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Section 1: 8-K (8-K)

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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): August 7, 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)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Shares of Beneficial Interest, no par value
IRET
New York Stock Exchange
Series C Cumulative Redeemable Preferred Shares
IRET-C
New York Stock Exchange
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:
Written communications pursuant to Rule 425 under the Securities Act
Soliciting material pursuant to Rule 14a-12 under the Exchange Act
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
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 August 7, 2019, announcing certain financial and operational results for the three and six months ended June 30, 2019. 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 the 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
 
 
101
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL Document.
*
Filed herewith
    

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: August 7, 2019
 
President and Chief Executive Officer


(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


Exhibit 99.1

399096882_q22019a03.jpg




Earnings Release
399096882_iretlogojpeg1200x1080a02.jpg 
 
IRET Reports Strong Second Quarter 2019 Financial Results and Raises 2019 Guidance
MINOT, ND, August 7, 2019 – IRET (NYSE: IRET) announced today its second quarter 2019 financial and operating results. Net Income (Loss), Funds from Operations (“FFO” and Core FFO per share for the three and six months ended June 30, 2019, are detailed below.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Per Share
 
2019
 
2018
 
2019
 
2018
Net Income (Loss)
 
$
0.11

 
$
(1.83
)
 
$
(0.43
)
 
$
(1.42
)
FFO
 
$
1.45

 
$
0.87

 
$
2.22

 
$
1.55

Core FFO
 
$
1.00

 
$
0.91

 
$
1.77

 
$
1.62

 
 
Year-Over-Year
Comparison
 
Sequential
Comparison
 
YTD Comparison
Same-Store Results
 
2Q19 vs. 2Q18
 
2Q19 vs. 1Q19
 
CY19 vs. CY18
Revenues
 
3.1
%
 
1.0
 %
 
3.6
%
Expenses
 
3.8
%
 
(4.7
)%
 
3.7
%
NOI
 
2.6
%
 
5.7
 %
 
3.6
%
 
 
Three months ended
Same-Store Results
 
June 30, 2019
 
March 31, 2019
 
June 30, 2018
Weighted Average Occupancy
 
94.3
%
 
95.6
%
 
94.2
%
Second Quarter 2019 Highlights
We reported Net Income of $0.11 per share for the second quarter of 2019, compared to Net Loss of $(1.83) per share for the same quarter in 2018;
Core FFO grew by 9.9%, increasing to $1.00 per share for the second quarter of 2019, compared to $0.91 per share for the same quarter in 2018;
Same-store revenue increased year-over-year by 3.1% driven by 3.0% growth in rental revenue, while same-store operating expenses grew 3.8% year-over-year, primarily due to $324,000 of favorable insurance settlements in 2018. The combination of 3.1% revenue growth and expense control initiatives that reduced same-store controllable expenses by 2.1% over the same period in 2018, led to same-store NOI growth of 2.6%, our seventh consecutive quarter of year-over-year NOI growth;
We revised our full-year guidance to:
decrease the midpoint of full-year Net Loss per share guidance from $(1.66) to $(1.22);
increase the midpoint of full-year same-store revenue from 3.25% to 3.50% by increasing the lower end of the range from 2.50% to 3.00% (as the overall range changed from 2.50%-4.00% to 3.00%-4.00%);
reaffirm the midpoint of full-year same-store expense guidance of 3.25%, but narrowing the range from 2.50%-4.00% to 2.75%-3.75%;
increase the midpoint of full-year same-store NOI guidance from 3.25% to 3.50% by narrowing the range from 2.00%-4.50% to 3.00%-4.00%; and
raise the midpoint of full-year Core FFO per share guidance by $0.05 to $3.67 per share by increasing the lower end of the range from $3.52 to $3.62 (as the overall range changed from $3.52-$3.72 to $3.62-$3.72);
We successfully prevailed in a multi-year litigation claim relating to a construction defect claim, for which we recorded a gain on litigation settlement of $6.3 million; and
We repurchased approximately 116,000 common shares for an aggregate total cost of $6.9 million, representing an average price of $59.12 per common share, and approximately 133,000 operating units for an aggregate total cost of $8.0 million, representing an average price of $60.01 per Unit.
“Our Core FFO growth per share of 9.9% and same-store revenue growth of 3.1% are built on strong performance across our markets and operational enhancements that continue to create value," said Mark O. Decker, Jr., IRET's President and CEO.

