Centerspace(CSR) - 2020 Q3 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements The unaudited condensed consolidated financial statements detail the company's financial position and performance Condensed Consolidated Balance Sheets Total assets and equity increased, driven by real estate investments and common share issuance Balance Sheet Summary | Metric | Sep 30, 2020 (in thousands) | Dec 31, 2019 (in thousands) | Change (vs. Dec 31, 2019) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------------------ | | Total Assets | $1,478,934 | $1,392,418 | +$86,516 | | Total Liabilities | $775,863 | $695,956 | +$79,907 | | Total Equity | $686,511 | $679,902 | +$6,609 | | Property owned (net) | $1,424,998 | $1,293,956 | +$131,042 | | Revolving lines of credit | $135,000 | $50,079 | +$84,921 | | Common Shares | $968,436 | $917,400 | +$51,036 | Condensed Consolidated Statements of Operations Net income declined significantly due to lower gains on real estate sales and reduced overall revenue Operations Summary | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Revenue | $44,138 | $47,436 | $132,454 | $139,978 | | Total Expenses | $42,136 | $43,840 | $125,924 | $131,027 | | Operating Income | $2,002 | $3,596 | $6,530 | $8,951 | | Gain (loss) on sale of real estate | $25,676 | $39,105 | $25,486 | $39,774 | | Net Income (Loss) | $21,184 | $34,718 | $9,415 | $32,025 | | Net Income (Loss) Available to Common Shareholders | $18,021 | $29,891 | $4,195 | $24,895 | | Basic EPS | $1.40 | $2.57 | $0.33 | $2.11 | | Diluted EPS | $1.38 | $2.54 | $0.33 | $2.11 | Condensed Consolidated Statements of Comprehensive Income Total comprehensive income decreased significantly due to lower net income and unrealized derivative losses Comprehensive Income Summary | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Net Income (Loss) | $21,184 | $34,718 | $9,415 | $32,025 | | Unrealized gain (loss) from derivative instrument | $(210) | $(2,251) | $(11,314) | $(8,963) | | Total Comprehensive Income (Loss) | $22,067 | $32,523 | $(234) | $23,088 | | Comprehensive income (loss) attributable to controlling interests | $20,608 | $29,771 | $414 | $22,321 | Condensed Consolidated Statements of Equity Total equity increased, driven by net income and common share sales, partially offset by distributions Equity Summary | Metric | Dec 31, 2019 (in thousands) | Sep 30, 2020 (in thousands) | Change (vs. Dec 31, 2019) | | :----------------------------------------- | :-------------------------- | :-------------------------- | :------------------------ | | Total Equity | $679,902 | $686,511 | +$6,609 | | Common Shares | $917,400 | $968,436 | +$51,036 | | Accumulated distributions in excess of net income | $(390,196) | $(412,577) | -$(22,381) | | Accumulated other comprehensive income (loss) | $(7,607) | $(17,256) | -$(9,649) | - Sale of common shares, net: $58,204 thousand for the nine months ended September 30, 2020[22] - Distributions - common shares and units: $(26,576) thousand for the nine months ended September 30, 2020[22] Condensed Consolidated Statements of Cash Flows Operating cash flow decreased while financing cash flow increased from credit lines and share issuance Cash Flow Summary | Metric | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------- | | Net cash provided by operating activities | $47,258 | $51,642 | -8.5% | | Net cash provided by (used by) investing activities | $(148,572) | $(74,618) | -99.1% | | Net cash provided by (used by) financing activities | $74,200 | $15,559 | +376.9% | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $(27,114) | $(7,417) | -265.6% | | Cash, cash equivalents, and restricted cash at end of period | $19,003 | $11,839 | +60.5% | - Payments for acquisitions of real estate assets: $(168,411) thousand for the nine months ended September 30, 2020, compared to $(156,650) thousand in 2019[27] - Proceeds from issuance of common shares: $58,204 thousand for the nine months ended September 30, 2020, compared to $0 in 2019[27] - Proceeds from revolving lines of credit: $126,578 thousand for the nine months ended September 30, 2020, compared to $223,643 thousand in 2019[27] Notes to Condensed Consolidated Financial Statements Detailed disclosures cover accounting policies, recent pronouncements, and specific financial instrument details NOTE 1 • ORGANIZATION IRET is a REIT focused on owning, managing, and developing apartment communities - IRET is a REIT focused on apartment communities[32] - As of September 30, 2020, IRET owned interests in 67 apartment communities, comprising 11,910 apartment homes[32] NOTE 2 • BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES This note outlines accounting policies and highlights the risks of the COVID-19 pandemic - Financial statements are