What changed in this filing

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Item 1. Financial Statements

2020-08-03 compared with 2020-05-11 · 240 added, 142 removed, 468 unchanged (45% of the section changed)

3 unchanged sentences

(in thousands, except per share data)

March 31, 2020

June 30, 2020

December 31, 2019

14 unchanged sentences

COMMITMENTS AND CONTINGENCIES (NOTE 10)

SERIES D PREFERRED UNITS (Cumulative convertible preferred units, $100 par value, 166 units issued and outstanding at March 31, 2020 and December 31, 2019, aggregate liquidation preference of $16,560)

Series C Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no par value, $25 per share liquidation preference, 3,982 shares issued and outstanding at March 31, 2020, aggregate liquidation preference of $99,552 and 4,118 shares issued and outstanding at December 31, 2019, aggregate liquidation preference of $102,971)

Common Shares of Beneficial Interest (Unlimited authorization, no par value, 12,163 shares issued and outstanding at March 31, 2020 and 12,098 shares issued and outstanding at December 31, 2019)

SERIES D PREFERRED UNITS (Cumulative convertible preferred units, $100 par value, 166 units issued and outstanding at June 30, 2020 and December 31, 2019, aggregate liquidation preference of $16,560)

Series C Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no par value, $25 per share liquidation preference, 3,883 shares issued and outstanding at June 30, 2020, aggregate liquidation preference of $97,085 and 4,118 shares issued and outstanding at December 31, 2019, aggregate liquidation preference of $102,971)

Common Shares of Beneficial Interest (Unlimited authorization, no par value, 12,827 shares issued and outstanding at June 30, 2020 and 12,098 shares issued and outstanding at December 31, 2019)

Accumulated distributions in excess of net income

1 unchanged sentence

Total shareholders’ equity

Noncontrolling interests – Operating Partnership (1,043 units at March 31, 2020 and 1,058 units at December 31, 2019)

Noncontrolling interests – Operating Partnership (1,022 units at June 30, 2020 and 1,058 units at December 31, 2019)

Noncontrolling interests – consolidated real estate entities

4 unchanged sentences

(in thousands, except per share data)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Property operating expenses, excluding real estate taxes

9 unchanged sentences

Interest and other income (loss)

Income (loss) before gain (loss) on sale of real estate and other investments, gain (loss) on litigation settlement, and income (loss) from discontinued operations

Income (loss) before gain (loss) on sale of real estate and other investments, and gain (loss) on litigation settlement

Gain (loss) on sale of real estate and other investments

Gain (loss) on litigation settlement

NET INCOME (LOSS)

12 unchanged sentences

(in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Net income (loss)

10 unchanged sentences

(in thousands, except per share data)

Six Months Ended June 30, 2019

DISTRIBUTIONS

7 unchanged sentences

Distributions – Series C preferred shares ($0.4140625 per Series C share)

Shares issued and share-based compensation

Share-based compensation, net of forfeitures

Redemption of units for common shares

Redemption of units for cash

1 unchanged sentence

Acquisition of redeemable noncontrolling interests

Balance March 31, 2019

Balance June 30, 2019

Six Months Ended June 30, 2020

Balance December 31, 2019

Net income (loss) attributable to controlling interests and nonredeemable noncontrolling interests

Net income (loss) attributable to controlling interests and noncontrolling interests

Change in fair value of derivatives

6 unchanged sentences

Shares repurchased

Acquisition of redeemable noncontrolling interests

Balance March 31, 2020

Acquisition of noncontrolling interests

Balance June 30, 2020

See accompanying Notes to Condensed Consolidated Financial Statements.

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited)

(in thousands, except per share data)

Three Months Ended June 30, 2019

DISTRIBUTIONS

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

NONREDEEMABLE

NONCONTROLLING

Balance March 31, 2019

Net income (loss) attributable to controlling interests and nonredeemable noncontrolling interests

Change in fair value of derivatives

Distributions - common shares and units ($0.70 per share and unit)

Distributions – Series C preferred shares ($0.4140625 per Series C share)

Share-based compensation, net of forfeitures

Redemption of units for common shares

Redemption of units for cash

Shares repurchased

Balance June 30, 2019

Three Months Ended June 30, 2020

Balance March 31, 2020

Net income (loss) attributable to controlling interests and noncontrolling interests

Change in fair value of derivatives

Distributions - common shares and units ($0.70 per share and unit)

Distributions – Series C preferred shares ($0.4140625 per Series C share)

Share-based compensation, net of forfeitures

Sale of common shares, net

Redemption of units for common shares

Redemption of units for cash

Shares repurchased

Balance June 30, 2020

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

2 unchanged sentences

Depreciation and amortization, including amortization of capitalized loan costs

(Gain) loss on sale of real estate and other investments

Realized (gain) loss on marketable securities

Unrealized (gain) loss on marketable securities

(Gain) loss on litigation settlement

Share-based compensation expense

4 unchanged sentences

Proceeds from sale of marketable securities

Increase in notes receivable

Principal proceeds on mortgage loans receivable

Increase in mortgages and notes receivable

Proceeds from sale of real estate and other investments

23 unchanged sentences

Accrued capital expenditures

Operating partnership units converted to shares

Distributions declared but not paid to common shareholders

Distributions declared but not paid to preferred shareholders

Unrealized gain (loss) on marketable securities

Distributions declared but not paid to preferred unitholders

Gain on litigation settlement

Real estate assets acquired through exchange of note receivable

6 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

for the three months ended March 31, 2020 and 2019

for the six months ended June 30, 2020 and 2019

NOTE 1 • ORGANIZATION

Investors Real Estate Trust, collectively with our consolidated subsidiaries (“IRET,” “we,” “us,” or “our”), is a real estate investment trust (“REIT”) focused on the ownership, management, acquisition, redevelopment, and development of apartment communities.

