-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U11iQiU4GyAj9qsaMRDxpk375Xoj62lS1W8WYPs0pfDiSY9OEgN4GKXv21MGzd2P YqNe65XfPgeGVNHukTxbNA== 0001047469-99-029117.txt : 19990802 0001047469-99-029117.hdr.sgml : 19990802 ACCESSION NUMBER: 0001047469-99-029117 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990730 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INVESTORS REAL ESTATE TRUST CENTRAL INDEX KEY: 0000798359 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 450311232 STATE OF INCORPORATION: ND FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-14851 FILM NUMBER: 99673469 BUSINESS ADDRESS: STREET 1: 12 S MAIN CITY: MINOT STATE: ND ZIP: 58701 BUSINESS PHONE: 7018374738 MAIL ADDRESS: STREET 1: 12 S MAIN CITY: MINOT STATE: ND ZIP: 58701 10-K405 1 10-K405 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM 10-K405 Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Fiscal Year Ended Commission File No. April 30, 1999 0-14851 -------------------- INVESTORS REAL ESTATE TRUST (Exact name of Registrant as specified in its charter) North Dakota 45-0311232 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 12 South Main, Minot, North Dakota 58701 (Address of principal executive offices) (Zip Code) 701-852-1756 (Registrant's Telephone Number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Name of each exchange Title of each class on which registered ------------------- --------------------- Capital Shares of Beneficial Interest NASDAQ - Small Cap Market -------------------- 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 such filing requirements for the past 90 days. YES X NO ------ ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( X ) The aggregate market value of the Registrant's outstanding Capital Shares of Beneficial Interest held by non-affiliates is $132,298,746 based on the last reported sale price on May 31, 1999. The number of shares outstanding as of April 30,1999 was 19,066,514 Shares of Beneficial Interest (no par value). Portions of the Trust's definitive proxy statement for the 1999 annual meeting of shareholders are incorporated by reference in Part III hereof. 2 INVESTORS REAL ESTATE TRUST (Registrant) INDEX
Item Page No. No. - ---- ---- Cover Page . . . . . . . . . . . . . . . . . . 1 Index. . . . . . . . . . . . . . . . . . . . . 3 PART I 1. Business . . . . . . . . . . . . . . . . . . . 4 2. Properties . . . . . . . . . . . . . . . . . . 7 3. Legal Proceedings. . . . . . . . . . . . . . . 13 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . 13 PART II 5. Market for Registrant's Common Stock and Related Security Holder Matters. . . . . . . . 13 6. Selected Financial Data. . . . . . . . . . . . 15 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 15 8. Financial Statements and Supplementary Data. . 16 9. Disagreements on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . 23 PART III 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . 23 11. Executive Compensation . . . . . . . . . . . . 25 12. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . 25 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . 25 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. . . . . . . . . . . . . . 25 Exhibit Index. . . . . . . . . . . . . . . . . 26 Signatures . . . . . . . . . . . . . . . . . . 28 Report of Independent Certified Public Accountants. . . . . . . . . . . . . . . . . . F-1
3 PART I Item 1. BUSINESS Investors Real Estate Trust (hereinafter "IRET"), a North Dakota Real Estate Investment Trust, was organized under the laws of the State of North Dakota on July 31, 1970. IRET has qualified and operated as a "real estate investment trust" under Sections 856-858 of the Internal Revenue Code since its inception. On February 1, 1997, the Trust reorganized its structure in order to convert to Umbrella Partnership Real Estate Investment Trust (UPREIT) status. The Trust established an operating partnership (IRET Properties, a North Dakota Limited Partnership) with a wholly owned corporate subsidiary acting as its sole general partner (IRET, Inc., a North Dakota Corporation). At that date, the Trust transferred most of its assets and liabilities to the operating partnership in exchange for general partnership units. The general partner has full and exclusive management responsibility for the real estate investment portfolio owned by the operating partnership. The partnership must be operated in a manner that will allow IRET to continue its qualification as a real estate investment trust under the Internal Revenue Code. All limited partners of the operating partnership have "exchange rights" allowing them, at their option, to exchange their limited partnership units for shares of the Trust on a one for one basis. The exchange rights are subject to certain restrictions including no exchanges for at least one year following the acquisition of the limited partnership units. The operating partnership distributes cash on a quarterly basis in the amounts determined by the Trust which will result in each limited partner receiving the same distributions as an IRET shareholder. IRET, pursuant to the requirements of Sections 856-858 of Internal Revenue Code which govern real estate investment trusts, is engaged in the business of making passive investments in real estate equities and mortgages. IRET has its only office in Minot, North Dakota, and operates principally in the northern plains states with its operating partnership owning real estate investments in the states of North Dakota, Minnesota, South Dakota, Georgia, Nebraska, Montana, Michigan, Colorado, Idaho, Washington and Arizona. IRET operates on a fiscal year ending April 30. For its past three fiscal years, its sources of operating revenue, total expenses, net real estate investment income, capital gain income, total income, and dividend distributions are as follows: 4 Fiscal Year Ending 4/30
1999 1998 1997 ---- ---- ---- REVENUE FROM OPERATIONS Real Estate Rentals $38,785,287 $31,694,586 $22,972,368 Interest, Discount & Fees 1,141,975 712,959 861,613 ----------- ----------- ----------- $39,927,262 $32,407,545 $23,833,981 EXPENSE $33,525,586 $27,716,347 $20,334,538 ----------- ----------- ----------- NET REAL ESTATE INVESTMENT INCOME $ 6,401,676 $ 4,691,198 $ 3,499,443 GAIN ON SALE OF INVESTMENTS (CAPITAL GAIN) 1,947,184 465,499 398,424 MINORITY INTEREST OF UNIT HOLDERS IN OPERATING PARTNERSHIP (744,725) (141,788) (18) ----------- ----------- ----------- NET INCOME $ 7,604,135 $ 5,014,909 $ 3,897,849 ----------- ----------- ----------- ----------- ----------- ----------- PER SHARE Net Income $ .44 $ .32 $ .28 Dividends Paid $ .47 $ .42 $ .39
As indicated above, IRET's principal source of operating revenue is rental income from real estate properties owned by its operating partnership. A minor amount of revenue is derived from interest income from mortgages and contracts for deed secured by real estate, interest on investments in government securities and interest on savings deposits. In addition to operating income, the Trust recognizes capital gain income when real estate properties are sold at a price in excess of the depreciated cost of said properties. IRET has no employees. Its business is conducted through the services of an independent contractor (Odell-Wentz & Associates, LLC, a North Dakota Limited Liability Company, having as its members Roger R. Odell and Thomas A. Wentz, Sr.) which serves as the advisor to the Trust. Since the inception of the Trust and until January 1, 1986, Roger R. Odell, 12 South Main, Minot, North Dakota, served as advisor to the trust, providing office facilities, administering day-to-day operations of the Trust, and advising with respect to investments and investment policy. Effective January 1, 1986, the Trust entered into a revised advisory agreement with Mr. Odell and Thomas A. Wentz, Sr. Mr. Odell is the President of IRET and the Advisor and is a graduate of the University of Texas, receiving his B.A. degree in 1947. He has been a resident of Minot, North Dakota 5 since 1947. From 1947 to 1954, he was employed by Minot Federal Savings & Loan Association, serving as secretary of the association from 1952 to 1954. Since 1954, Mr. Odell has been a realtor in Minot, serving as an officer and stockholder of Watne Realty Company from 1954 to January 1, 1970, and since that time as the owner of his own realty firm. Mr. Wentz is Vice-President and Chief Investment Officer of IRET and the Advisor and is a graduate of Harvard College and Harvard Law School, receiving his A.B. degree in 1957 and his L.L.B. degree in 1960. He has been a resident of Minot, North Dakota, since 1962. Until August 1, 1998, Mr. Wentz' principal occupation was the practice of law as a partner in the firm of Pringle & Herigstad, P.C., counsel to the Trust. Timothy P. Mihalick is Vice-President and Chief Operating Officer of IRET and the Advisor. Mr. Mihalick is a graduate of Minot State University receiving his B.A. degree in Business Administration in 1981. He has been employed by Odell-Wentz & Associates since 1981. Diane K. Bryantt is Secretary and Controller of IRET and the Advisor. She graduated from Minot State University in 1986, receiving a B.A. degree in Accounting. Mrs. Bryantt was employed by Bremer Bank in Minot, ND from 1989 to 1996. She has been an employee of Odell-Wentz & Associates since June of 1996. There have been no material changes in the conduct of the Trust's business since its inception and none are planned. Item 2. PROPERTIES IRET is a qualified "real estate investment trust" under Section 856-858 of the Internal Revenue Code, and is in the business of making passive investments in real estate equities and mortgages. These real estate investments are managed by independent contractors on behalf of IRET. APRIL 30, 1999 SUMMARY OF INVESTMENT PORTFOLIO REAL ESTATE INVESTMENTS:
1999 ---- Real Estate Owned $295,825,839 Less Depreciation Reserve (26,112,399) ------------ $269,713,440 92.5% Mortgage Loans Receivable 10,721,214 Less unearned discounts And allowances (123,212) 3.6% ------------ Total Real Estate Investments $280,311,442 ------------ ------------
6 OTHER ASSETS: Cash and Marketable securities $ 7,412,236 Deposits and Accruals 3,769,633 ------------ Total Other Assets $ 11,181,869 3.9% ------------ TOTAL ASSETS $291,493,311 ------------ ------------
SUMMARY OF INDIVIDUAL PROPERTIES COMMERCIAL PROPERTIES
PROPERTY FISCAL 1999 STATE & CITY TYPE SQ. FEET INVESTMENT OCCUPANCY Georgia - Lithia Springs Wedgewood Retirement Center - Assisted Living 29,408 $ 3,971,878 100.00% ------- ----------- ------- GEORGIA TOTALS 29,408 $ 3,971,878 100.00% ------- ----------- ------- ------- ----------- ------- Idaho - Boise America's Best Furniture - Retail 139,198 $ 5,792,182 53.62% ------- ----------- ------- IDAHO TOTALS 139,198 $ 5,792,182 53.62% ------- ----------- ------- ------- ----------- ------- Michigan - Kentwood COMP USA - Retail 16,000 $ 2,113,574 100.00% ------- ----------- ------- MICHIGAN TOTALS 16,000 $ 2,113,574 100.00% ------- ----------- ------- ------- ----------- ------- Minnesota - East Grand Forks Edgewood Vista - Assisted Living 10,778 $ 899,821 100.00% - Eden Prairie Lindberg Building - Office/Whse 40,941 $ 1,455,789 100.00% Viromed - Office/Laboratory 48,700 $ 4,863,634 N/A - Moorhead Pioneer Seed Company - Office/Whse 75,900 $ 653,876 100.00% ------- ----------- ------- MINNESOTA TOTALS 176,319 $ 7,873,122 100.00% ------- ----------- ------- ------- ----------- ------- Montana - Billings Creekside Office Park - Office 37,318 $ 1,684,918 88.41% 7 Edgewood Vista - Assisted Living 11,971 $ 980,218 100.00% - Missoula Edgewood Vista - Assisted Living 10,314 $ 962,428 100.00% ------- ----------- ------- MONTANA TOTALS 59,603 $ 3,627,565 92.05% ------- ----------- ------- ------- ----------- ------- Nebraska - Omaha Ameritrade - Office 73,774 $ 8,283,977 100.00% Barnes & Noble - Retail 27,500 $ 3,699,101 100.00% ------- ----------- ------- NEBRASKA TOTALS 101,274 $11,983,078 100.00% ------- ----------- ------- ------- ----------- ------- North Dakota - Bismarck Lester Chiropractic - Office 5,400 $ 268,917 100.00% - Fargo Barnes & Noble - Retail 30,000 $ 3,292,012 100.00% Petco - Retail 18,000 $ 1,278,934 100.00% Stone Container - Office/Mfg. 151,850 $ 4,998,485 100.00% Great Plains Campus Facility 121,600 $ 408,700* N/A *Additional costs to be incurred. - Grand Forks Carmike Theatre 28,300 $ 2,545,737 100.00% - Minot Walter's (114 South Main St) - Retail 3,500 $ 111,940 100.00% 1st Avenue Building - Office 15,900 $ 838,837 73.61% 401 South Main - Office 9,200 $ 609,119 62.62% Arrowhead Shopping Center - Retail/Office 80,000 $ 2,831,164 98.8% Corner C Store - Retail 4,674 $ 1,196,342 N/A Edgewood Vista - Assisted Living 97,821 $ 6,275,931 100.00% 408 1st St SE 2,000 $ 46,907 100.00% Minot Plaza - Retail 10,020 $ 509,079 100.00% ------- ----------- ------- NORTH DAKOTA TOTALS 578,265 $25,212,104 97.86% ------- ----------- ------- ------- ----------- ------- 8 South Dakota - Sioux Falls Edgewood Vista - Assisted Living 11,971 $ 974,739 N/A Hutchinson Technology - Office/Mfg. 94,176 $ 4,429,026 100.00% ------- ----------- ------- SOUTH DAKOTA TOTALS 106,147 $ 5,403,765 100.00% ------- ----------- ------- ------- ----------- ------- Other Commercial Prop. Crookston, MN Superpumper - Convenience Store 6,000 $ 428,777 100.00% Grand Forks, ND Superpumper - Convenience Store 7,000 $ 485,007 100.00% Langdon, ND Superpumper - Convenience Store 5,500 $ 239,212 100.00% Sidney, MT Superpumper - Convenience Store 4,000 $ 120,600 100.00% ------- ----------- ------- OTHER COMMERCIAL PROPERTIES 22,500 $ 1,273,596 100.00% ------- ----------- ------- ------- ----------- ------- FISCAL 1999 SQ. FEET INVESTMENT OCCUPANCY TOTAL COMMERCIAL PROPERTIES 1,228,714 $67,250,863 96.54% --------- ----------- ------- --------- ----------- ------- APARTMENT PROPERTIES APARTMENT FISCAL 1999 STATE & CITY COMMUNITIES BY IRET UNITS INVESTMENT OCCUPANCY Colorado - Colorado Springs - Neighborhood by IRET 192 $ 11,097,183 95.87% - Fort Collins - MiraMont by IRET 210 $ 14,285,175 97.80% - Pine Cone by IRET 195 $ 13,216,920 94.20% ----- ------------ ------ COLORADO TOTALS 597 $ 38,599,278 96.03% ----- ------------ ------ ----- ------------ ------ 9 Idaho - Boise - Clearwater 60 $ 3,822,199 N/A ----- ------------ ------ IDAHO TOTALS 60 $ 3,822,199 N/A ----- ------------ ------ ----- ------------ ------ Minnesota - Moorhead - Terrace on the Green 116 $ 2,044,286 96.08% - Rochester - Woodridge 108 $ 6,534,011 99.69% - Heritage Manor 182 $ 7,421,977 N/A - IBM Land - $ 11,871 N/A - St. Cloud - West Stonehill 313 $ 11,492,684 99.02% - Waite Park - Park Meadows 360 $ 11,141,014 95.04% ----- ------------ ------ MINNESOTA TOTALS 1079 $ 38,645,843 98.06% ----- ------------ ------ ----- ------------ ------ Montana - Billings - Castle Rock 165 $ 5,673,197 N/A - Country Meadows 67 $ 6,157,497 98.97% - Rocky Meadows 98 $ 6,672,694 96.54% ----- ------------ ------ MONTANA TOTALS 330 $ 18,503,389 97.12% ----- ------------ ------ ----- ------------ ------ North Dakota - Bismarck/Mandan - Cottonwood Lake 134 $ 9,961,391 83.59% - Crestview 152 $ 4,799,607 90.40% - Hill Park 92 $ 3,024,159 91.85% - Kirkwood Manor 108 $ 3,587,282 93.48% - North Pointe 49 49 $ 2,403,175 94.41% - Pleasantview (Man) 18 $ 289,671 95.99% - Westwood Park 64 $ 2,127,861 N/A - Dickinson - 41 East 38 $ 434,579 80.04% - Century 120 $ 2,124,281 89.96% - Oak Manor 27 $ 350,484 98.23% - Fargo - Candlelight 44 $ 899,092 98.77% - Park East 122 $ 4,951,327 97.06% - Sunchase 36 $ 1,020,291 95.23% - Grand Forks - Forest Park 270 $ 7,120,900 97.16% - Jenner Properties 121 $ 2,513,168 90.00% - Legacy 183 $ 13,818,179 99.54% - Southwinds 164 $ 5,712,354 97.18% - Minot - Chateau 64 $ 2,406,110 92.48% - Colton Heights 18 $ 926,045 95.48% 10 - Dakota Arms 18 $ 614,752 97.42% - Magic City 248 $ 5,428,774 94.17% - South Pointe 196 $ 10,295,666 96.95% - Southview 24 $ 713,128 86.02% - Virginia 15 $ 231,163 79.56% - Williston - Century 192 $ 3,909,583 78.95% - Other Communities - Beulah Condominiums 26 $ 471,449 49.26% - Bison Properties 35 $ 569,783 93.97% - Carrington & Cooperstown - The Meadows - Jamestown - $ 1,954,986 N/A - Lonetree Manor - Harvey 12 $ 225,709 86.07% - Parkway - Beulah 36 $ 122,058 56.08% - Sweetwater Properties - Devils Lake & Grafton 114 $ 1,838,691 84.09% ----- ------------ ------ NORTH DAKOTA TOTALS 2,740 $ 94,845,697 92.67% ----- ------------ ------ ----- ------------ ------ South Dakota - Rapid City - Pointe West 90 $ 3,957,341 90.55% - Sioux Falls - Oakwood Estates 160 $ 5,493,266 93.53% - Oxbow 120 $ 4,989,273 99.44% - Prairie Winds 48 $ 1,987,675 96.80% ----- ------------ ------ SOUTH DAKOTA TOTALS 418 $ 16,427,555 95.07% ----- ------------ ------ ----- ------------ ------ Washington - Vancouver - Ivy Club 204 $ 11,696,668 N/A - Van Mall Woods 100 $ 6,034,347 N/A ----- ------------ ------ WASHINGTON TOTALS 304 $ 17,731,015 N/A ----- ------------ ------ ----- ------------ ------ FISCAL 1999 UNITS INVESTMENT OCCUPANCY TOTAL APARTMENTS 5,528 $228,574,976 94.79% ----- ------------ ------ ----- ------------ ------
