Good day, and welcome to the Investors Real Estate Trust First Quarter Fiscal 2015 Earnings Conference Call and Webcast. All participants will be in listen-only mode. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Ms. Lindsey Anderson, Director of Investor Relations. Please go ahead.

Good morning, and welcome to Investors Real Estate Trust's first quarter fiscal 2015 earnings conference call. IRET's earnings release and supplemental disclosure package for the three months ended July 31, 2014 were 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 regulations set forth in Regulation G. If you have not received a copy, these documents are available on IRET's website at www.iret.com in the Investors section. Additionally, a webcast and transcript of this call will be archived on the IRET website for one 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 Tuesday'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 statements. 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.

Thank you, Lindsey, and good morning everyone. First of all, I want to thank all of you for taking the time to listen to our call this morning. I hope you will find the information provided to you to be beneficial. To be honest, I was surprised to look back at my note and realize that it has only been a little over two months since our last call. Although, Tom and Diane will explain this quarter's activity to you in more detail, I remain quite pleased with the continued execution on our strategic plan. We disposed the two properties during the quarter and placed development properties located in Williston, North Dakota in service. In line with our plan, we also have over 1,400 multi-family residential units throughout our target markets either under construction or recently completed at the end of the quarter, as well as two medical properties totaling approximately 147,000 square feet. This development activity remains squarely in line with our goal of putting more emphasis on our multi-family and healthcare segments. Additionally, year-over-year same store NOI increased as well as occupancy in four out of the five of our reportable segments during the same timeframe. Simply put, we are hard at work at implementing a plan which continues to change the way IRET will look into the future. Buyers continue to be available for older, smaller, and low performing assets in our portfolio allowing IRET to recycle those sales proceeds into our development projects. All-in-all, it has been a busy summer here at IRET, and I look forward to the future when results for our development projects should have a significant impact on the operations of IRET. Thank you. And I'll now turn the call over to Diane Bryantt, our Executive Vice President and CFO.

