IRET - Earnings call transcript Q4 2018

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Operator

Good morning, and welcome to the Investors Real Estate Trust Conference Call to Discuss the Eight-Month Transition Period Ended December 31, 2018. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I now would like to turn the conference over to Jon Bishop, Vice President of Finance. Mr. ahead. go please Bishop,

Jon Bishop

good December Form with XX, the yesterday and eight-month the for period after closed. ended XXXX market morning. you, XX-KT IRET's the SEC Thank was filed

package our have at Additionally, and on yesterday X-K. filed and release supplement iretapartments.com been on our earnings posted website Form disclosure

Mark. these and untrue respect are Mark I'd like non-GAAP on represent as measures to and and become to pro management's subsequent or statements no to supplement With on current and Chief that Officer. uncertainties Before future earnings making inherent this time, discussed our will expectations measures to business the Anne Operating today's in discuss At XX-KT supplement risks current update you to Any GAAP, for pro their to forma we me forma management other outlook statements our these this events certain SEC. made including call this to during statements that and call, as Olson, Chief to turn obligation need Executive opinions, our release I remarks recent be and the events. call Officer; forward-looking with forward-looking John our Officer; Decker, filings morning a about non-GAAP reconciliation statements With the any well based measures, this respect to reasons begin Financial our Kirchmann, our will Form These with the please our subject in assumes limitations. assumptions. morning, remind Company to due the over assumptions call, and uses used on measures we Chief use we and are refer the and

Mark Decker

XX/XX/XXXX. morning, a We apartment move over-communicate that happens investment greater general. ending all quarterly which Thanks, and everyone. on REITs and calendar because eight-month XXth, transition the we a to probably have made for by our decision getting want start are with we like provide the to team our period another to year-end, thank their undertaken side change We at which next can't announced public really transition, accounting noting, previously December other call. patience companies transitional driven we their hard reporting effected in this, period the This to of to is I'd And to Jon, look to community this reverse X-for-XX when for on by good and year-end, comparability I forward our we stock other work. notable split. for

stock allowed it It outcomes reverse to liquidity the measured split and mathematical, meaningfully annual is While purely has access lifting our dollars. in Company. reduced post-split of potential costs, investor as pool larger positive for improved our a provided daily has our

successful the flexibility, NOI to the report to are for we with mission, fifth operating operating growth clear platform. a and quarter our improvements have to as our we community lasting of straight financial we Minneapolis focus operational existed opportunity X.X% This pleased closing we The on producing significant of begin our of a is are tell to we and gains These we growing an night opening $XX our that established team value can of and opportunity for model, customer-centric from we the have revenue eight-month ago, As multifamily, the from two Almost overlay portfolio are during active the multifamily a expense you careful period us mark was our that are With with demonstrates revenue transition remarks, can today sheet enabled out. our of saw just excited markets in that years of a purchase baseline transition employing period within XXXX Townhome the transition able the year market. unit we the of one business, announce SouthFork, XXX and this during which to my were of a we period, from strength optimization the management. make growth, and results strong acumen same-store key in of strong and XX% balance progress. business dedicated and good expanding announced million today transition to last growth. proving

we the our structuring embedded acquisition also have into In to related our we asset ability be value-add asset creative portfolio. explore our an addition fully and to this objectives showcases has opportunities. investment will opportunity markets, integrated products that and This meeting once to

consideration flexibility into provided in sits and common press using our ahead that operating at the and credit convertible described having partnership an are shares our we release, a a X.XX% we line behind As issuing of the unit are and by of debt convertible for the our operating property, handing holder a common, in partnership and $XX.XX. structure

to $XXX took million team $XXX this the option. that we've XXXX our May brings a Additionally, purchase contributor assets over has since redeployment The put sold million total of when in SouthFork whereas time.

