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Edited Transcript of IRET earnings conference call or presentation 12-May-20 3:00pm GMT

Q1 2020 Investors Real Estate Trust Earnings Call

Minot May 17, 2020 (Thomson StreetEvents) -- Edited Transcript of Investors Real Estate Trust earnings conference call or presentation Tuesday, May 12, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anne M. Olson

Investors Real Estate Trust - Executive VP, COO, General Counsel & Secretary

* John A. Kirchmann

Investors Real Estate Trust - Executive VP & CFO

* Mark O. Decker

Investors Real Estate Trust - President, CEO, CIO & Trustee

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Conference Call Participants

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* Alexander J. Kubicek

Robert W. Baird & Co. Incorporated, Research Division - Research Analyst

* Buck Horne

Raymond James & Associates, Inc., Research Division - SVP of Equity Research

* Gaurav Mehta

National Securities Corporation, Research Division - MD & Equity Research Analyst

* Piljung Kim

BMO Capital Markets Equity Research - Senior Real Estate Analyst

* Robert Chapman Stevenson

Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Investors Real Estate Trust First Quarter 2020 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Mark Decker, Chief Executive Officer. Please go ahead.

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Mark O. Decker, Investors Real Estate Trust - President, CEO, CIO & Trustee [2]

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Thanks, Gary, and good morning, all. IRET's Form 10-Q for the quarter ending March 31, 2020, was filed with the SEC yesterday after the market closed. Additionally, our earnings release and supplemental disclosure package have been posted on our website at iretapartments.com and filed yesterday on Form 8-K. Before we begin our remarks this morning, I must remind you that during the call, we will discuss our business outlook and we'll be making certain forward-looking statements about future events based on current expectations and assumptions. These statements are subject to risks and uncertainties discussed in our release and Form 10-Q and in other recent filings with the SEC. With respect to non-GAAP measures we use on this call, including pro forma measures, please refer to our earnings supplement for a reconciliation to GAAP, the reasons management uses these non-GAAP measures and the assumptions used with respect to any pro forma measures and their inherent limitations.

Any forward-looking statements made on today's call represent management's current opinions, and the company assumes no obligation to update or supplement these statements that become untrue due to subsequent events. With me this morning is Anne Olson, our Chief Operating Officer; and John Kirchmann, our Chief Financial Officer.

I know a number of our team members are listening into this call, and I want to start by thanking them for all their great work, particularly over these past few months. We're very fortunate and grateful to be in a business that provides one of life's essentials, and it's been truly inspiring to see how our team has come together to take care of our residents and each other. Our mission of providing great homes has never been more important. Thank you, team, and please keep it up.

IRET came into the COVID-19 crisis better prepared than at any moment in our company's history. And our first quarter was well ahead of our own expectations, driven by strong revenue growth and a milder winter. As we've been discussing for 3 years now, our goal is to build a company with durable earnings power that possesses the intellectual and financial capital to successfully navigate and grow in any environment. The work we've done on our portfolio, balance sheet and operations provides us with a high-quality, value-oriented portfolio that's weathering this storm very well.

Our geography is also a real differentiator in this time, and you can see this in our April collections, which were 97.4%, plus 1% deferred, and in May, which through May 11 is tracking at over 98% of historical averages. We were proactive and moved quickly to address all aspects of COVID-19, and we'll continue to do our best to work with our residents through this economic and health crisis.

Here at IRET, we're well positioned and optimistic about the future. So we're very cautious about the near-term when we consider recent economic signals, including record unemployment, many businesses that are not open and a consumer that's on the sidelines.

Turning from the macro to things within our control. During the first quarter, we continued to simplify our balance sheet and add quality to our Twin Cities portfolio with 2 investments. First, we bought out our joint venture partner at 71 France and Edina, consolidating ownership in one of our most desirable Minneapolis submarkets, and we also went full circle at Ironwood, converting our mezzanine financing to fee simple ownership via purchase of this asset for $46 million. This is a great success story for future potential developer prospects that will be helpful in the years ahead. Both of these investments closed in another world just 2 months ago. Nevertheless, we're happy with the pricing on both, which were at 4.75% to 5% cap rates and funded in whole or part with cash proceeds from our Sioux Falls sales late last year. We also drew about $10 million on the line for Ironwood, but that asset is free and clear on our balance sheet, providing a range of liquidity options.

