Press Release

IRET Reports Strong Second Quarter 2019 Financial Results and Raises 2019 Guidance

Company Release - 8/7/2019 5:31 PM ET

MINOT, N.D., Aug. 7, 2019 /PRNewswire/ --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.

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.

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.

Contact Information
Jonathan Bishop
Vice President – Finance
Phone: 701-837-7104
E-mail: IR@iret.com  

 

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


 

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)

%

 

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


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

%

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


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

 

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



$



$



$



$

6,926



1.0

%


5.59

%

2020


35,122







4,589



39,711



5.7

%


5.26

%

2021


95,394









95,394



13.7

%


5.17

%

2022


38,343



50,000



15,000



108,350



211,693



30.5

%


3.91

%

2023


48,808









48,808



7.0

%


4.02

%

Thereafter


147,358



145,000







292,358



42.1

%


3.90

%

Total debt


$

371,951



$

195,000



$

15,000



$

112,939



$

694,890



100.0

%


4.18

%



(1)

Term loans have variable interest rates that are fixed with interest rate swaps and $50.0 million of our variable interest, primary line of credit is fixed with an interest rate swap.

(2)

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.

(3)

Weighted average interest rate of debt that matures during the year, including the effect of interest rate swaps on the term loans and line of credit. 

 



6/30/2019


3/31/2019


12/31/2018


9/30/2018


6/30/2018

Debt Balances Outstanding(1)











Secured fixed rate


$

371,951



$

432,588



$

445,974



$

464,964



$

473,546


Secured variable rate mortgage










22,620


Unsecured fixed rate line of credit(2)


50,000










Secured line of credit(3)


15,000



15,000








Unsecured variable rate line of credit


112,939



103,677



57,500



71,000



145,500


Unsecured term loans


145,000



145,000



145,000



145,000



70,000


   Debt total


$

694,890



$

696,265



$

648,474



$

680,964



$

711,666













Mortgage Debt Weighted Average Interest Rate


4.37

%


4.54

%


4.58

%


4.65

%


4.67

%

Primary Line of Credit Rate - Fixed (rate with swap)


3.42

%









Primary Line of Credit Rate - Variable


3.99

%


3.89

%


3.72

%


3.67

%


3.76

%

Operating Line of Credit Rate


4.39

%


4.40

%







Term Loan Rate (rate with swap)


4.14

%


3.99

%


4.01

%


3.97

%


4.11

%



(1)

Includes mortgages on properties held for sale.

(2)

A portion of our primary line of credit is fixed through an interest rate swap.

(3)

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



6/30/2019


3/31/2019


12/31/2018


9/30/2018


6/30/2018

Equity Capitalization











Common shares outstanding


11,656



11,768



11,942



11,961



11,939


Operating partnership units outstanding


1,224



1,365



1,368



1,379



1,401


Total common shares and units outstanding


12,880



13,133



13,310



13,340



13,340


Market price per common share (closing price at end of period)


$

58.67



$

59.91



$

49.07



$

59.80



$

55.30


Equity capitalization-common shares and units


$

755,670



$

786,798



$

653,122



$

797,732



$

737,702


Recorded book value of preferred shares


$

99,456



$

99,456



$

99,456



$

99,456



$

99,456


Total equity capitalization


$

855,126



$

886,254



$

752,578



$

897,188



$

837,158













Series D Preferred Units


$

16,560



$

16,560



















Debt Capitalization











Total debt


$

694,889



$

696,265



$

648,474



$

680,964



$

711,666


Total capitalization


$

1,566,575



$

1,599,079



$

1,401,052



$

1,578,152



$

1,548,824













Total debt to total capitalization(1)


0.44:1



0.44:1



0.46:1



0.43:1



0.46:1




(1)

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.

