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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended September 30, 2020
or 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 001-35624
INVESTORS REAL ESTATE TRUST
(Exact name of registrant as specified in its charter)
North Dakota45-0311232
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1400 31st Avenue SWSuite 60Post Office Box 1988MinotND58702-1988
(Address of principal executive offices) (Zip code)
(701) 837-4738
(Registrant’s telephone number, including area code)
    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days.
YesNo
    Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YesNo
    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large Accelerated FilerAccelerated filer Non-accelerated filer
Smaller Reporting CompanyEmerging 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.
    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YesNo
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Shares of Beneficial Interest, no par valueIRETNew York Stock Exchange
Series C Cumulative Redeemable Preferred SharesIRET-PCNew York Stock Exchange
    The number of common shares of beneficial interest outstanding as of October 26, 2020, was 12,975,896.


Table of Contents
TABLE OF CONTENTS
 Page
 
  
 
2

Table of Contents
PART I
Item 1. Financial Statements.

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
 (in thousands, except per share data)
 September 30, 2020December 31, 2019
ASSETS  
Real estate investments  
Property owned$1,805,390 $1,643,078 
Less accumulated depreciation(380,392)(349,122)
 1,424,998 1,293,956 
Unimproved land 1,376 
Mortgage loans receivable17,986 16,140 
Total real estate investments1,442,984 1,311,472 
Cash and cash equivalents16,804 26,579 
Restricted cash2,199 19,538 
Other assets16,947 34,829 
TOTAL ASSETS$1,478,934 $1,392,418 
LIABILITIES, MEZZANINE EQUITY, AND EQUITY  
LIABILITIES  
Accounts payable and accrued expenses$58,596 $47,155 
Revolving lines of credit135,000 50,079 
Notes payable, net of unamortized loan costs of $798 and $942 respectively
269,202 269,058 
Mortgages payable, net of unamortized loan costs of $1,446 and $1,712, respectively
313,065 329,664 
TOTAL LIABILITIES$775,863 $695,956 
COMMITMENTS AND CONTINGENCIES (NOTE 10)
SERIES D PREFERRED UNITS (Cumulative convertible preferred units, $100 par value, 166 units issued and outstanding at September 30, 2020 and December 31, 2019, aggregate liquidation preference of $16,560)
$16,560 $16,560 
EQUITY  
Series C Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no par value, $25 per share liquidation preference, 3,881 shares issued and outstanding at September 30, 2020, aggregate liquidation preference of $97,036 and 4,118 shares issued and outstanding at December 31, 2019, aggregate liquidation preference of $102,971)
93,530 99,456 
Common Shares of Beneficial Interest (Unlimited authorization, no par value, 12,976 shares issued and outstanding at September 30, 2020 and 12,098 shares issued and outstanding at December 31, 2019)
968,436 917,400 
Accumulated distributions in excess of net income(412,577)(390,196)
Accumulated other comprehensive income (loss)(17,256)(7,607)
Total shareholders’ equity$632,133 $619,053 
Noncontrolling interests – Operating Partnership (1,018 units at September 30, 2020 and 1,058 units at December 31, 2019)
53,669 55,284 
Noncontrolling interests – consolidated real estate entities709 5,565 
Total equity$686,511 $679,902 
TOTAL LIABILITIES, MEZZANINE EQUITY, AND EQUITY$1,478,934 $1,392,418 
See accompanying Notes to Condensed Consolidated Financial Statements.
3