We're also continuing to fund our loan at Nokomis, which as a reminder, we are a construction lender and a mezzanine provider with a purchase option there. That project remains on schedule, and construction is deemed essential in Minnesota. Obviously, at a time like this, cash management and liquidity are paramount. First and foremost, our business is demonstrating strength and while our revenues have held, we're exercising caution with all of our expenses.

On the liquidity front, we have more than twice liquidity to meet our obligations through year-end 2021 as detailed in our supplemental. We believe this positions us to get through the next 12 to 18 months and be opportunistic along the way.

And with that, Anne, please provide some more detail on operations.

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Anne M. Olson, Investors Real Estate Trust - Executive VP, COO, General Counsel & Secretary [3]

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Thank you, Mark, and good morning. This morning, I will provide you with an update on how our team has adapted to serve our residents and provide some data that indicates how our business is responding to the COVID-19 pandemic.

But before I get to that, I want to take a minute to highlight the strong operational results of our first quarter. With 3.9% same-store revenue growth, and a 3.8% increase in NOI over first quarter 2019, we were positioned very well heading into the economic slowdown that our markets began experiencing in mid-March. We closed out the quarter with a weighted average occupancy of 95.4%, and our rental rates increased 1.8% in Q1 compared to Q1 2019. Our team showed us in the first quarter that they were prepared to deliver results in 2020, and that preparation allowed us to react efficiently and proactively to COVID-19. As events unfolded in the Midwest, we address the necessary operational changes to keep our residents and team members safe and to comply with regulations and expert recommendations, all of which we're changing at a fast pace.

While some of our markets have or are continuing to comply with shelter in place orders, not all of our markets were as impacted by government regulations and business closures. Montana, North Dakota and South Dakota, while regulating some business activities, did not implement shelter in place and have already started reopening businesses and eased regulations. With 64.3% of our pro forma NOI coming from Colorado and Minnesota, where we continue to monitor shelter-in-place requirements, I want to note that our collections in these markets have been strong.

We worked hard to do the right thing in a time when nothing was certain, and we're pleased with the adaptability shown by our team and the resilience demonstrated by our residents, vendors and service providers. Not only was our support staff moved to entirely remote work, but our community-based office is closed, and we undertook to provide the same great service to current and future residents that we have always provided, but now remotely. All of our tours went virtual and things that had been happening in some communities under unique circumstances became commonplace overnight. Our service team members began servicing work orders and handling turns of units with new protocols and, in many cases, work orders are being completed through resident education and remote instruction. Before April 1, we had a centralized and automated procedure for processing resident hardship claims. And by the end of April, we had entered into rent deferral agreements with 134 residents for a total of approximately $156,000, 40.4%, of which we also collected in April as our residents received their federal stimulus checks or government benefits.

[This last] which is 65 basis points of rent deferral compared to total revenue. We have approached our operations with transparency, empathy and continuous communication for both our teams and our residents. All of this hard work showed up in our April results. We accounted for 98.4% of April charges, which included deferrals of 1% of April rent. While the number of new leases in April was down 22% compared to 2019, our resident retention was strong at 62%. And while our average new lease rate decreased 2% from the prior term, our average renewal rate increased 4.1%. Our revenue per unit is holding with just a slight decrease in April from $1,083 per unit in March to $1,079 per unit in April. Today, we sit at -- with physical occupancy of 94.8% and have collected 98% of historical average collections through May 11.

We are experiencing significantly less requests for deferment in May with only 16 rental deferment agreements for an aggregate rent amount of approximately $18,000 through May 8. While we are monitoring revenue and balancing competing priorities of occupancy and rent, we're also closely managing our expenses. We will see certain expense savings occur naturally due to the pandemic like reduced churn costs or savings on community hosted events. And there are also areas where we are carefully analyzing and planning expense savings in anticipation of continued impacts from the economic slowdown and pressure on our revenues.

We have prioritized our capital expenditure projects and reviewed both the physical and financial feasibility of our value-add initiative. Our expectation is that we will do our best to match reduced revenues with expense savings.

