-----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, AZzrcuppxKTt3s98DoKE42IZflZGw+pnUf57TGcD6t+nJlR7m4jYQL1gSHLDvoro KN83gdd5BhaaxszPbeVfLA== 0000798359-97-000007.txt : 19970731 0000798359-97-000007.hdr.sgml : 19970731 ACCESSION NUMBER: 0000798359-97-000007 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970430 FILED AS OF DATE: 19970730 SROS: NONE 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: 1934 Act SEC FILE NUMBER: 000-14851 FILM NUMBER: 97648248 BUSINESS ADDRESS: STREET 1: 12 S MAIN CITY: MINOT STATE: ND ZIP: 58701 BUSINESS PHONE: 7018521756 MAIL ADDRESS: STREET 1: 12 S MAIN CITY: MINOT STATE: ND ZIP: 58701 10-K405 1 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, 1997 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 Not Listed ______________________ 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 $99,844,111 based on the last reported sale price on June 18, 1997. The number of shares outstanding as of June 18, 1997, was 15,082,192 Capital Shares of Beneficial Interest (no par value). Portions of the Trust's definitive proxy statement for the 1997 annual meeting of shareholders are incorporated by reference in Part III hereof. ___________________________________________________________ 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. . . . . . . . . . . . . . . 14 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . 14 PART II 5. Market for Registrant's Common Stock and Related Security Holder Matters. . . . . . . . 15 6. Selected Financial Data. . . . . . . . . . . . 15 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . 16 8. Financial Statements and Supplementary Data. . 26 9. Disagreements on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . 26 PART III 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . 27 11. Executive Compensation . . . . . . . . . . . . 28 12. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . 28 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . 28 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. . . . . . . . . . . . . . 28 Exhibit Index. . . . . . . . . . . . . . . . . 29 Signatures . . . . . . . . . . . . . . . . . . 31 Report of Independent Certified Public Accountants. . . . . . . . . . . . . . . . . . F-1 PART I ITEM 1. BUSINESS Investors Real Estate Trust (hereinafter "IRET"), an unincorporated business 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 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 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 will 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 will distribute cash on a quarterly basis in the amounts determined by the Trust which will result in each limited partner receiving the same dividends 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 within the confines of the State of North Dakota, although it has some real estate investments in the states of Minnesota, South Dakota, Nebraska, Montana, Colorado, Wisconsin, Idaho and Arizona. IRET is also the general partner of seven limited partnerships which own investment real estate. IRET, as the general partner and as a creditor of six of said limited partnerships, has a substantial influence over the operation of the partnerships. Thus, the financial statements of IRET and the six partnerships are consolidated for financial reporting purposes and all material intercompany transactions and balances have been eliminated. The six limited partnerships consolidated with IRET are: Eastgate Properties, Ltd. Bison Properties, Ltd. First Avenue Building, Ltd. Sweetwater Properties, Ltd. Hill Park Properties, Ltd. Colton Heights, Ltd. 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 consolidated with said six limited partnerships are as follows: Fiscal Year Ending 4/30 1997 1996 1995 REVENUE FROM OPERATIONS Real Estate Rentals $22,972,369 $17,635,297 $12,280,738 Interest, Discount & Fees 861,613 1,024,368 1,520,385 ___________ ___________ ___________ $23,833,982 $18,659,665 $13,801,123 EXPENSE $20,334,539 $15,041,858 $10,240,805 ___________ ___________ ___________ NET REAL ESTATE INVESTMENT INCOME $ 3,499,443 $ 3,617,807 $ 3,560,318 GAIN ON SALE OF INVESTMENTS (CAPITAL GAIN) 398,424 994,163 407,512 MINORITY INTEREST OF UNIT HOLDERS IN OPERATING PARTNERSHIP (18) 0 0 ___________ ___________ ___________ NET INCOME $ 3,897,849 $ 4,611,970 $ 3,967,830 =========== =========== =========== PER SHARE Net Income $ .28 $ .38 $ .38 Dividends Paid $ .39 $ .36 $ .35 As indicated above, IRET has two principal sources of operating revenue: rental income from real estate properties owned by the Trust and interest income from mortgages and contracts for deed secured by real estate. A minor amount of revenue is derived from interest on shortterm investments in government securities, interest on savings deposits and fees derived from serving as a general partner of certain limited partnerships. In addition to operating income, the Trust has received capital gain income when real estate properties have been 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 a graduate of the University of Texas, receiving his B.A. degree in 1947. He has been a resident of Minot, North Dakota 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 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. Mr. Wentz' principal occupation is the practice of law as a partner in the law firm of Pringle & Herigstad, P.C., counsel to the Trust, and he provides services to Odell-Wentz & Associates on a part time basis. 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. IRET owned the following properties as of April 30, 1997:
REAL ESTATE OWNED: Fiscal Mortgage 1997 Year Payable Size/Type Occupancy Purchased Cost Interest Rate APARTMENTS 1112 32ND AVE SW 18 Unit 96% 1996 $595,100 $395,737 Minot, ND Apt. Bldg. 8.50% 1305 BIRCH ST 24 Unit 89% 1988 $402,791 $116,968 Marshall, MN Apt. Bldg. 9.00% 177 10TH AVE E 41 Unit 80% 1989 $371,977 $230,341 Dickinson, ND Apt. Bldg 8.38% 312 12TH AVE NW 18 Unit 97% 1989 $261,812 $29,892 Mandan, ND Apt. Bldg. 8.75 405 GRANT AVE 12 Unit 85% 1991 $218,199 - Harvey, ND Apt. Bldg. 4301-4313 9TH AVE 2 18-unit 94% 1988 $1,006,879 $506,456 SW Apt. Bldgs. 8.67% Fargo, ND BEULAH CONDOS ND 22 Condo 78% 1983 $428,635 - Beaulah, ND Units CANDLELIGHT APTS 44 Units 98% 1993 $850,323 $519,133 Fargo, ND Apt. Bldg 8.50% CENTURY APTS 120 Unit 94% 1986 $1,816,942 $1,559,661 Dickinson, ND Apt Complex 7.69% CENTURY APTS 192 Unit 76% 1986 $3,660,482 $2,640,305 Williston, ND Apt Complex 7.69% CIRCLE FIFTY 49 Unit N/A Not $1,426,986 - - Billings, MT Apt Complex Completed COLUMBIA PARK 201 Unit N/A Not $676,836 - PHASE II Apt Complex Completed Grand Forks, ND COTTONWOOD LAKE 268 Unit N/A Not $1,055,862 - Bismarck, ND Apt Complex Completed CRESTVIEW APTS 152 Unit 95% 1994 $4,643,201 $2,748,588 Bismarck, ND Apt Bldg 8.38% FOREST PARK 270 Unit 91% 1993 $6,783,548 $4,127,732 ESTATES Apt Complex 7.50% Grand Forks, ND JENNER PROP. - 125 Units N/A Not $5,400 - UPREIT Apt Bldgs Completed LEGACY APTS 116 Unit 92% 1996 $6,946,811 $3,986,207 Grand Forks, ND Apt Complex 7.56% MIRAMONT APT 210 Unit 96% 1996 $14,235,460 $11,566,494 Ft. Collins, CO Apt Complex 8.25% NEIGHBORHOOD APT 192 Unit 90% 1996 $10,849,561 $7,501,027 Colorado Springs, Apt Complex 7.98% CO NORTH POINTE 49 49 Unit 99% 1995 $2,396,761 $1,345,937 Bismarck, ND Apt Bldg 8.05% OAK MANOR APTS 27 Unit 100% 1989 $290,726 $234,590 Dickinson, ND Apt Bldg 8.75% OAKWOOD ESTATES 160 Unit 83% 1993 $5,340,464 $3,506,545 Sioux Falls, SD Apt Complex 7.69% OXBOW 120 UNITS 120 Unit 100% 1994 $4,954,453 $3,486,180 Sioux Falls, SD Apt Complex 7.69% PARK MEADOWS APT 360 Unit 89% 1997 $10,242,747 $8,025,780 St. Cloud, MN Apt Complex 4.25% PARK PLACE 48 Unit 90% 1988 $810,820 - Waseca, MN Apt Bldg PARKWAY APTS 36 Unit 98% 1988 $93,730 - Beaulah, ND Apt Bldg PINE CONE APTS 195 Unit 88% 1994 $13,079,584 $10,591,870 Ft. Collins, CO Apt Complex 7.13% POINTE WEST APTS 90 Unit 93% 1994 $3,824,395 $2,284,864 Rapid City, SD Apt Complex 8.55% PRAIRIE WINDS APTS 48 Unit 98% 1993 $1,968,277 $1,363,526 Sioux Falls, SD Apt Bldg 7.76% ROCKY MEADOWS 98 Unit 95% 1996 $6,966,109 $2,950,765 Billings, MT Apt Complex 8.00% SCOTTSBLUFF 48 Unit 97% 1988 $707,592 - ESTATES Apt Bldg Scottsbluff, NE SOUTH POINTE 196 Unit 85% 1995 $10,138,043 $5,648,089 Minot, ND Apt Complex 8.36% SOUTHVIEW APTS 24 Unit 77% 1994 $668,749 - Minot, ND Apt Bldg SOUTHWIND APTS 164 Unit 85% 1996 $5,530,214 $3,589,435 Grand Forks, ND Apt Complex 8.74% VIRGINIA 15 Unit 88% 1987 $219,365 - APARTMENTS Apt Bldg Minot, ND WEST STONEHILL 313 Unit 93% 1995 $11,229,629 $8,119,358 St Cloud, MN Apt Complex 9.21% WOODRIDGE APTS 108 Unit 99% 1996 $6,398,096 $4,379,282 Rochester, MN Apt Complex 7.85% ____________ Total Residential $141,096,561 COMMERCIAL 401 SOUTH MAIN 9,200 sq. 86% 1987 $475,249 - Minot, ND ft. Commercial Bldg 408 1ST STREET SE Rental House 100% 1986 $46,873 - Minot, ND CREEKSIDE OFFICE Office Bldgs 100% 1992 $1,599,330 $912,165 BUILDING 8.35% Billings, MT LESTER 5,000 sq. 100% 1988 $268,917 - CHIROPRACTIC ft. CLINIC Clinic Bldg Bismarck, ND WALTERS 214 SO 3,500 sq. 100% 1978 $111,049 $10,086 MAIN ft. 9.00% Minot, ND Retail Bldg ARROWHEAD SHOPPING 80,000 sq. 95% 1973 $2,438,282 - CNTR ft. Minot, ND Shopping Center BARNES & NOBLE 30,000 sq. 100% 1994 $3,292,012 $2,229,880 Fargo, ND ft. 7.89% Retail/Wrhse. BARNES & NOBLE 30,000 sq. 100% 1995 $3,699,101 $2,415,703 Omaha, NB ft. 7.98% Retail/Whse. CARMICKE THEATRE 28,528 sq. 100% 1994 $2,545,737 $1,676,716 Grand Forks, ND ft. 8.65% 10 screen threatre COMPUTER CITY 16,080 sq. 100% 1996 $2,113,574 $1,534,724 Kentwood, MI ft. 7.75% Strip Shopping Cntr EDGEWOOD VISTA 10,314 sq. 10% 1997 $962,428 $647,500 Missoula, MT ft. 9.75% Assisted Living HUTCHINSON Manufacturing 100% 1993 $4,429,026 $2,349,413 TECHNOLOGY Plant 8.75% Sioux Falls, SD LINDBERG BUILDING Office/Whrse 100% 1992 $1,455,789 $813,700 Eden Prairie, MN 8.75% MINOT PLAZA 11,200 sq. 100% 1993 $505,237 - Minot, ND ft. Strip Shopping Cntr PETCO WAREHOUSE 18,000 sq. 100% 1994 $1,278,934 $802,327 Fargo, ND Retail/Whrse 8.50% PIONEER SEED Office/Whse. 100% 1992 $653,876 $326,808 Moorhead, MN 8.38% RETAIL WAREHOUSE 70,000 sq. 12% 1994 $5,639,576 $3,577,824 Boise, ID Retail/Whse. 9.75% STONE CONTAINER Manufacturing 100% 1995 $4,998,485 $3,153,155 Fargo, ND Plant 8.25% SUPERPUMPER Gas Station/ 100% 1989 $301,013 - Bottineau, ND Conven. Store SUPERPUMPER Gas Station/ 100% 1988 $428,777 - Crookston, MN Conven. Store SUPERPUMPER Gas Station/ 100% 1986 $297,064 - Emerado, ND Conven. Store SUPERPUMPER Gas Station/ 100% 1991 $485,007 - Grand Forks, ND Conven. Store SUPERPUMPER Gas Station/ 100% 1987 $239,212 - Langdon, ND Conven. Store SUPERPUMPER Gas Station/ 100% 1992 $250,000 - New Town, ND Conven. Store SUPERPUMPER Gas Station/ 100% 1993 $120,600 - Sidney, MT Conven. Store WEDGEWOOD Assisted 100% 1996 $2,810,000 $1,566,720 RETIREMENT Living Cntr 8.38% Sweetwater, GA ___________ Total Commercial $41,445,148 Consolidated Partnerships: SWEETWATER 114 Unit 85% 1972 $1,580,766 $224,267 PROPERTIES Apt Bldgs 9.75% Devils Lake & Grafton, ND BISON PROPERTIES 125 Apt 88% 1972 $1,579,626 $114,153 Jamestown, Units 10.00% Carrington & Cooperstown, ND 1ST AVENUE 16,500 sq. 66% 1981 $795,948 - BUILDING ft. Minot, ND Office Bldg. EASTGATE 116 Unit 69% 1970 $1,746,072 - PROPERTIES Apt Complex Moorhead, MN COLTON HEIGHTS 18 Unit 84% 1984 $817,040 $361,356 PROPERTIES, Apt Bldg 8.75% Minot, ND HILL PARK 92 Unit 90% 1985 $2,823,348 $1,427,430 PROPERTIES Apt Complex 7.69% Bismarck, ND ____________ Total Partnerships $9,342,800 __________________________ Total Real Estate Owned $191,884,509 $115,608,689 Less: Accumulated Depreciation (16,948,156) ------------ Net Carrying Value $174,936,353 ============
- 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). - 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, 1997, IRET had not entered into any contracts or options to sell any of the above properties. - OCCUPANCY AND LEASES. Occupancy rates shown above are for the fiscal year ended April 30, 1997. 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. The tenant occupying the retail warehouse in Boise, Idaho, declared bankruptcy in 1996. The lease has been terminated and the Trust is seeking a new tenant.
