Investors Real Estate Trust (IRET) — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2020. The filing identifies the registrant as Investors Real Estate Trust; the request metadata identifies the company as Centerspace, so the issuer name should be verified. IRET operated as a multifamily REIT owning interests in 67 apartment communities totaling 11,910 homes.
Financial performance and position
| Metric | Three months ended Sept. 30, 2020 | Three months ended Sept. 30, 2019 | Nine months ended Sept. 30, 2020 | Nine months ended Sept. 30, 2019 |
|---|---|---|---|---|
| Revenue | $44.1 million | $47.4 million | $132.5 million | $140.0 million |
| Net income | $21.2 million | $34.7 million | $9.4 million | $32.0 million |
| Net income available to common shareholders | $18.0 million | $29.9 million | $4.2 million | $24.9 million |
| Basic diluted EPS | $1.40 / $1.38 | $2.57 / $2.54 | $0.33 / $0.33 | $2.11 / $2.11 |
| Net operating income | $25.6 million | $27.5 million | $77.2 million | $80.5 million |
| FFO applicable to common shares and Units | $12.6 million | $12.2 million | $33.7 million | $41.1 million |
Revenue declined 7.0% in the quarter and 5.4% year to date, primarily because of dispositions. Same-store revenue increased 1.1% in the quarter and 2.1% year to date. Same-store weighted average occupancy was 94.4% for the quarter and 94.8% year to date, compared with 93.5% and 94.5%, respectively, in the prior-year periods.
Net income and common-share earnings declined substantially because prior-year results benefited from larger real estate sale gains and a $6.6 million litigation settlement gain that did not recur. Year-to-date results also included a $3.4 million realized loss on marketable securities. Quarterly FFO increased 3.7%, while year-to-date FFO decreased 18.2%.
| Balance-sheet and liquidity metric | Sept. 30, 2020 | Dec. 31, 2019 |
|---|---|---|
| Total assets | $1.479 billion | $1.392 billion |
| Property owned, net | $1.425 billion | $1.294 billion |
| Cash and cash equivalents | $16.8 million | $26.6 million |
| Total cash, cash equivalents and restricted cash | $19.0 million | $46.1 million |
| Total debt | $719.5 million | $651.5 million |
| Total equity | $686.5 million | $679.9 million |
| Reported total liquidity | $131.8 million | $226.5 million |
Net cash provided by operating activities was $47.3 million for the first nine months, versus $51.6 million in the prior-year period. Investing activities used $148.6 million, principally for real estate acquisitions and improvements. Financing activities provided $74.2 million, including $57.5 million of net proceeds from common-share issuance under the ATM program and increased revolver borrowings. Distributions declared were $0.70 per common share and Unit for the quarter.
Debt and capital structure
- Revolving lines of credit totaled $135.0 million, with approximately $115.0 million of additional availability under the $250.0 million facility at quarter-end.
- Term loans totaled $145.0 million, unsecured senior notes totaled $125.0 million, and mortgage debt totaled approximately $314.5 million.
- Weighted average interest rate on total debt was 3.68%; all mortgage debt was fixed-rate with a 3.99% weighted average rate.
- The primary unsecured credit facility matures August 31, 2022, with one 12-month extension option. The operating line matures August 1, 2021.
- Management stated that the company was in compliance with its debt covenants and had no material mortgage defaults or noncompliance as of September 30, 2020.
- The company issued 819,082 common shares under the 2019 ATM program during the first nine months for approximately $57.5 million net proceeds. Approximately $69.2 million remained available under the program.
Material portfolio and operating changes
- Acquired the 465-home Parkhouse Apartment Homes in Thornton, Colorado, for $144.8 million during the third quarter.
- Acquired the 182-home Ironwood Apartments in New Hope, Minnesota, for $46.3 million during March 2020, using $28.6 million of cash and a $17.7 million note receivable payoff.
- Disposed of four Grand Forks, North Dakota apartment communities and one commercial property during the third quarter for approximately $43.0 million; total nine-month dispositions were $44.3 million and generated a $25.5 million gain.
- Acquired the remaining 47.4% noncontrolling interest in the entity owning 71 France for $12.2 million.
- Real estate investments increased primarily because acquisitions exceeded dispositions, while common shares outstanding increased to approximately 13.0 million from 12.1 million at year-end 2019.
Outlook, risks and unusual items
Management reported that COVID-19 had not materially affected financial condition, operating results or cash flows through September 30, 2020, but emphasized that future effects remained uncertain. The company offered rent deferrals to financially affected multifamily residents and rent abatements to certain commercial tenants; commercial rent abatements reduced revenue by $136,000 in the quarter and $538,000 year to date, and approximately $59,000 of resident rent deferrals remained outstanding at quarter-end.
- COVID-19 could reduce rent collections, occupancy, renewals and rental rates, particularly following the expiration of enhanced federal unemployment benefits on July 31, 2020.
- Credit-market disruption could limit access to revolver capacity, debt refinancing or equity capital and could increase covenant or liquidity pressure.
- Approximately $35.3 million of debt maturities were expected during 2021, and approximately $27.2 million remained to be funded under construction and mezzanine loans, primarily over the following 12 months.
- Hail damage at six communities generated approximately $2.4 million of estimated damage during the first nine months; $1.1 million was recorded as casualty loss and approximately $2.0 million of replacement spending was expected over the next 12 months.
- No impairment charges were recorded in the first nine months of 2020 or 2019, but impairment evaluations depend on assumptions regarding occupancy, rents, property values and capital requirements.
- No material pending litigation was reported, and management stated that disclosure controls were effective as of September 30, 2020.
Investor verification checklist
- Confirm the issuer identity and whether this filing should be attributed to Investors Real Estate Trust or Centerspace.
- Reconcile the reported $131.8 million liquidity figure to cash, revolver availability and any borrowing-base limitations.
- Review COVID-19 trends in collections, rent deferrals, concessions, occupancy and renewal rates after September 30, 2020.
- Assess debt maturities, covenant compliance, refinancing needs and the availability of the revolver under stressed property values or capitalization rates.
- Evaluate the contribution and integration of Parkhouse and Ironwood and the effect of dispositions on recurring NOI and FFO.
- Distinguish recurring operating performance from gains on property sales, the prior-year litigation settlement, the marketable-securities loss and casualty-related costs.
- Review the sustainability of distributions relative to operating cash flow, FFO and future capital requirements.