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Section 1: 8-K (8-K)

Document





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 8-K
  
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): February 27, 2019
 
INVESTORS REAL ESTATE TRUST
(Exact name of Registrant as specified in its charter)
 

 
 
 
 
 
 
 
 
 
 
North Dakota
 
001-35624
 
45-0311232
(State or Other Jurisdiction
of Incorporation or Organization)
 
(Commission File Number)
 
(I.R.S. Employer Identification No.)
 
1400 31st Avenue SW, Suite 60, Post Office Box 1988, Minot, ND 58702-1988
(Address of principal executive offices) (Zip code)

(701) 837-4738
(Registrant’s telephone number, including area code)

Not Applicable
(Former name or former address, if changed from last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o
Written communications pursuant to Rule 425 under the Securities Act
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨





Item 2.02. Results of Operations and Financial Condition.
Investors Real Estate Trust (the “Company”) issued an earnings release on February 27, 2019, announcing certain financial and operational results for the transition period ended December 31, 2018. A copy of the press release is attached hereto as Exhibit 99.1.
The information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 furnished pursuant to Item 9.01, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities under that Section. Furthermore, the information in this Current Report on Form 8-K, including Exhibit 99.1 hereto, shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933.
Item 7.01. Regulation FD Disclosure.
Certain supplemental operating and financial data regarding the Company not included in the earnings release is attached as Exhibit 99.2. The foregoing information is not deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in filings under the Securities Act of 1933.
ITEM 9.01    Financial Statements and Exhibits
Exhibits
 
 
Exhibit
 
Number
Description
 
 
99.1
 
 
99.2





SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
 
 
 
INVESTORS REAL ESTATE TRUST
 
 
 
By
/s/ Mark O. Decker, Jr.
 
 
Mark O. Decker, Jr.
Date: February 27, 2019
 
President and Chief Executive Officer


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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


Exhibit 99.1
Earnings Release
396906452_iretlogojpeg1200x1080a01.jpg 
 
IRET Announces Financial and Operating Results for the Transition Period
Ended December 31, 2018, Announces the Acquisition of SouthFork Townhomes,
and Provides 2019 Financial Outlook
 
MINOT, ND, February 27, 2019 – IRET (NYSE: IRET) announced today its financial and operating results for the transition period ended December 31, 2018. Net income and Funds from Operations (“FFO”) per share for the transition period ended December 31, 2018, are detailed below. Core FFO adjusts FFO for certain non-routine items, and both FFO and Core FFO are reconciled to net income in the tables accompanying this earnings release.
Change in Fiscal Year-End and Reverse Stock Split
On September 20, 2018, our Board of Trustees approved a change in our fiscal year-end from April 30 to December 31 effective as of January 1, 2019. As a result, we are presenting an eight-month period ended December 31, 2018, as our transition period, which includes the two-month period ended December 31, 2018. We believe that the year-end change is useful to our financial statement users to allow for increased comparability of our performance to our peers. All subsequent fiscal years, beginning in 2019, will be from January 1 to December 31.
In addition, various disclosures, including FFO, Core FFO, and NOI in this earnings release, present information for the three months ended December 31, 2018, which is consistent with our new calendar year-end. As such, the data for the three months ended December 31, 2018 includes the results for the month ended October 31, 2018, which has previously been included in the financial results for the three and six months ended October 31, 2018, as included in our Form 10-Q and Form 8-K that were filed with the SEC on December 10, 2018. We believe that the data for the three months ended December 31, 2018 provides our financial statement users valuable information and is not meant to be indicative of results for the three months ended January 31, 2019 or any subsequent period. Furthermore, we believe that the three months ended January 31, 2018 is the most comparable previously reported quarter to the three months ended December 31, 2018. As a result, in some instances we present a comparison between these two quarters.
On December 14, 2018, the Board approved a reverse stock split of our outstanding common shares and units at a ratio of 1-for-10. The reverse stock split was effective as of the close of trading on December 27, 2018, with trading commencing on a split-adjusted basis on December 28, 2018. The number of common shares and units was reduced from 119.4 million to 11.9 million and 13.7 million to 1.4 million, respectively. We have retroactively restated all shares and per share data for all periods presented.
 
 
Three Months Ended
 
Eight Months Ended
Per Share
 
12/31/2018
 
1/31/2018
 
12/31/2018
 
12/31/2017
Net Income
 
$
(0.49
)
 
$
11.22

 
$
(0.75
)
 
$
9.78

FFO
 
0.92

 
0.43

 
2.29

 
1.90

Core FFO
 
0.92

 
0.94

 
2.38

 
2.76


 
1
 



 
 
Quarterly
Comparison
 
Sequential
Comparison
 
YTD
Comparison
 
 
Three months ended
 
Three months ended
 
Eight months ended
Multifamily Same-Store Results
 
12/31/18 vs. 1/31/18
 
12/31/18 vs. 9/30/18
 
12/31/18 vs. 12/31/17
Revenues
 
4.0
%
 
1.6
 %
 
3.4
%
Expenses
 
0.9
%
 
(1.8
)%
 
0.7
%
Net Operating Income (“NOI”)
 