 



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

Debt service coverage ratio(1)


2.24

x


1.86

x


2.07

x


1.96

x


1.83

x



2.04

x


1.58

x

















Distribution Data
















Common shares and Units outstanding at record date


12,914



13,135



13,276



13,340



13,340




12,914



13,340


Total common distribution declared


$

9,039



$

9,195



$

9,293



$

9,339



$

9,345




$

18,234



$

18,740


Common distribution per share and Unit


$

0.70



$

0.70



$

0.70



$

0.70



$

0.70




$

1.40



$

1.40


Payout ratio (FFO per share and Unit basis)(2)


48.3

%


90.9

%


76.1

%


85.4

%


80.5

%



63.1

%


90.3

%

Payout ratio (Core FFO per share and Unit basis)(3)


70.0

%


90.9

%


76.1

%


81.4

%


76.9

%



79.1

%


86.4

%



(1)

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

(2)

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.

(3)

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.

 

IRET

SAME-STORE SECOND QUARTER COMPARISONS

(in thousands, except property data amounts and percentages)




Apartment
Homes
Included


Revenues


Expenses


NOI

Regions



CY19Q2


CY18Q2


% Change


CY19Q2


CY18Q2


% Change


CY19Q2


CY18Q2


% Change

Minneapolis, MN


1,796



$

7,835



$

7,287



7.5

%


$

3,171



$

2,958



7.2

%


$

4,664



$

4,329



7.7

%

Rochester, MN


1,711



6,291



6,086



3.4

%


2,450



2,292



6.9

%


3,841



3,794



1.2

%

Omaha, NE


1,370



3,705



3,700



0.1

%


1,635



1,606



1.8

%


2,070



2,094



(1.1)

%

Grand Forks, ND


1,555



4,218



4,227



(0.2)

%


1,909



1,912



(0.2)

%


2,309



2,315



(0.3)

%

Bismarck, ND


1,259



3,595



3,607



(0.3)

%


1,491



1,596



(6.6)

%


2,104



2,011



4.6

%

St. Cloud, MN


1,190



3,584



3,389



5.8

%


1,524



1,651



(7.7)

%


2,060



1,738



18.5

%

Topeka, KS


1,042



2,558



2,514



1.8

%


1,206



1,065



13.2

%


1,352



1,449



(6.7)

%

Sioux Falls, SD


969



2,544



2,470



3.0

%


1,222



1,050



16.4

%


1,322



1,420



(6.9)

%

Billings, MT


770



2,178



2,080



4.7

%


773



581



33.0

%


1,405



1,499



(6.3)

%

Minot, ND


712



2,145



2,100



2.1

%


1,036



1,031



0.5

%


1,109



1,069



3.7

%

Rapid City, SD


474



1,371



1,344



2.0

%


557



603



(7.6)

%


814



741



9.9

%

Same-Store Total


12,848



$

40,024



$

38,804



3.1

%


$

16,974



$

16,345



3.8

%


$

23,050



$

22,459



2.6

%

 



Apartment
Homes
Included


Weighted Average Occupancy (1)


Weighted Average Monthly
Rental Rate (2)


Weighted Average Monthly
Revenue per Occupied Home (3)

Regions



CY19Q2


CY18Q2


Growth


CY19Q2


CY18Q2


% Change


CY19Q2


CY18Q2


% Change

Minneapolis, MN


1,796



93.4

%


91.7

%


1.7

%


$

1,439



$

1,391



3.5

%


$

1,557



$

1,474



5.8

%

Rochester, MN


1,711



95.4

%


94.7

%


0.7

%


1,233



1,211



1.8

%


1,285



1,252



2.7

%

Omaha, NE


1,370



93.3

%


95.5

%


(2.2)

%


884



869



1.7

%


966



942



2.3

%

Grand Forks, ND


1,555



93.5

%


94.0

%


(0.5)

%


912



916



(0.4)

%


967



964



0.3

%

Bismarck, ND


1,259



92.8

%


94.7

%


(1.9)

%


953



954



(0.1)