reported other capital were shares. $XX our and through to responsible investment We The able we've X, we From in deploy since price recycling average of $XX.XX. million remain over shares buying-in committed May an dividend common made of XXXX is significant our at last growth. X.X% own to outstanding we today,

seeing leverage utilize and balancing our to we opportunities our platform market. the continue to going are growth that by are in We the for

of into the We increase the cyclical as with and efficiency the we portfolio during both and continue in-place and Minneapolis to the our which first available to in enhance of off-market transaction the we months. scale product significantly head strong After of properties spring consider volume quarter, Denver. slowing well-located on see would volume rents expect

us and enhance developing construction positive seeing both take work growth long-term unique in unit and we In these added markets in Denver. similar with dynamic to economy those that suburban every on a advantage portfolio rent A help us and we Our Minneapolis to jobs continues relationships confident XXXX. in providing team Minneapolis Class outpaced likewise by built Minneapolis, rent job opportunities seven will new XXXX overall metro the to are growth. urban. will in growth that outpaced of to situations trends Class B contribute rent in strong migration and our expect We're were apartment growth for

the XX,XXX year. see Metro. this continue space Denver, We record are opportunities in offset B expected the to absorption Minneapolis Class in for XX,XXX and XXXX scheduled In jobs new supply. are in new XXXX delivery new units in

in We Minneapolis our Denver. are also own strong results portfolios seeing and from

NOI weighted strongest stabilized per average portfolio increase by in markets, revenue home occupied where transition revenue and achieve we Minneapolis, in Westend, within were light In growth seeing lease-up driven While stabilization the during rent monthly occupancy are home, supply strong same-store Denver, is we X.X% growth maintain our our continued occupied growth X.X% of in we pressure. other in at our our a at period. and even able per rent saw property Dylan to

Looking at our regional remains general full and smaller supply, theme markets, employment, low the growth.

With are growth points regional and positively markets the our to X.X% energy North revenue X% other that, comment operating on I'd per of remain to And, dependent Anne our gains X.X% North optimistic per on exception agriculture, economic to increasing home. rent that revenues of increases combined to specifically Dakota, primarily Dakota of Olson XX to NOI the continue our initiatives. our in only NOI basis cycles operating that due on realized our has like realize ask markets results with growth. more negative We efficiency home impact strong on will regional and platform. which

Anne Olson

Thank and morning, good you, Mark, everyone.

our the three XX, are compared for focus trend margin ended that reach period margins As can confident growth a to on the as Mark working. eight basis ending we margin This XX/XX/XXXX continue initiatives X.X%. and expanding our period for was transition XXX in mentioned, the goal eight-month and the XXXX, eight-month to demonstrates platform operating our the same-store transition by ended expanding X% expansion XX/XX/XXXX are to NOI period four XX.X% With the the points over years. of we our months next December that

achieved increase over basis During occupancy an of XX.X%, prior average same-store of period, we our period. XX weighted points the transition

well rents. We XXXX, head as to revenue believe XX, we occupancy December are leasing of occupancy physical spring was maximize our balancing by we same-store and XX.X%. positioned As into

our we early months. which summer profile quarters headwinds However, and expiration see second from do over-weighed these in to third is the lease

Our decreasing We've that practices. our in pricing markets processes, improvements and good related our Having expenses in or aimed initiatives we key as are months team XXXX, enhancing cost on been grow. period. containment. institutionalized for expense and process revenue be are same-store partner not expense at and assets for containment. easier practices transition we revamped make vendor specific looking flat the an to have These our reduce find that leveraged costs, these these will our at last and platform areas initiatives expense management produced now in we With best measuring six it to during the new to our and vendors Most and our our control turn operations we creating set but our believe expenses, respect with within in over reductions, further our markets platform notably, efforts to over provide with baseline us are be our one-time results further managing the of portfolio expectation of many items. to expenses, can half that larger will

resources including expenses focus are revenue recently to them can LRO enhance utility to that efficiencies implementing procedures, bring increasing our bear assist the our to marketing our initiatives the and On creating revenue. revenue team further to side, completed our and we strategic of and recovery leveraging our changes teams, on for relationship allow to to management

of first resident area renewal. in focus is their experience largest area for enhancing Our through from of expansion margin the contact the

