IRET Reports Strong First Quarter 2019 Financial Results

MINOT, N.D., May 8, 2019 /PRNewswire/ -- IRET (NYSE: IRET) announced today its first quarter 2019 financial and operating results.  Net Income (Loss), Funds from Operations ("FFO"), and Core FFO per share for the three months ended March 31, 2019, are detailed below.

First Quarter 2019 Highlights

• We reported Net Loss, FFO, and Core FFO of $(6.4) million, $10.1 million, and $10.2 million, respectively, for the quarter ended March 31, 2019, compared to Net Income, FFO, and Core FFO of $6.7 million, $9.2 million, and $9.5 million for the quarter ended March 31, 2018.
• Same-store revenue increased year-over-year by 4.1%, driven by 2.7% growth in rental revenue;
• Core FFO grew by 8.5%, driven by NOI growth;
• Same-store NOI grew by 4.6%, our sixth consecutive quarter of year-over-year NOI growth. NOI expansion has been driven by revenue growth and expense control initiatives;
• Adverse weather-related events impacted many of our markets, including extreme cold and record-setting snowfall that caused excess ice and snow accumulation, resulting in water damage to some of our apartment communities. As a result, we experienced an increase in same-store expenses of $411,000 for snow removal costs and an increase in casualty losses of $591,000, representing the annual stop-loss under our insurance coverage;
• We repurchased approximately 174,000 common shares for an aggregate total cost of approximately $8.8 million; and
• We had revenue growth of 3.0% or more in 9 of our 11 markets.

 

		Three Months Ended
		March 31,
Per Share		2019				2018
Net Income (Loss)		$	(0.54)			$	0.41
FFO		$	0.77			$	0.68
Core FFO		$	0.77			$	0.71

 

		Year-Over-Year Comparison			Sequential Comparison
Same-Store Results		1Q19 vs. 1Q18			1Q19 vs. 4Q18
Revenues		4.1	%		0.6	%
Expenses		3.6	%		7.2	%
Net Operating Income ("NOI")		4.6	%		(4.2)	%

 

		Three months ended
Multifamily Same-Store Results		March 31, 2019			December 31, 2018			March 31, 2018
Weighted Average Occupancy		95.6	%		94.4	%		94.2	%

"Growth of same-store revenue of 4.1%, same-store NOI of 4.6%, and Core FFO of 8.5% are outstanding results," said Mark O. Decker Jr., IRET's President and CEO. "It's exciting to see our focus on resident experience and margin expansion drive strong financial results.  The progress made to date and the opportunity remaining in our portfolio continues to motivate our team to further improve our business."

Acquisitions and Dispositions

• On February 26, 2019, we acquired SouthFork Townhomes, a 272-unit apartment community located in Lakeville, Minnesota, for a total purchase 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. The convertible preferred units also have a put feature that allows the holders to put all or any of the convertible preferred units to IRET for a cash payment equal to the issue price.
• On March 29, 2019, we acquired the remaining 34.5% noncontrolling interests in the real estate partnership that owns Commons and Landing at Southgate, located in Minot, North Dakota, for $1.2 million.
• During the first quarter, we sold one parcel of unimproved land for a sale price of $3.0 million.

Balance Sheet

At the end of the first quarter, we had $109.0 million of total liquidity on our balance sheet, including $85.7 million available under our corporate revolver.

Recent Developments

On April 30, 2019, we redeemed a total of approximately 129,000 Units from certain Unitholders for an aggregate purchase price of approximately $7.7 million, representing an average cash payment of $60.03 per Unit.

Subsequent to quarter-end, we repurchased approximately 15,500 shares at an average price of $58.51 per share between April 1, 2019 and April 30, 2019. Since authorization of the share repurchase program in December 2016, we have repurchased approximately 488,000 shares at an average price of $53.87.

Upcoming Events

IRET is scheduled to participate in the National Association of Real Estate Investment Trusts ("Nareit") Institutional Investor Forum in New York from June 4-6, 2019.  IRET's President and Chief Executive Officer, Mark O. Decker, Jr., Chief Financial Officer, John Kirchmann, and Chief Operating Officer, Anne Olson, are scheduled to present at the conference on June 5, 2019 at 8:45 a.m. EDT. The presentation will be webcast and will be available on the Investors section of our website at ir.iretapartments.com.  A copy of any materials provided by IRET at the conference will also be made available on the Investors section of our website.

Quarterly Distributions

On March 5, 2019, IRET's Board of Trustees declared a regular quarterly distribution of $0.70 per share/unit payable on April 1, 2019, to common shareholders and unitholders of record on March 15, 2019.  IRET has paid cash dividends to common shareholders and unitholders every quarter since its initial dividend payment in 1971.

On March 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 April 1, 2019, to holders of record on March 15, 2019.  Series C preferred share distributions are cumulative and payable quarterly in arrears at an annual rate of $1.65625 per share.

On March 7, 2019, IRET's Board of Trustees declared a distribution on the Series D preferred units payable on April 1, 2019, at the rate of 3.862% per annum, pro rated from the date of issuance (February 26, 2019) through March 31, 2019, to holders of record as of March 15, 2019.  Series D preferred unit distributions are cumulative and payable quarterly in arrears at the rate of 3.862% per annum.

