Good day and welcome to the IRET second quarter 2017 earnings conference call and webcast. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Steve Swett. Please go ahead.

Thank you and good morning. IRET's Form 10-Q was filed with the SEC 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 about future events based on current expectations and assumptions. These statements are subject to risks and uncertainties due to factors discussed in yesterday's Form 10-Q, during this conference call and in the risk factors section of our Annual Report and other filings with the SEC. Actual results may differ materially and we do 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 Chief Executive Officer, Mark Decker Jr., President and Chief Investment Officer and Ted Holmes, Executive Vice President and Chief Financial Officer. I will now turn the call over to Tim Mihalick. Tim?

Thank you Steve and good morning, everyone. Our fiscal second quarter marked continued progress as we transformed IRET into a premier Midwest focused multifamily REIT. We believe the apartment market is positioned to enjoy continued strong growth with healthy fundamentals, sustained drivers of demand and on the isolated pockets of oversupply. Further, within the public multifamily REIT sector, we believe IRET can offer a differentiated investment opportunity with its value-oriented B to A-minus quality portfolio concentrated in the Midwest. As we continue this transformation, we believe we can create significant value for our shareholders through better growth prospects and enhanced operations. We began our strategic transformation nearly two years ago and I am excited with our progress and believe we are on the cusp of eliminating a number of uncertainties around our company. I want to thank the entire IRET team for their hard work and commitment to our company during this process. I would also like to thank the many shareholders who have been with us since the beginning. Our results for the second quarter of fiscal 2017 demonstrate the emerging benefits of the transition we are implementing. While our same-store portfolio continues to be impacted by market level disruptions from new supply and oil price volatility in North Dakota, our newer properties in other markets are driving strong growth at the bottomline. As a measure of how much we have accomplished during the past two years, we have acquired or developed more than $306 million of new and market leading apartment communities which contributed to a year-over-year 15% increase in NOI for our multifamily portfolio and 10% increase in NOI for overall portfolio. I remind you that none of these communities is a part of our same-store portfolio and as these units are added to the same-store results in the coming quarters, we believe they will enhance our growth in operating margins and reduce our relative concentrations in the more volatile markets in North Dakota. Our team remains focused on a number of strategic initiatives as they work towards greater operational strength, improved asset quality and a stronger balance sheet. First, we are in the process of completing and leasing up Monticello Crossings, bringing to conclusion a development program that has resulted in the completion of $360 million and addition to the portfolio of more than 1,650 units in the past 24 months. As a result of this investment, we have increased our average monthly rental rates by 16.7%, which we believe, as a result of higher operating margins, will enhance our operating efficiencies. Further, most of these developments were completed and leased at extremely attractive and accretive returns relative to current cap rates, which we believe creates value for our shareholders and improves our overall earnings quality. Second, as previously announced, we are on track to complete the sale of our senior housing assets. To-date, we have sold approximately $44 million of these assets. It has remaining $236 million under contract with our deposits which are expected to close in early 2017. This plus the previously announced sales of non-core properties in fiscal 2016 would mean we have received nearly $600 million of proceeds to fund our apartment investments and improve our financial flexibility. It is important to note these transactions were undertaken during a period with strong demand and we are pleased with the pricing we have achieved. Third, we continue our efforts to reposition our balance sheet to improve our financial flexibility and reduce our cost of capital. As an example of this, earlier this month, we redeemed the 8.25% Series A preferred stock for $29 million. This will eliminate $2.4 million a year in dividend payments. And now I would like to discuss our common dividend. For the current quarter, our Board approved a regular quarterly distribution of $0.07 per share and unit plus a $0.06 special distribution related to capital gains recorded on recent and pending asset sales. As we have discussed the past, while we may be required to pay special dividends from time-to-time in the future, we want to operate with sustainable quarterly dividend covered by operating cash flow which we believe makes us a stronger company with sustained cash flow and greater financial flexibility. I am proud to be a part of a company that has survived nearly 50 years and been through many cycles and we want to be poised to take advantage of opportunities in the future. I assure you, this decision was not made lightly, but does reflect our reinvigorated financial discipline and focus and demonstrating good capital allocation as we strive to make IRET a better company. Finally, the Board has authorized a new $50 million share repurchase program. While we will continue to look at incremental new investments to grow our multifamily platform, this repurchase authorization will allow us to be optimistic as we make progress on our strategic plan. I will now turn the call over to Mark Decker Junior. Mark? Mark Decker Jr.: Thank you Tim and good morning everyone. As Tim mentioned, we continue to refine our portfolio in terms of property type and quality. Following the completion of the senior housing disposition, our remaining non-multifamily assets are primarily medical office buildings, which we intend to opportunistically sell in the future. While it's too soon for us to discuss the timing of sales or pricing for these properties, we believe there will be significant interest from a wide pool of potential buyers. We will be thoughtful about these sales and expect to execute them as we find capital redeployment opportunities that meet our objectives. We will continue to look for opportunities to invest, largely through acquisitions, with a focus on maximizing risk-adjusted returns in newer higher-quality and larger apartment communities where we can achieve market-leading efficiencies. We will consider opportunities that allow us to enter at an attractive price point with upside for growth. You should expect us to be focused on assets consistent with our strategic goals of balance sheet strength, improving operations and asset quality, with quality defined generally as well located properties in markets with multiple demand drivers and attractive supply demand characteristics giving us pricing power and potential for long-term cash flow growth. We also continued to make progress on improving our financial flexibility. As Tim said, last week we completed the redemption of our 8.25 Series A preferred stock at par for $29 million using proceeds from recent sales and cash on hand. Also, as I mentioned last quarter, we are currently having discussions with a number of banks to obtain a larger and more flexible credit facility. Our goal is to have something in place by the end of fiscal Q3. I will now turn the call over to Ted.

