Investors Real Estate Trust Annual Report 2002

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FY2002 Annual Report · Investors Real Estate Trust

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creating value for shareholders

O U R

Y E A R

fiscal 2002 annual report

Report of the Trustees to the Meeting of Shareholders

September 24, 2002

C O N T E N T S

1
2
3
6
12

25
25
26
27
31

FISCAL 2002 FINANCIAL HIGHLIGHTS
THE COMPANY
PRESIDENT’S REPORT
INVESTMENT PORTFOLIO
MANAGEMENT’S DISCUSSION

& ANALYSIS

DISTRIBUTION HISTORY
PERFORMANCE HISTORY
INDEPENDENT AUDITOR’S REPORT
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

QUARTERLY RESULTS OF

CONSOLIDATED OPERATIONS

Thresher Square Lobby • Minneapolis, MN

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below for the fiscal years ended April 30, 2002, 2001 and
2000, has been derived from the our financial statements, which have been audited by Brady Martz & Associates,
P.C., independent auditors, whose report thereon is included in this report. The consolidated financial data for
the years ended April 31, 1999 and 1998 have been derived from audited financial statements not included in
this report. These historical results are not necessarily indicative of the results to be expected in the future. The
following table is qualified by reference to and should be read in conjunction with the consolidated financial
statements, related notes thereto and other financial data included elsewhere in this report.

YEARS ENDED APRIL 30,
Consolidated Income Statement

2002

2001

2000

1999

1998

Data Revenue

$ 93,016,069

$ 75,767,150

$ 55,445,193

$ 39,927,262

$ 32,407,545

Income before Gain/Loss on

Properties and Minority Interest

$ 13,865,934

$ 10,187,812

8,548,558

6,401,676

4,691,198

Gain on Repossession/Sale of Properties

546,927

601,605

1,754,496

1,947,184

465,499

Minority Interest of Portion of

Operating Partnership Income

(3,812,732)

(2,095,177)

(1,495,209)

(744,725)

(141,788)

Net Income

$ 10,600,129

8,694,240

8,807,845

7,604,135

Funds From Operations*

$ 29,143,549

$ 22,440,463

$ 18,327,986

$ 12,368,550

5,014,909

9,483,105

Consolidated Balance Sheet Data

Total Real Estate Investments

$ 685,346,681

$ 548,580,418

$ 418,216,516

$ 280,311,442

$ 213,211,369

Total Assets

Shareholders’ Equity

PER SHARE

Net Income

Distributions

Funds From Operations*

$ 730,209,018

$ 570,322,124

$ 432,978,299

$ 291,493,311

$ 224,718,514

$ 145,578,131

$ 118,945,160

$ 109,920,591

$ 85,783,294

$ 68,152,626

.42

.59

.86

.38

.55

.79

.42

.51

.75

.44

.47

.65

.32

.42

.60

Industry analysts generally consider funds from operations to be an appropriate measure of the performance of an equity REIT. Funds from operations is
defined as net income increased by non-cash deductions of real estate asset depreciation, and amortization, and reduced by capital gain income and other
extraordinary income items.

REVENUE
in millions of dollars

FUNDS FROM OPERATIONS
in millions of dollars

DISTRIBUTIONS
per share

TOTAL ASSETS
in millions of dollars

93.02

75.77

55.45

39.93

32.41

12.37

9.48

29.14

.59

.55

.51

.47

.42

22.44

18.33

730.21

570.32

432.98

291.49

224.72

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 IRET except when accompanied by a prospectus.

INVESTMENT STRATEGY

IRET's investment strategy is to own real
estate primarily in Minnesota, North Dakota,
South Dakota, Montana, and Nebraska and to
diversify our investments among multi-family
residential and a variety of commercial properties.
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 distribution equal to or better than
a bank one-year certificate of deposit;
Increase its distributions to shareholders at a
rate in excess of the inflation rate;
Increase the share price by a percentage equal
to the distribution rate for a total return to the
shareholder at least twice the return of a
one-year certificate of deposit.

CASH DISTRIBUTION POLICY

It is our policy to distribute approximately
70% of our funds from operations (net income
reduced by capital gain income and increased by
real estate depreciation). We invest the remaining
30% of FFO to make capital improvements to
existing properties and also to acquire more
properties. By reinvesting 30% of FFO, we
expect
income-producing
capability of our portfolio.

to enhance

the

THE COMPANY

Founded 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 diver-
sified portfolio of income-producing real estate.

communities

As of April 30, 2002, IRET owned 66
apartment
containing 8,296
apartment units and 67 commercial properties
with 3,796,480 square feet of rentable space
located in North Dakota and twelve other states.

IRET

structured

as
an Umbrella
Investment Trust
Partnership Real Estate
(UPREIT) and conducts its business 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 real estate to
the operating partnership in exchange for a
limited partnership interest generally without the
recognition of gain.

EXECUTIVE OFFICERS

THOMAS A. WENTZ, SR.
PRESIDENT & CEO

THOMAS A. WENTZ, JR.
V I C E P R E S I D E N T & G E N E R A L C O U N S E L

TIMOTHY P. MIHALICK
S E N I O R V I C E P R E S I D E N T & COO

DIANE K. BRYANTT
S E C R E TA RY & C H I E F F I N A N C I A L O F F I C E R

PRESIDENT’S REPORT

TO OUR FELLOW SHAREHOLDERS

April 30, 2002, marked the completion of IRET's 32nd year of operations and we are pleased to report

financial results that were consistent with our past history and our goals for this year.

FINANCIAL RESULTS
For IRET's 32nd year which ended on April 30, 2002, revenues, net income, funds from operations and cash
distributions to shareholders increased in line with our expectations.

Revenues of the operating partnership for fiscal 2002 increased to $93,016,069, compared to the year
earlier figure of $75,767,150, an increase of 22.8%.

Net income, determined under generally accepted accounting principles, increased to $10,600,129 from
$8,694,240 an increase of 21.9%. On a per share basis, net income rose to $.42 from $.38, an increase of
10.5%.

for

fiscal

Funds from operations (net income reduced
by capital gain income and increased by real
estate depreciation) for the operating
partnership
2002 were
$29,143,549, compared to $22,440,463 in
the prior year, an increase of 29.9%. On a
per share basis, funds from operations
(FFO) reached 86.27¢ per share compared
to 78.52¢ per share in the prior year, an
increase of 9.9%.

Cash distributions to IRET shareholders
and the holders of operating partnership
units increased to 59.45¢ per share for fiscal
2002, compared to 55¢ paid in the prior
fiscal year, an increase of 8%. The cash
distribution paid on July 1, 2002, was again
increased to 15.4¢ per share and unit
compared to the 15.2¢ paid on April 1,
2002.

STRAIGHT-LINE RENTS

Dakota Hill at Valley Ranch • Irving, TX

Beginning with fiscal year 2000, an accounting pronouncement requires us to record as revenue “straight-line
rents” on commercial leases having periodic rent increases. Thus, we are required to record rent income that will
not actually be collected until later years. The total “straight-line rents” included in the above revenue, net
income, and FFO figures are $1,311,105 for fiscal 2002 and $1,214,379 for fiscal 2001.

PORTFOLIO EXPANSION

IRET's operating partnership invested $143,280,342 during fiscal 2002 to complete construction of one
apartment community and acquire four apartment communities containing 517 apartment units and 10
commercial buildings totaling 1,276,603 square feet of net rentable space. In addition, the operating partnership
invested $8,708,331 to make capital improvements to existing properties. Two apartment complexes consisting
of 48 apartment units and three commercial properties totaling 13,574 square feet were disposed of during
fiscal 2002. The operating partnership ended the year owning 66 apartment communities with 8,296 apartment
units and 67 commercial properties totaling 3,796,480 rentable square feet.

PRESIDENT’S REPORT

CHANGE IN PORTFOLIO MIX - MORE COMMERCIAL, LESS APARTMENTS

IRET has historically sought to weight its real estate portfolio toward apartments and we expected that
apartments would make up 65% to 75% of our holdings. However, during the last three years, we have chosen
to direct more of our investment dollars to commercial properties because we thought that course offered the best
value for our shareholders. For example, of the $143,280,342 invested to acquire real estate properties during
fiscal 2002, only $23,950,924 (17%) went to acquire apartment communities. While we have actively sought
to direct more of our equity capital to apartments, we have been unable to locate very many apartment properties
that meet our investment criteria. We will continue to search diligently for apartment investments, but at the
present time we find apartments to be priced at a higher level then we deem justified and will continue to choose
the most attractive investment, regardless of the type.

INCREASE IN EQUITY CAPITAL

IRET successfully completed two public offerings of its shares of beneficial interest during fiscal 2002 and
the first month of its current year. The proceeds from these public offering of shares, together with proceeds
received from the Distribution Reinvestment Plan resulted in shareholder equity increasing to $145,578,131 at
year-end, compared to the year earlier figure of $118,945,160, an increase of $26,632,971 (22.4%). In
addition, the minority interest in the operating partnership increased to $76,460,046, compared to the year
earlier figure of $59,003,194, an increase of $17,456,852, for a total increase in equity capital available to the
operating partnership of $44,089,824.

32 YEARS OF INCREASED CASH DISTRIBUTIONS TO SHAREHOLDERS

IRET again increased the cash distribution paid on its shares of beneficial interest and operating partnership
units during each quarter of fiscal year 2002. For the fiscal year, distributions increased to 59.45¢ per share,
compared to 55¢ per share paid in the prior fiscal year, an increase of 8%. IRET made its first cash distribution
to shareholders on June 30, 1971, and has paid a cash distribution during every quarter of its existence and has
increased its annual distribution every year since that time. Since 1988, IRET has also increased its distribution
every quarter. On July 1, 2002, the cash distribution was increased to 15.4¢ per share and unit and was the 125th
consecutive quarterly cash distribution paid by IRET.

Mendota Northland Center • Mendota Heights, MN

PRESIDENT’S REPORT

INCREASED SHARE PRICE

The last trade of IRET shares on the NASDAQ National Market on April 30, 2002, was at a price of $10.03
per share. The last trade on April 30, 2001, was at a price of $8.77 resulting in an increase of 14.4% during the
fiscal year. This was on top of a similar increase during fiscal year 2001 when the price increased to $8.77 from
the year earlier figure of 7.875¢ per share for an increase of 11.4%. These increases were substantially in excess
of our goal of increasing our share price an average of 6% per year which, together with a cash distribution to
shareholders of 6% per year, will produce a total annual return to our shareholders of 12% per annum. IRET
has met this goal on average over its 32-year history.

While it is gratifying to see the sharp increase in our share price, we must realize that a very important
reason for this increase has been the decrease in the attractiveness of competing investments. Because of the
decline in interest income available on bank deposits and bonds and the disappointment experienced by many
investors in common stocks, it is our opinion that there has been a willingness to pay a higher price to purchase
IRET shares because of IRET’s past performance.

In the near future, we do not expect a continuation of the recent double-digit percentage increases in the price
of IRET shares. When interest rates paid on bank deposits and government and corporate bonds return to
higher levels and common stocks regain their attractiveness to investors, some of the money that has flowed into
real estate, including IRET shares, will be re-deployed into these competing investments.

We will do our best to continue to deliver to our shareholders the same consistent financial results they have

enjoyed over the past 32 years.

IRET ON THE NASDAQ NATIONAL MARKET

As of April 9, 2002, IRET's application to have its shares of beneficial interest listed and traded on the

National NASDAQ Market became effective.

INCREASE IN INSURANCE COSTS

IRET's portfolio-wide general liability and property insurance policies expired on April 30, 2002, and were
renewed at similar coverage levels. IRET's new policy excludes coverage for terrorist attacks. We estimate that
our property and causality insurance premiums will be approximately $500,000 higher than during the prior
fiscal year (approximately 17% of the insurance premiums paid by IRET is billed back to commercial tenants).
Of course, we are insuring approximately $150,000,000 of additional properties so a portion of this premium
increase is due to the additional properties added to our portfolio, but the remainder is a result of the insurance
industry's implementation of premium increases due to the September 11, 2001, terrorist attacks and other stress
on the insurance industry.

THE FUTURE

We will continue to devote our efforts to build and expand upon IRET's 32-year history of creating value for
our shareholders. We have an attractive portfolio of real estate assets that we feel will continue to deliver
consistent financial results. We have funds on hand to acquire additional real estate properties and will do so by
using the same criteria to evaluate new investments that we have used throughout the past 32 years.

