Lindsey Knoop Anderson - Director of Investor Relations Timothy P. Mihalick - Chief Executive Officer, President, Trustee and Member of Executive Committee Diane K. Bryantt - Chief Financial Officer, Principal Accounting Officer and Executive Vice President Thomas A. Wentz - Chief Operating Officer, Executive Vice President and Trustee

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Good morning, and welcome to the Investors Real Estate Trust First Quarter Fiscal 2014 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Lindsey Anderson.

Good morning and welcome to Investors Real Estate Trust's First Quarter Fiscal 2014 Earnings Conference Call. IRET's earnings release and supplemental disclosure package for the 3 months ended July 31, 2013, are posted to our website and also furnished on Form 8-K on September 9. 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 1 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 Monday's earnings release 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 statement. 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. Timothy P. Mihalick: Thank you, Lindsey, and good morning, everyone. For those of you who listened to IRET's last call this past July, I wanted to let you know that the harvest has begun, both in my personal vegetable garden and in IRET's growth plan. As noted in our filings for the first quarter of fiscal year 2014, we currently have approximately $214 million worth of development projects underway and in various stages of completion and anticipated delivery to the market. On the disposition side, we sold 4 Commercial Industrial properties and 1 Commercial Retail property, as our goal to trim from the bottom and add quality to the top continues. Also as noted, we have pending dispositions on a number of properties as listed in our 10-Q filings. From an equity perspective, we have put in place an at-the-market program so that we can access the capital markets, if and when we need to, as a funding source for the development pipeline and continued deleveraging. Simply stated, I laid out to you a plan, over the last 12 months, that IRET was headed in a direction to maximize the opportunities in front of us in our home, Great Plains region. I believe progress has been made and I am pleased, but not satisfied, as we have much more work to do. And I feel strongly that IRET is committed to completing the task at hand. Thanks. And I will now turn the call over to Diane Bryantt, our Executive Vice President and Chief Financial Officer. Diane K. Bryantt: Thank you, Tim, and good morning, everyone. Yesterday, IRET filed our fiscal year 2014 first quarter report on form 10-Q and 8-K press release and supplemental disclosure. This morning, I will provide a brief recap of significant items of note that occurred in the first quarter that ended July 31. First, starting with the balance sheet. We continue to maintain a strong cash and liquidity position with $93.2 million cash on hand, with $50 million available on our line of credit. Regarding acquisitions and development, we acquired a 71-unit apartment complex in Rapid City, South Dakota, for a purchase price of $6.2 million. Subsequent to quarter end, we did close on a 96-unit apartment complex in Grand Forks, North Dakota, for a total purchase price of $10.6 million. Also in the quarter, we purchased an unimproved land parcel for the Chateau II development in Minot, North Dakota for $179,000. We also invested $26.5 million in 9 active development projects. Construction loan proceeds provided for $6.3 million of source of funds for a net use of cash for these development projects of $20.2 million during the quarter. Regarding our debt, we paid off 8 mortgage loans with a principal balance of $15.9 million. This is in line with our debt strategy, as we are seeing improvements made in all debt metrics as compared to 1 year ago. We placed new debt on the Rapid City acquisition of $4.1 million. This new loan has an interest rate of 4.1%, fixed for 10 years with a 20-year amortization. Our overall weighted average at quarter end was 5.54%, down slightly from the prior quarter end. You can find detail on our upcoming debt maturities that was provided in the supplemental disclosure section of the 8-K press release that was filed yesterday. Regarding dispositions, we disposed of 5 commercial properties in the quarter with approximate cash out about $21.3 million. Also in the quarter, with the equity raise, we entered into our DRIP waiver program under our dividend reinvestment plan. We issued 1.4 million shares with a net price of $8.88 with a total raise of $12 million. Also under our DRIP plan, shareholders can purchase shares limited to $10,000 per month. For this fiscal year, we are averaging 266,000 shares per month with the net price of $8.69. Year-to-date, we have raised $6.9 million. We also did receive insurance loan proceeds of $966,000 from the Chateau Apartments in Minot North Dakota's fire loss. The entire proceeds were classified as gain on involuntary conversion. Moving on to results of operation. Revenues continue to increase. Overall, we are up 10% from the prior fiscal quarter as a combination of strong performance from our acquisitions and development projects placed in service, slight improvements in our commercial occupancy and continued strength in our multi-family segment. Operating expenses have increased primarily due to non-stabilized or new properties, and seasonality increases in our utility and maintenance categories. I would like to highlight 2 expense categories that have impacted operating expenses that are not comparable to prior periods. Depreciation and amortization expense. In the first quarter, we posted an adjustment of $1.7 million to amortization expense due to the shortening of life of a purchase option intangible. We also posted an impairment expense of $1.5 million taken on 3 properties. One additional impairment was taken on a held-for-sale asset of $345,000, which is included in discontinued operations for overall quarterly impairment of $1.8 million. These properties are included in our disposition plan of selling older legacy assets. These 2 noncash expenses that totaled $3.2 million have negatively impacted net income on the face of the financial statements. However, they are added back for FFO calculation. And accordingly, have no impact on FFO earnings. Moving on to FFO. For the quarter, FFO was $0.16 per share based upon a weighted average shares