6.4
%
 
4.1
 %
 
5.5
%
 
 
Three months ended
Multifamily Same-Store Results
 
12/31/18
 
9/30/18
 
1/31/18
Weighted Average Occupancy
 
94.7
%
 
92.4
%
 
93.6
%
Physical Occupancy - at end of period
 
95.8
%
 
94.4
%
 
95.3
%
"2018 showcased the results that are achievable with focused operations and strategic transactions," said Mark O. Decker, Jr., IRET's President and CEO. "We remain dedicated to the improvement in our resident experience, our team performance, and our operational results while constantly striving to improve our financial flexibility and exposure to strong markets."
Transition Period (8 Months) Ended December 31, 2018 Highlights
Disposed of five commercial properties and three parcels of unimproved land, establishing a base year for our multifamily business, with 98.2% of our revenue during the transition period generated from apartment communities.
Closed on the sale of our interest in a Williston, North Dakota multifamily portfolio for an aggregate sale price of $42.3 million, eliminating our direct exposure to the Bakken Shale energy-centric economy in Williston.
Stabilized two class A core assets - Oxbo Apartments located in St. Paul, MN, and Dylan Apartments located in Denver, CO.
Re-organized operations, repositioning both field and support teams to improve scalability and help us succeed in our mission of providing great homes for our residents.
Launched our "Rise By 5" margin expansion initiative, which has led us to increase the margin on our same-store multifamily properties by 110 basis points to 57.1% for the eight-month transition period ended December 31, 2018.
Aligned and properly resourced our asset management team to undertake a portfolio-wide value add -- with an initial pipeline of 2,100 apartment homes identified for redevelopment.
Amended our unsecured credit facility, increasing the total lending commitment to $395 million, extending the term for an additional year, reducing grid pricing at each level by 25-35 basis points, and adding a new $75 million, 7-year term loan.
Changed our fiscal year-end to December 31 effective January 1, 2019, thereby improving comparability of our results with our peers.  
Gained access to a potentially larger investor pool and the attendant liquidity upon the completion of our 1-for-10 reverse stock split at the close of business on December 27, 2018.
Repurchased approximately 42,000 shares of our common shares at an average price of $51.36 per share for the transition period ended December 31, 2018.
Delivered same-store NOI growth of 5.5% for the eight months ended December 31, 2018.

Acquisitions and Dispositions
During the two-month period ended December 31, 2018, we sold two commercial properties for a total sale price of $11.1 million.
Subsequent Events
Subsequent to the end of the transition period ended December 31, 2018, we repurchased approximately 174,000 shares at an average price of $50.54 per share between January 1, 2019 and February 20, 2019. Since authorization of the share repurchase program in December 2016, we have repurchased approximately 472,000 shares at an average price of $53.71.

 
2
 



On February 26, 2019, we acquired SouthFork Townhomes, a 272-unit residential apartment community located in Lakeville, Minnesota, for a total sale price of $44.0 million, with $27.4 million paid in cash and $16.6 million paid through the issuance of convertible preferred units that have a 3.9% coupon and are convertible, at the holders' option, into common units at an exchange rate of $72.50 per common unit share. The convertible preferred units also have a put feature that allows the seller to put all or any of the convertible preferred units to IRET for a cash payment equal to the issue price.
Balance Sheet
At the end of the transition period on December 31, 2018, we had $189 million of total liquidity on our balance sheet, including $175 million available on our corporate revolver.
2019 Financial Overview
We are providing guidance for our 2019 calendar year same-store performance, Earnings Per Share, and Core FFO per share.
2019 Calendar Year Financial Outlook
 
Range
 
Lower
 
Mid Point
 
Upper
Earnings Per Share
$
(1.86
)
 
$
(1.66
)
 
$
(1.46
)
Core FFO per Share
$
3.52

 
$
3.62

 
$
3.72

Core FFO per Share Growth
3.30
%
 
6.30
%
 
9.30
%
 
 
 
 
 
 
Same Store Outlook
 
 
 
 
 
Revenue
2.50
%
 
3.25
%
 
4.00
%
Expenses
4.00
%
 
3.25
%
 
2.50
%
NOI
2.00
%
 
3.25
%
 
4.50
%
Notes:
For comparative purposes, 2018 same-store includes Park Place Apartments - 500 apartment homes (acquired September 2017), which was transferred to the same-store pool effective January 1, 2019.
Guidance includes the acquisition of SouthFork Townhomes and the share repurchases as described above under "Subsequent Events."
2019 estimates include $5.1 million of value-add projects. Value-add projects are underwritten at returns of 8%-20%. Our portfolio-wide value-add is projected to be neutral to 2019 FFO due to the initial costs to start the program.
Quarterly Distributions
On December 5, 2018, our Board of Trustees declared a regular quarterly distribution of $0.70 per share/unit payable on January 15, 2019 to common shareholders and unitholders of record on January 2, 2019. This distribution was the 191st consecutive quarterly distribution paid by IRET since the inception of our dividends in 1971. It represents an annualized rate of $2.80 per share/unit.
On December 5, 2018, our Board of Trustees also declared a dividend of $0.4140625 per share on the 6.625% Series C Cumulative Redeemable Preferred Shares (NYSE IRET PRC), payable on December 31, 2018, to holders of record on December 17, 2018. Series C preferred share distributions are cumulative and payable quarterly in arrears at an annual rate of $1.65625 per share.

