I R E T
INVESTORS REAL ESTATE TRUST
2005
ANNUAL REPORT
Creating shareholder value
with a diversified real estate portfolio
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial data as of and for each of the fiscal years ended April 30,
2001 through 2005. The table illustrates the significant growth in revenue and real estate investment IRET
experienced over the period reported. Most of this growth was attributable to our addition of properties
through acquisitions. These historical results are not necessarily indicative of the results to be expected in the
future. This information is only a summary, and you should refer to our Consolidated Financial Statements
and notes thereto, and the section entitled “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” contained in our Annual Report on Form 10-K for additional information.
Years Ended April 30,
Consolidated Income Statement Data
Revenue
Income before Minority Interest and
Discontinued Operations and Gain
on Sale of Other Investments
Gain on Sale of Real Estate, Land, and
Other Investments
Minority Interest Portion of Operating
Partnership Income
Income from Continuing Operations
Income from Discontinued Operations
Net Income*
Consolidated Balance Sheet Data
Total Real Estate Investments
Total Assets
Mortgages Payable
Shareholders’ Equity
Consolidated Per Common Share Data
(basic and diluted)
Income from Continuing Operations
Income from Discontinued Operations
Net Income
Distributions
Funds From Operations**
2005
(in thousands, except per share data)
2002
2003
2004
2001
$ 156,447
$
133,596
$
112,071
$
84,120
$
67,473
$
$
$
$
$
$
10,709
8,605
(1,918)
8,415
6,661
15,076
$
$
$
$
$
$
10,858
662
$
$
14,337
1,595
$
$
12,664
547
$
$
(2,320) $
$
7,939
$
1,501
$
9,440
(3,341) $
$
10,377
$
1,871
$
12,248
(3,304) $
$
9,708
$
892
$
10,600
9,840
602
(1,894)
8,135
559
8,694
$ 1,067,345
$ 1,151,158
$ 708,558
$ 295,172
991,923
$
$ 1,076,317
633,124
$
278,629
$
$
$
$
$
$
.14
.16
.30
.65
42,314
$
$
$
$
$
.20
.04
.24
.64
36,638
$
$
$
$
$
$
$
$
$
845,325
885,681
539,397
214,761
.32
.06
.38
.63
34,178
$
$
$
$
$
$
$
$
$
685,347
730,209
459,569
145,578
$ 548,580
$ 570,322
$ 368,957
$ 118,945
.38
.04
.42
.59
29,143
$
$
$
$
$
.35
.03
.38
.55
22,440
Includes both continuing operations and discontinued operations (real estate that we sold) for the indicated fiscal years.
*
** For the definition of Funds From Operations and a reconciliation of this measure to measures under generally accepted accounting
principles, you should refer to the section entitled “Funds From Operations” within the section entitled “Management’s Discussion
and Analysis of Financial Conditions and Results of Operations” in our Annual Report on Form 10-K.
REVENUE
in millions of dollars
FUNDS FROM OPERATIONS
in millions of dollars
DISTRIBUTIONS
per share
TOTAL ASSETS
in millions of dollars
156.4
133.6
112.1
84.1
67.5
29.1
22.4
42.3
36.6
34.2
.65
.64
.63
.59
.55
1,151.2
1,076.3
885.7
730.2
570.3
01
02
03
04 05
01
02
03
04 05
01
02
03
04 05
01
02
03
04 05
IRET VALUE
The tenants and residents of IRET’s properties are better placed than anyone to talk about the value that IRET
provides. Here is what some of them have to say about their experience with IRET:
Sunset Trail Apartments • Rochester, Minnesota
“Thank you so much for going the extra mile for us! We appreciate it more than you’ll ever
know. We love our 1st home!”
“Thank you for everything you have done for us—to make our stay at Sunset such a joy of
happiness in our ‘Golden Years.’ Thank you for making us feel so ‘at home.’”
“I have thoroughly enjoyed living here and would recommend it to anybody!”
Burnsville Retail Center • Burnsville, Minnesota
“The IRET property management team has proven for several years to go over and above to ensure superior
tenant support and facility maintenance. … routine and individual facility issues are handled with great timeliness and in a
fiscally fair manner.”
Dewey Hill Business Center • Edina, Minnesota
“[The IRET property manager] ensures smooth operation of the building, allowing me to
focus on my business. Snow removal, HVAC problems, and just general appearance of the
building are all handled in a responsive and thorough manner. …they treat all of our needs
as important and critical. … We have employees who work late. This year [the IRET
property manager] addressed our concerns by ensuring the outside lights were working
properly at all times and trimming trees and bushes for added personal safety. This type of
concern for the welfare of our employees is greatly appreciated.”
West Village Center • Chanhassen, Minnesota & Lakeville Retail Center • Lakeville, Minnesota
“[We are] a tenant at two retail locations owned by IRET. We have been very happy with management’s quick and caring
attitude towards our needs. …it is a pleasure to have a landlord who realizes the importance of maintaining and updating
their centers and making sure their tenants are happy. It helps insure success for all.”
Edgewood Vista Assisted Living Facilities • multiple locations in Minnesota, Montana, Nebraska
and North Dakota
“We have been IRET’s tenant for nearly 10 years in a number of locations. Our relationship with IRET has allowed us to
concentrate our operating efforts where they are needed most on the care of our residents. We attribute much of our
growth and success in senior housing to our relationship with IRET. Senior housing will continue to be an exciting growth
market over the next 20 years, and we are looking forward to continuing our relationship with IRET long into the future.”
Stone Container Industrial Building • Fargo, North Dakota
“When our manufacturing plant needed to expand, brick and mortar was not where we
wanted to put our capital. Our corporate headquarters recommended we talk with some
of the “Big” insurance and contracting firms in the large market metro areas. IRET not
only came back with a competitive package, they allowed us the flexibility to make the
changes we felt necessary for additional expansions and the real feeling that this was our
building and the pride that goes along with that.”
2005 Annual Report (1)
PRESIDENT’S LETTER
Dear Fellow Shareholders:
IRET’s 35th year
saw our company
produce satisfactory
results in what has
been a challenging
environment for the
real estate industry.
Key indicators of
financial
IRET’s
progress were all
– Net
higher
Funds
Earnings,
From Operations,
Revenues, Real Estate Owned and Cash Distributions to
Shareholders.
IRET’s 35 years of operation have rewarded shareholders with
solid gains. A $10,000 investment in IRET shares at our
company’s initial public offering in 1971, with all distributions
reinvested, would have had a market value on December 31,
2005, of $894,600.
IRET’s real estate portfolio reached $1,179,856,000 at year-end,
made up of 211 properties (65 apartment communities
containing 8,610 apartment units and 146 commercial
properties with approximately 8 million square feet of leasable
space).
(2) 2005 Annual Report
Financial Results
IRET’s fiscal year 2005 financial results, as compared to the
prior year were:
(in thousands, except per share amounts)
2005 % Increase
35%
25%
16%
4%
17%
$ 12,704
$
.30
$ 42,314
$
.76
$ 156,447
2004
9,407
$
Net Income
.24
Net Income/Share
$
36,638
Funds From Operations $
$
- per share
.73
$ 133,596
Revenues
Real Estate Owned
(before depreciation
allowance)
$1,082,773
$1,179,856
9%
Significant Accounting Policies – Impact on Reported
Net Earnings
An accounting rule change adopted in 2001 continues to impact
our Company’s reported net income. The “in-place lease
valuation rule” requires that IRET and other real estate
companies assign a portion of the purchase price of an acquired
property to the value of existing leases, and amortize that
assigned value over the remaining term of the leases. In effect,
the building is valued as if it were empty, and as if IRET would
have to incur the expense of leasing commissions, remodeling
and other tenant improvements and lost rent during the
presumed rent-up period. While this accounting rule does not
it
change the actual income generated by the property,
900 Concourse Drive • Rapid City, SD
“It’s nice to see a full parking lot again!”
Effective June 1, 2005, IRET’s 75,815 square foot
office building in Rapid City, South Dakota, which
had been vacant for over two years as a result of the
bankruptcy of the original tenant, is again occupied.
The building has been leased for six years at a
beginning annual rent of $625,000, with the new
tenant also paying real estate taxes,
insurance and
operating expenses.
significantly increases the amortization deduction in the first
years of ownership. Instead of a 40-year depreciation period (a
standard depreciation period for a building), the “in-place lease
value” is written off over the remaining lease term (a much
shorter time). For fiscal year 2005, IRET’s deduction for
depreciation/amortization related to its real estate portfolio
increased at a rate significantly higher than the increase in
IRET’s real estate portfolio. This accounting rule will continue
to have a significant impact on our reported net income.
Thirty-Five Years of Increased Cash Distributions to
Shareholders
IRET again increased its cash distributions paid on our
common shares of beneficial interest and on the operating
partnership units during each quarter of
fiscal year 2005.
Distributions increased to 64.5¢ per share and unit, compared to
63.7¢ paid in the prior fiscal year, an increase of 1.26%. IRET
has paid quarterly cash distributions to its shareholders since
July 1, 1971. Annual distributions have increased every year and,
since 1988, every calendar quarter. On July 1, 2005, the cash
distribution was increased to 16.25¢ per share and unit, and was
the 137th consecutive quarterly cash distribution paid by IRET.
Portfolio Performance – The Value of Diversification
Until a few years ago, IRET was primarily invested in
apartments. At fiscal 2005 year-end, apartments comprised
approximately 37% of our portfolio, measured by amount
invested, but contributed only 15.6% of our operating profit
during the past fiscal year. Apartments have been impacted by
competition from the housing boom – our renters have been
buying homes or condos. By diversifying into commercial
properties, we have reduced the effects of the poor results from
our apartments. We do intend to add to our apartment
portfolio when the market strengthens. In the meantime, we will
look to acquire commercial properties as we have done in recent
years.
Sarbanes Oxley
A major focus for the company this past year was an exhaustive
and expensive review of our internal control over financial
reporting and our business processes and controls to ensure
IRET’s compliance with Section 404 of the Sarbanes-Oxley Act
by fiscal year-end. We are pleased to report that we successfully
completed this task with no material weaknesses identified in
our internal controls. We will continue to enhance our
accounting capabilities to accommodate the anticipated growth
of our company in the years ahead.
The Future
IRET is well positioned to continue its growth. We have a
strong balance sheet, an experienced staff and an enviable 35-
year history. We will continue to operate IRET with the same
principles as we have in the past and will do our best to
continue to create value for our shareholders.
Sincerely,
Thomas A. Wentz, Sr.
President and Chief Executive Officer
DD ii aa nn ee KK .. BB rr yy aa nn tt tt
Senior Vice President & Chief Financial Officer
TT ii mm oo tt hh yy PP .. MM ii hh aa ll ii cc kk
Trustee, Senior Vice President & Chief Operating Officer
West Village Center
Chanhassen, MN
Stone Container
Fargo, ND
INVESTMENT PORTFOLIO
COMMERCIAL PROPERTY
REAL ESTATE PORTFOLIO MIX
State
Colorado
Georgia
Idaho
Iowa
Michigan
Minnesota
Montana
Nebraska
North Dakota
South Dakota
Wisconsin
Total Commercial Property
Sq. Ft.
81,173
29,408
130,629
604,711
16,080
5,612,352
109,245
171,668
866,369
75,815
299,302
7,996,752
MULTI-FAMILY RESIDENTIAL PROPERTY
State
Colorado
Idaho
Iowa
Kansas
Minnesota
Montana
Nebraska
North Dakota
South Dakota
Texas
Total Multi-Family Residential Property
Units
597
60
132
734
2,015
770
498
2,561
739
504
8,610
Fiscal 2005
(in thousands)
Investment Occupancy
91.1%
$
100.0%
97.1%
68.1%
100.0%
91.1%
86.3%
100.0%
94.7%
0.0%
96.5%
91.4%
11,240
4,622
15,183
12,980
2,121
582,057
6,767
34,325
43,287
7,047
18,118
737,747
$
(in thousands) Fiscal 2005
Investment Occupancy
90.6%
$
96.7%
78.0%
93.1%
84.8%
92.0%
85.4%
93.9%
88.1%
93.0%
90.0%
41,346
3,954
4,935
41,185
104,385
39,221
22,838
113,473
32,146
38,626
442,109
$
UNDEVELOPED LAND
State
Minnesota
Montana
North Dakota
Wisconsin
Total Undeveloped Land
Total Real Estate Owned
(in thousands)
Investment
974
$
1,415
2,788
205
$
5,382
$ 1,185,238
Commercial Property
Multi-Family Residential Property
Undeveloped Land
62.2%
37.3%
0.5%
PROPERTY INVESTMENTS
percentage by state
Minnesota
North Dakota
Nebraska
Colorado
Montana
Kansas
South Dakota
58.0%
13.5%
4.8%
4.4%
4.0%
3.5%
3.3%
Texas
Idaho
Iowa
Wisconsin
Georgia
Michigan
3.3%
1.6%
1.5%
1.5%
0.4%
0.2%
INVESTMENT PORTFOLIO
MT
ID
MN
ND
SD
IA
NE
WI
MI
CO
KS
TX
GA
MAP LEGEND
Multi-Family Residential Property
Commercial Property
Undeveloped Land
Cr ea ting Sha re hol de r Va lue
with a diversified real estate portfolio
CREATING SHAREHOLDER VALUE
34 CALENDAR YEAR HISTORY OF INCREASING DISTRIBUTIONS
Since its first distribution paid July 1, 1971, IRET has never delayed, omitted or
reduced its quarterly distribution on its common shares. In each of the last 34
calendar years, the annual distribution has increased over the amount paid in the
preceding year.
Distribution
History2
Total Return
Per Year3
Share Bid
Price History1
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
(1) End of calendar year bid price per share of beneficial interest of IRET.
(2) Total calendar year distributions paid.
(3) Distributions plus share price changes. (Calendar year distributions paid plus change in share bid price
2.75¢
6.20¢
6.55¢
7.10¢
8.00¢
8.70¢
9.50¢
10.50¢
11.25¢
13.25¢
14.00¢
14.75¢
18.50¢
22.13¢
24.25¢
26.18¢
27.65¢
28.16¢
29.10¢
29.90¢
30.70¢
31.50¢
32.30¢
33.65¢
35.25¢
37.38¢
40.18¢
43.70¢
49.25¢
52.55¢
57.50¢
61.20¢
63.25¢
64.10¢
1.00
1.10
1.30
1.40
1.50
1.70
1.80
2.00
2.00
1.80
2.00
2.20
2.95
3.15
3.15
3.85
4.05
4.35
4.75
4.50
5.40
5.70
6.00
6.40
6.16
6.44
7.13
7.44
7.88
7.88
9.35
10.05
9.96
10.49
5.5%
16.2%
24.1%
13.2%
12.9%
19.1%
11.5%
16.9%
5.6%
-3.4%
18.9%
17.4%
42.5%
14.3%
7.7%
30.5%
12.4%
14.4%
15.9%
1.0%
26.8%
11.4%
10.9%
12.3%
1.8%
10.6%
17.0%
10.5%
12.5%
6.7%
26.0%
14.0%
5.4%
11.8%
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Thresher Square • Minneapolis, MN
divided by previous end of year share bid.)
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 2005
Low
9.390
9.510
9.780
8.900
High
10.470
10.300
10.720
10.260
Fiscal 2004
Low
9.280
9.690
9.880
9.360
High
10.805
10.480
10.700
10.500
Fiscal 2003
Low
8.550
9.050
9.660
8.980
High
11.900
11.000
11.000
10.000
CALENDAR YEAR TAX STATUS OF DISTRIBUTION
ON COMMON SHARES
Capital Gain
Ordinary Income
Return of Capital
2004
0.00%
44.65%
55.35%
2003
3.88%
58.45%
37.67%
2002
0.00%
68.29%
31.71%
2001
0.00%
65.98%
34.02%
2000
0.72%
86.76%
12.52%
2005 Annual Report (5)
TOTAL SHAREHOLDER RETURNS
34 CALENDAR YEAR PERFORMANCE COMPARISON
$10,000 invested in IRET common shares on January 1, 1972, with distributions reinvested, would be worth
$894,600 as of December 31, 2004. This presentation excludes brokerage costs and income taxes.
$ 894,600
$ 640,900
IRET
Peer Group
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 02 03 04
(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.
Dakota Hill at
Valley Ranch
Irving, TX
Dakota Hill at
Valley Ranch
Irving, TX
COMPANY PROFILE
ORGANIZATIONAL STRUCTURE
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 diversified portfolio of income-producing
real estate.
In 1997, IRET reorganized itself as an Umbrella Partnership Real Estate Investment Trust ("UPREIT"). The
company 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). IRET assets were transferred to the Umbrella Partnership in exchange for the
general partnership interest. Owners of real estate are offered the opportunity of becoming limited partners in
the Umbrella Partnership by conveying their real estate to the partnership in exchange for partnership units.
These units are exchangeable for, and the financial equivalent of, the IRET publicly-traded common shares.
For owners of appreciated real estate, the UPREIT program has been a popular alternative to a taxable sale.
Owners enjoy an IRET return on the full value of their real estate undiminished by capital gains tax until such
time as they choose to liquidate their investment. On April 30, 2005, a total of 13,114,460 UPREIT units with a
book value of approximately $103.2 million were outstanding.
INVESTMENT STRATEGY
As of April 30, 2005, IRET owned 65 apartment communities containing 8,610 apartment units, and 146
commercial properties with 7,996,752 square feet of rentable space, located primarily in Minnesota and North
Dakota.
IRET's investment strategy is to invest in multi-family residential and commercial real estate located primarily in
Minnesota, North Dakota, South Dakota, Montana, and Nebraska, and to diversify our investments among
multi-family residential properties and office, medical, industrial and retail commercial properties.
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 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 65% to 90% of our funds from operations (FFO). We use the
remaining FFO to make capital improvements to existing properties and to acquire more properties. By
reinvesting a portion of FFO, we expect to enhance the income-producing capability of our portfolio.
TCA Building
Eagan, MN
St. Luke’s Lakeview
(Pavilion II)
Duluth, MN
US Bank Financial Center • Bloomington, MN
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended April 30, 2005
Commission File Number 000-14851
Investors Real Estate Trust
(Exact name of Registrant as specified in its charter)
North Dakota
(State or other jurisdiction of incorporation or organization)
45-0311232
(IRS Employer Identification No.)
12 South Main Street
Minot, North Dakota 58701
(Address of principal executive offices)
701-837-4738
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares of Beneficial Interest (no par value)
Series A Cumulative Redeemable Preferred Shares of Beneficial Interest (no par value)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
(cid:53) Yes (cid:133) No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:53)
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
(cid:53) Yes (cid:133) No
The aggregate market value of the registrant’s outstanding common shares of beneficial interest held by non-affiliates (i.e.,
by persons other than officers and trustees of the registrant as reflected in the table in Item 12 of this Form 10-K,
incorporated by reference from the registrant’s definitive Proxy Statement for its 2005 Annual Meeting of Shareholders)
was $405,548,619 based on the last reported sale price on the NASDAQ National Market on October 29, 2004.
The number of common shares of beneficial interest outstanding as of June 30, 2005, was 45,217,241.
References in this Annual Report on Form 10-K to the “Company,” “IRET,” “we,” “us,” or “our” include consolidated
subsidiaries, unless the context indicates otherwise.
Documents Incorporated by Reference: Portions of IRET’s definitive Proxy Statement for its 2005 Annual Meeting of
Shareholders are incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) hereof.
2005 Annual Report
INVESTORS REAL ESTATE TRUST
INDEX
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Trustees and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Exhibit Index
Signatures
Reports of Independent Registered Public Accounting Firms and Financial Statements
PAGE
4
4
16
24
25
25
25
26
26
49
50
50
50
53
53
53
53
53
53
53
54
54
54
56
F-1 to F-44
2005 Annual Report 2
Special Note Regarding Forward Looking Statements
Certain statements included in this Annual Report on Form 10-K and the documents incorporated into this document
by reference are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). Such forward-looking statements include statements about our belief that we have the liquidity
and capital resources necessary to meet our known obligations and to make additional real estate acquisitions and
capital improvements when appropriate to enhance long term growth; and other statements preceded by, followed by
or otherwise including words such as “believe,” “expect,” “intend,” “project,” “plan,” “anticipate,” “potential,”
“may,” “will,” “designed,” “estimate,” “should,” “continue” and other similar expressions. These statements
indicate that we have used assumptions that are subject to a number of risks and uncertainties that could cause our
actual results or performance to differ materially from those projected.
Although we believe that the expectations reflected in such forward-looking statements are based on reasonable
assumptions, we can give no assurance that these expectations will prove to have been correct. Important factors that
could cause actual results to differ materially from the expectations reflected in the forward-looking statements
include:
•
the economic health of the markets in which we own and operate multi-family and commercial properties, in
particular the states of Minnesota and North Dakota, or other markets in which we may invest in the future;
•
the economic health of our commercial tenants;
• market rental conditions, including occupancy levels and rental rates, for multi-family residential and
commercial properties;
• our ability to identify and secure additional multi-family residential and commercial properties that meet our
criteria for investment;
•
the level and volatility of prevailing market interest rates and the pricing of our common shares of beneficial
interest;
•
financing risks, such as our inability to obtain debt or equity financing on favorable terms, or at all; and
• compliance with applicable laws, including those concerning the environment and access by persons with
disabilities.
Readers should carefully review our financial statements and the notes thereto, as well as the section entitled “Risk
Factors” in Item 1 of this Annual Report on Form 10-K and the other documents we file from time to time with the
Securities and Exchange Commission (“SEC”).
In light of these uncertainties, the events anticipated by our forward-looking statements might not occur. We
undertake no obligation to update or revise any forward-looking statements, whether as a result of new information,
future events or otherwise. The foregoing review of factors that could cause our actual results to differ materially
from those contemplated in any forward-looking statements included in this Annual Report on Form 10-K should
not be construed as exhaustive.
2005 Annual Report 3
Item 1. Business
Overview
PART I
Investors Real Estate Trust is a self-advised equity Real Estate Investment Trust (“REIT”) organized under the laws
of North Dakota. Since our formation in 1970, our business has consisted of owning and operating income-
producing real estate properties. We are structured as an Umbrella Partnership Real Estate Investment Trust or
UPREIT and we conduct our day-to-day business operations though our operating partnership, IRET Properties, a
North Dakota Limited Partnership (“IRET Properties” or the “Operating Partnership”). Our investments consist of
multi-family residential properties and commercial office, medical, industrial and retail properties. These properties
are located primarily in the upper Midwest states of Minnesota and North Dakota. For the twelve months ended
April 30, 2005, our real estate investments in these two states accounted for 73.2% of our total gross revenue. Our
principal executive offices are located in Minot, North Dakota. We also have an office in Minneapolis, Minnesota.
We seek to diversify our investments among multi-family residential and office, medical, industrial and retail
properties. As of April 30, 2005, our real estate portfolio consisted of:
• 65 multi-family residential properties, containing 8,610 apartment units and having a total carrying amount
(net of accumulated depreciation) of $374.6 million;
• 50 office properties containing approximately 3.5 million square feet of leasable space and having a total
carrying amount (net of accumulated depreciation) of $330.3 million;
• 25 medical properties (including assisted living facilities) containing approximately 1.1 million square feet of
leasable space and having a total carrying amount (net of accumulated depreciation) of $192.5 million;
• 11 industrial properties (including miscellaneous commercial properties) containing approximately 1.7
million square feet of leasable space and having a total carrying amount (net of accumulated depreciation) of
$53.0 million; and
• 60 retail properties containing approximately 1.6 million square feet of leasable space and having a total
carrying amount (net of accumulated depreciation) of $110.9 million.
Our residential leases are generally for a one-year term. Our commercial properties are typically leased to tenants
under long-term lease arrangements. As of April 30, 2005, no single tenant accounted for more than 5% of our total
annual commercial segments rental revenues.
Except for certain commercial properties managed by our Minneapolis office, we generally contract with locally-
based third-party professional management companies to handle the day-to-day management of our properties.
These management activities include the negotiation of potential leases, the preparation of proposed operating
budgets, the collection and remittance of lease or rental payments and the supervision of routine maintenance and
capital improvements that have been authorized by us. All decisions relating to the purchase or sale of property,
insurance coverage, capital improvements, approval of commercial leases, annual operating budgets and major
renovations are made exclusively by our employees and then implemented by the third-party management
companies. Generally, our management contracts provide for compensation ranging from 1.0% to 5.5% of gross rent
collections and, typically, we may terminate these contracts in 60 days or less, or upon the property manager’s
failure to meet specified financial performance goals. We believe that the use of locally-based management
companies allows us to enjoy the benefits of local knowledge of the applicable real estate market, while avoiding the
cost and difficulty associated with maintaining management personnel in every city in which we operate.
2005 Annual Report 4
Structure
We were organized as a REIT under the laws of North Dakota on July 31, 1970.
Since our formation, we have operated as a REIT under Sections 856-858 of the Internal Revenue Code of 1986, as
amended (the “Code”), and since February 1, 1997, we have been structured as an UPREIT. Since restructuring as
an UPREIT, we have conducted all of our daily business operations through IRET Properties. IRET Properties is
organized under the laws of North Dakota pursuant to an Agreement of Limited Partnership dated January 31, 1997.
IRET Properties is principally engaged in acquiring, owning, operating and leasing multi-family residential and
commercial real estate. The sole general partner of IRET Properties is IRET, Inc., a North Dakota corporation and
our wholly-owned subsidiary. All of our assets (except for qualified REIT subsidiaries) and liabilities were
contributed to IRET Properties, through IRET, Inc., in exchange for the sole general partnership interest in IRET
Properties. As of April 30, 2005, IRET, Inc. owned a 77.5% interest in IRET Properties. The remaining ownership
of IRET Properties is held by individual limited partners.
Investment Strategy and Policies
Our business objective is to increase shareholder value by employing a disciplined investment strategy. This strategy
is focused on growing assets in desired geographical markets, achieving diversification by property type and
location, and adhering to targeted returns in acquiring properties. We have increased our cash distributions every
year since our inception 35 years ago and every quarter since 1988.
We generally use available cash or short-term floating rate debt to acquire real estate. We then replace such cash or
short-term floating rate debt with fixed-rate secured debt, typically in an amount equal to 65.0% to 75.0% of a
property’s appraised value. In appropriate circumstances, we also may acquire one or more properties in exchange
for our common shares of beneficial interest (“common shares”) or for limited partnership units of IRET Properties
(“limited partnership units” or “UPREIT Units”), which are convertible, after the expiration of a minimum holding
period of one year, into cash or, at our sole discretion, into our common shares on a one-to-one basis.
Our investment strategy is to invest in multi-family residential properties and office, medical, industrial and retail
commercial properties that are leased to single or multiple tenants, usually for five years or longer, and are located
throughout the upper Midwest. We operate mainly within the states of North Dakota and Minnesota, although we
also have real estate investments in South Dakota, Montana, Nebraska, Colorado, Georgia, Idaho, Iowa, Kansas,
Michigan, Texas and Wisconsin.
In order to implement our investment strategy we have certain investment policies. Our significant investment
policies are as follows:
Investments in the securities of, or interests in, entities primarily engaged in real estate activities and other
securities. While we are permitted to invest in the securities of other entities engaged in the ownership and
operation of real estate, as well as other securities, we currently have no plans to make any investments in
other securities.
Any policy, as it relates to investments in other securities, may be changed by a majority of the members of
our Board of Trustees at any time without notice to or a vote of our shareholders.
Investments in real estate or interests in real estate. We currently own multi-family residential properties
and/or commercial properties in 13 states. We may invest in real estate, or interests in real estate, that is
located anywhere in the United States; however, we currently plan to focus our investments in those states
in which we already have property, with specific concentration in Minnesota, North Dakota, Nebraska,
Montana, and South Dakota. Similarly, we may invest in any type of real estate or interest in real estate
including, but not limited to, office buildings, apartment buildings, shopping centers, industrial and
commercial properties, special purpose buildings and undeveloped acreage. Under our Second Restated
Trustees’ Regulations (Bylaws), however, we may not invest more than 10.0% of our total assets in
unimproved real estate, excluding property being developed or property where development will be
commenced within one year.
2005 Annual Report 5
It is not our policy to acquire assets primarily for capital gain through sale in the short term. Rather, it is our
policy to acquire assets with an intention to hold such assets for at least a 10-year period. During the
holding period, it is our policy to seek current income and capital appreciation through an increase in value
of our real estate portfolio, as well as increased revenue as a result of higher rents.
Any policy, as it relates to investments in real estate or interests in real estate may be changed by our Board
of Trustees at any time without notice to or a vote of our shareholders.
Investments in real estate mortgages. While not our primary business focus, from time to time we make
loans to others that are secured by mortgages, liens or deeds of trust covering real estate. We have no
restrictions on the type of property that may be used as collateral for a mortgage loan; provided, however,
that except for loans insured or guaranteed by a government or a governmental agency, we may not invest
in or make a mortgage loan unless an appraisal is obtained concerning the value of the underlying property.
Unless otherwise approved by our Board of Trustees, it is our policy that we will not invest in mortgage
loans on any one property if in the aggregate the total indebtedness on the property, including our
mortgage, exceeds 85.0% of the property’s appraised value. We can invest in junior mortgages without
notice to, or the approval of, our shareholders. As of April 30, 2005, we had one junior mortgage with a
principal balance net of allowance of $189,000. We do not currently plan to invest in any other junior
mortgages.
Our policies relating to mortgage loans, including second mortgages, may be changed by our Board of
Trustees at any time, or from time to time, without notice to, or a vote of, our shareholders.
Policies With Respect to Certain of Our Activities
Our current policies as they pertain to certain of our activities are described as follows:
Cash distributions to shareholders and holders of limited partnership units. We intend to continue our policy of
making cash distributions to our common shareholders and the holders of limited partnership units of approximately
65.0% to 90.0% of our funds from operations and to use the remaining funds for capital improvements or the
purchase of additional properties. This policy may be changed at any time by our Board of Trustees without notice
to, or approval of, our shareholders. We have increased our cash distributions every year since our inception 35
years ago and every quarter since 1988.
Issuing senior securities. As of April 30, 2005, we have issued and outstanding $4,635,721 in investment
certificates, which were issued for a definite term and annual interest rate, and which will be redeemed as they
mature. In the event of our dissolution, the investment certificates would be paid in preference to our common
shares. IRET has discontinued the sale of investment certificates and outstanding certificates will be redeemed as
they mature. Additionally, on April 26, 2004, we issued 1,150,000 shares of 8.25% Series A Cumulative
Redeemable Preferred Shares of Beneficial Interest (the “Series A preferred shares”). Depending on future interest
rate and market conditions, we may issue additional preferred shares or other senior securities which would have
dividend and liquidation preference over our common shares.
