. . . an expression of
APPRECIATION
to our Founder
C O N T E N T S
FISCAL2001 FINANCIALHIGHLIGHTS
1
THE COMPANY
2
PRESIDENT’S REPORT
3
6
INVESTMENTPORTFOLIO
13 MANAGEMENT’S DISCUSSION
23
23
24
25
29
& ANALYSIS
DIVIDEND HISTORY
PERFORMANCE HISTORY
INDEPENDENTAUDITOR’S REPORT
CONSOLIDATED FINANCIALSTATEMENTS
NOTES TO CONSOLIDATED
FINANCIALSTATEMENTS
36
QUARTERLYRESULTS OF
CONSOLIDATED OPERATIONS
Building A Foundation . . .
IRET’s mission statement reflects man-
agement’s commitment to its shareholders and
best expresses Roger’s vision for IRET.
The following paragraph from that statement
epitomizes Roger’s dedication to IRET.
“Creating value for our shareholders requires a
Roger R. Odell
commitment to excellence in every aspect of our operations - from choosing the real estate investments
to purchase and managing those investments in a professional manner, to communicating with and
servicing each shareholder account.”
Roger wholeheartedly believed in these words and, through his guidance, IRET flourished
to where it is today. Few in the United States rival Roger’s foresight and intelligence in the real
estate business. Roger helped build IRET from the ground up and he has laid a foundation
which will allow continued success for many years to come.
While Roger has retired, we at IRET take solace in knowing that his office is only a block
away and his phone line and door are always open. As for the past and to the present, we want
to say “Thank you, Roger! ”
Shareholder Information
Trustees
Executive Officers
Investors Real Estate Trust and Subsidiaries
Thomas A. Wentz, Sr.
President & CEO
Timothy P. Mihalick
Senior Vice President & COO
Thomas A. Wentz, Jr.
Vice President & General
Counsel
Diane K. Bryantt
Secretary & CFO
CORPORATE HEADQUARTERS
Investors Real Estate Trust
12 South Main Street, Suite 100
PO Box 1988
Minot, North Dakota 58702-1988
Telephone: (701) 837-4738
Fax: (701) 838-7785
email: info@iret.com
website: www.iret.com
GENERAL COUNSEL
Pringle & Herigstad, P.C.
2nd Floor, Bremer Bank Building
Minot, North Dakota 58701
Telephone: (701) 852-0381
AUDITORS
Brady Martz & Associates, P.C.
Certified Public Accountants
24 West Central
Minot, North Dakota 58701
Jeffrey L. Miller
Chairman & Trustee
C. Morris Anderson
Vice Chairman & Trustee
Daniel L. Feist
Vice Chairman & Trustee
John F. Decker
Trustee
Patrick G. Jones
Trustee
Stephen L. Stenehjem
Trustee
Timothy P. Mihalick
Trustee
Thomas A. Wentz, Jr.
Trustee
Steven B. Hoyt
Trustee
SEC FORM 10-K
Copies of Investors Real Estate Trust’s Annual Report on Form 10-K filed with the Securities
and Exchange Commission will be furnished without charge upon written request to Darla J. Strilcov
at Investors Real Estate Trust.
ANNUAL MEETING
Investors Real Estate Trust will hold its 31st Annual Meeting of Shareholders in the Executive
Room, International Inn, 1505 North Broadway, Minot, North Dakota, at 7:00 P.M. on Tuesday,
September 25, 2001.
STOCK TRADING INFORMATION
Investors Real Estate Trust shares trade on the NASDAQ Small Cap Market under the symbol
IRETS.
DIVIDEND REINVESTMENT PLAN
Investors Real Estate Trust offers to its shareholders the option to automatically reinvest their
dividends through the Dividend Reinvestment Plan. For additional information, please contact Darla J.
Strilcov, Shareholder Relations, at Investors Real Estate Trust.
COMMON SHAREHOLDERS OR RECORD/SHARES OUTSTANDING
As of July 20, 2001, Investors Real Estate Trust had approximately 5,614 shareholders of
record and 24,261,256 shares outstanding.
F I N A N C I A L H I G H L I G H T S
Years Ended April 30,
Rental Revenue
Other Revenue
Total Revenue
Net Operating Income*
Net Income
Funds From Operations**
Per Share
Net Income Available to Shareholders
Funds From Operations
Dividends (Fiscal Year)
At Year End
Total Assets
Depreciation Reserve
Shares Outstanding
Shareholders’ Equity (Book)
Number of Apartment Units Owned
Square Feet of Commercial Property
$
$
$
$
$
2001
74,800,722
966,428
75,767,150
48,146,930
8,694,240
22,440,463
0.38
0.79
0.55
570,322,124
44,093,145
24,068,346
118,945,160
7,869
2,513,518
$
$
$
$
$
2000
54,257,881
1,187,312
55,445,193
35,558,253
8,807,845
18,327,986
0.42
0.75
0.51
432,978,299
33,232,952
22,452,069
109,920,591
7,319
1,607,209
$
$
$
$
$
1999
38,785,287
1,141,975
39,927,262
24,625,208
7,604,135
12,368,550
0.44
0.65
0.47
291,493,311
26,112,399
19,066,954
85,783,294
5,528
1,228,714
$
$
$
$
$
1998
31,694,586
712,959
32,407,545
20,068,317
5,014,909
9,483,105
0.32
0.60
0.42
224,718,514
21,516,129
16,391,412
68,152,626
4,729
915,541
* Net operating income is defined as total revenue less operating expenses before depreciation, amortization, interest and impairment.
**
Industry analysts generally consider funds from operations to be an appropriate measure of the performance of an equity REIT. Funds from operation is defined as
taxable income increased by non-cash deductions of real estate asset depreciation, and amortization, and reduced by capital gain income and other extraordinary
income items.
Net Operating Income
in millions of dollars
Funds From Operations
in millions of dollars
Dividends
per share
Total Assets
in millions of dollars
48.15
22.44
35.56
18.33
.42
.55
.51
.47
570.32
432.98
24.63
20.07
12.37
9.48
291.49
291.49
224.72
98
99
00
01
98
99
00
01
98
99
00
01
98
99
00
01
This annual report is prepared for the general information of the shareholders and investment certificate holders of IRET and is not intended to induce or to
be used in connection with the sale or purchase of any securities of the Trust except when accompanied by a prospectus.
1
INVESTMENT STRATEGY
IRET's investment strategy commits
approximately two-third's of its equity capital
to apartment communities located in cities
offering above average growth potential and the
remaining one-third to commercial properties -
most of which will be leased to a single tenant on
long-term leases. In order to meet yield objectives,
IRET borrows 65-70% of the property purchase
price with the free and clear percentage return of
each property exceeding the interest rate payable
on borrowed funds by two percent or more.
RETURN TO SHAREHOLDERS
From its inception in 1970, IRET has sought to:
Pay a cash dividend equal to or better
than a bank one-year Certificate of
Deposit;
Increase the dividend at a rate in excess of
the inflation rate;
Increase the share price by a percentage
equal to the dividend rate for a total
return to the shareholder at least twice the
return of a one-year Certificate of
Deposit.
T H E C O M P A N Y
F
INVESTORS REAL ESTATE TRUST
ounded in 1970, IRET is a Real Estate
Investment Trust through which individual
investors may benefit from the advantages of
group investment in a professionally managed and
diversified portfolio of income producing real
estate.
As of April 30, 2001, IRET owned 7,869
apartment units and 2,513,518 square feet of
commercial properties located in North Dakota
and twelve other states.
IRET is structured as an Umbrella
Partnership Real Estate Investment Trust
(UPREIT).
IRET operates through an operating
partnership (IRET Properties, a North Dakota Limited
Partnership), which has as its sole General Partner
a wholly owned corporate subsidiary of IRET
(IRET, Inc., a North Dakota Corporation).
UPREIT status allows the owner of appreciated
real estate to contribute that real estate to the
operating partnership in exchange for a Limited
Partnership interest generally without the
recognition of gain.
Cold Spring Center - St. Cloud, Minnesota
2
P R E S I D E N T ’ S R E P O R T
TO OUR FELLOW SHAREHOLDERS
We have much to report about IRET's 31st year. It was another year of significant progress for
our company.
CONSISTENT FINANCIAL RESULTS
We are proud of IRET's 31-year history of consistent growth in earnings, dividends, and share price.
For many investors, the past year has been one of disappointment as previously high performing companies
experienced sharp drops in earnings and share prices. In some cases, the previous significant gains in share value,
as well as much of the investor's original investment, was lost with some companies going out of business
altogether.
While many other companies experienced falling share prices and extreme volatility in the stock market, IRET
continued to deliver solid value to its shareholders by increasing its Funds from Operations, dividends, and share
price.
Dividends increased to 55¢ per share from 50.8¢, an increase of 4.2¢ (8.3%).
Funds from Operations of the Operating Partnership increased to $22,440,463 from $18,327,986, an
increase of $4,112,477 (22%). On a per share basis, FFO increased from 75¢ per share to 79¢ per share,
an increase of 5%. FFO per share would have been approximately 3% higher except for the sharp increase
in natural gas prices for our apartment communities experienced during the latter portion of Fiscal 2001.
Revenues of the Operating Partnership increased to $75,767,150 from $55,445,193, an increase of 37%.
Real Estate Owned increased to $591,636,468 from $449,919,890, an increase of $141,716,578 (31%).
As a result of the sale of additional Shares of Beneficial Interest, shareholder equity increased by
$9,024,569 and, in addition, the equity capital of the Operating Partnership was increased by
$23,885,524 as a result of contributions of real estate in exchange for Operating Units, resulting in a total
increase in equity capital for the Operating Partnership of $32,910,093.
PORTFOLIO EXPANSION
We were able to significantly expand IRET's real estate portfolio. The Operating Partnership invested
$143,042,292 to acquire 22 commercial buildings (1,047,321 square feet) and build 4 and buy 3 apartment
communities (658 apartment units). The detailed list of the individual investments made during Fiscal 2001 are
set forth in the Management's Discussion and Analysis which appears later in this report. The Operating
Partnership also sold three properties during Fiscal 2001 realizing a net gain of $601,605. At the end of the
fiscal year, IRET's real estate portfolio consists of 7,869 apartment units and 2,513,518 square feet of commercial
properties.
We will continue to seek attractive real estate properties to add to our portfolio and anticipate a similar level
of acquisitions during Fiscal 2002.
31 YEARS OF INCREASED DIVIDENDS
IRET increased the dividend paid on its Shares of Beneficial Interest during each quarter of Fiscal Year 2001.
IRET paid its first dividend on June 30, 1971, and has paid a dividend every quarter since that time. During
every year of its existence, IRET has increased its dividend and, since 1988, has increased its dividend every
quarter. The dividend of 14.5¢ per share paid on July 2, 2001, was the 121st consecutive quarterly dividend
paid by IRET.
INCREASED SHARE PRICE
The last trade of IRET shares on the NASDAQ Small Cap Market in Fiscal 2000 was at a price of $7.875 per
share. The last trade on April 30, 2001, was at a price of $8.77, an increase of 11.4%. This is in excess of our
goal of increasing our share price an average of 6% per year which gain in value, together with a dividend of 6%
or greater, will produce a total annual return to our shareholders of 12%. This goal has been achieved on average
over our 31-year history. Of course, not every year will produce an exact total return of 12% - some years will be
higher such as this year and some years will be lower, but we believe that over time IRET's real estate portfolio will
continue to produce this approximate rate of return to our shareholders.
As shown later in this report an investment of $10,000 in IRET shares on June 30, 1971, assuming the
reinvestment of all dividends in additional IRET shares, would have resulted in the ownership of IRET shares
worth nearly $650,000 on April 30, 2001.
3
P R E S I D E N T ’ S R E P O R T
IRET ADDED TO RUSSELL 2000® INDEX
As of June 30, 2001, IRET was added to the Russell 2000® Index which measures the performance of the 2000
smallest companies in the Russell 3000® Index (the 3,000 largest U.S. companies by total market capitalization). This
has been a very positive development for IRET which we believe is responsible for the recent increase in volume and
share price on the NASDAQ Market for IRET shares. A number of mutual funds purchase the shares of companies
on this list. While this initial increase in volume and price may lessen as the mutual fund purchases are completed,
being on the Russell Index will be of significant benefit to IRET over the long term.
SELF-ADVISED STATUS - RETIREMENT OF ROGER R. ODELL
On July 1, 2000, IRET became self-advised. When IRET was formed, the Internal Revenue Code which governed
real estate investment trusts required that IRET employ a separate advisory company. Roger R. Odell served as the
advisor to IRET from its inception until July 1, 2000. Pursuant to an advisory contract between IRET and
Odell-Wentz and Associates, L.L.C., the advisory company provided all office space, personnel, office equipment, and
other equipment and services necessary to conduct all of the day-to-day operations of IRET. With the decision of
Roger to retire as the advisor and as President of IRET, the company obtained an independent appraisal of the value
of the advisory business and assets from certified public accountants not otherwise employed by either IRET or the
advisory company. On July 1, 2000, the IRET Operating Partnership acquired the advisory company assets and
business in exchange for Operating Partnership Units with a value of $2,083,350, the appraised value of those assets
and business. Roger retired on that date and all other officers and employees of the advisory company were employed
by IRET Properties.