As of March 31, 2020 , we owned interests in 70 apartment communities consisting of 12,135 apartment homes.

As of June 30, 2020 , we owned interests in 70 apartment communities consisting of 12,135 apartment homes.

NOTE 2 • BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

6 unchanged sentences

SIGNIFICANT RISKS AND UNCERTAINTIES

The COVID-19 pandemic is one of the most significant risks and uncertainties that may have an adverse impact on our business.

COVID-19 could cause or has already caused an economic decline which could have a material and adverse effect on our financial condition, results of operations, and cash flows.

Due to the ongoing uncertainty, we cannot predict the future impact COVID-19 may have on our financial condition, results of operations, or cash flows.

The COVID-19 pandemic is a source of significant risk and uncertainty that could have an adverse impact on our business.

The COVID-19 pandemic has adversely impacted the global economy and financial markets, and multifamily residents and commercial tenants have experienced financial hardship or closures.

We have received requests for rent relief in the form of rent deferrals or rent abatements due to these financial hardships and government-mandated closures.

As of June 30, 2020 , $ 68,000 remained outstanding under the rent deferral agreements offered to multifamily residents.

During the three months ended June 30, 2020 , we recognized a reduction in revenue of $ 402,000 due to rent abatements to commercial tenants.

The extent to which the COVID-19 pandemic could have an adverse effect on our financial condition, results of operations, and cash flows is uncertain and will depend on future developments.

The COVID-19 pandemic has not had a significant adverse effect on our financial condition, results of operations, and cash flows for the six months ended June 30, 2020 ;

however, we continue to monitor the impact of the COVID-19 pandemic on all aspects of our business and cannot predict the impact it may have on our financial condition, results of operations, and cash flows in the future.

UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

36 unchanged sentences

Balance sheet description

March 31, 2020

March 31, 2019

June 30, 2020

December 31, 2019

June 30, 2019

Cash and cash equivalents

1 unchanged sentence

Total cash, cash equivalents and restricted cash

As of March 31, 2020 , restricted cash consisted primarily of escrows held by lenders for real estate taxes, insurance, and capital additions.

As of June 30, 2020 , restricted cash consisted primarily of escrows held by lenders for real estate taxes, insurance, and capital additions.

Effective January 1, 2019, we adopted ASUs 2016-02, 2018-10, 2018-11, 2018-20, and 2019-01 related to leases using the modified retrospective approach.

8 unchanged sentences

The leases for commercial spaces generally include options to extend the lease for additional terms.

Beginning in April 2020, we offered multifamily residents suffering from financial hardship related to the COVID-19 pandemic the option to apply for rent deferral.

We also abated rent, common area maintenance, and tax expenses for commercial tenants that experienced government-mandated interruptions or closures of their businesses.

We elected to account for these accommodations as though enforceable rights and obligations for the accommodation existed without evaluating if such a right or obligation existed under the lease agreement, as allowed by the FASB Q&A released on April 10, 2020 related to lease modification guidance under ASC 842.

The accommodations were recognized as variable lease payments.

As of June 30, 2020 , $ 68,000 remained outstanding under the rent deferral agreements offered to multifamily residents.

During the three months ended June 30, 2020 , we recognized a reduction in revenue of $ 402,000 due to rent abatements to commercial tenants.

Many of our leases contain non-lease components for utility reimbursement from our residents and common area maintenance from our commercial tenants.

1 unchanged sentence

The combined components are included in lease income and are accounted for under ASC 842.

The aggregate amount of future scheduled lease income on our operating leases for commercial spaces, excluding any variable lease income and non-lease components, as of March 31, 2020 , was as follows:

The aggregate amount of future scheduled lease income on our operating leases for commercial spaces, excluding any variable lease income and non-lease components, as of June 30, 2020 , was as follows:

(in thousands)

5 unchanged sentences

O ther property revenues:

We recognize revenue for rental related income not included as a component of a lease, such as application fees, as earned, and have concluded that this is appropriate under the new standard.

We recognize revenue for rental related income not included as a component of a lease, such as application fees, as earned.

Gains or losses on sales of real estate:

Subsequent to the adoption of the new standard, a gain or loss is recognized when the criteria for derecognition of an asset are met, including when (1) a contract exists and (2) the buyer obtained control of the nonfinancial asset that was sold.

As a result, we may recognize a gain on real estate disposition transactions that previously did not qualify as a sale or for full profit recognition under the previous accounting standard.

The following table presents the disaggregation of revenue streams for the three months ended March 31, 2020 :

A gain or loss is recognized when the criteria for derecognition of an asset are met, including when (1) a contract exists and (2) the buyer obtained control of the nonfinancial asset that was sold.

The following table presents the disaggregation of revenue streams for the three and six months ended June 30, 2020 :

(in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Revenue Stream

6 unchanged sentences

IMPAIRMENT OF LONG-LIVED ASSETS

We periodically evaluate our long-lived assets, including investments in real estate, for impairment indicators.

We evaluate our long-lived assets, including investments in real estate, for impairment indicators at least quarterly.

