What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-03 compared with 2020-05-11 · 131 added, 120 removed, 199 unchanged (56% of the section changed)

Management's Discussion and Analysis of Financial Conditions and Results of Operations

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements included in this report, our audited financial statements for the year ended December 31, 2019 , which are included in our Form 10-K filed with the SEC on February 19, 2020, and the risk factors in Item 1A, “Risk Factors,” of our Form 10-K for the year ended December 31, 2019 .

Currently, one of the most significant factors is the potential adverse effects of the current COVID-19 pandemic and its associated economic impact on the financial condition, results of operations, and cash flows of IRET and our residents and commercial tenants, the real estate market generally and the global economy and financial markets.

The extent to which COVID-19 impacts us and our residents and commercial tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity, and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures.

Currently, one of the most significant factors is the continuing adverse effects of the COVID-19 pandemic and its associated potential economic impact on our financial condition, results of operations, and cash flows as well as the adverse effects on our residents and commercial tenants, the real estate market, and the global economy and financial markets generally.

The extent to which COVID-19 continues to impact us and our residents and commercial tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity, and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures.

Moreover, you should interpret many of the risks identified in this report, as well as the risks set forth below, as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19.

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Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and variations of those words and similar expressions are intended to identify forward-looking statements.

These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements to be materially different from the results of operations, financial conditions, or plans expressed or implied by the forward-looking statements.

These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements to be materially different from the results of operations, financial condition, or plans expressed or implied by the forward-looking statements.

Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be achieved.

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deteriorating economic conditions and rising unemployment rates in the markets where we own apartment communities or in which we may invest in the future;

government actions arising out of the COVID-19 pandemic that limit economic and consumer activity;

government actions or regulations arising out of the COVID-19 pandemic that limit economic and consumer activity or affect the operation of our properties;

rental conditions in our markets, including occupancy levels and rental rates, our potential inability to renew residents or obtain new residents upon expiration of existing leases, changes in tax and housing laws, or other factors, including the impact of the COVID-19-related governmental rules and regulations relating to rental rates, evictions, and other rental conditions;

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adverse changes in our markets, including future demand for apartment homes in our markets, barriers of entry into new markets, limitations on our ability to increase rental rates, our inability to identify and consummate attractive acquisitions and dispositions on favorable terms, our inability to reinvest sales proceeds successfully, and our inability to accommodate any significant decline in the market value of real estate serving as collateral for our mortgage obligations;

reliance on a single asset class (multifamily) and certain geographic areas (Midwest and West regions) of the U.S.;

inability to succeed in any new markets we enter;

reliance on a single asset class (multifamily) and certain geographic areas of the U.S.;

inability to expand our operations into new or existing markets successfully;

failure of new acquisitions to achieve anticipated results or be efficiently integrated;

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other risks identified in this Report, in other SEC reports, or in other documents that we publicly disseminate.

New factors may also arise from time to time that could have a material adverse effect on our business and results of operations.

New factors may also arise from time to time that could have an adverse effect on our business and results of operations.

Except as otherwise required by law, we undertake no obligation to publicly update or revise these forward-looking statements to reflect events, circumstances, or changes in expectations after the date on which this Report is filed.

Readers also should review the risks and uncertainties detailed from time to time in our filings with the SEC, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2019 , as they are updated and supplemented in this Report.

Readers also should review the risks and uncertainties detailed from time to time in our filings with the SEC, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2019 and Form 10-Q for the quarter ended June 30, 2020, as they are updated and supplemented in this Report.

Executive Summary

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We primarily focus on investing in markets characterized by stable and growing economic conditions, strong employment, and an attractive quality of life that we believe, in combination, lead to higher demand for our apartment homes and retention of our residents.

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

Property owned, as presented in the condensed consolidated balance sheets, was $1.7 billion at March 31, 2020 , compared to $1.6 billion at December 31, 2019 .

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

Property owned, as presented in the condensed consolidated balance sheets, was $1.7 billion at June 30, 2020 , compared to $1.6 billion at December 31, 2019 .

Renting apartment homes is our primary source of revenue, and our business objective is to provide great homes for our residents.

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COVID-19 Developments

The COVID-19 pandemic has had a profound impact on our business since March 2020, when it spread to many of the communities in which we own properties.

The COVID-19 pandemic has had an impact on our business since March 2020, when it spread to many of the markets in which we own properties.

Our first priority continues to be the health and well-being of our residents, team members, and the communities we serve.

In order to minimize the impact of COVID-19 on our team, residents, and communities, we undertook the following measures in March 2020:

We enacted social distancing practices for our team and within our communities in order to do our part to stop the spread of COVID-19, including encouraging residents to use electronic or phone communication when contacting our staff;

We closed all common amenity spaces, including on-site fitness centers, community rooms, swimming pools, resident coffee services, and conference facilities, until further notice in an effort to support social distancing and comply with governmental regulations;

We implemented enhanced cleaning and disinfecting protocols at our communities;

We announced that maintenance requests requiring unit entry would be completed for essential or emergency services only;

We closed our offices to the public, and our leasing is being done on-line and through virtual tours;

We extended April 2020 rent deadlines;

We waived all fees associated with credit card payments;

We suspended eviction filings in accordance with government regulations;

We started offering rental deferment payment plans to residents experiencing COVID-19-related financial hardship;

We began offering flexible lease renewal terms.