Earnings Call

Live webcast and replay:  http://ir.iretapartments.com
Live Conference Call			Conference Call Replay
Thursday, May 9, 2019, at 10:00 AM ET			Replay available until May 23, 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	10130035

Supplemental Information

Supplemental Operating and Financial Data for the quarter ended March 31, 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.  Non-GAAP financial 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 March 31, 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.  Forward-looking statements do not discuss historical fact, but instead include statements related to expectations, projections, intentions or other items related to the future.  Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," and variations of those words and similar expressions are intended to identify forward-looking statements.  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: intentions and expectations regarding future distributions on common shares and units; changes in operating costs; fluctuations in interest rates; adverse capital and credit market conditions that might affect our access to various sources of capital and cost of capital; our ability to manage our current debt levels and repay or refinance our indebtedness upon maturity or other payment dates; our ability to maintain financial covenant compliance under our debt agreements; adequate insurance coverage; the effect of government regulation; delays or inability to obtain necessary governmental permits and authorizations; changes in general and local economic and real estate market conditions; changes in demand for our properties that may result in lower-than-expected occupancy and/or rental rates; ability to acquire quality properties in targeted markets; ability to successfully acquire or dispose of certain assets; competition for tenants from similar competing properties; ability to attract and retain skilled personnel; cyber-intrusion; delays in completing development, redevelopment and/or lease up of properties and increased costs; ability to maintain effective internal controls over financial reporting and disclosure controls and procedures; and 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.

Contact Information
Jonathan Bishop
Vice President – Finance
Phone: [phone]
E-mail: [e-mail]

 

Common Share Data (NYSE: IRET)
		1st Quarter				4th Quarter				3rd Quarter				2nd Quarter				1st Quarter
		Calendar Year  2019				Calendar Year  2018				Calendar Year  2018				Calendar Year  2018				Calendar Year  2018
High Closing Price		$	61.50			$	59.10			$	59.80			$	59.40			$	58.20
Low Closing Price		$	49.92			$	47.00			$	53.30			$	51.30			$	46.50
Average Closing Price		$	58.11			$	53.40			$	54.99			$	54.50			$	52.16
Closing Price at end of quarter		$	59.91			$	49.07			$	59.80			$	55.30			$	51.90
Common Share Distributions – annualized		$	2.80			$	2.80			$	2.80			$	2.80			$	2.80
Closing Dividend Yield – annualized		4.7		%		5.7		%		4.7		%		5.1		%		5.4		%
Closing common shares outstanding (thousands)		11,768				11,942				11,961				11,939				11,979
Closing limited partnership units outstanding (thousands)		1,365				1,368				1,379				1,401				1,411
Closing market value of outstanding common shares, plus imputed closing market value of outstanding limited partnership units (thousands)		$	786,798			$	653,122			$	797,732			$	737,702			$	694,941

 

IRET CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands)
		3/31/2019				12/31/2018				9/30/2018				6/30/2018				3/31/2018
ASSETS
Real estate investments
Property owned		$	1,673,158			$	1,627,636			$	1,638,909			$	1,637,991			$	1,692,987
Less accumulated depreciation		(371,672)				(353,871)				(339,515)				(321,468)				(313,763)
		1,301,486				1,273,765				1,299,394				1,316,523				1,379,224
Unimproved land		2,252				5,301				6,522				10,726				14,250
Mortgage loans receivable		10,260				10,410				10,530				10,955				10,329
Total real estate investments		1,313,998				1,289,476				1,316,446				1,338,204				1,403,803
Assets held for sale and assets of discontinued operations		—				—				—				33,840				—
Cash and cash equivalents		23,329				13,792				36,910				20,451				33,817
Restricted cash		4,819				5,464				4,669				4,454				4,053
Other assets		29,166				27,265				28,472				27,882				26,537
TOTAL ASSETS		$	1,371,312			$	1,335,997			$	1,386,497			$	1,424,831			$	1,468,210
LIABILITIES, MEZZANINE EQUITY, AND EQUITY
LIABILITIES
Liabilities held for sale and liabilities of discontinued operations		—				—				—				$	29,624			—
Accounts payable and accrued expenses		$	40,697			$	40,892			$	38,203			36,288				$	37,350
Revolving line of credit		118,677				57,500				71,000				145,500				134,500
Term loans payable, net of loan costs		144,036				143,991				143,937				69,531				69,504
Mortgages payable, net of loan costs		430,950				444,197				463,052				465,244				511,683
TOTAL LIABILITIES		734,360				686,580				716,192				746,187				753,037
REDEEMABLE NONCONTROLLING INTERESTS – CONSOLIDATED REAL ESTATE ENTITIES		—				5,968				6,130				6,261				6,706
SERIES D PREFERRED UNITS		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		895,381				899,234				900,368				899,480				901,312
Accumulated distributions in excess of net income		(443,661)				(429,048)				(414,900)				(407,482)				(377,871)
Accumulated other comprehensive income		(3,139)				(856)				2,760				1,748				1,283
Total shareholders' equity		548,037				568,786				587,684				593,202				624,180
Noncontrolling interests – Operating Partnership		66,060				67,916				69,578				71,066				75,161
Noncontrolling interests – consolidated real estate entities		6,295				6,747				6,913				8,115				9,126
Total equity		620,392				643,449				664,175				672,383				708,467
TOTAL LIABILITIES, MEZZANINE EQUITY, AND EQUITY		$	1,371,312			$	1,335,997			$	1,386,497			$	1,424,831			$	1,468,210

 

