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Edited Transcript of IRET earnings conference call or presentation 28-Feb-19 3:00pm GMT

Investors Real Estate Trust Eight Month Transition Period Ended December 31, 2018 Earnings Call

Minot Mar 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Investors Real Estate Trust earnings conference call or presentation Thursday, February 28, 2019 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

* Jonathan Bishop

Investors Real Estate Trust - VP Finance

* Mark O. Decker

Investors Real Estate Trust - President, CEO & Trustee

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Conference Call Participants

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* Andrew T. Babin

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

* James O. Lykins

D.A. Davidson & Co., Research Division - VP & Research 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 Conference Call to Discuss the 8-Month Transition Period ended December 31, 2018. (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. Bishop, please go ahead.

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Jonathan Bishop, Investors Real Estate Trust - VP Finance [2]

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Thank you, and good morning. IRET's Form 10-KT for the 8-month period ended December 31, 2018, was filed with the SEC yesterday after the market closed. Additionally, our earnings release and supplement 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 need to 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-KT 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 are Mark Decker, our Chief Executive Officer; as well as John Kirchmann, our Chief Financial Officer; and Anne Olson, our Chief Operating Officer.

At this time, I'd like to turn the call over to Mark.

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

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Thanks, Jon, and good morning, everyone. I'd like to start by noting, because we probably can't over-communicate this, that we are reporting for the 8-month transitional period ending 12/31/2018. This transition period is driven by our previously announced decision to move to a calendar year-end, which we have undertaken to provide greater comparability with other apartment REITs and public companies in general. We look forward to getting to the other side of this transition, which really happens on our next quarterly call. And I want to thank the investment community for their patience and our accounting team for all their hard work.

We made another notable change at year-end when, on December 27, we effected a 1-for-10 reverse stock split. While the reverse stock split is purely mathematical, it has provided positive outcomes for our company. It has reduced our annual listing costs, allowed access to a larger potential investor pool and meaningfully improved our post-split daily liquidity as measured in dollars.

As you can tell from just my opening remarks, 2018 was a significant year of transition. And during the transition period, we established a baseline for our dedicated multifamily business from which we can mark our progress. With 98% of revenue during the transition period from multifamily, we were able to begin to make lasting improvements to the operating platform.

The business we have today, with a clear mission, financial flexibility and expanding operating acumen, is producing good results, and we are pleased to report our fifth straight quarter of same-store NOI growth. This strong growth of 5.5% for the 8-month transition period demonstrates the value of employing a customer-centric model with an overlay of active revenue optimization and careful expense management.

Almost 2 years ago, this team saw the opportunity that existed within our portfolio, and today, we are proving that opportunity out. These strong operational gains and our balance sheet strength have enabled us to focus on growth. And we are excited to announce that we are growing in one of our key markets, as we announced last night the successful closing of the $44 million purchase of SouthFork, a 272-unit townhome community in the Minneapolis market.

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

As described in the press release, in consideration for the property, we are using our line of credit and the flexibility provided by having an operating partnership structure. And we are issuing a convertible operating partnership unit that sits behind our debt and ahead of our common, handing the holder 3.86% and convertible into common shares at $72.50. Additionally, the contributor has a put option.

The SouthFork purchase brings our total redeployment to $417 million since May 2017 when this team took over, whereas we've sold $578 million of assets in that time. The other significant investment we've made since we last reported is in our own shares. From May 1, 2018 through today, we were able to deploy $11 million buying in over 1.8% of our common outstanding shares at an average price of $50.70.

We remain committed to capital recycling and responsible dividend growth. We are going to continue to utilize our platform for growth by balancing our leverage and the opportunities that we are seeing in the market. We continue to consider well-located properties with strong in-place rents, which would enhance the scale and efficiency of our portfolio in Minneapolis and Denver.

After the cyclical slowing of transaction volume during the first quarter, we expect to see the volume of available product, both on and off market, increase significantly as we head into the spring months. Our team continues to work on developing relationships in these markets to help us take advantage of those situations that will enhance our overall portfolio construction by providing us with unique opportunities that we are confident will contribute to long-term growth.