The impairment evaluation is performed on assets by property such that assets for a property form an asset group.

1 unchanged sentence

If indicators exist, we compare the expected future undiscounted cash flows for the long-lived asset group against the carrying amount of that asset group.

If the sum of the estimated undiscounted cash flows is less than the carrying amount of the asset group, an impairment loss is recorded for the difference between the estimated fair value and the carrying amount of the asset group.

sum of the estimated undiscounted cash flows is less than the carrying amount of the asset group, an impairment loss is recorded for the difference between the estimated fair value and the carrying amount of the asset group.

If our anticipated holding period for properties, the estimated fair value of properties, or other factors change based on market conditions or otherwise, our evaluation of impairment charges may be different and such differences could be material to our consolidated financial statements.

1 unchanged sentence

Reducing planned property holding periods may increase the likelihood of recording impairment losses.

During the three months ended March 31, 2020 and 2019 , we recorded no impairment charges.

MORTGAGE RECEIVABLE AND NOTES RECEIVABLE

During the six months ended June 30, 2020 and 2019 , we recorded no impairment charges.

MORTGAGE LOANS RECEIVABLE AND NOTES RECEIVABLE

In August 2017, we sold 13 multifamily communities in exchange for cash and an $ 11.0 million note secured by a mortgage on the assets.

As of March 31, 2020 and December 31, 2019 , the balance of the note was $ 10.0 million , with 12 communities remaining in the pool of assets used to secure the mortgage.

The note bears an interest rate of 5.5 % and matures in August 2020.

Monthly payments are interest-only, with the principal balance payable at maturity.

During the three months ended March 31, 2020 and 2019 , we received and recognized approximately $ 139,000 and $ 151,000 of interest income, respectively.

In July 2017, we originated a $ 16.2 million loan in a multifamily development located in New Hope, MN, a Minneapolis suburb.

As of June 30, 2020 , the note was paid in full.

As of December 31, 2019 , the balance of the note was $ 10.0 million , with 12 communities remaining in the pool of assets used to secure the mortgage.

During the six months ended June 30, 2020 and 2019 , we received and recognized approximately $ 279,000 and $ 285,000 of interest income, respectively.

In July 2017, we originated a $ 16.2 million loan in a multifamily development located in New Hope, Minnesota, a Minneapolis suburb.

We funded an additional $ 341,000 upon satisfaction of certain conditions set forth in the loan agreement.

The note bears an interest rate of 6.0 % , matures in July 2023, and provides us an option to purchase the development prior to the loan maturity date.

Interest payments are due when the note matures.

During the three months ended March 31, 2020 , we executed the purchase option for the apartment community (refer to Note 8 for details on acquisition).

During the six months ended June 30, 2020 , we executed the purchase option for the apartment community (refer to Note 8 for details on acquisition).

This note was paid in full as part of our acquisition of this apartment community.

3 unchanged sentences

The construction and mezzanine loans bear interest at 4.5 % and 11.5 % , respectively.

As of March 31, 2020 and December 31, 2019 , we had funded $ 6.8 million and $ 6.2 million , respectively, of the construction loan, which appears within mortgages receivable in our condensed consolidated balance sheets.

As of June 30, 2020 and December 31, 2019 , we had funded $ 11.0 million and $ 6.2 million , respectively, of the construction loan, which appears within mortgage loans receivable in our condensed consolidated balance sheets.

The loans are secured by mortgages and mature on December 31, 2023, and the agreement provides us with an option to purchase the development.

The loans represent an investment in an unconsolidated variable interest entity.

We are not the primary beneficiary of the VIE as we do not have the power to direct the activities which most significantly impact the entity’s economic performance nor do we have significant influence over the entity.

In March 2020, in connection with our acquisition of Ironwood, an apartment community in New Hope, MN, we acquired a tax increment financing note receivable ("TIF") with a principal balance of $ 6.6 million .

We are not the primary beneficiary of the variable interest entity ("VIE") as we do not have the power to direct the activities which most significantly impact the entity’s economic performance nor do we have significant influence over the entity.

In March 2020, in connection with our acquisition of Ironwood, an apartment community in New Hope, Minnesota, we acquired a tax increment financing note receivable ("TIF") with a principal balance of $ 6.6 million .

The note bears an interest rate of 4.5 % with payments due in February and August of each year.

VARIABLE INTEREST ENTITIES

We have determined that our Operating Partnership and each of our less-than-wholly owned real estate partnerships is a variable interest entity (“VIE”), as the limited partners or the functional equivalent of limited partners lack substantive kick-out rights and substantive participating rights.

We have determined that our Operating Partnership and each of our less-than-wholly owned real estate partnerships is a VIE, as the limited partners or the functional equivalent of limited partners lack substantive kick-out rights and substantive participating rights.

We are the primary beneficiary of the VIEs, and the VIEs are required to be consolidated on our balance sheet because we have a controlling financial interest in the VIEs and have both the power to direct the activities of the VIEs that most significantly impact the economic performance of the VIEs as well as the obligation to absorb losses or the right to receive benefits from the VIEs that could potentially be significant to the VIEs.

Because our Operating Partnership is a VIE, all of our assets and liabilities are held through a VIE.

During the three months ended March 31, 2020 , we acquired the 47.4 % noncontrolling interests in the real estate partnership that owns 71 France for $ 12.2 million .

MARKETABLE SECURITES

As of March 31, 2020 , marketable securities consisted of equity securities.