Borrowing money. We rely on borrowed funds in pursuing our investment objectives and goals. It is generally our
policy to seek to borrow up to 65.0% to 75.0% of the appraised value of all new real estate acquired or developed.
This policy concerning borrowed funds is vested solely with our Board of Trustees and can be changed by our Board
of Trustees at any time, or from time to time, without notice to, or a vote of, our shareholders. Such policy is subject,
however, to the limitation in our Bylaws, which provides that unless approved by a majority of the independent
members of our Board of Trustees and disclosed to our shareholders in our next quarterly report along with
justification for such excess, we may not borrow in excess of 300.0% of our total Net Assets (as such term is used in
our Bylaws, which usage is not in accordance with GAAP, “Net Assets” means our total assets at cost before
deducting depreciation or other non-cash reserves, less total liabilities). Our Bylaws do not impose any limitation on
the amount that we may borrow against any one particular property. As of April 30, 2005, our ratio of total real
estate mortgages to total real estate assets was 66.4% while our ratio of total indebtedness as compared to our Net
Assets (computed in accordance with our Bylaws) was 133.9%.
2005 Annual Report 6
Offering securities in exchange for property. Our organizational structure allows us to issue shares and to offer
limited partnership units of IRET Properties in exchange for real estate. The limited partnership units are convertible
into cash, or, at our option, common shares on a one-for-one basis after a minimum one-year holding period. All
limited partnership units receive the same cash distributions as those paid on common shares. Limited partners are
not entitled to vote on any matters affecting us until they convert their limited partnership units to common shares.
Our Articles of Amendment and Third Restated Declaration of Trust does not contain any restrictions on our ability
to offer limited partnership units of IRET Properties in exchange for property. As a result, any decision to do so is
vested solely in our Board of Trustees. This policy may be changed at any time, or from time to time, without notice
to, or a vote of, our shareholders. For the three most recent fiscal years ended April 30, we have issued the following
limited partnership units of IRET Properties in exchange for properties:
Limited partnership units issued
Dollar value
2005
1,996
20,071
(in thousands)
2004
2,006
$ 19,851 $
$
2003
894
8,860
Acquiring or repurchasing shares. As a REIT, it is our intention to only invest in real estate assets. Our Articles of
Amendment and Third Restated Declaration of Trust does not prohibit the acquisition or repurchase of our common
or preferred shares or other securities so long as such activity does not prohibit us from operating as a REIT under
the Code. Any policy regarding the acquisition or repurchase of shares or other securities is vested solely in our
Board of Trustees and may be changed at any time, or from time to time, without notice to, or a vote of, our
shareholders.
During fiscal year 2005, we did not repurchase any of our outstanding common shares, preferred shares or limited
partnership units, except for the redemption of a nominal amount of fractional common shares held by shareholders,
upon request.
To make loans to other persons. Our organizational structure allows us to make loans to other persons, subject to
certain conditions and subject to our election to be taxed as a REIT. All loans must be secured by real property or
limited partnership units of IRET Properties. Our mortgage loan receivables as of April 30, 2005, totaled $0.6
million, and $4.9 million as of April 30, 2004.
To invest in the securities of other issuers for the purpose of exercising control. We have not, for the past three
years, engaged in, and we are not currently engaging in, investment in the securities of other issuers for the purpose
of exercising control. Our Articles of Amendment and Third Restated Declaration of Trust does not impose any
limitation on our ability to invest in the securities of other issuers for the purpose of exercising control. Any decision
to do so is vested solely in our Board of Trustees and may be changed at any time, or from time to time, without
notice to, or a vote of, our shareholders.
To provide summary reports to our shareholders. We also have a policy of mailing summary quarterly reports to our
shareholders in January, April, July, and October of each year. The quarterly reports do not contain financial
statements audited by an independent registered public accounting firm. This policy of providing a summary
quarterly report to our shareholders is not required by our organizational documents and may be changed by a
majority of our Board of Trustees at any time without notice to or a vote of our shareholders.
Information about Segments
We currently operate in five reportable segments: multi-family residential properties, and office, medical (including
assisted living facilities), industrial (including miscellaneous properties) and retail properties. For further
information on these segments and other related information, see Note 12 of our consolidated financial statements,
and Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this
Annual Report on Form 10-K.
2005 Annual Report 7
Our Executive Officers
Set forth below are the names, ages, titles and biographies of each of our executive officers as of July 1, 2005.
Name
Thomas A. Wentz, Sr.
Charles Wm. James
Timothy P. Mihalick
Thomas A. Wentz, Jr.
Diane K. Bryantt
Michael A. Bosh
Age
69
57
46
39
41
34
Title
President and Chief Executive Officer
Senior Vice President
Senior Vice President and Chief Operating Officer
Senior Vice President
Senior Vice President and Chief Financial Officer
Secretary and General Counsel
Thomas A. Wentz, Sr. is a graduate of Harvard College and Harvard Law School, and has been associated with us
since our formation on July 31, 1970. Mr. Wentz was a member of our Board of Trustees from 1970 to 1998,
Secretary from 1970 to 1987, Vice President from 1987 to July 2000, and has been President and Chief Executive
Officer since July 2000. Previously, from 1985 to 1991, Mr. Wentz was a Vice President of our former advisor,
Odell-Wentz & Associates, L.L.C., and, until August 1, 1998, was a partner in the law firm of Pringle & Herigstad,
P.C.
Charles Wm. James was appointed as a Senior Vice President in February 2003. Prior to becoming a Senior Vice
President, from 1976 to February 2003, Mr. James served in several officer positions with companies unrelated to
IRET, including the office of Vice President with the T.F. James Company, an Iowa corporation that was merged
into IRET, Inc. in February 2003. Mr. James, who devotes three-quarters of his time to the Company, is currently
also a managing member of Thomas F. James Properties, L.L.C., an Arkansas commercial development company; a
partner of Peak Properties Development, a Montana commercial development partnership; a partner of James
Family Properties, a Minnesota commercial development partnership; and a limited partner of Thomas F. James
Realty Limited Partnership, L.L.L.P., a commercial property management company.
Timothy P. Mihalick joined us as a financial officer in May 1981, after graduating from Minot State University. He
has served in various capacities with us over the years and was named Vice President in 1992. Mr. Mihalick has
served as the Chief Operating Officer since 1997, as a Senior Vice President since 2002, and as a member of our
Board of Trustees since 1999.
Thomas A. Wentz, Jr. is a graduate of Harvard College and the University of North Dakota School of Law, and
joined us as General Counsel and Vice President in January 2000. He has served as a Senior Vice President since
2002 and as a member of our Board of Trustees since 1996. Prior to 2000, Mr. Wentz was a shareholder in the law
firm of Pringle & Herigstad, P.C. from 1992 to 1999. Mr. Wentz is a member of the American Bar Association and
the North Dakota Bar Association, and he is a Director of SRT Communications, Inc. Mr. Wentz is the son of
Thomas A. Wentz, Sr.
Diane K. Bryantt is a graduate of Minot State University, joined us in June 1996, and served as our Controller and
Corporate Secretary before being appointed to the positions of Senior Vice President and Chief Financial Officer in
2002. Prior to joining us, Ms. Bryantt was employed by First American Bank, Minot, North Dakota.
Michael A. Bosh joined us as Associate General Counsel and Secretary in September 2002, and was named General
Counsel in September 2003. Prior to 2002, Mr. Bosh was a shareholder in the law firm of Pringle & Herigstad, P.C.
Mr. Bosh graduated from Jamestown College in 1992 and from Washington & Lee University School of Law in
1995. Mr. Bosh is a member of the American Bar Association and the North Dakota Bar Association.
Employees
As of April 30, 2005, we had 42 employees.
Environmental Matters and Government Regulation
Under various federal, state and local laws, ordinances and regulations relating to the protection of the environment,
a current or previous owner or operator of real estate may be liable for the costs of removal or remediation of certain
hazardous or toxic substances released at a property, and may be held liable to a governmental entity or to third
2005 Annual Report 8
parties for property damage or personal injuries and for investigation and clean-up costs incurred in connection with
any contamination. In addition, some environmental laws create a lien on a contaminated site in favor of the
government for damages and costs it incurs in connection with the contamination. These laws often impose liability
without regard to whether the current owner was responsible for, or even knew of, the presence of such substances.
It is generally our policy to obtain from independent environmental consultants a “Phase I” environmental audit
(which involves visual inspection but not soil or groundwater analysis) on all properties that we seek to acquire. We
do not believe that any of our properties are subject to any material environmental contamination. However, no
assurances can be given that:
• a prior owner, operator or occupant of the properties we own or the properties we intend to acquire did not
create a material environmental condition not known to us, which might have been revealed by more in-depth
study of the properties; and
•
future uses or conditions (including, without limitation, changes in applicable environmental laws and
regulations) will not result in the imposition of environmental liability upon us.
In addition to laws and regulations relating to the protection of the environment, many other laws and governmental
regulations are applicable to our properties, and changes in the laws and regulations, or in their interpretation by
agencies and the courts, occur frequently. Under the Americans with Disabilities Act of 1990 (the “ADA”), all
places of public accommodation are required to meet certain federal requirements related to access and use by
disabled persons. In addition, the Fair Housing Amendments Act of 1988 (the “FHAA”) requires apartment
communities first occupied after March 13, 1990, to be accessible to the handicapped. Non-compliance with the
ADA or the FHAA could result in the imposition of fines or an award of damages to private litigants. We believe
that those of our properties to which the ADA and/or FHAA apply are substantially in compliance with present
ADA and FHAA requirements.
Competition
Investing in and operating real estate is a very competitive business. We compete with other owners and developers
of multi-family and commercial properties to attract tenants to our properties. Ownership of competing properties is
diversified among other REITs, financial institutions, individuals and public and private companies who are actively
engaged in this business. Our multi-family properties compete directly with other rental apartments, as well as with
condominiums and single-family homes that are available for rent or purchase in the areas in which our properties
are located. Our commercial properties compete with other commercial properties for tenants. Additionally, we
compete with other real estate investors, including other REITs, pension and investment funds, partnerships and
investment companies, to acquire properties. This competition affects our ability to acquire properties we want to
add to our portfolio and the price we pay in acquisitions. During the past year, we have continued to witness an
unprecedented demand for quality investment real estate. This demand caused an escalation in price for all types of
real estate. As a result, we were unable to purchase properties that will generate rates of return similar to those
generated by properties we acquired in previous years. We expect that the levels of return to be achieved through
our investment in existing and stabilized real estate will remain lower than in previous periods as long as interest
rates remain at historically low levels. We do not believe we have a dominant position in any of the geographic
markets in which we operate, but some of our competitors are dominant in selected markets. Many of our
competitors have greater financial and management resources than we have. We believe, however, that the
geographic diversity of our investments, the experience and abilities of our management, the quality of our assets
and the financial strength of many of our commercial tenants affords us some competitive advantages that have in
the past and will in the future allow us to operate our business successfully despite the competitive nature of our
business.
Corporate Governance
The Company’s Board of Trustees has adopted various policies and initiatives to strengthen the Company’s
corporate governance and increase the transparency of financial reporting. Each of the committees of the
Company’s Board of Trustees operates under written charters, and the Company’s independent trustees meet
regularly in executive sessions at which only the independent trustees are present. The Board of Trustees has also
adopted a Code of Conduct applicable to trustees, officers and employees, and a Code of Ethics for Senior Financial
Officers, and has established processes for shareholder communications with the Board of Trustees.
2005 Annual Report 9
Additionally, the Company’s Audit Committee has established procedures for the receipt, retention and treatment of
complaints regarding accounting, internal accounting controls or auditing matters, including procedures for the
confidential, anonymous submission by Company employees of concerns regarding accounting or auditing matters.
The Audit Committee also maintains a policy requiring Audit Committee approval of all audit and non-audit
services provided to the Company by the Company’s independent registered public accounting firm.
The Company will disclose any amendment to its Code of Ethics for Senior Financial officers on its website. In the
event the Company waives compliance by any of its trustees or officers subject to the Code of Ethics or Code of
Conduct, the Company will disclose such waiver in a Form 8-K filed within four business days.
Website and Available Information
Our internet address is www.iret.com. We make available, free of charge, through the “SEC filings” tab under the
Investor Relations section of our internet website, our Annual Report on Form 10-K, our quarterly reports on Form
10-Q, our current reports on Form 8-K, and amendments to such reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Exchange Act as soon as reasonably practicable after such forms are filed with or furnished to the
SEC. Current copies of our Code of Conduct, Code of Ethics for Senior Financial Officers, and Charters for the
Audit, Compensation, Executive and Nominating Committee of our Board of Trustees are also available on our
website under the heading “Corporate Governance” in the Investor Relations section of our website. Copies of these
documents are also available to shareholders upon request addressed to the Secretary at Investors Real Estate Trust,
P.O. Box 1988, Minot, North Dakota 58701. Information on our internet website does not constitute part of this
Annual Report on Form 10-K.
RISK FACTORS
Risks Related to Our Properties and Business
Our increasing ownership of commercial properties subjects us to different risks than our traditional base of multi-
family residential properties. Historically, the assets in our investment portfolio consisted predominantly of multi-
family residential properties. More recently, our investment activities have caused this balance to shift so that the
percentage of commercial properties held in our portfolio has increased significantly. Within the past 24 months,
approximately 81.5% of our property acquisitions, on a total carrying amount basis, have been commercial
properties, due to the greater availability of these properties on terms that meet our financial and strategic objectives.
“Total carrying amount” is the amount we have invested in our properties (original investment plus improvements, if
any) less accumulated depreciation. Based on total carrying amount, commercial properties now comprise a
majority of our real estate assets, with the majority of our commercial properties being located in the
Minneapolis/St. Paul, Minnesota metropolitan area. Based on current market conditions, we anticipate that the
percentage of commercial properties that we may acquire will continue to significantly exceed the number of multi-
family residential properties that we may acquire during the next 12 months.
Our historical experience in acquiring and operating multi-family residential properties may not be directly
applicable to the acquisition and operation 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.
Our earnings may be negatively affected if we are not successful in our acquisition and operation of commercial
properties.
Our geographic concentration in Minnesota and North Dakota may result in losses due to our significant exposure
to the effects of economic and real estate conditions in those markets. For the fiscal year ended April 30, 2005, we
2005 Annual Report 10
received approximately 80.9% of our combined commercial segments gross revenue from commercial properties in
Minnesota and approximately 6.4% of our combined commercial segments gross revenue from commercial
properties in North Dakota. For that same period, we received approximately 21.6% of our multi-family residential
gross revenue from multi-family residential properties in Minnesota and 28.9% of our multi-family gross revenue
from multi-family properties in North Dakota. As of April 30, 2005, Minnesota accounted for approximately 79.6%
of our combined commercial segments real estate portfolio and 24.2% of our multi-family residential real estate
portfolio, each as determined by total carrying amount, while North Dakota accounted for approximately 5.1% of
our combined commercial segments real estate portfolio and 24.6% of our multi-family residential real estate
portfolio.
As a result of this concentration, we are subject to substantially greater risk than if our investments were more
geographically dispersed. Specifically, we are more significantly exposed to the effects of economic and real estate
conditions in those particular markets, such as building by competitors, local vacancy and rental rates and general
levels of employment and economic activity.
The economic climate in Minnesota is highly dependent on the service, manufacturing and high technology
industries. The North Dakota economy is dependent on the agricultural, energy, government, business and personal
services and wholesale and retail industries. Economic weakening, or lack of recovery from the recent weakness, in
any of these industries may adversely affect the performance of our real estate portfolio by decreasing demand for
rental space.
Increasing physical and economic vacancy rates and declining rental rates will negatively impact earnings. As of
April 30, 2005, approximately 0.9 million square feet, or 11.5% of our total commercial property square footage,
was vacant. In addition, leases covering approximately 2.3% of our total combined commercial segments
annualized base rents will expire during fiscal year 2006. At April 30, 2005, the economic occupancy of our total
commercial properties, on a stabilized property basis, was approximately 89.3%. We define “economic occupancy”
as total possible revenue less vacancy loss as a percentage of total possible revenue. Total possible revenue is
determined by valuing occupied units or square footage at contract rates, and vacant units or square footage at
market rates. “Stabilized properties” are those properties that we have owned for the entirety of the periods being
compared, and include properties that were redeveloped or expanded during the periods being compared. Properties
purchased or sold during the periods being compared are excluded from our stabilized property analysis. If we are
unable to rent or sell those properties that are vacant or affected by expiring leases, properties producing
approximately 2.3% of our total combined commercial segments annualized base rents will be vacant by April 30,
2006. Even greater vacancies will be created to the extent that a number of tenants, or any one significant tenant, file
for bankruptcy protection and reject our leases. At April 30, 2005, the economic occupancy of our multi-family
residential properties, on a stabilized property basis, was approximately 90.8%. Multi-family residential vacancies
could increase from current levels due to general economic conditions, local economic or competitive conditions,
the trend toward home ownership facilitated by low interest rates, unsatisfactory property management, and the
physical condition of our properties or other factors. Increased vacancies in both our commercial and multi-family
residential properties will negatively impact our earnings, will cause a decline in the value of our real estate portfolio
and may adversely affect our ability to make distributions to the holders of our shares of beneficial interest.
Our multi-family residential property economic occupancy rate, on a stabilized property basis, was 90.8% for the
twelve months ended April 30, 2005, compared to 90.6% for the twelve months ended April 30, 2004. Commercial
property economic occupancy rates, on a stabilized property basis, were 89.3% and 92.6% for the twelve months
ended April 30, 2005 and 2004, respectively. To maintain our physical occupancy levels, we may offer tenants
incentives, generally in the form of lower rents, which results in decreased revenues and income from operations at
our stabilized properties. We estimate that rent concessions offered during the twelve months ended April 30, 2005,
lowered our operating revenues by approximately $4.5 million, as compared to an estimated $2.9 million reduction
in operating revenues attributable to rent concessions offered in the twelve months ended April 30, 2004.
Inability to manage our rapid growth effectively may adversely affect our operating results. Our total assets have
increased from $885.7 million at April 30, 2003, to $1,151.2 million at April 30, 2005, principally through the
acquisition of additional real estate properties. Subject to our continued ability to raise equity capital and issue
limited partnership units of IRET Properties and identify suitable investment properties, we intend to continue our
acquisition of real estate properties. Effective management of this level of growth will present challenges, including:
2005 Annual Report 11
•
•
•
•
the need to expand our management team and staff;
the need to enhance internal operating systems and controls;
increased reliance on outside advisors and property managers; and
the ability to consistently achieve targeted returns.
If we are unable to effectively manage our growth, our operating results will be adversely affected.
Competition may negatively impact our earnings. We compete with many kinds of institutions, including other
REITs, private partnerships, individuals, pension funds and banks, for tenants and investment opportunities. Many
of these institutions are active in the markets in which we invest and have greater financial and other resources that
may be used to compete against us. With respect to tenants, this competition may affect our ability to lease our
properties, the price at which we are able to lease our properties and the cost of required renovations or build-outs.
With respect to acquisition and development investment opportunities, this competition may cause us to pay higher
prices for new properties than we otherwise would have paid, or may prevent us from purchasing a desired property
at all.
An inability to continue to make accretive property acquisitions may adversely affect our ability to increase our
operating income. From our fiscal year ended April 30, 2003, to our fiscal year ended April 30, 2005, our operating
income decreased from $13.3 million to $9.7 million. Our basic and diluted net income per common share was $.30
as of April 30, 2005, compared to $.24 and $.38, respectively, as of April 30, 2004 and 2003. If we are unable to
continue to make real estate acquisitions on terms that meet our financial and strategic objectives, whether due to
market conditions, a changed competitive environment or unavailability of capital, our ability to increase our
operating income may be materially and adversely affected.
High leverage on our overall portfolio may result in losses. As of April 30, 2005, our ratio of total indebtedness to
total Net Assets (as that term is used in our Bylaws, which usage is not in accordance with GAAP, “Net Assets”
means our total assets at cost before deducting depreciation or other non-cash reserves, less total liabilities) was
approximately 133.9%. As of April 30, 2004 and 2003, our percentage of total indebtedness to total Net Assets was
approximately 136.8% and 145.3%, respectively. Under our Bylaws we may increase our total indebtedness up to
300.0% of our Net Assets, or by an additional approximately $886.3 million. There is no limitation on the increase
that may be permitted if approved by a majority of the independent members of our board of trustees and disclosed
to the holders of our shares of beneficial interest in the next quarterly report, along with justification for any excess.
This amount of leverage may expose us to cash flow problems if rental income decreases. Under those
circumstances, in order to pay our debt obligations we might be required to sell properties at a loss or be unable to
make distributions to the holders of our shares of beneficial interest. A failure to pay amounts due may result in a
default on our obligations and the loss of the property through foreclosure.
Our inability to renew, repay or refinance our debt may result in losses. We are subject to the normal risks
associated with debt financing, including the risk that:
• our cash flow will be insufficient to meet required payments of principal and interest;
• we will not be able to renew, refinance or repay our indebtedness when due; and
•
the terms of any renewal or refinancing will be less favorable than the terms of our current indebtedness.
If we are unable to refinance our indebtedness on acceptable terms, or at all, we may be forced to dispose of one or
more of the properties on disadvantageous terms, which may result in losses to us. These losses could have a
material adverse effect on us, our ability to make distributions to the holders of our shares of beneficial interest and
our ability to pay amounts due on our debt. Furthermore, if a property is mortgaged to secure payment of
indebtedness and we are unable to meet mortgage payments, the mortgagee could foreclose upon the property,
appoint a receiver and receive an assignment of rents and leases or pursue other remedies, all with a consequent loss
2005 Annual Report 12
of our revenues and asset value. Foreclosures could also create taxable income without accompanying cash
proceeds, thereby hindering our ability to meet the REIT distribution requirements of the Internal Revenue Code.
The principal balance of our indebtedness in mortgage loans secured by individual commercial and residential
properties totaled $708.6 million as of April 30, 2005. Of the outstanding mortgages, both fixed and variable, $15.8
million in principal amount came due during fiscal year 2005, $18.9 million in principal amount will come due
during fiscal year 2006, $21.2 million in principal amount will come due during fiscal year 2007, and the remaining
balance will come due in later fiscal years.
The cost of our indebtedness may increase. We have incurred, and we expect to continue to incur, indebtedness that
bears interest at a variable rate. As of April 30, 2005, $27.0 million, or approximately 3.8%, of the principal amount
of our total mortgage indebtedness was subject to variable interest rate agreements. The interest rates on our variable
rate mortgages range from approximately 4.5% to approximately 6.6%. An increase of one percent in our variable
interest rate would collectively increase our interest payments by $270,000 annually. In addition, portions of our
fixed-rate indebtedness incurred for historical property acquisitions will come due on a periodic basis. For example,
in each of our fiscal years ended April 30, 2006, 2007 and 2008, approximately $17.7, $19.1 and $38.9 million,
respectively, of our fixed-rate debt will come due. Accordingly, increases in interest rates will increase our interest
costs, which could have a material adverse effect on us, our ability to make distributions to the holders of our shares
of beneficial interest and our ability to pay amounts due on our debt.
Our current or future insurance may not protect us against possible losses. We carry comprehensive liability, fire,
extended coverage and rental loss insurance with respect to our properties at levels that we believe to be adequate.
However, the coverage limits of our current or future policies may be insufficient to cover the full cost of repair or
replacement of all potential losses. Moreover, this level of coverage may not continue to be available in the future
or, if available, may be available only at unacceptable cost or with unacceptable terms.
Additionally, there may be certain extraordinary losses, such as those resulting from civil unrest, terrorism or
environmental contamination, that are not generally, or fully, insured against because they are either uninsurable or
not economically insurable. For example, we do not currently carry insurance against losses as a result of
environmental contamination. Should an uninsured or underinsured loss occur to a property, we could be required to
use our own funds for restoration or lose all or part of our investment in, and anticipated revenues from, the
property. In any event, we would continue to be obligated on any mortgage indebtedness on the property. Any loss
could have a material adverse effect on us, our ability to make distributions to the holders of our shares of beneficial
interest and our ability to pay amounts due on our debt.
We have significant investments in medical properties and adverse trends in healthcare provider operations may
negatively affect our lease revenues from these properties. We have acquired a significant number of specialty
medical properties (including assisted living facilities) and may acquire more in the future. As of April 30, 2005, our
real estate portfolio consisted of 25 medical properties, having a total carrying amount of $192.5 million, or
approximately 18.1% of the total carrying amount of our entire real estate portfolio. The healthcare industry is
currently experiencing changes in the demand for, and methods of delivery of, healthcare services; changes in third-
party reimbursement policies; significant unused capacity in certain areas, which has created substantial competition
for patients among healthcare providers in those areas; continuing pressure by private and governmental payors to
reduce payments to providers of services; and increased scrutiny of billing, referral and other practices by federal
and state authorities. Sources of revenue for our medical property tenants may include the federal Medicare
program, state Medicaid programs, private insurance carriers and health maintenance organizations, among others.
Efforts by such payors to reduce healthcare costs will likely continue, which may result in reductions or slower
growth in reimbursement for certain services provided by some of our tenants. These factors may adversely affect
the economic performance of some or all of our medical services tenants and, in turn, our lease revenues. In
addition, if we or our tenants terminate the leases for these properties, or our tenants lose their regulatory authority
to operate such properties, we may not be able to locate suitable replacement tenants to lease the properties for their
specialized uses. Alternatively, we may be required to spend substantial amounts to adapt the properties to other
uses. Any loss of revenues and/or additional capital expenditures occurring as a result could hinder our ability to
make distributions to the holders of our shares of beneficial interest.
Adverse changes in applicable laws may affect our potential liabilities relating to our properties and operations.
Increases in real estate taxes and income, service and transfer taxes cannot always be passed through to all tenants in
2005 Annual Report 13
the form of higher rents. As a result, any increase may adversely affect our cash available for distribution, our ability
to make distributions to the holders of our shares of beneficial interest and our ability to pay amounts due on our
debt. Similarly, changes in laws that increase the potential liability for environmental conditions existing on
properties, that increase the restrictions on discharges or other conditions or that affect development, construction
and safety requirements may result in significant unanticipated expenditures that could have a material adverse
effect on us, our ability to make distributions to the holders of our shares of beneficial interest and our ability to pay
amounts due on our debt. In addition, future enactment of rent control or rent stabilization laws or other laws
regulating multi-family residential properties may reduce rental revenues or increase operating costs.
Complying with laws benefiting disabled persons may affect our costs and investment strategies. Federal, state and
local laws and regulations designed to improve disabled person’s access to and use of buildings, including the
Americans with Disabilities Act, may require modifications to, or restrict renovations of, existing buildings.
Additionally, these laws and regulations may require that structural features be added to buildings under
construction. Any legislation or regulations that may be adopted in the future may impose further burdens or
restrictions on us with respect to improved access to, and use of these buildings by, disabled persons. The costs of
complying with these laws and regulations may be substantial and limits or restrictions on construction, or the
completion of required renovations, may limit the implementation of our investment strategy or reduce overall
returns on our investments. This could have an adverse effect on us, our ability to make distributions to the holders
of our shares of beneficial interest and our ability to pay amounts due on our debt.
We may be responsible for potential liabilities under environmental laws. 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, hazardous or toxic substances in, on, around or under that property. These laws often
impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of the
hazardous or toxic substances. The presence of these substances, or the failure to properly remediate any property
containing these substances, may adversely affect the owner’s or operator’s ability to sell or rent the affected
property or to borrow funds using the 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, these substances at
that disposal or treatment facility, whether or not the facility is owned or operated by that person. In connection with
our current or former ownership (direct or indirect), operation, management, development and/or control of real
properties, we may be potentially liable for removal or remediation costs with respect to hazardous or toxic
substances as those properties, as well as certain other costs, including governmental fines and claims for injuries to
persons and property. A finding of liability for an environmental condition as to any one or more properties could
have a material adverse effect on us, our ability to make distributions to the holders of our shares of beneficial
interest and our ability to pay amounts due on our debt.
It is generally our policy to obtain a Phase I environmental study on each property that we seek to acquire. If the
Phase I indicates any possible environmental problems, it is our policy is to order a Phase II study, which involves
testing the soil and ground water for actual hazardous substances. However, Phase I and Phase II environmental
studies, or any other environmental studies undertaken with respect to any of our current or future properties, may
not reveal the full extent of potential environmental liabilities. We currently do not carry insurance for
environmental liabilities.
We may be unable to retain or attract qualified management. We are dependent upon our senior officers for
essentially all aspects of our business operations. Our senior officers have experience in the specialized business
segments in which we operate and the loss of them would likely have a material adverse effect on our operations.
We do not have employment contracts with any of our senior officers. As a result, any senior officer may terminate
his or her relationship with us at any time, without providing advance notice. The location of our corporate
headquarters in Minot, North Dakota, may make it more difficult and expensive to attract, relocate and retain current
and future officers and employees.
Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have
a material adverse effect on our business, operating results and stock price, and continuing compliance will result in
additional expenses. If we fail to maintain the adequacy of our internal controls in accordance with Section 404 of
the Sarbanes-Oxley Act of 2002, as such, standards may be modified, supplemented or amended from time to time,
we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over
financial reporting. Failure to maintain an effective internal control environment could have a material adverse
2005 Annual Report 14
effect on our business, operating results, and stock price. Additionally, our efforts to comply with Section 404 of the
Sarbanes-Oxley Act and the related regulations have required, and we believe will continue to require, the
commitment of significant financial and managerial resources.
Risks Related to Our Structure and Organization
We may incur tax liabilities as a consequence of failing to qualify as a REIT. Although our management believes
that we are organized and have operated and are operating in such a manner to qualify as a “real estate investment
trust,” as that term is defined under the Internal Revenue Code, we may not in fact have operated, or may not be able
to continue to operate, in a manner to qualify or remain so qualified. Qualification as a REIT involves the
application of highly technical and complex Internal Revenue Code provisions for which there are only limited
judicial or administrative interpretations, and further involves the determination of factual matters and circumstances
not entirely within our control. For example, in order to qualify as a REIT, at least 95% of our gross income in any
year must be derived from qualifying sources, and we must make distributions to the holders of our shares of
beneficial interest aggregating annually at least 90% of our REIT taxable income (excluding net capital gains). Thus,
to the extent revenues from non-qualifying sources, such as income from third-party management, represents more
than five percent of our gross income in any taxable year, we will not satisfy the 95% income test and may fail to
qualify as a REIT, unless certain relief provisions contained in the Internal Revenue Code apply. Even if relief
provisions apply, however, a tax would be imposed with respect to excess net income. Additionally, if IRET
Properties, our operating partnership or one or more of our subsidiaries is determined to be taxable as a corporation,
we may fail to qualify as a REIT. Either our failure to qualify as a REIT, for any reason, or the imposition of taxes
on excess net income from non-qualifying sources, could have a material adverse effect on us, our ability to make
distributions to the holders of our shares of beneficial interest and our ability to pay amounts due on our debt.