Sincerely,

Thomas A. Wentz Sr.
President & CEO

INVESTMENT PORTFOLIO

WASHINGTON
304

IDAHO
69,599
60

MONTANA
67,548
770

NORTH DAKOTA
675,455
2,995

MINNESOTA
2,721,207
1,309

SOUTH DAKOTA
87,615
607

NEBRASKA
129,568
498

IOWA
132

MICHIGAN
16,080

COLORADO
597

KANSAS
520

Apartment Units

Commercial Property Square Footage

TEXAS
504

GEORGIA
29,408

PROPERTY INVESTMENTS
percentage by state

REAL ESTATE PORTFOLIO MIX

53% Apartment Units

47% Commercial Real Estate

43.7% Minnesota

21.9% North Dakota

5.3% Colorado

5.8% Montana

5.1% Texas

4.8% Nebraska

4.7% South Dakota

3.7% Kansas

2.4% Washington

1.2% Idaho

.6% Iowa

.5% Georgia

.3% Michigan

P R O P E R T Y M A N AG E M E N T

D O N A L D V. P E T E R S O N
AVP, A S S E T M A N AG E M E N T

E R I C M. S C H A E F F E R
AVP, A S S E T M A N AG E M E N T

S H E I L A R. E VA N O F F
P R O P E RT Y M A N AG E M E N T AC C O U N T I N G

M I C H A E L T. M U E L L E R
A S S I S TA N T F I N A N C I A L O F F I C E R

DA N I E L J. L E I D H O LT
AVP, F I N A N C I A L R E P O RT I N G

●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
INVESTMENT PORTFOLIO

APARTMENT COMMUNITIES BY IRET

STATE

LOCATION

UNITS

INVESTMENT

FISCAL 2002
OCCUPANCY

COLORADO

MiraMont
Neighborhood
Pine Cone
Colorado Total

IDAHO

Clearwater

Idaho Total

IOWA

Ridge Oaks

Iowa Total

KANSAS

Crown Colony
Sherwood

Kansas Total

MINNESOTA
Eastgate
Heritage Manor
Lancaster Place
Park Meadows
Sunset Trail I
Sunset Trail II & III
West Stonehill
Woodridge
Minnesota Total

MONTANA

Castle Rock
Country Meadows I
Country Meadows II
Olympic Village
Pinehurst
Rimrock West
Rocky Meadows

Montana Total

NEBRASKA

Ft. Collins
Colorado Springs
Ft. Collins

Boise

Sioux City

Topeka
Topeka

Moorhead
Rochester
St. Cloud
St. Cloud
Rochester
Rochester
St. Cloud
Rochester

Billings
Billings
Billings
Billings
Billings
Billings
Billings

Applewood on the Green
Thomasbrook

Omaha
Lincoln

Nebraska Total

NORTH DAKOTA

408 South Main
Beulah Condominiums
Bison Properties
Candlelight
Century
Century
Chateau
Colton Heights

Minot
Beulah
Carrington & Cooperstown
Fargo
Dickinson
Williston
Minot
Minot

n/a - non-stabilized property acquired in fiscal 2002.

210
192
195
597

60
60

132
132

220
300
520

116
182
84
360
73
73
313
108
1,309

165
67
67
274
21
78
98
770

234
264
498

--
26
35
44
120
192
64
18

$
$

14,458,518
11,556,236
13,322,465
39,337,219

3,873,512
3,873,512

4,595,627
4,595,627

10,881,547
16,268,055
27,149,602

2,521,483
7,897,920
3,260,739
12,010,183
7,772,834
7,187,759
11,970,748
6,849,155
59,470,821

5,828,773
4,371,416
4,364,972
11,983,207
751,310
3,987,318
6,772,511
38,059,507

10,810,426
10,155,696
20,966,122

46,907
488,324
624,590
1,031,859
2,448,472
4,230,209
2,522,589
971,797

94.90%
94.35%
92.14%
93.17%

90.75%
90.75%

92.70%
92.70%

93.31%
93.64%
93.50%

95.99%
93.51%
92.74%
96.47%
87.24%
73.01%
98.47%
97.56%
95.60%

92.38%
96.42%
93.65%
96.34%
n/a
99.13%
97.40%
95.57%

n/a
95.91%
95.91%

--
74.64%
79.74%
96.08%
96.28%
86.39%
83.84%
96.03%

INVESTMENT PORTFOLIO

APARTMENT COMMUNITIES BY IRET

STATE

LOCATION

UNITS

INVESTMENT

FISCAL 2002
OCCUPANCY

NORTH DAKOTA - CONTINUED

Cottonwood Lake
Crestview
Dakota Arms
Eastwood
Forest Park Estates
Jenner Properties
Kirkwood Manor
Legacy I & II
Legacy IV
Lonetree Manor
Magic City
North Pointe
Oak Manor
Park East
Parkway Apartments
Pebble Springs
Prairiewood Meadows
South Pointe
Southview
Southwinds
Sweetwater Properties
The Meadows I & II
The Meadows III
Valley Park Manor
Westwood Park
North Dakota Total

SOUTH DAKOTA

Canyon Lake
Pointe West
Oakmont
Oxbow
Prairie Winds
Rosewood/Oakwood

South Dakota Total

TEXAS

Bismarck
Bismarck
Minot
Dickinson
Grand Forks
Grand Forks
Bismarck
Grand Forks
Grand Forks
Harvey
Minot
Bismarck
Dickinson
Fargo
Beulah
Bismarck
Fargo
Minot
Minot
Grand Forks
Devils Lake & Grafton
Jamestown
Jamestown
Grand Forks
Bismarck

Rapid City
Rapid City
Sioux Falls
Sioux Falls
Sioux Falls
Sioux Falls

Dakota Hill at Valley Ranch

Irving

Texas Total

WASHINGTON
Ivy Club
Van Mall Woods

Washington Total

Vancouver
Vancouver

201
152
18
37
270
107
108
183
67
12
220
49
27
122
36
16
85
195
24
164
90
54
27
168
64
2,995

109
90
80
120
48
160
607

504
504

204
100
304

13,851,674
5,075,589
633,823
539,559
7,640,288
2,266,932
3,790,492
11,095,774
7,084,888
237,579
5,040,460
2,449,895
404,129
5,196,596
181,421
796,799
2,896,253
10,381,859
733,498
6,088,737
1,705,184
3,759,313
2,198,016
5,171,931
2,253,752
$ 113,839,188

$
$

4,280,120
4,314,422
5,257,468
5,063,044
2,027,036
5,794,377
26,736,467

37,814,473
37,814,473

11,896,204
6,191,712
18,087,916

92.37%
99.04%
99.21%
88.14%
96.51%
95.40%
94.24%
98.00%
98.27%
68.91%
96.86%
98.96%
96.58%
99.19%
82.48%
99.08%
95.37%
95.03%
95.18%
97.04%
81.92%
98.11%
89.98%
95.53%
99.79%
95.27%

n/a
93.10%
n/a
95.39%
93.96%
93.32%
94.00%

91.30%
91.30%

90.14%
96.81%
92.40%

TOTAL APARTMENT COMMUNITIES

8,296

$ 389,930,454

94.40%

n/a - non-stabilized property acquired in fiscal 2002.

INVESTMENT PORTFOLIO

COMMERCIAL PROPERTIES BY IRET

STATE

GEORGIA

LOCATION

SQUARE
FOOTAGE

INVESTMENT

FISCAL 2002
OCCUPANCY

Wedgewood Retirement Center
Georgia Total

Lithia Springs

IDAHO

America's Best Warehouse
Idaho Total

Boise

MICHIGAN

Comp USA
Michigan Total

MINNESOTA

2030 Cliff Road
Bloomington Business Center
Burnsville Bluffs
Cold Spring Center
Cottage Grove Center
Dewey Hill Business Center
East Grand Station
Edgewood Vista I & II
Edgewood Vista I & II
Edgewood Vista
Flying Cloud Drive
HealthEast I & II
Hospitality Associates
Interlachen Corporate Center
Lexington Commerce
Lindberg Building
Maplewood Square
Mendota Center I
Mendota Center II
Mendota Center III
Mendota Center IV
Mendota Northland Center
Morgan Chemical
Nicollet VII
Northgate II
Pillsbury Business Center
Pioneer Seed Company
Plymouth Tech IV & V
Southdale Medical Center
Southeast Tech Center
Sterner Lighting
Stone Container
Stone Container
Thresher Square East
Thresher Square` West
ViroMed
Wayroad
Wirth Corporate Center
Minnesota Total

Kentwood

Eagan
Bloomington
Burnsville
St. Cloud
Cottage Grove
Edina
East Grand Forks
Duluth
East Grand Forks
Virginia
Eden Prairie
Maplewood & Woodbury
Minnetonka
Edina
Eagan
Eden Prairie
Rochester
Mendota Heights
Mendota Heights
Mendota Heights
Mendota Heights
Mendota Heights
New Brighton
Burnsville
Maple Grove
Bloomington
Moorhead
Plymouth
Edina
Eagan
Winsted
Roseville
Waconia
Minneapolis
Minneapolis
Eden Prairie
Minnetonka
Golden Valley

n/a - non-stabilized property acquired in fiscal 2002.

29,408
29,408

69,599
69,599

16,080
16,080

13,374
121,064
45,158
77,533
15,217
73,338
16,103
74,984
16,392
70,313
62,585
114,316
4,000
105,084
89,840
41,880
118,398
59,852
88,398
60,776
72,231
146,808
49,620
125,385
25,999
42,220
13,600
126,809
195,983
58,300
38,000
229,072
29,440
57,891
54,945
48,700
62,383
75,216
2,721,207

$
$

3,971,878
3,971,878

4,788,294
4,788,294

2,121,474
2,121,474

982,763
7,445,108
2,453,911
8,397,336
1,116,089
4,869,054
1,392,251
7,183,519
1,430,136
6,958,383
5,160,600
21,600,999
405,548
16,691,307
5,486,349
1,608,535
11,906,217
10,196,443
8,014,563
6,853,818
8,604,537
17,610,899
2,428,810
7,360,670
2,357,893
1,842,601
653,876
14,347,790
32,588,538
6,115,854
1,000,789
8,265,239
1,666,518
6,560,775
4,559,183
4,863,634
5,394,985
8,629,281
$ 265,004,801

100.00%
100.00%

0.00%
0.00%

100.00%
100.00%

100.00%
n/a
100.00%
100.00%
n/a
100.00%
100.00%
100.00%
100.00%
n/a
93.97%
100.00%
100.00%
n/a
76.66%
100.00%
94.08%
n/a
n/a
n/a
n/a
n/a
n/a
100.00%
100.00%
67.09%
0.00%
100.00%
100.00%
100.00%
100.00%
n/a
100.00%
n/a
n/a
100.00%
n/a
n/a
97.44%

LOCATION

SQ. FT.

INVESTMENT

FISCAL 2002
OCCUPANCY

INVESTMENT PORTFOLIO

COMMERCIAL PROPERTIES BY IRET

PROPERTY

MONTANA

Creekside Office Park
Edgewood Vista
Edgewood Vista
Edgewood Vista
Edgewood Vista

Montana Total

NEBRASKA

Ameritrade Headquarters
Barnes & Noble
Edgewood Vista
Edgewood Vista
Edgewood Vista
Edgewood Vista
Edgewood Vista

Nebraska Total

NORTH DAKOTA

1st Avenue Building
12 South Main
17 South Main
401 South Main
Arrowhead Shopping Center
Barnes & Noble
Carmike Theatre
Edgewood Vista
Great Plains Software
MedPark Mall
Minot Plaza
Petco
Stone Container
North Dakota Total

SOUTH DAKOTA
Conseco
Edgewood Vista
South Dakota Total

Billings
Belgrade
Billings
Kalispell
Missoula

Omaha
Omaha
Columbus
Fremont
Grand Island
Hastings
Omaha

Minot
Minot
Minot
Minot
Minot
Fargo
Grand Forks
Minot
Fargo
Grand Forks
Minot
Fargo
Fargo

Rapid City
Sioux Falls

34,603
5,100
11,800
5,895
10,150
67,548

73,742
27,500
5,100
6,042
5,100
6,042
6,042
129,568

15,357
10,126
3,250
8,597
76,424
30,000
28,528
97,821
122,040
59,177
11,020
18,040
195,075
675,455

75,815
11,800
87,615

2,045,789
453,494
980,218
588,113
962,429
5,030,043

8,348,798
3,699,197
455,626
552,172
455,626
571,538
641,252
14,724,209

537,189
411,487
90,000
617,282
3,005,419
3,274,996
2,545,737
6,270,707
15,375,154
5,696,588
519,615
1,278,934
7,105,566
46,728,674

7,044,870
974,739
8,019,609

TOTAL COMMERCIAL PROPERTY

3,796,480

$ 350,388,982

n/a - non-stabilized property acquired in fiscal 2002.

MORTGAGE LOANS RECEIVABLE

MORTGAGES

Other Mortgages

$501,000 and higher
$100,000 to $500,000
$50,000 to $99,999
$20,000 to $49,999
Less than $20,000
Total

04/30/02 BALANCE

3,200,000
713,212
0
39,550
0
3,952,762

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%

52.70%
93.50%
100.00%
83.04%
95.94%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
98.32%

100.00%
100.00%
100.00%

96.84%

RATE

10%
8-11%
n/a
8%
n/a

INVESTMENT PORTFOLIO

Sunset Trail Apartment Unit • Rochester, MN

SUMMARY OF INVESTMENT PORTFOLIO

REAL ESTATE INVESTMENTS
Property owned
Less accumulated depreciation

Mortgage loans receivable
Total real estate investments

OTHER ASSETS

Cash
Marketable securities - available-for-sale
Rent receivable
Prepaid and other assets
Notes receivable
Tax, insurance and other escrow
Real estate deposits
Furniture and fixtures
Goodwill
Deferred charges and leasing costs
Total Assets

740,319,436
(58,925,517)
681,393,919

3,952,762
685,346,681

12,333,426
10,500,000
3,233,765
3,513,791
3,500,000
6,210,450
422,045
209,121
1,440,817
3,498,922
730,209,018

ACCOUNTING

S TAC Y A. H U M P H R E Y S
AVP, F I N A N C I A L R E P O RT I N G

N A N C Y C. S C O F I E L D
AVP, F I N A N C I A L R E P O RT I N G

K I M A. O H L H AU S E R
S H A R E H O L D E R R E L AT I O N S

MANAGEMENT’S DISCUSSION & ANALYSIS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

IRET has operated as a "real estate investment trust" under Sections 856-858 of the Internal Revenue Code
since its formation in 1970 and is in the business of owning income-producing real estate investments, both
residential and commercial.