MORTGAGE LOANS RECEIVABLE - UNRELATED: Real Estate 4/30/97 Location Security Balance Rate BILLINGS, MT Colton Heights Apts.-144 Units $ 193,657 9% DENVER, CO Writer Corp. Residential Lots 78,471 14% Centrebrooke Homes Residential Lots 103,127 12% GILBERT, AZ NE-27-2-6 Commercial Land 669,048 8% DOUGLAS, GA Sweetwater Springs Retirement Center 983,737 9% OTHER MORTGAGES Over $100,000 $ 860,368 8-10 1/4% $50,000 to $99,999 0 $20,000 to $49,999 215,322 8-12% Less than $20,000 5,203 7% ----------- TOTAL $ 3,108,933 Unearned Discounts (10,524) Allowance for Losses (124,881) Deferred Gain (18,713) ----------- $ 2,954,815 =========== SUMMARY OF REAL ESTATE INVESTMENT PORTFOLIO REAL ESTATE INVESTMENTS: Real Estate Owned $191,884,509 Less Depreciation Reserve (16,948,156) $174,936,353 94% Mortgage Loans 3,108,933 Less unearned discounts and interest (10,524) Less allowance for losses (124,881) Less deferred gain (18,713) 2,954,815 1% ------------ Total Real Estate Investments $177,891,168 ============ OTHER ASSETS: Cash and marketable securities $ 6,457,182 Deposits and accruals 2,645,593 Total Other Assets $ 9,102,775 5% ------------ TOTAL ASSETS $186,993,943 100% ============ 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 21, 1996 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 The shares of Beneficial Interest of IRET are offered for sale by Inland National Securities, Inc., 21 South Main, Minot, ND 58701, American Investment Services, Incorporated, 600 High Point Lane, E. Peoria, IL 61611, Garry Pierce Financial Services, 2910 E. Broadway Ave., Ste. 33, Bismarck, ND 58501, Huntingdon Securities Corporation, 216 S. Broadway, Minot, ND 58701 and Primevest Financial Services, Inc., 400 1st Street S., Ste. 300, St. Cloud, MN 56301. The current asked price is $7.20 per share. Shares are re- purchased by IRET at 92% of the current asked price ($6.62) subject to the following limitation: $100,000 per shareholder and a cumulative limit of $600,000, increased by the sales of shares by the selling brokers on a dollar for dollar basis. Set forth below, by quarter-year, are the total number of IRET shares traded, the high and low reported sales prices and the per share dividend paid for the past three years:
Calendar No. of Bid Asked Per Share Year Months Shares Sold Low High Low High Dividend - -------- -------------- ----------- ------------- ------------- --------- 1994 July-September 134,529 5.37 5.63 6.10 6.25 .088 1994 October-December 335,518 5.63 5.89 6.25 6.40 .084 1995 January-March 210,106 5.89 5.89 6.40 6.40 .085 1995 April-June 137,766 5.89 6.03 6.40 6.55 .0862 1995 July-September 452,665 6.03 6.16 6.55 6.70 .0925 1995 October-December 466,447 6.16 6.16 6.70 6.70 .08875 1996 January-March 451,383 6.16 6.30 6.70 6.85 .09 1996 April-June 551,418 6.30 6.30 6.85 6.85 .09125 1996 July-September 254,041 6.30 6.30 6.85 7.00 .0925 1996 October-December 259,672 6.30 6.44 7.00 7.00 .095 1997 January-March 353,479 6.44 6.62 7.00 7.20 .0975 1997 April-June 244,520 6.62 6.62 7.20 7.20 .10
As of May 31, 1997, IRET had 3,075 shareholders. No shareholder held more than 5% of the 14,997,591 shares outstanding and there were no warrants or stock options outstanding. Dividends are paid on January 5, April 1, July 1, and October 1 of each year. ITEM 6. SELECTED FINANCIAL DATA Year Ended April 30 -------------------------------------------------------------------- 1997 1996 1995 1994 1993 (Restated) (Restated) Consolidated Income Statement Data Revenue $ 23,833,982 $ 18,659,665 $13,801,123 $11,583,008 $ 8,316,643 Operating Income 3,499,443 3,617,807 3,560,318 3,135,426 2,231,092 Gain on repossession/ sale of investments 398,424 994,163 407,512 64,962 132,610 Minority interest of unitholders in operating partner- ship (18) 0 0 0 0 Net Income 3,897,849 4,611,970 3,967,830 3,200,388 2,363,702 Balance Sheet Data Total real estate investments $177,891,168 $122,377,909 $84,005,635 $64,089,476 $50,041,059 Total assets 186,993,943 131,355,638 94,616,744 72,391,548 54,658,569 Shareholders' equity 59,997,619 50,711,920 37,835,654 29,997,189 23,745,443 Consolidated Per Share Data Net income $ .25 $ .38 $ .38 $ .36 $ .29 Gain on repossession/ sale of investments .03 .08 .04 .01 .01 Dividends .39 .36 .35 .33 .32 Tax status of dividend capital gain 21.0% 1.6% 11.0% 7.37% 4.08% Ordinary income 79.0% 98.4% 89.0% 92.63% 74.04% Return of capital 0.0% 0.0% 0.0% 0.00% 21.88%
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. IRET is in the business of owning income producing real estate investments. On February 1, 1997, IRET re-structured itself as an Umbrella Partnership Real Estate Investment Trust (UPREIT). No other major change in IRET's business has occurred from the organization of the Trust in 1970 to the date of this filing, and none are planned at this time. RESULTS OF OPERATIONS: FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996. IRET's Fiscal Year 1997, which ended on April 30, 1997, saw a continuation of IRET's rapid growth with assets owned increasing by more than 40%. IRET's 27th year ended with total assets, revenues, funds from operations and shareholder equity all reaching record levels. FUNDS FROM OPERATIONS. Funds from Operations (taxable income increased by non-cash deductions of depreciation and amortization, and reduced by capital gain income and other extraordinary income items) for Fiscal 1997 increased to $7,144,622 ($.51 per share), compared to $5,977,431 ($.49 per share) generated by IRET in Fiscal 1996 and the $5,434,244 ($.52 per share) recognized in Fiscal 1995. EARNINGS. IRET's net taxable earnings for Fiscal Year 1997 decreased to $3,897,849 from the $4,611,970 earned in Fiscal 1996 and the $3,967,830 earned in Fiscal 1995. Approximately one-half of the decrease in earnings from the Fiscal 1996 level resulted from a decrease in capital gain income. In Fiscal 1997, $398,424 of capital gain income was recorded, as compared to $994,163 in the prior year. The other principle reason for the decline in taxable income is the continuing acquisition by IRET of new real estate investments which result in an increase in depreciation allowance. In Fiscal 1997, $3,584,591 of depreciation was recorded as compared to $2,261,724 in the prior year. This will result in a significant portion of IRET's dividends being sheltered from income tax by the increased depreciation allowance. On a per share basis, net taxable income was $.28 per share for Fiscal 1997, compared to $.38 per share recorded in both Fiscal 1996 and 1995. REVENUES. Total revenues for Fiscal 1997 were $23,833,982, compared to $18,659,665 in Fiscal 1996 (an increase of 28%) and $13,801,123 in Fiscal 1995. The increase in revenues received during Fiscal 1997 in excess of the prior year revenues was $5,174,317. This increase resulted from: Rent from 11 properties acquired in Fiscal 1997 $4,451,266 Rent from 7 properties acquired in Fiscal 1996 in excess of that received in Fiscal 1996 1,526,453 A decrease in rental income on existing properties (-5.4%) (625,949) An increase in rent on Smith Home Furnishing Building (bankruptcy of tenant) 61,892 A decrease in rent - properties sold during 1996 (76,590) A decrease in interest income (162,755) --------- $5,174,317 This increase in revenue resulted primarily from the addition of new real estate properties to the portfolio. Rents received on properties owned prior to the beginning of Fiscal Year 1996 saw an increase in scheduled rents of 2.25%, but the occupancy level for those properties decreased from approximately 95% to slightly over 90% resulting in a decrease in rental income from those properties of $625,949. However, the new properties acquired during Fiscal Years 1996 and 1997 generated nearly $6,000,000 of new revenues. Interest income continued to decline as IRET completes the repositioning of its investment portfolio from a mix of real estate equities and mortgage loans to one consisting entirely of real estate equities. Management is of the opinion that the long term yields from real estate equity investments will exceed that available from interest income on mortgage loans but, in the short run, the switch does result in lower immediate revenues and taxable income. Capital gain income for Fiscal 1997 was $398,424 resulting from the sale of two older and smaller investment properties. This compares to $994,163 of capital gain income recognized in Fiscal 1996 and the $407,512 recognized in Fiscal 1995. IRET will continue to seek to market several of its older and smaller apartment properties. NET TAXABLE INCOME. The $714,121 decrease in net taxable income for Fiscal 1997 over the net income earned in the prior fiscal year resulted from: A decrease in gain from sale of investments $ (595,739) An increase in net rental income (rents, less utilities, maintenance, taxes, insurance and management) 3,518,152 A decrease in interest income (162,755) An increase in interest expense (2,091,037) An increase in depreciation expense (1,322,867) An increase in operating expenses and advisory trustee services (97,169) A decrease in amortization expense 37,312 An increase in Minority interest of Operating Partnership Income (18) ----------- $ (714,121) PROPERTY ACQUISITIONS. IRET added nearly $60,000,000 of real estate to its portfolio during Fiscal 1997, including: COMMERCIAL: Computer City, Kentwood, MI $ 2,113,574 Edgewood Vista, Missoula, MT 962,428 Wedgwood Retirement Inns, Sweetwater, GA 2,810,000 UNITS APARTMENTS 67 Circle 50, Billings, MT* $ 1,519,855 98 South Pointe II, Minot, ND** 1,024,234 60 Rosewood Court, Sioux Falls, SD 1,938,245 116 Legacy Apts., Grand Forks, ND** 3,573,057 98 Rocky Meadows, Billings, MT** 2,654,554 210 Miramont Apts., Fort Collins, CO 14,235,461 192 Neighborhood Apts., Colorado Springs, CO 10,849,561 108 Woodridge Apts., Rochester, MN 6,398,096 67 Cottonwood Lake, Bismarck, ND* 1,055,862 360 Park Meadows Apts., St. Cloud, MN 10,242,747 ----------- Total $59,377,674 *Property not placed in service at April 30, 1997. Additional costs are still to be incurred. **Represents costs to complete a project started in year ending April 30, 1996. PROPERTY DISPOSITIONS. During Fiscal 1997, IRET sold a 24 plex apartment building in Hutchinson, MN, realizing a gain of $252,000. It also recognized a gain of $138,600 from the previous sale of an 18 plex apartment building in Mandan, ND. It is management's intention to continue to market IRET's older and