We're seeing both strong job growth and positive migration trends in Minneapolis and Denver. In Minneapolis, 7 jobs were added to the Metro economy for every new apartment unit built in 2018, and we expect a similar dynamic in 2019. Class B rent outpaced class A rent growth in Minneapolis, and suburban rent growth likewise outpaced urban. We continue to see opportunities in the class B space in the Minneapolis Metro. In Denver, record absorption in 2018 offset new supply. 40,000 new jobs are expected in 2019, and 13,000 new units are scheduled for delivery this year.

We are also seeing strong results from our own portfolios in Minneapolis and Denver. And while we're seeing strong NOI growth in other markets, our revenue per occupied home and rent growth within our same-store portfolio is strongest in Minneapolis, where we saw a 4.9% increase in weighted average monthly revenue per occupied home, driven by 3.6% rent growth during the transition period. In Denver, we were able to achieve stabilization at our lease-up, Dylan, and maintain occupancy at our stabilized property, Westend, even in light of continued supply pressure.

Looking at our smaller regional markets, the general theme remains full employment, low supply and growth. With the exception of North Dakota, our other regional markets combined to realize 7.9% NOI gains on 3% increases in revenues per home. North Dakota, which has economic cycles that are dependent primarily on energy and agriculture, realized only 1.4% NOI growth on 80 basis points of revenue per home and negative rent growth.

We remain optimistic that our strong regional markets will continue to positively impact our results due to the increasing efficiency of our operating platform.

And with that, I'd like to ask Anne Olson to comment more specifically on our operating initiatives.

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

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Thank you, Mark, and good morning, everyone. As Mark mentioned, the same-store NOI growth for the 8-month transition period ending 12/31/2018 as compared to the 8-month period ended 12/31/2017 was 5.5%. This demonstrates that our focus on our operating platform and margin expansion initiatives are working.

With margin expanding in the transition period 110 basis points to 57.1% for the 8 months ended December 31, 2018, we are confident that we can continue the trend and reach our goal of expanding our margin by 5% over the next 3 to 4 years.

During our transition period, we achieved same-store weighted average occupancy of 93.7%, an increase of 60 basis points over the prior period. As of December 31, 2018, our same-store physical occupancy was 95.8%. We believe we are well positioned as we head into spring leasing to maximize revenue by balancing occupancy and rents. However, we do see headwinds in the second and third quarters from our lease expiration profile, which is overweight to the early summer months.

Our key initiatives over the last 6 months have been enhancing our revenue management platform and expense containment. With respect to expenses, these efforts produced flat or decreasing expenses in our same-store portfolio in over half of our markets during the transition period. Having institutionalized the practices that provide us with these results and set our baseline expectation for managing expenses, we are now looking at specific areas within our control to further our cost-containment. Most notably, in 2019, we will be measuring improvements related to turn costs, processes and best practices.

We revamped our vendor process to make it easier for our team to find and partner with good vendors, and we believe that will further reduce our pricing on many of our larger expense items. These initiatives are not aimed at onetime expense reductions but at creating an operations platform that can be leveraged in new assets and markets as we grow.

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

Our largest area of focus for margin expansion is in the area of enhancing the resident experience from their first contact through renewal. We are addressing this through the identification and rollout of new technology platforms that will touch our credit screening, electronic lease signing capabilities, lead management and renters' insurance programs. The enhancement here will aid in our leasing efforts, create efficiencies for our teams and reduce our risk with the goal of long-term scalability.

As with all investments in technology, there is an expense component to implementing these, and our plan for 2019 includes expenditures of $700,000 to $900,000 in technology platforms. We believe these investments are necessary to compete for today's residents and to fully leverage the power of our operational efficiencies across our portfolio.

Turning to our asset management initiative, the building of the value-add program and team continues to gain traction. We have several projects where the early returns are coming in, including successful completion of LED retrofits at 3 properties that have proven out the benefits of rolling out that program across the portfolio.

