets to decrease.

The illiquidity of real estate investments could make it difficult for us to respond to changing economic, financial, and investment conditions or changes in the operating performance of our properties, which could reduce our cash flows and adversely affect results of operations.

Real estate investments are relatively illiquid and, as a result, we will have a limited ability to vary our portfolio in response to changes in economic, financial and investment conditions or changes in the operating performance of our properties. We will also have a limited ability to sell assets in order to fund working capital and similar capital needs. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. We also may be required to expend funds to correct defects or to make improvements before a property can be sold, and we cannot assure you that we will have funds available to correct those defects or to make those improvements. Our inability to dispose of assets at opportune times or on favorable terms could adversely affect our cash flows and results of operations.

Moreover, the Code imposes restrictions on a REIT’s ability to dispose of properties that are not applicable to other types of real estate companies. In particular, the tax laws applicable to REITs require that we hold our properties for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forego or defer sales of properties that otherwise would be in our best interests. Therefore, we may not be able to vary our portfolio promptly in response to economic or other conditions or on favorable terms, which may adversely affect our cash flows, our ability to make distributions to our stockholders and the market price of our common stock.

Economic conditions may adversely affect the residential real estate market and our income.

A residential property’s income and value may be adversely affected by international, national and regional economic conditions. During the past five years, the U.S. and international markets have experienced increased levels of volatility due to a combination of many factors, including decreased values of homes and commercial real estate, limited access to credit markets, increased energy costs, increased unemployment rates, and a national and global recession. Although recently some economic conditions appear to have improved, if such improvement does not continue or if new economic or capital markets problems arise, the value of our portfolio may decline significantly. A deterioration in economic conditions may also have an adverse effect on our operations if they result in our tenants or prospective tenants being unable to afford the rents we need to charge to be profitable.

In addition, local real estate conditions such as an oversupply of properties or a reduction in demand for properties, availability of “for sale” properties and competition from other similar properties, our ability to provide adequate maintenance, insurance and management services, increased operating costs (including real estate taxes), the attractiveness and location of the property and changes in market rental rates, may adversely affect a property’s income and value. A rise in energy costs could result in higher operating costs, which may affect our results from operations. In addition, local conditions in the markets in which we own or intend to own properties may significantly affect occupancy or rental rates at such properties. Layoffs, plant closings, relocations of significant local employers and other events reducing local employment rates and the local economy; an oversupply of, or a lack of demand for, apartments; a decline in household formation; the inability or unwillingness of residents to pay rent increases; and rent control, rent stabilization and other housing laws, all could prevent us from raising or maintaining rents, and could cause us to reduce rents.

Rising expenses could reduce cash flow and funds available for future acquisitions, which may have a material effect on the trading price of our common stock.

Our properties may be subject to increases in tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance, administrative and other expenses. If we are unable to match increased costs with increased rental rates, our growth prospects, our ability to make distributions to stockholders and the trading price of our common stock may be materially and adversely affected.

Properties we purchase may not appreciate or may decrease in value.

The residential real estate market may experience substantial influxes of capital from investors. A substantial flow of capital, combined with significant competition for real estate, may result in inflated purchase prices for such assets. To the extent we purchase real estate in such an environment, we are subject to the risk that, if the real estate market subsequently ceases to attract the same level of capital investment, or if the number of investors seeking to acquire such assets decreases, our returns will be lower and the value of our assets may not appreciate or may decrease significantly below the amount we paid for such assets.

We may incur liabilities in connection with properties we acquire.

We may acquire properties that are subject to liabilities or that have problems relating to environmental condition, state of title, physical condition or compliance with zoning laws, building codes, or other legal requirements, many of which may not be known to us at the time of acquisition. In each case, our acquisition may be without any, or with only limited, recourse with respect to unknown liabilities or conditions. If any liability were asserted against us relating to those properties or entities, or if any adverse condition existed with respect to the properties or entities, we might have to pay substantial sums to settle or cure it, which could adversely affect our cash flow and operating results. While we will attempt to obtain appropriate representations and undertakings from the sellers of the properties or entities we acquire, the sellers may not have the resources to satisfy their indemnification obligations if a liability arises.

RAIT may provide loan financing to us through the use of a securitization or other special purpose vehicle.

RAIT has used securitizations in which it has a retained interest to finance many of its investments, and has retained interests in these vehicles consisting of their subordinated notes and equity. Although RAIT’s securitization vehicles holding properties have passed their reinvestment periods, RAIT may form new securitization vehicles in the future which it may use to provide financing on properties we may acquire.

The servicer for the loans held in such securitization vehicles, which may not be an entity affiliated with RAIT, would be responsible for ensuring timely payments under the terms of the loans. If we are unable to make payments on these loans, we may not be able to modify them on terms acceptable to us as a result of the securitization.

Payment of fees to our advisor and its affiliates will reduce cash available for investment and distribution.

Our advisor and its affiliates will perform services for us in connection with the management and leasing of our properties. They will be paid significant fees for these services, none of which were the result of arm’s-length negotiations. Payment of these fees will reduce the amount of cash available for investment and for distribution to stockholders.

We may suffer losses that are not covered by insurance.

If we suffer losses that are not covered by insurance or that are in excess of insurance coverage, we could lose invested capital and anticipated profits. We maintain comprehensive insurance for our properties, including casualty, liability, fire, extended coverage, terrorism, earthquakes, hurricanes and rental loss customarily obtained for similar properties in amounts which our advisor determines are sufficient to cover reasonably foreseeable losses, and with policy specifications and insured limits that we believe are adequate and appropriate under the circumstances. Material losses may occur in excess of insurance proceeds with respect to any property, and there are types of losses, generally of a catastrophic nature, such as losses due to wars, pollution, environmental matters and mold, which are either uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Moreover, we cannot predict whether all of the coverage that we currently maintain will be available to us in the future, or what the future costs or limitations on any coverage that is available to us will be.

We may be unable to secure funds for property improvements, which could reduce cash distributions to our stockholders.

When tenants do not renew their leases or otherwise vacate, we may be required to expend funds for capital improvements to the vacated apartment units in order to attract replacement tenants. In addition, we may require substantial funds to renovate an apartment property in order to sell, upgrade or reposition it in the market. If our reserves are insufficient to fund these improvements, we may have to obtain financing. We cannot assure you that sufficient financing will be available or, if available, will be available on economically feasible terms or on terms acceptable to us. Moreover, some reserves required by lenders may be designated for specific uses and may not be available for capital improvements to other properties. Additional borrowing will increase our interest expense, and could result in decreased net revenues and a decreased ability to make cash distributions to our stockholders.

Short-term tenant leases expose us to the effects of declining market rent, which could adversely impact our ability to make cash distributions to our stockholders.

We expect that most of our tenant leases will be for a term of one year or less. Because these leases generally permit the tenants to leave at the end of the lease term without any penalty, our rental revenues may be impacted by declines in market rents more quickly than if our leases were for longer terms.

The profitability of our acquisitions is uncertain.

We intend to acquire properties selectively. Acquisition of properties entails risks that investments will fail to perform in accordance with expectations. In undertaking these acquisitions, we will incur certain risks, including the expenditure of funds on, and the devotion of management’s time to, transactions that may not come to fruition. Additional risks inherent in acquisitions include risks that the properties will not achieve anticipated occupancy levels and that estimates of the costs of improvements to bring an acquired property up to standards established for the market position intended for that property may prove inaccurate.

We will face competition from third parties, including other apartment properties, which may limit our profitability and the return on any investment in our securities.

The apartment industry is highly competitive. This competition could reduce occupancy levels and revenues at our apartment properties. We compete with many other entities engaged in real estate investment activities, including individuals, corporations, bank and insurance company investment accounts, other REITs, real estate limited partnerships, and other entities engaged in real estate investment activities. Many of these entities have significant financial and other resources, including operating experience, allowing them to compete effectively with us. Competitors with substantially greater financial resources than us may be able to accept more risk than we can effectively manage. In addition, those competitors that are not REITs may be at an advantage to the extent they can use working capital to finance projects, while we (and our competitors that are REITs) will be required by the annual distribution provisions under the Code to distribute significant amounts of cash from operations to our stockholders. Competition may also result in overbuilding of apartment properties, causing an increase in the number of apartment units available which could potentially decrease our occupancy and apartment rental rates. We may also be required to expend substantial sums to attract new residents. The resale value of the property could be diminished because the market value of a particular property will depend principally upon the net revenues generated by the property. In addition, increases in operating costs due to inflation may not be offset by increased apartment rental rates. Further, costs associated with real estate investment, such as real estate taxes and maintenance costs, generally are not reduced when circumstances cause a reduction in income from the investment. These events would cause a significant decrease in revenues and the trading price of our common stock, and could cause us to reduce the amount of distributions to our stockholders.

Acquiring or attempting to acquire multiple properties in a single transaction may adversely affect our operations.

We may acquire multiple properties in a single transaction. Such portfolio acquisitions are more complex and expensive than single-property acquisitions, and the risk that a multiple-property acquisition does not close may be greater than in a single-property acquisition. Portfolio acquisitions may also result in us owning investments in geographically dispersed markets, placing additional demands on our ability to manage the properties in the portfolio. In addition, a seller may require that a group of properties be purchased as a package even though we may not want to purchase one or more properties in the portfolio. In these situations, if we are unable to identify another person or entity to acquire the unwanted properties, we may be required to operate, or attempt to dispose of, these properties. To acquire multiple properties in a single transaction we may be required to accumulate a large amount of cash. We expect the returns that we can earn on such cash to be less than the ultimate returns on real property, and therefore, accumulating such cash could reduce the funds available for distributions. Any of the foregoing events may have an adverse effect on our operations.

If we sell properties by providing financing to purchasers, we will bear the risk of default by the purchaser.

If we decide to sell any of our properties, we intend to use commercially reasonable efforts to sell them for cash. However, in some instances we may sell our properties by providing financing to purchasers. If we provide financing to purchasers, we will bear the risk of default by the purchaser which would reduce the value of our assets, impair our ability to make distributions to our stockholders and reduce the price of our common stock.

Our revenue and net income may vary significantly from one period to another due to investments in value-add properties and portfolio acquisitions, which could increase the variability of our cash distributions.

We may make investments in properties that have existing cash flow which are in various phases of development, redevelopment or repositioning and where we believe that, through limited capital expenditures, we can achieve enhanced returns (which we refer to as value-add properties), which may cause our revenues and net income to fluctuate significantly from one period to another. Projects do not produce revenue while in development or redevelopment. During any period when the number of our projects in development or redevelopment or those with significant capital requirements increases without a corresponding increase in stable revenue-producing properties, our revenues and net income will likely decrease and we could have losses. Moreover, value-add properties subject us to the risks of higher than expected construction costs, failure to complete projects on a timely basis, failure of the properties to perform at expected levels upon completion of development or redevelopment, and increased borrowings necessary to fund higher than expected construction or other costs related to the project. The occurrence of one or more of these risks could decrease our cash available for distribution.

We may acquire properties with lock-out provisions, or agree to such provisions in connection with obtaining financing, which may prohibit us from selling or refinancing a property during the lock-out period.

We may acquire properties in exchange for operating partnership units and agree to restrictions on sales or refinancing, called “lock-out” provisions, which are intended to preserve favorable tax treatment for the owners of such properties who sell them to us. Additionally, we may agree to lock-out provisions in connection with obtaining financing for the acquisition of properties. Lock-out provisions could materially restrict us from selling, otherwise disposing of or refinancing properties. This would affect our ability to turn our investments into cash and thus affect cash available to return capital to you. Lock-out provisions could impair our ability to take actions during the lock-out period that would otherwise be in the best interests of our stockholders and, therefore, could adversely impact the market value of our common stock. In particular, lock-out provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in the best interests of our stockholders.

We may acquire properties through joint ventures, which could subject us to liabilities in excess of those contemplated or prevent us from taking actions which are in the best interests of our stockholders, which could adversely affect our trading price.

We may enter into joint ventures with affiliates and/or other third parties to acquire or improve properties. We may also purchase properties in partnerships, co-tenancies or other co-ownership arrangements. Such investments may involve risks not otherwise present when acquiring real estate directly, including the following:

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a co-venturer, co-owner or partner may have certain approval rights over major decisions, which may prevent us from taking actions that are in the best interest of our stockholders but opposed by our partners or co-venturers;

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a co-venturer, co-owner or partner may at any time have economic or business interests or goals which are or become inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in the joint venture or the timing of termination or liquidation of the joint venture;

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a co-venturer, co-owner or partner in an investment might become insolvent or bankrupt (in which event we and any other remaining partners or members would generally remain liable for the liabilities of the partnership or joint venture);

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we may incur liabilities as a result of an action taken by our co-venturer, co-owner or partner;

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a co-venturer, co-owner or partner may be in a position to take actions contrary to our instructions, requests, objectives or policies, including our policy with respect to qualifying and maintaining our qualification as a REIT;

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agreements governing joint ventures, limited liability companies and partnerships often contain restrictions on the transfer of a member’s or partner’s interest or “buy-sell” or other provisions that may result in a purchase or sale of the interest at a disadvantageous time or on disadvantageous terms;

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disputes between us and our joint venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business and result in subjecting the properties owned by the applicable joint venture to additional risk; and

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under certain joint venture arrangements, neither venture partner may have the power to control the venture, and an impasse could be reached which might have a negative influence on the joint venture.

If any of the foregoing were to occur we may be subject to liabilities in excess of those contemplated, which could adversely affect our trading price.

Risks Associated with Debt Financing

We plan to incur mortgage indebtedness and other borrowings and are not limited in the amount or percentage of indebtedness that we may incur, which may increase our business risks.

We intend to acquire properties subject to existing financing or by borrowing new funds. In addition, we intend to incur additional mortgage debt by obtaining loans secured by some, or all, of our real properties to obtain funds to acquire additional real properties and/or make capital improvements to properties. We may also borrow funds, if necessary, to satisfy the requirement that we generally distribute to stockholders as dividends at least 90% of our annual REIT taxable income (computed without regard to dividends paid and excluding net capital gain), or otherwise as is necessary or advisable to assure that we maintain our qualification as a REIT for U.S. federal income tax purposes.

Our charter and bylaws do not limit the amount or percentage of indebtedness that we may incur. We are subject to risks normally associated with debt financing, including the risk that our cash flows will be insufficient to meet required payments of principal and interest. There can be no assurance that we will be able to refinance any maturing indebtedness, that such refinancing would be on terms as favorable as the terms of the maturing indebtedness or that we will be able to otherwise obtain funds by selling assets or raising equity to make required payments on maturing indebtedness.

In particular, loans obtained to fund property acquisitions will generally be secured by mortgages or deeds in trust on such properties. If we are unable to make our debt service payments as required, a lender could foreclose on the property or properties securing its debt.

In addition, for U.S. federal income tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. We may, in some circumstances, give a guaranty on behalf of an entity that owns one or more of our properties. In these cases, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgages contain cross-collateralization or cross-default provisions, there is a risk that we could lose part or all of our investment in multiple properties. Each of these events could in turn cause the value of our common stock and distributions payable to stockholders to be reduced.

Any mortgage debt which we place on properties may contain clauses providing for prepayment penalties. If a lender invokes these penalties upon the sale of a property or the prepayment of a mortgage on a property, the cost to us to sell the property could increase substantially. This could lead to a reduction in our income, which would reduce cash available for distribution to stockholders.

We may also finance our property acquisitions using interest-only mortgage indebtedness. During the interest-only period, the amount of each scheduled payment will be less than that of a traditional amortizing mortgage loan. The principal balance of the mortgage loan will not be reduced (except in the case of prepayments) because there are no scheduled monthly payments of principal during this period. After the interest-only period, we will be required either to make scheduled payments of amortized principal and interest or to make a lump-sum or “balloon” payment at maturity. These required principal or balloon payments will increase the amount of our scheduled payments and may increase our risk of default under the related mortgage loan. If the mortgage loan has an adjustable interest rate, the amount of our scheduled payments also may increase at a time of rising interest rates. Increased payments and substantial principal or balloon maturity payments will reduce the funds available for distribution to our stockholders because cash otherwise available for distribution will be required to pay principal and interest associated with these mortgage loans.

Failure to procure adequate capital and funding may decrease our profitability and our ability to make distributions, reducing the market price of our common stock.

We depend upon the availability of adequate funding and capital for our operations. As a REIT, we must distribute annually at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain, to our stockholders and are therefore not able to retain significant amounts of our earnings for new investments. Consequently, we will depend upon the availability of financing and additional capital to execute our investment strategy. If sufficient financing or capital is not available to us on acceptable terms, we may not be able to achieve anticipated levels of profitability either due to the lack of funding or an increase in funding costs and our ability to make distributions and the price of our common stock may decline.

High levels of debt or increases in interest rates could increase the amount of our loan payments, which could reduce the cash available for distribution to stockholders.

If we incur high levels of debt, our interest costs will increase, resulting in higher debt service payments which could reduce cash available for distribution to stockholders. If we incur variable rate debt, increases in interest rates would also increase our interest costs and decrease our ability to make distributions to you. If we need to repay existing debt during periods of rising interest rates, any refinancing we may obtain would likely increase our interest and other costs; if we were unable to obtain acceptable financing, we could be required to liquidate one or more of our investments in properties at times which may not permit realization of the maximum return on such investments and could result in a loss.

Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders.

In providing financing to us, a lender may impose restrictions on us that would affect our ability to incur additional debt, make certain investments, reduce liquidity below certain levels, make distributions to our stockholders and otherwise affect our distribution and operating policies. Our credit facility with The Huntington National Bank restricts our ability to encumber or otherwise transfer our interest in properties financed in whole or in part through the facility without the prior consent of the lender and includes other restrictions and requirements relating to the incurrence of debt, permitted investments, maintenance of insurance, the amendment of our charter documents and the charter documents of our operating partnership and its subsidiaries, mergers and sales of assets and transactions with affiliates. We expect that any other loan agreements we enter into will contain similar covenants and may also impose other restrictions and limitations. Any such covenants, restrictions or limitations may limit our ability to make distributions to you and could make it difficult for us to satisfy the requirements necessary to maintain our qualification as a REIT for U.S. federal income tax purposes.

Some of our mortgage loans may have “due on sale” provisions, which may impact the manner in which we acquire, sell and/or finance our properties.

In purchasing properties subject to financing, we may obtain financing with “due-on-sale” and/or “due-on-encumbrance” clauses. Due-on-sale clauses in mortgages allow a mortgage lender to demand full repayment of the mortgage loan if the borrower sells the mortgaged property. Similarly, due-on-encumbrance clauses allow a mortgage lender to demand full repayment if the borrower uses the real estate securing the mortgage loan as security for another loan. In such event, we may be required to sell our properties on an all-cash basis, which may make it more difficult to sell the property or reduce the selling price.

Lenders may be able to recover against our other properties under our mortgage loans.

In financing our property acquisitions, we will seek to obtain secured nonrecourse loans. However, only recourse financing may be available, in which event, in addition to the property securing the loan, the lender would have the ability to look to our other assets for satisfaction of the debt if the proceeds from the sale or other disposition of the property securing the loan are insufficient to fully repay it. Also, in order to facilitate the sale of a property, we may allow the buyer to purchase the property subject to an existing loan whereby we remain responsible for the debt.

If we are required to make payments under any “bad boy” carve-out guaranties that we may provide in connection with certain mortgages and related loans, our business and financial results could be materially adversely affected.

In obtaining certain nonrecourse loans, we may provide standard carve-out guaranties. These guaranties are only applicable if and when the borrower directly, or indirectly through agreement with an affiliate, joint venture partner or other third party, voluntarily files a bankruptcy or similar liquidation or reorganization action or takes other actions that are fraudulent or improper (commonly referred to as “bad boy” guaranties). Although we believe that “bad boy” carve-out guaranties are not guaranties of payment in the event of foreclosure or other actions of the foreclosing lender that are beyond the borrower’s control, some lenders in the real estate industry have recently sought to make claims for payment under such guaranties. In the event such a claim were made against us under a “bad boy” carve-out guaranty following foreclosure on mortgages or related loan, and such claim were successful, our business and financial results could be materially adversely affected.

We may be subject to risks related to interest rate fluctuations, and the derivative financial instruments that we may use may be costly and ineffective and may reduce the overall returns on any investment in our securities.

We may be subject to risks related to interest rate fluctuations if any of our debt is subject to a floating interest rate. At December 31, 2014, we had $418.9 million of outstanding indebtedness, $56.5 million of which was floating-rate indebtedness and none of which was subject to interest rate hedges. To the extent that we use derivative financial instruments in the future to hedge our exposure to floating interest rate debt, we will be exposed to credit, basis and legal enforceability risks. Derivative financial instruments may include interest rate swap contracts, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements. In this context, credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. Basis risk occurs when the index upon which the contract is based is more or less variable than the index upon which the hedged asset or liability is based, thereby making the hedge less effective. Finally, legal enforceability risks encompass general contractual risks, including the risk that the counterparty will breach the terms of, or fail to perform its obligations under, the derivative contract. If we are unable to manage these risks effectively, our results of operations, financial condition and ability to make distributions to you will be adversely affected.

Complying with REIT requirements may limit our ability to hedge risk effectively.

The REIT provisions of the Code may limit our ability to hedge the risks inherent to our operations. Any income or gain derived by us from transactions that hedge certain risks, such as the risk of changes in interest rates, will not be treated as gross income for purposes of either the 75% or the 95% Gross Income Test, as defined in Exhibit 99.1 “Material U.S. Federal Income Tax Considerations” of this report, provided specific requirements are met. Such requirements include that the hedging transaction be properly identified within prescribed time periods and that the transaction either (i) hedges risks associated with indebtedness issued by us that is incurred to acquire or carry real estate assets or (ii) manages the risks of currency fluctuations with respect to income or gain that qualifies under the 75% or 95% Gross Income Test (or assets that generate such income). To the extent that we do not properly identify such transactions as hedges, hedge with other types of financial instruments, or hedge other types of indebtedness, the income from those transactions will not be treated as qualifying income for purposes of the 75% and 95% Gross Income Tests. As a result of these rules, we may have to limit the use of hedging techniques that might otherwise be advantageous, which could result in greater risks associated with interest rate or other changes than we would otherwise incur.

Compliance with Laws

The costs of compliance with environmental laws and other governmental laws and regulations may adversely affect our income and the cash available for any distributions.

All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Examples of federal laws include: the National Environmental Policy Act, the Comprehensive Environmental Response, Compensation, and Liability Act, the Solid Waste Disposal Act as amended by the Resource Conservation and Recovery Act, the Federal Water Pollution Control Act, the Federal Clean Air Act, the Toxic Substances Control Act, the Emergency Planning and Community Right to Know Act and the Hazard Communication Act. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals. Some of these laws and regulations may impose joint and several liability on residents, owners or operators for the costs of investigation or remediation of contaminated properties, regardless of fault or the legality of the original disposal. In addition, the presence of these substances, or the failure to properly remediate these substances, may limit or eliminate affect our ability to sell or rent the property or to use the property as collateral for future borrowing.

There may also be potential liability associated with lead-based paint arising from lawsuits alleging personal injury and related claims. The existence of lead paint is especially a concern in residential units. A structure built prior to 1978 may contain lead-based paint and may present a potential for exposure to lead; however, structures built after 1978 are not likely to contain lead-based paint.

Properties’ values may also be affected by their proximity to electric transmission lines. Electric transmission lines are one of many sources of electro-magnetic fields, or EMFs, to which people may be exposed. Research completed regarding potential health concerns associated with exposure to EMFs has produced inconclusive results. Notwithstanding the lack of conclusive scientific evidence, some states now regulate the strength of electric and magnetic fields emanating from electric transmission lines, and other states have required transmission facilities to measure for levels of EMFs. On occasion, lawsuits have been filed (primarily against electric utilities) that allege personal injuries from exposure to transmission lines and EMFs, as well as from fear of adverse health effects due to such exposure. This fear of adverse health effects from transmission lines has been considered both when property values have been determined to obtain financing and in condemnation proceedings. We may not, in certain circumstances, search for electric transmission lines near our properties, but are aware of the potential exposure to damage claims by persons exposed to EMFs.

Recently, indoor air quality issues, including mold, have been highlighted in the media and the industry is seeing mold claims from lessees rising. Due to recent increases in mold claims, and since the law relating to mold is unsettled and subject to change, we could incur losses from claims relating to the presence of, or exposure to, mold or other microbial organisms, particularly if we are unable to maintain adequate insurance to cover such losses. We may also incur unexpected expenses relating to the abatement of mold on properties that we may acquire.