prepared in accordance with GAAP for interim information and SEC rules, consolidating IRET and its controlled subsidiaries, including the Operating Partnership[33][34][37] - The COVID-19 pandemic is a significant risk, but it did not have a material adverse impact on IRET's financial condition, results of operations, and cash flows for the nine months ended September 30, 2020[35][36] - IRET elected the fair value option for all mortgages and notes receivable at January 1, 2020, as allowed by ASU 2019-05, avoiding the application of ASU 2016-13 on credit losses[42] - Rental revenues from multifamily apartment homes (operating leases, generally one year or less) represent approximately 98.4% of total revenues[45] - Rent deferrals for multifamily residents and abatements for commercial tenants due to COVID-19 were recognized as variable lease payments; approximately $59,000 in rent deferrals remained outstanding as of September 30, 2020[48][49] - No impairment charges were recorded for long-lived assets during the three and nine months ended September 30, 2020 and 2019[57] - As of September 30, 2020, IRET had funded $18.0 million of a $29.9 million construction loan for a multifamily development in Minneapolis[60] - IRET's Operating Partnership and less-than-wholly owned real estate partnerships are Variable Interest Entities (VIEs), with IRET as the primary beneficiary[62] - As of September 30, 2020, IRET had no marketable securities; a realized loss of $3.4 million from disposal of such securities was recorded during the nine months ended September 30, 2020[65] Revenue by Type (9 Months Ended Sep 30, 2020) | Revenue Stream | Amount (in thousands) | Percentage of Total | | :--------------------------------- | :-------------------- | :------------------ | | Fixed lease income - operating leases | $125,555 | 94.8% | | Variable lease income - operating leases | $4,811 | 3.6% | | Other property revenue | $2,088 | 1.6% | | Total Revenue | $132,454 | 100% | NOTE 3 • EARNINGS PER SHARE This note details the calculation of basic and diluted earnings per share and anti-dilutive instruments - Performance-based RSUs (27,506 for 9 months ended Sep 30, 2020), Series D preferred units (228,000 for 9 months ended Sep 30, 2020), and stock options (68,292 for 9 months ended Sep 30, 2020) were excluded from diluted EPS calculations as they were anti-dilutive[67][68] EPS Calculation | Metric | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :----------------------------------------- | :-------------------------- | :-------------------------- | | Net income available to common shareholders | $4,195 (in thousands) | $24,895 (in thousands) | | Denominator for basic EPS (weighted average shares) | 12,424 | 11,705 | | Denominator for diluted EPS | 13,463 | 13,174 | | Basic EPS | $0.33 | $2.11 | | Diluted EPS | $0.33 | $2.11 | NOTE 4 • EQUITY AND MEZZANINE EQUITY This note details changes in equity, including share offerings, repurchases, and preferred units - Operating Partnership Units outstanding: 1.0 million at Sep 30, 2020, down from 1.1 million at Dec 31, 2019[71] - Common Shares outstanding: 13.0 million at Sep 30, 2020, up from 12.1 million at Dec 31, 2019[72] - Under the 2019 ATM Program, IRET issued 819 thousand common shares for $57.5 million net proceeds during the nine months ended Sep 30, 2020; $69.2 million remained available[73][74] - The share repurchase program had $44.4 million remaining available as of Sep 30, 2020; 237 Series C Preferred Shares were repurchased for $5.6 million during the nine months ended Sep 30, 2020[78][79] - Series C Preferred Shares outstanding: 3.9 million at Sep 30, 2020, with a $97.0 million aggregate liquidation preference[80] - Series D Preferred Units: 165,600 units issued at $100 par value, with a 3.862% annual preferred distribution rate and a holder's put option[81] NOTE 5 • DEBT This note details IRET's debt structure, including credit facilities, term loans, and senior notes - Unsecured Credit Facility: $250.0 million revolving line of credit, with $135.0 million drawn and $115.0 million available as of Sep 30, 2020. Matures August 31, 2022[83] - Unsecured Term Loans: $70.0 million (matures Jan 15, 2024) and $75.0 million (matures Aug 31, 2025)[84] - Unsecured Senior Notes: $125.0 million issued under a $150.0 million private shelf agreement, with $25.0 million remaining available[86][87] - IRET believes it is in compliance with all financial covenants and limitations as of September 30, 2020[85] Debt Summary (as of Sep 30, 2020) | Debt Type | Amount (in thousands) | Weighted Average Interest Rate | Weighted Average Maturity (Years) | | :------------------------ | :-------------------- | :----------------------------- | :-------------------------------- | | Lines of credit | $135,000 | 3.24% | 2.2 | | Term loans | $145,000 | 4.14% | 4.4 | | Unsecured senior notes | $125,000 | 3.78% | 8.8 | | Mortgages payable - fixed | $314,511 | 3.99% | 5.5 | | Total Debt | $719,511 | 3.68% | 5.2 | NOTE 6 • DERIVATIVE INSTRUMENTS IRET uses interest rate swap contracts as cash flow hedges to manage interest rate exposure - Interest rate derivatives are used to stabilize interest expense and manage interest rate exposure, primarily through interest rate swap contracts[90] - Fair Value of Derivative Instruments (Sep 30, 2020): $17,256 thousand (classified as Accounts Payable and Accrued Expenses)[94] - An estimated $4.4 million will be reclassified as an increase to interest expense over the next twelve months from accumulated other comprehensive income[91] NOTE 7 • FAIR VALUE MEASUREMENTS This note describes fair value measurement for financial instruments, including mortgage loans - Effective January 1, 2020, IRET elected the fair value option for mortgage loans receivable and notes receivable, valuing them using an income approach with Level 3 inputs[99] - Changes in the fair value of these receivables are reported in interest and other income on the consolidated statements of operations[101] - The estimated fair value of mortgages payable was $331,423 thousand (carrying amount $314,511 thousand) as of Sep 30, 2020, using discounted cash flows and Level 3 inputs[104][105] Fair Value of Financial Instruments (as of Sep 30, 2020) | Asset/Liability | Fair Value (in thousands) | Level | | :-------------------------------- | :------------------------ | :---- | | Mortgages and notes receivable | $24,315 | 3 | | Derivative instruments - interest rate swaps | $17,256 | 3 | NOTE 8 • ACQUISITIONS AND DISPOSITIONS IRET continued its portfolio management strategy with significant acquisitions and dispositions - Acquisitions (9 Months Ended Sep 30, 2020): Acquired Ironwood Apartments for $46.3 million and Parkhouse Apartment Homes for $144.8 million, totaling $191.0 million[108] - Dispositions (9 Months Ended Sep 30, 2020): Disposed of four apartment communities and one commercial property for $42.5 million (gain of $25.6 million), and unimproved land for $1.3 million (loss of $190 thousand), totaling $44.3 million with a net gain of $25.5 million[112] - Acquisitions (9 Months Ended Sep 30, 2019): Totaled $171.4 million, including SouthFork Townhomes, FreightYard Townhomes and Flats, and Lugano at Cherry Creek[109] - Dispositions (9 Months Ended Sep 30, 2019): Totaled $95.3 million, with a total gain of $39.4 million[113] NOTE 9 • SEGMENT REPORTING IRET operates in a single reportable segment focused on apartment communities - IRET operates in a single reportable segment: ownership, management, development, redevelopment, and acquisition of apartment communities[114] - Net Operating Income (NOI) is defined as total real estate revenues less property operating expenses, including real estate taxes[115][162] - Segment assets (Sep 30, 2020): Total property owned (net) was $1,424,998 thousand, with multifamily assets at $1,402,833 thousand[124] Segment Performance (3 Months Ended Sep 30) | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :----------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------- | | Multifamily Revenue | $42,463 | $38,971 | +9.0% | | All Other Revenue | $1,675 | $8,465 | -80.2% | | Total Revenue | $44,138 | $47,436 | -7.0% | | Multifamily NOI | $24,553 | $22,928 | +7.1% | | All Other NOI | $1,054 | $4,598 | -77.1% | | Total NOI | $25,607 | $27,526 | -7.0% | Segment Performance (9 Months Ended Sep 30) | Metric | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :----------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------- | | Multifamily Revenue | $126,296 | $114,726 | +10.1% | | All Other Revenue | $6,158 | $25,252 | -75.6% | | Total Revenue | $132,454 | $139,978 | -5.4% | | Multifamily NOI | $73,893 | $67,339 | +9.7% | | All Other NOI | $3,327 | $13,177 | -74.8% | | Total NOI | $77,220 | $80,516 | -4.1% | NOTE 10 • COMMITMENTS AND CONTINGENCIES IRET is not aware of any material pending legal or environmental issues - No material pending or threatened legal proceedings are known, other than ordinary routine litigation incidental to the business[125] - IRET has no knowledge of any material violation of environmental laws at its properties[126][127] - Twenty properties are subject to restrictions on taxable dispositions, but IRET generally holds properties for investment and seeks tax-deferred transactions for sales[128] NOTE 11 • SHARE-BASED COMPENSATION This note outlines share-based awards granted under the 2015 Incentive Plan - The 2015 Incentive Plan allows for awards in cash, unrestricted/restricted common shares, stock options, stock appreciation