COVID-19 will continue to have a significant impact on our business for the foreseeable future, but it is difficult to predict the magnitude of the effects of COVID-19 due to the uncertainties regarding the scope, severity, and duration of the pandemic, the nature and extent of actions taken to combat the pandemic and mitigate its effects, and the direct and indirect economic effects of the pandemic and associated containment measures.

The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets.

In addition to the general effects of the COVID-19 pandemic on the U.S.

economy, the pandemic is also expected to have a material adverse effect on our business.

Certain states and cities, including some of those in which our apartment communities are located, have reacted by instituting quarantines, restrictions on travel, shelter-in-place or stay-at-home directives, restrictions on types of businesses that may continue to operate, and restrictions on the types of construction projects that may continue.

We cannot predict if additional states and cities will implement similar restrictions or when restrictions currently in place will expire.

Many experts predict that the pandemic will trigger, or has already triggered, a global recession.

In order to minimize the impact of COVID-19 on our team, residents, and communities, we undertook several measures in March 2020 to protect our residents, team members, and the communities in which we serve, as described in our Form 10-Q for the quarter ended March 31, 2020.

Certain states and cities, including some of those in which our apartment communities are located, have reacted to the COVID-19 pandemic by instituting quarantines, restrictions on travel, shelter-in-place or stay-at-home directives, restrictions on types of businesses that may continue to operate, and restrictions on the types of construction projects that may continue.

cannot predict when restrictions currently in place will expire or whether additional restrictions will be imposed in the future.

In the second quarter, we implemented a plan to safely re-open common spaces in several of our communities while adhering to state and local guidelines, but we recognize that an increase in COVID-19 cases in these markets could cause us to close common spaces or take other preventive measures.

The COVID-19 pandemic is likely to continue to have an impact on the U.S.

economy and our business for the foreseeable future, but it is difficult to predict the magnitude of the effects of the COVID-19 pandemic due to the uncertainties regarding the scope, severity, and duration of the pandemic, the nature and extent of actions taken to combat the pandemic and mitigate its effects, and the direct and indirect economic effects of the pandemic and associated containment measures.

In addition, ongoing social distancing requirements and stay-at-home directives affect the daily lives of our employees and residents and impact our ability to show apartment homes to potential residents, while the ongoing loss of jobs, rising unemployment levels, and closing of certain commercial businesses affect the ability of certain of our residents and commercial tenants to pay rent on a timely basis, renew existing leases, or enter into new leases.

Financial Impact of the COVID-19 Pandemic

Because most of our revenue is derived from rental payments that we receive from our residents, which payments are typically due at the beginning of each month, and because most of the physical distancing and shelter-in-place directives did not take effect in the communities in which we operate until the second half of March 2020, the economic disruption caused by COVID-19 did not have a material impact on our business or results of operations for the three months ended March 31, 2020.

However, because the COVID-19 pandemic is ongoing, the economic effect of this pandemic is likely to adversely impact our financial condition, results of operations, and cash flows for the foreseeable future.

The economic impact of the ongoing COVID-19 pandemic could have the following effects, among others:

cause our residents or commercial tenants to defer or stop rental payment, and abandon or fail to renew leases, which would reduce our primary source of net operating income and cash flows;

cause us to increase our borrowing and our leverage and/or seek other sources of financing, which may not be available on favorable terms;

cause us to fail to satisfy certain of the covenants under our line of credit or other borrowing facilities, which could limit our access to such financings or even lead to an event of default;

Although the COVID-19 pandemic has affected our operations and the conduct of business at our apartment communities and offices, the COVID-19 pandemic did not have a material impact on our financial condition, operating results, or cash flows for the three months ended June 30, 2020.

However, absent the ability to contain or treat the COVID-19 virus, with a corresponding re-opening of the economy, the COVID-19 pandemic could adversely impact our financial condition, results of operations, and cash flows in future quarters.

Under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act”), the federal government provided $600 per week in unemployment benefits in addition to any state unemployment benefits for unemployed workers, but this additional federal funding expired on July 31, 2020.

We believe that the absence of this funding could impact our residents' ability to pay rent in August (and subsequent months), particularly if unemployment rates continue to remain high or even rise as a result of the ongoing COVID-19 pandemic, which in turn could adversely affect our results of operations.

The ongoing COVID-19 pandemic may have the following adverse financial and economic impacts, which would be exacerbated by the discontinuation of federal government relief:

cause our residents or commercial tenants to defer or stop rental payments, and abandon or fail to renew leases, which would reduce our primary source of net operating income and cash flows;

cause the capital markets generally to become restricted or unavailable, thereby limiting our access to any needed debt or equity capital financing;

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economy to suffer an extended economic slowdown, which could lead to a prolonged recession or even economic depression, which in turn would affect the demand for our apartment communities and could have an adverse impact on our business and operating results.