We've completed light and unit renovations on 130 units. And by the end of March, we will have started a comprehensive unit renovation program on a 240-unit asset. Our pipeline is growing, and we have more than 10 projects currently in the bidding process, from new clubhouses, to amenity upgrades, to unit renovations.

As I have mentioned previously, we are building our program to ensure we can thoughtfully and with real accountability mine the opportunities within our portfolio. We are planning to spend $5.1 million of value-add capital for calendar year 2019, with an additional $25.8 million approved to be spent over the next 2 to 4 years.

With respect to unit renovations, these approvals cover 9 assets and over 2,000 units that we have underwritten and are moving forward on. We will continue to identify and build on our value-add pipeline. Generally speaking, underwritten returns are in the range of 8% to 20% depending on the type and life of the project, with an average return of 15% to 18%.

I'm reminded every day that no matter if the market conditions are good or bad, we obtain our results through people. We will continue to focus on our residents and on our team, and I'm grateful to work with such dedicated people across our company who have embraced the changes in the last year and have stayed motivated to make IRET a premier multifamily company.

I'll now turn it over to John Kirchmann for a discussion of our overall financial results and balance sheet.

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John A. Kirchmann, Investors Real Estate Trust - Executive VP & CFO [5]

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Thank you, Anne. Due to our fiscal year-end change, we are presenting an 8-month period ended December 31, 2018 as our transition period, which included the 2-month period ended December 31, 2018. All subsequent fiscal years beginning in 2019 will be from January 1 to December 31.

Our earnings release and supplemental include various disclosures, including FFO, core FFO and NOI, that present information for the 3 months ended December 31, 2018, which is consistent with our new calendar year. As such, the data for the 3 months ended December 31, 2018, includes the results for the month ended October 31, 2018, which has previously been included in the published financial results for the 3 and 6 months ended October 31, 2018. We believe that the data for the 3 months ended December 31, 2018, provides our financial statement users valuable information and is not meant to be indicative of results for any subsequent period.

Additionally, we believe that the 3 months ended January 31, 2018 is the most comparable previously reported quarter to the 3 months ended December 31, 2018. As a result, in some instances, we present a comparison between these 2 quarters. With that reminder of our reporting periods out of the way, let's turn to our results.

Last night, we reported core FFO for the 8-month transition period ending December 31 of $2.38 per share, a decrease of $0.38 from the prior year period. For the calendar quarter ended December 31, 2018, core FFO was $0.92 per share, a decrease of $0.02 from the fiscal quarter ended January 31, 2018. These decreases are primarily due to a reduction in NOI from the sale of commercial and noncore multifamily assets, offset by growth in NOI from our multifamily portfolio as well as a reduction of preferred dividends and interest costs.

Looking at our general and administrative expenses. Total G&A was $9.8 million for the transition period, an $800,000 increase from prior year period. For the calendar quarter ended December 31, 2018, G&A was $3.8 million, a $750,000 increase from the prior period.

These increases are primarily due to $350,000 in higher accounting fees for the quarter and 8-month transition period associated with the changes in the fiscal year-end and are timing related. In addition, we experienced higher legal costs associated with our pursuit of recovery under a construction defect claim of $110,000 and $430,000 for the quarter and 8-month transition period, respectively.

Moving to capital expenditures. As presented in Page S-16 of the supplemental, for the calendar quarter ended December 31, 2018, same-store CapEx was $3.1 million, a $500,000 increase from the fiscal quarter ended January 31, 2018. As mentioned in our prior earnings call, this increase was expected and due to a delay in the timing of the start of some capital projects.

For the 8-month period ended December 31, 2018, same-store CapEx was $8.4 million, a $1.4 million decrease from the same period in 2017. Lower CapEx costs are the result of a reassessment and prioritizing of planned projects due to the addition of a new facility management team.

Turning to our balance sheet. As of December 31, 2018, we had $189 million in total liquidity, including $175 million available on our corporate revolver.

During the 8-month transition period ending December 31, 2018, we repurchased approximately 42,000 common shares at an average price of $51.36 per share. Subsequent to December 31, 2018, we repurchased approximately 174,000 shares at an average price of $50.54 per share. Since authorization of the share repurchase program in December 2016, we have repurchased approximately 472,000 shares at an average price of $53.71.