Furthermore, new legislation, regulations, administrative interpretations or court decisions could change the tax laws
with respect to our qualification as a REIT or the federal income tax consequences of our qualification.
If we failed to qualify as a REIT, we would be subject to federal income tax (including any applicable alternative
minimum tax) on our taxable income at corporate rates, which would likely have a material adverse effect on us, our
ability to make distributions to the holders of our shares of beneficial interest and our ability to pay amounts due on
our debt. In addition, unless entitled to relief under applicable statutory provisions, we would also be disqualified
from treatment as a REIT for the four taxable years following the year during which we lost our qualification. This
treatment would reduce funds available for investment or distributions to the holders of our shares of beneficial
interest because of the additional tax liability to us for the year or years involved. In addition, we would no longer be
required to make distributions to holders of our common shares. To the extent that distributions to the holders of our
shares of beneficial interest would have been made in anticipation of qualifying as a REIT, we might be required to
borrow funds or to liquidate certain investments to pay the applicable tax.
Certain provisions of our Articles of Amendment and Third Restated Declaration of Trust may limit a change in
control and deter a takeover. In order to maintain our qualification as a REIT, our Third Restated Declaration of
Trust provides that any transaction, other than a transaction entered into through the NASDAQ National Market or
other similar exchange, that would result in our disqualification as a REIT under Section 856 of the Internal
Revenue Code, including any transaction that would result in (i) a person owning in excess of the ownership limit,
which as of the date of this Annual Report on Form 10-K is 9.8%, in number or value, of our outstanding shares of
beneficial interest, (ii) less than 100 people owning our shares of beneficial interest, (iii) our being “closely held”
within the meaning of Section 856(h) of the Internal Revenue Code, or (iv) 50% or more of the fair market value of
our shares of beneficial interest being held by persons other than “United States persons,” as defined in Section
7701(a)(30) of the Internal Revenue Code, will be void ab initio. If the transaction is not void ab initio, then the
shares of beneficial interest in excess of the ownership limit, that would cause us to be closely held, that would
result in 50% or more of the fair market value of our shares of beneficial interest to be held by persons other than
United States persons or that otherwise would result in our disqualification as a REIT, will automatically be
exchanged for an equal number of excess shares, and these excess shares will be transferred to an excess share
trustee for the exclusive benefit of the charitable beneficiaries named by our board of trustees. These limitations may
have the effect of preventing a change in control or takeover of us by a third party, even if the change in control or
takeover would be in the best interests of the holders of our shares of beneficial interest.
Our board of trustees may make changes to our major policies without approval of the holders of our shares of
beneficial interest. Our major policies, including policies relating to development, acquisitions, financing, growth,
2005 Annual Report 15
debt capitalization and distributions, are determined by our board of trustees. Our board of trustees may amend or
revoke those policies, and other policies, without advance notice to, or the approval of, the holders of our shares of
beneficial interest.
Item 2. Properties
IRET is organized as a REIT under Section 856-858 of the Code, and is in the business of owning, leasing,
developing and acquiring real estate properties. Except for certain commercial properties managed by our
Minneapolis office, these real estate investments are generally managed by third-party professional real estate
management companies on our behalf.
Total Real Estate Rental Revenue
As of April 30, 2005, our real estate portfolio consisted of 65 multi-family residential properties and 146
commercial properties, consisting of office, medical, industrial and retail properties, comprising 37.5%, 30.0%,
17.4%, 4.9%, and 10.2%, respectively, of our total real estate portfolio, based on the dollar amount of our original
investment plus capital improvements through April 30, 2005. Gross annual rental revenue and percentages of total
annual real estate rental revenue by property type for each of the three most recent fiscal years ended April 30, are as
follows:
Fiscal
Year
Ended
April 30,
(in
thousands)
2005
2004
2003
Multi-
Family
Residential
Gross
Revenue
Commercial
Office
Gross
Revenue
%
Commercial
Medical
Gross
Revenue
%
%
$ 60,207 38.5% $ 48,648 31.1% $ 25,794 16.5% $
$ 59,294 44.3% $ 39,919 29.9% $ 15,876 11.9% $
$ 56,036 50.0% $ 31,159 27.8% $ 13,168 11.8% $
Commercial
Industrial
Gross
Revenue
6,459
6,634
5,846
Commercial
Retail
Gross
Revenue
%
Total
Revenue
4.1% $ 15,339 9.8% $ 156,447
5.0% $ 11,873 8.9% $ 133,596
5,862 5.2% $ 112,071
5.2% $
%
Economic Occupancy Rates
Economic occupancy rates are shown below for each property type in each of the three most recent fiscal years
ended April 30. We define “economic occupancy” as total possible revenue less vacancy loss as a percentage of total
possible revenue. Total possible revenue is determined by valuing occupied units or square footage at contract rates
and vacant units or square footage at market rates. In the case of multi-family residential properties, lease
arrangements with individual tenants vary from month-to-month to one-year leases. Leases on commercial
properties generally vary from month-to-month to 20 years.
Multi-Family Residential Economic Occupancy
Commercial - Office Economic Occupancy
Commercial - Medical Economic Occupancy
Commercial - Industrial Economic Occupancy
Commercial - Retail Economic Occupancy
2005
Fiscal Year Ended April 30,
2003
2004
90.1% 90.2% 91.2%
90.8% 92.2% 95.7%
92.7% 93.6% 96.3%
86.8% 93.6% 96.3%
89.4% 92.2% 96.2%
Certain Lending Requirements
In certain instances, in connection with the acquisition of investment properties, the lender financing such properties
may require, as a condition of the loan, that the properties be owned by a “single asset entity.” Accordingly, we have
organized 38 wholly-owned subsidiary corporations, and IRET Properties has organized several limited
partnerships, for the purpose of holding title in an entity that complies with such lending conditions. All financial
statements of these subsidiaries are consolidated into our financial statements.
Management and Leasing of Our Real Estate Assets
The day-to-day management and leasing of our real estate assets is, with the exception of certain properties managed
by our Minneapolis office, generally handled by third-party professional real estate management companies. Day-to-
day management activities include the negotiation of potential leases, the preparation of proposed operating budgets,
and the supervision of routine maintenance and capital improvements that have been authorized by us. All activities
2005 Annual Report 16
relating to purchase, sale, insurance coverage, capital improvements, approval of commercial leases, annual
operating budgets and major renovations are made exclusively by our employees and are then implemented by the
third-party property management companies.
As of April 30, 2005, we had property management contracts with the following companies:
Residential Management
Commercial Management and Leasing
• Builder’s Management & Investment Co., Inc.
• Coldwell Banker First Realty – Encore
• ConAm, Inc.
• Hoban & Associates, Inc. dba Coast Management Company, Inc.
• Investors Management & Marketing, Inc.
• Illies Nohava Heinen Property Management, Inc.
• Kahler Property Management
• Weis Management Corp.
• A & L Management Services, LLC
• AJB, Inc. dba Points West Realty Management
• Bayport Properties US, Inc.
• CB Richard Ellis
• Colliers Turley Martin Tucker Company
• Dakota Commercial and Development Co.
• Equity Commercial Services, Inc.
• Frauenshuh Companies
• Ferguson Property Management Services, L.C.
• Hoyt Properties, Inc.
• Inland Companies, Inc.
• Northco Management Services, LP
• Opus Northwest Management, LLC
• Paramount Real Estate Corporation
• R.A. Morton & Associates, Inc.
• The Remada Company
• Thornton Oliver Keller, LLC
• United Properties, LLC
• Vector Property Services, LLC
With the exception of Hoyt Properties, Inc., none of the companies engaged to provide property management
services is affiliated with us, our officers or members of our Board of Trustees. Hoyt Properties, Inc. is owned
100.0% by Steven B. Hoyt, a former member of our Board of Trustees, and his wife. Mr. Hoyt resigned from our
Board of Trustees on September 21, 2004, at the expiration of his term of office. Hoyt Properties, Inc. manages,
pursuant to written management contracts, the commercial buildings that we acquired from Mr. Hoyt, and certain
other of our properties.
In July 2004, a former principal of Bayport Properties joined us as a Vice President, Asset Management, with
responsibility for the management of certain of our commercial properties, primarily located in the Minneapolis
metropolitan area.
Generally, our management contracts provide for compensation ranging from 2.5% to 5.0% of gross rent collections
and, typically, we may terminate these contracts in 60 days or less or upon the property manager’s failure to meet
certain specified financial performance goals.
With respect to multi-tenant commercial properties, we rely almost exclusively on third-party brokers to locate
potential tenants. As compensation, brokers may receive a commission that is generally calculated as a percentage of
the net rent to be paid over the term of the lease. We believe that the broker commissions paid by us conform to
market and industry standards, and accordingly are commercially reasonable.
2005 Annual Report 17
Summary of Real Estate Investment Portfolio
As of April 30, (in thousands)
Real Estate Investments
Real Estate Owned
Less Accumulated Depreciation
Undeveloped Land
Mortgage Loans Receivable
Total Real Estate Investments
2005
%
2004
%
2003
%
$1,179,856
(118,512)
$1,061,344
5,382
619
$1,067,345
$1,082,773
(98,923)
99.4% $ 983,850
3,180
4,893
100.0% $ 991,923
0.5%
0.1%
$ 916,757
(75,639)
99.2% $ 841,118
3,024
1,183
100.0% $ 845,325
0.3%
0.5%
99.5%
0.4%
0.1%
100.0%
Summary of Individual Properties Owned as of April 30, 2005
The following table presents information regarding our 211 properties owned as of April 30, 2005. We own the
following interests in real estate either through our wholly-owned subsidiaries or by ownership of a controlling
interest in an entity owning the real estate. We account for these interests on a consolidated basis. Occupancy rates
given are the average economic occupancy rates for the fiscal year ended April 30, 2005:
(N/A = Property held less than 12 months)
(* = Real estate not owned in fee; all or a portion is leased under a ground lease)
(** = Primarily Parking Lot Rental)
Property Name and Location
MULTI-FAMILY RESIDENTIAL
405 Grant Ave - Harvey, ND
408 1st Street SE - Minot, ND
Applewood On The Green - Omaha, NE
Boulder Court - Eagan, MN
Brookfield Village - Topeka, KS
Candlelight Apts. - Fargo, ND
Canyon Lake Apts. - Rapid City, SD
Castle Rock - Billings, MT
Chateau Apts. - Minot, ND
Clearwater - Boise, ID
Colonial Villa - Burnsville, MN
Colton Heights - Minot, ND
Cottonwood Lake I - Bismarck, ND
Cottonwood Lake II - Bismarck, ND
Cottonwood Lake III - Bismarck, ND
Country Meadows I - Billings, MT
Country Meadows II - Billings, MT
Crestview Apts. - Bismarck, ND
Crown Colony - Topeka, KS
Dakota Hill at Valley Ranch - Irving, TX
East Park Apartments - Sioux Falls, SD
Forest Park Estates - Grand Forks, ND
Heritage Manor - Rochester, MN
Jenner Properties - Grand Forks, ND
Kirkwood Apts. - Bismarck, ND
Lancaster Apts. - St. Cloud, MN
Legacy Apts. I & II - Grand Forks, ND
Legacy Apts. III - Grand Forks, ND
Legacy IV- Grand Forks, ND
Legacy V - Grand Forks, ND
(in thousands)
Investment
Units
Fiscal 2005
Economic
Occupancy
12 $
**
234
115
160
66
109
165
64
60
240
18
67
67
67
67
67
152
220
504
84
270
182
90
108
84
116
67
67
36
262
47
12,185
6,744
7,613
1,706
4,324
6,289
2,760
3,954
14,440
1,011
4,605
4,353
4,797
4,318
4,475
5,272
11,288
38,626
2,695
8,309
8,146
2,069
3,965
3,498
7,377
3,925
6,771
2,771
74.9%
100.0%
84.0%
92.1%
96.0%
96.8%
81.9%
81.8%
99.2%
96.7%
80.5%
99.6%
85.3%
87.6%
91.2%
91.4%
89.0%
91.5%
93.2%
93.0%
93.7%
94.3%
83.3%
98.2%
91.6%
85.1%
96.8%
98.4%
96.1%
N/A
2005 Annual Report 18
Property Name and Location
Legacy VI - Grand Forks, ND
Magic City Apts. - Minot, ND
Meadows Phase I - Jamestown, ND
Meadows Phase II - Jamestown, ND
Meadows Phase III - Jamestown, ND
Miramont - Fort Collins, CO
Monticello Apts. - Monticello, MN
Neighborhood Apts. - Colorado Springs, CO
North Pointe - Bismarck, ND
Oakmont Apts. - Sioux Falls, SD
Oakwood - Sioux Falls, SD
Olympic Village - Billings, MT
Olympik Village - Rochester, MN
Oxbow - Sioux Falls, SD
Park East Apts. - Fargo, ND
Park Meadows I - Waite Park, MN
Park Meadows II & III - Waite Park, MN
Pebble Springs - Bismarck, ND
Pine Cone Apts. - Fort Collins, CO
Pinehurst Apts. - Billings, MT
Pointe West Apts. - Rapid City, SD
Prairie Winds Apts. - Sioux Falls, SD
Prairiewood Meadows - Fargo, ND
Ridge Oaks Apts. - Sioux City, IA
Rimrock Apts. - Billings, MT
Rocky Meadows - Billings, MT
Sherwood Apts. - Topeka, KS
Southbrook & Mariposa - Topeka, KS
South Pointe - Minot, ND
Southview Apts. - Minot, ND
Southwind Apts. - Grand Forks, ND
Sunset Trail Phase I - Rochester, MN
Sunset Trail Phase II - Rochester, MN
Sweetwater Properties - Devils Lake and Grafton, ND
Sycamore Village Apts. - Sioux Falls, SD
Terrace On The Green - Moorhead, MN
Thomasbrook - Lincoln, NE
Valley Park Manor - Grand Forks, ND
West Stonehill - St. Cloud, MN
Westwood Park - Bismarck, ND
Winchester/Village Green - Rochester, MN
Woodridge Apts. - Rochester, MN
TOTAL MULTI-FAMILY RESIDENTIAL
Property Name and Location
OFFICE
1st Avenue Building - Minot, ND
17 South Main - Minot, ND
401 South Main - Minot, ND
2030 Cliff Road - Eagan, MN
Ameritrade - Omaha, NE
(in thousands)
Investment
Units
Fiscal 2005
Economic
Occupancy
36 $
200
27
27
27
210
60
192
49
80
160
274
140
120
122
120
240
16
195
21
90
48
85
132
78
98
300
54
195
24
164
73
73
90
48
116
264
168
313
64
151
108
2,846
5,041
1,844
1,931
2,203
14,988
4,293
12,417
2,425
5,339
6,159
12,441
7,160
5,274
5,426
4,391
8,810
801
13,941
782
4,653
2,130
3,198
4,935
4,044
6,872
16,736
5,548
10,611
804
6,464
7,118
7,602
1,802
1,572
2,826
10,653
5,570
13,408
2,507
8,808
7,141
8,610 $ 442,109
N/A
95.1%
99.6%
98.2%
99.8%
92.1%
85.9%
89.2%
89.2%
84.6%
91.4%
97.9%
N/A
92.7%
97.3%
86.0%
80.1%
93.0%
88.9%
98.9%
87.2%
87.8%
85.3%
78.0%
95.3%
95.7%
91.6%
N/A
98.3%
95.0%
97.4%
95.3%
93.4%
88.5%
79.5%
82.8%
86.6%
97.5%
84.5%
93.1%
72.5%
92.5%
Approximate
Net Rentable
Square Footage
(in thousands)
Investment
Fiscal 2005
Economic
Occupancy
15,357 $
3,250
8,597
13,374
73,742
555
110
630
983
8,349
50.1%
0.0%
54.0%
100.0%
100.0%
2005 Annual Report 19
Property Name and Location
Benton Business Park - Sauk Rapids, MN
Bloomington Business Plaza - Bloomington., MN
Brenwood - Minnetonka, MN
Brown Deer Road - Milwaukee, WI
Burnsville Bluffs - Burnsville, MN
Cold Spring Center - St. Cloud, MN
Crosstown Centre - Eden Prairie, MN
Dewey Hill Business Center - Edina, MN
Eden Prairie Central Bank Office - Eden Prairie, MN
Golden Hills Office Center - Golden Valley, MN
Great Plains Software - Fargo, ND
Greenwood Chiropractic - Greenwood, MN
Highlands Ranch - Highlands Ranch, CO
Interlachen Corp Center - Eagan, MN
Mendota Center I - Mendota Heights, MN
Mendota Center II - Mendota Heights, MN
Mendota Center III - Mendota Heights, MN
Mendota Center IV - Mendota Heights, MN
Mendota Northland Center - M. Heights, MN
Metris - Duluth, MN
Minnesota National Bank - Duluth, MN
Minnetonka Office Bldg. - Minnetonka, MN
Nicollett VII - Burnsville, MN
Northgate I - Maple Grove, MN
Northgate II - Maple Grove, MN
Pillsbury Business Center - Edina, MN
Plaza VII - Boise, ID
Plymouth I - Plymouth, MN
Plymouth II - Plymouth, MN
Plymouth III - Plymouth, MN
Plymouth IV & V - Plymouth, MN
900 Concourse Drive - Rapid City, SD
Southeast Tech Center - Eagan, MN
TCA Building - Eagan, MN
Three Paramount Plaza - Bloomington, MN
Thresher Square East - Minneapolis, MN
Thresher Square West - Minneapolis, MN
UHC Office - International Falls, MN
US Bank Financial Center - Bloomington, MN
Viromed - Eden Prairie, MN
Wayroad - Minnetonka, MN
Wells Fargo Center - St Cloud, MN
West River Business Park - Waite Park, MN
Westgate - Boise, ID
Wirth Corporate Center - Golden Valley, MN
TOTAL OFFICE
MEDICAL
Abbott Northwest - Sartell, MN
Airport Medical - Bloomington, MN*
Denfeld Clinic – Duluth, MN
Edgewood Vista - Duluth, MN
Edgewood Vista - Fremont, NE
Approximate
Net Rentable
Square Footage
(in thousands)
Investment
Fiscal 2005
Economic
Occupancy
30,464 $
121,064
176,917
175,610
45,158
75,745
185,000
73,338
39,525
190,758
122,040
1,600
81,173
105,084
59,852
88,398
60,776
72,231
146,808
20,000
27,000
4,000
125,385
79,377
25,999
42,220
27,297
26,186
26,186
26,186
126,809
75,815
58,300
104,426
75,526
57,891
54,945
30,000
153,947
48,700
62,383
86,428
24,000
103,332
75,216
3,533,415 $
1,475
7,777
14,624
11,022
2,960
8,610
17,695
5,158
4,705
22,074
15,375
334
11,240
16,726
7,076
11,632
6,748
8,705
17,660
2,539
1,743
401
7,384
7,455
2,372
1,894
3,445
1,672
1,640
2,012
14,889
7,047
6,336
9,885
7,908
6,696
4,712
2,497
17,007
4,863
5,542
9,389
1,453
11,738
8,794
353,536
95.6%
79.7%
72.3%
100.0%
78.4%
98.7%
N/A
94.3%
88.1%
94.9%
100.0%
100.0%
N/A
93.2%
80.6%
90.3%
100.0%
100.0%
100.0%
100.0%
86.0%
100.0%
100.0%
N/A
100.0%
100.0%
86.9%
N/A
N/A
N/A
100.0%
0.0%
100.0%
83.5%
87.4%
65.5%
59.6%
100.0%
N/A
100.0%
88.8%
N/A
85.9%
100.0%
94.1%
60,095 $
24,218
20,512
119,349
6,042
13,866
4,678
3,115
11,709
552
95.8%
100.0%
100.0%
100.0%
100.0%
2005 Annual Report 20
Property Name and Location
Edgewood Vista - Hastings, NE
Edgewood Vista - Kalispell, MT
Edgewood Vista - Missoula, MT
Edgewood Vista - Omaha, NE
Edgewood Vista - Virginia, MN
Edgewood Vista Phase II - Virginia, MN
Fresenius - Duluth, MN
Garden View - St. Paul, MN
Gateway Clinic - Sandstone, MN*
Healtheast Med Center - Wdbry. & St. Johns, MN
High Pointe Health Campus - Lake Elmo, MN
Mariner Clinic - Superior, WI*
Nebraska Orthopaedic - Omaha, NE*
Park Dental - Brooklyn, MN
Pavilion I - Duluth, MN*
Pavilion II - Duluth, MN
Paul Larson Clinic - Edina, MN
Southdale Expansion - Edina, MN
Southdale Medical Center - Edina, MN*
Wedgewood - Sweetwater, GA
Wells Clinic - Hibbing, MN
TOTAL MEDICAL
INDUSTRIAL
API Building - Duluth, MN
Bodycote Industrial Building - Eden Prairie, MN
Dixon Avenue Industrial Park - Des Moines, IA
Lexington Commerce Center - Eagan, MN
Lighthouse - Duluth, MN
Metal Improvement Company - New Brighton, MN
Stone Container - Fargo, ND
Stone Container - Roseville, MN
Waconia Industrial Building - Waconia, MN
Wilson's Leather - Brooklyn Park, MN
Winsted Industrial Building - Winsted, MN
TOTAL INDUSTRIAL
RETAIL
Andover C Store - Andover, MN
Anoka Strip Center - Anoka, MN
Blaine Strip Center - Blaine, MN
Buffalo Strip Center - Buffalo, MN
Burnsville 1 Strip Center - Burnsville, MN
Burnsville 2 Strip Center - Burnsville, MN
Centerville C Store - Centerville, MN
Champlin South Pond - Champlin, MN
Chan West Village - Chanhassen, MN
Duluth Denfeld Retail - Duluth, MN
Duluth Tool Crib - Duluth, MN
E Bethel C Store - Bethel, MN
Eagan 1 Retail Center - Eagan, MN
Eagan 2 Retail Center - Eagan, MN
Eagan 3 C Store - Eagan, MN
Approximate
Net Rentable
Square Footage
(in thousands)
Investment
Fiscal 2005
Economic
Occupancy
6,042 $
5,895
10,150
6,042
70,313
76,870
9,052
43,046
12,444
114,316
60,294
28,928
52,300
10,008
45,081
74,800
12,140
0
195,983
29,408
18,810
1,112,138 $
35,000 $
41,880
604,711
89,840
59,600
49,620
195,075
229,072
29,440
353,049
38,000
1,725,287 $
3,000 $
10,625
8,750
7,700
8,526
8,400
3,000
25,400
135,969
36,542
15,597
4,800
5,400
13,901
3,886
572
588
962
641
7,070
5,111
1,572
7,698
1,765
21,601
12,028
3,820
20,512
2,952
10,144
19,325
1,013
13,047
33,709
4,622
2,661
205,333
1,723
2,152
12,980
5,912
1,884
2,449
7,141
8,250
1,667
13,068
1,007
58,233
281
733
537
476
996
789
333
3,547
20,804
4,984
1,933
510
515
1,359
783
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
N/A
100.0%
N/A
100.0%
N/A
100.0%
0.0%
64.6%
80.2%
100.0%
100.0%
100.0%
100.0%
68.1%
67.3%
100.0%
100.0%
100.0%
100.0%
0.0%
100.0%
100.0%
100.0%
100.0%
100.0%
83.5%
100.0%
75.7%
100.0%
71.2%
97.5%
97.3%
100.0%
100.0%
100.0%
100.0%
100.0%
2005 Annual Report 21
Property Name and Location
East Grand Station - East Grand Forks, MN
Excelsior Strip Center - Excelsior, MN
Fargo Express Center - Fargo, ND
Fargo Express SC Pad 1 - Fargo, ND
Faribault Checker Auto - Faribault, MN
Forest Lake Auto - Forest Lake, MN
Forest Lake Westlake Center - Forest Lake, MN
Glencoe C Store - Glencoe, MN
Grand Forks Carmike - Grand Forks, ND
Grand Forks Medpark Mall - Grand Forks, ND
Howard Lake C Store - Howard Lake, MN
IGH Strip Center - Inver Grove Heights, MN
Jamestown Buffalo Mall - Jamestown, ND
Jamestown Business Center - Jamestown, ND
Kalispell Retail Center - Kalispell, MT
Kentwood Thomasville Furniture - Kentwood., MI
Ladysmith Pamida - Ladysmith, WI
Lakeland C Store - Lakeland, MN
Lakeville Strip Center – Lakeville, MN
Lindstrom C Store - Lindstrom, MN
Lino Lake Strip Center - Lino Lakes, MN
Livingston Pamida - Livingston, MT
Long Prairie C Store - Long Prairie, MN
Minot Arrowhead SC - Minot, ND
Minot Plaza - Minot, ND
Monticello C Store - Monticello, MN
Mora C Store - Mora, MN
Mound Strip Center - Mound, MN
Moundsview Bakery - Mounds View, MN
Oakdale Strip Center - Oakdale, MN
Omaha Barnes & Noble - Omaha, NE
Paynesville C Store - Paynesville, MN
Pine City C Store – Pine City, MN
Pine City Evergreen Square - Pine City, MN
Prior Lake 1 Strip Center - Prior Lake, MN
Prior Lake 3 Strip Center - Prior Lake, MN
Rochester Auto - Rochester, MN
Rochester Maplewood Square – Rochester, MN
Schofield Plaza SC – Schofield, WI
Shoreview C Store – Shoreview, MN
Sleep Inn – Brooklyn Park , MN
St. Cloud Westgate SC – St. Cloud, MN
St. Louise Park Retail – St. Louis Park, MN
Wilmar Sam Goody – Willmar, MN
Winsted C Store - Winsted, MN
TOTAL RETAIL
SUBTOTAL
Approximate
Net Rentable
Square Footage
(in thousands)
Investment
Fiscal 2005
Economic
Occupancy
16,103 $
7,993
30,227
4,000
5,600
6,836
100,656
4,800
28,528
59,177
3,571
8,400
213,271
99,403
52,000
16,080
41,000
3,650
9,500
4,000
6,325
41,200
5,216
76,424
11,020
3,575
3,571
3,864
4,560
6,266
27,500
4,800
4,800
63,225
6,800
4,200
6,225
118,398
53,764
3,000
46,720
104,928
3,444
6,225
3,571
1,625,912 $
1,392
929
1,434
368
341
498
8,126
530
2,546
5,689
381
947
4,223
1,447
3,417
2,121
1,500
443
2,029
322
454
1,800
701
3,195
574
863
301
360
292
739
3,699
367
442
2,974
979
483
440
11,914
1,776
332
2,750
6,779
347
410
411
120,645
$ 1,179,856
100.0%
97.6%
100.0%
N/A
100.0%
100.0%
100.0%
100.0%
100.0%
94.9%
100.0%
100.0%
92.5%
77.0%
65.4%
100.0%
100.0%
100.0%
70.8%
100.0%
93.1%
100.0%
0.0%
93.7%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
0.0%
100.0%
94.2%
75.6%
88.0%
100.0%
59.8%
65.9%
100.0%
N/A
100.0%
100.0%
100.0%
0.0%
2005 Annual Report 22
Property Name and Location
UNDEVELOPED LAND AND UNIMPROVED PROPERTY
17 S Main 2nd Floor - Minot, ND
Andover, MN
Centerville, MN
Cottonwood Lake IV - Bismarck, ND
IGH Land, MN
Jamestown Buffalo Mall Theater - Jamestown., ND
Kalispell, MT
Legacy VII - Grand Forks, ND
Long Prairie, MN
River Falls, WI
TOTAL UNDEVELOPED LAND AND UNIMPROVED PROPERTY
TOTAL UNITS
TOTAL SQUARE FOOTAGE
TOTAL INVESTMENTS
Mortgages Payable
Approximate
Net Rentable
Square
Footage
(in thousands)
Investment
0 $
0
0
0
0
0
0
0
0
0
0 $
12
150
104
265
564
67
1,415
2,444
156
205
5,382
8,610
7,996,752
$ 1,185,238
As of April 30, 2005, individual first mortgage liens on the above properties totaled $708.6 million. Of the $708.6
million of mortgage indebtedness on April 30, 2005, $27.0 million 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. The
balance of fixed rate mortgages totaled $681.6 million. Principal payments due on our mortgage indebtedness are as
follows:
Year Ended April 30, (in thousands)
2006
2007
2008
2009
2010
Later Years
Total
Mortgage Principal
18,893
$
21,150
40,130
45,710
106,034
476,641
708,558
$
Future Minimum Lease Payments
The future minimum lease payments to be received under leases for commercial properties in place as of April 30,
2005, assuming that no options to renew or buy out the lease are exercised, are as follows:
Year Ended April 30, (in thousands)
2006
2007
2008
2009
2010
Thereafter
Total
Lease Payments
64,075
59,556
52,111
44,847
39,854
215,881
476,324
$
$
Capital Expenditures
Each year we review the physical condition of each property we own. In order for our properties to remain
competitive, attract new tenants, and retain existing tenants, we plan for a reasonable amount of capital
improvements. For the year ended April 30, 2005, we spent approximately $18.0 million on capital improvements.
