Good morning, and welcome to the Investors Real Estate Trust Third Quarter Fiscal 2016 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to today's host, Steve Swett. Please go ahead.

Thank you, and good morning. IRET's Form 10-Q 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, 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. 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 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.

Thank you, Steve, and good morning, everyone. Welcome to our fiscal third quarter 2016 earnings conference call. This morning, I will begin with a summary of our operating and financial results for the quarter and year to date. I will then take a few moments to update you on our portfolio repositioning efforts. Ted Holmes, our CFO, will follow with more details on our quarterly results, our disposition and development activity and our balance sheet and capital allocation strategy. We will then open the call for your questions. Let me begin by saying that our third quarter results were in line with the expectations and represent continued progress as we transition our portfolio into a focused platform, which we believe can drive better growth and create value for our shareholders over time. Yesterday, we reported FFO of $54.5 million or $0.40 per share and unit for the third quarter 2016. While our portfolio is undergoing significant transformation, I would like to note the total revenue increased by $2.8 million or 5.4% from the 3 months ended January 31, 2016, compared to the same period 1 year ago. With regard to our same-store portfolio, we experienced small decline in same-store NOI of 0.3% for the third quarter. As I noted, our results were in line with our expectations as our near-term performance feels the effects of weakness in Western North Dakota as well as the impact of shifting costs across our portfolio due to our strategic asset dispositions. As we have mentioned in the past, we continue to be impacted by the volatility in the energy sector, which is a key industry in Western North Dakota. This softness, coupled with seasonally low leasing volumes that we typically experience in the winter months, did have an expected negative impact on our results this quarter. With the normal seasonal uptick in traffic and leasing in the coming months, we expect to see better demand for our apartments and improved occupancy. However, closing ratios will be critical, and we will likely remain aggressive on pricing to capture our share of the demand. Every cycle is different. We have decades of experience investing in operating in the Upper Midwest, and we know these markets well. Volatility in the oil market is not new and the slowdown today is the offset for very strong results we captured in prior years. Further, where appropriate, we have utilized joint ventures to dilute risk and maximize returns to our shareholders. Currently, the Western North Dakota oil markets of Williston and Minot account for just 10% of our same-store NOI and the rest of our markets continue to perform well. Most of our core markets in the Upper Midwest benefit from diverse demand drivers, including healthcare, financial services, manufacturing and agriculture, and have continued to generate stable employment growth in recent years. In general, our markets are healthy, with occupancy rates from the low to mid 90s, and we believe that we're well-positioned as we enter the warmer and busier spring and summer months given our best-in-class product. Moving on, I'd like to update you on our strategic goals. We continue to work to refocus our portfolio and transition to a stronger operating platform with a more predictable net income stream. Since May 1, 2015, beginning of our fiscal year, we have disposed of more than $440 million of non-core retail and office properties, representing a 25% reduction in our pretransition NOI. We have redeployed proceeds into $72 million of multi-family and healthcare acquisitions and invested another $96 million in multi-family and healthcare developments. During the last 12 months, we have reduced our outstanding debt by $259 million. As our portfolio stabilizes in the next year, we believe we can achieve and maintain a leverage ratio below 6.5x net debt to EBITDA. At this time, we have largely completed our capital recycling program, having taking advantage of attractive private market valuations, simplified our portfolio and increased our exposure to the more stable multi-family and healthcare asset classes. This large-scale transformation has not been without some short-term pain as we work to replace the lost income from asset sales, we allocated our expenses and deliver on the development pipeline. But we believe we will emerge in a much stronger position with better long-term growth prospects. Along with these portfolio transformations, we are underway implementing changes in our management infrastructure and process. The transformation of our portfolio has allowed us to shift assets and personnel from commercial property management and maintenance to our multi-family and healthcare divisions. We have successfully repriced our property insurance policy, reduced our annual expenses by about 10%, which should benefit our results in the coming year. We're also modifying our health insurance plans and looking at additional ways to reduce G&A. We've implemented a RUBS program, which we believe will reduce volatility quarter-to-quarter in our operating results. Currently, the penetration of our RUBS program is about 40% of our units. And again, we expect to be rolled out to substantially all of the planned units by the end of third quarter in fiscal 2017. Finally, after testing, we have commenced the implementation of LRO, rental pricing software, which we believe will allow us to better capture demand and more efficiently time expirations within our markets. These changes are exciting, and our team is energized. It will take time for us to truly show the benefits of all these efforts, and we look forward to communicating our progress and accomplishments in the coming quarters. Thank you, and I would now like to turn the call over to Ted Holmes, IRET's CFO.

