What changed in this filing

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Item 1. Financial Statements

2020-11-02 compared with 2020-08-03 · 299 added, 211 removed, 497 unchanged (51% of the section changed)

3 unchanged sentences

(in thousands, except per share data)

June 30, 2020

December 31, 2019

September 30, 2020 December 31, 2019

Real estate investments

1 unchanged sentence

Less accumulated depreciation ( 380,392 ) ( 349,122 )

1,424,998 1,293,956

Unimproved land — 1,376

3 unchanged sentences

Restricted cash 2,199 19,538

Other assets 16,947 34,829

TOTAL ASSETS $ 1,478,934 $ 1,392,418

LIABILITIES, MEZZANINE EQUITY, AND EQUITY

2 unchanged sentences

Notes payable, net of unamortized loan costs of $ 798 and $ 942 respectively

269,202 269,058

Mortgages payable, net of unamortized loan costs of $ 1,446 and $ 1,712 , respectively

313,065 329,664

TOTAL LIABILITIES $ 775,863 $ 695,956

COMMITMENTS AND CONTINGENCIES (NOTE 10)

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)

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

$ 16,560 $ 16,560

Series C Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no par value, $ 25 per share liquidation preference, 3,881 shares issued and outstanding at September 30, 2020, aggregate liquidation preference of $ 97,036 and 4,118 shares issued and outstanding at December 31, 2019, aggregate liquidation preference of $ 102,971 )

93,530 99,456

Common Shares of Beneficial Interest (Unlimited authorization, no par value, 12,976 shares issued and outstanding at September 30, 2020 and 12,098 shares issued and outstanding at December 31, 2019)

968,436 917,400

Accumulated distributions in excess of net income ( 412,577 ) ( 390,196 )

1 unchanged sentence

Total shareholders’ equity $ 632,133 $ 619,053

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

Noncontrolling interests – Operating Partnership ( 1,018 units at September 30, 2020 and 1,058 units at December 31, 2019)

53,669 55,284

Noncontrolling interests – consolidated real estate entities 709 5,565

Total equity $ 686,511 $ 679,902

TOTAL LIABILITIES, MEZZANINE EQUITY, AND EQUITY $ 1,478,934 $ 1,392,418

3 unchanged sentences

(in thousands, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

REVENUE $ 44,138 $ 47,436 $ 132,454 $ 139,978

Property operating expenses, excluding real estate taxes 13,129 14,485 38,957 43,231

5 unchanged sentences

TOTAL EXPENSES $ 42,136 $ 43,840 $ 125,924 $ 131,027

Operating income (loss)

Operating income 2,002 3,596 6,530 8,951

Interest expense ( 6,771 ) ( 7,694 ) ( 20,622 ) ( 23,180 )

10 unchanged sentences

Dividends to preferred shareholders ( 1,607 ) ( 1,705 ) ( 4,921 ) ( 5,116 )

Discount on redemption of preferred shares

Discount (premium) on redemption of preferred shares ( 1 ) — 297 —

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 18,021 $ 29,891 $ 4,195 $ 24,895

5 unchanged sentences

(in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Net income (loss) $ 21,184 $ 34,718 $ 9,415 $ 32,025

10 unchanged sentences

(in thousands, except per share data)

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019 PREFERRED

SHARES NUMBER

SHARES COMMON

SHARES ACCUMULATED

DISTRIBUTIONS

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

NONREDEEMABLE

NET INCOME ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) NONREDEEMABLE

NONCONTROLLING

INTERESTS TOTAL

Balance December 31, 2018 $ 99,456 11,942 $ 899,234 $ ( 429,048 ) $ ( 856 ) $ 74,663 $ 643,449

2 unchanged sentences

Distributions - common shares and units ($ 2.10 per share and unit)

( 24,527 ) ( 2,673 ) ( 27,200 )

Distributions – Series C preferred shares ($ 1.2421875 per Series C share)

( 5,116 ) ( 5,116 )

Share-based compensation, net of forfeitures 11 1,452 1,452

3 unchanged sentences

Acquisition of redeemable noncontrolling interests 4,529 4,529

Balance June 30, 2019

Six Months Ended June 30, 2020

Other ( 7 ) ( 83 ) ( 95 ) ( 178 )