Thank you, Tim. This morning, I will provide a brief recap of items of note as reported in the 8-K press release and the 10-Q for first quarter of fiscal year 2015 which ended on July 31, 2014. Let's start with operations in the first quarter. As detailed in yesterday's filings, revenues continued to increase quarter-over-quarter, primarily driven by development projects coming online and the strong leaseup. In addition, same store multi-family revenue is still increasing as we are able to push market rents. Overall, revenues have increased $2.7 million when compared to Q1 of fiscal year 2014. Of this, non-same store makes up around $2.5 million with multi-family same store approximately $500,000 higher than Q1 of fiscal 2014. This increase in multi-family, however, was offset by a decrease in revenue in non-same store industrial segment due to the redevelopment of our Roseville industrial property. Real estate expenses were up $878,000, of which $731,000 is associated with non-same store properties, with same store overall increase in expense of approximately $147,000 when comparing to first quarter of fiscal year 2014. As discussed on the last conference call, in the fourth quarter of fiscal year 2014 or the previous quarter that we met on with our conference call, we experienced a significant increase in utility costs due to extreme cold conditions and increased utility rates in our market. In the current quarter, utility costs decreased as weather stabilized and also the rate increases that were implemented by some utility companies in our market were not approved by the regulatory authorities at the level the utility companies had begun charging. And accordingly, we realized some refund and a decrease in utility rates. Also, same store expenses, primarily in the multi-family segment, were impacted by insurance related events of hail damage, which accounted for self insurance expense of $358,000 or $202,000 over the prior year first quarter. Regarding impairment and loss on sale of real estate and other investments, we continue with our strategy of disposing of assets and reallocating the dollars to our development pipeline. As a result, we've realized some non cash losses in the quarter of $2.3 million due to impairment and $3 million due to loss on sale for a total noncash expense of $5.3 million. These assets have sold or will be sold in future quarters and as stated before proceeds will be deployed into funding development projects and acquisitions. This causes some drag on earnings as not only we lose the income generated by these assets, but we do not realize any earnings until development properties are placed in service or new properties acquired. Administrative expenses increased approximately $900,000 over the prior quarter and the prior fiscal year first quarter. This increase is primarily due to a non-cash expense attributable to our share based long-term executive compensation plan. Another factor that impacted earnings on a comparative basis was a gain on involuntary conversion. The amount recognized in Q1 of fiscal year 2014 was $966,000. Even though we have a significant insurance proceeds outstanding at quarter end, we do not anticipate any recognition of involuntary gain in fiscal year 2015. Moving on to the balance sheet and first quarter events. Regarding cash and liquidity, cash on hand at quarter end was $60.6 million as compared to $47.3 million at the beginning of the fiscal year. In addition to continued strong cash flow from operations, during the first quarter we raised cash equity of approximately $16.9 million through our dividend reinvestment program using the DRIP waiver and IRET Direct features. This equity raise will be used to fund our development projects. Our line of credit has $39.5 million available as of quarter end. Regarding acquisitions and development and sales of real estate. Acquisitions and development placed in service provided for an increase in real estate owned of $36.8 million of which $8.3 million was in undeveloped plan and $28.5 million in income producing properties with average cap rates of approximately 8.8%. We disposed the properties with carrying value of $9.7 million with a net loss of approximately $3 million. NOI on these disposed assets is no longer reported as discontinued operations but can be found in the footnotes in the NOI section of the MD&A within the 10-Q. The company also invested $36.9 million in development projects during the quarter. Regarding debt. During the quarter, we closed on two loans totaling $25 million. The average variable interest rate at date of closing was 3.38%. These assets were unencumbered and cash out was approximately $25 million. We assumed $12.2 million of mortgage debt on a Rapid City apartment acquisition. The average interest rate at 6.16% with maturities ranging from two to six years. Current mortgage debt was $1 billion as of quarter end and compared to prior yearend of $998 million. Outstanding mortgage debt to un-depreciated property owned was 48% at quarter end versus 49% one year ago. Our overall weighted average interest rate on our mortgage debt excluding our line of credit in construction debt is 5.32% as compared to 5.54% at the end of the prior year's first quarter. And we also paid up one mortgage loan for $2.3 million on a retail property in Omaha, Nebraska. Overall, regarding debt, we are staying on course, making progress towards our goals of improving our debt ratios and other targeted key metrics, freeing assets from leverage for potential disposition and in overall strengthening of the balance sheet. FFO and AFFO as reported on a per share basis were $0.14 and $0.12 for the quarter ended July 31. In addition to the factors mentioned above that affected earnings, the issuance of shares to provide equity for development has increased the weighted average shares outstanding and is providing for dilution. As projects come online and provide earnings, the dilutive effect will decrease. Overall, I feel we had a very strong quarter of operations from same store properties. We continue on a path of redeploying sales proceeds into desired segments in multi-family and healthcare and diligently manage our large development pipeline to meet the objective of increased earnings and ultimately AFFO coverage. To close our report at the IRET Board of Trustee, declared a quarterly distribution of $0.13 per common share and unit to be paid October 1, 2014 to the shareholders of record on September 15. This will be IRET's 174th consecutive quarterly distribution. Thank you. And I'll now the turn call over to Tom Wentz, Jr., Executive Vice President and Chief Operating Officer.