IRET RECONCILIATION OF NET OPERATING INCOME TO THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands)
		Three Months Ended
		3/31/19				12/31/2018				9/30/2018				6/30/2018				3/31/18
Revenue
Same-store		$	39,612			$	39,385			$	38,727			$	38,804			$	38,048
Non-same-store		5,202				4,608				4,687				4,345				2,006
Other properties and dispositions		794				1,737				1,992				3,048				2,981
Total revenue		45,608				45,730				45,406				46,197				43,035
Property operating expenses, including real estate taxes
Same-store		17,806				16,617				16,980				16,345				17,191
Non-same-store		1,882				1,403				1,696				1,481				937
Other properties and dispositions		348				370				811				1,111				1,139
Total property operating expenses, including real estate taxes		20,036				18,390				19,487				18,937				19,267
Net operating income (NOI)
Same-store		21,806				22,768				21,747				22,459				20,857
Non-same-store		3,320				3,205				2,991				2,864				1,069
Other properties and dispositions		446				1,367				1,181				1,937				1,842
Net operating income		$	25,572			$	27,340			$	25,919			$	27,260			$	23,768
Property management		(1,554)				(1,447)				(1,269)				(1,444)				(1,377)
Casualty gain (loss)		(641)				(540)				(225)				—				(50)
Depreciation/amortization		(18,111)				(18,812)				(19,164)				(19,132)				(20,516)
Impairment of real estate investments		—				(1,221)				—				(17,809)				—
General and administrative expenses		(3,806)				(3,769)				(3,147)				(4,348)				(3,619)
Interest expense		(7,896)				(7,682)				(8,193)				(8,562)				(8,296)
Loss on debt extinguishment		(2)				(5)				(540)				(12)				(121)
Interest and other income		424				483				395				460				689
Income (loss) before gain (loss) on sale of real estate and other investments and income (loss) from discontinued operations		(6,014)				(5,653)				(6,224)				(23,587)				(9,522)
Gain (loss) on sale of real estate and other investments		54				612				9,095				—				2,304
Income (loss) from continuing operations		(5,960)				(5,041)				2,871				(23,587)				(7,218)
Income (loss) from discontinued operations		—				—				570				238				13,882
Net income (loss)		$	(5,960)			$	(5,041)			$	3,441			$	(23,349)			$	6,664
Dividends to preferred series D unitholders		(57)				—				—				—				—
Net (income) loss attributable to noncontrolling interests – Operating Partnership		743				665				(112)				2,580				(580)
Net (income) loss attributable to noncontrolling interests – consolidated real estate entities		576				270				(676)				595				520
Net income (loss) attributable to controlling interests		(4,698)				(4,106)				2,653				(20,174)				6,604
Dividends to preferred shareholders		(1,705)				(1,705)				(1,705)				(1,706)				(1,705)
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS		$	(6,403)			$	(5,811)			$	948			$	(21,880)			$	4,899
Per Share Data
Earnings (loss) per common share from continuing operations – basic & diluted		$	(0.54)			$	(0.49)			$	0.04			$	(1.85)			$	(0.63)
Earnings (loss) per common share from discontinued operations – basic & diluted		—				—				0.04				0.02				1.04
Net income (loss) per common share – basic & diluted		$	(0.54)			$	(0.49)			$	0.08			$	(1.83)			$	0.41
Percentage of Revenues
Property operating expenses, including real estate taxes		43.9		%		40.2		%		42.9		%		41.0		%		44.8		%
General and administrative expenses		8.3		%		8.2		%		6.9		%		9.4		%		8.4		%
Interest		17.3		%		16.8		%		18.0		%		18.5		%		19.3		%
Income (loss) from discontinued operations		—		%		—		%		1.3		%		0.5		%		32.3		%
Net income (loss)		(13.1)		%		(11.0)		%		7.6		%		(50.5)		%		15.5		%

 

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
		3/31/2019				12/31/2018				9/30/2018				6/30/2018				3/31/2018
Funds From Operations(1)
Net income (loss) available to common shareholders		$	(6,403)			$	(5,811)			$	948			$	(21,880)			$	4,899
Adjustments:
Noncontrolling interests – Operating Partnership		(743)				(665)				112				(2,580)				580
Depreciation and amortization		18,111				18,812				19,164				19,132				20,518
Less depreciation – non real estate		(85)				(76)				(76)				(76)				(79)
Less depreciation – partially owned entities		(678)				(680)				(673)				(719)				(723)
Impairment of real estate		—				1,221				—				17,809				—
Gain on sale of real estate		(54)				(612)				(8,499)				(98)				(16,036)
FFO applicable to common shares and Units		$	10,148			$	12,189			$	10,976			$	11,588			$	9,159
FFO per share and unit – basic and diluted		$	0.77			$	0.92			$	0.82			$	0.87			$	0.68
Adjustments to Core FFO:
Casualty loss write off		—				43				—				—				—
Loss on extinguishment of debt		2				5				540				12				121
Severance and transition costs		—				—				—				586				225
Core FFO applicable to common shares and Units		$	10,150			$	12,237			$	11,516			$	12,186			$	9,505
Core FFO per share and unit – basic and diluted		$	0.77			$	0.92			$	0.86			$	0.91			$	0.71
Weighted average shares and units		13,130				13,317				13,318				13,335				13,396

(1)	See Definitions section.