outstanding of $124 million. AFFO per share for the quarter was $0.11. The gain on involuntary conversions, as we've discussed before, is included in FFO as it is deemed ordinary income per GAAP. However, it is excluded from the AFFO calculation. I would also note that AFFO per share is directly impacted by tenant improvements. And as we lease-up our commercial space, we will continue to have a period where the drag between payment of the improvement and the realization of the income from the leased-up space. I hope to have highlighted for you the significant or notable events that occurred in the first quarter. We continue to focus on acquisition and development of new projects and sales of legacy or older assets under our strategic plan to grow earnings and work towards a younger portfolio. We also realize that lease-up of our commercial space to a more desirable occupancy levels is also key to growth in earnings. Although not significant, first quarter occupancy levels in our commercial office and health care, all were up from prior periods. We know this will take time and investment, but we feel confident we will continue to make progress. To close, I report that the IRET Board of Trustees declared a quarterly distribution of $0.13 per common share and unit to be paid on October 1 to the shareholders of record on September 16, 2013. This will be IRET's 170th consecutive quarterly distribution. Thank you. And now I will turn the call over to Tom Wentz Jr., Executive Vice President and Chief Operating Officer. Thomas A. Wentz: Thank you, Diane. Our first quarter results for fiscal 2014 continued the trends seen in previous quarters of overall improved operations, as we execute on our plan to grow by focusing on our dominant segments of multi-family and health care real estate in our core markets, while reducing our investment in those assets where we are not a leader or have no clear path to market leadership. I will focus my remarks this morning on the trends and opportunities IRET has identified in its core markets and segments which are: the development of new multi-family projects as the top growth strategy, while maintaining overall current leverage levels; and of course, disposing of non-core assets on an accelerated basis. In regards to development. We can see -- we continue to see good income and growth opportunities in our markets which are leaders in health care, education, energy, food and water. IRET plans to pursue accretive development and acquisition opportunities, primarily in our multi-family and health care segments. IRET currently has approximately 1,190 apartment units in various stages of construction in 5 of our core markets, with final completion of this group of multi-family construction scheduled for late fall 2014. Additionally, over the last 12 months, IRET has also acquired land that would allow for the immediate development of a similar amount of units in calendar year 2014. And has, in process, possible land acquisitions that we expect will continue to allow IRET to be a market leader in new multi-family construction in our core markets. We believe that this focus on development provides IRET with the best path to successfully execute on our primary strategy of making our overall portfolio younger, more focused by segment and a leader in its respective categories and markets. As a result, our plan for the remainder of this fiscal year and the coming fiscal year will be to continue to focus on new multi-family development to meet the market demand for apartments, as well as to leverage off the leading position IRET currently enjoys in many of our operating regions. We are also seeing select opportunities to grow our health care portfolio through a combination of acquisitions, development and expansion renovation of existing projects. While a primary focus on growth by development does create a temporary drag on earnings and cash flow as we raise and deploy the equity capital necessary to complete each project, as well as we hold larger quantities of land, the returns to date on development have proven to be accretive and we believe that current market conditions certainly support additional development activities across almost all of our markets. Additionally, in our view, there is a continuing lack of acceptable existing acquisition opportunities in most of our markets when compared to development returns, which is another current strong factor in favor of continued development. IRET has a strong cash position and available credit facility capacity that we will -- that we expect will allow us to not only complete the projects currently underway, but also to develop out our current landholdings. We are carefully monitoring all the challenges associated with development and continually adjusting our approach to proactively deal with these issues, while our existing strong product position, combined with being first-to-market with high-quality projects, we believe that IRET is in a strong position to continue to execute on its portfolio growth strategy. Our focus is on developing assets that will be positioned as best in market, avoiding the requirement to compete on price and keeping IRET as the market leader in our core communities. Moving to leverage. We expect no material change to our current overall levels or types of debt. In that at approximately 50% debt to gross assets, IRET has excellent flexibility on how we fund our growth and operations going forward. Even with increased rates, debt still remains one of the least expensive capital sources. We expect the amount of developments and acquisitions to remain consistent with our current levels, with our goal being approximately $300 million over the next 12 to 18 months depending on the final mix of acquisitions versus development. Our expected acquisition and development cap rates range from approximately 5.5% to 12% in the multi-family segment, and 7% to 8.5% on the commercial segments. In certain cases, actual results have been higher for development in the energy-impacted markets of North Dakota, South Dakota and Montana. As for dispositions, we successfully completed the sale of a number of commercial and non-core assets, and are currently marketing a number of additional industrial assets that we will expect to sell in the next several quarters. Sale proceeds would be deployed into new development and general corporate purposes. Thank you. And I will now turn the call over to the moderator for questions.

