Good day, and welcome to Investors Real Estate Trust First Quarter 2016 Fiscal Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Cindy Bradehoft, Director of Investor Relations. Please go ahead.

Good morning. Thank you. IRET's Form 10-Q was filed with the Securities and Exchange Commission yesterday after the close, and our earnings release and supplemental disclosure package was posted to our website at iret.com and also furnished 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, which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results may materially differ because of factors discussed in yesterday's Form 10-Q and the comments made during this conference call and in the Risk Factors section of our annual and quarterly reports and other filings with the SEC. Investors Real Estate Trust does not undertake any duty to update any forward-looking statements. With me today from management are Tim Mihalick, IRET's President and Chief Executive Officer; and Ted Holmes, Executive Vice President and Chief Financial Officer. I will now turn the call over to Tim Mihalick.

Thank you, Cindy, and good morning, everyone. As we celebrate IRET's 45th year in business, I'm excited to report that we continue to transform the makeup of our real estate portfolio as previously announced. On August 3, 2015, we completed the sale of substantially all of our office portfolio and expect to complete the sale of substantially all of our retail portfolio in the second quarter of fiscal year 2016. As evidenced by our recent filings, IRET is now reporting 3 property segments, which is down from the previously reported 5 segments. I believe this enhanced focus will allow us to concentrate on our core strength of creating value through development, value-enhancing property repositioning and improving operating efficiencies with a more concentrated portfolio, leading to increased NOI growth. Our first quarter results met our expectations, and we believe that as other development projects come online during fiscal year 2016, we will see the full effect of those developments with year-over-year NOI growth in fiscal year 2017. We remain confident about the future of IRET as we execute on all of the changes during this exciting time. Before I turn the call over to Ted Holmes, our CFO, I would like to offer my thoughts on the continued volatility in energy prices and the impact on IRET's North Dakota markets. IRET has a long history of operating multi-family housing in the energy-impacted areas of North Dakota. I personally have seen the boom and bust cycles during my 34 years at IRET, and for that reason, we have tailored our investments in these markets to react to the rise and fall in energy prices and housing costs. We have seen an increase in supply in the 2 markets which we consider energy impacted, Minot and Williston, North Dakota. A lot of product is just coming to the market and certainly having an effect on our overall occupancy levels, but we believe, being the first to market in these communities, has allowed us to establish a foothold and retain tenants by offering a better amenity -- better overall amenity package and simply stated, a higher quality of life. To give you a statistical look at the current oil activity in the state, I offer the following update. As of August 2015, there were 74 rigs operating in Western North Dakota. And 66 of those 74 rigs were operating in 4 counties, according to the North Dakota Industrial Commission, Department of Mineral Resources of the Oil and Gas Division. From that same source, the historical breakeven price for those 4 counties range from $24 per barrel up to $43 per barrel to continue drilling. In addition to those numbers and from same source, as of June 2015, there were 12,864 wells producing out of 14,384 wells capable of producing in the Bakken formation. So what does all of this mean? Are we still experiencing a boom in Western North Dakota? No, but we are not experiencing a bust either. Business activity in the Minot and Williston, North Dakota markets continue. And since these markets have other attributes, which we expect in our apartment markets, including the university system, retail offerings and medical facilities, IRET didn't pivot the portfolio on this energy opportunity, but we have used it to our advantage to enhance our earnings. In our underwriting, we expected this return to normalcy. Thank you. And I will now turn the call over to Ted Holmes, IRET's CFO.

