Form 8-K INVESTORS REAL ESTATE For: Sep 09

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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FORM 8-K

 

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CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  September 9, 2015

INVESTORS REAL ESTATE TRUST

 (Exact name of Registrant as specified in its charter)

 

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1400 31st Avenue SW, Suite 60

Post Office Box 1988

Minot, ND 58702-1988

 (Address of principal executive offices) (Zip code)

(701) 837-4738

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed from last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐

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

 

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Item 2.02.

Results of Operations and Financial Condition.

and

Item 7.01.

Regulation FD Disclosure.

An earnings release issued by the Company on September 9, 2015, regarding financial and operational results for the three months ended July 31, 2015, is attached as Exhibit 99.1, and certain supplemental information regarding the Company’s capital analysis, portfolio, tenant analysis and growth and strategy not included in the earnings release is attached as Exhibit 99.2.

 

This information pursuant to Item 7.01 and Item 2.02 of Form 8-K, including Exhibits 99.1 and 99.2, is being furnished. This information is not deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 and is not incorporated by reference into any Securities Act registration statements.

ITEM 9.01

Financial Statements and Exhibits

(d)

Exhibits

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.

 

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Exhibit 99.1

Earnings Release

 

INVESTORS REAL ESTATE TRUST

ANNOUNCES

FINANCIAL AND OPERATING RESULTS

FOR THE QUARTER ENDED JULY 31, 2015

 

Minot, ND – September 9, 2015 – Investors Real Estate Trust (NYSE: IRET) reported financial and operating results today for the quarter ended July 31, 2015.

 

For the three month period ended July 31, 2015, as compared to the same period of the prior fiscal year:

 

·

Revenues increased to $51.0 million from $49.2 million, an increase of 3.5%.

 

·

Total expenses decreased by approximately $1.2 million, or 3.2%, in the three months ended July 31, 2015 compared to the three months ended July 31, 2014, from $38.0 million to $36.8 million.

 

·

FFO increased to $22.0 million on 139 million weighted average shares and units outstanding, from $18.9 million on 131 million weighted average shares and units outstanding ($.16 per share and unit compared to $.14 per share and unit).

 

·

Net Income Available to Common Shareholders was $1.7 million compared to $(3.0) million of Net Loss Available to Common Shareholders in the prior fiscal year.

 

Significant Events and Transactions during the first quarter of fiscal year 2016:

 

·

The placement into service of the following: the 72-unit Chateau II multi-family residential property in Minot, North Dakota; the 57,624 square foot Edina 6565 France SMC III healthcare expansion project in Edina, Minnesota; and the final 72 units of the 288-unit Renaissance Heights multi-family residential property in Williston, North Dakota, in which we have an approximately 70% interest.

 

·

The disposition of an office property in Minneapolis, Minnesota, for a sale price of $7.0 million.

 

·

On June 12, 2015, our Operating Partnership entered in an agreement to sell 33 office properties, one healthcare property and a parcel of unimproved land.

 

·

On June 23, 2015, Jeff P. Caira was appointed as a Trustee of our Board of Trustees.

 

·

On June 25, 2015, our Operating Partnership entered into an agreement to sell 17 retail properties and a parcel of unimproved land.

IRET’s President and Chief Executive Officer, Timothy Mihalick, commented, “As we celebrate IRET’s 45^th year in business, I am excited to report that we continue to transform the makeup of our real estate portfolio as previously announced.  On August 3, 2015 we completed the sale of substantially all of our office portfolio and expect to complete the sale of substantially all of our retail portfolio in the second quarter of fiscal year 2016.  As evidenced by our recent filings IRET is now reporting three property segments, which is down from the previously reported five segments and includes our multi-family and healthcare segments.  I believe this enhanced focus will allow us to concentrate on our core strengths of creating value through development, value enhancing property repositioning and improving operating efficiencies with a more concentrated portfolio, leading to increased NOI growth.  Our first quarter results met our expectations and we believe that as other development projects come on line during fiscal year 2016 we will see the full effect of those developments with year over year NOI growth in fiscal year 2017.  We remain confident about the future of IRET as we execute on all of the changes during this exciting time.

 

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1

The National Association of Real Estate Investment Trusts, Inc. (NAREIT) defines FFO as “net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from sales of property, plus real estate depreciation and amortization, and adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis.”  In addition, in October 2011 NAREIT clarified its computation of FFO to exclude impairment charges for all periods presented. FFO is a non-GAAP measure. We consider FFO, which is a standard supplemental measure for equity real estate investment trusts, helpful to investors because it facilitates an understanding of the operating performance of properties without giving effect to impairment write-downs and to real estate depreciation and amortization, which assumes that the value of real estate assets diminishes predictably over time.  Since real estate values instead historically rise or fall with market conditions, we believe that FFO provides investors and management with a more accurate indication of our financial and operating results. See table below for a reconciliation of Net Income to FFO.