I'm tremendously proud of how quickly our team has reacted to the challenges of the past 60 days, and I'm certain that our actions have bolstered our ability to maintain occupancy and revenues in a challenging time. We're also very quickly moving forward with several initiatives that we believe will stay with us for many years to come as we are forced to try new ways of operating, many times experiencing success that are clearly repeatable and will help us scale. I have sincere gratitude for our team members working in difficult times at home and with added pressures.

With that, I'll turn it over to John to discuss the overall financial results.

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John A. Kirchmann, Investors Real Estate Trust - Executive VP & CFO [4]

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Thank you, Anne. Last night, we reported core FFO for the quarter ending March 31, 2020, of $0.90 per share, an increase of $0.13 or 17% from the first quarter of 2019. The increase can be attributed to decreased interest and G&A expenses as well as lower casualty losses. Looking at our general and administrative expenses, total G&A was $3.4 million for the quarter, a $400,000 or 9.9% decrease from the same quarter in 2019. The decrease in G&A is primarily attributed to a reduction in legal fees from our successful pursuit for recovery under a construction defect claim in the prior year as well as lower severance costs. These decreases were partially offset by an increase in consulting and health insurance costs. Interest expense of $6.9 million decreased by $1 million or 12.5% from the same period of the prior year. The decrease is attributed to replacement of maturing debt with lower rate debt and a lower average balance on our line of credit. Property management expense of $1.6 million for the first quarter of 2020 is in line with the same quarter of 2019.

Moving to capital expenditures. As presented on Page S-14 of our supplemental, same-store CapEx was $1.7 million for the first quarter of 2020, an $800,000 increase from the prior year. The increase of CapEx is due to the timing of capital replacement projects being accelerated in 2020. Value-add capital spend of $2 million increased $1.7 million from the prior year period as a result of the continuation of the value-add programs we initiated during the latter half of 2019.

Turning to our balance sheet. As of March 31, 2020, we had approximately $193 million in total liquidity, including $167 million available on our corporate revolver and $26 million of cash and equivalents. We have provided additional color on our liquidity as of April 30 on Page S-10 of the supplemental. As of April 30, our total liquidity is $188 million.

Looking to the remainder of 2020 and into 2021, we have total of $45.3 million of debt maturities and $37.8 million remaining to fund on our construction and mezzanine loans for the development of a multifamily community in Minneapolis. Our current level of available liquidity represents 2.3x these near-term commitments. We believe our current liquidity, while being sufficient to meet our requirements through the end of 2021, further allows us to be opportunistic during this period of economic disruption.

During the first quarter, we issued 50,000 common shares at an average net price of $68.04 per share for a total consideration of $3.4 million. These shares were issued to fund our value-add capital spend and draws under our construction loan. Through April 30 of this year, we also purchased 191,000 shares of preferred stock at an average net price of $23.48 per share, representing a discount to par value of 6.1% for an aggregate cost of $4.5 million. The total shares repurchased represent nearly 5% of our outstanding preferred shares. To fund the repurchase of these preferred shares, we disposed our entire portfolio of marketable securities in March and April, receiving aggregate net proceeds to $3.5 million, the like-to-date loss realized on the disposition of marketable securities was $3.4 million.

While our Q1 results were encouraging, they do not reflect the impact from the COVID-19 pandemic. In March 2020, we withdrew our guidance stating that during this time of economic uncertainty, it is too early to quantify the financial impact to our business of COVID-19 and its associated financial disruption.

Moving forward through 2020 and beyond, IRET is closely monitoring COVID-19 and its associated financial disruption, but given the unprecedented nature and circumstances of this pandemic, we are not, at this time, providing our financial outlook for the remainder of 2020.

We will continue to update investors of the impact of COVID-19 to our financial results and liquidity as information becomes available. We are focused on navigating COVID-19 and its associated financial disruption because of our strong, dedicated team of professionals who more than ever are executing on our mission to provide great homes, we are confident in the face of uncertainty. It is thanks to our team that IRET continues to deliver results and build credibility and confidence with our residents in the investment community.

With that, I will return the call to the operator for your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from John Kim with BMO Capital Markets.