Balance September 30, 2019 $ 99,456 11,625 $ 886,598 $ ( 428,680 ) $ ( 9,793 ) $ 66,082 $ 613,663

Nine Months Ended September 30, 2020

Balance December 31, 2019 $ 99,456 12,098 $ 917,400 $ ( 390,196 ) $ ( 7,607 ) $ 60,849 $ 679,902

2 unchanged sentences

Distributions - common shares and units ($ 2.10 per share and unit)

( 26,576 ) ( 2,159 ) ( 28,735 )

Distributions – Series C preferred shares ($ 1.2421875 per Series C share)

( 4,921 ) ( 4,921 )

Share-based compensation, net of forfeitures 20 1,521 1,521

3 unchanged sentences

Shares repurchased ( 5,926 ) — — 297 ( 5,629 )

Acquisition of noncontrolling interests

Balance June 30, 2020

Acquisition of noncontrolling interests - consolidated real estate entities ( 7,584 ) ( 4,637 ) ( 12,221 )

Other ( 1 ) ( 761 ) ( 87 ) ( 848 )

Balance September 30, 2020 $ 93,530 12,976 $ 968,436 $ ( 412,577 ) $ ( 17,256 ) $ 54,378 $ 686,511

See accompanying Notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

(in thousands, except per share data)

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019 PREFERRED

SHARES NUMBER

SHARES COMMON

SHARES ACCUMULATED

DISTRIBUTIONS

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

NONREDEEMABLE

NET INCOME ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) NONREDEEMABLE

NONCONTROLLING

Balance March 31, 2019

INTERESTS TOTAL

Balance June 30, 2019 $ 99,456 11,656 $ 888,541 $ ( 450,433 ) $ ( 7,598 ) $ 64,034 $ 594,000

Net income (loss) attributable to controlling interests and nonredeemable noncontrolling interests 31,596 2,962 34,558

1 unchanged sentence

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

( 8,138 ) ( 857 ) ( 8,995 )

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

( 1,705 ) ( 1,705 )

Share-based compensation, net of forfeitures 8 472 472

2 unchanged sentences

Shares repurchased ( 39 ) ( 2,346 ) ( 2,346 )

Other — ( 79 ) ( 36 ) ( 115 )

Balance September 30, 2019 $ 99,456 11,625 $ 886,598 $ ( 428,680 ) $ ( 9,793 ) $ 66,082 $ 613,663

Three Months Ended September 30, 2020

Balance June 30, 2020 $ 93,579 12,827 $ 958,292 $ ( 421,515 ) $ ( 18,139 ) $ 53,290 $ 665,507

Three Months Ended June 30, 2020

Balance March 31, 2020

Net income (loss) attributable to controlling interests and noncontrolling interests 19,629 1,395 21,024

1 unchanged sentence

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

( 9,083 ) ( 713 ) ( 9,796 )

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

( 1,607 ) ( 1,607 )

Share-based compensation, net of forfeitures — 554 554

3 unchanged sentences

Shares repurchased ( 49 ) ( 1 ) ( 50 )

Balance June 30, 2020

Other — ( 11 ) ( 31 ) ( 42 )

Balance September 30, 2020 $ 93,530 12,976 $ 968,436 $ ( 412,577 ) $ ( 17,256 ) $ 54,378 $ 686,511

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

1 unchanged sentence

(in thousands)

Six Months Ended

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

6 unchanged sentences

Share-based compensation expense 1,521 1,452

Other, net 2,393 2,476

Changes in other assets and liabilities:

Other assets ( 1,632 ) ( 705 )

Accounts payable and accrued expenses 1,599 1,348

2 unchanged sentences

Proceeds from sale of marketable securities 3,856 —

Principal proceeds on mortgage loans receivable

Proceeds from repayment of mortgage loans receivable 10,020 —

Increase in mortgages and notes receivable ( 18,187 ) ( 159 )

5 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from mortgages payable — 59,900

Principal payments on mortgages payable ( 17,233 ) ( 145,279 )

1 unchanged sentence

Principal payments on revolving lines of credit ( 41,656 ) ( 178,000 )