smaller apartment projects. FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995. This comparative report is reproduced as it was submitted for Fiscal Year 1996. IRET's Fiscal Year 1996, which ended on April 30, 1996, produced very favorable results, including a substantial increase in IRET's investment portfolio and satisfactory increases in earnings and funds from operations. EARNINGS. IRET's net taxable earnings for Fiscal Year 1996 increased to $4,611,970, compared to $3,967,830 earned in Fiscal 1995 and $3,200,388 earned in Fiscal 1994. Fiscal 1996 taxable income includes $994,163 of capital gain income from the sale of assets from the investment portfolio, compared to $407,512 of capital gain income in Fiscal 1995 and $64,962 of capital gain income in Fiscal 1994. On a per share basis, net taxable income was $.38 per share for Fiscal 1996, the same as earned in Fiscal 1995. Per share taxable income in Fiscal 1994 was $.36 per share. As noted in prior reports, as IRET repositions its investment portfolio by replacing high yielding mortgage loans with equity investments in real estate properties, taxable earnings are depressed. FUNDS FROM OPERATIONS. Funds from operations (taxable income increased by non-cash deductions of depreciation and amortization, and reduced by capital gain income and other extraordinary income items) for Fiscal 1996 increased to $5,977,431 ($.49 per share) from the $5,434,244 ($.52 per share) generated in Fiscal 1995 and the $4,607,708 ($.52 per share) generated in Fiscal 1994. REVENUES. Total revenues for Fiscal 1996 were $18,659,665, compared to $13,801,123 in Fiscal 1995 and $11,583,008 in Fiscal 1994. The increase in revenues received during Fiscal 1996 in excess of Fiscal 1995 revenues was $4,858,542. This increase resulted from: Rent from 6 properties acquired in Fiscal 1996 $3,272,078 Rent from 6 properties acquired in Fiscal 1995 in excess of that received in Fiscal 1994 2,094,922 An increase in rental rates on existing properties (2.5%) 259,084 A decrease in rent on Smith Home Furnishing Building (bankruptcy of tenant) (348,310) A decrease in rent - properties sold during 1996 (178,888) A decrease in interest income (240,344) ---------- $4,858,542 The increase in revenue during Fiscal Year 1996 resulted primarily from the addition of new real estate properties to the portfolio. Rents received on properties acquired prior to the beginning of Fiscal 1995 increased by 2.5%. Overall occupancy was stable at 95%. The decline in operating income per share (from $.35 per share in Fiscal 1994, to $.34 in 1995 and $.30 in 1996) reflects the continuing repositioning of the investment portfolio from a mix of real estate equities and mortgage loans to one consisting entirely of real estate equities. The income on the mortgage loans made by the Trust was immediately reflected in operating income. Many of these mortgage loans earned interest at 14% per annum and several produced additional participation income. These mortgages have now been largely paid off and have been replaced with equity investments in apartments and triple net leased commercial property. The initial operating and taxable income on the equity investments is lower than what was being earned on the mortgage loans, but management is of the opinion that these new investments will produce very satisfactory investment returns in the years ahead. Capital gain income, on the other hand, has been increasing ($.01 per share in Fiscal 1994 compared to $.04 per share in Fiscal 1995 and $.08 per share in Fiscal 1996). IRET is marketing its older and smaller apartment investments and will continue to reposition its portfolio into newer and larger properties. The $644,140 increase in net income for Fiscal 1996 over the net income earned in the prior fiscal year resulted from: An increase in gain from sale of investments $ 586,651 An increase in net rental income (rents, less utilities, maintenance, taxes, insurance and management) 3,193,087 A decrease in interest income (496,017) An increase in interest expense (2,063,429) An increase in depreciation expense (494,430) A decrease in bad debt expense 200,000 An increase in operating expenses and advisory trustee services (204,481) An increase in amortization expense (77,241) ----------- $ 644,140 =========== PROPERTY ACQUISITIONS. IRET acquired over $40,000,000 of new properties during Fiscal 1996. They were: COMMERCIAL: Cost - Barnes & Noble Superbookstore, Omaha, NE (15 year net lease) $ 3,627,206** - Stone Container Manufacturing Plant, Fargo, ND $ 4,042,217** APARTMENTS: - 96 units, Billings, MT $ 3,727,440* - 49 units, North Pointe, Bismarck, ND $ 927,450** - 98 units, South Pointe, Phase I, Minot, ND $ 2,727,085** - 313 units, West Stonehill, St. Cloud, MN $10,765,830** - 18 units, Minot, ND $ 593,147 - 49 units, Grand Forks, ND $ 3,373,754* - 164 units, South Winds, Grand Forks, ND $ 5,433,683 - 98 units, South Pointe II, Minot, ND $ 4,290,061* - 49 units, Circle 50, Billings, MT $ 491,247* - 67 units, Columbia Park II, Grand Forks, ND $ 661,855* ----------- $40,660,975 =========== *Property not placed in service at April 30, 1996. Additional costs are still to be incurred. **Represents costs to complete a project started in the year ending April 30, 1995. PROPERTY DISPOSITIONS: During Fiscal 1996, IRET sold several older and smaller apartment buildings. In addition, a contract for deed receivable from Chateau Properties, Ltd., was paid in full, resulting in the recognition of deferred capital gain. The total gain recognized from the sale of properties (both current and deferred) was $994,163 for Fiscal 1996, compared to $407,512 in Fiscal 1995, and $64,962 in Fiscal 1994. It is management's intention to continue to market IRET's older and smaller apartment projects. DIVIDENDS. The following dividends were paid during Fiscal 1997: Date Per Share Dividend ---- ------------------ July 1, 1996 $.0975* October 1, 1996 $.095 January 8, 1997 $.0975 April 1, 1997 $.1000 ------ $.39 * Includes $.005 special dividend. FUNDS FROM OPERATIONS. The funds derived during Fiscal 1997 by the Trust from its operations increased by 20% over the prior year and by 34% from the Fiscal 1995 level ($7,144,622 in Fiscal 1997, versus $5,977,431 in 1996 and $5,348,271 in 1995). (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, 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):
Fiscal Fiscal Fiscal Fiscal Fiscal Item 1997 1996 1995(Restated) 1994(Restated) 1993 Net Income (GAAP) $3,897,849 $4,611,970 $3,967,830 $3,200,388 $2,363,702 Adjustments Gain from Property Sales (398,424) (994,163) (407,512) (64,962) (132,610) Minority Int. in Operating Prtnshp. 18 ---------- ---------- ---------- ---------- ---------- Operating Income $3,499,443 $3,617,807 $3,560,318 $3,135,426 $2,231,092 Plus Depreciation 3,584,591 2,261,724 1,767,294 1,323,474 1,051,370 Plus Amortization 60,588 97,900 20,659 28,199 16,364 ---------- ---------- ---------- ---------- ---------- Funds from Operations $7,144,622 $5,977,431 $5,348,271 $4,487,099 $3,298,826 Dividends Paid $5,508,689 $4,439,034 $3,660,986 $3,102,061 $2,633,799 ---------- ---------- ---------- ---------- ---------- $1,635,933 $1,538,397 $1,687,285 $1,385,038 $ 665,027
Management expects that the Funds From Operations (as defined above) will continue to improve during Fiscal 1998 and will continue to exceed dividends paid in the coming year. LIQUIDITY AND CAPITAL RESOURCES. IRET's financial condition at the end of Fiscal 1997 continued at the very strong level of its prior fiscal year. - Equity capital increased to $59,997,619 from $50,711,920 on April 30, 1996, a gain of $9,285,699 (18%). Equity capital on April 30, 1995, was $37,835,654. These increases result from the sale of shares of beneficial interest and the reinvestment of dividends in new shares. - Liabilities increased to $126,995,322 from $80,643,718 on April 30, 1996, and $56,781,090 on April 30, 1995. - Total assets increased to $186,993,943 from $131,355,638 on April 30, 1996, and $94,616,744 on April 30, 1995. - Cash and marketable securities were $6,457,182 compared to the year earlier figure of $7,127,131, and $9,595,254 on April 30, 1995. - In addition to its cash and marketable securities, IRET has unsecured line of credit agreements with First American Bank West, First International Bank & Trust and First Western Bank & Trust, all of Minot, North Dakota, of $9,500,000, none of which was in use on April 30, 1997. AFFILIATED PARTNERSHIPS. IRET has sponsored and serves as a general partner of seven limited partnerships. Because of IRET's position as a general partner and creditor of these partnerships and because the partnerships (with the exception of Chateau Properties) did not produce sufficient cash flow to pay debts due to IRET as scheduled prior to Fiscal Year 1996, the financial statements of IRET and the seven partnerships were consolidated for financial reporting purposes to more properly depict the financial status of IRET. (It is emphasized that the consolidation of the financial reports does not change the legal relationship between IRET and the partnerships, nor the income tax reporting by IRET or the partnerships.) During Fiscal Year 1996, a new mortgage loan was negotiated by Chateau Properties, Ltd., on its 64-unit apartment building in Minot, North Dakota. As a result of this refinancing, the partnership paid the balance that it owed to IRET on the contract for deed under which the apartment building had been purchased from IRET. Further, IRET was not required to guarantee the new mortgage loan made by the partnership. Accordingly, for Fiscal 1996 and 1997, IRET is accounting for its partnership interest in Chateau Properties under the equity method of accounting. Prior financial statements included in the audited financial statement and this report have been restated to reflect this change. The seven affiliated partnerships are as follows:
Year Property IRET Name Formed Owned Ownership - ------------------------------------------------------------------------------- Chateau Properties, 1979 64 Unit 26.7% Ltd. Apt. Bldg. Sweetwater Properties, 1981 114 Units 0% Ltd. Apts. Bison Properties, 1982 125 Units 20% Ltd. Apts. First Avenue Building 1981 16,500 sq. ft. 20% Ltd. Office Bldg. Eastgate Properties, 1983 116 Units 18% Ltd. Apts. Colton Heights, Ltd. 1984 18 Unit 18.69% Apt. Bldg. Hill Park Properties, 1985 96 Units 7.14% Ltd. Apts.