We have taken the following actions in order to manage expenses and to preserve cash flow:

We have halted, canceled, or delayed, as appropriate or necessary given governmental restrictions and Center for Disease Control recommendations, certain capital projects and investments;

We have suspended certain of our value-add initiatives to renovate apartment homes or community amenity areas;

We have taken the following actions in order to protect our residents and employees, manage expenses and preserve cash flow during the COVID-19 pandemic:

With respect to capital projects and investments, we continue to monitor changing government rules and regulations related to COVID-19 and continue to abide by the guidelines set forth by the Center for Disease Control and have initiated a review of capital spend to identify projects that can be delayed;

We have eliminated the majority of planned travel expense for our team members through the end of 2020;

We have moved the meetings of our Board of Trustees to remote meetings, thus limiting the expense associated with an in-person meeting;

We have initiated a review of capital spend to identify projects which can be delayed.

The extent to which the economic disruption associated with the COVID-19 pandemic impacts our business and financial results will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity, and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.

Despite our efforts to manage our response to the effects of the COVID-19 pandemic, the ultimate impact of COVID-19 on our rental revenue for the second quarter of 2020 and thereafter cannot be determined at present.

We have moved the meetings of our Board of Trustees to virtual meetings, thereby limiting the expense associated with in-person meetings.

severity, and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.

Despite our efforts to manage our r esponse to the effects of the COVID-19 pandemic, the ultimate impact of the COVID-19 pandemic on our rental revenue for the remainder of 2020 and future years cannot be determined at present.

The situation surrounding the COVID-19 pandemic remains fluid, and we are actively managing our response in collaboration with residents, commercial tenants, government officials, and business partners and assessing potential impacts to our financial position and operating results, as well as potential adverse impacts on our business.

Our management remains committed to ensuring the safety of our team members, residents, and communities, and to maintaining the financial stability of our business enterprise for the duration of the COVID-19 pandemic.

For further information regarding the impact of COVID-19 on our business, see Part II, Item 1A titled “Risk Factors.”

Overview of the Three Months Ended March 31, 2020

For the three months ended March 31, 2020 , revenue decreased by $1.2 million to $44.4 million , compared to $45.6 million for the three months ended March 31, 2019 , primarily due to dispositions.

Total expenses decreased by $1.7 million to $42.4 million for the three months ended March 31, 2020 , compared to $44.1 million for the three months ended March 31, 2019 .

Funds from Operations ("FFO") applicable to common shares and Units for the three months ended March 31, 2020 decreased to $8.7 million compared to $10.1 million for the comparable period ended March 31, 2019 , primarily due to loss on marketable securities, offset by reductions in interest expense.

general and administrative expense, and casualty loss.

Overview of the Three Months Ended June 30, 2020

For the three months ended June 30, 2020 , revenue decreased by $3.0 million to $43.9 million , compared to $46.9 million for the three months ended June 30, 2019 , primarily due to dispositions.

Total expenses decreased by $1.6 million to $41.4 million for the three months ended June 30, 2020 , compared to $43.0 million for the three months ended June 30, 2019 due to property operating expenses, excluding real estate taxes.

Funds from Operations ("FFO") applicable to common shares and Units for the three months ended June 30, 2020 decreased to $12.4 million compared to $18.8 million for the comparable period ended June 30, 2019 , primarily due to a gain on litigation settlement of $6.3 million in the prior year which did not recur in the current period, decreased NOI, and increased casualty loss, offset by reductions in interest expense and general and administrative expense.

The drivers of these changes are discussed in more detail in the “Results of Operations” section below.

In our ongoing efforts to improve the quality of our portfolio and balance sheet, we completed the following transactions during the first quarter of 2020 :

Acquired the remaining noncontrolling interests in 71 France for $12.2 million ;

Completed the acquisition of Ironwood Apartments, an apartment community with 182 homes located in New Hope, Minnesota, an inner-ring suburb of Minneapolis, Minnesota, for an aggregate purchase price of $46.3 million , of which $28.6 million was paid in cash and $17.7 million from payoff of a note receivable.

See Note 8 of the Notes to Condensed Consolidated Financial Statements in this Report for a table detailing our acquisitions and dispositions during the three-month periods ended March 31, 2020 and 2019 .

In our ongoing efforts to improve the quality of our portfolio and balance sheet, in June 2020 we announced that we will be including Nashville as one of our target markets for acquisition of apartment communities.

During the second quarter of 2020 , we disposed of our sole remaining parcel of unimproved land for a total sale price of $1.3 million.

See Note 8 of the Notes to Condensed Consolidated Financial Statements in this Report for a table detailing our acquisitions and dispositions during the six months ended June 30, 2020 and 2019 .

Results of Operations

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(in thousands, except percentages)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Operating income (loss)

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Consolidated Results of Operations

The following consolidated results of operations cover the three months ended March 31, 2020 and 2019 .

The following consolidated results of operations cover the three and six months ended June 30, 2020 and 2019 .