 

IRET RECONCILIATION OF NET INCOME AVAILABLE TO COMMON SHAREHOLDERS TO ADJUSTED EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION (ADJUSTED EBITDA) (unaudited) (in thousands)
		Three Months Ended
		3/31/2019				12/31/2018				9/30/2018				6/30/2018				3/31/2018
Adjusted EBITDA(1)
Net income (loss) available to common shareholders		$	(4,698)			$	(4,106)			$	2,653			$	(20,174)			$	6,604
Adjustments:
Dividends to preferred unitholders		57				—				—				—				—
Noncontrolling interests – Operating Partnership		(743)				(665)				112				(2,580)				580
Income (loss) before noncontrolling interests – Operating Partnership		(5,384)				(4,771)				2,765				(22,754)				7,184
Adjustments:
Interest expense		7,558				7,336				7,828				8,148				7,881
Loss on extinguishment of debt		2				4				541				11				121
Depreciation/amortization related to real estate investments		17,433				18,133				18,491				18,413				19,795
Impairment of real estate investments		—				1,221				—				17,809				—
Interest income		(407)				(465)				(366)				(429)				(673)
Gain (loss) on sale of real estate and other investments		(54)				(611)				(8,499)				(98)				(16,036)
Adjusted EBITDA		$	19,148			$	20,847			$	20,760			$	21,100			$	18,272
Ratios
Adjusted EBITDA(1)/Interest expense		2.43		x		2.71		x		2.53		x		2.46		x		2.20		x
Adjusted EBITDA(1)/Interest expense plus preferred distributions		1.98		x		2.22		x		2.10		x		2.05		x		1.83		x

(1)	See Definitions.

 

IRET DEBT ANALYSIS (in thousands)
Debt Maturity Schedule Annual Expirations
		Future Maturities of Debt
		Fixed Debt				Variable Debt				Total Debt				Weighted Average(1)			% of Total Debt
2019		$	19,068			—				$	19,068			5.72	%		2.7	%
2020		70,359				—				70,359				5.43	%		10.1	%
2021		103,702				—				103,702				5.24	%		14.9	%
2022		38,589				—				38,589				4.00	%		5.5	%
2023		49,093				—				49,093				4.02	%		7.1	%
Thereafter		151,777				—				151,777				3.85	%		21.8	%
Total mortgage debt		$	432,588			—				$	432,588			4.54	%		62.1	%
Primary line of credit(2)		—				$	99,200			99,200				3.89	%		14.2	%
Operating line of credit(2)		—				4,477				4,477				4.40	%		0.7	%
Secured line of credit(2)(3)		—				15,000				15,000				3.89	%		2.2	%
Term loans(4)		145,000				—				145,000				3.99	%		20.8	%
Total debt		$	577,588			$	118,677			$	696,265			4.32	%		100.0	%

(1)	Weighted average interest rate of debt that matures during the year.
(2)	Our primary line of credit matures on August 31, 2022.  Our operating line of credit matures on April 1, 2020.
(3)	Our primary revolving line of credit consists primarily of unsecured borrowings. A portion of the line was secured in connection with our acquisition of SouthFork Townhomes, under an agreement which allowed us to offer the seller tax protection upon purchase.
(4)	Term loans have variable interest rates that are fixed with interest rate swaps that mature on January 31, 2023, January 15, 2024, and August 31, 2025.

         

		3/31/2019				12/31/2018				9/30/2018				6/30/2018				3/31/2018
Debt Balances Outstanding(1)
Secured fixed rate		$	432,588			$	445,974			$	464,964			$	473,546			$	491,002
Secured variable rate		—				—				—				22,620				22,955
Unsecured lines of credit		103,677				57,500				71,000				145,500				134,500
Secured line of credit(2)		15,000				—				—				—				—
Unsecured term loans		145,000				145,000				145,000				70,000				70,000
Debt total		$	696,265			$	648,474			$	680,964			$	711,666			$	718,457
Mortgage Debt Weighted Average Interest Rate		4.54		%		4.58		%		4.65		%		4.67		%		4.69		%
Primary Line of Credit Rate		3.89		%		3.72		%		3.67		%		3.76		%		3.47		%
Operating Line of Credit Rate		4.40		%		—				—				—				—
Term Loan Rate		3.99		%		4.01		%		3.97		%		4.11				4.07

(1)	Includes mortgages on properties held for sale.
(2)	Our revolving line of credit consists primarily of unsecured borrowings. A portion of the line was secured in connection with our acquisition of SouthFork Townhomes, under an agreement which allowed us to offer the seller tax protection upon purchase.

 