Thank you, Diane. Despite continued unfavorable weather this past spring and summer, IRET made continued progress on our strategic plan of improving our overall portfolio by focusing on growing our best performing segments of multi-family and healthcare, combined with disposing of non-core assets to remove those properties which are underperforming, while also adding more cost efficient and newer assets to the portfolio through development. Even though many challenges remain including delivery delayed on our larger apartment development pipeline due to weather as well as pressure on property values in our commercial segments due to the sluggish improvement in those segments, we were able to continue steady improvement in a number of important areas, including occupancy and revenue growth. We remained committed to the strategy we follow in fiscal 2014 of focusing on growing our operations where IRET is the market leader or we have a path to market leadership and disposing of non-core assets that is either not positively contributing to our financial performance or in markets or segments where we see limited growth potential going forward. As noted over the prior year and confirmed by this first quarter financial results, as we continue to grow our best segments of multi-family and healthcare primarily through development combined with disposing of older non-core assets. We expect continued near-term pressure on funds from operation due to the mismatch in timing between the outlays of funds necessary for development compared to the delivery of completed projects as well as the loss of current income from those assets that have been sold. However, now we are starting our fourth year of increased development and with projects and process now at approximately $354 million due to the commencement of five projects this past quarter totaling approximately $120 million, we expect that the delivery of projects commenced last summer in 2013 will begin to somewhat offset the FFO pressure created by our higher levels of development. Delivery time is important and as noted during the last quarter's call, we were concerned about weather related impacts. Now, after a very wet summer in many of our development markets following the wet spring and harsh winter, we did experience delivery delays on a number of larger projects and we fell behind schedule as well on recently commenced projects. We previously projected delivery delays of as much as 8 to 10 weeks and it appears that was basically accurate for a number of these larger projects. Fortunately, the weather condition has not materially increased our cost of construction. Whether the financial impact has been due to delayed delivery which does slightly increased development cost in the form of imputed or actual interest costs, but the biggest impact of course is delayed receipt of rental revenue as all of these projects continue to experience very positive leaseup rates and are achieving actual rents as projected or in some cases went slightly above projections. In regard to development, we continue to see good income and growth opportunities in our markets that are leaders in healthcare, education, energy and food. Even though we are experiencing higher construction costs as well as competitive development from other real estate owners, unit demand and rent levels continue to support our strategy of growing primarily through development and when available acquisition opportunities. IRET currently has 1,477 apartment units under construction in six of our core markets which is a slight increase in a number of apartment units under construction over the prior quarter as we delivered a total of 98 units in Williston, North Dakota during the first quarter of fiscal 2015 as compared to the delivery of 386 units during fiscal year 2014. We are now also developing in six of core markets which are an increase of one market with the commencement of a project in Jamestown, North Dakota this past quarter. Additionally, we have two medical assets under construction comprising approximately 147,000 square feet of office space and these are in our core medical market of Minneapolis, Minnesota. Finally, during the past quarter, IRET continue to add to its land holding for future multi-family development with the acquisition of a large parcel in Bismarck, North Dakota that can accommodate approximately 900 apartment units bringing our multi-family land holdings to over $23 million and also allowing for the development up to approximately 2,800 additional units in the coming years. We continue to remain active in land acquisitions for the purpose of positioning IRET as the market leader, a 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 and more efficient, more focused by segment and the leader in its respective categories end markets. Our plan for the coming fiscal year will be to continue to focus primarily on growing our apartment operation as well as expanding our healthcare segment in the area of medical office and senior housing. It is expected that most of our growth will continue to come from new ground up development as there continues to be a lack of acceptable acquisition opportunities in almost all of our market when compared to development return. However, as we enter another construction season this spring and summer, we will carefully monitor and evaluate all the challenges associated with development. As a result of these observations, we are constantly adjusting our approach to proactively deal with existing and new challenges. Our focus remains 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. Our leaseup to stabilization both in terms of time and rental rates achieved on delivered projects has confirmed the correctness of our approach. Financial improvement does not remain slow and continues to be challenging in the commercial segment of industrial, retail and office. Our strategy this past year and for the coming year will be to seek improvements through a combination of an aggressive focus on new leasing and renewal as well as the disposition of non-core assets that are weaker performers or have a limited ability to contribute financially or will require higher capital investments with limited corresponding financial return. Moving on to leverage and continuing the trend that we've experienced over the last several years, this past quarter saw reduction in our average weighted interest rate as we continue to take advantage of the low interest rate environment by employing a conservative use of debt. We do not expect any material change to our current overall leverage of debt or type of debt as our target is to remain at approximately 50% of all debt including construction loans to gross assets excluding our preferred stock. We believe this approach will provide us with good flexibility on how we fund our growth and operations going forward. Depending on the level of development opportunities that we see, we may slightly increase leverage levels on existing portfolio by as much as 5% or approximately $50 million bringing total leverage as a percentage of gross assets close to the 55% range. To maintain overall interest expense at current levels or even lower, we may use more floating rate debt to capture the advantage of lower rates during development or on those assets which are likely to be disposed of few sales over the next 3 to 18 months. During our last call, we discussed non-cash impairment to a number of commercial assets with the majority of the impairment being attributable to eight commercial office properties owned by a subsidiary of IRET. We provide detailed supplemental information in the form of two slides during our last call. During the first quarter these portfolios continue to maintain a high occupancy level of approximately 93% with almost no change to its financial performance. As a result, we did not update the slide as there has been no material change. The loan is current and cash flow is currently projected as adequate to service the loan before any capital improvement leasing commission or tenant improvements. The loan has been transferred to special servicing and we are engaged in discussion with the special service on various options with regard to this loan. The loan is non-recourse to our subsidiary company subject only to standard industry carve-out guarantees by both the borrower as well as IRET. It is early and a very uncertain process and IRET can make no assurances about any possible outcomes. Looking forward, we expect the amount of development and acquisitions to remain consistent with our current level with our capacity remain as high as $350 million over the next 12 to 18 months. Depending on the final mix of acquisitions versus development. Our expected acquisition and development cap rate range from approximately 5.5% to 12% in a multi-family segment and 7% to 8.5% in the commercial segment. In certain cases actual results have been higher for development in the energy impacted markets of North Dakota, South Dakota and Montana. Thank you. And I'll now turn the call back over to the moderator for questions.