rights, and RSUs up to an aggregate of 425,000 shares[129] - 2020 LTIP Awards include 8,806 time-based RSU awards to officers, 141,000 stock options to officers (fair value $7.255 per share), 8,272 time-based RSUs to trustees, and 480 time-based RSUs to employees[130][131][132] - Share-based compensation expense recognized was $1.5 million for the nine months ended September 30, 2020 and 2019, respectively[133] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, condition, and operational results, focusing on COVID-19 impacts Executive Summary IRET is a REIT focused on apartment communities, with property value increasing to $1.8 billion - IRET owns, manages, acquires, redevelops, and develops apartment communities, focusing on markets with stable economic conditions and strong employment[142] - As of September 30, 2020, IRET owned interests in 67 apartment communities, comprising 11,910 apartment homes[142] - Property owned (net) increased to $1.8 billion at September 30, 2020, from $1.6 billion at December 31, 2019[142] COVID-19 Developments The COVID-19 pandemic led to enhanced safety protocols, remote work, and rent accommodations - IRET implemented enhanced cleaning protocols, physical distancing in common spaces, and remote work guidelines[144] - Rent deferrals were provided to residents and rent abatements to commercial tenants financially impacted by COVID-19[144] - The expiration of $600 per week federal unemployment benefits on July 31, 2020, could impact residents' ability to pay rent[149] Financial Impact of the COVID-19 Pandemic COVID-19 did not have a material impact, but future risks include reduced demand and rental payments - COVID-19 did not have a material impact on IRET's financial condition, operating results, or cash flows for the three months ended September 30, 2020[148] - Extended work-from-home directives resulted in decreased traffic and lower demand/rent increases for urban apartment communities[148] - Potential adverse impacts include reduced rental payments, restricted capital markets access, impact on third-party suppliers, potential dividend reductions, and asset impairment[150] - IRET has delayed capital projects, eliminated travel expenses, and moved Board meetings to virtual format to preserve cash flow[151] Overview of the Three Months Ended September 30, 2020 Revenue decreased due to dispositions, while Funds from Operations (FFO) increased by 3.7% - Revenue decreased by $3.3 million to $44.1 million (7.0% YoY) for the three months ended September 30, 2020[153] - Total expenses decreased by $1.7 million to $42.1 million (3.9% YoY) for the three months ended September 30, 2020[153] - FFO applicable to common shares and Units increased to $12.6 million (3.7% YoY) for the three months ended September 30, 2020[154] - Acquired Parkhouse Apartment Homes for $144.8 million and disposed of four apartment communities and one commercial property for $43.0 million during the third quarter of 2020[155] Results of Operations This section analyzes consolidated performance, including revenue, expenses, NOI, and FFO Reconciliation of Operating Income to Net Operating Income Operating income and Net Operating Income (NOI) decreased due to changes in various expense categories Operating Income and NOI Reconciliation | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | % Change | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | % Change | | :-------------------------- | :----------------------------------------- | :----------------------------------------- | :------- | :----------------------------------------- | :----------------------------------------- | :------- | | Operating Income | $2,002 | $3,596 | (44.3)% | $6,530 | $8,951 | (27.0)% | | Net Operating Income (NOI) | $25,607 | $27,526 | (7.0)% | $77,220 | $80,516 | (4.1)% | Consolidated Results of Operations (Revenue, Expenses, NOI) Total revenue and NOI decreased, while same-store revenue increased slightly - Casualty loss increased to $1.3 million for the nine months ended Sep 30, 2020, from $911 thousand in 2019, primarily due to weather-related losses and increased aggregate stop loss/deductible[173] - General and administrative expenses decreased by 10.1% to $9.7 million for the nine months ended Sep 30, 2020, mainly due to lower legal fees, compensation, and travel costs[177] - Interest expense decreased by 11.0% to $20.6 million for the nine months ended Sep 30, 2020, driven by replacement of maturing debt with lower rate debt and lower average balances on credit lines/mortgage loans[179] - Interest and other income (loss) recorded a $2.0 million loss for the nine months ended Sep 30, 2020, compared to $1.4 million income in prior year, primarily due to a $3.4 million loss on marketable securities[180] Revenue