Table of Contents
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

 (in thousands, except per share data)
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
REVENUE$44,138 $47,436 $132,454 $139,978 
EXPENSES    
Property operating expenses, excluding real estate taxes13,129 14,485 38,957 43,231 
Real estate taxes5,402 5,425 16,277 16,231 
Property management expense1,442 1,553 4,341 4,552 
Casualty loss91 178 1,331 911 
Depreciation and amortization18,995 18,751 55,311 55,299 
General and administrative expenses3,077 3,448 9,707 10,803 
TOTAL EXPENSES$42,136 $43,840 $125,924 $131,027 
Operating income2,002 3,596 6,530 8,951 
Interest expense(6,771)(7,694)(20,622)(23,180)
Loss on extinguishment of debt(4)(1,087)(21)(1,496)
Interest and other income (loss)281 498 (1,958)1,390 
Income (loss) before gain (loss) on sale of real estate and other investments, and gain (loss) on litigation settlement(4,492)(4,687)(16,071)(14,335)
Gain (loss) on sale of real estate and other investments25,676 39,105 25,486 39,774 
Gain (loss) on litigation settlement 300  6,586 
NET INCOME (LOSS)$21,184 $34,718 $9,415 $32,025 
Dividends to preferred unitholders(160)(160)(480)(377)
Net (income) loss attributable to noncontrolling interests – Operating Partnership(1,387)(3,145)(248)(2,550)
Net (income) loss attributable to noncontrolling interests – consolidated real estate entities(8)183 132 913 
Net income (loss) attributable to controlling interests19,629 31,596 8,819 30,011 
Dividends to preferred shareholders(1,607)(1,705)(4,921)(5,116)
Discount (premium) on redemption of preferred shares(1) 297  
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS$18,021 $29,891 $4,195 $24,895 
BASIC
NET EARNINGS (LOSS) PER COMMON SHARE – BASIC$1.40 $2.57 $0.33 $2.11 
DILUTED
NET EARNINGS (LOSS) PER COMMON SHARE – DILUTED$1.38 $2.54 $0.33 $2.11 
See accompanying Notes to Condensed Consolidated Financial Statements.
4

Table of Contents
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)


(in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Net income (loss)$21,184 $34,718 $9,415 $32,025 
Other comprehensive income:
Unrealized gain (loss) from derivative instrument(210)(2,251)(11,314)(8,963)
(Gain) loss on derivative instrument reclassified into earnings1,093 56 1,665 26 
Total comprehensive income (loss)$22,067 $32,523 $(234)$23,088 
Net comprehensive (income) loss attributable to noncontrolling interests – Operating Partnership(1,451)(2,935)516 (1,680)
Net (income) loss attributable to noncontrolling interests – consolidated real estate entities(8)183 132 913 
Comprehensive income (loss) attributable to controlling interests$20,608 $29,771 $414 $22,321 

See accompanying Notes to Condensed Consolidated Financial Statements.

5

Table of Contents
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited)

 (in thousands, except per share data)
Nine Months Ended September 30, 2019PREFERRED
SHARES
NUMBER
OF
COMMON
SHARES
COMMON
SHARES
ACCUMULATED
DISTRIBUTIONS
IN EXCESS OF
NET INCOME
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)NONREDEEMABLE
NONCONTROLLING
INTERESTS
TOTAL
EQUITY
Balance December 31, 2018$99,456 11,942 $899,234 $(429,048)$(856)$74,663 $643,449 
Net income (loss) attributable to controlling interests and nonredeemable noncontrolling interests   30,011 1,811 31,822 
Change in fair value of derivatives   (8,937)(8,937)
Distributions - common shares and units ($2.10 per share and unit)
   (24,527)(2,673)(27,200)
Distributions – Series C preferred shares ($1.2421875 per Series C share)
(5,116)(5,116)
Share-based compensation, net of forfeitures 11 1,452   1,452 
Redemption of units for common shares8 (511)511  
Redemption of units for cash  (8,135)(8,135)
Shares repurchased(329)(18,023)(18,023)
Acquisition of redeemable noncontrolling interests4,529 4,529 
Other (7)(83) (95)(178)
Balance September 30, 2019$99,456 11,625 $886,598 $(428,680)$(9,793)$66,082 $613,663 
Nine Months Ended September 30, 2020
Balance December 31, 2019$99,456 12,098 $917,400 $(390,196)$(7,607)$60,849 $679,902 
Net income (loss) attributable to controlling interests and noncontrolling interests   8,819 116 8,935 
Change in fair value of derivatives(9,649)(9,649)
Distributions - common shares and units ($2.10 per share and unit)
   (26,576)(2,159)(28,735)
Distributions – Series C preferred shares ($1.2421875 per Series C share)
   (4,921) (4,921)
Share-based compensation, net of forfeitures 20 1,521   1,521 
Sale of common shares, net819 58,204 58,204 
Redemption of units for common shares40 (344)344  
Redemption of units for cash    (48)(48)
Shares repurchased(5,926)— — 297  (5,629)
Acquisition of noncontrolling interests - consolidated real estate entities(7,584)(4,637)(12,221)
Other (1)(761) (87)(848)
Balance September 30, 2020$93,530 12,976 $968,436 $(412,577)$(17,256)$54,378 $686,511 

See accompanying Notes to Condensed Consolidated Financial Statements.