Thank you, Tim, and good morning, everyone. I'll start this morning by describing the results for the quarter and year-to-date in a bit more detail. Then, I will provide an update on our capital allocation plans and close with a review of our balance sheet and liquidity position. Yesterday, we reported FFO of $54.5 million or $0.40 per share and unit for the third quarter ending January 31, 2016, as compared to $23.4 million or $0.17 per share and unit for the same period of the prior year. The increase in FFO was primarily due to a gain on debt extinguishment of $36.5 million, which was recognized during the quarter. For the 9 months ended January 31, 2016, we reported FFO of $84.7 million or $0.61 per share and unit as compared to $64.6 million or $0.48 per share and unit for the same period of the prior year. Our fiscal year-to-date FFO increased for the same reason as our quarterly FFO. Excluding gain or loss on extinguishment of debt and default interest, FFO would have been $0.14 and $0.44 per share and unit for the 3 and 9 months ended January 31, 2016, respectively. Our total company revenue increased by $2.8 million or 5.4% in the 3 months ended January 31, 2016, compared to the same period 1 year ago. Total revenues for the company increased by $5.7 million or 3.7% in the 9 months ended January 31, 2016, which can be attributed to development deliveries and accretive acquisitions in our multi-family and healthcare portfolios. Our total portfolio net operating income, or NOI, in the third quarter 2016 increased by $1.6 million or 4.8% year-over-year, but same-store NOI decreased by approximately 0.3% for the same period. Total portfolio NOI for the 9 months ended January 31, 2016, increased by $1.6 million or 1.7% year-over-year, but our same-store NOI did decrease by $1.3 million or 1.5% for the same period. We had difficult comparables year-over-year as we were impacted by the sales of our office and retail portfolios and a significant deterioration in the energy-related markets in Western North Dakota. During the quarter, we continued to execute on our strategy to dispose of non-core office and retail assets, acquire stronger cash flow multi-family and healthcare properties, deliver on our development pipeline and grow NOI in our same-store segments. During the quarter, we sold 3 retail properties for a total of $3.5 million in proceeds. We also transferred 9 office buildings secured by $122.6 million non-recourse mortgage loan to the lender. At this time, we have largely completed our announced disposition program with just $22 million remaining of assets held for sale. Also during the quarter, we continued our development program. We have 4 multi-family developments in progress with 2 deliveries expected in the fiscal fourth quarter 2016. And then one each in the first and second fiscal quarters of 2017. We have spent approximately $157 million of a total budget of $178 million, and we believe these new multi-family assets provide the best opportunity to drive NOI growth going forward. However, bear in mind that the high volume of deliveries at the current time is likely to trigger higher expensed interest costs as these properties move from under construction to operating, resulting in a short-term drag on our results, until lease revenue increases as the properties stabilize. Turning to our multi-family same-store segment. Our third quarter same-store multi-family NOI decreased by approximately 5.1% year-over-year. However, this decrease can largely be attributed to weakness in the energy-impacted markets of Minot and Williston, North Dakota. Aside from these markets, multi-family same-store NOI growth was up 3.1%. Additionally, we continued to work to improve the quality of our same-store portfolio through our value-add program. We invested $900,000 in operates and remodeling projects in our multi-family portfolio during the quarter, and we anticipate spending approximately $3.5 million each quarter in the year ahead. As we have mentioned in the past, we are commencing these projects as leases expire, and our expected return on investment ranges from 8% to 10% per year. Finally, as we work through our portfolio transformation, we expect that our operating margins will improve. Our operating margin, which is defined as same-store multi-family NOI to gross revenues, improved by 60 basis points quarter-over-quarter to 53.3% for the third quarter of fiscal 2016. However, for the year-to-date period, our operating margin compressed by 290 basis points. This margin compression is primarily due to revenue declines in our oil-impacted markets and the reallocation of resources from our portfolio transformation. However, we expect that margins will strengthen over time from accretive acquisitions and development deliveries. Turning to our balance sheet. As of January 31, 2016, we had $47.1 million of cash on hand and availability on our line of credit of $82.5 million, for a total liquidity of $129.6 million to fund our growth objectives. We continue to strategically match fund our investments by locking in permanent interest rates on assets that we intend to hold long term, while using variable rate funding for assets we intend to sell, reposition or align for other strategic initiatives. At quarter end, our weighted average interest rate on mortgage debt was 4.83% and our weighted average term to maturity was 6.5 years. At quarter end, our leverage ratio is 48% of gross assets at cost. Our policy is to keep leverage below 50%. And looking ahead, we believe we are well-positioned, given our manageable debt maturity schedule, which has no significant maturities until 2020. Additionally, during the quarter, we repurchased 1.8 million shares at an average price of $7.30 per share through our existing share repurchase authorization. Since we initiated our repurchase program in the second quarter of 2016, we have bought back approximately $35 million of IRET shares. Finally, on March 8, our Board of Trustees declared a regular quarterly distribution of $0.13 per share and unit payable on April 1, 2016, to common shareholders and unitholders of record at the close of business on March 21, 2016. This will be IRET's 180th consecutive distribution. With that, I will turn the call back to Tim.