(in thousands, except percentages)

Three Months Ended

Three Months Ended June 30,

Six Months Ended June 30,

Non-same-store

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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)

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NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Weighted Average Occupancy (1)

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Number of Apartment Homes

March 31, 2020

March 31, 2019

June 30, 2020

June 30, 2019

Non-same-store

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We believe that measuring performance on a same-store basis is useful to investors because it enables evaluation of how a fixed pool of our communities are performing year-over-year.

We use this measure to assess whether or not we have been successful in increasing NOI, renewing the leases on existing residents, controlling operating costs, and making prudent capital improvements.

We use this measure to assess whether or not we have been successful in increasing NOI, raising average rental revenue, renewing the leases on existing residents, controlling operating costs, and making prudent capital improvements.

The discussion below focuses on the main factors affecting real estate revenue and expenses from same-store apartment communities because changes from one year to another in real estate revenue and expenses from non-same-store apartment communities are generally due to the addition of those properties to our real estate portfolio, and accordingly provide less useful information for evaluating ongoing operational performance of our real estate portfolio.

For the comparison of the three months ended March 31, 2020 and 2019 , four apartment communities were non-same-store.

For the comparison of the six months ended June 30, 2020 and 2019 , four apartment communities were non-same-store.

Sold communities are included in "Other," which also includes non-multifamily properties and the non-multifamily components of mixed-use properties.

Revenue decreased by 2.6% to $44.4 million for the three months ended March 31, 2020 , compared to $45.6 million in the three months ended March 31, 2019 .

Dispositions and other properties decreased by $5.8 million , offset by a $3.1 million increase from non-same-store communities.

Revenue from same-store communities increased 3.9% or $1.5 million in the three months ended March 31, 2020 , compared to the same period in the prior year.

The increase was attributable to 4.0% growth in average rental revenue and offset by a 0.1% decrease in occupancy as weighted average occupancy decreased to 95.3% from 95.4% for the three months ended March 31, 2020 and 2019 , respectively.

Revenue decreased by 6.4% to $43.9 million for the three months ended June 30, 2020 , compared to $46.9 million in the three months ended June 30, 2019 .

Revenue from dispositions and other properties decreased by $6.6 million , offset by a $3.1 million increase from non-same-store communities.

Revenue from same-store communities increased 1.4% or $541,000 in the three months ended June 30, 2020 , compared to the same period in the prior year.

The increase was attributable to 1.1% growth in average rental revenue and a 0.3% increase in occupancy as weighted average occupancy increased to 94.6% from 94.3% for the three months ended June 30, 2020 and 2019 , respectively.

Revenue decreased by 4.6% to $88.3 million for the six months ended June 30, 2020 , compared to $92.5 million in the six months ended June 30, 2019 .

Revenue from dispositions and other properties decreased by $12.4 million , offset by a $6.2 million increase from non-same-store communities.

Revenue from same-store communities increased 2.6% or $2.0 million in the six months ended June 30, 2020 , compared to the same period in the prior year.

The increase was attributable to 2.5% growth in average rental revenue and a 0.1% increase in occupancy as weighted average occupancy increased to 95.0% from 94.9% for the six months ended June 30, 2020 and 2019 , respectively.

Property operating expenses, including real estate taxes .

Property operating expenses, including real estate taxes, decreased by 5.5% to $18.9 million in the three months ended March 31, 2020 , compared to $20.0 million in the same period of the prior year.

Property operating expenses, including real estate taxes, decreased by 8.9% to $17.8 million in the three months ended June 30, 2020 , compared to $19.5 million in the same period of the prior year.

A decrease of $3.1 million from dispositions and other properties was offset by an increase of $1.0 million at non-same-

store communities.

Property operating expenses, including real estate taxes, at same-store communities increased by 1.8% or $280,000 in the three months ended June 30, 2020 , compared to the same period in the prior year.

At same-store communities, real estate taxes increased by $423,000.

Insurance expense at same-store properties increased by $300,000.

These same-store increases were partially offset by a decrease in controllable operating expenses (which exclude insurance and real estate taxes) of $443,000, primarily due to lower utility costs and reduced turnover and general maintenance activities during the initial months of the COVID-19 pandemic.

Property operating expenses, including real estate taxes, decreased by 7.2% to $36.7 million in the six months ended June 30, 2020 , compared to $39.6 million in the same period of the prior year.

A decrease of $6.0 million from dispositions and other properties was offset by an increase of $2.2 million at non-same-store communities.

Property operating expenses, including real estate taxes, at same-store communities increased by 4.0% or $657,000 in the three months ended March 31, 2020 , compared to the same period in the prior year.

Property operating expenses, including real estate taxes, at same-store communities increased by 2.9% or $937,000 in the six months ended June 30, 2020 , compared to the same period in the prior year.

At same-store communities, real estate taxes increased by $926,000.

Insurance expense at same-store properties increased by $952,000.

These same-store increases were partially offset by a decrease in controllable operating expenses (which exclude insurance and real estate taxes) of $495,000, primarily due to lower snow removal and utility costs.

These same-store increases were partially offset by a decrease in controllable operating expenses (which exclude insurance and real estate taxes) of $941,000, primarily due to lower snow removal in the first quarter, lower utility costs, and reduced turnover and general maintenance activities during the initial months of the COVID-19 pandemic.