Limited quantities of asbestos-containing materials are present in various building materials such as floor coverings, ceiling texture material, acoustical tiles and decorative treatment. Environmental laws govern the presence, maintenance and removal of asbestos. These laws could be used to impose liability for release of, and exposure to, hazardous substances, including asbestos-containing materials, into the air. Such laws require that owners or operators of buildings containing asbestos (i) properly manage and maintain the asbestos, (ii) notify and train those who may come into contact with asbestos and (iii) undertake special precautions, including removal or other abatement, if asbestos would be disturbed during renovation or demolition of a building. These laws may allow third parties to seek recovery from owners or operators of real properties for personal injury associated with exposure to asbestos fibers. As the owner of our properties, we may be liable for any such costs.

Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require material expenditures by us. We cannot assure you that future laws, ordinances or regulations will not impose any material environmental liability, or that the current environmental condition of our properties will not be affected by the operations of residents, existing conditions of the land, operations in the vicinity of the properties, or the activities of unrelated third parties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations that we may be required to comply with. Failure to comply with applicable laws and regulations could result in fines and/or damages, suspension of personnel of our advisor and/or other sanctions.

Discovery of previously undetected environmentally hazardous conditions may adversely affect our operating results.

Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the cost of removal or remediation of hazardous or toxic substances on, under or in such property. The costs of removal or remediation could be substantial. These laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of the hazardous or toxic substances.

Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures. Environmental laws provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles govern the presence, maintenance, removal and disposal of certain building materials, including asbestos and lead-based paint (which are both discussed above).

The cost of defending against any claims of liability, of compliance with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could materially adversely affect our business, assets or results of operations and, consequently, amounts available for distribution to you.

We cannot assure you that properties which we acquire will not have any material environmental conditions, liabilities or compliance concerns. Accordingly, we have no way of determining at this time the magnitude of any potential liability to which we may be subject arising out of environmental conditions or violations with respect to the properties we own.

Our costs associated with and the risk of failing to comply with the Americans with Disabilities Act may affect cash available for distributions.

We generally expect that our properties will be subject to the Americans with Disabilities Act of 1990, as amended, or the Disabilities Act. Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities. The Disabilities Act does not, however, consider residential properties, such as apartment properties, to be public accommodations or commercial facilities, except to the extent portions of such facilities, such as a leasing office, are open to the public. The Disabilities Act’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. We will attempt to acquire properties that comply with the Disabilities Act or place the burden on the seller or a third party to ensure compliance with such laws. However, we cannot assure you that we will be able to acquire properties or allocate responsibilities in this manner. If we cannot, costs in complying with these laws may affect cash available for distributions and the amount of distributions to you.

We must comply with the Fair Housing Amendments Act of 1988, or the FHAA, and failure to comply may affect cash available for distributions.

We must comply with the FHAA, which requires that apartment properties first occupied after March 13, 1991 be accessible to handicapped residents and visitors. As with the Disabilities Act, compliance with the FHAA could require removal of structural barriers to handicapped access in a community, including the interiors of apartment units covered under the FHAA. Recently there has been heightened scrutiny of apartment housing properties for compliance with the requirements of the FHAA and the Disabilities Act and an increasing number of substantial enforcement actions and private lawsuits have been brought against apartment communities to ensure compliance with these requirements. Noncompliance with the FHAA could result in the imposition of fines, awards of damages to private litigants, payment of attorneys’ fees and other costs to plaintiffs, substantial litigation costs and substantial costs of remediation.

United States Federal Income Tax Risks

If we fail to maintain our qualification as a REIT, we will be subject to tax on our income, and the amount of distributions we make to our stockholders will be less.

We intend to maintain our qualification as a REIT under the Code. A REIT generally is not taxed at the corporate level on income and gains that it distributes to its stockholders on a timely basis. We do not intend to request a ruling from the Internal Revenue Service, or the IRS, as to our REIT status. Qualification as a REIT involves the application of highly technical and complex rules for which there are only limited judicial or administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to continue to qualify as a REIT. In addition, new legislation, regulations, administrative interpretations or court decisions could significantly change the tax laws with respect to qualification as a REIT or the U.S. federal income tax consequences of such qualification, including changes with retroactive effect.

If we fail to qualify as a REIT in any taxable year:

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we would not be allowed to deduct our distributions to our stockholders when computing our taxable income;

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we would be subject to U.S. federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates;

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we generally would be disqualified from being taxed as a REIT for the four taxable years following the year during which qualification was lost, unless entitled to relief under certain statutory provisions;

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we would have less cash to make distributions to our stockholders; and

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we might be required to borrow additional funds or sell some of our assets in order to pay corporate tax obligations we may incur as a result of our disqualification.

Although our organization and current and proposed method of operation is intended to enable us to maintain our qualification to be taxed as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause our board of directors to revoke our REIT election. Even if we maintain our qualification to be taxed as a REIT, we expect to incur some taxes, such as state and local taxes, taxes imposed on certain subsidiaries and potential U.S. federal excise taxes.

We encourage you to read Exhibit 99.1-“Material U.S. Federal Income Tax Considerations” to this report for further discussion of the tax issues related to an investment in us.

To maintain our qualification as a REIT, we must meet annual distribution requirements, which may result in our distributing amounts that may otherwise be used for our operations.

To obtain the favorable tax treatment accorded to REITs, we generally are required each year to distribute to our stockholders at least 90% of our REIT taxable income (excluding net capital gain), determined without regard to the deduction for distributions paid. We are subject to U.S. federal income tax on our undistributed taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (i) 85% of our ordinary income, (ii) 95% of our capital gain net income and (iii) 100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on investments in real estate assets, and it is possible that we might be required to borrow funds, possibly at unfavorable rates, or sell assets to fund these distributions. Although we intend to make distributions sufficient to meet the annual distribution requirements and to avoid U.S. federal income and excise taxes on our earnings, it is possible that we might not always be able to do so.

Complying with REIT requirements may cause us to forgo otherwise attractive opportunities.

To maintain our qualification as a REIT, we must continually satisfy various tests regarding sources of income, nature and diversification of assets, amounts distributed to stockholders and the ownership of shares of our capital stock. In order to satisfy these tests, we may be required to forgo investments that might otherwise be made. Accordingly, compliance with the REIT requirements may hinder our investment performance.

In particular, at least 75% of our total assets at the end of each calendar quarter must consist of real estate assets, government securities, and cash or cash items. For this purpose, “real estate assets” generally include interests in real property, such as land, buildings, leasehold interests in real property, stock of other entities that qualify as REITs, interests in mortgage loans secured by real property, investments in stock or debt instruments during the one-year period following the receipt of new capital and regular or residual interests in a real estate mortgage investment conduit, or REMIC. In addition, the amount of securities of a single issuer that we hold, other than securities qualifying under the 75% asset test and certain other securities, must generally not exceed either 5% of the value of our gross assets or 10% of the vote or value of such issuer’s outstanding securities.

A REIT’s net income from prohibited transactions is subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held in inventory or primarily for sale to customers in the ordinary course of business. It may be possible to reduce the impact of the prohibited transaction tax and the holding of assets not qualifying as real estate assets for purposes of the REIT asset tests by conducting certain activities, or holding non-qualifying REIT assets through a TRS, subject to certain limitations as described below. To the extent that we engage in such activities through a TRS, the income associated with such activities will be subject to full U.S. federal corporate income tax.

If RAIT failed to qualify as a REIT in its 2007 through 2011 taxable years, we would be prevented from qualifying as a REIT under applicable Treasury Regulations.

We elected to qualify as a REIT commencing with our taxable year ended December 31, 2011. However, under applicable Treasury Regulations, if RAIT failed to qualify as a REIT in its 2007 through 2011 taxable years, unless RAIT’s failure to qualify as a REIT was subject to relief under U.S. federal tax laws, we would be prevented from electing to qualify as a REIT prior to the fifth calendar year following the year in which RAIT failed to qualify. RAIT received opinions of its counsel that it qualified as a REIT for each of those years.

Certain of our business activities are potentially subject to the prohibited transaction tax, which could reduce the return on any investment in our securities.

Our ability to dispose of property is restricted to a substantial extent as a result of our REIT status. Under applicable provisions of the Code regarding prohibited transactions by REITs, we will be subject to a 100% tax on any gain recognized on the sale or other disposition of any property (other than foreclosure property) that we own, directly or through any subsidiary entity, including our operating partnership, but excluding a TRS, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of trade or business. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. No assurance can be given that any particular property we own, directly or through any subsidiary entity, including our operating partnership, but excluding a TRS, will not be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.

The use of TRSs would increase our overall tax liability.

Some of our assets may need to be owned or sold, or some of our operations may need to be conducted, by TRSs. We do not currently have a TRS but may form one in the future. A TRS will be subject to U.S. federal and state income tax on its taxable income. The after-tax net income of a TRS would be available for distribution to us. Further, we will incur a 100% excise tax on transactions with a TRS that are not conducted on an arm’s length basis. For example, to the extent that the rent paid by a TRS exceeds an arm’s length rental amount, such amount is potentially subject to the excise tax. We intend that all transactions between us and any TRS we form will be conducted on an arm’s length basis, and, therefore, any amounts paid by any TRS we form to us will not be subject to the excise tax. However, no assurance can be given that no excise tax would arise from such transactions.

Dividends paid by REITs do not qualify for the reduced tax rates provided for under current law.

Dividends paid by REITs are generally not eligible for the reduced 20% maximum tax rate applicable to qualified dividends paid to individuals. The more favorable rates applicable to qualified dividends could cause stockholders who are individuals to perceive investments in REITs to be relatively less attractive than investments in the stock of non-REIT corporations that pay dividends to which more favorable rates apply, which could reduce the value of the stocks of REITs.

Legislative or regulatory action could adversely affect the returns to our investors.

In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of U.S. federal income tax laws applicable to investments similar to an investment in shares of our common stock. Additional changes to the tax laws are likely to continue to occur, and we cannot assure you that any such changes will not adversely affect the taxation of our stockholders. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. You are urged to consult with your own tax adviser with respect to the impact of recent legislation on any investment in our securities and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares.

Although REITs continue to receive more favorable tax treatment than entities taxed as corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be taxed for U.S. federal income tax purposes as a corporation. As a result, our charter provides our board of directors with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a corporation, without the vote of our stockholders. Our board of directors has fiduciary duties to us and our stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in our best interest.

If our operating partnership is not treated as a partnership or disregarded entity for U.S. federal income tax purposes, its income may be subject to taxation.

We intend to maintain the status of our operating partnership as a partnership or disregarded entity for U.S. federal income tax purposes. However, if the IRS were to successfully challenge the status of our operating partnership as a partnership or disregarded entity for such purposes, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that our operating partnership could make to us. This would also result in our losing REIT status, and becoming subject to a corporate level tax on our own income. This would substantially reduce our cash available to pay distributions and the yield on any investment in our securities. In addition, if any of the partnerships or limited liability companies through which our operating partnership owns its properties, in whole or in part, loses its characterization as a partnership for U.S. federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to our operating partnership. Such a recharacterization of an underlying property owner could also threaten our ability to maintain REIT status.

Distributions to tax-exempt investors may be classified as unrelated business taxable income, or UBTI, and tax-exempt investors would be required to pay tax on such income and to file income tax returns.

Neither ordinary nor capital gain distributions with respect to our common stock nor gain from the sale of stock should generally constitute UBTI to a tax-exempt investor. However, there are certain exceptions to this rule, including:

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under certain circumstances, part of the income and gain recognized by certain qualified employee pension trusts with respect to our stock may be treated as UBTI if our stock is predominately held by qualified employee pension trusts, such that we are a “pension-held” REIT (which we do not expect to be the case);

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part of the income and gain recognized by a tax-exempt investor with respect to our stock would constitute UBTI if such investor incurs debt in order to acquire our common stock; and

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part or all of the income or gain recognized with respect to our stock held by social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans which are exempt from U.S. federal income taxation under Sections 501(c)(7), (9), (17) or (20) of the Code may be treated as UBTI.

We encourage you to consult your own tax advisor to determine the tax consequences applicable to you if you are a tax-exempt investor.

Distributions to foreign investors may be treated as an ordinary income distribution to the extent that it is made out of current or accumulated earnings and profits.

In general, foreign investors will be subject to regular U.S. federal income tax with respect to their investment in our stock if the income derived therefrom is “effectively connected” with the foreign investor’s conduct of a trade or business in the United States. A distribution to a foreign investor that is not attributable to gain realized by us from the sale or exchange of a “U.S. real property interest” within the meaning of the Foreign Investment in Real Property Tax Act of 1980, as amended, or FIRPTA, will be treated as an ordinary income distribution to the extent that it is made out of current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). Generally, any ordinary income distribution will be subject to a U.S. withholding tax equal to 30% of the gross amount of the distribution, unless this tax is reduced by the provisions of an applicable treaty.

Foreign investors may be subject to FIRPTA tax upon the sale of their shares of our stock.

A foreign investor disposing of a U.S. real property interest, including shares of stock of a U.S. corporation whose assets consist principally of U.S. real property interests, is generally subject to FIRPTA tax on the gain recognized on the disposition. Such FIRPTA tax does not apply, however, to the disposition of stock in a REIT if the REIT is “domestically controlled.” A REIT is “domestically controlled” if less than 50% of the REIT’s stock, by value, has been owned directly or indirectly by persons who are not U.S. persons during a continuous five-year period ending on the date of disposition or, if shorter, during the entire period of the REIT’s existence. While we intend to qualify as “domestically controlled,” we cannot assure you that we will. If we were to fail to so qualify, gain realized by foreign investors on a sale of shares of our stock would be subject to FIRPTA tax, unless the shares of our stock were traded on an established securities market and the foreign investor did not at any time during a specified testing period directly or indirectly own more than 5% of the value of our outstanding common stock

Foreign investors may be subject to FIRPTA tax upon a capital gain dividend.

A foreign investor may be subject to FIRPTA tax upon the payment of any capital gain dividend by us if such dividend is attributable to gain from sales or exchanges of U.S. real property interests.

We encourage you to consult your own tax advisor to determine the tax consequences applicable to you if you are a foreign investor.

Risks Relating to the Market for our Common Stock

An active trading market may not exist for our common stock or, if it does, you may not be able to sell your shares at or above your purchase price.

Although our common stock is currently listed on the NYSE MKT, we cannot assure you that an active trading market for our common stock will exist in the future. In addition, the market price and trading volume of our common stock may be volatile. As a result, you may not be able to sell your shares at or above your purchase price. The market price of our common stock may also be subject to significant fluctuations in response to our future operating results, analyst reports about us, additions to or departures of key management personnel, actual or projected interest rate changes and other factors, including conditions affecting securities markets generally

The percentage of ownership of any of our common stockholders may be diluted if we issue new shares of common stock.

Stockholders have no rights to buy additional shares of stock if we issue new shares of stock. We may issue common stock, convertible debt or preferred stock pursuant to a public offering or a private placement, to sellers of properties we directly or indirectly acquire instead of, or in addition to, cash consideration, or to our advisor in payment of some or all of the quarterly base or incentive fee that may be earned by our advisor or in payment of some or all of the termination fee that may be payable to our advisor. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Any of our common stockholders who do not participate in any future stock issuances will experience dilution in the percentage of the issued and outstanding stock they own.

Sales of our common stock, or the perception that such sales will occur, may have adverse effects on our share price.

We cannot predict the effect, if any, of future sales of common stock, or the availability of shares for future sales, on the market price of our common stock. Sales of substantial amounts of common stock, including shares of common stock issuable upon the exchange of units of our operating partnership that we may issue from time to time, the sale of shares of common stock held by our current stockholders, particularly RAIT and its affiliates, and the sale of any shares we may issue under our long-term incentive plan, or the perception that these sales could occur, may adversely affect prevailing market prices for our common stock.

An increase in market interest rates may have an adverse effect on the market price of our common stock.

One of the factors that investors may consider in deciding whether to buy or sell our common stock is our distribution yield, which is our distribution rate as a percentage of our share price, relative to market interest rates. If market interest rates increase, prospective investors may desire a higher distribution yield on our common stock or may seek securities paying higher dividends or interest. The market price of our common stock likely will be based primarily on the earnings that we derive from rental income with respect to our properties and our related distributions to stockholders, and not from the underlying appraised value of the properties themselves. As a result, interest rate fluctuations and capital market conditions are likely to affect the market price of our common stock, and such effects could be significant. For example, if interest rates rise without an increase in our distribution rate, the market price of our common stock could decrease because potential investors may require a higher distribution yield on our common stock as market rates on interest-bearing securities, such as bonds, rise.

Some of our distributions may include a return of capital for U.S. federal income tax purposes.

Some of our distributions may include a return of capital. To the extent that we decide to make distributions in excess of our current and accumulated earnings and profits, such distributions would generally be considered a return of capital for U.S. federal income tax purposes to the extent of the holder’s adjusted tax basis in its shares, and thereafter as gain on a sale or exchange of such shares.

Future issuances of debt securities, which would rank senior to our common stock upon liquidation, or future issuances of preferred equity securities, may adversely affect the trading price of our common stock.

In the future, we may issue debt or equity securities or incur other borrowings. Upon our liquidation, holders of our debt securities, other loans and preferred stock will receive a distribution of our available assets before common stockholders. Any preferred stock, if issued, likely will also have a preference on periodic distribution payments, which could eliminate or otherwise limit our ability to make distributions to common stockholders. Common stockholders bear the risk that our future issuances of debt or equity securities or our incurrence of other borrowings may negatively affect the trading price of our common stock.

The market prices for our common stock may be volatile.

The prices at which our common stock may sell in the public market may be volatile. Fluctuations in the market prices of our common stock may not be correlated in a predictable way to our performance or operating results. The prices at which our common stock trade may fluctuate as a result of factors that are beyond our control or unrelated to our performance or operating results.

Risks Related to Conflicts of Interest

We may have conflicts of interest with our advisor and other affiliates, which could result in investment decisions that are not in the best interests of our stockholders.

We are entirely dependent upon our advisor and our property manager for our day-to-day management and do not have any independent employees. Our executive officers, one of whom is also the chairman of our board of directors, serve as officers and/or directors of RAIT and its affiliates, and RAIT owns a significant percentage of the outstanding shares of our common stock. As a result, conflicts of interest may arise between our advisor, RAIT and our property manager, on the one hand, and us on the other. There are numerous conflicts of interest between our interests and the interests of our advisor, RAIT and their respective affiliates, including conflicts arising out of allocation of personnel to our activities, allocation of investment opportunities between us and RAIT, purchase or sale of apartment properties from or to RAIT or its affiliates and fee arrangements with our advisor that might induce our advisor to make investment decisions that are not in our best interests. Examples of these potential conflicts of interest include:

•

RAIT owns a significant percentage of our outstanding shares of common stock, which gives RAIT the ability to exert significant influence over our company in a manner that may not be in the best interests of our other stockholders;

•

competition for the time and services of personnel that work for us and our affiliates;

•

compensation payable by us to our advisor, property manager and their affiliates for their various services, which may not be on market terms and is payable, in some cases, whether or not our stockholders receive distributions;

•

the possibility that our advisor, its officers and their respective affiliates will face conflicts of interest relating to the purchase and leasing of properties (e.g., if RAIT or an affiliate has an existing direct or indirect investment in a property that would otherwise be suitable for us, RAIT or such affiliate, as the case may be, will have the right to acquire such property, directly or indirectly, without first offering us the opportunity to acquire the property), and that such conflicts may not be resolved in our favor, thus potentially limiting our investment opportunities, impairing our ability to make distributions and adversely affecting the trading price of our common stock;

•

the possibility that our advisor and its affiliates may make investment recommendations to us in order to increase their own compensation even though the investments may not be in the best interests of our stockholders;

•

the possibility that if we acquire properties from RAIT or its affiliates, the price may be higher than we would pay if the transaction were the result of arms’ length negotiations with a third party;

•

the possibility that our advisor will face conflicts of interest caused by its ownership by RAIT, some of whose officers are also our officers and one of whom is a director of ours, resulting in actions that may not be in the long-term best interests of our stockholders;

•

RAIT’s ability to provide financing to us for acquisitions of properties which could result in conflicts with respect to negotiation and enforcement of loan terms; and

•

the possibility that we may acquire or merge with our advisor, resulting in an internalization of our management functions.

Any of these and other conflicts of interest between us and our advisor could have a material adverse effect on the returns on our investments, our ability to make distributions to stockholders and the trading price of our common stock.

RAIT’s ownership of a significant percentage of the outstanding shares of our common stock could give RAIT the ability to exert significant influence over our company in a manner that may not be in the best interests of our other stockholders.

Our board of directors has granted an exception for RAIT and its subsidiaries to own, in the aggregate, up to 100% of our outstanding common stock. As of March 16, 2015, RAIT beneficially owned 7,269,719 shares of our common stock, which represented approximately 22.8% of our outstanding common stock. As a result RAIT will continue to have significant influence over our affairs and could exercise such influence in a manner that is not in the best interests of our other stockholders, including the ability to effectively prevent the approval of certain matters submitted to our stockholders for approval such as charter amendments, certain mergers and other extraordinary transactions. Conversely, RAIT’s concentrated voting control could result in the consummation of such a transaction that our other stockholders and our board do not support and would significantly influence the election of our directors.

We may be obligated to pay our advisor quarterly incentive fees even if we incur a net loss during a particular quarter and our advisor will receive a base management fee regardless of the performance of our portfolio.

Our advisor is entitled to a quarterly incentive fee based on our pre-incentive fee Core FFO, which will reward our advisor if our quarterly pre-incentive fee Core FFO exceeds 1.75% of the cumulative gross proceeds from the issuance of our equity securities during such quarter. Our Core FFO for a particular quarter will exclude the effect of any unrealized gains, losses or other items during that quarter that do not affect realized net income, even if these adjustments result in a net loss on our statement of operations for that quarter. Thus, we may be required to pay our advisor an incentive fee for a fiscal quarter even if we incur a net loss for that quarter as determined in accordance with U.S. generally accepted accounting principles, or GAAP. In addition, our advisor is entitled to receive a base management fee based on a percentage of our gross assets (excluding the eight properties in our portfolio that were acquired prior to August 16, 2013), regardless of our performance or its performance in managing our business. Our advisor will also receive reimbursement of expenses and fees incurred directly on our behalf regardless of its or our performance. As a result, even if our advisor does not identify profitable investment opportunities for us, it will still receive material compensation from us. This compensation structure may reduce our advisor’s incentive to devote time and effort to seeking profitable opportunities for our portfolio.

We may compete with other entities affiliated with RAIT for tenants.

RAIT and its affiliates are not prohibited from engaging, directly or indirectly, in any other business or from possessing interests in any other business ventures, including ventures involved in the acquisition, development, ownership, management, leasing or sale of real estate. RAIT currently owns one property in the same market as our Tresa at Arrowhead property, one property in the same market as our Heritage Trace property and two properties in the same market as our The Crossings property and our Arbors at the Reservoir property and, although its primary focus is providing debt financing rather than acquiring apartment properties, as of December 31, 2014 it had approximately $121.7 million available for investment. RAIT and/or its affiliates may in the future own, manage or finance properties in the same geographical areas in which we expect to acquire real estate assets. Therefore, our properties may compete for tenants with other properties owned, managed or financed by RAIT and its affiliates. RAIT may face conflicts of interest when evaluating tenant opportunities for our properties and other properties owned, managed or financed by RAIT and its affiliates, and these conflicts of interest may lessen our ability to attract and retain tenants.

Conflicts of interest may arise between our advisor, RAIT and our property manager, on the one hand, and us on the other.

Our executive officers have interests that may conflict with the interests of stockholders.

Our executive officers are also affiliated with or are executive officers and stockholders of RAIT. These individuals may have personal and professional interests that conflict with the interests of our stockholders with respect to business decisions affecting us and our operating partnership. As a result, the effect of these conflicts of interest on these individuals may influence their decisions affecting the negotiation and consummation of the transactions whereby we acquire apartment properties in the future from RAIT, or in the allocation of investment opportunities to us by RAIT or its affiliates.

We may pursue less vigorous enforcement of terms of the contribution agreements for the apartment properties we acquired from RAIT because of conflicts of interest with our senior management team.

Our executive officers, one of whom is also chairman of our board of directors, have ownership interests in and professional responsibilities with RAIT, which contributed apartment properties to our operating partnership. As part of the contribution of these properties, RAIT made limited representations and warranties to us regarding the properties and interests acquired. Any indemnification from RAIT related to the contribution is limited. We may choose not to enforce, or to enforce less vigorously, our rights under the contribution agreements due to our ongoing relationship between our executive officers and RAIT.