Earnings Call
Live webcast and replay:  http://ir.iretapartments.com
 
 
 
Live Conference Call
 
Conference Call Replay
Thursday, February 28, 2019 at 10:00 AM ET
 
Replay available until March 14, 2019
USA Toll Free Number
1-877-509-9785
 
USA Toll Free Number
1-877-344-7529
International Toll Free Number
1-412-902-4132
 
International Toll Free Number
1-412-317-0088
Canada Toll Free Number
1-855-669-9657
 
Canada Toll Free Number
1-855-669-9658
 
 
 
Conference Number
10128704
Supplemental Information
Supplemental Operating and Financial Data for the Transition Period Ended December 31, 2018 (“Supplemental Information”), is available in the Investors section on IRET’s website at www.iretapartments.com or by calling Investor Relations at

 
3
 



701-837-7104. Non-GAAP financial measures and other capitalized terms, as used in this earnings release, are defined and reconciled in the Supplemental Information, which accompanies this earnings release.
About IRET
IRET is a real estate company focused on the ownership, management, acquisition, redevelopment, and development of apartment communities. As of December 31, 2018, IRET owned interests in 87 apartment communities consisting of 13,702 apartment homes. IRET's common shares and Series C preferred shares are publicly traded on the New York Stock Exchange (NYSE symbols: IRET and IRET PRC, respectively).
Forward-Looking Statements
Certain statements in this press release are based on our current expectations and assumptions, and are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements do not discuss historical fact, but instead include statements related to expectations, projections, intentions or other items related to the future. Forward-looking statements are typically identified by the use of terms such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and variations of those words and similar expressions. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance, or achievements to be materially different from the results of operations, financial conditions, or plans expressed or implied by the forward-looking statements. Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be achieved. Any statements contained herein that are not statements of historical fact should be deemed forward-looking statements. As a result, reliance should not be placed on these forward-looking statements, as these statements are subject to known and unknown risks, uncertainties, and other factors beyond our control and could differ materially from our actual results and performance. Such risks and uncertainties are detailed from time to time in our filings with the SEC, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” contained in our Annual Report on Form 10-KT for the transition period ended December 31, 2018, in subsequent quarterly reports on Form 10-Q and in other public reports. We assume no obligation to update or supplement forward-looking statements that become untrue due to subsequent events.

 
4
 



IRET
RECONCILIATION OF NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
TO FFO AND CORE FFO
z
 
 
(in thousands, except per share amounts)
Three Months Ended
 
12/31/2018(1)
 
1/31/2018
 
 
Amount
 
Weighted
Avg Shares
and Units
(2)
 
Per
Share
And
Unit
(3)
 
Amount
 
Weighted
Avg Shares
and Units
(2)
 
Per
Share
And
Unit
(3)
Net income (loss) available to common shareholders
 
$
(5,811
)
 
11,950

 
$
(0.49
)
 
$
134,331

 
11,974

 
$
11.22

Adjustments:
 
 

 
 

 
 

 
 

 
 

 
 

Noncontrolling interest – Operating Partnership
 
(665
)
 
1,367

 
 

 
16,236

 
1,443

 
 

Depreciation and amortization
 
18,056

 
 

 
 

 
19,017

 
 

 
 

Impairment of real estate
 
1,221

 
 
 
 
 

 
 
 
 
Gain on sale of real estate
 
(612
)
 
 

 
 

 
(163,791
)
 
 

 
 

FFO applicable to common shares and Units(2)
 
$
12,189

 
13,317

 
$
0.92

 
$
5,793

 
13,417

 
$
0.43

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjustments to Core FFO:
 
 

 
 

 
 

 
 

 
 

 
 

Casualty loss write off
 
43

 
 
 
 
 

 
 
 
 
Loss on extinguishment of debt
 
5

 
 
 
 
 
6,787

 
 
 
 
Redemption of Preferred Shares
 


 
 

 
 

 
8

 
 

 
 

Core FFO applicable to common shares and Units(2)
 
$
12,237

 
13,317

 
$
0.92

 
$
12,588

 
13,417

 
$
0.94

(1)
The three months ended December 31, 2018 includes the month ended October 31, 2018 which was previously included in the financial results for the three and six months ended October 31, 2018 included in our supplemental package filed with the SEC on December 10, 2018.
(2)
Units of the Operating Partnership are exchangeable for cash or, at our discretion, common shares on a one-for-one basis.
(3)
Net income (loss) available to common shareholders is calculated on a per common share basis. FFO is calculated on a per common share and Unit basis.


 
5
 



IRET
RECONCILIATION OF NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
TO FFO AND CORE FFO
 
 
(in thousands, except per share amounts)
Eight Months Ended December 31,
 
2018
 
2017
 
 
Amount
 
Weighted
Avg Shares
and Units
(1)
 
Per
Share
And
Unit
(2)
 
Amount
 
Weighted
Avg Shares
and Units
(1)
 
Per
Share
And
Unit
(2)
Net income (loss) available to common shareholders
 
$
(8,945
)
 
11,937

 
$
(0.75
)
 
$
117,461

 
12,015

 
$
9.78

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
Noncontrolling interest – Operating Partnership
 
(1,032
)
 
1,387

 
 
 
14,222

 
1,483

 
 
Depreciation and amortization
 
48,425

 
 
 
 
 
61,200

 
 
 
 
Impairment of real estate investments
 
1,221

 
 
 
 
 
256

 
 
 
 
Gains on depreciable property sales
 
(9,110
)
 
 
 
 
 
(167,553
)
 
 
 
 
FFO applicable to common shares and Units(1)
 
$
30,559

 
13,324

 
$
2.29

 
$
25,586

 
13,498

 
$
1.90

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjustments to Core FFO:
 
 

 
 

 
 

 
 

 
 

 
 

Casualty loss write off
 
43

 
 
 
 
 

 
 
 
 
Loss on extinguishment of debt
 
556

 
 

 
 

 
7,326

 
 

 
 

Redemption of Preferred Shares
 

 
 

 
 

 
3,657

 
 

 
 

Severance and transition costs
 
510

 
 

 
 

 
650

 
 

 
 

Core FFO applicable to common shares and Units(1)
 
$
31,668

 
13,324

 
$
2.38

 
$
37,219

 
13,498

 
$
2.76

(1)
Units of the Operating Partnership are exchangeable for cash or, at our discretion, common shares on a one-for-one basis.
(2)
Net income (loss) available to common shareholders is calculated on a per common share basis. FFO is calculated on a per common share and Unit basis.

