Good day, and welcome to the Investors Real Estate Trust fourth quarter fiscal 2014 earnings conference call and webcast. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note, this event is being recorded. I would now like to turn the conference over to Ms. Lindsey Anderson. Ms. Anderson, the floor is yours, ma'am.

Good morning, and welcome to Investors Real Estate Trust's fourth quarter and year-end fiscal 2014 earnings conference call. IRET's annual report on Form 10-K was filed yesterday and the company's earnings release and supplemental disclosure package for the three and twelve months ended April 30, 2014 were posted to our website and also furnished on Form 8-K on June 30. In the earnings release and supplemental disclosure package, Investors Real Estate Trust has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with the requirements set forth in Regulation G. If you have not received a copy, these documents are available on IRET's website at iret.com in the Investors section. Additionally, a webcast and transcript of this call will be archived on the IRET website for one year. At this time, management would like to inform you that certain statements made during this call, which are not historical, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Investors Real Estate Trust believes the expectations reflected in the forward-looking statements are based on reasonable assumptions, Investors Real Estate Trust can give no assurance that its expectations will be achieved. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements are detailed in IRET's 2014 10-K and from time-to-time in Investors Real Estate Trust's filings with the SEC. Investors Real Estate Trust does not undertake a duty to update any forward-looking statements. With me today from management are Tim Mihalick, President and Chief Executive Officer, Diane Bryantt, Executive Vice President and Chief Financial Officer and Tom Wentz, Jr., Executive Vice President and Chief Operating Officer. At this time, I would like to turn the call over to Tim Mihalick for his opening remarks.

Thank you, Lindsey, and good morning everyone. First of all, I want to thank all of you for taking the time to listen to our call this morning and I hope you will find the information provided to you to be beneficial. As I stated in our 8-K earnings release last night, I am pleased with our financial and operational results for fiscal year 2014. Although the harsh winter and rainy spring have impacted the delivery of our development projects, the weather has not impacted our expected lease up and financial performance of the projects. IRET will continue down the strategic path I discussed during last quarter's call and I expect the priorities of that plan to continue to drive change for IRET over the next several years. IRET continues to be bullish on the Great Plains region and the markets we are located in. In the recent investor presentation posted to our website earlier this month, it is worth noting the Wall Street Journal's MarketWatch recently published a list of the Top 10 small metropolitan areas in which to retire and IRET has a presence in five of those Top 10 markets, but even more importantly, a presence in the number one market Sioux Falls, South Dakota, the number three market, Bismarck, North Dakota and the number five market Rochester, Minnesota. As I discussed earlier, I was pleased with the fiscal 2014 results and the steps taken to meet our long-term strategic goals. We expect to further enhance our financial flexibility by initiating steps to resolve the $122.6 million non-recourse loan that is secured by nine properties located in the four states of Nebraska, Missouri, Kansas and Minnesota. Although these buildings are 90.3% occupied at the end of fiscal year 2014, the loan balance greatly exceeds the estimate of fair value of these properties. Dianne and Tom will discuss in more detail the process we have taken to address this loan. As IRET moves forward, execution of our strategy, including delivery of development projects will be key to meeting our long-term objective of AFFO coverage in fiscal year 2015, an overall improvement to IRET's operating metrics. Thank you and I will now turn the call over to Diane Bryantt, our Executive Vice President and CFO.

Thank you, Tim. Good morning, everyone. Yesterday, IRET filed our fiscal year 2014 fourth quarter report on Form 10-K and furnished our current 8-K earnings release and supplemental disclosure. For you this morning I will just provide a brief recap of significant items of note that occurred in the fourth quarter and year-to-date financial results for year-ended April 30. Let's start with the operations in the fourth quarter and the impact to FFO. I have three main points that I would like to discuss with you. First, revenues have increased $2.8 million when compared to the fourth quarter of fiscal year 2013. As we have been discussing the strong lease up in our development placed in service account primarily for this increase. Multifamily same-store operations increased 411,000 as compared to the prior year fourth quarter. The ability to raise rent [and concurrently] [ph] have consistent high occupancy. We have seen in our multifamily segment occupancy of 93% to 95% range over the past fiscal year. Secondly, the execution of our sales strategy has impacted our earnings and that the NOI and revenue delivered by these properties has not yet been replaced as the proceeds from these sale have been redirected into our development projects. This strategy of redeployment has shown to be effective but the result is a drag on our earnings until these properties are placed in service. The first two points have somewhat offset each other this quarter relating to same-store growth. Overall in fiscal year 2014, revenue grew $17.4 million of which $6.3 million was from same-store properties. Thirdly, regarding expenses in the quarter. We were significantly impacted by the cold harsh winter. We expect to experience increased expenses in the winter season. However, we had an unusually long cold season, which typically is not a factor…