Thank you Mark and good morning everyone. Yesterday we reported net income available to shareholders of $8.7 million for the fiscal quarter ending October 31, 2016, as compared to net income of $13.8 million for the same period of the prior year. The decrease was primarily attributable to gains on sales recorded in the comparable quarter of the prior year. We reported funds from operations or FFO of $16.5 million or $0.12 per share and unit for the second quarter ending October 31, 2016, as compared to $8.1 million or $0.06 per share and unit for the prior year period. The increase in FFO per share was primarily due to the loss on extinguishment of debt and default interest that was recognized in the prior-year quarter. For the six months ended October 31, 2016 net loss to shareholders was $15.8 million compared to net income of $15.4 million for the same period of the prior year. The decrease from the prior year was primarily due to an impairment charge during the period ending October 31, 2016. FFO for the six-months period ending October 31 was $32.3 million or $0.24 per share and unit, as compared to $30.1 million or $0.22 per share and unit for the same period of the prior year. Moving to our multifamily same-store performance. Excluding the results from our energy impacted markets of Minot and Williston, our second quarter same-store multifamily revenue increased by 1.1% year-over-year, driven by a 4.3% increase in average rental rates, which was offset by a 320 basis point decrease in weighted average occupancy. Occupancy in some markets is related to new product deliveries which of course helps drive rents but contributes to vacancy in the near-term. In addition, we completed implementation of our revenue management system in July which strives to maximize effective gross income by maximizing rent pricing based on vacancy, leasing velocity and real-time market data. The implementation is, however, new to the company and will impact our occupancy as we work to solve to the strongest market rents achievable. We do expect general leasing trends to normalize in the coming quarters. We continue to focus our efforts on controlling costs and operating expenses were down 0.1% which helped generate a 2.1% increase in same-store multifamily NOI in the second quarter for the non-energy impacted portfolio. While substantially better than the fiscal first-quarter, our same-store portfolio growth is currently not on the pace we had expected. The overall same-store portfolio has seen negative NOI growth through the first half of the fiscal year, which has affected our guidance range that I will discuss in more detail shortly. We continue to make progress with our value-add program, which increases topline rental rates, lower future maintenance expenses and positions our properties to compete more effectively in the marketplace. During the second quarter in fiscal 2017, we spent approximately $5.3 million on this program, bringing our total investment for the fiscal 2016 and 2017 fiscal years to $14.3 million, with more than 900 units leased out of the roughly 1,100 completed with an average rental rate increase of approximately 12%. As we have said in the past, during fiscal 2017 we are committed to spending approximately $3.5 million per quarter, completing approximately 300 units per quarter. We anticipate this value-add program to continue for at least another 18 to 24 months. With regard to our balance sheet, as of October 31, 2016 at quarter-end, our leverage, as reflected by net debt to trailing 12 months EBITDA was seven times and our upcoming maturity schedule is manageable with approximately $110 million and $43 million of debt maturing in the remainder of fiscal 2017 and 2018, respectively. Approximately $61 million of our mortgage debt is secured by properties currently held for sale and these loans will be repaid when those properties are sold. Also subsequent to quarter-end, we put in place a new 10-year non-recourse $56 million mortgage loans with a fixed rate of 3.47% secured by our 71 France apartment community which we recently completed. This new mortgage loan was put in place at an estimated 66% loan-to-value effectively demonstrating the value creation by this project. We are still committed to increasing our percentage of unencumbered assets as well over time. Finally, I will discuss our revised guidance. Taking into account our results through the first six months of our fiscal year, current market conditions in North Dakota and the impact of recent sale activity, we are updating our FFO guidance for the fiscal year ending April 30, 2017 to a range of $0.48 to $0.52 per share and unit, reflecting a $0.02 reduction at the top end of the range. This revision reflects our revised expectation for same-store NOI growth of between negative 3% to negative 1% for the year. While the trends we have seen so far in several of our North Dakota markets have trailed our budgets due to continued uncertainty in the oil impacted markets and supply pressures elsewhere, these issues convey the importance of our strategic evolution which will reduce our concentrations in legacy markets and older properties. It is also important to note that our non-same-store multifamily properties currently represent about 25% of our overall company multifamily NOI. And as these properties are included in the same-store portfolio in the coming years, we expect our results to improve. Also please note that this guidance does not reflect the operational or capital impact of any future acquisition, development, disposition or capital markets activity including potential transactions discussed as part of the company's strategic initiatives as well as transactions previously announced but not yet closed. With that, I will turn the call back to Tim.