Property management expenses .

Property management expense, consisting of property management overhead and property management fees paid to third parties, was $1.6 million in each of the three months ended March 31, 2020 and 2019 .

Property management expense, consisting of property management overhead and property management fees paid to third parties, was $1.3 million and $1.4 million in the three months ended June 30, 2020 and 2019 , respectively.

Property management expense was $2.9 million and $3.0 million in the six months ended June 30, 2020 and 2019 , respectively.

Casualty gain (loss).

Casualty loss was $327,000 in the three months ended March 31, 2020 , compared to $641,000 in the same period of the prior year.

During the three months ended March 31, 2019 , many of our markets were impacted by a series of adverse weather-related events.

These events included extreme cold and record-setting snowfall, which caused excess ice and snow accumulation, resulting in water damage to some of our apartment communities.

We did not incur such losses in the current period.

Casualty loss was $913,000 in the three months ended June 30, 2020 , compared to $92,000 in the same period of the prior year.

The increase was primarily due to weather-related losses during the three months ended June 30, 2020 and an increase in our aggregate stop loss compared to the prior year.

Casualty loss was $1.2 million in the six months ended June 30, 2020 , compared to $733,000 in the same period of the prior year.

The increase was primarily due to weather-related losses and an increase in our aggregate stop loss.

Depreciation and amortization.

Depreciation and amortization increased by 0.3% to $18.2 million in the three months ended March 31, 2020 , compared to $18.1 million in the same period of the prior year, attributable to an increase of $2.0 million from non-same-store properties, offset by a decrease from sold properties.

Depreciation and amortization decreased by 1.5% to $18.2 million in the three months ended June 30, 2020 , compared to $18.4 million in the same period of the prior year, attributable to a decrease of $1.9 million from sold properties, offset by an increase of $1.7 million from non-same-store properties.

Depreciation and amortization decreased by 0.6% to $36.3 million in the six months ended June 30, 2020 , compared to $36.5 million in the same period of the prior year, attributable to a $3.9 million decrease from sold properties, offset by an increase of $3.7 million from non-same-store properties.

General and administrative expenses.

General and administrative expenses decreased by 9.9% to $3.4 million in the three months ended March 31, 2020 , compared to $3.8 million in the same period of the prior year, primarily attributable to decreases in legal fees related to our successful pursuit of a recovery on a construction defect claim and severance costs in the prior year.

These decreases were partially offset by an increase in consulting and health insurance costs in the current period.

General and administrative expenses decreased by 9.8% to $3.2 million in the three months ended June 30, 2020 , compared to $3.5 million in the same period of the prior year, primarily attributable to decreases in compensation, healthcare, and travel costs in the current period.

General and administrative expenses decreased by 9.9% to $6.6 million in the six months ended June 30, 2020 , compared to $7.4 million in the same period of the prior year, primarily attributable to decreases in legal fees of $357,000 related to our successful pursuit of a recovery on a construction defect claim, compensation, and travel costs.

Interest expense.

Interest expense decreased by 12.5% to $6.9 million in the three months ended March 31, 2020 , compared to $7.9 million in the same period of the prior year, primarily due to the replacement of maturing debt with lower rate debt and lower average balances on our lines of credit.

Interest expense decreased by 8.6% to $6.9 million in the three months ended June 30, 2020 , compared to $7.6 million in the same period of the prior year, primarily due to the replacement of maturing debt with lower rate debt and lower average balances on our lines of credit.

Interest expense decreased by 10.6% to $13.9 million in the six months ended June 30, 2020 , compared to $15.5 million in the same period of the prior year, primarily due to the replacement of maturing debt with lower rate debt and lower average balances on our lines of credit.

Interest and other income (loss).

We recorded a loss in interest and other income (loss) of $2.8 million in the three months ended March 31, 2020 , compared to income of $424,000 in the same period of the prior year.

The decrease was primarily due to a loss in the value of our marketable securities of $3.6 million.

We recorded income of $538,000 in the three months ended June 30, 2020 , compared to income of $468,000 in the same period of the prior year.

We recorded a loss of $2.2 million in the six months ended June 30, 2020 , compared to income of $892,000 in the same period of the prior year.

The decrease was primarily due to a $3.4 million loss in the value of our marketable securities during the during the six months ended June 30, 2020 .

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

We had no gain or loss in continuing operations in the three months ended March 31, 2020 , compared to $54,000 in the same period of the prior year.

We had a loss of $190,000 in the three months ended June 30, 2020 , compared to a gain of $615,000 in the same period of the prior year.

We had a loss of $190,000 in the six months ended June 30, 2020 , compared to a gain of $669,000 in the same period of the prior year.

Refer to Note 8 of the Notes to Condensed Consolidated Financial Statements in this report for a table detailing our acquisitions and dispositions during the six -month periods ended June 30, 2020 and 2019 .

Net income (loss) available to common shareholders.

Net loss available to common shareholders was $8.4 million for the three months ended March 31, 2020 , compared to net income of $6.4 million in the three months ended March 31, 2019 .