During the six months ended June 30, 2020 , we acquired the 47.4 % noncontrolling interests in the real estate partnership that owns 71 France for $ 12.2 million .

MARKETABLE SECURITIES

Marketable securities consisted of equity securities.

We report equity securities at fair value based on quoted market prices (Level 1 inputs).

Any unrealized gains or losses are included in interest and other income on the consolidated statements of operations.

(in thousands)

As of March 31, 2020

Gross Unrealized Gain (Loss)

Carrying Value

Marketable securities

As of December 31, 2019

Marketable securities

As of June 30, 2020 , we had no marketable securities.

As of December 31, 2019 , the cost basis of marketable securities was $ 6.9 million , the gross unrealized gain was $ 113,000 , and the carrying value was $ 7.1 million .

During the six months ended June 30, 2020 , we had a realized loss of $ 3.4 million .

NOTE 3 • EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of our common shares of beneficial interest (“common shares”) outstanding during the period.

We have issued restricted stock units (“RSUs”) under our 2015 Incentive Plan and Series D Convertible Preferred Units ("Series D preferred

units"), which could have a dilutive effect on our earnings per share upon exercise of the RSUs or upon conversion of the Series D preferred units (refer to Note 4 for further discussion of the Series D preferred units).

Other than the issuance of RSUs and Series D preferred units, we have no outstanding options, warrants, convertible stock or other contractual obligations requiring issuance of additional shares that would result in dilution of earnings.

We have issued restricted stock units (“RSUs”) and incentive stock options ("ISOs") under our 2015 Incentive Plan and Series D Convertible Preferred Units ("Series D preferred units"), which could have a dilutive effect on our earnings per share upon exercise of the RSUs or ISOs or upon conversion of the Series D preferred units (refer to Note 4 for further discussion of the Series D preferred units).

Other than the issuance of RSUs, ISOs, and Series D preferred units, we have no outstanding options, warrants, convertible stock or other contractual obligations requiring issuance of additional shares that would result in dilution of earnings.

Under the terms of the Operating Partnership’s Agreement of Limited Partnership, limited partners have the right to require the Operating Partnership to redeem their limited partnership units (“Units”) any time following the first anniversary of the date they acquired such Units (“Exchange Right”).

Upon the exercise of Exchange Rights, and in our sole discretion, we may issue common shares in exchange for Units on a one -for-one basis.

Performance-based restricted stock awards and RSUs of 37,822 and 37,822 for the three months ended March 31, 2020 and 2019 , respectively, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

The following table presents a reconciliation of the numerator and denominator used to calculate basic and diluted earnings per share reported in the condensed consolidated financial statements for the three months ended March 31, 2020 and 2019 :

Performance-based RSUs of 27,964 and 37,625 for the three months ended June 30, 2020 and 2019 , respectively, and 27,964 and 37,625 for the six months ended June 30, 2020 and 2019 , respectively, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the three months ended June 30, 2020 and 2019 , Series D preferred units of 228,000 and, for the six months ended June 30, 2020 and 2019 , Series D preferred units of 228,000 and 157,000 , respectively, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the three months ended June 30, 2020 and 2019 , RSUs of 13,000 and 14,000 , respectively, and, for the six months ended June 30, 2020 and 2019 , RSUs of 15,000 and 11,000 , respectively, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

Stock options of 63,527 and 31,764 for the three and six months ended June 30, 2020 , respectively, were excluded from the calculation of diluted earnings per share because the assumed proceeds per share plus the average unearned compensation were greater than the average market price of common shares for the periods ended and, therefore were anti-dilutive.

(in thousands, except per share data)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Net income (loss) attributable to controlling interests

7 unchanged sentences

Effect of redeemable operating partnership units

Effect of Series D preferred units

Effect of dilutive restricted stock awards and restricted stock units

Denominator for diluted earnings per share

Earnings (loss) per common share from continuing operations – basic

Earnings (loss) per common share from discontinued operations – basic

NET EARNINGS (LOSS) PER COMMON SHARE – BASIC

Earnings (loss) per common share from continuing operations – diluted

Earnings (loss) per common share from discontinued operations – diluted

NET EARNINGS (LOSS) PER COMMON SHARE – DILUTED

1 unchanged sentence

Operating Partnership Units.

The Operating Partnership had 1.0 million and 1.1 million outstanding Units at March 31, 2020 and December 31, 2019 , respectively.

The Operating Partnership had 1.0 million and 1.1 million outstanding Units at June 30, 2020 and December 31, 2019 , respectively.

Common Shares and Equity Awards .

Common shares outstanding on March 31, 2020 and December 31, 2019 , totaled 12.2 million and 12.1 million , respectively.

There were 1,193 shares issued upon the vesting of equity awards under our 2015 Incentive Plan during the three months ended March 31, 2020 , with a total grant-date fair value of $ 125,000 .

During the three months ended March 31, 2019 , we issued 207 shares, with a total grant-date fair value of $ 10,000 , under our 2015 Incentive Plan.

Common shares outstanding on June 30, 2020 and December 31, 2019 , totaled 12.8 million and 12.1 million , respectively.

There were 19,508 and 20,701 shares issued upon the vesting of equity awards under our

2015 Incentive Plan during the three and six months ended June 30, 2020 , respectively, with a total grant-date fair value of $ 956,000 and $ 1.0 million , respectively.

