Centerspace (CSR) 2014 Q4 法說會逐字稿

Good day, and welcome to the Investors Real Estate Trust fourth-quarter FY14 earnings conference call and webcast.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Miss Lindsay Anderson. Ms Anderson, the floor is yours, ma'am.

Good morning, and welcome to Investors Real Estate Trust's fourth-quarter and year-end FY14 earnings conference call. IRET's annual report on Form 10-K was filed yesterday, and the Company's earnings release and supplemental disclosure package for the 3 and 12 months ended April 30 2014 were posted to our website, and also furnished on Form 8-K on June 30.

In the earnings release and supplemental disclosure package, Investors Real Estate Trust has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with the requirements set forth in Regulation G. If you have not received a copy, these documents are available on IRET's website at www.IRET.com in the investor section. Additionally, a webcast and transcript of this call will be archived on the IRET website for one year.

At this time, Management would like to inform you that certain statements made during this call which are not historical may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Investors Real Estate Trust believes the expectations reflected in the forward-looking statements are based on reasonable assumptions, Investors Real Estate Trust can give no assurance that its expectations will be achieved.

Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements are detailed in IRET's 2014 10-K, and from time to time in Investors Real Estate Trust filings with the SEC. Investors Real Estate Trust does not undertake a duty to update any forward-looking statements.

With me today from Management are Tim Mihalick, President and Chief Executive Officer; Diane Bryantt, Executive Vice President and Chief Financial Officer; and Tom Wentz Junior, Executive Vice President and Chief Operating Officer. At this time I would like to turn the call over to Tim Mihalick for his opening remarks.

Thank you, Lindsay, and good morning, everyone. First of all, I want to thank all of you for taking the time to listen to our call this morning, and I hope you'll find the information provided to you to be beneficial. As I stated in our 8-K earnings release last night, I am pleased with our financial and operational results for FY14. Although the harsh winter and rainy spring have impacted the delivery of our development projects, the weather has not impacted our expected lease up and financial performance of the projects. IRET will continue down the strategic path I discussed during last quarter's call, and I expect the priorities of that plan to continue to drive change for IRET over the next several years.

IRET continues to be bullish on the Great Plains region and the markets we are located in. In the recent investor presentation posted to our website earlier this month, it is worth noting that the Wall Street Journal's Market Watch recently published a list of the top 10 small metropolitan areas in which to retire, and IRET has a presence in five of those top 10 markets, but even more importantly, a presence in the number-1 market, Sioux Falls, South Dakota, the number-3 market, Bismarck, North Dakota, and the number-5 market, Rochester, Minnesota.

As I discussed earlier I was pleased with the FY14 results and the steps taken to meet our long-term strategic goals. We expect to further enhance our financial flexibility by initiating steps to resolve the $122.6 million non-recourse loan that is secured by nine properties located in the four states of Nebraska, Missouri, Kansas, and Minnesota. Although these buildings are 90.3% occupied at the end of FY14, the loan balance greatly exceeds the estimate of fair value of these properties. Diane and Tom will discuss in more detail the process we have taken to address this loan.

As IRET moves forward, execution of our strategy, including delivery of development projects, will be key to meeting our long-term objective of AFFO coverage in FY15, an overall improvement to IRET's operating metrics. Thank you, and I will now turn the call over to Diane Bryantt, our Executive Vice President and CFO.

Thank you, Tim. Good morning, everyone. Yesterday, IRET filed our FY14 fourth-quarter report on Form 10-K and furnished our 8-K earnings release and supplemental disclosure. For you this morning, I will just provide a brief recap of significant items in note that occurred in the fourth quarter and year-to-date financial results for year-ended April 30.

Let's start with the operations in the fourth quarter and the impact to FFO. I have three main points that I would like to discuss with you. First, revenues have increased $2.8 million when compared to the fourth quarter of FY13. As we have been discussing, the strong lease up in our developments placed in service account primarily for this increase.