We touch create scalability. management technology the leasing that and efforts for roll aid this teams enhancement the renter's long-term capabilities, with lead and reduce insurance and in our platforms programs. will out screening, our are goal to credit of The through new identification risk our here of electronically signing our will efficiencies addressing

for all with and technology in our to expenditures compete our investments expense to operational necessary $XXX,XXX to believe to of As includes in component efficiencies technology, and these $XXX,XXX is power today's plan fully our XXXX residents portfolio. We are these leverage of investments across an for implementing the platforms. there

the continues to gain traction. our the initiatives, and of team program building to Turning value-add management asset

that completion have on across the end at We renovations by of portfolio. properties where returns units projects completed proven benefits out LED March. out have of and and in, of successful retrofits early program three light XXX that several the We've including rolling unit are the the coming

unit We started comprehensive XXX a will a on unit have asset. renovation program

have bidding Our process, unit and XX projects from currently renovations. than upgrades growing amenity club houses new we more to pipeline to in is the

program accountability our and thoughtfully portfolio. opportunities As can I've we ensure real mentioned previously, within with we the are to building our mine

year have calendar over with years. $XX.X million for units We of cover nine an next spent to these are XXXX, two $X.X to the unit planning capital underwritten renovations, X,XXX be to that and respect we assets spend million are value-add over forward and moving on. approved to additional approvals four With

at and everyday that our X% of will range the return We matter no the identify if XX% our bad, the to of to XX% market good and with the Generally build of value-add are to conditions returns people. type obtain we continue XX%. an life are in pipeline. project through on average results reminded speaking, on or underwritten depending I'm

to and the our results to have motivated residents across over and John overall I'll multifamily and a the it continue year premier and our turn team, sheet. Company. with embraced financial have people IRET on I'm for a now We such on Kirchmann balance changes of last who make dedicated to grateful in focus Company will stayed our our to discussion work

John Kirchmann

year the our end beginning we XXXX, you X will XXXX. All change, fiscal eight-month XXXX be January which period XX, two as fiscal Thank month ended an from period, December years, ended XX. presenting subsequent to included Anne. to December period are December Due our XX, in transition

and consistent XX, Our our earnings is the with December core release that including XXXX, NOI year. months disclosures and various calendar present new include three FFO, ended supplemental which for FFO, information

includes meant XXXX, been the included month the subsequent published XX, for had the data provides October ended the information be is XX, of December months XX, and previously financial data in months ended not valuable for financial such, to users and three any the XXXX six statement three XXXX for results which ended ended results XX, indicative for believe months the XXXX. period. As results We the that for three our December October the

ended XX, that most months we Additionally, is the quarter XXXX December to previously XX, believe the comparable three January the reported XXXX. months ended three

the our reporting per these December of ending our for XX, year between prior core we some reported With that reminder transition a decrease let's comparison out period of of As a period. to Last result, way, the periods $X.XX FFO in we turn two present instances, of share, a eight-month quarters. night, from results. the $X.XX

core the as are of and primarily For fiscal per from the a $X.XX calendar NOI quarter NOI $X.XX reduction quarter-ended XX, January December well decrease non-core ended FFO commercial These by XX, decreases assets, of portfolio XXXX growth from share, due was XXXX. in a to sale reduction offset dividends and in multifamily preferred from interest our a multifamily costs. as of the

our at transition year from was period, G&A increase total $XXX,XXX million and the general Looking the administrative expenses, a period. prior for $X.X

the quarter and are with eight-month $XXX,XXX in due the year-end For G&A to timing the million, XXXX, changes primarily accounting period. for and increase higher the calendar $X.X related. was quarter-ended our December period in fiscal a transition These XX, $XXX,XXX associated from increases the prior fees

associated experienced construction transition addition, claim quarter the of and period, recovery defect a respectively. higher In our we of legal $XXX,XXX under and with $XXX,XXX pursuit for costs eight-month

$XXX,XXX expenditures, from capital December ended XX, the same-store million, was XX, to presented XXXX, quarter a the $X.X increase CapEx in Moving quarter calendar Page fiscal for as XXXX. ended the January S-XX supplemental, of

in call, prior mentioned delay to due projects. increase the the earnings and expected of our this capital was As timing start in some of a

new was projects addition For in management a of million the XXXX. decrease a the of a the December same-store of same and ended are result CapEx $X.X costs team. XXXX, from reassessment $X.X facility XX, to eight-month Lower CapEx planned period prioritizing due the period million,

our balance sheet. to Turning

million As of $XXX $XXX XXXX, on liquidity, we corporate million revolver. December in including XX, available had our total