CONSOLIDATED FINANCIAL STATEMENTS. The financial statement included in this Form 10-K405 consolidates the financial statements of IRET and six of the above seven limited partnerships (Chateau Properties is excluded.) All material inter-company transactions and balances have been eliminated on the consolidated statement. The principal impact of this consolidation on the statement of operations is to reduce reported income as a result of increased depreciation. On the balance sheet, related mortgage loans and the investment in partnerships is reduced and real estate owned is increased. Also, the deferred income account is decreased and the retained earnings account is also decreased. 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 1997 saw generally normal economic conditions in the northern plains states in which IRET operates. Occupancy rates for residential properties declined to 90.5% and scheduled rent levels for Trust properties improved only slightly in Fiscal 1997 (2.25%). The severe winter of 1996-97 also impacted earnings by increasing snow removal and utility expenses and vacancy rates. 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, 1997, were:
Name, Age Business Experience During Year Position and Position Past Five Years Commenced - ------------ --------------- --------- *C. Morris Anderson President of North Hill Bowl, Inc.; 1970 Age 68 Director of Dakota Boys Ranch (25 yrs.); Trustee Director of International Inn, Inc. and Norwest Bank - Minot, N.A. and a Partner in Magic City Realty, Ltd. *Ralph A. Christensen Retired rancher; former 1970 Age 68 Director of First Bank - Minot, N.A. Trustee and Chairman Chairman of IRET. *John D. Decker Investor 1970 Age 80 Trustee *Mike F. Dolan Investor; Vice-Chairman of IRET. 1978 Age 86 Trustee & Vice-Chairman *J. Norman Ellison, Jr. Businessman; Managing Partner of 1970 Age 74 Ellison Realty Co.; Former Director Trustee of First Bank - Minot, N.A. *Daniel L. Feist Realtor; Broker; Real Estate Developer; 1985 Age 65 Builder; General Contractor; President - Trustee Owner Feist Construction & Realty; Investor; Businessman, former Director of First Bank System - Minot, N.A.; Director N.D. Holdings, Inc. - Minot. *Patrick G. Jones Investor 1986 Age 49 Trustee *Jeff L. Miller Investor; Businessman; President of 1985 Age 53 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; Partner in 1970 Age 71 Odell-Wentz & Associates (Advisor to Trustee, President IRET); Director of Investors Management and Advisor & Marketing, Inc. and Inland National Securities, Inc.; Partner in Magic City Realty, Ltd. Thomas A. Wentz, Jr. Attorney, Pringle & Herigstad, P.C.; 1996 Age 31 General Partner of WENCO, a North Dakota Trustee Limited Partnership. Timothy P. Mihalick Realtor; Operations Manager of 1988 Age 38 Odell-Wentz & Associates (Advisor to Secretary the Trust); Secretary of 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 19, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of May 31, 1997, 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 8.76% 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 1997 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 19, 1997. 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: 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 19, 1997 4. Exhibits See the following list of exhibits. (b) Reports on Form 8-K - None filed. (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, 1997. 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) Restated Declaration of Trust of Investors Real Estate Trust, dated October 24, 1996, and filed as Exhibit 3(i) 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. 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. 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 25, 1997 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 25, 1997 Roger R. Odell Principal Executive Officer /s/ Thomas A. Wentz, Sr. ___________________________ Vice-President July 25, 1997 Thomas A. Wentz, Sr. ___________________________ Trustee and Chairman July ___, 1997 Ralph A. Christensen /s/ Mike F. Dolan ___________________________ Trustee and Vice-Chairman July 28, 1997 Mike F. Dolan /s/ Jeff L. Miller ___________________________ Trustee and Vice-Chairman July 28, 1997 Jeff L. Miller /s/ C. Morris Anderson ___________________________ Trustee July 28, 1997 C. Morris Anderson /s/ J. Norman Ellison, Jr. ___________________________ Trustee July 29, 1997 J. Norman Ellison, Jr. /s/ Daniel L. Feist ___________________________ Trustee July 28, 1997 Daniel L. Feist /s/ Patrick G. Jones ___________________________ Trustee July 25, 1997 Patrick G. Jones /s/ John D. Decker ___________________________ Trustee July 28, 1997 John D. Decker /s/ Thomas A. Wentz, Jr. ___________________________ Trustee July 25, 1997 Thomas A. Wentz, Jr. /s/ Timothy P. Mihalick ___________________________ Secretary July 29, 1997 Timothy P. Mihalick
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES MINOT, NORTH DAKOTA CONSOLIDATED FINANCIAL STATEMENTS AS OF APRIL 30, 1997 AND 1996 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 8-18 ADDITIONAL INFORMATION Independent Auditor's Report on Additional Information 19 Marketable Securities 20 Noncurrent Indebtedness of Related Parties - Mortgage Loans Receivable 21 Supplemental Income Statement Information 22 Real Estate and Accumulated Depreciation 23-27 Investments in Mortgage Loans on Real Estate 28-29 Selected Financial Data 30 Gain from Property Dispositions 31 Mortgage Loans 32-33 Significant Property Acquisitions 34 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) 35 INDEPENDENT AUDITOR'S REPORT Board of Trustees Investors 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, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended April 30, 1997, 1996 and 1995. 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 for 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, 1997 and 1996, and the consolidated results of its operations and cash flows for the years ended April 30, 1997, 1996 and 1995, in conformity with generally accepted accounting principles. BRADY, MARTZ & ASSOCIATES, P.C. May 23, 1997 INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS APRIL 30, 1997 AND 1996 ASSETS 1997 1996 ---- ---- REAL ESTATE INVESTMENTS Property owned $ 191,884,509 $ 131,447,734 Less accumulated depreciation (16,948,156) (13,551,571) $ 174,936,353 $ 117,896,163 Mortgage loans receivable 3,108,933 4,932,138 Less- unearned discounts and deferred interest (10,524) (18,222) - deferred gain from property dispositions (18,713) (165,074) - allowance for loan losses (124,881) (267,096) Total real estate investments $ 177,891,168 $ 122,377,909 OTHER ASSETS Cash 1,718,257 2,715,274 Marketable securities - held-to-maturity 4,055,459 4,411,857 Marketable securities - available-for- sale 683,466 - Accounts receivable 332,814 30,269 Real estate deposits 100,000 - Investment in partnership 78,469 85,576 Prepaid insurance 248,377 128,541 Tax and insurance escrow 1,250,469 1,151,527 Deferred charges 635,464 454,685 ------------- ------------- TOTAL ASSETS $ 186,993,943 $ 131,355,638 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996 ---- ---- LIABILITIES Accounts payable and accrued expenses $ 3,073,071 $ 3,142,190 Mortgages payable 115,734,946 71,699,059 Investment certificates issued 8,187,305 5,802,469 ------------ ------------ Total liabilities $126,995,322 $ 80,643,718 ============ ============ MINORITY INTEREST OF UNITHOLDERS IN OPERATING PARTNERSHIP $ 1,002 $ - ------------ ------------ SHAREHOLDERS' EQUITY Shares of beneficial interest (unlimited authorization, no par value, 14,940,513 shares outstanding in 1997 and 13,258,908 shares outstanding in 1996) $ 65,073,951 $ 54,263,917 Accumulated distributions in excess of net income (5,162,837) (3,551,997) Unrealized gain on securities available- for-sale 86,505 - ------------ ------------ Total shareholders' equity $ 59,997,619 $ 50,711,920 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $186,993,943 $131,355,638 ============ ============ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED APRIL 30, 1997, 1996 AND 1995
1997 1996 1995 ---- ---- ---- REVENUE Real estate rentals $22,972,369 $17,635,297 $12,280,738 Interest, discounts and fees 861,613 1,024,368 1,520,385 ----------- ----------- ----------- Total revenue $23,833,982 $18,659,665 $13,801,123 EXPENSES Interest $ 7,638,776 $ 5,547,739 $ 3,484,310 Depreciation 3,584,591 2,261,724 1,767,294 Utilities and maintenance 3,741,878 3,167,560 2,352,968 Taxes and insurance 2,720,495 2,065,017 1,220,434 Property management expenses 1,870,435 1,281,311 779,024 Advisory and trustee services 559,149 458,019 336,142 Operating expenses 158,627 162,588 79,974 Amortization 60,588 97,900 20,659 Provision for loan losses - - 200,000 ----------- ----------- ----------- Total expenses $20,334,539 $15,041,858 $10,240,805 =========== =========== =========== OPERATING INCOME $ 3,499,443 $ 3,617,807 $ 3,560,318 GAIN ON SALE OF PROPERTIES 398,424 994,163 407,512 MINORITY INTEREST PORTION OF OPERATING PARTNERSHIP INCOME (18) - - ----------- ----------- ----------- NET INCOME $ 3,897,849 $ 4,611,970 $ 3,967,830 =========== =========== =========== Net income per share: Operating income $.25 $.30 $.34 Gain on sale of investments .03 .08 .04 ---- ---- ---- Net income $.28 $.38 $.38 ==== ==== ====
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED APRIL 30, 1997, 1996 AND 1995
Accumulated Unrealized Shares of Distributions Gain Total Beneficial in excess of on Securities Shareholders' Interest Net Income Available-for-Sale Equity ---------- ------------- ------------------ ------------- BALANCE, MAY 1, 1994 $34,096,966 $(4,099,777) $ - $29,997,187 Net income - 3,967,830 - 3,967,830 Dividends distributed - (3,592,986) - (3,592,986) Dividends reinvested 2,175,278 - - 2,175,278 Sale of shares 5,288,343 - - 5,288,343 ----------- ----------- ----------- ----------- BALANCE, APRIL 30, 1995 $41,560,587 $(3,724,933) $ - $37,835,654 Net income - 4,611,970 - 4,611,970 Dividends distributed - (4,439,034) - (4,439,034) Dividends reinvested 3,100,988 - - 3,100,988 Sale of shares 9,820,470 - - 9,820,470 Shares repurchased (218,128) - - (218,128) ----------- ----------- ----------- ----------- BALANCE, APRIL 30, 1996 $54,263,917 $(3,551,997) $ - $50,711,920 Net income - 3,897,849 - 3,897,849 Dividends distributed - (5,508,689) - (5,508,689) Dividends reinvested 3,579,744 - - 3,579,744 Sale of shares 9,025,706 - - 9,025,706 Shares repurchased (1,795,416) - - (1,795,416) Increase in unrealized gain on securities available-for-sale - - 86,505 86,505 ----------- ----------- ------------ ----------- BALANCE, APRIL 30, 1997 $65,073,951 $(5,162,837) $ 86,505 $59,997,619 =========== =========== ============ ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED APRIL 30, 1997, 1996 AND 1995
