8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): September 10, 2018

INVESTORS REAL ESTATE TRUST

(Exact name of Registrant as specified in its charter)

North Dakota	001-35624	45-0311232
(State or Other Jurisdiction of Incorporation or Organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

1400 31st Avenue SW, Suite 60, Post Office Box 1988, Minot, ND 58702-1988

(Address of principal executive offices) (Zip code)

(701) 837-4738

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed from last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Item 2.02. Results of Operations and Financial Condition.

Investors Real Estate Trust (the “Company”) issued an earnings release on September 10, 2018, announcing certain financial and operational results for the three months ended July 31, 2018. A copy of the press release is attached hereto as Exhibit 99.1.

The information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 furnished pursuant to Item 9.01, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities under that Section. Furthermore, the information in this Current Report on Form 8-K, including Exhibit 99.1 hereto, shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933.

Item 7.01. Regulation FD Disclosure.

Certain supplemental operating and financial data regarding the Company not included in the earnings release is attached as Exhibit 99.2. The foregoing information is not deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in filings under the Securities Act of 1933.

ITEM 9.01    Financial Statements and Exhibits

Exhibits

Exhibit
Number	Description
99.1	Earnings Release, dated September 10, 2018.
99.2	Supplemental Operating and Financial Data, dated September 10, 2018.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	INVESTORS REAL ESTATE TRUST
	By	/s/ Mark O. Decker, Jr.
		Mark O. Decker, Jr.
Date: September 10, 2018		President and Chief Executive Officer

EX-99.1

Exhibit 99.1

Earnings Release

IRET Announces First Quarter Fiscal 2019 Results

MINOT, ND, September 10, 2018 – IRET (NYSE: IRET) announced today its first quarter fiscal 2019 financial and operating results. Net income and Funds from Operations (“FFO”) per share for the three months ended July 31, 2018, are detailed below. Core FFO adjusts FFO for certain non-routine items, and both FFO and Core FFO are reconciled to net income in the tables accompanying this earnings release.

	Three Months Ended
	July 31,
Per Share	2018		2017
Net Income (Loss)	$	0.01	$	(0.11	)
FFO	$	0.08	$	0.10
Core FFO	$	0.09	$	0.10

	Year-Over-Year Comparison		Sequential Comparison
Multifamily Same-Store Results	1Q19 vs. 1Q18		1Q19 vs. 4Q18
Revenues	3.0	%	0.7	%
Expenses	3.3	%	3.0	%
Net Operating Income (“NOI”)	2.8	%	(1.0	)%

Multifamily Same-Store Results	1Q19		4Q18		1Q18
Physical Occupancy	94.0	%	96.4	%	94.5	%
Weighted Average Occupancy	93.5	%	94.8	%	92.9	%

"We continued to improve as an organization in the first quarter of fiscal 2019," said Mark O. Decker, Jr., IRET's President and CEO. "Same-store NOI grew 2.8% year-over-year, with strong revenue growth in most markets and expense growth in line with our expectations. In addition, our sale of the Williston portfolio in the first quarter enabled us to exit a non-core market and eliminate $30 million of recourse debt. Finally, we made significant changes to our operations in the first quarter, restructuring the leadership team with a focus on achieving operational excellence. We believe that these changes will advance the speed at which we can realize our earnings potential and become the premier provider of apartment homes in our markets."

First Quarter Fiscal Year 2019 Highlights

• Posted same-store NOI growth of 2.8%, our third consecutive quarter of year-over-year NOI growth;

• Increased same-store revenue by 3.0% year-over-year, driven by a 2.4% rental increase and a 0.6% average occupancy increase;

• Experienced an increase in same-store expenses of 3.3% year-over-year, which is in line with expectations but does not reflect the impact of expense reduction initiatives implemented during the quarter;

• Sold seven non-core assets in the quarter for total proceeds of $49.1 million, as described in "Dispositions" below;

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• Took a charge of $510,000 to general and administrative expenses during the quarter related to the realignment and reduction of corporate officers;

• Implemented operations expense reduction initiatives during the quarter that resulted in a charge to property expenses of $110,000; and

• Subsequent to quarter-end, refinanced our line of credit to increase the overall borrowing capacity from $370 million to $395 million by right-sizing our revolver commitment to $250 million, extending our existing $70 million term loan maturity to January 2024, and adding a new $75 million term loan maturing in August 2025.

Dispositions

During the quarter, we sold three apartment communities, two commercial properties, and two parcels of land for a total sale price of $49.1 million.

Balance Sheet

• At the end of the first quarter, we had $192.3 million of total liquidity on our balance sheet, including $170.0 million available on our corporate revolver and $6.0 million on our operating line of credit.

• During the quarter, we repurchased and retired approximately 118,000 common shares and redeemed approximately 90,000 Units for an aggregate cost of approximately $1.1 million, representing an average price of approximately $5.23 per share.

Quarterly Distributions

On June 5, 2018, IRET’s Board of Trustees declared a regular quarterly distribution of $0.07 per share/unit payable on July 2, 2018, to common shareholders and unitholders of record on June 15, 2018. This distribution was the 190th consecutive quarterly distribution paid by IRET since the inception of our dividends in 1971. It represents an annualized rate of $0.28 per share/unit.

The Board of Trustees also declared a distribution of $0.4140625 per share on the 6.625% Series C Cumulative Redeemable Preferred Shares (NYSE: IRET PRC) payable on July 2, 2018, to holders of record on June 15, 2018. Series C preferred share distributions are cumulative and payable quarterly in arrears at an annual rate of $1.65625 per share.

Earnings Call

Live webcast and replay:  http://ir.iretapartments.com
Live Conference Call		Conference Call Replay
Tuesday, September 11, 2018, at 10:00 AM ET		Replay available until September 25, 2018
USA Toll Free Number	1-877-509-9785	USA Toll Free Number	1-877-344-7529
International Toll Free Number	1-412-902-4132	International Toll Free Number	1-412-317-0088
Canada Toll Free Number	1-855-669-9657	Canada Toll Free Number	1-855-669-9658
		Conference Number	10123388

Supplemental Information

Supplemental Operating and Financial Data for the Quarter ended July 31, 2018 (“Supplemental Information”), is available in the Investors section on IRET’s website at www.iretapartments.com or by calling Investor Relations at 701-837-7104.  Non-GAAP financial measures and other capitalized terms, as used in this earnings release, are defined and reconciled in the Supplemental Information that accompanies this earnings release.