 
6
 



IRET
RECONCILIATION OF NET OPERATING INCOME TO THE
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(in thousands)
Three Months Ended December 31, 2018(1)
Multifamily
 
All Other
 
Total
Revenue
$
43,993

 
$
1,737

 
$
45,730

Property operating expenses, including real estate taxes
18,020

 
370

 
18,390

Net operating income
$
25,973

 
$
1,367

 
27,340

Property management
 
 
 
 
(1,447
)
Casualty gain (loss)
 
 
 
 
(540
)
Depreciation and amortization
 
 
 
 
(18,812
)
Impairment of real estate investments
 
 
 
 
(1,221
)
General and administrative expenses
 
 
 
 
(3,769
)
Interest expense
 
 
 
 
(7,682
)
Loss on debt extinguishment
 
 
 
 
(5
)
Interest and other income
 
 
 
 
483

Income (loss) before gain on sale of real estate and other investments and income from discontinued operations
 
 
 
 
(5,653
)
Gain (loss) on sale of real estate and other investments
 
 
 
 
612

Net income (loss)
 
 
 
 
$
(5,041
)
(1)
The three months ended December 31, 2018 includes the month ended October 31, 2018 which was previously included in the financial results for the three and six months ended October 31, 2018 included in our supplemental package filed with the SEC on December 10, 2018.

 
(in thousands)
Three Months Ended January 31, 2018
Multifamily
 
All Other
 
Total
Revenue
$
39,422

 
$
3,294

 
$
42,716

Property operating expenses, including real estate taxes
16,970

 
1,085

 
18,055

Net operating income
$
22,452

 
$
2,209

 
24,661

Property management
 
 
 
 
(1,387
)
Casualty gain (loss)
 
 
 
 
(55
)
Depreciation and amortization
 
 
 
 
(18,390
)
Impairment of real estate investments
 
 
 
 

General and administrative expenses
 
 
 
 
(3,011
)
Interest expense
 
 
 
 
(9,236
)
Loss on debt extinguishment
 
 
 
 
(285
)
Interest and other income
 
 
 
 
433

Income (loss) before gain on sale of real estate and other investments and income from discontinued operations
 
 
 
 
(7,270
)
Gain (loss) on sale of real estate and other investments
 
 
 
 
12,387

Income (loss) from continuing operations
 
 
 
 
5,117

Income (loss) from discontinued operations
 
 
 
 
146,811

Net income (loss)
 
 
 
 
$
151,928




 
7
 



IRET
RECONCILIATION OF NET OPERATING INCOME TO THE
CONSOLIDATED STATEMENTS OF OPERATIONS

 
(in thousands)
Eight Months Ended December 31, 2018
Multifamily
 
All Other
 
Total
Revenue
$
116,138

 
$
5,733

 
$
121,871

Property operating expenses, including real estate taxes
48,896

 
1,823

 
50,719

Net operating income
$
67,242

 
$
3,910

 
71,152

Property management
 
 
 
 
(3,663
)
Casualty gain (loss)
 
 
 
 
(915
)
Depreciation and amortization
 
 
 
 
(50,456
)
Impairment of real estate investments
 
 
 
 
(1,221
)
General and administrative expenses
 
 
 
 
(9,812
)
Interest expense
 
 
 
 
(21,359
)
Loss on debt extinguishment
 
 
 
 
(556
)
Interest and other income
 
 
 
 
1,233

Income (loss) before gain on sale of real estate and other investments and income from discontinued operations
 
 
 
 
(15,597
)
Gain (loss) on sale of real estate and other investments
 
 
 
 
9,707

Income (loss) from continuing operations
 
 
 
 
(5,890
)
Income (loss) from discontinued operations
 
 
 
 
570

Net income (loss)
 
 
 
 
$
(5,320
)

 
(in thousands)
Eight Months Ended December 31, 2017
Multifamily
 
All Other
 
Total
Revenue
$
99,583

 
$
11,666

 
$
111,249

Property operating expenses, including real estate taxes
43,778

 
4,037

 
47,815

Net operating income
$
55,805

 
$
7,629

 
$
63,434

Property management
 
 
 
 
(3,652
)
Casualty gain (loss)
 
 
 
 
(600
)
Depreciation and amortization
 
 
 
 
(54,902
)
Impairment of real estate investments
 
 
 
 
(256
)
General and administrative expenses
 
 
 
 
(9,041
)
Interest expense
 
 
 
 
(22,804
)
Loss on debt extinguishment
 
 
 
 
(818
)
Interest and other income
 
 
 
 
714

Income (loss) before gain on sale of real estate and other investments and income from discontinued operations
 
 
 
 
(27,925
)
Gain (loss) on sale of real estate and other investments
 
 
 
 
17,816

Income (loss) from continuing operations
 
 
 
 
(10,109
)
Income (loss) from discontinued operations
 
 
 
 
150,703

Net income (loss)
 
 
 
 
$
140,594


 
8
 
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Section 3: EX-99.2 (EXHIBIT 99.2)

Exhibit


Exhibit 99.2

396906452_a992cover12312018v2a02.jpg




Supplemental Financial and Operating Data
Table of Contents
December 31, 2018
 
Page
 
 
 
 
Key Financial Data
 
 
 
Debt and Capital Analysis
 
 
 
Portfolio Analysis
 
 
 
 
 