 

Operating Results

 

Net Operating Income (NOI)² from all properties increased by $1.3 million, or 4.5%, during the three-month period ended July 31, 2015, compared to the same period one year ago. Non-same-store properties, primarily our new multi-family residential developments, provided for an increase of approximately $859,000, while same-store³ NOI provided for approximately $490,000.

 

Occupancy as of July 31, 2015 compared to July 31, 2014 decreased slightly in our multi-family residential and healthcare segments and remained stable in our industrial segment on a same-store basis. Occupancy represents the actual number of units or square footage leased divided by the total number of units or square footage at the end of the period.

 

Occupancy Levels on a Same-Store Property and All Property Basis:

 

2

We measure the performance of our segments based on NOI, which we define as total real estate revenues and gain on involuntary conversion less real estate expenses (which consist of utilities, maintenance, real estate taxes, insurance, property management expenses and other property expenses). We believe that NOI is an important supplemental measure of operating performance for a real estate investment trust’s operating real estate because it provides a measure of core operations that is unaffected by depreciation, amortization, financing and general and administrative expense. 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. See tables below for a reconciliation of NOI to the condensed consolidated financial statements.

3

Same-store properties are properties owned or in service for the entirety of the periods being compared (except for properties for which significant redevelopment or expansion occurred during either of the periods being compared, and properties sold or classified as held for sale), and, in the case of development or re-development properties, which have achieved a target level of occupancy of 90% for multi-family residential properties and 85% for office, healthcare, industrial and retail properties.

 

Developments Placed in Service and Disposition

 

During the first quarter of fiscal year 2016, we placed into service the 72-unit Chateau II multi-family residential property in Minot, North Dakota; the 57,624 square foot Edina 6565 France SMC III healthcare expansion project in Edina, Minnesota; and the final 72 units of the 288-unit Renaissance Heights multi-family residential property in Williston, North Dakota, in which we have an approximately 70% interest.

 

Also during the first quarter of fiscal year 2016, we sold an office property in Minneapolis, Minnesota, for a sale price of $7.0 million.

 

Strategic Dispositions

 

Mortgages Payable

 

The Company’s mortgages payable include a non-recourse $122.6 million CMBS loan, for which nine of the Company’s office properties serve as collateral and under which a special-purpose subsidiary of the Company is the borrower. This loan matures in October 2016. Because the loan amount significantly exceeds the Company’s current estimate of the fair value of this nine-property portfolio, the Company contacted the master servicer to initiate discussions on various alternatives with regard to the loan. On April 14, 2015, the Company received a letter from the special servicer advising that the loan was in default due to a nonpayment on April 6, 2015. The Company is currently discussing a deed in lieu agreement with the lender, but the Company can give no assurance that such resolution will be entered into or that another mutually acceptable resolution will be reached.

 

Shareholder Equity, Distributions and Capital Structure

 

As of July 31, 2015, IRET had a total capitalization of $2.1 billion. Total capitalization is defined as the market value (closing price at end of period) of the Company’s outstanding common shares and the imputed market value of the outstanding limited partnership units of IRET Properties (which are convertible, at the expiration of a specified holding period, into cash or, at the Company’s sole discretion, into common shares of the Company on a one-to-one basis), plus the book value of the Company’s preferred shares and the outstanding principal balance of the consolidated debt of the Company.

 

On July 1, 2015, IRET paid a quarterly distribution of $0.1300 per share and unit on its common shares and limited partnership units of IRET Properties. This was IRET’s 177^th consecutive distribution. IRET also paid, on June 30, 2015, a quarterly distribution of $0.5156 per share on its Series A preferred shares and a quarterly distribution of $0.4968 per share on its Series B preferred shares.

 

Distribution Declared.  Subsequent to the end of the first quarter of fiscal year 2016, on September 2, 2015, the Company’s Board of Trustees declared a regular quarterly distribution of $0.1300 per share and unit on the Company’s common shares of beneficial interest and the limited partnership units of IRET Properties, payable October 1, 2015 to common shareholders and unitholders of record on September 15, 2015. Also on September 2, 2015, the Company’s Board of Trustees’ declared a distribution of $0.5156 per share on the Company’s Series A preferred shares of beneficial interest, payable September 30, 2015 to Series A preferred shareholders of record on September 15, 2015, and declared a distribution of $0.4968 per share on the Company’s Series B preferred shares of beneficial interest, payable September 30, 2015 to Series B preferred shareholders of record on September 15, 2015.