Thank you, Diane. Both the quarterly and full-year results continued the trend of improved operations, as we maintained a tighter focus on growing our best-performing segments of multifamily and healthcare along with continued emphasis on disposing of non-core assets to remove underperforming properties in order to improve the quality of our remaining portfolio. Despite all the positives during the last fiscal year, this past year was not without challenges, ranging from the impact of weather on both development delivery times and utility expenses to the pressure on property values due to the continued slow improvement in the commercial office segment. However, we remain committed to the strategy we followed in the prior fiscal year of focusing on growing those segments and markets where IRET is the leader or has a viable path to market leadership and disposing of non-core assets that are not contributing to our financial performance or are in markets or segments where IRET does not have market leadership. We made great progress in both of these areas over the past fiscal year. As noted over the prior year and confirmed by fiscal 2014 financial results, as we continue to grow our best segments of multifamily and healthcare primarily through development, we expected continued near-term pressure on FFO due to the mismatch in timing between the outlay of funds necessary for developments compared to the delivery of completed projects. However now that we are into the third year of increased development and with this past fiscal year having the highest amount at approximately $235 million of development commenced, we expect the delivery of prior projects will somewhat offset the FFO pressure created by our higher levels of development. Delivery time is important and as noted during the last quarter's call, we were concerned about weather related impacts and…

(Operator Instructions) The first question we have comes from Dave Rodgers of Robert W. Baird. Please go ahead.

Good morning out there. I wanted to start on the revenue side and I don't know if this is a good one for Tom to start with maybe or Diane can chip in as well. But on the revenue side, I guess, two questions that I wanted to cover. The first one, can you give us a little bit more color on the impact of revenue timing from the weather in the fourth quarter? How that is translating also into the second quarter? Any impacts in the second quarter revenues? And then maybe to ask it from a different way, you talked about new supply, Tom, and can you give us a little bit of color on how rents are coming out versus expectations, particularly in the multifamily lease up assets, so far that you have seen in this calendar year?

Well, yes. Dave, this is Tom. I think as we indicated in the prior quarter's call where we were a little bit concerned about some delivery delay, I think that we definitely showed up in the final quarter as we did experience some delay due to the winter conditions and that's going to carryover. We have experienced a very wet spring early summer in a lot of our markets where we have construction. So I think we will continue to expect some delay. I don't think it is going to be a huge impact as ultimately we are going to get the revenue. All of these markets still continue to exhibit strong demand and we haven't really seen any slowdown on those pre-leasing or the leasing activity or traffic. It's just really a matter of timing. So I think what we are looking at is really just delayed revenue and then there will be some additional costs in the form of construction loan, interest and/or our imputed interest due to the delay in delivery. But we don't anticipate anything material and so far we have not seen any increase in construction costs or use of a contingency or weather winter conditions type increased construction costs. And I think, just to follow-up on the second part on demand, yes, we are seeing some increased competition in certain markets, but at this point, our pro forma rents are on target or our actual rents are exceeding pro forma in the case of many of our markets. So at this point, we are very optimistic at what we have got under construction for delivery; the 1,500 units is going to meet or exceed our expectations.

Okay, thanks, and with regard to strategy, I think you have put something in the press release yesterday that referenced investments in multifamily as well as healthcare, which I think we know, I think in parentheses there is something about particularly senior housing, and I just wanted to maybe dive in, if this is a shift in your view with regard to medical office or any color around that that you could provide.

No. I don't think there is any shift. I think we are still favor both of those. It just really is a matter of opportunity. They may not consistently present themselves, medical office versus senior housing, but we are not focusing on one to the exclusion of the other from that standpoint. I mean, we are focused on both equally but it's just a matter of when the opportunities present themselves or matter of timing on when we announce or start them.

Yes. Dave, this is Tim, and I think just to follow-up on that. As you reference in the press release, we did put in in parentheses senior housing. That certainly has been a focus and it somewhat mirrors our multifamily markets and we look for opportunities in that as we focus on those markets and that type of asset acquisitions

Okay. On the loan conveyance, can you update us a little bit on what you are thinking in terms of the timing? It sounds like this is somewhat of a conclusion that you will move forward in one form or the other if you can't get release, you would go ahead with the conveyance which I think is the right move to do, but I guess, maybe give us a little update on timing? And then two, can you answer, are there any tax protection on those assets that we have to think about going forward?

Well, timing is a difficult one for us to answer. That's something we are not really completely in control of. Again, what I would emphasize is, the loan is current. It's got good occupancy. It's cash flow positive. So we have a lot of options. And again, it doesn't mature until 2016. So it is going to be difficult for us to give you any idea on that.