Multi-family same-store operations increased $411,000 as compared to the prior-year fourth quarter. The ability to raise rents occurs when you have consistent high occupancy. We have seen in our multi-family segment occupancy of 93% to 95% range over the past fiscal year.

Secondly, the execution of our sales strategy has impacted our earnings, and that the NOI and revenue delivered by these properties has not yet been replaced, as the proceeds from these sales have been redirected into our development projects. This strategy of redeployment has shown to be effective but the result is a drag on our earnings until these properties are placed in service.

These first two points have somewhat offset each other this quarter relating to same-store growth. Overall, in FY14, revenue grew $17.4 million, of which $6.3 million was from same-store properties.

Thirdly, regarding expenses in the quarter. We were significantly impacted by the cold, harsh winter. We expect to experience increased expenses in the winter season; however, we had an unusually long, cold season, which typically is not a factor in Q4, but this year, it did carry through through the months of February and March of 2014.

Some of the increases were associated with our non-same-store properties; however, utility expense in our same-store properties in Q4 was $1.5 million than the prior quarter, and $1.1 million as compared to the fourth quarter the prior year. We are able to recover some of these costs in our commercial portfolio as tenants will bear the increases; however, we cannot recover these costs in our vacant space and in our multi-family space except through increased rents. Detail on our operating expenses and revenues can be found by segment starting on page 51 of the Company's annual report on Form 10-K.

Other factors year-to-date that impacted FFO was a gain on involuntary conversion. The amount recognized in FY14 was $2.5 million, and in FY13 this was $5.1 million. On a per share basis, this was $0.02 for FY14 and $0.04 in the prior fiscal year. Although we still have insurance proceeds yet to come on the Chateau II fire, we do not anticipate any significant gain on involuntary conversion to reflect it going forward on our financial statements.

Although no impact to FFO, as reported in our 10-K, impairment was significant in Q4 and in FY14. During the fiscal year, the Company recognized non-cash impairments of $44.4 million on 15 properties, of which $1.9 million of this is included in discontinued operations. Information regarding these impairments is contained in note two to the financial statements in the fiscal year 10-K.

Additionally, we have provided additional financial analysis in our 8-K pertaining to the possible outcomes related to eight of these assets, which comprise a majority of the impairment. The total impairment includes recognition in the fourth quarter of a $34.9 million impairment on eight commercial properties located in four states. These properties are part of a portfolio of nine commercial properties with a total of approximately 936,000 rentable square feet, securing a $122.6 million non-recourse CMBS loan with a maturity date of October 6, 2016.

Due to concerns over the borrower's ability to refinance the portfolio at loan maturity, for impairment testing purposes the Company revised its assumptions regarding the holding period of these assets. The Company commissioned a third-party appraisal of the properties and the result of which indicated fair value of the portfolio below net book value, and accordingly, an impairment was recorded for the difference.

Cash flow from the portfolio currently covers debt service on the loan, and the borrower, a special purpose subsidiary of the Company, is current under all payments on this loan. A $9.5 million impairment on the other seven properties were in relation to the execution of our strategic plan, and that we are reallocating dollars from the disposal of properties that are in need of significant tenant improvements or capital improvements and moving these funds toward healthcare or multi-family segments.

Moving on to the balance sheet and year-to-date results. Regarding cash and liquidity, cash on hand at year end was $47.3 million as compared to $94.1 at the beginning of the fiscal year. We continued again to see strong cash flow from operations to support our property operations and improvements, and also we have $49.5 million available on our line of credit as of year end.

Regarding acquisitions, development, and sale of real estate. Overall, acquisitions and developments placed in service provided for an increase in real estate owned of $96 million. We disposed of properties with the carrying value of $74 million with a net gain of $7 million. The Company also invested $124 million in development projects during the year.

On to the liability side and debt. We had a very successful year in matching our debt strategy to our overall strategy of reducing leverage, reducing weighted average interest rates, improving metrics, and providing a source of capital for our development projects. Our current mortgage debt was $998 million at the year end compared to the prior-year end of $1.1 billion. The outstanding mortgage debt to undepreciated property owned was 50% at year end versus 52% one year ago.