About IRET

IRET is a real estate company focused on the ownership, management, acquisition, redevelopment, and development of apartment communities. As of July 31, 2018, we owned interests in 87 apartment communities consisting of 13,703 apartment homes.  IRET's common shares and Series C preferred shares are publicly traded on the New York Stock Exchange (NYSE symbols: "IRET" and "IRET PRC," respectively).

Forward Looking Statements

Certain statements in this press release are based on our current expectations and assumptions, and are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements do not discuss historical fact, but instead include statements related to expectations, projections, intentions or other items related to the future. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and variations of those words and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown

2

risks, uncertainties, and other factors that may cause the actual results, performance, or achievements to be materially different from the results of operations, financial conditions, or plans expressed or implied by the forward-looking statements. Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be achieved. Any statements contained herein that are not statements of historical fact should be deemed forward-looking statements. As a result, reliance should not be placed on these forward-looking statements as these statements are subject to known and unknown risks, uncertainties, and other factors beyond our control and could differ materially from our actual results and performance. Such risks and uncertainties are detailed from time to time in our filings with the SEC, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended April 30, 2018, in our subsequent quarterly reports on Form 10-Q, and in other public reports. We assume no obligation to update or supplement forward-looking statements that become untrue due to subsequent events.

3

IRET

RECONCILIATION OF NET INCOME ATTRIBUTABLE TO

IRET TO FFO AND CORE FFO

z

	(inthousands,exceptpershareamounts)
Three Months Ended July 31,	2018						2017
	Amount			Weighted Avg Shares and Units(1)	Per Share And Unit(2)		Amount			Weighted Avg Shares and Units(1)	Per Share And Unit(2)
Net income (loss) attributable to controlling interests	$	2,916					$	(11,264	)
Less dividends to preferred shareholders	(1,705		)				(2,286		)
Less redemption of preferred shares	—						—
Net income (loss) available to common shareholders	1,211			119,245	$	0.01	(13,550		)	120,421	$	(0.11	)
Adjustments:
Noncontrolling interest – Operating Partnership	135			14,026			(1,644		)	15,128
Depreciation and amortization	17,837						28,119
Gains on depreciable property sales attributable to controlling interests	(8,628		)				(124		)
FFO applicable to Common Shares and Units(1)	$	10,555		133,271	$	0.08	$	13,057		135,549	$	0.10
Adjustments to Core FFO:
Loss on extinguishment of debt	552						199
Transition and severance costs	510						464
Core FFO applicable to common shares and Units(1)	$	11,617		133,271	$	0.09	$	13,720		135,549	$	0.10

(1) Units of the Operating Partnership are exchangeable for cash or, at our discretion, Common Shares on a one-for-one basis.

(2) Net income attributable to IRET is calculated on a per Common Share basis. FFO is calculated on a per Common Share and Unit basis.

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IRET

RECONCILIATION OF NET OPERATING INCOME TO THE

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	(in thousands)
Three Months Ended July 31, 2018	Multifamily		All Other		Total
Real estate revenue	$	43,089	$	2,857	$	45,946
Real estate expenses	18,486		1,043		19,529
Net operating income	$	24,603	$	1,814	$	26,417
Property management expenses					(1,367		)
Casualty loss					(225		)
Depreciation and amortization					(18,612		)
General and administrative expenses					(3,870		)
Interest expense					(8,385		)
Loss on debt extinguishment					(552		)
Interest and other income					516
Loss before gain on sale of real estate and other investments and income from discontinued operations					(6,078		)
Gain on sale of real estate and other investments					9,224
Income (loss) from continuing operations					3,146
Income (loss) from discontinued operations					570
Net income (loss)					$	3,716

	(in thousands)
Three Months Ended July 31, 2017	Multifamily		All Other		Total
Real estate revenue	$	35,999	$	4,979	$	40,978
Real estate expenses	15,734		1,793		17,527
Net operating income	$	20,265	$	3,186	$	23,451
Property management expenses					(1,356		)
Casualty loss					(485		)
Depreciation and amortization					(25,338		)
Loss on impairment					(256		)
General and administrative expenses					(4,002		)
Interest expense					(8,131		)
Loss on debt extinguishment					(199		)
Interest and other income					228
Loss before gain on sale of real estate and other investments and income from discontinued operations					(16,088		)
Gain on sale of real estate and other investments					124
Income (loss) from continuing operations					(15,964		)
Income (loss) from discontinued operations					2,685
Net income (loss)					$	(13,279	)

5

EX-99.2

Exhibit 99.2

Supplemental Financial and Operating Data

Table of Contents

July 31, 2018

	Page
Company Background	S-2
Key Financial Data
Condensed Consolidated Balance Sheets	S-4
Condensed Consolidated Statements of Operations	S-5
Funds From Operations	S-6
Adjusted EBITDA	S-7
Debt and Capital Analysis
Debt Analysis	S-8
Capital Analysis	S-9
Portfolio Analysis
Net Operating Income Detail	S-10
Same-Store Comparison	S-11
Portfolio Summary	S-13
Same-Store Capital Expenditures	S-14
Definitions	S-15

S-1

Company Background

First Quarter Fiscal 2019

We are a multifamily real estate investment trust (REIT) focused on the ownership, management, acquisition, redevelopment, and development of multifamily apartment communities.  As of July 31, 2018, we owned interests in 87 multifamily properties consisting of 13,703 apartment homes. IRET's common shares and Series C preferred shares are publicly traded on the New York Stock Exchange (NYSE symbols: "IRET" and "IRET PRC," respectively).  