 
1
 



Acquisitions and Dispositions
During the second quarter, we sold a multi-tenant property that currently houses our Minot corporate office for $6.5 million and purchased an office building in Minot for $2.1 million, which will become our new Minot corporate office.  We also sold one parcel of unimproved land for $725,000.
Balance Sheet
At the end of the second quarter, we had $89.5 million of total liquidity on our balance sheet, including $72.1 million available under our corporate revolver.
2019 Financial Overview
We are raising our earnings guidance for calendar year 2019 based on actual results through June 30, 2019 and expected results through the remainder of the calendar year as specified below.
 
2019 Revised
 
2019 Guidance
 
Range
 
Current Midpoint
 
Prior Midpoint
 
Change
Net income (loss) per share
$(1.27) to $(1.17)
 
$(1.22)
 
$(1.66)
 
$0.44
Core FFO per share
$3.62 to $3.72
 
$3.67
 
$3.62
 
$0.05
 
 
 
 
 
 
 
 
Same-Store Growth
 
 
 
 
 
 
 
Revenue
3.00% to 4.00%
 
3.50%
 
3.25%
 
0.25%
Expenses
2.75% to 3.75%
 
3.25%
 
3.25%
 
NOI
3.00% to 4.00%
 
3.50%
 
3.25%
 
0.25%
Recent Developments
Subsequent to quarter-end, we sold a 21-unit multifamily community in Billings, Montana for approximately $1.7 million and a vacant parcel of land in Weston, Wisconsin for approximately $600,000.
Between July 1, 2019 and July 31, 2019, we repurchased approximately 39,000 common shares at an average price of $59.57 per share, including commissions. Between January 1, 2019 and July 31, 2019, we have repurchased approximately 329,000 shares at an average price of $54.69, including commissions, and approximately 135,000 operating units at an average price of $60.00. Since authorization of the share repurchase program in December 2016, we have repurchased approximately 627,000 common shares at an average price of $55.20. As of July 31, 2019, the remaining authorization under our share repurchase program is approximately $15.4 million. In all, we have reduced our share count by 5.2%.
On August 6, 2019, we closed a $59.9 million mortgage loan. This mortgage loan is secured by four multifamily communities and is priced at a fixed rate of 3.88% for the full twelve-year term of the loan. Proceeds from this loan will be used to pay down balances under our line of credit.
Upcoming Events
On October 1, 2019, we will be holding a 2019 shareholder event at the Minot Country Club (Elevation restaurant) in Minot, North Dakota. This gathering will include food, a presentation from management, and an opportunity for shareholders to ask questions of management.  Further details on this event will be provided to all shareholders of record and will be posted on the Company’s website at www.iretapartments.com when it becomes available.
Quarterly Distributions
Effective June 5, 2019, IRET’s Board of Trustees declared a regular quarterly distribution of $0.70 per share/unit payable on July 1, 2019, to common shareholders and unitholders of record on June 17, 2019. IRET has paid cash dividends to common shareholders and unitholders every quarter since its initial dividend payment in 1971.
Effective June 5, 2019, IRET's Board of Trustees also declared a distribution of $0.4140625 per share on the 6.625% Series C Cumulative Redeemable Preferred Shares (NYSE: IRET PRC) payable on July 1, 2019, to holders of record on June 17, 2019. Series C preferred share distributions are cumulative and payable quarterly in arrears at an annual rate of $1.65625 per share.

 
2
 



Earnings Call
Live webcast and replay:  http://ir.iretapartments.com
 
 
 
Live Conference Call
 
Conference Call Replay
Thursday, August 8, 2019, at 10:00 AM ET
 
Replay available until August 22, 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
10133436
Supplemental Information
Supplemental Operating and Financial Data for the quarter ended June 30, 2019 included herein (“Supplemental Information”), is available in the Investors section on IRET’s website at www.iretapartments.com or by calling Investor Relations at 701-837-7104.  FFO, Core FFO, NOI, and Adjusted EBITDA are non-GAAP financial measures. These measures and other capitalized terms, as used in this earnings release, are defined and reconciled in the Supplemental Information that 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 June 30, 2019, we owned interests in 88 apartment communities consisting of 13,975 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 and the accompanying Supplemental Operating and Financial Data are based on our current expectations and assumptions, and are “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. 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 those risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” contained in our Transition Report on Form 10-KT for the transition period ended December 31, 2018, in our 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.