N/A = property held less than 12 months - TITLE. The title to all of the above properties is in the name of either IRET Properties, a North Dakota Limited Partnership, IRET or a wholly- owned subsidiary of IRET, in fee simple (in each case, IRET has in its files an attorney's title opinion or a title insurance policy evidencing its title). 11 - INSURANCE. In the opinion of management, all of said properties are adequately covered by casualty and liability insurance. - PLANNED IMPROVEMENTS. There are no plans for material improvements to any of the above properties. - CONTRACTS OR OPTIONS TO SELL. As of April 30, 1999, IRET had not entered into any contracts or options to sell any of the above properties, except the four Superpumper convenience store locations. - OCCUPANCY AND LEASES. Occupancy rates shown above are for the fiscal year ended April 30, 1999. In the case of apartment properties, lease arrangements with individual tenants vary from month-to-month to one- year leases, with the normal term being six months. Leases on commercial properties vary from one year to 20 years. SUMMARY OF REAL ESTATE INVESTMENTS BY STATE
PERCENT STATE TOTAL REAL ESTATE INVESTMENT OF TOTAL COLORADO - Residential $38,599,278 $ 38,599,278 13.04% ----------- GEORGIA - Commercial $ 3,971,878 $ 3,971,878 1.34% ----------- IDAHO - Commercial $ 5,792,182 - Residential $ 3,822,199 $ 9,614,381 3.25% ----------- MICHIGAN - Commercial $ 2,113,574 $ 2,113,574 .71% ----------- MINNESOTA - Commercial $ 8,301,899 - Residential $38,645,843 $ 46,947,742 15.87% ----------- MONTANA - Commercial $ 3,748,165 - Residential $18,503,389 $ 22,251,554 7.52% ----------- NEBRASKA - Commercial $11,983,078 $ 11,983,078 4.05% ----------- NORTH DAKOTA - Commercial $25,936,323 - Residential $94,845,697 $120,782,020 40.85% ----------- 12 SOUTH DAKOTA - Commercial $ 5,403,765 - Residential $16,427,555 $ 21,831,320 7.38% ----------- WASHINGTON - Residential $17,731,015 $ 17,731,015 5.99% ----------- TOTALS $295,825,839 100.00% ------------ ------- ------------ -------
MORTGAGE LOANS RECEIVABLE:
REAL ESTATE 4/30/99 LOCATION SECURITY BALANCE RATE GILBERT, AZ NE 1/4-27-2-6 Commercial Land $ 742,811 7% FARGO, ND Great Plains Software Office Building $ 9,185,758 9.5% OTHER MORTGAGES Over $100,000 $ 682,863 7-9% $50,000 to $99,999 60,000 8.75% $20,000 to $49,999 46,500 8-9% Less than $20,000 3,282 7-9% ----------- TOTAL $10,721,214 Unearned Discounts (1,898) Allowance for Losses (120,314) Deferred Gain (1,000) ----------- $10,598,002
Item 3. LEGAL PROCEEDINGS IRET is not involved in any legal proceedings or litigation other than normal collection matters that will not have a material impact on financial results. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the August 18, 1998 Annual Shareholders' meeting, the only matters submitted to a vote of security holders were the election of ten Trustees and ratification of the re- appointment of the independent certified public accountants. PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Since October 17, 1997, IRET Shares of Beneficial Interest have traded on the NASDAQ Small-Cap market under the symbol IRETS. 13 CLOSING PRICE RANGE
TOTAL TOTAL FISCAL QUARTER ENDED HIGH LOW VOLUME TRADES 10-31-97 * $7.125 $6.563 35,154 45 1-31-98 7.313 6.625 339,857 204 4-30-98 7.344 7.031 437,487 196 7-31-98 7.250 7.000 359,835 118 10-31-98 7.500 7.000 489,586 232 1-31-99 7.688 7.000 343,128 249 4-30-99 8.000 7.000 445,900 313
* From 10-20-97 - First trading day During Fiscal 1999, IRET also offered primary Shares of Beneficial Interest for sale to the public under Best Efforts offerings through various brokers registered with the National Association of Securities Dealers. Primary shares were sold at $7.45 per share from 1-05-98 through 12-07-98 and at $7.85 per share from 12-15-98 until 4-20-99. IRET also repurchased its shares during Fiscal 1999. Following is a summary, by quarter-year, of the sale of primary shares and repurchase of shares by IRET:
SHARES DOLLARS 5/01/98 Beginning Balance 16,391,412 $74,708,559 QUARTER ENDED 7/31/98 - Shares sold 573,081 $ 4,075,505 - Commissions paid (148,902) - Shares repurchased (197,124) (1,389,936) ---------- ----------- 16,767,369 $77,245,225 QUARTER ENDED 10/31/98 - Shares sold 768,922 $ 5,565,703 - Commissions paid (290,653) - Shares repurchased (126,336) (912,133) ---------- ----------- 17,409,955 $81,608,143 QUARTER ENDED 1/31/99 - Shares sold 793,599 $ 5,689,642 - Commissions paid (356,872) - Shares repurchased (68,853) (514,881) ---------- ----------- 18,134,701 $86,426,032 QUARTER ENDED 4/30/99 - Shares sold 994,953 $ 7,620,458 - Commissions paid (480,732) - Shares repurchased (62,700) (469,938) ---------- ----------- 19,066,954 $93,095,819 ---------- ----------- ---------- -----------
As of May 31, 1999, IRET had 3,972 shareholder accounts, no shareholder held 5% or more of the 18,988,803 Shares of Beneficial Interest outstanding on 5-31-99. IRET has no other classes of stock and there were no warrants, stock options or other contractual arrangements requiring the issuance of its stock (other than "exchange rights" of holders of Limited Partnership Units in IRET Properties, the operating partnership of IRET). 14 IRET has paid quarterly dividends since July 1, 1971. Dividends Paid during the past two fiscal years were as follows:
FISCAL YEAR ----------- 1998 1999 ---- ---- July 1st $.10125 $.11 October 1st .1030 .115 January 16th (15th) .105 .12 April 1st .107 .1225 ------- ------ $.41625 $.4675
Item 6. SELECTED FINANCIAL DATA
YEAR ENDED APRIL 30 -------------------- 1999 1998 1997 1996 1995 ------------ ------------ ------------ ------------ ------------ (Restated) Consolidated Income Statement Data Revenue $ 39,927,262 $ 32,407,545 $ 23,833,981 $ 18,659,665 $ 13,801,123 Operating Income 6,401,676 4,691,198 3,499,443 3,617,807 3,560,318 Gain on repossession/sale of investments 1,947,184 465,499 398,424 994,163 407,512 Minority interest of unitholders in operating partnership (744,725) (141,788) (18) 0 0 Net Income 7,604,135 5,014,909 3,897,849 4,611,970 3,967,830 Balance Sheet Data Total real estate investments $280,311,442 $213,211,369 $177,891,168 $122,377,909 $ 84,005,635 Total assets 291,493,311 224,718,514 186,993,943 131,355,638 94,616,744 Shareholders' equity 85,783,294 68,152,626 59,997,619 50,711,920 37,835,654 Consolidated Per Share Data Net income $.33 $.29 $.25 $.30 $.34 Gain on repossession/sale of investments .11 .03 .03 .08 .04 Dividends .47 .42 .39 .37 .34 Tax status of dividend capital gain 6.3% 2.9% 21.0% 1.6% 11.0% Ordinary income 76.0% 97.1% 79.0% 98.4% 89.0% Return of capital 17.7% 0.0% 0.0% 0.0% 0.0%
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL: IRET has operated as a "real estate investment trust" under Sections 856-858 of the Internal Revenue Code since its formation in 1970 and is in the business of owning income-producing real estate investments. On February 1, 1997, IRET restructured itself as an Umbrella Partnership Real Estate Investment Trust (UPREIT). IRET, through 15 its wholly owned subsidiary, IRET, Inc., is the general partner of IRET Properties, a North Dakota limited partnership (the "Operating Partnership"). All business operations for IRET are conducted through the Operating Partnership. No other material change in IRET's business is contemplated at this time. This discussion and analysis should be read in conjunction with the attached audited financial statements prepared by Brady Martz & Associates, certified public accountants, which firm has served as the auditor for IRET since its inception. Certain matters included in this discussion are forward-looking statements within the meaning of federal securities laws. Although IRET believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that the expectations expressed will actually be achieved. Many factors may cause actual results to differ materially from IRET's current expectations, including general economic conditions, local real estate conditions, the general level of interest rates and the availability of financing, timely completion and lease up of properties under construction, and various other economic risks inherent in the business of owning and operating investment real estate. RESULTS OF OPERATIONS: FISCAL YEAR 1999 COMPARED TO FISCAL YEARS 1998 AND 1997. OVERVIEW. A continuation of stable occupancy rates for IRET's apartment communities and good results from newly acquired properties resulted in another year of significant increases in Funds From Operations and earnings for IRET's 29th year, which ended April 30, 1999. Total assets and shareholder equity also increased materially. FUNDS FROM OPERATIONS. Funds From Operations of the Operating Partnership(taxable income increased by non-cash deductions of real estate asset depreciation and amortization, and reduced by capital gain income and other extraordinary income items) for Fiscal 1999 increased to $11,778,502 ($.6753 per share), compared to $9,447,425 ($.6042 per share) for Fiscal 1998 and $7,144,622 ($.51 per share) received in Fiscal 1997. These increases in Funds From Operations resulted primarily from increased revenues from existing and newly acquired rental properties as detailed below. NET INCOME. The Operating Partnership's income for Fiscal Year 1999 increased to $7,604,135 from the $5,014,909 earned in Fiscal 1998 and the $3,897,849 earned in Fiscal 1997. On a per share basis, net income was $.33 per share in Fiscal 1999, compared to $.29 in Fiscal 1998 and $.25 in Fiscal 1997. 16 These increases in net income resulted from increased capital gains and rental income, which is detailed below. REVENUES. Total revenues of the Operating Partnership for Fiscal 1999 were $39,927,262, compared to $32,407,545 in Fiscal 1998 (an increase of 23%) and $23,833,981 in Fiscal 1997. The increase in revenues received during Fiscal 1999 in excess of the prior year revenues was $7,519,717. This increase resulted from: Rent from 12 properties acquired/completed in Fiscal 1999 $3,182,170 Rent from 7 properties acquired in Fiscal 1998 in excess of that received in Fiscal 1998 3,245,774 An increase in rental income on existing properties 1,081,995 An decrease in rent on Smith Home Furnishing Building (bankruptcy of tenant) (30,877) A decrease in rent - properties sold during 1999 (388,091) A decrease in interest income 429,016 ---------- $7,519,717
The increase in revenues received during Fiscal 1998 in excess of that received during Fiscal 1997 was $8,573,564. This increase resulted from: Rent from 7 properties acquired in Fiscal 1998 $2,658,085 Rent from 11 properties acquired in Fiscal 1997 in excess of that received in Fiscal 1997 5,310,670 An increase in rental income on existing properties 893,976 A increase in rent on on Smith Home Furnishing Building (bankruptcy of tenant) 54,021 A decrease in rent - properties sold during 1997 (194,534) An increase in interest income (148,654) ---------- $8,573,564
As shown by the above analysis, the Fiscal 1999 and 1998 increases in revenues resulted primarily from the addition of new real estate properties to the operating partnership's portfolio. Rents received on properties owned at the beginning of Fiscal 1998 increased by $893,976 (2.2%) in Fiscal 1998 and another $1,081,995 (2.1%) in Fiscal 1999, and the occupancy level for those properties increased from 90% during Fiscal 1997 to 94% in Fiscal 1998 and to 95% in Fiscal 1999. Thus, the new properties acquired during Fiscal Fiscal Years 1998 and 1999 generated most of the new revenues during 17 the past two years. CAPITAL GAINS. The Operating Partnership realized capital gain income for Fiscal 1999 of $1,947,184. This compares to $465,499 of capital gain income recognized in Fiscal 1998 and the $398,424 recognized in Fiscal 1997. IRET will continue to seek to market several of its older and smaller apartment properties. NET INCOME. The $2,589,226 increase in net taxable income for Fiscal 1999 over the net income earned in the prior fiscal year resulted from: An increase in gain from sale of investments $ 1,481,685 An increase in net rental income (rents, less utilities, maintenance, taxes, insurance and management) 4,357,772 A increase in interest income 429,016 An increase in interest expense (1,622,877) An increase in depreciation expense (1,174,967) An increase in operating expenses and advisory trustee services (229,897) An increase in amortization expense (48,569) An increase in Minority interest of Operating Partnership Income (602,937) ----------- $ 2,589,226
The $1,117,060 increase in net taxable income for Fiscal 1998 over the net income earned in the prior fiscal year resulted from: An increase in gain from sale of investments $ 67,075 An increase in net rental income (rents, less utilities, maintenance, taxes, insurance and amangement) 5,733,442 A decrease in interest income (148,654) An increase in interest expense (2,840,328) An increase in depreciation expense (1,207,316) An increase in operating expenses and advisory trustee services (299,869) An increase in amortization expense (45,520) An increase in Minority interest of Operating Partnership Income (141,770) ----------- $ 1,117,060
RESULTS FROM FULLY STABILIZED PROPERTIES. IRET defines fully stabilized properties as those both owned at the beginning of the prior Fiscal Year AND having completed the rent-up phase (90% occupancy). "Same store" results of these properties for Fiscal 1999 and 1998 were as follows: 18
Fiscal 1999 Fiscal 1998 %Increase ----------- ----------- --------- Scheduled Rent $28,777,572 $28,237,875 1.91% Actual Collected Rent 28,501,453 27,230,777 4.67% Utilities & Maintenance 4,557,793 4,254,657 7.12% Management 2,361,905 2,204,936 7.12% Taxes & Insurance 3,009,579 2,912,047 3.35% ----------- ----------- --------- Total Operating Expense $ 9,929,277 $ 9,371,640 5.95% "Same Store" Net Operating Income $18,572,176 $17,859,137 3.99% ----------- ----------- --------- ----------- ----------- ---------
PROPERTY ACQUISITIONS. The Operating Partnership added $62,455,508 of real estate investments to its portfolio during Fiscal 1999, compared to the $39,014,222 added in the prior year, as detailed below: FISCAL 1999 PROPERTY ACQUISITIONS COMMERCIAL: Edgewood Vista, Sioux Falls, SD $ 965,000 (Assisted Living) Edgewood Vista, Billings, MT $ 965,000 (Assisted Living) Corner Express, Minot, ND (Convenience Store) $ 1,190,432 Viromed, Eden Prairie, MN (Office/Laboratory) $ 4,826,310 Ameritrade Headquarters, Omaha, NE (Office) $ 8,283,977
APARTMENTS:
Units Community Name ---- -------------- 182 Heritage Manor, Rochester, MN $ 7,371,208 64 Westwood Park, Bismarck, ND $ 2,025,455 67 **Country Meadows II, Billings, MT $ 1,321,962 60 Clearwater, Boise, ID $ 3,786,463 67 **Legacy III, Grand Forks, ND $ 2,260,345 100 Van Mall Woods, Vancouver, WA $ 6,021,312 27 **The Meadows by IRET, Jamestown, ND $ 1,502,301 165 Castle Rock, Billings, MT $ 5,614,223 67 Cottonwood II, Bismarck, ND $ 4,645,444 204 Ivy Club, Vancouver, WA $11,676,076 ----- ----------- 1003 $62,455,508
** Property not in service on 4/30/99. Additional costs to be incurred 19 FISCAL 1998 PROPERTY ACQUISITIONS COMMERCIAL: Edgewood Vista, East Grand Forks, MN (Assisted Living) $ 892,500 Edgewood Vista, Minot, ND $ 6,191,410 (Assisted Living)
APARTMENTS:
Units Community Name ---- -------------- 125 Jenner Properties-Grand Forks (90), Devils Lake (18) & Dickinson (17), ND $ 2,350,000 108 Kirkwood Manor-Bismarck, ND 3,175,000 248 Magic City Realty Portfolio 5,270,000 67 Country Meadows-Billings, MT 4,496,134 122 Park East Apartments-Fargo, ND 4,900,000 **67 Legacy Apartments (Phase II)- Grand Forks, ND 3,489,937 67 Cottonwood Apartments-Bismarck, ND 4,522,347 64 Chateau Apartments-Minot, ND 2,364,090 *67 Cottonwood Apartments (Phase II) Bismarck, ND 1,362,804 --- ----------- 935 Total $39,014,222
*Property not placed in service at April 30, 1998. Additional costs are still to be incurred. **Represents costs to complete a project started in year ended April 30, 1997. PROPERTY DISPOSITIONS. Real estate assets sold by the Operating Partnership dring Fiscal 1998 and 1999 were as follows:
Book Value & Property Sold Sales Price Sales Costs Gain ------------- ----------- ----------- ---- (Fiscal 1999) Fairfield Apts., Marshall, MN $ 466,000 $ 385,878 $ 80,122 Superpumper, Emerado, ND $ 297,000 $ 138,854 $ 158,146 Bison Apts., Jamestown, ND $1,760,000 $ 418,101 $1,341,899 Park Place Apts., Waseca, MN $ 960,000 $ 593,983 $ 366,017 --------- Installment Sale 1,000 --------- $1,947,184 ---------- ---------- 20 (Fiscal 1998) Scottsbluff Apts., Scottsbluff, NE $ 940,000 $ 613,862 $ 326,138 Superpumper Bottineau, ND $ 330,000 $ 246,421 $ 83,579 Superpumper New Town, ND $ 250,000 $ 224,486 $ 25,414 --------- Installment & Misc. Sales $ 30,365 --------- $ 465,496 --------- ---------
DIVIDENDS. The following dividends were paid during Fiscal Years 1997, 1998 and 1999:
Date 1997 1998 1999 ---- ---- ---- ---- July 1 $.0975 $.10125 $.11 October 1, $.095 $.1030 $.115 January 15,(16th) $.0975 $.105 $.12 April 1, 1999 $.10 $.107 $.1225 ----------------------------- $.39 $.41625 $.4675
The Fiscal 1999 dividends increased 12.3% over the dividends paid during Fiscal Year 1998 and 19.9% over Fiscal 1997. FUNDS FROM OPERATIONS. The funds derived during Fiscal 1999 by the Trust from its operations increased by 25% over the prior year and by 65% from the Fiscal 1997 level ($11,778,502 in Fiscal 1999, versus $9,447,425 in 1998 and $7,144,604 in 1997). On a per share basis, Funds From Operations increased to $.6753 per share from $.6042 in Fiscal 1998 (an increase of 12%) and the $.51 generated in Fiscal 1997. (IRET uses the definition of "Funds From Operations" recommended by the National Association of Real Estate Investment Trusts to mean "net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures calculated on the same basis." It is emphasized that funds from operations as so calculated and presented does not represent cash flows from operations as defined under generally accepted accounting principles and should not be considered as an alternative to net income as an indication of operating performance or to cash flows as a measure of liquidity or ability to fund all cash needs.) (See the Consolidated Statements of Cash Flows in the Consolidated Financial Statements attached hereto.) The following is a comparison of dividends paid during the past five fiscal years to Funds From Operations (as defined above): 21
Fiscal Fiscal Fiscal Fiscal Fiscal Item 1999 1998 1997 1996 1995(Restated) - ---- ---- ---- ---- ---- -------------- Net Income (GAAP) $7,604,135 $5,014,909 $3,897,849 $4,611,970 $3,967,830 Adjustments Gain from Property Sales (1,947,184) (465,499) (398,424) (994,163) (407,512) ---------- ---------- ---------- ---------- ---------- Operating Income $5,656,951 $4,549,410 $3,499,425 $3,617,807 $3,560,318 Plus Depreciation 5,966,874 4,791,907 3,584,591 2,261,724 1,767,294 Plus Amortization $ 154,677 106,108 60,588 97,900 20,659 ---------- ---------- ---------- ---------- ---------- Funds from Operations $11,778,502 $9,447,425 $7,144,604 $5,977,431 $5,348,271 Dividends Paid $ 8,193,538 $6,518,627 $5,508,689 $4,439,034 $3,660,986 ---------- ---------- ---------- ---------- ---------- $ 3,584,964 $2,928,798 $1,635,915 $1,538,397 $1,687,285
Management expects that the Funds From Operations (as defined above) will continue to improve during Fiscal 2000 and will continue to exceed dividends paid in the coming year. LIQUIDITY AND CAPITAL RESOURCES. Important investment and Financing events in Fiscal 1999 were: - The net proceeds from sale of Shares of Beneficial Interest under Best Efforts offerings were $18,387,260; - An additional $6,485,927 of equity capital was contributed to the Operating Partnership in UPREIT transactions for a total increase of equity capital of $24,873,187; - Five property loans were refinanced at a lower interest rate than the old loans. The new loans totalled $11,400,000. The payoff of the old loans was $8,737,840, resulting in refinancing proceeds of $2,662,110. At 4-30-99, the weighted interest rate on the $175,071,069 of mortgage indebtedness owed by IRET was 7.12%. - Nearly $65,000,000 of new real estate investments were acquired by the Operating Partnership. IRET's financial condition at the end of Fiscal 1999 continued at the very strong level of its prior fiscal year. - IRET's shareholder equity increased to $85,783,294 from $68,152,626 on April 30, 1998, a gain of $17,630,668 (26%). Equity capital on April 30, 1997 was $59,997,619. These increases result from the sale of Shares of Beneficial Interest and the reinvestment of dividends in new shares. - Liabilities of the Operating Partnership increased to $191,229,475 from $148,276,615 on April 30, 1998. IRET's liabilities on April 30, 1997, were $126,995,322. - Total assets of the Operating Partnership increased to $291,493,311 from $224,718,514 on April 30, 1998. Total assets on April 30, 1997, were $186,993,943. - Cash and marketable securities were $7,412,236 compared to the year earlier figure of $6,389,446 and $6,457,182 on April 30, 1997. - In addition to its cash and marketable securities, IRET Properties has unsecured line of credit agreements with First International Bank & Trust, Bremer Bank and First Western Bank & Trust, all of Minot, 22 North Dakota, of $11,500,000, none of which was in use on April 30, 1999. IMPACT OF INFLATION. The costs of utilities and other rental expenses continue to increase, but in most areas, IRET has been able to increase rental income sufficiently to cover inflationary increases in rental expense. Increases in rental income are not precluded by long-term lease obligations except for a few commercial properties subject to long-term net lease agreements. Thus, as market conditions allow, rents will be increased to cover inflationary expenses and to provide a better return to IRET. ECONOMIC CONDITIONS. Fiscal 1999 saw continued stable economic conditions in the northern plains states in which IRET operates. Occupancy rates for residential properties increased slightly from the year earlier level. However, the current economic outlook for much of IRET's trade area is guarded due to a depressed farm economy. Continued low commodity prices and uncertain weather will impact IRET's operating results. YEAR 2000 COSTS. IRET has requested its principal vendors to inform it of any anticipated problems associated with the Year 2000 issue for computer hardware and software. IRET itself does not own or operate computer systems and will have no direct costs to up-date such systems. However, IRET could be impacted by computer failures of its third-party vendors. IRET has been informed by these service providers (including its Advisor - Odell-Wentz & Associates, LLC) that computer systems are now Year 2000 compliant. IRET does not anticipate that the Year 2000 problem will have any material cost to it. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data listed in the accompanying Index to Financial Statements and Supplementary Data are incorporated herein by reference and filed as a part of this report. Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers and Trustees of IRET as of April 30, 1999, were: 23
Name, Age Business Experience During Year Position and Position Past Five Years Commenced - ------------ --------------- --------- *C. Morris Anderson President of North Hill Bowl, Inc.; 1970 Age 70 Director of Dakota Boys Ranch (25 yrs.); Trustee Chairman of the Board, International Inn, Inc. and Director, Norwest Bank - Minot, N.A. *Ralph A. Christensen Retired rancher; former 1970 Age 70 Director of First Bank - Minot, N.A. Trustee and Chairman Chairman of IRET. *John F. Decker Investment Advisor and 1998 Age 56 Managing Director, Piper Jaffray, Inc. Trustee *Mike F. Dolan Investor; Vice-Chairman of IRET. 1978 Age 88 Trustee & Vice-Chairman *J. Norman Ellison, Jr. Businessman; Managing Partner of 1970 Age 76 Ellison Realty Co.; Former Director Trustee of First Bank - Minot, N.A. *Daniel L. Feist Realtor; Broker; Real Estate Developer; 1985 Age 67 Builder; General Contractor; President - Trustee Owner Feist Construction & Realty; Investor; Businessman, former Director of First Bank - Minot, N.A.; Director, N.D. Holdings, Inc. - Minot. *Patrick G. Jones Investor 1986 Age 51 Trustee *Jeff L. Miller Investor; Businessman; President of 1985 Age 55 M&S Concessions, Inc. and former Trustee & Vice-Chairman president of Coca-Cola Bottling Co. of Minot; former Director of First Bank - Minot. Roger R. Odell Realtor; President of IRET; Member in 1970 Age 73 Odell-Wentz & Associates, LLC (Advisor Trustee, President to IRET); Director of Investors and Advisor Management & Marketing, Inc. and Inland National Securities, Inc. Thomas A. Wentz, Sr. Attorney, Pringle & Herigstad, P.C.; 1970 Age 64 Member in Odell-Wentz & Associates, LLC Vice-President (Advisor to IRET). Thomas A. Wentz, Jr. Attorney, Pringle & Herigstad, P.C.; 1996 Age 33 General Partner of WENCO, a North Dakota Trustee Limited Partnership. Timothy P. Mihalick Realtor; Operations Manager of 1988 Age 40 Odell-Wentz & Associates, LLC (Advisor Vice-President to IRET); Vice-President and Chief Operating Officer of IRET. 24 Diane K. Bryantt Controller of Odell-Wentz & Associates, 1997 Age 35 LLC (Advisor to IRET); Secretary of Secretary IRET.
* Unaffiliated Trustees. Item 11. EXECUTIVE COMPENSATION There is hereby incorporated by reference the information under the caption "Remuneration and Transactions with Trustees and Advisor" in the Registrant's definitive proxy statement relating to its annual meeting of shareholders to be held on August 17, 1999. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of May 31, 1999, no person, nor any trustee or officer individually was known by the Trust to own beneficially more than 5% of the outstanding Shares of Beneficial Interest. Collectively, the Trustees owned 8.23% of such shares on said date. Additional information regarding security ownership is to be found in portions of the Trust's definitive proxy statement for the 1999 annual meeting of shareholders, incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There is hereby incorporated by reference the information under the caption "Remuneration and Transactions with Trustees and Advisor" in the Registrant's definitive proxy statement relating to its annual meeting of shareholders to be held August 17, 1999. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements See the Table of Contents to Financial Statements and Supplemental Data. 2. Financial Statement Schedules The following financial statement schedules should be read in conjunction with the financial statements incorporated by reference in Item 8 of this Annual Report on Form 10-K405: 25 I Marketable Securities - Other Investments IV Noncurrent Indebtedness of Related Parties - Mortgage Loans Receivable X Supplemental Income Statement Information XI Real Estate Owned and Accumulated Depreciation XII Investments in Mortgage Loans on Real Estate XIII Other Investments - Partnerships See the Table of Contents to Financial Statements and Supplemental Data. 3. Documents Incorporated by Reference Part of Form 10-K405 into which Document Document is Incorporated ----------------------------- -------------------- Proxy Statement to be filed Part III in connection with the annual meeting of shareholders to be held August 17, 1999 4. Exhibits See the following list of exhibits. (b) Reports on Form 8-K:
Date Filed Subject Matter ---------- -------------- 8/07/98 Sales Report for Best Efforts Offering Of Shares of Beneficial Interest 10/13/98 Sales Report for Best Efforts Offering Of Shares of Beneficial Interest 12/09/98 Sales Report for Best Efforts Offering Of Shares of Beneficial Interest 4/15/99 Sales Report for Best Efforts Offering Of Shares of Beneficial Interest
26 (c) The following is a list of Exhibits to the Registrant's Annual Report on Form 10-K405 for the fiscal year ended April 30, 1999. The Registrant will furnish a copy of any exhibit listed below to any security holder of the Registrant who requests it upon payment of a fee of 15 cents per page. All Exhibits are either contained in this Annual Report on Form 10-K405 or are incorporated by reference as indicated below. 3(i) Second Restated Declaration of Trust of Investors Real Estate Trust, dated February 10, 1999, and filed as Exhibit 3(i) to Form S-11 Registration Statement effective June 4, 1999 (SEC File No. 333-21945) filed for the Registrant (File No. 0-14851) and incorporated herein by reference. 3(ii) IRET Properties Partnership Agreement filed as Exhibit 3(ii) to Form S-11 Registration Statement effective March 14, 1997 (SEC File No. 333-21945) filed for the Registrant (File No. 0-14851) and incorporated herein by reference. 10 Advisory Agreement between the Registrant and Odell-Wentz & Associates, L.L.C., filed as Exhibit 10 to said Form 10 and incorporated herein by reference. 27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INVESTORS REAL ESTATE TRUST Date: July 20, 1999 By: /s/ Thomas A. Wentz, Sr. ------------------------------------- Thomas A. Wentz, Sr. Vice-President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ Roger R. Odell President, Trustee and July 20, 1999 - --------------------------- Principal Executive Officer Roger R. Odell /s/ Thomas A. Wentz, Sr. Vice-President July 20, 1999 - --------------------------- Thomas A. Wentz, Sr. /s/ Timothy P. Mihalick Vice-President July 20, 1999 - --------------------------- Timothy P. Mihalick /s/ Diane K. Bryantt Secretary July 20, 1999 - --------------------------- Diane K. Bryantt /s/ Ralph A. Christensen Trustee and Chairman July 20, 1999 - --------------------------- Ralph A. Christensen /s/ Mike F. Dolan Trustee and Vice-Chairman July 21, 1999 - --------------------------- Mike F. Dolan /s/ Jeff L. Miller Trustee and Vice-Chairman July 23, 1999 - --------------------------- Jeff L. Miller Trustee July , 1999 - --------------------------- --- C. Morris Anderson Trustee July , 1999 - --------------------------- --- J. Norman Ellison, Jr. Trustee July , 1999 - --------------------------- --- Daniel L. Feist /s/ Patrick G. Jones Trustee July 21, 1999 - --------------------------- Patrick G. Jones Trustee July , 1999 - --------------------------- --- John F. Decker /s/ Thomas A. Wentz, Jr. Trustee July 21, 1999 - --------------------------- Thomas A. Wentz, Jr.