During the transition period, we have sold commercial and noncore multifamily assets for proceeds totaling $63.4 million, which have primarily been used to reduce debt. As a result, our forward debt-to-EBITDA ratio has improved from 8.4x at April 30, 2018, to 7.8x as of December 31, 2018. As Mark mentioned, we will seek to balance our future leverage with the opportunities we have for growth in our strategic markets.

Looking ahead to calendar 2019, as presented in our earnings release, our guidance for core FFO is a range of $3.52 to $3.72 per share with a midpoint of $3.62 per share, representing a 6.3% increase from calendar year 2018. As shown on Page S-17 of the supplemental, FFO growth of calendar year 2019 relative to calendar year 2018 is impacted by the reduction of NOI from 2018 dispositions.

For our same-store communities, we expect NOI to grow between 2% and 4.5% in 2019. This reflects expected same-store revenue growth between 2.5% and 4% and same-store property expense growth between 2.5% and 4%.

We expect revenue growth to come from increasing occupancy from 94% for calendar year 2018 to 94.9% for 2019, with the balance of growth coming from a combination of rent growth and other initiatives that seek to optimize revenue, as Anne previously discussed.

Impacting expense growth is an estimated increase in same-store real estate expenses of 5% to 6% due primarily to higher valuations. Additionally, 2019 same-store insurance costs are expected to increase 20% due to an increase in insurance premiums of 10% as well as favorable loss experienced for insured claims for our calendar year 2018. For 2019, losses on insured claims are expected to return to historical rates.

On the operating expense side, we are seeing that most of our markets continue to experience low unemployment, and we expect wage pressure to continue in calendar 2019, with salary costs increasing 2% to 4%.

Excluding property taxes and insurance costs, the remaining operating expenses, which include compensation costs, account for 2/3 of total expenses and are expected to increase 0% to 2%, the relatively modest growth outlook for these remaining operating expenses despite the expected wage inflation is attributed to cost-containment initiatives, as outlined by Anne in her comments.

Turning to general and administrative and property management expenses, we will be making a number of investments in 2019, including implementing IT initiatives and tools, as discussed earlier by Anne; aligning support functions to better support operations; and innovating for efficiencies and scalability so that we can grow our portfolio while, on a relative basis, reducing overhead costs.

These initiatives will not come without a cost. And while G&A expenses are expected to continue at a run rate of $3.6 million to $3.8 million per quarter for calendar year 2019, property management expenses for 2019 are expected to increase $700,000 to $900,000 for costs related to the implementation of new technology initiatives and an additional $250,000 to $350,000 due to the reduction of open positions from calendar year 2018. It is anticipated that annual additional NOI from these initiatives will exceed their annual costs, including for calendar year 2019.

Turning to capital, same-store capital expenditure costs for 2019 are expected to be $900 to $925 per unit. In addition, 2019 will see the relaunching of our value-add program, and our intention is to ensure that we are diligently implementing, monitoring and evaluating our value-add programs to ensure they meet their underwritten returns. For calendar year 2019, our value-add program is expected to be neutral to FFO due to these initial start-up costs.

In closing, I would like to reiterate Mark and Anne's earlier praise for our team here at IRET and the willingness and vigor in which they embrace change, act proactively and serve as 1 team. We continue to see benefits of their efforts in our numbers.

With that, I will turn over 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) And the first question comes from Drew Babin with Baird.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [2]

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Thank you very much for the calendar adjustments and the details on guidance. That's all extremely helpful. I wanted to just start out just talking about the SouthFork acquisition and curious kind of what pricing metrics you might be able to provide on that.