STEVEN B. HOYT - NEW TRUSTEE
We are pleased to report the addition of Steven B. Hoyt to our Board of Trustees. Mr. Hoyt is a successful real estate
developer in the Minneapolis area and contributed a number of commercial buildings to the portfolio of the Operating
Partnership in exchange for Operating Partnership Units. We welcome Steve to our Board and look forward to the ben-
efits of his advice and counsel in the years ahead.
A BRIGHT FUTURE
We will continue to build on the firm foundation that
Roger Odell established for IRET. The policies and
values that Roger put in place will guide our efforts in the
years ahead. Our 31-year history of creating value for our
shareholders - due in large part to Roger's vision and hard
work - is our greatest asset. This record of achievement
continues to open doors for us and we will do our best to
build and expand on Roger's legacy.
Thomas A. Wentz, Sr.
President & CEO
Legacy Apartments - Grand Forks, North Dakota
4
O F F I C E R S & S T A F F
Daniel J. Leidholt
Assistant Vice President
Financial Reporting
Michael J. Hale
Assistant Vice President
Security Sales
Ross D. Johnson
Assistant Vice President
Property Management
Donald V. Peterson
Assistant Vice President
Asset Management
Thomas A. Wentz, Sr.
President &
Chief Executive Officer
Timothy P. Mihalick
Senior Vice President &
Chief Operating Officer
Eric M. Schaeffer
Assistant Vice President
Asset Management
Darla J. Strilcov
Assistant Vice President
Shareholder Relations
Thomas A. Wentz, Jr.
Vice President &
General Counsel
Diane K. Bryantt
Secretary &
Chief Financial Officer
Stacy A. Humphreys
Assistant Vice President
Financial Reporting
Michelle R. Saari
Assistant Vice President
Information Specialist
Michael T. Mueller
Assistant Financial
Officer
Sheila R. Evanoff
Property Management
Accounting
Kim A. Ohlhauser
Shareholder Relations
Julie A. Ebert
Administrative Assistant
Linda D. Feldner
Secretary/Receptionist
5
I N V E S T M E N T P O R T F O L I O
Conseco - Rapid City, South Dakota
WASHINGTON
• 304
MONTANA
• 749
• 70,598
IDAHO
• 60
• 69,599
COLORADO
• 597
MINNESOTA
• 1,236
• 1,430,460
IOWA
• 132
NORTH DAKOTA
• 3,085
• 682,893
SOUTH DAKOTA
• 418
• 87,786
NEBRASKA
• 264
• 126,774
KANSAS
• 520
MICHIGAN
• 16,000
TEXAS
• 504
GEORGIA
• 29,408
Apartment Units
Commercial Property Square Footage
REAL ESTATE PORTFOLIO MIX
PROPERTY INVESTMENTS
percentage by state
6
I N V E S T M E N T P O R T F O L I O
Apartment Communities by IRET
Units
Investment
Fiscal 2001
Occupancy
Colorado
Colorado Springs
Neighborhood
Ft. Collins
MiraMont
Pine Cone
Colorado Total
Idaho
Boise
Clearwater
Idaho Total
Iowa
Sioux City
Ridge Oaks
Iowa Total
Kansas
Topeka
Crown Colony
Sherwood
Kansas Total
Minnesota
Moorhead
Eastgate
Rochester
Heritage Manor
Woodridge
Sunset Trail I
Sunset Trail II & III
St. Cloud
Lancaster Place
Park Meadows
West Stonehill
Minnesota Total
Montana
Billings
Castle Rock
Country Meadows I
Country Meadows II
Olympic Village
Rimrock West
Rocky Meadows
Montana Total
Nebraska
Lincoln
Thomasbrook
Nebraska Total
192
210
195
597
60
60
132
132
220
300
520
116
182
108
73
n/a
84
360
313
1,236
165
67
67
274
78
98
749
264
264
$
11,422,781
14,363,539
13,263,860
39,050,180
3,853,638
3,853,638
4,281,967
4,281,967
10,817,090
16,001,205
26,818,295
$
$
$
$
$
$
$
$
2,425,737
7,697,780
6,775,134
7,908,091
4,006,932
3,226,626
11,673,583
11,771,140
55,485,023
5,742,534
4,361,135
4,359,718
11,782,852
3,899,680
6,737,109
36,883,028
9,956,873
9,956,873
$
$
$
$
$
96.27%
97.10%
96.71%
96.88%
92.14%
92.14%
n/a%
n/a%
83.88%
86.97%
86.98%
90.25%
99.41%
98.46%
n/a%
n/a%
95.87%
97.72%
99.64%
97.10%
92.49%
97.34%
97.50%
n/a%
97.12%
96.93%
96.30%
95.91%
95.91%
n/a - non-stabilized property acquired in Fiscal 2001.
7
I N V E S T M E N T P O R T F O L I O
Apartment Communities by IRET - continued
Units
Investment
Fiscal 2001
Occupancy
North Dakota
Bismarck
Cottonwood Lake I & II
Cottonwood III
Crestview
Kirkwood Manor
North Pointe
Pebble Creek
Westwood Park
Dickinson
Century
Eastwood
Oak Manor
Fargo
Candlelight
Park East
Prairiewood Meadows
Sunchase
Grand Forks
Forest Park Estates
Jenner Properties
Legacy
Legacy IV
Southwinds
Valley Park Manor
Minot
Chateau
Colton Heights
Dakota Arms
Magic City
South Pointe
Southview
Williston
Century
Other Communities
134
67
152
108
49
18
64
120
38
27
44
122
85
36
270
121
183
67
164
168
64
18
18
232
196
24
192
26
Beulah Condominiums - Beulah
36
Parkway Apartments - Beulah
Bison Properties - Carrington & Cooperstown
35
Sweetwater Properties - Devils Lake & Grafton 114
12
Lonetree Manor - Harvey
27
The Meadows I - Jamestown
27
The Meadows II - Jamestown
27
The Meadows III - Jamestown
3,085
North Dakota Total
South Dakota
Rapid City
Pointe West
Sioux Falls
Oakwood Estates
Oxbow
Prairie Winds
South Dakota Total
90
160
120
48
418
8
$
9,197,265
4,535,371
4,961,835
3,731,401
2,446,675
784,962
2,205,488
2,321,814
472,395
374,730
977,083
5,136,953
2,839,271
1,042,210
7,482,837
2,231,184
10,997,398
7,031,125
5,972,073
4,713,692
2,468,984
967,733
625,487
5,257,208
10,345,036
728,676
4,125,747
483,155
150,912
614,541
1,626,298
228,846
1,878,636
1,878,636
2,046,455
$ 112,882,112
$
4,061,061
5,664,991
5,030,689
2,013,055
16,769,796
$
88.36%
n/a%
94.30%
93.86%
97.99%
98.04%
99.25%
88.09%
79.00%
97.23%
97.21%
98.75%
n/a%
99.10%
94.70%
94.10%
95.42%
90.86%
90.77%
95.44%
96.86%
93.85%
97.12%
96.62%
97.01%
93.24%
71.35%
55.44%
56.99%
94.36%
76.79%
74.82%
98.40%
97.54%
n/a%
91.99%
94.59%
96.47%
99.53%
99.32%
97.35%
n/a - non-stabilized property acquired in Fiscal 2001.
I N V E S T M E N T P O R T F O L I O
Apartment Communities by IRET - continued
Texas
Irving
Dakota Hill at Valley Ranch
Texas Total
Washington
Vancouver
Ivy Club
Van Mall Woods
Washington Total
Units
Investment
504
504
204
100
304
$
$
$
$
37,617,106
37,617,106
11,827,863
6,151,761
17,979,624
Total Apartment Communities
7,869
$ 361,577,622
Fiscal 2001
Occupancy
92.84%
92.94%
94.19%
96.31%
94.98%
93.96%
Edgewood Vista - Duluth, Minnesota
9
I N V E S T M E N T P O R T F O L I O
Commercial Properties by IRET
Sq. Ft.
Investment
Fiscal 2001
Occupancy
Georgia
Lithia Springs
Wedgewood Retirement Center
Georgia Total
Idaho
Boise
America's Best Furniture
Idaho Total
Michigan
Kentwood
Comp USA
Michigan Total
Minnesota
Bloomington
Pillsbury Business Center
Burnsville
Burnsville Bluffs
Nicollet VII
Duluth
Edgewood Vista
Edgewood Vista II
Eagan
2030 Cliff Road
Lexington Commerce
S.E. Tech Center
East Grand Forks
East Grand Station
Edgewood Vista
Edgewood Vista II
Eden Prairie
Flying Cloud Drive
Lindberg Building
ViroMed
Edina
Dewey Hill Business Center
Southdale Medical Center
Maple Grove
Northgate II
Maplewood & Woodbury
HealthEast I & II
Minnetonka
Hospitality Associates
Moorhead
Pioneer Seed Company
Plymouth
Plymouth Tech IV
Plymouth Tech V
Rochester
Maplewood Square
St. Cloud
Cold Spring Center
Waconia
Stone Container
29,408
29,408
69,599
69,599
16,000
16,000
42,220
26,186
118,400
57,187
26,412
13,374
89,840
58,300
14,490
10,778
5,100
61,217
40,941
48,700
73,338
195,983
25,999
114,216
4,000
13,600
53,309
73,500
118,397
77,533
29,440
$
$
$
$
$
$
3,971,878
3,971,878
4,788,294
4,788,294
2,121,474
2,121,474
$
1,842,970
2,456,646
7,360,670
4,241,450
1,439,737
980,866
5,489,723
6,115,517
1,392,251
899,821
516,700
5,074,810
1,608,535
4,863,634
4,492,381
32,421,070
2,348,979
21,600,999
400,898
653,876
5,891,898
8,136,431
11,898,946
8,395,539
1,666,518
100.00%
100.00%
32.50%
32.50%
100.00%
100.00%
n/a%
n/a%
n/a%
100.00%
100.00%
n/a%
100.00%
100.00%
100.00%
100.00%
n/a
99.18%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
n/a%
100.00%
n/a%
n/a%
98.31%
n/a%
100.00%
n/a - non-stabilized property acquired in Fiscal 2001.
10
Commercial Properties by IRET - continued
Sq. Ft.
Investment
Fiscal 2001
Occupancy
I N V E S T M E N T P O R T F O L I O
Minnesota - continued
Winsted
Sterner Lighting
Minnesota Total
Montana
Belgrade
Edgewood Vista
Billings
Creekside Office Park
Edgewood Vista
Kalispell
Edgewood Vista
Missoula
Edgewood Vista
Montana Total
Nebraska
Columbus
Edgewood Vista
Freemont
Edgewood Vista
Grand Island
Edgewood Vista
Hastings
Edgewood Vista
Omaha
Ameritrade Headquarters
Barnes & Noble
Edgewood Vista
Nebraska Total
North Dakota
Bismarck
Lester Chiropractic Clinic
Fargo
Barnes & Noble
Great Plains Campus Facility
Petco
Stone Container
Grand Forks
Carmike Theatre
MedPark Mall
Minot
1st Avenue Building
12 South Main
17 South Main
114 South Main Street
401 South Main
Arrowhead Shopping Center
Corner Express C-Store
Edgewood Vista
Minot Plaza
North Dakota Total
38,000
1,430,460
1,000,789
$ 143,191,654
5,100
37,318
11,971
5,895
10,314
70,598
5,100
5,100
5,100
5,100
73,774
27,500
5,100
126,774
5,400
30,000
121,600
18,000
193,350
28,300
45,328
15,900
11,300
6,500
3,500
11,200
80,000
4,674
97,821
10,020
682,893
$
453,494
1,868,570
980,218
568,150
962,428
4,832,860
455,626
546,410
455,626
565,777
8,306,535
3,699,197
611,370
14,640,541
268,917
3,259,893
15,375,154
1,278,934
7,000,364
2,545,737
5,642,950
533,765
389,205
90,000
111,996
659,914
2,973,786
1,581,260
6,270,707
509,954
48,492,536
$
$
$
$
$
n/a - non-stabilized property acquired in Fiscal 2001.
11
n/a%
99.73%
100.00%
81.39%
100.00%
100.00%
100.00%
90.38%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
97.31%
58.82%
93.25%
100.00%
0.00%
90.41%
98.74%
100.00%
100.00%
100.00%
98.52%
I N V E S T M E N T P O R T F O L I O
Commercial Properties by IRET - continued
South Dakota
Rapid City
Conseco
Sioux Falls
Edgewood Vista
South Dakota Total
Sq. Ft.
Investment
75,815
11,971
87,786
$
$
7,044,870
974,739
8,019,609
Total Commercial Property
2,513,518
$ 230,058,846
Mortgage Loans Receivable
Mortgages
$100,000 to $500,000
$50,000 to $99,999
$20,000 to $49,999
Less than $20,000
Total
04/30/01 Balance
$
$
992,828
0
43,313
954
1,037,095
Fiscal 2001
Occupancy
100.00%
100.00%
100.00%
98.59%
Rate
8-11%
n/a
8%
7%
HealthEast I - Woodbury, Minnesota
Summary of Investment Portfolio
Real Estate Investments
Property owned
Less accumulated depreciation
Mortgage loans receivable
Total real estate investments
Other Assets
Cash
Marketable securities - held-to-maturity
Marketable securities - available-for-sale
Rent receivable
Prepaid and other assets
Real estate deposits
Tax and insurance escrow
Furniture and fixtures
Goodwill
Deferred charges
Total Assets
12
$ 591,636,468
(44,093,145)
547,543,323
1,037,095
$ 548,580,418
$
6,356,063
2,351,248
660,865
1,925,429
799,973
522,500
4,323,960
187,313
1,550,246
3,064,109
$ 570,322,124
Investors Real Estate Trust and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations
IRET has operated as a "real estate investment trust" under Sections 856-858 of the Internal Revenue Code since
its formation in 1970 and is in the business of owning income-producing real estate investments, both residential and
commercial.