During the three and six months ended June 30, 2019 , we issued 6,511 and 6,718 shares, respectively, with a total grant-date fair value of $ 447,000 and 457,000 , respectively, under our 2015 Incentive Plan.

These shares vest based on performance and service criteria.

1 unchanged sentence

We have an equity distribution agreement in connection with an at-the-market offering ("2019 ATM Program") through which we may offer and sell common shares having an aggregate sales price of up to $ 150.0 million , in amounts and at times as we determine.

The proceeds from the sale of common shares under the 2019 ATM Program are intended to be used for general purposes, which may include the funding of future acquisitions, community renovations, and the repayment of indebtedness.

During the three months ended March 31, 2020 , we issued approximately 50,000 common

shares under the 2019 ATM Program at an average price of $ 68.04 per share, net of commissions.

Total consideration, net of commissions and issuance costs, was approximately $ 3.4 million .

As of March 31, 2020 , we had remaining capacity in terms of common shares having an aggregate offering price of up to $ 124.3 million remaining available under the 2019 ATM Program.

The proceeds from the sale of common shares under the 2019 ATM Program are intended to be used for general purposes, which may include the funding of future acquisitions, construction or mezzanine loans, community renovations, and the repayment of indebtedness.

The table below provides details on the sale of common shares during the three and six months ended June 30, 2020 .

As of June 30, 2020 , common shares having an aggregate offering price of up to $ 79.5 million remained available under the 2019 ATM Program.

(in thousands, except per share amounts)

Three Months Ended June 30,

Number of Common Shares

Total Consideration (1)

Average Price Per Share (1)

Six Months Ended June 30,

Total consideration is net of commissions and issuance costs.

Exchange Rights .

Pursuant to the exercise of Exchange Rights, we redeemed Units for cash during the three months ended March 31, 2020 and 2019 as detailed in the table below.

Pursuant to the exercise of exchange rights, we redeemed Units for cash during the three and six months ended June 30, 2020 and 2019 as detailed in the table below.

(in thousands, except per Unit amounts)

Three Months Ended March 31,

Three Months Ended June 30,

Number of Units

1 unchanged sentence

Average Price Per Unit

Six Months Ended June 30,

The redemption price is determined using the volume weighted average price for the ten trading days prior to the date a unitholder provides notification of their intent to redeem units.

We also redeemed Units in exchange for common shares in connection with Unitholders exercising their Exchange Rights during the three months ended March 31, 2020 and 2019 as detailed in the table below.

We also redeemed Units in exchange for common shares in connection with Unitholders exercising their exchange rights during the three and six months ended June 30, 2020 and 2019 as detailed in the table below.

(in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Number of Units

Total Book Value

Six Months Ended June 30,

Share Repurchase Program .

3 unchanged sentences

This program may be suspended or discontinued at any time.

As of March 31, 2020 , $ 46.9 million remained available under our share repurchase program.

Common shares and Series C Preferred Shares repurchased during the three months ended March 31, 2020 and 2019 are detailed in the table below.

As of June 30, 2020 , $ 44.4 million remained available under our share repurchase program.

Common shares and Series C Preferred Shares repurchased during the three and six months ended June 30, 2020 and 2019 are detailed in the table below.

(in thousands, except per share amounts)

Three Months Ended March 31,

Three Months Ended June 30,

Number of Common Shares

2 unchanged sentences

Average Price Per Share (1)

Six Months Ended June 30,

Amount includes commissions.

Series C Preferred Shares.

Series C preferred shares outstanding were 4.0 million and 4.1 million shares at March 31, 2020 and December 31, 2019 , respectively.

Series C preferred shares outstanding were 3.9 million and 4.1 million shares at June 30, 2020 and December 31, 2019 , respectively.

The Series C preferred shares are nonvoting and redeemable for cash at $ 25.00 per share at our option after October 2, 2022.

10 unchanged sentences

NOTE 5 • DEBT

As of March 31, 2020 , we owned 70 apartment communities, of which 24 served as collateral for mortgage loans.

As of June 30, 2020 , we owned 70 apartment communities, of which 23 served as collateral for mortgage loans.

All of these mortgage loans were non-recourse to us other than for standard carve-out obligations.

As of March 31, 2020 , we believe that there are no material defaults or instances of noncompliance in regards to any of these mortgages payable.

As of March 31, 2020 , we owned 46 apartment communities that were not encumbered by mortgages, with 45 of those properties providing credit support for our unsecured borrowings.

As of June 30, 2020 , we believe that there are no material defaults or instances of noncompliance in regards to any of these mortgages payable.

As of June 30, 2020 , 47 of our apartment communities were not encumbered by mortgages, with 45 of those properties providing credit support for our unsecured borrowings.

Our primary unsecured credit facility ("unsecured credit facility") is a revolving, multi-bank line of credit, with the Bank of Montreal serving as administrative agent.

Our line of credit has total commitments of $ 250.0 million , with borrowing capacity based on the value of properties contained in the unencumbered asset pool ("UAP").

As of March 31, 2020 , the UAP provided for a borrowing capacity of $ 250.0 million , with additional borrowing availability of $ 167.0 million beyond the $ 83.0 million drawn, including the balance on our operating line of credit (discussed below).

As of June 30, 2020 , the UAP provided for a borrowing capacity of $ 250.0 million , with additional borrowing availability of $ 187.0 million beyond the $ 63.0 million drawn, including the balance on our operating line of credit (discussed below).