[Operator Instructions] Our first question comes from Michael Salinsky at RBC Capital Markets. Michael J. Salinsky - RBC Capital Markets, LLC, Research Division: First question, with the 4 commencements in the first quarter, as well as July and August, you are now pushing about $222 million proportional development pipeline. What's the comfort in growing that a bit further or is that kind of the max level we should look for development right now? Thomas A. Wentz: Well, I think, one of the issues is a lot of these development projects that are currently listed in the 8-K, various buildings in those have already opened. So even though it's still classified as development in progress, I mean, we've got projects that are opening or close to opening. So I think, to answer your question, we probably have a little bit more capacity from a development standpoint, just due to the fact that we kind of staged the delivery of our buildings inside these projects. So that, I think, gives us a comfort level to go a little bit higher. Michael J. Salinsky - RBC Capital Markets, LLC, Research Division: Okay. So you are comfortable with taking that up a bit more. As you think about growing in that sense then, is there a sense to maybe get ahead in terms of funding that, or are you still comfortable kind of funding along the way? Timothy P. Mihalick: I think -- Mike, this is Tim. I think we're comfortable with continuing to fund as we have historically, as we go. As we try to pair up the opportunity to sell these assets off -- the dispositions and use those proceeds for that and other purposes. Michael J. Salinsky - RBC Capital Markets, LLC, Research Division: Okay. Second question, just being active in the market selling, obviously, we've seen the tenure move up, have you seen any change in asset pricing in the last 60 to 90 days? Thomas A. Wentz: Not really. I mean, the assets that closed were really locked in prior to the dramatic move in the tenure. I mean, that's really all happened in the last 60 days or less. And so we haven't seen it. I mean, these are older assets, smaller assets, which had a higher disposal cap rate to begin with. So we really haven't seen it. And most of the buyers we were dealing with we're not high-leveraged buyers, had more equity in the mix. So to date, we haven't seen any dramatic change or interest. Michael J. Salinsky - RBC Capital Markets, LLC, Research Division: Okay. And then, finally, it looks like a pretty active quarter on the leasing front. Your retention though, it in terms of renewals, did drop off. Is that more related to getting a little bit firmer with pricing or just a function of mix? Or can you talk a bit about the commercial leasing climate? Thomas A. Wentz: Yes. No real treads spotted there. I think it's a combination; again, none of our portfolios are so large that a particular quarter indicates a coming trend or a continuation. So I guess, we didn't notice anything out of the ordinary when it came to retention or renewal. There certainly has been a focus on our quality tenants, core tenants and accommodating those tenants that appear to be now finally growing or interested in expanding. So there were some instances where some tenants maybe were downsized but remained in the building, or vacated for the benefit of an existing tenant or a better quality tenant. But no particular trend that we saw on renewals.

[Operator Instructions] I show no further questions. Would you like to make any closing remarks? Timothy P. Mihalick: This is Tim Mihalick again. Just thanks, again, for your interest in Investors Real Estate Trust. And then those of you that would like to visit the City of Minot and the Bakken region, our annual meeting is scheduled next Tuesday night at 7 p.m. here in Minot, at our headquarters. You're more than welcome to come out and see us. If you haven't made plans already, there is still an opportunity. Other than that, thanks again for joining us this morning.

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