On February 1, 1997, IRET re-structured itself as an Umbrella Partnership Real Estate Investment Trust
(UPREIT). IRET, through its wholly owned subsidiary, IRET, Inc., is the general partner of IRET Properties, a North
Dakota limited partnership (the "Operating Partnership").
On July 1, 2000, IRET became "self-advised" as a result of the acquisition of the advisory business and assets of
Odell-Wentz and Associates, L.L.C. Prior to that date, Odell-Wentz had been the advisor to the Trust and had
furnished office space, employees, and equipment to conduct all of the day-to-day operations of IRET. The Operating
Partnership issued 255,000 of its limited partnership units with an agree value of $8.17 per unit to Odell-Wentz and
Associates, L.L.C. in exchange for the advisory business and assets. The per unit price was set at 95% of the offering
price for new IRET shares which was $8.60 per share as of July, 2000. The valuation of the advisory business and assets
of $2,083,350 was determined by an independent appraisal of the business and assets by a certified public accounting
firm not otherwise employed by either IRET or the advisory company. All employees of the advisory company became
employees of IRET Properties on July 1, 2000, with the exception of Roger R. Odell who retired.
No other material change in IRET's business is contemplated at this time.
The following discussion and analysis should be read in conjunction with the attached audited financial statements
prepared by Brady, Martz & Associates, P.C. of Minot, North Dakota, certified public accountants, which firm and its
predecessors have served as the auditor for IRET since its inception in 1970.
Certain matters included in this discussion are forward-looking statements within the meaning of federal
securities laws. Although IRET believes that the expectations reflected in such forward-looking statements are based
on reasonable assumptions, it can give no assurance that the expectations expressed will actually be achieved. Many
factors may cause actual results to differ materially from IRET's current expectations, including general economic
conditions, local real estate conditions, the general level of interest rates and the availability of financing, timely
completion and lease-up of properties under construction, and various other economic risks inherent in the business
of owning and operating investment real estate.
RESULTS OF OPERATIONS - Fiscal Years Ended April 30, 2001, 2000, and 1999
IRET operates on a fiscal year ending on April 30. The following discussion and analysis is for the fiscal years
ended April 30, 2001, 2000, and 1999.
REVENUES
Total revenues of the Operating Partnership for Fiscal 2001 were $75,767,150, compared to $55,445,193 in Fiscal
2000 and $39,927,262 in Fiscal 1999. The increase in revenues received during Fiscal 2001 in excess of the prior year
revenues was $20,321,957. This increase resulted from:
Rent from 28 properties acquired/completed in Fiscal 2001
Rent from 27 properties acquired in Fiscal 2000 in excess of that received in 2000
Increase in rental income on existing properties
A decrease in Boise Warehouse rent (bankruptcy of tenant)
A decrease in rent - properties sold in 2001
A decrease in interest income
An increase in straight-line rents
An increase in ancillary income
$
6,890,585
12,888,919
93,420
(36,301)
(32,404)
(371,585)
383,015
506,308
$ 20,321,957
13
Investors Real Estate Trust and Subsidiaries
The increase in revenues received during Fiscal 2000 in excess of that received in Fiscal 1999 was $15,517,931.
This increase resulted from:
Rent from 27 properties acquired/completed in Fiscal 2000
Rent from 12 properties acquired in Fiscal 1999 in excess of that received in 1999
An increase in rental income on existing properties
A decrease in rent on the Boise, Idaho Furniture Store (bankruptcy of tenant)
A decrease in rent - properties sold during 1999
An increase in interest income
An increase in rent (straight-line calculations)
$ 10,206,154
4,419,227
579,151
(38,622)
(524,680)
45,337
831,364
$ 15,517,931
As shown by the above analysis, the Fiscal 2001 and 2000 increases in revenues resulted primarily from the
addition of new real estate properties to the Operating Partnership's portfolio. Rents received on properties owned at
the beginning of Fiscal 2000 increased by $579,151 in Fiscal 2000 and only $93,420 in Fiscal 2001. Thus, new
properties generated most of the new revenues during the past two years.
The following is an analysis of the contribution by each of the two categories of real estate owned by IRET -
residential and commercial - to IRET revenues as compared to the year-end depreciated cost of each:
Fiscal Years Ended 4/30
Property Cost (less depreciation)
2001
2000
1999
Commercial
Residential
Total
Revenues
Commercial
Residential
Total
$ 218,261,880
329,281,443
$ 547,543,323
40% $ 112,511,467
304,175,471
60%
100% $ 416,686,938
27% $ 60,141,248
209,572,192
73%
100% $ 269,713,440
22%
78%
100%
$
$
18,994,010
55,806,712
74,800,722
25% $
75%
100% $
11,878,026
42,379,855
54,257,881
22% $
78%
5,775,161
33,010,126
100% $ 38,785,287
15%
85%
100%
Expenses (before depreciation - see Note 11 to Financial Statement for detail)
Commercial
Residential
Total
$
$
10,649,488
39,500,071
50,149,559
21% $
79%
100% $
6,417,909
29,288,023
35,705,932
18% $
82%
2,814,299
22,440,129
100% $ 25,254,428
11%
89%
100%
Segment Gross Profit (before depreciation)
Commercial
Residential
Total
$
$
8,344,522
16,306,641
24,651,163
34% $
66%
100% $
5,460,117
13,091,832
18,551,949
29% $
71%
2,960,862
10,569,997
100% $ 13,530,859
22%
78%
100%
CAPITAL GAIN INCOME
The Operating Partnership realized capital gain income for Fiscal 2001 of $601,605. This compares to $1,754,496
of capital gain income recognized in Fiscal 2000 and the $1,947,184 recognized in Fiscal 1999. A list of the properties
sold during each of these years showing sales price, depreciated cost plus sales costs and net gain (loss) is included in a
later section of this discussion.
EXPENSES AND NET INCOME
The Operating Partnership's operating income for Fiscal Year 2001 increased to $10,187,812 from $8,548,558
earned in Fiscal 2000 and $6,401,676 earned in Fiscal 1999. IRET's Net Income for generally accepted accounting
purposes for Fiscal 2001 was $8,694,240, compared to $8,807,845 in Fiscal 2000 and $7,604,135 in Fiscal 1999. On
a per share basis, net income was $.38 per share in Fiscal 2001 compared to $.42 in Fiscal 2000 and $.44 in
Fiscal 1999.
14
Investors Real Estate Trust and Subsidiaries
These changes in operating income and net income result from the changes in revenues and expenses
detailed below:
For Fiscal 2001, a decrease in net income of $113,605, resulting from:
A decrease in gain on sale of investments
An increase in net rental income
A decrease in interest income
An increase in ancilliary income
An increase in interest expense
An increase in depreciation expense
An increase in operating expenses, administrative, advisory & trustee services
An increase in amortization expense
An increase in minority interest of operating partnership
A decrease in loss on impairment
$ (1,152,891)
12,572,228
(371,585)
506,308
(8,217,228)
(3,839,420)
(119,274)
(212,091)
(598,968)
1,319,316
(113,605)
$
The $1,203,710 increase in net taxable income for Fiscal 2000 over the net income earned in the prior fiscal year
resulted from:
A decrease in gain from sale of investments
An increase in net rental income
(rents, less utilities, maintenance, taxes, insurance and management)
An increase in interest income
An increase in interest expense
An increase in depreciation expense
An increase in operating expenses and advisory trustee services
An increase in amortization expense
An increase in minority interest of operating partnership income
An increase in loss on impairment of properties
$
(192,688)
11,432,978
45,337
(4,912,189)
(2,493,238)
(545,270)
(61,420)
(750,484)
(1,319,316)
1,203,710
$
TELEPHONE ENDORSEMENT FEE
During Fiscal 2001, IRET received a payment of $869,505 from a major telecommunications provider for
allowing marketing access by that company to residents of apartment communities owned by IRET, totaling 5,863
units. The contract provides that IRET will allow promotional materials to be placed in its apartment communities
advertising the availability of telecommunication services over a 12-year period. Of this payment, $110,979 was
recognized as income by IRET during Fiscal 2001. The balance of $758,526 will be recognized ratably over the
remaining portion of the contract period and there is a possibility of a refund of these monies if IRET should violate
the contractual terms of the agreement.
RESULTS FROM STABILIZED PROPERTIES
IRET defines fully stabilized properties as those both owned at the beginning of the prior fiscal year and having
completed the rent-up phase (90% occupancy). "Same store" results for Fiscal 2001 and 2000 for residential and
commercial were:
Same Store - Residential
Scheduled Rent
Total Receipts
Utilities & Maintenance
Management YTD
Taxes & Insurance
Mortgage Interest
Total Expenses
Net Operating Income
$
$
$
Fiscal 2001
38,228,938
37,957,512
8,020,633
3,770,137
4,104,636
9,250,331
25,145,737
12,811,775
15
Fiscal 2000
37,471,897
36,615,535
6,757,467
3,615,178
4,021,124
10,259,450
24,653,219
11,962,316
$
$
$
% Increase
2.0%
3.7%
18.7%
4.3%
2.1%
-10.9%
2.0%
7.1%
Investors Real Estate Trust and Subsidiaries
Same Store - Commercial
Scheduled Rent
Fiscal 2001
$ 6,439,820
Fiscal 2000
$ 6,298,261
% Increase
2.2%
Total Receipts
Utilities & Maintenance
Management YTD
Taxes & Insurance
Mortgage Interest
Total Expenses
Net Operating Income
FUNDS FROM OPERATIONS
6,318,864
336,672
73,638
210,145
2,799,274
$ 3,419,729
$ 2,899,135
6,146,533
285,478
58,356
200,784
2,831,082
$ 3,375,700
$ 2,770,833
2.8%
17.9%
26.2%
7.7%
-11.2%
1.3%
4.6%
IRET considers Funds From Operations ("FFO") a useful measure of performance for an equity REIT. FFO
is defined as net income available to shareholders determined in accordance with generally accepted accounting
principles (GAAP), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation of real
estate assets, and after adjustment for unconsolidated partnerships and joint ventures. IRET uses the National
Association of Real Estate Investment Trusts ("NAREIT") definition of FFO as amended by NAREIT to be effective
January 1, 2000. FFO for any period means the net income of the company for such period, excluding gains or
losses from debt restructuring and sales of property, and plus depreciation and amortization of real estate assets in
IRET's investment portfolio, and after adjustment for unconsolidated partnerships and joint ventures, all determined
on a consistent basis in accordance with GAAP.
FFO presented herein is not necessarily comparable to FFO presented by other real estate companies because not
all real estate companies use the same definition.
FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as a
measure of IRET's liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of IRET's needs or its
ability to service indebtedness or make distributions.
Funds From Operations for the Operating Partnership increased to $22,440,463 for Fiscal 2001, compared to
$18,327,986 for Fiscal 2000 and $12,368,550 for Fiscal 1999.
Calculations of Funds From Operations for the Operating Partnership are as follows:
Item
Fiscal 2001
Fiscal 2000
Fiscal 1999
Net Income available to IRET shareholders
and unitholders from operations and capital gains
Less gain from property sales
Operating income
Plus real estate depreciation and amortization (1)
Funds From Operations
$ 10,789,417
(601,605)
$ 10,187,812
12,252,651
$ 22,440,463
$ 11,622,370
(1,754,496)
9,867,874
8,460,112
$ 18,327,986
$
$
$
8,348,860
(1,947,184)
6,401,676
5,966,874
$ 12,368,550
Weighted average shares and units
outstanding - basic and diluted (2)
28,577,700
24,476,984
19,104,465
Distributions paid to Shareholders/Unitholders (3)
$ 15,732,399
$ 12,492,067
$
8,984,996
(1) Depreciation on office equipment and other assets used by the Company are excluded. Amortization of financing and other
expenses are excluded, except for amortization of leasing commissions which are included.
(2) Limited Partnership Units of the Operating Partnership are exchangeable for Shares of Beneficial Interest of IRET only on a
one-for-one basis.
(3) Distributions made equally on shares and units.
16
Investors Real Estate Trust and Subsidiaries
SELF-ADVISED STATUS
On July 1, 2000, IRET Properties became self-advised. Prior to that date, Odell-Wentz and Associates, L.L.C.,
pursuant to an advisory contract with IRET, provided all office space, personnel, office equipment, and other
equipment and services necessary to conduct all of the day-to-day operations of IRET. Odell-Wentz and its
predecessor firms had acted as advisor to the Trust since its inception in 1970. IRET obtained an independent
appraisal of the value of the advisory business and assets from certified public accounts not otherwise employed by
either IRET or the advisory company. The purchase price for the business and assets was $2,083,350 allocated as
follows:
Real Estate
Furniture, Fixtures & Other Assets
Goodwill
Less Real Estate Mortgages Assumed
Purchase Price
$
$
475,000
193,350
1,645,000
(230,000)
2,083,350
IRET Properties issued 255,000 of its limited partnership units at a value of $8.17 per unit which represented 95%
of the price of shares offered by IRET in July, 2000, in exchange for the above-described assets. Except for Roger R.
Odell, who retired on July 1, 2000, all officers and employees of Odell-Wentz and Associates, L.L.C. were retained by
IRET Properties.
