Intrinsic value of Independence Realty Trust - IRT

Previous Close

$10.00

  Intrinsic Value

$1.84

stock screener

  Rating & Target

str. sell

-82%

  Value-price divergence*

+26%

Previous close

$10.00

 
Intrinsic value

$1.84

 
Up/down potential

-82%

 
Rating

str. sell

 
Value-price divergence*

+26%

Our model is not good at valuating stocks of financial companies, such as IRT.

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of IRT stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  39.09
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  153
  156
  160
  164
  168
  173
  179
  185
  192
  199
  207
  215
  223
  233
  243
  253
  264
  276
  288
  301
  315
  330
  345
  361
  379
  397
  416
  436
  457
  479
  502
Variable operating expenses, $m
 
  181
  185
  189
  195
  201
  207
  214
  222
  230
  239
  248
  258
  269
  281
  293
  306
  319
  333
  349
  365
  382
  399
  418
  438
  459
  481
  504
  528
  554
  581
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  115
  181
  185
  189
  195
  201
  207
  214
  222
  230
  239
  248
  258
  269
  281
  293
  306
  319
  333
  349
  365
  382
  399
  418
  438
  459
  481
  504
  528
  554
  581
Operating income, $m
  38
  -25
  -25
  -26
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -59
  -62
  -65
  -68
  -72
  -75
  -79
EBITDA, $m
  73
  19
  19
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
Interest expense (income), $m
  33
  29
  30
  30
  31
  32
  33
  34
  36
  37
  38
  40
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  74
  78
  82
  86
  90
  94
Earnings before tax, $m
  -10
  -54
  -55
  -56
  -58
  -59
  -61
  -63
  -66
  -68
  -71
  -74
  -77
  -80
  -83
  -87
  -91
  -95
  -99
  -104
  -108
  -113
  -119
  -124
  -130
  -137
  -143
  -150
  -157
  -165
  -173
Tax expense, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -10
  -54
  -55
  -56
  -58
  -59
  -61
  -63
  -66
  -68
  -71
  -74
  -77
  -80
  -83
  -87
  -91
  -95
  -99
  -104
  -108
  -113
  -119
  -124
  -130
  -137
  -143
  -150
  -157
  -165
  -173