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INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited)
 (in thousands, except per share data)
Three Months Ended September 30, 2019PREFERRED
SHARES
NUMBER
OF
COMMON
SHARES
COMMON
SHARES
ACCUMULATED
DISTRIBUTIONS
IN EXCESS OF
NET INCOME
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)NONREDEEMABLE
NONCONTROLLING
INTERESTS
TOTAL
EQUITY
Balance June 30, 2019$99,456 11,656 $888,541 $(450,433)$(7,598)$64,034 $594,000 
Net income (loss) attributable to controlling interests and nonredeemable noncontrolling interests   31,596 2,962 34,558 
Change in fair value of derivatives   (2,195)(2,195)
Distributions - common shares and units ($0.70 per share and unit)
   (8,138)(857)(8,995)
Distributions – Series C preferred shares ($0.4140625 per Series C share)
  (1,705) (1,705)
Share-based compensation, net of forfeitures 8 472   472 
Redemption of units for common shares— 10 (10) 
Redemption of units for cash  (11)(11)
Shares repurchased(39)(2,346)(2,346)
Other — (79) (36)(115)
Balance September 30, 2019$99,456 11,625 $886,598 $(428,680)$(9,793)$66,082 $613,663 
Three Months Ended September 30, 2020
Balance June 30, 2020$93,579 12,827 $958,292 $(421,515)$(18,139)$53,290 $665,507 
Net income (loss) attributable to controlling interests and noncontrolling interests   19,629 1,395 21,024 
Change in fair value of derivatives883 883 
Distributions - common shares and units ($0.70 per share and unit)
   (9,083)(713)(9,796)
Distributions – Series C preferred shares ($0.4140625 per Series C share)
   (1,607) (1,607)
Share-based compensation, net of forfeitures — 554   554 
Sale of common shares, net145 10,063 10,063 
Redemption of units for common shares4 (462)462  
Redemption of units for cash   (25)(25)
Shares repurchased(49)(1) (50)
Other — (11) (31)(42)
Balance September 30, 2020$93,530 12,976 $968,436 $(412,577)$(17,256)$54,378 $686,511 

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INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
 (in thousands)
 Nine Months Ended September 30,
 20202019
CASH FLOWS FROM OPERATING ACTIVITIES  
Net income (loss)$9,415 $32,025 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:  
Depreciation and amortization, including amortization of capitalized loan costs56,070 56,169 
(Gain) loss on sale of real estate and other investments(25,486)(39,774)
Realized (gain) loss on marketable securities3,378  
(Gain) loss on litigation settlement (1,349)
Share-based compensation expense1,521 1,452 
Other, net2,393 2,476 
Changes in other assets and liabilities:  
Other assets(1,632)(705)
Accounts payable and accrued expenses1,599 1,348 
Net cash provided by (used by) operating activities$47,258 $51,642 
CASH FLOWS FROM INVESTING ACTIVITIES  
Proceeds from sale of marketable securities3,856  
Proceeds from repayment of mortgage loans receivable10,020  
Increase in mortgages and notes receivable(18,187)(159)
Proceeds from sale of real estate and other investments43,669 93,804 
Payments for acquisitions of real estate assets(168,411)(156,650)
Payments for improvements of real estate assets(20,411)(11,860)
Other investing activities892 247 
Net cash provided by (used by) investing activities$(148,572)$(74,618)
CASH FLOWS FROM FINANCING ACTIVITIES  
Proceeds from mortgages payable 59,900 
Principal payments on mortgages payable(17,233)(145,279)
Proceeds from revolving lines of credit126,578 223,643 
Principal payments on revolving lines of credit(41,656)(178,000)
Proceeds from notes payable 124,878 
Payments for acquisition of noncontrolling interests – consolidated real estate entities(12,221)(1,260)
Proceeds from issuance of common shares58,204  
Repurchase of common shares (18,023)
Repurchase of Series C preferred shares(5,629) 
Repurchase of partnership units(48)(8,135)
Distributions paid to common shareholders(25,962)(32,925)
Distributions paid to preferred shareholders(4,921)(5,116)
Distributions paid to preferred unitholders(480)(377)
Distributions paid to noncontrolling interests – Unitholders of the Operating Partnership(2,187)(3,630)
Other financing activities(245)(117)
Net cash provided by (used by) financing activities$74,200 $15,559 
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH(27,114)(7,417)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD46,117 19,256 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD$19,003 $11,839 
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES  
Accrued capital expenditures$(297)$9 
Distributions declared but not paid to common shareholders9,796  
Gain on litigation settlement 1,349 
Real estate assets acquired through exchange of note receivable17,663  
Note receivable exchanged through real estate acquisition(17,663) 
Property acquired through issuance of Series D preferred units 16,560 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION  
Cash paid for interest$19,527 $22,746 