 
3
 



Supplemental Financial and Operating Data
Table of Contents
June 30, 2019
 
Page
 
 
 
 
Key Financial Data
 
 
 
Non-GAAP Financial Measures and Reconciliations
 
 
 
Debt and Capital Analysis
 
 
 
Portfolio Analysis
 
 
 




Common Share Data (NYSE: IRET)
 
 
2nd Quarter
 
1st Quarter
 
4th Quarter
 
3rd Quarter
 
2nd Quarter
 
 
Calendar Year 2019
 
Calendar Year 2019
 
Calendar Year 2018
 
Calendar Year 2018
 
Calendar Year 2018
High closing price
 
$
61.28

 
$
61.50

 
$
59.10

 
$
59.80

 
$
59.40

Low closing price
 
$
57.19

 
$
49.92

 
$
47.00

 
$
53.30

 
$
51.30

Average closing price
 
$
59.54

 
$
58.11

 
$
53.40

 
$
54.99

 
$
54.50

Closing price at end of quarter
 
$
58.67

 
$
59.91

 
$
49.07

 
$
59.80

 
$
55.30

Common share distributions – annualized
 
$
2.80

 
$
2.80

 
$
2.80

 
$
2.80

 
$
2.80

Closing dividend yield – annualized
 
4.8
%
 
4.7
%
 
5.7
%
 
4.7
%
 
5.1
%
Closing common shares outstanding (thousands)
 
11,656

 
11,768

 
11,942

 
11,961

 
11,939

Closing limited partnership units outstanding (thousands)
 
1,224

 
1,365

 
1,368

 
1,379

 
1,401

Closing market value of outstanding common shares, plus imputed closing market value of outstanding limited partnership units (thousands)
 
$
755,670

 
$
786,798

 
$
653,122

 
$
797,732

 
$
737,702



 
S-1
 




IRET
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands)
 
 
Three Months Ended
 
 
Six Months Ended
 
 
6/30/2019
 
3/31/2019
 
12/31/2018
 
9/30/2018
 
6/30/2018
 
 
6/30/2019
 
6/30/2018
REVENUE
 
$
46,934

 
$
45,608

 
$
45,730

 
$
45,406

 
$
46,197

 
 
$
92,542

 
$
89,232

EXPENSES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property operating expenses, excluding real estate taxes
 
13,942

 
14,804

 
13,292

 
14,438

 
13,934

 
 
28,746

 
28,180

Real estate taxes
 
5,574

 
5,232

 
5,098

 
5,049

 
5,003

 
 
10,806

 
10,024

Property management expense
 
1,445

 
1,554

 
1,447

 
1,269

 
1,444

 
 
2,999

 
2,821

Casualty loss
 
92

 
641

 
540

 
225

 

 
 
733

 
50

Depreciation/amortization
 
18,437

 
18,111

 
18,812

 
19,164

 
19,132

 
 
36,548

 
39,648

Impairment of real estate investments
 

 

 
1,221

 

 
17,809

 
 

 
17,809

General and administrative expenses
 
3,549

 
3,806

 
3,769

 
3,147

 
4,348

 
 
7,355

 
7,967

TOTAL EXPENSES
 
$
43,039

 
$
44,148

 
$
44,179

 
$
43,292

 
$
61,670

 
 
$
87,187

 
$
106,499

Operating income (loss)
 
3,895

 
1,460

 
1,551

 
2,114

 
(15,473
)
 
 
5,355

 
(17,267
)
Interest expense
 
(7,590
)
 
(7,896
)
 
(7,682
)
 
(8,193
)
 
(8,562
)
 
 
(15,486
)
 
(16,858
)
Loss on extinguishment of debt
 
(407
)
 
(2
)
 
(5
)
 
(540
)
 
(12
)
 
 
(409
)
 
(133
)
Interest and other income
 
468

 
424

 
483

 
395

 
460

 
 
892

 
1,149

Income (loss) before gain (loss) on sale of real estate and other investments, gain (loss) on litigation settlement, and income (loss) from discontinued operations
 
(3,634
)
 
(6,014
)
 
(5,653
)
 
(6,224
)
 
(23,587
)
 
 
(9,648
)
 
(33,109
)
Gain (loss) on sale of real estate and other investments
 
615

 
54

 
612

 
9,095

 

 
 
669

 
2,304

Gain (loss) on litigation settlement
 
6,286

 

 

 

 

 
 
6,286

 

Income (loss) from continuing operations
 
3,267

 
(5,960
)
 
(5,041
)
 
2,871

 
(23,587
)
 
 
(2,693
)
 
(30,805
)
Income (loss) from discontinued operations
 

 

 

 
570

 
238

 
 

 
14,120

Net income (loss)
 
$
3,267

 
$
(5,960
)
 
$
(5,041
)
 
$
3,441

 
$
(23,349
)
 
 
$
(2,693
)
 
$
(16,685
)
Dividends to preferred unitholders
 
(160
)
 
(57
)
 

 

 

 
 
(217
)
 

Net (income) loss attributable to noncontrolling interest – Operating Partnership
 
(148
)
 
743

 
665

 
(112
)
 
2,580

 
 
595

 
2,000

Net (income) loss attributable to noncontrolling interests – consolidated real estate entities
 
154

 
576

 
270

 
(676
)
 
595

 
 
730

 
1,115

Net income (loss) attributable to controlling interests
 
3,113

 
(4,698
)
 
(4,106
)
 
2,653

 
(20,174
)
 
 
(1,585
)
 
(13,570
)
Dividends to preferred shareholders
 
(1,706
)
 
(1,705
)
 
(1,705
)
 
(1,705
)
 
(1,706
)
 
 
(3,411
)
 
(3,411
)
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
 
$
1,407

 
$
(6,403
)
 
$
(5,811
)
 
$
948

 
$
(21,880
)
 
 
$
(4,996
)
 
$
(16,981
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per Share Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) per common share from continuing operations – basic & diluted
 
$
0.11

 
$
(0.54
)
 
$
(0.49
)
 
$
0.04

 
$
(1.85
)
 
 
$
(0.43
)
 
$
(2.48
)
Earnings (loss) per common share from discontinued operations – basic & diluted
 

 

 

 
0.04

 
0.02

 
 

 
1.06

Net earnings (loss) per common share – basic & diluted
 
$
0.11

 
$
(0.54
)
 
$
(0.49
)
 
$
0.08

 
$
(1.83
)
 
 
$
(0.43
)
 
$
(1.42
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property operating expenses, excluding real estate taxes
 
29.7
%
 
32.5
 %
 
29.1
 %
 
31.8
%
 
30.2
 %
 
 
31.1
 %
 
31.6
 %
General and administrative expenses
 
7.6
%
 
8.3
 %
 
8.2
 %
 
6.9
%
 
9.4
 %
 
 
7.9
 %
 
8.9
 %
Interest
 
16.2
%
 
17.3
 %
 
16.8
 %
 
18.0
%
 
18.5
 %
 
 
16.7
 %
 
18.9
 %
Income (loss) from discontinued operations
 

 

 

 
1.3
%
 
0.5
 %
 
 

 
15.8
 %
Net income (loss)
 
7.0
%
 
(13.1
)%
 
(11.0
)%
 
7.6
%
 
(50.5
)%
 
 
(2.9
)%
 
(18.7
)%

 
S-2
 



IRET
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands)
 
 
6/30/2019
 
3/31/2019
 
12/31/2018
 
9/30/2018
 
6/30/2018
ASSETS
 
 
 
 
 
 
 
 
 
 
Real estate investments
 
 
 
 
 
 
 
 
 
 
Property owned
 
$
1,663,539

 
$
1,673,158

 
$
1,627,636

 
$
1,638,909

 
$
1,637,991

Less accumulated depreciation
 
(380,321
)
 
(371,672
)
 
(353,871
)
 
(339,515
)
 
(321,468
)
 
 
1,283,218

 
1,301,486

 
1,273,765

 
1,299,394

 
1,316,523

Unimproved land
 
1,746

 
2,252

 
5,301

 
6,522

 
10,726

Mortgage loans receivable
 
10,140

 
10,260

 
10,410

 
10,530

 
10,955

Total real estate investments
 
1,295,104

 
1,313,998

 
1,289,476

 
1,316,446

 
1,338,204

Assets held for sale and assets of discontinued operations
 

 

 

 

 
33,840

Cash and cash equivalents
 
17,406

 
23,329

 
13,792

 
36,910

 
20,451

Restricted cash
 
4,672

 
4,819

 
5,464

 
4,669

 
4,454

Other assets
 
30,626

 
29,166

 
27,265

 
28,472

 
27,882

TOTAL ASSETS
 
$
1,347,808

 
$
1,371,312

 
$
1,335,997

 
$
1,386,497

 
$
1,424,831

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES, MEZZANINE EQUITY, AND EQUITY
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
Liabilities held for sale and liabilities of discontinued operations
 