by Type (3 Months Ended Sep 30, 2020) | Revenue Type | 2020 (in thousands) | 2019 (in thousands) | $ Change | % Change | | :-------------------------------- | :------------------ | :------------------ | :------- | :------- | | Same-store | $38,043 | $37,627 | $416 | 1.1% | | Non-same-store | $4,420 | $1,344 | $3,076 | 228.9% | | Other properties and dispositions | $1,675 | $8,465 | $(6,790) | (80.2)% | | Total Revenue | $44,138 | $47,436 | $(3,298) | (7.0)% | Property Operating Expenses by Type (3 Months Ended Sep 30, 2020) | Expense Type | 2020 (in thousands) | 2019 (in thousands) | $ Change | % Change | | :-------------------------------- | :------------------ | :------------------ | :------- | :------- | | Same-store | $16,198 | $15,493 | $705 | 4.6% | | Non-same-store | $1,712 | $550 | $1,162 | 211.3% | | Other properties and dispositions | $621 | $3,867 | $(3,246) | (83.9)% | | Total Expenses | $18,531 | $19,910 | $(1,379) | (6.9)% | NOI by Type (3 Months Ended Sep 30, 2020) | NOI Type | 2020 (in thousands) | 2019 (in thousands) | $ Change | % Change | | :-------------------------------- | :------------------ | :------------------ | :------- | :------- | | Same-store | $21,845 | $22,134 | $(289) | (1.3)% | | Non-same-store | $2,708 | $794 | $1,914 | 241.1% | | Other properties and dispositions | $1,054 | $4,598 | $(3,544) | (77.1)% | | Total NOI | $25,607 | $27,526 | $(1,919) | (7.0)% | Occupancy by Type (3 Months Ended Sep 30) | Occupancy Type | 2020 | 2019 | | :------------- | :------ | :------ | | Same-store | 94.4% | 93.5% | | Non-same-store | 93.9% | 96.3% | | Total | 94.3% | 93.6% | Net Income (Loss) Available to Common Shareholders Net income available to common shareholders decreased significantly due to lower gains on real estate sales - Net income available to common shareholders was $18.0 million for the three months ended Sep 30, 2020 (vs. $29.9 million in 2019) and $4.2 million for the nine months ended Sep 30, 2020 (vs. $24.9 million in 2019)[184] - Gain on sale of real estate and other investments was $25.7 million for the three months ended Sep 30, 2020 (vs. $39.1 million in 2019) and $25.5 million for the nine months ended Sep 30, 2020 (vs. $39.8 million in 2019)[182][183] Funds from Operations (FFO) FFO increased for the quarter but decreased for the nine-month period due to a prior-year gain - FFO is defined as net income (GAAP) excluding real estate depreciation/amortization, gains/losses from real estate sales, and impairment write-downs of certain real estate assets[186] - FFO applicable to common shares and Units increased to $12.6 million (3.7% YoY) for the three months ended Sep 30, 2020, but decreased to $33.7 million (18.2% YoY) for the nine months ended Sep 30, 2020[189] - The nine-month FFO decrease was primarily due to a non-recurring $6.6 million litigation settlement gain in 2019, a $3.4 million loss on marketable securities in 2020, decreased NOI from sold properties, and increased casualty loss[189] FFO Per Share | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :---------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | FFO per share and Unit - diluted | $0.90 | $0.93 | $2.49 | $3.15 | Acquisitions and Dispositions IRET acquired $144.8 million in new real estate and disposed of five properties for $43.0 million - Third quarter 2020 acquisitions totaled $144.8 million, compared to $125.3 million in the same period of the prior year[192] - Third quarter 2020 dispositions included five properties for an aggregate sale price of $43.0 million, compared to seven dispositions for $85.0 million in the prior year[192] Distributions Declared IRET declared consistent distributions per common and preferred share/unit - Distributions of $0.70 and $2.10 per common share and Unit were declared for the three and nine months ended September 30, 2020 and 2019, respectively[193] - Distributions of $0.4140625 and $1.2421875 per Series C preferred share were declared for the three and nine months ended September 30, 2020 and 2019, respectively[193] - Distributions of $0.9655 and $2.8965 per Series D preferred unit were declared for the three and nine months ended September 30, 2020 and 2019, respectively[193] Liquidity and Capital Resources This section outlines IRET's strategies for maintaining financial flexibility and managing liquidity Overview IRET aims to strengthen its balance sheet through positive cash flows and controlled overhead - Primary liquidity sources include cash and cash equivalents, cash flows from operations, unsecured lines of credit, proceeds from property dispositions, and offerings of preferred and common shares[195] - Primary liquidity demands include operating expenses, debt service, capital improvements, distributions, redevelopment, share