Our overall weighted average rate on our mortgage debt excluding our line of credit and construction debt is 5.37% as compared to 5.55% at the end of the prior fiscal year. And finally, we closed on a [five] construction loan, which will provide capital of approximately $86 million for our development projects.

Funds from operations and AFFO and our strategic objectives. FFO for the quarter was $0.14 per share and $0.63 year to date. AFFO for the quarter was $0.11 and $0.45 year to date. Although we had some seasonal issues that impacted fourth-quarter results as it relates FFO and AFFO, we feel we have made good progress in meeting our longer-term strategic objectives of redeploying assets and capital into those areas of real estate investments that will provide for long-term growth and increased returns.

To close, I report that IRET Board of Trustees declared a quarterly distribution of $0.13 per common share and unit to be paid today, July 1, to the shareholders of record of June 16. This will be IRET's 173rd consecutive quarterly distribution. Thank you and now I will turn the call over to Tom Wentz Jr, Executive Vice President and Chief Operating Officer.

Thank you, Diane. Both the quarterly and full-year results continued the trend of improved operations as we maintained a tighter focus on growing our best-performing segments of multi-family and healthcare, along with continued emphasis on disposing of non-core assets to remove under-performing properties in order to improve the quality of our remaining portfolio.

Despite all the positives during the last fiscal year, this past year was not without challenges, ranging from the impact of weather on both development delivery times and utility expenses to the pressure on property values due to the continued slow improvement in the commercial office segment. However, we remain committed to the strategy we followed in the prior fiscal year of focusing on growing those segments and markets where IRET is the leader or has a viable path to market leadership, and disposing of non-core assets that are not contributing to our financial performance or are in markets or segments where IRET does not have market leadership. We made great progress in both of these areas over the past fiscal year.

As noted, over the prior year and confirmed by FY14 financial results, as we continued to grow our best segments of multi-family and healthcare primarily through development, we expected continued near-term pressure on FFO due to the mismatch in timing between the outlay of funds necessary for developments compared to the delivery of completed projects. However, now that we are into the third year of increased development and with this past fiscal year having the highest amount at approximately $235 million of development commenced, we expect the delivery of prior projects will somewhat offset the FFO pressure created by our higher levels of development.

Delivery time is important, and as noted during the last quarter's call, we were concerned about weather-related impacts. And now, with an unusually wet spring in many of our markets following the cold winter, it is likely we will experience some additional delay in the delivery of our in-progress development projects, as well as some drag or slowdown on recently commenced projects. However, we are optimistic that lost time can be made up this summer, but if not, then we could deliver as much as 8 to 10 weeks after our most optimistic delivery dates.

Fortunately, so far the weather conditions have not materially increased our costs of construction. Rather, we expect any financial impact would be due to delayed delivery, which does slightly increase development costs in the form of imputed or actual interest costs, but the biggest impact is delayed receipt of rental revenue.

In regard to development we continued to see good income and growth opportunities in our markets that are leaders in healthcare, education, energy, and food. Even though we are experiencing higher construction costs as well as competitive developments from other real estate owners, unit demand and rent levels continue to support our strategy of growing primarily through development and when available, acquisition opportunities. IRET currently has approximately 1,500 apartment units under construction in five of our core markets, which is an increase in the number of apartment units under construction that we reported in the prior quarter.

We delivered 386 units during FY14. Additionally, over the last 12 months IRET also acquired land that will allow for development of a similar amount of units starting yet in calendar 2014 as well as spring of 2015. We continue to remain active in the land acquisition area for purposes of positioning IRET as the market leader in new multi-family projects in our core markets. We believe that this focus on development provides IRET with the best path to successfully execute on our primary strategy of making our overall portfolio younger and more focused by segment and the leader in its respective categories and markets.

Our plan for the coming fiscal year will be to continue to focus primarily on new multi-family development to meet the market demand for apartments, as well as to leverage off the leading position IRET currently enjoys in many of our markets. We also plan to continue to pursue selective healthcare developments to expand our healthcare segment in the areas of both medical office as well as senior housing.