Net loss available to common shareholders was $5.4 million for the three months ended June 30, 2020 , compared to net income of $1.4 million in the three months ended June 30, 2019 .

Net loss available to common shareholders was $13.8 million for the six months ended June 30, 2020 , compared to $5.0 million in the six months ended June 30, 2019 .

Funds from Operations .

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FFO also does not represent cash generated from operating activities in accordance with GAAP, and is not necessarily indicative of sufficient cash flow to fund all of our needs or our ability to service indebtedness or make distributions.

FFO applicable to common shares and Units for the three months ended March 31, 2020 , decreased to $8.7 million compared to $10.1 million for the comparable period ended March 31, 2019 , a decrease of 14.7% .

This decrease was primarily due to loss on marketable securities, offset by reductions in interest expense.

general and administrative expense, and casualty loss.

FFO applicable to common shares and Units for the three months ended June 30, 2020 , decreased to $12.4 million compared to $18.8 million for the comparable period ended June 30, 2019 , a decrease of 34.2% .

This decrease was primarily due to a gain on litigation settlement of $6.3 million in the prior year which did not recur in the current period, decreased NOI, and increased casualty loss, offset by reductions in interest expense and general and administrative expense.

For the six months ended June 30, 2020 , FFO applicable to common shares and Units decreased to $21.0 million compared to $29.0 million for the comparable period of 2019, representing a decrease of 27.4% .

This decrease was primarily due to a gain on litigation settlement of $6.3 million in 2019 that did not recur in the current period, a loss on marketable securities of $3.4 million in the current period, decreased NOI, and increased casualty loss, offset by reductions in interest expense and general and administrative expense.

Reconciliation of Net Income Available to Common Shareholders to Funds from Operations

(in thousands, except per share and unit amounts)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Net income (loss) available to common shareholders

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Acquisitions and Dispositions

During the first quarter of 2020 , we acquired a 182-home apartment community in New Hope, Minnesota for an aggregate purchase price of $46.3 million , compared to $44.0 million acquisitions in the same period of the prior year.

During the first quarter of 2020 , we had no dispositions, compared to one dispositions in the first quarter of 2019 .

See Note 8 of the Notes to Condensed Consolidated Financial Statements in this report for a table detailing our acquisitions and dispositions during the three -month periods ended March 31, 2020 and 2019 .

During the second quarter of 2020 , we acquired no new real estate compared to $2.1 million of acquisitions in the same period of the prior year.

During the second quarter of 2020 , we had one disposition, compared to two dispositions in the second quarter of 2019 .

See Note 8 of the Notes to Condensed Consolidated Financial Statements in this report for a table detailing our acquisitions and dispositions during the six -month periods ended June 30, 2020 and 2019 .

Distributions Declared

Distributions of $0.70 per common share and Unit were declared during the three months ended March 31, 2020 and 2019 .

Distributions of $0.4140625 per Series C preferred share were declared during the three months ended March 31, 2020 and 2019 .

Distributions of $0.9655 per Series D preferred unit were declared during the three months ended March 31, 2020 and 2019 , respectively.

Distributions of $0.70 and $1.40 per common share and Unit were declared during the three and six months ended June 30, 2020 and 2019 .

Distributions of $0.4140625 and $0.828125 per Series C preferred share were declared during the three and six months ended June 30, 2020 and 2019 .

Distributions of $0.9655 and $1.931 per Series D preferred unit were declared during the three and six months ended June 30, 2020 and 2019 , respectively.

Liquidity and Capital Resources

We desire to create and maintain a strong balance sheet that offers financial flexibility and enables us to pursue and acquire apartment communities that enhance our portfolio composition, operating metrics, and cash flow growth prospects.

We desire to strengthen the current balance sheet, which offers financial flexibility and enables us to pursue and acquire apartment communities that enhance our portfolio composition, operating metrics, and cash flow growth prospects.

We intend to strengthen our capital and liquidity positions by continuing to focus on improving our core fundamentals, which include generating positive cash flows from operations, maintaining appropriate debt levels and leverage ratios, and controlling overhead costs.

Our primary sources of liquidity are cash and cash equivalents on hand and cash flows generated from operations.

Other sources include availability under our unsecured lines of credit, proceeds from property dispositions, including restricted cash related to net tax deferred proceeds, offerings of preferred and common shares under our shelf registration statement, including offerings of common shares under our 2019 ATM Program, and unsecured debt or long-term secured mortgages.

Our primary liquidity demands are normally-recurring operating and overhead expenses, debt service and repayments, capital improvements to our communities, distributions to the holders of our preferred shares, common shares, Series D preferred units, and Units, value-add redevelopment, common share buybacks and Unit redemptions, and acquisitions of additional communities.

Although we believe that our financial condition and liquidity are sufficient to meet our reasonably anticipated liquidity demands during 2020, factors that could impact our future liquidity include, but are not limited to, volatility in capital and credit markets, our ability to access capital and credit markets, the effects of the COVID-19 pandemic, the minimum REIT dividend requirements, and our ability to complete asset purchases, sales, or developments.