2005 Annual Report 23
Contracts or Options to Sell
We have granted options to purchase certain of our properties to various third parties. In general, these options grant
the right to purchase certain IRET assets at the greater of such asset’s appraised value or an annual compounded
increase of 2.0% to 2.5% of the initial cost to us. During the fiscal year ended April 30, 2005, the tenant in five of
IRET’s Edgewood Vista assisted living facilities exercised the purchase options contained in the leases for these
properties. These sales closed in fiscal year 2005. See the discussion of Property Dispositions in Management’s
Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Annual Report on Form
10-K for further information on these sales. In addition to options granted to third parties, we have also granted an
option to Charles Wm. James to purchase our Excelsior Retail Center. Mr. James is currently an officer and member
of our Board of Trustees. The option exercise price is equal to the price paid by us for the property, plus an annual
consumer price index increase. As of April 30, 2005, our properties subject to purchase options, the cost, plus
improvements, of each such property and its gross rental revenue are as follows:
Property
East Grand Station - East Grand Forks, MN
Edgewood Vista - Duluth, MN
Edgewood Vista - Fremont, NE
Edgewood Vista - Hastings, NE
Edgewood Vista - Kalispell, MT
Edgewood Vista - Missoula, MT
Edgewood Vista - Omaha, NE
Edgewood Vista - Virginia, MN
Excelsior Retail Center - Excelsior, MN
Great Plains Software - Fargo, ND
Healtheast - Woodbury & Maplewood, MN
Wedgewood Sweetwater - Lithia Springs, GA
Sleep Inn - Brooklyn Park, MN
Total
Properties by State
(in thousands)
Property Cost
1,392
$
11,709
552
572
588
962
641
12,181
929
15,375
21,601
4,622
2,750
73,874
$
$
$
(in thousands)
Gross Rental Revenue
2005
152
1,406
59
61
62
120
67
1,320
82
1,876
2,032
509
247
7,993
$
$
2004
152
1,278
59
61
62
120
67
893
129
1,875
1,948
502
0
7,146
$
$
2003
152
1,246
59
61
62
120
67
759
22
1,875
1,917
475
0
6,815
The following table presents, as of April 30, 2005, an analysis by state of each of the five major categories of
properties owned by us - multi-family residential, office, medical, industrial and retail:
Total Real Estate Investment by Type and Location
State
Minnesota
North Dakota
Nebraska
Colorado
Montana
Kansas
South Dakota
Texas
All Other States
Total
Multi-Family
Residential
Commercial
Office
$
(in thousands)
Commercial
Medical
173,064 $
104,385 $ 284,025 $
113,473
22,838
41,346
39,221
41,185
32,146
38,626
8,889
16,670
8,349
11,240
0
0
7,047
0
26,205
$
442,109 $ 353,536 $
Commercial
Industrial
Commercial
Retail
Total
686,442
86,856 $
38,112 $
156,760
19,476
7,141
57,163
3,699
0
52,586
0
0
45,988
5,217
0
41,185
0
0
39,193
0
0
38,626
0
0
12,980
61,913
5,397
58,233 $ 120,645 $ 1,179,856
% of Total
58.2%
13.3%
4.8%
4.4%
3.9%
3.5%
3.3%
3.3%
5.3%
100.0%
0
22,277
0
1,550
0
0
0
8,442
205,333 $
Item 3. Legal Proceedings
In the ordinary course of our operations, we become involved in litigation. At this time, we know of no material
pending or threatened legal proceedings or other proceedings contemplated by governmental authorities that would
have a material impact upon us.
2005 Annual Report 24
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to our shareholders during the fourth quarter of the fiscal year ended April 30, 2005.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Quarterly Share and Distribution Data
Our common shares of beneficial interest trade on the NASDAQ National Market under the symbol IRETS. On June
30, 2005, the last reported sales price per share of our common shares on the NASDAQ National Market was $9.66.
The following table sets forth the quarterly high and low closing sales prices per share of our common shares as
reported on the NASDAQ National Market, and the distributions per common share and limited partnership unit
declared with respect to each period.
Quarter Ended
2005
April 30, 2005
January 31, 2005
October 31, 2004
July 31, 2004
Quarter Ended
2004
April 30, 2004
January 31, 2004
October 31, 2003
July 31, 2003
High
$ 10.26 $
10.72
10.30
10.47
High
$ 10.50 $
10.70
10.48
10.81
Low
8.90
9.78
9.51
9.39
Low
9.36
9.88
9.69
9.28
Distributions Declared
(per share and unit)
$
0.1620
0.1615
0.1610
0.1605
Distributions Declared
(per share and unit)
$
0.1600
0.1595
0.1590
0.1585
It is IRET’s policy to pay quarterly distributions to our common shareholders, at the discretion of our Board of
Trustees, based on our funds from operations, financial condition and capital requirements, annual distribution
requirements under the REIT provisions of the Internal Revenue Code and such other factors as our Board of
Trustees deems relevant. Since July 1, 1971, IRET has paid quarterly cash distributions in the months of January,
April, July and October.
Shareholders
As of June 30, 2005, the Company had approximately 4,791 common shareholders of record, and 45,217,241
common shares of beneficial interest (plus 13,199,342 limited partnership units convertible into 13,199,342 common
shares) were outstanding.
Unregistered Sales of Shares
Sales of Unregistered Securities. During the fiscal years ended April 30, 2005 and 2004, respectively, we issued an
aggregate of 595,810 and 357,478 unregistered common shares to holders of limited partnership units of IRET
Properties upon redemption and conversion of an aggregate of 595,810 and 357,478 limited partnership units of
IRET Properties on a one-for-one basis. All such issuances of our common shares were exempt from registration as
private placements under Section 4(2) of the Securities Act, including Regulation D promulgated thereunder. We
have registered the re-sale of such common shares under the Securities Act.
Issuer Purchases of Equity Securities. The Company did not repurchase any of its equity securities during fiscal year
2005, except for repurchases of nominal amounts of fractional shares, at shareholder request.
2005 Annual Report 25
Item 6. Selected Financial Data
Set forth below is selected financial data on a historical basis for the Company for the five most recent fiscal years
ended April 30. This information should be read in conjunction with the consolidated financial statements and notes
appearing elsewhere in this Annual Report on Form 10-K.
Consolidated Income Statement Data
(in thousands, except per share data)
2005
2004
2003
2002
2001
$ 156,447 $
133,596
$ 112,071 $ 84,120 $ 67,473
Revenue
Income before minority interest and discontinued
operations and gain on sale of other investments $
Gain on sale of real estate, land, and other
investments
Minority interest portion of operating partnership
income
Income from continuing operations
Income from discontinued operations
Net income
$
$
$
$
$
10,709 $
10,858
$ 14,337 $ 12,664 $
9,840
8,605 $
662
$
1,595 $
547 $
602
(1,918) $
8,415 $
6,661 $
15,076 $
(2,320) $ (3,341) $ (3,304) $ (1,894)
8,135
7,939
559
1,501
8,694
9,440
9,708 $
$ 10,377 $
$
892 $
1,871 $
$ 12,248 $ 10,600 $
Consolidated Balance Sheet Data
Total real estate investments
Total assets
Mortgages payable
Shareholders’ equity
Consolidated Per Common Share Data
(basic and diluted)
Income from continuing operations
Income from discontinued operations
Net Income
Distributions
CALENDAR YEAR
Tax status of distribution
Capital gain
Ordinary income
Return of capital
$ 1,067,345 $
991,923
$ 1,151,158 $ 1,076,317
633,124
$ 708,558 $
278,629
$ 295,172 $
$ 845,325 $ 685,347 $548,580
$ 885,681 $ 730,209 $570,322
$ 539,397 $ 459,569 $368,957
$ 214,761 $ 145,578 $118,945
$
$
$
$
.14 $
.16 $
.30 $
.65 $
.20
.04
.24
.64
$
$
$
$
.32 $
.06 $
.38 $
.63 $
.38 $
.04 $
.42 $
.59 $
.35
.03
.38
.55
2004
2003
2002
2001
2000
0.00%
44.65%
55.35%
3.88%
58.45%
37.67%
0.00%
68.29%
31.71%
0.00%
65.98%
34.02%
0.72%
86.76%
12.52%
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information is provided in connection with, and should be read in conjunction with, the consolidated
financial statements included in this Annual Report on Form 10-K. We operate on a fiscal year ending on April 30.
The following discussion and analysis is for the fiscal year ended April 30, 2005.
Overview
We are a self-advised equity real estate investment trust engaged in owning and operating income-producing real
properties. Our investments include multi-family residential properties and commercial properties located primarily
in the upper Midwest states of Minnesota and North Dakota. Our properties are diversified in property type and
location. As of April 30, 2005, our real estate portfolio consisted of 65 multi-family residential properties containing
8,610 apartment units and having a total carrying amount (net of accumulated depreciation) of $374.6 million, and
146 commercial properties containing approximately 8.0 million square feet of leasable space and having a total
carrying amount (net of accumulated depreciation) of $686.7 million. Our commercial properties consist of:
•
•
50 office properties containing approximately 3.5 million square feet of leasable space and having a total
carrying amount (net of accumulated depreciation) of $330.3 million;
25 medical properties (including assisted living facilities) containing approximately 1.1 million square feet
of leasable space and having a total carrying amount (net of accumulated depreciation) of $192.5 million;
2005 Annual Report 26
•
•
11 industrial properties (including miscellaneous commercial properties) containing approximately 1.7
million square feet of leasable space and having a total carrying amount (net of accumulated depreciation)
of $53.0 million; and
60 retail properties containing approximately 1.6 million square feet of leasable space and having a total
carrying amount (net of accumulated depreciation) of $110.9 million.
Our primary source of income and cash is rents associated with multi-family residential and commercial leases. Our
business objective is to increase shareholder value by employing a disciplined investment strategy. This strategy is
focused on growing assets in desired geographical markets, achieving diversification by property type and location,
and adhering to targeted returns in acquiring properties.
During fiscal year 2005, IRET continued to operate in a difficult economic environment. Unemployment rates in
our markets, job growth at a pace slower than anticipated, continued low interest rates and an abundant supply of
housing, lower rental income and increased costs for tenant concessions and commercial property alternatives all
contributed to continued pressure on occupancy levels at our multi-family and commercial properties. While we are
seeing some slight improvement in vacancy levels, our operating environment in fiscal year 2005 continued to be
challenging. In addition, identifying potential acquisition properties that met our investment criteria remained a
challenge during fiscal year 2005. A widespread demand for real estate from traditional and non-traditional investors
combined with lower tenant demand for commercial space and apartments resulted in a significant reduction in the
investment returns from all types of real estate. In response to these operating conditions, during fiscal year 2005
IRET was able to implement only modest rental rate increases at certain of our multi-family and commercial
properties, and continued to rely on rent and other tenant concessions in order to improve occupancy rates.
During fiscal year 2005, vacancy levels in our total commercial segment properties continued to increase, to 9.2%
from 7.8% at the end of fiscal year 2004 in the case of our commercial office portfolio, to 7.3% from 6.4% at the
end of fiscal year 2004 in the case of our commercial medical portfolio, to 13.2% from 6.4% at the end of fiscal year
2004 in the case of our commercial industrial portfolio, and to 10.6% from 7.8% at the end of fiscal year 2004 in the
case of our commercial retail portfolio. Vacancy levels also increased slightly at our total multi-family residential
properties, to 9.9% compared to 9.8% at the end of fiscal year 2004. Total revenues of IRET Properties, our
operating partnership, increased by $22.8 million to $156.4 million, compared to $133.6 million in fiscal year 2004.
This increase was primarily attributable to the addition of new real estate properties. Operating income declined in
fiscal year 2005, to $9.7 million from $10.2 million in fiscal year 2004. We estimate that rent concessions offered to
tenants during the twelve months ended April 30, 2005, lowered our operating revenues by approximately $4.5
million, compared to $2.9 million for fiscal year 2004. Expenses increased during fiscal year 2005 as well, with real
estate taxes, maintenance, utility, administrative and operating expense all increasing from year-earlier levels. While
some of this increase was due to existing real estate, the majority was due to the addition of new real estate to our
portfolio.
During fiscal year 2005, the Company added four multi-family residential properties with a total of 266 apartment
units, three medical properties with a total of 157,675 leasable square feet, eight office properties with a total of
664,483 leasable square feet, and two retail properties consisting of 50,720 leasable square feet to our investment
portfolio, for an aggregate purchase price of $146.4 million. The Company disposed of 18 properties, consisting of
eight apartment complexes, five medical properties (assisted living facilities), one office property, three retail
properties and one parcel of undeveloped land, for sale prices totaling $48.9 million.
Additional information and more detailed discussions of our fiscal year 2005 operating results are found in the
following sections of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Critical Accounting Policies
Set forth below is a summary of the accounting policies that management believes are critical to the preparation of
the consolidated financial statements included in this Annual Report on Form 10-K.
Real Estate. Real estate is carried at cost, net of accumulated depreciation, less an adjustment for impairment, if any.
Depreciation requires an estimate by management of the useful life of each property as well as an allocation of the
2005 Annual Report 27
costs associated with a property to its various components. If the Company does not allocate these costs
appropriately or incorrectly estimates the useful lives of its real estate, depreciation expense may be misstated.
Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. The Company uses a
20-40 year estimated life for buildings and improvements. Maintenance and repairs are charged to operations as
incurred. Renovations and improvements that improve and/or extend the useful life of the asset are capitalized over
their estimated useful life, generally five to ten years.
Upon acquisitions of real estate, the Company assesses the fair value of acquired tangible assets (including land,
buildings and personal property), which is determined by valuing the property as if it were vacant, and considers
whether there were significant intangible assets acquired (for example, above-and below-market leases, the value of
acquired in-place leases, and tenant relationships, in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 141) and acquired liabilities, and allocates the purchase price based on these assessments. The as-if-
vacant value is allocated to land, buildings, and personal property based on management’s determination of the
relative fair value of these assets. The estimated fair value of the property is the amount that would be recoverable
upon the disposition of the property. Techniques used to estimate fair value include discounted cash flow analysis,
independent appraisals, and reference to recent sales of comparable properties. Estimates of future cash flows are
based on a number of factors including the historical operating results, known trends, and market/economic
conditions that may affect the property. Land value is assigned based on the purchase price if land is acquired
separately, or based on estimated market value if acquired in a merger or in a portfolio acquisition.
Above-market and below-market in-place lease values for acquired properties are recorded based on the present
value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i)
the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market
lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term
of the lease. The Company performs this analysis on a lease-by-lease basis. The capitalized above-market and
below-market lease values are amortized and included in operating expenses as depreciation/ amortization related to
real estate investments and amortized over the remaining non-cancelable terms of the respective leases.
Other intangible assets acquired include amounts for in-place lease values that are based upon the Company’s
evaluation of the specific characteristics of the leases. Factors considered in these analyses include an estimate of
carrying costs during hypothetical expected lease-up periods, considering current market conditions, and costs to
execute similar leases. The Company also considers information about each property obtained during its pre-
acquisition due diligence and marketing and leasing activities in estimating the fair value of the tangible and
intangible assets acquired.
Property sales or dispositions are recorded when title transfers and sufficient consideration is received by the
Company. The Company’s properties are reviewed for impairment if events or circumstances change indicating that
the carrying amount of the assets may not be recoverable. If the Company incorrectly estimates the values at
acquisition or the undiscounted cash flows, initial allocations of purchase price and future impairment charges may
be different. The impact of the Company’s estimates in connection with acquisitions and future impairment analysis
could be material to the Company’s financial statements.
Allowance for Doubtful Accounts. The Company periodically evaluates the collectibility of amounts due from
tenants and maintains an allowance for doubtful accounts ($200,000 as of April 30, 2005) for estimated losses
resulting from the inability of tenants to make required payments under their respective lease agreements. The
Company also maintains an allowance for receivables arising from the straight-lining of rents ($500,000 as of April
30, 2005). This receivable arises from earnings recognized in excess of amounts currently due under lease
agreements. Management exercises judgment in establishing these allowances and considers payment history and
current credit status in developing these estimates. If estimates differ from actual results this would impact reported
results.
Revenue Recognition - The Company has the following revenue sources and revenue recognition policies:
• Base Rents - income arising from tenant leases. These rents are recognized over the non-cancelable term of
the related leases on a straight-line basis, which includes the effects of rent steps and free rent abatements
under the leases. Certain leases provide for tenant occupancy during periods for which no rent is due or
where minimum rent payments increase during the term of the lease. Rental revenue is recorded for the full
2005 Annual Report 28
term of each lease on a straight-line basis. Accordingly, the Company records a receivable from tenants for
rents that it expects to collect over the remaining lease term as deferred rents receivable. When the Company
acquires a property, the term of the existing leases is considered to commence as of the acquisition date for
the purposes of this calculation. Revenue recognition is considered to be critical because the evaluation of the
realizability of such deferred rents receivable involves management's assumptions relating to such tenant's
viability.
• Percentage Rents - income arising from retail tenant leases which are contingent upon the sales of the tenant
exceeding a defined threshold. These rents are recognized in accordance with SEC Staff Accounting Bulletin
104: Revenue Recognition, which states that this income is to be recognized only after the contingency has
been removed (i.e., sales thresholds have been achieved).
• Expense Reimbursement Income – revenue arising from tenant leases, which provide for the recovery of all
or a portion of the operating expenses and real estate taxes of the respective property. This revenue is accrued
in the same periods as the expenses are incurred.
Income Taxes. The Company operates in a manner intended to enable it to continue to qualify as a REIT under
Sections 856-860 of the Internal Revenue Code of 1986, as amended. Under those sections, a REIT which
distributes at least 90% of its REIT taxable income as a distribution to its shareholders each year and which meets
certain other conditions will not be taxed on that portion of its taxable income which is distributed to its
shareholders. The Company intends to distribute to its shareholders 100% of its taxable income. Therefore, no
provision for Federal income taxes is required. If the Company fails to distribute the required amount of income to
its shareholders, it would fail to qualify as a REIT and substantial adverse tax consequences may result.
The Company’s taxable income is affected by a number of factors, including, but not limited to, the following: that
the Company’s tenants perform their obligations under their leases with the Company; that the Company’s tax and
accounting positions do not change; and that the number of issued and outstanding shares of the Company’s
common stock remain relatively unchanged. These factors, which impact the Company’s taxable income, are
subject to change, and many are outside the control of the Company. If actual results vary, the Company’s taxable
income may change.
Recent Accounting Pronouncements
On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards (“SFAS”) No. 153, “Exchanges of Nonmonetary Assets - Amendment of APB Opinion No.
29”. The amendments made by SFAS No. 153 are based on the principle that exchanges of nonmonetary assets
should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow
exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for
exchanges of nonmonetary assets that do not have “commercial substance.” SFAS No. 153 is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not
believe the adoption of SFAS No. 153 will have a material effect on the Company’s consolidated financial
statements.
RESULTS OF OPERATIONS
Revenues
Total revenues for fiscal year 2005 were $156.4 million, compared to $133.6 million in fiscal year 2004 and $112.1
million in fiscal year 2003. Revenues during fiscal year 2005 were $22.8 million greater than revenues in fiscal year
2004 and revenues during fiscal year 2004 were $21.5 million greater than in fiscal year 2003.
2005 Annual Report 29
For fiscal 2005, the increase in revenue of $22.8 million resulted from:
Rent from 28 properties acquired in fiscal year 2004 in excess of that received in 2004 from the same
28 properties
Rent from 17 properties acquired in fiscal year 2005
Decrease in rental income on existing properties, net of declining occupancy levels
An increase in straight-line rents
For fiscal 2004, the increase in revenue of $21.5 million resulted from:
Rent from 64 properties acquired in fiscal year 2003 in excess of that received in 2003 from the same
64 properties
Rent from 28 properties acquired in fiscal year 2004
Increase in rental income on existing properties, net of declining occupancy levels
An increase in straight-line rents
A decrease in rent from properties sold
(in thousands)
$
$
14,813
9,745
(2,431)
724
22,851
(in thousands)
$
$
12,099
9,482
152
72
(280)
21,525
As illustrated above, the substantial majority of the increase in our gross revenue for fiscal years 2005 and 2004
resulted from the addition of new real estate properties to the IRET Properties’ portfolio, rather than from rental
increases on existing properties. For the next 12 months, we expect acquisitions to continue to be the most
significant factor in any increases in our revenues and ultimately our net income. While acceptable real estate assets
are still available for purchase, declining tenant demand combined with a continued widespread demand for real
estate from traditional and non-traditional investors has resulted in a significant reduction in the investment returns
from all types of real estate. This reduction in the rates of return has been offset to some extent by the decline in
borrowing costs to historically low levels. While we were able to take advantage of those lower borrowing costs for
most of our recent acquisitions, the majority of our debt is fixed and not prepayable without significant prepayment
costs and fees.
Gain on Sale of Real Estate
The Company realized a gain on sale of real estate for fiscal year 2005 of $8.6 million. This compares to $0.7
million of gain on sale of real estate recognized in fiscal 2004 and $1.6 million recognized in fiscal 2003. A list of
the properties sold during fiscal year 2005, showing sales price, depreciated cost plus sales costs and net gain (loss)
is included below on page 43 under the caption “Property Dispositions.”
Segment Expenses and Operating Profit
The following tables show the changes in revenues, operating expenses, interest and depreciation by reportable
operating segment for fiscal year 2005 compared to fiscal year 2004, and for fiscal year 2004 compared to fiscal
year 2003. For a reconciliation of segment revenues, profit (loss) and assets to the consolidated financial statements,
see Note 12 of the Notes to Consolidated Financial Statements in this report.
Fiscal year ended April 30, 2005, compared to fiscal year ended April 30, 2004.
COMMERCIAL OFFICE
Real Estate Revenue
Expenses
(in thousands)
2004
2005
Change % Change
$
48,648 $
39,919 $
8,729
21.9%
Mortgage Interest
Depreciation/amortization related to real estate investments
Utilities and Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Expense
Segment Operating Profit
12,730
12,783
9,701
7,165
538
2,100
45,017
3,631 $
11,030
7,132
8,416
5,757
451
1,764
34,550
5,369 $
1,700
5,651
1,285
1,408
87
336
10,467
(1,738)
15.4
79.2
15.3
24.5
19.3
19.0
30.3
(32.4%)
$
2005 Annual Report 30
COMMERCIAL MEDICAL
Real Estate Revenue
Expenses
(in thousands)
2004
2005
Change % Change
$
25,794 $
15,876 $
9,918
62.5%
Mortgage Interest
Depreciation/amortization related to real estate investments
Utilities and Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Expense
Segment Operating Profit
8,923
5,305
3,012
1,616
277
1,273
20,406
5,388 $
5,841
2,977
2,226
1,491
149
1,156
13,840
2,036 $
3,082
2,328
786
125
128
117
6,566
3,352
52.8
78.2
35.3
8.4
85.9
10.1
47.4
164.6%
$
COMMERCIAL INDUSTRIAL
Real Estate Revenue
Expenses
(in thousands)
2004
2005
Change % Change
$
6,459 $
6,634 $
(175)
(2.6%)
Mortgage Interest
Depreciation/amortization related to real estate investments
Utilities and Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Expense
Segment Operating Profit
2,302
1,523
245
797
78
104
5,049
1,410 $
2,092
1,253
251
768
66
98
4,528
2,106 $
210
270
(6)
29
12
6
521
(696)
10.0
21.5
(2.4)
3.8
18.2
6.1
11.5
(33.0%)
$
COMMERCIAL RETAIL
Real Estate Revenue
Expenses
(in thousands)
2004
2005
Change % Change
$
15,339 $
11,873 $
3,466
29.2%
Mortgage Interest
Depreciation/amortization related to real estate investments
Utilities and Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Expense
Segment Operating Profit
4,125
2,788
1,471
1,983
200
289
10,856
4,483 $
3,275
2,007
1,104
1,888
167
118
8,559
3,314 $
850
781
367
95
33
171
2,297
1,169
26.0
38.9
33.2
5.0
19.8
144.9
26.8
35.3%
$
MULTI-FAMILY RESIDENTIAL
Real Estate Revenue
Expenses
Mortgage Interest
Depreciation/amortization related to real estate investments.
Utilities and Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Expense
Segment Operating Profit
(in thousands)
2004
2005
Change % Change
$ 60,207
$
59,294 $
913
1.5%
18,247
11,075
12,760
7,057
1,521
6,805
57,465
2,742
$
$
17,647
10,310
12,496
6,675
2,001
6,225
55,354
3,940 $
600
765
264
382
(480)
580
2,111
(1,198)
3.4
7.4
2.1
5.7
(24.0)
9.3
3.8
(30.4%)
2005 Annual Report 31
Fiscal year ended April 30, 2004, compared to fiscal year ended April 30, 2003.
COMMERCIAL OFFICE
Real Estate Revenue
Expenses
(in thousands)
2003
2004
Change % Change
$
39,919
$
31,159 $
8,760
28.1%
Mortgage Interest
Depreciation/amortization related to real estate investments
Utilities and Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Expense
Segment Operating Profit
11,030
7,132
8,416
5,757
451
1,764
34,550
5,369
$
$
9,343
2,222
5,401
4,543
356
1,286
23,151
8,008 $
1,687
4,910
3,015
1,214
95
478
11,399
(2,639)
18.1
221.0
55.8
26.7
26.7
37.2
49.2
(33.0%)
COMMERCIAL MEDICAL
Real Estate Revenue
Expenses
(in thousands)
2003
2004
Change % Change
$
15,876 $
13,168 $
2,708
20.6%
Mortgage Interest
Depreciation/amortization related to real estate investments
Utilities and Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Expense
Segment Operating Profit
5,841
2,977
2,226
1,491
149
1,156
13,840
2,036 $
5,126
3,477
2,039
1,112
108
801
12,663
505 $
715
(500)
187
379
41
355
1,177
1,531
13.9
(14.4)
9.2
34.1
38.0
44.3
9.3
303.2%
$
COMMERCIAL INDUSTRIAL
Real Estate Revenue
Expenses
(in thousands)
2003
2004
Change % Change
$
6,634 $
5,846 $
788
13.5%
Mortgage Interest
Depreciation/amortization related to real estate investments
Utilities and Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Expense
Segment Operating Profit
2,092
1,253
251
768
66
98
4,528
2,106 $
1,542
1,047
124
491
44
55
3,303
2,543 $
550
206
127
277
22
43
1,225
(437)
35.7
19.7
102.4
56.4
50.0
78.2
37.1
(17.2%)
$
COMMERCIAL RETAIL
Real Estate Revenue
Expenses
(in thousands)
2003
2004
Change % Change
$
11,873 $
5,862 $
6,011
102.5%
Mortgage Interest
Depreciation/amortization related to real estate investments
Utilities and Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Expense
Segment Operating Profit
3,275
2,007
1,104
1,888
167
118
8,559
3,314 $
1,815
2,035
395
461
92
99
4,897
965 $
1,460
(28)
709
1,427
75
19
3,662
2,349
80.4
(1.4)
179.5
309.5
81.5
19.2
74.8
243.4%
$
2005 Annual Report 32
MULTI-FAMILY RESIDENTIAL
Real Estate Revenue
Expenses
(in thousands)
2003
2004
Change % Change
$
59,294 $
56,036 $
3,258
5.8%
Mortgage Interest
Depreciation/amortization related to real estate investments
Utilities and Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Expense
Segment Operating Profit
17,647
10,310
12,496
6,675
2,001
6,225
55,354
3,940 $
16,387
9,390
10,805
6,386
1,460
5,495
49,923
6,113 $
1,260
920
1,691
289
541
730
5,431
(2,173)
7.7
9.8
15.7
4.5
37.1
13.3
10.9
(35.5%)
$
Factors Impacting Segment Expenses and Operating Profit
Depreciation/amortization related to real estate investments. Depreciation/amortization related to real estate
investments increased significantly in our Commercial Office and Commercial Medical segments in fiscal year 2005
compared to fiscal year 2004 (increasing 79.2% and 78.2%, respectively), and in our Commercial Office segment in
fiscal year 2004 compared to fiscal year 2003 (increasing 221.0%). These increases were a result of the
implementation of SFAS No. 141, which establishes standards for valuing in-place leases in purchase transactions.
The Company allocates a portion of the purchase price paid for properties to in-place lease intangible assets. The
amortization period of these intangible assets is the term of the lease, rather than the estimated life of the building
and improvements. The Company accordingly initially records additional amortization expense due to this shorter
amortization period.
Changes in Expenses and Net Income
Operating income for fiscal year 2005 decreased to $9.7 million from $10.2 million in fiscal year 2004, and was
$13.3 million in fiscal year 2003. Our net income available to common shareholders for fiscal year 2005 was $12.7
million, compared to $9.4 million in fiscal year 2004 and $12.2 million in fiscal year 2003. On a per common share
basis, net income was $0.30 per common share in fiscal year 2005, compared to $0.24 per common share in fiscal
year 2004 and $0.38 in fiscal year 2003.
These changes in operating income and net income result from the changes in revenues and expenses detailed
below:
Changes in net income for fiscal year 2005 resulted from:
An increase in net rental income primarily due to new acquisitions (rents, less utilities, maintenance,
taxes, insurance and management)
An increase in income from discontinued operations, net
An increase in non-operating income
A decrease in minority interest of operating partnership income
A decrease in minority interest of other partnership’s income
These increases were partially offset by:
An increase in interest expense primarily due to debt placed on new acquisitions
An increase in depreciation/amortization expense related to real estate investments
An increase in operating expenses, administrative, advisory & trustee services
An increase in amortization expense
A decrease in gain on sale of other investments
An increase in dividends to preferred shareholders
Total increase in fiscal 2005 net income available to common shareholders
(in thousands)
$
17,126
5,160
338
402
378
(5,594)
(9,833)
(1,469)
(717)
(155)
(2,339)
3,297
$
2005 Annual Report 33
Changes in net income for fiscal year 2004 resulted from:
An increase in net rental income (rents, less utilities, maintenance, taxes, insurance and management) $
A decrease in minority interest of operating partnership income
A decrease in minority interest of other partnerships’ income
(in thousands)
9,811
1,021
177
These increases were partially offset by:
A decrease in income from discontinued operations, net
A decrease in non-operating income
An increase in interest expense
An increase in depreciation/amortization expense related to real estate investments
An increase in operating expenses, administrative, advisory & trustee services
An increase in amortization expense
A decrease in gain on sale of other investments
An increase in dividends to preferred shareholders
Total decrease in fiscal 2004 net income available to common shareholders
(370)
(414)
(6,149)
(5,579)
(873)
(275)
(157)
(33)
(2,841)
$
Factors Impacting Net Income During Fiscal Year 2005 as Compared to Fiscal Year 2004
Compared to the prior two fiscal years, there were a number of factors that continued to limit the growth of our total
revenue and ultimately negatively impacted our net income. A discussion of the factors having the greatest impact
on our business compared to the prior two fiscal years is set forth below. In management’s opinion, most of these
negative influences show signs of lessening in the next twelve months.
