Good morning and welcome to the IRET Fourth Quarter 2018 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 Mark Decker, President and Chief Executive Officer. Please go ahead.

Thank you and good morning. IRET's Form 10-K was filed with the SEC yesterday after the market closed. Additionally, our earnings release and supplemental disclosure package have been posted on our Web-site at iretapartments.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 discuss our business outlook and we will be making certain forward-looking statements about future events based on current expectations and assumptions. These statements are subject to risk and uncertainty discussed in yesterday's press release and Form 10-K and in other recent filings with the SEC. With respect to non-GAAP measures we use on this call, including pro forma measures, please refer to our earnings supplement for a reconciliation to GAAP, the reasons management uses these non-GAAP measures, and the assumptions used with respect to any pro forma measures and their inherent limitations. Any forward-looking statement made on today's call represent management's current opinions and the Company assumes no obligation to update or supplement these statements that become untrue due to subsequent events. With me today are John Kirchmann, our Chief Financial Officer, and Anne Olson, our Chief Operating Officer. I'd like to start the call by congratulating Anne in her new role as Chief Operating Officer. It's a role that's been well-earned and I know she will be instrumental in driving results for the Company. I'd also like to thank Andy Martin, who until recently served as our EVP of Operations, for his many years of service to IRET. We simply wouldn't be where we are today without him and I wish him the best in what comes next. Thanks for everything, Andy. Fiscal 2018 was a big year for IRET. We refined our business focus to apartments. It's easy to show…

Thank you, Mark. I am pleased to elaborate on how our transformation is reflected in our reported financials and balance sheet activities. Last night we reported core FFO for the fourth quarter of fiscal year 2018 of $0.08 per share, a decrease of $0.03 from the prior year quarter. For fiscal year 2018, core FFO was $0.38 per share, a $0.09 decrease from the prior year. The decrease was primarily due to reduction in NOI from the sale of commercial and non-core multifamily assets and our previously announced CapEx policy changes. Moving to our same-store results, year-over-year same-store revenues grew 5.2% for the quarter and 4.3% for the year. Revenue growth was driven by increases in occupancy, rental rates, and other resident-based rental revenue. Our weighted-average occupancy in our same-store portfolio increased 380 basis points to 95.1% for the quarter and 240 basis points to 93.7% for the year. We achieved our goal to have a weighted-average occupancy of 95% by April 2018, a goal we believe increases our efficiency, drives pricing power, and expands our margins. Having arrived at this goal, we have begun to shift our focal point from occupancy growth to increasing asking-rent. We anticipate more moderate revenue growth in fiscal year 2019 as we transition from a focus on occupancy gains to a focus on rent growth. Same-store expenses for the quarter increased 5.8% compared to the prior year, which when combined with our 5.2% revenue growth resulted in a 4.7% increase in NOI for the quarter. For the full fiscal year, same-store expenses increased 9.5% compared to the prior year, resulting in a 0.4% increase in same-store NOI. Both the expense and NOI results are in line with our expectations and reflect our strategy to build our operating platform, increase efficiency, and improve financial reporting.…

[Operator Instructions] The first question comes from Jim Lykins with D.A. Davidson. Please go ahead.

First of all, can you just give us a little more color on Andy's departure, if there's a succession plan that is in place and if this could be something that could set you back at all over the near-term?

So, the succession plan is really Anne is taking the role of COO, and Shawnee Tharp who was one of our VPs of Operations has stepped up to SVP of Operations, and Su Picotte who was in Asset Management is now Asset Management and Operations Support, so dealing with functions that are really kind of whole portfolio-centric collections, procurement, marketing, et cetera. So, both of those two will roll up to Anne. And Andy did a great job and I'm very happy with where we are, I don't think we’ll miss a beat.

Okay, so it sounds like no additional hires. Is that correct?

Correct.

Okay. And also, you talked about, switching gears a little bit, to a planned 1,000 units for the rehab program. Can you just give us a sense for timing for those units and I mean how should we think about this? I mean, as you roll this out, will it kind of be a wash this year with incremental revenues, with cost? You say you don't see a benefit this fiscal year, but when do you think that we do start to see a benefit from that and how should we be thinking about this for fiscal 2019?

This is Anne. We have identified underwritten and we have started in on the 1,000 units that we're going to be looking at over the course of this year, but this year, you're right, it will probably be a wash. We probably think beginning of fiscal year 2019 we're going to start seeing the additional revenue from those, as John mentioned. We have some under renovation. We have three properties where we have actually started the unit turns, either kind of in trial area or where we're full-on renovating. But the lag time and the upfront costs and time it takes to get those going will mean that the results will lag a little bit into early fiscal 2019.

Okay.