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Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [2]

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You managed to hold occupancy and rates relatively stable in April. But as we navigate through this recession, is your strategy to hold occupancy and prioritize that? Or would you rather prioritize rate?

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Mark O. Decker, Investors Real Estate Trust - President, CEO, CIO & Trustee [3]

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Sure. I'll have Anne take that one.

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Anne M. Olson, Investors Real Estate Trust - Executive VP, COO, General Counsel & Secretary [4]

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We definitely are focused on occupancy. I mean while we always want to balance what the rate is, we really do believe that during the time of uncertainty and the significant job losses that we need to keep the buildings full. So we right now are like many operators, offering a lot of different alternatives to renewals. We have seen our retention go up. And as I indicated in -- on the call, we are seeing our new lease rates come down and our renewal rates have decreased slightly as well. So occupancy is definitely our priority.

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Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [5]

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And I just wanted to double check the new and renewal rates that reported for April, does that include the impact of concessions? And are you offering any concessions on renewals?

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Anne M. Olson, Investors Real Estate Trust - Executive VP, COO, General Counsel & Secretary [6]

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Yes. It would include the impact of concessions. We are not offering concessions. We are holding the rates flat. On 12-month renewals, our rates are flat right now.

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Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [7]

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Mark, I think in your prepared remarks, you mentioned the May rent collection rate is 98%, but that was relative to recent levels. And I was wondering if you had the numbers of the rent collected as a percentage of what was contractually due? Because it looks like you have about 2% that are either delinquent or in deferrals currently.

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Mark O. Decker, Investors Real Estate Trust - President, CEO, CIO & Trustee [8]

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Yes. This has been an interesting thing to watch is how people collect versus -- collected versus percentage of normal. But I can give you through this morning's numbers. So through this morning for May, we've collected 95.8% with about 17 basis points of deferred, which is about 99% of our pre-COVID historical collections at this day in the month. So if we look back the last 12 months, I might be more detailed than you're looking for. But is it -- does that answer your question?

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Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [9]

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No, that's great. Maybe just one more. Delinquent tenants, how are you working with them? Are you allowed to evict them? Or is that on hold for a while?

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Anne M. Olson, Investors Real Estate Trust - Executive VP, COO, General Counsel & Secretary [10]

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Yes. I'll take that one. This is Anne. We do have a halt of evictions in all states, except for South Dakota. And then obviously, there are some federal restrictions on those properties that are encumbered by agency debt. So right now with delinquent tenants, we are trying to keep our lines of communication very open. We are trying to get them on payment plans. We are offering waivers of lease break fees. And we're also starting to just kind of queue up what evictions would look like once the state's open back up for filings.

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Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [11]

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But they would be treated as part of your occupancy figures?

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Anne M. Olson, Investors Real Estate Trust - Executive VP, COO, General Counsel & Secretary [12]

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Yes. Right now. Yes, they'll -- they're reflected in the occupancy and then also the counter to that is they're reflected in the bad debt.

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Mark O. Decker, Investors Real Estate Trust - President, CEO, CIO & Trustee [13]

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Yes. I mean, John, one interesting tidbit of the roughly 100 basis points of deferrals that we had for April, about 75% of that was contracted to pay in April and May, and we've received 2/3 of it, I think?

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Anne M. Olson, Investors Real Estate Trust - Executive VP, COO, General Counsel & Secretary [14]

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Yes, I think 40% of it has already been paid in April.

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Operator [15]

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The next question is from Gaurav Mehta with National Securities.

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Gaurav Mehta, National Securities Corporation, Research Division - MD & Equity Research Analyst [16]

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First question on the expenses. I was hoping if you could provide some more color on how you're expecting real estate taxes that -- to trend in the downturn? I know in the -- on the last quarter call, you talked about the tax expense pressure that you're seeing in some of the markets, maybe provide some more color on what you're expecting to happen this year?

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Mark O. Decker, Investors Real Estate Trust - President, CEO, CIO & Trustee [17]

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Yes. Unfortunately, what we expect is that the taxes that were -- are owed in '20 will get paid. So that -- the process of contesting those is a multiyear process. So our expectation is we'll pay what we've got budgeted. And our expectation is that municipalities will be looking for more revenues, not less going forward. So I think across the industry, taxes are a real issue.