On February 1, 1997, IRET restructured 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 IRET and had
furnished office space, employees, and equipment
to conduct all of the day-to-day operations of IRET.

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 eco-
nomic 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.

Thresher Square • Minneapolis, MN

RESULTS FROM OPERATIONS FOR THE FISCAL YEARS ENDED APRIL 30, 2002, 2001, AND 2000

IRET operates on a fiscal year ending on April 30. The following discussion and analysis is for the

fiscal years ended April 2002, 2001, and 2000.

REVENUES

Total revenues of the operating partnership for fiscal 2002 were $93,016,069, compared to $75,767,150 in
fiscal 2001 and $55,445,193 in fiscal 2000. The increase in revenues received during fiscal 2002 in excess of the
prior year revenues was $17,248,919. This increase resulted from:

Rent from 28 properties acquired in fiscal 2001 in excess of that received in 2001
Rent from 14 properties acquired in fiscal 2002
Increase in rental income on existing properties
An increase in interest income
An increase in straight-line rents
An increase in ancillary income
A decrease in rent - properties sold

Total

$ 11,236,492
4,737,866
1,086,695
309,122
96,726
1,917
(219,899)
$ 17,248,919

MANAGEMENT’S DISCUSSION & ANALYSIS

The increase in revenues received during fiscal 2001 in excess of that received in fiscal 2000 was $20,321,957.

This increase resulted from:

Rent from 27 properties acquired in fiscal 2000 in excess of that received in 2000
Rent from 28 properties acquired/completed in fiscal 2001
An increase in ancillary income
An increase in rents
An increase in rental income on existing properties
An increase in interest income
A decrease in Boise Warehouse rent (bankruptcy of tenant)
A decrease in rent - properties sold during 2001

Total

$ 12,888,919
6,890,585
506,308
383,015
93,420
(371,585)
(36,301)
(32,404)
$ 20,321,957

As shown by the above analysis, the fiscal 2002 and 2001 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 2001 increased by $11,236,492 in fiscal 2002 and $12,888,919 in fiscal 2001.
Thus, new properties generated most of the new revenues during the past two years.

STRAIGHT-LINE RENTS

Beginning with our fiscal year 2000, an accounting rule required us to record as revenue "straight-line rents"
on our commercial property leases that contain future rental increases. This rule requires us to calculate the total
rents that the tenant has contracted to pay us for the entire term of the lease and to divide that total by the
lease and to record as revenue each month the resulting average
number of months of the
monthly rent. The result is that, in the beginning years of a lease, we must record as revenue an amount that
exceeds the actual cash rent we have collected. In the later years of such leases, we, of course, will record as
revenue an amount less than the actual cash then being received.

The amount of "straight-line rents" (that is, the amount that the recorded rent is greater than the actual cash

rent we have collected) we have recorded in the past three years is:

Straight-line Rents

2002
1,311,105

2001
1,214,379

2000
831,364

Our revenues, net income and funds from operations shown in this report are increased by the above

described "straight-line rents."

CAPITAL GAIN INCOME

The operating partnership realized capital gain income for fiscal 2002 of $546,927. This compares to
$601,605 of capital gain income recognized in fiscal 2001 and the $1,754,496 recognized in fiscal 2000. 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 2002 increased to $13,865,934 from
$10,187,812 earned in fiscal 2001 and $8,548,558 earned in fiscal 2000. IRET's net income for generally
accepted accounting purposes for fiscal 2002 was $10,600,129, compared to $8,694,240 in fiscal 2001 and
$8,807,845 in fiscal 2000. On a per share basis, net income was $.42 per share in fiscal 2002 compared to $.38
in fiscal 2001 and $.42 in fiscal 2000.

MANAGEMENT’S DISCUSSION & ANALYSIS

These changes in operating income and net income result from the changes in revenues and expenses detailed

below:

For fiscal 2002, an increase in net income of $1,905,889, resulting from:

An increase in net rental income

(rents, less utilities, maintenance, taxes, insurance and management)

A increase in interest income
An increase in ancillary income
An increase in interest expense
An increase in depreciation expense
An increase in minority interest of operating partnership income
An increase in operating expenses, administrative, advisory & trustee services
An increase in minority interest of other partnership
An increase in amortization expense
A decrease in gain on sale of investments

Total

For fiscal 2001, a decrease in net income of $113,605, resulting from:

An increase in net rental income
A decrease in loss on impairment
An increase in ancillary income
An increase in interest expense
An increase in depreciation expense
A decrease in gain from sale of investments
An increase in minority interest of operating partnership
A decrease in interest income
An increase in amortization expense
An increase in operating expenses, administrative, advisory & trustee services

Total

$ 12,413,637
309,122
1,917
(5,373,448)
(3,215,636)
(1,518,991)
(336,458)
(198,564)
(121,012)
(54,678)
$ 1,905,889

$ 12,572,228
1,319,316
506,308
(8,217,228)
(3,839,420)
(1,152,891)
(598,968)
(371,585)
(212,091)
(119,274)
(113,605)

Wirth Corporate Center • Golden Valley, MN

MANAGEMENT’S DISCUSSION & ANALYSIS

Mendota Heights Office Complex II • Mendota Heights, MN

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 tele-communication services over a 12-year period. Of this
payment, $110,979 was recognized as income by IRET during fiscal 2001 and $65,959 in fiscal 2002. The
balance of $692,567 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.

COMPARISON OF RESULTS FROM COMMERCIAL AND RESIDENTIAL PROPERTIES

The following is an analysis of the contribution by each of the two categories of real estate owned by IRET

- residential and commercial:

FISCAL YEARS ENDED 4/30

2002

2001

2000

Real Estate Investments (net of accumulated depreciation)

Commercial
Residential

Total

$ 333,092,927
348,300,992
$ 681,393,919

49% $ 218,261,880
329,281,443
51%
100% $ 547,543,323

40% $ 112,511,467
304,175,471
60%
100% $ 416,686,938

27%
73%
100%

Gross Real Estate Rental Revenues

Commercial
Residential

Total

$ 32,685,652
59,052,950
$ 91,738,602

37% $ 18,994,010
55,806,712
63%
100% $ 74,800,722

25% $ 11,878,026
42,379,855
75%
100% $ 54,257,881

22%
78%
100%

Expenses (before depreciation - see Note 11 to Financial Statement for detail)

Commercial
Residential

Total

$ 18,456,441
40,939,389
59,395,830

31% $ 10,649,488
39,500,071
69%
100% $ 50,149,559

21% $ 6,417,909
29,288,023
79%
100% $ 35,705,932

18%
82%
100%

Segment Gross Profit (before depreciation)

Commercial
Residential

Total

$ 14,229,211
18,113,561
$ 32,342,772

44% $ 8,344,522
16,306,641
56%
100% $ 24,651,163

34% $
66%

5,460,117
13,091,832
100% $ 18,551,949

29%
71%
100%

MANAGEMENT’S DISCUSSION & ANALYSIS

COMMERCIAL PROPERTIES - ANALYSIS OF LEASE EXPIRATIONS AND CREDIT EXPOSURE

The following table shows the annual lease expiration percentages for the commercial properties owned by
IRET as of April 30, 2002, for fiscal years 2003 through 2012 and the leases that will expire during fiscal year
2013 and beyond.

YEAR OF LEASE
EXPIRATION

2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013 and beyond
Total

SQUARE
FOOTAGE OF
EXPIRING
LEASES

377,198
215,934
158,690
265,262
99,393
244,985
196,973
171,752
98,325
371,182
996,481
3,196,175

PERCENTAGE OF
TOTAL LEASED
SQUARE FOOTAGE

11.80%
6.76%
4.96%
8.30%
3.11%
7.66%
6.16%
5.37%
3.08%
11.61%
31.19%

100.00%

ANNUALIZED
BASE RENT OF
EXPIRING LEASES
AT EXPIRATION

1,317,369
1,420,605
1,390,429
2,400,751
1,132,872
1,849,752
2,511,946
1,470,944
1,056,612
2,419,949
11,984,253
$ 28,955,481

PERCENTAGE
OF TOTAL
ANNUALIZED
BASE RENT

4.55%
4.91%
4.80%
8.29%
3.91%
6.39%
8.68%
5.08%
3.65%
8.36%
41.38%
100.00%

The following table shows the percentage of commercial leases by size of leased space in 10,000 square foot

increments as of April 30, 2002:

SQUARE FEET
UNDER LEASE

10,000 or Less
10,001 - 20,000
20,001 - 30,000
30,001 - 40,000
40,001 - 50,000
50,001 +
Total

PERCENTAGE OF
AGGREGATE
PORTFOLIO LEASED
SQUARE FEET

16.16%
13.76%
11.82%
7.50%
5.79%
44.97%
100.00%

ANNUALIZED
BASE RENT

6,746,536
3,896,629
3,422,639
2,161,604
1,608,402
11,119,671
$ 28,955,481

PERCENTAGE OF
AGGREGATE PORTFOLIO
ANNUALIZED
BASE RENT

23.30%
13.46%
11.82%
7.47%
5.55%
38.40%
100.00%

The following table shows the lessees of commercial property that account for five percent or more of the

total scheduled rent on May 1, 2002, from all commercial properties owned by IRET:

LESSEE

MONTHLY RENT

% OF TOTAL

Step II, Inc. DBA Edgewood Vista
HealthEast Medical
Great Plains Software, a subsidiary of Microsoft, Inc.
All Others
Total Scheduled Rent on May 1, 2002

258,668
159,720
156,250
2,451,626
$ 3,026,264

9%
5%
5%
81%
100%

MANAGEMENT’S DISCUSSION & ANALYSIS

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 2002 and 2001 for
residential and commercial were:

SAME-STORE RESIDENTIAL

2002

2001

% CHANGE

Scheduled Rent

Total Receipts

Utilities & Maintenance
Management YTD
Taxes & Insurance
Mortgage Interest
Total Expenses
Net Operating Income

SAME-STORE COMMERCIAL

Scheduled Rent

Total Receipts

Utilities & Maintenance
Management YTD
Taxes & Insurance
Mortgage Interest
Total Expenses
Net Operating Income

54,486,817

53,613,453

$ 52,910,814

$ 52,451,090

9,464,313
5,357,847
6,862,813
14,441,214
$ 36,126,187
$ 16,784,627

10,450,515
5,309,518
6,113,675
14,170,529
$
36,044,237
$ 16,406,853

$ 6,439,820

$ 6,298,261

$ 6,318,864

$ 6,146,533

336,672
73,638
210,145
2,799,274
$ 3,419,729
$ 2,899,135

285,478
58,356
200,784
2,831,082
$ 3,375,700
$ 2,770,833

1.6%

.9%

-9.4%
.9%
12.3%
1.9%
.2%
2.3%

2.2%

2.8%

17.9%
26.2%
4.7%
-11.2%
1.3%
4.6%

S H A R E H O L D E R R E L AT I O N S

L I N DA D. F E L D N E R
S E C R E TA RY/R E C E P T I O N I S T

M I C H A E L J. H A L E
AVP, S E C U R I T Y S A L E S

DA R L A J. S T R I L C OV
AVP, S H A R E H O L D E R R E L AT I O N S

MANAGEMENT’S DISCUSSION & ANALYSIS

FUNDS FROM OPERATIONS

IRET considers funds from operations ("FFO") a useful measure of performance for an equity REIT. FFO
herein 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 Trust’s ("NAREIT") definition of FFO as amended by
NAREIT to be effective January 1, 2000.

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.

FFO for the operating partnership increased to $29,143,549 for fiscal 2002, compared to $22,440,463 for

fiscal 2001, and $18,327,986 for fiscal 2000.

Calculations of funds from operations for the operating partnership are as follows:

ITEM

2002

2001

2000

Net Income available to IRET shareholders

and unitholders from operations
and capital gains

Less gain from property sales
Operating income
Less minority interest portion -

other partnerships
Net operating income

Funds from operations
Weighted average shares and units

outstanding - basic and diluted (2)

Cash distributions paid to shareholders/unitholders (3)

$ 14,412,861

(546,927)

$ 13,865,934

$ 10,789,417
(601,605)
$ 10,187,812

$ 11,622,370
(1,754,496)
$ 9,867,874

(198,564)
$ 13,667,370

$ 29,143,549

0
$ 10,187,812
12,252,651
$ 22,440,463

0
$ 9,867,874
8,460,112
$ 18,327,986

33,781,369
$ 20,272,212

28,577,700
$ 15,732,399

24,476,984
$ 12,492,067

plus real estate depreciation and amortization (1)

15,476,179

(1) Depreciation on office equipment and other assets used by IRET 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) Cash distributions are paid equally on shares and units. It is our intent to distribute approximately 70% of FFO to our

shareholders and unitholders.