1997 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,897,849 $ 4,611,970 $ 3,967,830 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,645,179 2,359,624 1,787,953 Minority interest portion of operating partnership income 18 - - Accretion of discount on contracts (7,698) (16,570) (14,670) Gain on sale of properties (398,424) (994,163) (407,512) Interest reinvested in investment certificates 288,517 161,813 205,491 Changes in other assets and liabilities: Increase in real estate deposits (100,000) - - Increase in other assets (596,053) (273,636) (119,685) Increase in tax and insurance escrow (98,942) (834,007) (3,603) Increase (decrease) in accounts payable and accrued expenses (69,119) 1,219,771 (108,444) ------------ ------------ ------------ Net cash provided from operating activities $ 6,561,327 $ 6,234,802 $ 5,307,360 ============ ============ ============ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturity of marketable securities held-to-maturity $ 356,398 $ 417,952 $ 441,644 Principal payments on mortgage loans receivable 1,706,202 2,642,346 4,059,328 Proceeds from sale of property - 389,784 - Payments for acquisition and improvement of properties (38,046,177) (32,462,846) (10,584,694) Purchase of marketable securities available-for-sale (596,961) - - Investment in mortgage loans receivable (2,835,212) (1,784,981) (653,952) ------------ ------------ ------------ Net cash used for investing activities $(39,415,750) $(30,797,745) $ (6,737,674) ============ ============ ============ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sale of shares $ 9,025,706 $ 9,820,470 $ 5,288,343 Proceeds from investment certificates issued 4,225,004 1,695,924 947,093 Proceeds from mortgages payable 27,094,270 29,025,001 2,092,266 Proceeds from short-term lines of credit 8,450,000 - - Proceeds from sale of minority interest 1,000 - - Repurchase of shares (1,795,416) (218,128) - Dividends paid (1,930,455) (1,338,046) (1,417,708) Redemption of investment certificates (2,128,686) (917,732) (695,803) Principal payments on mortgage loans (2,634,017) (15,554,717) (1,979,111) Payments on short-term lines of credit (8,450,000) - - ------------ ------------ ------------ Net cash provided from financing activities $ 31,857,406 $ 22,512,772 $ 4,235,080 ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH $ (997,017) $ (2,050,171) $ 2,804,766 CASH AT BEGINNING OF YEAR 2,715,274 4,765,445 1,960,679 ------------ ------------ ------------ CASH AT END OF YEAR $ 1,718,257 $ 2,715,274 $ 4,765,445 ============ ============ ============
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
1997 1996 1995 ---- ---- ---- SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Dividends reinvested $ 3,579,744 $ 3,100,988 $ 2,175,278 Real estate investment and mortgage loans receivable acquired through assumption of mortgage loans payable and accrual of costs 19,575,635 8,232,568 15,917,788 Mortgage loan receivable transferred to property owned 2,810,000 - - Proceeds from sale of properties deposited directly with escrow agent 455,329 426,352 940,258 Mortgages paid directly by owner of contract - - 543,598 Interest reinvested directly in investment certificates 288,517 161,813 205,491 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest paid on mortgages $ 6,773,978 $ 4,661,065 $ 3,109,727 Interest paid on investment certificates 508,686 292,660 157,233 ----------- ----------- ----------- $ 7,282,664 $ 4,953,725 $ 3,266,960 =========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 1997, 1996 AND 1995 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 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. 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 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 will 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 will 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 will distribute cash on a quarterly basis in the amounts determined by the Trust which will result in each limited partner receiving the same dividends as 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. IRET Properties is a general partner in six limited partnerships, and due to the immaterial involvement of the limited partners, has substantial influence over their operations. These limited partnerships are as follows: NOTE 1 - (CONTINUED) Eastgate Properties, Ltd. Bison Properties, Ltd. First Avenue Building, Ltd. Sweetwater Properties, Ltd. Hill Park Properties, Ltd. Colton Heights, Ltd. All material intercompany transactions and balances have been eliminated in the consolidated financial statements. 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. Expenditures for maintenance and repairs which do not add to the value or extend the useful life are charged to expense as incurred. DEPRECIATION is provided to amortize the cost of individual assets over their estimated useful lives using principally the straightline 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 held-to-maturity consist of Government National Mortgage Association securities for which the Trust has the positive intent and ability to hold to maturity. They are reported at cost, adjusted by amortization of NOTE 1 - (CONTINUED) 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. 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 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. INVESTMENT IN PARTNERSHIP - The Trust is accounting for its investment in Chateau Properties, Ltd. under the equity method of accounting, wherein the appropriate portion of the earnings or loss is recognized currently. The Operating Partnership has a general partnership interest in the limited partnership. Chateau Properties, Ltd. has invested in real estate properties. MINORITY INTEREST - 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 of beneficial interest has been computed based on the weighted average number of shares outstanding during the year. 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. 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 Internal Revenue Code Sections 701 (b) and 704 (c). NOTE 1 - (CONTINUED) 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. INTEREST CAPITALIZATION - Interest is capitalized on accumulated expenditures relating to the acquisition and development of certain qualifying properties. RECLASSIFICATIONS - Certain previously reported amounts have been reclassified to conform with the current financial statement presentation. NOTE 2 - OFF-BALANCE-SHEET RISK The Trust had deposits at Norwest Bank, North Dakota, N.A., and First American Bank which exceeded Federal Deposit Insurance Corporation limits by $31,658 and $335,999, respectively, at April 30, 1997. 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: NOTE 3 - (CONTINUED) April 30, 1997 April 30, 1996 -------------- -------------- Residential $ 149,643,413 $ 96,029,855 Less accumulated depreciation (11,845,692) (9,620,990) ------------- -------------- $ 137,797,721 $ 86,408,865 ------------- -------------- Commercial $ 42,241,096 $ 35,417,879 Less accumulated depreciation (5,102,464) (3,930,581) ------------- -------------- $ 37,138,632 $ 31,487,298 ============= ============== Remaining cost $ 174,936,353 $ 117,896,163 ============= ==============
There were no repossessions during the years ended April 30, 1997 and 1996. The above cost of residential real estate owned included construction in progress of $2,482,849 and $12,544,357 as of April 30, 1997 and 1996, respectively. Construction period interest of $269,513 has been capitalized for the year ended April 30, 1997. Construction period interest of $690,665 was capitalized for the year ended April 30, 1996. Residential apartment units are rented to individual tenants with lease terms up to one year. Gross revenues from residential rentals totaled $18,935,111, $12,286,492 and $9,076,477 for the years ended April 30, 1997, 1996 and 1995, respectively. Gross revenues from commercial property rentals totaled $4,037,258, $5,348,805, and $3,204,261 for the years ended April 30, 1997, 1996, and 1995, respectively. Commercial properties are leased to tenants under terms of leases expiring at various dates through 2015. 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 $16,517, $25,054 and $16,586 for the years ended April 30, 1997, 1996 and 1995, respectively. The future minimum lease payments to be received under these operating leases for the commercial properties as of April 30, 1997, are as follows: Year ending April 30, 1998 $ 3,915,469 1999 3,837,598 2000 3,639,671 2001 3,601,838 2002 3,486,406 Thereafter 25,631,642 ------------ $ 44,112,624 ============ NOTE 4 - MORTGAGE LOANS RECEIVABLE Mortgage loans receivable consists of approximately thirty contracts which are collateralized by real estate. Contract terms call for monthly payments of principal and interest. Interest rates range from 7 to 14%. Mortgage loans receivable have been evaluated for possible losses considering repayment history, market value of underlying collateral, deferred gains and economic conditions. Future principal payments due under the mortgage loan contracts as of April 30, 1997 are as follows: Year ending April 30, 1998 $ 1,513,357 1999 192,186 2000 298,323 2001 84,946 2002 91,647 Later years 928,474 ------------ $ 3,108,933 ============ Details concerning mortgage loans receivable from related parties can be found in Note 9. Non-performing mortgage loans receivable were $174,911 at April 30, 1997 and $377,464 at April 30, 1996. These loans are recognized as impaired in conformity with FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan. The total allowance for credit losses related to those loans was approximately $30,000 and $151,800, respectively. The average balance of impaired loans for the year ended April 30, 1997 was approximately $276,000. 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 these loans if they had not been nonperforming amounted to approximately $33,000 in 1997 and $31,600 in 1996. Interest income on non-performing loans recognized on a cash basis amounted to approximately $-0- in 1997 and $18,600 in 1996. NOTE 5 - MARKETABLE SECURITIES The amortized cost and estimated market values of marketable securities held-to-maturity at April 30, 1997 and 1996 are as follows: NOTE 5 - (CONTINUED)