 

Conference Call Information

 

The Conference Call for 1st Quarter Earnings is scheduled for Thursday, September 10, 2015 at 9:00 A.M. Central Time.  The call will be limited to one hour, including questions and answers.  Conference call access information is as follows:

 

USA Toll Free Number: 1-877-509-9785

 

International Toll Free Number: 1-412-902-4132

 

Canada Toll Free Number: 1-855-669-9657

 

A webcast and transcript of the call will be archived on the “Investor Info/ Presentations & Events/Presentations” page of IRET’s website, http://www.iret.com, for one year.  Questions regarding the conference call should be directed to [email protected].

 

About IRET

 

IRET is a self-administered, equity real estate investment trust investing in income-producing properties located primarily in the upper Midwest. IRET holds for investment a portfolio of 181 properties consisting of 100 multi-family residential properties, 64 healthcare properties (including senior housing), 7 industrial properties and 10 other commercial properties with a total of 4.4 million square feet of leasable space.  IRET common shares, Series A preferred shares and Series B preferred shares are publicly traded on the New York Stock Exchange (NYSE symbols: IRET, IRETPR and IRETPRB, respectively). IRET’s press releases and supplemental information are available on the Company website at www.iret.com or by contacting Investor Relations at 701-837-4738.

 

Certain statements in this earnings release are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from projected results. Such risks, uncertainties and other factors include, but are not limited to: intentions and expectations regarding future distributions on our common shares and units, fluctuations in interest rates, the effect of government regulation, the availability of capital, changes in general and local economic and real estate market conditions, competition, our ability to attract and retain skilled personnel, and those risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission, including our 2015 Form 10-K.  We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

 

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

 

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

for the three months ended July 31, 2015 and 2014

 

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

RECONCILIATION OF NET INCOME ATTRIBUTABLE TO

INVESTORS REAL ESTATE TRUST TO FUNDS FROM OPERATIONS

for the three months ended July 31, 2015 and 2014

 

(1)

Real estate depreciation and amortization consists of the sum of depreciation/amortization related to real estate investments and amortization related to non-real estate investments from the Condensed Consolidated Statements of Operations, totaling $13,443 and $12,435, and depreciation/amortization from Discontinued Operations of $4,863 and $4,621, less corporate-related depreciation and amortization on office equipment and other assets of $31 and $19, for the three months ended July 31, 2015 and 2014, respectively.

(2)	UPREIT Units of the Operating Partnership are exchangeable for cash, or, at the Company’s discretion, for common shares of beneficial interest on a one-for-one basis.

(3)	Net income attributable to Investors Real Estate Trust is calculated on a per share basis. FFO is calculated on a per share and unit basis.

 

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

for the three months ended July 31, 2015 and 2014

(1)

NOI from segments below the quantitative thresholds is attributable to the Company’s office and retail segments. Both of these segments met the quantitative threshold for determining reportable segments prior to the first quarter of fiscal year 2016, at which time the Company classified most of the properties in these segments as held for sale and discontinued operations.

 

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Exhibit 99.2

First Quarter Fiscal 2016

Supplemental Operating and Financial Data

for the Quarter Ended July 31, 2015

 

Supplemental Financial and Operating Data

Table of Contents

July 31, 2015

 

Company Background and Highlights

First Quarter Fiscal 2016

 

During the first quarter of fiscal year 2016, we placed into service the 72-unit Chateau II multi-family residential property in Minot, North Dakota; the 57,624 square foot Edina 6565 France SMC III healthcare expansion project in Edina, Minnesota; and the final 72 units of the 288-unit Renaissance Heights multi-family residential property in Williston, North Dakota, in which we have an approximately 70% interest.

 

Also during the first quarter of fiscal year 2016, we sold an office property in Minneapolis, Minnesota, for a sale price of $7.0 million.