The unsecured credit facility matures on August 31, 2022, with one twelve-month option to extend the maturity date at our election.

We have a private shelf agreement for the issuance of up to $ 150.0 million of unsecured senior promissory notes ("unsecured senior notes").

Under this agreement, we issued $ 75.0 million of Series A notes due September 13, 2029 bearing interest at a rate of 3.84 % annually and $ 50.0 million of Series B notes due September 30, 2028 bearing interest at a rate of 3.69 % annually.

We have $ 25.0 million remaining available under the private shelf agreement.

Under our unsecured credit facility, we also have unsecured term loans of $ 70.0 million and $ 75.0 million , included within notes payable on the condensed consolidated balance sheets, which mature on January 15, 2024 and on August 31, 2025, respectively.

1 unchanged sentence

Our unsecured credit facility and unsecured senior notes are subject to customary financial covenants and limitations.

We believe that we are in compliance with all such financial covenants and limitations as of March 31, 2020 .

We believe that we are in compliance with all such financial covenants and limitations as of June 30, 2020 .

We have a private shelf agreement for the issuance of up to $ 150.0 million of unsecured senior promissory notes ("unsecured senior notes").

We have $ 25.0 million remaining available under the private shelf agreement.

We also have a $ 6.0 million operating line of credit.

This operating line of credit is designed to enhance treasury management activities and more effectively manage cash balances.

This operating line matures on June 30, 2020 and has a one-year rolling commitment, with pricing based on a market spread plus the one-month LIBOR index r ate.

The following table summarizes our indebtedness at March 31, 2020 :

This operating line matures on August 31, 2020 and has a one-year rolling commitment, with pricing based on a market spread plus the one-month LIBOR index r ate.

The following table summarizes our indebtedness at June 30, 2020 :

(in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

Weighted Average Maturity in Years at March 31, 2020

Weighted Average Maturity in Years at June 30, 2020

Lines of credit

8 unchanged sentences

Included within notes payable on our condensed consolidated balance sh eets.

The aggregate amount of required future principal payments on mortgages payable, term loans, and unsecured senior notes as of March 31, 2020 , was as follows:

The aggregate amount of required future principal payments on term loans, unsecured senior notes, and mortgages payable as of June 30, 2020 , was as follows:

(in thousands)

7 unchanged sentences

Targeted Improvements to Accounting for Hedging Activities , the ineffective portion of a hedging instrument is not required to be recognized currently in earnings or disclosed.

Changes in the fair value of cash flow hedges are recorded in accumulated other comprehensive income and subsequently reclassified into earnings in the period that the hedged transaction affects earnings.

Changes in the fair value of cash flow hedges are recorded in accumulated other comprehensive income ("OCI") and subsequently reclassified into earnings in the period that the hedged transaction affects earnings.

Amounts reported in accumulated other comprehensive income for our interest rate swap will be reclassified to interest expense as interest expense is incurred on our term loans.

During the next twelve months, we estimate an additional $ 4.4 million will be reclassified as an increase to interest expense.

At March 31, 2020 and December 31, 2019 , we had a $ 50.0 million interest rate swap to fix the interest rate on a portion of our primary line of credit.

At March 31, 2020 and December 31, 2019 , we had three interest rate swap contracts in effect with a notional amount of $ 195.0 million and one additional interest rate swap that becomes effective on January 31, 2023 , with a notional amount of $ 70.0 million .

The table below presents the fair value of our derivative financial instruments as well as their classification on our Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 .

At June 30, 2020 and December 31, 2019 , we had a $ 50.0 million interest rate swap to fix the interest rate on a portion of our primary line of credit.

At June 30, 2020 and December 31, 2019 , we had three interest rate swap contracts in effect with a notional amount of $ 195.0 million and one additional interest rate swap that becomes effective on January 31, 2023 , with a notional amount of $ 70.0 million .

The table below presents the fair value of our derivative financial instruments as well as their classification on our Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 .

(in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

2 unchanged sentences

Accounts Payable and Accrued Expenses

The table below presents the effect of the Company’s derivative financial instruments on the Condensed Consolidated Statements of Operations as of March 31, 2020 and 2019 .

The table below presents the effect of the Company’s derivative financial instruments on the Condensed Consolidated Statements of Operations as of June 30, 2020 and 2019 .

(in thousands)

2 unchanged sentences

Gain (Loss) Reclassified from Accumulated OCI into Income

Three months ended March 31,

Three months ended June 30,

Total derivatives in cash flow hedging relationships - Interest rate contracts

Interest expense

Six months ended June 30,

Total derivatives in cash flow hedging relationships - Interest rate contracts

Interest expense

NOTE 7 • FAIR VALUE MEASUREMENTS

2 unchanged sentences

In determining the fair value of other financial instruments, we apply FASB ASC 820, " Fair Value Measurement and Disclosures.

" Fair value hierarchy under ASC 820 distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (Levels 1 and 2) and the reporting entity’s own assumptions about

market participant assumptions (Level 3).

Fair value estimates may differ from the amounts that may ultimately be realized upon sale or disposition of the assets and liabilities.

1 unchanged sentence

(in thousands)

March 31, 2020

June 30, 2020

Mortgages and notes receivable

5 unchanged sentences

We also consider both our own nonperformance risk and the counterparty's nonperformance risk in the fair value measurement (Level 3).

We utilize an income approach with level 3 inputs based on expected future cash flows to value these instruments.