MANAGEMENT’S DISCUSSION & ANALYSIS

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 IRET since its inception in 1970. IRET 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. The purchase price for the business and assets was $2,083,350
allocated as follows:

Real Estate
Furniture, Fixtures & Vehicles
Good Will
Less Real Estate Mortgages Assumed

475,000
193,350
1,645,000
(230,000)
2,083,350

IRET Properties issued 255,000 of its limited partnership units 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 $143,280,342 of real estate investments to its portfolio during fiscal 2002,
compared to $143,042,292 added in fiscal 2001 and $155,284,745 in fiscal 2000. The fiscal 2002 and 2001
additions are detailed below:

FISCAL 2002 PROPERTY ACQUISITIONS

COMMERCIAL

LOCATION

PROPERTY TYPE

NET RENTABLE
SQUARE FEET

PURCHASE
PRICE

Mendota Heights
Office Complex
Interlachen
Thresher Square E & W
Wirth Corporate Center
Stone Container
Bloomington Bus. Plaza
Edgewood Vista
Wayroad
Morgan Chemical
Cottage Grove Center
Total Commercial

Mendota Heights, MN Multi-tenant Office Bldg.
Multi-tenant Office Bldg.
Edina, MN
Multi-tenant Office Bldg.
Minneapolis, MN
Commercial Office
Golden Valley, MN
Industrial Building
Roseville, MN
Multi-tenant Office Bldg.
Bloomington, MN
Assisted Living Center
Virginia, MN
Commercial Office
Minnetonka, MN
Industrial Building
New Brighton, MN
Strip Mall
Cottage Grove, MN

RESIDENTIAL

LOCATION

PROPERTY TYPE

Applewood on the Green
Oakmont Apartments
Canyon Lake Apartments
Pinehurst Apartments
Sunset Trail Phase II*
Total Residential

Omaha, NE
Sioux Falls, SD
Rapid City, SD
Billings, MT
Rochester, MN

Apartment Community
Apartment Community
Apartment Community
Apartment Community
Apartment Community

TOTAL FISCAL 2002 PROPERTY ACQUISITIONS
* Represents costs to complete a project started in year ending April 30, 2001.

428,065
105,084
113,736
75,216
229,072
114,819
70,313
62,383
49,620
15,217

1,263,525

UNITS

234
80
109
21
73
517

51,280,260
16,691,306
11,119,958
8,629,281
8,265,238
7,445,108
6,958,383
5,394,985
2,428,810
1,116,089
$ 119,329,418

PURCHASE
PRICE

$ 10,810,426
5,257,468
4,280,120
751,310
2,851,600
$ 23,950,924

$ 143,280,342

MANAGEMENT’S DISCUSSION & ANALYSIS

FISCAL 2001 PROPERTY ACQUISITIONS

COMMERCIAL

LOCATION

PROPERTY TYPE

NET RENTABLE
SQUARE FEET

PURCHASE
PRICE

12 South Main
17 South Main
2030 Cliff Road
Burnsville Bluffs
Cold Springs Center
Conseco Financial Bldg.
Dewey Hill Business Ctr.
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
(60.31% part int.)
Total Commercial

Office
Minot, ND
Office/Apartments
Minot, ND
Office
Eagan, MN
Office
Burnsville, MN
Office
St. Cloud, MN
Office
Rapid City, SD
Office
Edina, MN
Duluth, MN
Assisted Living
East Grand Forks, MN Assisted Living
Assisted Living
Fremont, NE
Assisted Living
Hastings, NE
Assisted Living
Kalispell, MT
Omaha, NE
Assisted Living
Woodbury &
Maplewood, MN
Minnetonka, MN
Burnsville, MN
Bloomington, MN
Plymouth, MN
Winsted, MN
Fargo, ND
Waconia, MN

Medical Office
Office
Office
Office
Office
Manufacturing
Manufacturing
Warehouse

Edina, MN

Medical Office

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

$ 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

195,983
1,047,321

32,421,070
$ 110,199,692

RESIDENTIAL

LOCATION

PROPERTY TYPE

UNITS

Cottonwood Phase III
Meadows, Phase III
Olympic Village
Prairiewood Meadows
Ridge Oaks
Sunset Trail, Phase I
Sunset Trail, Phase II
Total Residential

Bismarck, ND***
Jamestown, ND***
Billings, MT
Fargo, ND
Sioux City, IA
Rochester, MN
Rochester, MN**

TOTAL FISCAL 2001 PROPERTY ACQUISITIONS

** Property not placed in service at April 30, 2001. Additional costs are still to be incurred.
*** Represents costs to complete a project started in year ending April 30, 2000.

67
27
274
85
132
73
n/a
658

PURCHASE
PRICE

1,854,800
1,865,182
11,616,500
2,811,000
4,195,036
6,493,150
4,006,932
$ 32,842,600

$143,042,292

MANAGEMENT’S DISCUSSION & ANALYSIS

Sunset Trail Community Center • Rochester, MN

PROPERTY DISPOSITIONS

Real Estate assets sold by the operating partnership during fiscal 2002 and 2001 were as follows:

PROPERTY SOLD

SALES PRICE

BOOK VALUE &
SALES COSTS

GAIN

2002
Sunchase Apartments
Lester Chiropractic Clinic
Carmen Court - Magic City Apartments
Walter's Building
Corner Express
Total Fiscal 2002 Gain

2001
Evergreen Shopping Center
Chalet Apartments
Hill Park aka Garden Grove
Total Fiscal 2001 Gain

CASH DISTRIBUTIONS

$ 1,100,000
317,500
295,000
0
1,714,713

803,591
232,221
291,654
35,062
1,460,403

1,450,000
390,000
2,400,000

$ 1,448,310
366,566
1,823,518

$ 296,409
85,279
3,346
(35,062)
254,310
$ 604,282

1,689
23,434
576,482
$ 601,605

The following cash distributions were paid to IRET shareholders and IRET Properties limited partners

during fiscal years 2002, 2001, and 2000:

DATE

July 1,
October 1,
January 15,
April 1,
Total

2002

2001

2000

$ .1450
.1475
.1500
.1520
$ .5945

$ .1325
.1350
.1400
.1425
.5500

$ .1240
.1260
.1280
.1300
$ .5080

The fiscal 2002 cash distributions increased 8.1% over the cash distributions paid during fiscal year 2001 and

17.0% over fiscal 2000.

MANAGEMENT’S DISCUSSION & ANALYSIS

LIQUIDITY AND CAPITAL RESOURCES

Important equity capital and financing events in fiscal 2002 were:

As a result of the sale of additional shares of beneficial interest, shareholder equity increased during fiscal 2002
by $31,227,781 and, in addition, the equity capital of the operating partnership was increased by
$17,456,852 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 $48,684,633.

Cash and marketable securities on April 30, 2002, totaled $22,833,426 compared to $9,368,176 on the same
date in 2001 and $6,623,495 in 2000.

Mortgage loan indebtedness increased due to the acquisition of new investment properties to $459,568,905
on April 30, 2002, from $368,956,930 on April 30, 2001, and $265,056,767 on April 30, 2000. The
weighted interest rate on these loans decreased to 7.41% per annum from 7.56% on April 30, 2001,
and compared to 7.59% at the end of fiscal 2000.

The issuance of investment certificates was discontinued in April of 2002 and the $25,186,582 of
certificates outstanding on April 30, 2002, will be redeemed upon maturity as follows:

CERTIFICATES MATURING

Fiscal 2003
Fiscal 2004
Fiscal 2005
Fiscal 2006
Fiscal 2007
Total

FACE AMOUNT

$ 16,484,256
1,995,822
2,221,533
2,177,886
2,307,085
$ 25,186,582

New real estate investments of $143,280,342 were made by the operating partnership in fiscal 2002,
compared to $143,042,292 in fiscal 2001 and $155,284,745 in fiscal 2000.

Net cash provided from operating activities increased to $26,918,213 from $22,328,745 due to the addition
of new investments to our real estate portfolio.

Net cash used in investing activities decreased to $75,862,027 from the $76,165,151 used in fiscal 2001.
This decrease resulted because less cash was needed to acquire new investment properties.

Net cash provided from financing activities also decreased to $54,921,177 from the year earlier figure
of $56,743,205 because of a small decrease in our activity in acquiring new properties using 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, maturing investment certificates, construction and development activities, and property acquisitions
through long-term secured borrowings and the issuance of additional equity securities 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 cash distributions to its shareholders 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.

MANAGEMENT’S DISCUSSION & ANALYSIS

Of the $459,568,905 of mortgage indebtedness on April 30, 2002, $31,003,091 is represented by variable
rate mortgages on which the future interest rate will vary based on changes in the interest rate index for each
respective loan and the balance of fixed rate mortgages was $428,565,814. The principal payments due on all of
the mortgage indebtedness are as follows:

YEAR ENDING APRIL 30
2003
2004
2005
2006
2007
Later Years
Total

MORTGAGE PRINCIPAL DUE
$

19,162,590
10,630,799
11,517,237
12,356,777
13,260,789
392,640,713
459,568,905

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
$19,000,000, none of which were in use on April 30, 2002 and 2001. On April 30, 2000, $6,452,420 was in use.

INCREASED COSTS AND ECONOMIC SLOWDOWN

In fiscal 2001, IRET experienced a sharp increase in the cost of utilities (primarily natural gas) in its
apartment communities. 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.

IRET’s insurance costs will increase substantially during the coming year. This increase in insurance costs,
prior to September 2001, was not anticipated by management. Given the weakened economic state, it is
unlikely IRET will be able to increase rents sufficiently to fully offset its increased costs. As a result, our
expectation is that net income and FFO will still increase over the prior year, but at a lower rate than the 10%
per share FFO growth of fiscal 2002.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk is limited to fluctuations in the general level of interest rates on its current and
future fixed and variable rate debt obligations. Even though our philosophy is to maintain a fairly low exposure
to interest rate fluctuation risk, we are still vulnerable to significant fluctuations in interest rates on its variable
rate debt, on any future repricing or refinancing of its fixed rate debt and on future debt.

We primarily use long-term (more than ten years) and medium-term (five to seven years) debt as a source of
capital. We do not currently use derivative securities, interest-rate swaps or any other type of hedging activity to
manage our costs of capital. As of April 30, 2002, we had the following amount of future principal payments on
mortgages secured by our real estate:

LONG TERM DEBT

2003

2004

2005

2006

2007

THEREAFTER

TOTAL

Fixed Rate
Variable Rate

$ 17,573,189
1,589,401
$

$ 8,922,038
$ 1,708,761

$ 9,698,550
$ 1,818,687

$ 10,420,601
$ 1,936,176

$ 11,199,027
$ 2,061,761

Average Interest Rate (%)

(1)

21,888,305 $

$ 370,752,409 $ 428,565,814
31,003,091
$
$ 459,568,905
(1)

(1)

(1) The weighted average interest rate as of April 30, 2002, was 7.41%. Any fluctuations on the variable interest rates could increase or decrease our interest expenses.
For example, an increase of one percent per annum on our $31,003,091 of variable rate indebtedness would increase our annual interest expense by $310,000.

MANAGEMENT’S DISCUSSION & ANALYSIS

INCREASING OWNERSHIP OF COMMERCIAL PROPERTIES

Historically, the assets in our investment portfolio consisted predominantly of multi-family residential
properties, as compared to commercial properties. More recently, our investment activities have caused this bal-
ance to shift so that the percentage of commercial properties held in our portfolio has increased significantly.
Within the past two years, approximately 80% of our property acquisitions have been commercial properties due
to the greater availability of these properties on terms that meet our financial and strategic objectives. If current
market conditions continue, we anticipate that the percentage of commercial properties could equal or exceed the
percentage of multi-family residential properties during fiscal 2003. This may not, however, be a long-term trend
as in future periods we may purchase a greater percentage of multi-family residential properties depending on
market conditions.

Our historical experience in acquiring multi-family residential properties may not be directly applicable to the
acquisition of a greater percentage of commercial properties. Commercial properties involve different risks than
multi-family residential properties, including: direct exposure to business and economic downturns; exposure to
tenant lease terminations or bankruptcies; and competition from real estate investors with greater experience in
developing and owning commercial properties.

CURRENT AND FUTURE VACANCIES

In the twelve months subsequent to April 30, 2002, leases covering approximately 11.80% of our total
commercial square footage will expire. At April 30, 2002, approximately 2.1% of our total commercial square
footage was vacant. Of that vacancy, approximately 54.04% is represented by the warehouse in Boise, Idaho, which
has been vacant for the last 24 months. At April 30, 2002, approximately 6.96% of the units in our multi-family
stabilized residential properties were vacant. Due to the overall general economic slowdown, we are expecting that
our vacancy rates will increase over the next 12 to 18 months. Additionally, rent rates for commercial property in
the Minneapolis area have stagnated at current levels with little possibility for increases in the next 12 to 18 months.

GEOGRAPHIC CONCENTRATION IN NORTH DAKOTA AND MINNESOTA

The majority of our assets are presently invested in real estate properties in North Dakota and Minnesota.
For the year ended April 30, 2002, we received 68% of our commercial gross revenue from commercial properties
in Minnesota and 20% of our commercial gross revenue from commercial properties in North Dakota.
Minnesota accounts for 72% of our commercial real estate portfolio by square footage, while North Dakota
accounts for 18%. For the year
ended April 30, 2002, we
received 17% of our apartment
gross revenue from multi-
family residential properties
in Minnesota and 32% of our
apartment gross revenue from
multi-family properties
in
North Dakota. As of that
same date, we owned 1,309
apartment units, 16% of our
total number of apartment
units, in Minnesota, and 2,995
apartment units, 36% of our
total number of apartment
units, in North Dakota. We
intend to continue focusing on
real estate activities in the state
of Minnesota which will result
in an increase to our current
concentration in the upper
midwest.