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INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
Balance sheet descriptionSeptember 30, 2020December 31, 2019September 30, 2019
Cash and cash equivalents$16,804 $26,579 $8,500 
Restricted cash2,199 19,538 3,339 
Total cash, cash equivalents and restricted cash$19,003 $46,117 $11,839 
See accompanying Notes to Condensed Consolidated Financial Statements.
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INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
for the nine months ended September 30, 2020 and 2019
NOTE 1 • ORGANIZATION 
Investors Real Estate Trust, collectively with our consolidated subsidiaries (“IRET,” “we,” “us,” or “our”), is a real estate investment trust (“REIT”) focused on the ownership, management, acquisition, redevelopment, and development of apartment communities. As of September 30, 2020, we owned interests in 67 apartment communities consisting of 11,910 apartment homes.
NOTE 2 • BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES 
BASIS OF PRESENTATION
We conduct a majority of our business activities through our consolidated operating partnership, IRET Properties, A North Dakota Limited Partnership (the “Operating Partnership”), as well as through a number of other consolidated subsidiary entities. The accompanying condensed consolidated financial statements include our accounts and the accounts of all our subsidiaries in which we maintain a controlling interest, including the Operating Partnership. All intercompany balances and transactions are eliminated in consolidation.
The condensed consolidated financial statements also reflect the Operating Partnership's ownership of certain joint venture entities in which the Operating Partnership has a general partner or controlling interest. These entities are consolidated into our operations, with noncontrolling interests reflecting the noncontrolling partners’ share of ownership, income, and expenses.
SIGNIFICANT RISKS AND UNCERTAINTIES
The COVID-19 pandemic is a source of significant risk and uncertainty that could have an adverse impact on our business. The COVID-19 pandemic has adversely impacted the global economy and financial markets, and multifamily residents and commercial tenants have experienced financial hardship or closures.
The extent to which the COVID-19 pandemic could have an adverse effect on our financial condition, results of operations, and cash flows is uncertain and will depend on future developments. The COVID-19 pandemic has not had a material adverse impact on our financial condition, results of operations, and cash flows for the nine months ended September 30, 2020; however, we continue to monitor the impact of the COVID-19 pandemic on all aspects of our business and cannot predict the impact it may have on our financial condition, results of operations, and cash flows in the future.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Our interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain disclosures accompanying annual consolidated financial statements prepared in accordance with GAAP are omitted. The year-end balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments necessary for the fair presentation of our financial position, results of operations, and cash flows for the interim periods, have been included.
The current period’s results of operations are not necessarily indicative of results which ultimately may be achieved for the year. The interim condensed consolidated financial statements and accompanying notes thereto should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on February 19, 2020.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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RECENT ACCOUNTING PRONOUNCEMENTS
The following table provides a brief description of recent accounting standards updates (“ASUs”).
StandardDescriptionDate of AdoptionEffect on the Financial Statements or Other Significant Matters
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments; ASU 2018-19, Codification Improvements to Topic 326; ASU 2019-05, Financial Instruments - Credit Losses - Targeted Transition Relief
These ASUs require entities to estimate a lifetime expected credit loss for most financial assets, such as loans and other financial instruments, and to present the net amount expected to be collected. In 2018, another ASU was issued to amend ASU 2016-13, which clarifies that it does not apply to operating lease receivables. In 2019, an additional ASU was issued to provide transition relief in which an entity is allowed to elect the fair value option on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326.These ASUs are effective for annual reporting periods beginning after December 15, 2019. Early adoption is permitted.We elected the fair value option for all of our mortgages and notes receivable at January 1, 2020, as allowed by ASU 2019-05. As a result, we do not have any receivables or other financial instruments to which we are applying this standard.
ASU 2018-13, Fair Value Measurements (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirement for Fair Value Measurements
This ASU eliminates certain disclosure requirements affecting all levels of measurement, and modifies and adds new disclosure requirements for Level 3 measurements. This ASU is effective for annual reporting periods beginning after December 15, 2019. Early adoption is permitted.The new standard did not have a material impact on our condensed consolidated financial statements but did require additional disclosures.
ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting
This ASU contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. This ASU is optional and may be elected over time.We are currently evaluating the practical expedients and the impact they may have on our condensed consolidated financial statements.
ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts in an Entity's Own Equity
This ASU simplifies accounting for convertible instruments and removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception. This ASU also simplifies the diluted earnings per share calculation in certain areas and provides updated disclosure requirements.This ASU is effective for annual reporting periods beginning after December 15, 2021. Early adoption is permitted.We are currently evaluating the ASU and the impact it may have on our condensed consolidated financial statements.
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
As of September 30, 2020, restricted cash consisted primarily of escrows held by lenders for real estate taxes, insurance, and capital additions.
LEASES
Effective January 1, 2019, we adopted ASUs 2016-02, 2018-10, 2018-11, 2018-20, and 2019-01 related to leases using the modified retrospective approach. We elected to adopt the package of practical expedients permitted under the transition guidance, which permits us to not reassess prior conclusions about lease identification, classification, and initial direct costs under the new standard, and the practical expedient related to land easements, which allows us to not evaluate existing or expired land easements that were not previously accounted for under ASC 840. We made an accounting policy election to exclude leases in which we are a lessee with a term of 12 months or less from the balance sheet.
As a lessor, we primarily lease multifamily apartment homes which qualify as operating leases with terms that are generally one year or less. Rental revenues are recognized in accordance with ASC 842, Leases, using a method that represents a straight-line basis over the term of the lease. Rental income represents approximately 98.4% of our total revenues and includes gross market
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rent less adjustments for concessions, vacancy loss, and bad debt. Other property revenues represent the remaining 1.6% of our total revenues and are primarily driven by other fee income, which is typically recognized when earned, at a point in time.
Some of our apartment communities have commercial spaces available for lease. Lease terms for these spaces typically range from three to fifteen years. The leases for commercial spaces generally include options to extend the lease for additional terms.
Beginning in April 2020, we offered multifamily residents suffering from financial hardship related to the COVID-19 pandemic the option to apply for a rent deferral. We elected to account for these accommodations as though enforceable rights and obligations for the accommodation existed without evaluating if such a right or obligation existed under the lease agreement, as allowed by the FASB Q&A released on April 10, 2020 related to lease modification guidance under ASC 842. The accommodations were recognized as variable lease payments. As of September 30, 2020, approximately $59,000 remained outstanding under the rent deferral agreements offered to multifamily residents.
We also abated rent, common area maintenance, and real estate taxes for commercial tenants that experienced government-mandated interruptions or closures of their businesses. The accommodations were recognized as variable lease payments, as allowed by the FASB Q&A released on April 10, 2020. During the three and nine months ended September 30, 2020, we recognized a reduction in revenue of $136,000 and $538,000, respectively, due to the abatement of amounts due from our commercial tenants.
Many of our leases contain non-lease components for utility reimbursement from our residents and common area maintenance from our commercial tenants. We have elected the practical expedient to combine lease and non-lease components for all asset classes. The combined components are included in lease income and are accounted for under ASC 842.
The aggregate amount of future scheduled lease income on our commercial operating leases, excluding any variable lease income and non-lease components, as of September 30, 2020, was as follows:
(in thousands)
2020 (remainder)$677 
20213,023 
20223,025 
20232,848 
20242,312 
Thereafter4,975 
Total scheduled lease income - commercial operating leases$16,860 
REVENUES
Revenue is recognized in accordance with the transfer of goods and services to customers at an amount that reflects the consideration to which the company expects to be entitled for those goods and services.
Revenue streams that are included in revenues from contracts with customers include:
Other property revenue: We recognize revenue for rental related income not included as a component of a lease, such as application fees, as earned.
Gains or losses on sales of real estate: A gain or loss is recognized when the criteria for derecognition of an asset are met, including when (1) a contract exists and (2) the buyer obtained control of the nonfinancial asset that was sold.
The following table presents the disaggregation of revenue streams for the three and nine months ended September 30, 2020:
(in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
Revenue StreamApplicable Standard2020201920202019
Fixed lease income - operating leasesLeases$41,712 $45,164 $125,555 $133,248 
Variable lease income - operating leasesLeases1,729 1,367 4,811 3,999 
Other property revenueRevenue from contracts with customers697 905 2,088 2,731 
Total revenue$44,138 $47,436 $132,454 $139,978 

