Good morning and welcome to the IRET Fourth Quarter 2017 Earnings Conference Call. 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 Steven Swett. Please go ahead.

Thank you and good morning. IRET’s Form 10-K was filed with the Securities and Exchange Commission yesterday after the close. Additionally, our earnings release and supplemental disclosure package have been posted on our website at www.iret.com and filed yesterday on Form 8-K. Before we begin our remarks this morning, I want to remind you that during the call, we will be making forward-looking statements about future events based on current expectations and assumptions. These statements are subject to risks and uncertainties due to factors discussed in yesterday’s Form 10-K during this conference call and in the risk factors section of our Annual Report and other filings with the SEC. Actual results may differ materially and we do not undertake any duty to update any forward-looking statements. Please note that our conference call today will contain references to financial measures such as funds from operations or FFO and net operating income or NOI that are non-GAAP measures. Reconciliations of non-GAAP financial measures are contained in yesterday’s press release and definitions of such non-GAAP financial measures can be found in our most recent supplemental operating and financial data, both of which are available in the Investor Relations section of our website at www.iret.com. With me today from management are Mark Decker Jr., President and Chief Executive Officer; and John Kirchmann, Executive Vice President and Chief Financial Officer. Also joining us is, Andrew Martin, Executive Vice President of Operations; and Anne Olson, Executive Vice President and General Counsel, who’ll be available for your questions. I will now turn the call over to Mark.

Thank you, Steve, and good morning, everyone. Welcome to our fiscal fourth quarter and full-year 2017 earnings call. I’ll begin with a summary of fiscal 2017 and provide an overview of our recent activity. John will then provide more detail on our financial results, balance sheet, and liquidity, and then we’ll open up the call for questions. The last 12 months have been an exciting and transformative time for IRET. Just one year ago, we announced our strategic intention to transition our portfolio and become a focused multifamily REIT. Throughout the year, we took meaningful steps to dispose healthcare and other non-core properties, strengthen our balance sheet, and deepen our management bench. As we stand today, we are well on our way to achieving our goals, becoming solely focused on apartments with a high-quality portfolio, superior operating platform, and a flexible balance sheet that supports our future growth initiatives. Our overarching goals remain broad and ambitious, increase the focus, quality, flexibility, and efficiency of all facets of the IRET organization. Our North Dakota market in particular continued to receive much of our attention due to the ongoing performance weakness. We believe our efforts over the last fiscal year to stem the declines and turn the corner are beginning to bear fruit. We implemented revenue management software across our portfolio, which has helped us quickly find bottom on rents in these markets. We took over onsite management from our JV partner in Williston and occupancies are improving. Combining these efforts with some emerging tailwinds, absorption of existing deliveries, limited new supply, and a small pickup in drilling activity should provide better results over the coming quarters. Williston have less than 2% of fiscal year 2017 same-store NOI is not the story, and there’s no shortage of opportunities ahead of us to…

Thank you, Mark. In my comments today, I’d like to review our 2017 results, our balance sheet, and liquidity. Beginning with our financial results, yesterday, we reported revenue of $54 million for the quarter ending April 30, 2017, an increase of 12% from $49 million for the fiscal fourth quarter of 2016. Net income attributable to common shareholders totaled $28 million, or $0.23 per share compared to $0.07 per share for the same period last year. Funds from operation or FFO was $10 million, or $0.07 per share compared to $0.14 per share for the same period last year. FFO for the fourth quarter of 2017 included a $3.2 million write-off of development pursuit costs, a $2.9 million loss and debt extinguishment, $1.2 million in severance costs net of reduced share-based compensation, and a $3.2 million lease termination fee. Excluding these items, FFO would have been $0.11 per share. For the full fiscal year, total revenues increased 9.2% to $206 million from $188 million for fiscal 2016. Net income attributable to common shareholders totaled $31 million or $0.26 per share compared to $61 million or $0.49 per share for fiscal 2016. FFO for fiscal 2017 was $55 million or $0.40 per share compared to $104 million or $0.76 per share for the prior fiscal year. FFO for the fiscal year 2017 included a $3.2 million write-off of development pursuit costs, a $4.9 million loss on debt extinguishment, $2.6 million in severance costs, $1.4 million in redemption cost for the Series A preferred shares, and a $3.2 million lease termination fee. Excluding these items, FFO would have been $0.47 per share. Moving to our multifamily same-store performance, our fourth quarter results experienced increased revenue in average rental rates, which were offset by reduced occupancy and increased expenses in most markets. As…

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Rob Stevenson of Janney. Please go ahead.