 
S-1
 



Company Background
Transition Period Ending December 31, 2018
IRET is a real estate company focused on the ownership, management, acquisition, redevelopment, and development of apartment communities. As of December 31, 2018, IRET owned interests in 87 communities consisting of 13,702 apartment homes. IRET's common shares and Series C preferred shares are publicly traded on the New York Stock Exchange (NYSE symbols: IRET and IRET PRC, respectively).
Change in Fiscal Year-End
On September 20, 2018, our Board of Trustees approved a change in our fiscal year-end from April 30 to December 31 effective as of January 1, 2019. As a result, we are presenting an eight-month period ended December 31, 2018, as our transition period, which includes the two-month period ended December 31, 2018. We believe that the year-end change is useful to our financial statement users to allow for increased comparability of our performance to our peers.
In addition, various disclosures, including FFO, Core FFO, and NOI in this earnings release, present information for the three months ended December 31, 2018, which is consistent with our new calendar year-end. As such, the data for the three months ended December 31, 2018 includes the results for the month ended October 31, 2018, which has previously been included in the financial results for the three and six months ended October 31, 2018, as included in our Form 10-Q and Form 8-K that were filed with the SEC on December 10, 2018. We believe that the data for the three months ended December 31, 2018 provides our financial statement users valuable information and is not meant to be indicative of results for the three months ended January 31, 2019 or any subsequent period. Furthermore, we believe that the three months ended January 31, 2018 is the most comparable previously reported quarter to the three months ended December 31, 2018. As a result, in some instances we present a comparison between these two quarters.
Company Snapshot
(as of December 31, 2018)
Company Headquarters
Minot, North Dakota
Reportable Segment
Multifamily
Total Apartment Communities
87
Total Apartment Homes
13,702
Common Shares Outstanding (thousands)
11,942
Limited Partnership Units Outstanding (thousands)
1,368
Common Share Distribution – Quarter/Annualized
$0.70/$2.80
Annualized Dividend Yield
5.7%
Total Capitalization
$1.4 billion
Common Shares and Limited Partnership Units outstanding as of February 20, 2019, were 11,768,248 and 1,367,333, respectively.
Investor Information
(as of December 31, 2018)
Board of Trustees
Jeffrey P. Caira
Trustee and Chair
Michael T. Dance
Trustee, Chair of Audit Committee
Mark O. Decker, Jr.
Trustee, President, Chief Executive Officer and Chief Investment Officer
Emily Nagle Green
Trustee, Chair of Nominating and Governance Committee
Linda J. Hall
Trustee, Chair of Compensation Committee
Terrance P. Maxwell
Trustee
John A. Schissel
Trustee
Mary J. Twinem
Trustee






 
S-2
 



Management
Mark O. Decker, Jr.
President, Chief Executive Officer, Chief Investment Officer, and Trustee
John A. Kirchmann
Executive Vice President and Chief Financial Officer
Anne Olson
Executive Vice President and Chief Operating Officer, General Counsel and Secretary
Executive Offices:
Investor Relations Contact:
800 LaSalle Avenue
Jon Bishop
Suite 1600
701-837-7104
Minneapolis, MN 55402
 
 
Trading Symbol for Common Shares:  IRET
 
Trading Symbol for Series C Preferred Shares:  IRET PRC
 
Stock Exchange Listing:  NYSE
 
Common Share Data (NYSE: IRET)
 
 
Two Months Ended
 
Three Months Ended
 
 
December 31, 2018
 
October 31, 2018
 
July 31, 2018
 
April 30, 2018
 
January 31, 2018
High Closing Price
 
$
54.70

 
$
59.80

 
$
59.40

 
$
55.80

 
$
60.60

Low Closing Price
 
$
47.00

 
$
53.30

 
$
51.30

 
$
46.50

 
$
55.20

Average Closing Price
 
$
52.45

 
$
55.10

 
$
55.07

 
$
50.88

 
$
58.00

Closing Price at end of quarter
 
$
49.07

 
$
54.30

 
$
54.80

 
$
53.30

 
$
56.70

Common Share Distributions—annualized
 
$
2.80

 
$
2.80

 
$
2.80

 
$
2.80

 
$
2.80

Closing Dividend Yield - annualized
 
5.7
%
 
5.2
%
 
5.1
%
 
5.3
%
 
4.9
%
Closing common shares outstanding (thousands)
 
11,942

 
11,973

 
11,951

 
11,953

 
12,004

Closing limited partnership units outstanding (thousands)
 
1,368

 
1,368

 
1,390

 
1,410

 
1,417

Closing market value of outstanding common shares, plus imputed closing market value of outstanding limited partnership units (thousands)
 
$
653,122

 
$
724,389

 
$
731,043

 
$
712,221

 
$
760,931

This Supplemental Operating and Financial Data contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements do not discuss historical fact, but instead include statements related to expectations, projections, intentions or other items related to the future. Forward-looking statements are typically identified by the use of terms such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and variations of those words and similar expressions. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance, or achievements to be materially different from the results of operations, financial conditions, or plans expressed or implied by the forward-looking statements. Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be achieved.
Such risks, uncertainties and other factors that might cause such differences include, but are not limited to: economic conditions in the markets where we own properties or markets in which we may invest in the future; concentration of our investments in a single asset class and certain regions of the U.S.; rental conditions in our markets, including physical occupancy levels and rental rates; our potential inability to renew tenants or obtain new tenants upon expiration of existing leases, changes in tax and housing laws, or other factors; adverse changes in real estate markets, including the extent of future demand for multifamily apartment homes in our significant markets, barriers of entry into new markets, limitations on our ability to increase rental rates, our ability to identify and consummate attractive acquisitions on favorable terms, our ability to consummate any planned dispositions in a timely manner, our ability to reinvest sales proceeds successfully, and our ability to accommodate any significant decline in the market value of real estate serving as collateral for our mortgage obligations; inability to succeed in any new markets we may enter; failure of new acquisitions to achieve anticipated results or be efficiently integrated; inability to complete lease-up of our projects on schedule and on budget; failure to reinvest proceeds from sales of properties into tax-deferred exchanges, which could necessitate special dividend and tax protection payments; the need to fund capital expenditures out of cash flow; the need to reduce the dividends on our common shares; financing risks, including our potential inability to obtain debt or equity financing on favorable terms, or at all; the level and volatility of interest or