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  21
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,294
  1,301
  1,330
  1,365
  1,403
  1,446
  1,492
  1,543
  1,598
  1,657
  1,721
  1,789
  1,862
  1,939
  2,021
  2,108
  2,201
  2,298
  2,402
  2,511
  2,626
  2,748
  2,877
  3,012
  3,154
  3,305
  3,463
  3,629
  3,804
  3,989
  4,182
Adjusted assets (=assets-cash), $m
  1,273
  1,301
  1,330
  1,365
  1,403
  1,446
  1,492
  1,543
  1,598
  1,657
  1,721
  1,789
  1,862
  1,939
  2,021
  2,108
  2,201
  2,298
  2,402
  2,511
  2,626
  2,748
  2,877
  3,012
  3,154
  3,305
  3,463
  3,629
  3,804
  3,989
  4,182
Revenue / Adjusted assets
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
Average production assets, $m
  1,267
  1,292
  1,322
  1,356
  1,394
  1,436
  1,482
  1,533
  1,587
  1,646
  1,709
  1,777
  1,849
  1,926
  2,008
  2,094
  2,186
  2,283
  2,386
  2,494
  2,609
  2,730
  2,857
  2,992
  3,134
  3,283
  3,440
  3,605
  3,779
  3,962
  4,155
Working capital, $m
  0
  -16
  -16
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -50
Total debt, $m
  744
  761
  779
  800
  824
  850
  879
  911
  945
  981
  1,021
  1,063
  1,107
  1,155
  1,206
  1,260
  1,317
  1,377
  1,441
  1,509
  1,580
  1,655
  1,735
  1,818
  1,906
  1,999
  2,097
  2,200
  2,308
  2,422
  2,542
Total liabilities, $m
  787
  804
  822
  843
  867
  893
  922
  954
  988
  1,024
  1,064
  1,106
  1,150
  1,198
  1,249
  1,303
  1,360
  1,420
  1,484
  1,552
  1,623
  1,698
  1,778
  1,861
  1,949
  2,042
  2,140
  2,243
  2,351
  2,465
  2,585
Total equity, $m
  507
  497
  508
  521
  536
  552
  570
  589
  610
  633
  657
  683
  711
  741
  772
  805
  841
  878
  917
  959
  1,003
  1,050
  1,099
  1,151
  1,205
  1,262
  1,323
  1,386
  1,453
  1,524
  1,598
Total liabilities and equity, $m
  1,294
  1,301
  1,330
  1,364
  1,403
  1,445
  1,492
  1,543
  1,598
  1,657
  1,721
  1,789
  1,861
  1,939
  2,021
  2,108
  2,201
  2,298
  2,401
  2,511
  2,626
  2,748
  2,877
  3,012
  3,154
  3,304
  3,463
  3,629
  3,804
  3,989
  4,183
Debt-to-equity ratio
  1.467
  1.530
  1.530
  1.540
  1.540
  1.540
  1.540
  1.540
  1.550
  1.550
  1.550
  1.550
  1.560
  1.560
  1.560
  1.560
  1.570
  1.570
  1.570
  1.570
  1.570
  1.580
  1.580
  1.580
  1.580
  1.580
  1.590
  1.590
  1.590
  1.590
  1.590
Adjusted equity ratio
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -10
  -54
  -55
  -56
  -58
  -59
  -61
  -63
  -66
  -68
  -71
  -74
  -77
  -80
  -83
  -87
  -91
  -95
  -99
  -104
  -108
  -113
  -119
  -124
  -130
  -137
  -143
  -150
  -157
  -165
  -173
Depreciation, amort., depletion, $m
  35
  43
  44
  45
  46
  48
  49
  51
  53
  55
  57
  59
  62
  64
  67
  70
  73
  76
  80
  83
  87
  91
  95
  100
  104
  109
  115
  120
  126
  132
  138
Funds from operations, $m
  -13
  -10
  -11
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -35
Change in working capital, $m
  -5
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Cash from operations, $m
  -8
  -10
  -10
  -11
  -11
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
Maintenance CAPEX, $m
  0
  -42
  -43
  -44
  -45
  -46
  -48
  -49
  -51
  -53
  -55
  -57
  -59
  -62
  -64
  -67
  -70
  -73
  -76
  -80
  -83
  -87
  -91
  -95
  -100
  -104
  -109
  -115
  -120
  -126
  -132
New CAPEX, $m
  -11
  -25
  -30
  -34
  -38
  -42
  -46
  -50
  -55
  -59
  -63
  -68
  -72
  -77
  -82
  -87
  -92
  -97
  -103
  -109
  -115
  -121
  -128
  -134
  -142
  -149
  -157
  -165
  -174
  -183
  -193
Cash from investing activities, $m
  28
  -67
  -73
  -78
  -83
  -88
  -94
  -99
  -106
  -112
  -118
  -125
  -131
  -139
  -146
  -154
  -162
  -170
  -179
  -189
  -198
  -208
  -219
  -229
  -242
  -253
  -266
  -280
  -294
  -309
  -325
Free cash flow, $m
  20
  -78
  -83
  -89
  -94
  -100
  -106
  -112
  -118
  -124
  -131
  -138
  -145
  -153
  -161
  -169
  -178
  -187
  -197
  -207
  -218
  -229
  -240
  -253
  -266
  -279
  -293
  -308
  -324
  -340
  -357
Issuance/(repayment) of debt, $m
  -181
  17
  18
  21
  24
  26
  29
  31
  34
  37
  39
  42
  45
  48
  51
  54
  57
  60
  64
  68
  71
  75
  79
  84
  88
  93
  98
  103
  108
  114
  120
Issuance/(repurchase) of shares, $m
  183
  64
  66
  69
  72
  76
  79
  83
  87
  91
  95
  99
  104
  109
  115
  120
  126
  132
  138
  145
  152
  160
  168
  176
  185
  194
  204
  214
  224
  236
  247
Cash from financing (excl. dividends), $m  
  -1
  81
  84
  90
  96
  102
  108
  114
  121
  128
  134
  141
  149
  157
  166
  174
  183
  192
  202
  213
  223
  235
  247
  260
  273
  287
  302
  317
  332
  350
  367
Total cash flow (excl. dividends), $m
  20
  3
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
Retained Cash Flow (-), $m
  -143
  -64
  -66
  -69
  -72
  -76
  -79
  -83
  -87
  -91
  -95
  -99
  -104
  -109
  -115
  -120
  -126
  -132
  -138
  -145
  -152
  -160
  -168
  -176
  -185
  -194
  -204
  -214
  -224
  -236
  -247
Prev. year cash balance distribution, $m
 