Interlachen Corporate Center • Edina, MN

TRACKING PERFORMANCE

31 CALENDAR YEAR HISTORY OF INCREASING DISTRIBUTIONS

Since its first distribution paid July 1, 1971, IRET has never delayed, omitted or reduced its quarterly
distribution and in each of the last 31 calendar years, the annual distribution has increased over the amount paid
in the preceding year.

SHARE BID PRICE HISTORY

DISTRIBUTION HISTORY

TOTAL RETURN PER YEAR

$1.00
1971
1.50
1975
3.15
1985
6.16
1995
6.44
1996
7.13
1997
7.44
1998
7.88
1999
7.88
2000
9.35
2001
(End of calendar year bid price per
share of beneficial interest of IRET)

1971
1975
1985
1995
1996
1997
1998
1999
2000
2001
(Total calendar year distributions
paid)

2.75¢
8.00¢
24.25¢
35.25¢
37.38¢
40.18¢
43.70¢
49.25¢
52.55¢
57.50¢

PRICE RANGE OF SHARES OF BENEFICIAL INTEREST

May 1 to July 31
August 1 to October 31
November 1 to January 31
February 1 to April 30

FISCAL YEAR 2002
LOW
8.250
8.800
9.000
9.510

HIGH
10.490
9.430
10.000
10.450

2.8%
12.9%
19.5%
10.6%
10.6%
17.0%
10.5%
12.5%
6.7%
26.0%

1971
1975
1985
1995
1996
1997
1998
1999
2000
2001
Distributions plus share price
changes. (Calendar year distributions
paid plus change in share bid price
divided by previous end of year share
bid price.)

FISCAL YEAR 2001
LOW
7.375
7.594
7.438
8.000

HIGH
8.125
8.250
8.500
8.980

CALENDAR YEAR TAX STATUS OF DISTRIBUTION

Capital gain
Ordinary income
Return of capital

2001

0.00%
65.98%
34.02%

2000

.72%
86.76%
12.52%

1999

30.25%
69.75%
0.00%

1998

6.30%
76.00%
17.70%

31 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 distributions. No commissions or income tax impact are reflected in this
comparison.

IRET
Peer Group

1997

2.90%
97.10%
0.00%

$ 7,559

$ 3,421

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 01

(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.

25
25

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, 2002, and 2001, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the years ended April 30, 2002, 2001, and 2000. 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 misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall consolidated financial statement presentation. We believe
that our audits provide a reasonable basis of our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Investors Real Estate Trust and Subsidiaries as of April 30,
2002, and 2001, and the consolidated results of its operations and cash flows for the years ended April 30,
2002, 2001, and 2000, in conformity with accounting principles generally accepted in the United States of
America.

BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota

May 22, 2002

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Years Ended April 30,

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
Notes receivable
Prepaid and other assets
Tax, insurance, and other escrow
Furniture and fixtures
Goodwill
Deferred charges and leasing costs
Total Assets

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities

Accounts payable and accrued expenses
Mortgages payable
Investment certificates issued
Total Liabilities

Commitments and Contingencies (Note 14)
Minority interest in partnerships
Minority interest of unit holders in operating partnership

Shareholder’s Equity

Shares of beneficial interest (unlimited authorization,
no par value, 27,847,079 shares outstanding in
2002 and 24,068,346 shares outstanding in 2001)

Accumulated distributions in excess of net income
Accumulated other comprehensive loss
Total shareholders' equity

Total Liabilities and Shareholders’ Equity

The accompanying notes are an integral part of these financial statements.

2002

2001

$ 740,319,436
(58,925,517)
$ 681,393,919

$ 591,636,468
(44,093,145)
$ 547,543,323

3,952,762
$ 685,346,681

1,037,095
$ 548,580,418

12,333,426
0
10,500,000
3,233,765
422,045
3,500,000
3,513,791
6,210,450
209,121
1,440,817
3,498,922
$ 730,209,018

6,356,063
2,351,248
660,865
1,925,429
522,500
0
799,973
4,323,960
187,313
1,550,246
3,064,109
$ 570,322,124

10,596,277
459,568,905
25,186,582
$ 495,351,764

$ 8,252,758
368,956,930
11,876,417
$ 389,086,105

$
$

12,819,077
76,460,046

$
$

3,287,665
59,003,194

$ 163,376,549
(17,798,418)
0
$ 145,578,131
$ 730,209,018

$ 132,148,768
(13,073,157)
(130,451)
$ 118,945,160
$ 570,322,124

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended April 30,

2002

2001

2000

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 - other

partnerships

Minority interest portion - operating

$ 91,738,602
1,277,467
$ 93,016,069

$ 74,800,722
966,428
$ 75,767,150

$ 54,257,881
1,187,312
$ 55,445,193

$ 30,604,846
15,515,168
12,709,614
9,184,599
1,352,622
6,985,542
0
1,569,853
112,889
565,802
549,200
$ 79,150,135

$ 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

$ 13,865,934
546,927

$ 10,187,812
601,605

$ 8,548,558
1,754,496

(198,564)

partnership

(3,614,168)

(2,095,177)

(1,495,209)

NET INCOME
Net income per share (basic and diluted)

$ 10,600,129
.42
$

$ 8,694,240
.38
$

$ 8,807,845
.42
$

The accompanying notes are an integral part of these financial statements.

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

SHARES OF
NUMBER OF BENEFICIAL
INTEREST

DISTRIBUTIONS
IN EXCESS OF
NET INCOME

ACCUMULATED
OTHER

TOTAL

COMPREHENSIVE SHAREHOLDER’S

INCOME (LOSS)

EQUITY

BALANCE MAY 1, 1999

19,066,954

93,095,819

$ (7,255,958)

(56,567)

85,783,294

BALANCE APRIL 30, 2000

22,452,069

$ 119,233,172

$ (9,094,076)

(218,505)

$ 109,920,591

Comprehensive Income

Net income
Unrealized loss on

securities available for sale

Total comprehensive income
Distributions
Distribution reinvestment plan
Sale of shares
Shares repurchased

Comprehensive income

Net income
Unrealized gain on

securities available for sale

Total comprehensive income
Distributions
Distribution reinvestment plan
Sale of shares
Fractional shares repurchased

Comprehensive income

Net income
Unrealized gain on

securities available for sale

Total comprehensive income
Distributions
Distribution reinvestment plan
Sale of shares
Fractional shares repurchased

8,807,845

(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

8,694,240

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

(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)

10,600,129

130,451

0
832,708
2,947,986
(1,961)

0
7,297,694
23,949,523
(19,436)

(15,325,390)
0
0
0

BALANCE APRIL 30, 2001

24,068,346

$ 132,148,768

$( 13,073,157)

( 130,451)

$ 118,945,160

BALANCE APRIL 30, 2002

27,847,079

$ 163,376,549

$(17,798,418)

The accompanying notes are an integral part of these financial statements.

0
0
0
0

130,451
10,730,580
(15,325,390)
7,297,694
23,949,523
(19,436)

$ 145,578,131

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended April 30,

2002

2001

2000

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, insurance and other escrow
Increase in deferred charges
Increase (decrease) in accounts payable

$ 10,600,129

8,694,240

8,807,845

16,064,368

12,727,720

8,676,209

3,812,732
0
(546,927)
0
486,198

1,062,876
(1,308,336)
(2,850,807)
(1,886,489)
(874,584)

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)

and accrued expenses

Net cash provided from operating activities

2,359,053
$ 26,918,213

1,909,163
$ 22,328,745

1,955,325
$ 16,277,085

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
Investment in notes 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
Proceeds from sale of minority interest units
Repurchase of shares and minority interest units
Distributions paid
Distributions paid to minority interest unitholders
Distributions paid to other minority partners
Redemption of investment certificates
Principal payments on mortgage loans
Net increase (decrease) in short-term lines of credit
Net cash provided from financing activities

NET INCREASE (DECREASE) IN CASH
CASH AT BEGINNING OF YEAR
CASH AT END OF YEAR

The accompanying notes are an integral part of these financial statements.

3,085,208
5,591,429
269,501

250,172
613,934
0

363,014
492,547
7,326,563

(62,301,069)
(10,500,000)
(8,507,096)
(3,500,000)
$ (75,862,027)

(72,319,419)
0
(4,709,838)
0
$ (76,165,151)

(121,931,571)
0
(6,291,617)
0
$(120,041,064)

$ 13,520,867
24,109,305
43,093,345
345,603
(29,868)
(8,362,657)
(4,476,875)
(150,082)
(2,195,531)
(10,932,930)
0
$ 54,921,177

5,977,363
6,356,063
$ 12,333,426

$ 11,001,509
3,257,574
79,369,000
0
(5,497,952)
(5,963,290)
(3,059,078)
0
(1,828,594)
(14,083,544)
(6,452,420)

$ 56,743,205

2,906,799
3,449,264
6,356,063

$ 24,022,246
3,769,003
93,969,098
0
(4,832,012)
(4,315,662)
(1,846,104)
0
(5,815,818)
(7,902,981)
6,452,420
$ 103,500,190

(263,789)
3,713,053
3,449,264

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS • continued

Years Ended April 30,

2002

2001

2000

SUPPLEMENTARY SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Distribution 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 and goodwill acquired through the
issuance of minority interest units in
the operating partnership

Minority partner interest in Southdale Medical Center
Minority partner interest in Mendota Properties
Interest reinvested directly in investment certificates
Investment certificates transferred to shares
UPREIT units converted to shares

SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for:
Interest paid on mortgages
Interest paid on investment certificates
Interest paid on margin account and other

The accompanying notes are an integral part of these financial statements.

7,297,694

2,230,445

6,330,301

59,650,208

38,611,547

4,049,568

4,709,838

15,000,000

856,411

4,093,684

19,793,183
0
9,482,931
325,063
9,089,807
1,338,849

25,543,524
3,287,655
0
360,181
0
0

21,602,841
0
0
363,935
0
0

$ 27,318,816
663,774
1,438
$ 27,984,028

$ 23,763,584
745,391
0
$ 24,508,975

$ 15,670,488
544,977
0
$ 16,215,465

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 • NATURE OF OPERATIONS AND

SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS - Investors Real Estate
Trust ("IRET") qualifies under Section 856 of the Internal
Revenue Code as a real estate investment trust. IRET has real
estate properties located primarily throughout the upper
Midwest, with its principal office located in Minot, North
Dakota. IRET invests in commercial and residential real estate,
real estate mortgages, governmental backed securities and
equity securities in other real estate investment trusts. Gross
rental revenues were derived 64% from residential property
assets and 36% from commercial property assets.

Effective February 1, 1997, IRET reorganized its
structure in order to convert to Umbrella Partnership Real
Estate Investment Trust (UPREIT) status. IRET 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). IRET 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 IRET Properties have certain
exchange rights allowing the exchange of limited partnership
units for IRET shares 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. Each limited partnership unit is entitled to
receive a cash distribution equal to any distribution paid on a
share of IRET stock.

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

Effective July 1, 2000, IRET became self-administered as
a result of the acquisition of its former advisory company,
Odell-Wentz & Associates, LLC. Virtually all officers and
employees of Odell-Wentz & Associates, LLC were retained by
IRET. 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 IRET and all of its
subsidiaries in which it maintains a controlling interest. IRET
is the sole shareholder of IRET, Inc., which is the general
partner of the operating partnership, IRET Properties. IRET is
also the sole shareholder of Miramont IRET Inc. and Pine
Cone IRET Inc., both Colorado business corporations.

IRET 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 II - IRET, Inc., IRET - Ridge Oaks, LLC, and
Applewood - IRET, Inc. The entities in the preceding
sentence 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
limited
partnership; Dakota Hill Properties, a Texas
partnership; MedPark Properties, a North Dakota limited
partnership; and 7901 Properties LP, a Minnesota limited
partnership, Meadows 2 Properties, LP, a North Dakota
limited partnership, Ridge Oaks, LP, an Iowa limited
partnership, and Applewood - IRET Properties, a Nebraska
limited partnership. IRET Properties is also the sole owner of
Health Investors Business Trust, a Delaware business trust and
IRET - Oakmont, LLC. These entities are all invested in real
estate and are formed and acquired solely so the underlying real
estate may be encumbered by mortgage indebtedness.

The consolidated financial statements also include the
ownership by IRET of a 60.31% in Minnesota Medical
Investors LLC, SMB Operating Company LLC, and SMB
MM LLC, collectively known as Southdale Medical Center
and a 51% ownership interest in Mendota Properties, LLC, a
Minnesota limited liability company. Mendota Properties,
LLC, is the holder of all of the issued and outstanding
membership interests in Mendota Office Holding LLC, a
Minnesota limited liability company and Mendota Office
Three and Four, LLC, a Minnesota limited liability company.
The three Mendota LLCs are the owner of five multi-tenant
commercial real estate properties
in Dakota County,
Minnesota. These companies are consolidated into the IRET's
other operations with minority interests reflecting the
minority partners' share of ownership and income and
expenses.

All material inter-company transactions and balances have

been eliminated in the consolidated financial statements.

ACCOUNTING POLICIES

NEW ACCOUNTING PRONOUNCEMENTS -
Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting
for Derivative Instruments and Hedging
Activities, established 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. The impact of SFAS 133 is not
significant.