buybacks, unit redemptions, and acquisitions[196] - Total liquidity as of September 30, 2020, was approximately $131.8 million ($115.0 million available on line of credit and $16.8 million cash)[199] - Total liquidity as of December 31, 2019, was approximately $226.5 million ($199.9 million on line of credit and $26.6 million cash)[199] - The decline in total liquidity since the end of the second quarter is primarily a result of funding the acquisition of Parkhouse Apartment Homes[199] COVID-19-Related Impacts on Liquidity COVID-19 could reduce cash flows and make future financing terms less favorable - Cash flows may be reduced due to lower monthly rent collections, potential lower occupancy, or reduced rental rates during and after the COVID-19 pandemic[201] - The terms of future debt and equity issuances may not be as favorable for the foreseeable future due to COVID-19-related economic disruption[201] - Contractual obligations include no debt maturities remaining in 2020 and $35.3 million of debt maturities in 2021[201] - Approximately $27.2 million remains to be funded, primarily over the next 12 months, under construction and mezzanine loans[201] Debt IRET's debt structure includes unsecured credit facilities, senior notes, and fixed-rate mortgage debt - IRET has an unsecured credit facility for $395.0 million, allocated to a $250.0 million revolving line of credit and $145.0 million in two term loans[202] - As of September 30, 2020, the revolving line of credit had $135.0 million drawn and $115.0 million additional borrowing availability[203] - A private shelf agreement allows for the issuance of up to $150.0 million of unsecured senior promissory notes, with $125.0 million issued and $25.0 million remaining available[204] - Mortgage loan indebtedness was $314.5 million at September 30, 2020, all at fixed rates with a weighted average interest rate of 3.99%[206] Potential Impact of COVID-19-Related Effects on Continuing Debt Availability The COVID-19 pandemic could impact future debt covenant compliance or access to funds - IRET may be unable to obtain advances under its credit facility if it cannot make certain representations and warranties (e.g., no material adverse change), if property NOI or capitalization rates reduce availability, or if properties become ineligible for the borrowing base[208] - Lender non-performance due to credit market deterioration or transfer of commitments could also limit credit facility availability[208] - As of the filing date, IRET has not experienced any restrictions or limitations on credit availability[208] Equity IRET has an At-The-Market (ATM) program with $69.2 million remaining available - The 2019 ATM Program allows for the offer and sale of common shares with an aggregate gross sales price of up to $150.0 million[209] - During the nine months ended September 30, 2020, IRET issued approximately 819,082 common shares under the ATM program for $57.5 million net proceeds[209] - As of September 30, 2020, common shares with an aggregate offering price of up to $69.2 million remained available under the 2019 ATM Program[209] Changes in Cash, Cash Equivalents, and Restricted Cash Capital was generated from share issuance and dispositions and used for acquisitions and debt repayment - Capital generated during the nine months ended Sep 30, 2020, included $57.5 million from common share issuance, $10.0 million from note receivable payoff, $3.9 million from marketable securities sales, and $43.0 million from property dispositions[211] - Capital used during the nine months ended Sep 30, 2020, included $46.3 million for Ironwood Apartments acquisition, $144.8 million for Parkhouse Apartment Homes acquisition, $12.2 million for noncontrolling interests, $11.9 million for mezzanine/construction loans, $16.9 million for mortgage principal repayment, $5.6 million for Series C preferred share repurchases, and $20.4 million for capital improvements[213] Contractual Obligations and Other Commitments No material changes to contractual obligations since the last annual report - There have been no material changes to contractual obligations and other commitments since the Form 10-K for the year ended December 31, 2019[214] Off-Balance Sheet Arrangements IRET had no significant off-balance sheet arrangements - As of September 30, 2020, IRET had no significant off-balance sheet arrangements[215] Critical Accounting Policies No significant changes to critical accounting policies during the period - No significant changes to critical accounting policies during the nine months ended September 30, 2020[216] Item 3. Quantitative and Qualitative Disclosures About Market Risk IRET's market risk exposure primarily relates to interest rate fluctuations on its debt - IRET's exposure to market