Good morning, guys. Mark, what are you guys thinking about in terms of timing at this point for the disposition of the medical office portfolio? I mean, I know that you guys were looking at the Duke numbers and the process and wanted to get that cleared out of the way. Is that something that’s sort of sooner rather than later, or are you going to basically try to match that to when you have the ability to more closely or more immediately redeploy the proceeds into apartment acquisitions?

Good morning, Rob. With respect to the medical office, all I’ll say is, our plan is to be more efficient in timing sales to match opportunity. We won’t comment on the timing of the sale if and when we do it.

Okay, nothing – there’s nothing been added to assets held for disposition at this point?

No. No, I don’t believe there’s been any change in numbers held, John?

That’s right.

Okay. What are you guys thinking is the lease up time period in the stabilized cap rate on Oxbō?

In our acquisition underwriting, we have that leasing up by next March, and we are underwriting, that’s roughly a 5% stabilized cap rate assuming full occupancy and full taxes, et cetera. Right now, we’re on plan with our underwriting and frankly weren’t trying to beat our underwriting, but right now, we’re right on plan.

Okay. And then as of today, I mean, other than the medical office portfolio, the two remaining senior housing assets, what’s left in terms of sort of non-apartment assets left in the portfolio?

I’m going to ask, Anne, go ahead.

On the non – in the non-apartment portfolio, we have some industrial buildings and some small commercial buildings. We currently have a few that are under contract for sale and the plan is to pursue disposition of those assets over the next fiscal year.

Okay. Thanks, guys. I appreciate it.

Thanks, Rob.

The next question comes from Jim Lykins of D.A. Davidson. Please go ahead.

Good morning, everyone. First of all, the higher occupancy costs or higher occupancy that you mentioned, was that Bakken specific, or were you talking about overall trends for the whole portfolio?

On a year-over-year basis, I think, we’re about flat year-on-year. And then occupancy, that was specifically – the comment was specifically referencing Williston and the Bakken, probably most notably at Renaissance Heights, which isn’t part of the same-store portfolio, but we took over management of that in December, I guess, formally in January, but we started in December that transition plan and we’ve taken occupancy from about 50% into the mid-70s.

And could you – sorry, go ahead.

No, that’s it. Go ahead.

I was just also going to ask about how rents are trending so far in this quarter as well, I mean, if you’re having to make any concessions in the Bakken?

I’ll ask Andy. Oh, in the Bakken, go ahead, Andy.

In the Bakken, the – we have – there are some concessions, Williston specific being offered in the market, but not as aggressively as previously, and rent rates in the market are holding right about a $1,000 a unit.

Okay. And what about the redevelopment program? I think, you guys may have put that on hold. Can you give us a sense where you’re on that, and how you’re thinking about that over the next few quarters?

Yes, I’m glad, you asked, Jim. We did place that on hold at the end of April. As you know, we spent about $70 million in fiscal year 2017, and we’re going to evaluate all the value add we brought in and really bifurcated the role of property operations and asset management when we brought in Sue just a few weeks ago. So we’re going to be evaluating all the value add. We’re going to be very focused and targeted on a go-forward basis to make sure we hit our guidelines and generally speaking an 8% to 10% plus return depending on the strength of the market and the strength of the asset.

Okay. And kind of along the same lines, if you could just give us a sense for also how you’re thinking about development projects beyond the current two you’ve got right now…

Yes, so…

[Multiple Speakers] focused?