Thanks, Ted. We have been very busy here at IRET as we focus on completing our capital recycling program and redeploying the proceeds towards developments, our value-add program and accretive acquisitions. We believe that our deep market knowledge and local relationships, coupled with less competition from institutional capital for quality assets in the Upper Midwest, supports us an opportunity for us to create long-lasting shareholder value through our portfolio transition. With that, I'd like to open the call for questions. Operator?

[Operator Instructions] Our first question comes from Rob Stevenson of Janney.

Can you talk a little bit about where you are in terms of the apartment portfolio in terms of that not set up for submetering that you're going to have to do the RUBS program on?

Rob, this is Ted. I'm -- maybe rephrase your question, I'm not following what you're specifically asking with respect to our RUBS program. We've implemented that. We're now building properties that are metering individual units and processing that on roughly 40% of our existing portfolio. What -- rephrase your specific question.

So the 40% is the part of the portfolio that's not already submetered?

It would be 40% of the total portfolio.

The planned units that we can submeter -- Rob, this is Tim, that has been implemented on the 40%.

And then so the remaining 60% is to be done? Or is not able to be submetered?

Not able to be submetered. So basically what we're saying is we believe, if I'm accurate, it would be 40% of the available units that can be submetered are currently being applied to the RUBS program. But we're not -- we don't have the capacity to go to 60% or 100% of our portfolio under that program, no.

And then given the demand for industrial assets today, have you guys thought about expediting potential sales of those 7?

Rob, Tim Mihalick here. That's certainly something we'll consider as we take a look at the repositioning of our portfolio. At this time, we continue to focus on what we laid out is the plan, and we'll continue to execute in that fashion, but that's under consideration.

And then just lastly, can you just talk about how you guys are thinking about stock buybacks versus buying assets versus starting incremental developments today and sort of how that's sort of, where the stock price is today sort of how that math sort of works in your head?

You got a lot of questions. As we sit and think about our capital allocation needs from the proceeds of the sales and cash on hand, we really lay out what we think is the best use of that capital, whether at this point in time it's stock buyback or it is an acquisition that maybe for a strategic purpose and look at it in that respect.

Rob, this is Ted. I would also point out that we're in a mode where we want to derisk the company. So from a development perspective, we are coming off a really nice 3-year period of development, delivering lease-up stabilization. So we're going to tone that down. We think a little bit on the development side to answer the backside of your question. With respect to buyback, we still believe that we are well undervalued, that we see a long runway for growth and value in our stock price. But we're not going to leverage up the company to buy stock if we have selective sales that occur on non-core assets. Non-core being the bottom 20% of our portfolio. We will consider additional buybacks in the future as our board directs.

Our next question comes from Craig Kucera of Wunderlich.

You had a pretty sizable lift in your NOI, revenue was up, expenses down in your other assets category from last quarter relative to what we're looking for. Was there a large lease signed? I know the disclosure in that segment's a little lighter than elsewhere, but can you give us some color on what that was distributed to?

In the other category -- are you referring to a specific reference in the Q or 8-K, Craig? Because on the other category side, I'm not sure what that would be. We did have a large jump in our healthcare revenues for the quarter because we delivered a new development in recent quarters that's now online. We've had some income from a tenant that operates our senior housing that paid a percentage rent clause payment. But on the other category, I'm not sure what that would be.

Yes, I mean you can see it if you look at your same-store property on Page 13, for example, multi-family was down 5, healthcare, industrial were flat, but the other was up 90%, and then I'm guessing that's probably a little bit of retail left. I just didn't know if there was -- we should expect that on a recurring basis? Or if there's any sort of onetime expense reductions or revenue pick ups?

I can see your reference, Craig, this is Tim. Let me have to research that for you and get back to you, I'm not exactly sure of which that is.

Okay. That's fine. And moving on, let's talk about the Rochester, Minnesota, acquisition you guys completed at the end of the October, I think that was about $56 million. Since you bought that asset, occupancy has dropped about 10%. Is that -- is there any sort of -- I wouldn't think there would be a spillover from what's going on with oil, but are you seeing any weakness in that market? Or are you guys maybe pushing rent to that asset kind of pull back a bit on where we saw occupancy back in October?