Effective January 1, 2020, we elected the fair value option for our mortgage loans receivable and notes receivable, as allowed under ASU 2019-05 which provided transition relief upon adoption of ASU 2016-13, "Financial Instruments - Credit Losses." We utilize an income approach with level 3 inputs based on expected future cash flows to value these instruments.

The inputs include market transactions for similar instruments, instrument specific credit risk (range of 0.5 % to 1.0 % ), and management estimates of comparable interest rates (range of 3.75 % to 5.0 % ).

1 unchanged sentence

(in thousands)

Fair Value Measurement

at March 31, 2020

Fair Value Measurement at June 30, 2020

Other Gains (Losses)

2 unchanged sentences

Fair Value Measurements on a Nonrecurring Basis

There were no non-financial assets or liabilities measured at fair value on a nonrecurring basis at March 31, 2020 and December 31, 2019 .

There were no non-financial assets or liabilities measured at fair value on a nonrecurring basis at June 30, 2020 and December 31, 2019 .

Financial Assets and Liabilities Not Measured at Fair Value

The fair value of mortgages payable are estimated based on the discounted cash flows of the loans using market research and management estimates of comparable interest rates (Level 3).

The estimated fair values of our financial instruments as of March 31, 2020 and December 31, 2019 , respectively, are as follows:

The estimated fair values of our financial instruments as of June 30, 2020 and December 31, 2019 , respectively, are as follows:

(in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

13 unchanged sentences

NOTE 8 • ACQUISITIONS AND DISPOSITIONS

We acquired $ 46.3 million of new real estate during the three months ended March 31, 2020 , compared to $ 44.0 million acquisitions in the three months ended March 31, 2019 .

Our acquisitions during the three months ended March 31, 2020 and 2019 are detailed below.

Three Months Ended March 31, 2020

We acquired no new real estate during the three months ended June 30, 2020 , compared to $ 2.1 million acquisitions in the three months ended June 30, 2019 .

Our acquisitions during the six months ended June 30, 2020 and 2019 are detailed below.

Six Months Ended June 30, 2020

(in thousands)

7 unchanged sentences

Refer to Note 2 for further discussion.

Three Months Ended March 31, 2019

Six Months Ended June 30, 2019

(in thousands)

3 unchanged sentences

February 26, 2019

Minot 3100 10th St SW - Minot, ND (2)

Total Acquisitions

Value of Series D preferred units at the acquisition date.

During the three months ended March 31, 2020 , we had no dispositions.

During the three months ended March 31, 2019 , we sold one parcel of unimproved land for a total sale price of $ 3.0 million .

The following tables detail our dispositions for the three months ended March 31, 2019 :

Three Months Ended March 31, 2019

During the three months ended June 30, 2020 , we disposed of one parcel of unimproved land for a total sale price of $ 1.3 million .

During the three months ended June 30, 2019 , we sold one parcel of unimproved land and one commercial property for a total sale price of $ 7.3 million .

The following tables detail our dispositions for the six months ended June 30, 2020 and 2019 .

Six Months Ended June 30, 2020

(in thousands)

Book Value and Sales Cost

Unimproved Land

Rapid City Land - Rapid City, SD

June 29, 2020

Total Dispositions

Six Months Ended June 30, 2019

(in thousands)

and Sale Cost

Minot 1400 31st Ave SW - Minot, ND

Unimproved Land

1 unchanged sentence

March 1, 2019

Minot 1525 24th Ave SW - Minot, ND

April 3, 2019

Total Dispositions

2 unchanged sentences

Each of our operating properties is considered a separate operating segment because each property earns revenues, incurs expenses, and has discrete financial information.

Our chief operating decision-makers evaluate each property's operating results to make decisions about resources to be allocated and to assess performance.

We do not group our operations based on geography, size, or type.

Our chief operating decision-makers evaluate each property's operating results to make decisions about resources to be allocated and to assess performance and do not group the properties based on geography, size, or type for this purpose.

Our apartment communities have similar long-term economic characteristics and provide similar products and services to our residents.

2 unchanged sentences

Our executive management team comprises our chief operating decision-makers.

This team measures the performance of our reportable segment based on net operating income (“NOI”), which we define as total real estate revenues less property operating expenses, including real estate taxes.

This team measures the performance of our reportable segment based on net operating income (“NOI”), which we define as total real estate revenues less property

operating expenses, including real estate taxes.

We believe that NOI is an important supplemental measure of operating performance for real estate because it provides a measure of operations that is unaffected by depreciation, amortization, financing, property management overhead, casualty losses, and general and administrative expense.

NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered an alternative to net income, net income available for common shareholders, or cash flow from operating activities as a measure of financial performance.

The following tables present NOI for the three months ended March 31, 2020 and 2019 , respectively, along with reconciliations to net income in the condensed consolidated financial statements.

The following tables present NOI for the three and six months ended June 30, 2020 and 2019 , respectively, along with reconciliations to net income in the condensed consolidated financial statements.

Segment assets are also reconciled to total assets as reported in the condensed consolidated financial statements.