In 2001 the FASB issued SFAS No. 141 "Business
Combinations" ("SFAS 141") which requires all business
combinations initiated after June 30, 2001, to be accounted
for using the purchase method, SFAS No. 142 "Goodwill and
Other Intangible Assets" ("SFAS 142") which provides new
guidance in accounting for goodwill and intangible assets and
SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144") which addresses financial
accounting and reporting for the impairment or disposal of
long-lived assets. The adoption of SFAS 141 had no effect of
IRET's financial position or results of operations. IRET is
required to adopt SFAS 142 and SFAS 144 on May 1, 2002.
The impact of the adoption of SFAS 142 and SFAS 144 is not
expected to have a significant impact.

USE OF ESTIMATES - The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America 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

and

renewals

improvements

PROPERTY OWNED - Real estate is stated at cost.
Expenditures
that
significantly add to the productive capacity or extend the
useful life of an asset are capitalized. Refurbishment type costs
such as property-wide painting, carpeting, wallpaper, tiling,
replacement of worn out appliances, replacement of worn out
bathroom fixtures, replacement of worn out windows, siding,
roofs, walkways, parking lots or landscaping, and any other
type of refurbishment activity is capitalized. Interest, real
estate taxes, and other development costs relating to the
acquisition and development of certain qualifying properties
are also capitalized. Expenditures for routine maintenance and
repairs, such as individual apartment painting, wallpapering,
cleaning, and appliance repair, which do not add to the value
or extend useful lives are charged to expense as incurred.

IRET assesses whether there has been 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, IRET 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, the appraised value,
and recent sales of comparable assets in close proximity to
IRET's property.

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

IRET's acquisitions for the fiscal year 2002 in order of

size:

Property

Mendota Heights
Office Complex
Interlachen

Location

Type

Cost

Date
Acquired

Mendota Heights, Multi-tenant
MN
Edina, MN

Thresher Square -
East & West
Applewood on the Green

Minneapolis, MN

Omaha, NE

Wirth Corporate Center
Stone Container
Bloomington Business Plaza Bloomington, MN Multi-tenant

Golden Valley, MN Commercial Office
Industrial Building
Roseville, MN

Edgewood Vista
Wayroad
Oakmont Apartments

Virginia, MN
Minnetonka, MN
Sioux Falls, SD

Canyon Lake Apartments

Rapid City, SD

Sunset Trail Phase II*

Rochester, MN

Morgan Chemical
Cottage Grove Center
Pinehurst Apartments

New Brighton, MN Industrial Building
Cottage Grove, MN Strip Mall
Billings, MT

21-unit Apt
Community

TOTAL

* Represents costs to complete a project started in year ending April 30, 2001.

Office Building
Multi-tenant
Office Building
Multi-tenant
Office Building
234-unit Apt
Community

$ 51,280,260

04/30/02

16,691,306

08/10/01

11,119,958

01/02/02

10,810,426
8,629,281
8,265,238

10/31/01
04/01/02
12/20/01

Office Building
7,445,108
Assisted Living Center 6,958,383
Commercial Office
5,394,985
80-unit Apt
Community
109-unit Apt
Community
73-unit Apt
Community

4,280,120

5,257,468

2,851,600
2,428,810
1,116,089

751,310
$143,280,342

10/01/01
04/30/02
04/01/02

04/30/02

09/27/01

04/01/02
04/30/02
07/06/01

02/28/02

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 IRET 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 completion 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.

FURNITURE AND FIXTURES consists of office
furniture, fixtures, and equipment located at IRET's
operational headquarters and is stated at cost net of
accumulated depreciation. Accumulated depreciation was
$289,089 and $215,757 as of April 30, 2002, and 2001,
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, and 20 - 40 years for
buildings and improvements.

MORTGAGE LOANS RECEIVABLE are shown at cost.
Interest income is accrued and reflected in the related balance.
MARKETABLE SECURITIES - IRET's investments in
securities are classified as securities "held-to-maturity" and
securities "available-for-sale." The securities classified as
"available-for-sale" as of April 30, 2002, represents an
investment in a Merrill Lynch money market mutual fund and
is stated at fair value. As of April 30, 2001, the "available-for-
sale" investments consisted of equity shares in other real estate
investment trusts which were also stated at fair value.
Unrealized gains and losses on securities “available-for-sale” are
recognized as direct increases or decreases in shareholders'
equity. The securities classified as "held-to-maturity" consist

of Government National Mortgage Association securities. In
June 2001, IRET sold these GNMA securities. 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. Cost of
securities sold is recognized on the basis of specific
identification.

TAX, INSURANCE, AND OTHER ESCROW -
includes reserve for replacement funds to be used for
replacement of structural elements and mechanical equipment
of certain projects. The funds are under the control of the
lender. Disbursements are made after supplying written
documentation to the lender.

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 IRET toward the purchase of property or the payment of
loan costs associated with loan placement or refinancing.

GOODWILL has been amortized on a straight-line basis
over a period of 15 years. IRET periodically reviews goodwill
for impairment and if a permanent decline in value has
occurred, IRET will reduce its goodwill balance to fair value.
Accumulated amortization of goodwill was $200,620 and
$91,191 as of April 30, 2002, and 2001, respectively. See
previous note for the impact of the new accounting
pronouncement SFAS No. 142 "Goodwill and Other
Intangible Assets."

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.

IRET reflects minority interests in the Southdale Medical
Center and Mendota Heights Office Complex on the balance
sheet for the portion of properties consolidated by IRET that
are not wholly owned by IRET. 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.

NET INCOME PER SHARE - IRET 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 over the
earnings period in question. 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.

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

INCOME TAXES - IRET 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. IRET
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.
IRET conducts all of its business activity as an umbrella
real estate investment trust through its operating partnership,
IRET Properties. This UPREIT status allows IRET to accept
the contribution of real estate in exchange for limited
partnership units. Generally, such a contribution to a limited
partnership allows for the non-recognition of gain by an owner
of appreciated real estate. The UPREIT concept is based on
the combination of the non-recognition provisions of Section
721 of the Internal Revenue Code and the limited partnership
conversion rights which allow the contributing partner to
exchange the limited partnership interest received in exchange
for the appreciated real estate for IRET's stock. Upon
conversion of the partnership units to IRET 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. IRET
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. A summary
of the changes in the allowance for doubtful accounts for the
years ended April 30, 2002, and 2001, are as follows:

Years Ending April 30,
Balance at beginning of year
Provisions for doubtful accounts
Write-offs
Balance at close of year

2002
120,315
30,000
(9,530)
140,785

2001
0
120,315
0
120,315

Reimbursements from tenants for real estate taxes and
other recoverable operating expenses are recognized as revenue
in the period the applicable expenditures are incurred. IRET
receives payments for these reimbursements from substantially
all its multi-tenant commercial tenants throughout the year
based on estimates. Differences between estimated recoveries
and the final billed amounts, which are immaterial, are
recognized in the subsequent year.

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.

Profit on sales of real estate shall be recognized in full
when the real estate is sold, provided the collectibility of the
sales price is reasonably assured or the amount that will be
collectible can be estimated and the seller is not obliged to
perform significant activities after the sale to earn the profit.
Any gain or loss on a sale or disposition is recognized in
accordance with accounting principles generally accepted in
the United States of America.

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 DISTRIBUTION REINVESTMENT PLAN is
available to all shareholders of IRET and all limited partners of
IRET Properties. Under the Distribution Reinvestment Plan,
shareholders or limited partners may elect to have all or a
portion of their distribution used to purchase additional
IRET shares.

NOTE 2 • OFF-BALANCE-SHEET RISK

IRET had deposits at First Western Bank, Bremer Bank,
First International Bank, Associated Bank and Washington
County Bank which exceeded Federal Deposit Insurance
Corporation limits by $8,517,162, $454,088, $2,748,210,
$934,773 and $150,383, respectively, as of April 30, 2002.

As of April 30, 2002, IRET has agreements whereby First
Western Bank provides additional coverage
through
repurchase agreements totaling $15,075,000. First Western
Bank has pledged U.S. Government Securities or U.S.
Government Agency Securities under the repurchase
agreements. The repurchase agreements have no impact on the
fair market value of the underlying bank account balances
since IRET is entitled to recover only up to the par value of
their accounts, subject to the above maximum threshold.

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:

Residential

Less accumulated depreciation

Commercial

Less accumulated depreciation

Remaining Cost

April 30, 2002
$ 389,930,454
(41,629,462)
$ 348,300,992
$ 350,388,982
(17,296,055)
$ 333,092,927
$ 681,393,919

April 30, 2001
$ 361,577,622
(32,296,179)
$ 329,281,443
$ 230,058,846
(11,796,966)
$ 218,261,880
$ 547,543,323

There were no repossessions during the years ended April

30, 2002, and 2001.

The above cost of residential real estate owned included
construction in progress of $0 and $6,307,018 as of April 30,
2002, and 2001, respectively. As of April 30, 2002, IRET had
no plans to fund any construction projects other than an
expansion of the Southdale Medical Center in Edina,
Minnesota, at an estimated cost of $13,000,000 and to finance
a $5,000,000 addition to the existing facility of Edgewood
Vista, in Hermantown, Minnesota. As of year end April 30,
2002, IRET committed to purchase the Three Paramont office

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

building in Bloomington, Minnesota, for $7,350,000. In
addition, as of April 30, 2002, IRET has outstanding offers to
purchase selected properties as part of their normal operations.
IRET committed to sell Oak Manor Apartments in
Dickinson, North Dakota for $420,000 (book value of
$306,856), Oak Park Apartments in Dickinson, North
Dakota for $275,000 (book value of $257,715), and Eastwood
Apartments in Dickinson, North Dakota for $620,000 (book
value of $406,512).

Construction period interest of $99,668, $316,644, and
$404,089 has been capitalized for the year ended April 30,
2002, 2001, and 2000, respectively.

Residential apartment units are rented to individual
tenants with lease terms up to one year. Gross revenues from
residential rentals totaled $59,052,950, $55,806,712, and
$42,379,855 for the year ended April 30, 2002, 2001, and
2000, respectively.

Gross revenues from commercial property rentals totaled
$32,685,652, $18,994,010 and $11,878,026 for the year
ended April 30, 2002, 2001, and 2000, respectively.
Commercial properties are leased to tenants under terms
expiring at various dates through 2024. Lease terms often
include renewal options and, in limited instances, buyout
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 $116,239, $124,092, and
$102,659 for the years ended April 30, 2002, 2001, and
2000, respectively.

The future minimum lease payments to be received under
leases for commercial properties as of April 30, 2002,
assuming that no options to renew or buy out the lease are
exercised, are as follows:

Year Ending April 30,

2003
2004
2005
2006
2007
Thereafter

$ 27,628,991
26,707,051
25,120,322
23,093,777
21,511,722
133,182,414
$ 257,244,277

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 the 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, 2002, and 2001.

NOTE 4 • MORTGAGE LOANS RECEIVABLE

Mortgage loans receivable consists of five separate loans
which are secured 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, 2002, are as follows:

Year Ending April 30,

2003
2004
Later years

$ 3,783,217
39,545
130,000
$ 3,952,762

There were no significant non-performing mortgage loans
receivable as of April 30, 2002, or 2001. 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, 2002, and 2001, 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 fiscal 2002, 2001, or 2000. There was no
interest income on non-performing loans recognized on a cash
basis for fiscal 2002, 2001, and 2000.

NOTE 5 • MARKETABLE SECURITIES

The amortized cost and estimated market values of
marketable securities held-to-maturity at April 30, 2001, are as
follows:

Gross

Amortized

Unrealized

Cost

Gains

Losses

Fair

Value

2001
ISSUER GNMA

$ 2,351,248

$ 80,159

$ 77,389

$ 2,354,018

Marketable securities held-to-maturity consists of
Governmental National Mortgage Association (GNMA)
securities. During the first quarter ended July 31, 2001, IRET
sold its GNMA securities to use these proceeds to acquire real
estate properties. IRET held no marketable securities as of
April 30, 2002, that were classified as held-to-maturity.

There was a realized gain on sales of securities held-to-
maturity at the year ended April 30, 2002, of $11,525. There
were no realized gains or losses for the years ended April 30,
2001, and 2000.

The amortized cost and estimated market values of
marketable securities available-for-sale at April 30, 2002, and
2001, are as follows:

Gross

Amortized

Unrealized

Cost

Gains

Losses

Fair

Value

2002
ISSUER Merrill Lynch $10,500,000

$10,500,000

2001

Equity shares in

other REIT's

791,316

$ 97,209

$ 227,660

660,865

There was a $68,881 realized loss on sales of securities
available-for-sale for the year ended April 30, 2002. There were
no realized gains or losses for the years ended April 30, 2001,
and 2000.

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

NOTE 6 • NOTES PAYABLE

As of April 30, 2002, IRET had lines of credit available
from three financial institutions. The first unsecured line of
credit is with First Western Bank & Trust in the amount of
$5,000,000 carrying a variable interest rate equal to prime and
maturing August 15, 2002. The weighted average interest rate
for the year ended April 30, 2002, was 6.46%. The second
unsecured line of credit is with First International Bank &
Trust in the amount of $4,000,000 with a variable interest rate
equal to prime and maturing October 15, 2002. The
weighted average interest rate for year ended April 30, 2002,
was 6.46%. The third unsecured line of credit is with Bremer
Bank in the amount of $10,000,000 with a variable interest
rate equal to Bremer's reference rate and maturing September
30, 2002. The weighted average interest rate for the year
ended April 30, 2002, was 6.50%. Interest payments are due
monthly on all three notes. As of April 30, 2002, and April 30,
2001, IRET had no unpaid balances on any of their lines of
credit.