Thank you, Tim. Good morning, everyone. IRET had another consistent quarter of FFO and AFFO performance at $0.16 per share, respectively, for both measures. We also experienced 1.8% growth in same-store NOI across our segments compared to last year's first quarter. NOI growth for the company, inclusive of nonsame-store assets year-over-year for the comparative first quarter 1 year ago, was 4.5%. We continue to see strong lease up and the improving revenue and NOI results in our developments placed in service. On Page 28 of the 10-Q, we include a breakdown of the overall year-over-year revenue growth, inclusive of developments placed in service in fiscal year-to-date 2016. During the quarter, IRET identified a series of assets, which are now held for sale as we follow through on our commitment to focus our efforts on asset classes we believe will provide the company better risk-adjusted and faster-growing cash flow. On January 23, 2015, we announced our intent to exit our office and retail segments. And subsequent to quarter end, we closed on the sale of substantially all of our office assets for a total sales price of $290 million. In addition, we have substantially all of our retail properties under contract to sell with the closing anticipated by the end of this month. As we have previously said, cash from these sales will be redeployed into a combination of new acquisitions, debt reduction and new development. In addition, we did recently announce our board of trustees did authorize a share repurchase of up to $50 million of common stock, and management will evaluate this in our capital allocation modeling. Management does believe our multi-family segment provides the best opportunity for NOI growth through acquisitions, repositioning various properties and development. During the first quarter, we placed into service 2 multi-family developments and 1 on-campus medical office building, these assets totaling $106 million. The medical office building brings our total holdings on the Fairview Southdale Hospital campus in Minneapolis, Minnesota to approximately 500,000 square feet. As for segment performance. Health care same-store net operating income grew 2% year-over-year from the comparative first quarter 1 year ago. This was generally due to a reduction in operating expenses as revenues remained generally stable. Occupancies continued to be strong in this segment, and this asset class has historically been very consistent for IRET. We believe we own a best-in-class portfolio in Minneapolis-St. Paul given the location of our holdings. Our industrial segment remains rather immaterial to the scope of the company, but we did see strong same-store net operating income growth at 9.3% year-over-year from the comparative first quarter 1 year ago. With regard to multi-family. Total company NOI growth year-over-year for this segment was a robust 12.6%, testimony to our development pipeline adding to strengthening overall cash flows. Same-store net operating income in this segment was consistent with last year's comparative period with a modest 0.1% growth rate. However, I would refer you to Slide 6 in the presentation this morning, which reflects our same-store performance year-over-year for the first quarter by region. Excluding roughly 900 units, which we have previously defined as energy-related markets in Minot and Williston, North Dakota, our NOI growth year-over-year was 4.6% for the balance of the portfolio across 9,000 same-store units. With regard to Williston specifically, while our same-store percentage reductions in NOI appears significant, the continued net operating income performance of this asset continues to result in double-digit returns on our investment. In the recent quarter, we did begin to experience slippage in occupancy in Minot and Williston as additional product has been added to these markets and the energy industry softens its housing needs. However, while new product continues to be delivered in the market, this is dissipating, and we believe the temporary housing that exists in this part of this state is expected to be closed as oil activity resets to a more modest pace for the region. And as a result, we anticipate our occupancy levels stabilizing and eventually increasing in the coming quarters. In the scope of the company, we believe our assets in these markets are manageable and will add to operations, but our focus near term will be in the balance of the portfolio and on our delivery of developments adding to total NOI growth for the company. As for the balance sheet. Cash on hand at quarter end was $45 million as compared to $49 million from the previous quarter. Our outstanding mortgage debt remains below 50% of real estate assets, and we have sufficient liquidity from our $100 million line of credit. Subsequent to quarter end, we did pay down our line of credit to its minimum required balance of $17.5 million. The company continues to have sufficient cash and credit availability to meet its development obligations. We anticipate another $90 million in development being placed into service in the coming 2 quarters. This is in addition to the $106 million we placed into service during the current quarter as previously mentioned. Our earnings 8-K release does provide a liquidity profile summary. Our debt policy remains consistent. We are fixing our debt interest rates long on assets we intend to hold long term and using variable rate debt on assets we intend to sell or reposition. Our weighted average interest rate on our mortgage debt fell to 4.89% at quarter end. This is without any material change in the average maturity length of debt at roughly 5 years. As the company repositions its portfolio, we believe leverage should remain in the 40% to 45% range. Over time, management does seek to reduce leverage and build a borrowing base of collateral that can lead it to a path of a larger unsecured credit facility. We are mindful that our investors want to be assured we have the credit capacity to manage our obligations, which we do. In conclusion, IRET had a strong quarter. We are, however, in a challenging market for REIT stocks, in general, as referenced by the article in The Wall Street Journal yesterday. We are fully aware of the potential for interest rates to rise and home ownership trends to threaten occupancy strength in multi-family assets. We are mitigating these concerns by a commitment to deleveraging over time and fixing our debt long, in addition, focusing our portfolio growth in apartments with best-in-class real estate in mind. We believe this is an exciting time in the real estate in our region with some of the strongest economic indicators in the country. We continue to deliver on our development pipeline and growth initiatives in general. And our team is focusing its attention to the asset classes that we believe will have the most beneficial impact for our shareholders. Finally, I'm pleased to report that the IRET Board of Trustees declared a quarterly distribution of $0.13 per common share and unit to be paid October 1, 2015, to the shareholders of record on September 15, 2015. This will be IRET's 178th consecutive quarterly distribution. Thank you. And I will now turn the call over to the moderator for questions.