Proceeds from notes payable — 124,878

Payments for acquisition of noncontrolling interests – consolidated real estate entities ( 12,221 ) ( 1,260 )

15 unchanged sentences

Distributions declared but not paid to common shareholders 9,796 —

Distributions declared but not paid to preferred shareholders

Distributions declared but not paid to preferred unitholders

Gain on litigation settlement — 1,349

4 unchanged sentences

Cash paid for interest $ 19,527 $ 22,746

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

Balance sheet description September 30, 2020 December 31, 2019 September 30, 2019

Cash and cash equivalents $ 16,804 $ 26,579 $ 8,500

Restricted cash 2,199 19,538 3,339

Total cash, cash equivalents and restricted cash $ 19,003 $ 46,117 $ 11,839

See accompanying Notes to Condensed Consolidated Financial Statements.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

for the six months ended June 30, 2020 and 2019

for the nine months ended September 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 June 30, 2020 , we owned interests in 70 apartment communities consisting of 12,135 apartment homes.

As of September 30, 2020, we owned interests in 67 apartment communities consisting of 11,910 apartment homes.

NOTE 2 • BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

8 unchanged sentences

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 ;

The COVID-19 pandemic has not had a material adverse impact on our financial condition, results of operations, and cash flows for the nine months ended September 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.

11 unchanged sentences

The following table provides a brief description of recent accounting standards updates (“ASUs”).

Date of Adoption

Effect on the Financial Statements or Other Significant Matters

Standard Description Date of Adoption Effect on the Financial Statements or Other Significant Matters

ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

19 unchanged sentences

We are currently evaluating the practical expedients and the impact they may have on our condensed consolidated financial statements.

ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts in an Entity's Own Equity

This ASU simplifies accounting for convertible instruments and removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception.

This ASU also simplifies the diluted earnings per share calculation in certain areas and provides updated disclosure requirements.

This ASU is effective for annual reporting periods beginning after December 15, 2021.

Early adoption is permitted.

We are currently evaluating the ASU and the impact it may have on our condensed consolidated financial statements.

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

(in thousands)

Balance sheet description

June 30, 2020

December 31, 2019

June 30, 2019

Cash and cash equivalents

Restricted cash

Total cash, cash equivalents and restricted cash

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

As of September 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.

3 unchanged sentences

Rental revenues are recognized in accordance with ASC 842, Leases , using a method that represents a straight-line basis over the term of the lease.

Rental income represents approximately 98.4 % of our total revenues and includes gross market rent less adjustments for concessions, vacancy loss, and bad debt.

Rental income represents approximately 98.4 % of our total revenues and includes gross market

rent less adjustments for concessions, vacancy loss, and bad debt.

Other property revenues represent the remaining 1.6 % of our total revenues and are primarily driven by other fee income, which is typically recognized when earned, at a point in time.

2 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.

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

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.

As of September 30, 2020, approximately $ 59,000 remained outstanding under the rent deferral agreements offered to multifamily residents.

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

The accommodations were recognized as variable lease payments, as allowed by the FASB Q&A released on April 10, 2020.

D uring the three and nine months ended September 30, 2020, we recognized a reduction in revenue of $ 136,000 and $ 538,000 , respectively, due to the abatement of amounts due from our commercial tenants.

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

We have elected the practical expedient to combine lease and non-lease components for all asset classes.

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 June 30, 2020 , was as follows:

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

(in thousands)

2020 (remainder) $ 677

Total scheduled lease income - operating leases

Thereafter 4,975

Total scheduled lease income - commercial operating leases $ 16,860

Revenue is recognized in accordance with the transfer of goods and services to customers at an amount that reflects the consideration to which the company expects to be entitled for those goods and services.

We elected to omit disclosing the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

Revenue streams that are included in revenues from contracts with customers include:

O ther property revenues:

• O ther property revenue:

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

1 unchanged sentence

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 :

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

(in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Revenue Stream

Applicable Standard

Fixed lease income - operating leases

Variable lease income - operating leases

Other property revenue

Revenue from contracts with customers

Three Months Ended September 30, Nine Months Ended September 30,

Revenue Stream Applicable Standard 2020 2019 2020 2019

Fixed lease income - operating leases Leases $ 41,712 $ 45,164 $ 125,555 $ 133,248

Variable lease income - operating leases Leases 1,729 1,367 4,811 3,999

Other property revenue Revenue from contracts with customers 697 905 2,088 2,731

Total revenue $ 44,138 $ 47,436 $ 132,454 $ 139,978

1 unchanged sentence

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.