28 INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES MINOT, NORTH DAKOTA CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND 1997 AND INDEPENDENT AUDITOR'S REPORT INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES TABLE OF CONTENTS
Pages ----- INDEPENDENT AUDITOR'S REPORT 1 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets 2-3 Consolidated Statements of Operations 4 Consolidated Statements of Shareholders' Equity 5 Consolidated Statements of Cash Flows 6-7 Notes to Consolidated Financial Statements 8-22 ADDITIONAL INFORMATION Independent Auditor's Report on Additional Information 23 Marketable Securities 24 Supplemental Income Statement Information 25 Real Estate and Accumulated Depreciation 26-30 Investments in Mortgage Loans on Real Estate 31-33 Selected Financial Data 34 Gain From Property Dispositions 35 Mortgage Loans Payable 36-37 Significant Property Acquisitions 38 Schedules other than those listed above are omitted since they are not required or are not applicable, or the required information is shown in the financial statement or notes thereon. Quarterly Results of Consolidated Operations (Unaudited) 39
INDEPENDENT AUDITOR'S REPORT Board of Trustees Investor Real Estate Trust and Subsidiaries Minot, North Dakota We have audited the accompanying consolidated balance sheets of Investors Real Estate Trust and Subsidiaries as of April 30, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years ended April 30, 1999, 1998 and 1997. These consolidated financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis of our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Investors Real Estate Trust and Subsidiaries as of April 30, 1999 and 1998, and the consolidated results of its operations and cash flows for the years ended April 30, 1999, 1998 and 1997, in conformity with generally accepted accounting principles. /s/ Brady, Martz BRADY, MARTZ & ASSOCIATES, P.C. May 26, 1999 -1- INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS APRIL 30, 1999 AND 1998
ASSETS 1999 1998 ------------ ------------ REAL ESTATE INVESTMENTS Property owned $295,825,839 $231,416,322 Less accumulated depreciation (26,112,399) (21,516,129) ------------ ------------ $269,713,440 $209,900,193 Mortgage loans receivable 10,721,214 3,438,308 Less discounts and allowances (123,212) (127,132) ------------ ------------ Total real estate investments $280,311,442 $213,211,369 ------------ ------------ OTHER ASSETS Cash $ 3,713,053 2,132,220 Marketable securities - held-to-maturity 2,964,434 3,536,538 Marketable securities - available-for-sale 734,749 720,688 Accounts receivable 77,438 55,326 Real estate deposits 300,900 2,493,713 Investment in partnership 0 6,705 Prepaid insurance 216,348 219,871 Tax and insurance escrow 1,761,195 1,254,068 Deferred charges 1,413,752 1,088,016 ------------ ------------ TOTAL ASSETS $291,493,311 $224,718,514 ------------ ------------ ------------ ------------
-2- LIABILITIES AND SHAREHOLDERS' EQUITY
1999 1998 -------------- ------------- LIABILITIES Accounts payable and accrued expenses $ 4,388,270 $ 2,847,080 Notes payable 0 1,000,000 Mortgages payable 175,071,069 134,059,974 Investment certificates issued 11,770,136 10,369,561 -------------- ------------- Total liabilities $ 191,229,475 $ 148,276,615 -------------- ------------- MINORITY INTEREST OF UNITHOLDERS IN OPERATING PARTNERSHIP $ 14,480,542 $ 8,289,273 -------------- ------------- SHAREHOLDERS' EQUITY Shares of beneficial interest (unlimited authorization, no par value, 19,066,954 shares outstanding in 1999 and 16,391,412 shares outstanding in 1998) $ 93,095,819 $ 74,708,559 Accumulated distributions in excess of net income (7,255,958) (6,666,555) Accumulated other comprehensive income (loss) (56,567) 110,622 -------------- ------------- Total shareholders' equity $ 85,783,294 $ 68,152,626 -------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 291,493,311 $ 224,718,514 -------------- ------------- -------------- -------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS -3- INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND 1997
1999 1998 1997 -------------- -------------- -------------- REVENUE Real estate rentals $ 38,785,287 $ 31,694,586 $ 22,972,368 Interest, discounts and fees 1,141,975 712,959 861,613 -------------- -------------- -------------- Total revenue $ 39,927,262 $ 32,407,545 $ 23,833,981 -------------- -------------- -------------- EXPENSES Interest $ 12,101,981 $ 10,479,104 $ 7,638,776 Depreciation 5,966,874 4,791,907 3,584,591 Utilities and maintenance 6,356,483 5,142,459 3,741,877 Taxes and insurance 4,409,762 3,536,147 2,720,495 Property management expenses 3,288,267 2,642,977 1,870,435 Advisory and trustee services 927,063 745,907 559,149 Operating expenses 320,479 271,738 158,627 Amortization 154,677 106,108 60,588 -------------- -------------- -------------- Total expenses $ 33,525,586 $ 27,716,347 $ 20,334,538 -------------- -------------- -------------- OPERATING INCOME $ 6,401,676 $ 4,691,198 $ 3,499,443 GAIN ON SALE OF PROPERTIES 1,947,184 465,499 398,424 MINORITY INTEREST PORTION OF OPERATING PARTNERSHIP INCOME (744,725) (141,788) (18) -------------- -------------- -------------- NET INCOME $ 7,604,135 $ 5,014,909 $ 3,897,849 -------------- -------------- -------------- -------------- -------------- -------------- Net income per share (basic and diluted) Operating income $ 0.33 $ 0.29 $ 0.25 Gain on sale of properties 0.11 0.03 0.03 -------------- -------------- -------------- Net income $ 0.44 $ 0.32 $ 0.28 -------------- -------------- -------------- -------------- -------------- --------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS -4- INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND 1997
Accumulated Shares of Distributions Other Total Number of Beneficial in excess of Comprehensive Shareholder's Shares Interest Net Income Income (Loss) Equity ------------- ------------ ------------- ------------- -------------- BALANCE MAY 1, 1996 13,258,908 $ 54,263,917 $ (3,551,997) $ 0 $ 50,711,920 Comprehensive income Net income 0 0 3,897,849 0 3,897,849 Unrealized gain on securities available for sale 0 0 0 86,505 86,505 -------------- Total comprehensive income $ 3,984,354 Dividends distributed 0 0 (5,508,689) 0 (5,508,689) Dividends reinvested 554,681 3,579,744 0 0 3,579,744 Sale of shares 1,403,776 9,025,706 0 0 9,025,706 Shares repurchased (276,852) (1,795,416) 0 0 (1,795,416) ------------- ------------ ------------- ------------- -------------- BALANCE APRIL 30, 1997 14,940,513 $ 65,073,951 $ (5,162,837) $ 86,505 $ 59,997,619 Comprehensive income Net income 0 0 5,014,909 0 5,014,909 Unrealized gain on securities available-for-sale 0 0 0 24,117 24,117 -------------- Total comprehensive income $ 5,039,026 Dividends distributed 0 0 (6,518,627) 0 (6,518,627) Dividends reinvested 639,799 4,290,541 0 0 4,290,541 Sale of shares 1,196,562 8,421,858 0 0 8,421,858 Shares repurchased (382,462) (3,077,791) 0 0 (3,077,791) ------------- ------------ ------------- ------------- -------------- BALANCE APRIL 30, 1998 16,391,412 $ 74,708,559 $ (6,666,555) $ 110,622 $ 68,152,626 Comprehensive income Net income 0 0 7,604,135 0 7,604,135 Unrealized loss on securities available-for-sale 0 0 0 (167,189) (167,189) -------------- Total comprehensive income $ 7,436,946 Dividends distributed 0 0 (8,193,538) 0 (8,193,538) Dividends reinvested 762,051 5,389,464 0 0 5,389,464 Sales of shares 2,368,504 16,284,684 0 0 16,284,684 Shares repurchased (455,013) (3,286,888) 0 0 (3,286,888) ------------- ------------ ------------- ------------- -------------- BALANCE APRIL 30, 1999 19,066,954 $ 93,095,819 $ (7,255,958) $ (56,567) $ 85,783,294 ------------- ------------ ------------- ------------- -------------- ------------- ------------ ------------- ------------- --------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS -5- INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND 1997
1999 1998 1997 -------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 7,604,135 $ 5,014,909 $ 3,897,849 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,121,551 4,898,015 3,645,179 Minority interest portion of operating partnership income 744,725 141,788 18 Accretion of discount on contracts (2,920) (5,706) (7,698) Gain on sale of properties (1,947,184) (465,499) (398,424) Interest reinvested in investment certificates 408,097 349,791 288,517 Changes in other assets and liabilities: (Increase) decrease in real estate deposits 2,192,813 (350,000) (100,000) (Increase) decrease in other assets (11,884) 377,758 (415,274) Increase in tax and insurance escrow (507,127) (3,599) (98,942) Increase in deferred charges (480,413) (558,660) (180,779) Increase (decrease) in accounts payable and accrued expenses 1,541,190 (225,991) (69,119) -------------- ------------- ------------- Net cash provided from operating activities $ 15,662,983 $ 9,172,806 $ 6,561,327 -------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturity of marketable securities held-to-maturity $ 572,104 $ 518,921 $ 356,398 Principal payments on mortgage loans receivable 372,155 565,359 1,706,202 Proceeds from sale of property 435,787 1,482,046 0 Payments for acquisition and improvement of properties (45,325,061) (22,894,602) (38,046,177) Purchase of marketable securities available-for-sale (181,250) 0 (596,961) Investment in mortgage loans receivable (7,655,061) (2,061,179) (2,835,212) -------------- ------------- ------------- Net cash used for investing activities $(51,781,326) $(22,389,455) $(39,415,750) -------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sale of shares, net of issue costs $ 16,284,684 $ 8,421,858 $ 9,025,706 Proceeds from investment certificates issued 4,591,528 3,283,248 4,225,004 Proceeds from mortgages payable 32,326,973 10,612,652 27,094,270 Proceeds from short-term lines of credit 0 12,900,000 8,450,000 Proceeds from sale of minority interest 0 0 1,000 Repurchase of shares and minority interest units (3,534,813) (3,077,791) (1,795,416) Dividends paid (2,804,074) (2,228,086) (1,930,439) Distributions paid to minority interest unitholders (791,458) (179,185) (16) Redemption of investment certificates (3,599,050) (1,450,783) (2,128,686) Principal payments on mortgage loans (3,774,614) (2,751,301) (2,634,017) Payments on short-term lines of credit (1,000,000) (11,900,000) (8,450,000) -------------- ------------- ------------- Net cash provided from financing activities $ 37,699,176 $ 13,630,612 $ 31,857,406 -------------- ------------- ------------- NET INCREASE (DECREASE) IN CASH $ 1,580,833 $ 413,963 $ (977,017) CASH AT BEGINNING OF YEAR 2,132,220 1,718,257 2,715,274 -------------- ------------- ------------- CASH AT END OF YEAR $ 3,713,053 $ 2,132,220 $ 1,718,257 -------------- ------------- ------------- -------------- ------------- -------------
-6- INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND 1997
1999 1998 1997 -------------- -------------- -------------- SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Dividends reinvested $ 5,389,464 $ 4,290,541 $ 3,579,744 Real estate investment and mortgage loans receivable acquired through assumption of mortgage loans payable and accrual of costs 12,458,735 10,463,677 19,575,635 Mortgage loan receivable transferred to property owned 0 1,161,878 2,810,000 Proceeds from sale of properties deposited directly with escrow agent 6,863,691 2,870,387 455,329 Properties acquired through the issuance of minority interest units in the operating partnership 6,485,927 8,325,652 0 Interest reinvested directly in investment certificates 408,097 349,791 288,517 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest paid on mortgages $ 10,998,722 $ 9,613,154 $ 6,773,978 Interest paid on investment certificates 895,214 657,966 508,686 -------------- -------------- -------------- $ 11,893,936 $ 10,271,120 $ 7,282,664 -------------- -------------- -------------- -------------- -------------- --------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS -7- INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 1999, 1998 AND 1997 NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS - Investors Real Estate Trust qualifies under Section 856 of the Internal Revenue Code as a real estate investment trust. The Trust has properties located primarily throughout the Upper Midwest, with principal offices located in Minot, North Dakota. The Company invests in commercial and residential real estate, real estate contracts, real estate related governmental backed securities (GNMA), and equity securities in other real estate investment trusts. Rental revenue from residential properties represents the major source of revenues for the Trust. Effective February 1, 1997, the Trust reorganized its structure in order to convert to Umbrella Partnership Real Estate Investment Trust (UPREIT) status. The Trust established an operating partnership (IRET Properties, a North Dakota Limited Partnership) with a wholly owned corporate subsidiary acting as its sole general partner (IRET, Inc., a North Dakota Corporation). At that date, the Trust transferred substantially all of its assets and liabilities to the operating partnership in exchange for general partnership units. The general partner has full and exclusive management responsibility for the real estate investment portfolio owned by the operating partnership. The partnership is operated in a manner that allows IRET to continue its qualification as a real estate investment trust under the Internal Revenue Code. All limited partners of the operating partnership have "exchange rights" allowing them, at their option, to exchange their limited partnership units for shares of the Trust on a one for one basis. The exchange rights are subject to certain restrictions including no exchanges for at least one year following the acquisition of the limited partnership units. The operating partnership distributes cash on a quarterly basis in the amounts determined by the Trust which results in each limited partner receiving a distribution equivalent to the dividend received by a Trust shareholder. BASIS OF PRESENTATION - The consolidated financial statements include the accounts of Investors Real Estate Trust and all of its subsidiaries in which it maintains a controlling interest. The Trust is the sole shareholder of IRET, Inc. which is the general partner of the operating partnership, IRET Properties. The trust is also the sole shareholder of Miramont - IRET Inc. and Pine Cone - IRET Inc., both of which are invested in real estate. All material intercompany transactions and balances have been eliminated in the consolidated financial statements. Prior to May 1, 1998, IRET Properties was also a general partner in six limited partnerships, and due to the immaterial involvement of the limited partners, had substantial influence over their operations. These limited partnership were as follows: -8- NOTE 1 - (CONTINUED) Eastgate Properties, Ltd. Bison Properties, Ltd. First Avenue Building, Ltd. Sweetwater Properties, Ltd. Hill Park Properties, Ltd. Colton Heights, Ltd. The above partnerships were consolidated in prior year financial statements. Effective May 1, 1998, the related partnerships were acquired by IRET Properties through the issuance of operating partnership units as part of UPREIT transactions. ACCOUNTING POLICIES USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles 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. PROPERTY OWNED - Real estate is stated at cost. Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Interest, real estate taxes, and other development costs relating to the acquisition and development of certain qualifying properties are also capitalized. Expenditures for maintenance and repairs which do not add to the value or extend useful lives are charged to expense as incurred. DEPRECIATION is provided to amortize the cost of individual assets over their estimated useful lives using principally the straight-line method. Useful lives range from 12 years for furniture and fixtures to 20 - 40 years for buildings and improvements. MORTGAGE LOANS RECEIVABLE are shown at cost less unearned discount. Discounts on contracts are accreted using the straight-line method over the term of the contract which approximates the effective interest method. Deferred gain is recognized as income on the installment method when principal payments are received. Interest income is accrued and reflected in the related balance. ALLOWANCE FOR LOAN LOSSES - The Trust evaluates the need for an allowance for loan losses periodically. In performing its evaluation, management assesses the recoverability of individual real estate loans by a comparison of their carrying amount with their estimated net realizable value. MARKETABLE SECURITIES - The Trust's investments in securities are classified as securities "held-to-maturity" and securities "available-for-sale". The securities classified as "available-for-sale" consist of equity shares in other real estate investment trusts and are stated at fair value. Unrealized gains and losses -9- NOTE 1 - (CONTINUED) on securities available-for-sale are recognized as direct increases or decreases in shareholders' equity. Cost of securities sold are recognized on the basis of specific identification. The securities classified as "held-to-maturity" consist of Government National Mortgage Association securities for which the Trust has positive intent and ability to hold to maturity. They are reported at cost, adjusted by amortization of premiums and accretion of discounts which are recognized in interest income using the straight line method over the period to maturity which approximates the effective interest method. REAL ESTATE DEPOSITS consist of funds held by an escrow agent to be applied toward the purchase of real estate qualifying for gain deferral as a like-kind exchange of property under section 1031 of the Internal Revenue Code. It also consists of earnest money, or "good faith deposits", to be used by the Trust toward the purchase of property or the payment of loan costs associated with loan refinancing. INVESTMENT IN PARTNERSHIP - The Trust was accounting for its investment in Chateau Properties, Ltd. under the equity method of accounting, wherein the appropriate portion of the earnings or loss was recognized annually. The Operating Partnership had a general partnership interest in the limited partnership. Chateau Properties, Ltd. had invested in real estate properties. During 1998, the real estate in Chateau Properties, Ltd. was acquired through the issuance of operating partnership units. MINORITY INTEREST - Interests in the operating partnerships held by limited partners are represented by operating partnership units. The operating partnerships' income is allocated to holders of units based upon the ratio of their holdings to the total units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to minority interests in accordance with the terms of the operating partnership agreement. NET INCOME PER SHARE - Effective May 1, 1998, the Trust adopted Statement of Financial Accounting Standard No. 128, Earnings Per Share. Basic net income per share is computed using the weighted average number of shares outstanding. There is potential for dilution of net income per share due to the conversion option of operating partnership units. However, basic and diluted net income per share are the same. The computation of basic and diluted net income per share can be found in Note 13. INCOME TAXES - The Trust intends to continue to qualify as a real estate investment trust as defined by the Internal Revenue Code and, as such, will not be taxed on the portion of the income that is distributed to the shareholders, provided at least 95% of its real estate investment trust taxable income is distributed and other requirements are met. The Trust intends to distribute all of its taxable income and realized capital gains from property dispositions within the prescribed time limits and, accordingly, there is no provision or liability for income taxes shown on the financial statements. -10- NOTE 1 - (CONTINUED) UPREIT status allows non-recognition of gain by an owner of appreciated real estate if that owner contributes the real estate to a partnership in exchange for a partnership interest. The UPREIT concept was born when the non-recognition provisions of Section 721 of the Internal Revenue Code were combined with "Exchange Rights" which allow the contributing partner to exchange the limited partnership interest received in exchange for the appreciated real estate for the Trust stock. Upon conversion of the partnership units to Trust shares, a taxable event occurs for that limited partner. Income or loss of the operating partnership shall be allocated among its partners in compliance with the provisions of the Internal Revenue Code Section 701(b) and 704(c). REVENUE RECOGNITION - Residential rental properties are leased under operating leases with terms generally of one year or less. Commercial properties are leased to tenants for various terms exceeding one year. Lease terms often include renewal options. In addition, a number of the commercial leases provide for a base rent plus a percentage rent based on gross sales in excess of a stipulated amount. Rental income is recognized as it is earned, which is not materially different than on a straight-line basis. Profit on sales of real estate shall be recognized in full when real estate is sold, provided: a. The profit is determinable, that is, the collectibility of the sales price is reasonably assured or the amount that will be collectible can be estimated. b. The earnings process is virtually complete, that is, the seller is not obliged to perform significant activities after the sale to earn the profit. Based on the economic climate and the terms of many contracts, the collectibility of the sales price was not reasonably assured as required by generally accepted accounting principles. Consequently, the Trust uses the installment method of accounting for profits on several property sales as it more fairly reflects earned revenue. Interest on mortgage loans receivable is recognized in income as it accrues during the period the loan is outstanding. In the case of non-performing loans, income is recognized as discussed in Note 4. RECLASSIFICATIONS - Certain previously reported amounts have been reclassified to conform with the current financial statement presentation. ACCOUNTING CHANGES - During the year ended April 30, 1999, the Trust adopted SFAS No. 130, "Reporting Comprehensive Income." This statement establishes standards for reporting and disclosing comprehensive income and its components. Besides net income, SFAS No. 130 requires the reporting of other comprehensive income, defined as revenues, expenses, gains, and losses that under generally -11- NOTE 1 - (CONTINUED) accepted accounting principles are not included in net income. Unrealized gains/losses on securities available-for-sale represent the only items presented as other comprehensive income. Comprehensive income is presented in the Consolidated Statements of Shareholders' Equity. During the year ended April 30, 1999, the Trust adopted SFAS No 131, "Disclosure About Segments of an Enterprise and Related Information." This statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated by the chief decision makers in deciding how to allocate resources and in assessing performance. Operating segments of the Trust would include commercial and residential rental operations. Generally, segmental information follows the same accounting policies utilized for consolidated reporting, except, certain expenses, such as depreciation, are not allocated to segments for management purposes. See Note 12 for the Trust's disclosure of segment information in compliance with SFAS No. 131. THE DIVIDEND REINVESTMENT PLAN is available to all shareholders of the Trust. Under the Dividend Reinvestment Plan, shareholders may elect for their dividends to be used by the plan administrator to acquire additional shares on the NASDAQ Small Cap Market or, if not available, directly from the Trust for approximately 95% of the market price on the date of purchase. NOTE 2 - OFF-BALANCE-SHEET RISK The Trust had deposits at First Western Bank and Bremer Bank which exceeded Federal Deposit Insurance Corporation limits by $3,128,203 and $665,255, respectively, at April 30, 1999 NOTE 3 - PROPERTY OWNED UNDER LEASE Property consisting principally of real estate owned under lease is stated at cost less accumulated depreciation and is summarized as follows:
April 30, 1999 April 30, 1998 -------------- -------------- Residential $228,574,976 $180,986,906 Less accumulated depreciation (19,002,784) (15,449,736) ------------ ------------ $209,572,192 $165,537,170 ------------ ------------ Commercial $ 67,250 863 $ 50,429,416 Less accumulated depreciation (7,109,615) (6,066,393) ------------ ------------ $ 60,141,248 $ 44,363,023 ------------ ------------ Remaining cost $269,713,440 $209,900,193 ------------ ------------ ------------ ------------
There were no repossessions during the years ended April 30, 1999 and 1998. -12- NOTE 3 - (CONTINUED) The above cost of residential real estate owned included construction in progress of $7,492,062 and $753,680 as of April 30, 1999 and 1998, respectively. As of April 30, 1999 the trust expects to fund approximately $5,000,000 during the upcoming year to complete these construction projects and has a commitment to purchase the Great Plains Software building for approximately $15,000,000. The Trust also has outstanding offers to purchase selected properties as part of their normal operations. Construction period interest of $211,882, $220,573 and $269,513 has been capitalized for the years ended April 30, 1999, 1998 and 1997, respectively. Residential apartment units are rented to individual tenants with lease terms up to one year. Gross revenues from residential rentals totaled $33,010,126, $27,231,714 and $18,935,111 for the years ended April 20, 1999, 1998 and 1997, respectively. Gross revenues from commercial property rentals totaled $5,775,161, $4,462,872 and $4,037,258 for the years ended April 30, 1999, 1998 and 1997, respectively. Commercial properties are leased to tenants under terms of leases expiring at various dates through 2013. Lease terms often include renewal options. In addition, a number of the commercial leases provide for a base rent plus a percentage rent based on gross sales in excess of a stipulated amount. Rents based on a percentage of sales totaled $101,032, $28,316 and $16,517 for the years ended April 30, 1999, 1998 and 1997, respectively. The future minimum lease payments to be received under these operating leases for the commercial properties as of April 30, 1999, are as follows:
Year ending April 30, 2000 $ 8,069,271 2001 8,061,284 2002 7,289,618 2003 6,992,587 2004 6,987,797 Thereafter 67,613,980 -------------- $ 105,014,537 -------------- --------------
NOTE 4 - MORTGAGE LOANS RECEIVABLE Mortgage loans receivable consists of nine contracts which are collateralized by real estate. Contract terms call for monthly payments of principals and interest. Interest rates range from 7 to 10.25%. Mortgage loans receivable have been evaluated for possible losses considering repayment history, market value of underlying collateral, deferred gains and economic conditions. -13- NOTE 4 - (CONTINUED) Future principal payments due under the mortgage loans contracts as of April 30, 1999 are as follows:
Year ending April 30, 2000 $ 9,323,959 2001 85,035 2002 92,144 2003 202,017 2004 113,307 Later years 904,752 -------------- $ 10,721,214 -------------- --------------
Details concerning mortgage loans receivable from related parties can be found in Note 10. There were no significant non-performing mortgage loans receivable as of April 30, 1999 and 1998. Non-performing loans are recognized as impaired in conformity with FASB Statement No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN. The average balance of impaired loans for the year ended April 30, 1999 and 1998 was not significant. For impairment recognized in conformity with FASB Statement No. 114, the entire change in present value of expected cash flows is reported as bad debt expense in the same manner in which impairment initially was recognized or as a reduction in the amount of bad debt expense that otherwise would be reported. Additional interest income that would have been earned on loans if they had not been non-performing was not significant in 1999, 1998 or 1997. There was no interest income on non-performing loans recognized on a cash basis for 1999, 1998 and 1997. NOTE 5 - MARKETABLE SECURITIES The amortized cost and estimated market values of marketable securities held-to-maturity at April 30, 1999 and 1998 are as follows:
1999 Gross Gross ---- Amortized Unrealized Unrealized Fair Cost Gains Losses Value ----------- ---------- ------------- ------------ Issuer ------ GNMA $ 2,964,434 $ 34,773 $ 21,723 $ 2,977,484 ----------- ---------- ----------- ------------ ----------- ---------- ----------- ------------ 1998 ---- Issuer ------ GNMA $ 3,536,538 $ 22,757 $ 0 $ 3,559,295 ----------- ---------- ----------- ------------ ----------- ---------- ----------- ------------
The amortized cost and estimated market values of marketable securities available-for-sale at April 30, 1999 and 1998 are as follows: -14- NOTE 5 - (CONTINUED)
1999 Gross Gross ---- Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- Equity shares in other REIT's $ 791,316 $ 82,524 $ 139,091 $ 734,749 --------- ---------- ---------- --------- --------- ---------- ---------- --------- 1998 ---- Equity shares in other REIT's $ 610,666 $ 110,6227 $ 0 $ 720,688 --------- ---------- ---------- --------- --------- ---------- ---------- ---------
There were no realized gains or losses on sales of securities for the years ended April 30, 1999, 1998 and 1997. Marketable securities held-to-maturity consists of Governmental National Mortgage Association (GNMA) securities bearing interest from 6.5% to 9.5% with maturity dates ranging from May 15, 2016 to September 15, 2023. The following is a summary of the maturities of securities held-to-maturity at April 30, 1999 and 1998:
1999 1998 --------------------------- ----------------------------- Amortized Fair Amortized Fair Cost Value Cost Value ----------- ----------- ------------ ------------ Due after 10 years $ 791,316 $ 734,749 $ 3,536,538 $ 3,559,295 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------
NOTE 6 - NOTES PAYABLE As of April 30, 1999, the trust had lines of credit available from three financial institutions. An unsecured line of credit was issued by First Western Bank & Trust in the amount of $4,000,000 carrying an interest rate equal to prime and maturing February 1, 2000. A second unsecured line of credit from First International Bank & Trust was issued in the amount of $2,500,000 carrying an interest rate equal to prime and maturing September 15, 1999. A third unsecured line of credit from Bremer Bank was issued in the amount of $5,000,000 carrying an interest rate equal to Bremer Financial Corp.'s reference rate and maturing September 1, 1999. Interest payments are due monthly on all three notes. As of April 30, 1999, the Trust had no unpaid balances on any of their three lines of credit. As of April 30, 1998, the Trust had an unpaid balance of $1,000,000 on the First Western Bank & Trust line of credit and no unpaid balance on the First International Bank & Trust line of credit. The Trust did not have a line of credit available from Bremer Bank as of April 30, 1998. -15- NOTE 7 - MORTGAGES PAYABLE Mortgages payable as of April 30, 1999 included mortgages on properties owned totaling $175,064,346 and mortgages of $6,723 on property sold on contract. The carrying value of the related real estate owned was $198,076,573 and the carrying value of the related mortgage loans receivable was $159,965 as of April 30, 1999. Mortgages payable as of April 30, 1998 included mortgages on properties owned totaling $134,012,050 and mortgages of $47,924 on property sold on contract. The carrying value of the related real estate owned was $190,827,346 and the carrying value of the related mortgage loans receivable was $209,260 as of April 30, 1998. Monthly installments are due on the mortgages with interest rates ranging from 6.47% to 9.75% and with varying maturity dates through November 30, 2034. Of the mortgages payable, the balances of fixed rate mortgages totaled $138,616,556 and $85,899,604, and the balances of variable rate mortgages totaled $36,454,513 and $48,160,370 as of April 30, 1999 and 1998, respectively. The aggregate amount of required future principal payments on mortgages payable is as follows:
Years ending April 30, 2000 $ 4,257,321 2001 4,560,488 2002 4,897,046 2003 8,353,234 2004 5,197,797 Later years 147,805,183 -------------- Total payments $ 175,071,069 -------------- --------------
NOTE 8 - INVESTMENT CERTIFICATES ISSUED The Trust has placed investment certificates with the public. The interest rates vary from 6% to 11% per annum, depending on the term of the security. Total securities maturing within fiscal years ending April 30, are shown below. Interest is paid annually, semiannually, or quarterly on the anniversary date of the security.