While there continues to be a lack of acceptable acquisition opportunities in almost all of our markets when compared to development returns, however, as we enter another construction season this spring and summer we are carefully monitoring all the challenges associated with development. As a result of our observations, we are constantly adjusting our approach to proactively deal with these challenges.

Our focus remains on developing assets that will be positioned as the best in market, avoiding the requirement to compete on price, and keeping IRET as the market leader in our core communities. Our leased percentage at delivery on the three development projects we delivered last fiscal year has confirmed our approach as evidenced by strong pre-leasing and extremely quick stabilization with 100% occupancy in the case of two of the projects.

Financial improvement remains slow and continues to be challenging in the commercial segments of industrial, retail, and office. Our strategy this past year and for the coming year will be to seek improvement through a combination of an aggressive focus on new leasing and renewals as well as the disposition of non-core assets that are weaker performers or have a limited ability to contribute financially or will require higher capital investment with limited corresponding financial returns.

Moving to leverage and continuing the trend that we've experienced over the last several years, we have been able to reduce not only the cost of our debt, but also the total amount of the debt as it pertains to the overall portfolio. We do not expect any material change to our current overall leverages, levels of debt, or type of debt and that at approximately 50% of mortgage debt to real estate owned, we have good flexibility on how we fund our growth and operations going forward.

Depending on the level of development opportunities, we may slightly increase leverage levels on the existing portfolio by as much as 5% or approximately $50 million, bringing total leverage as a percentage of real estate owned closer to 55%. To maintain overall interest expense at current levels, we may use more floating rate debt to capture the advantage of lower rates during development or on those assets which are likely to be disposed through sale over the next 3 to 18 months.

As Tim and Diane have noted, we had a significant non-cash impairment in FY14 with the non-cash impairment of 15 commercial assets. The majority of this impairment was attributable to eight commercial office properties owned by a subsidiary of IRET. This portfolio was acquired in September 2006, and while occupancy levels in portfolio have generally been satisfactory during the fourth quarter of FY14, we determined these assets were impaired.

While the loan is current and cash flow is currently projected as adequate to service the loan before any capital improvements, leasing commissions, or tenant improvements, we have contacted the lender to discuss various options with regard to the loan. The loan is non-recoursed to our subsidiary Company, subject only to industry standard carve out guarantees by both the borrower as well as Investors Real Estate Trust. It is early in a very uncertain process and IRET can make no assurances about any possible outcomes of the discussions with the lender. However, we have analyzed various possibilities including the conveyance of the portfolio back to the lender pursuant to the loan terms.

Using FY14 financial results from this specific portfolio as measured against our financial results for FY14, a subtraction of this portfolio in its entirety is neutral financially at worst, and could have slightly financially positive impacts to IRET. We will continue to monitor this group of assets closely as we pursue discussions with the lender in advance of the loan maturity in October 2016.

Looking forward, we expect the amount of development and acquisitions to remain consistent with our current levels with our capacity remaining as high as $300 million over the coming 12 to 18 months, depending on the final mix of acquisitions versus development. Our expected acquisition and development cap rates still range from approximately 6% to 12% in the multi-family segment, and 7% to 8.5% in the commercial segment. In certain cases actual results have been higher for development in the energy-impacted markets of North Dakota, South Dakota, and Montana. Thank you, and I will now turn the call back over to the moderator for questions.

Thank you, sir.

(Operator Instructions)

The first question we have come from Dave Rogers of Robert W Baird.

Yes, good morning out there.

Good morning, Dave.

Wanted to I guess start on the revenue side, and I don't know if this is a good one for Tom to start with maybe or Dianne can chip in as well, but on the revenue side I guess two questions that I wanted to cover. The first was can you give us a little bit more color on the impact of the revenue timing from the weather in the forth quarter, how that is translating also into the second quarter, any impacts in the second-quarter revenues?