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Gaurav Mehta, National Securities Corporation, Research Division - MD & Equity Research Analyst [18]

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Okay. And second, on the cap rate side, Mark. I recall in the past, you've talked about how some of your second tertiary market can gap up pretty quickly in a downturn. Maybe talk about what your expectations are for how the valuations will hold up in some of your secondary tertiary markets?

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Mark O. Decker, Investors Real Estate Trust - President, CEO, CIO & Trustee [19]

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Yes. It's a great question. I mean, the honest answer is we don't know yet because we haven't seen much in the way of transactional activity really anywhere outside of kind of paper trading bonds and so forth. But anecdotally, we have had some interest. We always get phone calls from folks with interest. A lot of that is 1031 generated. So I would imagine that will taper off as we get through the expanded period, I think the government is planning to go through mid-July. So they expand the window to name other properties. So a lot of the 1031 activity we're seeing now was sold in the first quarter, so to speak. But nevertheless, we have had some non-1031 interest in some of our assets in those markets. And I would say pricing is in line with what it would have been in February. And again, small sample size, an offer and an agreed price are very different things. But our view broadly is that asset values, not a lot is going to transact for a quarter or 2. And then when things do transact, we think there could be some pricing diminution, but not a lot. I mean there's just a lot of capital out there. And I think the theme that we saw in the last year in particular, which was a lot of interest in tertiary market assets, may well continue just because of the weight of capital out there.

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Operator [20]

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The next question is from Alex Kubicek with Baird.

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Alexander J. Kubicek, Robert W. Baird & Co. Incorporated, Research Division - Research Analyst [21]

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Hope all are well. I was hoping we could dive a little deeper into your guys' value-add program. How many units are you guys redeveloping today, if any? Are you planning to begin any new renovations? Just wondering kind of what you're seeing on the materials, labor front? Any color would be really insightful there.

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Anne M. Olson, Investors Real Estate Trust - Executive VP, COO, General Counsel & Secretary [22]

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Yes, this is Anne. We have about 3 projects, and I would say those projects encompass around 900 units that are currently undergoing value add, maybe a little bit more 4 projects. They're all in different stages. Most of them are being done as the units turn, which has slowed down a little bit. We are continuing with the value-add renovations on the turn. We have reassessed all of our value add, both from a physical feasibility and a financial feasibility. So number one, can we access the units if there was occupied renovations going on, is that feasible right now? Should we be making alterations to common areas with current restrictions in social distancing? How available is the labor force and contractors to execute on it? And then from a financial standpoint, really trying to think about with the market uncertainty and uncertainty in where the rents are going, will we be able to get the premiums that are required for the additional investment in the property? So we feel very confident about the projects that we had undertaken and the pricing power that they are delivering, particularly given high retention rates and occupancies at those properties. But we have put on hold some of the ones that were still in the planning or would have started this summer to just see a little bit more where the market takes us, and we'll probably reunderwrite those with new starting rents and expected premiums a little bit, once we get a little bit further down the road in the downturn here and start seeing some positive rent growth.

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Alexander J. Kubicek, Robert W. Baird & Co. Incorporated, Research Division - Research Analyst [23]

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That's really helpful. Just kind of turning to your guys' broad thoughts on the current environment. Curious if you believe that statewide shelter in place orders have a material impact on the demand you guys have seen. Is there a big variation between what you're seeing on the renewal or new lease front across the states that have or do not have those orders? Just kind of trying to gauge what you think the impact could be as we kind of turn the page and we see some of those orders start to lift across the country.

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Mark O. Decker, Investors Real Estate Trust - President, CEO, CIO & Trustee [24]

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Yes. I mean, I think the short answer is, we've seen a massive fall off kind of across the board. I don't think you could discriminate well between shelter in place per se and not. But...

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Anne M. Olson, Investors Real Estate Trust - Executive VP, COO, General Counsel & Secretary [25]

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Yes. We have seen traffic pick up a little bit more in the states that are coming out of it where people -- where restaurants are starting to open or maybe there is some discretionary -- kids back in school. I think a few of our states had left it up to independent local districts to make determinations. But I think fairly across the board, it's been fairly balanced on both the traffic fall off and retention rates. So yes, I don't think there is any material differences between how the markets have reacted.