PROPERTY ACQUISITIONS
The Operating Partnership added $143,042,292 of real estate investments to its portfolio during Fiscal 2001,
compared to $155,284,745 added in Fiscal 2000 and $62,455,508 in Fiscal 1999. The Fiscal 2001 and 2000
additions are detailed below:
FISCAL 2001 PROPERTY ACQUISITIONS - For the Period of 05-01-2000 to 04-30-2001
Commercial
12 South Main
17 South Main
2030 Cliff Road
Burnsville Bluffs
Cold Springs Center
Conseco Financial Building
Dewey Hill Business Center
Edgewood Vista Addition
Edgewood Vista Addition
Edgewood Vista
Edgewood Vista
Edgewood Vista
Edgewood Vista
HealthEast I & II
Hospitality Associates
Nicollet VII
Pillsbury Business Center
Plymouth IV & V
Sterner Lighting
Stone Container Addition
Stone Container
Southdale Medical Center
Office
Minot, ND
Office/Apartments
Minot, ND
Office
Eagan, MN
Office
Burnsville, MN
Office
St. Cloud, MN
Office
Rapid City, SD
Office
Edina, MN
Assisted Living
Duluth, MN
Assisted Living
East Grand Forks, MN
Assisted Living
Fremont, NE
Assisted Living
Hastings, NE
Assisted Living
Kalispell, MT
Omaha, NE
Assisted Living
Woodbury & Maplewood, MN Medical Office
Minnetonka, MN
Burnsville, MN
Bloomington, MN
Plymouth, MN
Winsted, MN
Fargo, ND
Waconia, MN
Edina, MN (60.31% part int.) Medical Office
Office
Office
Office
Office
Manufacturing
Manufacturing
Warehouse
Net Rentable
Square Feet
11,300
6,500
13,374
26,186
77,533
75,815
73,338
26,412
5,100
5,100
5,100
5,895
5,100
114,216
4,000
118,400
42,220
126,809
38,000
41,500
29,440
195,983
1,047,321
Purchase Price
385,000
$
90,000
950,000
2,400,000
8,250,000
6,850,000
4,472,895
2,200,000
516,700
535,550
550,800
560,000
610,800
21,588,498
400,000
7,200,000
1,800,000
13,750,000
1,000,000
2,001,879
1,666,500
32,421,070
$ 110,199,692
17
Investors Real Estate Trust and Subsidiaries
FISCAL 2001 PROPERTY ACQUISITIONS - For the Period of 05-01-2000 to 04-30-2001- continued
Residential
Location
Olympic Village
Prairiewood Meadows
Sunset Trail, Phase I
Cottonwood Phase III
Ridge Oaks
Meadows, Phase III
Sunset Trail, Phase II
TOTAL
Billings, MT
Fargo, ND
Rochester, MN
Bismarck, ND***
Sioux City, IA
Jamestown, ND***
Rochester, MN**
Units
274
85
73
67
132
27
n/a
658
Purchase Price
$ 11,616,500
2,811,000
6,493,150
1,854,800
4,195,036
1,865,182
4,006,932
32,842,600
$ 143,042,292
Property not placed in service at April 30, 1999. Additional costs were to be incurred in Fiscal 2000.
**
*** Represents costs to complete a project started in year ending April 30, 2000.
FISCAL 2000 PROPERTY ACQUISITIONS - For The Period of 05-01-1999 to 04-30-2000
Commercial
Location
Property Type
Net Rentable
Square Feet
Purchase Price
Maplewood Square
Great Plains
Edgewood Vista
Edgewood Vista
Edgewood Vista
Corner C-Store
Flying Cloud Drive
Lexington Commerce Center
Northgate II
Southeast Tech Ctr.
MedPark Mall
Edgewood Vista
Rochester, MN
Fargo, ND
Grand Island, NE
Columbus, NE
Belgrade, MT
East Grand Forks, MN
Eden Prairie, MN
Eagan, MN
Maple Grove, MN
Eagan, MN
Grand Forks, ND
Duluth, MN
Retail
Software Mfg.
Assisted Living
Assisted Living
Assisted Living
Convenience Store
Office Building
Office Warehouse
Office Warehouse
Office Warehouse
Retail
Assisted Living
118,397
121,600
5,100
5,100
5,100
14,490
61,217
89,440
25,999
58,300
45,328
57,187
607,258
Apartments
Rimrock West
Valley Park Manor
The Meadows I***
Thomasbrook
Pebble Creek
Country Meadows II***
Crown Colony
Sherwood
Sunset Trail**
Legacy IV
Dakota Hill
The Meadows II
Lancaster Place
The Meadows III**
Cottonwood Lake III**
TOTAL
Billings, MT
Grand Forks, ND
Jamestown, ND
Lincoln, NE
Bismarck, ND
Billings, MT
Topeka, KS
Topeka, KS
Rochester, MN
Grand Forks, ND
Irving, TX
Jamestown, ND
St. Cloud, MN
Jamestown, ND
Bismarck, ND
18
Units
78
168
27
264
18
67
220
300
n/a
67
504
27
84
n/a
n/a
1,824
$ 11,800,000
15,000,000
446,000
446,000
446,000
1,385,000
4,900,000
4,800,000
2,300,000
6,050,000
5,300,000
4,800,000
$ 57,673,000
$
3,750,000
4,400,000
247,700
9,188,470
720,000
3,010,325
10,500,000
15,750,000
1,500,000
4,301,250
36,500,000
1,845,000
3,200,000
68,000
2,631,000
$ 97,611,745
$ 155,284,745
Investors Real Estate Trust and Subsidiaries
PROPERTY DISPOSITIONS
Real estate assets sold by the Operating Partnership during Fiscal 2000 and 1999 were as follows:
Property Sold
Fiscal 2001
Sales Price
Book Value &
Sales Costs
Gain
Evergreen Shopping Center - Evergreen, CO
Chalet Apartments - Minot, ND
Hill Park/aka Garden Grove - Bismarck, ND
Total Fiscal 2001 Gain
$
1,450,000
390,000
2,400,000
Fiscal 2000
Superpumper - Grand Forks, ND
Superpumper - Crookston, MN
Superpumper - Langdon, ND
Superpumper - Sydney, MT
Mandan Apartments - Mandan, ND
Sweetwater Apartments - Devils Lake, ND
Hutchinson Technology - Hutchinson, MN
Jenner 18-Plex - Devils Lake, ND
Virginia Apartments - Minot, ND
Installment Sales
Total Fiscal 2000 Gain
$ 485,000
428,000
239,000
120,000
325,000
480,000
5,200,000
340,000
165,000
$
$
1,448,310
366,566
1,823,518
398,521
338,097
174,648
102,839
249,388
144,697
4,090,997
354,009
175,308
DIVIDENDS
The following dividends were paid during Fiscal Years 2001, 2000 and 1999:
$
$
1,689
23,434
576,482
601,605
$ 86,479
89,903
64,352
17,161
75,612
335,303
1,109,003
(14,009)
(10,308)
1,000
$ 1,754,496
Date
July 1,
October 1,
January 15
April 1, 2000
2001
$
$
.1325
.1350
.1400
.1425
.5500
2000
.124
.126
.128
.130
.508
$
$
1999
.1100
.1150
.1200
.1225
.4675
$
$
HealthEast II - Maplewood, Minnesota
19
Investors Real Estate Trust and Subsidiaries
LIQUIDITY AND CAPITAL RESOURCES
Important equity capital and financing events in Fiscal 2001 were:
As a result of the sale of additional Shares of Beneficial Interest, shareholder equity increased by $9,024,569
and, in addition, the equity capital of the Operating Partnership was increased by $23,885,524 as a result of
contributions of real estate in exchange for Operating Units, resulting in a total increase in equity capital for
the Operating Partnership of $32,910,093.
Mortgage loan indebtedness increased substantially due to the acquisition of new investment properties to
$368,956,930 on 04/30/01 from $265,056,767 on 04/30/00, and $175,071,069 on 04/30/99. The
weighted interest rate on these loans decreased to 7.56% per annum from 7.59% on 04/30/00 compared to
7.12% at the end of Fiscal 1999.
Of new real estate investments, $143,042,292 was made by the Operating Partnership, compared to
$155,284,745 in Fiscal 2000 and $62,455,508 in Fiscal 1999.
Net cash provided from operating activities increased to $22,328,745 from $16,277,085 due to the addition
of new investments to our real estate portfolio.
Net cash used in investing activities declined to $76,165,151 from the $120,041,064 used in Fiscal 2000. This
decrease resulted from the lesser amount of cash used to acquire new investment properties.
Net cash provided from financing activities also declined to $56,743,205 from the year earlier figure of
$103,500,190, again due to the lower activity in acquiring new properties for cash and borrowed funds.
IRET expects that its short-term liquidity requirements will be met through the net cash provided by its
operations and also expects that it will meet its long-term liquidity requirements including scheduled debt maturities,
construction and development activities, and property acquisitions through long-term secured borrowings and the
issuance of additional equity securities by the Operating Partnership, including Shares of Beneficial Interest of the
company as well as limited partnership units of the Operating Partnership to be issued in connection with acquisitions
of improved real estate properties. IRET believes that its net cash provided by operations will continue to be adequate
to meet both operating requirements and the payment of dividends in accordance with REIT requirements in both the
short and long term. Budgeted expenditures for ongoing maintenance and capital improvements and renovations to
its real estate portfolio are expected to be funded from cash flow generated from operations of these properties.
Of the $368,956,930 of mortgage indebtedness on April 30, 2001, $31,592,149 was variable rate mortgages on
which the future interest rate will vary based on changes in the interest rate index for each such loan and the balance
of fixed rate mortgages was $337,364,781. The principal payments due on all of the mortgage indebtedness are as
follows:
Year Ending April 30
2002
2003
2004
2005
2006
Later Years
Total Payments
Mortgage Principal
Payments Due
$ 14,474,108
8,298,146
8,940,912
9,746,970
13,133,365
314,363,429
$ 368,956,930
20
Investors Real Estate Trust and Subsidiaries
IRET has the following properties under construction: a 73-unit apartment complex in Rochester, Minnesota and,
as of April 30, 2001, the estimated cost of completing this complex is $2,500,000, and a 27-unit apartment complex
in Jamestown, North Dakota with an additional estimated cost of completion at April 30, 2001, of $500,000. In
addition, as of April 30, 2001, IRET is committed to provide construction financing for an assisted living and
Alzheimer care facility in Virginia, Minnesota for $7,000,000. IRET had no other commitments for the development
of new real estate properties on April 30, 2001. IRET considers its existing cash and borrowing capacities to be ade-
quate to fund its existing development activities.
The following is a summary of IRET's equity capital and liability conditions at the end of Fiscal 2001 as compared
to prior periods:
IRET's shareholder equity increased to $118,945,160 from $109,920,591 on April 30, 2000, and from
$85,783,297 on April 30, 1999. These increases resulted from the sale of Shares of Beneficial Interest and the
reinvestment of dividends in new shares.
Liabilities of the Operating Partnership increased to $389,086,105 from $287,940,038 on April 30, 2000, and
$191,229,475 as of April 30, 1999. These increases resulted from increased mortgage loans to finance the
acquisition of real estate properties.
Total assets of the Operating Partnership increased to $570,322,124 from $432,978,299 on April 30, 2000,
and $291,493,311 as of April 30, 1999, again, as a result of investments in additional real estate properties.
Cash and marketable securities were $9,368,176, compared to $6,623,495 on April 30, 2000, and $7,412,236
on April 30, 1999.
In addition to its cash and marketable securities, IRET Properties has unsecured line of credit agreements with
First International Bank & Trust, Bremer Bank, and First Western Bank & Trust, all of Minot, North Dakota,
totaling $17,500,000, none of which were in use on April 30, 2001. On April 30, 2000, $6,452,420 was in
use. Credit lines in Fiscal 1999 totaling $11,500,000 were not in use at the end of 1999.
IMPACT OF INFLATION
In Fiscal 2001, IRET experienced a sharp increase in the cost of utilities (primarily natural gas) in its
apartment communities. Of the $3,502,036 total increase in utility and maintenance expense in Fiscal 2001
over the prior year, it is estimated that approximately $800,000 was increased natural gas and snow removal
expense. Since that time, natural gas prices have retreated, but it is possible that IRET's apartment
communities will again experience a sharp increase in utility expenses which may not be recoverable in the
form of increased rent. Maintenance and other rental expenses also continue to increase at the general
inflationary rate of 2-3%. In most cases, IRET has been able to increase rental income sufficient to cover the
normal inflationary increases in rental expenses, but did experience a substantial loss as a result of increased
natural gas and snow removal expenses in Fiscal 2001. With respect to IRET's commercial properties, in
virtually all cases the tenant is responsible to pay utilities and most other rental expenses. However,
commercial leases tend to be of a longer term and IRET is precluded from increasing rent to compensate for
inflationary changes in currency values. In the case of residential properties, no leases are longer than one
year and the majority are for six months or less and thus IRET may raise rent to cover inflationary changes
in expenses and the value of its capital investment, subject to market conditions.
COMPETITION
All of IRET's properties, both residential and commercial, are located in developed areas that include
other competing properties. The competitive properties in a particular area could have a material effect on
IRET's ability to lease its existing properties or any newly developed or acquired properties and on the rents
charged. IRET may be competing with others that have greater resources. In addition, with respect to IRET
apartment communities, other forms of properties, including single-family housing, provide housing
alternatives to potential residents of IRET apartment communities.