[Operator Instructions] I will now take the first question from Craig Kucera of Wunderlich.

Appreciate the color on what's going on in Minot and Williston, but wanted to dive in a little deeper. When I look at your same-store numbers and you had a presentation out, I guess, about a month ago, you had some fairly significant expense increases, particularly in North Dakota. I think in Minot, it was about 15%; in Williston, about 10%. Can you walk us through why you had such large expense increases there? Is that -- are you expecting some sort of free ranch or is there some other story there?

Craig, this is Ted. Most of that would be real estate taxes. I think as that state has had some real estate evaluations increase, and so that impacted real estate taxes, there's been some pressure on wages, of course, and we've expressed that in the past over time, but we think that will trend out. I know in our recent analyses and review of -- for example, Jamestown stood out to me in that slide, of course, today, but that was just an anomaly. We've got another property there coming online. And so we've added some staff at that particular same-store asset to get prepared for a new asset that's being delivered this fall. But in general, most of that would be real estate taxes.

Okay. And going to the developments that came online, I think you had 2 go into service in your fiscal first quarter. They're both -- they seem optically appear to have leased up rapidly into the 40% range. But can you talk about how rents on those assets have come in relative to your pro forma expectations and where those development yields are likely to stabilize if rents are maintained and you get to stabilized occupancy?

Well, I think rents in Minot have hit expectations. We opened a 72 unit property there that was an adjacent building to an existing asset, and that has trended quite well. We're very pleased with that asset and that market. With regard to the second asset in Williston, there's been some rent pressure out there, and that's a very large development overall. That's Renaissance Heights, 288 units. And we did pro forma that to have rents retrench over time, over a 2- to 3-year, or 5-year period. So there may be some rent pressure in that market really in the heart of the Bakken. But again, we've pro forma-ed that and budgeted that over time.

Got it. When you look at your G&A, I know there was a big increase last year, maybe about $1 million a quarter. A lot of that was from share comp. Can you talk about how the board is looking at share compensation? And when we look at G&A today, I think it's been 2 quarters now where it's been closer to maybe the $2.5 million range. Is that a fair run rate going forward?

I think what I would refer you to, of course, just regarding the current quarter is Page 24 of the 10-Q that speaks to -- what did not occur is that noncash comp. But going forward, we historically run a G&A rate, if you look back, at about 4% of revenues. And we think that, that's a pretty good trend line going forward. We did have some corporate employees that were let go as a result of some of the sales and some executives that left the company. So we -- but we think that 4% run rate is going to be about right going forward, Craig.

Okay. And getting -- I appreciate the liquidity disclosure. And obviously, you've got a lot of cash coming in from the dispositions from the office and retail coming soon. How do you handicap sort of where you might allocate capital? I know you mentioned that management's going to look at doing repurchases. But are you more inclined to move on the preferred? Or are you more aligned to maybe push a little harder on buying back common?

Craig, this is Tim. I think as we step back and evaluate that, that will be a decision we'll discuss and allocate as we look and talk and discuss with the board, I mean, all of those have their certain returns that we're going to have to evaluate and make the decision. But I think with the implementation of the share buyback program, that allows us to evaluate and have [ph] another opportunity to allocate capital in a different fashion.

Okay. And you guys, I think at the time that you announced the buyback, you mentioned in the press release, you thought you would likely to put it [ph] after announcing earnings. Is that still the case?

Yes, that would -- that's the expectation.

Our next question is from Drew Babin of Robert W. Baird & Co.

I was hoping you could talk some about Bismarck and Grand Forks. You have not, in the past, classified those as energy-exposed markets, but revenues -- same property revenues were down slightly year-over-year. I was hoping you could talk about what is occurring in those markets that either indirectly related to energy or otherwise that is causing some drag?