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Alexander J. Kubicek, Robert W. Baird & Co. Incorporated, Research Division - Research Analyst [26]

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That's helpful. And then just one more, if I may. Have you guys seen -- or do you anticipate seeing more mezzanine loan deals as the capital markets have seized up? And if those did materialize, how would your guys' return requirements change?

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Mark O. Decker, Investors Real Estate Trust - President, CEO, CIO & Trustee [27]

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Yes. The short answer is I think it is possible that those types of deals become more readily available or we become more competitive in winning some of those. And from a return perspective, I think our overall guiding principle would be the same, which is, in general, we're not a financial investor per se. We're trying to get to long-term ownership. I think I can imagine circumstances where we could be a pure financial mezzanine investor in this environment. But in general, I mean, we're always looking to grow distributable cash flow, increase the quality of the portfolio. And so with -- and we also have finite capital. So our return hurdles are probably going to go up a little bit because our capital is precious.

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Operator [28]

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The next question is from Rob Stevenson with Janney.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [29]

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Anne or Mark, when you look at the -- a full month like April, how meaningful has been the increased operating expenses related to increased trash, utilities and other COVID-related items have been? I mean presumably, some of this, if not all of it has been offset, but what's been the actual impact in terms of the actual dealing with this stuff in terms of expenses that otherwise would have been more marginal that have jumped up as a result of this?

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Anne M. Olson, Investors Real Estate Trust - Executive VP, COO, General Counsel & Secretary [30]

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Yes. That's a great question and one that we're watching closely. So as you can imagine, some of those expenses lag such as -- we are expecting that there are potentially higher utility cost because everyone is working at home, trash, recycling those kind of costs, they do lag. So we will start seeing those expenses a little bit more in May. And probably have some better color then. But at this point, I don't think they have been material enough for us to really have a focus on them other than making sure that we're taking care of them and that the buildings are in good condition and that the trash is getting removed and the residents are being serviced. And I think you hit the nail on the head, which is we are really trying to offset any increased expenses in certain categories with expense savings in other categories, just like we're watching the revenue closely and trying to match the expense, reduce expenses accordingly.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [31]

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Okay. And how much are you guys spending to acquire a new tenant? And what is that likely to go up to over the next couple of months as you deal with sort of a weaker operating environment for attracting new residents in?

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Anne M. Olson, Investors Real Estate Trust - Executive VP, COO, General Counsel & Secretary [32]

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Yes. I think -- so that's another great question. We track really closely our marketing expense or our cost per lead and cost per lease. We have actually seen those decreasing. We implemented some new software solutions where we're tracking that a little bit closer and really focusing in on what the best return on investment for the dollar is. So we've actually seen our marketing expense in that category decreasing and expect that to decrease a little bit and have budgeted for it to decrease further as we move throughout the course of this year. And we are not offering concessions. I mean, maybe here and there, we have some specials to get people to renew or to get a new lease on a certain type of unit or at certain buildings. But we haven't seen any dramatic increase in the cost. In fact, we probably have reduced our cost of lease over the past 6 months with an expectation that, that will continue as we hone in on what the best use of each dollar is.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [33]

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Okay. And then for those that are not renewing with you, where they say that they're going? I mean are they going to another apartment? Are they taking advantage of the mortgage rates and buying something? Are they doubling up because they've lost their job or moving back in with family? I mean where are they going if they're not renewing with you?

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Mark O. Decker, Investors Real Estate Trust - President, CEO, CIO & Trustee [34]

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Yes. The #1 -- and add color if I -- if needed. But the #1 reason is usually they're changing locations or they're buying a house.

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Anne M. Olson, Investors Real Estate Trust - Executive VP, COO, General Counsel & Secretary [35]

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And we have seen people who are getting roommates. That has become more common and is a strategy that we're thinking about how we can best position our 2-bedroom units for people who may not be able to afford the 1 bedroom in the building but could get a room made. And so that is something that we're tracking a little bit more closely now that we hadn't been watching in the past. Relative importance in 2020 of roommates is higher.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [36]

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All right. And then last one for me. Mark, what made the preferred more attractive to you guys to buy than the common when you bought back the shares, how did you guys think about that?