•
Increased economic vacancy and concessions. During fiscal year 2005, vacancy levels at our stabilized
multi-family residential properties decreased slightly throughout our entire portfolio to 9.2% compared to
9.4% at the end of fiscal year 2004, for economic occupancy levels of approximately 90.8% in fiscal year
2005 compared to approximately 90.6% in fiscal year 2004. “Economic Occupancy” is defined as total
possible revenue less vacancy loss as a percentage of total possible revenue. Total possible revenue is
determined by valuing occupied units or square footage at contract rates, and vacant units or square footage
at market rates. “Stabilized properties” are those properties that we have owned for the entirety of the periods
being compared, and include properties that were redeveloped or expanded during the periods being
compared. However, vacancy levels at our stabilized total commercial segment properties increased to
10.7%, from 7.4% at the end of fiscal year 2004, for economic occupancy levels of approximately 89.3% in
fiscal year 2005 compared to approximately 92.6% in fiscal year 2004. A majority of the markets in which
we operate continue to experience overall poor economic conditions in respect to job creation. The poor
economic climate has translated into increased vacancy at many of our properties.
While occupancy levels at our multi-family residential properties showed signs of improvement during the
last half of fiscal year 2005, our level of tenant concessions has not declined significantly, and results at our
multi-family residential properties continue to be negatively influenced by the availability of low-interest
mortgages to prospective home buyers. To maintain physical occupancy levels at our multi-family residential
properties, we may offer tenant incentives, generally in the form of lower rents, which results in decreased
revenues and income from operations at our stabilized properties. We estimate that rent concessions offered
during fiscal year 2005 lowered our operating revenues by approximately $4.5 million, as compared to an
estimated approximately $2.9 million reduction in operating revenues attributable to rent concessions offered
in fiscal year 2004.
Our commercial vacancy is primarily due to our inability to either renew existing leases or to re-lease space
being vacated by tenants at the expiration of their lease. While not necessarily indicative of future business
cycles, in past economic downturns, a recovery in occupancy levels generally trails the pick up in economic
activity by twelve months or more. Despite some positive economic developments, we have yet to see a
significant increase in demand for multi-family residential or commercial space. We continue to expect that
demand in our markets for both apartments and commercial space will remain weak through the remainder of
our current fiscal year 2006.
2005 Annual Report 34
•
Increased real estate taxes. Taxes imposed on our real estate properties increased by $2.0 million, or 12.3%
for the fiscal year ended April 30, 2005. Of the increased real estate taxes, $2.4 million or 118.4% is
attributable to the addition of new real estate acquired in fiscal 2005 and 2004, while ($0.4) million or
(18.4)% is due to decreased costs for real estate taxes on existing real estate assets.
Under the terms of most of our commercial leases, the full cost of real estate tax is paid by the tenant as
additional rent. For our noncommercial real estate properties, any increase in our real estate tax costs must be
collected from tenants in the form of a general rent increase. While we have implemented selected rent
increases, the current economic conditions and increased vacancy levels have prevented us from raising rents
in the amount necessary to fully recover our increased real estate tax costs.
Increased maintenance expense. The maintenance expense category increased by $1.4 million or 9.4% for
the fiscal year ended April 30, 2005, as compared to the corresponding period of fiscal year 2004. Of the
increased maintenance costs for the fiscal year ended April 30, 2005, $2.2 million or 157.4% is attributable to
the addition of new real estate acquired in fiscal 2005 and 2004, while $(0.8) million or (57.4)% is due to
decreased costs for maintenance on existing real estate assets. Under the terms of most of our commercial
leases, the full cost of maintenance is paid by the tenant as additional rent. For our noncommercial real estate
properties, any increase in our maintenance costs must be collected from tenants in the form of a general rent
increase. While we have implemented selected rent increases, the current economic conditions and increased
vacancy levels have prevented us from raising rents in the amount necessary to fully recover our increased
maintenance costs.
Increased utility expense. The utility expense category increased by $1.3 million or 13.6% for the fiscal year
ended April 30, 2005, as compared to fiscal year 2004. Of the increased utility costs, $1.3 million or 102.1%
is attributable to the addition of new real estate acquired in fiscal 2005 and 2004, while $(0.03) million or
(2.1)% is due to decreased costs for utilities on existing real estate assets. Under the terms of most of our
commercial leases, the full cost of utilities is paid by the tenant as additional rent. For our other
noncommercial real estate properties, any increase in our utility costs must be collected from tenants in the
form of a general rent increase. While we have implemented selected rent increases, the current economic
conditions and increased vacancy levels have prevented us from raising rents in the amount necessary to fully
recover our increased utility costs. Since our real estate portfolio is primarily located in Minnesota and North
Dakota, the severity of winters has a large impact on our utility costs.
Increased administrative and operating expense. Administrative and operating expenses increased by $1.5
million or 38.6% for the fiscal year ended April 30, 2005, as compared to fiscal year 2004. Of this increase in
administrative and operating expense for the fiscal year ended April 30, 2005, $1.0 million or 70.1% was due
to employee related costs. Over the past year, we have hired seven new employees. The addition of these new
employees, together with increases in the wages and benefits paid to existing employees, account for a
significant portion of the increase in administrative and operating costs for the fiscal year ended April 30,
2005. In addition, in common with other public companies, we have experienced a significant increase in
accounting fees and other costs, primarily as a result of certain provisions of the Sarbanes-Oxley Act of 2002
(“Sarbanes-Oxley”), in particular the internal controls report and attestation requirements of Section 404 of
Sarbanes-Oxley.
Increase in mortgage interest expense. Our mortgage debt increased $75.4 million or 11.9% for the fiscal
year ended April 30, 2005. Our mortgage interest expense increased by $6.4 million or 16.2% for the fiscal
year ended April 30, 2005, as compared to fiscal year 2004. Of the increased interest expense for the fiscal
year ended April 30, 2005, $6.9 million or 106.3% is attributable to the addition of new real estate, while
interest expenses on existing real estate assets decreased by $(0.4) million or (6.3)%, due primarily to lower
interest rates on mortgages.
Increase in amortization expense. In accordance with SFAS No. 141, “Business Combinations,” which
establishes standards for valuing in-place leases in purchase transactions, the Company allocates a portion of
the purchase price paid for properties to in-place lease intangible assets. The amortization period of these
intangible assets is the term of the lease, rather than the estimated life of the building and improvements. The
Company accordingly initially records additional amortization expense due to this shorter amortization
•
•
•
•
•
2005 Annual Report 35
period, which has the effect in the short term of decreasing the Company’s net income available to common
shareholders.
Factors Impacting Net Income During Fiscal Year 2004 as Compared to Fiscal Year 2003
•
Increased economic vacancy. During fiscal year 2004, vacancy levels at our stabilized multi-family
residential properties continued to increase throughout our entire portfolio to 9.5% compared to 8.8% at the
end of fiscal year 2003, for economic occupancy levels of approximately 90.5% in fiscal year 2004 compared
to approximately 91.2% in fiscal year 2003. “Economic Occupancy” is defined as total possible revenue less
vacancy loss as a percentage of total possible revenue. Total possible revenue is determined by valuing
occupied units or square footage at contract rates, and vacant units or square footage at market rates.
“Stabilized properties” are those properties that we have owned for the entirety of the periods being
compared, and include properties that were redeveloped or expanded during the periods being compared.
Likewise, vacancy levels at our stabilized commercial properties increased to 6.7%, from 3.6% at the end of
fiscal year 2003, for economic occupancy levels of approximately 93.3% in fiscal year 2004 compared to
approximately 96.4% in fiscal year 2003. A majority of the markets in which we operate continued to
experience overall poor economic conditions, in respect of job creation. The poor economic climate
translated into increased vacancy at many of our properties. Our commercial vacancy was primarily due to
our inability to either renew existing leases or to re-lease space being vacated by tenants at the expiration of
their lease.
•
Increased real estate taxes. Taxes imposed on our real estate properties increased by $3.6 million, or 27.6%
for the fiscal year ended April 30, 2004. Of the increased real estate taxes, $1.0 million or 27.8% was
attributable to the addition of new real estate acquired in fiscal 2004, while $2.6 million or 72.2% was due to
increased costs for real estate taxes on existing real estate assets. Most of our new property acquisitions in
fiscal year 2004 were in Minnesota, a jurisdiction with higher property taxes than North Dakota and the other
states in which we own property.
•
•
Under the terms of most of our commercial leases, the full cost of real estate tax is paid by the tenant as
additional rent. For our noncommercial real estate properties, any increase in our real estate tax costs must be
collected from tenants in the form of a general rent increase. While we implemented selected rent increases,
economic conditions and increased vacancy levels prevented us from raising rents in the amount necessary to
fully recover our increased real estate tax costs. To further compound the problem, a number of states in
which we operate continued to face state budget shortfalls. Our experience is that such shortfalls translate
into local governments raising property taxes.
Increased maintenance expense. The maintenance expense category increased by $3.6 million or 32.0% for
the fiscal year ended April 30, 2004, as compared to the corresponding period of fiscal year 2003. Of the
increased maintenance costs for the fiscal year ended April 30, 2004, $1.1 million or 30.5% was attributable
to the addition of new real estate acquired in fiscal years 2004 and 2003, while $2.5 million or 69.5% was
due to increased costs for maintenance on existing real estate assets. Under the terms of most of our
commercial leases, the full cost of maintenance is paid by the tenant as additional rent. For our
noncommercial real estate properties, any increase in our maintenance costs must be collected from tenants
in the form of a general rent increase. While we implemented selected rent increases, economic conditions
and increased vacancy levels prevented us from raising rents in the amount necessary to fully recover our
increased maintenance costs.
Increased utility expense. The utility expense category increased by $2.1 million or 28.3% for the fiscal year
ended April 30, 2004, as compared to fiscal year 2003. Of the increased utility costs, $0.8 million or 38.1%
was attributable to the addition of new real estate acquired in fiscal years 2003 and 2004, while $1.6 million
or 76.2% was due to increased costs for utilities on existing real estate assets and $(.3) related to 2005
discontinued operations. Under the terms of most of our commercial leases, the full cost of utilities is paid
by the tenant as additional rent. For our other noncommercial real estate properties, any increase in our utility
costs must be collected from tenants in the form of a general rent increase. While we implemented selected
rent increases, economic conditions and increased vacancy levels prevented us from raising rents in the
amount necessary to fully recover our increased utility costs. Since our real estate portfolio is primarily
located in Minnesota and North Dakota, the severity of winters has a large impact on our utility costs.
2005 Annual Report 36
•
•
•
Increased administrative and operating expense. Administrative and operating expenses increased by $0.9
million or 30.1% for the fiscal year ended April 30, 2004, as compared to fiscal year 2003. Of this increase in
administrative and operating expense for the fiscal year ended April 30, 2004, $0.7 million or 77.8% was due
to employee related costs. In fiscal year 2004, we hired six new employees. The addition of these new
employees, together with increases in the wages and benefits paid to existing employees, account for the
increase in administrative and operating costs for the fiscal year ended April 30, 2004.
Increased insurance premiums. Insurance expense increased by $0.8 million or 37.6% for the fiscal year
ended April 30, 2004, compared to the prior fiscal year. Of the increased insurance costs, $0.2 million or
25% was attributable to the addition of new real estate during fiscal years 2003 and 2004, while $0.6 million
or 75% was due to increased premium costs for coverage on existing real estate assets. Under the terms of
most of our commercial leases, the full cost of insurance is paid by the tenant as additional rent. For our other
real estate properties, any increase in our insurance costs must be collected from tenants in the form of a
general rent increase. While we implemented selected rent increases, economic conditions and increased
vacancy levels prevented us from raising rents in the amount necessary to fully recover our increased
insurance costs.
Increase in interest expense. Our mortgage debt increased $94 million or 17.4% for the fiscal year ended
April 30, 2004. Our mortgage interest expense increased by $5.7 million or 16.6% for the fiscal year ended
April 30, 2004, as compared to fiscal year 2003, due to the fact that interest rates on new mortgages incurred
during 2004 were lower than rates on mortgages in prior periods. Of the increased interest expense for the
fiscal year ended April 30, 2004, $2.3 million or 41.1% was attributable to the addition of new real estate,
while interest expenses on existing real estate assets increased by $3.3 million or 58.9%, due primarily to
increased borrowing on existing real estate assets.
Comparison of Results from Commercial and Residential Properties
The following table presents an analysis of the relative investment in, and financial contribution of, our commercial
and multi-family residential properties over the past three fiscal years:
Fiscal Years Ended April 30
Real Estate Investments – net of accumulated
depreciation
Commercial Office
Commercial Medical
Commercial Industrial
Commercial Retail
Multi-Family Residential
Total
Gross Real Estate Rental Revenues
Commercial Office
Commercial Medical
Commercial Industrial
Commercial Retail
Multi-Family Residential
Total
(in thousands)
2005
(in thousands)
2004
%
(in thousands)
2003
%
%
$ 330,338
192,478
53,040
110,913
374,575
31.1% $ 271,823
160,662
18.1%
54,201
5.0%
112,790
10.5%
384,374
35.3%
$1,061,344 100.0% $ 983,850
27.6% $ 225,076
122,547
16.3%
52,283
5.5%
93,112
11.5%
39.1%
348,100
100.0% $ 841,118
$
48,648
25,794
6,459
15,339
60,207
31.1% $
39,919
16.5%
15,876
4.1%
6,634
9.8%
11,873
59,294
38.5%
$ 156,447 100.0% $ 133,596
29.9% $
31,159
11.9%
13,168
5.0%
5,846
8.9%
5,862
56,036
44.3%
100.0% $ 112,071
26.7%
14.6%
6.2%
11.1%
41.4%
100.0%
27.8%
11.7%
5.2%
5.3%
50.0%
100.0%
2005 Annual Report 37
Total Commercial Segments Properties - Analysis of Lease Expirations and Credit Risk
The following table shows the annual lease expiration percentages for the total commercial segments properties
owned by us as of April 30, 2005, for fiscal years 2006 through 2015 and the leases that will expire during fiscal
year 2016 and beyond.
Fiscal Year of Lease Expiration
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016 and beyond
Square
Footage of
Expiring
Leases
503
891
834
721
479
986
320
138
236
88
1,454
Percentage
of Total
Commercial
Segments Leased
Square Footage
6.3%
11.1%
10.4%
9.0%
6.0%
12.3%
4.0%
1.7%
2.9%
1.1%
18.2%
$
(in thousands)
Annualized
Base Rent of
Expiring Leases
at Expiration
2,220
3,930
5,192
3,614
2,682
3,956
2,035
1,674
1,461
1,114
86,993
The following table lists our top ten commercial tenants on April 30, 2005, for the total commercial segments
properties owned by us as of April 30, 2005, based upon minimum rents in place as of April 30, 2005:
Lessee
St. Luke’s Hospital
Edgewood Living Communities, Inc.
Best Buy
Healtheast - Woodbury & Maplewood
Allina Health
Microsoft - Great Plain
St. Paul Companies
Nebraska Orthopaedic Hospital
Smurfit - Stone Container Corp.
Wilson’s The Leather Experts Inc.
All Others
Total Monthly Rent as of April 30, 2005
Results on a “Stabilized Property” Basis
(in thousands)
% of Total Commercial
Segments Minimum
Rents as of April 30, 2005
5.0%
3.7%
3.1%
2.5%
2.3%
2.3%
2.2%
2.1%
1.9%
1.8%
73.1%
100.0%
The following tables present results on a stabilized property basis for fiscal year 2005 compared to fiscal year 2004,
and for fiscal year 2004 compared to fiscal year 2003, for our multi-family residential and commercial properties,
consisting of office, medical, industrial and retail properties. Property Segment Operating Profit should not be
considered an alternative to operating net income as determined in accordance with GAAP as a measure of IRET’s
performance. For a reconciliation of segment operating profit to the consolidated financial statements, see Note 12
of the Notes to Consolidated Financial Statements in this report. We analyze and compare results of operations on
properties owned and in operation for the entirety of the periods being compared (including properties that were
redeveloped or expanded during the periods being compared, with properties purchased or sold during the periods
being compared being excluded form this analysis). This comparison allows us to evaluate the performance of
existing properties and their contribution to net income. The fiscal year 2004 results presented in the first table
below are not identical to the fiscal year 2004 results presented in the second table, because the properties
comprising our stabilized property portfolio vary from year to year, due to our ongoing acquisition and disposition
activity.
Management believes that measuring performance on a stabilized property basis is useful to investors because it
enables evaluation of how our properties are performing year over year. Management uses this measure to assess
2005 Annual Report 38
whether or not it has been successful in increasing net operating income, renewing the leases of existing tenants,
controlling operating costs and appropriately handling capital improvements.
Fiscal year 2005 compared to fiscal year 2004:
Fiscal Years Ended April 30
Multi-Family Residential
Real Estate Revenue
Expenses
Utilities & Maintenance
Property Management
Real Estate Taxes
Insurance
Depreciation and Amortization
Mortgage Interest
Total Expenses
Property Segment Operating Profit
Commercial Office
Real Estate Revenue
Expenses
Utilities & Maintenance
Property Management
Real Estate Taxes
Insurance
Depreciation and Amortization
Mortgage Interest
Total Expenses
Property Segment Operating Profit
Commercial Medical
Real Estate Revenue
Expenses
Utilities & Maintenance
Property Management
Real Estate Taxes
Insurance
Depreciation and Amortization
Mortgage Interest
Total Expenses
Property Segment Operating Profit
Commercial Industrial
Real Estate Revenue
Expenses
Utilities & Maintenance
Property Management
Real Estate Taxes
Insurance
Depreciation and Amortization
Mortgage Interest
Total Expenses
Property Segment Operating Profit
Commercial Retail
Real Estate Revenue
Expenses
Utilities & Maintenance
Property Management
Real Estate Taxes
Insurance
(in thousands)
2005
2004
% Change
$
55,092
$
55,504
(0.7%)
11,444
5,989
6,514
1,375
10,019
16,657
51,998
3,094
32,930
6,771
1,507
4,989
353
5,662
9,630
28,912
4,018
15,491
2,292
760
1,293
149
2,811
5,383
12,688
2,803
5,961
229
91
709
72
1,256
2,171
4,528
1,433
12,022
1,085
68
1,650
139
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
11,745
5,774
6,373
1,882
9,695
16,711
52,180
3,324
(2.6%)
3.7%
2.2%
(26.9%)
3.3%
(0.3%)
(0.3%)
(6.9%)
35,584
(7.5%)
7,607
1,589
5,122
403
5,448
10,202
30,371
5,213
(11.0%)
(5.2%)
(2.6%)
(12.4%)
3.9%
(5.6%)
(4.8%)
(22.9%)
15,171
2.1%
2,046
1,005
1,449
133
2,710
5,521
12,864
2,307
12.0%
(24.4%)
(10.8%)
12.0%
3.7%
(2.5%)
(1.4%)
21.5%
6,614
(9.9%)
251
98
764
65
1,242
2,092
4,512
2,102
(8.8%)
(7.1%)
(7.2%)
10.8%
1.1%
3.8%
0.4%
(31.8%)
11,169
7.6%
1,004
50
1,821
151
8.1%
36.0%
(9.4%)
(7.9%)
2005 Annual Report 39
Commercial Retail, continued
Depreciation and Amortization
Mortgage Interest
Total Expenses
Property Segment Operating Profit
Total Stabilized Segment Operating Profit
Reconciliation to Segment Operating Profit
Real Estate Revenue – Non-Stabilized
Expenses – Non-Stabilized
Utilities & Maintenance
Property Management
Real Estate Taxes
Insurance
Depreciation and Amortization
Mortgage Interest
Total Segment Operating Profit
Fiscal year 2004 compared to fiscal year 2003:
Fiscal Years Ended April 30
Multi-Family Residential
Real Estate Revenue
Expenses
Utilities & Maintenance
Property Management
Real Estate Taxes
Insurance
Mortgage Interest
Loss on Impairment of Real Estate
Total Expenses
Property Segment Operating Profit
Commercial Office
Real Estate Revenue
Expenses
Utilities & Maintenance
Property Management
Real Estate Taxes
Insurance
Mortgage Interest
Total Expenses
Property Segment Operating Profit
Commercial Medical
Real Estate Revenue
Expenses
Utilities & Maintenance
Property Management
Real Estate Taxes
Insurance
Mortgage Interest
Total Expenses
Property Segment Operating Profit
Commercial Industrial
Real Estate Revenue
Expenses
Utilities & Maintenance
Property Management
Real Estate Taxes
% Change
2.8%
4.8%
1.5%
23.9%
(5.4%)
(in thousands)
2005
1,913
3,383
8,238
3,784
15,132
34,951
5,368
2,156
3,463
526
11,813
9,103
17,654
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2004
1,861
3,229
8,116
3,053
15,999
9,554
1,840
845
1,050
200
2,723
2,130
16,765
(in thousands)
2004
2003
% Change
$
58,511
$
59,100
(1.0%)
12,299
6,208
6,643
1,958
17,490
62
44,660
13,851
29,941
6,007
1,233
4,298
346
8,833
20,717
9,224
11,720
1,424
503
850
89
4,331
7,197
4,523
3,118
56
30
184
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
11,380
5,951
6,697
1,527
17,276
0
42,831
16,269
8.1%
4.3%
(0.8%)
28.2%
1.2%
0.0%
4.3%
(14.9%)
28,616
4.6%
4,869
1,255
4,131
310
8,822
19,387
9,229
23.4%
(1.8%)
4.0%
11.6%
0.1%
6.9%
(0.1%)
11,641
0.7%
1,552
634
904
73
4,583
7,746
3,895
(8.2%)
(20.7%)
(6.0%)
21.9%
(5.5%)
(7.1%)
16.1%
3,300
(5.5%)
78
23
161
(28.2%)
30.4%
14.3%
2005 Annual Report 40
Commercial Industrial, continued
Insurance
Mortgage Interest
Total Expenses
Property Segment Operating Profit
Commercial Retail
Real Estate Revenue
Expenses
Utilities & Maintenance
Property Management
Real Estate Taxes
Insurance
Mortgage Interest
Total Expenses
Property Segment Operating Profit
Total Stabilized Segment Operating Profit
Reconciliation to Segment Operating Profit
Real Estate Revenue – Non-Stabilized
Expenses – Non-Stabilized
Utilities & Maintenance
Property Management
Real Estate Taxes
Insurance
Depreciation and Amortization
Mortgage Interest
Total Segment Operating Profit
Property Acquisitions
$
$
$
$
$
$
$
$
$
$
$
(in thousands)
2004
19
1,010
1,299
1,819
$
$
2003
15
1,034
1,311
1,989
% Change
26.7%
(2.3%)
(0.9%)
(8.5%)
4,182
$
4,799
(12.9%)
16.9%
(49.0%)
0.0%
(20.0%)
(6.1%)
(4.8%)
(19.9%)
(7.3%)
284
50
398
52
1,348
2,132
2,050
31,467
32,752
5,741
1,711
4,786
483
24,817
8,617
18,064
$
$
$
$
$
$
243
98
398
65
1,436
2,240
2,559
33,941
11,075
1,668
354
1,259
164
19,253
2,803
19,515
IRET Properties added $146.4 million of real estate investments to its portfolio during fiscal year 2005, compared to
$170.3 million added in fiscal year 2004. The fiscal year 2005 and 2004 additions are detailed below.
Fiscal 2005 (May 1, 2004 to April 30, 2005)
Fiscal 2005 Acquisitions
Multi-Family Residential
54-unit Southbrook Court and Mariposa Lane Townhomes - Topeka, KS
36-unit Legacy 5 - Grand Forks, ND
36-unit Legacy 6 - Grand Forks, ND
140-unit Olympik Village - Rochester, MN
Commercial Property - Office
26,186 sq. ft. Plymouth I Office Building - Plymouth, MN
26,186 sq. ft. Plymouth II Office Building - Plymouth, MN
26,186 sq. ft. Plymouth III Office Building - Plymouth, MN
79,377 sq. ft. Northgate I Office Building - Maple Grove, MN
185,000 sq. ft. Crosstown Circle Office Building - Eden Prairie, MN
81,173 sq. ft. Highlands Ranch II Office Building - Highlands Ranch, CO
86,428 sq. ft. Wells Fargo Center - St. Cloud, MN
153,947 sq. ft. US Bank - Bloomington, MN
Commercial Property - Medical
52,300 sq. ft. Nebraska Orthopaedic Hospital Expansion Project - Omaha, NE
45,081 sq. ft. Pavilion I Clinic - Duluth, MN
60,294 sq. ft. High Pointe Health Campus Phase I (East Metro Medical Building) -
Lake Elmo, MN
(in thousands)
Purchase Price
$
$
$
$
$
$
5,500
2,738
2,607
7,100
17,945
1,864
1,748
2,214
8,175
22,000
12,800
9,201
20,300
78,302
20,597
10,900
13,050
44,547
2005 Annual Report 41
Fiscal 2005 Acquisitions, continued
Commercial Property - Retail
46,720 sq. ft. Sleep Inn Hotel - Brooklyn Park, MN
4,000 sq. ft. single tenant retail building (former Payless building) - Fargo, ND
Unimproved Property
* Legacy VII - Grand Forks, ND
Total Fiscal 2005 Property Acquisitions
* = Property not placed in service at April 30, 2005. Additional costs were still to be incurred.
Fiscal 2004 (May 1, 2003 to April 30, 2004)
Fiscal 2004 Acquisitions
Multi-Family Residential
240-unit Colonial Villa - Burnsville, MN
115-unit Boulder Court Apartments - Eagan, MN
151-unit Winchester/Village Green Townhouses - Rochester, MN
160-unit Brookfield Village - Topeka, KS
60-unit Monticello Village Apartments - Monticello, MN
Commercial Property - Office
30,464 sq. ft. Benton Business Park - Sauk Rapids, MN
24,000 sq. ft. West River Business Park - Waite Park, MN
190,758 sq. ft. Golden Hills Office Center - Golden Valley, MN
175,610 sq. ft. Brown Deer Road - Milwaukee, WI
106,207 sq. ft. TCA Building - Eagan, MN
20,000 sq. ft. Metris - Duluth, MN
27,000 sq. ft. Minnesota National Bank - Duluth, MN
30,000 sq. ft. UHC Office - International Falls, MN
Commercial Property - Medical
76,870 sq. ft. Edgewood Vista Phase II - Virginia, MN
9,052 sq. ft. Fresenius - Duluth, MN
28,928 sq. ft. Mariner Clinic - Superior, WI
20,512 sq. ft. Denfeld Clinic - Duluth, MN
18,810 sq. ft. Wells Clinic - Hibbing, MN
74,800 sq. ft. Pavilion II - Duluth, MN
12,444 sq. ft. Gateway Clinic - Sandstone, MN
Commercial Property - Industrial (miscellaneous commercial property)
35,000 sq. ft. API Building - Duluth, MN
59,600 sq. ft. Lighthouse - Duluth, MN
Commercial Property – Retail
213,271 sq. ft. Buffalo Mall - Jamestown, ND
104,928 sq. ft. Westgate Shopping Center - St. Cloud, MN
36,542 sq. ft. Denfeld Retail Center - Duluth, MN
25,400 sq. ft. South Pond Retail Center - Champlin, MN
15,597 sq. ft. Tool Crib - Duluth, MN
Unimproved Property
** Legacy V - Grand Forks, ND
** Legacy VI - Grand Forks, ND
** Legacy VII - Grand Forks, ND
Total Fiscal 2004 Property Acquisitions
** = Property not placed in service at April 30, 2004. Additional costs were still to be incurred.
(in thousands)
Purchase Price
$
$
$
$
$
2,750
375
3,125
2,443
2,443
146,362
(in thousands)
Purchase Price
$
$
$
$
$
$
$
$
$
$
$
$
$
13,850
6,600
8,900
7,250
4,200
40,800
1,600
1,500
27,500
13,500
13,000
2,950
2,100
2,500
64,650
5,100
1,800
4,100
3,336
2,900
19,500
1,900
38,636
2,000
2,100
4,100
4,275
6,575
5,164
3,700
2,000
21,714
214
93
93
400
170,300
2005 Annual Report 42
Property Dispositions
During fiscal year 2005, IRET Properties disposed of 17 properties and one undeveloped property for an aggregate
sale price of $48.9 million, compared to six properties and two parcels of undeveloped land sold for $4.4 million in
total during fiscal year 2004. Real estate assets sold by IRET during fiscal year 2005 were as follows:
Fiscal 2005 Dispositions
Multi-Family Residential
204-unit Ivy Club Apartments - Vancouver, WA
26-unit Beulah Condominiums - Beulah, ND
36-unit Parkway Apartments - Beulah, ND
18-unit Dakota Arms Apartments - Minot, ND
100-unit Van Mall Woods Apartments - Vancouver, WA
192-unit Century Apartments - Williston, ND
18-unit Bison Apartments - Carrington, ND
17-unit Bison Apartments - Cooperstown, ND
Commercial - Office
62,585 sq. ft. Flying Cloud Building - Eden Prairie, MN
Commercial - Medical (assisted living facility)
97,821 sq. ft. Edgewood Vista - Minot, ND
5,100 sq. ft. Edgewood Vista - Belgrade, MT
5,100 sq. ft. Edgewood Vista - Columbus, NE
5,100 sq. ft. Edgewood Vista - Grand Island, NE
16,392 sq. ft. Edgewood Vista - East Grand Forks, MN
Commercial – Retail
30,000 sq. ft. Barnes & Noble Store - Fargo, ND
18,040 sq. ft. Petco Store - Fargo, ND
4,800 sq. ft. single tenant retail building (former Tom Thumb
store) - Ham Lake, MN
Undeveloped Property
205,347 sq. ft. parcel of vacant land - Libby, MT
Total Fiscal 2005 Property Dispositions
(in thousands)
Book Value
and Sales Cost
Sales Price
Gain/Loss
$
$
12,250
96
159
825
6,900
4,599
215
185
5,750
7,210
509
509
509
1,639
4,590
2,160
650
$
12,070
96
159
566
5,625
2,658
161
135
5,750
5,676
433
435
434
1,312
2,916
1,209
518
151
48,906
$
$
151
40,304
$
180
0
0
259
1,275
1,941
54
50
0
1,534
76
74
75
327
1,674
951
132
0
8,602
2005 Annual Report 43
Properties sold by IRET during fiscal 2004 were as follows:
Fiscal 2004 Dispositions
Multi-Family Residential
20-unit MCA Royal Suites - Minot, ND
Commercial - Medical (assisted living facility)
11,800 sq. ft. Edgewood Vista - Billings, MT
11,800 sq. ft. Edgewood Vista - Sioux Falls, SD
Commercial – Industrial
13,600 sq. ft. Pioneer Seed - Moorhead, MN
Commercial – Retail
6,225 sq. ft. Interstate Bakery - St. Paul, MN
3,575 sq. ft. Tom Thumb - Sauk Rapids, MN
Undeveloped Property
159,866 sq. ft. Sunset Trail III - Rochester, MN
35,697 sq. ft. Prior Lake II - Prior Lake, MN
Total Fiscal 2004 Property Dispositions
Funds From Operations
(in thousands)
Book Value
and Sales Cost
Sales Price
Gain/Loss
$
410
$
364 $
1,101
1,101
500
420
275
941
936
498
317
247
400
160
4,367
$
$
364
52
3,719 $
46
160
165
2
103
28
36
108
648
IRET considers Funds from Operations (“FFO”) a useful measure of performance for an equity REIT. IRET uses the
definition of FFO adopted by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) in 1991,
as clarified in 1995, 1999 and 2002. NAREIT defines FFO to mean “net income (computed in accordance with
generally accepted accounting principles), excluding gains (or losses) from sales of property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis.”