IRET CAPITAL ANALYSIS (in thousands, except per share and unit amounts)
		Three Months Ended
		3/31/2019				12/31/2018				9/30/2018				6/30/2018				3/31/2018
Equity Capitalization
Common shares outstanding		11,768				11,942				11,961				11,939				11,979
Operating partnership units outstanding		1,365				1,368				1,379				1,401				1,411
Total common shares and units outstanding		13,133				13,310				13,340				13,340				13,390
Market price per common share (closing price at end of period)		$	59.91			$	49.07			$	59.80			$	55.30			$	51.90
Equity capitalization-common shares and units		786,798				653,122				797,732				737,702				694,941
Recorded book value of preferred shares		$	99,456			$	99,456			$	99,456			$	99,456			$	99,456
Total equity capitalization		$	886,254			$	752,578			$	897,188			$	837,158			$	794,397
Series D Preferred Units		$	16,560			$	—			$	—			$	—			$	—
Debt Capitalization
Total debt		$	696,265			$	648,474			$	680,964			$	711,666			$	718,457
Total capitalization		$	1,599,079			$	1,401,052			$	1,578,152			$	1,548,824			$	1,512,854
Total debt to total capitalization		0.44:1				0.46:1				0.43:1				0.46:1				0.47:1
		Three Months Ended
		3/31/2019				12/31/2018				9/30/2018				6/30/2018				3/31/2018
Debt service coverage ratio(1)		1.86		x		2.07		x		1.96		x		1.83		x		1.36		x
Distribution Data
Common shares and Units outstanding at record date		13,135				13,276				13,340				13,340				13,363
Total common distribution declared		$	9,195			$	9,293			$	9,339			$	9,345			$	9,395
Common distribution per share and Unit		$	0.70			$	0.70			$	0.70			$	0.70			$	0.70
Payout ratio (FFO per share and Unit basis)(1)		90.9		%		76.1		%		85.4		%		80.5		%		102.9		%
Payout ratio (Core FFO per share and Unit basis)(1)		90.9		%		76.1		%		81.4		%		76.9		%		98.6		%

(1)	See Definitions section.

 

IRET RECONCILIATION OF NET OPERATING INCOME TO THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS QUARTERLY COMPARISON (in thousands)
The following table reconciles NOI and our same-store NOI to net income (loss) (the most directly comparable GAAP financial measure) for the periods shown below:
	(in thousands, except percentages)
	Three Months Ended March 31,
	2019				2018				$ Change				% Change
Real estate revenue
Same-store	$	39,612			$	38,048			$	1,564			4.1	%
Non-same-store	5,202				2,006				3,196				159.3	%
Other properties and dispositions	794				2,981				(2,187)				(73.4)	%
Total	$	45,608			$	43,035			$	2,573			6.0	%
Real estate expenses
Same-store	$	17,806			$	17,191			$	615			3.6	%
Non-same-store	1,882				937				945				100.9	%
Other properties and dispositions	348				1,139				(791)				(69.4)	%
Total	$	20,036			$	19,267			$	769			4.0	%
Net operating income
Same-store	$	21,806			$	20,857			$	949			4.6	%
Non-same-store	3,320				1,069				2,251				210.6	%
Other properties and dispositions	446				1,842				(1,396)				(75.8)	%
Total	$	25,572			$	23,768			$	1,804			7.6	%
Reconciliation of NOI to net income (loss) available to common shareholders
Property management	(1,554)				(1,377)				177				12.9	%
Casualty loss	(641)				(50)				591				1,182.0	%
Depreciation/amortization	(18,111)				(20,516)				(2,405)				(11.7)	%
General and administrative expenses	(3,806)				(3,619)				187				5.2	%
Interest expense	(7,896)				(8,296)				(400)				(4.8)	%
Loss on debt extinguishment	(2)				(121)				(119)				(98.3)	%
Interest and other income	424				689				265				(38.5)	%
Income (loss) before gain (loss) on sale of real estate and other investments and income (loss) from discontinued operations	(6,014)				(9,522)				3,508				36.8	%
Gain (loss) on sale of real estate and other investments	54				2,304				(2,250)				(97.7)	%
Income (loss) from continuing operations	(5,960)				(7,218)				1,258				(17.4)	%
Income (loss) from discontinued operations	—				13,882				(13,882)				(100.0)	%
Net income (loss)	$	(5,960)			$	6,664			(12,624)				(189.4)	%
Dividends to preferred unitholders	(57)				—				(57)				100.0	%
Net (income) loss attributable to noncontrolling interests – Operating Partnership	743				(580)				1,323				(228.1)	%
Net (income) loss attributable to noncontrolling interests – consolidated real estate entities	576				520				56				10.8	%
Net income (loss) attributable to controlling interests	(4,698)				6,604				(11,302)				(171.1)	%
Dividends to preferred shareholders	(1,705)				(1,705)				—				—	%
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS	$	(6,403)			$	4,899			$	(11,302)			(230.7)	%

 

IRET SAME-STORE FIRST QUARTER COMPARISONS (in thousands, except property data amounts)
		Apartment Homes Included			Revenues											Expenses											NOI
Regions					CY19Q1				CY18Q1				% Change			CY19Q1				CY18Q1				% Change			CY19Q1				CY18Q1				% Change
Minneapolis, MN		1,796			$	7,689			$	7,184			7.0	%		$	3,148			$	2,964			6.2	%		$	4,541			$	4,220			7.6	%
Rochester, MN		1,711			6,225				6,039				3.1	%		2,454				2,549				(3.7)	%		3,771				3,490				8.1	%
Omaha, NE		1,370			3,754				3,632				3.4	%		1,774				1,626				9.1	%		1,980				2,006				(1.3)	%
Grand Forks, ND		1,555			4,141				4,190				(1.2)	%		2,166				2,041				6.1	%		1,975				2,149				(8.1)	%
Bismarck, ND		1,259			3,602				3,483				3.4	%		1,717				1,568				9.5	%		1,885				1,915				(1.6)	%
St. Cloud, MN		1,190			3,474				3,310				5.0	%		1,808				1,615				12.0	%		1,666				1,695				(1.7)	%
Topeka, KS		1,042			2,556				2,418				5.7	%		1,105				993				11.3	%		1,451				1,425				1.8	%
Sioux Falls, SD		969			2,529				2,442				3.6	%		1,193				1,274				(6.4)	%		1,336				1,168				14.4	%
Billings, MT		770			2,156				1,977				9.1	%		858				826				3.9	%		1,298				1,151				12.8	%
Minot, ND		712			2,118				2,061				2.8	%		1,007				1,186				(15.1)	%		1,111				875				27.0	%
Rapid City, SD		474			1,367				1,312				4.2	%		576				550				4.7	%		791				762				3.8	%
Same-Store Total		12,848			$	39,611			$	38,048			4.1	%		$	17,806			$	17,192			3.6	%		$	21,805			$	20,856			4.6	%