As of March 31, 2020 , we had total liquidity of approximately $193.3 million , which included $167.0 million available on our line of credit and $26.3 million of cash and cash equivalents.

Our primary liquidity demands are normally-recurring operating and overhead expenses, debt service and repayments, capital improvements to our communities, distributions to the holders of our preferred shares, common shares, Series D preferred units, and Units, value-add redevelopment, common and preferred share buybacks and Unit redemptions, and acquisitions of additional communities.

Although we believe that our financial condition and liquidity are sufficient to meet our reasonably anticipated liquidity demands during 2020, factors that could impact our future liquidity include, but are not limited to, volatility in capital and credit markets, our ability to access capital and credit markets, the effects of the COVID-19 pandemic, including its potential impact on our ability to access the capital and credit markets on reasonable terms (or at all), the minimum REIT dividend requirements, and our ability to complete asset purchases, sales, or developments.

As of June 30, 2020 , we had total liquidity of approximately $239.7 million , which included $187.0 million available on our line of credit and $52.7 million of cash and cash equivalents.

As of December 31, 2019 , we had total liquidity of approximately $226.5 million , which included $199.9 million on our line of credit and $26.6 million of cash and cash equivalents.

Effects of COVID-19

COVID-19-Related Impacts on Liquidity

We anticipate that our primary sources of liquidity will continue to be cash and cash equivalents on hand, cash flows generated from operations (although cash flows may be reduced as a result of lower monthly collections of rent as well as the potential for lower occupancy or reduced rental rates during and after the COVID-19 pandemic), and availability under our unsecured lines of credit.

At the end of the first quarter, we had $193.3 million of total liquidity on our balance sheet, including $167.0 million available under our unsecured line of credit and $26.3 million of cash and cash equivalents.

At the end of the second quarter, we had $239.7 million of total liquidity on our balance sheet, including $187.0 million available under our unsecured line of credit and $52.7 million of cash and cash equivalents.

We have approximately $9.4 million of debt maturities remaining in 2020 and approximately $35.6 million of debt maturities in 2021.

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offerings of preferred and common shares under our shelf registration statement, including offerings of common shares under our 2019 ATM Program;

and unsecured term loans or long-term secured mortgages.

However, due to the economic disruption caused by COVID-19, the terms of future debt and equity issuances likely will not be as favorable for the foreseeable future as they have been in recent years.

For a discussion of our debt facilities and the impact of COVID-19 thereon, see "Debt" and "Potential Impact of COVID-19 on Continuing Debt Availability" below.

and long term unsecured term loans and secured mortgages.

However, due to the economic disruption caused by COVID-19-related events, the terms of future debt and equity issuances may not be as favorable for the foreseeable future as they have been in recent years.

For a discussion of our debt facilities and the impact of COVID-19 -related effects thereon, see "Debt" and "Potential Impact of COVID-19-Related Effects on Continuing Debt Availability" below.

We have an unsecured credit facility for $395.0 million, with the commitment allocated to a revolving line of credit for $250.0 million and the remaining $145.0 million allocated between two term loans:

a $70.0 million unsecured term loan that matures on January 15, 2024 and a $75.0 million unsecured term loan that matures on August 31, 2025.

As of March 31, 2020 , our line of credit had total commitments of $250.0 million , with borrowing capacity based on the value of properties contained in an unencumbered asset pool ("UAP").

The UAP provided for a borrowing capacity of approximately $250.0 million at quarter-end, offering additional borrowing availability of $167.0 million beyond the $83.0 million drawn, including the balance on our operating line of credit, as of March 31, 2020 .

At December 31, 2019 , the line of credit borrowing capacity was $250.0 million based on the UAP, of which $50.1 million was drawn on the line, including the balance on our

operating line of credit.

As of June 30, 2020 , our line of credit had total commitments of $250.0 million , with borrowing capacity based on the value of properties contained in an unencumbered asset pool ("UAP").

The UAP provided for a borrowing capacity of approximately $250.0 million at quarter-end, offering additional borrowing availability of $187.0 million beyond the $63.0 million drawn, including the balance on our operating line of credit, as of June 30, 2020 .

At December 31, 2019 , the line of credit borrowing capacity was $250.0 million based on the UAP, of which $50.1 million was drawn on the line, including the balance on our operating line of credit.

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

As of March 31, 2020 , we had a private shelf agreement for the issuance of up to $150.0 million of unsecured senior promissory notes.

As of June 30, 2020 , we had a private shelf agreement for the issuance of up to $150.0 million of unsecured senior promissory notes.

In September 2019, 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, under this facility.

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This operating line has a one-year term, with pricing based on a market spread plus the one-month LIBOR index rate.

Mortgage loan indebtedness was $330.0 million and $331.4 million on March 31, 2020 and December 31, 2019 , respectively.

Mortgage loan indebtedness was $325.2 million and $331.4 million on June 30, 2020 and December 31, 2019 , respectively.

All of our mortgage debt is at fixed rates of interest, with staggered maturities.

This decreases the exposure to changes in interest rates, which reduces the effect of interest rate fluctuations on our results of operations and cash flows.

As of March 31, 2020 , the weighted average interest rate on our mortgage debt was 4.01% .

