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

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.

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.

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

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  

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.

Same-Store Expense Comparison

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.