Thanks Ted. We continue to make strides in our transformation into a premier owner and operator of multifamily communities in growing Midwest markets. We believe we are well on our way to capturing better growth and value creation over the long run as a focused company capitalizing on decades of deep experience and relationships in the Midwest. We remain excited about our future and look forward to communicating our continued progress in the quarters and years to come. With that, I would like to open the call to questions from our analysts. Operator?

[Operator Instructions]. Our first question is from Drew Babin with Robert W Baird. Please go ahead.

Good morning.

Good morning Drew.

Good morning Drew.

A quick question on AFFO payout. If you take out the new regular dividend and look at the AFFO you reported for 2Q 2017, it implies a payout ratio in the mid-60s range, which is obviously very, very healthy. Did you have longer-term AFFO payout target in mind, taking into account future dispositions and other things that maybe part of the strategic plan? What shall we think about for payout going forward?

Hi Drew. This is Ted. Yes, 65% appears pretty aggressive. I think what we tried to do was knowing that we were moving to a multifamily company, we wanted a CapEx policy which is related to AFFO, of course, that is more consistent with our peers. And if you look to our peer group, they range anywhere from 70% to 80% payout AFFO to dividend relationship. And so I think that would be a little bit more consistent with how we are looking at AFFO going forward, if that helps.

It does. Just trying to get a sense of the cushion built-in, but it sounds like there's plenty of it. One other question on operating margins. I know in the press release, it talked about same property margins being down slightly year-over-year, but looking at the all-in including the non-same-store properties, looked like NOI margins for multifamily increased about 116 basis points year-over-year. Is that simply the impact of newer properties hitting the P&L? Or are you beginning to see impact from the revenue and cost management measures you have put in?

Yes. I think if you look at the overall company, the margins are improving. Yes, it's a result of new properties being added to the company. It's also the fact that we have implemented several revenue enhancing systems, including LRO and our RUBS program. LRO, now being fully implemented in the portfolio, RUBS, affecting about 80% of the company's multifamily assets. Two revenue-generating systems, of course. And then you also have to consider the fact that we have got a very aggressive value-add program through that's continuing. And that's also enhancing margins as we are getting higher rents, good run rate increases there and as we continue to add, of course, new product to the portfolio, we should see margin improvement.

Okay. So in other words you are beginning to see some improvement directly related to LRO, RUBS in the CapEx already?

Yes. But be careful, that may be selective by region. In other words, there are some select markets which we have touched on including energy impacted, some supply creeps that we knew was coming in markets like Grand Forks and Bismarck, but we thought we could outrun it. We are getting caught near-term in a little bit of that supply pressure. But the majority of our markets, yes, the LRO and RUBS programs are value-add, it's taking effect.

Okay. That's all for me. Thank you.

Thanks Drew.

Our next question comes from Jim Lykins with D.A. Davidson. Please go ahead.

Good morning everyone. Could you talk a little bit about what you are seeing with rents right now in the Bakken? Have we hit bottom? And also, if you are continuing to have to make any concessions there?