Potential Impact of COVID-19 on Continuing Debt Availability

Although we are in compliance with our covenants under all of our debt facilities, there can be no assurance that we will continue to remain in compliance with those covenants or be able to access these funds depending on the length of the COVID-19 pandemic and the breadth of its impact on the U.S.

As of June 30, 2020 , the weighted average interest rate on our mortgage debt was 4.01% .

Potential Impact of COVID-19-Related Effects on Continuing Debt Availability

Although we are in compliance with our covenants under all of our debt facilities and currently expect to continue to remain in compliance with these covenants, there can be no assurance that we will remain in compliance with those covenants or be able to access these funds depending on the length of the COVID-19 pandemic and the breadth of its impact on the U.S.

economy generally and the credit markets in particular.

Under the terms of our credit facility, we may be unable to obtain advances under our credit facility if:

we are unable to make certain representations and warranties, including a certification that, since April 30, 2018, there has been no change in our business, financial condition, operations, performance or properties , taken as a whole, which would reasonably be expected to have a material adverse effect;

we are unable to make certain representations and warranties, including a certification that, since April 30, 2018, there has been no adverse change in our business, financial condition, operations, performance or properties, taken as a whole, which would reasonably be expected to have a material adverse effect;

changes in our consolidated property NOI or capitalization rates applicable to the properties in our borrowing base reduce or eliminate availability under our credit facility;

changes in the nature and composition (including occupancy rate) of the properties in our borrowing base cause these properties to become ineligible to be part of our borrowing base -- which could occur if, among other reasons, the occupancy rate of our eligible properties drops below 70% or tenants under "significant leases" (defined as any lease that comprises 30% or more of all base rent revenue of such property) are more than 60 days in arrears on base rental or other similar payments due under their leases -- and if we are not able to replace such properties with other qualifying properties, such ineligibility could reduce or eliminate the availability under our credit facility.

changes in the nature and composition (including occupancy rate) of the properties in our borrowing base cause these properties to become ineligible to be part of our borrowing base, and if we are not able to replace such properties with other qualifying properties, such ineligibility could reduce or eliminate the availability under our credit facility.

Even if we remain in compliance with the foregoing representations, warranties, and covenants, we may be unable to access the full amount available under our credit facilities if our lenders fail to fund their commitments, which could occur if:

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we are unable to obtain additional letters of credit due to a default by any lender in meeting its funding obligations.

As of the date of this filing, we have not experienced any restrictions or limitations on the availability of credit in our markets or with our lenders, although there can be no assurance that we will continue to be able to access the credit markets generally or our credit facility in the future.

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

The proceeds from the sale of common shares under the 2019 ATM program are intended to be used for general corporate purposes, which may include the funding of future acquisitions 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.

During the six months ended June 30, 2020 , we issued approximately 674,000 common shares under the 2019 ATM program at an average price of $71.56 per share, net of commissions.

Total consideration, net of commissions and issuance costs, was approximately $48.3 million .

As of March 31, 2020 , common shares having an aggregate offering prices of up to $124.3 million remained available under the 2019 ATM Program.

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.

Changes in Cash, Cash Equivalents, and Restricted Cash

The following discussion relates to changes in consolidated cash, cash equivalents, and restricted cash which are presented in our Condensed Consolidated Statements of Cash Flows in Part I, Item 1 above.

In addition to cash flow from operations, during the three months ended March 31, 2020 , we generated capital from various activities, including:

Receiving $3.4 million from the issuance of approximately 50,000 common shares under our 2019 ATM Program;

In addition to cash flow from operations, during the six months ended June 30, 2020 , we generated capital from various activities, including:

Receiving $48.3 million in net proceeds from the issuance of approximately 674,000 common shares under our 2019 ATM Program;

Repayment of $10.0 million of note receivables;

Selling $3.9 million of marketable securities;

During the three months ended March 31, 2020 , we used capital for various activities, including:

Selling a parcel of unimproved land for $1.3 million .

During the six months ended June 30, 2020 , we used capital for various activities, including:

Acquiring Ironwood Apartments, a 182-home apartment community located in New Hope, Minnesota, an inner-ring suburb of Minneapolis, for an aggregate purchase price of $46.3 million , of which $28.6 million was paid in cash and $17.7 million from payoff of a note receivable and accrued interest;

Acquiring the noncontrolling interests in 71 France for $12.2 million ;

Funding of mezzanine/construction loans of $4.8 million;

Repaying $6.1 million of mortgage principal;

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Off-Balance Sheet Arrangements

As of March 31, 2020 , we had no significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

As of June 30, 2020 , we had no significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Critical Accounting Policies

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A summary of our critical accounting policies is included in our Form 10-K for the year ended December 31, 2019 , filed with the SEC on February 19, 2020 under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Refer to Note 2 of the Notes to Condensed Consolidated Financial Statements in this report for additional information.

There have been no other significant changes to our critical accounting policies during the three months ended March 31, 2020 .

There have been no other significant changes to our critical accounting policies during the six months ended June 30, 2020 .

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 2. Management’s Discussion and Analysis