1997 ---- Gross Gross Amortized Unrealized Unrealized Fair Issuer Cost Gains Losses Value ------ ----------- ----------- ----------- ----------- GNMA $ 4,055,459 $ - $ 166,031 $ 3,889,428 =========== =========== =========== =========== 1996 ---- GNMA $ 4,411,857 $ - $ 129,412 $ 4,282,445 =========== =========== =========== =========== The amortized cost and estimated market values of marketable securities available-for-sale at April 30, 1997 and 1996 are as follows: 1997 ---- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ----------- ----------- ----------- ----------- Equity shares in other REIT's $ 596,961 $ 90,015 $ 3,510 $ 683,466 =========== =========== =========== =========== 1996 ---- Equity shares in other REIT's $ - $ - $ - $ - =========== =========== =========== ===========
There were no realized gains or losses on sales of securities for the years ended April 30, 1997, 1996 and 1995. Marketable securities held-to-maturity consist of Governmental National Mortgage Association (GNMA) securities bearing interest from 6.5% to 9.5% with maturity dates ranging from May 15, 2016 to June 15, 2023. The following is a summary of the maturities of securities held-to-maturity at April 30, 1997 and 1996:
1997 1996 ------------------------ ------------------------ Amortized Fair Amortized Fair Cost Value Cost Value ----------- ----------- ----------- ----------- Due after 10 years $ 4,055,459 $ 3,889,428 $ 4,411,857 $ 4,282,445 =========== =========== =========== =========== NOTE 6 - MORTGAGES PAYABLE Mortgages payable as of April 30, 1997, included mortgages on properties owned totaling $115,608,689, and mortgages of $126,257 on property sold on contract. The carrying value of the related real estate owned was $165,399,893 and the carrying value of the related mortgage loans receivable was $353,480 as of April 30, 1997. NOTE 6 - (CONTINUED) Mortgages payable as of April 30, 1996, included mortgages on properties owned totaling $71,327,918, and mortgages of $371,141 on property sold on contract. The carrying value of the related real estate owned was $106,653,490 and the carrying value of the related mortgage loans receivable was $905,752 as of April 30, 1996. Monthly installments are due on the mortgages with interest rates ranging from 7.13% to 10.00% and with varying maturity dates through November 30, 2034. The aggregate amount of required future principal payments on mortgages payable is as follows: Years ending April 30, 1998 $ 2,763,852 1999 2,953,508 2000 6,115,493 2001 3,258,957 2002 3,520,246 Later years 97,122,890 ------------ Total payments $115,734,946 ============ As of April 30, 1997, the Trust had lines of credit available from two financial institutions. An unsecured line of credit was issued form First Western Bank & Trust on September 6, 1996, in the amount of $2,000,000 carrying an interest rate equal to prime and maturing September 1, 1997. A second unsecured line of credit from First International Bank & Trust was issued September 12, 1996, in the amount of $2,500,000 carrying an interest rate equal to prime and maturing September 12, 1997. Interest payments are due monthly on both notes. As of April 30, 1997, the Trust had no upaid balances on either line of credit. NOTE 7 - INVESTMENT CERTIFICATES ISSUED The Trust has placed investment certificates with the public. The interest rates vary from 7% 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 1998 $ 4,454,245 1999 837,611 2000 1,502,516 2001 92,082 2002 849,792 Thereafter 451,059 ----------- $ 8,187,305 =========== NOTE 8 - 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 $146,361, $476,913, and $19,917 for the years ended April 30, 1997, 1996 and 1995, respectively. NOTE 9 - 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, 1997, Odell-Wentz & Associates received total fees under said agreement of $489,533. The fees for April 30, 1996 were $484,086, and for April 30, 1995 were $339,128. For the years ended April 30, 1997, 1996 and 1995, the Trust has capitalized $177,834, $115,993 and $49,323, respectively, of these fees, with the remainder of $311,699, $368,093 and $289,805, respectively, expensed as advisory and trustee fees on the statement of operations. The advisor is obligated to provide office space, staff, office equipment and 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 $408,904, $281,717 and $212,018 for services rendered for years ended April 30, 1997, 1996 and 1995, 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 $291,143 for the year ended April 30, 1997, $269,656 for the year ended April 30, 1995, and $272,615 for the year ended April 30, 1995. The Trust paid fees and expense reimbursements to the law firm in which Thomas A. Wentz, Sr. is a partner totaling $36,045, $23,488 and $4,890 for the years ended April 30, 1997, 1996 and 1995, respectively. Investment certificates issued by the Trust to officers and trustees totaled $519,528 at April 30, 1997 and $1,258,133 at April 30, 1996. NOTE 10 - MARKET PRICE RANGE OF SHARES Investors Real Estate Trust shares are traded on the Over-The- Counter-Market. The price range is as follows: Bid Ask -------------- -------------- Low High Low High 1995 $ 5.49 $ 5.89 $ 6.10 $ 6.40 1996 5.89 6.30 6.40 6.85 1997 6.44 6.62 7.00 7.20 NOTE 11 - 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. Mortgages payable - For variable rate loans that reprice 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 when interest will be paid. The estimated fair values of the Company's financial instruments are as follows: NOTE 11 - (CONTINUED)
1997 1996 ------------------------ ------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ------------------------ ------------------------- FINANCIAL ASSETS Mortgage loan receivable $ 3,108,933 $ 3,108,933 $ 4,932,138 $ 4,949,278 Cash 1,718,257 1,718,257 2,715,274 2,715,274 Marketable securities held-to-maturity 4,055,459 3,889,428 4,411,857 4,282,445 Marketable securities available-for-sale 683,466 683,466 - - FINANCIAL LIABILITIES Mortgages payable $115,734,946 $113,007,861 $ 71,699,059 $ 70,694,035 Investment certificates issued 8,187,305 8,136,971 5,802,469 5,692,317 Accrued interest payable 1,012,193 1,012,193 656,080 656,080
ADDITIONAL INFORMATION INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION Board of Trustees Investors 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, 1997, 1996 and 1995, 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 19 through 35 related to the 1997, 1996 and 1995 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 35 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, 1997, 1996 and 1995, 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 Affiliated Partnerships as of April 30, 1994, and 1993, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the two years ended April 30, 1994 and 1993, none of which is presented herein, and we expressed unqualified opinions on those consolidated financial statements. In our opinion, the information on page 30 relating to the 1994 and 1993 consolidated financial statements is fairly stated in all material respects in relation to the basic consolidated financial statements from which it has been derived. BRADY, MARTZ & ASSOCIATES, P.C. May 23, 1997 INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES APRIL 30, 1997 AND 1996 Schedule I MARKETABLE SECURITIES April 30, 1997 April 30, 1996 ---------------------- ---------------------- Principal Principal Amount Market Amount Market ---------- ---------- ---------- ---------- GNMA Pools $4,055,459 $3,889,428 $4,411,857 $4,282,445 ========== ========== ========== ========== Cost Market Cost Market ---------- ---------- ---------- ---------- Equity shares in other REIT's $ 596,961 $ 683,466 $ - $ - ========== ========== ========== ========== INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES APRIL 30, 1997 AND 1996 Schedule IV NONCURRENT INDEBTEDNESS OF RELATED PARTIES MORTGAGE LOANS RECEIVABLE
Beginning Ending Balance Additions Deductions Balance ----------- ----------- ----------- ---------- Year ended April 30, 1996 Chateau Properties, Ltd. $ 1,331,175 $ - $ 1,331,175 $ - Investors Management and Marketing 118,137 - 118,137 - $ 1,449,312 $ - $ 1,449,312 $ -
There were no balances outstanding during the year ended April 30, 1997. INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES FOR THE YEARS ENDED APRIL 30, 1997, 1996 AND 1995 Schedule X SUPPLEMENTAL INCOME STATEMENT INFORMATION
Charged to Costs and Expenses --------------------------------------------------- 1997 1996 1995 ------------ ------------ ------------ Item Maintenance and repairs $ 1,812,496 $ 1,702,365 $ 1,338,236 Taxes, other than payroll and income taxes Property taxes 2,515,631 1,873,720 1,078,712 Royalties * * * Advertising costs * * *
* Less than 1 percent of total revenues INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES APRIL 30, 1997 Schedule XI REAL ESTATE AND ACCUMULATED DEPRECIATION
COST CAPITALIZATION SUBSEQUENT INITIAL COST TO TRUST TO ACQUISITION ---------------------------------------------------------- BUILDING & CARRYING ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COSTS ------------ ---- ------------ ------------ ----- APARTMENTS 1112 32nd Ave. SW $ 395,737 $ 50,000 $ 543,147 $ 1,953 $ 871,021 1305 Birch St., Marshall, MN 116,968 35,000 275,000 92,791 0 177 10th Ave E, Dickinson 230,341 40,000 318,109 13,868 0 312 12th Ave NW, Mandan, ND 29,892 20,000 236,750 5,062 0 405 Grant Ave, Harvey, ND 0 13,584 157,211 47,404 0 4301-4313 9th Ave SW, Fargo 506,456 52,870 908,727 45,282 0 Beulah Condos, ND 0 6,360 336,589 85,686 0 Bison Properties 114,153 100,210 1,348,127 131,288 0 Candlelight Apts, Fargo, ND 519,133 80,040 757,977 12,306 0 Century Apts, Dickinson 1,559,661 100,000 1,564,598 152,344 0 Century Apts, Williston, ND 2,640,305 200,000 3,166,750 293,732 0 Circle Fifty, Billings, MT 0 491,247 1,456,757 0 63,098 Colton Heights Properties 361,356 80,000 734,286 2,754 0 Columbia Park Phase II, GF 0 661,855 14,981 0 0 Cottonwood Lake, Bismarck 0 1,055,862 0 0 0 Crestview Apts, Bismarck 2,748,588 235,000 4,290,031 118,170 0 Eastgate Properties 0 23,917 1,490,181 231,974 0 Forest Park Estates, G Forks 4,127,732 810,000 5,579,164 394,384 0 Hill Park Properties 1,437,430 224,750 2,562,296 36,302 0 Jenner Prop. - UPREIT 0 0 5,400 0 0 Legacy Apts, Grand Forks 3,986,207 700,000 6,021,189 47,636 177,986 Miramont Apts, Ft. Collins, CO 11,566,494 1,470,000 12,765,460 0 0 Neighborhood Apt, Co Springs, CO 7,501,027 1,033,592 9,811,600 4,369 0 North Pointe 49, Bismarck 1,345,937 143,500 2,120,413 9,161 123,687 Oak Manor Apts, Dickinson 234,590 25,000 225,000 40,726 0 Oakwood Estates, S Falls, SD 2,200,254 342,800 2,783,950 275,469 0 Oxbow 120 Units, Sioux Falls 3,486,180 404,072 4,494,441 55,940 0 Park Meadows, Waite Park, MN 8,025,780 1,143,450 9,099,297 0 0 Park Place, Waseca, MN 0 40,000 634,737 136,083 0 Parkway Apts, Beulah, ND 0 7,000 40,738 