We face conflicts of interest relating to financing arrangements with RAIT for the acquisition of apartment properties that would not be present with third-party financing.

Two of the apartment properties we acquired from RAIT were subject to financing provided by an affiliate of RAIT. RAIT may make financing available to us in the future. Such financing arrangements may involve conflicts of interest not otherwise present with other methods of financing, including:

•

that RAIT may sell or securitize our loan agreements with a third party, in which case our loan would become subject to the rights of the assignee or transferee whose interests may not be the same as RAIT’s interests;

•

that RAIT may in the future have interests that are or that become inconsistent with our interests, which may cause us to disagree with RAIT as to the best course of action with respect to the payment terms, remedies available under and refinancing of the loans; any such disagreement may not be resolved to our satisfaction;

•

that in the event of our default on any loan, RAIT may determine to foreclose upon the collateral without pursuing alternative remedies such as renegotiation of loan terms or workouts that a third-party lender might pursue; and

•

that our executive officers are also executive officers or employees of RAIT and would be responsible for negotiating the terms of any future loan agreement on our behalf as well as on RAIT’s behalf.

RAIT may also make a loan as part of a lending syndicate with third parties, in which case we expect that RAIT would enter into an intercreditor agreement that will define its rights and priority with respect to the underlying collateral. The third-party lending syndicate may also have interests that differ with our interests as well as the interests of RAIT.

Our advisor, our property manager, our executive officers and their affiliates may face conflicts of interest and competing demands on their time, which could adversely impact any investment in our securities.

We do not have any employees and, as a result, rely on the employees of our advisor our property manager and its affiliates for the day-to-day operation of our business. Each of our executive officers is also an officer or employee of RAIT and its affiliates. As a result, all of these individuals owe fiduciary duties to these other entities and their stockholders, members and limited partners. Because RAIT and its affiliates engage in other business activities, the employees of RAIT and its affiliates may experience conflicts of interest in allocating their time and resources among our business and these other activities. The amount of time that our advisor and its affiliates spend on our business will vary from time to time, although we expect that they will devote more time to us while we are acquiring properties. During times of intense activity in other programs and ventures, they may devote less time and fewer resources to our business than are necessary or appropriate to manage our business. While we expect that, as our real estate activities expand, our advisor will attempt to hire additional employees who would devote substantially all of their time to our business, there is no assurance that our advisor will devote adequate time to our business. If our advisor suffers or is distracted by adverse financial or operational problems in connection with its operations unrelated to us, it may allocate less time and resources to our operations. If any of the foregoing events occur, the returns on our investments, our ability to make distributions to stockholders and the trading price of our common stock may suffer.

Property management services are being provided by an affiliated party, which may impact our sale of properties, and as a result, affect any investment in our securities.

Because the property manager will receive significant fees for managing our properties, our advisor may face a conflict of interest when determining whether we should sell properties under circumstances where the property manager would no longer manage the property after the transaction. As a result, we may not dispose of properties when it would be in our best interests to do so.

If we acquire properties from affiliates of our advisor, the price may be higher than we would pay if the transaction were the result of arms’ length negotiations.

The prices way pay to acquire properties from affiliates of our advisor will not be the subject of arms’ length negotiations, which means that the acquisitions may be on terms less favorable to us than those negotiated in an arms’ length transaction. Even though we expect to use an independent third-party appraiser to determine fair market value when acquiring properties from our advisor and its affiliates, we may pay more for particular properties than we would have in an arms’ length transaction, which would reduce our cash available for investment in other properties or distribution to our stockholders.

Our advisor and its affiliates receive fees and other compensation based upon our investments, which may impact operating decisions, and as a result, affect any investment in our securities.

Our advisor and its affiliates receive fees based, in part, on the cost of our investments, and are in a position to make decisions about our investments, and the amount of leverage we use to acquire our investments, in ways that could maximize fees payable to our advisor and its affiliates. Some compensation is payable to our advisor whether or not there is cash available to make distributions to our stockholders. As a result, our advisor and its affiliates may benefit from us retaining ownership, and leveraging, our assets, while our stockholders may be better served by the sale or disposition of, or lack of leverage on, the assets.

The incentive fee we pay our advisor may induce it to make riskier investments.

The incentive fee payable by us to our advisor is determined based on Core FFO, which may create an incentive for our advisor to make investments that are risky or more speculative than would otherwise be in our best interests. In evaluating investments and other management strategies, the incentive fee structure may lead our advisor to place undue emphasis on the maximization of Core FFO at the expense of other criteria, such as preservation of capital, in order to increase its incentive fee. Investments with higher yields generally have higher risk of loss than investments with lower yields, and could result in higher investment losses, particularly during cyclical economic downturns, which could adversely affect the trading price of our common stock.

ITEM 1B.

Unresolved Staff Comments

None.

ITEM 2.

Properties

We hold fee title to all properties in our portfolio. The following table presents an overview of our portfolio as of December 31, 2014.


Property Name	Location	Acquisition Date	Year Built or Renovated ⁽¹⁾	Units ⁽²⁾			Average Occupancy ⁽³⁾			Average Monthly Effective Rent per Occupied Unit ⁽⁴⁾
Belle Creek	Henderson, CO	4/29/2011	2011		162	(5)		92.6	%	$	1,074
Copper Mill	Austin, TX	4/29/2011	2010		320			98.4	%		831
Crestmont	Marietta, GA	4/29/2011	2010		228			94.7	%		755
Cumberland Glen	Smyrna, GA	4/29/2011	2010		222			96.4	%		719
Heritage Trace	Newport News, VA	4/29/2011	2010		200			90.5	%		683
Tresa at Arrowhead	Phoenix, AZ	4/29/2011	2006		360			96.4	%		849
Centrepoint	Tucson, AZ	12/16/2011	2006		320			96.3	%		827
Runaway Bay	Indianapolis, IN	10/11/2012	2002		192			92.7	%		934
Berkshire Square	Indianapolis, IN	9/19/2013	2012		354			90.1	%		581
The Crossings	Jackson, MS	11/22/2013	2012		432			85.6	%		757
Reserve at Eagle Ridge	Waukegan, IL	1/31/2014	2008		370			92.7	%		929
Windrush	Edmond, OK	2/28/2014	2011		160			93.8	%		788
Heritage Park	Oklahoma City, OK	2/28/2014	2011		453			88.3	%		635
Raindance	Oklahoma City, OK	2/28/2014	2011		504			92.7	%		533
Augusta	Oklahoma City, OK	2/28/2014	2011		197			93.4	%		721
Invitational	Oklahoma City, OK	2/28/2014	2011		344			91.6	%		670
King’s Landing	Creve Coeur, MO	3/31/2014	2005		152			85.2	%		1,435
Carrington Park	Little Rock, AR	5/07/2014	1999		202			97.0	%		985
Arbors at the Reservoir	Ridgeland, MS	6/04/2014	2000		170			95.9	%		1,079
Walnut Hill	Cordova, TN	8/28/2014	2001		360			92.8	%		900
Lenoxplace	Raleigh, NC	9/05/2014	2012		268			92.5	%		834
Stonebridge	Cordova, TN	9/15/2014	1994		500			91.2	%		735
Bennington Pond	Groveport, OH	11/24/2014	2000		240			96.3	%		781
Prospect Park	Louisville, KY	12/08/2014	1990		138			89.9	%		—	(6)
Brookside	Louisville, KY	12/08/2014	1987		224			95.1	%		—	(6)
Jamestown	Louisville, KY	12/08/2014	1970		355			92.4	%		—	(6)
Meadows	Louisville, KY	12/08/2014	1988		400			92.5	%		—	(6)
Oxmoor	Louisville, KY	12/08/2014	1999-2000		432			90.3	%		—	(6)
Stonebridge at the Ranch	Little Rock, AR	12/16/2014	2005		260			95.0	%		—	(6)
Iron Rock Ranch	Austin, TX	12/30/2014	2001-2002		300			96.0	%		—	(6)

					8,819			92.7	%	$	788

(1)

All dates are for the year in which a significant renovation program was completed, except for Runaway Bay, Arbors at the Reservoir, Carrington Park, King’s Landing, Walnut Hill, Stonebridge, Bennington Pond, Prospect Park, Brookside, Jamestown, Meadows, Oxmoor, Stonebridge at the Ranch and Iron Rock Ranch, which is the year construction was completed. The year construction was completed for each of the other properties is: Belle Creek - 2002; Berkshire Square – 1970; Centrepoint - 1995; Copper Mill - 1983; Crestmont - 1986; The Crossings – 1976; Cumberland Glen - 1986; Heritage Trace - 1971; and Tresa at Arrowhead – 1998; Lenoxplace - 2001.

(2)	Units represents the total number of apartment units available for rent at December 31, 2014.

(3)	Average occupancy for each of our properties is calculated as (i) total units rented as of December 31, 2014 divided by (ii) total units available as of December 31, 2014, expressed as a percentage.

(4)	Average monthly effective rent per occupied unit represents the average monthly rent for all occupied units for the three-month period ended December 31, 2014.

(5)

Includes 6,256 square feet of retail space in six units, of which 1,010 square feet of space is occupied by RAIT Residential for use as the leasing office. The remaining 5,246 square feet of space is 86% occupied by four tenants with an average monthly base rent of $1,623, or $16 per square foot per year. These five tenants are principally engaged in the following businesses: grocery, retail and various retail services.

(6)

We do not report average effective rent per unit in the month of acquisition as it is not representative of a full month of operations. The average effective rent per unit for Prospect Park, Brookside, Jamestown, Meadows, Oxmoor, Stonebridge at the Ranch and Iron Rock Ranch during the period of acquisition was $812, $705, $871, $728, $910, $906 and $1,179, respectively.

ITEM 3.

Legal Proceedings

From time to time, we are party to various lawsuits, claims for negligence and other legal proceedings that arise in the ordinary course of our business. We are not currently a party, as plaintiff or defendant, to any legal proceedings which, individually or in the aggregate, would be expected to have a material effect on our business, financial condition, results of operations, or financial statements, taken as a whole, if determined adversely to us.

ITEM 4.

Mine Safety Disclosures

Not applicable.

PART II

ITEM 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Price Information

Our common stock has been listed and traded on the NYSE MKT under the symbol “IRT” since August 13, 2013. At the close of business on March 13, 2015, the closing price for our common stock was $9.37 per share and there were 26 holders of record, one of which is the holder for all beneficial owners who hold in street name.

Since our formation, we have sold our common stock in five public offerings. See Item 1-“Business.” The following table sets forth the range of high and low sales prices of our common stock by quarter since August 13, 2013, the date our common stock commenced trading on the NYSE MKT.


2013	High		Low
Third Quarter (August 13, 2013 through September 30, 2013)	$	8.50	$	7.90
Fourth Quarter (October 1, 2013 through December 31, 2013)	$	8.85	$	7.95

2014
First Quarter (January 1, 2014 through March 31, 2014)	$	9.07	$	8.15
Second Quarter (April 1, 2014 through June 30, 2014)	$	9.50	$	8.70
Third Quarter (July 1, 2014 through September 30, 2014)	$	10.84	$	9.40
Fourth Quarter (October 1, 2014 through December 31, 2014)	$	10.29	$	8.96

2015
First Quarter (January 1, 2015 through March 13, 2015)	$	9.78	$	9.07

We have adopted a Code of Ethics, which we refer to as the Code, for our directors, officers and employees intended to satisfy NYSE MKT listing standards and the definition of a “code of ethics” set forth in Item 406 of Regulation S-K. Any information relating to amendments to the Code or waivers of a provision of the Code required to be disclosed pursuant to Item 5.05 of Form 8-K will be disclosed through our website.

PERFORMANCE GRAPH

On August 13, 2013, our common stock commenced trading on the NYSE MKT. The following graph compares the index of the cumulative total shareholder return on our common shares for the measurement period commencing August 12, 2013 and ending December 31, 2014 with the cumulative total returns of the National Association of Real Estate Investment Trusts (NAREIT) Equity REIT index and the Russell 3000 Index. The following graph assumes that each index was 100 on the initial day of the relevant measurement period and that all dividends were reinvested.

LOGO

Unregistered Sales of Equity Securities

We previously disclosed our issuances during the year ended December 31, 2014 of equity securities that were not registered under the Securities Act of 1933, as amended, in our current report on Form 8-K filed May 7, 2014, in our quarterly report on Form 10-Q for the quarterly period ended September 30, 2014, and in a current report on From 8-K filed January 6, 2015.

Issuer Purchases of Equity Securities

We withheld the following shares of our common stock to satisfy tax withholding obligations during the quarter ended December, 31, 2014 arising from the vesting of restricted stock awards made pursuant to our Long-Term Incentive Plan. These shares may be deemed to be “issuer purchases” of common stock that are required to be disclosed pursuant to the item.


Period	Total Number of Shares Purchased			Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
10/01/2014 to 10/31/2014		0		$	0			0		0
11/01/2014 to 11/30/2014		0			0			0		0
12/01/2014 to 12/31/2014		1,464	(1)	$	9.31	(1)		1,464		0
Total		1,464	(1)	$	9.31	(1)		1,464		0

(1)	The price reported is the price paid per share using our closing stock price on the NYSE MKT on the vesting date of the relevant award.

DISTRIBUTIONS

We intend to continue to qualify as a REIT for U.S. federal income tax purposes. The Code generally requires that a REIT annually distribute at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain, and imposes a tax on any taxable income retained by a REIT, including capital gains.

To satisfy the requirements for qualification as a REIT and generally not be subject to U.S. federal income and excise tax, we intend to make regular monthly distributions of all or substantially all of our REIT taxable income, determined without regard to dividends paid, to our stockholders out of assets legally available for such purposes. Except for dividends for January, February and March 2015, our board of directors has not yet determined the rate for our future dividends, and all future distributions will be at the sole discretion of our board of directors. When determining the amount of future distributions, our board of directors considers, among other factors, (i) the amount of cash generated from our operating activities, (ii) our expectations of future cash flows, (iii) our determination of near-term cash needs for acquisitions of new properties, general property capital improvements and debt repayments, (iv) our ability to continue to access additional sources of capital, (v) the requirements of Maryland law, (vi) the amount required to be distributed to maintain our status as a REIT and to reduce any income and excise taxes that we otherwise would be required to pay and (vii) any limitations on our distributions contained in our credit or other agreements.

We cannot assure you that we will generate sufficient cash flows to make distributions to our stockholders or that we will be able to sustain those distributions. If our operations do not generate sufficient cash flow to allow us to satisfy the REIT distribution requirements, we may be required to fund distributions from working capital, borrow funds, sell assets, make taxable distributions of our securities or reduce such distributions. Our distribution policy enables us to review the alternative funding sources available to us from time to time. Our actual results of operations will be affected by a number of factors, including the revenues we receive from our properties, our operating expenses, interest expense, the ability of our tenants to meet their obligations and unanticipated expenditures. For more information regarding risk factors that could materially adversely affect our actual results of operations, please see “Risk Factors.”

Prior to October 1, 2013, we calculated our distributions based upon daily record dates and distribution amounts so that our stockholders would be entitled to be paid distributions beginning with the day their shares were purchased. Thereafter, our board has established, and intends to continue to establish, on a quarterly basis, in advance, the dividend amount for our common stock for each month in the quarter. The distributions for each month in the three-month period are paid on or about the fifteenth day following the completion of each respective month. For 2012, 2013, and 2014, we declared and paid the following dividends (expressed on a quarterly basis) on our common stock (dollars in thousands except per share and per unit data):


	Common Shares
	Dividends Declared and Paid per Share		Total Dividends Paid
2012
First Quarter	$	0.15	$	3
Second Quarter		0.15		49
Third Quarter		0.15		49
Fourth Quarter		0.15		48

2013
First Quarter	$	0.15	$	50
Second Quarter		0.16		554
Third Quarter		0.16		1,330
Fourth Quarter		0.16		1,544

2014
First Quarter	$	0.18	$	3,186
Second Quarter		0.18		3,188
Third Quarter		0.18		4,637
Fourth Quarter		0.18		5,357


	Operating Partnership Units
	Dividends Declared and Paid per Share		Total Dividends Paid
2012
First Quarter	$	0.15	$	789
Second Quarter		0.15		787
Third Quarter		0.15		796
Fourth Quarter		0.15		875

2013
First Quarter	$	0.15	$	866
Second Quarter		0.16		403
Third Quarter		—		—
Fourth Quarter		—		—

2014
First Quarter	$	—	$	—
Second Quarter		0.18		27
Third Quarter		0.18		57
Fourth Quarter		0.18		120

On January 19, 2015, we declared the following monthly dividends for January, February and March 2015:


Month	Record Date	Payment Date	Dividend Declared Per Share
January 2015	January 30, 2015	February 17, 2015	$	0.06
February 2015	February 27, 2015	March 16, 2015		0.06
March 2015	March 31, 2015	April 15, 2015		0.06

			$	0.18

For the year ended December 31, 2014, we paid cash distributions of $15.1 million, as compared to cash flows from operations of $15.7 million and FFO of $15.5 million. FFO is a non-GAAP financial measure. For a reconciliation of FFO to net income (loss), see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

Our board of directors currently intends to continue, on a quarterly basis, in advance, establishing the dividend amount for our common stock for each month in the quarter. Distributions will be paid monthly in arrears.

ITEM 6.

Selected Financial Data

The following table summarizes selected financial data about our company (dollars in thousands, except share and per share data). The following selected financial data information should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements, including the notes thereto, included elsewhere herein.


	As of and for the Years Ended December 31
	2014			2013			2012			2011			2010
Operating Data:
Total revenue	$	49,203		$	19,943		$	16,629		$	8,668		$	5
Property operating expenses		(23,427	)		(9,429	)		(8,066	)		(4,477	)		—
Total expenses		(40,662	)		(15,010	)		(12,897	)		(7,311	)		(1	)
Interest expense		(8,496	)		(3,659	)		(3,305	)		(1,727	)		—
Net income (loss)		2,944			1,274			427			(370	)		4
Net income (loss) allocable to common shares		2,940			615			(123	)		(112	)		4
Earnings (loss) per share:
Basic	$	0.14		$	0.12		$	(0.45	)	$	(5.60	)	$	0.20
Diluted	$	0.14		$	0.12		$	(0.45	)	$	(5.60	)	$	0.20

Balance Sheet Data:
Investments in real estate	$	665,736		$	174,321		$	141,282		$	128,124		$	—
Total assets		694,150			181,871			146,197			131,352			209
Total indebtedness		418,901			103,303			92,413			82,175			—
Total liabilities		431,116			106,963			95,346			84,294			2
Total equity		263,034			74,908			50,851			47,058			207

	As of and for the years ended December 31
	2014			2013			2012			2011			2010
Other Data:
Property portfolio occupancy		92.7	%		94.6	%		92.0	%		91.4	%		—
Common shares outstanding		31,800,076			9,652,540			345,063			20,000			20,000
Limited partnership units outstanding		1,282,449			—			5,274,900			5,274,900			—
Cash distributions declared per common share/unit	$	0.7200		$	0.6263		$	0.6000		$	0.3000		$	—

ITEM 7.

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

Overview

We were formed on March 26, 2009 as a Maryland corporation and elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2011. We are externally managed by our advisor, an indirect, wholly owned subsidiary of RAIT. We conduct our operations through our operating partnership, of which we are the sole general partner.

We own and operate a portfolio of apartment properties located throughout the United States. Our primary business objective is to maximize stockholder value by increasing cash flows at our existing apartment properties and acquiring additional properties either with strong and stable occupancies and the ability to raise rental rates or potential for repositioning through capital expenditures.

During the year ended December 31, 2014 we completed three underwritten public offerings of our common stock raising gross proceeds of $200.9 million, in the aggregate. We deployed a portion of these proceeds during 2014 to acquire twenty properties with 6,029 units for aggregate purchase prices totaling $497.1 million, including the issuance of 1,282,449 limited partnership units in our operating partnership, or LP units, valued at $12.0 million, in the aggregate. These acquisitions contributed to our substantial growth in a number of key financial measures in 2014 when compared to 2013 as follows:

•

investments in real estate at cost increased 262% to $689.1 million from $190.1 million;

•

operating income increased 73% to $8.5 million from $4.9 million; and

•

total revenues grew 147% to $49.2 million from $19.9 million.

Key Statistics

(Dollars in thousands, except per share and per unit information)


	For the Years Ended
Financial Statistics	2014			2013			2012
Total revenue	$	49,203		$	19,943		$	16,629
Earnings (loss) per share - diluted	$	0.14		$	0.12		$	(0.45	)
Core funds from operations (“Core FFO”) per share	$	0.68		$	0.81		$	0.71
Leverage ratio⁽²⁾		60	%		53	%		58	%
Dividends declared per common share	$	0.72		$	0.63			0.60

Apartment Portfolio
Reported investments in real estate at cost	$	689,112		$	190,096		$	153,565
Net operating income	$	25,776		$	10,514		$	8,563
Number of properties owned		30			10			8
Multifamily units owned		8,819			2,790			2,004
Portfolio average occupancy		92.7	%		94.5	%		92.0	%
Average monthly effective rent per unit⁽¹⁾	$	788		$	770		$	787

(1)

Average monthly effective rent per occupied unit represents the average monthly rent collected for all occupied units after giving effect to tenant concessions. We do not report average monthly effective rent per unit in the month of acquisition as it is not representative of a full month of operations.

(2)	Leverage ratio is the percentage of total indebtedness to investments in real estate at cost and cash.

Trends That May Affect Our Business

The following trends may affect our business:

Growing rental households. We believe there are several trends that may support additional rental rate increases while keeping occupancies stable in 2015. First there are increasing numbers of 20 to 34 year old persons in the United States and job growth for this demographic which we believe will create increasing numbers of rental households. In addition, the U.S. homeownership rate dropped to a twenty year low which also indicates growth in the number of rental households.

Capitalization rate compression. We have seen modest reductions in the capitalization rates for apartment properties in the relevant markets where we own properties or are interested in acquiring properties. The capitalization rate is a measure of return on a real estate property based on the expected income the property will generate. A capitalization rate is generally determined by dividing the net operating income of a property by the total value of the property. However, this reduction or compression has been more than offset by the lower financing rates discussed below in “Interest rate environment.”

Interest rate environment. Interest rates for commercial real estate financing remained at historically low levels during 2014. During 2014, we were able to reduce the cost of our floating rate line of credit and reduced our weighted average effective interest rate of our other outstanding indebtedness.

Property acquisition, occupancy and rental trends. We plan to continue to opportunistically acquire properties in markets that we believe meet our investment strategy both in markets where we currently have properties and in new markets. We believe we will be able to keep occupancies stable over time and increase rents over time on average 3% to 4% through 2015.

Non-GAAP Financial Measures

Funds from Operations and Core Funds from Operations

We believe that FFO and Core FFO, each of which is a non-GAAP financial measure, are additional appropriate measures of the operating performance of a REIT and us in particular. We compute FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT, as net income or loss allocated to common shares (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.

Core FFO 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 acquisition expenses, expensed costs related to the issuance of shares of our common stock and equity-based compensation expenses, from the determination of FFO. We incur acquisition expenses in connection with acquisitions of real estate properties and expense 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, we add back these costs to FFO in determining Core FFO.

Our calculation of Core FFO differs from the methodology used for calculating Core FFO by some other REITs and, accordingly, our Core FFO may not be comparable to Core FFO reported by other REITs. Our management utilizes FFO and Core FFO as measures of our operating performance, and believes they are also useful to investors, because they facilitate an understanding of our operating performance after adjustment for certain non-cash items, such as depreciation and amortization expenses, and with respect to Core FFO, acquisition expenses and pursuit costs that are required by GAAP to be expensed but may not necessarily be indicative of current operating performance and that may not accurately compare our operating performance between periods. Furthermore, although FFO, Core FFO and other supplemental performance measures are defined in various ways throughout the REIT industry, we also believe that FFO and Core FFO may provide us and our investors with an additional useful measure to compare our financial performance to certain other REITs. We also use Core FFO for purposes of determining the quarterly incentive fee, if any, payable to our advisor.

Neither FFO nor Core FFO is equivalent to net income or cash generated from operating activities determined in accordance with GAAP. Furthermore, FFO and Core FFO 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 Core FFO should be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity.