risk is primarily related to fluctuations in interest rates on its current and future fixed and variable rate debt obligations[218] - Interest rate swaps are used to offset the impact of interest rate fluctuations on variable-rate term loans[218] - As of September 30, 2020, IRET's exposure to market risk has not changed materially since its Annual Report on Form 10-K for the year ended December 31, 2019[219] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and internal financial reporting controls Disclosure Controls and Procedures Management concluded that disclosure controls and procedures were effective - Disclosure controls and procedures were effective as of September 30, 2020[221] Internal Control Over Financial Reporting No material changes in internal controls over financial reporting occurred during the quarter - No material changes in internal controls over financial reporting occurred during the quarter ended September 30, 2020[222] Part II. Other Information Item 1. Legal Proceedings IRET is not aware of any material pending or threatened legal proceedings - IRET knows of no material pending legal proceedings, other than ordinary routine litigation incidental to the business[225] Item 1A. Risk Factors The COVID-19 pandemic has heightened existing risks related to finance, operations, and debt - The COVID-19 pandemic has heightened risks related to financial performance, property acquisitions, market concentration, asset illiquidity, debt refinancing, and dividend payments[226] - The COVID-19 pandemic could cause residents/tenants to defer/stop rent, reduce NOI/cash flows, increase borrowing, lead to debt covenant failures, restrict capital markets, impact suppliers, reduce dividends, and impair assets[228][230] - The expiration of additional federal unemployment funding under the CARES Act on July 31, 2020, could adversely impact residents' ability to pay rent and IRET's results of operations[240] - Inability to renew, repay, or refinance debt may result in losses, especially in tight credit markets, potentially forcing property dispositions or foreclosure[236][238][239] - Disruptions to high-quality housing and consistent operation of apartment communities (e.g., due to social distancing, mechanical failure) could lead to lease terminations, rent deferrals, increased costs, or reputational damage[235] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the issuance of unregistered common shares and share repurchase activities Sales of Securities IRET issued 150 unregistered Common Shares to limited partners under a private offering exemption - Issued 150 unregistered Common Shares to limited partners of the Operating Partnership in exchange for their Units on August 31, 2020, under a private offering exemption[241] Issuer Purchases of Equity Securities IRET repurchased 2,302 shares and units during the third quarter of 2020 - $44.4 million remained available under the $50 million share repurchase program as of September 30, 2020[243] Share Repurchase Activity | Period | Total Shares and Units Purchased | Average Price Paid per (1) Share and Unit | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Amount of Shares That May Yet Be Purchased Under the Plans or (2) Programs | | :------------------------- | :------------------------------- | :------------------------------------ | :--------------------------------------------------------------------- | :--------------------------------------------------------------------- | | (3) July 1 - 31, 2020 | 1,932 | $25.48 | 1,932 | $44,371,577 | | (4) August 1 - 31, 2020 | 250 | $71.50 | — | $44,371,577 | | (4) September 1 - 30, 2020 | 120 | $71.55 | — | $44,371,577 | | Total | 2,302 | $32.88 | 1,932 | | Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - None[244] Item 4. Mine Safety Disclosures This item is not applicable to IRET's operations - Not Applicable[244] Item 5. Other Information There is no other information to report under this item - None[245] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and signatures Exhibit Index This section lists the exhibits filed as part of the report, including certifications and iXBRL documents - Includes Section 302 and 906 Certifications of Chief Executive Officer and Executive Vice President and Chief Financial Officer[247] - Includes iXBRL formatted Condensed Consolidated Balance Sheets, Statements of Operations, Statements of Equity, Statements of Cash Flows, notes, and the Cover Page[250] Signatures The report was signed by the principal executive and financial officers on November 2, 2020 - Report signed by Mark O. Decker, Jr., President and Chief Executive Officer, and John A. Kirchmann, Executive Vice President and Chief Financial Officer[253] - Date of signing: November 2, 2020[253]