SEC Filing Summary
Registrant: Investors Real Estate Trust (IRET); the supplied metadata identifies CenterSpace, but the filing itself names Investors Real Estate Trust. Form: 10-Q. Reporting period: quarter and six months ended October 31, 2018, second quarter of fiscal 2019. Fiscal year-end will change from April 30 to December 31 beginning in 2019.
Business Context
IRET is a multifamily-focused REIT that owns, manages, acquires, redevelops and develops apartment communities. At October 31, 2018, it owned interests in 87 apartment communities comprising 13,702 apartment homes. The company operates as one reportable segment, primarily multifamily housing.
Financial Metrics
| Metric | Three Months Ended October 31, 2018 | Six Months Ended October 31, 2018 |
|---|---|---|
| Revenue | $45.6 million | $91.6 million |
| Operating income | $2.2 million | $4.5 million |
| Net income (loss) | $(5.6) million | $(1.9) million |
| Net income (loss) available to common shareholders | $(6.3) million | $(5.1) million |
| Net earnings (loss) per common share | $(0.05) | $(0.04) |
| Same-store NOI | $21.1 million | $41.8 million |
| Total NOI | $26.3 million | $52.7 million |
| FFO applicable to common shares and units | $11.7 million | $22.2 million |
| Cash flow from operating activities | Not separately provided | $27.2 million |
Rental revenue represented approximately 94.3% of six-month revenue, with other property revenue representing 5.7%. Total occupancy was 95.1% at October 31, 2018, compared with 94.8% a year earlier. Same-store occupancy was 95.4% versus 95.2%.
Total assets were $1.36 billion at October 31, 2018, including $1.29 billion of net property owned. Cash and cash equivalents were $12.8 million and restricted cash was $5.1 million. Total equity was $662.7 million.
Total debt was $663.9 million, consisting of $214.5 million of unsecured debt and $449.4 million of mortgages. The weighted-average interest rate was 4.59% on mortgage debt and 3.72% on the unsecured revolving line. All mortgage debt was fixed-rate at quarter-end. The company had $176.5 million of additional borrowing capacity under its unsecured line and reported total liquidity of approximately $195.3 million, including cash and the operating line.
Material Changes Versus the Prior Comparable Period
- Three-month revenue increased 9.0% to $45.6 million; six-month revenue increased 10.5% to $91.6 million. Growth was driven primarily by properties acquired in fiscal 2018 and same-store performance.
- Three-month same-store NOI increased 8.7% and six-month same-store NOI increased 5.7%. Total NOI increased 13.6% for the quarter and 13.1% for the six-month period.
- Three-month net loss was $5.6 million versus net income of $13.1 million in the prior year, principally because the prior period included $15.1 million of discontinued-operation income. Six-month net loss was $1.9 million versus a $0.1 million loss in the prior year.
- FFO increased 23.5% for the quarter to $11.7 million but declined 1.2% for the six-month period to $22.2 million.
- Operating cash flow was $27.2 million versus $27.7 million in the prior year. Investing cash flow was positive $43.7 million, primarily from $52.2 million of property-sale proceeds. Financing cash flow was negative $69.2 million, including debt repayments and distributions.
- Total debt declined from $706.1 million at April 30, 2018 to $663.9 million at October 31, 2018, primarily due to mortgage repayments and property dispositions.
- There were no property acquisitions during the quarter or six-month period, compared with $153.8 million of acquisitions in the prior-year six-month period.
- The company sold properties and land for $52.2 million during the six months, recognizing an $9.0 million gain. No new properties were classified as held for sale at quarter-end.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide quantitative earnings or FFO guidance. Management stated that it believes liquidity is sufficient to meet reasonably anticipated needs during 2019 and 2020, while emphasizing continued focus on positive operating cash flow, debt and leverage management, capital expenditures and overhead control.
On August 31, 2018, IRET amended its unsecured credit facility, increasing the overall facility from $370.0 million to $395.0 million, extending the revolver to August 2022, extending a $70.0 million term loan to January 2024 and adding a $75.0 million term loan maturing in August 2025. Interest-rate swaps cover $145.0 million of term-loan borrowings. Management reported compliance with debt covenants and no material mortgage defaults.
Interest-rate exposure remains material. The company estimated that a 100-basis-point increase in 30-day LIBOR would reduce annual net income by approximately $695,000, assuming constant spreads. Principal risks include apartment occupancy and rental rates, real estate values, refinancing and capital-market access, interest rates, operating costs and real estate taxes, insurance and casualty losses, capital expenditures, property dispositions, environmental matters, REIT qualification and cybersecurity.
IRET adopted the new revenue-recognition standard and ASC 610-20 effective May 1, 2018 using the modified retrospective approach. Adoption produced a $627,000 cumulative increase to opening retained earnings. The company also disclosed an immaterial prior-period equity misstatement correction that did not affect assets, liabilities, revenue, net income or earnings per share.
Subsequent events included the November 30, 2018 sale of a Minot, North Dakota commercial property for $6.6 million and the December 5, 2018 reauthorization of the common-share repurchase program for one year. The common dividend was $0.07 per share for the quarter and $0.14 per share for the six-month period.
Investor Verification Priorities
- Confirm the registrant identity and period: the filing is for Investors Real Estate Trust and ended October 31, 2018, despite the supplied CenterSpace and “2018 Q2” metadata.
- Reconcile GAAP net losses with FFO, including the effects of depreciation, property-sale gains, preferred dividends and discontinued operations.
- Review debt maturities, refinancing requirements and compliance with unsecured credit-facility covenants.
- Assess liquidity after mortgage repayments, capital expenditures, distributions and any future property dispositions.
- Evaluate same-store NOI growth, occupancy, rental-rate trends, real estate taxes and insurance costs.
- Review the impact of the fiscal-year-end change and the adoption of revenue-recognition standards on future comparability.
- Monitor interest-rate exposure, swap counterparties and the potential effect of higher LIBOR on earnings and cash flow.