Set forth below is a reconciliation of net income (loss) to FFO and Core FFO for the years ended December 31, 2013, 2012 and 2011 (in thousands, except share and per share information):


	For the Year Ended December 31, 2014						For the Year Ended December 31, 2013						For the Year Ended December 31, 2012
	Amount			Per Share			Amount			Per Share			Amount			Per Share
Funds From Operations:
Net income (loss)	$	2,944		$	0.14		$	1,274		$	0.18		$	427		$	0.08
Adjustments:
Income allocated to preferred shares		—			—			(10	)		(0.00	)		(15	)		(0.00	)
Income allocated to preferred units		(4	)		0.00			(220	)		(0.03	)		(79	)		(0.01	)
Real estate depreciation and amortization		12,520			0.58			4,413			0.61			3,466			0.61

Funds From Operations	$	15,460		$	0.72		$	5,457		$	0.76		$	3,799		$	0.68

Weighted-average shares—diluted ⁽¹⁾		21,532,671			21,532,671			7,151,738			7,151,738			5,550,284			5,550,284

Core Funds From Operations:
Funds From Operations	$	15,460		$	0.72		$	5,457		$	0.77		$	3,799		$	0.68
Adjustments:
Equity based compensation		206			0.01			77			0.01			—			—
Acquisition fees and expenses		1,842			0.09			248			0.03			157			0.03
(Gains) losses on assets		(2,882	)		(0.13	)		—			—			—			—

Core Funds From Operations	$	14,626		$	0.68		$	5,782		$	0.81		$	3,956		$	0.71

Weighted-average shares—diluted ⁽¹⁾		21,532,671			21,532,671			7,151,738			7,151,738			5,550,284			5,550,284

(1)	Weighted-average shares—diluted includes 5,274,900 limited partnership units that were exchanged for common stock on May 7, 2013 and exchangeable for common stock as of December 31, 2012.

Results of Operations

Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013

Revenue

Rental Income. Rental revenue increased $27.0 million to $44.8 million for the year ended December 31, 2014 from $17.8 million for the year ended December 31, 2013. The increase is substantially due to the $26.4 million of rental income from the acquisition of 20 properties during the year ended December 31, 2014 and two properties present for a full year in 2014. The remaining increase of $0.6 million is due to improved occupancy and rental rates at the historical properties.

Tenant reimbursement income. Tenant reimbursement income increased $1.0 million to $1.9 million for the year ended December 31, 2014 from $0.9 million for the year ended December 31, 2013. The increase is substantially due to the acquisition of 20 properties during the year ended December 31, 2014 and two properties present for a full year in 2014.

Other income. Other income increased $1.2 million to $2.4 million for the year ended December 31, 2014 from $1.2 million for the year ended December 31, 2013. The increase is substantially due to the acquisition of 20 properties during the year ended December 31, 2014 and two properties acquired present for a full year in 2014.

Expenses

Property operating expenses. Property operating expenses increased $14.0 million to $23.4 million for the year ended December 31, 2014 from $9.4 million for the year ended December 31, 2013. The increase is due to $13.3 million of expenses associated with the acquisition of 20 properties during the year ended December 31, 2014 and two properties present for a full year in 2014. The remaining increase of $0.7 million is substantially due to increased real estate taxes at our historical properties.

General and administrative expense. General and administrative expense increased $0.5 million to $1.1 million for the year ended December, 31 2014 from $0.6 million for the year ended December 31, 2013. The increase is due to costs associated with being a public company and stock based compensation expense of $0.2 million for the year ended December 31, 2014.

Asset management fees. Asset management fees increased $1.4 million to $1.7 million for the year ended December 31, 2014 from $0.3 million for the year ended December 31, 2013. The increase is due to the growth of our average invested real estate assets due to the acquisition of $497.1 million in properties during the year ended December 31, 2014 and $36.2 million of properties present for a full year in 2014.

Acquisition expenses. Acquisition expenses increased $1.6 million to $1.8 million for the year ended December 31, 2014 from $0.2 million for the year ended December 31, 2013. These expenses were incurred in connection with the acquisition of 20 properties during the year ended December 31, 2014 as compared to two properties acquired during the year ended December 31, 2013.

Depreciation and amortization expense. Depreciation and amortization expense increased $8.1 million to $12.5 million for the year ended December 31, 2014 from $4.4 million for the year ended December 31, 2013. The increase is due to the acquisition of 20 properties during the year ended December 31, 2014 and two properties present for a full year in 2014.

Interest expense. Interest expense increased $4.8 million to $8.5 million for the year ended December 31, 2014 from $3.7 million for the year ended December 31, 2013. The increase is due to the $247.8 million of first mortgages and $67.8 million of debt assumed that was used to finance our acquisition of $497.1 million of properties during 2014

Gain (loss) on assets. We generated a gain of $2.9 million on the acquisition of the OKC portfolio referenced below for the year ended December 31, 2014. The fair value of the properties acquired and debt assumed exceeded the purchase price generating the gain. No such gain was generated in the year ended December 31, 2013.

Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012

Revenue

Rental Income. Rental revenue increased $3.0 million to $17.8 million for the year ended December 31, 2013 from $14.8 million for the year ended December 31, 2012. The increase is attributable to $2.5 million of revenue from a property we acquired in 2012 present for a full year in 2013 and the acquisition of two properties in 2013 along with improved occupancy at our historical properties.

Tenant reimbursement income. Tenant reimbursement income increased $0.1 million to $0.9 million for the year ended December 31, 2013 from $0.8 million for the year ended December 31, 2012. The increase is attributable to the acquisition of a property in 2012 present for a full year in 2013 and the acquisition of two properties in 2013.

Other income. Other income increased $0.2 million to $1.2 million for the year ended December 31, 2013 from $1.0 million for the year ended December 31, 2012. The increase is attributable to the acquisition of a property in 2012 present for a full year in 2013 and the acquisition of two properties in 2013.

Expenses

Property operating expenses. Property operating expenses increased $1.3 million to $9.4 million for the year ended December 31, 2013 from $8.1 million for the year ended December 31, 2012. The increase is attributable to the acquisition of a property in 2012 present for a full year in 2013 and the acquisition of two properties in 2013.

General and administrative expense. General and administrative expense decreased $0.4 million to $0.6 million for the year ended December, 31 2013 from $1.0 million for the year ended December 31, 2012. The decrease is due to a change in transfer agent and reduced legal expenses.

Asset management fees. Asset management fees increased $0.1 million to $0.3 million for the year ended December 31, 2013 from $0.2 million for the year ended December 31, 2012. The increase is attributable to the acquisition of a property in 2012 present for a full year in 2013 and the acquisition of two properties in 2013.

Acquisition expenses. Acquisition expenses were $0.2 million for the years ended December 31, 2013 and 2012.

Depreciation and amortization expense. Depreciation and amortization expense increased $0.9 million to $4.4 million for the year ended December 31, 2013 from $3.5 million for the year ended December 31, 2012. The increase is attributable to the acquisition of a property in 2012 present for a full year in 2013 and the acquisition of two properties in 2013.

Interest expense. Our interest expense increased $0.4 million to $3.7 million for the year ended December 31, 2013 from $3.3 million for the year ended December 31, 2012. The increase is primarily attributable to the mortgage indebtedness used to finance a property we acquired in 2012, which was present for a full year in 2013.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, pay distributions and other general business needs.

We believe our available cash balances, and other financing arrangements and cash flows from operations will be sufficient to fund our liquidity requirements with respect to our existing portfolio for the next 12 months. We expect that our existing cash, which was obtained principally in our most recent underwritten offering, together with borrowings we may obtain and the future acquisitions we expect to make as a result of the completion of our most recent underwritten offering will have a significant impact on our future results of operations. In general, we expect that our income and expenses related to our portfolio will increase in future periods as a result of anticipated future acquisitions of real estate. Should our liquidity needs exceed our available sources of liquidity, we believe that we could engage in offerings of our securities or sell assets to raise additional cash. We may not be able to obtain additional financing when we desire to do so or on terms and conditions acceptable to us. If we fail to obtain additional financing, our ability to maintain or grow our business will be constrained.

Our primary cash requirements are to:

•

make investments and fund the associated costs;

•

repay our indebtedness;

•

pay our operating expenses, including fees paid to our advisor and our property manager; and

•

distribute a minimum of 90% of our REIT taxable income (determined without regard to the deduction for dividends paid and excluding net capital gain) and to make investments in a manner that enables us to maintain our qualification as a REIT.

We intend to meet these liquidity requirements primarily through:

•

the use of our cash and cash equivalent balance of $14.8 million as of December 31, 2014;

•

cash generated from operating activities;

•

our secured credit facility and existing and future financing secured directly or indirectly by the apartment properties in our portfolio;

•

proceeds from the sale of our common stock; and

•

if required, proceeds from future borrowings and offerings.

We will seek to enhance our growth through the use of prudent amounts of leverage. In general, we intend to limit our aggregate leverage to 65% of the combined initial purchase price of all of our real estate properties. However, we are not subject to any limitations on the amount of leverage we may use, and, accordingly, the amount of leverage we use may be significantly less or greater than we currently anticipate. By operating on a leveraged basis, we expect to have more funds available for property acquisitions and other purposes, which we believe will allow us to acquire more properties than would otherwise be possible, resulting in a larger and more diversified portfolio. We may employ greater leverage in order to more quickly build a diversified portfolio of assets.

On November 25, 2014, we completed an underwritten public offering selling 6,000,000 shares of our common stock for $9.60 per share raising gross and estimated net proceeds of $57.6 million and $54.7 million, respectively.

On July 21, 2014, we completed an underwritten public offering selling 8,050,000 shares of our common stock for $9.50 per share raising gross and net proceeds of $76.5 million and $72.0 million, respectively.

On January 29, 2014, we completed an underwritten public offering selling 8,050,000 shares of our common stock for $8.30 per share raising gross and net proceeds of $66.8 million and $62.7 million, respectively.

RAIT has purchased in the aggregate 1,974,819 shares for $17.3 million in four underwritten public offerings to date, paying the public offering price without any underwritten discount. RAIT did not buy any shares in our last underwritten public offering.

On October 25, 2013, we entered into a $20 million secured revolving credit agreement with The Huntington National Bank to be used to acquire properties, for capital expenditures and for general corporate purposes. On September 9, 2014 we amended this agreement increasing the facility to $30 million. The facility has a 3-year term, bears interest at LIBOR plus 2.50% and contains customary financial covenants for this type of revolving credit agreement. As of December 31, 2014, there was $11.6 million of availability under this facility.

Cash Flows

As of December 31, 2014 and 2013, we maintained cash and cash equivalents of approximately $14.8 million and $3.3 million, respectively. Our cash and cash equivalents were generated from the following activities (dollars in thousands):


	For the Years Ended December 31
	2014			2013			2012
Cash flow from operating activities	$	15,724		$	6,018		$	4,484
Cash flow from investing activities		(307,337	)		(38,239	)		(16,928	)
Cash flow from financing activities		303,042			33,022			13,870

Net change in cash and cash equivalents		11,429			801			1,426
Cash and cash equivalents at beginning of year		3,334			2,533			1,107

Cash and cash equivalents at end of year	$	14,763		$	3,334		$	2,533

Our increased cash inflow from operating activities during the year ended December 31, 2014 resulted from the expansion of our investments through the acquisition of 20 properties in 2014, as well as those properties present for a full year of operations and improved occupancy and rental rates from our historical portfolio.

Our increased cash outflow from investing activities during the year ended December 31, 2014 is due to the acquisition of 20 properties in 2014 as compared to two properties during the year ended December 31, 2013.

The increased cash flow from our financing activities during the year ended December 31, 2014 is substantially due to the completion of our three underwritten public offerings as well as $116 million of new mortgage debt origination following property acquisitions.

Outstanding Indebtedness

The following table contains summary information concerning the indebtedness that encumbered our properties as of December 31, 2014 (dollars in thousands):


	Outstanding Principal		Carrying Amount		Effective Interest Rate			Maturity Date
Belle Creek Apartments	$	10,575	$	10,575		2.4	%(1)	April 28, 2021
Berkshire Square Apartments		8,612		8,612		4.4	%(3)	January 1, 2021
Centrepoint Apartments		17,600		17,600		3.7	%(2)	January 1, 2019
Copper Mill Apartments		7,200		7,200		5.7	%	May 1, 2021
Crestmont Apartments		6,612		6,612		5.7	%	May 1, 2021
Cumberland Glen Apartments		6,759		6,759		5.7	%	May 1, 2021
Heritage Trace Apartments		5,388		5,388		5.7	%	May 1, 2021
Runaway Bay Apartments		10,033		10,033		3.6	%	November 1, 2022
Tresa at Arrowhead		27,500		27,500		2.4	%(1)	April 28, 2021
Reserve at Eagle Ridge		18,850		18,850		4.7	%	March 1, 2024
OKC Portfolio		44,939		46,471		2.8	%(5)	April 1, 2016
Kings’ Landing		21,200		21,200		4.0	%(6)	June 1, 2022
Crossings		15,313		15,313		3.9	%	June 1, 2024
Carrington Park		14,235		14,235		4.0	%	August 1, 2024
Arbors at the Reservoir		13,150		13,150		4.0	%	August 1, 2024
Walnut Hill		18,650		18,650		3.4	%	October 1, 2021
Lenoxplace		15,991		15,991		3.7	%	November 1, 2021
Bennington Pond		11,375		11,375		3.7	%	December 1, 2024
Stonebridge Crossing		19,370		19,370		3.4	%	January 1, 2022
Prospect Park		9,230		9,230		3.6	%	January 1, 2025
Brookside		13,455		13,455		3.6	%	January 1, 2025
Jamestown		22,880		22,880		3.6	%	January 1, 2025
Meadows		24,245		24,245		3.6	%	January 1, 2025
Oxmoor		35,815		35,815		3.6	%	January 1, 2025

Total mortgage debt/Weighted-Average	$	398,977	$	400,509		3.6	%
Secured Credit Facility		18,392		18,392		2.7	%(4)	October 25, 2016

Total indebtedness /Weighted-Average	$	417,369	$	418,901		3.6	%

(1)	Floating rate at 225 basis points over the 30-day London Interbank Offered Rate, or LIBOR. As of December 31, 2014, 30-day LIBOR was 0.17%. Interest only payments are due monthly. These mortgages are held by RAIT.

(2)	Fixed rate. Interest only payments are due monthly. Beginning February 1, 2015, principal and interest payments are required based on a 30-year amortization schedule.

(3)	Fixed Rate. Interest only payments are due monthly. Beginning February 1, 2016, principal and interest payments are required based on a 30-year amortization schedule.

(4)	Floating rate at 250 basis points over 30-day LIBOR. As of December 31, 2014, 30-day LIBOR was 0.17%. Interest only payments are due monthly.

(5)	Contractual interest rate is 5.6%. The debt was assumed and recorded at a premium that will be amortized to interest expense over the remaining term. Principal and interest payments are required based on a 30-year amortization schedule.

(6)	Fixed Rate. Interest only payments are due monthly. Beginning June 1, 2017, principal and interest payments are required based on a 30-year amortization schedule.

As of December 31, 2014 we were in compliance with all financial covenants contained in our indebtedness.

The following table contains summary information concerning the indebtedness that encumbered our properties as of December 31, 2013:


	Outstanding Principal		Carrying Amount		Effective Interest Rate			Maturity Date
Belle Creek Apartments	$	10,575	$	10,575		2.4	%(1)	April 28, 2021
Berkshire Square Apartments		8,612		8,612		4.4	%(3)	January 1, 2021
Centrepoint Apartments		17,600		17,600		3.7	%(2)	January 1, 2019
Copper Mill Apartments		7,293		7,293		5.7	%	May 1, 2021
Crestmont Apartments		6,698		6,698		5.7	%	May 1, 2021
Cumberland Glen Apartments		6,846		6,846		5.7	%	May 1, 2021
Heritage Trace Apartments		5,457		5,457		5.7	%	May 1, 2021
Runaway Bay Apartments		10,222		10,222		3.6	%	November 1, 2022
Tresa at Arrowhead		27,500		27,500		2.4	%(1)	April 28, 2021

Total mortgage debt/Weighted-Average	$	100,803	$	100,803		3.8	%
Secured Credit Facility		2,500		2,500		2.9	%(4)	October 25, 2016

Total indebtedness /Weighted-Average	$	103,303	$	103,303		3.8	%

(1)	Floating rate at 225 basis points over 30-day LIBOR. As of December 31, 2013, 30-day LIBOR was 0.17%. Interest only payments are due monthly. These mortgages are held by RAIT.

(2)	Fixed rate. Interest only payments are due monthly. Beginning February 1, 2015, principal and interest payments are required based on a 30-year amortization schedule.

(3)	Fixed Rate. Interest only payments are due monthly. Beginning February 1, 2016, principal and interest payments are required based on a 30-year amortization schedule.

(4)	Floating rate at 275 basis points over 30-day LIBOR. As of December 31, 2013, 30-day LIBOR was 0.17%. Interest only payments are due monthly.

The weighted average effective interest rate of our mortgage indebtedness was 3.6% as of December 31, 2014. As of December 31, 2014, RAIT held $38.1 million of our debt while $360.9 million was held by third parties. As of December 31, 2013, RAIT held $38.1 million of our debt while $62.7 million was held by third parties. For each of the years ended December 31, 2014 and 2013, we paid approximately $1.0 million of interest to RAIT.

Mortgage Indebtedness

Each of our mortgages is a non-recourse obligation subject to customary exceptions. The loan agreements contain customary events of default, including defaults in the payment of principal or interest, defaults in compliance with the covenants contained in the documents evidencing the loan, defaults in payments under any other security instrument covering any part of the property, whether junior or senior to the loan, and bankruptcy or other insolvency events.

On January 27, 2015 we entered into a loan agreement for a $22.9 million loan secured by a first mortgage on our Iron Rock Ranch property. The loan bears interest at a rate of 3.43% per annum, provides for monthly payments of interest only until the maturity date of February 1, 2025 when the principal balance, accrued interest and all other amounts due under the loan become due.

On December 29, 2014 we entered into a loan agreement for a $19.4 million loan secured by a first mortgage on our Stonebridge Crossing property. The loan bears interest at a rate of 3.41% per annum, provides for monthly payments of interest only until the maturity date of January 1, 2022 when the principal balance, accrued interest and all other amounts due under the loan become due.

On December 8, 2014 in connection with the acquisition of Prospect Park, we entered into a loan agreement for a $9.2 million loan secured by a first mortgage on the property. The loan bears interest at a fixed rate of 3.6% per annum, provides for monthly payments of interest only until the maturity date of January 1, 2025 when the principal balance, accrued interest and all other amounts due under the loan become due.

On December 8, 2014 in connection with the acquisition of Brookside, we entered into a loan agreement for a $13.5 million loan secured by a first mortgage on the property. The loan bears interest at a fixed rate of 3.6% per annum, provides for monthly payments of interest only until the maturity date of January 1, 2025 when the principal balance, accrued interest and all other amounts due under the loan become due.

On December 8, 2014 in connection with the acquisition of Jamestown, we entered into a loan agreement for a $22.9 million loan secured by a first mortgage on the property. The loan bears interest at a fixed rate of 3.6% per annum, provides for monthly payments of interest only until the maturity date of January 1, 2025 when the principal balance, accrued interest and all other amounts due under the loan become due.

On December 8, 2014 in connection with the acquisition of Meadows, we entered into a loan agreement for a $24.2 million loan secured by a first mortgage on the property. The loan bears interest at a fixed rate of 3.6% per annum, provides for monthly payments of interest only until the maturity date of January 1, 2025 when the principal balance, accrued interest and all other amounts due under the loan become due.

On December 8, 2014 in connection with the acquisition of Oxmoor, we entered into a loan agreement for a $35.8 million loan secured by a first mortgage on the property. The loan bears interest at a fixed rate of 3.6% per annum, provides for monthly payments of interest only until the maturity date of January 1, 2025 when the principal balance, accrued interest and all other amounts due under the loan become due.

On November 24, 2014 in connection with the acquisition of Bennington Pond, we entered into a loan agreement for a $11.4 million loan secured by a first mortgage on the property. The loan bears interest at a fixed rate of 3.7% per annum, provides for monthly payments of interest only until the maturity date of December 1, 2024 when the principal balance, accrued interest and all other amounts due under the loan become due.

On October 24, 2014 we entered into a loan agreement for a $16.0 million loan secured by a first mortgage on our Lenoxplace property. The loan bears interest at a fixed rate of 3.7% per annum, provides for monthly payments of interest only until the maturity date of November 1, 2021 when the principal balance, accrued interest and all other amounts due under the loan become due.

On September 15, 2014, we entered into a loan agreement for a $18.7 million loan secured by a first mortgage on our Walnut Hill property. The loan bears interest at a fixed rate of 3.4% per annum, provides for monthly payments of interest only until the maturity date of October 1, 2021 when the principal balance, accrued interest and all other amounts due under the loan become due.

On July 15, 2014, we entered into a loan agreement for a $13.2 million loan secured by a first mortgage on our Arbors property. The loan bears interest at a fixed rate of 4.0% per annum, provides for monthly payments of interest only until the maturity date of August 1, 2024 when the principal balance, accrued interest and all other amounts due under the loan become due.

On July 15, 2014, we entered into a loan agreement for a $14.2 million loan secured by a first mortgage on our Carrington property. The loan bears interest at a fixed rate of 4.0% per annum, provides for monthly payments of interest only until the maturity date of August 1, 2024 when the principal balance, accrued interest and all other amounts due under the loan become due.

On May 27, 2014, we entered into a loan agreement for a $15.3 million loan secured by a first mortgage on our Crossings property. The loan bears interest at a fixed rate of 3.9% per annum, provides for monthly payments of interest only until the maturity date of June 1, 2024 when the principal balance, accrued interest and all other amounts due under the loan become due.

On March 31, 2014, in connection with the acquisition of King’s Landing, we assumed $21.2 million of an existing loan secured by the property. The loan bears interest at a fixed rate of 4.0% per annum, provides for monthly payments of interest only until June 1, 2017 when principal and interest payments will be due monthly based on a 30-year amortization schedule, and matures on June 1, 2022.

On February 28, 2014, in connection with the acquisition of the OKC Portfolio we assumed $45.8 million of an existing loan secured by the property. The Loan bears interest at a fixed rate of 5.6% per annum, provides for monthly payments of principal and interest based on a 30-year amortization schedule and matures on April 1, 2016. We recorded the debt assumed at its fair value of $48.3 million based on a market rate of 2.8% for the remaining term. The resulting premium of $2.5 million will be amortized to interest expense over the remaining term of the mortgage.

On February 7, 2014, we entered into a loan agreement for an $18.9 million loan secured by a first mortgage on our Reserve at Eagle Ridge property. The loan bears interest at a fixed rate of 4.7% per annum, provides for monthly payments of interest only until the maturity date of March 1, 2024 when the principal balance, accrued interest and all other amounts due under the loan become due.

On December 27, 2013, we entered into a loan agreement for an $8.6 million loan secured by a first mortgage on our Berkshire Square property. We used a portion of the loan to repay an advance of approximately $8.0 million made with respect to the property pursuant to our Secured Credit Facility. The loan bears interest at a fixed rate of 4.42% per annum, provides for monthly payments of interest only until February 2016 and for payments of principal and interest thereafter. The loan matures on January 1, 2021 and $7.5 million will be due upon maturity. The loan cannot be prepaid or defeased until September 26, 2016. Thereafter, the loan may be defeased pursuant to the terms of the note and loan agreement. The loan may be prepaid in full without additional consideration during the last three months of the loan term.

Secured Credit Facility

On October 25, 2013, we entered into a $20.0 million secured revolving credit agreement with The Huntington National Bank to be used to acquire properties, for capital expenditures and for general corporate purposes. On September 9, 2014 we amended this agreement increasing the facility to $30.0 million. The facility has a 3-year term, bears interest at LIBOR plus 2.50% and contains customary financial covenants for this type of revolving credit agreement. As of December 31, 2014, there was $11.6 million of availability under this facility.

Stockholder Equity

Common Shares

On January 29, 2014, we completed an underwritten public offering selling 8,050,000 shares of our common stock for $8.30 per share resulting in gross and net proceeds of $66.8 million and $62.7 million, respectively.

On August 13, 2013, we engaged in an underwritten public offering of 4,000,000 shares of our common stock for $8.50 per share for total gross proceeds of approximately $34.0 million.