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Mark O. Decker, Investors Real Estate Trust - President, CEO, CIO & Trustee [37]

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Yes. You want to go ahead, John.

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John A. Kirchmann, Investors Real Estate Trust - Executive VP & CFO [38]

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Yes. So Rob, this is John. So we looked at what is the yield we're paying on that and what is the yield to call to where we can call that. And doing the math there, we were buying the back at about a 10% yield to call. It also improves our net debt plus preferred leverage metrics. So those were all very positive qualifiers as far as determining why the buybacks are preferred instead of the common.

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Operator [39]

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(Operator Instructions) The next question is from Buck Horne with Raymond James.

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Buck Horne, Raymond James & Associates, Inc., Research Division - SVP of Equity Research [40]

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Wondering if you've looked at the competitive supply situation in markets like Denver and Minneapolis recently, if you got any data points or anecdotes. How are developers that are actively in lease-up reacting? Are you seeing concessions that are disciplined or undisciplined? Or how do you think the pricing environment develops for those guys that were caught in the middle of lease-up during this?

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Mark O. Decker, Investors Real Estate Trust - President, CEO, CIO & Trustee [41]

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Yes. I mean -- great question, Buck. I would say that discipline is a difficult word to opine on. But I think they're doing what anyone would do in the situation where they don't have a stable deal, and that's trying to get it stable. So depending on specific location, we've seen varying levels of concession, I would say it's worse in Denver than it is in the Twin Cities. Both of those markets have a lot of supply coming this year. And there's projects that are underway that remain underway in both instances. But definitely, we're seeing concessions, I think, and Denver is the market where I think we see it in every asset. In Minneapolis, it's similar to what we've said before, which is there are a few submarkets. So Downtown and Northeast Minneapolis, in particular, have a lot of supply and a lot of concession activity, the West End where our Arcata asset is and Edina are really probably the 3 most concession rich markets. And St. Paul is a little softer than it's been historically, and we have an asset that's in lease-up a block away from ours, which, again, we knew was coming, but they're looking to fill right now, which is probably not exactly how they were penciling it out when they drew it up.

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Buck Horne, Raymond James & Associates, Inc., Research Division - SVP of Equity Research [42]

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Okay. That's helpful. Switch gears a little bit. With the turnover dropping so much or your residents staying in place, I mean, do you anticipate a significant deferred maintenance item or deferred maintenance expense that just -- I don't know, it turns -- it shows back up in 2021 or maybe too early to estimate what that may be? But have you thought about how maintenance or repairs expense flow through this year, and what you might have to catch up on next year?

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Anne M. Olson, Investors Real Estate Trust - Executive VP, COO, General Counsel & Secretary [43]

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Yes. We're monitoring that closely. So a couple of things that we've noticed. I guess I would say that we are expecting those expenses, both on the turn cost and -- the turn costs will be delayed a full year. But on the general maintenance side, we're expecting that we'll see those kind of come around at the end of this year. So we have noticed 2 things. One are the amount of work orders coming in is down significantly. And two, the amount of work orders that we can physically execute on and getting into somebody's unit with social distancing and resident preferences are also down. So we do have a backlog of work orders. We do have a plan to execute on those when things start opening back up. And as I mentioned, we are doing several work orders kind of remotely assisted where we might drop off a part and provide a video or walk a resident through a simple repair. We do plan on -- one of the things we plan on doing when we can access residence units again is what I would call sweeping all the units, so making sure that we get someone from maintenance in through everyone's unit to just check and make sure that there aren't any leaks that are unreported, that furnace filters have been changed. And given the heavier use of people's apartments during this time when they're home more, that's something that we feel is important to ensure that there isn't long-term deferred maintenance or kind of backlog of costs that we see in 2021.

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Operator [44]

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This concludes our question-and-answer session. I would like to turn the conference back over to Mark Decker for any closing remarks.

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Mark O. Decker, Investors Real Estate Trust - President, CEO, CIO & Trustee [45]

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Super. Thanks, Gary. Thanks, everyone. We appreciate your interest in IRET, and we'll hope to see you virtually at Nareit's meeting in June, and stay safe, everybody. Thanks very much.

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Operator [46]

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