$XX.XX XXX,XXX period average eight-month shares of ended approximately transition of at program $XX.XX. December repurchase shares repurchased price share in the of XXXX, we average of shares have an XX,XXX $XX.XX XXXX, share. Subsequent During authorization at Since December XXXX, we average common share. an we XX, approximately to price at approximately per XXX,XXX December XX, an per the repurchased repurchased price

the commercial proceeds and period, primarily which we have for totaling have debt. During transition multifamily been sold to used assets million, non-core $XX.X reduce

our to a April to of December XXXX. improved forward EBITDA times at times from result, as X.X ratio As XX, X.X debt XX, has XXXX

leverage we with in mentioned, to Mark As will for seek we opportunities future growth balance the strategic our markets. have our

range increase $X.XX guidance with a $X.XX from XXXX. for to calendar core to release, as earnings per X.X% presented a ahead FFO Looking is XXXX, a calendar representing $X.XX in share, our share our year of per of midpoint

to As reduction XXXX shown the of Page on FFO XXXX calendar supplemental, by S-XX of dispositions. growth year impacted the NOI from calendar year of XXXX relative is

same-store NOI For X.X% growth This and expense X.X% our and reflects X% we XXXX. and same-store X% communities, X.X% in between between same-store between X%. expected expect property and growth revenue to grow

estimated of to of growth expenses XXXX estate initiatives expect X% due XX% revenue combination X%, in growth discussed. other primarily to rent as XXXX We expense higher come to a increase from previously increasing revenue growth valuations. year an of is for seek occupancy calendar the and that for to optimize Anne Impacting with to real balance from same-store coming XX.X% from growth

insurance to increase Additionally, to for are XXXX XX% claims loss costs XXXX. well of insured same-store increase insurance due premiums expected for as an our XX%, year favorable calendar as experience in

For historical on are expected to rates. insured claims XXXX, to return losses

unemployment low pressure with of to X%. XXXX side, to we increasing On expense operating cost seeing most in experience calendar and markets continue our continue to wage expect X% are that the we salary

inflation attributed and in these increase outlined costs, as relatively which is comments. The expenses expected remaining Excluding total the are two-thirds containment modest to taxes operating zero growth expected compensation outlook account include property her of remaining initiatives to operating despite wage by for insurance cost and the Anne to costs for expenses, expenses, X%.

implementing and at administrative making our and are costs. and reducing Turning for come rate tools to basis, expenses run by number general of will support on so without to a expenses, initiatives a be support earlier to and better overhead can while cost innovating to that aligning These of and grow initiatives management $X.X not continue per including Anne, $X.X portfolio, operations investments property we quarter. will we and G&A million as XXXX, efficiencies in expected discussed relative scalability functions a a million IT while

annual XXXX, for year costs the calendar XXXX. is management that expected NOI XXXX. to anticipated these $XXX,XXX year an are calendar to of XXXX increase the will costs from additional initiatives implementation $XXX,XXX of for expenses property technology $XXX,XXX their to For related initiatives, calendar including from positions and to $XXX,XXX for annual due year to new open It exceed additional reduction

expected expenditure to costs $XXX same-store XXXX $XXX unit. for per capital to be are capital, Turning to

In addition, they intention add the diligently program ensure meet to see of to our underwritten their ensure programs and value monitoring, implementing, evaluating and are re-launching value-add is we will our returns. XXXX our that

year XXXX, program initial team in start-up closing, proactively, and these vigor change, our expected at would embrace the as to IRET one is for earlier team. our and Mark neutral calendar to For costs. here reiterate praise value-add and be they I to Anne's to serve act and like In FFO which willingness due

We the efforts questions. continue turn benefits I to for will see of the numbers. our that, over call your With to operator in their

Operator

you. thank Yes,

We first question Babin session. Baird. from Drew And will begin Instructions] now [Operator question-and-answer comes with the the

Drew Babin

kind to provide talking start wanted I be to on about the pricing might curious out of metrics acquisition that. you just SouthFork what and able