 

 

 

 
$
29,624

Accounts payable and accrued expenses
 
$
44,766

 
$
40,697

 
$
40,892

 
$
38,203

 
36,288

Revolving line of credit
 
177,939

 
118,677

 
57,500

 
71,000

 
145,500

Term loans payable, net of loan costs
 
144,082

 
144,036

 
143,991

 
143,937

 
69,531

Mortgages payable, net of loan costs
 
370,461

 
430,950

 
444,197

 
463,052

 
465,244

TOTAL LIABILITIES
 
$
737,248

 
$
734,360

 
$
686,580

 
$
716,192

 
$
746,187

 
 
 
 
 
 
 
 
 
 
 
REDEEMABLE NONCONTROLLING INTERESTS – CONSOLIDATED REAL ESTATE ENTITIES
 

 

 
5,968

 
6,130

 
6,261

SERIES D PREFERRED UNITS
 
16,560

 
16,560

 

 

 

EQUITY
 
 
 
 
 
 
 
 
 
 
Series C Preferred Shares of Beneficial Interest
 
99,456

 
99,456

 
99,456

 
99,456

 
99,456

Common Shares of Beneficial Interest
 
888,541

 
895,381

 
899,234

 
900,368

 
899,480

Accumulated distributions in excess of net income
 
(450,433
)
 
(443,661
)
 
(429,048
)
 
(414,900
)
 
(407,482
)
Accumulated other comprehensive income
 
(7,598
)
 
(3,139
)
 
(856
)
 
2,760

 
1,748

Total shareholders’ equity
 
$
529,966

 
$
548,037

 
$
568,786

 
$
587,684

 
$
593,202

Noncontrolling interests – Operating Partnership
 
57,902

 
66,060

 
67,916

 
69,578

 
71,066

Noncontrolling interests – consolidated real estate entities
 
6,132

 
6,295

 
6,747

 
6,913

 
8,115

Total equity
 
$
594,000

 
$
620,392

 
$
643,449

 
$
664,175

 
$
672,383

TOTAL LIABILITIES, MEZZANINE EQUITY, AND EQUITY
 
$
1,347,808

 
$
1,371,312

 
$
1,335,997

 
$
1,386,497

 
$
1,424,831


 
S-3
 



IRET
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (unaudited)

This release contains certain non-GAAP financial measures. The non-GAAP measures should not be considered a substitute for operating results determined in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The definitions and calculations of these non-GAAP measures, as calculated by us, may not be comparable to non-GAAP measures reported by other REITs that do not define each of the non-GAAP measures exactly as we do.
We provide certain information on a same-store and non-same-store basis. Same-store apartment communities are owned or in service for the entirety of the periods being compared, and, in the case of development properties, have achieved a target level of physical occupancy of 90%. On the first day of each calendar year, we determine the composition of our same-store pool for that year as well as adjust the previous year, which allows us to evaluate full period-over-period operating comparisons for existing apartment communities and their contribution to net income. We believe that measuring performance on a same-store basis is useful to investors because it enables evaluation of how a fixed pool of our communities are performing year-over-year. We use this measure to assess whether or not we have been successful in increasing NOI, renewing the leases on existing residents, controlling operating costs, and making prudent capital improvements.
Reconciliation of Operating Income (Loss) to Net Operating Income
Net operating income, or NOI, is a non-GAAP measure which we define as total real estate revenues less property operating expenses, including real estate taxes. We believe that NOI is an important supplemental measure of operating performance for real estate because it provides a measure of operations that is unaffected by depreciation, amortization, financing, property management overhead, casualty losses, and general and administrative expenses. NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered an alternative to net income, net income available for common shareholders, or cash flow from operating activities as a measure of financial performance.
 