The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, expected holding period of each asset group, and legal and environmental concerns.

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.

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.

The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, expected holding period of each property, and legal and environmental concerns.

If indicators exist, we compare the expected future undiscounted cash flows for the property against the carrying amount of that property.

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

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

During the three and nine months ended September 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 June 30, 2020 , the note was paid in full.

As of September 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.

During the nine months ended September 30, 2020 and 2019, we received and recognized approximately $ 279,000 and $ 428,000 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.

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).

During the nine months ended September 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 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.

As of September 30, 2020 and December 31, 2019, we had funded $ 18.0 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.

1 unchanged sentence

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 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 are VIEs, 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 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 .

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

MARKETABLE SECURITIES

2 unchanged sentences

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

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

As of September 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 .

During the nine months ended September 30, 2020, we had a realized loss of $ 3.4 million arising from the disposal of such securities.

NOTE 3 • EARNINGS PER SHARE

4 unchanged sentences

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 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.

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 and six months ended June 30, 2020 and 2019 :

Performance-based RSUs of 27,506 and 37,822 for the three months ended September 30, 2020 and 2019, respectively, and 27,506 and 37,822 for the nine months ended September 30, 2020 and 2019, respectively, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the nine months ended September 30, 2020, Series D preferred units of 228,000 and time-based RSUs of 13,000 were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the three and nine months ended September 30, 2020, weighted average stock options of 140,554 and 68,292 , 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Net income (loss) attributable to controlling interests $ 19,629 $ 31,596 $ 8,819 $ 30,011

7 unchanged sentences

Effect of redeemable operating partnership units 1,020 1,223 1,039 1,282

Effect of Series D preferred units 228 228 — 181

Effect of dilutive restricted stock units and stock options 10 11 — 6

Denominator for diluted earnings per share 14,143 13,087 13,463 13,174

3 unchanged sentences

Operating Partnership Units.

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

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

Common Shares and Equity Awards .

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.

Common shares outstanding on September 30, 2020 and December 31, 2019, totaled 13.0 million and 12.1 million, respectively.

There were 297 and 20,998 shares issued upon the vesting of equity awards under our 2015 Incentive Plan during the three and nine months ended September 30, 2020, respectively, with a total grant-date fair value of $ 17,000 and $ 1.0 million, respectively.

During the three and nine months ended September 30, 2019, we issued 8,662 and 15,380 shares upon the vesting of equity awards under our 2015 Incentive Plan, respectively, with a total grant-date fair value of $ 473,000 and $ 930,000 , respectively.

These shares vest based on performance and service criteria.

2 unchanged sentences

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.

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

As of September 30, 2020, common shares having an aggregate offering price of up to $ 69.2 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)

Three Months Ended September 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.

2020 145 $ 10,218 $ 70.55

Nine Months Ended September 30,

2020 819 $ 57,528 $ 70.23

(1) Total consideration is net of $ 156,000 and $ 890,000 in commissions during the three and nine months ended September 30, 2020, respectively, and issuance costs.

Exchange Rights .

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.

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

(in thousands, except per Unit amounts)

Three Months Ended June 30,

Number of Units

Aggregate Cost (1)

Three Months Ended September 30, Number of Units Aggregate Cost (1)

Average Price Per Unit

Six Months Ended June 30,

2020 — $ 26 $ 71.52

2019 — $ 11 $ 62.10

Nine Months Ended September 30,

2020 1 $ 48 $ 70.10

2019 136 $ 8 $ 59.99

(1) 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 and six months ended June 30, 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 nine months ended September 30, 2020 and 2019 as detailed in the table below.

(in thousands)

Three Months Ended June 30,

Number of Units

Total Book Value

Six Months Ended June 30,

Three Months Ended September 30, Number of Units Total Book Value

2020 4 $ ( 462 )

Nine Months Ended September 30,

2020 40 $ ( 344 )

2019 8 $ ( 511 )

Share Repurchase Program .