 

		Apartment Homes Included			Weighted Average Occupancy (1)									Weighted Average Monthly Rental Rate (2)											Weighted Average Monthly Revenue per Occupied Home (3)
Regions					CY19Q1			CY18Q1			Growth			CY19Q1				CY18Q1				% Change			CY19Q1				CY18Q1				% Change
Minneapolis, MN		1,796			94.8	%		92.4	%		2.4	%		$	1,408			$	1,367			3.0	%		$	1,505			$	1,443			4.3	%
Rochester, MN		1,711			96.5	%		94.5	%		2.0	%		1,207				1,216				(0.7)	%		1,257				1,244				1.0	%
Omaha, NE		1,370			95.3	%		95.4	%		(0.1)	%		875				857				2.1	%		959				927				3.5	%
Grand Forks, ND		1,555			93.8	%		95.0	%		(1.2)	%		903				908				(0.6)	%		946				945				0.1	%
Bismarck, ND		1,259			96.4	%		93.2	%		3.2	%		942				959				(1.8)	%		990				989				0.1	%
St. Cloud, MN		1,190			95.7	%		94.9	%		0.8	%		939				904				3.9	%		1,016				977				4.0	%
Topeka, KS		1,042			96.7	%		94.4	%		2.3	%		810				799				1.4	%		846				819				3.3	%
Sioux Falls, SD		969			95.3	%		95.7	%		(0.4)	%		850				816				4.2	%		913				878				4.0	%
Billings, MT		770			96.2	%		90.4	%		5.8	%		902				906				(0.4)	%		971				947				2.5	%
Minot, ND		712			95.8	%		95.9	%		(0.1)	%		993				997				(0.4)	%		1,035				1,006				2.9	%
Rapid City, SD		474			96.9	%		96.5	%		0.4	%		931				901				3.3	%		991				956				3.7	%
Same-Store Total		12,848			95.6	%		94.2	%		1.4	%		$	1,013			$	1,001			1.2	%		$	1,075			$	1,048			2.7	%

(1)	Weighted average occupancy is defined as the percentage resulting from dividing actual rental revenue by scheduled rent.
(2)	Weighted average monthly rental rate is scheduled rental revenue divided by the total number of apartment homes.  See definition of scheduled rental revenue in the Definitions section.
(3)	Weighted average monthly revenue per occupied home is defined as total rental revenues divided by the weighted average occupied apartment units for the period.

 

IRET SAME-STORE SEQUENTIAL QUARTER COMPARISONS (in thousands, except property data amounts)
		Apartment Homes Included			Revenues											Expenses											NOI
Regions					CY19Q1				CY18Q4				% Change			CY19Q1				CY18Q4				% Change			CY19Q1				CY18Q4				% Change
Minneapolis, MN		1,796			$	7,689			$	7,542			1.9	%		$	3,148			$	3,026			4.0	%		$	4,541			$	4,516			0.6	%
Rochester, MN		1,711			6,225				6,227				—	%		2,454				2,367				3.7	%		3,771				3,860				(2.3)	%
Omaha, NE		1,370			3,754				3,771				(0.5)	%		1,774				1,535				15.6	%		1,980				2,236				(11.4)	%
Grand Forks, ND		1,555			4,141				4,125				0.4	%		2,166				1,906				13.6	%		1,975				2,219				(11.0)	%
Bismarck, ND		1,259			3,602				3,520				2.3	%		1,717				1,626				5.6	%		1,885				1,894				(0.5)	%
St. Cloud, MN		1,190			3,474				3,473				—	%		1,808				1,484				21.8	%		1,666				1,989				(16.2)	%
Topeka, KS		1,042			2,556				2,519				1.5	%		1,105				1,135				(2.6)	%		1,451				1,384				4.8	%
Sioux Falls, SD		969			2,529				2,522				0.3	%		1,193				1,132				5.4	%		1,336				1,390				(3.9)	%
Billings, MT		770			2,156				2,162				(0.3)	%		858				842				1.9	%		1,298				1,320				(1.7)	%
Minot, ND		712			2,118				2,155				(1.7)	%		1,007				1,037				(2.9)	%		1,111				1,118				(0.6)	%
Rapid City, SD		474			1,367				1,371				(0.3)	%		576				527				9.3	%		791				844				(6.3)	%
Same-Store Total		12,848			$	39,611			$	39,387			0.6	%		$	17,806			$	16,617			7.2	%		$	21,805			$	22,770			(4.2)	%

 