(in thousands)

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Property operating expenses, including real estate taxes

6 unchanged sentences

Interest and other income

Income (loss) before gain (loss) on sale of real estate and other investments and gain (loss) on litigation settlement

Gain (loss) on sale of real estate and other investments

Net income (loss)

(in thousands)

Three Months Ended March 31, 2019

Three Months Ended June 30, 2019

Property operating expenses, including real estate taxes

7 unchanged sentences

Interest and other income

Income (loss) before gain (loss) on sale of real estate and other investments and income (loss) from discontinued operations

Income (loss) before gain (loss) on sale of real estate and other investments and gain (loss) on litigation settlement

Gain (loss) on sale of real estate and other investments

Gain (loss) on litigation settlement

Net income (loss)

(in thousands)

Six Months Ended June 30, 2020

Property operating expenses, including real estate taxes

Net operating income

Property management expenses

Casualty gain (loss)

Depreciation and amortization

General and administrative expenses

Interest expense

Loss on debt extinguishment

Interest and other income

Income (loss) before gain (loss) on sale of real estate and other investments and gain (loss) on litigation settlement

Gain (loss) on sale of real estate and other investments

Net income (loss)

(in thousands)

Six Months Ended June 30, 2019

Property operating expenses, including real estate taxes

Net operating income

Property management expenses

Casualty gain (loss)

Depreciation and amortization

General and administrative expenses

Interest expense

Loss on debt extinguishment

Interest and other income

Income (loss) before gain (loss) on sale of real estate and other investments and gain (loss) on litigation settlement

Gain (loss) on sale of real estate and other investments

Gain (loss) on litigation settlement

Net income (loss)

Segment Assets and Accumulated Depreciation

Segment assets are summarized as follows as of March 31, 2020 , and December 31, 2019 , respectively, along with reconciliations to the condensed consolidated financial statements:

Segment assets are summarized as follows as of June 30, 2020 , and December 31, 2019 , respectively, along with reconciliations to the condensed consolidated financial statements:

(in thousands)

As of March 31, 2020

As of June 30, 2020

Segment assets

4 unchanged sentences

Restricted cash

Unimproved land

Mortgage loans receivable

14 unchanged sentences

Under various federal, state, and local laws, ordinances, and regulations, a current or previous owner or operator of real estate may be liable for the costs of removal of, or remediation of, certain hazardous or toxic substances in, on, around, or under the property.

While we currently have no knowledge of any material violation of environmental laws,

ordinances, or regulations at any of our properties, there can be no assurance that areas of contamination will not be identified at any of our properties or that changes in environmental laws, regulations, or cleanup requirements would not result in material costs to us.

While we currently have no knowledge of any material violation of environmental laws, ordinances, or regulations at any of our properties, there can be no assurance that areas of contamination will not be identified at any of our properties or that changes in environmental laws, regulations, or cleanup requirements would not result in material costs to us.

Restrictions on Taxable Dispositions.

1 unchanged sentence

We do not believe that the agreements materially affect the conduct of our business or our decisions whether to dispose of restricted properties during the restriction period because we generally hold these and our other properties for investment purposes rather than for sale.

In addition, where we deem it to be in our shareholders' best interests to dispose of such properties, we generally seek to structure sales of such properties as tax deferred transactions under Section 1031 of the Internal Revenue Code (the "Code").

Otherwise, we may be required to provide tax indemnification payments to the parties to these agreements.

NOTE 11 • SHARE-BASED COMPENSATION

Share-based awards are provided to officers, non-officer employees, and trustees under our 2015 Incentive Plan approved by shareholders on September 15, 2015, which allows for awards in the form of cash, unrestricted and restricted common shares, and restricted stock units ("RSUs") up to an aggregate of 425,000 shares over the ten-year period in which the plan is in effect.

Share-based awards are provided to officers, non-officer employees, and trustees under our 2015 Incentive Plan approved by shareholders on September 15, 2015, as amended and restated on May 19, 2020 (the "2015 Incentive Plan") which allows for awards in the form of cash, unrestricted and restricted common shares, stock options, stock appreciation rights, and restricted stock units ("RSUs") up to an aggregate of 425,000 shares over the ten-year period in which the plan is in effect.

Under our 2015 Incentive Plan, officers and non-officer employees may earn share awards under a long-term incentive plan, which is a forward-looking program that measures long-term performance over the stated performance period.

2 unchanged sentences

2020 LTIP Awards

Awards granted to officers on March 13, 2020, consist of for 8,806 time-based RSU awards.

Awards granted to officers on March 13, 2020, consist of an aggregate of 8,806 time-based RSU awards.

All of these awards are classified as equity awards.

The time-based RSU awards vest as to one-third of the shares on each of March 13, 2021, March 13, 2022, and March 13, 2023.

Awards granted to officers on May 21, 2020, consist of an aggregate of 141,000 stock options, which vest as to 25% on each of May 21, 2021, January 1, 2022, January 1, 2023, and January 1, 2024.

The fair value of stock options was $ 7.255 per share and was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

Exercise price

Risk-free rate

Expected term

Expected volatility

Dividend yield

Awards granted to trustees on May 19, 2020, consist of 8,272 time-based RSUs, which vest on May 19, 2021.

These awards are classified as equity awards.

Share-Based Compensation Expense

Share-based compensation expense recognized in the consolidated financial statements for all outstanding share-based awards was $ 465,000 and $ 416,000 for the three months ended March 31, 2020 and 2019 , respectively.

The increase in expense was primarily due to the timing of award grants in connection with the change in our fiscal year end, additional officers included in award grants, and a decrease in forfeitures in the current period compared to the prior period.

Share-based compensation expense recognized in the consolidated financial statements for all outstanding share-based awards was $ 967,000 and $ 981,000 for the six months ended June 30, 2020 and 2019 , respectively.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements