Jumping in to Try to Capture a Little Zip

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Our favorite little real estate investment trust (REIT), Independence Realty Trust (NYSE:IRT), continued to tumble in price with the rest of the REIT sector by falling as low as $9.46/share on Friday.

Independence Realty Trust is a smallish apartment REIT that has traded between $9.00 and $10.52 over the course of the last year while yielding in the 6.75% to 8% area. The company just barely covers its distribution, but we expect slightly better financials in the future, since it has completed its recycling of “C” grade apartments to “A” and “B” units. The company just wrapped up the acquisition of nine apartment communities this month.

On Friday, we acquired 500 shares of IRT at a price of $9.50/share and a current yield of 7.6%. in the Medium Duration Income with Zip Portfolio. Obviously, we are hopeful that this will add a future capital gain to the model since this model has a target of 8% return annually and the only way to attain this goal is by trying to capture a few capital gains each year. With the new addition, the model has a current yield of 6.40%, which means we need to capture about $1,600 over the course of the year in capital gains to make our goal.

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Recall that this model portfolio is about 80-90% invested in short/medium duration term preferreds and baby bonds with 10-20% set aside for trading REITs or master limited partnerships (MLPs) to add to the model return. This fairly conservative model has returned over 8% per year in the last couple of years and we are hopeful that this trend will continue.

Prior to this purchase, we held no REITs or MLPs in the portfolio as we had locked down capital gains in IRT and NRZ last month and had been waiting for a potential reentry on IRT or other issues. Since we took only a modest-sized position in IRT, we will be able to purchase more if the price continues the drop. But whether the price rises or falls, we will be patient in holding the shares and collecting the 7.6% distribution. When the shares rise 5% above our purchase price, we will “capture” the capital gain.

 

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