Business Context and Reporting Period
Registrant: Investors Real Estate Trust (IRET), identified in the filing as a REIT focused on owning, managing, acquiring, redeveloping, and developing apartment communities. The request metadata identifies Centerspace, but the filing itself names Investors Real Estate Trust.
Period: Form 10-Q for the quarter and six months ended June 30, 2020; filed August 3, 2020. At quarter-end, IRET owned interests in 70 apartment communities containing 12,135 apartment homes and operated as one reportable multifamily segment.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 |
|---|---|---|
| Revenue | $43.9 million | $88.3 million |
| Net income (loss) | $(4.1) million | $(11.8) million |
| Net income (loss) available to common shareholders | $(5.4) million | $(13.8) million |
| Loss per common share, basic and diluted | $(0.44) | $(1.13) |
| Net operating income | $26.1 million | $51.6 million |
| FFO applicable to common shares and Units | $12.4 million | $21.0 million |
| Operating cash flow | Not separately provided for the quarter | $25.3 million |
Same-store weighted average occupancy was 94.6% for the quarter and 95.0% for the six-month period. Total weighted average occupancy was 94.5% and 94.8%, respectively. Same-store NOI increased 1.1% in the quarter and 2.4% for the six months.
At June 30, 2020, total assets were $1.393 billion, including $1.310 billion of net property owned. Cash and cash equivalents were $52.7 million, and total cash, cash equivalents, and restricted cash were $55.2 million.
Total debt was $658.2 million, consisting of $333.0 million of unsecured debt and $325.2 million of mortgages. The weighted-average interest rates were 3.19% on lines of credit, 4.13% on term loans, 3.78% on unsecured senior notes, and 4.01% on mortgages. Total liquidity was approximately $239.7 million, including $52.7 million of cash and $187.0 million of undrawn credit capacity.
Material Changes Versus Prior Comparable Period
- Quarterly revenue declined 6.4% to $43.9 million; six-month revenue declined 4.6% to $88.3 million. The primary driver was lower revenue from dispositions and other properties.
- Quarterly NOI declined 4.7% to $26.1 million; six-month NOI declined 2.6% to $51.6 million. Same-store NOI increased, but this was more than offset by dispositions and other portfolio changes.
- Net loss available to common shareholders was $5.4 million for the quarter versus $1.4 million of net income in the prior-year quarter, and $13.8 million for the six months versus $5.0 million of net loss in the prior-year period.
- FFO applicable to common shares and Units declined 34.2% for the quarter, to $12.4 million, and 27.4% for the six months, to $21.0 million. The comparison was adversely affected by a $6.3 million litigation settlement gain recorded in 2019 that did not recur.
- Interest expense decreased 8.6% for the quarter and 10.6% for the six months, primarily because of lower-rate replacement debt and lower average revolving-credit balances.
- Six-month interest and other income included a $3.4 million realized loss on marketable securities, compared with income in the prior-year period.
- Casualty loss increased to $913,000 for the quarter and $1.2 million for the six months, primarily due to weather-related losses and a higher aggregate stop loss.
- Common shares outstanding increased to 12.827 million from 12.098 million at December 31, 2019, largely reflecting issuance under the 2019 ATM program. The company issued approximately 674,000 common shares for approximately $48.3 million net proceeds during the six months.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management did not provide quantitative earnings or revenue guidance. Management stated that liquidity was sufficient for reasonably anticipated 2020 needs, while cautioning that COVID-19 could reduce collections, occupancy, rental rates, cash flow, and access to capital.
- COVID-19 had not materially affected financial condition, operating results, or cash flows through June 30, 2020, according to management, but the future impact remained highly uncertain. Rent deferral agreements had $68,000 outstanding at quarter-end, and commercial rent abatements reduced second-quarter revenue by $402,000.
- Management cited the expiration on July 31, 2020 of the additional $600-per-week federal unemployment benefit as a potential risk to residents’ ability to pay rent in August and subsequent months.
- Management continued reviewing capital spending, delaying projects where possible, eliminating most planned travel through year-end, and conducting board meetings virtually to preserve cash and control costs.
- Debt maturities were approximately $9.4 million for the remainder of 2020 and $35.6 million in 2021. Management reported compliance with debt covenants and no material mortgage defaults, but warned that COVID-19 could reduce borrowing-base capacity, restrict lender funding, or impair refinancing access.
- The company expected to fund approximately $34.0 million over the following 12 months under construction and mezzanine loans for a Minneapolis-area multifamily development.
- During the six months, IRET acquired the 182-home Ironwood Apartments in New Hope, Minnesota, for $46.3 million, acquired the remaining 47.4% noncontrolling interest in 71 France for $12.2 million, and sold its remaining parcel of unimproved land for $1.3 million, recording a $190,000 loss.
- No impairment charges were recorded during the six months ended June 30, 2020 or 2019. No material pending litigation was reported.
- Interest-rate swaps had a fair value liability of $18.1 million at June 30, 2020, compared with $7.6 million at December 31, 2019. Management estimated that $4.4 million would be reclassified from accumulated other comprehensive income into interest expense over the next 12 months.
Investor Verification Checklist
- Verify the registrant identity and corporate history, including the relationship between Investors Real Estate Trust and the Centerspace name in the request metadata.
- Assess rent collections, deferrals, abatements, occupancy, renewal rates, and bad-debt trends after June 30, 2020, particularly following the expiration of enhanced federal unemployment benefits.
- Reconcile the reported $239.7 million of liquidity with credit-facility borrowing-base requirements, covenant compliance, lender commitments, and near-term debt maturities.
- Evaluate whether FFO, NOI, and cash flow support the declared common and preferred distributions, including the $0.70 per common share quarterly distribution.
- Review the effect of the $3.4 million marketable-securities loss, weather-related casualty losses, derivative valuation changes, and the nonrecurring 2019 litigation settlement on period comparability.
- Monitor the funding requirements and performance of the Minneapolis construction and mezzanine loans, as well as the integration and operating results of Ironwood Apartments.