21
Investors Real Estate Trust and Subsidiaries
AMERICANS WITH DISABILITIES ACT
All IRET properties must comply with Title III of the Americans with Disabilities Act (the "ADA") to
the extent that such properties are "public accommodations" and/or "commercial facilities" as defined by the
ADA. Compliance with the ADA requirements could require removal of structural barriers to
handicapped access in certain public areas of the IRET properties where such removal is readily achievable.
The ADA does not, however, consider residential properties, such as apartment communities, to be public
accommodations or commercial facilities, except to the extent portions of such facilities, such as the leasing
office, are open to the public. IRET believes that its properties comply with all present requirements under
the ADA and applicable state laws. Noncompliance could result in imposition of fines or an award of
damages to private litigants. If required to make material additional changes, IRET's results of operations
could be adversely affected.
ENVIRONMENTAL REGULATIONS
IRET is subject to federal, state and local environmental regulations that apply to the development of real
property, including construction activities, the ownership of real property, and the operation of commercial
and multi-family apartment communities.
In developing properties and constructing apartments, IRET utilizes environmental consultants to deter-
mine whether there are any flood plains, wetlands or environmentally sensitive areas that are part of the
property to be developed. If flood plains are identified, development and construction is planned so that
flood plain areas are preserved or alternative flood plain capacity is created in conformance with federal and
local flood plain management requirements.
Storm water discharge from a construction facility is evaluated in connection with the requirements for
storm water permits under the Clean Water Act. This is an evolving program in most states. IRET
currently anticipates it will be able to obtain storm water permits for existing or new development.
The Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. sec. 9601 et
seq. ("CERCLA"), and applicable state superfund laws subject the owner of real property to claims or
liability for the costs of removal or remediation of hazardous substances that are disposed of on real property
in amounts that require removal or remediation. Liability under CERCLA and applicable state superfunds
laws can be imposed on the owner of real property or the operator of a facility without regard to fault or even
knowledge of the disposal of hazardous substances on the property or at the facility. The presence of
hazardous substances in amounts requiring response action or the failure to undertake remediation where it
is necessary may adversely affect the owner's ability to sell real estate or borrow money using such real estate
as collateral. In addition to claims for cleanup costs, the presence of hazardous substances on a property could
result in a claim by a private party for personal inquiry or a claim by an adjacent property owner for property
damage.
IRET has a policy that requires an environmental investigation of each property that it considers for pur-
chase or that it owns and plans to develop. The environmental investigation is conducted by a qualified envi-
ronmental consultant. If there is any indication of contamination, sampling of the property is performed by
the environmental consultant. The environmental investigation report is reviewed by IRET prior to
purchase of any property. If necessary, remediation of contamination, including underground storage tanks,
is undertaken prior to development.
IRET has not been notified by any governmental authority of any noncompliance, claim, or
liability in connection with any of its properties, nor of a claim for personal injury or property damage by a
private party in connection with environmental conditions and is not aware of any other environmental
condition with respect to any of its properties that could be considered to be material.
22
Investors Real Estate Trust and Subsidiaries
30 Calendar Year History of Increasing Dividends
Since its first dividend paid July 1, 1971, IRET has never delayed, omitted or reduced its quarterly dividend and
in each of the last 30 calendar years, the annual dividend has increased over the amount paid in the preceding year.
SHARE BID PRICE HISTORY
DIVIDEND HISTORY
TOTAL RETURN PER YEAR
1971
1972
1973
1974
1975
1980
1985
1990
1995
1996
1997
1998
1999
2000
2001*
$1.00
1.10
1.30
1.40
1.50
1.80
3.15
4.50
6.16
6.44
7.13
7.44
7.88
7.88
8.80
1971
1972
1973
1974
1975
1980
1985
1990
1995
1996
1997
1998
1999
2000
2001*
2.75¢
6.20¢
6.55¢
7.10¢
8.00¢
13.25¢
24.25¢
29.90¢
35.25¢
37.38¢
40.18¢
43.70¢
49.25¢
52.55¢
56.50¢
1971
1972
1973
1974
1975
1980
1985
1990
1995
1996
1997
1998
1999
2000
2001*
2.8%
16.2%
24.1%
13.2%
12.9%
13.7%
19.5%
12.1%
10.6%
10.6%
17.0%
10.5%
12.5%
6.7%
18.8%
(End of calendar year bid price per
share of beneficial interest of IRET)
(Total calendar year dividends paid)
*
Annualized as of 06/30/01 - Conversion of actual financial results for the first six months of the
calendar year as of June 30, 2001, into a rate calculation and then annualized into an annual
equivalent rate of return.
Dividends plus share price changes.
(Calendar year dividends paid plus
change in share bid price divided by
previous end of year share bid price.)
30 Calendar Year Performance Comparison
The graph below provides an indicator of the cumulative shareholder returns for the Trust compared to our peer
group (1). The comparison assumes the investment of $100.00 in the stock of IRET and in the stock of our peer group,
and the reinvestment of all dividends. No commissions or income tax impact are reflected in this comparison.
IRET
Peer Group
$6,448
$3,003
72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00
(1) The peer group consists of the real estate investment trusts included by the National Association of Real Estate Investment Trusts
in its Equity Total Return Index.
23
Investors Real Estate Trust and Subsidiaries
INDEPENDENT AUDITOR'S REPORT
Board of Trustees
Investor Real Estate Trust
and Subsidiaries
Minot, North Dakota
We have audited the accompanying consolidated balance sheets of Investors Real Estate Trust and
Subsidiaries as of April 30, 2001 and 2000, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the years ended April 30, 2001, 2000 and 1999. 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 auditing standards generally accepted in the United States
of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material mis-statement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall consolidated financial statement presentation. We believe
that our audits provide a reasonable basis of our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Investors Real Estate Trust and Subsidiaries as of April 30,
2001 and 2000, and the consolidated results of its operations and cash flows for the years ended April 30,
2001, 2000 and 1999, in conformity with accounting principles generally accepted in the United States of
America.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota
May 23, 2001
24
Investors Real Estate Trust and Subsidiaries
CONSOLIDATED BALANCE SHEETS
Years Ended April 30,
2001
2000
ASSETS
Real estate investments
Property owned
Less accumulated depreciation
Mortgage loans receivable
Total Real Estate Investments
Other Assets
Cash
Marketable securities - held-to-maturity
Marketable securities - available-for-sale
Rent receivable
Real estate deposits
Prepaid and other assets
Tax and insurance escrow
Furniture and fixtures
Goodwill
Deferred charges and leasing costs
Total Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Accounts payable and accrued expenses
Notes payable
Mortgages payable
Investment certificates issued
Total Liabilities
$ 591,636,468
(44,093,145)
$ 547,543,323
$ 449,919,890
(33,232,952)
$ 416,686,938
1,037,095
$ 548,580,418
1,529,578
$ 418,216,516
$
6,356,063
2,351,248
660,865
1,925,429
522,500
799,973
4,323,960
187,313
1,550,246
3,064,109
$ 570,322,124
$
3,449,264
2,601,420
572,811
1,055,922
768,850
577,624
3,218,603
0
0
2,517,289
$ 432,978,299
$
8,252,758
0
368,956,930
11,876,417
$ 389,086,105
$ 6,343,595
6,452,420
265,056,767
10,087,256
$ 287,940,038
Minority interest in partnerships
Minority interest of unit holders in operating partnership
$
3,287,665
$ 59,003,194
$
$
0
35,117,670
Shareholder’s Equity
Shares of beneficial interest (unlimited authorization,
no par value, 24,068,346 shares outstanding in
2001 and 22,452,069 shares outstanding in 2000)
Accumulated distributions in excess of net income
Accumulated other comprehensive income/loss
Total shareholders’ equity
Total Liabilities and Shareholders’ Equity
The accompanying notes are an integral part of these financial statements.
25
$ 132,148,768
(13,073,157)
(130,451)
$ 118,945,160
$ 570,322,124
$ 119,233,172
(9,094,076)
(218,505)
$ 109,920,591
$ 432,978,299
Investors Real Estate Trust and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended April 30,
2001
2000
1999
REVENUE
Real estate rentals
Interest, discounts and fees
Total Revenue
EXPENSES
Interest
Depreciation
Utilities and maintenance
Taxes
Insurance
Property management expenses
Loss on impairment of properties
Administrative expenses
Advisory and trustee services
Operating expenses
Amortization
Total Expenses
Income before gain/loss on properties
and minority interest
Gain on sale of properties
Minority interest portion of
$ 74,800,722
966,428
$ 75,767,150
$ 54,257,881
1,187,312
$ 55,445,193
$ 38,785,287
1,141,975
$ 39,927,262
$ 25,231,398
12,299,532
11,546,566
7,545,182
831,963
5,784,423
0
1,057,469
423,227
431,390
428,188
$ 65,579,338
$ 17,014,170
8,460,112
8,044,530
5,282,361
476,962
4,290,275
1,319,316
0
1,159,120
633,692
216,097
$ 46,896,635
$ 12,101,981
5,966,874
6,356,483
4,025,559
384,203
3,288,267
0
0
844,901
402,641
154,677
$ 33,525,586
$ 10,187,812
601,605
$ 8,548,558
1,754,496
$ 6,401,676
1,947,184
operating partnership income
(2,095,177)
(1,495,209)
(744,725)
NET INCOME
Net income per share (basic and diluted)
$ 8,694,240
$
.38
$ 8,807,845
.42
$
$ 7,604,135
.44
$
The accompanying notes are an integral part of these financial statements.
26
Investors Real Estate Trust and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
SHARES OF
NUMBER OF BENEFICIAL
INTEREST
SHARES
DISTRIBUTIONS
IN EXCESS OF
NET INCOME
ACCUMULATED
OTHER
TOTAL
COMPREHENSIVE SHAREHOLDER’S
INCOME (LOSS)
EQUITY
BALANCE APRIL 30, 1998
16,391,412
$
74,708,559
$ (6,666,555)
$
110,622
$
68,152,626
BALANCE APRIL 30, 1999
19,066,954
$
93,095,819
$ (7,255,958)
$
(56,567)
$
85,783,294
Comprehensive Income
Net income
Unrealized loss on
securities available for sale
Total comprehensive income
Dividends distributed
Dividends reinvested
Sale of shares
Shares repurchased
Comprehensive income
Net income
Unrealized loss on
securities available for sale
Total comprehensive income
Dividends distributed
Dividends reinvested
Sales of shares
Shares repurchased
Comprehensive income
Net income
Unrealized loss on
securities available for sale
Total comprehensive income
Dividends distributed
Dividends reinvested
Sales of shares
Fractional shares repurchased
0
0
0
0
7,604,135
0
7,604,135
0
(167,189)
0
762,051
2,368,504
(455,013)
0
5,389,464
16,284,684
(3,286,888)
(8,193,538)
0
0
0
0
0
0
0
0
0
0
0
8,807,845
0
8,807,845
0
(161,938)
0
803,192
3,115,789
(533,866)
0
6,330,301
24,022,246
(4,215,194)
(10,645,963)
0
0
0
0
0
0
0
0
0
0
0
8,694,240
0
8,694,240
0
(88,054)
0
273,155
1,383,908
(40,786)
0
2,230,445
11,001,509
(316,358)
(12,673,321)
0
0
0
0
0
0
0
$
(167,189)
7,436,946
(8,193,538)
5,389,464
16,284,684
(3,286,888)
$
(161,938)
8,645,907
(10,645,963)
6,330,301
24,022,246
(4,215,194)
$
(88,054)
8,782,294
(12,673,321)
2,230,445
11,001,509
(316,358)
BALANCE APRIL 30, 2000
22,452,069
$ 119,233,172
$ (9,094,076)
$
(218,505)
$ 109,920,591
BALANCE APRIL 30, 2001
24,068,346
$ 132,148,768
$(13,073,157)
$
(130,451)
$ 118,945,160
The accompanying notes are an integral part of these financial statements.
27
Investors Real Estate Trust and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended April 30,
2001
2000
1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization
Minority interest portion of operating
partnership income
Accretion of discount on contracts
Gain on sale of properties
Loss on impairment of properties
Interest reinvested in investment certificates
Effects on operating cash flows due to changes in:
(Increase) decrease in real estate deposits
(Increase) decrease in rent receivable
(Increase) decrease in other assets
Increase in tax and insurance escrow
Increase in deferred charges
Increase (decrease) in accounts payable
$
8,694,240
$
8,807,845
$
7,604,135
12,727,720
8,676,209
6,121,551
2,095,177
0
(601,605)
0
360,181
246,350
(990,213)
(201,547)
(1,105,357)
(805,364)
1,495,209
(1,506)
(1,754,496)
1,319,316
363,935
(467,950)
(1,055,922)
(283,838)
(1,457,408)
(1,319,634)
744,725
(2,920)
(1,947,184)
0
408,097
2,192,813
0
(11,884)
(507,127)
(480,413)
and accrued expenses
Net cash provided from operating activities
1,909,163
$ 22,328,745
1,955,325
$ 16,277,085
1,541,190
$ 15,662,983
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of marketable securities
held-to-maturity
Principal payments on mortgage loans receivable
Proceeds from sale of property
Payments for acquisitions and improvement
of properties
Purchase of marketable securities available-for-sale
Investment in mortgage loans receivable
Net cash used for investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of shares, net of issue costs
Proceeds from investment certificates issued
Proceeds from mortgages payable
Repurchase of shares and minority interest units
Dividends paid
Distributions paid to minority interest unitholders
Redemption of investment certificates
Principal payments on mortgage loans
Net increase (decrease) in short-term lines of credit
Net cash provided from financing activities
$
250,172
613,934
0
$
363,014
492,547
7,326,563
$
572,104
372,155
435,787
(72,319,419)
0
(4,709,838)
$ (76,165,151)
(121,931,571)
0
(6,291,617)
$(120,041,064)
(45,325,061)
(181,250)
(7,655,061)
$ (51,781,326)
$ 11,001,509
3,257,574
79,369,000
(5,497,952)
(5,963,290)
(3,059,078)
(1,828,594)
(14,083,544)
(6,452,420)
$ 56,743,205
$ 24,022,246
3,769,003
93,969,098
(4,832,012)
(4,315,662)
(1,846,104)
(5,815,818)
(7,902,981)
6,452,420
$ 103,500,190
$ 16,284,684
4,591,528
32,326,973
(3,534,813)
(2,804,074)
(791,458)
(3,599,050)
(3,774,614)
(1,000,000)
$ 37,699,176
NET INCREASE (DECREASE) IN CASH
CASH AT BEGINNING OF YEAR
CASH AT END OF YEAR
$
$
2,906,799
3,449,264
6,356,063
$
$
(263,789)
3,713,053
3,449,264
$
$
1,580,833
2,132,220
3,713,053
The accompanying notes are an integral part of these financial statements.