 
S-3
 



capitalization rates or capital market conditions, including the effects of rising interest rates and the effects of our interest rate hedging arrangements; changes in our operating costs, including real estate taxes, utilities, and insurance costs; the availability and cost of casualty insurance for losses; inability to continue to satisfy complex rules in order to maintain our status as a REIT for federal income tax purposes, inability of the Operating Partnership to satisfy the rules to maintain its status as a partnership for federal income tax purposes, and the risk of changes in laws affecting REITs; inability to attract and retain qualified personnel and employees; cyber liability or potential liability for breaches of our privacy or information security systems; inability to comply with environmental laws and regulations; the costs associated with complying with laws benefiting disabled persons or other safety regulations and requirements; our ability to address issues regarding catastrophic weather, natural events, and climate change; and those risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission, including our Form 10-KT for the transition period ended December 31, 2018, subsequent quarterly reports on Form 10-Q, and other public filings.  We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

 
S-4
 




IRET
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands)
 
 
12/31/2018
 
10/31/2018
 
7/31/2018
 
4/30/2018
 
1/31/2018
ASSETS
 
 
 
 
 
 
 
 
 
 
Real estate investments
 
 
 
 
 
 
 
 
 
 
Property owned
 
$
1,627,636

 
$
1,638,072

 
$
1,636,233

 
$
1,669,764

 
$
1,568,725

Less accumulated depreciation
 
(353,871
)
 
(345,015
)
 
(326,772
)
 
(311,324
)
 
(304,149
)
 
 
1,273,765

 
1,293,057

 
1,309,461

 
1,358,440

 
1,264,576

Unimproved land
 
5,301

 
6,522

 
7,926

 
11,476

 
15,123

Mortgage loans receivable
 
10,410

 
10,530

 
10,530

 
10,329

 
10,329

Total real estate investments
 
1,289,476

 
1,310,109

 
1,327,917

 
1,380,245

 
1,290,028

Cash and cash equivalents
 
13,792

 
12,777

 
16,261

 
11,891

 
22,666

Restricted cash
 
5,464

 
5,085

 
4,103

 
4,225

 
121,337

Other assets
 
27,265

 
29,769

 
27,885

 
30,297

 
21,664

TOTAL ASSETS
 
$
1,335,997

 
$
1,357,740

 
$
1,376,166

 
$
1,426,658

 
$
1,455,695

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND EQUITY
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
Liabilities held for sale and liabilities of discontinued operations
 
$

 
$

 
$

 
$

 
$
2,016

Accounts payable and accrued expenses
 
40,892

 
27,920

 
28,112

 
29,018

 
33,776

Revolving line of credit
 
57,500

 
69,500

 
130,000

 
124,000

 
67,000

Term loans payable, net of loan costs
 
143,991

 
143,956

 
69,540

 
69,514

 
69,483

Mortgages payable, net of loan costs
 
444,197

 
447,549

 
464,557

 
509,919

 
553,388

TOTAL LIABILITIES
 
686,580

 
688,925

 
692,209

 
732,451

 
725,663

 
 
 
 
 
 
 
 
 
 
 
REDEEMABLE NONCONTROLLING INTERESTS – CONSOLIDATED REAL ESTATE ENTITIES
 
5,968

 
6,078

 
6,230

 
6,644

 
6,644

EQUITY
 
 
 
 
 
 
 
 
 
 
Series C Preferred Shares of Beneficial Interest
 
99,456

 
99,456

 
99,456

 
99,456

 
99,456

Common Shares of Beneficial Interest
 
899,234

 
900,526

 
899,708

 
900,097

 
910,173

Accumulated distributions in excess of net income
 
(429,048
)
 
(416,819
)
 
(402,190
)
 
(395,669
)
 
(364,684
)
Accumulated other comprehensive income
 
(856
)
 
3,321

 
1,987

 
1,779

 
359

Total shareholders’ equity
 
568,786

 
586,484

 
598,961

 
605,663

 
645,304

Noncontrolling interests – Operating Partnership
 
67,916

 
69,334

 
71,390

 
73,012

 
76,915

Noncontrolling interests – consolidated real estate entities
 
6,747

 
6,919

 
7,376

 
8,888

 
1,169

Total equity
 
643,449

 
662,737

 
677,727

 
687,563

 
723,388

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND EQUITY
 
$
1,335,997

 
$
1,357,740

 
$
1,376,166

 
$
1,426,658

 
$
1,455,695


 
S-5
 



IRET
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share amounts)
 
 
Three Months Ended
 
 
Eight months ended
OPERATING RESULTS
 
12/31/2018(1)
 
10/31/2018
 
7/31/2018
 
4/30/2018
 
1/31/2018
 
 
12/31/2018
 
12/31/2017
Revenue
 
$
45,730

 
$
45,638

 
$
45,946

 
$
44,185

 
$
42,716

 
 