45,992 0 Pine Cone Apts, Ft. Collins 10,591,870 904,545 12,167,093 7,946 0 Pointe West Apts, Minot 2,284,864 240,000 3,537,775 46,620 0 Prairie Winds Apts, S Falls 1,363,526 144,097 1,816,011 8,169 0 Rocky Meadows 96, Billings 2,950,765 655,985 5,588,113 34,518 103,378 Rosewood/Oakwood, S Falls 1,306,291 200,000 1,738,245 0 0 Scottsbluff, NE 0 60,000 570,000 77,592 0 South Pointe Phase I, Minot 2,711,007 275,000 4,252,511 17,098 279,140 South Pointe Phase II, Minot 2,937,082 275,000 4,898,464 17,099 123,732 Southview Apts, Minot 0 185,000 468,585 15,164 0 Southwind Apts, Grand Forks 3,589,435 400,000 5,033,683 96,531 0 Sweetwater Properties 224,267 90,767 1,208,847 281,152 0 Virginia Apts, Minot 0 37,600 163,036 18,729 0 West Stonehill, St Cloud, MN 8,119,358 939,000 10,167,355 123,274 0 Woodridge Apts, Rochester 4,379,282 370,000 6,028,096 0 0 ------------ ------------ ------------ ------------ ----------- $ 93,591,968 $ 14,367,103 $131,380,720 $ 3,024,569 $ 871,021 ============ ============ ============ ============ =========== Schedule XI REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued) COST CAPITALIZATION SUBSEQUENT INITIAL COST TO TRUST TO ACQUISITION ---------------------------------------------------------- BUILDING & CARRYING ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COSTS ------------ ---- ------------ ------------ ----- OFFICE BUILDINGS 1st Avenue Building $ 0 $ 30,000 $ 219,496 $ 546,452 $ 0 401 South Main 0 70,600 334,308 70,341 0 408 1st Street SE, Minot 0 10,000 34,836 2,037 0 Creekside Office Bldg, Billings 912,165 311,310 1,088,149 199,871 0 Lester Chiropractic Clinic 0 25,000 243,917 0 0 Walters 214 So. Main, Minot 10,086 27,055 76,076 7,918 0 ------------ ------------ ------------ ------------ ----------- $ 922,251 $ 473,965 $ 1,996,782 $ 826,619 $ 0 ------------ ------------ ------------ ------------ ----------- COMMERCIAL Arrowhead Shopping Center $ 0 $ 100,359 $ 1,063,925 $ 1,273,998 $ 0 Barnes & Noble, Fargo 2,229,880 540,000 2,752,012 0 0 Barnes & Noble, Omaha, NE 2,415,703 600,000 3,099,101 0 0 Carmike Theatre, Grand Forks 1,676,716 183,515 2,292,653 2,501 67,068 Computer City, Kentwood, MI 1,534,724 225,000 1,888,574 0 0 Edgewood Vista, Missoula, MT 647,500 108,900 853,528 0 0 Hutchinson Tech, S Falls, SD 2,349,413 244,800 4,029,426 154,800 0 Lindberg Bldg, Eden Prairie 813,700 198,000 1,154,404 103,385 0 Minot Plaza, Minot, ND 0 50,000 452,898 2,339 0 Pet Food Warehouse, Fargo 802,327 324,148 900,325 27,216 27,245 Pioneer Seed, Moorhead, MN 326,808 56,925 548,075 48,876 0 Retail Warehouse, Boise, ID 3,577,824 765,000 4,874,576 0 0 Stone Container, Fargo 3,153,155 440,251 4,409,079 59,999 89,156 Superpumper, Bottineau, ND 0 15,000 186,013 100,000 0 Superpumper, Crookston, MN 0 13,125 214,513 201,500 0 Superpumper, Emerado, ND 0 25,000 225,564 46,500 0 Superpumper, Grand Forks, ND 0 80,000 405,007 0 0 Superpumper, Langdon, ND 0 59,674 151,500 28,038 0 Superpumper, New Town, ND 0 69,900 180,100 0 0 Superpumper, Sidney, MT 0 12,000 108,600 0 0 Wedgewood, Sweetwater, GA 1,566,720 334,346 2,475,654 0 0 ------------ ------------ ------------ ------------ ----------- $ 21,094,470 $ 4,445,943 $ 32,265,167 $ 2,049,151 $ 183,469 ------------ ------------ ------------ ------------ ----------- TOTALS $115,608,689 $ 19,287,011 $165,642,669 $ 5,900,339 $ 1,054,490 ============ ============ ============ ============ ===========
Schedule XI (Continued)
LIFE ON WHICH BUILDINGS LATEST INCOME AND ACCUMULATED DATE STATEMENT LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED IS COMPUTED ---- ------------ ----- ------------ -------- ----------- APARTMENTS 1112 32nd Ave. SW $ 50,000 $ 545,100 $ 595,100 $ 20,412 1996 12-40 years 1305 Birch St., Marshall, MN 35,360 367,431 402,791 67,353 1988 12-40 years 177 10th Ave E, Dickinson 40,278 331,699 371,977 60,338 1989 12-40 years 312 12th Ave NW, Mandan, ND 20,000 241,812 261,812 44,521 1989 12-40 years 405 Grant Ave, Harvey, ND 14,674 203,525 218,199 26,092 1991 12-40 years 4301-4313 9th Ave SW, Fargo 68,868 938,011 1,006,879 203,842 1988 12-40 years Beulah Condos, ND 78,339 350,296 428,635 291,695 1983 12-40 years Bison Properties 100,210 1,479,416 1,579,626 1,076,049 1972 25-40 years Candlelight Apts, Fargo, ND 80,040 770,283 850,323 85,625 1993 12-40 years Century Apts, Dickinson 126,738 1,690,204 1,816,942 497,446 1986 12-40 years Century Apts, Williston, ND 274,971 3,385,511 3,660,482 1,059,727 1986 12-40 years Circle Fifty, Billings, MT 491,247 1,519,855 2,011,102 0 1996 40 years Colton Heights Properties 80,095 736,945 817,040 320,817 1984 33-40 years Columbia Park Phase II, GF 676,836 0 676,836 0 1996 40 years Cottonwood Lake, Bismarck 1,055,862 0 1,055,862 0 1997 40 years Crestview Apts, Bismarck 235,000 4,408,201 4,643,201 378,360 1994 12-40 years Eastgate Properties 28,639 1,717,433 1,746,072 1,265,208 1970 33-40 years Forest Park Estates, G Forks 811,954 5,971,595 6,783,548 644,490 1993 12-40 years Hill Park Properties 245,653 2,577,695 2,823,348 1,055,567 1985 33-40 years Jenner Prop. - UPREIT 0 5,400 5,400 0 1996 40 years Legacy Apts, Grand Forks 700,000 6,246,811 6,946,811 78,276 1996 40 years Miramont Apts, Ft. Collins, CO 1,470,000 12,765,460 14,235,460 159,568 1996 40 years Neighborhood Apt, Co Sprgs, CO 1,033,592 9,815,969 10,849,561 122,700 1996 40 years North Pointe 49, Bismarck 143,500 2,253,261 2,396,761 82,734 1995 12-40 years Oak Manor Apts, Dickinson 29,012 261,714 290,726 47,606 1989 12-40 years Oakwood Estates, S Falls, SD 342,800 3,059,419 3,402,219 329,988 1993 12-40 years Oxbow 120 Units, Sioux Falls 404,072 4,550,381 4,954,453 282,784 1994 12-40 years Park Meadows, Waite Park, MN 1,143,450 9,099,297 10,242,747 113,741 1997 40 years Park Place, Waseca, MN 40,000 770,820 810,820 268,803 1988 12-40 years Parkway Apts, Beulah, ND 11,816 81,914 93,730 10,673 1988 12-40 years Pine Cone Apts, Ft. Collins 904,545 12,175,039 13,079,584 608,454 1994 40 years Pointe West Apts, Minot 240,000 3,584,395 3,824,395 311,075 1994 12-40 years Prairie Winds Apts, S Falls 144,097 1,824,179 1,968,277 204,428 1993 12-40 years Rocky Meadows 96, Billings 655,984 5,726,009 6,381,994 71,575 1996 40 years Rosewood/Oakwood, S Falls 200,000 1,738,246 1,938,246 21,728 1996 40 years Scottsbluff, NE 60,000 647,592 707,592 134,553 1988 40 years South Pointe Phase I, Minot 275,000 4,548,749 4,823,749 166,362 1995 12-40 years South Pointe Phase II, Minot 275,000 5,039,295 5,314,295 62,991 1996 40 years Southview Apts, Minot 185,000 483,749 668,749 31,818 1994 12-40 years Southwind Apts, Grand Forks 409,892 5,120,322 5,530,214 190,097 1996 12-40 years Sweetwater Properties 94,270 1,486,496 1,580,766 931,837 1972 33-40 years Virginia Apts, Minot 37,600 181,765 219,365 58,191 1987 12-40 years West Stonehill, St Cloud, MN 939,000 10,290,629 11,229,629 382,817 1995 40 years Woodridge Apts, Rochester 370,000 6,028,095 6,398,095 75,351 1996 40 years ------------ ------------ ------------ ----------- $ 14,623,394 $135,020,019 $149,643,413 $11,845,692 ------------ ------------ ------------ -----------
Schedule XI (Continued)
LIFE ON WHICH BUILDINGS LATEST INCOME AND ACCUMULATED DATE STATEMENT LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED IS COMPUTED ---- ------------ ----- ------------ -------- ----------- OFFICE BUILDINGS 1st Avemue Building $ 67,710 $ 728,238 $ 795,948 $ 296,575 1981 20-40 years 401 South Main, Minot 70,722 404,527 475,249 114,020 1987 12-40 years 408 1st Street SE, Minot 10,016 36,858 46,873 20,140 1986 12-40 years Creekside Office Bldg, Billings 311,310 1,288,020 1,599,330 162,195 1992 40 years Lester Chiropractic Clinic 25,000 243,916 268,917 52,010 1988 40 years Walters 214 So Main, Minot 27,829 83,220 111,049 72,240 1978 12-40 years ------------ ------------ ------------ ----------- $ 512,587 $ 2,784,779 $ 3,297,366 $ 717,180 ------------ ------------ ------------ ----------- COMMERCIAL Arrowhead Shopping Center $ 100,411 $ 2,337,870 $ 2,438,282 $ 2,067,593 1973 15 1/2-40 years Barnes & Noble, Fargo 540,000 2,752,012 3,292,012 172,001 1994 40 years Barnes & Noble, Omaha, NE 600,000 3,099,101 3,699,101 116,216 1995 40 years Carmike Theatre, Grand Forks 183,516 2,362,221 2,545,737 147,576 1994 40 years Computer City, Kentwood, MI 225,000 1,888,574 2,113,574 23,607 1996 40 years Edgewood vista, Missoula, MT 108,900 853,528 962,428 10,669 1997 40 years Hutchinson Tech, S Falls, SD 244,800 4,184,226 4,429,026 463,012 1993 40 years Lindberg Bldg, Eden Prairie 198,000 1,257,789 1,455,789 163,558 1992 40 years Minot Plaza, Minot, ND 50,000 455,237 505,237 50,980 1993 40 years Pet Food Warehouse, Fargo 324,148 954,786 1,278,934 58,940 1994 40 years Pioneer Seed, Moorhead, MN 56,925 596,951 653,876 77,259 1992 40 years Retail Warehouse, Boise, ID 765,000 4,874,576 5,639,576 426,525 1994 40 years Stone Container, Fargo 440,251 4,558,235 4,998,485 168,319 1995 40 years Superpumper, Bottineau, ND 15,000 286,013 301,013 50,421 1989 40 years Superpumper, Crookston, MN 13,125 415,652 428,777 69,465 1988 40 years Superpumper, Emerado, ND 25,000 272,064 297,064 134,362 1986 19-40 years Superpumper, Grand Forks, ND 80,000 405,007 485,007 65,814 1991 40 years Superpumper, Langdon, ND 59,674 179,538 239,212 51,040 1987 31 1/2-40 years Superpumper, New Town, ND 69,900 180,100 250,000 24,764 1992 40 years Superpumper, Sidney, MT 12,000 108,600 120,600 12,217 1993 40 years Wedgewood, Sweetwater, GA 334,346 2,475,654 2,810,000 30,946 1996 40 years ------------ ------------ ------------ ----------- $ 4,445,996 $ 34,497,734 $ 38,943,730 $ 4,385,284 ------------ ------------ ------------ ----------- TOTALS $ 19,581,977 $172,298,162 $191,884,509 $16,948,156 ============ ============ ============ ===========
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES Schedule XI (Continued) Reconciliations of total real estate carrying value for the three years ended April 30, 1997, 1996 and 1995 are as follows:
1997 1996 1995 ------------ ------------ ------------ Balance at beginning of year $131,447,734 $ 90,892,662 $ 63,861,793 Additions during year - acquisitions 59,377,674 40,660,975 27,371,289 - improvements 1,463,878 635,791 344,255 ------------ ------------ ------------ $192,289,286 $132,189,428 $ 91,577,337 Deductions during year - cost of real estate sold (404,777) (741,694) (684,675) ------------ ------------ ------------ Balance at close of year $191,884,509 $131,447,734 $ 90,892,662 ============ ============ ============ Reconciliations of accumulated depreciation for the three years ended April 30, 1997, 1996 and 1995 are as follows: 1997 1996 1995 ------------ ------------ ------------ Balance at beginning of year $ 13,551,571 $ 11,732,655 $ 10,097,374 Additions during year - provisions for depreciation 3,584,591 2,261,724 1,767,294 Deduction during year - accumulated depreciation on real estate sold (188,006) (442,808) (132,013) ------------ ------------ ------------ Balance at close of year $ 16,948,156 $ 13,551,571 $ 11,732,655 ============ ============ ============