28
Investors Real Estate Trust and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS • continued
Years Ended April 30,
2001
2000
1999
SUPPLEMENTARY SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Dividend reinvestment plan
Real estate investment and mortgage loans
receivable acquired through assumption
of mortgage loans payable and accrual
of costs
Mortgage loan receivable transferred to
property owned
Proceeds from sale of properties deposited
directly with escrow agent
Properties acquired through the issuance of
minority interest units in the operating
partnership
Minority partner interest in Southdale Medical Center
Interest reinvested directly in investment certificates
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for:
Interest paid on mortgages
Interest paid on investment certificates
$
2,230,445
$
6,330,301
$
5,389,464
38,611,547
4,049,568
12,458,735
4,709,838
15,000,000
0
4,093,684
0
6,863,691
25,543,524
3,287,655
360,181
21,602,841
0
363,935
6,485,927
0
408,097
$ 23,763,584
745,391
$ 24,508,975
$ 15,670,488
544,977
$ 16,215,465
$ 10,998,722
895,214
$ 11,893,936
The accompanying notes are an integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 • NATURE OF OPERATIONS AND
SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Investors Real Estate
Trust qualifies under Section 856 of the Internal Revenue
Code as a real estate investment trust. The Trust has properties
located primarily throughout the Upper Midwest, with
principal offices located in Minot, North Dakota. The
Company invests in commercial and residential real estate, real
estate contracts, real estate related governmental backed
securities (GNMA), and equity securities in other real estate
investment trusts. Rental revenue from residential properties
represents the major source of revenues for the Trust.
Effective February 1, 1997, the Trust reorganized its
structure in order to convert to Umbrella Partnership Real
Estate Investment Trust (UPREIT) status. The Trust
established an operating partnership (IRET Properties, a
North Dakota Limited Partnership) with a wholly owned
corporate subsidiary acting as its sole general partner (IRET,
Inc., a North Dakota Corporation). At that date, the Trust
transferred substantially all of its assets and liabilities to the
operating partnership in exchange for general partnership
units.
The general partner has full and exclusive management
responsibility for the real estate investment portfolio owned by
the operating partnership. The partnership is operated in a
manner that allows IRET to continue its qualification as a real
estate investment trust under the Internal Revenue Code.
All limited partners of the operating partnership have
"exchange rights" allowing them, at their option, to exchange
their limited partnership units for shares of the Trust on a one
for one basis. The exchange rights are subject to certain
restrictions including no exchanges for at least one year
following the acquisition of the limited partnership units. The
operating partnership distributes cash on a quarterly basis in
the amounts determined by the Trust, which results in each
limited partner receiving a distribution equivalent to the
dividend received by a Trust shareholder.
Effective July 1, 2000, the Trust became self-administered
as a result of the acquisition of its former advisory company,
29
Investors Real Estate Trust and Subsidiaries
Odell-Wentz & Associates, LLC. Virtually all officers and
employees of Odell-Wentz & Associates, LLC were retained by
the Trust. Please refer to Note 9 for information concerning
the impact of this acquisition on the accompanying financial
statements.
BASIS OF PRESENTATION - The consolidated
financial statements include the accounts of Investors Real
Estate Trust and all of its subsidiaries in which it maintains a
controlling interest. The Trust is the sole shareholder of IRET,
Inc., which is the general partner of the operating partnership,
IRET Properties. The trust is also the sole shareholder of
Miramont IRET Inc. and Pine Cone IRET Inc., both of
which are invested in real estate.
The Trust is the sole shareholder of the following entities:
Forest Park -IRET, Inc., Thomasbrook -IRET, Inc., Dakota -
IRET, Inc., MedPark -IRET, Inc., Flying Cloud -IRET, Inc.,
Meadows 2 -IRET, Inc., and IRET -Ridge Oaks, LLC. These
entities are the sole general partners and IRET Properties is the
sole limited partner for the following limited partnerships,
respectively: Forest Park Properties, a North Dakota Limited
Partnership; Thomasbrook Properties, a Nebraska Limited
Partnership; Dakota Hill Properties, a Texas Limited
Partnership; MedPark Properties, a North Dakota Limited
Partnership; and 7901 Properties L.P., a Minnesota Limited
Partnership, Meadows 2 Properties, LP, a North Dakota
Limited Partnership, and Ridge Oaks, LP an Iowa Limited
Partnership. IRET Properties is also the sole owner of Health
Investors Business Trust. These entities are all invested in real
estate and are primarily formed and acquired for the beneficial
ownership of certain properties that may be encumbered by
mortgage indebtedness.
The consolidated financial statements also include the
ownership of a controlling interest in Minnesota Medical
Investors LLC, SMB Operating Company LLC, and SMB
MM LLC, collectively known as Southdale Medical Center.
These companies are accounted for under the consolidation
method of accounting with minority interests reflecting the
minority partners' share of ownership and income and
expenses being recorded on a 30-day lag basis.
All material inter-company transactions and balances have
been eliminated in the consolidated financial statements.
ACCOUNTING POLICIES
NEW ACCOUNTING PRONOUNCEMENTS - The
Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition," which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements.
The Trust's accounting policies comply with SAB 101 in all
material respects.
Statement of Financial Accounting Standards ("SFAS")
No. 133, Accounting for Derivative Instruments and Hedging
Activities, establishes accounting and reporting standards
requiring that every derivative instrument be recorded on the
balance sheet as either an asset or liability measured at its fair
value. The statement requires that changes in the derivative's
fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Certain provisions of SFAS
133 were amended by SFAS 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" an
amendment of Statement 133." SFAS 133 has no impact as
the Trust does not currently use derivatives.
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.
for
improvements
PROPERTY OWNED - Real estate is stated at cost.
Expenditures
that
renewals and
significantly add to the productive capacity or extend the
useful life of an asset are capitalized. Interest, real estate taxes,
and other development costs relating to the acquisition and
development of certain qualifying properties are also
capitalized. Expenditures for maintenance and repairs which
do not add to the value or extend useful lives are charged to
expense as incurred.
The Trust assesses whether there has been an impairment
in the value of its real estate by comparing its carrying amount
to the aggregate undiscounted future cash flows without
interest charges. Such cash flows consider factors such as
expected future operating income, trends and prospects as well
as the effects of demand, competition and other economic
factors. Such market factors include a lessee's ability to pay
rent under the terms of the lease. If a property is leased at a
significantly lower rent, the Trust may recognize a loss if the
income stream is not sufficient to recover its investment. If
impairment is determined to be present, the loss is measured
as the amount by which the carrying value exceeds the
property's fair value.
The fair value of the property is the amount which would
be recoverable upon the disposition of the property.
Techniques used to establish fair value include present value of
estimated expected future cash flows using a discount rate
commensurate with the risks involved, or appraised value.
REAL ESTATE HELD FOR SALE is stated at the lower
of its carrying amount or estimated fair value less disposal
costs. Depreciation is not recorded on assets classified as held
for sale.
In the normal course of business the Trust will receive
offers for sale of its properties, either solicited or unsolicited.
For those offers that are accepted, the prospective buyer will
usually acquire a due diligence period before consummation of
the transaction. It is not unusual for matters to arise that result
in the withdrawal or rejection of the offer during this process.
As a result, real estate is not classified as "held for sale" until it
is likely, in the opinion of management, that a property will be
disposed of in the near term, even if sale negotiations for such
property are currently under way. There were no properties
considered "held for sale" at April 30, 2001 or 2000.
FURNITURE AND FIXTURES consists of office
furniture, fixtures, and equipment located at the Trust's
operational head quarters and are stated at cost net of
accumulated depreciation. Accumulated depreciation was
$215,757 and $0 at April 30, 2001 and 2000, respectively.
DEPRECIATION is provided to amortize the cost of
individual assets over their estimated useful lives using
principally the straight-line method. Useful lives range from
5 - 12 years for furniture and fixtures to 20 - 40 years for
buildings and improvements.
MORTGAGE LOANS RECEIVABLE - are shown at
cost. Interest income is accrued and reflected in the related
balance.
30
Investors Real Estate Trust and Subsidiaries
ALLOWANCE FOR DOUBTFUL ACCOUNTS - The
Trust evaluates the need for an allowance for doubtful accounts
periodically. In performing its evaluation, management
assesses the recoverability of individual real estate mortgage
loans and rent receivables by a comparison of their carrying
amount with their estimated net realizable value.
MARKETABLE SECURITIES - The Trust's investments
in securities are classified as securities "held-to-maturity" and
securities "available-for-sale." The securities classified as
"available-for-sale" consist of equity shares in other real estate
investment trusts and are stated at fair value. Unrealized gains
and losses on securities available-for-sale are recognized as
direct increases or decreases in shareholders' equity. Cost of
securities sold are recognized on the basis of specific
identification. The securities classified as "held-to-maturity"
consist of Government National Mortgage Association
securities for which the Trust has positive intent and ability to
hold to maturity. They are reported at cost, adjusted by
amortization of premiums and accretion of discounts which
are recognized in interest income using the straight-line
method over the period to maturity which approximates the
effective interest method.
REAL ESTATE DEPOSITS consist of funds held by an
escrow agent to be applied toward the purchase of real estate
qualifying for gain deferral as a like-kind exchange of property
under section 1031 of the Internal Revenue Code. It also
consists of earnest money, or "good faith deposits," to be used
by the Trust toward the purchase of property or the payment
of loan costs associated with loan refinancing.
GOODWILL is amortized on a straight-line basis over a
period of 15 years. The Trust periodically reviews goodwill for
impairment and if a permanent decline in value has occurred,
the Trust will reduce its goodwill balance to fair value.
Accumulated amortization of goodwill was $91,191 and $0 at
April 30, 2001 and 2000, respectively.
DEFERRED LEASING AND LOAN ACQUISITION
COSTS - Costs and commissions incurred in obtaining
tenant leases are amortized on the straight-line method over
the terms of the related leases. Costs incurred in obtaining
long-term financing are amortized over the life of the loan and
charged to amortization expense over the terms of the related
debt agreements.
MINORITY INTEREST - Interests in the operating
partnership held by limited partners are represented by
operating partnership units. The operating partnerships'
income is allocated to holders of units based upon the ratio of
their holdings to the total units outstanding during the period.
Capital contributions, distributions, and profits and losses are
allocated to minority interests in accordance with the terms of
the operating partnership agreement.
The Trust reflects minority interests in the Southdale
Medical Center on the balance sheet for the portion of
properties consolidated by the Trust that are not wholly owned
by the Trust. The earnings or losses from these properties
attributable to the minority interests are reflected as limited
partner minority interests in the consolidated statements of
operations.
31
NET INCOME PER SHARE - Effective May 1, 1998,
the Trust adopted Statement of Financial Accounting Standard
No. 128, Earnings Per Share. Basic net income per share is
computed using the weighted average number of shares
outstanding. There is potential for dilution of net income per
share due to the conversion option of operating partnership
units. However, basic and diluted net income per share are the
same. The computation of basic and diluted net income per
share can be found in Note 12.
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 90% 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 the
Internal Revenue Code Section 701(b) and 704(c).
REVENUE RECOGNITION - Residential rental
properties are leased under operating leases with terms
generally of one year or less. Commercial properties are leased
under operating leases to tenants for various terms exceeding
one year. Lease terms often include renewal options. Rental
revenue is recognized on the straight-line basis, which averages
minimum required rents over the terms of the leases. Rents
recognized in advance of collection is reflected as rent
receivable, net of allowance for doubtful accounts of $120,314
and $0 as of April 30, 2001 and 2000, respectively.
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. These percentage rents are recorded once
the required sales level is achieved and are included in rental
income at that time. These leases also typically provide for
tenant reimbursement of common area maintenance and other
operating expenses.
Profit on sales of real estate shall be recognized in full
when real estate is sold, provided 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 and the
earnings process is virtually complete, that is, the seller is not
obliged to perform significant activities after the sale to earn
the profit. Any gain or loss on the sale of disposition is
recognized in accordance with accounting principles generally
accepted in the United States of America.