(in thousands, except percentages)
 
Three Months Ended June 30,
 
 
Six Months Ended June 30,
 
2019
 
2018
 
$ Change
 
% Change
 
 
2019
 
2018
 
$ Change
 
% Change
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
$
3,895

 
$
(15,473
)
 
$
19,368

 
(125.2
)%
 
 
$
5,355

 
$
(17,267
)
 
$
22,622

 
(131.0
)%
Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property management expenses
1,445

 
1,444

 
1

 
0.1
 %
 
 
2,999

 
2,821

 
178

 
6.3
 %
Casualty loss
92

 

 
92

 
100.0
 %
 
 
733

 
50

 
683

 
1,366.0
 %
Depreciation and amortization
18,437

 
19,132

 
(695
)
 
(3.6
)%
 
 
36,548

 
39,648

 
(3,100
)
 
(7.8
)%
Impairment

 
17,809

 
(17,809
)
 
(100.0
)%
 
 

 
17,809

 
(17,809
)
 
(100.0
)%
General and administrative expenses
3,549

 
4,348

 
(799
)
 
(18.4
)%
 
 
7,355

 
7,967

 
(612
)
 
(7.7
)%
Net operating income
$
27,418

 
$
27,260

 
$
158

 
0.6
 %
 
 
$
52,990

 
$
51,028

 
$
1,962

 
3.8
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same-store
$
40,024

 
$
38,804

 
$
1,220

 
3.1
 %
 
 
$
79,637

 
$
76,852

 
$
2,785

 
3.6
 %
Non-same-store
5,921

 
4,345

 
1,576

 
36.3
 %
 
 
11,122

 
6,351

 
4,771

 
75.1
 %
Other properties and dispositions
989

 
3,048

 
(2,059
)
 
(67.6
)%
 
 
1,783

 
6,029

 
(4,246
)
 
(70.4
)%
Total
46,934

 
46,197

 
737

 
1.6
 %
 
 
92,542

 
89,232

 
3,310

 
3.7
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property operating expenses, including real estate taxes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same-store
16,974

 
16,345

 
629

 
3.8
 %
 
 
34,781

 
33,536

 
1,245

 
3.7
 %
Non-same-store
2,137

 
1,481

 
656

 
44.3
 %
 
 
4,018

 
2,418

 
1,600

 
66.2
 %
Other properties and dispositions
405

 
1,111

 
(706
)
 
(63.5
)%
 
 
753

 
2,250

 
(1,497
)
 
(66.5
)%
Total
19,516

 
18,937

 
579

 
3.1
 %
 
 
39,552

 
38,204

 
1,348

 
3.5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net operating income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same-store
23,050

 
22,459

 
591

 
2.6
 %
 
 
44,856

 
43,316

 
1,540

 
3.6
 %
Non-same-store
3,784

 
2,864

 
920

 
32.1
 %
 
 
7,104

 
3,933

 
3,171

 
80.6
 %
Other properties and dispositions
584

 
1,937

 
(1,353
)
 
(69.9
)%
 
 
1,030

 
3,779

 
(2,749
)
 
(72.7
)%
Total
$
27,418

 
$
27,260

 
$
158

 
0.6
 %
 
 
$
52,990

 
$
51,028

 
$
1,962

 
3.8
 %



 
S-4
 



Same-Store Expense Comparison
 
(in thousands, except percentages)
 
Three Months Ended June 30,
 
 
Six Months Ended June 30,
 
2019
 
2018
 
$ Change
 
% Change
 
 
2019
 
2018
 
$ Change
 
% Change
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Controllable expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Compensation
$
4,712

 
$
4,949

 
$
(237
)
 
(4.8
)%
 
 
$
9,236

 
$
9,803

 
$
(567
)
 
(5.8
)%
Repairs and maintenance
3,176

 
3,196

 
(20
)
 
(0.6
)%
 
 
6,596

 
6,033

 
563

 
9.3
 %
Utilities
2,520

 
2,532

 
(12
)
 
(0.5
)%
 
 
5,952

 
5,854

 
98

 
1.7
 %
Administrative and marketing
937

 
910

 
27

 
3.0
 %
 
 
1,901

 
1,712

 
189

 
11.0
 %
Total
$
11,345

 
$
11,587

 
$
(242
)
 
(2.1
)%
 
 
$
23,685

 
$
23,402

 
$
283

 
1.2
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-controllable expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate taxes
$
4,611