		Apartment Homes Included			Weighted Average Occupancy (1)									Weighted Average Monthly Rental Rate (2)											Weighted Average Monthly Revenue per Occupied Home (3)
Regions					CY19Q1			CY18Q4			Growth			CY19Q1				CY18Q4				% Change			CY19Q1				CY18Q4				% Change
Minneapolis, MN		1,796			94.8	%		92.7	%		2.1	%		$	1,408			$	1,418			(0.7)	%		$	1,505			$	1,511			(0.4)	%
Rochester, MN		1,711			96.5	%		95.1	%		1.4	%		1,207				1,212				(0.4)	%		1,257				1,276				(1.5)	%
Omaha, NE		1,370			95.3	%		95.8	%		(0.5)	%		875				876				(0.1)	%		959				958				0.1	%
Grand Forks, ND		1,555			93.8	%		91.8	%		2.0	%		903				913				(1.1)	%		946				964				(1.9)	%
Bismarck, ND		1,259			96.4	%		93.8	%		2.6	%		942				945				(0.3)	%		990				994				(0.4)	%
St. Cloud, MN		1,190			95.7	%		95.2	%		0.5	%		939				945				(0.6)	%		1,016				1,021				(0.5)	%
Topeka, KS		1,042			96.7	%		95.3	%		1.4	%		810				811				(0.1)	%		846				846				—	%
Sioux Falls, SD		969			95.3	%		95.2	%		0.1	%		850				853				(0.4)	%		913				911				0.2	%
Billings, MT		770			96.2	%		96.3	%		(0.1)	%		902				904				(0.2)	%		971				971				—	%
Minot, ND		712			95.8	%		96.4	%		(0.6)	%		993				1,001				(0.8)	%		1,035				1,046				(1.1)	%
Rapid City, SD		474			96.9	%		96.7	%		0.2	%		931				933				(0.2)	%		991				996				(0.5)	%
Same-Store Total		12,848			95.6	%		94.4	%		1.2	%		$	1,013			$	1,018			(0.5)	%		$	1,075			$	1,082			(0.6)	%

(1)	Weighted average occupancy is defined as the percentage resulting from dividing actual rental revenue by scheduled rent.
(2)	Weighted average monthly rental rate is scheduled rent divided by the total number of apartment homes.  See definition of scheduled rent in the Definitions section.
(3)	Weighted average monthly revenue per occupied home is defined as total rental revenues divided by the weighted average occupied apartment units for the period.

IRET PORTFOLIO SUMMARY(1)
		Three Months Ended
		3/31/2019				12/31/2018				9/30/2018				6/30/2018				3/31/2018
Number of Apartment Homes
Same-Store		12,848				12,847				12,847				12,848				12,844
Non-Same-Store		1,127				855				855				855				855
All Communities		13,975				13,702				13,702				13,703				13,699
Average Scheduled Rent(2) per Apartment Home
Same-Store		$	1,013			$	1,018			$	1,027			$	1,009			$	1,001
Non-Same-Store		1,772				1,797				1,796				1,797				1,783
All Communities		$	1,064			$	1,066			$	1,075			$	1,058			$	1,029
Average Revenue per Occupied Apartment Home(3)
Same-Store		$	1,075			$	1,082			$	1,092			$	1,069			$	1,048
Non-Same-Store		1,943				1,939				1,956				1,941				1,926
All Communities		$	1,134			$	1,136			$	1,146			$	1,123			$	1,079
Weighted Average Occupancy(4)
Same-Store		95.6		%		94.4		%		92.0		%		94.2		%		94.2		%
Non-Same-Store		94.9		%		92.7		%		93.4		%		87.3		%		75.5		%
All Communities		95.5		%		94.2		%		92.2		%		93.5		%		93.0		%
Operating Expenses as a % of Scheduled Rent
Same-Store		45.6		%		42.4		%		42.9		%		42.0		%		44.6		%
Non-Same-Store		37.6		%		30.5		%		36.8		%		32.1		%		36.4		%
All Communities		44.7		%		41.1		%		42.3		%		41.0		%		44.1		%
Capital Expenditures
Total Capital Expenditures per Apartment Home – Same-Store		$	80			$	254			$	274			$	201			$	112

(1)	Previously reported amounts are not revised for changes in the composition of the same-store properties pool.
(2)	See definition of scheduled rent. Average scheduled rent is scheduled rent divided by the total number of units.
(3)	Total revenues divided by the weighted average occupied units for the period.
(4)	See definition of weighted average occupancy in the Definitions section.

 

IRET SAME-STORE CAPITAL EXPENDITURES ($ in thousands, except per home amounts)
		Three Months Ended
		3/31/2019				3/31/2018
Total Same-Store Apartment Homes		12,848				12,844
Turnover		$	612			$	701
Furniture & Equipment		60				44
Building – Interior		78				68
Building – Exterior		217				599
Landscaping & Grounds		63				33
Capital Expenditures		$	1,030			$	1,445
Capital Expenditures per Apartment Home		$	80			$	112

IRET
2019 Calendar Year Financial Outlook
(in thousands, except per share amounts)

We are reaffirming our guidance for our 2019 calendar year Net income (loss) available to shareholders, EPS, same-store performance, Core FFO, and Core FFO per share. Our 2019 calendar year guidance, along with our actual results of the three months ended March 31, 2019, is described in the table below.  Please note that FFO, Core FFO, and NOI are non-GAAP measures.  Refer to Key Financial Data in this release for additional information on the use and presentation of these non-GAAP measures and for reconciliation to the most directly comparable GAAP measures.