Yes, we would consider both of those near or fundamentally complete on a roll-forward basis. The way we’re thinking about development, we are looking at deals that have development or are development. We’re looking at those in a structured format where we feel we can gain alignment with a development partner and mitigate some of the risks that come with development. So at this time, we’re not contemplating any on balance sheet self-developed asset. We could do something on balance sheet, but probably wouldn’t do it with our own staff. We actually trimmed our development staff last summer. So at this time, we’re not actively looking at development as the developer.

Okay. So you do have a pretty, I think, robust pipeline or potential acquisitions you’re looking at right now, is that correct? Maybe you could give us some color on that.

Yes, we do have a large opportunity set in front of us. The market is very competitive. We’ve lost on a few things in the last few weeks. The market is very thick in terms of the bidding pool for high-quality assets. The great majority of what we’re focused on is not development. We’re evaluating development and we really endeavor to cost our capital and look at it on an apples-to-apples basis. So, we think about the cost of lease-up, the cost of carry, et cetera, and usually buying something that’s cash flow and scores better when you do that.

Okay. Thanks, Mark.

Thank you.

[Operator Instructions] The next question comes from Drew Babin of Robert W. Baird. Please go ahead.

Good morning.

Good morning, Drew.

First question just thinking about current management baseline expectations going into the next year. In a general sense, do you expect that same property revenue growth is going to stay positive as it was in the fourth quarter kind of within the range of outcomes that are, at least, being talked about internally?

Yes, we do. Good morning. And yes, we do – yes, we do expect revenue growth to stay positive.

Okay. And then on the margin front, obviously, some of the programs have been put into control cost a little more recent. And so, year-over-year margins are still under decline. Is there a quarter of this coming year where kind of all else equally really start to see the impact quickly, or will this be kind of a gradual phase in some of the improvements kind of this gradual margin improvement over time?

Yes, I would expect it to be gradual, Drew.

Okay.

I mean, as you know, we did take some actions that we’re really focused on the corporate side in April. So we did do a small reduction in force. On the operation side, I mean, we’ve been very careful not to break anything there, and Andy and his team have done a good job. So we are going to be continuing to look for more ways to do that better. But I don’t think you’ll see anything sudden that will be a an evolution not a revolution.

Okay. And on the G&A front, obviously, with the management turnover lots of people have left, but a lot of people are coming in. Is there any way to quantify kind of the net G&A impact we should expect on a run rate basis?

Sure, Drew, this is John. So we said in our April press release that we’d save $3.5 million to $4 million, or 800,000 to $1 million each quarter. That was in anticipation of the additions that we were going to have or the people we were bringing in. So forth quarter G&A adjusted for one-time items was $4.5 million. So you should expect at a normalized rate that G&A will be reduced to $3.5 million to $3.8 million per quarter. But we do still have about $400,000 of costs related to this transition that were going to occur in the first quarter of fiscal year 2018.

Okay, that’s very helpful. And one last one, you’re talking about kind of that $0.09 per quarter FFO growth run rate. If you kind of assume the same FFO to AFFO relationship as it was in the fourth quarter, that would put FFO at about $0.07 a quarter, which is kind of right on top of the dividend payout. Is the policy changed to expense more property maintenance versus capitalizing it? Should that spread between AFFO and FFO maybe tighten because of that change?

Yes, that’s right.

Okay.

That’s right. That change doesn’t impact AFFO, it only impacts FFO. So all things – all other things being equal that would tighten.

Okay, great. That’s helpful. Thank you very much.

Yes, I guess, I would add, Drew. The $0.09 does – yes, the $0.09, it sounds like you caught this catch – catches the accounting change. I’m not sure we’re clear on that in our prepared remarks, but it sounds like you got that.

Well, that makes sense. Thank you.

Thanks, Drew.

And this concludes our question-and-answer session. I would now like to turn the conference back over to management for any closing remarks.

We’d just like to thank everyone for their continued interest in the company, and have a happy 4th of July.