Company Snapshot

(as of July 31, 2018)

Company Headquarters	Minot, North Dakota
Fiscal Year-End	April 30
Reportable Segments	Multifamily
Total Multifamily Properties	87
Total Units	13,703
Common Shares Outstanding (thousands)	119,507
Limited Partnership Units Outstanding (thousands)	13,895
Common Share Distribution – Quarter/Annualized	$0.07/$0.28
Annualized Dividend Yield	5.1%
Total Capitalization	$1.5 billion

Investor Information

(as of August 31, 2018)

Board of Trustees

Jeffrey P. Caira	Trustee and Chair
Michael T. Dance	Trustee, Chair of Audit Committee
Mark O. Decker, Jr.	Trustee, President, Chief Executive Officer and Chief Investment Officer
Emily Nagle Green	Trustee
Linda J. Hall	Trustee, Chair of Compensation Committee
Terrance P. Maxwell	Trustee
Jeffrey L. Miller	Trustee, Chair of the Nominating and Governance Committee
John A. Schissel	Trustee, Chair of Capital Markets Committee
Mary J. Twinem	Trustee

Management

Mark O. Decker, Jr.	President, Chief Executive Officer, and Trustee
John A. Kirchmann	Executive Vice President and Chief Financial Officer
Anne Olson	Executive Vice President, Chief Operating Officer, General Counsel and Secretary

Corporate Headquarters:	Investor Relations Contact:
1400 31st Avenue SW, Suite 60	Jonathan Bishop
P.O. Box 1988	(701) 837-7104
Minot, ND 58702-1988	IR@iret.com
Trading Symbol for Common Shares:  IRET
Trading Symbol for Series C Preferred Shares:  IRET PRC
Stock Exchange Listing:  NYSE

S-2

Common Share Data (NYSE: IRET)

	1st Quarter			4th Quarter			3rd Quarter			2nd Quarter			1st Quarter
	Fiscal Year 2019			Fiscal Year 2018			Fiscal Year 2018			Fiscal Year 2018			Fiscal Year 2018
High Closing Price	$	5.94		$	5.58		$	6.06		$	6.32		$	6.72
Low Closing Price	$	5.13		$	4.65		$	5.52		$	5.81		$	5.64
Average Closing Price	$	5.51		$	5.09		$	5.80		$	6.09		$	6.07
Closing Price at end of quarter	$	5.48		$	5.33		$	5.67		$	5.85		$	6.22
Common Share Distributions – annualized	$	0.28		$	0.28		$	0.28		$	0.28		$	0.28
Closing Dividend Yield – annualized	5.1		%	5.3		%	4.9		%	4.8		%	4.5		%
Closing common shares outstanding (thousands)	$	119,507		$	119,526		$	120,035		$	120,188		$	120,587
Closing limited partnership units outstanding (thousands)	$	13,895		$	14,099		$	14,168		$	14,618		$	14,657
Closing market value of outstanding common shares, plus imputed closing market value of outstanding limited partnership units (thousands)	$	731,043		$	712,221		$	760,931		$	788,615		$	841,218

This Supplemental Operating and Financial Data contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements, which may be identified by the use of words such as “expects,” “plans,” “estimates,” “anticipates,” “projects,” “intends,” “believes,” “outlook” and similar expressions that do not relate to historical matters, specifically including our future plan and anticipated operating results, are based on our expectations, forecasts and assumptions at the time of this earnings release.Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in such forward-looking statements.

Such risks, uncertainties and other factors that might cause such differences include, but are not limited to: intentions and expectations regarding future distributions on common shares and units; changes in operating costs; fluctuations in interest rates; adverse capital and credit market conditions that might affect our access to various sources of capital and cost of capital; our ability to manage our current debt levels and repay or refinance our indebtedness upon maturity or other payment dates; our ability to maintain financial covenant compliance under our debt agreements; adequate insurance coverage; the effect of government regulation; delays or inability to obtain necessary governmental permits and authorizations; changes in general and local economic and real estate market conditions; changes in demand for our properties that may result in lower-than-expected occupancy and/or rental rates; ability to acquire quality properties in targeted markets; ability to successfully dispose of certain assets; competition for tenants from similar competing properties; ability to attract and retain skilled personnel; cyber-intrusion; delays in completing development, redevelopment and/or lease up of properties and increased costs; ability to maintain effective internal controls over financial reporting and disclosure controls and procedures; and those risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission, including our Form 10-K for the fiscal year ended April 30, 2018 subsequent quarterly reports on Form 10-Q, and other public filings.  We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

S-3

IRET

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands)

	7/31/2018			4/30/2018			1/31/2018			10/31/2017			7/31/2017
ASSETS
Real estate investments
Property owned	$	1,636,233		$	1,669,706		$	1,568,725		$	1,510,890		$	1,424,251
Less accumulated depreciation	(326,772		)	(311,324		)	(304,149		)	(292,976		)	(280,563		)
	1,309,461			1,358,382			1,264,576			1,217,914			1,143,688
Development in progress	—			—			—			—			—
Unimproved land	7,926			11,534			15,123			15,216			15,195
Mortgage loans receivable	10,530			10,329			10,329			10,329			—
Total real estate investments	1,327,917			1,380,245			1,290,028			1,243,459			1,158,883
Assets held for sale and assets of discontinued operations	—			—			—			239,688			280,083
Cash and cash equivalents	16,261			11,891			22,666			42,464			23,801
Restricted cash	4,103			4,225			121,337			3,782			3,713
Other assets	27,885			30,297			21,664			21,634			15,870
TOTAL ASSETS	$	1,376,166		$	1,426,658		$	1,455,695		$	1,551,027		$	1,482,350
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND EQUITY
LIABILITIES
Liabilities held for sale and liabilities of discontinued operations	$	—		$	—		$	2,016		$	95,193		$	127,413
Accounts payable and accrued expenses	28,112			29,018			33,776			32,581			34,248
Revolving line of credit	130,000			124,000			67,000			247,500			125,900
Term loan payable, net of loan costs	69,540			69,514			69,483			—			—
Mortgages payable, net of loan costs	464,557			509,919			553,388			561,798			565,705
Construction debt	—			—			—			21,649			20,134
TOTAL LIABILITIES	692,209			732,451			725,663			958,721			873,400
REDEEMABLE NONCONTROLLING INTERESTS – CONSOLIDATED REAL ESTATE ENTITIES	6,230			6,708			6,644			6,812			7,010
EQUITY
Series B Preferred Shares of Beneficial Interest	—			—			—			—			111,357
Series C Preferred Shares of Beneficial Interest	99,456			99,456			99,456			99,467			—
Common Shares of Beneficial Interest	899,708			907,843			910,173			910,683			912,625
Accumulated distributions in excess of net income	(402,190		)	(395,669		)	(364,684		)	(490,612		)	(488,535		)
Accumulated other comprehensive income	1,987			1,779			359			—			—
Total shareholders’ equity	598,961			613,409			645,304			519,538			535,447
Noncontrolling interests – Operating Partnership	71,390			73,012			76,915			64,291			64,789
Noncontrolling interests – consolidated real estate entities	7,376			1,078			1,169			1,665			1,704
Total equity	677,727			687,499			723,388			585,494			601,940
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND EQUITY	$	1,376,166		$	1,426,658		$	1,455,695		$	1,551,027		$	1,482,350