	Three Months Ended				Range for 12 Months Ended December 31, 2019
	March 31, 2019				Lower						Mid Point						Upper
	Actual Results				Amount			% Change			Amount			% Change			Amount			% Change
Net income available to common shareholders	$	(6,403)			$	(24,491)		(12.10)	%		$	(21,857)		0.10	%		$	(19,224)		12.00	%
EPS(1)	$	(0.54)			$	(1.86)		(1.60)	%		$	(1.66)		9.30	%		$	(1.46)		20.20	%
Same Store Outlook
Revenue	$	39,612			$	158,800		2.50	%		$	160,000		3.25	%		$	161,200		4.00	%
Expenses	$	17,806			$	69,800		4.00	%		$	69,300		3.25	%		$	68,800		2.50	%
NOI	$	21,806			$	89,600		2.00	%		$	90,700		3.25	%		$	91,800		4.50	%
Core FFO	$	10,150			$	46,348		2.00	%		$	47,666		4.90	%		$	48,981		7.80	%
Core FFO per Share	$	0.77			$	3.52		3.30	%		$	3.62		6.30	%		$	3.72		9.30	%
Weighted Average Shares and Units	13,130				13,167						13,167						13,167

(1)	Earnings per share excludes net income attributable to noncontrolling interests.

Reconciliation of Net Income Available to Common Shareholders to Funds From Operations

The following table presents reconciliations of Net income (loss) available to common shareholders to FFO and Core FFO.  FFO and Core FFO are non-GAAP measures.  FFO and Core FFO should not be considered as alternatives 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.  The outlook and projections provided below are based on current expectations and are forward-looking.

									Outlook
	Three Months Ended								12 Months Ended
	March 31, 2019								December 31, 2019
	Amount				Per Share				Amount				Per Share
Net income (loss) available to common shareholders	$	(6,403)			$	(0.54)			$	(19,884)			$	(1.66)
Noncontrolling interests - Operating Partnership	(743)								(1,961)
Depreciation and amortization	18,111								69,511
Less depreciation-non real estate	(85)								—
Less depreciation-partially owned entities	(678)								—
Gain on sale of real estate attributable to controlling interests	(54)								—
FFO applicable to common shares and Units	$	10,148			$	0.77			$	47,666			$	3.62
Adjustments to Core FFO:
Loss on extinguishment of debt	2								—
Core FFO applicable to common shares and Units	$	10,150			$	0.77			$	47,666			$	3.62

Definitions
March 31, 2019

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.

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 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 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.

Debt to total market capitalization is total debt from the balance sheet divided by the sum of total debt from the balance sheet plus the market value of common shares, operating partnership units, Series C preferred shares, and Series D preferred units outstanding at the end of the period.

Debt service coverage ratio is computed by dividing Adjusted EBITDA by interest expense and principal amortization.

Earnings per shares (EPS) is computed by dividing net income available to our common shareholders by the weighted average number of common shares outstanding during the period.

Funds from operations (FFO) is defined by the National Association of Real Estate Investment Trusts, Inc. (Nareit) as net income (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, 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. 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 use the definition of FFO adopted by Nareit and 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.  However, FFO is a non-GAAP measure and should not be considered a substitute for operating results determined in accordance with GAAP. Nevertheless, we believe that GAAP historical cost depreciation of real estate assets generally is not correlated with changes in the value of those assets, whose value does not diminish predictably over time, as historical cost depreciation implies. In addition, 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.

Net debt to annualized adjusted EBITDA is total debt less cash and cash equivalents and real estate deposits (as reported for the end of the quarter) divided by Adjusted EBITDA (as reported for the end of the quarter), multiplied by 4.  This term is a non-GAAP measure and should not be considered a substitute for operating results determined in accordance with GAAP.

Net operating income (NOI) is a non-GAAP measure which we define as total real estate revenues less real estate expenses.  Real estate expenses consist of property operating expenses and real estate tax expense and do not include property management expense. We believe that NOI is an important supplemental measure of operating performance for a REIT's operating real estate because it provides a measure of core operations that is unaffected by depreciation, amortization, financing, property management overhead, casualty losses, and general and administrative expense. However, NOI is a non-GAAP measure and should not be considered a substitute for operating results determined in accordance with GAAP. 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.

Payout ratio (FFO per share and unit basis) is the ratio of the current quarterly or annual distribution rate per common share and unit divided by quarterly or annual FFO per share and unit.  This term is a non-GAAP measure and should not be considered a substitute for operating results determined in accordance with GAAP.

Payout ratio (Core FFO per share and unit basis) is the ratio of the current quarterly or annual distribution rate per common share and unit divided by quarterly or annual Core FFO per share and unit.  This term is a non-GAAP measure and should not be considered a substitute for operating results determined in accordance with GAAP.

Scheduled rent represents the value of all apartment homes, with occupied apartment homes valued at contractual rates pursuant to leases and vacant apartment homes valued at estimated market rents. When calculating actual rents for occupied apartment homes and market rents for vacant homes, delinquencies and concessions are not taken into account.  Market rates are determined using the currently offered effective rates on new leases at the community and are used as the starting point in determination of the market rates of vacant apartment homes.

Same-store properties are properties owned or in service for the entirety of the periods being compared (except for properties classified as held for sale) and which, in the case of development properties, have achieved a stabilized level of occupancy, which is generally 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.

GAAP is defined as accounting principles generally accepted in the United States of America.

Weighted average occupancy is the percentage resulting from dividing actual rental revenue by scheduled rent.  We believe that weighted average occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate. Weighted average occupancy may not completely reflect short-term trends in physical occupancy and our calculation of weighted average occupancy may not be comparable to that disclosed by other REITs.

 

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