Mark Decker

mathematics, plus to about we when as to building. mean, the mathematics, at I a Sure. plan our capital we Yes, X.X Drew, on I we quarter believe we into cost I say the X put which, our -- bought that mean,

we I were guess dealing And we cash there think were some better we for would to a I couldn't, because asset around and them get believe to a would us. pretty talk for we were so a were you to with able others than to for if able he we buyer and seller that add tax-sensitive X.X. had say accommodations I that that little a the make exciting broker,

Drew Babin

I an this stand talking and might dispositions, funding are little there And standpoint, and where about that? potential then might guess guess, a of now that come do potential be more sources would forth now dry options may terms from you funds there be year, that right your acquisition where right in powder opportunistic you current consider of opportunities I for some

Mark Decker

$XX look continue at I have million we greatest and dispositions and the million, mentioned but $XX view we we'll source levels don't been be all, that we a to of are Yes, that fully answer will of consider. as and in leverage sources in I that yes. is, transition period approaching assets we've -- all possible of certainly source our about that view mean, sold full. invested, -- we we're have we we sort

to convertible So, share some has all finance preferred, the it it improves I be we debt, could tool has then person future, our cash look at exciting ability stronger Drew. a it per That's we leverage. consider excited in will is to become distributable think mean, I opportunity to about possible the and an I equity. utility a pure and mean, that I this grow options, think that think make portfolio we're really we but

Drew Babin

'XX number, there? Might that address of kind might occupancy out the calendar effort in spring. What to are of around And how I are renewals wanted XQ to kind summer the the head expectations as that And XQ into you season. an of in vary? I being off that kind guess, XX.X% drop of sent roughly rate? in first and where just early all, of optimize I operations and guess spring kind

Anne Olson

to transition not consistent to mean, are focused it's revenue, the see the I up, revenue optimizing results period. enhancing rent far. numbers operational is renewals in can where out, which to the with you going we mean, think I platform get are the overall so on but be respect think pretty just I Yes, the really which we With going

rent over same on portfolio, -- to we're some think that the the facing there'll the are steady some numbers growth across side. growth the the do kind So, on lease months hold We pretty variation. as are, of to past headwinds expirations. see overall, But the going be going we eight saw we I we rent and mentioned,

will So deal see we in quarter and third the we second with lease the occupancy, variation kind large expiration in as particularly of month.

in that, that hit confident year. XX.X% do we for occupancy the targeting and we but full during So dip expect some we'll the are

Operator

Thank And from next you. the Jim Lykins D.A. with Davidson. question comes

Jim Lykins

SouthFork a and a that? rents, couple what's on then acquisition. First value-add on the elaborate and tell also, little you bit on more the follow-up anything us vintage you the more can occupancy, component, on questions Can

Mark Decker

of little relatively of is bit This is, solid it own that individual apartments Villa really down the it Court, was appeal Colonial Vintage are with but XX little garages actually consumer. district, and assets, a product product. middle, to Primarily two is a assets it nicer, a these bit are all grade-school built nearby Townhomes very phases, which those We three in attractive B in and straight a two older. Boulder XX. is cost all of conscious assets kind

of marketing terms In improve of improvements, of improvements plan to to at overall the mean, some I point make window. go the really this property, in, our it our the some is

clubhouse. are that things like There clubhouse, a has landscaping So we change we and this some the will small do. can

and is we think in think end item. work it's big leave put to we And unit then, going I probably pretty pretty the think windows, new a ticket it's going really, we're there now, compelling. to we're which although for

the these excited examples what the been property, units where owner a have that original. some things and we're couple -- tested So value-add we we see in assets previous seen There all have about there. are out of the

Jim Lykins

Mark. ahead, go sorry, I'm -- guidance for And

Mark Decker

around $X,XXX. In-place rents are

asked well. You as that

Jim Lykins

guidance. Questions about Yes.

you margins margin all, that for then if and can talked next but you've five over are acquisitions, -- us are tell also assumes you for you First what expansion dispositions, assumption any margins, of years, XXXX? the can about us give for your

John Kirchmann

Hi, Jim, is this here. John Yes.

any other acquisitions doesn't the includes only guidance the or acquisition, include SouthFork dispositions. it So

Jim Lykins

on your guidance? for color assumptions for margins any And

John Kirchmann

margin that margin side about Yes, builds the in XX of bps expansion. so on

expansion insurance of some that property taxes the So and curtailing margin were costs. the

Jim Lykins

revenue value-add all that's would program, be good for number now per mentioned rate of assume your increases a But to run And for costs, what quarter renovations, the right units? you very helpful.