Our board of directors declared the following dividends for the months of January, February, March, April, May, June, July, August, September, October, November and December 2014:


Month	Record Date	Payment Date	Dividend Declared Per Share
January 2014	January 31, 2014	February 17, 2014	$	0.06
February 2014	February 28, 2014	March 17, 2014	$	0.06
March 2014	March 31, 2014	April 15, 2014	$	0.06
April 2014	April 30, 2014	May 15, 2014	$	0.06
May 2014	May 30, 2014	June 16, 2014	$	0.06
June 2014	June 30, 2014	July 15, 2014	$	0.06
July 2014	July 31, 2014	August 15, 2014	$	0.06
August 2014	August 29, 2014	September 15, 2014	$	0.06
September 2014	September 30, 2014	October 15, 2014	$	0.06
October 2014	October 31, 2014	November 17, 2014	$	0.06
November 2014	November 28, 2014	December 15, 2014	$	0.06
December 2014	December 31, 2014	January 15, 2015	$	0.06

On January 19, 2015, our board of directors declared the following dividends for January, February and March 2015:


Month	Record Date	Payment Date	Dividend Declared Per Share
January 2015	January 30, 2015	February 17, 2015	$	0.06
February 2015	February 27, 2015	March 16, 2015	$	0.06
March 2015	March 31, 2015	April 15, 2015	$	0.06

On February 28, 2013, our board of directors authorized and declared distributions on our common stock for the months of January through June 2013. For the months of January through March 2013, the distributions were payable to the holders of our common stock at a rate of $0.00163934 per share per day. For the months of April through June 2013, our board of directors authorized and declared distributions on our common stock at a rate of $0.00171233 per share per day. The distributions for each month were aggregated and paid on or before the fifteenth day following the completion of each respective month. All distributions were paid in cash.

Our board of directors declared the following dividends for the months of July, August, September, October, November and December 2013:


Month	Record Date	Payment Date	Dividend Declared Per Share
July 2013	August 5, 2013	August 15, 2013	$	0.05333
August 2013	August 30, 2013	September 13, 2013	$	0.05333
September 2013	September 30, 2013	October 15, 2013	$	0.05333
October 2013	October 31, 2013	November 15, 2013	$	0.05333
November 2013	November 29, 2013	December 16, 2013	$	0.05333
December 2013	December 31, 2013	January 15, 2014	$	0.05333

Preferred Shares

On February 28, 2013, our board of directors authorized and declared distributions on our Series A Preferred Stock for the period beginning on January 1, 2013, and ending on June 30, 2013. The distributions are payable to the holders of the Series A Preferred Stock of record at a rate of $0.34722222 per day, which is an amount that is equivalent to a 12.5% annualized distribution rate based on a share price of $1,000. The distributions were aggregated and paid in cash on June 28, 2013, pursuant to the requirements of our charter.

On July 25, 2013, our board of directors authorized setting aside amounts sufficient to redeem our Series A Preferred Stock with the proceeds of our underwritten offering.

On August 19, 2013, we redeemed 125 shares of our 12.5% Series A Cumulative Non-Voting Preferred Stock for an aggregate redemption price of approximately $140. The redemption of the Series A Preferred Stock was funded with cash received from the August 2013 offering. After the redemption date, there were no shares of Series A Preferred Stock outstanding, and all rights of the holders of such shares and units were terminated.

Contractual Commitments

The table below summarizes our contractual obligations as of December 31, 2014 (dollars in thousands):


	Payment due by Period
	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Principal payments on outstanding debt obligations	$	417,369	$	1,954	$	64,665	$	19,060	$	331,690
Interest payments on outstanding debt obligations(1)		130,357		16,311		32,036		30,978		51,031

Total	$	547,726	$	18,265	$	96,701	$	50,038	$	382,721

(1)	All variable-rate indebtedness assumes a 30-day LIBOR rate of 0.17% as of December 31, 2014.

Terms of Leases and Tenant Characteristics

The leases for our portfolio typically follow standard forms customarily used between landlords and tenants in the geographic area in which the relevant property is located. Under such leases, the tenant typically agrees to pay an initial deposit (generally one month’s rent) and pays rent on a monthly basis. As landlord, we are directly responsible for all real estate taxes, sales and use taxes, special assessments, property-level utilities, insurance and building repairs, and other building operation and management costs. Individual tenants are responsible for the utility costs of their unit. Our lease terms generally range from six months to two years and average twelve months.

Our apartment tenant composition varies across the regions in which we operate, includes single and family renters and is generally reflective of the principal employers in the relevant region. For example, in our Norfolk, Virginia market, many of our tenants are employees of the U.S. military. Our apartment properties predominantly consist of one-bedroom and two-bedroom units, although some of our apartment properties also have three-bedroom units.

Critical Accounting Estimates and Policies

We consider the accounting policies discussed below to be critical to an understanding of how we report our financial condition and results of operations because their application places the most significant demands on the judgment of our management.

Our financial statements are prepared on the accrual basis of accounting in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

Revenue Recognition

Minimum rents are recognized on an accrual basis, over the terms of the related leases on a straight-line basis. Any above-market lease values and the capitalized below-market lease values are amortized as an adjustment to rental income over the lease term. Recoveries from residential tenants for utility costs are recognized as revenue in the period that the applicable costs are incurred.

Investments in Real Estate

Allocation of Purchase Price of Acquired Assets

We account for acquisitions of properties in accordance with FASB ASC Topic 805, “Business Combinations”. The fair value of the real estate acquired is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases for acquired in-place leases and the value of tenant relationships, based in each case on their fair values. Purchase accounting is applied to assets and liabilities associated with the real estate acquired. Transaction costs and fees incurred related to acquisitions are expensed as incurred. Transaction costs and fees incurred related to the financing of an acquisition are capitalized and amortized over the life of the loan.

Upon the acquisition of properties, we estimate the fair value of acquired tangible assets (consisting of land, building and improvements) and identified intangible assets and liabilities (consisting of above and below-market leases, in-place leases and tenant relationships), and assumed debt at the date of acquisition, based on the evaluation of information and estimates available at that date. Based on these estimates, we allocate the initial purchase price to the applicable assets and liabilities. As final information regarding fair value of the assets acquired and liabilities assumed is received and estimates are refined, appropriate adjustments will be made to the purchase price allocation, in no case later than twelve months of the acquisition date.

In determining the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the differences between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the lease. The capitalized above-market lease values and the capitalized below-market lease values are amortized as an adjustment to rental income over the lease term.

Impairment of Long-Lived Assets

Management evaluates the recoverability of its investment in real estate assets, including related identifiable intangible assets, in accordance with FASB ASC Topic 360, “Property, Plant and Equipment.” This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that recoverability of the assets is not assured.

Management reviews its long-lived assets on an ongoing basis and evaluates the recoverability of the carrying value when there is an indicator of impairment. An impairment charge is recorded when it is determined that the carrying value of the assets exceeds the fair value. The estimated cash flows used for the impairment analysis and the determination of estimated fair value are based on our plans for the respective assets and our views of market and economic conditions. The estimates consider matters such as current and historical rental rates, occupancies for the respective and/or comparable properties, and recent sales data for comparable properties. Changes in estimated future cash flows due to changes in our plans or views of market and economic conditions could result in recognition of impairment losses, which, under the applicable accounting guidance, could be substantial.

Recent Accounting Pronouncements

In April 2014, the FASB issued an accounting standard classified under FASB ASC Topic 205, “Presentation of Financial Statements”. This accounting standard amends existing guidance to change reporting requirements for discontinued operations by requiring the disposal of an entity to be reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on an entity’s operations and financial results. This standard is effective for interim and annual reporting periods beginning on or after December 15, 2014. Management does not anticipate that future disposals of real estate properties would qualify for discontinued operations under the new standard.

In May 2014, the FASB issued an accounting standard classified under FASB ASC Topic 606, “Revenue from Contracts with Customers”. This accounting standard generally replaces existing guidance by requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This standard is effective for annual reporting periods beginning after December 15, 2016. Management is currently evaluating the impact that this standard may have on our consolidated financial statements.

ITEM 7A.

Quantitative and Qualitative Disclosures About Market Risk

Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. We may be exposed to interest rate changes primarily as a result of long-term debt used to maintain liquidity, fund capital expenditures and expand our real estate investment portfolio and operations. Market fluctuations in real estate financing may affect the availability and cost of funds needed to expand our investment portfolio. In addition, restrictions upon the availability of real estate financing or high interest rates for real estate loans could adversely affect our ability to dispose of real estate in the future. We seek to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. We may use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our assets. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. With regard to variable rate financing, our advisor assesses our interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. Our advisor maintains risk management control systems to monitor interest rate cash flow risk attributable to both our outstanding and forecasted debt obligations as well as our potential offsetting hedge positions. While this hedging strategy is designed to minimize the impact on our net income and funds from operations of changes in interest rates, the overall returns on any investment in our securities may be reduced. We currently have limited exposure to financial market risks.

We may also be exposed to credit risk in derivative contracts we may use. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us. If the fair value of a derivative contract is negative, we will owe the counterparty and, therefore, do not have credit risk. We seek to minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties.

Interest Rate Risk and Sensitivity

Interest rates may be affected by economic, geo-political, monetary and fiscal policy, market supply and demand and other factors generally outside our control, and such factors may be highly volatile. A change in market interest rates applicable to the fixed-rate portion of our indebtedness affects the fair value, but it has no effect on interest incurred or cash flows. A change in market interest rates applicable to the variable portion of our indebtedness affects the interest incurred and cash flows, but does not affect the fair value.

As of December 31, 2014, our only interest rate sensitive assets or liabilities related to our $417.4 million of outstanding indebtedness, of which $56.5 million is floating-rate and $360.9 million is fixed-rate indebtedness. We monitor interest rate risk routinely and seek to minimize the possibility that a change in interest rates would impact the interest incurred and our cash flows. To mitigate such risk, we may use interest rate derivative contracts. As of December 31, 2014 and December 31, 2013, we did not have any interest rate derivatives in effect.

As of December 31, 2014, the fair value of our $360.9 million of fixed-rate indebtedness was $373.6 million. The fair value estimate of our fixed rate debt was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated at December 31, 2014. As we expect to hold our fixed rate instruments to maturity and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate instruments, would have a significant impact on our operations.

The following table summarizes the interest income and interest expense for a 12-month period, and the change in the net fair value of our investments and indebtedness assuming an instantaneous increase or decrease of 100 basis points in the LIBOR interest rate curve, both adjusted for the effects of our interest rate hedging activities (dollars in thousands):


	Liabilities Subject to Interest Rate Sensitivity (Par Amount)		100 Basis Point Increase			100 Basis Point Decrease ⁽¹⁾
Par value and interest expense of variable-rate indebtedness		56,467		(565	)		90
Fair value and interest expense of fixed-rate indebtedness		373,596		(11,202	)		12,037

Total	$	430,063	$	(11,767	)	$	12,127

(1)	Assumes the LIBOR interest rate will not decrease below 0%. The quoted 30-day LIBOR rate was 0.17% at December 31, 2014.

ITEM 8.

Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

OF INDEPENDENCE REALTY TRUST, INC.

(A Maryland Corporation)


Report of Independent Registered Public Accounting Firm		50
Consolidated Balance Sheets as of December 31, 2014 and 2013		52
Consolidated Statements of Operations for the Three Years Ended December 2014, 2013 and 2012		53
Consolidated Statements of Changes in Equity for the Three Years Ended December 31, 2014, 2013 and 2012		54
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2014, 2013 and 2012		55
Notes to Consolidated Financial Statements		56
Supplemental Schedule
Schedule III: Real Estate and Accumulated Depreciation		73

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Independence Realty Trust, Inc.:

We have audited the accompanying consolidated balance sheets of Independence Realty Trust, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of operations, equity, and cash flows for each of the years in the three-year period ended December 31, 2014. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of Independence Realty Trust, Inc.’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Independence Realty Trust, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Independence Realty Trust, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 16, 2015, expressed an adverse opinion on the effectiveness of Independence Realty Trust, Inc.’s internal control over financial reporting.

/s/ KPMG LLP

Philadelphia, Pennsylvania

March 16, 2015

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Independence Realty Trust, Inc.:

We have audited Independence Realty Trust, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Independence Realty Trust, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A(b). Our responsibility is to express an opinion on Independence Realty Trust Inc.’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness related to a lack of sufficient qualified resources to ensure the appropriate design and operating effectiveness of the Company’s reconciliation controls, management review controls, and controls over accounting estimates has been identified and included in management’s assessment. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Independence Realty Trust, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of operations, equity, and cash flows for each of the years in the three-year period ended December 31, 2014, and our report dated March 16, 2015 expressed an unqualified opinion on those consolidated financial statements.

In our opinion, because of the effect of the aforementioned material weakness on the achievement of the objectives of the control criteria, Independence Realty Trust, Inc. has not maintained effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/ KPMG LLP

Philadelphia, Pennsylvania

March 16, 2015

Independence Realty Trust, Inc. and Subsidiaries

Consolidated Balance Sheets

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


	As of December 31, 2014			As of December 31, 2013
ASSETS:
Investments in real estate:
Investments in real estate at cost	$	689,112		$	190,096
Accumulated depreciation		(23,376	)		(15,775	)

Investments in real estate, net		665,736			174,321
Cash and cash equivalents		14,763			3,334
Restricted cash		5,206			1,122
Accounts receivable and other assets		2,270			1,731
Intangible assets, net of accumulated amortization of $4,346 and $569, respectively		3,251			517
Deferred costs, net of accumulated amortization of $505 and $151, respectively		2,924			846

Total Assets	$	694,150		$	181,871

LIABILITIES AND EQUITY:
Indebtedness	$	418,901		$	103,303
Accounts payable and accrued expenses		8,353			2,374
Accrued interest payable		49			63
Dividends payable		1,982			515
Other liabilities		1,831			708

Total Liabilities		431,116			106,963
Equity:
Stockholders’ equity:
Preferred stock, $0.01 par value; 50,000,000 shares authorized, 0 and 0 shares issued and outstanding, respectively		—			—
Common stock, $0.01 par value; 300,000,000 shares authorized, 31,800,076 and 9,652,540 shares issued and outstanding, respectively		318			96
Additional paid-in capital		267,683			78,112
Retained earnings (accumulated deficit)		(16,728	)		(3,300	)

Total stockholders’ equity		251,273			74,908
Non-controlling interest		11,761			—

Total Equity		263,034			74,908

Total Liabilities and Equity	$	694,150		$	181,871

The accompanying notes are an integral part of these consolidated financial statements.

Independence Realty Trust, Inc. and Subsidiaries

Consolidated Statements of Operations

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


	For the Years Ended December 31
	2014			2013			2012
Revenue:
Rental income	$	44,834		$	17,843		$	14,849
Tenant reimbursement income		1,924			943			818
Other income		2,445			1,157			962

Total revenue		49,203			19,943			16,629
Expenses:
Property operating expenses		23,427			9,429			8,066
General and administrative expenses		1,137			648			968
Asset management fees		1,736			272			240
Acquisition expenses		1,842			248			157
Depreciation and amortization		12,520			4,413			3,466

Total expenses		40,662			15,010			12,897

Operating Income		8,541			4,933			3,732
Interest expense		(8,496	)		(3,659	)		(3,305	)
Gains (losses) on assets		2,882			0			0
Interest income		17			0			0

Net income (loss)		2,944			1,274			427
(Income) loss allocated to preferred shares		0			(10	)		(15	)
(Income) loss allocated to non-controlling interests		(4	)		(649	)		(535	)

Net income (loss) allocable to common shares	$	2,940		$	615		$	(123	)

Earnings (loss) per share:
Basic	$	0.14		$	0.12		$	(0.45	)

Diluted	$	0.14		$	0.12		$	(0.45	)

Weighted-average shares:
Basic		21,315,928			5,330,814			275,384

Diluted		21,532,671			5,330,814			275,384

The accompanying notes are an integral part of these consolidated financial statements.

Independence Realty Trust, Inc. and Subsidiaries

Consolidated Statements of Equity

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


	Stockholders’ Equity
	Preferred Stock					Common Stock				Additional Paid-In			Retained Earnings (accumulated			Total Stockholder’s			Non-Controlling			Total
	Shares			Amount		Shares		Amount		Capital			deficit)			Equity			Interest			Equity
Balance, January 1, 2012		—			—		20,000	$	0	$	200		$	(113	)	$	87		$	46,971		$	47,058
Net income		—			—		—		—		—			(108	)		(108	)		535			427
Distribution to non-controlling interest declared		—			—		—		—		—			—			—			(3,247	)		(3,247	)
Preferred dividends		—			—		—		—		—			(15	)		(15	)		—			(15	)
Common dividends declared		—			—		—		—		—			(165	)		(165	)		—			(165	)
Issuance of preferred shares		125			0		—		—		100			—			100			—			100
Issuance of common shares		—			—		325,063		3		3,190			—			3,193			—			3,193
Issuance of non-controlling interests		—			—		—		—		—			—			—			3,500			3,500

Balance, December 31, 2012		125		$	0		345,063	$	3	$	3,490		$	(401	)	$	3,092		$	47,759		$	50,851
Net income (loss)		—			—		—		—		—			625			625			649			1,274
Distribution to non-controlling interest declared		—			—		—		—		—			—			—			(1,323	)		(1,323	)
Preferred dividends		—			—		—		—		—			(10	)		(10	)		—			(10	)
Common dividends declared		—			—		—		—		—			(3,477	)		(3,477	)		—			(3,477	)
Redemption of preferred shares		(125	)		0		—		—		(100	)		(37	)		(137	)		—			(137	)
Redemption of Series B preferred units		—			—		—		—		—			—			—			(3,500	)		(3,500	)
Issuance of common shares		—			—		4,023,577		40		31,113			—			31,153			—			31,153
Conversion of common units		—			—		5,274,900		53		43,532			—			43,585			(43,585	)		—
Stock compensation expense		—			—		9,000		0		77			—			77			—			77

Balance, December 31, 2013		—		$	—		9,652,540	$	96	$	78,112		$	(3,300	)	$	74,908		$	—		$	74,908
Net income (loss)		—			—		—		—		—			2,940			2,940			4			2,944
Distribution to non-controlling interest declared		—			—		—		—		—			—			—			(204	)		(204	)
Common dividends		—			—		—		—		—			(16,368	)		(16,368	)		—			(16,368	)
Issuance of non-controlling interests		—			—		—		—		—			—			—			11,961			11,961
Issuance of common shares, net		—			—		22,098,536		221		189,366			—			189,587			—			189,587
Stock compensation expense		—			—		49,000		1		205			—			206			—			206

Balance, December 31, 2014		—		$	—		31,800,076	$	318	$	267,683		$	(16,728	)	$	251,273		$	11,761		$	263,034

The accompanying notes are an integral part of these consolidated financial statements.

Independence Realty Trust, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in thousands)


	For the Years Ended December 31
	2014			2013			2012
Cash flows from operating activities:
Net income (loss)	$	2,944		$	1,274		$	427
Adjustments to reconcile net income (loss) to cash flow from operating activities:
Depreciation and amortization		12,520			4,413			3,466
Amortization of deferred financing costs and premium on indebtedness, net		(660	)		83			121
Share based compensation		206			77			—
(Gain) loss on assets		(2,882	)		—			—
Changes in assets and liabilities:
Accounts receivable and other assets		764			(89	)		240
Accounts payable and accrued expenses		2,670			210			132
Accrued interest payable		(14	)		31			32
Other liabilities		176			19			66

Cash flow from operating activities		15,724			6,018			4,484
Cash flows from investing activities:
Acquisition of real estate properties		(299,881	)		(36,822	)		(15,781	)
Capital expenditures		(4,158	)		(1,445	)		(1,148	)
(Increase) decrease in restricted cash		(3,298	)		28			1

Cash flow from investing activities		(307,337	)		(38,239	)		(16,928	)
Cash flows from financing activities:
Proceeds from issuance of preferred stock		—			—			100
Proceeds from issuance of common stock		189,587			31,153			3,193
Proceeds from issuance of non-controlling interests		—			—			3,500
Proceeds from Secured Credit Facility and mortgage indebtedness		154,650			10,940			10,238
Secured Credit Facility and mortgage principal repayments		(26,001	)		(222	)		—
Redemption of Series B preferred units		—			(3,500	)		—
Redemption of preferred shares		—			(137	)		—
(Payments) reimbursements for deferred financing costs		(89	)		(418	)		7
Distributions on preferred stock		—			(10	)		(15	)
Distributions on common stock		(14,978	)		(2,979	)		(149	)
Distributions to non-controlling interests		(127	)		(1,805	)		(3,004	)

Cash flow from financing activities		303,042			33,022			13,870

Net change in cash and cash equivalents		11,429			801			1,426
Cash and cash equivalents at the beginning of the period		3,334			2,533			1,107

Cash and cash equivalents at the end of the period	$	14,763		$	3,334		$	2,533

Supplemental cash flow information:
Cash paid for interest	$	9,170		$	3,545		$	3,219
Non cash decrease in non-controlling interests from conversion of limited partnership units to shares of common stock	$	—		$	43,585		$	—
Value of limited partnership units issued in acquisitions	$	11,961		$	—		$	—
Mortgage debt assumed	$	66,963		$	—		$	—

The accompanying notes are an integral part of these consolidated financial statements.

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2014

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

NOTE 1: Organization

Independence Realty Trust, Inc. was formed on March 26, 2009 as a Maryland corporation that has elected to be taxed as a real estate investment trust, or REIT, commencing with the taxable year ended December 31, 2011. We are externally managed by a subsidiary of RAIT Financial Trust, or RAIT, a publicly traded Maryland REIT whose common shares are listed on the New York Stock Exchange under the symbol “RAS.” As used herein, the terms “we,” “our” and “us” refer to Independence Realty Trust, Inc. and, as required by context, Independence Realty Operating Partnership, LP, which we refer to as our operating partnership, and their subsidiaries. We own apartment properties in geographic submarkets that we believe support strong occupancy and have the potential for growth in rental rates. We seek to provide stockholders with attractive risk-adjusted returns, with an emphasis on distributions and capital appreciation. We own substantially all of our assets and conduct our operations through our operating partnership, of which we are the sole general partner.

NOTE 2: Summary of Significant Accounting Policies

a. Basis of Presentation

The consolidated financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles, or GAAP. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial position and consolidated results of operations, equity and cash flows are included.

b. Principles of Consolidation

The consolidated financial statements reflect our accounts and the accounts of our operating partnership and other wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

c. Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

d. Cash and Cash Equivalents

Cash and cash equivalents include cash held in banks and highly liquid investments with maturities of three months or less when purchased. Cash, including amounts restricted, may at times exceed the Federal Deposit Insurance Corporation deposit insurance limit of $250 per institution. We mitigate credit risk by placing cash and cash equivalents with major financial institutions. To date, we have not experienced any losses on cash and cash equivalents.

e. Restricted Cash

Restricted cash includes tenant escrows and our funds held by lenders to fund certain expenditures or to be released at our discretion upon the occurrence of certain pre-specified events. As of December 31, 2014 and 2013, we had $5,206 and $1,122, respectively, of restricted cash accounts.

f. Accounts Receivable and Allowance for Bad Debts

We make estimates of the collectability of our accounts receivable related to base rents, expense reimbursements and other revenue. We analyze accounts receivable and historical bad debt levels, tenant credit worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. In addition, tenants experiencing financial difficulties are analyzed and estimates are made in connection with expected uncollectible receivables. Our reported operating results are directly affected by management’s estimate of the collectability of accounts receivable.

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2014

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

g. Investments in Real Estate

Allocation of Purchase Price of Acquired Assets

We account for acquisitions of properties that meet the definition of a business pursuant to FASB ASC Topic 805, “Business Combinations”. The fair value of the real estate acquired is allocated to the acquired tangible assets, consisting of land, building and improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases for acquired in-place leases and the value of tenant relationships, based in each case on their fair values. Purchase accounting is applied to assets and liabilities associated with the real estate acquired. Transaction costs and fees incurred related to acquisitions are expensed as incurred. Transaction costs and fees incurred related to the financing of an acquisition are capitalized and amortized over the life of the loan.

The aggregate value of in-place leases is determined by evaluating various factors, including an estimate of carrying costs during the expected lease-up periods, current market conditions and similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses, and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions, legal and other related costs. The value assigned to this intangible asset is amortized over the assumed lease up period, typically six months. For the years ended December 31, 2014, 2013 and 2012 we recorded $3,777, $490 and $78 of amortization expense for intangible assets, respectively. As of December 31, 2014, we expect to record additional amortization expense on current in-place lease intangible assets of $3,251 during 2015.

Impairment of Long-Lived Assets

Management evaluates the recoverability of its investment in real estate assets, including related identifiable intangible assets, in accordance with FASB ASC Topic 360, “Property, Plant and Equipment”. This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that recoverability of the assets is not assured.