I want to clarify there, Jim, the net gains, you'll see those in fiscal year 2020 and in fiscal year 2019 we'll start the program. The other thing is, as Anne alluded to, when you start this, you start slow, we’re doing unit turns. We're not going to drive our occupancy to 80% at any of these assets. And so, doing a few units you're evaluating, you are adjusting to the market, and then it's probably could be three to six months after you start before you really start ramping up.

Sure. And beyond the initial 1,000, how are you thinking beyond that? I mean, is there another 1,000 or is there another 5,000 out there, how do you think this might evolve over the next two or three years?

We've taken fact of the whole portfolio looking at all the opportunities and then we've prioritized them. As we mentioned, there is including this 1,000 that we've identified and started on, there are 5,000 units that just haven't been touched since 2008. There are more units than that that obviously have been renovated since 2008 but do still have value-add opportunities. Our plan is to continually – we are pushing out the program that we have, getting it rolling on those first 1,000 units, but we're continually looking at underwriting on value-add investments at a pretty good pace. So, we're developing a long pipeline that we think will probably be three to five years worth of value-add improvements within the portfolio.

Okay. One last one for me and I'll hop back in the queue, but just any color on how rents are trending so far into the fiscal first quarter, and then specifically how your two new Denver properties are performing?

So, in Denver we underwrote no or very slight rent growth and we've seen good rent growth in those markets. So, at the Dylan asset, we've seen good occupancy trends and we're happy with the rental rates we're getting there. On the Westend asset, we underwrote no rent growth during the first year and we are seeing pretty significant rental increases both on new leases and renewals. So, we're happy with that. I think we're very happy with having stabilized the portfolio during fiscal year 2018. As Mark mentioned, now is our opportunity to really push rent growth and we are seeing rent growth in the first two months of fiscal 2019.

And any more color on the portfolio overall, revenue growth?

Yes, I think that goes across the board my statement. We are seeing rent growth across the portfolio in the beginning of May and June.

Okay, all right. Thanks everyone.

The next question comes from Drew Babin with Baird. Please go ahead.

A quick question, a follow-up on the renovation program, can you talk about what markets those 1,000 units are predominantly located in, and you mentioned you won't drive occupancy down to 80% but might we expect some de-leasing with kind of not all the renovations just happening on [indiscernible], so can you give some color on that?

Yes, with respect to whether or not we're going to drive occupancy down, you might see some increase in vacancies as we roll this out, but we definitely want to keep doing it on the turn to the extent possible. With respect to your question on where we focused our value-add efforts, we really started with our focus on Minneapolis in the Twin Cities. We started with the portfolio and prioritized the Minneapolis and Minnesota assets first because those are a market we believe in and where we see the best fundamentals. We think that that's the best opportunity to achieve good risk-adjusted returns. So, we really started with Minnesota and we're going to work from there.

Okay, that's helpful. And then the Grand Forks impairment, I was hoping you could talk about what asset that is and what triggered it as well as – I'm sorry, if you could just talk about that, that would be good.

Sure. John? The asset is Cardinal Point. Go ahead, John.

Yes, the asset is Cardinal Point. It's a recent development. It just stabilized this year and had its first full year results in fiscal year 2018, which was really the driver of the valuation, and it was both from an expense and a revenue side that it didn't meet what the cost of the asset was. So, that is really about the last development we had, one of the last developments we had in North Dakota.

Yes, and I mean I'll add a little bit to that, Drew, because it's tied to some of what John talked about in the G&A, which is we're in a lawsuit there, we're the plaintiff in a lawsuit. There were some construction defects that caused overrun. That feeds into it as well. So, it's sort of two-parts, looking at our basis when we consider the overruns and looking at the performance of the asset relative to what we perceive to be the finite life of it. So, it is a good asset. It's probably the best asset in that market. If not the, it's one of the top three, and it's performing pretty well. But the reality is, it's on our books for more than it's worth.

Great. That was a question I was stumbling over, so thank you for answering that as well. I guess last question, Williston clearly bouncing back there both on the occupancy side and rate. Are you seeing that kind of momentum in any of the other North Dakota markets, particularly Grand Forks and Bismarck?

We aren't yet seeing that kind of momentum in Grand Forks and Bismarck. To the extent we will see, it will take time. I mean, our experience in looking historically, that oil activity that drives rent growth and occupancy in the Williston market does take time to work its way across the state. I think we would first expect to see it in [indiscernible].

Also, I think in Williston, this cycle or this up-cycle, it's been a little more disciplined as far as the wildcatters and the number of people coming in. So, it is nothing like it was previously.

As we said on the last call, these guys didn't waste a crisis. They have gotten a lot more efficient and lot less people-intensive.

That's good to hear. That's it for me. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to IRET CEO, Mark Decker, for any closing remarks.

Super. As always, we appreciate everyone's interest in the Company and we look forward to talking to you in three months. Thanks very much.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.