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES APRIL 30, 1996 Schedule XII INVESTMENTS IN MORTGAGE LOANS ON REAL ESTATE
Principal Amount Final Face Carrying of Loans Subject to Interest Maturity Payment Prior Amounts of Amounts of Delinquent Principal Rate Date Terms Liens Mortgages Mortgages or Interest ---- ---- ----- ----- --------- --------- ----------- RESIDENTIAL Billings, MT - 144 units 9% 9-1-98 Monthly - $ 1,500,000 $ 193,657 $ - Higley Heights, Phoenix, AZ 8% 3-31-04 Monthly - 809,786 669,048 - Sweetwater Springs Balloon Retirement Center 9% 7-1-97 Payment - 1,540,239 983,737 - Melanie Bentsinger 8% 6-1-25 Monthly - 217,761 214,162 - Rolland Hausman 9% 2-1-16 Monthly - 315,659 308,710 - Other - over $100,000 9-12% 5-1-97 to 8-1-07 Monthly - 2,336,446 439,993 102,696 - from $50,000-99,999 14% 5-31-97 Monthly - 1,550,000 78,471 - - from $20,000-49,999 8-9% 9-1-97 to 5-1-00 Monthly - 1,295,396 215,849 - - less than $20,000 7% 3-1-02 Monthly - 16,500 5,306 - ----------- ----------- --------- Total $ 9,581,787 $ 3,108,933 $ 102,696 =========== =========== ========= Less - Unearned discounts (10,524) - Deferred gain from property dispositions (18,713) - Allowance for loan losses (124,881) ----------- $ 2,954,815 ===========
Schedule XII (Continued) 1997 1996 ----------- ----------- MORTGAGE LOANS RECEIVABLE, BEGINNING OF YEAR $ 4,932,138 $ 5,815,772 New participations in and advances on mortgage loans 2,835,212 1,790,070 ----------- ----------- $ 7,767,350 $ 7,605,842 Collections (4,516,202) (2,647,434) Write-off through allowance (142,215) (26,270) ----------- ----------- MORTGAGE LOANS RECEIVABLE, END OF YEAR $ 3,108,933 $ 4,932,138 =========== =========== Year Ended April 30 -------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ Consolidated Income Statement Data Revenue $ 23,833,982 $ 18,659,665 $ 13,801,123 $ 11,583,008 $ 8,048,916 Operating income 3,499,443 3,617,807 3,560,318 3,135,426 2,222,313 Gain on repossession/ sale of investments 398,424 994,163 407,512 64,962 145,165 Minority interest of portion of operating partnership income (18) - - - - Net income 3,897,849 4,611,970 3,967,830 3,200,388 2,367,478 Consolidated Balance Sheet Data Total real estate investments $177,891,168 $122,377,909 $ 84,005,635 $ 63,972,042 $ 49,492,380 Total assets 186,993,943 131,355,638 94,616,744 72,391,548 54,248,011 Shareholders' equity 59,997,619 50,711,920 37,835,654 29,997,189 23,347,449 Consolidated Per Share Data Operating income $ .25 $ .30 $ .34 $ .35 $ .28 Gain on sale of investments .03 .08 .04 .01 .01 Dividends .39 .37 .34 .33 .31 Tax status of dividend Capital gain 21.0% 1.6% 11.0% 7.4% 4.1% Ordinary income 79.0% 98.4% 89.0% 92.6% 74.0% Return of capital 0.0% 0.0% 0.0% 0.0% 21.9% INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS APRIL 30, 1997, 1996 AND 1995 GAIN FROM PROPERTY DISPOSITIONS
Total Original Unrealized Realized Realized Realized Property Gain 4/30/97 4/30/97 4/30/96 4/30/95 - -------- -------- ---------- -------- -------- -------- Brooklyn Addition * $ 25,000 $ 3,000 $ 1,000 $ 1,000 $ 1,000 1411 South 20th * 34,696 - - 1,177 3,292 1302 South 19 1/2 * 87,669 15,713 6,732 6,215 5,739 600 Maple * 60,025 - - 41,253 859 406 17th Street- Mandan * 233,522 - 138,629 5,143 4,609 Chateau* 684,914 - - 422,125 4,418 419 and 404-Minot 82,053 - - - 82,053 Yankton, SD 305,542 - - - 305,542 108 4th Avenue SE- Minot 173,244 - - 173,244 - Mobridge, SD 293,035 - - 293,035 - Lantern Court 50,971 - - 50,971 - Hutchinson, MN 252,063 - 252,063 - - -------- -------- -------- -------- -------- $ 18,713 $398,424 $994,163 $407,512 ======== ======== ======== ========
* The gain from the sale of these properties is being realized based on the installment method. The amount of deferred gain realized was $146,361, $476,913 and $19,917 for the years ended April 30, 1997, 1996 and 1995, respectively. INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES APRIL 30, 1997 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, ND 8.50% 07/20/2010 Monthly $ 425,000 $ 395,737 $0 177 10th Ave. E, Dickinson, ND 8.375% 11/01/2018 Monthly 250,963 230,341 0 214 South Main 9.00% 05/01/98 Monthly 45,000 10,086 0 4301 9th Ave, Sunchase I 8.65% 09/01/2002 Monthly 364,765 187,090 0 4313 9th Ave, Sunchase II 8.069% 02/01/2014 Monthly 370,000 319,365 0 Barnes & Noble Stores 7.98% 11/01/2010 Monthly 4,900,000 4,645,582 0 Candlelight Apts 8.50% 12/01/99 Monthly 578,000 519,133 0 Carmike - Grand Forks 8.65% 06/05/2014 Monthly 1,750,000 1,676,716 0 Century Apts - Dickinson 7.9125% 03/01/2006 Monthly 1,595,000 1,559,661 0 Century Apts - Williston 7.9125% 03/01/2006 Monthly 2,700,000 2,640,305 0 Creekside - Billings 8.35% 05/01/2013 Monthly 1,023,750 912,165 0 Crestview Apts - Bismarck 8.38% 01/01/2004 Monthly 3,150,000 2,748,588 0 Computer City 7.75% 02/01/2001 Monthly 1,565,361 1,534,724 0 Edgewood Vista - Missoula 9.75% 4/15/2012 Monthly 647,500 647,500 0 Fairfield - Marshall 9.00% 01/01/98 Monthly 275,000 116,968 0 Forest Park Estates IDS 7.625% 05/01/2003 Monthly 4,500,000 4,127,732 0 Hutchinson Technology 8.75% 08/01/2008 Monthly 2,800,000 2,349,413 0 Legacy Apts - Grand Forks 7.773% 01/01/2004 Monthly 4,000,000 3,986,207 0 Lindberg Bldg, Eden Prairie 8.75% 12/01/2008 Monthly 950,000 813,700 0 Mandan Apts - 312 12th 8.75% 08/01/99 Monthly 134,767 29,892 0 Miramont Apts 8.25% 08/01/2036 Monthly 11,582,472 11,566,494 0 Neighborhood Apts - Rochester 7.98% 12/20/2006 Monthly 7,525,000 7,501,027 0 North Pointe - Bismarck 49 8.05% 08/01/2015 Monthly 1,400,000 1,345,937 0 Oak Manor Apts 27 Plex-Dickinson 8.75% 02/01/99 Monthly 250,000 234,590 0 Oakwood Estates Sioux Falls 7.9125% 03/01/2006 Monthly 2,250,000 2,200,254 0 Oxbow Sioux Falls 7.9125% 03/01/2006 Monthly 3,565,000 3,486,180 0 Park Meadows Phase I 8.25% 01/10/2007 Monthly 2,600,000 2,586,527 0 Park Meadows Phase II 7.8990% 01/10/2007 Monthly 2,214,851 2,204,254 0 Park Meadows Phase III 3.84% 30 yr bond Monthly 3,235,000 3,235,000 0 Pet Food Warehouse 8.50% 12/01/2010 Monthly 840,000 802,327 0 Pinecone Ft Collins 7.125% 12/01/2034 Monthly 10,685,215 10,591,870 0 Pioneer Building - Fargo 8.375% 12/01/2006 Monthly 425,000 326,808 0 Pointe West Apts 8.34% 01/01/2004 Monthly 2,625,000 2,284,864 0 Prairie Winds Apts - Sioux Falls 7.76% 05/01/2018 Monthly 1,470,000 1,363,526 0 Rocky Meadows - Billings 8.00% 08/01/2016 Monthly 3,000,000 2,950,765 0 RoseWood Ct - Sioux Falls 7.60% 09/01/96 Monthly 1,323,000 1,306,291 0 Smith's Home Furnishings 9.75% 03/29/2003 Monthly 3,750,000 3,577,824 0 South Pointe - Phase II 8.58% 06/05/2016 Monthly 3,000,000 2,937,082 0 South Pointe - Minot 98 8.14% 09/01/2015 Monthly 2,800,000 2,711,007 0 Southwind Apts 8.74% 04/28/2010 Monthly 3,780,000 3,589,435 0 Stone Container 8.25% 12/01/2010 Monthly 3,300,000 3,153,155 0 Wedgewood Retirement 8.38% 04/23/2017 Monthly 1,566,720 1,566,720 0 West Stonehill 9.21% 02/01/98 Monthly 8,232,569 8,119,358 0 Woodridge - Rochester 7.85% 12/01/2016 Monthly 4,410,000 4,379,282 0 Colton Heights 8.75% 06/01/2007 Monthly 730,000 361,356 0 Colton Heights 9.00% 09/01/97 Monthly 437,232 25,689 0 Grafton 24 Plex 9.75% 03/20/2003 Monthly 270,000 94,874 0 Grafton 18 Plex 9.75% 03/20/2003 Monthly 198,000 129,393 0 Hill Park Properties 7.9125% 03/01/2006 Monthly 1,470,000 1,437,430 0 Jamestown 610 10.00% 06/01/99 Monthly 250,000 53,757 0 Jamestown 611 10.00% 01/01/2000 Monthly 230,000 60,396 0 Melton/Olson/Thompson 8.50% 12/01/98 Monthly 400,000 57,302 0 1516 N Bismarck 8.00% 08/01/99 Monthly 246,000 43,266 0 ------------ ------------ -- $122,086,165 $115,734,946 $0 ============ ============ ==
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES APRIL 30, 1997 Acquisitions for cash and assumptions of mortgages Commercial: Computer City, Kentwood, MI $ 2,113,574 Edgewood Vista, Missoula, MT 962,428 Wedgewood Retirement Inns, Sweetwater, GA 2,810,000 ----------- $ 5,886,002 =========== Apartments: Circle 50, Billings, MT * $ 1,519,855 South Pointe II, Minot, ND ** 1,024,234 Rosewood Court, Sioux Falls, SD 1,938,245 Columbia Park Phase I, Grand Forks, ND ** 3,573,057 Rocky Meadows, Billings, MT ** 2,654,554 Miramont Apts, Fort Collins, CO 14,235,461 Neighborhood Apts, Colorado Springs, CO 10,849,561 Woodridge Apts, Rochester, MN 6,398,096 Cottonwood Lake, Bismarck, ND * 1,055,862 Park Meadows Apts, St Cloud, MN 10,242,747 ----------- $53,491,672 ----------- TOTAL $59,377,674 =========== * Property not placed in service at April 30, 1997. Additional costs are still to be incurred. ** Represents costs to complete a project started in year ending April 30, 1996. INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES QUARTERLY RESULTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
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 investments 978,107 1,048,154 1,027,117 446,065 Net gain on sale of investments 252,062 - 138,629 7,733 Minority interest of unitholders in operating partnership - - - (18) Net income 1,230,169 1,048,154 1,165,746 453,780 Per share Income before gains on sale of investments .07 .08 .07 .03 Net gain on sale of investments .02 - .01 - QUARTER ENDED ------------- 7-31-95 10-31-95 1-31-96 4-30-96 ----------- ----------- ----------- ----------- Revenues $ 3,782,061 $ 4,715,186 $ 5,104,409 $ 5,058,009 Income before gains on sale of investments 1,009,468 1,058,136 1,082,506 467,697 Net gain on sale of investments - - 522,001 472,162 Net income 1,009,468 1,058,136 1,604,507 939,859 Per share Income before gains on sale of investments .09 .09 .09 .04 Net gain on sale of investments - - .04 .04 QUARTER ENDED ------------- 7-31-94 10-31-94 1-31-95 4-30-95 ----------- ----------- ----------- ----------- Revenues $ 3,247,910 $ 3,529,364 $ 3,492,941 $ 3,530,908 Income before gains on sale of investments 794,755 1,066,229 1,014,011 685,323 Net gain on sale of investments - 305,543 - 101,969 Net income 794,755 1,371,772 1,014,011 787,292 Per share Income before gains on sale of investments .07 .10 .10 .07 Net gain on sale of investments - .03 - .01
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. EX-27 2
5 YEAR APR-30-1997 APR-30-1997 1,718,257 4,738,925 3,108,933 (154,118) 0 2,645,593 191,884,509 (16,948,156) 186,993,943 118,809,019 8,187,305 0 0 65,073,951 (5,076,332) 186,993,943 0 23,833,982 0 12,695,763 0 0 7,638,776 3,499,443 0 3,499,443 0 398,424 (18) 3,897,849 .28 0
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