S-4

IRET

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except per share amounts)

	Three Months Ended
OPERATING RESULTS	7/31/2018			4/30/2018			1/31/2018			10/31/2017			7/31/2017
Real estate revenue	$	45,946		$	44,185		$	42,716		$	41,866		$	40,978
Real estate expenses	19,529			18,734			18,055			18,718			17,527
Net operating income	26,417			25,451			24,661			23,148			23,451
Property management expense	(1,367		)	(1,411		)	(1,387		)	(1,372		)	(1,356		)
Casualty gain/loss	(225		)	155			(55		)	(115		)	(485		)
Depreciation/amortization	(18,850		)	(21,072		)	(18,390		)	(17,270		)	(25,338		)
Impairment of real estate investments	—			(17,809		)	—			—			(256		)
General and administrative expenses	(3,870		)	(4,123		)	(3,011		)	(3,118		)	(4,002		)
Interest expense	(8,385		)	(8,302		)	(9,236		)	(8,509		)	(8,131		)
Loss on extinguishment of debt	(552		)	(122		)	(285		)	(334		)	(199		)
Interest and other income	516			592			433			255			228
Loss before income on sale of real estate and other investments and income from discontinued operations	(6,316		)	(26,641		)	(7,270		)	(7,315		)	(16,088		)
Income on sale of real estate and other investments	9,249			2,285			12,387			5,324			124
Income (loss) from continuing operations	2,933			(24,356		)	5,117			(1,991		)	(15,964		)
Income (loss) from discontinued operations	570			197			146,811			15,130			2,685
Net income (loss)	$	3,503		$	(24,159	)	$	151,928		$	13,139		$	(13,279	)
Net (income) loss attributable to noncontrolling interest – Operating Partnership	(113		)	2,663			(16,236		)	(773		)	1,644
Net (income) loss attributable to noncontrolling interests – consolidated real estate entities	(665		)	622			413			455			371
Net income (loss) attributable to controlling interests	2,725			(20,874		)	136,105			12,821			(11,264		)
Dividends to preferred shareholders	(1,705		)	(1,705		)	(1,766		)	(2,812		)	(2,286		)
Redemption of Preferred Shares	—			—			(8		)	(3,649		)	—
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS	$	1,020		$	(22,579	)	$	134,331		$	6,360		$	(13,550	)
Per Share Data
Earnings (loss) per common share from continuing operations – basic & diluted	$	0.01		$	(0.19	)	$	0.03		$	(0.06	)	$	(0.13	)
Earnings per common share from discontinued operations – basic & diluted	—			—			1.09			0.11			0.02
Net income (loss) per common share – basic & diluted	$	0.01		$	(0.19	)	$	1.12		$	0.05		$	(0.11	)
Percentage of Revenues
Real estate expenses	42.5		%	42.4		%	42.3		%	44.7		%	42.8		%
General and administrative expenses	8.4		%	9.3		%	7.0		%	7.4		%	9.8		%
Interest	18.2		%	18.8		%	21.6		%	20.3		%	19.8		%
Income from discontinued operations	1.2		%	0.4		%	343.7		%	36.1		%	6.6		%
Net (loss) income	7.6		%	(54.7		)%	355.7		%	31.4		%	(32.4		)%

S-5

IRET

RECONCILIATION OF NET INCOME ATTRIBUTABLE TO

IRET TO FFO AND CORE FFO(unaudited)

(in thousands, except per share and unit amounts)

	Three Months Ended
	7/31/2018			4/30/2018			1/31/2018			10/31/2017			7/31/2017
Funds From Operations(1)
Net income (loss) attributable to controlling interests	$	2,916		$	(20,874	)	$	136,105		$	12,821		$	(11,264	)
Less dividends to preferred shareholders	(1,705		)	(1,705		)	(1,766		)	(2,812		)	(2,286		)
Less redemption of preferred shares	—			—			(8		)	(3,649		)	—
Net income (loss) available to common shareholders	1,211			(22,579		)	134,331			6,360			(13,550		)
Adjustments:
Noncontrolling interests – Operating Partnership	135			(2,663		)	16,236			773			(1,644		)
Depreciation and amortization of real property	17,837			20,269			19,017			19,894			28,119
Impairment of real estate investments attributable to controlling interests	—			15,192			—			—			256
Gain on depreciable property sales	(8,628		)	(2,210		)	(163,791		)	(17,562		)	(124		)
FFO applicable to common shares and Units	$	10,555		$	8,009		$	5,793		$	9,465		$	13,057
FFO per share and unit – basic and diluted	$	0.08		$	0.06		$	0.04		$	0.07		$	0.10
Adjustments to Core FFO:
Loss on extinguishment of debt	552			122			6,787			340			199
Redemption of Preferred Shares	—			—			8			3,649			—
Severance and transitions costs	510			301			—			186			464
Core FFO applicable to common shares and Units	$	11,617		$	11,049		$	12,588		$	13,640		$	13,720
Core FFO per share and unit – basic and diluted	$	0.09		$	0.08		$	0.09		$	0.10		$	0.10
Weighted average shares and units	133,271			133,703			134,175			134,767			135,549

(1) See Definitions section.