And maybe to ask it from a different way you talked about new supply Tom, and can you give us a little bit of color on how rents are coming out versus expectations, particularly in the multi-family lease-up assets so far that you've seen in this calendar year.

Yes, well yes, Dave. This is Tom. I think as we indicated in the prior quarter's call where we were a little bit concerned about some delivery delay, I think that definitely showed up in the final quarter as we did experience some delay due to the winter conditions, and that's going to carryover. We've experienced a very wet spring, early summer in a lot of our markets where we have construction, so I think we will continue to expect some delay.

I don't think it's going to be a huge impact as ultimately we're going to get the revenue; all of these markets still continue to exhibit strong demand, and we haven't really seen any slowdown on the pre-leasing or the leasing activity or traffic. It's just really a matter of timing.

So I think what we're looking at is really just delayed revenue and then there will be some additional cost in the form of construction loan interest and/or our imputed interest due to the delay in delivery. But we don't anticipate anything material, and so far, we have not seen any increase in construction cost or use of contingency or weather winter condition type increase construction costs.

And I think just to follow-up on the second part on demand, yes we are seeing some increased competition in certain markets. But at this point, our pro forma rents are on target or our actual rents are exceeding pro forma in the case of many of our markets. So at this point, we're very optimistic at what we've got under construction for delivery; the 1,500 units is going to meet or exceed our expectations.

Okay, thanks. With regard to strategy, I think you put something in the press release yesterday that referenced investments in multi-family as well as healthcare which I think we know. I think the present view it says something about particularly senior housing, and I just wanted to maybe dive in if this is a shift in your view with regard to kind of medical office or any color around that that you can provide?

No, I don't think it's any shift. I mean, I think we still favor both of those. It just really is a matter of opportunity.

They may not consistently present themselves medical office versus senior housing, but we're not focusing on one to the exclusion of the other from that standpoint. I mean we're focused both equally, but it's just a matter of when the opportunities present themselves or a matter of timing on when we announce or start them.

Dave this is Tim. I guess to follow-up on that as you reference in the press release, we did put it in parentheses senior housing, that certainly has been a focus and it somewhat mirrors our multi-family markets and we'll look for opportunities in that as we focus on those markets and that type of asset acquisition.

Okay. On the loan conveyance, can you update us a little bit on what you're thinking in terms of the timing, and it sounds like this is somewhat of a conclusion that you will move forward in one form or the other; if you can't get relief, you would go ahead with the conveyance, which I think is the right move to do. But maybe give us a little update on timing, and then two, can you answer are there any tax protection on those assets that we have to think about going forward?

Well timing is the difficult one for us to answer. That's something we're not really completely in control of. Again what I would emphasize is the loan is current. It's got good occupancy. It's cash flow positive, so we have a lot of options and again it doesn't mature until 2016. So it's going to be difficult for us to give you any idea --

-- because Tom stated earlier, Dave we're very early in the process, so for us to have a feel for the timing is still not there. We'll continue to move forward.

Any tax protection on those assets?

We're evaluating all that and again, at this point yet, we're too soon to comment, but we are evaluating all those impacts.

Okay, last question. I guess we'll talk about the dividend. Obviously it's been a rough winter. Spring sounds like it's a little bit slow. I think your prior goal was a third quarter FY15 kind of dividend coverage or at least some time during this fiscal year. Do you have any updates with regard to kind of how that looks given what we've seen so far this year?

Well as I mentioned earlier my remarks that still is our goal, it would be coverage in FY15, but obviously, it's going to depend on the delivery of the development projects. We're optimistic that we can get that done, but we'll have to see how these come to fruition and lease up.

Okay, great. Thank you.

The next question we have comes from Michael Salinsky with RBC Capital Markets.

Good morning, guys.

Good morning, Mike.

Just going back to the revenue question, just as we think about you had the big industrial vacate there during the forth quarter. Can you just give us an update? Are there any move outs that are expected in the first half of the year of size, and then as we think about additional lease commencements on the commercial side anything of substance we should be expecting?