Jim, this is Ted. I will take a shot and then let Tim or Mark comment, because I have looked at this with our staff. Rents, I don't know if they have exactly hit bottom in Williston. If you look year-over-year and do a comparison, we are still going to see some negative variances going forward for a bit. And when you look at some of the market rental data out there, we are about $1 a foot and you might see a slight creep down from that, but it's near the bottom on total rents. And then Minot, I think has hit bottom. We are pretty confident that Minot is at a bottom and in the next coming quarters, year-over-year comparison may still be slightly negative but we should see rents trending up in Minot.

Jim, just a follow-up on that. This is Tim. On the Minot sequential quarters, we did see a little uptick. So I think we feel like Minot has hit bottom and starting in the other direction.

Okay. That's good to hear. And also you mentioned supply pressure. I think you used the word isolated in various markets. Could you just give us a little more color on what you were talking about there?

Yes. The markets, as we have seen and we referenced North Dakota where we have seen some impact on the supply pressure. Those would be the ones where we are seeing some uptick and it has caused some issues and concerns but nothing that we didn't anticipate on happening.

Jim, this is Ted. If you look at markets like Grand Forks and Bismarck, populations of roughly 80,000 and 90,000 people, those markets, based on our sources, roughly 10,000 to 12,000 units as the universe in those markets in over the last three to four years. Our sources tell us that roughly 1,500 to 1,300 units have been added, including our units by the way that's inclusive. So you might have seen an 8% to 10% increase in the last two or three years in supply in markets like that. But again, for the long-term, we think we are going to be fine. We have maintained occupancy. We have seen some slippage in rental rates. But with our LRO software and other revenue enhancing ideas for our tenants, we think we are going to be fine.

Okay. That's very helpful. And one last one, can you just talk about any or tell us what the appetite might be right now for any additional development projects?

Okay. That's Mark. Mark Decker Jr.: Good morning Jim. I think while our perspective on development is, we are going to be very measured, we are looking at a couple of different programs where we come in, in the project as some sort of preferred player. So I don't think you will see us on our own balance sheet with our own team developing and is not clear whether we will do any development. But I think, certainly, we have a goal to grow the portfolio, to grow assets that make sense and have good long-term pricing power in our markets and development is a way to do that. So we are looking at it. We have nothing -- obviously as soon as we put one of those on the board, you will hear about it because we will disclose it.

Okay. Thanks guys. Mark Decker Jr.: Thanks Jim.

[Operator Instructions]. Our next question comes from Carol Kemple with Hilliard Lyons. Please go ahead.

Good morning.

Good morning Carol. How are you?

Good. How are you?

Good.

Can you kind of talk about the medical office buildings? Do you have any on the market right now? And if not, when do you plan to start marketing those? And are you getting any inquiries from potential buyers at this point? Mark Decker Jr.: Yes. Good morning Carol. This is Mark. In short, no we don't currently have any of them on the market. Everything is for sale all the time. But as we look at how we have sold down the portfolio and now assuming Edgewood Vista closes, we will just have really multifamily, the medical office and then just a few non-core properties beyond that left. The medical office is a portfolio we understand really well. It's very high quality and we will look to get out of that for certain. But we will look to get out of it once we have good reinvestment candidates. And having said all of that, our priority right now is allocating the capital that we are going to get from the Edgewood Vista sale, which is significant.

Okay. And then with any use of capital you get, how would you decide between an acquisition and buying stock back? What would be the thought process there? Mark Decker Jr.: Whichever provides the highest risk-weighted return with a bias towards liquidity always. So as you saw, our Board authorized a share and preferred share repurchase of $50 million and we will be measuring that versus what we think our NAV is, which I will tell you in advance we won't tell you right now and what we think we can do on the property side. But the overall goal is to grow a high-quality pool of cash flow coming from multifamily.

And then just one more question. As far as acquisitions are concerned, are you seeing many attractive opportunities in your market at this point? Mark Decker Jr.: Yes. Look, we are trying to develop the largest funnel of acquisitions we can possibly see. And within that, I would say we are seeing assets and portfolios that are of interest to us. There is a lot of capital out up there today and it's willing to take a historically low unlevered return, but we think there are good assets to be had that make sense for our portfolio on a long-term basis.

Okay. Thank you very much.

Thanks Carol.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thanks Austin. This is Tim Mihalick. Just thanking you all for taking time this morning to get the update on IRET, where we are at. We are certainly very excited about where we are going looking forward to the New Year. And with that, I would like to wish you all a Merry Christmas and Happy Holidays. Thanks again.

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