Drew, this is Ted. If you look at -- we did have a little revenue slippage, but our occupancy is still very, very strong in those markets, going from 97% or 98% down to 94%, 95%. We're quite comfortable with that. We did see our average rental rates go up. So it's just an offset to occupancy. So I think we're very pleased in those markets year-over-year. Those are dynamic markets from a perspective of the basic economies of agriculture, state government, maybe some ancillary energy exposure. But we've been in those markets for a long time, in housing, and it's not just energy that's impacting that part of the state. I mean, those are places that have universities and other economic drivers that drive housing and real estate in general. So we're very pleased with, I think, those markets year-over-year.

Have you seen any marginal weakness in those -- other industries though that may have caused occupancy to erode?

I wouldn't say so. I mean, North Dakota's still got the second-best unemployment rate in the country at 3% behind, I believe, Nebraska. So I don't know. Tim, you might be able to comment on that being closer to Bismarck. But from an economic indicator standpoint, it's still very strong wage growth and still very strong unemployment.

Yes, Drew. Tim here. As Ted just touched on, we do continue to see strong economic indicators in those markets. I mean, there's a lot of developments if you drive in those communities, a lot of construction still underway. So overall, they continue to move along and the markets remain strong.

Okay. Then on the expense growth side in both those markets, sort of in the 3.5% to 4.5% range in 1Q, do you expect that rate to kind of continue throughout the year? Was there anything kind of lumpy that impacted 1Q where expenses may not increase as much in subsequent quarters?

Drew, this is Ted. I don't know that 4.5% to 3.5% would be typical going forward. I mean, as a company, again, we're going to look to see maybe that 2% range over time. Again, I think real estate taxes, in general, have been under pressure in North Dakota and some of those markets as well as some of the wage pressure. But I wouldn't think a run rate of 3% to 4% quarter-over-quarter is going to be typical going forward. There's been pressure in the last 12 months, but I wouldn't expect that going forward.

And Drew, I was going to -- that was the same thing I was going to touch on with the real estate taxes. So that was my answer.

[Operator Instructions] Our next question comes from David Daglio of The Boston Company.

There was a question earlier on about kind of residual impact in areas that are not at the heart of the Bakken. Most -- as we dissect the data, the state spending levels have grown almost perfectly correlated with the price of oil and drilling activity. Are you anticipating state spending to slow down in those areas? And I'm just a little more surprised you're not more cautious on the entire state of North Dakota and rent rates and occupancy and the economy.

David, this is Tim. And my response to that would be that certainly, we watch that and see what the state is doing. But remember, our state meets biannually, I'm sorry and sets a number of things that need to be taken care of throughout the state in that 2-year period. And we've continued to hold a surplus of close to $2 billion in the treasury that allows us to take care of those things that need to be handled. For example, in the western part of North Dakota, one of the things that we've seen happen, even with the slowdown in the oil industry, is a ramp up backup on the other side. They continue to develop infrastructure, from roads and water and the needs that are impacted on that part of the state. So although we've seen that back off on the oil side, the state's kind of picked up the slack and continues to develop and hold those construction jobs. That remains true throughout the state and simply back to good old conservative North Dakota until we put money away and take care of things that need to be taken care of.

Yes. No, it makes sense. So I guess, if I understand your view, as some of the temporary housing gets shut down or people don't want to necessarily live there, you would expect occupancy to kind of bottom later on this year is the right way to think about it?

Yes, I think that would be a good way to look at it. If not, even 6 months out, there's been a lot of rumblings in the city of Williston. And in fact, they've denied some temporary housing permits here recently. And we expect that to continue going forward, so in fact, forcing them into long-term housing.

Okay, great. And are there any indications in your book that occupancy is stabilizing right now? Or this is really you reading the tea leaves?

I think we're -- it's our feeling on the market.

And with that, I see no further questions. So I would like to turn the conference back over to Mr. Tim Mihalick for any closing remarks.

Thank you, Carrie, and again, thanks, everybody, for taking the time to listen in on our call this morning. Hopefully, we can explain to you and you're able to understand, and we're excited about the future of the Midwest and our opportunities to deliver the returns to the shareholders that we have in the past. It's a great time to be a part of IRET. And as we restructure the portfolio and transform it into a much different company than it's been over the last 3 to 5 years, we're able to see some significant changes as we move forward and look forward to the future. Thank you, and have a nice fall.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.

Thanks.