S-6

IRET

RECONCILIATION OF NET INCOME ATTRIBUTABLE TO

IRET TO ADJUSTED EARNINGS BEFORE INTEREST,

TAXES, DEPRECIATION, AND AMORTIZATION (ADJUSTED EBITDA) (unaudited)

(in thousands)

	Three Months Ended
	7/31/2018			4/30/2018			1/31/2018			10/31/2017			7/31/2017
Adjusted EBITDA(1)
Net income (loss) attributable to controlling interests	$	2,916		$	(20,874	)	$	136,105		$	12,821		$	(11,264	)
Adjustments:
Noncontrolling interests – Operating Partnership	135			(2,663		)	16,236			773			(1,644		)
Income (loss) before noncontrolling interests – Operating Partnership	3,051			(23,537		)	152,341			13,594			(12,908		)
Add:
Interest expense	7,983			7,884			9,569			9,523			9,703
Loss on extinguishment of debt	552			122			6,787			340			199
Depreciation/amortization related to real estate investments	17,912			20,347			19,100			19,977			28,215
Amortization related to real estate revenues(2)	—			—			—			—			—
Impairment of unimproved land	—			2,617			—			—			—
Impairment of real estate investments attributable to controlling interests	—			15,192			—			—			256
Less:
Interest income	(481		)	(569		)	(408		)	(316		)	(564		)
Gain on sale of real estate and other investments	(8,628		)	(2,210		)	(163,791		)	(17,562		)	(124		)
Adjusted EBITDA	$	20,389		$	19,846		$	23,598		$	25,556		$	24,777
Ratios
Adjusted EBITDA(1)/Interest expense	2.43		x	2.57		x	2.36		x	2.57		x	2.45		x
Adjusted EBITDA(1)/Interest expense plus preferred distributions	1.91		x	2.00		x	2.01		x	2.00		x	2.00		x

(1) See Definitions.

(2) Included in real estate revenue in the Statement of Operations.

S-7

IRET

DEBT ANALYSIS

(in thousands)

Debt Maturity Schedule

Annual Expirations

	Future Maturities of Debt(1)
Fiscal Year	Fixed Debt		Variable Debt		Total Debt		Weighted Average(2)		% of Total Debt
2019	—		—		—		—		—
2020	$	79,219	—		$	79,219	6.01	%	11.9	%
2021	54,871		—		54,871		5.05	%	8.2	%
2022	101,391		—		101,391		5.23	%	15.2	%
2023	27,883		—		27,883		4.13	%	4.2	%
Thereafter	203,191		—		203,191		3.79	%	30.5	%
Total secured maturing debt	$	466,555	—		$	466,555	4.65	%	70.0	%
Unsecured line of credit	—		$	130,000	130,000		3.83	%	19.5	%
Unsecured term loan(3)	70,000		—		70,000		3.86	%	10.5	%
Total debt	$	536,555	$	130,000	$	666,555	4.41	%	100.0	%

(1) Includes line of credit and term loan.

(2) Weighted average interest rate of debt that matures in fiscal year.

(3) Term loan has a variable interest rate that is hedged with an interest rate swap and matures on January 31, 2023.

	7/31/2018			4/30/2018			1/31/2018			10/31/2017			7/31/2017
Debt Balances Outstanding(1)
Secured fixed rate	$	466,555		$	489,401		$	494,874		$	593,854		$	605,028
Secured variable rate	—			22,739			61,001			86,672			100,388
Unsecured line of credit	130,000			124,000			67,000			247,500			125,900
Unsecured term loan	70,000			70,000			70,000			—			—
Debt total	$	666,555		$	706,140		$	692,875		$	928,026		$	831,316
Weighted Average Interest Rate Secured	4.65		%	4.69		%	4.63		%	4.63		%	4.62		%
Line of Credit Rate	3.83		%	3.63		%	3.45		%	3.08		%	2.98		%
Term Loan Rate	3.86		%	3.86		%	4.01		%	—			—

(1) Includes mortgages on properties held for sale.

S-8

IRET 

CAPITAL ANALYSIS 

(in thousands, except per share and unit amounts)

	Three Months Ended
	7/31/2018		4/30/2018		1/31/2018		10/31/2017		7/31/2017
Equity Capitalization
Common shares outstanding	119,507		119,526		120,035		120,188		120,587
Operating partnership units outstanding	13,895		14,099		14,168		14,618		14,657
Total common shares and units outstanding	133,402		133,625		134,203		134,806		135,244
Market price per common share (closing price at end of period)	$	5.48	$	5.33	$	5.67	$	5.85	$	6.22
Equity capitalization-common shares and units	731,043		712,221		760,931		788,615		841,218
Recorded book value of preferred shares	$	99,456	$	99,456	$	99,456	$	99,467	$	111,357
Total equity capitalization	$	830,499	$	811,677	$	860,387	$	888,082	$	952,575
Debt Capitalization
Total debt	$	666,555	$	706,140	$	692,875	$	927,968	$	839,134
Total capitalization	$	1,497,054	$	1,517,817	$	1,553,262	$	1,816,050	$	1,791,709
Total debt to total capitalization	0.45:1		0.47:1		0.45:1		0.51:1		0.47:1

	Three Months Ended
	7/31/2018			4/30/2018			1/31/2018			10/31/2017			7/31/2017
Earnings to fixed charges(1)	1.30		x	(2		)	1.56		x	(3		)	(4		)
Earnings to combined fixed charges and preferred distributions(1)	1.08		x	(2		)	1.33		x	(3		)	(4		)
Debt service coverage ratio(1)	1.88		x	1.81		x	1.78		x	1.84		x	1.75		x
Distribution Data
Common shares and units outstanding at record date	133,402			133,625			134,203			134,806			135,830
Total common distribution paid	$	9,345		$	9,395		$	9,420		$	9,462		$	9,509
Common distribution per share and unit	$	0.07		$	0.07		$	0.07		$	0.07		$	0.07
Payout ratio (FFO per share and unit basis)(1)	87.5		%	116.7		%	175.0		%	100.0		%	70.0		%
Payout ratio (Core FFO per share and unit basis)(5)	77.8		%	87.5		%	77.8		%	70.0		%	70.0		%

(1) Payout ratio (FFO per share and unit basis) is the ratio of the current quarterly or annual distribution rate per common share and unit divided by quarterly or annual FFO per share and unit.

(2) Earnings were inadequate to cover (a) fixed charges and (b) combined fixed charges and preferred distributions by $23.7 million and $25.4 million, respectively. Excluding non-cash asset impairment charges of $17.8 million in the three months ended April 30, 2018, the ratio of earnings to fixed charges and of earnings to combined fixed charges and preferred distributions would have been .29x and .24x, respectively, for the three months ended April 30, 2018.

(3) Earnings were inadequate to cover (a) fixed charges and (b) combined fixed charges and preferred distributions by $1.6 million and $4.5 million, respectively, for the three months ended October 31, 2017.