(Operator Instructions) The first question comes from Dave Rodgers of Robert W. Baird. Please go ahead.

Yes, good morning guys. I appreciate all the details that you gave in your prepared comments. And I think it was very helpful, but you wanted to go back to the acquisitions and kind of disposition that you had to start the year. I mean you've talked about the strategic plan as part of the kind of the disposition and strategy of the company. I guess one; can you put a little more color maybe around that strategic plan? And I know you have been a little bit hesitant to this point, but as it's coming to fruition here, can you give us a little bit more color, maybe numerically on how you see that playing out in timing? And then, the second would be maybe to dovetail into that is again you spent a lot more money buying land and apartment buildings during the quarter than I think you sold. Is that a timing mismatch and how do we see that reversing over the next three, six, nine months?

Dave, I'll start, and I'll let Tom jump in as we talk about the acquisition side. On the disposition side, I guess we've been pretty clear of our intent to get younger and dispose of properties. With regards to numerical number, we kind of laid out very similar what we've done over the last year regarding sales, which I think somewhere in the neighborhood of $75 million last year, if I remember correctly. And I think we will continue to do that. Again, we talked about exiting retail part of our segment looking into fiscal year 2016, so if you add those numbers in, that puts us a litter farther out, but that continues to move forward. That continues to be a focus of ours. As I stated in my comment, to-- the market is very receptive. There is a lot of cash and money out there looking for real estate, and that is giving us the opportunity to take some of our lower performers and properties that aren't within our geographic footprint or where we want to continue to be a part of and sell those out and take them into market. So I think that's going to continue, and we are going to continue to be active as that's available to us. I don't see that changing as we look to forward. We've been very clear in that. That's our intent. And also, as I stated, we are going to continue to focus on the multi-family and healthcare segments and growing those in our portfolio and we look to see the shift as we move that forward. I'll let Tom talk little bit about the acquisition of land and the timing issues there.

Yes. I think Dave, that's good point and you are correct. I mean the ideal scenario would be the day we sell something that's providing income, the very next day we turn those proceeds into an asset that is also newer and providing current income. Unfortunately, that's very difficult trick to pull off and so when we see acquisitions that make strategic sense or are accretive, we are not going to hold off on those until we sell something. We're going to grow the portfolio. And so, I think to answer your question, yes, there is always going to be some timing mismatch. And of course during the summer months, historically that isn't a lot that gets done from the sales standpoint. There are a lot of vacations from buyers from those types of situations. So I think going forward you can expect to see heightened dispositions that's really what we said. Past couple of years, we confirmed that and then of course we've provided pretty detailed information on our development projects as well, so --.