Because of limitations of the FFO definition adopted by NAREIT, IRET has made certain interpretations in applying
the definition. IRET believes all such interpretations not specifically provided for in the NAREIT definition are
consistent with the definition.
IRET management considers that FFO, by excluding depreciation costs, the gains or losses from the sale of
operating real estate properties and extraordinary items as defined by GAAP, is useful to investors in providing an
additional perspective on IRET’s operating results. Historical cost accounting for real estate assets in accordance
with GAAP assumes, through depreciation, that the value of real estate assets decreases predictably over time.
However, real estate asset values have historically risen or fallen with market conditions. NAREIT’s definition of
FFO, by excluding depreciation costs, reflects the fact that real estate, as an asset class, generally appreciates over
time and that depreciation charges required by GAAP may not reflect underlying economic realities. Additionally,
the exclusion, in NAREIT’s definition of FFO, of gains and losses from the sales of previously depreciated
operating real estate assets, allows IRET management and investors better to identify the operating results of the
long-term assets that form the core of IRET’s investments, and assists in comparing those operating results between
periods. FFO is used by IRET’s management and investors to identify trends in occupancy rates, rental rates and
operating costs.
While FFO is widely used by REITs as a primary performance metric, not all real estate companies use the same
definition of FFO or calculate FFO in the same way. Accordingly, FFO presented here is not necessarily comparable
to FFO presented by other real estate companies.
FFO should not be considered as an alternative to net income as determined in accordance with GAAP as a measure
of IRET’s performance, but rather should be considered as an additional, supplemental measure, and should be
viewed in conjunction with net income as presented in the consolidated financial statements included in this report.
FFO does not represent cash generated from operating activities in accordance with GAAP, and is not necessarily
indicative of sufficient cash flow to fund all of IRET’s needs or its ability to service indebtedness or make
distributions.
2005 Annual Report 44
FFO applicable to common shares and limited partnership units for the fiscal year ended April 30, 2005 increased to
$42.3 million, compared to $36.6 million and $34.2 million for the fiscal years ended April 30, 2004 and 2003,
respectively.
Reconciliation of Net Income to Funds From Operations
For the years ended April 30, 2005, 2004 and 2003:
Fiscal Years Ended April 30,
2005
2004
2003
(in thousands, except per share amounts)
Weighted Avg
Shares and
Units (2)
Amount
Per
Share
and
Unit (3)
Weighted Avg
Shares and
Units (2)
Amount
Per
Share
and
Unit (3)
Weighted Avg
Shares and
Units (2)
Amount
Per
Share
and
Unit (3)
$ 15,076
$
$
9,440
$
$
12,248
$
(2,372)
(33)
0
12,704
43,214
.30
9,407
39,257
.24
12,248
32,574
.38
3,873
12,621
2,752
11,176
3,899
10,041
34,342
(8,605)
25,079
(600)
19,626
(1,595)
$ 42,314
55,835 $
.76 $
36,638
50,433 $
.73 $
34,178
42,615 $
. 80
Net income
Less dividends to preferred
shareholders
Net income available to
common shareholders
Adjustments:
Minority interest in earnings
of unitholders
Depreciation and
Amortization(1)
Gains on depreciable property
sales
Funds from operations
applicable to common
shares and Units
(1) Real estate depreciation and amortization consists of the sum of depreciation/amortization related to real estate investments; amortization;
and amortization of related party costs from the Consolidated Statements of Operations, totaling $35,356, $24,806 and $18,952, and
depreciation and amortization from Discontinued Operations (excluding amortization of financing charges) of $441, $1,228 and $1,355,
less corporate-related depreciation and amortization on office equipment and other assets of $200, $160 and $92 and less amortization of
financing costs of $1,255, $795 and $589, for the fiscal years ended April 30, 2005, 2004 and 2003, respectively.
(2) UPREIT Units of the Operating Partnership are exchangeable for common shares of beneficial interest on a one-for-one basis.
(3) Net income is calculated on a per share basis. FFO is calculated on a per share and unit basis.
Cash Distributions
The following cash distributions were paid to our common shareholders and UPREIT unitholders during fiscal years
2005, 2004, and 2003:
Date
July 1,
October 1,
January 15,
April 1,
$
$
2005
.1605
.1610
.1615
.1620
.6450
$
$
2004
.1585
.1590
.1595
.1600
.6370
$
$
2003
.1540
.1560
.1570
.1580
.6250
The fiscal year 2005 cash distributions increased 1% over the cash distributions paid during fiscal year 2004 and 3%
over fiscal year 2003 distributions.
2005 Annual Report 45
Liquidity and Capital Resources
Overview
Management expects that the Company’s principal liquidity demands will continue to be distributions to holders of
the Company’s preferred and common shares of beneficial interest and UPREIT Units, capital improvements and
repairs and maintenance to the Company’s properties, acquisition of additional properties, redemption of
outstanding investment certificates, property development, debt repayments and tenant improvements.
The Company expects to meet its short-term liquidity requirements through net cash flows provided by its operating
activities, and through draws from time to time on its unsecured lines of credit. Management considers the
Company’s ability to generate cash to be adequate to meet all operating requirements and to make distributions to its
shareholders in accordance with the REIT provisions of the Internal Revenue Code. Budgeted expenditures for
ongoing maintenance and capital improvements and renovations to our real estate portfolio are expected to be
funded from cash flow generated from operations of current properties.
To the extent the Company does not satisfy its long-term liquidity requirements, which consist primarily of
maturities under the Company’s long-term debt, maturing investment certificates, construction and development
activities and potential acquisition opportunities, through net cash flows provided by operating activities and its
credit facilities, the Company intends to satisfy such requirements through a combination of funding sources which
the Company believes will be available to it, including the issuance of UPREIT Units, additional common or
preferred equity, proceeds from the sale of properties, and additional long-term secured or unsecured indebtedness.
Sources and Uses of Cash
As of April 30, 2005, the Company had three unsecured lines of credit in the amounts of $10.0 million, $10.0
million and $4.4 million, respectively, from (1) Bremer Bank, Minot, ND; (2) First Western Bank and Trust, Minot,
ND; and (3) First International Bank and Trust, Watford City, ND. The Company had no outstanding borrowings on
these lines as of April 30, 2005. Borrowings under the lines of credit bear interest based on the following for each of
the lines of credit described above: (1) Bremer Financial Corporation Reference Rate, (2) the highest New York
Prime rate as published in the Wall Street Journal, and (3) the highest New York Prime rate as published in the Wall
Street Journal. Increases in interest rates will increase the Company’s interest expense on any borrowings under its
lines of credit and as a result will affect the Company’s results of operations and cash flows. The Company’s lines of
credit with Bremer Bank and First Western Bank expire September 14, 2005, and September 1, 2005, respectively.
The Company’s line of credit with First International Bank and Trust expires on December 7, 2005. The Company
will seek to renew each of these three lines of credit prior to their expiration.
In addition to the above-described three unsecured lines of credit, the Company’s operating partnership, IRET
Properties, in April 2004 entered into a $25.0 million unsecured bridge loan in connection with the Company’s
acquisition of 15 commercial and medical properties located primarily in Duluth, Minnesota and the surrounding
area (“Duluth Portfolio”). The bridge loan from Wells Fargo Bank, National Association was repaid on July 22,
2004, with the proceeds of mortgage loans placed against the properties in the Duluth Portfolio.
In February 2004, the Company filed a shelf registration statement on Form S-3 to offer for sale from time to time
common shares and preferred shares. This registration statement was declared effective in April 2004. We may sell
any combination of common shares and preferred shares up to aggregate initial offering price of $150 million during
the period that the registration statement remains effective. On April 26, 2004, the Company issued 1.15 million
shares of its 8.25% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest (“Series A preferred
shares”), with a $25.00 liquidation preference per share, under this registration statement. This offering generated
net proceeds to the Company of approximately $27.3 million to fund property acquisitions, development, and
improvements. The Series A preferred shares are redeemable by the Company at any time on or after April 26, 2009,
at a redemption price of $25.00 per share, plus any accumulated, accrued and unpaid distributions. Each Series A
preferred share will receive an annual distribution equivalent to 8.25% of the liquidation preference per share
(equivalent to a fixed annual amount of $2.06 per share). In May 2004, the Company completed the sale of
0.5 million of its common shares of beneficial interest in a public offering under this registration statement, at a
price of $10.10 per share, resulting in net proceeds to the Company of approximately $5.2 million. In a public
offering commenced in October 2004 and closed in November 2004, the Company issued approximately 1.4 million
common shares under this registration statement, at a price of $10.15 per share, resulting in net proceeds to the
2005 Annual Report 46
Company of approximately $13.4 million. As of April 30, 2005, the Company had available securities under this
registration statement in the aggregate amount of approximately $101.5 million.
The issuance of UPREIT Units for property acquisitions continues to be a source of capital for the Company.
Approximately 2.0 million units were issued in connection with property acquisitions during fiscal year 2005, and
approximately 2.0 million units were issued in connection with property acquisitions during fiscal year 2004.
As a result of the sales of common shares described above and the conversion of UPREIT units, shareholder equity
increased during fiscal 2005 by $15.8 million. Additionally, the equity capital of the Company was increased by
$20.1 million as a result of contributions of real estate in exchange for UPREIT units, as summarized above,
resulting in a total increase in equity capital for the Company of $35.9 million.
The Company has a Distribution Reinvestment Plan (“DRIP”). The DRIP provides shareholders of the Company an
opportunity to invest their cash distributions in common shares of the Company at a discount of 5% from the market
price. During fiscal year 2005, 1.1 million common shares were issued under this plan, with an additional 1.1
million common shares issued during fiscal year 2004.
Cash and cash equivalents on April 30, 2005 totaled $23.5 million, compared to $31.7 million and $18.0 million on
the same date in 2004 and 2003, respectively. Net cash provided from operating activities increased to $46.7 million
in fiscal year 2005 from $28.7 million in fiscal year 2004, due primarily to increased net income and increase for
non-cash item of depreciation and amortization. Net cash provided from operating activities in fiscal year 2003 was
$37.9 million.
Net cash used in investing activities decreased to $68.9 million in fiscal year 2005, from $137.7 million in fiscal
year 2004. Net cash used in investing activities was $65.7 million in fiscal year 2003. This decrease resulted because
of a lower level of property investment activity during the year. Net cash provided from financing activities also
decreased to $14.0 million during fiscal year 2005, from $122.7 million during fiscal year 2004, due to fewer
offerings of equity securities compared to the previous year. Net cash provided from financing activities was $23.0
million during fiscal year 2003.
Financial Condition
Mortgage Loan Indebtedness. Mortgage loan indebtedness increased to $708.6 million on April 30, 2005, due to the
acquisition of new investment properties, from $633.1 million on April 30, 2004. Approximately 96.2% of such
mortgage debt is at fixed rates of interest, with staggered maturities. This limits the Company’s exposure to changes
in interest rates, which minimizes the effect of interest rate fluctuations on the Company’s results of operations and
cash flows. As of April 30, 2005, the weighted average rate of interest on the Company’s mortgage debt was 6.08%,
compared to 7.17% on April 30, 2004.
Mortgage Loans Receivable. Mortgage loans receivable decreased to $0.6 million at April 30, 2005, from $4.9
million at April 30, 2004.
Real Estate Owned. Real estate owned increased to $1,179.9 million at April 30, 2005, from $1,082.8 million at
April 30, 2004. The increase resulted primarily from the acquisition of the additional investment properties net of
dispositions as described in the “Property Acquisitions” and “Property Dispositions” subsections of this
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Investment Certificates. We discontinued the issuance of investment certificates in April 2002. As of April 30, 2005,
$4.6 million of such certificates was outstanding.
Cash and Cash Equivalents. Cash and cash equivalents on April 30, 2005, totaled $23.5 million, compared to $31.7
million on April 30, 2004. The increase in cash on hand from April 30, 2005, as compared to April 30, 2004, was
due primarily to the sale of common shares in October and November 2004.
Marketable Securities. During fiscal year 2005, IRET increased its investment in marketable securities classified as
available-for-sale to $2.5 million on April 30, 2005, from $2.3 million on April 30, 2004. Marketable securities are
held available for sale and, from time to time, the Company invests excess funds in such securities or uses the funds
so invested for operational purposes.
2005 Annual Report 47
Operating Partnership Units. Outstanding limited partnership units in the Operating Partnership increased to 13.1
million units on April 30, 2005, compared to 11.8 million units outstanding on April 30, 2004. The increase in units
outstanding at April 30, 2005 as compared to April 30, 2004, resulted primarily from the issuance of additional
limited partnership units to acquire interests in real estate, net of units converted to shares.
Common and Preferred Shares of Beneficial Interest. Common shares of beneficial interest outstanding on April 30,
2005 totaled 45.2 million compared to 41.7 million common shares outstanding on April 30, 2004. This increase in
common shares outstanding from April 30, 2004, to April 30, 2005, was primarily due to the public offerings of
common shares completed during fiscal year 2005, and to the issuance of common shares pursuant to our
distribution reinvestment plan. Preferred shares of beneficial interest outstanding on April 30, 2005 and 2004 totaled
1.15 million.
Contractual Obligations and Other Commitments
The primary contractual obligations of the Company relate to its borrowings under its three lines of credit and
mortgage notes payable. The Company’s lines of credit had no amounts outstanding at April 30, 2005. The principal
and interest payments on the mortgage notes payable for the years subsequent to April 30, 2005, are included in the
table below as “long-term debt.” The other debt category consists of a mortgage note payable on our Minneapolis,
Minnesota office.
The Company has sold investment certificates to the public, with interest rates varying from 6.5% to 9.0% per
annum. The sales of these investment certificates has been discontinued and the outstanding certificates will be
redeemed at they mature. Amounts due in respect of these investment certificates are reflected in the “Investment
Certificates” category below.
As of April 30, 2005, the Company is a tenant under operating ground leases on six of its properties. The Company
pays a total of approximately $292,222 per year in rent under these ground leases, which have terms ranging from 7
to 90 years, and expiration dates ranging from July 2012 to April 2095.
Purchase obligations of the Company represent those costs that the Company is contractually obligated to pay in the
future. The Company’s significant contractual obligations as of April 30, 2005, are summarized in the following
table. The significant components in this category are costs for construction and expansion projects and capital
improvements at the Company’s properties. Contractual obligations that are contingent upon the achievement of
certain milestones are not included in the table below, nor are service orders or contracts for the provision of routine
maintenance services at our properties, such as landscaping and grounds maintenance, since these arrangements are
generally based on current needs, are filled by our service providers within short time horizons, and may be
cancelled without penalty. The expected timing of payment of the obligations discussed below is estimated based on
current information.
Long-term debt (principal and interest)
Other Debt
Investment Certificates
Operating Lease Obligations
Purchase Obligations
Total
$ 1,068,300
$
847
4,636
$
19,044
$
1,369
$
(in thousands)
Less Than
1 Year
1-3 Years
64,942 $ 150,924
92
2,383
601
818
275 $
2,253 $
292 $
551 $
$
$
$
$
$
3-5 Years
$ 228,734
480
$
0
$
601
$
0
$
More than
5 Years
$ 623,700
0
$
0
$
17,500
$
0
$
Not included in the above table are the following completed and pending property acquisitions: as of April 30, 2005,
the Company had signed purchase agreements to acquire two medical office buildings in St. Paul and Minneapolis,
Minnesota, respectively, for purchase prices totaling $19.8 million. These purchases closed on June 7, 2005. See
“Recent Developments” below, and Note 20, Subsequent Events, for further information on these purchases.
Additionally, as of April 30, 2005, the Company had signed purchase agreements to acquire five office/industrial
properties located in or near Omaha, Nebraska, for purchase prices totaling $7.25 million. These pending
acquisitions are subject to certain closing conditions and contingencies, and no assurances can be given that these
transactions will be completed.
2005 Annual Report 48
Off-Balance-Sheet Arrangements
As of April 30, 2005, we did not have any significant off-balance-sheet arrangements, as defined in Item
303(a)(4)(ii) of SEC Regulation S-K.
Recent Developments
Common and Preferred Share Distributions. On June 30, 2005, the Company paid a distribution of 51.56 cents per
share on the Company’s Series A Cumulative Redeemable Preferred Shares to preferred shareholders of record on
June 15, 2005. On July 1, 2005, the Company paid a distribution of 16.25 cents per share on the Company’s
common shares of beneficial interest, to common shareholders and UPREIT unitholders of record on June 17, 2005.
This distribution represented an increase of .05 cents or .3% over the previous regular quarterly distribution of 16.20
cents per common share/unit paid April 1, 2005.
Acquisitions. The Company closed on the following acquisitions subsequent to its April 30, 2005 fiscal year end:
Ritchie Medical Plaza and 2800 Medical Building. On June 7, 2005, the Company closed on its acquisition of two
medical office buildings in St. Paul and Minneapolis, Minnesota, respectively. The Company paid approximately
$10.8 million to acquire seven condominium units totaling 50,409 square feet in Ritchie Medical Plaza in St. Paul,
and approximately $9.0 million to acquire the 2800 Medical Building in Minneapolis, an approximately 54,971
square foot building.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk is limited primarily to fluctuations in the general level of interest rates on our current
and future fixed and variable rate debt obligations, and secondarily to our deposits with and investments in certain
products issued by various financial institutions.
Variable interest rates. Even though our goal is to maintain a fairly low exposure to interest rate fluctuation risk, we
are still vulnerable to significant fluctuations in interest rates on variable rate debt, on any future repricing or
refinancing of our fixed rate debt and on future debt. We primarily use long-term (more than nine 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 interest rate risk. As of April 30, 2005, we had the
following amount of future principal and interest payments due on mortgages secured by our real estate.
Long Term Debt
Fixed Rate
Variable Rate
2006
$ 17,724 $
1,169
2007
2008
19,125 $ 38,877
1,253
Future Principal Payments (in thousands)
2009
$ 41,793
3,917
2010
$ 104,776
1,258
2,025
Thereafter
$ 459,222
17,419
Average Interest Rate (%)
(1)
(1)
(1)
(1)
(1)
(1)
Long Term Debt
Fixed Rate
Variable Rate
2006
$ 43,867 $
2,182
2007
2008
43,396 $ 42,140
2,000
Future Interest Payments (in thousands)
2009
$ 38,946
1,782
2010
$ 34,578
1,684
2,108
Thereafter
$ 143,380
3,679
Average Interest Rate (%)
(1)
(1)
(1)
(1)
(1)
(1)
Total
$ 681,517
27,041
$ 708,558
(1)
Total
$ 346,307
13,435
$ 359,742
(1)
(1) The weighted average interest rate on our debt as of April 30, 2005, was 6.08%. Any fluctuations in variable interest rates could increase or
decrease our interest expenses. For example, an increase of one percent per annum on our $27.0 million of variable rate indebtedness
would increase our annual interest expense by $270,000.
2005 Annual Report 49
Marketable Securities. IRET’s investments in securities are classified as “available-for-sale.” The securities
classified as “available-for-sale” represent investments in debt and equity securities which the Company intends to
hold for an indefinite period of time. As of April 30, 2005 and 2004, IRET had approximately $2.5 million and $2.3
million, respectively, of marketable securities classified as “available for sale,” consisting of securities of various
issuers, primarily U.S. Government, U.S. agency and corporate bonds and bank certificates of deposit, held in IRET
Properties’ security deposit account with Merrill Lynch. IRET had no securities classified as “available-for-sale” as
of April 30, 2003. The values of these securities will fluctuate with changes in market interest rates.
Investments with Certain Financial Institutions. IRET has entered into a cash management arrangement with First
Western Bank with respect to deposit accounts with First Western Bank that exceed FDIC Insurance coverage. On a
daily basis, account balances are invested in U.S. Government securities sold to IRET by First Western Bank. IRET
can require First Western Bank to repurchase such securities at any time, at a purchase price equal to what IRET
paid for the securities, plus interest. First Western Bank automatically repurchases obligations when collected
amounts on deposit in IRET’s deposit accounts fall below the maximum insurance amount, with the proceeds of
such repurchases being transferred to IRET’s deposit accounts to bring the amount on deposit back up to the
threshold amount. The amounts invested by IRET pursuant to the repurchase agreement are not insured by FDIC.
IRET has entered into a cash management arrangement with US Bank with respect to IRET depository accounts at
multiple US Bank locations. Account balances are swept daily to an IRET master account. Amounts in the master
account are invested overnight in short-term U.S. Government securities and repurchase agreements secured by U.S.
Government securities. Amounts invested were $2.0 million as of April 30, 2005, $7.5 million as of April 30, 2004,
and $3.5 million as of April 30, 2003.
Deposits exceeding FDIC insurance. The Company is potentially exposed to off-balance-sheet risk in respect of
cash deposited with FDIC-insured financial institutions in accounts which, at times, may exceed federally insured
limits. The Company has not experienced any losses in such accounts.
Item 8. Financial Statements and Supplementary Data
Financial statements required by this item appear with an Index to Financial Statements and Schedules, starting on
page F-1 of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures: As of April 30, 2005, the end of the period covered by this Annual Report on
Form 10-K, our management carried out an evaluation, under the supervision and with the participation of the
Company’s Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the
Securities Exchange act of 1934, as amended). Based upon that evaluation, the Company’s Chief Executive Officer,
Chief Operating Officer and Chief Financial Officer concluded that our disclosure controls and procedures are
effective in timely alerting them to material information required to be included in our periodic SEC filings.
Internal Control Over Financial Reporting: There have been no changes in the Company’s internal control over
financial reporting (as defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended) during
the fourth quarter of the fiscal year to which this report relates that have materially affected, or are reasonably likely
to materially affect, the Company’s internal control over financial reporting.
2005 Annual Report 50
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Investors Real Estate Trust (together with its consolidated subsidiaries, the “Company’), is
responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s
internal control over financial reporting is a process designed under the supervision of the Company’s principal
executive and principal financial officers to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance
with United States generally accepted accounting principles.
As of April 30, 2005, management conducted an assessment of the effectiveness of the Company’s internal control
over financial reporting, based on the framework established in Internal Control – Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment,
management has determined that the Company’s internal control over financial reporting as of April 30, 2005, is
effective.
The Company’s internal control over financial reporting includes policies and procedures that pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and acquisitions and
dispositions of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with United States generally accepted accounting principles, and that receipts
and expenditures are being made only in accordance with authorizations of management and the trustees of the
Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of Company assets that could have a material effect on the Company’s financial statements.
Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of April
30, 2005, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in
their report appearing below, which expresses unqualified opinions on management’s assessment and on the
effectiveness of the Company’s internal control over financial reporting as of April 30, 2005.
(The remainder of this page has been intentionally left blank.)
2005 Annual Report 51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Investors Real Estate Trust
Minot, North Dakota
We have audited management's assessment, included in the accompanying Management’s Report on Internal
Control Over Financial Reporting, that Investors Real Estate Trust and subsidiaries (the “Company”) maintained
effective internal control over financial reporting as of April 30, 2005, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Company's management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is
to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, evaluating management's
assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the
company's principal executive and principal financial officers, or persons performing similar functions, and effected
by the company's board of directors, management, and other personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion
or improper management override of controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that the Company maintained effective internal control over financial
reporting as of April 30, 2005, is fairly stated, in all material respects, based on the criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of April 30, 2005, based on the criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements as of and for the year ended April 30, 2005, of the Company and our
report dated June 28, 2005, expressed an unqualified opinion on those financial statements.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, MN
June 28, 2005
2005 Annual Report 52
Item 9B. Other Information
None.
Item 10. Trustees and Executive Officers of the Registrant
PART III
Information regarding executive officers required by this Item is set forth in Part I, Item 1 of this Annual Report on
Form 10-K pursuant to Instruction 3 to Item 401(b) of Regulation S-K. Other information required by this Item will
be included in our definitive Proxy Statement for our 2005 Annual Meeting of Shareholders and such information is
incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item will be contained in our definitive Proxy Statement for our 2005 Annual
Meeting of Shareholders and such information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this Item will be contained in our definitive Proxy Statement for our 2005 Annual
Meeting of Shareholders and such information is incorporated herein by reference. We do not have any equity
compensation plans and, accordingly, are not required to include the disclosure required by Item 201(d) of
Regulation S-K.
Item 13. Certain Relationships and Related Transactions
The information required by this Item will be contained in our definitive Proxy Statement for our 2005 Annual
Meeting of Shareholders and such information is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this Item will be contained in our definitive Proxy Statement for our 2005 Annual
Meeting of Shareholders and such information is incorporated herein by reference.
2005 Annual Report 53
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)
The following documents are filed as part of this report:
1. Financial Statements
The response to this portion of Item 15 is submitted as a separate section of this report. See the table of
contents to Financial Statements and Supplemental Data.
2. Financial Statement Schedules
The response to this portion of Item 15 is submitted as a separate section of this report. The following
financial statement schedules should be read in conjunction with the financial statements referenced in Part II,
Item 8 of this Annual Report on Form 10-K:
III Real Estate Owned and Accumulated Depreciation
IV Investments in Mortgage Loans on Real Estate
3. Exhibits
See the list of exhibits set forth in part (b) below.
(b)
3.1
3.2
3.3
3.4
The following is a list of Exhibits to this Annual Report on Form 10-K. We will furnish a copy of any
exhibit listed below to any security holder who requests it upon payment of a fee of 15 cents per page. All
Exhibits are either contained in this Annual Report on Form 10-K or are incorporated by reference as
indicated below.
Articles of Amendment and Third Restated Declaration of Trust of Investors Real Estate Trust, dated
September 23, 2003, and incorporated herein by reference to Exhibit A to the Company’s Definitive Proxy
Statement on Schedule 14A for the 2003 Annual Meeting of Shareholders, filed with the SEC on August 13,
2003.
Second Restated Trustees’ Regulations (Bylaws), dated September 24, 2003, and incorporated herein by
reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended October 31,
2003, filed with the SEC on December 15, 2003.
Agreement of Limited Partnership of IRET Properties, A North Dakota Limited Partnership, dated
January 31, 1997, filed as Exhibit 3(ii) to the Registration Statement on Form S-11, effective March 14,
1997 (SEC File No. 333-21945) filed for the Registrant on February 18, 1997, (File No. 0-14851) and
incorporated herein by reference.
Articles Supplementary classifying and designating 8.25% Series A Cumulative Redeemable Preferred
Shares of Beneficial Interest, filed as Exhibit 3.2 to the Company’s Form 8-A filed on April 22, 2004, and
incorporated herein by reference.
10.1 Member Control and Operating Agreement dated September 30, 2002, filed as Exhibit 10 to the
Company’s Form 8-K filed October 15, 2003, and incorporated herein by reference.
10.2 Letter Agreement dated January 31, 2003, filed as Exhibit 10(i) to the Company’s Form 8-K filed February
27, 2003, and incorporated herein by reference.
10.3 Option Agreement dated January 31, 2003, filed as Exhibit 10(ii) to the Company’s Form 8-K filed
February 27, 2003, and incorporated herein by reference.
2005 Annual Report 54
10.4 Financial Statements of T.F. James Company filed as Exhibit 10 to the Company’s Form 8-K filed January
31, 2003, and incorporated herein by reference.
10.5 Agreement for Purchase and Sale of Property dated February 13, 2004, by and between IRET Properties
and the Sellers specified therein, filed as Exhibit 10.5 to the Company’s Form 10-K filed July 20, 2004, and
incorporated herein by reference.
10.6 Description of Compensation of Executive Officers, filed as Exhibit 10 to the Company’s Form 10-Q
filed March 11, 2005, and incorporated herein by reference.
21.1
Subsidiaries of Investors Real Estate Trust, filed herewith.
23.1 Consent of Deloitte & Touche LLP, filed herewith.
23.2 Consent of Brady, Martz & Associates P.C., filed herewith.
31.1
Section 302 Certification of President and Chief Executive Officer, filed herewith.
31.2
Section 302 Certification of Senior Vice President and Chief Financial Officer, filed herewith.
32.1
Section 906 Certification of the President and Chief Executive Officer, filed herewith.
32.2 Section 906 Certification of the Senior Vice President and Chief Financial Officer, filed herewith.
2005 Annual Report 55
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: July 13, 2005
Investors Real Estate Trust
By:
/s/ Thomas A. Wentz, Sr.
Thomas A. Wentz, Sr.
President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature
/s/ Jeffrey L. Miller
Jeffrey L. Miller
/s/ Daniel L. Feist
Daniel L. Feist
/s/ Thomas A. Wentz. Sr.
Thomas A. Wentz, Sr.
/s/ Timothy P. Mihalick
Timothy P. Mihalick
/s/ Thomas A. Wentz, Jr.
Thomas A. Wentz, Jr.
/s/ Diane K. Bryantt
Diane K. Bryantt
/s/ Charles Wm. James
Charles Wm. James
/s/ John D. Stewart
John D. Stewart
/s/ Patrick G. Jones
Patrick G. Jones
/s/ Stephen L. Stenehjem
Stephen L. Stenehjem
Title
Date
Trustee & Chairman
July 13, 2005
Trustee & Vice Chairman
July 13, 2005
President & Chief Executive Officer
(Principal Executive Officer)
Trustee, Senior Vice President & Chief
Operating Officer
July 13, 2005
July 13, 2005
Trustee & Senior Vice President
July 13, 2005
Senior Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
July 13, 2005
Trustee & Senior Vice President
July 13, 2005
Trustee
Trustee
Trustee
July 13, 2005
July 13, 2005
July 13, 2005
2005 Annual Report 56
INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
April 30, 2005, 2004 and 2003
ADDITIONAL INFORMATION
FOR THE YEAR ENDED
April 30, 2005
and
REPORTS OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRMS
PO Box 1988
12 South Main Street
Minot, ND 58702-1988
701-837-4738
fax: 701-838-7785
info@iret.com
www.iret.com
2005 Annual Report
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
TABLE OF CONTENTS
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
ADDITIONAL INFORMATION
Reports of Independent Registered Public Accounting Firms on Additional Information
Real Estate and Accumulated Depreciation
Investments in Mortgage Loans on Real Estate
PAGE
F-2 – F-3
F-4 – F-5
F-6
F-7
F-8 – F-9
F-10 – F-30
F-31 – F-32
F-33 – F-43
F-44
Schedules other than those listed above are omitted since they are not required or are not applicable, or the
required information is shown in the consolidated financial statements or notes thereon.