John Kirchmann

to reposition going for results the -- a say the that reason it $X million I having being of QX, impact to of it spent bulk the be for probably in Part not would QX. an is that neutral that being you lot the are an of is you work of things of clubhouses, is asset. some do doing like when type -- things

So little it slower show the will to a be benefits.

We expect to year, that of XXXX. get in next benefits the full in

Jim Lykins

Okay.

Anne Olson

respect the quarterly on as start year. about in With units, to mentioned, units I that in Jim, that asset XXX a we March. I of at XXX quarter and one will expect number launch a full each in unit have If basis, have units probably renovations we that's we schedule, to XXX look between asset this

Jim Lykins

Okay, that's helpful. Thanks, Anne.

Mark Decker

rents in Hey, are The notes. average is reading at number. the just $X,XXX $X,XXX, line actually Jim. I SouthFork -- around wrong I'd my was the

Operator

the And comes Thank Stevenson Rob Instructions] question you. [Operator from next with Janney.

Rob Stevenson

can your remind a is January John, just or X? same-store portfolio rolling us, basis you

John Kirchmann

X. January Yes, it's

Rob Stevenson

that assets And that acquisitions XXXX so this when? in is the first hitting Denver in there year? them start start any or the newer won't of hitting until

John Kirchmann

No, only is to the only Minneapolis addition Place, the Park asset the same-store.

Oxbo or in we as For assets Paul two come well will Denver XXXX-XXXX as St. asset. see the

Rob Stevenson

and FFO at guidance? NAREIT what would FFO that definition the And core then, this known differential drive point between guidance are items the your

Mark Decker

look the have when debt. the most thing and disposed of when has And -- think are of or dispositions is penalties prepayment historically I been I has of going that our back a from biggest portfolio. come commercial we come that Typically, lot

would that be... So

Rob Stevenson

Okay.

the that's and here identified nothing core until do would been NAREIT sitting that, drive the -- the at up that so being some this would point, wind that you there's specifically same? -- of is today, So NAREIT be

John Kirchmann

so -- any than other big be that of difference. prepayment don't any we drivers that would Yes, foresee

Rob Stevenson

number non-apartment revenue now or XXXX, release, you were the own you're What's guys noted assets? was your we coming or in assets think XX.X% apartments, to from NOI Okay. period -- that apartments been it And something I -- How the down or thinking like non-apartment of non-apartments. or for about the when coming X% that the the then so of guys non that eight-month X.X%-ish the the number you from you thinking that are about less should that? and from came

Mark Decker

assets, of Rob, number the four. is Yes,

of our One is which headquarters.

a of maybe those we that's down. but, land yes, assets other to out So I piece less and pretty about of continue think been opportunistically pared portfolio. two in I or like you for find not than homes four there as that still X% doing think There's have number, our mean, it should we'll outside

Rob Stevenson

pressure In last going relative And then been you issues, those for markets. tax few the the years? one especially documented property what's of in property these legacy your apartment last days Sunbelt me. some of the the well been upper other to tax Midwest about any In in on space, the it's in and markets, are seeing significant

Mark Decker

Yes.

what I portfolio, which but seeing in performing Minneapolis well little increases from in on and tax shouldn't seeing been our that say our mostly really property we're half very lag pressure it, of performance. the property we're most just -- of So taxes from it of valuations is bit and has most a probably

anything I up. So say long a and there going we're market time out there's caught have comparable has a wouldn't surprised for or there different on well lot the been and performing of is than valuations the sales other

Operator

closing as to And I would any like for floor the at time, comments. turn you. no present Decker there more to Mark Thank the questions are

Mark Decker

customers their of day. the our to everyone want especially every Thanks we thank there interest for Well, is Company very Keith. taking in Thanks, and thank care continued our much. who team out

Operator

attending for has Thank you concluded. Thank you. now The conference today's presentation.

lines. may You now your disconnect

Centerspace (CSR) 28 Feb 192018 Q4 Earnings call transcript