And run me through then, if you would a little bit on the sources of uses and I guess what I am ultimately getting at it is any need for external equity as you go forward through the remainder of your fiscal 2015. If you can run me through kind of your development spend for the remainder of the year and then how you look at the DRIP as obviously a component of the funding there, you get the $39.5 million available on the line of credit and then kind of what are the plug figures that get you comfortable with the idea that you shouldn't need to maybe come back to the equity market.

Yes. The real wildcard in there is not necessarily development because there we got a pretty methodical approach and we know what's coming. It would be acquisitions, if those -- the market changes course and we start to see more acquisition opportunities that would probably precipitate as going back to the market. As far as funding mismatches and sources and uses, Diane’s got all the actual numbers. So I don't want to go from memory, but we did have a pretty detailed disclosure of what we have committed and spent to date , what we have in the form of committed construction debt, and there really isn't a big gap between those two. I think it totals up to pretty close to that $320 million, and then if you look of course at our balance sheet and our credit facility, we have the cash on the balance sheet to basically fund that gap. But again, I guess we can't promise there won't be some mismatches if we see acquisitions. And I think if they make sense and they are accretive, we are going to go get the equity that's necessary to grow the portfolio and do what's best for the long-term financial profit of the company.

Okay then last question for me just on the fundamental side, maybe bigger picture. Any areas where you are feeling too much or excessive competitive supply and I guess I am thinking most specifically in residential or anywhere that fundamentals have turned one way or the other since we talked, as Tim mentioned a couple of months ago?

Well, I mean I guess one potential market we are watching would be Grand Forks, North Dakota. And that's purely based on the number of units. It is not based on the underlying fundamentals because basically our projects are full there and have leased up and what we've seen in the market-- the absorption seems to be fine with no impact on rents. Other than that, the markets that we are currently developing, and in the course, a lot can change, the demand metrics, the rent revenue, everything continues to be extremely favorable and basically uncharacteristically strong if you look back historically. And these markets have continued to grow with job, with people, and higher wages.

And one other comment on that Dave would be the additions, if you look at the rental profile from a demographic perspective, we continue to see the renter by choice increasing in our markets which historically has been the other way we are looking to buy homes, has been a fundamental shift, I think not only in our markets but across the country and we see that continuing as we look at our 10 to 12 core markets.

The next question comes from Carol Kemple of Hilliard Lyons. Please go ahead.

Good morning. In your press release your occupancy in the industrial segment greatly improved from last quarter. Did you all do something different there or what caused that boost?

I think there was -- and I don't have in front of me -- we have a lease up for the one building that kind of took it to-- yes, there are property down Iowa, in Urbandale, Iowa. We released up over 90,000 square feet which took that occupancy to 100% so that's kind of why you see that big increase and a big jump.

Okay. I don't think I have ever seen 100% occupancy or so it's kind of nice.

As you know we've got such small amount of industrial, leasing out there much space it will take it to 100%.

And then with your recent disposition, are you selling properties at the prices as you kind of expected when you first started marketing or are they coming in better or worse than expectations?

This is Tom, Carol. They are coming in basically in line with what we are projecting with -- in certain instances maybe a little bit higher. So again I guess we are not seeing any surprises one way or the other in the market. Most of these assets are in market that we've been in for long time or we have multi-family so we have a pretty good understanding of what the trading patterns and sales patterns are in these markets.

The next question comes from Michael Salinsky of RBC Capital Markets. Please go ahead.

Good morning, guys. You mentioned the G&A spike in the quarter was related to stock comp among other things. What -- is that expected to continue for the year, or is that a one time catch up?

There is some prior year numbers that I would expect it will be fairly consistent with what was maybe around $400,000 last going forward on a monthly basis or quarterly basis.

Okay. That's helpful there. Second question. You mentioned that the portfolio is cash flow -- the nine office portfolio is cash flowing before TIs , LCs, maintenance CapEx, but when you net it against that, when you net against the additional cash flow impact, is it cash flowing after that? I mean are you generating positive cash flow to entity after CapEx and stuff?