 
$
4,400

 
$
211

 
4.8
 %
 
 
$
9,103

 
$
8,805

 
$
298

 
3.4
 %
Insurance
1,018

 
358

 
660

 
184.4
 %
 
 
1,993

 
1,329

 
664

 
50.0
 %
Total
5,629

 
4,758

 
871

 
18.3
 %
 
 
11,096

 
10,134

 
962

 
9.5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
16,974

 
$
16,345

 
$
629

 
3.8
 %
 
 
$
34,781

 
$
33,536

 
$
1,245

 
3.7
 %
Reconciliation of Net Income (Loss) Available to Common Shareholders to Funds From Operations and Core Funds From Operations
We use the definition of FFO adopted by the National Association of Real Estate Investment Trusts, Inc. (“Nareit”). Nareit defines FFO as net income or loss calculated in accordance with GAAP, excluding:
depreciation and amortization related to real estate;
gains and losses from the sale of certain real estate assets; and
impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.
Due to the limitations of the FFO definition adopted by Nareit, we have made certain interpretations in applying the definition. We believe that all such interpretations not specifically provided for in the Nareit definition are consistent with the definition. 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.
We believe that FFO, which is a standard supplemental measure for equity real estate investment trusts, is helpful to investors in understanding our operating performance, primarily because its calculation excludes depreciation and amortization expense on real estate assets, thereby providing an additional perspective on our operating results. We believe that GAAP historical cost depreciation of real estate assets is not correlated with changes in the value of those assets, whose value does not diminish predictably over time, as historical cost depreciation implies. The exclusion in Nareit’s definition of FFO of impairment write-downs and gains and losses from the sale of real estate assets helps to identify the operating results of the long-term assets that form the base of our investments, and assists management and investors in comparing those operating results between periods.
While FFO is widely used by us as a primary performance metric, not all real estate companies use the same definition of FFO or calculate FFO in the same way. Accordingly, FFO presented here is not necessarily comparable to FFO presented by other real estate companies. FFO should not be considered as an alternative to net income or any other GAAP measurement of performance, but rather should be considered as an additional, supplemental measure. FFO also does not represent cash generated from operating activities in accordance with GAAP, and is not necessarily indicative of sufficient cash flow to fund all of our needs or our ability to service indebtedness or make distributions.
Core Funds from Operations ("Core FFO") is FFO as adjusted for non-routine items or items not considered core to our business operations. By further adjusting for items that are not considered part of our core business operations, we believe that Core FFO provides investors with additional information to compare our core operating and financial performance between periods. Core FFO should not be considered as an alternative to net income as an indication of financial performance, or as an alternative to cash flows from operations as a measure of liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions to shareholders. Core FFO is a non-GAAP and non-standardized measure that may
be calculated differently by other REITs and that should not be considered a substitute for operating results determined in accordance with GAAP.
 
 
(in thousands, except per share amounts)
 
 
Three Months Ended
 
 
Six Months Ended
 
 
6/30/2019
 
3/31/2019
 
12/31/2018
 
9/30/2018
 
6/30/2018
 
 
6/30/2019
 
6/30/2018
Funds From Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) available to common shareholders
 
$
1,407

 
$
(6,403
)
 
$
(5,811
)
 
$
948

 
$
(21,880
)
 
 
$
(4,996
)
 
$
(16,981
)
Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noncontrolling interests – Operating Partnership
 
148

 
(743
)
 
(665
)
 
112

 
(2,580
)
 
 
(595
)
 
(2,000
)
Depreciation and amortization
 
18,437

 
18,111

 
18,812

 
19,164

 
19,132

 
 
36,548

 
39,650

Less depreciation – non real estate
 
(79
)
 
(85
)
 
(76
)
 
(76
)
 
(76
)
 
 
(164
)
 
(155
)
Less depreciation – partially owned entities
 
(474
)
 
(678
)
 
(680
)
 
(673
)
 
(719
)
 
 
(1,152
)
 
(1,442
)
Impairment of real estate
 

 

 
1,221

 

 
17,809

 
 

 
17,809

Gain on sale of real estate
 
(615
)
 
(54
)
 
(612
)
 
(8,499
)
 
(98
)
 
 
(669
)
 
(16,134
)
FFO applicable to common shares and Units
 
$
18,824

 
$
10,148

 
$
12,189

 
$
10,976

 
$
11,588

 
 
$
28,972

 
$
20,747

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FFO per share and unit – basic and diluted
 
$
1.45

 
$
0.77

 
$
0.92

 
$
0.82

 
$
0.87

 
 
$
2.22

 
$
1.55

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjustments to Core FFO:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Casualty loss write off
 

 

 
43

 

 

 
 

 

Loss on extinguishment of debt
 
407

 
2

 
5

 
540

 
12

 
 
409

 
133

Gain on litigation settlement
 
(6,286
)
 