(4) Earnings were inadequate to cover (a) fixed charges and (b) combined fixed charges and preferred distributions by $15.5 million and $17.8 million, respectively. Excluding non-cash depreciation charges related to a change in depreciable lives and non-cash impairment charges of $14.7 million in the three months ended July 31, 2017, the ratio of earnings to fixed charges and of earnings to combined fixed charges and preferred distributions would have been .92x and .75x, respectively, for the three months ended July 31, 2017.

(5) Payout ratio (Core FFO per share and unit basis) is the ratio of the current quarterly or annual distribution rate per common share and unit divided by quarterly or annual Core FFO per share and unit.

S-9

IRET

NET OPERATING INCOME DETAIL

(in thousands)

	Three months ended July 31,
	2018			2017			$ Change			% Change
Real estate rental revenue
Same-store	$	36,737		$	35,668		$	1,069		3.00	%
Non-same-store	6,352			331			6,021			1,819.03	%
Other properties and dispositions	2,857			4,979			(2,122		)	(42.62	)%
Total	45,946			40,978			4,968			12.12	%
Real estate expenses
Same-store	16,093			15,578			515			3.31	%
Non-same-store	2,393			156			2,237			1,433.97	%
Other properties and dispositions	1,043			1,793			(750		)	(41.83	)%
Total	19,529			17,527			2,002			11.42	%
Net operating income (NOI)
Same-store	20,644			20,090			554			2.76	%
Non-same-store	3,959			175			3,784			2,162.29	%
Other properties and dispositions	1,814			3,186			(1,372		)	(43.06	)%
Net operating income	$	26,417		$	23,451		$	2,966		12.65	%
Reconciliation of NOI to net income (loss) available to common shareholders
Property management	$	(1,367	)	$	(1,356	)	$	(11	)	0.81	%
Casualty	(225		)	(485		)	260			(53.61	)%
Depreciation/amortization	(18,612		)	(25,338		)	6,726			(26.55	)%
Impairment of real estate investments	—			(256		)	256			(100.00	)%
General and administrative expenses	(3,870		)	(4,002		)	132			(3.30	)%
Interest expense	(8,385		)	(8,131		)	(254		)	3.12	%
Loss on debt extinguishment	(552		)	(199		)	(353		)	177.39	%
Interest and other income	516			228			288			126.32	%
Loss before gain on sale of real estate and other investments and income from discontinued operations	(6,078		)	(16,088		)	10,010			(62.22	)%
Gain on sale of real estate and other investments	9,224			124			9,100			7,338.71	%
Income (loss) from continuing operations	3,146			(15,964		)	19,110			(119.71	)%
Income (loss) from discontinued operations	570			2,685			(2,115		)	(78.77	)%
Net income (loss)	3,716			(13,279		)	16,995			(127.98	)%
Net (income) loss attributable to noncontrolling interests – Operating Partnership	(135		)	1,644			(1,779		)	(108.21	)%
Net (income) loss attributable to noncontrolling interests – consolidated real estate entities	(665		)	371			(1,036		)	(279.25	)%
Net income (loss) attributable to controlling interests	2,916			(11,264		)	14,180			(125.89	)%
Dividends to preferred shareholders	(1,705		)	(2,286		)	581			(25.42	)%
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS	$	1,211		$	(13,550	)	$	14,761		(108.94	)%

S-10

IRET

SAME-STORE FIRST QUARTER COMPARISONS

(in thousands, except property data amounts)

	Apartment Homes Included	Revenues						Expenses						NOI
Regions		FY19Q1		FY18Q1		% Change		FY19Q1		FY18Q1		% Change		FY19Q1		FY18Q1		% Change
Rochester, MN	1,711	$	6,014	$	5,915	1.7	%	$	2,492	$	2,387	4.4	%	$	3,522	3,528		(0.2	)%
Minneapolis, MN	1,297	5,430		5,224		3.9	%	2,172		1,839		18.1	%	3,258		3,385		(3.8	)%
Grand Forks, ND	1,554	4,192		4,142		1.2	%	1,909		1,881		1.5	%	2,283		2,261		1.0	%
Omaha, NE	1,370	3,699		3,540		4.5	%	1,669		1,602		4.2	%	2,030		1,938		4.7	%
Bismarck, ND	1,259	3,587		3,569		0.5	%	1,606		1,574		2.0	%	1,981		1,995		(0.7	)%
St. Cloud, MN	1,190	3,365		3,185		5.7	%	1,602		1,625		(1.4	)%	1,763		1,560		13.0	%
Topeka, KS	1,042	2,492		2,415		3.2	%	1,098		1,049		4.7	%	1,394		1,366		2.0	%
Billings, MT	770	2,081		1,988		4.7	%	876		860		1.9	%	1,205		1,128		6.8	%
Sioux Falls, SD	969	2,462		2,341		5.2	%	1,194		1,210		(1.3	)%	1,268		1,131		12.1	%
Minot, ND	712	2,075		2,095		(1.0	)%	949		1,016		(6.6	)%	1,126		1,079		4.4	%
Rapid City, SD	474	1,340		1,254		6.9	%	526		535		(1.7	)%	814		719		13.2	%
Same-Store Total	12,348	$	36,737	$	35,668	3.0	%	$	16,093	$	15,578	3.3	%	$	20,644	$	20,090	2.8	%

	Apartment Homes Included	Weighted Average Occupancy (1)						Weighted Average Monthly Rental Rate (2)						Weighted Average Monthly Revenue per Occupied Home (3)
Regions		FY19Q1		FY18Q1		% Change		FY19Q1		FY18Q1		% Change		FY19Q1		FY18Q1		% Change
Rochester, MN	1,711	92.9	%	90.1	%	3.1	%	$	1,223	$	1,241	(1.5	)%	$	1,261	1,278		(1.3	)%
Minneapolis, MN	1,297	92.8	%	94.1	%	(1.4	)%	1,404		1,345		4.4	%	1,504		1,426		5.5	%
Grand Forks, ND	1,554	92.6	%	93.8	%	(1.3	)%	923		909		1.5	%	971		947		2.5	%
Omaha, NE	1,370	94.7	%	95.2	%	(0.5	)%	874		839		4.2	%	951		905		5.1	%
Bismarck, ND	1,259	93.9	%	92.5	%	1.5	%	957		987		(3.0	)%	1,011		1,021		(1.0	)%
St. Cloud, MN	1,190	93.9	%	92.7	%	1.3	%	931		893		4.3	%	1,003		962		4.3	%
Topeka, KS	1,042	94.9	%	95.2	%	(0.3	)%	807		786		2.7	%	841		811		3.7	%
Billings, MT	770	92.4	%	87.2	%	6.0	%	914		913		0.1	%	975		987		(1.2	)%
Sioux Falls, SD	969	93.0	%	94.1	%	(1.2	)%	838		797		5.1	%	911		856		6.4	%
Minot, ND	712	94.4	%	94.9	%	(0.5	)%	1,002		1,031		(2.8	)%	1,029		1,033		(0.4	)%
Rapid City, SD	474	94.7	%	94.0	%	0.7	%	925		893		3.6	%	995		938		6.1	%
Same-Store Total	12,348	93.5	%	92.9	%	0.6	%	$	1,002	$	987	1.5	%	$	1,061	$	1,036	2.4	%