 

We experienced generally stable trends across our apartment investments during the first quarter of fiscal year 2016. Same-store net operating income was flat and occupancy slipped 0.5% to 93.5% at quarter end on same store-assets when compared to the same period in the prior fiscal year.  According to AXIOMetrics Inc., the national apartment occupancy rate declined 0.11% to 95.2% during July 2015, which matches the level of three months ago.  However, our ability to maintain occupancy levels and raise rents remains dependent on continued healthy employment and wage growth. We have continued to observe considerable multi-family development activity in our markets, and as this new construction is completed and leased, we will experience increased competition for residents. However, based on information available to us, apartment developers in our markets are currently seeing increases in construction costs for potential new apartment developments, which may slow new developments in our markets.  The U.S. economic outlook through 2017 is forecasted to be good according to U.S. Bureau of Labor Statistics and Moody’s Analytics.  Businesses are adding jobs and for the first time in this phase of the economic cycle we are seeing meaningful wage growth.  There is an attitudinal shift also occurring toward renting by professional millennials and to lesser, although growing degree, by baby boomers.  These trends are beneficial to apartment owners.

 

Our healthcare segment consists of medical office properties and senior housing facilities. The medical office sector remains stable with high occupancy and modest rent increases.  Our senior housing assets continue to benefit from the strengthening recovery in the housing market, as occupancy trends are closely aligned with the ability of seniors to sell their homes in anticipation of moving to a senior care facility.

 

The industrial property market continues to improve.  Our industrial properties are located primarily in the Minneapolis market, and same-store occupancy remained at 100%. The demand for bulk warehouse and manufacturing space in our markets is healthy, with rents generally rising.

 

We are in process of selling substantially all of our office and retail properties.  In an update to our previously-announced strategic plan, we are narrowing our property focus.  Sale proceeds are intended to be used toward portfolio deleveraging and investments in multi-family residential and healthcare.

 

In the first quarter of fiscal year 2016, IRET paid its 177^th consecutive quarterly distribution. The $0.1300 per share/unit distribution was payable on July 1, 2015. Subsequent to the end of the first quarter of fiscal year 2016, on September 2, 2015, the Company’s Board of Trustees declared a regular quarterly distribution of $0.1300 per share and unit on the Company’s common shares of beneficial interest and the limited partnership units of IRET Properties, payable October 1, 2015 to common shareholders and unitholders of record on September 15, 2015. Also on September 2, 2015, the Company’s Board of Trustees’ declared a distribution of $0.5156 per share on the Company’s Series A preferred shares of beneficial interest, payable September 30, 2015 to Series A preferred shareholders of record on September 15, 2015, and declared a distribution of $0.4968 per share on the Company’s Series B preferred shares of beneficial interest, payable September 30, 2015 to Series B preferred shareholders of record on September 15, 2015.

 

As of July 31, 2015, IRET holds for investment a portfolio of 181 properties consisting of 100 multi-family residential properties, 64 healthcare properties (including senior housing), 7 industrial properties and 10 other commercial properties.  IRET’s common shares are publicly traded on the New York Stock Exchange (NYSE: IRET).

 

Company Snapshot

(as of July 31, 2015)

 

Investor Information

(as of July 31, 2015)

Board of Trustees

 

Management

 

Corporate Headquarters:

1400 31^st Avenue SW, Suite 60

Post Office Box 1988

Minot, North Dakota 58702-1988

 

Trading Symbol:  IRET

Stock Exchange Listing:  NYSE

 

Investor Relations Contact:

Cindy Bradehoft

 

Common Share Data (NYSE: IRET)

 

Certain statements in these supplemental disclosures are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from projected results. Such risks, uncertainties and other factors include, but are not limited to: intentions and expectations regarding future distributions on our common shares and units, fluctuations in interest rates, the effect of government regulation, the availability of capital, changes in general and local economic and real estate market conditions, competition, our ability to attract and retain skilled personnel, and those risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission, including our 2015 Form 10-K. We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

 

 

 

 

Percentage of Total Property Cost by State for Properties Held for Investment

 

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands)

(1)

Period has not been revised to reflect assets and liabilities classified as held for sale at July 31, 2015.

 

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except per share data)

 

(1)	See Definitions on page 26.  Adjusted EBITDA is a non-GAAP measure; see page 9 for a reconciliation of Adjusted EBITDA to net income.

 

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

FUNDS FROM OPERATIONS (unaudited)

(in thousands, except per share and unit data)

 

(1)	See Definitions on page 26.

(2)	Three months ended 7/31/14 revised to include trustee share-based compensation expense.

 

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

ADJUSTED EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (ADJUSTED EBITDA) (unaudited)

(in thousands)

 

 

(1)	See Definitions on page 26.

(2)	Included in real estate revenue in the Statement of Operations.

 

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

LONG-TERM MORTGAGE DEBT* ANALYSIS

(in thousands)

Debt Maturity Schedule

Annual Expirations