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IMPAIRMENT OF LONG-LIVED ASSETS
We evaluate our long-lived assets, including investments in real estate, for impairment indicators at least quarterly. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, expected holding period of each property, and legal and environmental concerns. If indicators exist, we compare the expected future undiscounted cash flows for the property against the carrying amount of that property. If the sum of the estimated undiscounted cash flows is less than the carrying amount, an impairment loss is recorded for the difference between the estimated fair value and the carrying amount. If our anticipated holding period for properties, the estimated fair value of properties, or other factors change based on market conditions or otherwise, our evaluation of impairment charges may be different and such differences could be material to our consolidated financial statements. The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates, and capital requirements that could differ materially from actual results. Reducing planned property holding periods may increase the likelihood of recording impairment losses.
During the three and nine months ended September 30, 2020 and 2019, we recorded no impairment charges.
MORTGAGE LOANS RECEIVABLE AND NOTES RECEIVABLE
In August 2017, we sold 13 multifamily communities in exchange for cash and an $11.0 million note secured by a mortgage on the assets. As of September 30, 2020, the note was paid in full. As of December 31, 2019, the balance of the note was $10.0 million, with 12 communities remaining in the pool of assets used to secure the mortgage. During the nine months ended September 30, 2020 and 2019, we received and recognized approximately $279,000 and $428,000 of interest income, respectively.
In July 2017, we originated a $16.2 million loan in a multifamily development located in New Hope, Minnesota, a Minneapolis suburb. We funded an additional $341,000 upon satisfaction of certain conditions set forth in the loan agreement. During the nine months ended September 30, 2020, we executed the purchase option for the apartment community (refer to Note 8 for details on acquisition). This note was paid in full as part of our acquisition of this apartment community. As of December 31, 2019, the balance of the note was $16.6 million.
In December 2019, we originated a $29.9 million construction loan and a $15.3 million mezzanine loan for the development of a multifamily development located in Minneapolis, Minnesota. In conjunction with the loans, we received a guaranty for the substantial completion of the project improvements from an investment grade guarantor. The construction and mezzanine loans bear interest at 4.5% and 11.5%, respectively. As of September 30, 2020 and December 31, 2019, we had funded $18.0 million and $6.2 million, respectively, of the construction loan, which appears within mortgage loans receivable in our condensed consolidated balance sheets. The loans are secured by mortgages and mature on December 31, 2023, and the agreement provides us with an option to purchase the development. The loans represent an investment in an unconsolidated variable interest entity. We are not the primary beneficiary of the variable interest entity ("VIE") as we do not have the power to direct the activities which most significantly impact the entity’s economic performance nor do we have significant influence over the entity.
In March 2020, in connection with our acquisition of Ironwood, an apartment community in New Hope, Minnesota, we acquired a tax increment financing note receivable ("TIF") with a principal balance of $6.6 million, which appears within other assets in our condensed consolidated balance sheets. The note bears an interest rate of 4.5% with payments due in February and August of each year.
VARIABLE INTEREST ENTITIES
We have determined that our Operating Partnership and each of our less-than-wholly owned real estate partnerships are VIEs, as the limited partners or the functional equivalent of limited partners lack substantive kick-out rights and substantive participating rights. We are the primary beneficiary of the VIEs, and the VIEs are required to be consolidated on our balance sheet because we have a controlling financial interest in the VIEs and have both the power to direct the activities of the VIEs that most significantly impact the economic performance of the VIEs as well as the obligation to absorb losses or the right to receive benefits from the VIEs that could potentially be significant to the VIEs. Because our Operating Partnership is a VIE, all of our assets and liabilities are held through a VIE.