(1) Weighted average occupancy is defined as scheduled rent less vacancy losses divided by scheduled rent for the period.

(2) Average scheduled rent per apartment home is scheduled rent divided by the total number of apartment homes. See definition of scheduled rent in the Definitions section.

(3) Average revenue is defined as total rental revenues divided by the weighted average occupied apartment units for the period.

S-11

IRET

SAME-STORE SEQUENTIAL QUARTER COMPARISONS

(in thousands, except property data amounts)

	Apartment Homes Included	Revenues						Expenses						NOI
Regions		FY19Q1		FY18Q4		% Change		FY19Q1		FY18Q4		% Change		FY19Q1		FY18Q4		% Change
Rochester, MN	1,711	$	6,014	$	6,083	(1.1	)%	$	2,492	$	2,312	7.8	%	$	3,522	$	3,771	(6.6	)%
Minneapolis, MN	1,297	5,430		5,293		2.6	%	2,172		2,110		2.9	%	3,258		3,183		2.4	%
Grand Forks, ND	1,554	4,192		4,222		(0.7	)%	1,909		1,964		(2.8	)%	2,283		2,258		1.1	%
Omaha, NE	1,370	3,699		3,652		1.3	%	1,669		1,566		6.6	%	2,030		2,086		(2.7	)%
Bismarck, ND	1,259	3,587		3,531		1.6	%	1,606		1,573		2.1	%	1,981		1,958		1.2	%
St. Cloud, MN	1,190	3,365		3,353		0.4	%	1,602		1,578		1.5	%	1,763		1,775		(0.7	)%
Topeka, KS	1,042	2,492		2,453		1.6	%	1,098		1,016		8.1	%	1,394		1,437		(3.0	)%
Billings, MT	770	2,081		2,011		3.5	%	876		576		52.1	%	1,205		1,435		(16.0	)%
Sioux Falls, SD	969	2,462		2,470		(0.3	)%	1,194		1,098		8.7	%	1,268		1,372		(7.6	)%
Minot, ND	712	2,075		2,086		(0.5	)%	949		1,214		(21.8	)%	1,126		872		29.1	%
Rapid City, SD	474	1,340		1,332		0.6	%	526		623		(15.6	)%	814		709		14.8	%
Same-Store Total	12,348	$	36,737	$	36,486	0.7	%	$	16,093	$	15,630	3.0	%	$	20,644	$	20,856	(1.0	)%

	Apartment Homes Included	Weighted Average Occupancy (1)						Weighted Average Monthly Rental Rate (2)						Weighted Average Monthly Revenue per Occupied Home (3)
Regions		FY19Q1		FY18Q4		% Change		FY19Q1		FY18Q4		% Change		FY19Q1		FY18Q4		% Change
Rochester, MN	1,711	92.9	%	95.1	%	(2.3	)%	$	1,223	$	1,207	1.3	%	$	1,261	1,246		1.2	%
Minneapolis, MN	1,297	92.8	%	93.4	%	(0.6	)%	1,404		1,378		1.9	%	1,504		1,456		3.3	%
Grand Forks, ND	1,554	92.6	%	95.3	%	(2.8	)%	923		907		1.8	%	971		950		2.2	%
Omaha, NE	1,370	94.7	%	95.9	%	(1.3	)%	874		858		1.9	%	951		927		2.6	%
Bismarck, ND	1,259	93.9	%	94.2	%	(0.3	)%	957		956		0.1	%	1,011		993		1.8	%
St. Cloud, MN	1,190	93.9	%	95.4	%	(1.6	)%	931		906		2.8	%	1,003		985		1.8	%
Topeka, KS	1,042	94.9	%	95.1	%	(0.2	)%	807		798		1.1	%	841		825		1.9	%
Billings, MT	770	92.4	%	91.6	%	0.9	%	914		905		1.0	%	975		951		2.5	%
Sioux Falls, SD	969	93.0	%	95.7	%	(2.8	)%	838		820		2.2	%	911		888		2.6	%
Minot, ND	712	94.4	%	96.1	%	(1.8	)%	1,002		996		0.6	%	1,029		1,017		1.2	%
Rapid City, SD	474	94.7	%	96.6	%	(2.0	)%	925		904		2.3	%	995		969		2.7	%
Same-Store Total	12,348	93.5	%	94.8	%	(1.4	)%	$	1,002	$	986	1.6	%	$	1,061	$	1,039	2.1	%

(1) Weighted average occupancy is defined as scheduled rent less vacancy losses divided by scheduled rent for the period.

(2) Average scheduled rent per apartment home is scheduled rent divided by the total number of apartment homes. See definition of scheduled rent in the Definitions section.

(3) Average revenue is defined as total rental revenues divided by the weighted average occupied apartment units for the period.