Due in years ending April 30 ---------------------------- 2000 $ 7,908,954 2001 896,483 2002 902,368 2003 562,451 2004 1,466,151 Thereafter 33,729 -------------- $ 11,770,136 -------------- --------------
-16- NOTE 9 - DEFERRED GAIN FROM PROPERTY DISPOSITIONS Deferred gain represents gain from property dispositions that have been reported on the installment method. With the installment method of reporting, the proportionate share of the gain is recognized at the point cash is received. Deferred gain recognized on the installment basis was $1,000, $16,713 and $146,361 for the years ended April 30, 1999, 1998 and 1997, respectively. NOTE 10 - TRANSACTIONS WITH RELATED PARTIES Mr. Roger R. Odell and Mr. Thomas A. Wentz, Sr., officers and shareholders of the Trust are partners in Odell-Wentz & Associates, the advisor to the Trust. Under the advisory Contract between the Trust and Odell-Wentz & Associates, the Trust pays an advisor's fee based on the net assets of the Trust and a percentage fee for investigating and negotiating the acquisition of new investments. For the year ended April 30, 1999, Odell-Wentz & Associates received total fees under said agreement of $951,234. The fees for April 30, 1998 were $740,393 and for April 30, 1997 were $667,367. For the years ended April 30, 1999, 1998 and 1997, the Trust has capitalized $195,019, $141,468 and $177,834, respectively, of these fees, with the remainder of $756,215, $598,925 and $489,533, respectively, expensed as advisory and trustee fees on the statement of operations. The advisor is obligated to provide office space, staff, office equipment, computer services and other services necessary to conduct the business affairs of the Trust. Investors Management and Marketing (IMM) provides property management services to the Trust. Roger R. Odell is a shareholder in IMM. IMM received $609,783, $530,678 and $408,904 for services rendered for years ended April 30, 1999, 1998 and 1997, respectively. Inland National Securities is a corporation that provides underwriting services in the sale of additional shares for the Trust. Roger R. Odell is also a shareholder in Inland National Securities. Fees for services totaled $157,392, $171,755 and $291,143 for the years ended April 30, 1999, 1998 and 1997, respectively. The Trust paid fees and expense reimbursements to the law firm in which Thomas A. Wentz, Jr. is a partner totaling $33,022, $62,293 and $36,045 for the years ended April 30, 1999, 1998 and 1997, respectively. Thomas A. Wentz, Jr. is a trustee of the Trust. Investment certificates issued by the Trust to officers and trustees totaled $2,138,758, $1,219,457 and $519,528, at April 30, 1999, 1998 and 1997, respectively. The Trust issued 334,172 limited partnership units at $7.20/unit to Roger R. Odell and C. Morris Anderson upon the completion of the UPREIT transaction with Magic City Realty during the year ended April 30, 1998. Mr. Odell and Mr. Anderson owned all of Magic City Realty. Mr. Anderson is also a trustee of the Trust. -17- NOTE 11 - MARKET PRICE RANGE OF SHARES Since October 17, 1997, Investors Real Estate Trust traded shares on the NASDAQ Small Capital Market. For the year ended April 30, 1998 a total of 812,498 shares were traded in 445 separate trades. The high trade price during the period was 7.41, low was 6.56, and the closing price on April 30, 1998 was 7.12. For the year ended April 30, 1999, a total of 1,862,187 shares were traded in 1,017 separate trades. The high trade price during the period was 14.00, low was 6.50, and the closing price on April 30, 1999 was 7.50. Prior to October 17, 1997, Investors Real Estate Trust shares were traded on Over-the-Counter-Market. The price range is as follows:
Bid Ask ----------------- ----------------- Low High Low High ------- ------ -------- ------- May 1, 1996 to April 30, 1997 $ 6.44 6.62 7.00 7.20 May 1, 1997 to October 17, 1997 6.62 6.85 7.20 7.45
NOTE 12 - SEGMENT DATA The following information summarizes the Trust's segment reporting for Residential and Commercial properties along with reconciliations to the consolidated financial statements:
Year Ending April 30, 1999 -------------------------- Segment revenue Commercial Residential Total ------------ ------------- ------------- Rental revenue $ 5,775,161 $ 33,010,126 $ 38,785,287 ------------ ------------- ------------- Segment expenses Mortgage interest $ 2,417,316 $ 8,782,600 $ 11,199,916 Utilities and maintenance 113,374 6,243,109 6,356,483 Taxes and insurance 91,003 4,318,759 4,409,762 Property management 60,612 3,227,655 3,288,267 ------------ ------------- ------------- $ 2,682,206 $ 22,572,123 $ 25,254,428 ------------ ------------- ------------- Segment gross profit $ 3,092,856 $ 10,438,003 $ 13,530,859 ------------ ------------- ------------ ------------- Reconciliation to consolidated operations: Interest discounts and fee revenue 1,141,975 Other interest expense (902,065) Depreciation (5,966,874) Advisory and trust fees (927,063) Operating expenses (320,479) Amortization (154,677) ------------- Consolidated operating income $ 6,401,676 ------------- -------------
-18- NOTE 12 - (CONTINUED)
April 30, 1999 -------------- Segment Assets Commercial Residential Total ------------- -------------- -------------- Property owned $ 67,250,863 $ 228,574,976 $ 295,825,839 Less accumulated depreciation (7,109,615) (19,002,784) (26,112,399) ------------- -------------- -------------- Total consolidated property owned $ 60,141,248 $ 209,572,192 $ 269,713,440 ------------- -------------- -------------- ------------- -------------- -------------- Year Ending April 30, 1998 -------------------------- Segment revenue Commercial Residential Total ------------- -------------- -------------- Rental revenue $ 5,775,161 $ 25,919,425 $ 31,694,586 ------------- -------------- -------------- Segment expenses Mortgage interest $ 2,048,990 $ 7,665,969 $ 9,714,959 Utilities and maintenance 113,374 5,029,085 5,142,459 Taxes and insurance 229,696 3,306,451 3,536,147 Property management 50,700 2,592,277 2,642,977 ------------- -------------- -------------- $ 2,442,760 $ 18,593,782 $ 21,036,542 ------------- -------------- -------------- Segment gross profit $ 3,332,401 $ 7,325,643 $ 10,658,044 ------------- -------------- ------------- -------------- Reconciliation to consolidated operations: Interest discounts and fee revenue $ 712,959 Other interest expense (764,145) Depreciation (4,791,907) Advisory and trust fees (745,907) Operating expenses (271,738) Amortization (106,108) -------------- Consolidate operating income $ 4,691,198 -------------- -------------- April 30, 1998 -------------- Segment Assets Commercial Residential Total ------------- -------------- -------------- Property owned $ 50,429,416 $ 180,986,906 $ 231,416,322 Less accumulated depreciation (6,066,393) (15,449,736) (21,516,129) ------------- -------------- -------------- Total consolidated property owned $ 44,363,023 $ 165,537,170 $ 209,900,193 ------------- -------------- -------------- ------------- -------------- --------------
-19- NOTE 12 - (CONTINUED)
Year Ending April 30,1997 ------------------------- Segment revenue Commercial Residential Total ------------- -------------- -------------- Rental revenue $ 4,063,284 $ 18,909,084 $ 22,972,368 ------------- -------------- -------------- Segment expenses Mortgage interest 1,670,216 5,406,681 7,076,897 Utilities and maintenance 254,248 3,487,629 3,741,877 Taxes and insurance 225,810 2,494,685 2,720,495 Property management 45,249 1,825,186 1,870,435 ------------- -------------- -------------- $ 2,195,523 $ 13,214,181 $ 15,409,704 ------------- -------------- -------------- Segment gross profit $ 1,867,761 $ 5,694,903 $ 7,562,664 ------------- -------------- ------------- -------------- Reconciliation to consolidated operations: Interest discounts and fee revenue 861,613 Other interest expense (561,879) Depreciation (3,584,591) Advisory and trust fees (559,149) Operating expenses (158,627) Amortization (60,588) -------------- Consolidated operating income $ 3,499,443 -------------- -------------- April 30, 1997 - -------------- Segment Assets Commercial Residential Total ------------- -------------- -------------- Property owned $ 42,241,096 $ 149,643,413 $ 191,884,509 Less accumulated depreciation (5,102,464) (11,845,692) (16,948,156) ------------- -------------- -------------- Total consolidated property owned $ 37,138,632 $ 137,797,721 $ 174,936,353 ------------- -------------- -------------- ------------- -------------- --------------
-20- NOTE 13 - EARNINGS PER SHARE Basic earnings per share are computed by dividing the earnings available to stockholders by the weighted average number of shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if potential dilutive securities had been converted to shares. Operating partnership units can be exchanged for shares on a one for one basis. The following tables reconciles amounts reported in the consolidated financial statements for the years ended April 30, 1999, 1998, and 1997:
1999 1998 1997 ----------- ----------- ----------- Numerator Net income applicable to shares $ 7,604,135 $ 5,014,909 $ 3,897,849 ----------- ----------- ----------- Numerator for basic earnings per share 7,604,135 5,014,909 3,897,849 Minority interest portion of operating partnership income 744,725 141,788 18 ----------- ----------- ----------- Numerator for diluted earnings per share $ 8,348,860 $ 5,156,697 3,897,867 ----------- ----------- ----------- Denominator Denominator for basic earnings per share Weighted average shares 17,441,976 15,636,214 14,044,467 Effect of dilutive securities Convertible operating partnership units 1,662,489 417,445 13 ----------- ----------- ----------- Denominator for diluted earnings per share 19,104,465 16,053,659 14,044,480 ----------- ----------- ----------- Basic earnings per share $ 0.44 $ 0.32 $ 0.28 ----------- ----------- ----------- ----------- ----------- ----------- Diluted earnings per share $ 0.44 $ 0.32 $ 0.28 ----------- ----------- ----------- ----------- ----------- -----------
-21- NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Mortgage loans receivable - Fair values are based on the discounted value of future cash flows expected to be received for a loan using current rates at which similar loans would be made to borrowers with similar credit risk and the same remaining maturities. Cash - The carrying amount approximates fair value because of the short maturity of those instruments. Marketable securities - The fair values of these instruments are estimated based on quoted market prices for these instruments. Notes payable - The carrying amount approximates fair value because of the short maturity of those notes. Mortgages payable - For variable rate loans that re-price frequently, fair values are based on carrying values. The fair value of fixed-rate loans is estimated based on the discounted cash flows of the loans using current market rates. Investment certificates issued - The fair value is estimated using a discounted cash flow calculation that applies interest rates currently being offered on deposits with similar remaining maturities. Accrued interest payable - The carrying amount approximates fair value because of the short-term nature of which interest will be paid. The estimated fair values of the Company's financial instruments are as follows:
1999 1998 ----------------------------- -------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ------------- ------------- ------------ ------------ FINANCIAL ASSETS Mortgage loan receivable $ 10,721,214 $ 10,721,214 $ 3,438,308 $ 3,438,308 Cash 3,713,053 3,713,053 2,132,220 2,132,220 Marketable securities held-to-maturity 2,964,434 2,977,484 3,536,538 3,559,295 Marketable securities available-for-sale 734,749 734,749 720,688 720,688 FINANCIAL LIABILITIES Notes payable $ 0 $ 0 $ 1,000,000 $ 1,000,000 Mortgages payable 175,071,069 175,561,542 135,059,974 129,354,699 Investment certificates issued 11,770,136 11,619,938 10,369,561 10,202,603 Accrued interest payable 1,428,222 1,428,222 1,220,177 1,220,177
-22- ADDITIONAL INFORMATION INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION Board of Trustees Investor Real Estate Trust and Subsidiaries Minot, North Dakota Our report on our audit of the basic consolidated financial statements of Investors Real Estate Trust and Subsidiaries for the years ended April 30, 1999, 1998 and 1997, appears on page 1. Those audits were made for the purpose of forming an opinion on such consolidated financial statements taken as a whole. The information on pages 24 through 38 related to the 1999, 1998 and 1997 consolidated financial statements is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. Such information, except for information on page 39 that is marked "unaudited" on which we express no opinion, has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements, and, in our opinion, the information is fairly stated in all material respects in relation to the basic consolidated financial statements for the years ended April 30, 1999, 1998 and 1997, taken as a whole. We also have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheets of Investors Real Estate Trust and Subsidiaries as of April 30, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the two years ended April 30, 1996 and 1995, none of which is presented herein, and we expressed unqualified opinions on those consolidated financial statements. In our opinion, the information on page 34 relating to the 1996 and 1995 consolidated financial statements is fairly stated in all material respects in relation to the basic consolidated financial statements from which is has been derived. /s/ Brady, Martz BRADY, MARTZ & ASSOCIATES, P.C. May 26, 1999 -23- INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES APRIL 30, 1999 AND 1998
Schedule I MARKETABLE SECURITIES April 30, 1999 April 30, 1998 ------------------------- ----------------------------- Principal Principal Amount Market Amount Market ----------- ----------- ------------ ------------ GNMA Pools $ 2,964,434 $ 2,977,484 $ 3,536,538 $ 3,559,295 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------ Cost Market Cost Market ----------- ----------- ------------ ------------ Equity shares in other REIT's $ 791,316 $ 734,749 $ 610,066 $ 720,688 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------