Well, this is Tom. At this point, yes. I mean that portfolio is about 93% occupied. IRET, we have no obligation to fund into that subsidiary and we have not and so basically at this point on our projections, the property or the portfolio is generating enough cash flow to cover anticipated transactions, leasing or renewals. Now again in any portfolio there are scenarios further out with certain tenants that would potentially make that not the case, but those are often in the future. So I guess to answer your question at this point the portfolio is cash flow positive. It's servicing all its obligations and IRET is not contributing cash into the subsidiary.

Okay, so you're not contributing cash into, so it's basically -- the negotiations are ongoing, but is it still your intent to convey those assets or work through some resolution other than where they're sitting at today?

Well, all options are open and we are engaged with the special servicer and are open to all possibilities including the conveyance back to the lender or a deed in lieu discounted pay off or various other structures which we've seen occur in the CMBS world. So again it's a slow process but we are fully engaged with the special servicer.

Okay, I'll go back to Dave's question, too. You added $117 million of proportion development during the quarter in terms of starts. Kind of walk us through where this funding is going to come for that. How much of that is identified asset sales, how much of that is construction loans? And then just given the -- if I'm understanding correctly, additional acquisitions from here on out will be funded with new equity? Can you just kind of walk us through how you're thinking about that on a funding basis?

Yes. I think if you go to the table and Diane can give the page -- it's basically laid out, the funding is either going to be with cash that's already on the balance sheet that we built up and the construction loans that are basically put in place. So if you look at with all the new development and then the footnotes or the tables below which provides what we spent to date or a cash that's already been put into the projects to date, combined with the available debt on the construction loan that are closed and were entitled to advance on, I think the gap is maybe about $20 million. And again if you look at our balance sheet and you look at our credit facility, we've got probably closed to $85 million of capacity on our balance sheet in the form of cash. So again upcoming acquisitions are just going to add to that and of course that's the money we would put in first, we don't necessarily have to advance on those construction loans. We can not draw as deeply into them and of course save the construction interest, expense. So at this point it's fully covered plus we have some capacity to do acquisitions here and there, if at the current pace -- again we don't see high level of acquisitions unless there is a real current in the market that we are in or that we are focused on, we just don't see that changing in the near-term which would require us to go and get equity or accelerate sales to fund larger acquisition bracket.

And finally a question for you, Tim. I think you mentioned early 2016, but I just want to make sure that we're clear on this. Sounds like dividend coverage now not in 2015, more 2016 event, just given delays. Am I understanding that correctly?

Well, we continue to shoot for 2015 but with the delays that have occurred maybe first quarter annualized and then for the whole year in 2016. We can see dividend covered.

So 2016 is the expectation at this point, correct?

Yes. Still trying for 2015, so we are still making that a goal but--

(Operator Instructions). The next question comes from Craig Kucera of Wunderlich Securities. Please go ahead

Yes, hi, guys, good morning. I wanted to follow up on Diane's comments about G&A. I know G&A this first quarter was maybe about $3.5 million, you said maybe $400,000 less was normalized. Are you saying then we should expect sort of $3 million to $3.1 million of G&A kind of as a quarterly run rate going forward?

At this point, that would be my best estimate, yes. And then but I am sort of that just note about $1.2 million that would be non cash so it will be deduct for FFO but it is an add back for AFFO.

Got it, so it would be $3.1 million all-in and maybe $2.7 million on a cash basis, correct? Something like that?

Correct

Okay, and secondarily, I just want to follow back on your comments, Tom, on the development delays. I know earlier in this year there were issues with the weather. Were you saying that based on the wet weather this summer that you thought your prior estimate was still correct or that things were going to be delayed even further?

No. I think to clarify the last quarter I think there was some hope and some possible expectations just given our markets that we would be able to catch up during the summer. But unfortunately the lot of the market experienced and usually high rain moisture and that prevented us really from catching up to that 8 to 10 weeks that we lost. So we didn't incur any additional delays, it's just the projects, several large projects which we had expected would fully deliver or mostly deliver during this past quarter or early in this past quarter did not deliver at all. So that's basically were the two -- the two half months came from and that's where we sat currently.