  21
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -40
  -65
  -67
  -70
  -73
  -77
  -80
  -84
  -88
  -92
  -96
  -100
  -105
  -110
  -116
  -121
  -127
  -133
  -140
  -146
  -154
  -161
  -169
  -177
  -186
  -195
  -205
  -215
  -226
  -237
Discount rate, %
 
  10.60
  11.13
  11.69
  12.27
  12.88
  13.53
  14.21
  14.92
  15.66
  16.44
  17.27
  18.13
  19.04
  19.99
  20.99
  22.04
  23.14
  24.30
  25.51
  26.79
  28.12
  29.53
  31.01
  32.56
  34.19
  35.90
  37.69
  39.57
  41.55
  43.63
PV of cash for distribution, $m
 
  -36
  -52
  -48
  -44
  -40
  -36
  -32
  -28
  -24
  -20
  -17
  -14
  -11
  -9
  -7
  -5
  -4
  -3
  -2
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  91.1
  83.0
  75.5
  68.5
  62.1
  56.2
  50.8
  45.8
  41.3
  37.2
  33.5
  30.1
  27.1
  24.3
  21.8
  19.6
  17.6
  15.7
  14.1
  12.6
  11.3
  10.1
  9.0
  8.1
  7.2
  6.5
  5.8
  5.2
  4.6
  4.1

FINANCIAL RATIOS  of  Independence Realty Trust (IRT)

Valuation Ratios
P/E Ratio -69
Price to Sales 4.5
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow -86.3
Price to Free Cash Flow -36.3
Growth Rates
Sales Growth Rate 39.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 22.2%
Cap. Spend. - 3 Yr. Gr. Rate 61.5%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 146.7%
Total Debt to Equity 146.7%
Interest Coverage 1
Management Effectiveness
Return On Assets 1.7%
Ret/ On Assets - 3 Yr. Avg. 3.1%
Return On Total Capital -0.8%
Ret/ On T. Cap. - 3 Yr. Avg. 0.9%
Return On Equity -2.3%
Return On Equity - 3 Yr. Avg. 2.9%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 51%
Gross Margin - 3 Yr. Avg. 49.7%
EBITDA Margin 37.9%
EBITDA Margin - 3 Yr. Avg. 53.9%
Operating Margin 24.8%
Oper. Margin - 3 Yr. Avg. 8.6%
Pre-Tax Margin -6.5%
Pre-Tax Margin - 3 Yr. Avg. 9%
Net Profit Margin -6.5%
Net Profit Margin - 3 Yr. Avg. 8.3%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio -370%

IRT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IRT stock intrinsic value calculation we used $153 million for the last fiscal year's total revenue generated by Independence Realty Trust. The default revenue input number comes from 2016 income statement of Independence Realty Trust. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our IRT stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 10.6%, whose default value for IRT is calculated based on our internal credit rating of Independence Realty Trust, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Independence Realty Trust.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of IRT stock the variable cost ratio is equal to 115.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for IRT stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.9% for Independence Realty Trust.

Corporate tax rate of 27% is the nominal tax rate for Independence Realty Trust. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the IRT stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for IRT are equal to 827.8%.

Life of production assets of 36.2 years is the average useful life of capital assets used in Independence Realty Trust operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for IRT is equal to -10%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $507 million for Independence Realty Trust - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 69.072 million for Independence Realty Trust is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Independence Realty Trust at the current share price and the inputted number of shares is $0.7 billion.

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COMPANY NEWS

▶ Independence Realty Trust reports 2Q results   [Aug-01-17 09:32PM  Associated Press]
▶ Independence Realty Trust, Inc. Announces Transfer to NYSE   [Jul-20-17 04:05PM  Business Wire]
▶ Independence Realty Trust reports 1Q results   [08:07AM  Associated Press]
▶ Independence Realty Trust reports 4Q results   [07:48AM  Associated Press]
▶ 3 Ways Millennials Can Invest in Rental Properties   [Jul-29-16 02:36PM  at Investopedia]
▶ Real Estate ETFs to Date: 2016 Performance Review (KBWY, FRI)   [Apr-15-16 06:36PM  at Investopedia]
Stock chart of IRT Financial statements of IRT
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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