As Tom stated earlier, Dave, we are very early in the process. So for us to have a feel for the timing is still not there. We will continue to move forward.

And we are evaluating various options.

Any tax protection on those assets?

Go ahead, Diane.

We are evaluating all of that and again, at this point yet, it is too soon to comment but we are evaluating all those impacts.

Okay. Last question. I guess we will talk about the dividend. Obviously it has been a rough winter. Spring sounds like it's a little bit slow. I think your prior goal was a third quarter fiscal 2015 dividend coverage or at least sometime during this fiscal year. Do you have any updates with regard to how that looks given what we have seen so far this year?

Well, as I mentioned earlier in my remarks, that still is our goal, would be coverage in fiscal 2015, but obviously it's going to depend on the delivery of the development projects. We are optimistic that we can get that done but we have to see how these come to fruition in lease up.

Okay, great. Thank you.

The next question we have comes from Michael Salinsky with RBC Capital Markets.

Good morning, guys. Just going back to the revenue question. Just as we think about, you have the big industrial vacate there during the fourth quarter. Can you just give us an update, is there any move outs that are expected in the first half of the year of size? And then as we think about additional lease commencements on the commercial side, anything of substance we should be expecting?

Mike, this is Tom. Nothing that we are aware of. Obviously if you look at our top [tenant customers] [ph], there are some large users inside our portfolio, but there is nothing unusual that that we see and I think some of our larger, which was detailed in our earnings release is the case, we were successful in backfilling some of those move outs pretty quickly in our markets and a lot of the vacancy or the decline in occupancy was attributable to sales of highly occupied assets over the prior fiscal year. But I guess to answer your question we are not anticipating anything that we know of. There can always be surprises, but we don't see anything.

Tom, in your prepared comments, I think you mentioned investment of up to $300 million split between development and acquisitions. Can you talk a little bit about finance? How do you plan to fund that for 2014, your fiscal year 2015? What's the disposition plan for 2015 versus financing plan there and how much is being marketed currently?

Well, I think Mike, the best answer is to just look at our cash flow statement and our sources and uses from fiscal 2014. We are really operating under the same strategic plan. I think we sold close to $85 million last year. Diane can give the exact answer. Probably raised in various forms about $50 million of equity and then construction loans line of credit. We don't really see any change in the mix at this point. Now of course, it could, depending on market conditions. We are out marketing approximately the same amount of assets for sale. So I think the best guidance is look at what we did in 2014 and apply it going forward.

Yes, that's helpful. Third question just relates to development there? Can you talk, you mentioned the yields are coming in there? Can you just remind us what the yields are on many of the multifamily properties that you expect to bring online? And then just in terms of revenues, what's the average concession package going in to lease up there? And are you are expensing that upfront or are you prorating that over the lease? Just trying to get to a sense of why the revenue numbers came in short further in the quarter?

Well, the first question, development cap rates are slightly higher or higher than acquisitions, our range really remain the same. As I indicated, we are anywhere from that 6% on cost as much as 12%, and that's really what we are delivery at. I guess, the question of concessions, are you talking multifamily or commercial?

Well, multifamily makes up the bulk of your portfolio right now. What I am just trying to get at is, as you think about lease up concessions, are you expensing those upfront? And how are those trending relative to expectations? When you talk about the yield, are getting a stabilized deal? What I am just trying to understand is how is that initial yield coming online and how is that revenue ramping up?

That revenue is ramping up. We are really not seeing a lot of concessions. We are not really using concessions to lease up our multifamily at this point, like one month free. So I mean, at this point in the development cycle, I mean we are still seeing extremely strong demand in pretty much all of our markets without the use of concessions, either on new leases or on renewals. There may be certain cases inside the portfolio, but it's not a consistent multifamily wide strategy at this point, Mike.

Yes. It was just more reference to the development properties in terms of recent concessions.

Yes. We are not using concessions as far as lease up. The only scenario may be if there is some delay in delivery and we have got some free leasing, we would have a delay in the delivery or the receipt of that rent, but it's not a strategy that were using to hit those occupancy numbers on development.

Okay. Fair enough. Then final question. Just going back to the conveyance there. You talked about the portfolio. I think its nine assets with the CMBS. Are there additional assets in the portfolio today that have non-recourse loan on them that are on the largely agreed that conveyance would make sense in terms of improving AFFO and dividend coverage?

Not that we have identified. We do have a significant amount non-recourse debt in the portfolio and again, our strategy really has been to fix the debt to particular assets and use traditional mortgages with majority being non-recourse. But we evaluate every asset every quarter and our external auditors also look at our evaluation testing and to the extent those opportunities present themselves, we will certainly do what is best for the shareholders within the confines of our mortgage terms.