$
121,871

 
$
111,249

Property operating expenses, including real estate taxes
 
18,390

 
19,336

 
19,529

 
18,734

 
18,055

 
 
50,719

 
47,815

Net operating income
 
27,340

 
26,302

 
26,417

 
25,451

 
24,661

 
 
71,152

 
63,434

Property management expenses
 
(1,447
)
 
(1,319
)
 
(1,367
)
 
(1,411
)
 
(1,387
)
 
 
(3,663
)
 
(3,652
)
Casualty gain (loss)
 
(540
)
 
(225
)
 
(225
)
 
155

 
(55
)
 
 
(915
)
 
(600
)
Depreciation/amortization
 
(18,812
)
 
(19,191
)
 
(18,612
)
 
(21,072
)
 
(18,390
)
 
 
(50,456
)
 
(54,902
)
Impairment of real estate investments
 
(1,221
)
 

 

 
(17,809
)
 

 
 
(1,221
)
 
(256
)
General and administrative expenses
 
(3,769
)
 
(3,374
)
 
(3,870
)
 
(4,123
)
 
(3,011
)
 
 
(9,812
)
 
(9,022
)
Acquisition and investment related costs
 

 

 

 

 

 
 

 
(19
)
Interest expense
 
(7,682
)
 
(7,997
)
 
(8,385
)
 
(8,302
)
 
(9,236
)
 
 
(21,359
)
 
(22,804
)
Loss on extinguishment of debt
 
(5
)
 
(4
)
 
(552
)
 
(122
)
 
(285
)
 
 
(556
)
 
(818
)
Interest and other income
 
483

 
429

 
516

 
592

 
433

 
 
1,233

 
714

Income (loss) before gain on sale of real estate and other investments and income (loss) from discontinued operations
 
(5,653
)
 
(5,379
)
 
(6,078
)
 
(26,641
)
 
(7,270
)
 
 
(15,597
)
 
(27,925
)
Gain (loss) on sale of real estate and other investments
 
612

 
(232
)
 
9,224

 
2,285

 
12,387

 
 
9,707

 
17,816

Income (loss) from continuing operations
 
(5,041
)
 
(5,611
)
 
3,146

 
(24,356
)
 
5,117

 
 
(5,890
)
 
(10,109
)
Income from discontinued operations
 

 

 
570

 
197

 
146,811

 
 
570

 
150,703

Net income (loss)
 
(5,041
)
 
(5,611
)
 
3,716

 
(24,159
)
 
151,928

 
 
(5,320
)
 
140,594

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (income) loss attributable to noncontrolling interest – Operating Partnership
 
665

 
722

 
(135
)
 
2,663

 
(16,236
)
 
 
1,032

 
(14,222
)
Net (income) loss attributable to noncontrolling interests – consolidated real estate entities
 
270

 
331

 
(665
)
 
622

 
413

 
 
(110
)
 
1,042

Net income (loss) attributable to controlling interests
 
(4,106
)
 
(4,558
)
 
2,916

 
(20,874
)
 
136,105

 
 
(4,398
)
 
127,414

Dividends to preferred shareholders
 
(1,705
)
 
(1,706
)
 
(1,705
)
 
(1,705
)
 
(1,766
)
 
 
(4,547
)
 
(6,296
)
Redemption of Preferred Shares
 

 

 

 

 
(8
)
 
 

 
(3,657
)
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
 
$
(5,811
)
 
$
(6,264
)
 
$
1,211

 
$
(22,579
)
 
$
134,331

 
 
$
(8,945
)
 
$
117,461

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per Share Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) per common share from continuing operations – basic & diluted
 
$
(0.49
)
 
$
(0.52
)
 
$
0.06

 
$
(1.90
)
 
$
0.28

 
 
$
(0.79
)
 
$
(1.41
)
Earnings (loss) per common share from discontinued operations – basic & diluted
 

 

 
0.04

 
0.01

 
10.94

 
 
0.04

 
11.19

Net income (loss) per common share – basic & diluted
 
$
(0.49
)
 
$
(0.52
)
 
$
0.10

 
$
(1.89
)
 
$
11.22

 
 
$
(0.75
)
 
$
9.78

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property operating expenses, including real estate taxes
 
40.2
 %
 
42.4
 %
 
42.5
%
 
42.4
 %
 
42.3
%
 
 
41.6
 %
 
43.0
%
Depreciation/amortization
 
41.1
 %
 
42.1
 %
 
40.5
%
 
47.7
 %
 
43.1
%
 
 
41.4
 %
 
49.4
%
General and administrative expenses
 
8.2
 %
 
7.4
 %
 
8.4
%
 
9.3
 %
 
7.0
%
 
 
8.1
 %
 
8.1
%
Interest
 
16.8
 %
 
17.5
 %
 
18.2
%
 
18.8
 %
 
21.6
%
 
 
17.5
 %
 
20.5
%
Income (loss) from discontinued operations
 

 

 
1.2
%
 
0.4
 %
 
343.7
%
 
 
0.5
 %
 
135.5
%
Net income (loss)
 
(11.0
)%
 
(12.3
)%
 
8.1
%
 
(54.7
)%
 
355.7
%
 
 
(4.4
)%
 
126.4
%
 
(1)
The three months ended December 31, 2018 includes the month ended October 31, 2018 which was previously included in the financial results for the three and six months ended October 31, 2018 included in our supplemental package filed with the SEC on December 10, 2018.