Investors Real Estate Trust and Subsidiaries
Interest on mortgage loans receivable is recognized in
income as it accrues during the period the loan is outstanding.
In the case of non-performing loans, income is recognized as
discussed in Note 4.
RECLASSIFICATIONS - Certain previously reported
amounts have been reclassified to conform with the current
financial statement presentation.
THE DIVIDEND REINVESTMENT PLAN
is
available to all shareholders of the Trust. Under the Dividend
Reinvestment Plan, shareholders may elect for their dividends
to be used by the plan administrator to acquire additional
shares on the NASDAQ Small Cap Market or, if not available,
directly from the Trust. Amounts are deposited with the plan
administrator in advance of the dividend date to acquire shares
for dividend reinvestment.
NOTE 2 • OFF-BALANCE-SHEET RISK
The Trust had deposits at First Western Bank, Bremer
Bank, and First International Bank which exceeded Federal
Deposit Insurance Corporation limits by $3,844,663,
$785,073 and $561,155, respectively, at April 30, 2001.
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:
Years Ending April 30,
Residential
2001
2000
$ 361,577,622
$ 329,205,116
Less accumulated depreciation
(32,296,179)
( 25,029,645)
$ 329,281,443
$ 304,175,471
Commercial
$ 230,058,846
$ 120,714,774
Less accumulated depreciation
(11,796,966)
( 8,203,307)
Remaining Cost
$ 218,261,880
$ 112,511,467
$ 547,543,323
$ 416,686,938
There were no repossessions during the years ended April
30, 2001 and 2000.
The above cost of residential real estate owned included
construction in progress of $6,307,018 and $6,190,287 as of
April 30, 2001 and 2000, respectively. As of April 30, 2001,
the trust expects to fund approximately $3,500,000 during the
upcoming year to complete these construction projects. The
Trust also has outstanding offers to purchase selected
properties as part of their normal operations. As of April 30,
2001, significant signed purchase commitments are estimated
at $23,400,000 for the upcoming year.
Construction period interest of $316,644, $404,089 and
$211,882 has been capitalized for the years ended April 30,
2001, 2000 and 1999, respectively.
Residential apartment units are rented to individual
tenants with lease terms up to one year. Gross revenues from
residential rentals totaled $55,806,712, $42,379,855 and
$33,010,126 for the years ended April 20, 2001, 2000 and
1999, respectively.
Gross revenues from commercial property rentals totaled
$18,994,010, $11,878,026 and $5,775,161 for the years
ended April 30, 2001, 2000 and 1999, respectively.
Commercial properties are leased to tenants under terms of
leases expiring at various dates through 2024. 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 $124,092, $102,659 and
$101,032 for the years ended April 30, 2001, 2000 and 1999,
respectively.
The future minimum lease payments to be received under
these operating leases for the commercial properties as of April
30, 2000, are as follows:
Year Ending April 30,
2002
2003
2004
2005
2006
Thereafter
$
$
20,379,372
19,239,427
18,626,368
17,681,872
16,268,305
126,659,158
218,854,502
Loss on impairment of two commercial properties totaled
$1,319,316 for the year ended April 30, 2000. Impairment
losses were determined based on present value of estimated
expected future cash flows from each property. The carrying
value of First Avenue Building, located in Minot, North
Dakota, was reduced by $311,202. The carrying value of a
commercial building located in Boise, Idaho was reduced by
$1,008,114. There were no losses on impairment of properties
for the years ended April 30, 2001 and 1999.
NOTE 4 • MORTGAGE LOANS RECEIVABLE
Mortgage loans receivable consists of seven contracts
which are collateralized by real estate. Contract terms call for
monthly payments of principals and interest. Interest rates
range from 7% to 11%. Mortgage loans receivable have been
evaluated for possible losses considering repayment history,
market value of underlying collateral, and economic
conditions.
Future principal payments due under the mortgage loans
contracts as of April 30, 2001, are as follows:
Year Ending April 30,
2002
2003
2004
2005
2006
Later Years
32
$
$
765,530
98,252
43,313
0
0
130,000
1,037,095
Investors Real Estate Trust and Subsidiaries
There were no significant non-performing mortgage loans
receivable as of April 30, 2001 and 2000. Non-performing
loans are recognized as impaired in conformity with FASB
Statement No. 114, Accounting by Creditors for Impairment
of a Loan. The average balance of impaired loans for the years
ended April 30, 2001 and 2000 was not significant. For
impairment recognized in conformity with FASB Statement
No. 114, the entire change in present value of expected cash
flows is reported as bad debt expense in the same manner in
which impairment initially was recognized or as a reduction in
the amount of bad debt expense that otherwise would be
reported. Additional interest income that would have been
earned on loans if they had not been non-performing was not
significant in 2001, 2000, or 1999. There was no interest
income on non-performing loans recognized on a cash basis
for 2001, 2000, and 1999.
NOTE 5 • MARKETABLE SECURITIES
The amortized cost and estimated market values of
marketable securities held-to-maturity at April 30, 2001 and
2000 are as follows:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$ 2,351,248
$ 80,159
$ 77,389
$ 2,354,018
$ 2,601,420
$ 34,608
$ 159,785
$ 2,476,243
2001
ISSUER GNMA
2000
ISSUER GNMA
The amortized costs and estimated market values of
marketable securities available-for-sale at April 30, 2001 and
2000 are as follows:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
2001
Equity shares in other REITs $
2000
Equity shares in other REITs $
791,316
$ 97,209
$ 227,660
791,316
$ 65,338
$ 283,843
$
$
660,865
572,811
There were no realized gains or losses on sales of securities
for the years ended April 30, 2001, 2000 and 1999.
Marketable securities held-to-maturity consists of
Governmental National Mortgage Association (GNMA)
securities bearing interest from 6.5% to 9.5% with maturity
dates ranging from May 15, 2016, to September 15, 2023.
The following is a summary of the maturities of securities
held-to-maturity at April 30, 2001 and 2000:
AMORTIZED FAIR
COST VALUE
Due After 10 years
$2,351,248
$2,354,018
AMORTIZED FAIR
VALUE
$2,476,243
COST
$2,601,420
2001
2000
A second unsecured line of credit from First International
Bank & Trust was issued in the amount of $3,500,000
carrying an interest rate equal to prime and maturing October
15, 2002, the weighted average interest rate for year ended
April 30, 2001 was 8.15%. A third unsecured line of credit
from Bremer Bank was issued in the amount of $10,000,000
carrying an interest rate equal to Bremer Financial Corp.'s
reference rate and maturing August 1, 2002, the weighted
average interest rate for year ended April 30, 2001 was 8.99%.
Interest payments are due monthly on all three notes. As of
April 30, 2001, the Trust had no unpaid balances on any of
their lines of credit. As of April 30, 2000, the trust had an
unpaid balance of $6,452,420 on the line of credit at Bremer
Bank.
NOTE 7 • MORTGAGES PAYABLE
Mortgages payable as of April 30, 2001, included
mortgages on properties owned totaling $368,956,930. The
carrying value of the related real estate owned was
$577,045,712.
Mortgages payable as of April 30, 2000, included
mortgages on properties owned totaling $265,054,767. The
carrying value of the related real estate owned was
$410,776,553.
Monthly installments are due on the mortgages with
interest rates ranging from 6.47% to 9.75% and with varying
maturity dates through November 30, 2036.
Of the mortgages payable, the balances of fixed rate
mortgages totaled $337,364,781 and $232,919,354, and the
balances of variable rate mortgages totaled $31,592,149 and
$32,137,413 as of April 30, 2001 and 2000, respectively.
The aggregate amount of required future principal
payments on mortgages payable is as follows:
Year Ending April 30,
2002
2003
2004
2005
2006
Later years
Total payments
$
$
14,474,108
8,298,146
8,940,912
9,746,970
13,133,365
314,363,429
368,956,930
NOTE 8 • INVESTMENT CERTIFICATES ISSUED
The Trust has placed investment certificates with the
public. The interest rates vary from 6% to 9% 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.
NOTE 6 • NOTES PAYABLE
As of April 30, 2001, the trust had lines of credit available
from three financial institutions. An unsecured line of credit
was issued by First Western Bank & Trust in the amount of
$4,000,000 carrying an interest rate equal to prime and
maturing August 15, 2002, the weighted average interest rate
for year ended April 30, 2001 was 9.46%.
Year Ending April 30,
2002
2003
2004
2005
2006
Thereafter
33
$
$
5,820,502
1,326,062
1,932,291
669,657
2,116,601
11,304
11,876,417
Investors Real Estate Trust and Subsidiaries
NOTE 9 • TRANSACTIONS WITH RELATED
PARTIES
Through June 30, 2000, the advisor to the Trust was
Odell-Wentz & Associates, LLC. Roger R. Odell and Thomas
A. Wentz, Sr. were the owners of Odell-Wentz & Associates
LLC and also officers and shareholders of the Trust. Under the
advisory contract between the Trust and Odell-Wentz &
Associates, LLC, the Trust paid 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, 2001, Odell-Wentz & Associates, LLC
received total fees under said agreement of $265,573. The fees
for April 30, 2000, were $1,400,973 and for April 30, 1999,
were $951,234.
For the years ended April 30, 2001, 2000 and 1999, the
Trust has capitalized $58,250, $316,458, and $195,019
respectively, of these fees, with the remainder of 207,323,
$1,084,515, and $756,215, respectively, expensed as advisory
fees on the statement of operations. The advisor was obligated
to provide office space, staff, office equipment, computer
services and other services necessary to conduct the business
affairs of the Trust.
On July 1, 2000, IRET Properties acquired assets from
Odell-Wentz & Associates, LLC in exchange for operating
partnership units at a total purchase price of $2,083,350. This
acquisition included real estate, furniture, fixtures, equipment
and other assets of approximately $675,000, goodwill of
approximately $1,645,000, and the assumption of mortgages
and other liabilities of approximately $236,000. Except for
Roger R. Odell who retired, all officers and employees of
Odell-Wentz & Associates, LLC were retained by IRET
Properties.
As part of the acquisition of Odell-Wentz & Associates,
LLC, IRET Properties acquired a note receivable due from
Timothy P. Mihalick of approximately $100,000. Timothy P.
Mihalick was an officer of Odell Wentz & Associates, LLC and
is currently an officer 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 $114,421 for services
rendered from May 1, 2000 through June 30, 2000, IMM
received $649,729, and $609,783 for services rendered for
years ended April 30, 2000, and 1999, 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 from May 1, 2000 through June
30, 2000 were $6,861. Fees for services totaled $100,081, and
$157,392, for the years ended April 30, 2000 and 1999,
respectively.
The Trust paid fees and expense reimbursements to the
law firm in which Thomas A. Wentz, Jr. was, until December
31, 1999, a partner totaling $89,497 and $33,022 for the
years ended April 30, 2000, and 1999, respectively. Thomas A.
Wentz, Jr. is a trustee of the Trust.
Investment certificates issued by the Trust to officers and
trustees totaled $80,000, $200,000, and $2,138,758 at April
30, 2001, 2000 and 1999, respectively.
Management believes that all activity with related parties
were transacted at amounts consistent with current fair market
prices.
NOTE 10 • MARKET PRICE RANGE OF SHARES
For the year ended April 30, 2001, a total of 3,668,819
shares were traded in 4,692 separate trades. The high trade
price during the period was 8.980, low was 7.375, and the
closing price on April 30, 2001 was 8.770. For the year ended
April 30, 2000, a total of 4,058,018 shares were traded in
3,414 separate trades. The high trade price during the period
was 17.875, low was 7.681, and the closing price on April 30,
2000 was 7.875. For the year ended April 30, 1999, a total of
1,862,187 shares were traded in 1,017 separate trades. The
high trade price during the period was 14.00, low was 6.50,
and the closing price on April 30, 1999 was 7.50.
