It is certainly my pleasure to welcome you to the IRET Blog today. Thank you for allowing me the opportunity to share my insight with you about the company following our 2010 Annual Meeting of Shareholders.
As we complete our 40th year of operation, I decided I would offer a look into the future of IRET as we navigate through this challenging economic environment. In order to do that I believe it is important to revisit our
Timothy P. Mihalick - IRET President & CEO
past. What I found interesting upon doing so, is the consistency of the actions of IRET throughout the years. The solid foundation built by Roger Odell and Tom Wentz Sr. has not been words on a piece of paper, but a way to do business. Roger and Tom, along with previous board members, always felt that IRET was built by and for the shareholders and that all decisions made should reflect their best interest. That remains true today. We have seen challenges in the past and we are experiencing challenges today. I believe that our past will guide us into the future. History has taught us many things and that knowledge has brought us to where we are today.
The Present
In my first earnings call as President and CEO last December I spoke of the strategic plan that we adopted in February of 2009. That plan was put into place to allow IRET to build on the solid foundation that our forty year history has established.
One goal was our desire to internalize residential and commercial property management—a goal we identified during the purchase of the Magnum Resources portfolio four years ago. That led us to begin the process of bringing our portfolio in-house and I am happy to report we are pleased with the results.
Although we modeled this transition to have a neutral effect on our income statement we strongly believe that by gaining control of the day-to-day activities at our properties, we will be able to enhance property performance.
A second goal was to focus on our organizational structure, our personnel needs and to put in place IRET corporate governance in light of what has happened at other public companies. IRET’s REIT and UPREIT structure are valuable to have in the market place. Our ability to offer tax advantaged solutions to potential sellers has been an invaluable tool, allowing us to build our capital base and to acquire quality assets. We expect this structure to be of more value as we move forward in light of uncertain changes in the taxing structure our federal government is contemplating. Actually, a more simple way to put it is we don’t expect taxes to go down any time soon.
We continue to assess our personnel needs. Obviously, we now compete in a broader geographic market then we have in previous years. As recent as two years ago, we had 81 employees. That number continues to increase as we complete the staffing of our internalization of management. That employee count now approaches in excess of 360.
Additionally, our second goal was to put in place a more active governance committee at the Board level charged with looking after the interests of the shareholders.
Our third goal is to continue on a disciplined investment strategy. As I mentioned earlier, the history of the company speaks quite often of IRET’s need to focus on that strategy and what the long-term benefit will be to IRET shareholders. We are finding that in today’s environment, quality acquisitions continue to be one of our biggest challenges, but rest assured we will continue to seek those out in the markets which IRET is a part of.
Bringing IRET's property management in-house has been challenging but successful.
Lastly, our fourth goal is to stay committed to our capital structure. We believe through our UPREIT structure we will not only be able to acquire quality properties, but we will also add to our capital base. Almost a year ago, we made the decision to issue additional shares to our capital base and although we have all suffered the dilutive effect from those capital raises we recognized the need to strengthen our balance sheet to deal with the uncertain lending environment that existed. That offering allowed us to deleverage our portfolio and to complete the purchase of a senior housing portfolio in Wyoming. We believe it was the right thing to do and the benefits from that decision will be seen in the months ahead.
Now to the Future
Much has changed, but much has remained the same. The stalled economic environment remains constant and, in my opinion, we will continue to fight this climate for the next couple of years. What has not stalled is the continued effort at IRET to reach its long-range goal to be the landlord of choice in the Upper Midwestern part of the United States. Through increased branding efforts, we believe this is possible. We believe that by having IRET employees on the ground in our markets, we will see benefits to IRET’s overall operations.
Another challenge we continue to have is finding quality acquisitions within our geographic footprint. We are investigating other avenues to add property to our portfolio by examining the opportunity to build into under-served markets that currently exist, such as those in the western half of North Dakota, where energy activity continues at a rapid pace. This type of acquisition would require careful due diligence on our part, though, due to the boom and bust cycle that the energy industry can experience, but certainly worth the effort.
We continue to seek out portfolio transactions, especially the type of transactions that would impact our overall financial condition in an accretive manner. These transactions take time, but our hope is that increased brand awareness will allow potential sellers to recognize IRET as an avenue to exit their holdings. Additionally, we will be more active in the second tier markets we currently have holdings in. Our belief is that acquisitions we may not have seen in the past will now make their way to IRET via our people on the ground. This should give us more opportunity to increase our holdings in those markets.
I am asked quite often about the markets IRET operates in, specifically, what do we see currently, and what does the future hold for those markets? Whenever I answer that question, I believe it is important to stress that IRET has, by design, operated in markets which we feel do not suffer the drastic economic volatility that the rest of the country does. Three of the states in which we own property currently have the lowest unemployment rates in the nation. Slow and steady has long been a driving force behind IRET and we are not inclined to abandon that philosophy in a knee jerk reaction to the market.
We may choose to build in under-served markets at this point and if so, we will adhere to the slow, steady mantra, recognizing that putting dollars to work will not have an immediate impact on our income statement but will allow us to build for the future.
Dividends
The question I field the most is whether or not IRET can sustain its dividend. As you may be aware, we have held our dividend steady in recent quarters. I will emphasize that we will continue to examine our operations on a quarterly basis and make our dividend declaration based on those and anticipated financial results. I still believe we will need to see job creation to pull us out of this prolonged slump and when that will happen remains to be seen. I am well aware that IRET’s shareholders have built this company into what it is today and fully believe that unless there are debt issues to handle, a need to buy back IRET stock, or a need to fund an acquisition that will have a substantial impact on IRET’s income statement, the dividend should be paid out to our shareholders.
I am confident that IRET is well positioned in the markets that we compete in and that the goals I discussed in our Annual Meeting of Shareholders as well as in today’s blog are being met. I also recognize that the global economy, including the USA, continues to be fragile. You can rest assured that IRET will continue to monitor the ever-changing economic conditions and will keep at heart the interests of our shareholders. We intend to work hard to meet our goal to be the premier property owner in the Upper Midwest.
Thank you for reading.
Tim Mihalick
President & CEO
IRET's Blog 