-24- INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND 1997 Schedule X SUPPLEMENTAL INCOME STATEMENT INFORMATION
Charged to Costs and Expenses ------------------------------------ 1999 1998 1997 ---------- ---------- ---------- Item Maintenance and repairs $3,470,202 $2,832,772 $1,812,496 Taxes, other than payroll and income taxes Property taxes 4,025,560 3,162,656 2,515,631 Royalties * * * Advertising costs * * *
*Less than 1 percent of total revenues -25- INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES APRIL 30, 1999 Schedule XI REAL ESTATE AND ACCUMULATED DEPRECIATION
COST CAPITALIZATION INITIAL COST TO TRUST SUBSEQUENT TO ACQUISITION ------------------------------- ------------------------------- BUILDING & CARRYING APARTMENTS ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COSTS ------------ ------------ ------------ ------------ ------------ 1112 32ND AVE SW $ 354,903 $ 50,000 $ 543,147 $ 21,605 $ 0 177 10TH AVE E-DICKINSON, ND 221,575 40,000 318,109 76,470 0 405 GRANT AVE-HARVEY, ND 0 13,584 157,211 54,914 0 4301-4313 9TH AVE SW-FARGO, ND 415,847 52,870 908,727 58,694 0 BEULAH CONDOS ND 0 6,360 336,589 128,500 0 BISON PROPERTIES 0 38,581 333,394 197,808 0 CANDLELIGHT APTS-FARGO, ND 473,605 80,040 757,977 61,075 0 CASTLE ROCK-BILLINGS, MT 3,946,539 736,000 4,375,683 561,514 0 CENTURY APTS-DICKINSON, ND 1,481,672 100,000 1,564,598 459,683 0 CENTURY APTS-WILLISTON, ND 2,508,160 200,000 3,166,750 542,834 0 CHATEAU APTS-MINOT, ND 1,625,659 122,000 2,242,090 42,020 0 CLEARWATER APTS-BOISE, ID 2,652,705 585,000 3,189,463 47,736 0 COUNTRY MEADOWS-BILLINGS, MT 2,609,222 245,624 3,638,442 9,855 120,821 COUNTRY MEADOWS PHASE II 0 245,623 1,897,131 0 0 COLTON HEIGHTS-MINOT, ND 313,877 80,000 734,286 111,759 0 COTTONWOOD LAKE-BISMARCK, ND 2,792,497 1,055,862 8,027,224 763,951 114,353 CRESTVIEW APTS-BISMARCK, ND 3,360,790 235,000 4,290,031 274,576 0 EASTGATE PROPERTIES 0 23,917 1,490,181 530,188 0 FOREST PARK ESTATES-G FORKS 3,849,741 810,000 5,579,164 731,736 0 HERITAGE MANOR-ROCHESTER, MN 5,014,255 403,256 6,967,952 50,769 0 HILL PARK PROPERTIES 1,365,554 224,750 2,562,296 237,113 0 IBM LAND-ROCHESTER, MN 0 11,871 0 0 0 IVY CLUB-VANCOUVER, WA 7,079,422 1,274,000 9,973,755 448,913 0 JENNER PROPERTIES 1,298,052 220,000 2,077,500 215,668 0 KIRKWOOD APTS-BISMARCK, ND 2,205,000 449,290 2,729,745 408,247 0 LEGACY APTS-GRAND FORKS, ND 6,404,073 1,361,855 8,886,258 360,264 224,180 LEGACY UNDERGROUND-G FORKS 0 725,277 2,260,345 0 0 MAGIC CITY APTS, MINOT, ND 2,546,829 532,000 4,738,000 158,774 0 MANDAN APTS, MANDAN, ND 818 20,000 236,500 32,921 0 MEADOWS-JAMESTOWN-INS. CLAIM 0 0 1,334,976 0 0 MEADOWS-JMSTWN-NEW CONST 0 167,325 452,685 0 0 MIRAMONT APTS-FT. COLLINS, CO 11,481,696 1,470,000 12,765,460 49,715 0 NEIGHBORHOOD APTS-CO SPRINGS 7,291,069 1,033,592 9,811,600 251,991 0 NORTH POINTE, BISMARCK, ND 1,678,718 143,500 1,996,726 139,262 123,687 OAK MANOR APTS-DICKINSON, ND 0 25,000 225,000 100,484 0 OAKWOOD ESTATES-SIOUX FALLS, SD 2,090,133 342,800 2,783,950 418,581 0 OXBOW-SIOUX FALLS, SD 3,311,700 404,072 4,494,441 90,760 0 PARK EAST APTS-FARGO, ND 3,466,359 83,000 4,082,665 785,662 0 PARK MEADOWS-WAITE PARK, MN 7,753,474 1,143,450 9,099,297 898,267 0 PARKWAY APTS-BEULAH, ND 0 7,000 40,738 74,320 0 PINE CONE APTS-FT. COLLINS, CO 10,472,304 904,545 12,167,093 145,282 0 POINTE WEST APTS-MINOT, ND 2,372,322 240,000 3,537,775 179,566 0 PRAIRIE WINDS APTS-S FALLS, SD 1,307,534 144,097 1,816,011 27,567 0 ROCKY MEADOWS 96-BILLINGS, MT 2,788,609 655,985 5,484,735 428,596 103,378 ROSEWOOD/OAKWOOD-S. FALLS 1,243,428 200,000 1,738,245 9,690 0 SOUTH POINTE-MINOT, ND 6,418,627 550,000 9,151,175 191,819 402,672 SOUTHVIEW APTS-MINOT, ND 0 185,000 468,585 59,543 0 SOUTHWIND APTS-GRAND FORKS, ND 4,048,673 400,000 5,033,683 278,671 0 SWEETWATER PROPERTIES 162,315 90,767 1,208,847 539,077 0 VAN MALL WOODS, VANCOUVER, WA 4,031,894 600,000 5,421,312 13,036 0 VIRGINIA APTS-MINOT, ND 0 37,600 163,036 30,527 0 WEST STONEHILL-ST CLOUD, MN 7,799,243 939,000 10,167,355 386,329 0 WESTWOOD PARK-BISMARCK, ND 1,254,294 161,114 1,717,304 249,443 0 WOODRIDGE APTS-ROCHESTER, MN 4,177,096 370,000 6,028,096 135,915 0 ------------ ------------ ------------ ------------ ------------ $135,670,283 $ 20,240,607 $195,173,588 $ 12,071,690 $ 1,089,091 ------------ ------------ ------------ ------------ ------------
-26- INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES APRIL 30, 1999 Schedule XI REAL ESTATE AND ACCUMULATED DEPRECIATION
LIFE ON WHICH BUILDINGS LATEST INCOME AND ACCUMULATED DATE STATEMENT APARTMENTS LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED IS COMPUTED - ---------- -------------- -------------- -------------- -------------- ---------- -------------- 1112 32ND AVE SW $ 50,000 $ 564,752 $ 614,752 $ 49,252 1996 24-40 YEARS 177 10TH AVE E DICKINSON 40,278 394,301 434,579 82,205 1989 24-40 YEARS 405 GRANT AVE HARVEY 14,674 211,036 225,710 37,196 1991 24-40 YEARS 4301-4313 9TH AVE SW FARGO 68,868 951,423 1,020,291 252,252 1988 5-40 YEARS BEULAH CONDOS ND 78,339 393,110 471,449 323,402 1983 15-40 YEARS BISON PROPERTIES 38,581 531,202 569,783 343,202 1972 25-40 YEARS CANDLELIGHT APTS FARGO 80,040 819,052 899,092 128,130 1993 24-40 YEARS CASTLE ROCK BILLINGS 736,000 4,937,197 5,673,197 46,470 1999 40 YEARS CENTURY APTS DICKINSON 126,738 1,997,543 2,124,281 607,904 1986 35-40 YEARS CENTURY APTS WILLISTON 274,971 3,634,613 3,909,584 1,263,633 1986 35-40 YEARS CHATEAU APTS MINOT 122,000 2,284,110 2,406,110 60,360 1997 12-40 YEARS CLEARWATER BOISE 585,000 3,237,199 3,822,199 50,368 1999 40 YEARS COUNTRY MEADOWS BILLINGS 245,624 3,769,118 4,014,742 135,691 1996 40 YEARS COUNTRY MEADOWS PHASE II 245,623 1,897,131 2,142,754 0 1999 N/A-CONST IN PROGRESS COLTON HEIGHTS PROPERTIES 80,095 845,950 926,045 364,965 1984 33-40 YEARS COTTONWOOD LAKE BISMARCK 1,055,862 8,905,528 9,961,390 172,173 1997 40 YEARS CRESTVIEW APTS BISMARCK 235,000 4,564,607 4,799,607 610,281 1994 24-40 YEARS EASTGATE PROPERTIES 28,639 2,015,647 2,044,286 1,376,073 1970 33-40 YEARS FOREST PARK ESTS G FORKS 811,954 6,308,946 7,120,900 966,124 1993 24-40 YEARS HERITAGE MANOR ROCHESTER 403,256 7,018,721 7,421,977 124,570 1999 40 YEARS HILL PARK PROPERTIES 245,653 2,778,506 3,024,159 1,207,552 1985 33-40 YEARS IBM LAND ROCHESTER 11,871 0 11,871 0 1999 N/A LAN IVY CLUB VANCOUVER 1,274,000 10,422,668 11,696,668 54,423 1999 40 YEARS JENNER PROPERTIES 1,357,209 1,155,959 2,513,168 98,005 1996 40 YEARS KIRKWOOD APTS BISMARCK 449,290 3,137,992 3,587,282 130,417 1997 12-40 YEARS LEGACY APTS GRAND FORKS 1,361,855 9,470,702 10,832,557 507,423 1996 24-40 YEARS LEGACY UNDERGROUND G FORKS 725,277 2,260,345 2,985,622 0 1997 N/A-CONST IN PROGRESS MAGIC CITY APTS MINOT 532,000 4,896,774 5,428,774 186,966 1997 12-40 YEARS MANDAN APTS MANDAN 20,000 269,671 289,671 58,649 1989 24-40 YEARS MEADOWS JMSTWN-INS CLAIM 0 1,334,976 1,334,976 0 1999 N/A-CONST IN PROGRESS MEADOWS JMSTWN-NEW CONST 167,325 452,685 620,010 0 1999 N/A-CONST IN PROGRESS MIRAMONT APTS FT COLLINS 1,470,000 12,815,175 14,285,175 801,792 1996 40 YEARS NEIGHBORHOOD APTS CO SPRING 1,033,592 10,063,591 11,097,183 640,191 1996 40 YEARS NORTH POINTE 49 BISMARCK 143,500 2,259,675 2,403,175 195,742 1995 24-40 YEARS OAK MANOR APTS DICKINSON 29,012 321,472 350,484 63,163 1989 24-40 YEARS OAKWOOD ESTS SIOUX FALLS 342,800 3,202,531 3,545,331 496,449 1993 24-40 YEARS OXBOW SIOUX FALLS 404,073 4,585,200 4,989,273 512,778 1994 24-40 YEARS PARK EAST APTS FARGO 83,000 4,868,327 4,951,327 142,292 1997 12-40 YEARS PARK MEADOWS WAITE PARK 1,143,450 9,997,564 11,141,014 645,662 1997 40 YEARS PARKWAY APTS BEULAH 11,816 110,242 122,058 17,555 1988 5-40 YEARS PINE CONE APTS FT COLLINS 904,545 12,312,375 13,216,920 1,226,183 1994 40 YEARS POINTE WEST APTS MINOT 240,000 3,717,341 3,957,341 498,446 1994 24-40 YEARS PRAIRIE WINDS APTS S FALLS 144,097 1,843,577 1,987,674 296,874 1993 24-40 YEARS ROCKY MEADOWS 96 BILLINGS 655,985 6,016,710 6,672,695 377,901 1996 40 YEARS ROSEWOOD/OAKWOOD S FALLS 200,000 1,747,935 1,947,935 108,851 1996 40 YEARS SOUTH POINTE MINOT 275,000 10,020,666 10,295,666 721,002 1995 24-40 YEARS SOUTHVIEW APTS MINOT 185,000 528,128 713,128 60,658 1994 24-40 YEARS SOUTHWIND APTS G FORKS 409,892 5,302,462 5,712,354 456,706 1996 24-40 YEARS SWEETWATER PROPERTIES 94,270 1,744,421 1,838,691 1,012,925 1972 5-40 YEARS VAN MALL WOODS VANCOUVER 600,000 5,434,347 6,034,347 73,671 1999 40 YEARS VIRGINIA APTS MINOT 37,600 193,563 231,163 68,508 1987 27 1/2-40 YEARS WEST STONEHILL ST. CLOUD 939,000 10,553,684 11,492,684 923,809 1995 40 YEARS WESTWOOD PARK BISMARCK 161,114 1,966,747 2,127,861 35,926 1999 40 YEARS WOODRIDGE APTS ROCHESTER 370,000 6,164,011 6,534,011 388,014 1996 40 YEARS -------------- -------------- --------------- --------------- $ 21,343,768 $207,231,208 $ 228,574,976 $ 19,002,784 -------------- -------------- --------------- --------------- -------------- -------------- --------------- ---------------
-27- INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES APRIL 30, 1999 Schedule XI REAL ESTATE AND ACCUMULATED DEPRECIATION
COST CAPITALIZATION INITIAL COST TO TRUST SUBSEQUENT TO ACQUISITION ---------------------------- ---------------------------- BUILDING & CARRYING OFFICE BUILDINGS ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COSTS - ---------------- ------------ ------------ ------------ ------------ ------------ 1ST AVENUE BUILDING $ 0 $ 30,000 $ 219,496 $ 589,341 $ 0 401 SOUTH MAIN MINOT 0 70,600 334,308 204,211 0 408 1ST ST SE MINOT 0 10,000 34,836 2,072 0 CREEKSIDE OFFICE BLDG BILLINGS 1,210,759 311,310 1,088,149 285,459 0 LESTER CHIROPRACTIC CLINIC 0 25,000 243,916 0 0 WALTERS 214 S MAIN MINOT 0 27,055 76,076 8,809 0 ------------ ------------ ------------ ------------ ------------ $ 1,210,759 $ 473,965 $ 1,966,781 $ 1,089,892 $ 0 ------------ ------------ ------------ ------------ ------------ COMMERCIAL - ---------- AMERICA'S BEST FURNITURE $ 3,453,722 $ 765,000 $ 4,874,576 $ 152,606 $ 0 AMERITRADE OMAHA, NE 6,150,000 326,500 7,873,500 83,977 0 ARROWHEAD SHOPPING CENTER 0 100,359 1,063,925 1,666,880 0 BARNES & NOBLE FARGO 2,032,279 540,000 2,752,012 0 0 BARNES & NOBLE OMAHA 2,201,636 600,000 3,099,101 0 0 CARMIKE THEATRE GRAND FORKS 1,945,022 183,515 2,225,585 69,569 67,068 COMPUTER CITY KENTWOOD, MI 1,456,644 225,000 1,888,574 0 0 CORNER C-STORE MINOT 869,944 195,000 999,432 5,910 0 EDGEWOOD VISTA BILLINGS 705,332 130,000 837,405 12,813 0 EDGEWOOD VISTA E. GRAND FORKS 605,008 25,000 874,821 0 0 EDGEWOOD VISTA MINOT 4,248,353 260,000 1,835,335 4,180,596 0 EDGEWOOD VISTA MISSOULA 609,135 108,900 853,528 0 0 EDGEWOOD VISTA SIOUX FALLS 707,751 130,000 838,366 6,373 0 GREAT PLAINS SOFTWARE FARGO 0 125,501 283,199 0 0 HUTCHINSON TECH S FALLS 3,177,752 244,800 4,029,426 154,800 0 LINDBERG BLDG EDEN PRAIRIE 1,178,965 198,000 1,154,404 103,385 0 MINOT PLAZA MINOT 0 50,000 452,898 6,181 0 PETCO FARGO 1,058,364 324,148 873,080 54,461 27,245 PIONEER SEED MOORHEAD 278,123 56,925 548,075 48,876 0 STONE CONTAINER FARGO 2,884,434 440,251 4,319,924 149,155 89,156 SUPERPUMPER CROOKSTON 0 13,125 214,153 201,499 0 SUPERPUMPER GRAND FORKS 0 80,000 405,007 0 0 SUPERPUMPER LANGDON 0 59,674 151,500 28,038 0 SUPERPUMPER SIDNEY 0 12,000 108,600 0 0 VIRO-MED EDEN PRAIRIE 3,120,000 666,000 4,160,310 37,324 0 WEDGEWOOD SWEETWATER, GA 1,500,840 334,346 2,475,655 1,161,878 0 ------------ ------------ ------------ ------------ ------------ $ 38,183,304 $ 6,194,044 $ 49,188,391 $ 8,124,321 $ 183,469 ------------ ------------ ------------ ------------ ------------ TOTALS $175,064,346 $ 26,908,616 $246,358,760 $ 21,285,903 $ 1,272,560 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-28- INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES APRIL 30, 1999 Schedule XI REAL ESTATE AND ACCUMULATED DEPRECIATION
LIFE IN WHICH BUILDINGS LATEST INCOME and ACCUMULATED DATE STATEMENT OFFICE BUILDINGS LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED IS COMPUTED - ---------------- ------------ ------------ ------------ ------------ -------- ------------- 1ST AVENUE BUILDING $ 67,710 $ 771,127 $ 838,837 $ 340,708 1981 33-40 YEARS 401 SOUTH MAIN MINOT 70,722 538,397 609,119 138,716 1987 24-40 YEARS 408 1ST STREET SE MINOT 10,016 36,892 46,908 23,918 1986 19-40 YEARS CREEKSIDE OFFICE BLDG 311,310 1,373,608 1,684,918 233,355 1992 40 YEARS LESTER CHIROPRACTIC 25,000 243,917 268,917 64,206 1988 40 YEARS WALTERS 214 S MAIN 27,829 84,110 111,939 76,556 1978 20-40 YEARS ------------ ------------ ------------ ------------ $ 512,587 $ 3,048,051 $ 3,560,638 $ 877,459 ------------ ------------ ------------ ------------ COMMERCIAL - ------------- AMERICA'S BEST 765,000 $ 5,027,182 $ 5,792,182 $ 672,263 1994 40 YEARS AMERITRADE OMAHA 326,500 7,957,477 8,283,977 8,289 1999 40 YEARS ARRWHD SHOPPING CTR 100,411 2,730,753 2,831,164 2,147,694 1973 15 1/2- 40 YEARS BARNES & NOBLE FARGO 540,000 2,752,012 3,292,012 309,601 1994 40 YEARS BARNES & NOBLE OMAHA 600,000 3,099,101 3,699,101 271,171 1995 40 YEARS CARMICKE THEATRE 183,516 2,362,221 2,545,737 265,687 1994 40 YEARS COMPUTER CITY 225,000 1,888,574 2,113,574 118,036 1996 40 YEARS CORNER C-STORE 195,000 1,001,342 1,196,342 21,904 1999 40 YEARS EDGEWD V BILLINGS 130,000 850,218 980,218 18,504 1999 40 YEARS EDGEWD V E G FORKS 630,608 269,213 899,821 39,175 1997 40 YEARS EDGEWD V MINOT 260,000 6,015,931 6,275,931 227,907 1997 40 YEARS EDGEWD V MISSOULA 108,900 853,528 962,428 53,346 1997 40 YEARS EDGEWD V SIOUX FALLS 130,000 844,739 974,739 18,437 1999 40 YEARS GT PLAINS SOFTWARE 125,501 283,199 408,700 0 1998 N/A-CONST IN PROGRESS HUTCHINSON TECH 244,800 4,184,226 4,429,026 672,223 1993 40 YEARS LINDBERG BLDG EDEN 198,000 1,257,789 1,455,789 226,447 1992 40 YEARS MINOT PLAZA 50,000 459,079 509,079 74,132 1993 40 YEARS PETCO FARGO 324,148 954,786 1,278,934 106,679 1994 40 YEARS PIONEER SEED MRHD 56,925 596,951 653,876 107,107 1992 40 YEARS STONE CONTAINER 440,251 4,558,235 4,998,486 396,231 1995 40 YEARS SPRPUMPER CROOKSTON 13,125 415,652 428,777 90,248 1988 40 YEARS SPRPUMPER G FORKS 80,000 405,007 485,007 86,064 1991 40 YEARS SPRPUMPER LANGDON 59,674 179,538 239,212 62,067 1987 31 1/2- 40 YEARS SPRPUMPER SIDNEY 12,000 108,600 120,600 17,648 1993 40 YEARS VIRO-MED EDEN PRAIRIE 666,000 4,197,634 4,863,634 21,787 1999 40 YEARS WEDGEWD SWEETWATER 334,346 3,637,533 3,971,879 199,509 1996 40 YEARS ------------ ------------ ------------ ------------ $ 6,799,705 $ 56,890,520 $ 63,690,225 $ 6,232,156 ------------ ------------ ------------ ------------ TOTALS $ 28,656,060 $267,169,779 $295,825,839 $ 26,112,399 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-29- INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES APRIL 30, 1999 Schedule XI REAL ESTATE AND ACCUMULATED DEPRECIATION Reconciliations of total real estate carrying value for the three years ending April 30, 1999, 1998 and 1997 are as follows:
1999 1998 1997 ------------ ------------ ------------ Balance at beginning of year $231,416,322 $191,884,509 $131,447,734 Additions during year - acquisitions 62,455,508 39,014,23 59,377,674 - improvements and other 4,780,853 1,463,878 635,791 ------------ ------------ ------------ $298,652,683 $232,687,071 $192,289,286 Deductions during year - cost of real estate sold (2,826,844) (1,270,749) (404,777) ------------ ------------ ------------ Balance at close of year $295,825,839 $231,416,322 $191,884,509 ------------ ------------ ------------ ------------ ------------ ------------
Reconciliations of accumulated depreciation for the three years ended April 30, 1999, 1998 and 1997 are as follows: 1999 1998 1997 ------------ ------------ ------------ Balance at beginning of year $ 21,516,129 $ 16,948,156 $ 13,551,571 Additions during year - provisions for depreciation 5,966,874 4,791,907 3,584,591 Deduction during year - accumulated depreciation on real estate sold (1,370,604) (223,934) (188,006) ------------ ------------ ------------ Balance at close of year $ 26,112,399 $ 21,516,129 $ 16,948,156 ------------ ------------ ------------ ------------ ------------ ------------
-30- INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES APRIL 30, 1999 Schedule XII INVESTMENTS IN MORTGAGE LOANS ON REAL ESTATE
Interest Final Maturity Payment Prior Rate Date Terms Liens ------------ -------------- ------------ ---------- Residential Higley Heights, Phoenix, AZ 8% 3-31-04 Quarterly - Great Plains Software, Fargo, ND 9.50% 1-1-99 Balloon Pmt - Rolland Hausman 9% 2-1-16 Monthly - Other - over $100,000 8-10.25% 11-1-02 to 6-1-07 Monthly - - less than $100,000 7-8.75% 12-1-00 to 1-1-04 Monthly - Total Less - Unearned discounts - Deferred gain from property dispositions - Allowance for loan losses
-31-
Principal Amount Face Carrying of Loans Subject to Amounts of Amounts of Delinquent Principal Mortgages Mortgages or Interest - ------------- ------------- -------------------- $ 809,786 $ 742,811 $ 742,811 15,000,000 9,185,758 0 315,659 294,968 0 517,325 387,895 0 113,970 109,782 0 - ------------- ------------- -------------------- $ 16,756,740 $ 10,721,214 $ 742,811 - ------------- -------------------- - ------------- -------------------- (1,898) (1,000) (120,314) ------------- $ 10,598,002 ------------- -------------
-32- Schedule XII (CONTINUED)
1999 1998 ------------ ------------ MORTGAGE LOANS RECEIVABLE, BEGINNING OF YEAR $ 3,438,308 $ 3,108,933 New participations in and advances on mortgage loans 7,655,061 2,061,179 ------------ ------------ $ 11,093,369 $ 5,170,112 Collections (372,155) (1,727,237) Write-off through allowance 0 (4,567) ------------ ------------ MORTGAGE LOANS RECEIVABLE, END OF YEAR $ 10,721,214 $ 3,438,308 ------------ ------------ ------------ ------------
-33- INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES SELECTED FINANCIAL DATA
1999 1998 1997 1996 1995 -------------- -------------- -------------- -------------- -------------- Consolidated Income Statement Data Revenue $ 39,927,262 $ 32,407,545 $ 23,833,981 $ 18,659,665 $ 13,801,123 Operating income 6,401,676 4,691,198 3,499,443 3,617,807 3,560,318 Gain on repossession/ Sale of properties 1,947,184 465,499 398,424 994,163 407,512 Minority interest of portion of Operating partnership income (744,725) (141,788) (18) 0 0 Net income 7,604,135 5,014,909 3,897,849 4,611,970 3,967,830 Consolidated Balance Sheet Data Total real estate investments $ 280,311,442 $ 213,211,369 $ 177,891,168 $ 122,377,909 $ 84,005,635 Total assets 291,493,311 224,718,514 186,993,943 131,355,638 94,616,744 Shareholders' equity 85,783,294 68,152,626 59,997,619 50,711,920 37,835,654 Consolidated Per Share Data (basic and diluted) Operating income $ .33 $ .29 $ .25 $ .30 $ .34 Gain on sale of properties .11 .03 .03 .08 .04 Dividends .47 .42 .39 .37 .34 Tax status of dividend Capital gain 6.3% 2.9% 21.0% 1.6% 11.0% Ordinary income 76.0% 97.1% 79.0% 98.4% 89.0% Return of capital 17.7% 0.0% 0.0% 0.0% 0.0%
-34- INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS APRIL 30, 1999, 1998 AND 1997 GAIN FROM PROPERTY DISPOSITIONS
Total Original Unrealized Realized Realized Realized Gain 4/30/99 4/30/99 4/30/98 4/30/97 ---------- ---------- ---------- ---------- ---------- Brooklyn Addition* $ 25,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 1302 South 19 1/2* 87,699 0 0 15,713 6,732 406 17th St. - Mandan* 233,522 0 0 0 138,629 Fairfeild Apts - Marshall 80,121 0 80,121 0 0 Superpumper - Emerado 158,146 0 158,146 0 0 Park Place Apts - Waseca 366,018 0 366,018 0 0 Bison Props. - Jamestown 1,341,899 0 1,341,899 0 0 Scottsbluff Estates 326,138 0 0 326,138 0 Superpumper - Bottineau 83,579 0 0 83,579 0 Superpumper - New Town 25,417 0 0 25,417 0 Other gains 13,652 0 0 13,652 0 Hutchinson, MN 252,063 0 0 0 252,063 ---------- ---------- ---------- ---------- $ 1,000 $1,947,184 $ 465,499 $ 398,424 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
* The gain from the sale of these properties is being realized based on the installment method. The amount of deferred gain realized was $1,000, $16,713 and $146,361 for the years ended April 30, 1999, 1998 and 1997, respectively. -35- INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES APRIL 30, 1999 MORTGAGE LOANS PAYABLE
Final Periodic Carrying Delinquent Interest Maturity Payment Face Amount Amount of Principal or Rate Date Terms of Mortgage Mortgage Interest ---------- ---------- ----------- -------------- -------------- ------------ 1112 32nd Ave SW Minot 8.50% 07/20/10 Monthly $ 425,000 $ 354,903 $ 0 177 10th Ave E, Dickinson ND 8.50% 11/01/18 Monthly 250,963 221,575 0 4301 9th Ave Sunchase I 9.04% 09/01/02 Monthly 364,765 116,019 0 4313 9th Ave Sunchase II 9.04% 02/01/14 Monthly 370,000 299,828 0 America's Best (FKA Smiths Home) 9.75% 03/29/03 Monthly 3,750,000 3,453,722 0 Ameritrade-Omaha, NE 7.25% 05/01/19 Monthly 6,150,000 6,150,000 0 Barnes & Noble Stores 7.98% 12/01/10 Monthly 4,900,000 4,233,915 0 Candlelight Apts 8.50% 12/01/99 Monthly 578,000 473,605 0 Carmike-Grand Forks 7.75% 02/01/07 Monthly 2,000,000 1,945,022 0 Castle Rock-Billings, MT 6.66% 03/01/09 Monthly 3,950,000 3,946,539 0 Century Apts - Dickinson 8.00625% 03/01/06 Monthly 1,595,000 1,481,672 0 Century Apts - Williston 8.00625% 03/01/06 Monthly 2,700,000 2,508,160 0 Chateau - Minot 8.00625% 03/01/06 Monthly 1,674,350 1,625,659 0 Clearwater-Boise, ID 6.47000% 01/01/09 Monthly 2,660,000 2,652,705 0 Cottonwood Phase I 6.59000% 01/01/09 Monthly 2,800,000 2,792,497 0 Country Meadows - Billings 7.51000% 01/01/08 Monthly 2,660,000 2,609,222 0 Creekside - Billings 8.35% 06/01/13 Monthly 1,250,000 1,210,759 0 Crestview Apts-Bismarck 8.69% 07/01/08 Monthly 3,400,000 3,360,790 0 COMPUSA 7.75% 02/01/01 Monthly 1,565,361 1,456,644 0 Corner Express-Minot 7.52% 10/01/13 Monthly 885,000 869,944 0 Edgewod Vista - Billings 7.13% 10/01/13 Monthly 720,000 705,332 0 Edgewood Vista - E Grand Forks 8.35% 07/05/12 Monthly 650,000 605,008 0 Edgewood Vista - Minot 8.27% 09/20/12 Monthly 4,510,000 4,248,353 0 Edgewood Vista - Missoula 9.75% 04/15/12 Monthly 647,500 609,135 0 Edgewood Vista - Sioux Falls 7.52% 07/01/13 Monthly 720,000 707,751 0 Forest Park Estates IDS 7.625% 05/01/03 Monthly 4,500,000 3,849,741 0 Heritage Manor-Rochester, MN 6.800% 10/01/18 Monthly 5,075,000 5,014,255 0 Hutchinson Technology 8.75% 08/01/08 Monthly 3,250,000 3,177,752 0 Ivy Club Apts. - Vancouver, WA 7.36% 12/01/01 Monthly 7,092,443 7,079,422 0 Jenner Properties, ND 9.50% 11/01/99 Monthly 1,391,585 1,298,052 0 Kirkwood Manor - Bismarck 9.05% Various Bond - semi 2,330,000 2,205,000 0 -36- MORTGAGE LOANS PAYABLE (CONTINUED) Interest Maturity Payment Face Amount Amount of Principal or Rate Date Terms of Mortgage Mortgage Interest ---------- ---------- ----------- -------------- -------------- ------------ Legacy Apts - Grand Forks - Phase I 7.070% 01/01/04 Monthly $ 4,000,000 $ 3,861,356 $ 0 Legacy Apts - Grand Forks - Phase II 7.070% 05/29/28 Monthly 2,575,000 2,542,717 0 Lindberg Bldg, Eden Prairie 7.625% 12/01/08 Monthly 1,200,000 1,178,965 0 Magic City Apts, Minot 8.50% 10/10/10 Monthly 2,794,192 2,546,829 0 Mandan Apts-312 12th 8.75% 08/01/99 Monthly 134,767 818 0 Miramont Apts 8.25% 08/01/36 Monthly 11,582,472 11,481,696 0 Neighborhood Apts-Colorado Springs 7.98% 12/20/06 Monthly 7,525,000 7,291,069 0 North Pointe - Bismarck 7.12% 08/01/15 Monthly 1,700,000 1,678,718 0 Oakwood Estates-Sioux Falls 8.00625% 03/01/06 Monthly 2,250,000 2,090,133 0 Oxbow Sioux Falls 8.00625% 03/01/06 Monthly 3,565,000 3,311,700 0 Park East, Fargo 6.82000% 04/06/08 Monthly 3,500,000 3,466,359 0 Park Meadows Phase I 8.50% 01/10/07 Monthly 2,600,000 2,469,369 0 Park Meadows Phase II 7.8990% 01/10/07 Monthly 2,214,851 2,134,105 0 Park Meadows Phase III 3.84% 30 yr bond Monthly 3,235,000 3,150,000 0 PETCO Warehouse 8.50% 12/01/10 Monthly 1,100,000 1,058,364 0 Pinecone Ft Collins 7.125% 12/01/34 Monthly 10,685,215 10,472,304 0 Pioneer Building - Fargo 8.375% 12/01/06 Monthly 425,000 278,123 0 Pointe West Apts 8.97% 01/01/04 Monthly 2,400,000 2,372,322 0 Prairie Winds Apts - Sioux Falls 7.67% 05/01/18 Monthly 1,470,000 1,307,534 0 Rocky Meadows - Billings 7.75% 08/01/16 Monthly 3,000,000 2,788,609 0 Rosewood Ct - Sioux Falls 7.975% 09/01/96 Monthly 1,323,000 1,243,428 0 South Pointe, Minot ND 7.12% 06/05/16 Monthly 6,500,000 6,418,627 0 Southwind Apts 7.12% 04/28/10 Monthly 4,100,000 4,048,673 0 Stone Container 8.25% 12/01/10 Monthly 3,300,000 2,884,434 0 Van Mall Woods-Vancouver, WA 6.86% 12/01/03 Monthly 4,070,426 4,031,894 0 Viro-Med-Eden Prairie, MN 6.98% 04/01/14 Monthly 3,120,000 3,120,000 0 Wedgewood Retirement 7.975% 04/23/17 Monthly 1,566,720 1,500,840 0 West Stonehill 7.93% 02/01/98 Monthly 8,232,569 7,799,243 0 Westwood Park 9.25% 03/01/11 Monthly 1,295,866 1,254,294 0 Woodridge-Rochester 7.85% 12/01/16 Monthly 4,410,000 4,177,096 0 Colton Heights 8.75% 06/01/07 Monthly 730,000 313,877 0 Grafton 24 Plex 9.75% 03/20/03 Monthly 270,000 68,670 0 Grafton 18 Plex 9.75% 03/20/03 Monthly 198,000 93,645 0 Hill Park Properties 8.00625% 03/01/06 Monthly 1,470,000 1,365,554 0 1516 N Bismarck 8.00% 08/01/99 Monthly 246,000 6,723 0 -------------- -------------- ------------ TOTALS $ 183,604,045 $ 175,071,069 $ 0 -------------- -------------- ------------ -------------- -------------- ------------
-37- INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES APRIL 30, 1999 SIGNIFICANT PROPERTY ACQUISITIONS Acquisitions for cash, assumptions of mortgages, and issuance of units in the operating partnership Commercial: Edgewood Vista - Sioux Falls, SD $ 965,000 Edgewood Vista - Billings, MT 965,000 Corner Express - Minot, ND 1,190,432 Viro-Med - Eden Prairie, MN 4,826,310 Ameritrade - Omaha, NE 8,283,977 -------------- $ 16,230,719 -------------- Apartments: Heritage Manor - Rochester, MN $ 7,371,208 Westwood Park Apartments - Bismarck, ND 2,025,455 Country Meadows Phase II - Billings, MT** 1,321,962 Clearwater Apts - Boise, ID 3,786,463 Legacy - Phase III - Grand Forks, ND** 2,260,345 Van Mall Woods - Vancouver, WA 6,021,312 Meadows - Jamestown, ND** 1,502,301 Castle Rock Apartments - Billings, MT 5,614,223 Cottonwood Lake - Bismarck, ND*** 4,645,444 Ivy Club Apartments - Vancouver, WA 11,676,076 -------------- $ 46,224,789 -------------- TOTAL $ 62,455,508 -------------- --------------
**Property not place in service at April 30, 1999. Additional costs are still to be incurred. ***Represents costs to complete a project started in year ending April 30, 1998. -38- INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES QUARTERLY RESULTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
QUARTER ENDED ------------------------------------------------------------ 7-31-98 10-31-98 1-31-99 4-30-99 ------------ ------------ ------------ ------------ Revenues $ 9,102,179 $ 9,836,370 $ 10,236,797 $ 10,751,916 Income before gains on sale of properties 1,327,851 1,760,067 1,732,928 1,580,830 Net gain on sale of properties 366,017 1,341,899 80,122 158,146 Minority interest of unitholders in operating partnership (133,863) (287,579) (158,820) (164,463) Net income 1,560,005 2,814,387 1,654,228 1,575,515 Per share (basic and diluted) Income before gains on sale of properties .07 .09 .09 .08 Net gain on sale of properties .02 .08 .00 .01 QUARTER ENDED ------------------------------------------------------------ 7-31-97 10-31-97 1-31-98 4-30-98 ------------ ------------ ------------ ------------ Revenues $ 7,183,761 $ 7,996,262 $ 8,440,393 $ 8,787,129 Income before gains on sale of properties 894,045 1,233,451 1,358,752 1,204,950 Net gain on sale of properties 36,096 83,579 326138 16,713 Minority interest of unitholders in operating partnership (9) (9,423) (64,006) (68,350) Net income 933,105 1,307,607 1,620,884 1,153,313 Per share (basic and diluted) Income before gains on sale of properties .06 .08 .08 .07 Net gain on sale of properties .00 .01 .02 .00 QUARTER ENDED ------------------------------------------------------------ 7-31-96 10-31-96 1-31-97 4-30-97 ------------ ------------ ------------ ------------ Revenues $ 4,966,475 $ 5,474,027 $ 6,383,030 $ 7,010,450 Income before gains on sale of properties 978,107 1,048,154 1,027,117 446,065 Net gain on sale of properties 252,062 0 138,629 7,733 Minority interest of unitholders in operating partnership 0 0 0 (18) Net income 1,230,169 1,048,154 1,165,746 453,780 Per share (basic and diluted) Income before gains on sale of properties .07 .08 .07 .03 Net gain on sale of properties .02 .00 .01 .00
The above financial information is unaudited. In the opinion of management, all adjustments (which are of a normal recurring nature) have been included for a fair presentation. -39- EX-27 2 EXHIBIT 27
5 YEAR APR-30-1999 MAY-01-1998 APR-30-1999 3,713,053 3,699,183 14,490,847 (123,212) 0 21,779,871 295,825,839 (26,112,399) 291,493,311 18,868,812 186,841,205 0 0 93,095,819 (7,312,525) 291,493,311 0 39,927,262 0 21,423,605 744,725 0 12,101,981 5,656,951 0 5,656,951 1,947,184 0 0 7,604,135 0 0
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