On December 5, 2019, our Board of Trustees terminated the existing share repurchase program and authorized a new share repurchase program to repurchase up to $ 50 million of our common or preferred shares over a one -year period.

Under this new repurchase program, we may repurchase common or preferred shares in open-market purchases, including pursuant to Rule 10b5-1 and Rule 10b-18 plans, as determined by management and in accordance with the requirements of the SEC.

Under this new repurchase program, we may repurchase common or preferred shares in open-market purchases,

including pursuant to Rule 10b5-1 and Rule 10b-18 plans, as determined by management and in accordance with the requirements of the SEC.

The extent to which we repurchase our shares, and the timing of repurchases, will depend on a variety of factors, including market conditions, regulatory requirements, and other corporate considerations, as determined by the executive management team.

This program may be suspended or discontinued at any time.

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.

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

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

(in thousands, except per share amounts)

Three Months Ended June 30,

Number of Common Shares

Number of Preferred Shares

Aggregate Cost (1)

Three Months Ended September 30, Number of Common Shares Number of Preferred Shares Aggregate Cost (1)

Average Price Per Share (1)

Six Months Ended June 30,

2020 — 2 $ 49 $ 25.49

2019 39 — $ 2,346 $ 59.57

Nine Months Ended September 30,

2020 — 237 $ 5,628 $ 23.75

2019 329 — $ 18,023 $ 54.69

(1) Amount includes commissions.

Series C Preferred Shares.

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

Series C preferred shares outstanding were 3.9 million and 4.1 million shares at September 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.

4 unchanged sentences

The Series D preferred unit holders receive a preferred distribution at the rate of 3.862 % per year.

The Series D preferred units have a put option which allows the holder to redeem any or all of the Series D preferred units for cash equal to the issue price.

The Series D preferred units have a put option which allows the holder to redeem any or all of the Series D preferred units for cash equal to the issuance price.

Each Series D preferred unit is convertible, at the holder's option, into 1.37931 Units, representing a conversion exchange rate of $ 72.50 per unit.

3 unchanged sentences

NOTE 5 • DEBT

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

As of September 30, 2020, we owned 67 apartment communities, of which 22 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 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.

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

As of September 30, 2020, 45 of our apartment communities were not encumbered by mortgages, with 41 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 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).

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

As of September 30, 2020, the additional borrowing availability was $ 115.0 million beyond the $ 135.0 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.

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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 June 30, 2020 .

We believe that we are in compliance with all such financial covenants and limitations as of September 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").

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.

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.

1 unchanged sentence

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

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 :

This operating line matures on August 1, 2021, with pricing based on a market spread plus the one-month LIBOR index rate.

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

(in thousands)

June 30, 2020

December 31, 2019

Weighted Average Maturity in Years at June 30, 2020

September 30, 2020 December 31, 2019 Weighted Average Maturity in Years at September 30, 2020

Lines of credit $ 135,000 $ 50,079 2.2

Term loans (1)

145,000 145,000 4.4

Unsecured senior notes (1)

125,000 125,000 8.8

Unsecured debt 405,000 320,079 5.0

Mortgages payable - fixed 314,511 331,376 5.5

Total debt $ 719,511 $ 651,455 5.2

Weighted average interest rate on lines of credit (rate with swap) 3.24 % 3.81 %

2 unchanged sentences

Weighted average interest rate on mortgages payable 3.99 % 4.02 %

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

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:

Weighted average interest rate on total debt 3.68 % 3.97 %

(1) Included within notes payable on our condensed consolidated balance sheets.

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

(in thousands)

2020 (remainder) $ 1,336

Thereafter 386,716

Total payments $ 584,511

1 unchanged sentence

Our objective in using interest rate derivatives is to add stability to interest expense and to manage our exposure to interest rate fluctuations.

To accomplish this objective, we primarily use interest rate swap contracts to fix the variable interest rate on our term loans and a portion of our revolving line of credit.

To accomplish this objective, we primarily use interest rate swap contracts to fix the variable interest rate on our term loans and a portion of our primary line of credit.

The interest rate swap contracts qualify as cash flow hedges.

2 unchanged sentences

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.