NOTE 11 • OPERATING SEGMENTS
Operating segments are defined as components of an
enterprise about which separate financial information is
available that is evaluated by the chief decision makers in
deciding how to allocate resources and
in assessing
performance. Operating segments of the Trust are determined
to be commercial and residential rental operations. All
properties falling into these categories have similar economic
characteristics, as well as similar production processes, type of
regulatory
customers,
environments. Although information is available on a
property-by-property basis, including rental income and
operating expenses, analysis and decisions are primarily made
based on residential and commercial segments. Generally,
segmental information follows the same accounting policies
utilized for consolidated reporting, except, certain expenses,
such as depreciation, are not allocated to segments for
management purposes.
distribution methods,
and
The following information summarizes the Trust's
segment reporting for residential and commercial properties
along with reconciliations to the consolidated financial
statements:
YEAR ENDING APRIL 30, 2001
Segment Revenue
Rental revenue
Segment Expenses
Mortgage interest
Utilities and maintenance
Taxes
Insurance
Property management
Total Segment Expenses
Segment Gross Profit
COMMERCIAL RESIDENTIAL TOTAL
$ 18,994,010
$
55,806,712
$ 74,800,722
8,043,382
1,012,658
1,083,759
161,941
347,748
$ 10,649,488
8,344,522
$
16,398,046
10,533,905
6,461,423
670,022
5,436,675
39,500,071
16,306,641
24,441,428
11,546,563
7,545,182
831,963
5,784,423
$ 50,149,559
$ 24,651,163
$
$
Reconciliation to consolidated operations:
966,428
Interest discounts and fee revenue
(789,973)
Other interest expense
(12,299,532)
Depreciation
(1,480,696)
Advisory and trust fees
(431,390)
Operating expenses
Amortization
(428,188)
Consolidated income before gain/loss on properties and minority interest $ 10,187,812
34
Investors Real Estate Trust and Subsidiaries
APRIL 30, 2001
Segment Assets
Property owned
$ 230,058,846
$ 361,577,622
$ 591,636,468
Less accumulated depreciation
(11,796,966)
(32,296,179)
(44,093,145)
Total consolidated property owned $ 218,216,880
$ 329,281,443
$ 547,543,323
YEAR ENDING APRIL 30, 2000
Segment Revenue
Rental revenue
Segment Expenses
COMMERCIAL RESIDENTIAL TOTAL
$ 11,878,026
$
42,379,855
$ 54,257,881
Mortgage interest
3,980,450
12,312,038
16,292,488
Utilities and maintenance
Taxes
Insurance
Property management
Loss on impairment of properties
Total Segment Expenses
Segment Gross Profit
452,229
481,191
52,288
132,435
1,319,316
6,417,909
5,460,117
$
$
$
$
7,592,301
4,801,170
424,674
4,157,840
0
8,044,530
5,282,361
476,962
4,290,275
1,319,316
29,288,023
$ 35,705,932
13,091,832
$ 18,551,949
NOTE 12 • EARNINGS PER SHARE
Basic earnings per share are computed by dividing the
earnings available to stockholders by the weighted average
number of shares outstanding during the period. Diluted
earnings per share reflect per share amounts that would have
resulted if potential dilutive securities had been converted to
shares. Operating partnership units can be exchanged for
shares on a one for one basis. The following tables reconciles
amounts reported in the consolidated financial statements for
the years ended April 30, 2001, 2000, and 1999:
2001
2000
1999
NUMERATOR
Net income applicable to shares
$
8,694,240
$
8,807,845
$
7,604,135
Numerator for basic earnings
per share
8,694,240
8,807,845
7,604,135
Minority interest portion of
operating partnership income
2,095,177
1,495,209
744,725
Reconciliation to consolidated operations:
Interest discounts and fee revenue
Other interest expense
Depreciation
Advisory and trust fees
Operating expenses
Amortization
1,187,312
(721,682)
(8,460,112)
(1,159,120)
(633,692)
(216,097)
Consolidated income before gain/loss on properties and minority interest
$
8,548,558
APRIL 30, 2000
Segment Assets
Property owned
Numerator for diluted
earnings per share
DENOMINATOR
Denominator for basic
earnings per share
$ 10,789,417
$
10,303,054
$
8,348,860
Weighted average shares
23,071,500
20,899,848
17,441,976
Effect of dilutive securities
Convertible operating
partnership units
Denominator for diluted
earnings per share
Basic earnings per share
5,506,200
3,577,136
1,662,489
28,577,700
0.38
0.38
$
$
24,476,984
0.42
0.42
19,104,465
0.44
0.44
$
$
$
$
$ 120,714,774
$ 329,205,116
$ 449,919,890
Diluted earnings per share
Less accumulated depreciation
(8,203,307)
(25,029,645)
(33,232,952)
Total consolidated property owned $ 112,511,467
$ 304,175,471
$ 416,686,938
YEAR ENDING APRIL 30, 1999
Segment Revenue
Rental revenue
Segment Expenses
Mortgage interest
Utilities and maintenance
Taxes
Insurance
Property management
Total Segment Expenses
Segment Gross Profit
COMMERCIAL RESIDENTIAL TOTAL
$
5,775,161
$
33,010,126
$ 38,785,287
2,417,316
113,374
192,930
30,067
60,612
8,782,600
6,243,109
3,832,629
354,136
11,199,916
6,356,483
4,025,559
384,203
3,227,655
3,288,267
$
$
2,814,299
2,960,862
$
$
22,440,129
$ 25,254,428
10,569,997
$ 13,530,859
Reconciliation to consolidated operations:
Interest discounts and fee revenue
Other interest expense
Depreciation
Advisory and trust fees
Operating expenses
Amortization
1,141,975
(902,065)
(5,966,874)
(927,063)
(320,479)
(154,677)
Consolidated income before gain/loss on properties and minority interest
$
6,401,676
APRIL 30, 1999
Segment Assets
Property owned
$ 67,250,863
$ 228,574,976
$ 295,825,839
Less accumulated depreciation
(7,109,615)
(19,002,784)
(26,112,399)
Total consolidated property owned $ 60,141,248
$ 209,572,192
$ 269,713,440
NOTE 13 • RETIREMENT PLAN
As part of the acquisition on July 1, 2000 of Odell-Wentz &
Associates, LLC, the Trust assumed a defined contribution
profit sharing retirement plan and a defined contribution
401K retirement plan. Employees over the age of 21 and after
completion of one year of service are eligible to participate in
the profit sharing plan. Contributions to the profit sharing
plan are at the discretion of the management. All employees
are immediately eligible to participate in the 401K plan and
may contribute up to 15% of their compensation subject to
maximum levels. The Trust matches up to 3% of
participating employees' wages. Pension expense of the Trust
for the year ended April 30, 2001 was $45,301.
NOTE 14 • COMMITMENTS AND
CONTINGENCIES
The Trust, as an owner of real estate, is subject to various
environmental laws of Federal and local governments.
Compliance by the Trust with existing laws has not had a
material adverse effect on the Trust's financial condition and
results of operations. However, the Trust cannot predict the
impact of new or changed laws or regulations on its current
properties or on properties that it may acquire in the future.
35
Investors Real Estate Trust and Subsidiaries
NOTE 15 • FAIR VALUE OF FINANCIAL
INSTRUMENTS
The following methods and assumptions were used to
estimate the fair value of each class of financial instruments for
which it is practicable to estimate that value:
Mortgage loans receivable - Fair values are based on the
discounted value of future cash flows expected to be received
for a loan using current rates at which similar loans would be
made to borrowers with similar credit risk and the same
remaining maturities.
Cash - The carrying amount approximates fair value because
of the short maturity of those instruments.
Marketable securities - The fair values of these instruments
are estimated based on quoted market prices for these
instruments.
Notes payable - The carrying amount approximates
fair value because of the short maturity of those notes.
Mortgages payable - For variable rate loans that
re-price frequently, fair values are based on carrying
values. The fair value of fixed rate loans is estimated
based on the discounted cash flows of the loans using
current market rates.
Investment certificates issued - The fair value is
estimated using a discounted cash flow calculation that
applies interest rates currently being offered on deposits
with similar remaining maturities.
Accrued interest payable - The carrying amount
approximates fair value because of the short-term nature
of which interest will be paid.
The estimated fair values of the Company’s financial
instruments are as follows:
QUARTERLY RESULTS OF CONSOLIDATED
OPERATIONS (unaudited)
QUARTER ENDED
7-31-00
10-31-00
01-31-01
04-30-01
Revenues
Income before gain on
properties and minority
interest
Net gain on sale of
properties
Minority interest of
unitholders in operating
partnership
Net Income
Per share
$17,431,644 $18,404,260 $19,004,737 $20,926,509
2,565,131
2,707,811
2,719,679
2,195,191
0
0
25,124
576,481
(425,667)
2,139,464
(538,618)
2,169,193
(426,316)
2,327,262
(704,576)
2,058,321
Income before gain/loss on
properties and minority
interest
Net Income
.11
.09
.12
.10
.12
.10
.09
.09
QUARTER ENDED
7-31-99
10-31-99
01-31-00
04-30-00
Revenues
Income before gain(loss) on
properties and minority
$11,201,913 $12,900,697 $14,054,660 $17,287,923
interest
1,801,322
2,478,912
2,390,868
3,196,772
Net gain(loss) on sale of
properties
Loss on Impairment of
Properties
Minority interest of
unitholders in operating
partnership
Net Income
Per share
Income before gain/loss on
properties and minority
interest
Net Income
257,895
1,519,918
0
0
0
0
(23,317)
(1,319,316)
(235,935)
1,823,282
(579,625)
3,419,205
(369,028)
2,021,840
(310,621)
1,543,518
.10
.09
.12
.16
.11
.11
.14
.06
QUARTER ENDED
7-31-98 10-31-98 01-31-99 04-30-99
Revenues
Income before gain on
properties and minority
interest
Net gain on sale of
properties
Minority interest of
unitholders in operating
partnership
Net Income
Per share
$ 9,102,179 $ 9,836,370 $10,236,797 $10,151,916
1,327,851
1,760,067
1,732,928
1,580,830
366,017
1,341,899
80,122
158,146
(133,863)
1,560,005
(287,579)
2,814,387
(158,820)
1,654,228
(164,463)
1,575,515
Income before gain on
properties and minority
interest
Net Income
.07
.09
.09
.17
.09
.09
.08
.09
2001
2000
Carrying Fair Carrying Fair
Amount Value Amount Value
6,356,063
6,356,063
FINANCIAL ASSETS
Mortgage loan receivable $ 1,037,095 $ 1,037,095 $ 1,650,284 $ 1,650,284
3,449,264
Cash
Marketable securities
held-to-maturity
Marketable securities
available-for-sale
FINANCIAL LIABILITIES
Notes payable
Mortgages payable
Investment certificates
$
368,956,930 356,434,028 265,057,767
0 $ 6,452,420 $ 6,452,420
250,897,221
2,351,248
2,354,018
2,476,243
3,449,264
2,601,420
572,811
660,865
660,865
572,811
0 $
issued
Accrued interest payable
11,876,417
2,369,454
11,804,535
2,369,454
10,087,256
1,679,000
10,810,160
1,679,000
The following 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.
36
. . . an expression of
APPRECIATION
to our Founder
C O N T E N T S
FISCAL2001 FINANCIALHIGHLIGHTS
1
THE COMPANY
2
PRESIDENT’S REPORT
3
6
INVESTMENTPORTFOLIO
13 MANAGEMENT’S DISCUSSION
23
23
24
25
29
& ANALYSIS
DIVIDEND HISTORY
PERFORMANCE HISTORY
INDEPENDENTAUDITOR’S REPORT
CONSOLIDATED FINANCIALSTATEMENTS
NOTES TO CONSOLIDATED
FINANCIALSTATEMENTS
36
QUARTERLYRESULTS OF
CONSOLIDATED OPERATIONS
Building A Foundation . . .
IRET’s mission statement reflects man-
agement’s commitment to its shareholders and
best expresses Roger’s vision for IRET.
The following paragraph from that statement
epitomizes Roger’s dedication to IRET.
“Creating value for our shareholders requires a
Roger R. Odell
commitment to excellence in every aspect of our operations - from choosing the real estate investments
to purchase and managing those investments in a professional manner, to communicating with and
servicing each shareholder account.”
Roger wholeheartedly believed in these words and, through his guidance, IRET flourished
to where it is today. Few in the United States rival Roger’s foresight and intelligence in the real
estate business. Roger helped build IRET from the ground up and he has laid a foundation
which will allow continued success for many years to come.
While Roger has retired, we at IRET take solace in knowing that his office is only a block
away and his phone line and door are always open. As for the past and to the present, we want
to say “Thank you, Roger! ”
Shareholder Information
Trustees
Executive Officers
Investors Real Estate Trust and Subsidiaries
Thomas A. Wentz, Sr.
President & CEO
Timothy P. Mihalick
Senior Vice President & COO
Thomas A. Wentz, Jr.
Vice President & General
Counsel
Diane K. Bryantt
Secretary & CFO
CORPORATE HEADQUARTERS
Investors Real Estate Trust
12 South Main Street, Suite 100
PO Box 1988
Minot, North Dakota 58702-1988
Telephone: (701) 837-4738
Fax: (701) 838-7785
email: info@iret.com
website: www.iret.com
GENERAL COUNSEL
Pringle & Herigstad, P.C.
2nd Floor, Bremer Bank Building
Minot, North Dakota 58701
Telephone: (701) 852-0381
AUDITORS
Brady Martz & Associates, P.C.
Certified Public Accountants
24 West Central
Minot, North Dakota 58701
Jeffrey L. Miller
Chairman & Trustee
C. Morris Anderson
Vice Chairman & Trustee
Daniel L. Feist
Vice Chairman & Trustee
John F. Decker
Trustee
Patrick G. Jones
Trustee
Stephen L. Stenehjem
Trustee
Timothy P. Mihalick
Trustee
Thomas A. Wentz, Jr.
Trustee
Steven B. Hoyt
Trustee
SEC FORM 10-K
Copies of Investors Real Estate Trust’s Annual Report on Form 10-K filed with the Securities
and Exchange Commission will be furnished without charge upon written request to Darla J. Strilcov
at Investors Real Estate Trust.
ANNUAL MEETING
Investors Real Estate Trust will hold its 31st Annual Meeting of Shareholders in the Executive
Room, International Inn, 1505 North Broadway, Minot, North Dakota, at 7:00 P.M. on Tuesday,
September 25, 2001.
STOCK TRADING INFORMATION
Investors Real Estate Trust shares trade on the NASDAQ Small Cap Market under the symbol
IRETS.
DIVIDEND REINVESTMENT PLAN
Investors Real Estate Trust offers to its shareholders the option to automatically reinvest their
dividends through the Dividend Reinvestment Plan. For additional information, please contact Darla J.
Strilcov, Shareholder Relations, at Investors Real Estate Trust.
COMMON SHAREHOLDERS OR RECORD/SHARES OUTSTANDING
As of July 20, 2001, Investors Real Estate Trust had approximately 5,614 shareholders of
record and 24,261,256 shares outstanding.