 
S-6
 



IRET
RECONCILIATION OF NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
TO FFO AND CORE FFO (unaudited)
(in thousands, except per share and unit amounts)
 
 
Three Months Ended
 
 
Eight Months Ended
 
 
12/31/2018(1)
 
10/31/2018
 
7/31/2018
 
4/30/2018(2)
 
1/31/2018
 
 
12/31/2018
 
12/31/2017
Funds From Operations(3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income available to common shareholders
 
(5,811
)
 
(6,264
)
 
1,211

 
(22,579
)
 
134,331

 
 
(8,945
)
 
117,461

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noncontrolling interests – Operating Partnership
 
(665
)
 
(722
)
 
135

 
(2,663
)
 
16,236

 
 
(1,032
)
 
14,222

Depreciation and amortization
 
18,056

 
18,446

 
17,837

 
20,269

 
19,017

 
 
48,425

 
61,200

Impairment of real estate
 
1,221

 

 

 
17,809

 

 
 
1,221

 
256

Gain on sale of real estate
 
(612
)
 
232

 
(8,628
)
 
(2,210
)
 
(163,791
)
 
 
(9,110
)
 
(167,553
)
FFO applicable to common shares and Units
 
$
12,189

 
$
11,692

 
$
10,555

 
$
10,626

 
$
5,793

 
 
$
30,559

 
$
25,586

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FFO per share and unit - basic and diluted
 
$
0.92

 
$
0.88

 
$
0.79

 
$
0.79

 
$
0.43

 
 
$
2.29

 
$
1.90

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjustments to Core FFO:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Casualty loss write off
 
43

 

 

 

 

 
 
43

 

Loss on extinguishment of debt
 
5

 
4

 
552

 
122

 
6,787

 
 
556

 
7,326

Redemption of Preferred Shares
 

 

 

 

 
8

 
 

 
3,657

Severance and transitions costs
 

 

 
510

 
301

 

 
 
510

 
650

Core FFO applicable to common shares and Units
 
$
12,237

 
$
11,696

 
$
11,617

 
$
11,049

 
$
12,588

 
 
$
31,668

 
$
37,219

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core FFO per share and unit - basic and diluted
 
$
0.92

 
$
0.88

 
$
0.87

 
$
0.83

 
$
0.94

 
 
$
2.38

 
$
2.76

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares and units
 
13,317

 
13,319

 
13,327

 
13,370

 
13,417

 
 
13,324

 
13,498

 
(1)
The three months ended December 31, 2018 includes the month ended October 31, 2018 which was previously included in the financial results for the three and six months ended October 31, 2018 included in our supplemental package filed with the SEC on December 10, 2018.
(2)
Nareit's FFO White Paper 2018 Restatement clarified that impairment write-downs of land related to a REIT's main business are excluded from FFO and a REIT has the option to exclude impairment write-downs of assets that are incidental to the main business. Accordingly, we recast FFO for the three months ended April 30, 2018, to exclude $2.6 million in impairment write-downs of land.
(3)
See Definitions section.

 
S-7
 



IRET
RECONCILIATION OF NET INCOME ATTRIBUTABLE TO
CONTROLLING INTERESTS TO ADJUSTED EARNINGS BEFORE INTEREST,
TAXES, DEPRECIATION, AND AMORTIZATION (ADJUSTED EBITDA) (unaudited)
(in thousands)
 
 
Three Months Ended
 
 
Eight Months Ended
 
 
12/31/2018(1)
 
10/31/2018
 
7/31/2018
 
4/30/2018
 
1/31/2018
 
 
12/31/2018
 
12/31/2017
Adjusted EBITDA(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to controlling interests
 
$
(4,106
)
 
$
(4,558
)
 
$
2,916

 
$
(20,874
)
 
$
136,105

 
 
$
(4,398
)
 
$
127,414

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noncontrolling interests – Operating Partnership
 
(665
)
 
(722
)
 
135

 
(2,663
)
 
16,236

 
 
(1,032
)
 
14,222

Income (loss) before noncontrolling interests – Operating Partnership
 
(4,771
)
 
(5,280
)
 
3,051

 
(23,537
)
 
152,341

 
 
(5,430
)
 
141,636

Add:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
7,336

 
7,656

 
7,983

 
7,884

 
9,569

 
 
20,381

 
25,867

Loss on extinguishment of debt
 
4

 
4

 
552

 
122

 
6,787

 
 
556

 
7,326

Depreciation/amortization related to real estate investments
 
18,133

 
18,520

 
17,912

 
20,347

 
19,100

 
 
48,628

 
61,434

Impairment of real estate investments
 
1,221

 

 

 
17,809

 

 
 
1,221

 
256

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 
(465
)
 
(410
)
 
(481
)
 
(569
)
 
(408
)
 
 
(1,168
)
 
(1,093
)
Gain on sale of real estate and other investments
 
(611
)
 
232

 
(8,628
)
 
(2,210
)
 
(163,791
)
 
 
(9,110
)
 
(167,553
)
Adjusted EBITDA
 
$
20,847

 
$
20,722

 
$
20,389

 
$
19,846

 
$
23,598

 
 
$
55,078

 
$
67,873

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ratios
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA(2)/Interest expense
 
2.71
 x
 
2.59
 x
 
2.43
 x
 
2.39
 x
 
2.36
 x
 
 
2.58
 x
 
2.98
 x
Adjusted EBITDA(2)/Interest expense plus preferred distributions
 
2.22
 x
 
2.14
 x
 
1.91
 x
 
1.98
 x
 
2.01
 x
 
 
2.13
 x
 
2.33
 x
 
(1)
The three months ended December 31, 2018 includes the month ended October 31, 2018 which was previously included in the financial results for the three and six months ended October 31, 2018 included in our supplemental package filed with the SEC on December 10, 2018.
(2)
See Definitions section.


 
S-8
 




IRET