Amounts reported in accumulated other comprehensive income for our interest rate swaps will be reclassified to interest expense as interest expense is incurred on our term loans and the hedged portion of our primary line of credit.

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

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 .

At September 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 September 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 September 30, 2020 and December 31, 2019 .

(in thousands)

June 30, 2020

December 31, 2019

Balance Sheet Location

Total derivative instruments designated as hedging instruments - interest rate swaps

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 June 30, 2020 and 2019 .

September 30, 2020 December 31, 2019

Balance Sheet Location Fair Value Fair Value

Total derivative instruments designated as hedging instruments - interest rate swaps Accounts Payable and Accrued Expenses $ 17,256 $ 7,607

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

(in thousands)

Gain (Loss) Recognized in OCI

Location of Gain (Loss) Reclassified from Accumulated OCI into Income

Gain (Loss) Reclassified from Accumulated OCI into Income

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

Gain (Loss) Recognized in OCI Location of Gain (Loss) Reclassified from Accumulated OCI into Income Gain (Loss) Reclassified from Accumulated OCI into Income

Three months ended September 30, 2020 2019 2020 2019

Total derivatives in cash flow hedging relationships - Interest rate contracts $ ( 210 ) $ ( 2,251 ) Interest expense $ ( 1,093 ) $ ( 56 )

Nine months ended September 30,

Total derivatives in cash flow hedging relationships - Interest rate contracts $ ( 11,314 ) $ ( 9,819 ) Interest expense $ ( 1,665 ) $ ( 26 )

NOTE 7 • FAIR VALUE MEASUREMENTS

6 unchanged sentences

(in thousands)

June 30, 2020

Total Level 1 Level 2 Level 3

September 30, 2020

Mortgages and notes receivable $ 24,315 — — $ 24,315

6 unchanged sentences

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 % ).

The inputs include market transactions for similar instruments, management estimates of comparable interest rates (range of 3.75 % to

5.0 %), and instrument specific credit risk (range of 0.5 % to 1.0 %).

Changes in the fair value of these receivables from period to period are reported in interest and other income on our condensed consolidated statements of operations.

(in thousands)

Fair Value Measurement at June 30, 2020

Other Gains (Losses)

Total Changes in Fair Value Included in Current-Period Earnings

Fair Value Measurement at September 30, 2020 Other Gains (Losses) Interest

Income Total Changes in Fair Value Included in Current-Period Earnings

Three months ended September 30,

Mortgage loans and notes receivable $ 24,315 $ 3 $ 260 $ 263

Nine months ended September 30,

Mortgage loans and notes receivable $ 24,315 $ 8 $ 1,114 $ 1,122

Fair Value Measurements on a Nonrecurring Basis

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

There were no non-financial assets or liabilities measured at fair value on a nonrecurring basis at September 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 June 30, 2020 and December 31, 2019 , respectively, are as follows:

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

(in thousands)

June 30, 2020

December 31, 2019

Carrying Amount

September 30, 2020 December 31, 2019

Carrying Amount Fair Value Carrying Amount Fair Value

FINANCIAL ASSETS

2 unchanged sentences

Mortgage and note receivable (2)

— — $ 32,810 $ 32,810

FINANCIAL LIABILITIES

Revolving lines of credit (1)

Notes payable (1)

$ 135,000 $ 135,000 $ 50,079 $ 50,079

Term loans (1)

$ 145,000 $ 145,000 $ 145,000 $ 145,000

Unsecured senior notes $ 125,000 $ 131,151 $ 125,000 $ 126,816

Mortgages payable $ 314,511 $ 331,423 $ 331,376 $ 332,471

(1) Excluding the effect of interest rate swap agreements.

Refer to Note 6 for discussion on the fair value of the interest rate swap agreements.

(2) As of January 1, 2020, we elected the fair value option, as allowed under ASU 2019-05.

1 unchanged sentence

NOTE 8 • ACQUISITIONS AND DISPOSITIONS

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)

Form of Consideration

Investment Allocation

We acquired $ 144.8 million in new real estate during the three months ended September 30, 2020, compared to $ 125.3 million in the three months ended September 30, 2019.

Our acquisitions during the nine months ended September 30, 2020 and 2019 are detailed below.