S-12

IRET

PORTFOLIO SUMMARY⁽¹⁾ 

	Three Months Ended
	7/31/2018			4/30/2018			1/31/2018			10/31/2017			7/31/2017
Number of Apartment Homes
Same-Store	12,348			11,320			11,320			11,384			11,384
Non-Same-Store	1,355			2,856			2,466			2,192			2,019
All Communities	13,703			14,176			13,786			13,576			13,403
Average Investment Per Apartment Home
Same-Store	$	72,535		$	88,219		$	88,329		$	88,047		$	87,876
Non-Same-Store	269,639			212,818			202,277			185,150			166,261
All Communities	$	92,027		$	112,401		$	108,681		$	102,760		$	99,684
Average Scheduled Rent(2) per Apartment Home
Same-Store	$	1,002		$	942		$	957		$	962		$	954
Non-Same-Store	1,655			1,358			1,355			1,330			1,182
All Communities	$	1,066		$	1,023		$	1,028		$	1,018		$	988
Average Revenue per Occupied Apartment Home(3)
Same-Store	$	1,061		$	992		$	1,007		$	1,016		$	1,007
Non-Same-Store	1,774			1,349			1,407			1,276			1,230
All Communities	$	1,131		$	1,064		$	1,079		$	1,058		$	1,041
Occupancy
Same-Store	94.0		%	96.5		%	95.3		%	95.2		%	94.5		%
Non-Same-Store	90.3		%	92.1		%	90.1		%	92.4		%	89.3		%
All Communities	93.6		%	95.6		%	94.3		%	94.8		%	93.7		%
Operating Expenses as a % of Scheduled Rent
Same-Store	47.0		%	46.6		%	47.8		%	50.9		%	49.7		%
Non-Same-Store	37.8		%	40.1		%	39.1		%	42.6		%	40.8		%
All Communities	45.6		%	44.9		%	45.7		%	49.2		%	48.1		%
Capital Expenditures
Total Capital Expenditures(2) per Unit – Same-Store	$	286		$	153		$	240		$	396		$	240

(1) Previously reported amounts are not revised for discontinued operations or changes in the composition of the same-store properties pool.

(2) See definition of scheduled rent. Average scheduled rent is scheduled rent divided by the total number of units.

(3) Total revenues divided by the weighted average occupied units for the period.

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IRET

SAME-STORE CAPITAL EXPENDITURES

($ in thousands, except per unit amounts)

	Three Months Ended
	7/31/2018		7/31/2017
Total Multifamily Same-Store Units	12,348		12,344
Turnover	$	1,242	$	1,410
Furniture & Equipment	120		35
Building – Interior	126		288
Building – Exterior	1,408		783
Landscaping & Grounds	578		338
Capital Expenditures	$	3,474	$	2,854
CapEx per Unit	281		231

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Definitions

July 31, 2018

Adjusted EBITDAis earnings before interest, taxes, depreciation, amortization, gain/loss on sale of real estate and other investments, impairment of real estate investments, gain/loss on extinguishment of debt and gain/loss from involuntary conversion. We consider Adjusted EBITDA to be an appropriate supplemental performance measure because it permits investors to view income from operations without the effect of depreciation, the cost of debt, or non-operating gains and losses. Adjusted EBITDA is a non-GAAP measure. Adjusted EBITDA as calculated by us is not comparable to Adjusted EBITDA reported by other REITs that do not define Adjusted EBITDA exactly as we do.

Core funds from operations (Core FFO) is FFO as adjusted for non-routine items or items not considered core to our business operations. By further adjusting for items that are not considered part of our core business operations, we believe Core FFO provides investors with additional information to compare our core operating and financial performance between periods. Core FFO should not be considered as an alternative to net income as an indication of financial performance, or as an alternative to cash flows from operations as a measure of liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions to shareholders. Core FFO is a non-GAAP and non-standardized measure and may be calculated differently by other REITs.

Debt to total market capitalization is total debt from the balance sheet divided by the sum of total debt from the balance sheet plus the market value of shares outstanding at the end of the period.

Debt service coverage ratio is computed by dividing Adjusted EBITDA by interest expense and principal amortization.

Funds from operations (FFO) is defined by the National Association of Real Estate Investment Trusts, Inc. (NAREIT) as net income (computed in accordance with GAAP), excluding gains (or losses) associated with the sale of previously depreciated operating properties, real estate depreciation and amortization, impairments of depreciable assets, and adjustments for unconsolidated joint ventures to reflect FFO on the same basis. We believe that FFO, which is a standard supplemental measure for equity real estate investment trusts, is helpful to investors in understanding our operating performance, primarily because its calculation excludes depreciation and amortization expense on real estate assets, thereby providing an additional perspective on our operating results. We believe that GAAP historical cost depreciation of real estate assets generally is not correlated with changes in the value of those assets, whose value does not diminish predictably over time, as historical cost depreciation implies. In addition, the exclusion in NAREIT’s definition of FFO of impairment write-downs and gains and losses from the sale of previously depreciated operating real estate assets helps to identify the operating results of the long-term assets that form the base of our investments, and assists management and investors in comparing those operating results between periods.

Net Debt to Annualized Adjusted EBITDA is total debt less cash and cash equivalents and real estate deposits (as reported for the end of the quarter) divided by Adjusted EBITDA (as reported for the end of the quarter), multiplied by 4.

Net Operating Income (NOI) is a non-U.S. GAAP measure which we define as total real estate revenues less property operating expenses and real estate tax expense.  We believe that NOI is an important supplemental measure of operating performance for a REIT’s operating real estate because it provides a measure of core operations that is unaffected by depreciation, amortization, financing and general and administrative expense. NOI does not represent cash generated by operating activities in accordance with U.S. GAAP and should not be considered an alternative to net income, net income available for common shareholders, or cash flow from operating activities as a measure of financial performance.

Ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, earnings consist of income from continuing operations plus fixed charges and preferred distributions, less adjustments for noncontrolling interests - consolidated real estate entities, capitalized interest and preferred distributions. Fixed charges consist of mortgage and loan interest expense, whether expensed or capitalized, the amortization of debt expense, and capitalized interest.

Ratio of earnings to combined fixed charges and preferred distributions is computed by dividing earnings by combined fixed charges and preferred distributions. For this purpose, earnings consist of income from continuing operations plus fixed charges and preferred distributions, less adjustments for noncontrolling interests – consolidated real estate entities, capitalized interest and preferred distributions. Combined fixed charges and preferred distributions consist of fixed charges (mortgage and loan interest expense, whether expensed or capitalized, the amortization of debt expense and capitalized interest) and preferred distributions.

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Scheduled rent revenue is the total possible revenue from all leasable units and square footage, with occupied space valued at contract rates pursuant to leases and vacant units or square footage at market rates.

Same-store properties are properties owned or in service for the entirety of the periods being compared (except for properties classified as held for sale) and which, in the case of development properties, have achieved a stabilized level of occupancy, which is generally 90%.

U.S. GAAP is defined as accounting principles generally accepted in the United States of America.

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