2005 Annual Report
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Investors Real Estate Trust
Minot, North Dakota
We have audited the accompanying consolidated balance sheets of Investors Real Estate Trust and subsidiaries (the
“Company”) as of April 30, 2005 and 2004, and the related consolidated statements of operations, shareholders'
equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of
Investors Real Estate Trust and subsidiaries as of April 30, 2005 and 2004, and the results of their operations, and
their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United
States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the effectiveness of the Company's internal control over financial reporting as of April 30, 2005, based on
the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated June 28, 2005, expressed an unqualified opinion
on management's assessment of the effectiveness of the Company's internal control over financial reporting and an
unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, MN
June 28, 2005
2005 Annual Report F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Trustees
Investors Real Estate Trust
and Subsidiaries
Minot, North Dakota
We have audited the consolidated statements of operations, shareholders’ equity, and cash flows of Investors Real
Estate Trust and Subsidiaries for the fiscal year ended April 30, 2003. 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 audit 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 audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
consolidated results of operations and cash flows of Investors Real Estate Trust and Subsidiaries for the year ended
April 30, 2003, in conformity with accounting principles generally accepted in the United States of America.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota, USA
May 22, 2003 (June 23, 2005, as to the effects of discontinued operations in Note 12 and Note 13)
2005 Annual Report F-3
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, 2005 and 2004
ASSETS
Real estate investments
Property owned
Less accumulated depreciation
Undeveloped land
Mortgage loans receivable, net of allowance
Total real estate investments
Other Assets
Cash and cash equivalents
Marketable securities - available-for-sale
Receivable arising from straight-lining of rents, net of allowance
Accounts receivable – net of allowance
Real estate deposits
Prepaid and other assets, net of accumulated amortization
Tax, insurance, and other escrow
Property and equipment, net
Goodwill
Deferred charges and leasing costs – net
TOTAL ASSETS
(in thousands)
2005
2004
$ 1,179,856
(118,512)
1,061,344
5,382
619
1,067,345
$ 1,082,773
(98,923)
983,850
3,180
4,893
991,923
23,538
2,459
7,213
1,390
2,542
25,677
9,068
2,462
1,441
8,023
$ 1,151,158
31,704
2,336
5,976
2,155
1,567
18,825
11,301
2,292
1,441
6,797
$ 1,076,317
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2005 Annual Report F-4
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
April 30, 2005 and 2004
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Accounts payable, accrued expenses and other liabilities
Notes payable
Mortgages payable
Investment certificates issued
Other debt
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENCIES (NOTE 16)
MINORITY INTEREST IN OTHER PARTNERSHIPS
MINORITY INTEREST OF UNIT HOLDERS IN OPERATING PARTNERSHIP
(13,114,460 units at April 30, 2005 and 11,819,350 units at April 30, 2004)
SHAREHOLDERS’ EQUITY
Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no
par value, 1,150,000 shares issued and outstanding at April 30, 2005 and 2004,
aggregate liquidation preference of $28,750,000)
Common Shares of Beneficial Interest (Unlimited authorization, no par value,
45,187,676 shares at April 30, 2005, and 41,693,256 shares outstanding at April
30, 2004)
Accumulated distributions in excess of net income
Accumulated other comprehensive loss
Total shareholders’ equity
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
(in thousands)
2005
2004
$
22,914 $
0
708,558
4,636
847
736,955
15,860
103,171
22,639
25,000
633,124
7,074
843
688,680
16,386
92,622
27,317
27,343
324,180
(56,303)
(22)
295,172
292,400
(41,083)
(31)
278,629
$ 1,151,158 $ 1,076,317
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2005 Annual Report F-5
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended April 30, 2005, 2004, and 2003
(in thousands, except per share data)
2005
2004
2003
REVENUE
Real estate rentals
Tenant reimbursement
TOTAL REVENUE
OPERATING EXPENSE
$
$ 130,906
25,541
156,447
Interest
Depreciation/amortization related to real estate investments
Utilities
Maintenance
Real estate taxes
Insurance
Property management expenses
Property management related party
Administrative expense
Advisory and trustee services
Other operating expenses
Amortization
Amortization of related party costs
TOTAL OPERATING EXPENSE
Operating income
Non-operating income
Income before minority interest and discontinued operations and gain
on sale of other investments
Gain on sale of other investments
Minority interest portion of operating partnership income
Minority interest portion of other partnerships’ income
Income from continuing operations
Discontinued operations, net
NET INCOME
Dividends to preferred shareholders
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
Earnings per common share from continuing operations
Earnings per share common from discontinued operations
NET INCOME PER COMMON SHARE – BASIC & DILUTED
$
$
$
46,994
33,675
10,845
16,344
18,618
2,614
10,287
284
3,845
103
1,434
1,623
58
146,724
9,723
986
10,709
3
(1,918)
(379)
8,415
6,661
15,076
(2,372)
12,704
.14
.16
.30
$
$
$
112,575
21,021
133,596
41,400
23,842
9,550
14,943
16,579
2,834
8,618
743
2,673
104
1,136
919
45
123,386
10,210
648
10,858
158
(2,320)
(757)
7,939
1,501
9,440
(33)
9,407
.20
.04
.24
$
97,463
14,608
112,071
35,251
18,263
7,445
11,319
12,993
2,060
7,232
504
2,051
113
876
667
22
98,796
13,275
1,062
14,337
315
(3,341)
(934)
10,377
1,871
12,248
0
12,248
.32
.06
.38
$
$
$
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2005 Annual Report F-6
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
for the years ended April 30, 2005, 2004, and 2003
(in thousands)
NUMBER OF
PREFERRED
SHARES
0
PREFERRED
SHARES
0
$
NUMBER OF
COMMON
SHARES
27,847
COMMON
SHARES
$ 163,377
ACCUMULATED
DISTRIBUTIONS
IN EXCESS OF
NET INCOME
$
(17,798) $
ACCUMULATED
OTHER
COMPRE-
HENSIVE
(LOSS)
0
BALANCE MAY 1, 2002
Comprehensive Income
Net income
Total comprehensive income
Distributions
Distribution reinvestment
plan
Sale of shares
Redemption of units for
common shares
Fractional shares
repurchased
BALANCE APRIL 30, 2003
Comprehensive Income
Net income
Unrealized loss for the
period on securities
available-for-sale
Total comprehensive income
Distributions - common
shares
Distributions – preferred
shares
Distribution reinvestment
plan
Sale of shares
Redemption of units for
common shares
Fractional shares
repurchased
BALANCE APRIL 30, 2004
Comprehensive Income
Net income
Unrealized gain for the
period on securities
available- for-sale
Total comprehensive income
Distributions – common
shares
Distributions – preferred
shares
Distribution reinvestment
plan
Sale of shares
Redemption of units for
common shares
Fractional shares
repurchased
0
0
971
7,027
324
0
0
9,463
65,245
2,589
0
0
(3)
36,166
(29)
240,645
0
0
0
0
0
0
0
0
1,150
27,343
1,150
27,343
1,067
4,068
393
10,157
38,307
3,303
(1)
41,693
(12)
292,400
0
0
0
0
0
0
0
0
(26)
1,146
1,652
701
10,738
15,774
5,306
12,248
(20,334)
0
0
0
(25,884)
9,440
0
(24,606)
(33)
0
0
0
(41,083)
15,076
0
(27,892)
(2,404)
0
0
TOTAL
SHARE-
HOLDERS’
EQUITY
145,579
12,248
12,248
(20,334)
9,463
65,245
2,589
(29)
214,761
9,440
(31)
9,409
(24,606)
(33)
10,157
65,650
3,303
(12)
278,629
15,076
9
15,085
(27,892)
(2,404)
10,738
15,748
5,306
$
$
0
0
0
0
0
0
0
(31)
$
0
0
0
0
0
(31)
0
9
0
0
0
0
$
BALANCE APRIL 30, 2005
1,150
$
27,317
(4)
45,188
(38)
$ 324,180
$
0
(56,303) $
0
(22) $
(38)
295,172
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2005 Annual Report F-7
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended April 30, 2005, 2004, and 2003
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 income
Gain on sale of real estate, land and other investments
Interest reinvested in investment certificates
Mortgage interest income
Loss on impairment of real estate investment
Bad debt expense
Changes in other assets and liabilities:
Increase in receivable arising from straight-lining of rents
(Increase)decrease in accounts receivable
(Increase)decrease in prepaid and other assets
(Increase)decrease in tax, insurance and other escrow
Increase in deferred charges and leasing costs
Increase in accounts payable, accrued expenses and other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities - available-for-sale
Proceeds/payments of real estate deposits
Principal payments on mortgage loans receivable
Investment in mortgage loans receivable
Purchase of marketable securities - available-for-sale
Proceeds from sale of real estate, land and investments
Payments for acquisitions and improvement of properties
Proceeds from notes receivable
Net cash used by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common shares, net of issuance costs
Proceeds from sale of preferred shares, net of issuance costs
Proceeds from mortgages payable
Proceeds from minority partner Brenwood/Dixon
Proceeds from notes payable
Repurchase of shares and minority interest units
Distributions paid to common shareholders, net of reinvestment
Distributions paid to preferred shareholders
Distributions paid to unitholders of operating partnership
Distributions paid to other minority partners
Redemption of investment certificates
Principal payments on mortgages payable
Principal payments on notes payable and other debt
Net cash provided by financing activities
NET INCREASE(DECREASE) IN CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR
2005
(in thousands)
2004
2003
$
15,076
$
9,440
$
12,248
35,803
4,252
(8,605)
243
(79)
570
438
(1,314)
457
1,517
2,233
(2,921)
611
48,281
0
(975)
4,274
0
(35)
47,877
(121,544)
0
(70,403)
15,742
(26)
115,460
161
13
(38)
(17,923)
(2,207)
(7,318)
(1,064)
(2,682)
(61,097)
(25,065)
13,956
26,034
3,509
(662)
303
0
62
360
(1,731)
(1,183)
(2,746)
(3,098)
(2,426)
3,469
28,727
2,500
(2,604)
3,232
(6,625)
(4,867)
3,743
(135,658)
0
(137,675)
38,307
27,343
130,191
0
49,988
(12)
(15,173)
(33)
(6,330)
(1,555)
(2,264)
(62,125)
(35,649)
122,688
20,307
4,833
(1,595)
375
0
0
215
(1,560)
1,967
1,208
(1,698)
(1,909)
3,386
37,862
0
85
5,889
(2,969)
0
10,527
(82,664)
3,500
(65,717)
31,913
0
43,925
0
14,100
(29)
(11,663)
0
(5,461)
(1,015)
(16,527)
(25,354)
(6,903)
22,986
(8,166)
31,704
23,538
13,740
17,964
31,704
$
(4,869)
22,833
17,964
$
$
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2005 Annual Report F-8
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
for the years ended April 30, 2005, 2004, and 2003
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Distribution reinvestment plan
UPREIT distribution reinvestment plan
Preferred dividends payable
Property acquired through issue of shares
Real estate investment acquired through assumption of mortgage loans
payable and accrual of costs
Real estate investment acquired through assumption of notes payable
Mortgage loan receivable transferred to other assets
Mortgage loan receivable from sale of property
Mortgage loan receivable acquired through assumption of mortgage loans
payable and accrual of costs
Other assets acquired
Assets acquired through the issuance of minority interest units in the
operating partnership
Minority partner interest
Operating partnership units converted to shares
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest on mortgages
Interest on investment certificates
Interest on margin account and other
(in thousands)
2004
2005
$
9,969 $
769
197
32
9,433 $
724
33
0
21,071
0
0
0
0
134
20,071
0
5,306
25,660
0
158
475
0
0
19,851
2,701
3,303
$
$
46,647 $
254
370
47,271 $
41,197 $
376
991
42,564 $
2003
8,678
785
0
33,333
61,258
4,051
0
0
175
0
8,860
1,486
2,589
35,950
989
104
37,043
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2005 Annual Report F-9
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2005, 2004, and 2003
NOTE 1 • ORGANIZATION
Investors Real Estate Trust (“IRET” or the “Company”) is a self-advised real estate investment trust engaged in
acquiring, owning and leasing multi-family and commercial real estate. IRET has elected to be taxed as a Real
Estate Investment Trust (“REIT”) under Sections 856-860 of the Internal Revenue Code of 1986, as amended.
REITs are subject to a number of organizational and operational requirements, including a requirement to distribute
90% of ordinary taxable income to shareholders, and, generally, are not subject to federal income tax on net income.
IRET’s multi-family residential properties and commercial properties are located mainly in the states of North
Dakota and Minnesota, but also in the states of Colorado, Idaho, Iowa, Georgia, Kansas, Montana, Nebraska, South
Dakota, Texas, Michigan and Wisconsin. As of April 30, 2005, IRET owned 65 multi-family residential properties
with approximately 8,610 apartment units and 146 commercial properties, consisting of office, medical, industrial
and retail properties, totaling approximately 8.0 million net rentable square feet. IRET conducts a majority of its
business activities through its consolidated operating partnership, IRET Properties, a North Dakota Limited
Partnership (the “Operating Partnership”), as well as through a number of other subsidiary entities.
All references to IRET or the Company refer to Investors Real Estate Trust and its consolidated subsidiaries.
NOTE 2 • BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of IRET and all subsidiaries in which it
maintains a controlling interest. All significant intercompany balances and transactions are eliminated in
consolidation. The Company’s fiscal year ends April 30th.
The accompanying consolidated financial statements include the accounts of IRET and its general partnership
interest in the Operating Partnership. The Company’s interest in the Operating Partnership was 77.5% as of April
30, 2005, which includes 100% of the general partnership interest. The limited partners have a redemption option
that they may exercise. Upon exercise of the redemption option by the limited partners, IRET has the option of
redeeming the limited partners’ interests (“Units”) for IRET common shares of beneficial interest, on a one-for-one
basis, or for cash payment to the unitholder. The redemption generally may be exercised by the limited partners at
any time after the first anniversary of the date of the acquisition of the Units (provided, however, that not more than
two redemptions by a limited partner may occur during each calendar year, and each limited partner may not
exercise the redemption for less than 1,000 Units, or, if such limited partner holds less than 1,000 Units, for all of
the Units held by such limited partner). Some limited partners have contractually agreed to a holding period of
greater than one year.
The consolidated financial statements also reflect the ownership by the Operating Partnership of certain joint venture
entities in which the Operating Partnership has a general partner or controlling interest. These entities are
consolidated into IRET’s other operations with minority interests reflecting the minority partners’ share of
ownership and income and expenses.
RECENT ACCOUNTING PRONOUNCEMENTS
On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards (“SFAS”) No. 153, “Exchanges of Nonmonetary Assets - Amendment of APB Opinion No.
29”. The amendments made by SFAS No. 153 are based on the principle that exchanges of nonmonetary assets
should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow
exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for
exchanges of nonmonetary assets that do not have “commercial substance.” SFAS No. 153 is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not
believe the adoption of SFAS No. 153 will have a material effect on the Company’s consolidated financial
statements.
2005 Annual Report F-10
NOTE 2 • continued
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.
REAL ESTATE ASSETS AND DEPRECIATION OF INVESTMENT IN REAL ESTATE
Real estate is recorded at cost less accumulated depreciation less an adjustment for impairment, if any. Asset
acquisitions are recorded based upon preliminary allocations of the purchase price which are subject to adjustment
as additional information is obtained, but in no case more than one year after the date of acquisition. The Company
allocates the purchase price to the fair value of the tangible assets of an acquired property (which includes the land,
building, and personal property) which are determined by valuing the property as if it were vacant and to fair value
of the intangible assets (which include in-place leases.) The as-if-vacant value is allocated to land, buildings, and
personal property based on management’s determination of the relative fair values of these assets. The estimated fair
value of the property is the amount that would be recoverable upon the disposition of the property. Techniques used
to estimate fair value include discounted cash flow analysis, independent appraisals, and reference to recent sales of
comparables. A land value is assigned based on the purchase price if land is acquired separately or based on
estimated market value if acquired in a merger or in a single or portfolio acquisition.
Above-market and below-market in-place lease values for acquired properties are recorded based on the present
value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i)
the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market
lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term
of the lease. The capitalized above-market and below-market lease values are amoritized over the remaining non-
cancelable terms of the respective leases as depreciation/amortization related to real estate investments.
Other intangible assets acquired include amounts for in-place lease values that are based upon the Company’s
evaluation of the specific characteristics of the leases. Factors considered in these analyses include an estimate of
carrying costs during hypothetical expected lease-up periods, considering current market conditions, and costs to
execute similar leases. The Company also considers information about each property obtained during its pre-
acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible
assets acquired.
Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. The Company uses a
20-40 year estimated life for buildings and improvements and a 5-12 year estimated life for furniture, fixtures and
equipment.
Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. Renovations and
improvements that improve and/or extend the useful life of the asset are capitalized over their estimated useful life,
generally five to ten years. Property sales or dispositions are recorded when title transfers and sufficient
consideration has been received by the Company.
The Company periodically evaluates its long-lived assets, including its investments in real estate, for impairment
indicators. The judgments regarding the existence of impairment indicators are based on factors such as operational
performance, market conditions, expected holding period of each asset and legal and environmental concerns. Future
events could occur which would cause the Company to conclude that impairment indicators exist and an impairment
loss is warranted. If indicators exist, the Company compares the expected future undiscounted cash flows for the
long-lived asset against the carrying amount of that asset. If the sum of the estimated undiscounted cash flows is less
than the carrying amount of the asset, an impairment loss is recorded for the difference between the estimated fair
value and the carrying amount of the asset.
2005 Annual Report F-11
NOTE 2 • continued
REAL ESTATE HELD FOR SALE
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 to purchase its properties, either solicited or unsolicited.
For those offers that are accepted, the prospective buyer will usually require 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 probable, 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.
The Company reports, in discontinued operations, the results of operations of a property that has either been
disposed of or is classified as held for sale and the related gains or losses.
IDENTIFIED INTANGIBLE ASSETS AND GOODWILL
Upon acquisition of real estate, the Company records the intangible assets acquired (for example, if the leases in
place for the real estate property acquired carry rents above the market rent, the difference is classified as an
intangible asset) at their estimated fair value separate and apart from goodwill. The Company amortizes identified
intangible assets that are determined to have finite lives based on the period over which the assets are expected to
contribute directly or indirectly to the future cash flows of the real estate property acquired (generally the life of the
lease). Intangible assets subject to amortization are reviewed for impairment whenever events or changes in
circumstances indicate that their carrying amount may not be recoverable. An impairment loss is recognized if the
carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its estimated fair value.
The excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired (including
identified intangible assets) and liabilities assumed is recorded as goodwill. Goodwill is not amortized, but is tested
for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset
might be impaired.
As of April 30, 2005 and 2004, respectively, the net carrying amounts of the Company’s identified intangible assets,
which are included in prepaids and other assets, were $24,517,000 (this amount is net of accumulated depreciation
and amortization totaling $7,617,000) and $16,147,000 (net of accumulated depreciation and amortization totaling
$1,328,000).
As of April 30, 2005 and 2004, respectively, the net carrying amounts of the Company’s identified
intangible liabilities were $1,119,000 (this amount is net of accumulated depreciation and amortization totaling
$503,000) and $1,653,000 (net of accumulated depreciation and amortization totaling $94,000).
Goodwill of $1,645,000 was recorded by the Company in July 2000 from the purchase of the Company’s former
advisor, Odell-Wentz & Associates LLC. Prior to its adoption of SFAS No. 142, the Company elected to amortize
the goodwill over a fifteen-year period. Following adoption of SFAS No. 142 on May 1, 2002, the Company ceased
amortization and annually reviews the fair market value of the asset, the carrying amount of which was $1,441,000
as of April 30, 2005, for impairment. The annual reviews for years ended April 30, 2005 and 2004 indicated no
impairment.
PROPERTY AND EQUIPMENT
Property and equipment consists of the administrative office buildings and equipment contained at IRET’s
headquarters in Minot, North Dakota, and the office and other locations in Minneapolis, Minnesota. The balance
sheet reflects these assets at cost, net of accumulated depreciation. As of April 30, 2005 and 2004, the cost was $3.2
million and $2.9 million, respectively. Accumulated depreciation was $0.7 million and $.6 million as of April 30,
2005 and 2004, respectively.
2005 Annual Report F-12
NOTE 2 • continued
MORTGAGE LOANS RECEIVABLE
Mortgage loans receivable is stated at the outstanding principal balance, net of an allowance for uncollectibility.
Interest income is accrued and reflected in the balance. Non-performing loans are recognized as impaired in
conformity with SFAS No. 114, Accounting by Creditors for Impairment of a Loan. The Company evaluates the
collectibility of both interest and principal of each of its loans, if circumstances warrant, to determine whether the
loan is impaired. A loan is considered to be impaired when, based on current information and events, it is probable
that the Company will be unable to collect all amounts due according to the existing contractual terms. An
allowance is recorded to reduce impaired loans to their estimated fair value. Interest on impaired loans is recognized
on a cash basis.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all cash and highly liquid investments purchased with maturities of three months
or less. Cash and cash equivalents consist of the Company’s bank deposits and short-term investment certificates
acquired subject to repurchase agreements, and the Company’s deposits in a money market mutual fund.
MARKETABLE SECURITIES
IRET’s investments in marketable securities are classified as “available-for-sale.” The securities classified as
“available-for-sale” represent investments in debt and equity securities which the Company intends to hold for an
indefinite period of time. These securities are valued at current market value with the resulting unrealized gains and
losses excluded from earnings and reported as a separate component of shareholders’ equity until realized. Gains or
losses on these securities are computed based on the amortized cost of the specific securities when sold.
All securities with unrealized losses are subjected to the Company’s process for identifying other-than-temporary
impairments. The Company writes down to fair value securities that it deems to be other-than-temporarily impaired
in the period the securities are deemed to be other-than-temporarily impaired. The assessment of whether such
impairment has occurred is based on management’s case-by-case evaluation of the underlying reasons for the
decline in fair value. Management considers a wide range of factors in making this assessment. Those factors
include, but are not limited to, the length and severity of the decline in value and changes in the credit quality of the
issuer or underlying assets. The Company does not engage in trading activities.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Management evaluates the appropriate amount of the allowance for doubtful accounts by assessing the
recoverability of individual real estate mortgage loans and rent receivables, through a comparison of their carrying
amount with their estimated realizable value. Management considers tenant financial condition, credit history and
current economic conditions in establishing these allowances. Receivable balances are written off when deemed
uncollectible. Recoveries of receivables previously written off, if any, are recorded when received. A summary of
the changes in the allowance for doubtful accounts for fiscal years ended April 30, 2005, 2004 and 2003 is as
follows:
Balance at beginning of year
Provision
Write-off
Balance at close of year
TAX, INSURANCE, AND OTHER ESCROW
$
$
$
(in thousands)
2004
115 $
360
0
475 $
$
2005
475
438
(188)
725
2003
141
215
(241)
115
Tax, insurance, and other escrow includes funds deposited with a lender for payment of real estate tax and insurance,
and reserves for 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.
2005 Annual Report F-13
NOTE 2 • continued
REAL ESTATE DEPOSITS
Real estate deposits include funds held by escrow agents to be applied toward the purchase of real estate or the
payment of loan costs associated with loan placement or refinancing.
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 INTERESTS
Interests in the Operating Partnership held by limited partners are represented by Units. The Operating Partnership’s
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 Minnesota Medical Investors LLC, Mendota Properties LLC, IRET–BD LLC,
IRET-Candlelight LLC, IRET-Golden Jack LLC, and IRET-1715 YDR LLC 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 minority interest portion of other partnerships’ income in the
consolidated statements of operations.
INCOME TAXES
IRET operates in a manner intended to enable it to continue to qualify as a REIT under Sections 856-860 of the
Internal Revenue Code of 1986, as amended. Under those sections, a REIT which distributes at least 90% of its
REIT taxable income as a dividend to its shareholders each year and which meets certain other conditions will not
be taxed on that portion of its taxable income which is distributed to shareholders. The Company 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 accompanying consolidated
financial statements.
IRET conducts its business activity as an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) through
its Operating Partnership. UPREIT status allows IRET to accept the contribution of real estate in exchange for Units.
Generally, such a contribution to a limited partnership allows for the deferral of gain by an owner of appreciated real
estate.
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 are reflected as receivable arising from
straight-lining of rents, net of allowance for doubtful accounts. Rent concessions, including free rent, are amortized
on a straight-line basis over the terms of the related leases.
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 of its multi-tenant commercial tenants throughout the 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.
2005 Annual Report F-14
NOTE 2 • continued
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 above in the Mortgage Loans Receivable
section of this Note 2.
NET INCOME PER SHARE
Basic net income per share is computed as net income available to common shareholders divided by the weighted
average number of common shares outstanding for the period. The potential exchange of Units for common shares
will have no effect on diluted net income per share as Unitholders and common shareholders effectively share
equally in the net income of the Operating Partnership.
RECLASSIFICATIONS
Certain previously reported amounts have been reclassified to conform with the current financial statement
presentation.
NOTE 3 • CREDIT RISK
The Company is potentially exposed to credit risk in respect of cash deposited with FDIC-insured financial
institutions in accounts which, at times, may exceed federally insured limits. The Company has not experienced any
losses in such accounts.
IRET has entered into a cash management arrangement with First Western Bank with respect to deposit accounts
that exceed FDIC Insurance coverage. On a daily basis, account balances are invested in United States government
securities sold to IRET by First Western Bank. IRET can require First Western Bank to repurchase such securities at
any time, at a purchase price equal to what IRET paid for the securities plus interest. First Western Bank
automatically repurchases securities when collected amounts on deposit in IRET’s deposit accounts fall below the
maximum insurance amount, with the proceeds of such repurchases being transferred to IRET’s deposit accounts to
bring the amount on deposit back up to the threshold amount. The amounts invested by IRET pursuant to the
repurchase agreement are not insured by FDIC.
IRET has entered into a cash management arrangement with US Bank with respect to IRET depository accounts at
multiple US Bank locations. Amounts in the master account are invested in short-term U.S. Government securities
and repurchase agreements secured by U.S. Government securities. Amounts invested were $2.0 million as of April
30, 2005, and $7.5 million as of April 30, 2004.
NOTE 4 • PROPERTY OWNED
Property, consisting principally of real estate, is stated at cost less accumulated depreciation of $1,061.3 million and
983.9 million as of April 30, 2005, and April 30, 2004, respectively.
In addition, as of April 30, 2005, the Company had signed purchase agreements to acquire two medical office
buildings in St. Paul and Minneapolis, Minnesota, respectively, for purchase prices totaling $19,750,000. These
purchases closed on June 7, 2005. See Note 20, Subsequent Events, for further information.
Construction period interest of $137,591, $148,922, and $90,939, has been capitalized for the years ended April 30,
2005, 2004, and 2003, respectively.
2005 Annual Report F-15
NOTE 4 • continued
The future minimum lease payments to be received under leases for commercial properties as of April 30, 2005,
assuming that no options to renew or buy out the lease are exercised, are as follows:
Year Ended April 30,
2006
2007
2008
2009
2010
Thereafter
(in thousands)
$
64,075
59,556
52,111
44,847
39,854
215,881
476,324
$
During fiscal 2005, the Company incurred a loss of $570,000 due to impairment of two properties. For the year
ended April 30, 2004, the Company incurred a loss of $62,000 due to impairment on one property. For the year
ended April 20, 2003, the Company did not record any losses due to impairment.
NOTE 5 • MORTGAGE LOANS RECEIVABLE - NET
Mortgage loans receivable consists of two separate loans that are collateralized by real estate. Contract terms vary in
regard to payment of principal and interest. Interest rates range from 6.0% to 7.5%. Future principal payments due
under these mortgage loans as of April 30, 2005, are as follows:
Year Ended April 30,
2006
2007
2008
2009
2010
Later Years
(in thousands)
$
27
28
202
25
362
0
644
(25)
619
Less allowance for doubtful accounts
$
There were no non-performing mortgage loans receivable as of April 30, 2005, or 2004.
NOTE 6 • MARKETABLE SECURITIES
The amortized cost and fair value (estimated market values) of marketable securities available-for-sale at April 30,
2005 and 2004 are as follows. These marketable securities are securities of various issuers, primarily U.S.
government, U.S. agency and corporate bonds, held in IRET Properties’ security deposit account with Merrill
Lynch:
2005
US Government & Agency Debt Securities
Agency MBS
Corporate Bonds
Bank Certificates of Deposit
Other
(in thousands)
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Amortized Cost
$
$
159
777
570
869
106
2,481
$
$
0
0
0
0
0
0
$
$
4
13
5
0
0
22
$
$
155
764
565
869
106
2,459
2005 Annual Report F-16
NOTE 6 • continued
2004
US Government & Agency Debt Securities
Agency MBS
Corporate Bonds
Bank Certificates of Deposit
Other
(in thousands)
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Amortized Cost
$
$
237
936
292
852
50
2,367
$
$
0
0
0
0
0
0
$
$
5
21
5
0
0
31
$
$
232
915
287
852
50
2,336
There were no realized losses on sales of securities available-for-sale for the fiscal years ended April 30, 2005, 2004
and 2003. None of the securities with an unrealized loss at April 30, 2005, have been in such a position for more
than one year, and are not considered to be other-than-temporarily impaired.
NOTE 7 • NOTES PAYABLE AND OTHER DEBT
IRET has lines of credit with three financial institutions as of April 30, 2005, and had one unsecured bridge loan
with a fourth financial institution that matured in July 2004. Interest payments on outstanding borrowings are due
monthly. These credit facilities and bridge loan are summarized in the following table:
(in thousands)
Amount
Outstanding
as of April 30,
2005
Amount
Outstanding as
of April 30,
2004
Applicable
Interest Rate
as of April 30,
2005
Maturity
Date
Amount
Available
Financial Institution
Lines of Credit
First Western Bank & Trust $ 10,000
5,000
First Int’l Bank & Trust
10,000
Bremer Bank
$
Unsecured Bridge Loan
Wells Fargo Bank
0
Total
$ 25,000
$
0
0
0
0
0
$
0
0
0
5.75% 09/01/05
5.75% 12/07/05
5.75% 09/15/05
25,000
N/A Matured
$
25,000
Weighted
Average Int.