Okay. The additional impairment that were recognized relate to assets that are panned to be sold then?

Correct.

Yes.

The next question we have comes from Carol Kemple of Hilliard Lyons. Please go ahead.

Good morning.

Hi, Carol.

Hi.

On the impairment you talked about earlier I think in the call, Tom. You said if you gave the keys back to the bank, that there would probably be a negative at worst for the company or a slight positive, but then in the earnings release, it talked about a $0.02 per share reduction in annual FFO. Those seem a little different to me. Is there something on this in there?

Well, no on an FFO basis, but again our really focus is cash flow and that AFFO metric and I think if you look at the slide as part of the presentation, and these are April 30 numbers. So we took year-end fiscal operations in that subsidiary portfolio and applied it to our overall metrics that we actually release or provide. And so not all of them are positive, but I mean I think if you look at debt, you look at various coverage ratios and if you look at AFFO, those are all, at least in our opinion, slightly positive as of last year's numbers.

Okay. And then, your property management expense grew a little more in the quarter than I was expecting. Is that anything one-time or should we expect about that current level going forward?

Well, we are still filling up staff and we are still impacted by the energy markets and the labor demand. The year-to-date numbers should be consistent with what you could expect going forward. I wouldn't necessarily look in fourth quarter but look at the year-to-date.

Okay. Thank you.

The next question we have comes from Craig Kucera with Wunderlich Securities.

Hi. Good morning, guys.

Hello, Craig.

Hi, Craig.

I wanted to just go back to the pool of assets that you did take the impairments on. There is a mention in the press release that NOI today is about $9.3 million. Can you discuss how that's trended over time in light of the fact that occupancy has been reasonably good?

Well, this is Tom. I mean, it's trended down, which is the story. If you go back and listen, we sound like a broken record really over the last five years. You know, we have had pretty good renewal percentages over the years, but really what's happened in the commercial office segment in all our markets is, in the event of renewals or new tenants, the lease rates are substantially lower and in many cases 40%, 50% lower than rents to prior to probably 2007, 2008 is the demarcation of that. And that's really what happened in this portfolio. So NOI is down substantially from the point of acquisition. This portfolio had a good run like a lot of our commercial assets, but in the last several years, the lease rates have reset.

Got it. So are you basically saying that your NOI, maybe at the time of acquisition, was maybe 40% to 50% higher? Maybe pushing the $14 million level or is it that meaningful?

Not quite that high, but close. This portfolio didn't have that large of a roll down but pretty close. I think if you go back, we did a specific 8-K on this acquisition where we outlined and attached the loan documents back in 2006. This was an 8-K event and so all the details, I am going from memory on what that NOI was, but I know we disclosed it or gave some projections back in 2006.

Craig, Tim here. My estimation would be probably about a 25% drop in NOI from acquisitions down to the existing.

Got it. You haven't have had that much of a roll down presumably in 2014 to drive it. Or was there enough roll down for you to take impairment? Or is it related to the decision to sell the assets?

Well I think it was kind of a combination, but you know it was really driven by the approaching loan maturity and how we evaluate the whole period of these assets and really what are the prospects of refinancing or redoing that loan in 2016. And if we pay that loan down or off, does that make financial sense at the current carrying value of those assets. And so again, we really don't know what the outcome is going to be. We have got various options and so what we want to do is basically be proactive on how we deal with this pending maturity.

Got it. And just from an acquisition age or the age of the portfolio, can you put a band around the other assets that you acquired sort of when the market was a little bit choppy, maybe assets acquired in 2006 and 2007? Or is this the bulk of it?

This is going to be the bulk of it. So if you go back and look at acquisitions in that timeframe and if you look at our debt maturity schedule, this really is the biggest piece. I mean, it's over 900,000 square feet, pretty substantial portion of our commercial office portfolio that's left. We have sold a lot over the last several years as well.

Okay. Thanks a lot.

(Operator Instructions). Well, at this time, it appears that we have no further questions. We will go ahead and conclude our question-and-answer session. Excuse me, I will now like to turn the conference back over to Mr. Tim Mihalick for any closing remarks. Sir?

Thank you, and thank you again for your continued interest in IRET's and your participation in this morning's call. We hope that we get to see summer sometime here in North Dakota and the rain stops and we go on with the business in hand. And lastly and most importantly, go U.S.A. this afternoon and let's continue on in the World Cup. Thanks, everybody.

And we thank you, sir, and to the rest of the management team for your time today. The conference call has now concluded. Again, we thank you all for attending today's presentation. At this time, you may disconnect your lines. Thank you. Have a great day, everyone.