Craig, this is Ted. There certainly wouldn't be any energy impact in that particular market. This is a market that's hundreds and hundreds of miles from the energy-impacted parts of the country. But I would say that when we bought that asset, when we went into it right at close, there were some tenants that were leaving the property and we had to kind of clean out some of the tenancy there and then redeploy our staff to focus on lease-up. I don't think there's any issues in that market. We have a very strong portfolio in Rochester, Minnesota. This is a class A market-leading product, and I don't see any issues there. And we're going to continue to focus on Rochester as a market we want to invest in.

And looking at the developments that you have, you got 4 multi-family developments, a couple are in North Dakota. Can you comment -- I know that the Jamestown and Grand Forks are East of Williston and kind of energy hotspot, but are you saying, when you look at those markets, are they performing as expected? Or are you seeing any sort of weakness in those markets?

Craig, this is Tim. Are you -- you're referencing the Western North Dakota markets?

Yes.

Western or Eastern?

Eastern.

I'm just referencing Jamestown and Grand Forks, those multi-family developments that are coming on and should be completed next quarter.

Those we continue to see operating and perform as we expected as we bring our developments online. So the weakness certainly hasn't moved over to that part of the state.

Got it. When you look at the Renaissance Heights, which is, I think, since being placed into service has sort of struggled a bit with occupancy and lease-up, are you kind of what is market currently as far as rent reductions to try to get some occupancy?

Craig, this is Ted. You're certainly going to see IRET and other companies trying to find stabilization in the Western part of the state. There's no question there's some pain with respect to lease-up now that energy has retrenched to a price level that we are all witnessing. So we are focusing our efforts on finding stabilization. We know that rents have reset to a more consistent, let's say, level with the balance of the state. I mean, there is -- I mean, these properties are still producing good income. It's just normalized in that part of the country and that part of the state. I would tell you, just touching on the east half of the state, again there's been additional supply in the Grand Forks and the other markets in North Dakota. So again, I think it's largely in balance from a demand and supply standpoint. But we're bullish we can lease-up in the Eastern half of the state, and we're bullish that we can find stabilization in Williston at some point.

[Operator Instructions] Our next question comes from Jim Lykins of D. A. Davidson.

First, I want to ask you about your rehab program. You mentioned 4,000 units, I'm just wondering if you can give us a sense for the time line? How that may play out over the next year? And I'm also wondering if those units may perhaps be part of a Phase 1 and if there could be some -- or if you guys might be thinking of some other units beyond those original 4,000 down the road that you may be able to rehab as well?

Jim, this is Ted. The rehab program or value-add program that we have in place is probably going to stretch out over 3 years. So we've identified 20-some assets, 4,000 units, that will be in play as leases expire. This isn't an event that's going to take 12 months. It's going to be longer than that, given our turnover ratio. But we're going to aggressively pursue upgrading these units. And at the same time, when we're adding our best-in-class, we think, product from development, we are really upgrading the portfolio in a leadership -- market-leading style. So we're going to aggressively pursue updating these properties, many of which we actually built. So you can go back 20 years or so and look at these assets, we built them. Now we're going to update them, but this will take 3 years.

Okay. So you mentioned $10,000 to $13,000 per unit, I'm just wondering historically if you've gone out and spent that much on a rehab unit. What would that equate to? How much would you be able to push rents?

Jim, Tim here. As we looked at that and talked about it on the call, our intent is to spend in the neighborhood of $3.5 million per quarter as we go forward with an expected return of 8% to 10%. Depending on the market and the property, we've been able to push rents anywhere from $75 to $150 a month, just depending on the implementation of the rehab and the value add that we do to the property.

And regarding the energy-related markets, can you just maybe make some general comments about what you're seeing right now? I'm wondering if maybe there's still maybe some more pain to come? Or maybe if you're starting to see a trough? And I also believe there may have been the elimination of some man camps. And if so, how that could potentially help occupancy in those markets?

Yes, jim, it's Tim again. And you're right. Earlier this week, the City Commission of Williston, which is at the heart of the Bakken, did announce that as of July 1, they intend to eliminate all man camp units within a mile radius of the city. That will have some impact on our markets and our apartments. Those aren't typically our tenants. And most of them will be temporary employees, so that will probably push them back to the hotels, which will, in essence, push those tenants to long-term housing, which would be our apartments. One of the things we continue to see in Minot and Williston is, in Williston -- in Minot, specifically, is continued building. I mean, there is still housing under construction there. So we're continuing to focus on finding stabilization in those 2 markets and finding out where the bottom is, and we are still examining that and addressing it.

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

Thank you, and thank you again for everybody taking the time this morning to be updated on IRET's story. We're excited about where we're at in the transition. It does present some challenges, but we believe, as we move forward, we're going to come up the other end as a much stronger and better company, and allows us to create value for our shareholders into the future. Thank you.

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