Not that it's you equate it to the same but for those who have follow the agricultural work has been so much moisture that they are worrying about crop disease, so if that gives you an idea what's been going on up in our neck at the wood, that's building --where we are facing on building side there has been so much moisture that it just presents challenges so --

Right. I wanted to ask about -- you mentioned there's a lack of acquisition opportunities which would indicate that cap rates are low relative to what you think is reasonable relative to your cost of capital. But when you're selling assets, you're having to take impairments. Is it just that when the assets that you're selling and the assets that you want, there's just very, very high demand for healthcare and multi-family and not as much within your other commercial real estate sectors? Or can you give us a little bit of color on what's going on there?

Yes. There is definitely different cap rates. I mean if you look at suburban commercial office rates B product A minus product, the cap rates have certainly started to come down but no they are 300 basis points higher than multi-family. I think the real issue is we are not even seen acquisitions at any price of asset that we would add to our portfolio. We are just not seen really any product that is coming to market on any scale in the markets we are in for multi-family and healthcare and senior housing. So it's not that we don't want to pay low cap rates, it's just even if we did, there is no product available. And of course we are selling is in different segments and not as sought after as healthcare, multi-family. The one difference would maybe industrial where we did strong demand and we did see pretty aggressive cap rates in that segment. But in commercial office that's not the case.

And if I could add impairment if you -- the asset we said are selling have some vacancy issues so the strategic decision not to allocate those dollars for lease up is causing the impairment with the short holding period so if we lease these assets up, the carrying value would be there. It's just the shortening holding period and the decision not to push those dollars into TI into those buildings.

Yes. I mean we are seeing much better opportunities to deploy capital. Again what we are saying is those segments and markets where IRET is the leader or the dominate player. That's not the case in commercial office and so we are not aggressively deploying capital in there to as Diane said resolve some of the vacancy issues. And again if you look at discontinued operations and we are basically selling non-contributing assets. I mean assets that are neutral at best to our P&L and again that's just part of the overall plan to focus on those segments where we've got growth, we've got scale and we are actually making money.

And the next question is a follow up from Dave Rodgers - of Robert W. Baird. Please go ahead.

Maybe just to follow-up on the G&A. Sorry, Diane, I think the increase in G&A, just running the numbers, maybe $2 million year-over-year, sounds like obviously the LTIP is some of that. One, is that a new stock incentive plan that was just put into place and that's why it's hitting? And the second is what else in G&A is causing those numbers to go up? And is none of that related to development where you'd be capitalizing any of that?

Correct. The executive compensation signed with the long -term incentive has been in place for a couple of years. However, in fiscal 2014 was the first year that the metrics were achieved. And so that's the first time you are seeing it hit the financial statement. We did have some corrections that were posted in the fiscal 2015 of $457,000 that actually related to fiscal 2014. So that's why I on a go forward you could expect the LTIP to be about $1.2 million non-cash every quarter. The other increase is in G&A, this is just on a corporate side. We've had to add some additional staff and so normally just increase in labor expenses. Development all that property related items are going to be found within the property management expenses in their segments. Does that answer your question?

I think it does. Thank you.

This concludes our question-and-answer session. I'd like to turn the conference back over to Tim Mihalick, President and CEO for any closing remarks.

Thank you. Couple of closing remarks. One, obviously we are very focused on the closing gap on FFO and our dividend. And I know that it continues to be a concern, obviously concern and all of us working hard to get that accomplished. We see we made great stride here in this first quarter and expectations as we continue to prune our low performers and those require additional TIs and CapEx, as Tom said, we feel we are able to put those dollars to work in development projects and/or potential acquisitions that we can find them. That will continue to be a focus of ours so that we can get that one-to-one coverage and below follow up as we look to move forward. Secondly, I just want to remind all of you that I hope you haven't made your airplane reservation or hotel reservations to get here, Monday for a grand opening of our apartment complex, The Common as well as our annual meeting on Tuesday night. There is still time. So hopefully we will see at Tuesday night. If not, we will talk to you later on. Thanks everybody.

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