Nine Months Ended September 30, 2020

Acquired (in thousands)

Cost Form of Consideration Investment Allocation

Acquisitions Cash Other (1)

Land Building Intangible

Assets Other (2)

182 homes - Ironwood Apartments - New Hope, MN

March 5, 2020 $ 46,263 $ 28,600 $ 17,663 $ 2,165 $ 36,869 $ 824 $ 6,405

465 homes - Parkhouse Apartment Homes - Thornton, CO

September 22, 2020 144,750 144,750 — 10,474 132,105 2,171 —

Total Acquisitions $ 191,013 $ 173,350 $ 17,663 $ 12,639 $ 168,974 $ 2,995 $ 6,405

2 unchanged sentences

Refer to Note 2 for further discussion.

Six Months Ended June 30, 2019

(in thousands)

Form of Consideration

Investment Allocation

Nine Months Ended September 30, 2019

Acquired (in thousands)

Cost Form of Consideration Investment Allocation

Acquisitions Cash Units (1)

Land Building Intangible

272 homes - SouthFork Townhomes - Lakeville, MN

February 26, 2019 $ 44,000 $ 27,440 $ 16,560 $ 3,502 $ 39,950 $ 548

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

96 homes - FreightYard Townhomes and Flats - Minneapolis, MN

September 6, 2019 26,000 26,000 — 1,889 23,615 496

328 homes - Lugano at Cherry Creek - Denver, CO (2)

September 25, 2019 99,250 99,250 — 7,679 89,365 1,781

$ 169,250 $ 152,690 $ 16,560 $ 13,070 $ 152,930 $ 2,825

Minot 3100 10th St SW - Minot, ND May 23, 2019 $ 2,112 $ 2,112 — $ 246 $ 1,866 —

Total Acquisitions $ 171,362 $ 154,802 $ 16,560 $ 13,316 $ 154,796 $ 2,825

(1) Value of Series D preferred units at the acquisition date.

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

(2) Investment allocation excludes a $ 425,000 acquisition credit related to retail space lease-up.

During the three months ended September 30, 2020, we disposed of four apartment communities and one commercial property for a total sale price of $ 43.0 million.

During the three months ended September 30, 2019, we sold six apartment communities and one parcel of unimproved land for a total sale price of $ 85.0 million.

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

Nine Months Ended September 30, 2020

(in thousands)

Book Value and Sales Cost

Dispositions Date

Disposed Sale Price Book Value and Sales Cost Gain/(Loss)

268 homes - Forest Park - Grand Forks, ND

August 18, 2020 $ 19,625 $ 6,884 $ 12,741

90 homes - Landmark - Grand Forks, ND

August 18, 2020 3,725 1,348 2,377

164 homes - Southwind - Grand Forks, ND

August 18, 2020 10,850 4,573 6,277

168 homes - Valley Park - Grand Forks, ND

August 18, 2020 8,300 4,059 4,241

$ 42,500 $ 16,864 $ 25,636

Dakota West August 7, 2020 $ 500 $ 474 $ 26

Unimproved Land

Rapid City Land - Rapid City, SD

June 29, 2020

Rapid City Land - Rapid City, SD June 29, 2020 $ 1,300 $ 1,490 $ ( 190 )

Total Dispositions $ 44,300 $ 18,828 $ 25,472

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

(in thousands)

and Sale Cost

Minot 1400 31st Ave SW - Minot, ND

Dispositions Date

Disposed Sale Price Book Value

and Sale Cost Gain/(Loss)

21 homes - Pinehurst - Billings, MT

July 26, 2019 $ 1,675 $ 961 $ 714

160 homes - Brookfield Village - Topeka, KS

September 24, 2019 10,350 5,853 4,497

220 homes - Crown Colony - Topeka, KS

September 24, 2019 17,200 7,876 9,324

54 homes - Mariposa - Topeka, KS

September 24, 2019 6,100 4,290 1,810

300 homes - Sherwood - Topeka, KS

September 24, 2019 26,150 11,536 14,614

308 homes - Villa West - Topeka, KS

September 24, 2019 22,950 15,165 7,785

$ 84,425 $ 45,681 $ 38,744

Minot 1400 31st Ave SW - Minot, ND May 23, 2019 $ 6,530 $ 6,048 $ 482

Unimproved Land

Creekside Crossing - Bismarck, ND

March 1, 2019

Minot 1525 24th Ave SW - Minot, ND

April 3, 2019

Creekside Crossing - Bismarck, ND March 1, 2019 $ 3,049 $ 3,205 $ ( 156 )