%


1,026



1,008



1.6

%

St. Cloud, MN


1,190



95.4

%


95.3

%


0.1

%


951



918



3.6

%


1,053



996



5.7

%

Topeka, KS


1,042



95.6

%


95.5

%


0.1

%


818



804



1.7

%


856



842



1.7

%

Sioux Falls, SD


969



94.4

%


94.2

%


0.2

%


858



832



3.1

%


927



902



2.8

%

Billings, MT


770



95.6

%


93.0

%


2.6

%


921



908



1.4

%


986



968



2.1

%

Minot, ND


712



95.0

%


95.8

%


(0.8)

%


1,000



998



0.2

%


1,057



1,026



2.9

%

Rapid City, SD


474



95.0

%


95.9

%


(0.9)

%


945



916



3.2

%


1,015



986



2.9

%

Same-Store Total


12,848



94.3

%


94.2

%


0.1

%


$

1,028



$

1,009



1.9

%


$

1,101



$

1,069



3.0

%



(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. Scheduled rental revenue 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.

(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 and percentages)




Apartment
Homes
Included


Revenues


Expenses


NOI

Regions



CY19Q2


CY19Q1


% Change


CY19Q2


CY19Q1


% Change


CY19Q2


CY19Q1


% Change

Minneapolis, MN


1,796



$

7,835



$

7,689



1.9

%


$

3,172



$

3,148



0.8

%


$

4,664



$

4,541



2.7

%

Rochester, MN


1,711



6,291



6,225



1.1

%


2,450



2,454



(0.2)

%


3,841



3,771



1.9

%

Omaha, NE


1,370



3,705



3,754



(1.3)

%


1,635



1,774



(7.8)

%


2,070



1,980



4.5

%

Grand Forks, ND


1,555



4,218



4,141



1.9

%


1,909



2,166



(11.9)

%


2,309



1,975



16.9

%

Bismarck, ND


1,259



3,595



3,602



(0.2)

%


1,491



1,717



(13.2)

%


2,104



1,885



11.6

%

St. Cloud, MN


1,190



3,584



3,474



3.2

%


1,525



1,808



(15.7)

%


2,060



1,666



23.6

%

Topeka, KS


1,042



2,558



2,556



0.1

%


1,206



1,105



9.1

%


1,352



1,451



(6.8)

%

Sioux Falls, SD


969



2,544



2,529



0.6

%


1,222



1,193



2.4

%


1,322



1,336



(1.0)

%

Billings, MT


770



2,178



2,156



1.0

%


773



858



(9.9)

%


1,405



1,298



8.2

%

Minot, ND


712



2,145



2,118



1.3

%


1,036



1,007



2.9

%


1,109



1,111



(0.2)

%

Rapid City, SD


474



1,371



1,367



0.3

%


557



576



(3.3)

%


814



791



2.9

%

Same-Store Total


12,848



$

40,024



$

39,611



1.0

%


$

16,976



$

17,806



(4.7)

%


$

23,050



$

21,805



5.7

%

 



Apartment
Homes
Included


Weighted Average Occupancy


Weighted Average Monthly
Rental Rate


Weighted Average Monthly
Revenue per Occupied Home

Regions



CY19Q2


CY19Q1


Growth


CY19Q2


CY19Q1


% Change


CY19Q2


CY19Q1


% Change

Minneapolis, MN


1,796



93.4

%


94.8

%


(1.4)

%


$

1,439



$

1,408



2.2

%


$

1,557



$

1,505



3.3

%

Rochester, MN


1,711



95.4

%


96.5

%


(1.1)

%


1,233



1,207



2.2

%


1,285



1,257



2.2

%

Omaha, NE


1,370



93.3

%


95.3

%


(2.0)

%


884



875



1.0

%


966



959



0.7

%

Grand Forks, ND


1,555



93.5

%


93.8

%


(0.3)

%


912



903



1.0

%


967



946



2.2

%

Bismarck, ND


1,259



92.8

%


96.4

%


(3.6)

%


953



942



1.2

%


1,026



990



3.4

%

St. Cloud, MN


1,190



95.4

%


95.7

%


(0.3)

%


951



939



1.3