Management reviews its long-lived assets on an ongoing basis and evaluates the recoverability of the carrying value when there is an indicator of impairment. An impairment charge is recorded when it is determined that the carrying value of the asset exceeds the fair value. The estimated cash flows used for the impairment analysis and the determination of estimated fair value are based on our plans for the respective assets and our views of market and economic conditions. The estimates consider matters such as current and historical rental rates, occupancies for the respective and/or comparable properties, and recent sales data for comparable properties. Changes in estimated future cash flows due to changes in our plans or views of market and economic conditions could result in recognition of impairment losses, which, under the applicable accounting guidance, could be substantial.

Depreciation and Amortization

Depreciation expense for real estate assets are computed using a straight-line method based on a life of 40 years for buildings and improvements and five to ten years for equipment and fixtures. Expenditures for improvements are capitalized and amortized over the initial term of each lease. For the years ended December 31, 2014, 2013 and 2012 we recorded $8,742, $3,923 and $3,388 of depreciation expense, respectively.

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2014

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

h. Revenue Recognition

i. Fair Value of Financial Instruments

In accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity for disclosure purposes. Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined in FASB ASC Topic 820, “Fair Value Measurements and Disclosures” and directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, are as follows:

•

Level 1: Valuations are based on unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. The types of assets carried at level 1 fair value generally are equity securities listed in active markets. As such, valuations of these investments do not entail a significant degree of judgment.

•

Level 2: Valuations are based on quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

•

Level 3: Inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset.

The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors, including, for example, the type of investment, whether the investment is new, whether the investment is traded on an active exchange or in the secondary market, and the current market condition. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in level 3.

Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, our own assumptions are set to reflect those that management believes market participants would use in pricing the asset or liability at the measurement date. We use prices and inputs that management believes are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be transferred from Level 1 to Level 2 or Level 2 to Level 3.

Fair value for certain of our Level 3 financial instruments is derived using internal valuation models. These internal valuation models include discounted cash flow analyses developed by management using current interest rates, estimates of the term of the particular instrument, specific issuer information and other market data for securities without an active market. In accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, the impact of our own credit spreads is also considered when measuring the fair value of financial assets or liabilities, including derivative contracts. Where appropriate, valuation adjustments are made to account for various factors, including bid-ask spreads, credit quality and market liquidity. These adjustments are applied on a consistent basis and are based on observable inputs where available. Management’s estimate of fair value requires significant management judgment and is subject to a high degree of variability based upon market conditions, the availability of specific issuer information and management’s assumptions.

FASB ASC Topic 825, “Financial Instruments” requires disclosure of the fair value of financial instruments for which it is practicable to estimate that value. The fair value of mortgage indebtedness is based on a discounted cash flows valuation technique, which classifies this as a level 3 liability within the fair value hierarchy. The carrying value and fair value of mortgage indebtedness as of December 31, 2014 was $400,509 and $411,311, respectively. The carrying value and fair value of mortgage indebtedness as of December 31, 2013 was $100,803 and $101,272, respectively. The fair value of secured credit facility, cash and cash equivalents and restricted cash approximates cost due to the nature of these instruments.

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2014

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

j. Deferred Costs

We capitalize initial direct costs upon the execution of a loan and amortize the deferred costs to interest expense over the term of the loan.

k. Income Taxes

We have elected to be taxed as a REIT beginning with the taxable year ended December 31, 2011. Accordingly, we recorded no income tax expense for the years ended December 31, 2014, 2013 and 2012.

l. Share-Based Compensation

We will account for stock-based compensation in accordance with FASB ASC Topic 718, “Compensation—Stock Compensation”. We do not have any employees and therefore account for share-based compensation as nonemployee awards. Stock-based compensation cost is measured at the grant date based on the fair value of the award and revalued at the end of each accounting period. The expense is recognized over the requisite service period, which is the vesting period. Stock-based compensation will be classified within general and administrative expense in the consolidated statements of operations.

m. Non-controlling Interest

The non-controlling interest represents limited partnership units of our operating partnership that were issued in connection with property acquisitions. We record limited partnership units issued in acquisitions at its fair value on the closing date of the acquisition. The holders of the limited partnership units have the right to redeem their limited partnership units for either shares of our common stock or for cash at our discretion. As the settlement of a redemption is in our sole discretion, we present non-controlling interest in our consolidated balance sheet within equity but separate from shareholders’ equity. Any non-controlling interests that fail to qualify as permanent equity will be presented as temporary equity and be carried at their redemption value. As of December 31, 2014, the value of the operating partnership units was $11,940 based on our closing stock price of $9.31 on December 31, 2014.

n. Recent Accounting Pronouncements

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2014

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

NOTE 3: Investments in Real Estate

As of December 31, 2014, our investments in real estate consisted of 30 apartment properties (unaudited). The table below summarizes our investments in real estate:


	2014			2013			Depreciable Lives
Land	$	112,600		$	37,418		—
Building		570,475			149,657		40
Furniture, fixtures and equipment		6,037			3,021		5-10

Total investment in real estate		689,112			190,096
Accumulated depreciation		(23,376	)		(15,775	)

Investments in real estate, net	$	665,736		$	174,321

Acquisitions

On December 30, 2014, we acquired an apartment residential community located in Austin, Texas, known as Iron Rock Ranch. We acquired the property for an aggregate purchase price of $35,250 exclusive of closing costs. In connection with the acquisition our operating partnership issued 918,098 limited partnership units valued at $8,550.

On December 16, 2014, we acquired an apartment residential community located in Little Rock, Arkansas, known as Stonebridge at the Ranch. We acquired the property for an aggregate purchase price of $31,580 exclusive of closing costs.

On December 8, 2014, we acquired an apartment residential portfolio located in Louisville, KY. The portfolio consists of five apartment communities known as Prospect Park, Brookside, Jamestown, Meadows and Oxmoor. We acquired the portfolio for an aggregate purchase price of $162,350 exclusive of closing costs.

On November 24, 2014, we acquired an apartment residential community located in Groveport, OH, known as Bennington Pond. We acquired the property for an aggregate purchase price of $17,500 exclusive of closing costs. In connection with the acquisition our operating partnership issued 4,929 limited partnership units valued at $48.

On September 15, 2014, we acquired an apartment residential community located in Shelby County, TN, known as Stonebridge Crossing. We acquired the property for an aggregate purchase price of $29,800 exclusive of closing costs.

On September 5, 2014, we acquired an apartment residential community located in Garner, North Carolina, known as Lenoxplace at Garner Station. We acquired the property for an aggregate purchase price of $24,250 exclusive of closing costs.

On August 28, 2014, we acquired an apartment residential community located in Cordova, Tennessee, known as Walnut Hill. We acquired the property for an aggregate purchase price of $27,900 exclusive of closing costs. In connection with the acquisition, our operating partnership issued 137,361 limited partnership units valued at $1,377.

On June 4, 2014, we acquired an apartment residential community located in Ridgeland, Mississippi, known as Arbors at the Reservoir. We acquired the property for an aggregate purchase price of $20,250 exclusive of closing costs.

On May 7, 2014, we acquired an apartment residential community located in Little Rock, Arkansas, known as Carrington. We acquired the property for an aggregate purchase price of $21,500 exclusive of closing costs. In connection with the acquisition our operating partnership issued 222,062 limited partnership units valued at $1,986.

On March 31, 2014, we acquired an apartment residential community, known as King’s Landing, in Creve Coeur, Missouri. We acquired the property for an aggregate purchase price of $32,700 exclusive of closing costs. In connection with the acquisition we assumed an existing loan with an outstanding principal balance of $21,200 secured by the property, bearing interest at 4.0% per annum, and maturing on June 1, 2022.

On February 28, 2014, we acquired a portfolio of five apartment properties located in Oklahoma which we refer to as the OKC Portfolio. We acquired the property for an aggregate purchase price of $65,000 exclusive of closing costs. In connection with the acquisition we assumed an existing loan with an outstanding principal balance of $45,763 secured by the property, bearing interest at 5.6% per annum and maturing on April 1, 2016. The fair value of the properties acquired and debt assumed was $70,431 and $48,312, respectively, generating a net gain of $2,882.

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2014

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

On January 31, 2014, we acquired an apartment residential community located in Waukegan, Illinois, known as The Reserve at Eagle Ridge. We acquired the property for an aggregate purchase price of $29,000 exclusive of closing costs.

On November 22, 2013, we acquired a fee simple interest in an apartment residential community located in Jackson, Mississippi, known as The Crossings at Ridgewood Apartments. We acquired the property for an aggregate purchase price of $23,000 exclusive of closing costs.

On September 19, 2013, we acquired a fee simple interest in an apartment residential community located in Indianapolis, Indiana, known as Berkshire Square Apartments. We acquired the property through a wholly owned subsidiary of our operating partnership, from an unaffiliated third party. We acquired the property for an aggregate purchase price of $13,250 exclusive of closing costs.

The following table summarizes the aggregate fair value of the assets and liabilities associated with the properties acquired during the year ended December 31, 2014, on the date of each acquisition, for the real estate accounted for under FASB ASC Topic 805.


Description	Fair Value of Assets Acquired During the Year Ended December 31, 2014
Assets acquired:
Investments in real estate	$	496,000
Restricted cash		784
Other assets		2,563
Deferred financing costs		1,259
Intangible asset		6,511

Total assets acquired	$	507,117
Liabilities assumed:
Loans payable on real estate	$	186,512
Accounts payable and accrued expenses		3,312
Other liabilities		937

Total liabilities assumed		190,761

Estimated fair value of net assets acquired	$	316,356

The tables below present the revenue, net income and earnings per share effect of the acquired properties as reported in our consolidated financial statements and on a pro forma basis as if the acquisitions occurred on January 1, 2013. These pro forma results are not necessarily indicative of the results which actually would have occurred if the acquisition occurred on the first day of the periods presented, nor does the pro forma financial information purport to represent the results of operations for future periods:


Description	For the Year Ended December 31, 2014 (unaudited)		For the Year Ended December 31, 2013 (unaudited)
Total revenue from acquisitions, as reported	$	23,477	$	0
Net income (loss) allocable to common shares from acquisitions, as reported(1)		3,054		0
Earnings (loss) per share
Basic-as reported	$	0.16	$	0.00
Diluted-as reported	$	0.14	$	0.00

Pro forma revenue (unaudited)		60,002		58,954
Pro forma net income (loss) allocable to common shares (unaudited)		7,508		5,847
Earnings (loss) per share
Basic-pro forma (unaudited)	$	0.35	$	1.10
Diluted-pro forma (unaudited)	$	0.35	$	1.10

(1)	The fair value of a property acquired exceeded the purchase price and a gain of $2,882 was recorded.

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2014

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

We have not yet completed the process of estimating the fair value of assets acquired and liabilities assumed for properties acquired during 2014. Accordingly, our preliminary estimates and the allocation of the purchase price to the assets acquired and liabilities assumed may change as we complete the process. In accordance with FASB ASC Topic 805, changes, if any, to the preliminary estimates and allocation will be reported in our financial statements retrospectively. We did not make any adjustments to the purchase price allocation of assets acquired prior to January 1, 2014 during the year ended December 31, 2014.

NOTE 4: Indebtedness

The following table contains summary information concerning the indebtedness that encumbered our properties as of December 31, 2014 (dollars in thousands):


	Outstanding Principal		Carrying Amount		Effective Interest Rate			Maturity Date
Belle Creek Apartments	$	10,575	$	10,575		2.4	%(1)	April 28, 2021
Berkshire Square Apartments		8,612		8,612		4.4	%(3)	January 1, 2021
Centrepoint Apartments		17,600		17,600		3.7	%(2)	January 1, 2019
Copper Mill Apartments		7,200		7,200		5.7	%	May 1, 2021
Crestmont Apartments		6,612		6,612		5.7	%	May 1, 2021
Cumberland Glen Apartments		6,759		6,759		5.7	%	May 1, 2021
Heritage Trace Apartments		5,388		5,388		5.7	%	May 1, 2021
Runaway Bay Apartments		10,033		10,033		3.6	%	November 1, 2022
Tresa at Arrowhead		27,500		27,500		2.4	%(1)	April 28, 2021
Reserve at Eagle Ridge		18,850		18,850		4.7	%	March 1, 2024
OKC Portfolio		44,939		46,471		2.8	%(5)	April 1, 2016
Kings’ Landing		21,200		21,200		4.0	%(6)	June 1, 2022
Crossings		15,313		15,313		3.9	%	June 1, 2024
Carrington Park		14,235		14,235		4.0	%	August 1, 2024
Arbors at the Reservoir		13,150		13,150		4.0	%	August 1, 2024
Walnut Hill		18,650		18,650		3.4	%	October 1, 2021
Lenoxplace		15,991		15,991		3.7	%	November 1, 2021
Bennington Pond		11,375		11,375		3.7	%	December 1, 2024
Stonebridge Crossing		19,370		19,370		3.4	%	January 1, 2022
Prospect Park		9,230		9,230		3.6	%	January 1, 2025
Brookside		13,455		13,455		3.6	%	January 1, 2025
Jamestown		22,880		22,880		3.6	%	January 1, 2025
Meadows		24,245		24,245		3.6	%	January 1, 2025
Oxmoor		35,815		35,815		3.6	%	January 1, 2025

Total mortgage debt/Weighted-Average	$	398,977	$	400,509		3.6	%
Secured Credit Facility		18,392		18,392		2.7	%(4)	October 25, 2016

Total indebtedness /Weighted-Average	$	417,369	$	418,901		3.6	%

(1)	Floating rate at 225 basis points over 30-day LIBOR. As of December 31, 2014, 30-day LIBOR was 0.17%. Interest only payments are due monthly. These mortgages are held by RAIT.

(2)	Fixed rate. Interest only payments are due monthly. Beginning February 1, 2015, principal and interest payments are required based on a 30-year amortization schedule.

(3)	Fixed Rate. Interest only payments are due monthly. Beginning February 1, 2016, principal and interest payments are required based on a 30-year amortization schedule.

(4)	Floating rate at 250 basis points over 30-day LIBOR. As of December 31, 2014, 30-day LIBOR was 0.17%. Interest only payments are due monthly.

(5)	Contractual interest rate is 5.6%. The debt was assumed and recorded at a premium that will be amortized to interest expense over the remaining term. Principal and interest payments are required based on a 30-year amortization schedule.

(6)	Fixed Rate. Interest only payments are due monthly. Beginning June 1, 2017, principal and interest payments are required based on a 30-year amortization schedule.

As of December 31, 2014 we were in compliance with all financial covenants contained in our indebtedness.

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2014

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

The following table contains summary information concerning the indebtedness that encumbered our properties as of December 31, 2013:


	Outstanding Principal		Carrying Amount		Effective Interest Rate			Maturity Date
Belle Creek Apartments	$	10,575	$	10,575		2.4	%(1)	April 28, 2021
Berkshire Square Apartments		8,612		8,612		4.4	%(3)	January 1, 2021
Centrepoint Apartments		17,600		17,600		3.7	%(2)	January 1, 2019
Copper Mill Apartments		7,293		7,293		5.7	%	May 1, 2021
Crestmont Apartments		6,698		6,698		5.7	%	May 1, 2021
Cumberland Glen Apartments		6,846		6,846		5.7	%	May 1, 2021
Heritage Trace Apartments		5,457		5,457		5.7	%	May 1, 2021
Runaway Bay Apartments		10,222		10,222		3.6	%	November 1, 2022
Tresa at Arrowhead		27,500		27,500		2.4	%(1)	April 28, 2021

Total mortgage debt/Weighted-Average	$	100,803	$	100,803		3.8	%
Secured Credit Facility		2,500		2,500		2.9	%(4)	October 25, 2016

Total indebtedness /Weighted-Average	$	103,303	$	103,303		3.8	%

(1)	Floating rate at 225 basis points over 30-day LIBOR. As of December 31, 2013, 30-day LIBOR was 0.17%. Interest only payments are due monthly. These mortgages are held by RAIT.

(2)	Fixed rate. Interest only payments are due monthly. Beginning February 1, 2015, principal and interest payments are required based on a 30-year amortization schedule.

(3)	Fixed Rate. Interest only payments are due monthly. Beginning February 1, 2016, principal and interest payments are required based on a 30-year amortization schedule.

(4)	Floating rate at 275 basis points over 30-day LIBOR. As of December 31, 2013, 30-day LIBOR was 0.17%. Interest only payments are due monthly.

The weighted average effective interest rate of our mortgage indebtedness was 3.6% as of December 31, 2014. As of December 31, 2014, RAIT held $38,075 of our debt while $360,902 was held by third parties. As of December 31, 2013, RAIT held $38,075 of our debt while $62,728 was held by third parties. For each of the years ended December 31, 2014 and 2013, we paid approximately $966 of interest to RAIT.

Mortgage Indebtedness

On January 27, 2015 we entered into a loan agreement for a $22,900 loan secured by a first mortgage on our Iron Rock Ranch property. The loan bears interest at a rate of 3.4% per annum, provides for monthly payments of interest only until the maturity date of February 1, 2025.

On December 29, 2014 we entered into a loan agreement for a $19,370 million loan secured by a first mortgage on our Stonebridge Crossing property. The loan bears interest at a rate of 3.4% per annum, provides for monthly payments of interest only until the maturity date of January 1, 2022 when the principal balance, accrued interest and all other amounts due under the loan become due.

On December 8, 2014 in connection with the acquisition of Prospect Park, we entered into a loan agreement for a $9,230 loan secured by a first mortgage on the property. The loan bears interest at a fixed rate of 3.6% per annum, provides for monthly payments of interest only until the maturity date of January 1, 2025 when the principal balance, accrued interest and all other amounts due under the loan become due.

On December 8, 2014 in connection with the acquisition of Brookside, we entered into a loan agreement for a $13,455 loan secured by a first mortgage on the property. The loan bears interest at a fixed rate of 3.6% per annum, provides for monthly payments of interest only until the maturity date of January 1, 2025 when the principal balance, accrued interest and all other amounts due under the loan become due.

On December 8, 2014 in connection with the acquisition of Jamestown, we entered into a loan agreement for a $22,880 loan secured by a first mortgage on the property. The loan bears interest at a fixed rate of 3.6% per annum, provides for monthly payments of interest only until the maturity date of January 1, 2025 when the principal balance, accrued interest and all other amounts due under the loan become due.

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2014

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

On December 8, 2014 in connection with the acquisition of Meadows, we entered into a loan agreement for a $24,245 loan secured by a first mortgage on the property. The loan bears interest at a fixed rate of 3.6% per annum, provides for monthly payments of interest only until the maturity date of January 1, 2025 when the principal balance, accrued interest and all other amounts due under the loan become due.

On December 8, 2014 in connection with the acquisition of Oxmoor, we entered into a loan agreement for a $35,815 loan secured by a first mortgage on the property. The loan bears interest at a fixed rate of 3.6% per annum, provides for monthly payments of interest only until the maturity date of January 1, 2025 when the principal balance, accrued interest and all other amounts due under the loan become due.

On November 24, 2014 in connection with the acquisition of Bennington Pond, we entered into a loan agreement for a $11,375 loan secured by a first mortgage on the property. The loan bears interest at a fixed rate of 3.7% per annum, provides for monthly payments of interest only until the maturity date of December 1, 2024 when the principal balance, accrued interest and all other amounts due under the loan become due.

On October 24, 2014 we entered into a loan agreement for a $15,991 loan secured by a first mortgage on our Lenoxplace property. The loan bears interest at a fixed rate of 3.7% per annum, provides for monthly payments of interest only until the maturity date of November 1, 2021 when the principal balance, accrued interest and all other amounts due under the loan become due.

On September 15, 2014, we entered into a loan agreement for a $18,650 loan secured by a first mortgage on our Walnut Hill property. The loan bears interest at a fixed rate of 3.4% per annum, provides for monthly payments of interest only until the maturity date of October 1, 2021 when the principal balance, accrued interest and all other amounts due under the loan become due.

On July 15, 2014, we entered into a loan agreement for a $13,150 loan secured by a first mortgage on our Arbors property. The loan bears interest at a fixed rate of 4.0% per annum, provides for monthly payments of interest only until the maturity date of August 1, 2024 when the principal balance, accrued interest and all other amounts due under the loan become due.

On July 15, 2014, we entered into a loan agreement for a $14,235 loan secured by a first mortgage on our Carrington property. The loan bears interest at a fixed rate of 4.0% per annum, provides for monthly payments of interest only until the maturity date of August 1, 2024 when the principal balance, accrued interest and all other amounts due under the loan become due.

On May 27, 2014, we entered into a loan agreement for a $15,313 loan secured by a first mortgage on our Crossings property. The loan bears interest at a fixed rate of 3.9% per annum, provides for monthly payments of interest only until the maturity date of June 1, 2024 when the principal balance, accrued interest and all other amounts due under the loan become due.

On March 31, 2014, in connection with the acquisition of King’s Landing, we assumed $21,200 of an existing loan secured by the property. The loan bears interest at a fixed rate of 4.0% per annum, provides for monthly payments of interest only until June 1, 2017 when principal and interest payments will be due monthly based on a 30-year amortization schedule, and matures on June 1, 2022.

On February 28, 2014, in connection with the acquisition of the OKC Portfolio we assumed $45,763 of an existing loan secured by the property. The Loan bears interest at a fixed rate of 5.6% per annum, provides for monthly payments of principal and interest based on a 30-year amortization schedule and matures on April 1, 2016. We recorded the debt assumed at its fair value of $48,312 based on a market rate of 2.8% for the remaining term. The resulting premium of $2,549 will be amortized to interest expense over the remaining term of the mortgage.

On February 7, 2014, we entered into a loan agreement for an $18,850 loan secured by a first mortgage on our Reserve at Eagle Ridge property. The loan bears interest at a fixed rate of 4.7% per annum, provides for monthly payments of interest only until the maturity date of March 1, 2024 when the principal balance, accrued interest and all other amounts due under the loan become due.

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2014

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

On December 27, 2013, we entered into a loan agreement for an $8,612 loan secured by a first mortgage on our Berkshire Square property. We used a portion of the loan to repay an advance of approximately $7,950 made with respect to the property pursuant to our secured credit facility. The loan bears interest at a fixed rate of 4.42% per annum, provides for monthly payments of interest only until February 2016 and for payments of principal and interest thereafter. The loan matures on January 1, 2021. The loan cannot be prepaid or defeased until September 26, 2016. Thereafter, the loan may be defeased pursuant to the terms of the note and loan agreement. The loan may be prepaid in full without additional consideration during the last three months of the loan term.

Secured Credit Facility

On October 25, 2013, we entered into a $20,000 secured revolving credit agreement with The Huntington National Bank to be used to acquire properties, for capital expenditures and for general corporate purposes. On September 9, 2014 we amended this agreement increasing the facility to $30,000. The facility has a 3-year term, bears interest at LIBOR plus 2.50% and contains customary financial covenants for this type of revolving credit agreement. As of December 31, 2014, there was $11,608 of availability under this facility.

Maturity of Indebtedness

The following table displays the principal repayments on of our indebtedness by year:


2015	$	1,954
2016		44,940
2017		1,331
2018		17,809
2019		1,251
Thereafter		350,084

Total	$	417,369

As of December 31, 2014, the fair value of our fixed-rate indebtedness was $373,596. The fair value estimate of our fixed rate debt was estimated using a discounted cash flow analysis utilizing interest rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated at December 31, 2014.

NOTE 5: Stockholder Equity and Non-Controlling Interest

Stockholder Equity

Common Shares

On July 21, 2014, we completed an underwritten public offering selling 8,050,000 shares of our common stock for $9.50 per share raising gross and net proceeds of $76,475 and $72,002, respectively.

On January 29, 2014, we completed an underwritten public offering selling 8,050,000 shares of our common stock for $8.30 per share resulting in gross and net proceeds of $66,815 and $62,718, respectively.

On August 13, 2013, we engaged in an underwritten public offering of 4,000,000 shares of our common stock for $8.50 per share for total gross and net proceeds of approximately $34,000 and $31,113, respectively.