NOTE 7 • MORTGAGES PAYABLE

Mortgages payable as of April 30, 2002, included
mortgages on properties owned totaling $459,568,905. The
carrying value of the related real estate owned was
$716,964,492.

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.

Monthly installments are due on the mortgages with
interest rates ranging from 5.80% to 9.8854% and with
varying maturity dates through November 30, 2036.

Of the mortgages payable, the balances of fixed rate
mortgages totaled $428,565,814 and $337,364,781, and the
balances of variable rate mortgages totaled $31,003,091 and
$31,592,149 as of April 30, 2002, and 2001, respectively.

Most of the fixed rate mortgages have substantial
pre-payment penalties. As of April 30, 2002, IRET did not
plan to prepay any of its mortgage obligations. The aggregate
amount of required future principal payments on mortgages
payable as of April 30, 2002, is as follows:

Year Ending April 30,

2003
2004
2005
2006
2007
Later years
Total payments

19,162,590
10,630,799
11,517,237
12,356,777
13,260,789
392,640,713
$ 459,568,905

NOTE 8 • INVESTMENT CERTIFICATES ISSUED
IRET has sold investment certificates to the public. The
interest rates vary from 6% to 9% per annum, depending on
the term of the security. Interest is paid annually,
semiannually, or quarterly on the anniversary date of issuance.
In April of 2002, IRET discontinued the sale of
investment certificates and the outstanding certificates will be
redeemed at maturity as follows:

Year Ending April 30,

2003
2004
2005
2006
2007

16,484,256
1,995,822
2,221,533
2,177,886
2,307,085
$ 25,186,582

NOTE 9 • TRANSACTIONS WITH RELATED PARTIES
Acquisition of Odell-Wentz & Associates, L.L.C. - On
July 1, 2000, IRET Properties acquired assets from Odell-
Wentz & Associates, L.L.C. in exchange for limited
partnership units having a value of $2.1 million. The acquired
assets included real estate, furniture, fixtures, equipment and
other assets valued at $675,000, goodwill of approximately
$1.6 million, and the assumption of mortgages and other
liabilities of approximately $236,000. Included in such
transactions was the assumption of a note receivable from
Timothy Mihalick, an executive officer, in the amount of
$101,002. The proceeds of such note were used to purchase
shares. The note bears interest at New York Prime less 1% and
is payable upon demand. The note is current. With the
exception of Roger R. Odell, who retired, all officers and
employees of Odell-Wentz and Associates, L.L.C. were
retained by IRET.

Odell-Wentz & Associates, L.L.C. was owned equally by
Thomas A. Wentz, Sr., IRET's current President and Chief
Executive Officer, and Roger R. Odell, who, as of the
acquisition date of July 1, 2000, was the President. Mr.
Odell retired in July 2000, and he did not seek re-election to
the Board of Trustees in August 2000. Currently, Mr. Odell
has no relationship with the company as an employee, officer
or trustee.

Prior to the acquisition, Odell-Wentz & Associates,
L.L.C. acted as the sole advisor to IRET. Pursuant to an
advisory contract, IRET paid an advisor's fee based on its net
assets and a percentage fee for investigating and negotiating the
acquisition of new investments. No fees were paid for fiscal
year ended April 30, 2002. For the fiscal year ended April 30,
2001, IRET paid $265,573 to Odell-Wentz & Associates
L.L.C. under such contract. For the fiscal year ended April
30, 2000, IRET paid $1,400,973 under such contract.

PROPERTY MANAGEMENT SERVICES - Investors
Management and Marketing, Inc. ("IMM") provides property
management services to IRET Properties and IRET. Roger R.
Odell is a shareholder in IMM. From May 1, 2000, through
June 30, 2000, (the last full month in which Mr. Odell served
as President and as a member of the Board of Trustees), IRET
paid $114,421 to IMM for services rendered. For the fiscal
year ended April 30, 2000, IRET paid $649,729 to IMM for
management services.

With the exception of Hoyt Properties, Inc., none of the
firms engaged to provide property management services are
affiliated with IRET, its officers, or members of its Board of
Trustees. Hoyt Properties, Inc. is owned 100% by Steven B.
Hoyt, a member of the Board of Trustees, and by his wife,
Michelle E. Hoyt. As of April 30, 2002, Hoyt Properties
managed the following commercial buildings pursuant to
written management contracts:

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

Cold Spring Center . . . . . . . . . . . . . . .St. Cloud, MN
2030 Cliff Road . . . . . . . . . . . . . . . . . .Eagan, MN
Plymouth IV & V . . . . . . . . . . . . . . . .Plymouth, MN
Nicollet VII . . . . . . . . . . . . . . . . . . . . .Burnsville, MN
Burnsville Bluffs . . . . . . . . . . . . . . . . . .Burnsville, MN
Pillsbury Business Center . . . . . . . . . . .Bloomington, MN
Bloomington Business Plaza . . . . . . . . .Bloomington, MN
Thresher Square . . . . . . . . . . . . . . . . . .Minneapolis, MN
Wirth Corporate Center . . . . . . . . . . . .Golden Valley, MN

As compensation for its services, Hoyt Properties, Inc.
receives a monthly fee of 5% of the gross rental income,
provided that such management fee is reimbursable by the
building's tenants pursuant to the tenant's lease agreement. In
the event IRET is not reimbursed for such fee by a tenant and
must pay such fee from rent proceeds, the management fee
declines to 3.5% of the gross rental proceeds.

Each of the written management contracts with Hoyt
Properties commenced on April 1, 2001, with the exception of
the contracts for Bloomington Business Plaza, which
commenced on October 1, 2001, Thresher Square, which
commenced on January 2, 2002, and Wirth Corporate Center,
which commenced on April 1, 2002. All such management
contracts may be terminated by either party on 30 days
written notice for any reason and without penalty. For the year
ending April 30, 2002, IRET paid management fees to Hoyt
Properties in the amount of $321,348, 100% of which has
been reimbursed by IRET tenants.

Additionally, during the same period, IRET paid leasing
commissions to Hoyt Properties in the amount of $27,324. It
is management's opinion that all of the terms of the
management contracts are commercially reasonable and are on
terms no less favorable than what could be obtained from
unrelated property management firms.

Acquisition of Bloomington Business Plaza, Thresher
Square and Wirth Corporate Center - During the year ended
April 30, 2002, IRET acquired two commercial buildings
from affiliates of Steven B. Hoyt, a member of the Board of
Trustees. In October 2001, IRET acquired the Bloomington
Business Plaza, a 121,063 square foot multi-tenant,
office/warehouse from a general partnership owned by Mr.
Hoyt. In January 2002, IRET acquired Thresher Square, a
113,736 square foot, seven-story office building from WPT I,
LLC, a limited liability company that is 78% owned by Mr.
Hoyt. Although the purchase agreements for the acquisition
of each of these properties were negotiated and executed prior
to the time that Mr. Hoyt became a member of the Board of
Trustees, such acquisitions were closed after Mr. Hoyt had
become a member of the Board.

The acquisition of the Bloomington Business Plaza was
approved by the Board of Trustees, based on an independent
appraisal of the property and the determination that such
acquisition was fair and reasonable to IRET. The acquisition
of Thresher Square was approved by the Board, other than Mr.
Hoyt, who abstained from such vote, based on the
determination by such members of the Board that the
acquisition was fair and reasonable to IRET. Such members of
the Board further determined, based on an internal current
appraisal of such property, that substantial justification existed
to pay a value greater than the cost of the property.

On April 1, 2002, IRET acquired Wirth Corporate
Center, an 89,384 square foot, four-story office building from
Mr. Hoyt. The Board of Trustees, other than Mr. Hoyt, who
abstained from the vote approved the transaction as being fair
and reasonable to IRET. The purchase price was based on an
appraisal from an independent third-party who determined
the value of the property to be $8.6 million.

In addition to these acquisitions, on April 1, 2001, prior
to the time that Mr. Hoyt was elected to the Board of Trustees,
IRET acquired a group of six commercial properties from Mr.
Hoyt, or affiliates of Mr. Hoyt. Such properties included 2030
Cliff Road, a 13,374 square foot, multi-tenant office building
located in Eagan, Minnesota; Burnsville Bluffs, a 26,186
square foot, multi-tenant office building located in Burnsville,
Minnesota; Cold Spring Center, a 77,533 square foot, multi-
tenant office building located in St. Cloud, Minnesota;
Nicollet VII, a 118,400 square foot, multi-tenant office
building located in Burnsville, Minnesota; Pillsbury Business
Center, a 42,220 square foot, multi-tenant office building
located in Bloomington, Minnesota; and Plymouth IV and V,
two multi-tenant office buildings having an aggregate of
126,809 square feet and located in Plymouth, Minnesota. The
aggregate purchase price for these commercial properties was
$34.4 million. The acquisition of these commercial properties
was approved by the Board of Trustees.

UPREIT UNIT LOAN PROGRAM - On January 16,
2002, the Board of Trustees authorized an UPREIT unit loan
program that is available to persons that hold $1.0 million or
more of IRET Properties limited partnership units. Under
such loan program, IRET may lend up to 50% of the value of
the borrower's limited partnership units, with such value to be
based on the closing price of IRET shares on the NASDAQ
National Market on the date of the loan. Such loans will be
for terms of two years or less, they will be secured by the
borrower's limited partnership units in IRET Properties and
they will be at a variable interest rate of 1.5% over the interest
rate charged to us by a participating lender. The interest rate
will adjust on the first of each month. In connection with such
loans, IRET will charge a .5% loan fee.

On January 30, 2002, a loan in the amount of $3.5
million was made to Steven B. Hoyt, a member of the Board
of Trustees. The Board of Trustees approved such loan. The
terms of the loan require Mr. Hoyt to make quarterly interest
payments beginning April 1, 2002, with the full balance of the
principal sum due on or before January 31, 2004. The initial
interest rate is equal to the Wall Street Journal Prime Rate as of
January 31, 2002, plus 1.5%, which is equal to 6.25%. Mr.
Hoyt paid a $17,500 loan fee on the date of the loan.

UPREIT CONTRIBUTION - On April 30, 2002,
Edgeview Estate I, Ltd., a North Dakota limited partnership
contributed the proceeds from the sale of real estate pursuant
to IRET Properties UPREIT Contribution Program. The
total amount contributed to IRET Properties by Edgeview in
exchange for limited partnership units was $386,168.17. A
total of 38,908.632 units were allocated to the partnership at
a price of $9.925 per unit. The unit price of $9.925 was
determined using the average NASDAQ closing price for the
14 trading days prior to April 30, 2002, excluding the highest
close and the lowest close during the 14-day period.

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

No commissions, fees or other costs were paid or incurred
by IRET Properties.

Edgeview Estates I, Ltd is owned by current officers as well
as current trustees and past trustees of IRET as follows: Thomas
A. Wentz Sr., 6.67% - President, Investors Real Estate Trust;
Thomas A. Wentz Jr., 26.67% - Vice President and Trustee of
Investors Real Estate Trust; Roger R. Odell, 33.33%, Past
President and former Trustee of Investors Real Estate Trust until
July 1, 2000, and Mike F. Dolan, 33.33%, former Trustee of
Investors Real Estate Trust until August, 1999.

SECURITY SALES AND SERVICE - Inland National
Securities is a corporation that provides underwriting services
in connection with the sale of IRET shares. Roger R. Odell is
a shareholder in Inland National Securities. From May 1,
2000, through June 30, 2000, (the last full month in which
Mr. Odell served as President and as a member of the Board of
Trustees), IRET paid $6,861 in fees to Inland National
Securities for security sales services. For the fiscal year ended
April 30, 2000, IRET paid $100,081 for such services.

D.A. Davidson & Co. is a corporation that has, and may
in the future, on a best-efforts basis, participate in offerings of
IRET securities. John F. Decker, a member of the Board of
Trustees, is an employee of D.A. Davidson. D.A. Davidson
participated in IRET's share offering and sold a total of
700,000 shares. During the year ended April 30, 2002, IRET
paid D.A. Davidson commissions in the amount of $490,000,
and reimbursed them for legal and travel expenses in the
amount of $4,814. Of this amount, Mr. Decker personally
received $26,117 in compensation from D.A. Davidson in
connection with such offerings. During the fiscal year ended
April 30, 2001, IRET paid D.A. Davidson $50,000 for certain
investment banking services. For IRET's most recent offering
on April 25, 2002, D.A. Davidson sold 600,000 shares and
received $402,000 in commission and $13,761 for legal and
travel expenses paid in May, 2002.

LEGAL SERVICES - In the past, IRET paid fees and
expense reimbursements to Pringle & Herigstad, P.C., the law
firm in which Thomas A. Wentz, Jr., IRET's Vice President
and General Counsel, was a partner until December 31, 1999.
For the year ended, April 30, 2000, such fees and expense
reimbursements totaled $89,497. Thomas A. Wentz, Jr. has
been a member of the Board of Trustees since 1996 and Vice
President and General Counsel since June 2000.