 

 

 

 
 
(6,286
)
 

Severance and transition costs
 

 

 

 

 
586

 
 

 
811

Core FFO applicable to common shares and Units
 
$
12,945

 
$
10,150

 
$
12,237

 
$
11,516

 
$
12,186

 
 
$
23,095

 
$
21,691

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core FFO per share and unit – basic and diluted
 
$
1.00

 
$
0.77

 
$
0.92

 
$
0.86

 
$
0.91

 
 
$
1.77

 
$
1.62

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares and units
 
12,955

 
13,130

 
13,317

 
13,318

 
13,335

 
 
13,052

 
13,366


 
S-5
 



Reconciliation of Net Income (Loss) Available to Common Shareholders to Adjusted EBITDA
Adjusted EBITDA is earnings before interest, taxes, depreciation, amortization, gain/loss on sale of real estate and other investments, impairment of real estate investments, gain/loss on extinguishment of debt, and gain/loss from involuntary conversion. We consider Adjusted EBITDA to be an appropriate supplemental performance measure because it permits investors to view income from operations without the effect of depreciation, the cost of debt, or non-operating gains and losses. Adjusted EBITDA is a non-GAAP measure and should not be considered a substitute for operating results determined in accordance with GAAP. Adjusted EBITDA as calculated by us may not be comparable to Adjusted EBITDA reported by other REITs that do not define Adjusted EBITDA exactly as we do.
 
 
(in thousands)
 
 
Three Months Ended
 
 
Six Months Ended
 
 
6/30/2019
 
3/31/2019
 
12/31/2018
 
9/30/2018
 
6/30/2018
 
 
6/30/2019
 
6/30/2018
Adjusted EBITDA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) available to common shareholders
 
$
3,113

 
$
(4,698
)
 
$
(4,106
)
 
$
2,653

 
$
(20,174
)
 
 
$
(1,585
)
 
$
(13,570
)
Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends to preferred unitholders
 
160

 
57

 

 

 

 
 
217

 

Noncontrolling interests – Operating Partnership
 
148

 
(743
)
 
(665
)
 
112

 
(2,580
)
 
 
(595
)
 
(2,000
)
Income (loss) before noncontrolling interests – Operating Partnership
 
$
3,421

 
$
(5,384
)
 
$
(4,771
)
 
$
2,765

 
$
(22,754
)
 
 
$
(1,963
)
 
$
(15,570
)
Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
7,343

 
7,558

 
7,336

 
7,828

 
8,148

 
 
14,901

 
16,029

Loss on extinguishment of debt
 
407

 
2

 
4

 
541

 
11

 
 
409

 
132

Depreciation/amortization related to real estate investments
 
17,963

 
17,433

 
18,133

 
18,491

 
18,413

 
 
35,396

 
38,208

Impairment of real estate investments
 

 

 
1,221

 

 
17,809

 
 

 
17,809

Interest income
 
(402
)
 
(407
)
 
(465
)
 
(366
)
 
(429
)
 
 
(809
)
 
(1,102
)
Gain (loss) on sale of real estate and other investments
 
(615
)
 
(54
)
 
(611
)
 
(8,499
)
 
(98
)
 
 
(669
)
 
(16,134
)
Gain on litigation settlement
 
(6,286
)
 

 

 

 

 
 
(6,286
)
 

Adjusted EBITDA
 
$
21,831

 
$
19,148

 
$
20,847

 
$
20,760

 
$
21,100

 
 
$
40,979

 
$
39,372

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ratios
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA/Interest expense
 
2.88
 x
 
2.43
 x
 
2.71
 x
 
2.53
 x
 
2.46
 x
 
 
2.65
 x
 
2.34
 x
Adjusted EBITDA/Interest expense plus preferred distributions
 
2.31
 x
 
1.98
 x
 
2.22
 x
 
2.10
 x
 
2.05
 x
 
 
2.14
 x
 
1.94
 x

 
S-6
 




IRET
DEBT ANALYSIS
(in thousands)
Debt Maturity Schedule
Annual Expirations
 
 
Future Maturities of Debt
 
 
Secured Fixed
Debt
 
Unsecured Fixed
Debt(1)
 
Secured Variable Debt(2)
 
Unsecured Variable Debt
 
Total
Debt
 
% of
Total Debt
 
Weighted
Average Interest Rate(3)
2019 (remainder)
 
$
6,926

 
$