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2014

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

Our board of directors declared the following dividends for the months of January, February, March, April, May, June, July, August, September, October, November and December 2014:


Month	Record Date	Payment Date	Dividend Declared Per Share
January 2014	January 31, 2014	February 17, 2014	$	0.06
February 2014	February 28, 2014	March 17, 2014	$	0.06
March 2014	March 31, 2014	April 15, 2014	$	0.06
April 2014	April 30, 2014	May 15, 2014	$	0.06
May 2014	May 30, 2014	June 16, 2014	$	0.06
June 2014	June 30, 2014	July 15, 2014	$	0.06
July 2014	July 31, 2014	August 15, 2014	$	0.06
August 2014	August 29, 2014	September 15, 2014	$	0.06
September 2014	September 30, 2014	October 15, 2014	$	0.06
October 2014	October 31, 2014	November 17, 2014	$	0.06
November 2014	November 28, 2014	December 15, 2014	$	0.06
December 2014	December 31, 2014	January 15, 2015	$	0.06

On January 19, 2015, our board of directors declared the following dividends for January, February and March 2015:


Month	Record Date	Payment Date	Dividend Declared Per Share
January 2015	January 30, 2015	February 17, 2015	$	0.06
February 2015	February 27, 2015	March 16, 2015	$	0.06
March 2015	March 31, 2015	April 15, 2015	$	0.06

Our board of directors declared the following dividends for the months of July, August, September, October, November and December 2013:


Month	Record Date	Payment Date	Dividend Declared Per Share
July 2013	August 5, 2013	August 15, 2013	$	0.05333
August 2013	August 30, 2013	September 13, 2013	$	0.05333
September 2013	September 30, 2013	October 15, 2013	$	0.05333
October 2013	October 31, 2013	November 15, 2013	$	0.05333
November 2013	November 29, 2013	December 16, 2013	$	0.05333
December 2013	December 31, 2013	January 15, 2014	$	0.05333

Preferred Shares

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2014

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

On July 25, 2013, our board of directors authorized setting aside amounts sufficient to redeem our Series A Preferred Stock with the proceeds of our underwritten offering.

On August 19, 2013, we redeemed 125 shares of our 12.5% Series A Cumulative Non-Voting Preferred Stock for an aggregate redemption price of approximately $140 inclusive of accrued interest. The redemption of the Series A Preferred Stock was funded with cash received from the August 2013 public offering of common stock. After the redemption date, there were no shares of Series A Preferred Stock outstanding, and all rights of the holders of such shares and units were terminated.

Non-controlling Interest

On December 30, 2014, our operating partnership issued 918,098 limited partnership units valued at $8,550 in connection with the Iron Rock Ranch acquisition.

On November 24, 2014, our operating partnership issued 4,929 limited partnership units valued at $48 in connection with the Bennington Pond acquisition.

On August 28, 2014, our operating partnership issued 137,361 limited partnership units valued at $1,377 in connection with the Walnut Hill acquisition.

On May 7, 2014, our operating partnership issued 222,062 limited partnership units valued at $1,986 in connection with the Carrington acquisition.

On July 10, 2014 our board of directors declared the following distributions on our operating partnership’s LP units:


Month	Record Date	Payment Date	Dividend Declared Per Share
July 2014	July 31, 2014	August 15, 2014	$	0.06
August 2014	August 29, 2014	September 15, 2014	$	0.06
September 2014	September 30, 2014	October 15, 2014	$	0.06

On October 16, 2014 our board of directors declared the following distributions on our operating partnership’s LP units:


Month	Record Date	Payment Date	Dividend Declared Per Share
October 2014	October 31, 2014	November 17, 2014	$	0.06
November 2014	November 28, 2014	December 15, 2014	$	0.06
December 2014	December 31, 2014	January 15, 2015	$	0.06

On January 19, 2015, our board of directors declared the following dividends for January, February and March 2015:


Month	Record Date	Payment Date	Dividend Declared Per Share
January 2015	January 30, 2015	February 17, 2015	$	0.06
February 2015	February 27, 2015	March 16, 2015	$	0.06
March 2015	March 31, 2015	April 15, 2015	$	0.06

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2014

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

On February 28, 2013, our board of directors, in our capacity as the general partner of the operating partnership, authorized and declared distributions on our operating partnership’s common partnership units for the months of January through June 2013. For the months of January through March 2013, the distributions were paid to the holders of our common operating partnership units at a rate of $0.00163934 per unit per day. For the months of April through June 2013, our board of directors authorized and declared distributions on our operating partnership’s common units at a rate of $0.00171233 per share per day. The distributions for each month were aggregated and paid on or before the fifteenth day following the completion of each respective month. On July 25, 2013, our board of directors, in our capacity as the general partner of the operating partnership, declared distributions on our operating partnership’s common partnership units for the months of July through September 2013 with record dates, payment dates and the amounts of the dividend declared per unit corresponding to the dividends on our common stock set forth above. On October 10, 2013, our board of directors, in our capacity as the general partner of the operating partnership, declared distributions on our operating partnership’s common partnership units for the months of July through September 2013 with record dates, payment dates and the amounts of the dividend declared per unit corresponding to the dividends on our common stock set forth above.

On May 7, 2013, RAIT elected to convert 5,274,900 of its common limited partnership units to shares of our common stock according to the terms of the Agreement of Limited Partnership. The shares of our common stock issued were issued in reliance on an exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

On February 28, 2013, our board of directors, in our capacity as the general partner of the operating partnership, authorized and declared distributions on our operating partnership’s Series B Preferred Units for the period of January, February and March 2013. The distributions were paid to holders of our Series B Preferred Units of record at a rate of $2.78 per unit per day. On May 7, 2013, our board of directors, in our capacity as the general partner of the operating partnership, authorized and declared distributions on our operating partnership’s Series B Preferred Units for the period of April, May and June 2013. The distributions were paid to holders of our Series B Preferred Units of record at a rate of $2.78 per unit per day. On July 25, 2013, our board of directors, in our capacity as the general partner of the operating partnership, authorized setting aside amounts sufficient to redeem our operating partnership’s Series B Preferred Units with the proceeds of our August 2013 underwritten offering. Our operating partnership, had the right to redeem the Series B Preferred Units, in whole or in part, at any time or from time to time for a redemption price equal to $10 plus all accrued and unpaid distributions thereon to and including the date fixed for redemption.

On August 19, 2013, our operating partnership redeemed 350 of its Series B Units, all of which were owned by a wholly-owned subsidiary of RAIT, an affiliate of the Company, for an aggregate redemption price of approximately $3,500. The redemption of the Series B Units was funded with cash received from the August 2013 underwritten offering of the common stock. After the redemption date, there were no Series B Units outstanding and all rights of the holders of such units were terminated.

NOTE 6: Equity Compensation Plans

Long Term Incentive Plan

On April 5, 2011, our board of directors approved and adopted the Long Term Incentive Plan, or the incentive plan, and the Independent Directors Compensation Plan, or the director plan. Our incentive plan provides for the grants of awards to our directors, officers and full-time employees (in the event we ever have employees), full-time employees of our advisor and its affiliates, full-time employees of entities that provide services to our advisor, directors of our advisor or of entities that provide services to it, certain of our consultants and certain consultants to our advisor and its affiliates or to entities that provide services to our advisor. The incentive plan authorizes the grant of restricted or unrestricted shares of our common stock, non-qualified and incentive stock options, restricted stock units, stock appreciation rights, dividend equivalents and other stock- or cash-based awards. On July 29, 2013, our board of directors and stockholders approved the amendment and restatement of our incentive plan to reduce the number of shares of common stock issuable thereunder to 800,000 shares.

Under the director plan, which operates as a sub-plan of our incentive plan, each of our independent directors will receive 3,000 shares of common stock annually. In addition, our independent directors may elect to receive their annual cash fee in the form of our common shares or a combination of common shares and cash. On October 29, 2013, our compensation committee made the initial stock grant under the director plan so that our independent directors received 9,000 shares of our common stock, in the aggregate valued at $77 using our closing stock price of $8.60. These awards vested immediately. On May 14, 2014, our compensation committee made a stock grant under the director plan so that our independence directors received 9,000 shares of our common stock, in the aggregate valued at $81 using our closing stock price of $8.95. These awards vested immediately.

On February 18, 2015, the compensation committee of IRT awarded 100,000 shares of IRT restricted common stock, valued at $935 using IRT’s closing stock price of $9.35, to persons affiliated with IRT’s advisor, including their executive officers. These awards generally vest over three-year periods.

On January 31, 2014, the compensation committee awarded 40,000 shares of restricted common stock, valued at $328 using our closing stock price of $8.20, to persons affiliated with our advisor, including our executive officers. These awards generally vest over three-year periods.

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2014

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

On January 31, 2014, the compensation committee awarded 80,000 stock appreciation rights, or SARs, valued at $49 based on a Black-Scholes option pricing model at the date of grant, to persons affiliated with our advisor, including our executive officers. The SARs vest over a three-year period and may be exercised between the date of vesting and January 31, 2019, the expiration date of the SARs.

A summary of the SARs activity of the Incentive Award Plan is presented below.


	2014
	SARs		Exercise Price
Outstanding, January 1,		—	$	—
Granted		80,000		8.20
Expired		—		—
Exercised		—		—
Forfeited		—		—

Outstanding, December 31,		80,000	$	8.20

SARs exercisable at December 31,		8,000

As of December 31, 2014, our closing common stock price was $9.31, which exceeded the exercise prices of the SARs. The total intrinsic value of these SARs outstanding and exercisable at December 31, 2014 was $9.

The following table summarizes information about the SARs outstanding and exercisable as of December 31, 2014:

SARs Outstanding

SARs Exercisable

Exercise Price

Number
Outstanding

Remaining
Contractual
Life

Exercise Price

Number
Exercisable

Weighted
Average
Remaining
Contractual
Life

Weighted
Average
Exercise Price

$8.20

80,000

3 years

8.20

8,000

3 years

8.20

As of December 31, 2014, the unearned compensation cost relating to unvested SAR awards was $33.

A summary of the restricted common share awards as of December 31, 2014 and 2013 of the Incentive Award Plan is presented below.


	2014
	Number of Shares			Grant Date Fair Value Per Share
Balance, January 1,		—		$	—
Granted		40,000			8.20
Vested		(4,000	)		8.20
Forfeited		—			—

Balance, December 31,		36,000		$	8.20

As of December 31, 2014, the unearned compensation cost relating to unvested restricted common share awards was $219. The estimated fair value of restricted common share awards vested during 2014 was $37.

Distribution Reinvestment Program

We had adopted a distribution reinvestment program, or the DRP, through which our stockholders could elect to reinvest an amount equal to the distributions declared on their shares of common stock in additional shares in lieu of receiving cash distributions. The common stock available under the DRP was reallocated to the August 2013 underwritten offering when the amended registration statement was filed and the DRP was subsequently terminated. No selling commissions or dealer manager fees were paid on shares sold under the DRP.

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2014

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

NOTE 7: Related Party Transactions and Arrangements

Fees and Expenses Paid to Our Advisor

Effective as of May 7, 2013, we entered into the Second Amended and Restated Advisory Agreement, or the amended and restated advisory agreement. The amended and restated advisory agreement was adopted primarily to adjust the advisor’s compensation and modify its duties to us.

Pursuant to the terms of the amended advisory agreement, our advisor is compensated as follows:

•

Quarterly base management fee of 0.1875% of average gross real estate assets as of the last day of such quarter. Average gross real estate assets means the average of the aggregate book value of our real estate assets before reserves for depreciation or other similar noncash reserves and excluding the book values attributable to the eight properties that were acquired prior to August 16, 2013. We compute average gross real estate assets by taking the average of these book values at the end of each month during the quarter for which we are calculating the fee. The fee is payable quarterly in an amount equal to 0.1875% of average gross real estate assets as of the last day of such quarter. For the years ended December 31, 2014, 2013 and 2012 our advisor earned $1,582, $128 and $240 of asset management fees, respectively.

•

We pay our advisor an incentive fee based on our pre-incentive fee core funds from operations, or Core FFO, a non-GAAP measure, as defined in the advisory agreement. The incentive fee is computed at the end of each fiscal quarter as follows:

•

no incentive fee in any fiscal quarter in which our pre-incentive fee Core FFO does not exceed the hurdle rate of 1.75% (7% annualized) of the cumulative gross amount of equity capital we have obtained; and

•

20% of the amount of our pre-incentive fee Core FFO that exceeds 1.75% (7% annualized) of the cumulative gross proceeds from the issuance of equity securities we have obtained.

•

For the years ended December 31, 2014, 2013 and 2012 our advisor earned $154, $144 and $0 of incentive fees, respectively. These fees are included within asset management fees in our consolidated statements of operations.

As of December 31, 2014 and December 31, 2013 we had liabilities payable to our advisor for asset management fees of $644 and $107, respectively.

Property Management Fees Paid to Our Property Manager

We have entered into property management agreements with RAIT Residential, or our property manager, which is majority owned by RAIT, with respect to each of our properties. Pursuant to the property management agreements, we pay our property manager property management and leasing fees on a monthly basis of an amount up to 4.0% of the gross revenues from the property for each month. Additionally, we may pay our property manager a separate fee for the one-time initial rent-up or leasing-up of newly constructed properties in an amount not to exceed the fee customarily charged in arm’s length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area. Each management agreement has an initial one year term, subject to automatic one-year renewals unless either party gives prior notice of its desire to terminate the management agreement. For the years ended December 31, 2014, 2013 and 2012 our property manager earned $1,759, $785 and 655, respectively, of property management and leasing fees. As of December 31, 2014 and December 31, 2013, we had liabilities payable to our property manager for property management and leasing fees of $205 and $83, respectively.

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2014

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

NOTE 8: Earnings (Loss) Per Share

The following table presents a reconciliation of basic and diluted earnings (loss) per share for the years ended December 31, 2014, 2013 and 2012:


	For the Years Ended December 31
	2014			2013			2012
Net Income (loss)	$	2,944		$	1,274		$	427
(Income) loss allocated to preferred shares		—			(10	)		(15	)
(Income) loss allocated to non-controlling interests		(4	)		(649	)		(535	)

Net Income (loss) allocable to common shares	$	2,940		$	615		$	(123	)

Weighted-average shares outstanding—Basic		21,315,928			5,330,814			275,384
Dilutive limited partnership units		1,282,449			—			—
Weighted-average shares outstanding—Diluted		21,532,671			5,330,814			275,384

Earnings (loss) per share—Basic	$	0.14		$	0.12		$	(0.45	)

Earnings (loss) per share—Diluted	$	0.14		$	0.12		$	(0.45	)

Earnings per share is computed in accordance with FASB ASC Topic 260, “Earnings per Share”, by dividing the Net Income (loss) allocable to common shares by the weighted average number of common shares outstanding during the respective periods. Earnings (loss) per share for the period beginning January 1, 2013 and ended May 7, 2013 and the years ended December 31, 2012 and 2011 excludes 5,274,900 limited partnership units that were exchanged for common stock on May 7, 2013 as their effect would be anti-dilutive.

NOTE 9: Quarterly Financial Data (Unaudited)

The following table summarizes our quarterly financial data which, in the opinion of management, reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our results of operations:


	For the Three-Month Periods Ended
	March 31		June 30			September 30			December 31
2014:
Total revenue	$	8,135	$	11,649		$	13,057		$	16,362
Net income (loss)		2,935		(128	)		(58	)		195
Net income (loss) allocable to common shares		2,935		(128	)		(56	)		189
Total earnings (loss) per share—Basic ⁽¹⁾	$	0.19	$	(0.01	)	$	(0.00	)	$	0.01
Total earnings (loss) per share—Diluted⁽¹⁾	$	0.19	$	(0.01	)	$	(0.00	)	$	0.01
2013:
Total revenue	$	4,688	$	4,700		$	4,787		$	5,768
Net income (loss)		340		324			302			308
Net income (loss) allocable to common shares		4		48			255			308
Total earnings (loss) per share—Basic ⁽¹⁾	$	0.01	$	0.01		$	0.03		$	0.03
Total earnings (loss) per share—Diluted ⁽¹⁾	$	0.00	$	0.01		$	0.03		$	0.03

⁽¹⁾	The summation of quarterly per share amounts do not equal the full year amounts.

Independence Realty Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2014

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

NOTE 10: SEGMENT REPORTING

Segments

We have identified one operating segment and have determined that we have one reportable segment. As a group, our executive officers act as the Chief Operating Decision Maker or CODM. The CODM reviews operating results to make decisions about all investments and resources and to assess performance for the entire company. Our portfolio consists of one reportable segment, investments in real estate through the mechanism of lending and/or ownership. The CODM manages and reviews our operations as one unit. Resources are allocated without regard to the underlying structure of any investment, but rather after evaluating such economic characteristics as returns on investment, leverage ratios, current portfolio mix, degrees of risk, income tax consequences and opportunities for growth. We have no single customer that accounts for 10% or more of revenue.

NOTE 11: COMMITMENTS AND CONTINGENCIES

Litigation

Independence Realty Trust

Schedule III (Updated Next Draft)

Real Estate and Accumulated Depreciation

As of December 31, 2014

(Dollars in thousands)


Property Name				Initial Cost				Cost of Improvements, net of Retirements				Gross Carrying Amount			Accumulated Depreciation- Building			Encumbrances (Unpaid Principal)			Year of Acquisition		Life of Depreciation
Property Name	Description		Location	Land		Building		Land		Building		Land(1)		Building(1)	Accumulated Depreciation- Building			Encumbrances (Unpaid Principal)			Year of Acquisition		Life of Depreciation
Crestmont		Apartment	Marietta, GA	$	3,254	$	13,044	$	—	$	309	$	3,254	$13,353	$	(2,497	)	$	(6,612	)		2011		40
Copper Mill		Apartment	Austin, TX		3,472		13,958		—		468		3,472	14,426		(2,746	)		(7,200	)		2011		40
Cumberland		Apartment	Smyrna, GA		3,100		13,166		—		473		3,100	13,639		(2,581	)		(6,759	)		2011		40
Heritage Trace		Apartment	Newport News, VA		2,673		10,761		—		454		2,673	11,215		(2,150	)		(5,388	)		2011		40
Belle Creek Apartments		Apartment	Henderson, CO		1,890		7,596		—		455		1,890	8,051		(1,372	)		(10,575	)		2011		40
Runaway Bay		Apartment	Indianapolis, IN		3,079		12,318		—		313		3,079	12,631		(732	)		(10,033	)		2012		40
Tresa at Arrowhead		Apartment	Phoenix, AZ		7,080		28,500		—		476		7,080	28,976		(4,262	)		(27,500	)		2011		40
The Crossings		Apartment	Phoenix, AZ		4,600		17,948		—		262		4,600	18,210		(505	)		(15,313	)		2013		40
Berkshire Square		Apartment	Phoenix, AZ		2,650		10,319		—		203		2,650	10,522		(334	)		(8,612	)		2013		40
Centrepoint Apartments		Apartment	Tucson, AZ		5,620		22,720		—		463		5,620	23,183		(2,920	)		(17,600	)		2011		40
Reserve at Eagle Ridge		Apartment	Waukegan, IL		5,800		22,743		—		102		5,800	22,845		(528	)		(18,850	)		2014		40
Windrush		Apartment	Edmond, OK		1,677		7,464		—		43		1,677	7,507		(155	)		(5,948	)		2014		40
Heritage Park		Apartment	Oklahoma, OK		4,234		12,232		—		153		4,234	12,385		(284	)		(10,706	)		2014		40
Raindance		Apartment	Oklahoma, OK		3,502		10,033		—		182		3,502	10,215		(234	)		(8,864	)		2014		40
Augusta		Apartment	Oklahoma, OK		1,296		9,930		—		82		1,296	10,012		(193	)		(7,253	)		2014		40
Invitational		Apartment	Oklahoma, OK		1,924		16,852		—		154		1,924	17,006		(321	)		(12,168	)		2014		40
Kings Landing		Apartment	Creve Coeur, MO		2,513		29,873		—		17		2,513	29,890		(560	)		(21,200	)		2014		40
Carrington		Apartment	Little Rock, AR		1,715		19,526		—		169		1,715	19,695		(301	)		(14,235	)		2014		40
Arbors		Apartment	Ridgeland, MS		4,050		15,946		—		399		4,050	16,345		(167	)		(13,150	)		2014		40
Walnut Hill		Apartment	Cordova, TN		2,230		25,251		—		37		2,230	25,288		(211	)		(18,650	)		2014		40
Lenox Place		Apartment	Raleight, NC		3,480		20,482		—		124		3,480	20,606		(128	)		(15,991	)		2014		40
Stonebridge Crossing		Apartment	Memphis, TN		3,100		26,223		—		30		3,100	26,253		(164	)		(19,370	)		2014		40
Bennington Pond		Apartment	Groveport, OH		2,400		14,828		—		16		2,400	14,844		(31	)		(11,375	)		2014		40
Prospect Park		Apartment	Louisville, KY		2,837		11,193		—		0		2,837	11,193		0			(9,230	)		2014		40
Brookside		Apartment	Louisville, KY		3,947		16,502		—		0		3,942	16,502		0			(13,455	)		2014		40
Jamestown		Apartment	Louisville, KY		7,034		27,730		—		0		7,034	27,730		0			(22,880	)		2014		40
Meadows		Apartment	Louisville, KY		6,857		30,030		—		0		6,857	30,030		0			(24,245	)		2014		40
Oxmoor		Apartment	Louisville, KY		7,411		47,095		—		0		7,411	47,095		0			(35,815	)		2014		40
Stonebridge at the Ranch		Apartment	Little Rock, AR		3,315		27,954		—		0		3,315	27,954		0			0			2014		40
Iron Rock Ranch		Apartment	Austin, TX		5,860		28,911		—		0		5,860	28,911		0			0			2014		40

				$	112,600	$	571,128	$	—	$	5,384	$	112,600	$576,512	$	(23,376	)	$	(398,977	)

(1)	The aggregate cost basis for federal income tax purposes of our investments in real estate approximates the carrying amount at December 31, 2014.

73|||


Investments in Real Estate	For the Year Ended December 31, 2014			For the Year Ended December 31, 2013
Balance, beginning of period	$	190,096		$	153,565
Additions during period:
Acquisitions		495,998			35,517
Improvements to land and building		4,159			1,014
Deductions during period:
Dispositions of real estate		(1,141	)		—

Balance, end of period:	$	689,112		$	190,096


Accumulated Depreciation	For the Year Ended December 31, 2014			For the Year Ended December 31, 2013
Balance, beginning of period	$	15,775		$	12,283
Depreciation expense		8,742			3,492
Dispositions of real estate		(1,141	)		—

Balance, end of period:	$	23,376		$	15,775

ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

ITEM 9A.

Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating possible controls and procedures.

Under the supervision of our chief executive officer and chief financial officer and with the participation of our disclosure committee, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as a result of a material weakness, identified below, in our internal control over financial reporting at December 31, 2014. We made adjustments to the internal accounting records used to prepare our consolidated financial statements, primarily related to purchase price allocation of our real estate acquisitions and increased the allocation to building by $9.6 million, with a corresponding decrease in the allocation to land, resulting in $113,000 of additional depreciation expense during 2014. These adjustments did not result in a restatement of previously issued financial statements or require revision to the financial earnings release in our Current Report on Form 8-K dated February 25, 2015.

As a result of this material weakness, prior to filing this report, management performed additional procedures which allowed us to conclude that our audited consolidated financial statements included in this report fairly present, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with U.S. generally accepted accounting principles.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (1992). Upon completion of this assessment, management concluded that our internal control over financial reporting as of December 31, 2014, was not effective because of the existence of the material weakness described below.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

In connection with management’s assessment of the effectiveness of our internal control over financial reporting at December 31, 2014, we identified a material weakness in internal control over financial reporting that existed at December 31, 2014 because we lacked sufficient qualified resources to ensure the appropriate design and operating effectiveness of our reconciliation and management review controls. Specifically, our reconciliation controls, management review controls and controls over accounting estimates were not adequately designed and/or operating effectively. As a result, adjustments were made to the internal accounting records used to prepare our consolidated financial statements primarily related to land, building and depreciation expense. While these adjustments were not material, a reasonable possibility existed that material misstatements in the consolidated financial statements may occur and not be detected.

The audited consolidated financial statements included in this report, reflect the correction for these adjustments. Our independent registered public accounting firm has issued an audit report on our internal control over financial reporting. This report is included as part of Item 8 in this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, other than the identification of the material weakness discussed above.

Remedial Measures

Management is in the process of developing and implementing new controls to remediate the material weakness described above. Management plans to enhance its reconciliation controls, management review controls, and controls over accounting estimates by (i) supplementing its resources (ii) upgrading our outsourced internal audit function, (iii) designing and documenting additional management review controls, and (iv) providing additional training to effectively perform reconciliation controls, management review controls, and controls over accounting estimates.

As we add resources, we also plan to make organizational changes and further develop skills in our employees in order to strengthen and improve our internal control over financial reporting.

Management believes that these measures will remediate the material weakness discussed above. We currently are targeting to complete the implementation of the control enhancements during 2015. We will test the ongoing effectiveness of the new controls subsequent to implementation, and will consider the material weakness remediated after the applicable remedial controls operate effectively for a sufficient period of time.

ITEM 9B.

Other Information

None.

PART III

ITEM 10.