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

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Sure. Yes, I mean, we -- on our mathematics, Drew, we believe we bought that at about a 5 to a 5.25, which when I say our mathematics, I mean cost plus the capital we plan to put into the building. I think if you were to talk to a broker, he would say around 5.5. And I guess I would add that we had a tax-sensitive seller there that we were dealing with. And we believe we were able to get the asset for a little better than a cash buyer because we were able to make some accommodations that others couldn't. So pretty exciting for them and for us.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [4]

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

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Mark O. Decker, Investors Real Estate Trust - President, CEO & Trustee [5]

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Yes. The answer is yes. I mean, we'll look at all possible sources, and dispositions certainly have been our greatest source and will continue to be a source we consider. I mentioned we have -- we sold about $64 million, $63 million of assets in that transition period. And in all, we don't view that we're sort of fully invested, but we are approaching levels that we -- of leverage that we view as full. So I mean, it has to be an exciting opportunity that we think improves our ability to grow per share distributable cash and make the portfolio stronger and then we'd consider leverage. I mean, we're excited about this convertible preferred. It really is, I think, to a pure finance person, debt. It could become equity. That's a tool that I think has some possible utility in the future. But we'll look at all options, Drew.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [6]

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Great. And I just wanted to address kind of operations as you head into the spring and summer season. I guess, first of all, roughly, where are renewals kind of being sent out in the early spring? What are the expectations there? And I guess, kind of around that 94.9% '19 occupancy number, how might that vary? Might that drop off kind of in calendar 2Q and 3Q in an effort to optimize rate?

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Anne M. Olson, Investors Real Estate Trust - Executive VP, COO, General Counsel & Secretary [7]

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Yes. I mean, we are really focused on optimizing overall revenue, which is not just rents but enhancing the operational platform to get the revenue numbers up, which I think you can see in the results so far. With respect to where the renewals are going out, I mean, we think it's going to be pretty consistent with the transition period. So across the portfolio, there'll be some variation. But overall, we think the rent growth numbers are going to hold pretty steady, and we're going to see the same kind of growth that we saw over the past 8 months on the rent side. We do -- we are, as I mentioned, facing some headwinds on the lease expiration, so we will see variation in occupancy, particularly in the second and third quarter, as we deal with kind of the large lease expiration months. So we do expect some dip in occupancy during that, but we are targeting and confident that we'll hit the 94.9% for the full year.

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Operator [8]

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

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James O. Lykins, D.A. Davidson & Co., Research Division - VP & Research Analyst [9]

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

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Mark O. Decker, Investors Real Estate Trust - President, CEO & Trustee [10]

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Vintage is -- it was built in 2 phases, '88 and '90. Primarily, it is townhome product with individual garages in a great school district. It's very attractive product. We own 2 assets relatively nearby, Colonial Villa and Boulder Court, which are actually a little bit older. This is a little bit nicer. But all of these assets, all 3 of those assets are really kind of straight down the middle, solid B apartments that appeal to a cost-conscious consumer. In terms of some of the improvements, I mean, our plan at this point is to go in, make some of the improvements to the overall property to really improve our marketing window. So this has a small clubhouse, we'll change the clubhouse. There are some landscaping and things like that we can do. I think we're probably going to put in new windows, which is a pretty big-ticket item. And then really, we're going to leave the in-unit work for now, although we think it's there and we think it's pretty compelling. So these assets -- these -- the units are all original. There's been a couple of value-add examples that we have seen in the property where the previous owner tested some things out, and we're excited about what we see there.

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James O. Lykins, D.A. Davidson & Co., Research Division - VP & Research Analyst [11]

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

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Mark O. Decker, Investors Real Estate Trust - President, CEO & Trustee [12]

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In-place rents are around $1,800. You asked that as well.

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James O. Lykins, D.A. Davidson & Co., Research Division - VP & Research Analyst [13]

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Yes. Couple of questions about guidance. First of all, can you tell us if that assumes any acquisitions, dispositions? And then also, for margins, you've talked about margin expansion over the next 5 years. But are you -- can you give us your assumption for what margins are for 2019?

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John A. Kirchmann, Investors Real Estate Trust - Executive VP & CFO [14]

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Yes. Jim, this is John here. So the guidance only includes the SouthFork acquisition, and it doesn't include any other acquisitions or dispositions. And...

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James O. Lykins, D.A. Davidson & Co., Research Division - VP & Research Analyst [15]

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Okay. And any...