Mike, this is Tom. Nothing that we're aware of. I mean obviously if you look at our top tenant list, I mean there are some large users inside our portfolio, but there's nothing unusual that we see, and I think some of our larger, which was kind of detailed in our earnings release is the case, we were successful in backfilling some of those move outs pretty quickly in our market. And a lot of the vacancy or the decline in occupancy was kind of attributable to sales of highly-occupied assets over the prior fiscal year.

But I guess to answer your question, we're not anticipating anything that we know of. There can always be surprises but we don't see anything.

Okay. Tom in your prepared comments I think you mentioned investment of up to $300 million split between development and acquisitions. Can you talk a little bit about finance, how you plan to fund that for 2014 or your FY15? What's kind of disposition plan for 2015 versus financing plan there, and how much is being marketed currently?

Well, I think Mike, the best answer is to just look at our cash flow statement and our sources and uses from FY14. We're really operating under the same strategic plan.

I think we sold close to $85 million last year. Dianne can give the exact answer, probably raised in various forms about $50 million of equity, and then construction loans, line of credit.

We don't really see any change in the mix at this point. Now of course it could depending on market conditions. We're out marketing approximately the same amount of assets for sale, so I think the best guidance is look at what we did in 2014 and apply it going forward.

That's helpful. Third question, just relates to development there. Can you talk, you've mentioned the yields are coming in there. Can you just remind us what the yields are on many multi-family properties that you expect to bring online?

And then just in terms of revenues there thinking what's the average concession package going into lease up there, and are you expensing that up front or are you pro rating that over to the lease? Just trying to get a sense to why the revenue numbers came in a shortfall during the quarter.

Well the first question, development cap rates are still slightly higher or higher than acquisitions. Our range really remains the same, as I indicated we're anywhere from that 6% on cost as much as 12%, and that's really what we're delivering at. I guess the question on concessions, are you talking multi-family or commercial?

Well your multi-family makes up the bulk of your portfolio right now. What I'm just trying to get at is as we think about lease-up concessions are you expensing those up front, and how are those trending relative to expectations? When you talk about the yield you're giving a stabilized yield, what I'm just trying to understand is how is that initial yield coming online and how is that revenue ramping up?

That revenue is ramping up. We're really not seeing a lot of concessions and we're not really using concessions to lease up our multi-family at this point like one month free, so I mean at this point in the development cycle, we're still seeing extremely strong demand in pretty much all of our markets without the use of concessions either on new leases or on renewals. There may be certain cases inside the portfolio but it's not a consistent multi-family wide strategy at this point, Mike.

I was just more referencing the development properties in terms of recent concessions.

Yes, we're not using concessions as far as lease up. I mean the only scenario may be if there's some delay in delivery and we've got some pre-leasing, we would have a delay in the delivery or the receipt of that rent, but it's not a strategy that we're using to hit those occupancy numbers on development.

Okay, fair enough. And then final question just going back to the conveyance there. You talked about the portfolio I think it's nine assets with the CMBS. Are there additional assets in the portfolio today that have non-recourse loan on them that are under water to the degree that a conveyance would make sense in terms of improving AFFO and dividend coverage?

Not that we've identified. We do have a significant amount of non-recourse debt in the portfolio. And again, our strategy really has been to fix the debt to particular assets and use traditional mortgages with a majority being non-recourse.

But we evaluate every asset every quarter, and our external auditors also look at our valuation testing, and to the extent those opportunities present themselves we'll certainly do what is best for the shareholders within the confines of our mortgage terms.

Okay, so the additional impairments that were recognized relate to assets that are planned to be sold then?

Correct.

Yes.

Okay, thank you.

The next question we have comes from Carol Kemple of Hilliard Lyons.

Good morning.

Good morning, Carol.

On the impairment you talked about earlier I think on the call Tom you said if you gave the keys back to the bank that that would probably be a negative at worse for the Company or a slight positive, but then in the earnings release, it talks about a $0.02 per share reduction in annual FFO. Those seem a little different to me. Is there something I'm missing there?