Directors, Executive Officers and Corporate Governance

The information required by this item will be set forth in our definitive proxy statement with respect to our 2015 annual meeting of stockholders to be filed on or before April 30, 2015, and is incorporated herein by reference.

ITEM 11.

Executive Compensation

The information required by this item will be set forth in our definitive proxy statement with respect to our 2015 annual meeting of stockholders, and is incorporated herein by reference.

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item will be set forth in our definitive proxy statement with respect to our 2015 annual meeting of stockholders, and is incorporated herein by reference.

ITEM 13.

Certain Relationships and Related Transactions and Director Independence

The information required by this item will be set forth in our definitive proxy statement with respect to our 2015 annual meeting of stockholders, and is incorporated herein by reference.

ITEM 14.

Principal Accountant Fees and Services

The information required by this item will be set forth in our definitive proxy statement with respect to our 2015 annual meeting of stockholders, and is incorporated herein by reference.

PART IV

ITEM 15.

Exhibits and Financial Statement Schedules

The following documents are filed as part of this report:

1.	Consolidated Financial Statements

Index to Consolidated Financial Statements

Independence Realty Trust, Inc.

Report of Independent Registered Public Accounting Firm.

Consolidated Balance Sheets as of December 31, 2014 and 2013.

Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012.

Consolidated Statements of Changes in Equity for the years ended December 31, 2014, 2013 and 2012.

Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012.

Notes to Consolidated Financial Statements.

2.	Financial Statement Schedules

Schedule III: Real Estate and Accumulated Depreciation

All other schedules are not applicable.

3.	Exhibits

The exhibits listed on the Exhibit Index (following the signatures section of this report on Form 10-K) are included herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Name	Title	Date

/S/ SCOTT F. SCHAEFFER Scott F. Schaeffer	Chairman of the Board and Chief Executive Officer (Principal Executive Officer)	March 16, 2015

/S/ JAMES J. SEBRA James J. Sebra	Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)	March 16, 2015

/S/ WILLIAM C. DUNKELBERG William C. Dunkelberg	Independent Director	March 16, 2015

/S/ ROBERT F. MCCADDEN Robert F. McCadden	Independent Director	March 16, 2015

/S/ DEFOREST B. SOARIES, JR. DeForest B. Soaries, Jr.	Independent Director	March 16, 2015

/S/ Sharon M. Tsao Sharon M. Tsao	Independent Director	March 16, 2015

EXHIBIT INDEX


Exhibit		Description

3.1		Articles of Restatement of Independence Realty Trust, Inc. (the “Company”), dated as of August 20, 2013, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on August 20, 2013.

3.2		Second Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (the “2013 Q1 10-Q”).

4.1.1		Fourth Amended and Restated Agreement of Limited Partnership of Independence Realty Operating Partnership, LP, dated as of May 7, 2013 (the “IROP LP Agreement”), incorporated by reference to Exhibit 4.1 to the 2013 Q1 10-Q.

4.1.2		Form of Exchange Rights Agreement for Partnership Units, incorporated by reference to Exhibit C of Exhibit 4.1.1 hereto.

4.1.3		First Amendment, dated as of August 20, 2013, to Fourth Amended and Restated Agreement of Limited Partnership of Independence Realty Operating Partnership, LP, dated as of May 7, 2013, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on August 20, 2013.

4.1.4		Admission Agreement and Amendment dated as of May 7, 2014 to Fourth Amendment and Restated Agreement of Limited Partnership of Independence Realty Operating Partnership, LP dated as of May 7, 2013, a corrected copy was incorporated by reference to Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 (the “2014 Q1 10-Q”), replacing the copy filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on May 7, 2014 (the “5/7/14 Form 8-K”).

4.1.5		Admission Agreement and Amendment dated as of August 28, 2014 to Fourth Amendment and Restated Agreement of Limited Partnership of Independence Realty Operating Partnership, LP dated as of May 7, 2013, incorporated by reference to Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 (the “2014 Q3 10-Q”).

4.1.6		Exchange Rights Agreement dated as of August 28, 2014 among the Company, Independence Realty Operating Partnership, LP and the limited partners named therein, incorporated by reference to Exhibit 4.6 to the 2014 Q3 10-Q.

4.1.7		Admission Agreement and Amendment dated as of November 24, 2014 to Fourth Amendment and Restated Agreement of Limited Partnership of Independence Realty Operating Partnership, LP, filed herewith.

4.1.8		Admission Agreement and Amendment dated as of December 30, 2014 to Fourth Amendment and Restated Agreement of Limited Partnership of Independence Realty Operating Partnership, LP dated as of December 30, 2014, filed herewith.

4.1.9		Exchange Rights Agreement dated as of December 30, 2014 among the Company, Independence Realty Operating Partnership, LP and the limited partners named therein,, filed herewith.

4.1.10		Amendment dated as of January 1, 2015 to the IROP LP Agreement, filed herewith.

4.2		Registration Rights Agreement by and among the Company, Independence Realty Operating Partnership, LP, RAIT Financial Trust and the RAIT Parties (as defined therein), dated as of July 26, 2013, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 1, 2013.

10.1.1		Second Amended and Restated Advisory Agreement by and among the Company, Independence Realty Operating Partnership, LP and Independence Realty Advisors, LLC, dated as of May 7, 2013, incorporated by reference to Exhibit 10.1 to the First Quarter 10-Q.

10.1.2		First Amendment dated as of July 26, 2013 to the Second Amended and Restated Advisory Agreement dated May 7, 2013 by and among the Company, Independence Realty Operating Partnership, LP and Independence Realty Advisors, LLC, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 1, 2013.

10.2.1		Independence Realty Trust, Inc. Long-Term Incentive Plan (as amended and restated as of July 29, 2013), incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on August 1, 2013.

10.2.2		Independent Directors Compensation Plan, incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-11 filed on April 8, 2011, as amended, Commission File No. 333-173391, as amended (the “4/8/11 Registration Statement”).

10.2.3		Independence Realty Trust, Inc. Long Term Incentive Plan Form of Stock Appreciation Rights Award Certificate adopted January 31, 2014, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 6, 2014 (the “2/6/14 Form 8-K”).


Exhibit		Description

10.2.4		Independence Realty Trust, Inc. Long Term Incentive Plan a Form of Restricted Stock Award Certificate adopted January 31, 2014, incorporated by reference to Exhibit 10.2 to the 2/6/14 Form 8-K.

10.3		Contribution Agreement by and among Independence Realty Operating Partnership, LP and the other parties named therein, dated as of April 7, 2011, incorporated by reference to Exhibit 10.7 to the 4/8/11 Registration Statement.

10.4.1		Fifth Amendment to Loan and Security Agreement and Promissory Notes, dated as of April 29, 2011, by and among IRT Belle Creek Apartments Colorado, LLC, RAIT Partnership, L.P., Independence Realty Operating Partnership, LP and RAIT CRE CDO I, LTD., relating to the property referred to as Belle Creek, incorporated by reference to Exhibit 10.8 to the Pre-Effective Amendment No. 1 to the 4/8/11 Registration Statement filed on May 10, 2011 (“Amendment No. 1”).

10.4.2		Guaranty of Non-Recourse Carveouts, dated as of April 29, 2011, by Independence Realty Operating Partnership, LP for the benefit of RAIT CRE CDO I, Ltd., relating to the property referred to as Belle Creek, incorporated by reference to Exhibit 10.9 to Amendment No. 1.

10.5.1		Loan Agreement, dated as of April 29, 2011, by and between IRT Copper Mill Apartments Texas, LLC and RAIT Partnership, L.P., relating to the property referred to as Copper Mill, incorporated by reference to Exhibit 10.10 to Amendment No. 1.

10.5.2		Guaranty of Non-Recourse Carveouts, dated as of April 29, 2011, by Independence Realty Operating Partnership, LP for the benefit of RAIT Partnership, L.P., relating to the property referred to as Copper Mill, incorporated by reference to Exhibit 10.11 to Amendment No. 1.

10.6.1		Loan Agreement, dated as of April 29, 2011, by and between IRT Crestmont Apartments Georgia, LLC and RAIT Partnership, L.P., relating to the property referred to as Crestmont, incorporated by reference to Exhibit 10.12 to Amendment No. 1.

10.6.2		Guaranty of Non-Recourse Carveouts, dated as of April 29, 2011, by Independence Realty Operating Partnership, LP for the benefit of RAIT Partnership, L.P., relating to the property referred to as Crestmont, incorporated by reference to Exhibit 10.13 to Amendment No. 1.

10.7.1		Loan Agreement, dated as of April 29, 2011, by and between IRT Cumberland Glen Apartments Georgia, LLC and RAIT Partnership, L.P., relating to the property referred to as Cumberland Glen, incorporated by reference to Exhibit 10.14 to Amendment No. 1.

10.7.2		Guaranty of Non-Recourse Carveouts, dated as of April 29, 2011, by Independence Realty Operating Partnership, LP for the benefit of RAIT Partnership, L.P., relating to the property referred to as Cumberland Glen, incorporated by reference to Exhibit 10.15 to Amendment No. 1.

10.8.1		Loan Agreement, dated as of April 29, 2011, by and between IRT Heritage Trace Apartments Virginia, LLC and RAIT Partnership, L.P., relating to the property referred to as Heritage Trace, incorporated by reference to Exhibit 10.16 to Amendment No. 1.

10.8.2		Guaranty of Non-Recourse Carveouts, dated as of April 29, 2011, by Independence Realty Operating Partnership, LP for the benefit of RAIT Partnership, L.P., relating to the property referred to as Heritage Trace, incorporated by reference to Exhibit 10.17 to Amendment No. 1.

10.9.1		Third Amendment to Loan and Security Agreement and Promissory Note, dated as of April 29, 2011, by and among IRT Tresa at Arrowhead Arizona, LLC, RAIT Partnership, L.P., Independence Realty Operating Partnership, LP and RAIT CRE CDO I, Ltd., relating to the property referred to as Tresa at Arrowhead, incorporated by reference to Exhibit 10.18 to Amendment No. 1.

10.9.2		Guaranty of Non-Recourse Carveouts, dated as of April 29, 2011, by Independence Realty Operating Partnership, LP for the benefit of RAIT CRE CDO I, Ltd., relating to the property referred to as Tresa at Arrowhead, incorporated by reference to Exhibit 10.19 to Amendment No. 1.

10.10.1		Contribution Agreement by and between Independence Realty Operating Partnership, LP and Centrepoint Arizona, LLC, dated as of December 16, 2011, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on December 22, 2011 (the “12/22/11 Form 8-K”).

10.10.2		Multifamily Loan and Security Agreement, dated as of December 16, 2011, by and between IRT Centrepoint Arizona, LLC and KeyCorp Real Estate Capital Markets, Inc., relating to the property referred to as the Centrepoint Apartments, incorporated by reference to Exhibit 10.2 to the 12/22/11 Form 8-K.


Exhibit		Description

10.10.3		Guaranty of Non-Recourse Obligations, dated as of December 16, 2011, by Independence Realty Operating Partnership, LP for the benefit of KeyCorp Real Estate Capital Markets, Inc., relating to the property referred to as the Centrepoint Apartments, incorporated by reference to Exhibit 10.3 to the 12/22/11 Form 8-K.

10.11.1		Multifamily Loan and Security Agreement, dated as of October 11, 2012, by and between IRT Runaway Bay Apartments, LLC and Walker & Dunlop, LLC, relating to the property referred to as Runaway Bay Apartments, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on October 17, 2012 (the “10/17/12 Form 8-K”).

10.11.2		Guaranty of Non-Recourse Obligations, dated as of October 11, 2012, by Independence Realty Operating Partnership, LP for the benefit of Walker & Dunlop, LLC, relating to the property referred to as Runaway Bay Apartments, incorporated by reference to Exhibit 10.2 to the 10/17/12 Form 8-K.

10.12		Indemnification Agreement dated March 17, 2011 between the Company and Scott F. Schaeffer, together with the schedule required by Instruction 2 of Item 601 of Regulation S-K, listing other substantially identical agreements incorporated by reference to Exhibit 10.22 to Pre-Effective Amendment No. 1 to the Registration Statement on Form S-11 filed on June 18, 2013, Commission File No. 333-188577.

10.13.1		Secured Revolving Credit Agreement dated as of October 25, 2013 among Independence Realty Operating Partnership, LP, as borrower, and The Huntington National Bank, as lender, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on October 28, 2013 (the “10/28/13 Form 8-K”).

10.13.2		Guaranty Agreement, dated as of October 25, 2013 made by Independence Realty Trust, Inc., as guarantor, to The Huntington National Bank and defined related creditors, incorporated by reference to Exhibit 10.2 to the 10/28/13 Form 8-K.

10.13.3		First Amendment dated as of September 9, 2014 to the Senior Revolving Credit Agreement dated as of October 25, 2013 among Independence Realty Operating Partnership, LP, as borrower, The Huntington National Bank, as lender, Independence Realty Trust, Inc., as parent guarantor, and IRT Arbors Apartments Owner, LLC, as subsidiary guarantor, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 11, 2014.

10.14		Agreement of Purchase and Sale, dated October 16, 2013, between Independence Realty Operating Partnership, LP and Kola Investments, LLC, and amendments thereto incorporated by reference to Exhibit 10.25 to Pre-Effective Amendment No. 1 to the Registration Statement on Form S-11 filed on January 21, 2014, Commission File No. 333-192403 (the 01/21/14 Amendment No. 1”).

10.15		Agreement for the Purchase of Real Estate and Related Property, dated December 19, 2013, between Independence Realty Operating Partnership, LP and JRC/CSE Eagle Ridge JV, LLC incorporated by reference to Exhibit 10.26 to the 01/21/14 Amendment No. 1.

10.16.1		Multifamily Loan and Security Agreement dated as of December 27, 2013 among Berkshire Square LLC and Berkshire II Cumberland, LLC, collectively as borrower, and Grandbridge Real Estate Capital, LLC, as lender, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 3, 2014 (the “1/3/14 Form 8-K”).

10.16.2		Multifamily Note effective as of December 27, 2013 made by Berkshire Square LLC and Berkshire II Cumberland, LLC, collectively as borrower, incorporated by reference to Exhibit 10.2 to the 1/3/14 Form 8-K.

10.16.3		Guaranty dated as of December 27, 2013 made by Independence Realty Operating Partnership, LP, as guarantor, for the benefit of Grandbridge Real Estate Capital, LLC, as lender, incorporated by reference to Exhibit 10.3 to the 1/3/14 Form 8-K.

10.17.1		Loan Agreement dated as of February 7, 2014 between Bank of America, N.A., as lender, and IRT Eagle Ridge Apartments Owner, LLC, as borrower, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 12, 2014 (the “2/12/14 Form 8-K”).

10.17.2		Promissory Note dated February 7, 2014 made by IRT Eagle Ridge Apartments Owner, LLC, as borrower, payable to Bank of America, N.A., as lender, incorporated by reference to Exhibit 10.2 to the 2/12/14 Form 8-K.

10.17.3		Guaranty Agreement dated as of February 7, 2014 made by Independence Realty Operating Partnership, LP, as guarantor, for the benefit of Bank of America, N.A., as lender, incorporated by reference to Exhibit 10.2 to the 2/12/14 Form 8-K.

10.18.1		Purchase and Sale Agreement dated as of February 27, 2014 among Independence Realty Operating Partnership, LP, as buyer, BCMR King’s Landing, a Limited Partnership, and MLP King’s Landing, LLC, as sellers, incorporated by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “2013 10-K”).


Exhibit		Description

10.18.2		Note and Mortgage Assumption Agreement dated as of February 28, 2014 among U.S. Bank National Association, a national banking association, as trustee for the registered holders of J.P. Morgan Chase Commercial Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates, Series 2006-LDP7, as lender, Kola Investments, LLC, as original borrower, IRT OKC Portfolio Owner, LLC, as new borrower, together with the Joinder by and Agreement of Original Indemnitor by Allstate Management Corp. and the Joinder by and Agreement of New Indemnitor by Independence Realty Operating Partnership, LP and the Company, incorporated by reference to Exhibit 10.37 to the 2013 10-K.

10.19.1		Loan Agreement dated as of March 3, 2006 between Kola Investments, L.L.C., as borrower, and GMAC Commercial Mortgage Corporation, as lender, incorporated by reference to Exhibit 10.38 to the 2013 10-K.

10.19.2		Consolidated Amended and Restated Promissory Note dated as of March 3, 2006 between Kola Investments, L.L.C., as borrower, and GMAC Commercial Mortgage Corporation, as lender, incorporated by reference to Exhibit 10.39 to the 2013 10-K.

10.19.3		Guaranty dated as of March 3, 2006 by Allstate Management Corp. in favor of GMAC Commercial Mortgage Corporation, as lender, incorporated by reference to Exhibit 10.40 to the 2013 10-K.

10.19.4		Environmental Indemnity Agreement dated as of March 3, 2006 by Kola Investments, L.L.C. and Allstate Management Corp. in favor of GMAC Commercial Mortgage Corporation, as lender, incorporated by reference to Exhibit 10.41 to the 2013 10-K.

10.20.1		Assumption and Release Agreement dated as of March 31, 2014 among the original guarantors named therein, Independence Realty Operating Partnership, LP, as the new guarantor, between King’s Landing LLC, as borrower, and Fannie Mae, as lender, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 3, 2014 (the “4/3/14 Form 8-K”).

10.20.2		First Amendment to Multifamily Loan and Security Agreement made as of March 31, 2014 between King’s Landing LLC, as borrower, and Fannie Mae, as lender, incorporated by reference to Exhibit 10.2 to the 4/3/14 Form 8-K.

10.20.3		Multifamily Loan and Security Agreement made as of May 24, 2012 between King’s Landing LLC, as borrower, and CWCapital LLC, as lender, incorporated by reference to Exhibit 10.3 to the 4/3/14 Form 8-K.

10.20.4		Multifamily Note dated as of May 24, 2012 made by King’s Landing LLC, as borrower, to CWCapital LLC, as lender, incorporated by reference to Exhibit 10.4 to the 4/3/14 Form 8-K.

10.20.5		Guaranty of Non-Recourse Obligations dated as of May 24, 2012 made by the guarantors named therein, as guarantor, to CWCapital LLC, as lender, incorporated by reference to Exhibit 10.5 to the 4/3/14 Form 8-K.

10.21.1		Contribution Agreement dated as of May 2, 2014 among Independence Realty Operating Partnership, LP and the contributors named therein, incorporated by reference to Exhibit 10.1 to the 5/7/14 Form 8-K.

10.21.2		Promissory Note dated May 7, 2014 (the “5/7/14 Note”) made by the makers named therein to IRT UPREIT Lender, LP (“IRT Lender”), as lender incorporated by reference to Exhibit 10.2 to the 5/7/14 Form 8-K.

10.21.3		Satisfaction of Mortgage dated July 15, 2014 by IRT Lender relating to the 5/7/14 Note, incorporated by reference to Exhibit 10.18.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014.

10.22		Loan Assumption Agreement and Release dated as of May 5, 2014 effective May 7, 2014 among the transferors named therein, IRT Carrington Apartment Owner, LLC, as transferee, and IRT Lender, incorporated by reference to Exhibit 10.19 to the 2014 Q1 10-Q.

10.23.1		Interest Purchase and Sale Agreement dated as of October 20, 2014 by and between CRA-B1 Fund, LLC, as seller, and Independence Realty Operating Partnership, LP relating to Brookside property, incorporated by reference to Exhibit 10.21 to the 2014 Q3 10-Q.

10.23.2		Interest Purchase and Sale Agreement dated as of October 20, 2014 by and between CRA-B1 Fund, LLC, as seller, and Independence Realty Operating Partnership, LP relating to Jamestown property, incorporated by reference to Exhibit 10.22 to the 2014 Q3 10-Q.

10.23.3		Interest Purchase and Sale Agreement dated as of October 20, 2014 by and between CRA-B1 Fund, LLC, as seller, and Independence Realty Operating Partnership, LP relating to Meadows property, incorporated by reference to Exhibit 10.23 to the 2014 Q3 10-Q.

10.23.4		Interest Purchase and Sale Agreement dated as of October 20, 2014 by and between CRA-B1 Fund, LLC, as seller, and Independence Realty Operating Partnership, LP relating to Oxmoor property, incorporated by reference to Exhibit 10.24 to the 2014 Q3 10-Q.


Exhibit		Description

10.23.5		Interest Purchase and Sale Agreement dated as of October 20, 2014 by and between CRA-B1 Fund, LLC, as seller, and Independence Realty Operating Partnership, LP relating to Prospect Park property, incorporated by reference to Exhibit 10.25 to the 2014 Q3 10-Q.

10.23.6		Multifamily Loan and Security Agreement dated as of December 8, 2014 between Brookside CRA-B1, LLC, as borrower, and NorthMarq Capital, LLC, as lender, relating to Brookside property, filed herewith

10.23.7		Multifamily Note-Fixed Rate Defeasance effective as of December 8, 2014 made by Brookside CRA-B1, LLC, as borrower, to NorthMarq Capital, LLC, as lender, relating to Brookside property, filed herewith

10.23.8		Multistate Guaranty effective as of December 8, 2014 by Independence Realty Operating Partnership, LP, as guarantor, for the benefit of NorthMarq Capital, LLC, as lender, relating to Brookside property, filed herewith

10.23.9		Multifamily Loan and Security Agreement dated as of December 8, 2014 between Jamestown CRA-B1, LLC, as borrower, and NorthMarq Capital, LLC, as lender, relating to Jamestown property, filed herewith

10.23.10		Multifamily Note-Fixed Rate Defeasance effective as of December 8, 2014 made by Jamestown CRA-B1, LLC, as borrower, to NorthMarq Capital, LLC, as lender, relating to Jamestown property, filed herewith

10.23.11		Multistate Guaranty effective as of December 8, 2014 by Independence Realty Operating Partnership, LP, as guarantor, for the benefit of NorthMarq Capital, LLC, as lender, relating to Jamestown property, filed herewith

10.23.12		Multifamily Loan and Security Agreement dated as of December 8, 2014 between Meadows CRA-B1, LLC, as borrower, and NorthMarq Capital, LLC, as lender, relating to Meadows property, filed herewith

10.23.13		Multifamily Note-Fixed Rate Defeasance effective as of December 8, 2014 made by Meadows CRA-B1, LLC, as borrower, to NorthMarq Capital, LLC, as lender, relating to Meadows property, filed herewith

10.23.14		Multistate Guaranty effective as of December 8, 2014 by Independence Realty Operating Partnership, LP, as guarantor, for the benefit of NorthMarq Capital, LLC, as lender, relating to Meadows property, filed herewith

10.23.15		Multifamily Loan and Security Agreement dated as of December 8, 2014 between Oxmoor CRA-B1, LLC, as borrower, and NorthMarq Capital, LLC, as lender, relating to Oxmoor property, filed herewith

10.23.16		Multifamily Note-Fixed Rate Defeasance effective as of December 8, 2014 made by Oxmoor CRA-B1, LLC, as borrower, to NorthMarq Capital, LLC, as lender, relating to Oxmoor property, filed herewith

10.23.17		Multistate Guaranty effective as of December 8, 2014 by Independence Realty Operating Partnership, LP, as guarantor, for the benefit of NorthMarq Capital, LLC, as lender, relating to Oxmoor property, filed herewith

10.23.18		Multifamily Loan and Security Agreement dated as of December 8, 2014 between Prospect Park CRA-B1, LLC, as borrower, and NorthMarq Capital, LLC, as lender, relating to Prospect Park property, filed herewith

10.23.19		Multifamily Note-Fixed Rate Defeasance effective as of December 8, 2014 made by Prospect Park CRA-B1, LLC, as borrower, to NorthMarq Capital, LLC, as lender, relating to Prospect Park property, filed herewith

10.23.20		Multistate Guaranty effective as of December 8, 2014 by Independence Realty Operating Partnership, LP, as guarantor, for the benefit of NorthMarq Capital, LLC, as lender, relating to Prospect Park property, filed herewith

12.1		Statements regarding computation of ratios as of December 31, 2014, filed herewith.

21.1		Subsidiaries of the company, filed herewith.

23.1		Consent of KPMG LLP, filed herewith.

31.1		Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.

31.2		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.

32.1		Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.

32.2		Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.

99.1		Material U.S. Federal Income Tax Considerations filed herewith.

101		XBRL (eXtensible Business Reporting Language). The following materials, formatted in XBRL: (i) Consolidated Balance Sheets as of December 31, 2014 and December 31, 2013, (ii) Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012. (iii) Consolidated Statements of Equity for the years ended December 31, 2014, 2013 and 2012, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013, and 2012, and (v) notes to the consolidated financial statements as of December 31, 2014, filed herewith.