NOTE 10 • MARKET PRICE RANGE OF SHARES
For the year ended April 30, 2002, a total of 7,644,522
shares were traded on the NASDAQ in 12,798 separate trades.
The high was $10.49, low $8.25 and closing price on April 30,
2002, was $10.03. 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, the 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, the low was $7.681, and the
closing price on April 30, 2000, was $7.875.

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

distribution methods,

in assessing
deciding how to allocate resources and
performance. Operating segments of IRET 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, most 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
reporting purposes.

and

YEAR ENDING APRIL 30, 2002

Segment Revenue
Rental revenue
Segment Expenses

COMMERCIAL RESIDENTIAL TOTAL

$ 32,685,652

59,052,950

$ 91,738,602

Mortgage interest
Utilities and maintenance
Taxes
Insurance
Property management

Total Segment Expense

Segment Gross Profit

12,475,652
2,117,993
2,685,880
236,814
940,102
$ 18,456,441
$ 14, 229,211

16,687,801
10,591,621
6,498,719
1,115,808
6,045,440
$
40,939,389
$ 18,113,561

29,163,453
12,709,614
9,184,599
1,352,622
6,985,542
$ 59,395,830
$ 32,342,772

Reconciliation to consolidated operations:
Interest discounts and fee revenue
Other interest expense
Depreciation
Administration, advisory, and trust fees
Operating expenses
Amortization

$ 1,277,467
(1,441,393)
(15,515,168)
(1,682,742)
(565,802)
(549,200)
Consolidated income before gain/loss on properties and minority interest $ 13,865,934

APRIL 30, 2002
Segment Assets

Property owned
Less accumulated depreciation

$ 350,388,982
(17,296,055)
Total consolidated property owned $ 333,092,927

$ 389,930,454
(41,629,462)
$ 348,300,992

$ 740,319,436
(58,925,517)
$ 681,393,919

YEAR ENDING APRIL 30, 2001

Segment Revenue
Rental revenue
Segment Expenses

COMMERCIAL RESIDENTIAL TOTAL

$ 18,994,010

55,806,712

$ 74,800,722

Mortgage interest
Utilities and maintenance
Taxes
Insurance
Property management

Total Segment Expense

Segment Gross Profit

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:
Interest discounts and fee revenue
Other interest expense
Depreciation
Administration, advisory, and trust fees
Operating expenses
Amortization

966,428
(789,973)
(12,299,532)
(1,480,696)
(431,390)
(428,188)
Consolidated income before gain/loss on properties and minority interest $ 10,187,812

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

APRIL 30, 2001
Segment Assets

Property owned
Less accumulated depreciation

$ 230,058,846
(11,796,966)
Total consolidated property owned $ 218,216,880

$ 361,577,622
(32,296,179)
$ 329,281,443

$ 591,636,468
(44,093,145)
$ 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
Utilities and maintenance
Taxes
Insurance
Property management
Loss on impairment of properties
$
$

Total Segment Expense

Segment Gross Profit

3,980,450
452,229
481,191
52,288
132,435
1,319,316
6,417,909
5,460,117

12,312,038
7,592,301
4,801,170
424,674
4,157,840
0
29,288,023
13,091,832

16,292,488
8,044,530
5,282,361
476,962
4,290,275
1,319,316
$ 35,705,932
$ 18,551,949

$
$

Reconciliation to consolidated operations:
Interest discounts and fee revenue
Other interest expense
Depreciation
Administration, advisory and trust fees
Operating expenses
Amortization

Consolidated income before gain/loss on properties and minority interest $

1,187,312
(721,682)
(8,460,112)
(1,159,120)
(633,692)
(216,097)
8,548,558

APRIL 30, 2000
Segment Assets

Property owned
Less accumulated depreciation

$ 120,714,774
(8,203,307)
Total consolidated property owned $ 112,511,467

$ 329,205,116
(25,029,645)
$ 304,175,471

$ 449,919,890
(33,232,952)
$ 416,686,938

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 after a holding period of one to
two years. The following tables reconciles amounts reported in
the consolidated financial statements for the years ended April
30, 2002, 2001, and 2000:

NUMERATOR
Net income applicable to shares
Numerator for basic earnings per

2002

2001

2000

10,600,129

8,694,240

8,807,845

10,600,129

8,694,240

8,807,845

Minority interest portion of operating

partnership income

3,614,168

2,095,177

1,495,209

Numerator for diluted earnings

per share

14,214,297

10,789,417

10,303,054

DENOMINATOR
Denominator for basic earnings

per share

Weighted average shares
Effect of dilutive securities
Convertible operating
partnership units
Denominator for diluted
earnings per share
Basic earnings per share
Diluted earnings per share

25,492,282

23,071,500

20,899,848

8,289,087

5,506,200

3,577,136

33,781,369
0.42
0.42

$
$

28,577,700
.38

24,476,984
$
$ .42
$ .38 $ .42

NOTE 13 • RETIREMENT PLAN

As part of the acquisition on July 1, 2000, of Odell-Wentz
& Associates, LLC, IRET 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. IRET matches up to 3% of participating
employees' wages. Plan expenses to IRET for the years ended
April 30, 2002, and 2001, were $90,455 and $45,301,
respectively.

NOTE 14 • COMMITMENTS AND CONTINGENCIES
INSURANCE - IRET's portfolio-wide general liability and
property insurance policies expired on April 30, 2002. IRET
renewed these policies at similar coverage levels, but at a price
of $495,268 or 44.29% higher than the prior fiscal year's cost
due to the addition of more property to IRET's portfolio as
well as the general price increases for insurance coverage
implemented by the insurance industry. A portion of IRET's
insurance costs are passed through to certain commercial
tenants pursuant to the terms of the applicable lease
agreement. Of IRET's total insurance costs of $1,613,552,
$281,737 or 17.46% will be billed back to IRET's commercial
tenants. For fiscal 2002, all of IRET's real estate properties are
insured against the customary casualty and liability claims
except for acts of terrorism, which are excluded under IRET's
new insurance policy. Management believes that IRET is in
compliance with all insurance provisions of its debt agreements
with the exception of one loan pertaining to an apartment
complex in Rochester, Minnesota, held by Jefferson Pilot
Financial in the amount of $3,807,590 as of April 30, 2002.
IRET has requested a waiver from the terror insurance
requirement. This waiver request is pending with the lender.
If the waiver is not granted, the increased cost to IRET
for terrorism coverage on the apartment complex is expected
to be $100,000.

ENVIRONMENTAL MATTERS - Under various federal,
state and local laws, ordinances and regulations, a current or
previous owner or operator of real estate may be liable for the
costs of removal of, or remediation of, certain hazardous or
toxic substances in, on, around or under property. Such laws
often impose liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. The presence of such
substances, or the failure to property remediate any property
containing such substances, may adversely affect the owner's
or operator's ability to sell or rent the affected property or to
borrow using such property as collateral. Persons who arrange
for the disposal or treatment of hazardous or toxic substances
may also be liable for the costs of removal of, or remediation
of, such substances at a disposal or treatment facility, whether
or not such facility is owned or operated by such person.
Certain environmental laws impose liability for the release of
asbestos-containing materials into the air, and third parties
may also seek recovery from owners or operators of
real properties for personal injury associated with asbestos-
containing materials, as well as other hazardous or toxic
substances. The operation and subsequent removal of certain

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

underground storage tanks are also regulated by federal and
state laws. In connection with the current or former ownership
(direct or indirect), operation, management, development
and/or control of real properties, IRET may be considered to
be an owner or operator of such properties, or to have
arranged for the disposal or treatment of hazardous or toxic
substances. As such, IRET may be potentially liable for
removal or remediation costs, as well as certain other costs,
including governmental fines and claims for injuries to persons
and property.

It is currently IRET's policy to obtain a Phase I
environmental study on each property that IRET seeks to
acquire. If the Phase I indicated any possible environmental
problems, IRET's policy is to order a Phase II study, which
involves testing the soil and ground water for actual hazardous
substances. No assurance can be given that the Phase I or
Phase II environmental studies, or any other environmental
studies undertaken with respect to any of IRET's current or
future properties, will reveal the full extent of potential
environmental liabilities, that any prior owner or operator of a
property did not create any material environmental condition
unknown to IRET, that a material environmental condition
does not otherwise exist as to any one or more of such
properties or that environmental matters will not have a
material adverse effect on IRET, IRET's ability to make
distributions to shareholders and IRET's ability to pay
amounts due on debt. IRET currently does not carry
insurance for environmental liabilities.

Certain environmental laws impose liability on a previous
owner of property to the extent that hazardous or toxic
substances were present during the prior ownership period. A
transfer of the property does not relieve an owner of such
liability. As a result, in addition to any liability that IRET may
have with respect to current properties, IRET may also have
liability with respect to properties previously sold by IRET's
predecessors or by IRET. To management's knowledge, as of
April 30, 2002, IRET does not own and has not sold any
properties that contain known material environmental
liabilities.

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 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.

Marketable securities - The fair values of these instruments
are estimated based on quoted market prices for the security.
Notes payable - The carrying amount approximates fair

value because of the short maturity of such 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.

The estimated fair values of the company’s financial instru-

ments are as follows:

2002

2001

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value

3,952,762
12,333,426

1,037,095
6,356,063

2,351,248

2,354,018

10,500,000

660,865

0
459,568,905

0
446,861,536

0
368,956,930

0
356,434,028

25,186,582
3,380,046

24,880,390
3,380,046

11,876,417
2,714,412

11,804,535
2,714,412

FINANCIAL ASSETS
Mortgage loan receivable
Cash
Marketable securities
held-to-maturity
Marketable securities
available-for-sale

FINANCIAL LIABILITIES
Notes payable
Mortgages payable
Investment certificates

issued

Accrued interest payable

QUARTERLY RESULTS OF CONSOLIDATED

OPERATIONS (unaudited)

QUARTER ENDED
Revenues

Income before gain on

properties and minority

interest

Net gain on sale of properties

Minority interest portion of

07-31-01
$ 21,780,094

10-31-01
$ 23,175,041

01-31-02
$ 23,605,772

04-30-02
$ 24,455,162

3,250,866

307,934

3,743,415

3,642,689

3,228,964

16,398

3,346

219,241

operating partnership income

(783,073)

(813,898)

(1,405,783)

(809,976)

Net Income

Per share

Net Income

2,775,727

2,945,915

2,240,252

2,638,235

.11

.12

.09

.10

QUARTER ENDED
Revenues

07-31-00
$ 17,431,644

10-31-00
$ 18,404,260

01-31-01
$ 19,004,737

04-30-01
$ 20,926,509

Income before gain(loss) on

properties and minority

interest

2,565,131

2,707,811

2,719,679

2,195,191

Net gain(loss) on sale of

properties

Minority interest portion of

25,124

576,481

operating partnership income

(425,667)

(538,618)

(426,316)

(704,576)

Net Income

Per share

Net Income

QUARTER ENDED
Revenues

Income before gain on

properties and minority

interest

Net gain on sale of properties

Minority interest portion of

operating partnership income

Net Income

Per share

Net Income

2,139,464

2,169,193

2,318,487

2,067,096

.09

.10

.09

07-31-99
$ 11,201,913

10-31-99
$ 12,900,697

01-31-00
$ 14,054,660

04-30-00
$ 17,287,923

1,801,322

257,895

2,478,912

1,519,918

2,390,868

1,877,456

(23,317)

(235,935)
1,823,282

(579,625)
3,419,205

(369,028)
2,021,840

(310,621)
1,543,518

.09

.16

.11

.06

SHAREHOLDER INFORMATION

EXECUTIVE OFFICERS
Thomas A. Wentz, Sr., President & CEO
Timothy P. Mihalick, SVP & COO
Thomas A. Wentz, Jr., VP & General Counsel
Diane K. Bryantt, Secretary & CFO

TRUSTEES
Jeffrey L. Miller, Chairman
C. Morris Anderson, Vice Chairman
Daniel L. Feist, Vice Chairman
John F. Decker
Steven B. Hoyt
Patrick G. Jones
Timothy P. Mihalick
Stephen L. Stenehjem
Thomas A. Wentz, Jr.

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

OUTSIDE ATTORNEYS
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

INFORMATION PROCESSING

MICHELLE R. SAARI
ASSISTANT VICE PRESIDENT

SHARLA J. NESSON
I N F O R M AT I O N P R O C E S S O R

JULIE A. EBERT
A D M I N I S T R AT I V E A S S I S TA N T

SEC FORM 10-K405

Copies of Investors Real Estate Trust’s Annual Report on Form 10-K405 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 32nd Annual Meeting of Shareholders in the Executive Room, International

Inn, 1505 North Broadway, Minot, North Dakota, at 7:00 P.M. on Tuesday, September 24, 2002.

STOCK TRADING INFORMATION

Investors Real Estate Trust shares trade on the NASDAQ National Market under the symbol IRETS.

DISTRIBUTION REINVESTMENT PLAN

Investors Real Estate Trust offers to its shareholders the option to automatically reinvest their distributions through

the Distribution Reinvestment Plan. For additional information, please contact Darla J. Strilcov, Shareholder Relations, at
Investors Real Estate Trust.

COMMON SHAREHOLDERS OF RECORD/SHARES OUTSTANDING

As of August 1, 2002, Investors Real Estate Trust had approximately 5,186 shareholders of record and 31,646,599

shares outstanding.

Investors Real Estate Trust
12 South Main Street, Suite 100
PO Box 1988
Minot, ND 58702-1988