During the nine months ended September 30, 2020, we acquired the 47.4% noncontrolling interests in the real estate partnership that owns 71 France for $12.2 million.
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MARKETABLE SECURITIES
Marketable securities consisted of equity securities. We report equity securities at fair value based on quoted market prices (Level 1 inputs). Any unrealized gains or losses are included in interest and other income on the consolidated statements of operations. As of September 30, 2020, we had no marketable securities. As of December 31, 2019, the cost basis of marketable securities was $6.9 million, the gross unrealized gain was $113,000, and the carrying value was $7.1 million. During the nine months ended September 30, 2020, we had a realized loss of $3.4 million arising from the disposal of such securities.
NOTE 3 • EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of our common shares of beneficial interest (“common shares”) outstanding during the period. We have issued restricted stock units (“RSUs”) and incentive stock options ("ISOs") under our 2015 Incentive Plan and Series D Convertible Preferred Units ("Series D preferred units"), which could have a dilutive effect on our earnings per share upon exercise of the RSUs or ISOs or upon conversion of the Series D preferred units (refer to Note 4 for further discussion of the Series D preferred units). Other than the issuance of RSUs, ISOs, and Series D preferred units, we have no outstanding options, warrants, convertible stock or other contractual obligations requiring issuance of additional shares that would result in dilution of earnings. Under the terms of the Operating Partnership’s Agreement of Limited Partnership, limited partners have the right to require the Operating Partnership to redeem their limited partnership units (“Units”) any time following the first anniversary of the date they acquired such Units (“Exchange Right”). Upon the exercise of Exchange Rights, and in our sole discretion, we may issue common shares in exchange for Units on a one-for-one basis.
Performance-based RSUs of 27,506 and 37,822 for the three months ended September 30, 2020 and 2019, respectively, and 27,506 and 37,822 for the nine months ended September 30, 2020 and 2019, respectively, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.
For the nine months ended September 30, 2020, Series D preferred units of 228,000 and time-based RSUs of 13,000 were excluded from the calculation of diluted earnings per share because they were anti-dilutive.
For the three and nine months ended September 30, 2020, weighted average stock options of 140,554 and 68,292, respectively, were excluded from the calculation of diluted earnings per share because the assumed proceeds per share plus the average unearned compensation were greater than the average market price of common shares for the periods ended and, therefore were anti-dilutive.
The following table presents a reconciliation of the numerator and denominator used to calculate basic and diluted earnings per share reported in the condensed consolidated financial statements for the three and nine months ended September 30, 2020 and 2019:  
 (in thousands, except per share data)
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
NUMERATOR  
Net income (loss) attributable to controlling interests$19,629 $31,596 $8,819 $30,011 
Dividends to preferred shareholders(1,607)(1,705)(4,921)(5,116)
Redemption of preferred shares(1) 297  
Numerator for basic earnings (loss) per share – net income available to common shareholders18,021 29,891 4,195 24,895 
Noncontrolling interests – Operating Partnership1,387 3,145 248 2,550 
Dividends to preferred unitholders160 160 480 377 
Numerator for diluted earnings (loss) per share$19,568 $33,196 $4,923 $27,822 
DENOMINATOR    
Denominator for basic earnings per share weighted average shares12,885 11,625 12,424 11,705 
Effect of redeemable operating partnership units1,020 1,223 1,039 1,282 
Effect of Series D preferred units228 228 — 181 
Effect of dilutive restricted stock units and stock options10 11 — 6 
Denominator for diluted earnings per share14,143 13,087 13,463 13,174 
NET EARNINGS (LOSS) PER COMMON SHARE – BASIC$1.40 $2.57 $0.33 $2.11 
NET EARNINGS (LOSS) PER COMMON SHARE – DILUTED$1.38 $2.54 $0.33 $2.11 
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NOTE 4 • EQUITY AND MEZZANINE EQUITY
Operating Partnership Units. The Operating Partnership had 1.0 million and