Minot 1525 24th Ave SW - Minot, ND April 3, 2019 725 593 132

Weston - Weston, WI July 31, 2019 600 427 173

$ 4,374 $ 4,225 $ 149

Total Dispositions $ 95,329 $ 55,954 $ 39,375

6 unchanged sentences

Accordingly, our apartment communities are aggregated into a single reportable segment.

"All other" includes non-multifamily components of mixed-use properties and apartment communities we have sold.

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.

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.

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 and six months ended June 30, 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 nine months ended September 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 June 30, 2020

Three Months Ended September 30, 2020 Multifamily All Other Total

Revenue $ 42,463 $ 1,675 $ 44,138

Property operating expenses, including real estate taxes 17,910 621 18,531

5 unchanged sentences

Interest expense ( 6,771 )

Loss on debt extinguishment ( 4 )

Interest and other income 281

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

Income (loss) before gain (loss) on sale of real estate and other investments ( 4,492 )

Gain (loss) on sale of real estate and other investments 25,676

1 unchanged sentence

(in thousands)

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019 Multifamily All Other Total

Revenue $ 38,971 $ 8,465 $ 47,436

Property operating expenses, including real estate taxes 16,043 3,867 19,910

12 unchanged sentences

(in thousands)

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020 Multifamily All Other Total

Revenue $ 126,296 $ 6,158 $ 132,454

Property operating expenses, including real estate taxes 52,403 2,831 55,234

7 unchanged sentences

Interest and other income ( 1,958 )

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

Income (loss) before gain (loss) on sale of real estate and other investments ( 16,071 )

Gain (loss) on sale of real estate and other investments 25,486

1 unchanged sentence

(in thousands)

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019 Multifamily All Other Total

Revenue $ 114,726 $ 25,252 $ 139,978

Property operating expenses, including real estate taxes 47,387 12,075 59,462

12 unchanged sentences

Segment Assets and Accumulated Depreciation

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:

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

(in thousands)

As of June 30, 2020

As of September 30, 2020 Multifamily All Other Total

Segment assets

2 unchanged sentences

Total property owned $ 1,402,833 $ 22,165 $ 1,424,998

Mortgage loans receivable 17,986

Cash and cash equivalents 16,804

Restricted cash 2,199

Mortgage loans receivable

Other assets 16,947

Total Assets $ 1,478,934

(in thousands)

As of December 31, 2019

As of December 31, 2019 Multifamily All Other Total

Segment assets

2 unchanged sentences

Total property owned $ 1,253,212 $ 40,744 $ 1,293,956

Cash and cash equivalents

Restricted cash

Unimproved land 1,376

Mortgage loans receivable 16,140

Cash and cash equivalents 26,579

Restricted cash 19,538

Other assets 34,829

Total Assets $ 1,392,418

NOTE 10 • COMMITMENTS AND CONTINGENCIES

3 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.

Twenty-four of our properties, consisting of 4,560 apartment homes, are subject to restrictions on taxable dispositions under agreements entered into with some of the sellers or contributors of the properties and are effective for varying periods.

Twenty of our properties, consisting of 4,032 apartment homes, are subject to restrictions on taxable dispositions under agreements entered into with some of the sellers or contributors of the properties and are effective for varying periods.

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.

2 unchanged sentences

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, 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.

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 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.

9 unchanged sentences

Risk-free rate 0.978 %

Expected term

Expected term 6.25 years

Expected volatility 21.08 %

2 unchanged sentences

These awards are classified as equity awards.

Awards granted to employees on August 12, 2020, consist of 480 time-based RSUs, which vest on August 12, 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 $ 967,000 and $ 981,000 for the six months ended June 30, 2020 and 2019 , respectively.

Share-based compensation expense recognized in the consolidated financial statements for all outstanding share-based awards was $ 1.5 million and $ 1.5 million for the nine months ended September 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