Well, no, on an FFO basis, but again, our real focus is cash flow and that AFFO metric. And I think if you look at the slide as part of the presentation and these are 4/30 numbers, so we took year-end fiscal operations in that subsidiary portfolio and applied it to our overall metrics that we actually release or provide. And so not all of them are positive but I mean I think if you look at debt, if you look at various coverage ratios, and if you look at AFFO, those are all at least in our opinion slightly positive as of last year's numbers.

Okay. And then your property management expense grew a little more in the quarter than I was expecting. Is that anything one-time or what should we expect about that current level going forward?

What we've seen, we're still filling up staff and we're still impacted by the energy markets and the labor demand. The year-to-date numbers should be consistent with what you could expect going forward. I wouldn't necessarily look in fourth quarter but look at the year to date.

Okay, thank you.

The next question we have comes from Craig Kucera with Wunderlich Securities.

Hi good morning guys.

Hello, Craig.

I wanted to go back to the pool of assets that you did take the impairments on. There's a mention in the press release that the NOI today is about $9.3 million. Can you discuss how that's trended over time in light of the fact that occupancy has been reasonably good?

Well, this is Tom. I mean it's trended down which is the story if you go back and listen, we sound like a broken record really over the last five years, but we have had pretty good renewal percentages over the years. But really what's happened in the commercial office segment in all our markets is in the event of renewals or new tenants, the lease rates are substantially lower, and in many cases, 40%, 50% lower than rents prior to probably 2007, 2008 is the demarcation of that.

And that's really what happened in this portfolio, so NOI is down substantially from the point of acquisition. This portfolio had a good run like a lot of our commercial assets, but in the last several years, the lease rates have reset.

Got it. So are you basically saying that your NOI maybe at the time of acquisition was maybe 40%, 50% higher maybe pushing the $14 million level or is it that meaningful?

Not quite that high but close. I mean this portfolio didn't have that large of a roll down but I mean, pretty close.

I think if you go back we did a specific 8-K on this acquisition where we outlined and actually attached the loan documents back in 2006. This was an 8-K event, and so all the details, I'm going from memory on what that NOI was but I know we disclosed it or gave some projections back in 2006.

Craig, this is Tim here. My estimation would be probably about a 25% drop in NOI from acquisition down to existing.

Got it. And you haven't had that much of a roll down presumably in 2014 to drive it. Or was there enough roll down for you to take the impairment or was it related to a decision to sell the assets?

Well, I think it was kind of a combination but it was really driven by the approaching loan maturity and how we evaluate the hold period of these assets, and really what are the prospects of refinancing or redoing that loan in 2016; and if we pay that loan down or off, does that make financial sense? At the current carrying value of those assets.

And so again, we really don't know what the outcome is going to be. I mean we've got various options and so what we want to do is basically be proactive on how we deal with this pending maturity.

Got it. And just from a sort of acquisition age or sort of age of the portfolio, can you kind of put a band around the other assets that you acquired when the market was a little bit toppy, maybe assets acquired in 2006 and 2007 or is this the bulk of it?

This is going to be the bulk of it, so if you go back and look at acquisitions in that time frame and if you look at our debt maturity schedule, this really is the biggest piece. I mean it's over 900,000 square feet, a pretty substantial portion of our commercial office portfolio that's left. I mean we've sold a lot over the last several years as well.

Okay, thanks a lot.

(Operator Instructions)

At this time it appears we have no further questions. We will go ahead and conclude our question and answer session. I would now like to turn the conference back over to Mr. Tim Mihalick for any closing remarks. Sir?

Thank you, and thank you again for your continued interest in IRET and your participation in this morning's call. We hope that we get to see summer some time here in North Dakota and the rain stops and we can get down to business at hand. And lastly and most importantly, go USA this afternoon and let's continue on in the World Cup. Thanks, everybody.

We thank you, sir and to the rest of the management team for your time today. The conference call has now concluded. Again, we thank you all for attending today's presentation. At this time you may disconnect your lines. Thank you and have a great day, everyone.