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John A. Kirchmann, Investors Real Estate Trust - Executive VP & CFO [16]

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Oh, yes. And...

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James O. Lykins, D.A. Davidson & Co., Research Division - VP & Research Analyst [17]

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And any color on your assumptions for margins for guidance?

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John A. Kirchmann, Investors Real Estate Trust - Executive VP & CFO [18]

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Yes. So on the margin side, that builds in about 70 bps of margin expansion. So curtailing some of that margin expansion were the property taxes and the insurance costs.

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James O. Lykins, D.A. Davidson & Co., Research Division - VP & Research Analyst [19]

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

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John A. Kirchmann, Investors Real Estate Trust - Executive VP & CFO [20]

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I would say probably the bulk of that $5 million is going to be spent in Q2, Q3. Part of the reason for it being -- for it not having an impact to the results or being neutral is some of that -- a lot of that work is doing things like clubhouses, the type of things you do when you reposition an asset. So it will be a little slower to show the benefits. We expect to get the full benefits of that in next year, in 2020.

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Anne M. Olson, Investors Real Estate Trust - Executive VP, COO, General Counsel & Secretary [21]

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Let's just check the number of units, Jim, on a quarterly basis. As I mentioned, we have 1 asset, about 240 units, that we'll start in March. As I look at the schedule, we probably have a full asset that's between 180 and 260 units that we expect to launch in unit renovations in each quarter this year.

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Mark O. Decker, Investors Real Estate Trust - President, CEO & Trustee [22]

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Hey, Jim, I just -- I was reading the wrong line in my notes. The average rents in SouthFork are around $1,300. $1,275 is actually the number.

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Operator [23]

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(Operator Instructions) And the next question comes 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 [24]

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Jon, can you remind us, is your same-store portfolio a rolling basis or just January 1?

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John A. Kirchmann, Investors Real Estate Trust - Executive VP & CFO [25]

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Yes, just January 1.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [26]

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Okay. And so the newer acquisitions in the first Denver assets won't start hitting that until when, 2020? Or is there any of them that start hitting in this year?

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John A. Kirchmann, Investors Real Estate Trust - Executive VP & CFO [27]

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No, the only -- Park Place, a Minneapolis asset, is the only addition to the same-store for 2019. 2020 will see the 2 Denver assets come in as well as Oxbo, our St. Paul asset.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [28]

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Okay. Perfect. And then what are the known items at this point that would drive the differential between your core FFO guidance and Nareit FFO definition guidance?

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John A. Kirchmann, Investors Real Estate Trust - Executive VP & CFO [29]

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

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [30]

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

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John A. Kirchmann, Investors Real Estate Trust - Executive VP & CFO [31]

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

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [32]

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Okay. And then in the release, you guys noted that for the 8-month period that the non -- or the apartments were, I think it was, was the number 98.4% or something like that, came from apartments, so 1.6-ish coming from non-apartments. What's the number of non-apartment assets that you guys now own? And when you're thinking about the 2019, are you down to 1% or less of your revenue or NOI coming from non-apartment assets? How should we be thinking about that?

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Mark O. Decker, Investors Real Estate Trust - President, CEO & Trustee [33]

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Yes. The number of assets, Rob, is 4, 1 of which is our headquarters. So pretty, pretty pared down. There's maybe a piece of land or 2 still out there that's not in that 4 number. But yes, I mean, I think you should think about it like less than 2%. And we'll continue, as we have been doing, to opportunistically find other homes for those assets outside of our portfolio.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [34]

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

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John A. Kirchmann, Investors Real Estate Trust - Executive VP & CFO [35]

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Yes. So mostly, what we're seeing the pressure from is from valuations. And really, we're seeing most of it in our -- I shouldn't say most of it, but probably half of that property tax increase is just in our Minneapolis portfolio, which have been performing very well. And property taxes lag a little bit on performance. So I wouldn't say we're surprised or there's anything different going on other than there's a lot of comparable sales out there, and the market has been performing well for a long time and the valuations have caught up.

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Operator [36]

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

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

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

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Operator [38]

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