Rate on
Borrowings
during fiscal
year 2005
0.00%
0.00%
3.75%
3.35%
The three lines of credit bear interest at a variable interest rate tied to the prime lending rate as published in the Wall
Street Journal (in the case of the First Western Bank & Trust and First International Bank & Trust credit facilities)
and the Bremer Financial Corporation Reference Rate (in respect of the Bremer Bank credit facility). The
promissory note in respect to Wells Fargo bridge loan interest was based upon the thirty-day LIBOR rate plus two
percent.
The other debt balance of $847 at April 30, 2005, primarily relates to a $562 mortgage note collateralized by the
IRET Minneapolis office. The interest rate is fixed at 6.5%, and the maturity date is February 1, 2009. Two other
debt balances of $230 and $55 relate to unsecured promissory notes for leasehold improvements at Southdale
Medical Center located at Edina, Minnesota and Wells Fargo located at St. Cloud, Minnesota, respectively. The
Southdale elevator note current variable interest rate is 5.3%, and the maturity date is April 17, 2006. The Wells
Fargo boiler loan interest rate is fixed at 5.69%, and the maturity date is July 10, 2007.
Future minimum payments are as follows:
Year Ended April 30,
2006
2007
2008
2009
Total payments
(in thousands)
275
$
56
36
480
847
$
2005 Annual Report F-17
NOTE 8 • MORTGAGES PAYABLE
The Company’s mortgages payable are collateralized by substantially all of its properties owned. Interest rates on
mortgages payable range from 4.46% to 8.25%, and the mortgages have varying maturity dates from January 1,
2007, through August 1, 2036.
Of the mortgages payable, the balances of fixed rate mortgages totaled $681,517,000 and $591,176,000, and the
balances of variable rate mortgages totaled $27,041,000 and $41,948,000 as of April 30, 2005, and 2004,
respectively. Most of the fixed rate mortgages have substantial pre-payment penalties. As of April 30, 2005, the
weighted average rate of interest on the Company’s mortgage debt was 6.08%, compared to 7.17% on April 30,
2004. The aggregate amount of required future principal payments on mortgages payable as of April 30, 2005, is as
follows:
Year Ended April 30,
2006
2007
2008
2009
2010
Later Years
Total payments
$
(in thousands)
18,893
21,150
40,130
45,710
106,034
476,641
$ 708,558
NOTE 9 • INVESTMENT CERTIFICATES ISSUED
IRET has sold unsecured investment certificates to the public. The fixed interest rates vary from 6.5% to 9.0% per
annum, depending on the term of the security. Interest is paid annually, semiannually, or quarterly on the
anniversary date of issuance. IRET has discontinued the sale of investment certificates and the outstanding
certificates will be redeemed at maturity as follows:
Year Ended April 30,
2006
2007
2008
(in thousands)
2,253
$
2,372
11
4,636
$
NOTE 10 • TRANSACTIONS WITH RELATED PARTIES
PROPERTY MANAGEMENT SERVICES
Hoyt Properties, Inc., (“Hoyt Properties”), a provider of property management services to the Company, is owned by
Steven B. Hoyt, formerly a member of the Company’s Board of Trustees. Mr. Hoyt resigned from the Company’s
Board of Trustees on September 21, 2004 at the expiration of his term of office. During the fiscal year ended April
30, 2005, Hoyt Properties managed 18 office properties or complexes for the Company pursuant to written
management contracts.
In Fiscal 2005, the Company paid management fees to Hoyt Properties in the amount of $682,286. A portion of
these fees were reimbursed by the tenants. Additionally, during that same period, the Company paid leasing
commissions to Hoyt Properties in the amount of $49,309.
In Fiscal 2004 and 2003, the Company paid management fees to Hoyt Properties in the amount of $743,000 and
$503,976, respectively, a portion of which was reimbursed by tenants. Additionally, during those same periods, the
Company paid leasing commissions to Hoyt Properties in the amount of $93,000 and $179,553, respectively.
PROPERTY ACQUISITIONS
Plymouth and Northgate Office/Warehouse Buildings. During fiscal year 2005, the Company acquired four
office/warehouse buildings from a limited liability company in which Steven B. Hoyt was a member. The Company
closed on its purchase of these buildings, the Plymouth I, II and III office buildings in Plymouth, Minnesota, and the
2005 Annual Report F-18
NOTE 10 • continued
Northgate I office building in Maple Grove, Minnesota, on June 30, 2004. At the time of the transaction, Mr. Hoyt
was a trustee of the Company. The buildings together contain approximately 157,935 square feet. The Company
paid approximately $14,000,000 for these properties, excluding closing costs. Of the $14,000,000 purchase price,
$13,900,000 was paid in cash, and the remainder was paid through the issuance to the sellers of 10,000 Units valued
at $10 per Unit.
Brenwood Office Complex. During fiscal year 2003, the Company acquired four office buildings from affiliates of
Steven B. Hoyt. On October 1, 2002, the Company acquired a 51% ownership interest in IRET-BD, LLC, a
Minnesota limited liability company, for $13,107,000. The Brenwood Office project consists of the four office
buildings contributed as well as three industrial/warehouse buildings purchased by IRET-BD, LLC on October 1,
2002, for $11,800,000.
Independent appraisals were obtained by the Company for each of the above property acquisitions, and the purchase
prices were based on the results of these appraisals.
SECURITY SALE SERVICES
D.A. Davidson & Co. is an investment banking firm that has participated in offerings of the Company’s shares of
beneficial interest, and may in the future continue to participate in sales of the Company’s shares and provide
investment banking services to the Company. John F. Decker, formerly a member of the Company’s Board of
Trustees, is an employee of D.A. Davidson. Mr. Decker resigned from the Company’s Board of Trustees on
September 21, 2004, at the expiration of his term of office.
During fiscal year 2005, D.A. Davidson did not participate in either of the Company’s two offerings of common
shares. The Company paid no fees to Mr. Decker or to D.A. Davidson during fiscal year 2005.
In the first of the Company’s two offerings of common shares of beneficial interest during fiscal year 2004,
conducted in September 2003, D.A. Davidson participated, on a best-efforts basis, as a member of the selling
syndicate, and sold 250,000 shares. In connection with this offering, the Company authorized and paid D.A.
Davidson commissions in the amount of $150,000. D.A. Davidson did not participate in the Company’s second
offering of common shares of beneficial interest in April 2004.
D.A. Davidson served as book-running manager and representative of the underwriters for the Company’s April
2004 offering of Series A cumulative redeemable preferred shares of beneficial interest. In connection with this
offering, the Company paid D.A. Davidson a fee of $1,078,125 and reimbursed D.A. Davidson for legal and other
expenses in the amount of $100,000.
In October 2003 and April 2004, the Company paid D.A. Davidson fees of $19,500 and $77,849, respectively, for
the services of Mr. Decker’s son as a broker-dealer in representing certain clients who contributed real property in
exchange for Units.
The Company did not pay any commissions or expenses to D. A. Davidson during the fiscal year ended April 30,
2003.
PURCHASE OPTIONS
On February 1, 2003, the Company entered into a merger agreement with the T. F. James Company. As part of the
merger agreement, two affiliated entities of the T. F. James Company were granted the right to purchase certain real
property acquired by the Company as a result of the merger. Charles Wm. James, a member of the Company’s
Board of Trustees, has an ownership interest in these entities. Under the terms of the agreement, one of the entities ,
has the option, but not the obligation, to purchase a commercial strip mall located in Excelsior, Minnesota, for the
price the Company paid to acquire the property, plus an annual Consumer Price Index increase. Until such time as
the option is exercised, the Company will continue to operate the property and collect all rents from the tenants.
2005 Annual Report F-19
NOTE 10 • continued
VEHICLE PURCHASES
During fiscal year 2005, the Company purchased four vehicles from Fisher Motors, Inc., an automobile dealership
wholly-owned by John D. Stewart, a member of the Company’s Board of Trustees. The Company paid
approximately $100,000 for these four vehicles, which were purchased for the use of Company employees,
including the Company’s Chief Operating Officer.
NOTE 11 • ACQUISITIONS AND DISPOSITIONS IN FISCAL YEARS 2005 AND 2004
PROPERTY ACQUISITIONS
IRET Properties added $146.4 million of real estate investments to its portfolio during fiscal 2005, compared to
$170.3 million added in fiscal 2004. The fiscal 2005 and 2004 additions are detailed below.
Fiscal 2005 (May 1, 2004 to April 30, 2005)
Fiscal 2005 Acquisitions
Multi-Family Residential
54-unit Southbrook Court and Mariposa Lane Townhomes - Topeka, KS
36-unit Legacy 5 - Grand Forks, ND
36-unit Legacy 6 - Grand Forks, ND
140-unit Olympik Village - Rochester, MN
Commercial Property – Office
26,186 sq. ft. Plymouth I Office Building - Plymouth, MN
26,186 sq. ft. Plymouth II Office Building - Plymouth, MN
26,186 sq. ft. Plymouth III Office Building - Plymouth, MN
79,377 sq. ft. Northgate I Office Building - Maple Grove, MN
185,000 sq. ft. Crosstown Circle Office Building - Eden Prairie, MN
81,173 sq. ft. Highlands Ranch II Office Building - Highlands Ranch, CO
86,428 sq. ft. Wells Fargo Center - Bloomington, MN
153,947 sq. ft. US Bank - Bloomington, MN
Commercial Property – Medical
52,300 sq. ft. Nebraska Orthopaedic Hospital Expansion Project - Omaha, NE
45,081 sq. ft. Pavilion I Clinic - Duluth, MN
60,294 sq. ft. High Pointe Health Campus Phase I (East Metro Medical Building) -
Lake Elmo, MN
Commercial Property – Retail
46,720 sq. ft. Sleep Inn Hotel - Brooklyn Park, MN
4,000 sq. ft. single tenant retail building (former Payless building) - Fargo, ND
Undeveloped Property
* Legacy VII - Grand Forks, ND
Total Fiscal 2005 Property Acquisitions
* = Property not placed in service at April 30, 2005. Additional costs were still to be incurred.
(in thousands)
Purchase Price
$
5,500
2,738
2,607
7,100
17,945
1,864
1,748
2,214
8,175
22,000
12,800
9,201
20,300
78,302
20,597
10,900
13,050
44,547
2,750
375
3,125
2,443
2,443
146,362
$
2005 Annual Report F-20
NOTE 11 • continued
Fiscal 2004 (May 1, 2003 to April 30, 2004)
Fiscal 2004 Acquisitions
Multi-Family Residential
240-unit Colonial Villa - Burnsville, MN
115-unit Boulder Court Apartments - Eagan, MN
151-unit Winchester/Village Green Townhouses - Rochester, MN
160-unit Brookfield Village - Topeka, KS
60-unit Monticello Village Apartments - Monticello, MN
Commercial Property – Office
30,464 sq. ft. Benton Business Park - Sauk Rapids, MN
24,000 sq. ft. West River Business Park - Waite Park, MN
190,758 sq. ft. Golden Hills Office Center - Golden Valley, MN
175,610 sq. ft. Brown Deer Road - Milwaukee, WI
106,207 sq. ft. TCA Building - Eagan, MN
20,000 sq. ft. Metris - Duluth, MN
27,000 sq. ft. Minnesota National Bank - Duluth, MN
30,000 sq. ft. UHC Office - International Falls, MN
Commercial Property – Medical
76,870 sq. ft. Edgewood Vista Phase II - Virginia, MN
9,052 sq. ft. Fresenius - Duluth, MN
28,928 sq. ft. Mariner Clinic - Superior, WI
20,512 sq. ft. Denfeld Clinic - Duluth, MN
18,810 sq. ft. Wells Clinic - Hibbing, MN
74,800 sq. ft. Pavilion II - Duluth, MN
12,444 sq. ft. Gateway Clinic - Sandstone, MN
Commercial Property - Industrial (miscellaneous commercial property)
35,000 sq. ft. API Building - Duluth, MN
59,600 sq. ft. Lighthouse - Duluth, MN
Commercial Property – Retail
213,271 sq. ft. Buffalo Mall - Jamestown, ND
104,928 sq. ft. Westgate Shopping Center - St. Cloud, MN
36,542 sq. ft. Denfeld Retail Center – Duluth, MN
25,400 sq. ft. South Pond Retail Center - Champlin, MN
15,597 sq. ft. Tool Crib - Duluth, MN
Undeveloped Property
** Legacy V - Grand Forks, ND
** Legacy VI - Grand Forks, ND
** Legacy VII - Grand Forks, ND
Total Fiscal 2004 Property Acquisitions
(in thousands)
Purchase Price
$
13,850
6,600
8,900
7,250
4,200
40,800
1,600
1,500
27,500
13,500
13,000
2,950
2,100
2,500
64,650
5,100
1,800
4,100
3,336
2,900
19,500
1,900
38,636
2,000
2,100
4,100
4,275
6,575
5,164
3,700
2,000
21,714
214
93
93
400
170,300
$
** = Property not placed in service at April 30, 2004. Additional costs were still to be incurred.
PROPERTY DISPOSITIONS
During fiscal year 2005, IRET Properties disposed of 17 properties and one undeveloped property for an aggregate
sale price of $48.9 million, compared to six properties and two parcels of undeveloped land sold for $4.4 million in
total during fiscal year 2004. Real estate assets sold by IRET during fiscal 2005 were as follows:
2005 Annual Report F-21
(in thousands)
Book Value
and Sales Cost
Sales Price
Gain/Loss
180
0
0
259
1,275
1,941
54
50
0
1,534
76
74
75
327
1,674
951
132
0
8,602
2005 Dispositions
Multi-Family Residential
204-unit Ivy Club Apartments – Vancouver, WA
26-unit Beulah Condominiums - Beulah, ND
36-unit Parkway Apartments - Beulah, ND
18-unit Dakota Arms Apartments - Minot, ND
100-unit Van Mall Woods Apartments - Vancouver, WA
192-unit Century Apartments - Williston, ND
18-unit Bison Apartments - Carrington, ND
17-unit Bison Apartments - Cooperstown, ND
Commercial – Office
62,585 sq. ft. Flying Cloud Building – Eden Prairie, MN
Commercial - Medical (assisted living facility)
97,821 sq. ft. Edgewood Vista - Minot, ND
5,100 sq. ft. Edgewood Vista - Belgrade, MT
5,100 sq. ft. Edgewood Vista - Columbus, NE
5,100 sq. ft. Edgewood Vista - Grand Island, NE
16,392 sq. ft. Edgewood Vista - East Grand Forks, MN
Commercial – Retail
30,000 sq. ft. Barnes & Noble Store – Fargo, ND
18,040 sq. ft. Petco Store - Fargo, ND
4,800 sq. ft. single tenant retail building (former Tom Thumb store)
- Ham Lake, MN
Undeveloped Property
$
$
12,250
96
159
825
6,900
4,599
215
185
5,750
7,210
509
509
509
1,639
4,590
2,160
650
$
12,070
96
159
566
5,625
2,658
161
135
5,750
5,676
433
435
434
1,312
2,916
1,209
518
205,347 sq. ft. parcel of vacant land - Libby, MT
Total Fiscal 2005 Property Dispositions
151
48,906
$
151
40,304
$
$
Properties sold by IRET during fiscal 2004 were as follows:
2004 Dispositions
Multi-Family Residential
20-unit MCA Royal Suites - Minot, ND
Commercial - Medical (assisted living facility)
11,800 sq. ft. Edgewood Vista - Billings, MT
11,800 sq. ft. Edgewood Vista - Sioux Falls, SD
Commercial – Industrial
13,600 sq. ft. Pioneer Seed - Moorhead, MN
Commercial – Retail
6,225 sq. ft. Interstate Bakery - St. Paul, MN
3,575 sq. ft. Tom Thumb - Sauk Rapids, MN
Undeveloped Property
159,866 sq. ft. Sunset Trail III - Rochester, MN
35,697 sq. ft. Prior Lake II - Prior Lake, MN
Total Fiscal 2004 Property Dispositions
NOTE 12 • OPERATING SEGMENTS
(in thousands)
Book Value
and Sales Cost
Sales Price
Gain/Loss
$
410
$
364
$
1,101
1,101
500
420
275
941
936
498
317
247
400
160
4,367
$
364
52
3,719
$
$
46
160
165
2
103
28
36
108
648
IRET is engaged in acquiring, owning and leasing multi-family residential and commercial real estate. Each
property is considered a separate operating segment. Each segment on a stand-alone basis is less than 10% of the
revenues, profit or loss, and assets of the combined reported operating segments, and meets the aggregation criteria
under SFAS No. 131. Previously, IRET’s operating segments were aggregated and classified as multi-family
residential and commercial properties, producing two reportable segments. Beginning with the first quarter of
IRET’s fiscal year 2005, IRET is reporting its results in five segments: multi-family residential properties, and
2005 Annual Report F-22
NOTE 12 • continued
commercial office, medical (including assisted living facilities), industrial (including miscellaneous commercial
properties) and retail properties. The revenues, profit (loss) and assets for these reportable segments are summarized
as follows, as of and for the fiscal years ended April 30, 2005, 2004 and 2003, along with reconciliations to the
consolidated financial statements:
Year Ended April 30, 2005
Commercial-
Office
Commercial-
Medical
Commercial-
Industrial
Commercial-
Retail
Multi-Family
Residential
Total
(in thousands)
Real Estate Revenue
Expenses
Mortgage interest
Depreciation related to real estate
investments
Utilities and maintenance
Real estate taxes
Insurance
Property management
Total segment expense
Segment operating profit
$
48,648
$ 25,794
$
6,459
$
15,339
$ 60,207 $ 156,447
12,730
12,783
9,701
7,165
538
2,100
45,017
3,631
$
8,923
5,305
3,012
1,616
277
1,273
20,406
5,388
$
2,302
1,523
245
797
78
104
5,049
1,410
$
4,125
18,247
46,327
2,788
1,471
1,983
200
289
10,856
4,483
11,075
12,760
7,057
1,521
6,805
57,465
2,742
$
33,474
27,189
18,618
2,614
10,571
138,793
17,654
$
Reconciliation to consolidated operations:
Interest discounts and fee revenue
Other interest expense
Depreciation – furniture and fixtures
Administrative, advisory and trustee fees
Operating expenses
Amortization
Income before minority interest and discontinued operations and gain on sale of other investments
Year Ended April 30, 2004
986
(667)
(201)
(3,948)
(1,434)
(1,681)
$ 10,709
(in thousands)
Commercial-
Office
Commercial-
Medical
Commercial-
Industrial
Commercial-
Retail
Multi-Family
Residential
Total
$
39,919
$ 15,876
$
6,634
$
11,873
$ 59,294 $ 133,596
11,030
7,132
8,416
5,757
451
1,764
34,550
5,369
5,841
2,977
2,226
1,491
149
1,156
13,840
2,036
$
2,092
1,253
251
768
66
98
4,528
2,106
$
3,275
17,647
39,885
2,007
1,104
1,888
167
118
8,559
3,314
10,310
12,496
6,675
2,001
6,225
55,354
3,940
$
23,679
24,493
16,579
2,834
9,361
116,831
16,765
$
Real Estate Revenue
Expenses
Mortgage interest
Depreciation related to real estate
investments
Utilities and maintenance
Real estate taxes
Insurance
Property management
Total segment expense
Segment operating profit
$
Reconciliation to consolidated operations:
Interest discounts and fee revenue
Other interest expense
Depreciation – furniture and fixtures
Administrative, advisory and trustee fees
Operating expenses
Amortization
Income before minority interest and discontinued operations and gain on sale of other investments
648
(1,515)
(163)
(2,777)
(1,136)
(964)
$ 10,858
2005 Annual Report F-23
NOTE 12 • continued
Year Ended April 30, 2003
Real Estate Revenue
Expenses
Mortgage interest
Depreciation/amortization related to
real estate investments
Utilities and maintenance
Real estate taxes
Insurance
Property management
Total segment expense
Segment operating profit
$
Reconciliation to consolidated operations:
Interest discounts and fee revenue
Other interest expense
Depreciation – furniture and fixtures
Administrative, advisory and trustee fees
Operating expenses
Amortization
(in thousands)
Commercial-
Office
Commercial-
Medical
Commercial-
Industrial
Commercial-
Retail
Multi-Family
Residential
Total
$
31,159
$
13,168
$
5,846
$
5,862
$ 56,036 $ 112,071
1,815
16,387
34,213
9,343
2,222
5,401
4,543
356
1,286
23,151
8,008
5,126
3,477
2,039
1,112
108
801
12,663
505
1,542
1,047
124
491
44
55
3,303
2,543
$
$
2,035
395
461
92
99
4,897
965
9,390
10,805
6,386
1,460
5,495
49,923
6,113
$
$
18,171
18,764
12,993
2,060
7,736
93,937
18,134
1,062
(1,038)
(92)
(2,164)
(876)
(689)
14,337
Income before minority interest and discontinued operations and gain on sale of other investments
$
Segment Assets and Accumulated Depreciation
Year Ended April 30, 2005
Segment assets
Property owned
Less accumulated
depreciation/amortization
Total property owned
Cash
Marketable securities
Receivables and other assets
Undeveloped land
Mortgage receivables
Total Assets
Commercial-
Office
Commercial-
Medical
Commercial-
Industrial
Commercial-
Retail
Multi-Family
Residential
Total
(in thousands)
$ 353,536
$ 205,333
$ 58,233
$ 120,645
$ 442,109 $1,179,856
(23,198)
$ 330,338
(12,855)
$ 192,478
(5,193)
$ 53,040
(9,732)
$ 110,913
(67,534)
(118,512)
$ 374,575 $1,061,344
23,538
2,459
57,816
5,382
619
$1,151,158
2005 Annual Report F-24
NOTE 12 • continued
Year Ended April 30, 2004
Commercial-
Office
Commercial-
Medical
Commercial-
Industrial
Commercial-
Retail
Multi-Family
Residential
Total
(in thousands)
Segment assets
Property owned
Less accumulated
$ 287,943
$ 169,791
depreciation/amortization
Total property owned
(16,120)
$ 271,823
(9,129)
$ 160,662
$
$
58,053
(3,852)
54,201
$
$
121,001
$ 445,985 $ 1,082,773
(8,211)
112,790
(61,611)
(98,923)
$ 384,374 $ 983,850
31,704
2,336
50,354
3,180
4,893
$1,076,317
Cash
Marketable securities
Receivables and other assets
Undeveloped land
Mortgage receivables
Total Assets
Year Ended April 30, 2003
Segment assets
Property owned
Less accumulated
depreciation/amortization
Total property owned
Cash
Receivables and other assets
Undeveloped land
Mortgage receivables
Total Assets
Commercial-
Office
Commercial-
Medical
Commercial-
Industrial
Commercial-
Retail
Multi-Family
Residential
Total
(in thousands)
$ 235,065
$ 128,693
(9,989)
$ 225,076
(6,146)
$ 122,547
$
$
55,056
(2,773)
52,283
$
$
99,290
$ 398,653 $ 916,757
(6,178)
93,112
(50,553)
(75,639)
$ 348,100 $ 841,118
18,642
21,714
3,024
1,183
$ 885,681
NOTE 13 • DISCONTINUED OPERATIONS
SFAS No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets,” requires the Company to report
in discontinued operations the results of operations of a property that has either been disposed of or is classified as
held for sale. It also requires that any gains or losses from the sale of a property be reported in discontinued
operations. There were no properties held for sale as of April 30, 2005 or 2004. The following information shows
the effect on net income, net of minority interest, and the gains or losses from the sale of properties classified as
discontinued operations for the fiscal years ended April 30, 2005, 2004 and 2003.
2005 Annual Report F-25
NOTE 13 • continued
REVENUE
Real Estate Rentals
Tenant Reimbursements
Total Revenue
OPERATING EXPENSE
Interest
Depreciation/Amortization
Utilities and Maintenance
Real Estate Taxes
Insurance
Property Management Expenses
Operating Expense
Amortization
Amortization of Related Party Costs
Loss on Impairment of Real Estate
Total Operating Expenses
Operating Income (Loss)
Non-Operating Income
Income (Loss) Before Minority Interest and Gain on Sale
Minority Interest
Gain (Loss) on Sale of Discontinued Operations
Discontinued Operations, Net
Segment Data
Multi-Family Residential
Commercial - Office
Commercial – Medical
Commercial – Industrial
Commercial - Retail
Undeveloped Land
Total
Property Sale Data
Sales Price
Net Book Value and Sales Costs
Gain (loss)
(in thousands)
2005
2004
2003
$
2,400 $ 6,303
508
6,811
226
2,626
$ 7,142
490
7,632
1,764
678
1,186
434
1,086
460
542
206
115
39
585
212
6
1
16
5
26
8
62
570
5,388
2,613
1,423
13
6
1
1,429
14
(432)
(1,955)
8,602
504
6,661 $ 1,501
2,997 $
(403)
1,883
0
2,184
0
270
60
818
(26)
382
(3)
6,661 $ 1,501
$
$
$
$ 48,906 $ 4,367
3,719
648
40,304
8,602 $
$
2,325
1,343
1,319
700
126
650
9
(4)
16
0
6,484
1,148
2
1,150
(558)
1,279
$ 1,871
$ 1,442
65
546
2
(184)
0
$ 1,871
$ 11,242
9,647
$ 1,595
2005 Annual Report F-26
NOTE 14 • EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to common shareholders by the weighted
average number of common shares outstanding during the period. The Company has no outstanding options,
warrants, convertible stock or other contractual obligations requiring issuance of additional common shares that
would result in a dilution of earnings. While Units can be exchanged for shares on a one-for-one basis after a
minimum holding period of one year, the exchange of Units for common shares has no effect on diluted earnings per
share, as Unitholders and common shareholders effectively share equally in the net income of the Operating
Partnership. The following table presents a reconciliation of the numerator and denominator used to calculate basic
and diluted earnings per share reported in the consolidated financial statements for the fiscal years ended April 30,
2005, 2004, and 2003:
NUMERATOR
Income from continuing operations
Discontinued operations
Net income
Dividends to preferred shareholders
Numerator for basic earnings per share – net income available to common
shareholders
Minority interest portion of operating partnership income
Numerator for diluted earnings per share
DENOMINATOR
Denominator for basic earnings per share weighted average shares
Effect of dilutive securities convertible operating partnership units
Denominator for diluted earnings per share
Earnings per common share from continuing operations – basic and diluted
Earnings per common share from discontinued operations – basic and diluted
NET INCOME PER COMMON SHARE – BASIC & DILUTED
NOTE 15 • RETIREMENT PLANS
For Years Ended April 30,
(in thousands, except per share data)
2005
2004
2003
$
8,415 $
6,661
15,076
(2,372)
7,939 $ 10,377
1,871
1,501
12,248
9,440
0
(33)
12,704
3,873
12,248
3,899
$ 16,577 $ 12,159 $ 16,147
9,407
2,752
43,214
12,621
55,835
39,257
11,176
50,433
$
$
.14 $
.16
.30 $
.20 $
.04
.24 $
32,574
10,041
42,615
.32
.06
.38
IRET sponsors a defined contribution profit sharing retirement plan and a defined contribution 401K plan. IRET’s
defined contribution profit sharing retirement plan is available to employees over the age of 21 who have completed
one year of service. Contributions to the profit sharing plan are at the discretion of the Company’s management. All
employees over the age of 21 are immediately eligible to participate in IRET’s defined contribution 401K plan and
may contribute up to maximum levels established by the I.R.S. IRET matches up to 3% of participating employees’
wages. Plan expenses to IRET for the years ended April 30, 2005, 2004, and 2003, were $204,141, $133,800, and
$46,875.
NOTE 16 • COMMITMENTS AND CONTINGENCIES
Ground Leases. As of April 30, 2005, the Company is a tenant under operating ground leases on six of its properties.
The Company pays a total of approximately $292,222 per year in rent under these ground leases, which have terms
ranging from 7 to 90 years, and expiration dates ranging from July 2012 to April 2095. The Company has renewal
options for three of the six ground leases, and rights of first offer or first refusal for the remainder.
Legal Proceedings. IRET is involved in various lawsuits arising in the normal course of business. Management
believes that such matters will not have a material effect on the Company’s financial statements.
Purchase Options. The Company has granted options to purchase certain IRET properties to various parties. In
general, the options grant the parties the right to purchase these properties at the greater of their appraised value or
an annual compounded increase of 2% to 2.5% of the initial cost of the property to IRET. The property cost and
gross rental revenue of these properties are as follows:
2005 Annual Report F-27
NOTE 16 • continued
Property
East Grand Station - East Grand Forks, MN
Edgewood Vista - Duluth, MN
Edgewood Vista - Fremont, NE
Edgewood Vista - Hastings, NE
Edgewood Vista - Kalispell, MT
Edgewood Vista - Missoula, MT
Edgewood Vista - Omaha, NE
Edgewood Vista - Virginia, MN
Excelsior Retail Center - Excelsior, MN
Great Plains Software - Fargo, ND
Healtheast - Woodbury & Maplewood, MN
Wedgewood Sweetwater - Lithia Springs, GA
Sleep Inn - Brooklyn Park, MN
TOTAL
(in thousands)
Property Cost
1,392
$
11,709
552
572
588
962
641
12,181
929
15,375
21,601
4,622
2,750
73,874
$
$
$
(in thousands) Gross Rental Revenue
2005
152
1,406
59
61
62
120
67
1,320
82
1,876
2,032
509
247
7,993
$
$
2004
152
1,278
59
61
62
120
67
893
129
1,875
1,948
502
0
7,146
$
$
2003
152
1,246
59
61
62
120
67
759
22
1,875
1,917
475
0
6,815
Income Guarantees. In connection with its acquisition in April 2004 of a portfolio of properties located in and near
Duluth, Minnesota, the Company received from the seller of the properties a guarantee, for five years from the
closing date of the acquisition, of a specified minimum amount of annual net operating income, before debt service,
from two of the properties included in the portfolio. As of April 30, 2005, the Company has recorded a receivable
for payment of $157,373 under this guarantee. Separately, in connection with its acquisition of Olympik Village
Apartments, a multi-family resident property in Rochester, Minnesota, the Company received from the seller of the
property a guarantee of 12.5% return on IRET’s equity or $150,000 per year whichever is greater, for a period of 24
months ending March 1, 2007. As of April 30, 2005, no amounts were due under the Olympik Village income
guarantee.
Crosstown Circle Office Building, Eden Prairie, MN. The Company’s Crosstown Circle Office Building in Eden
Prairie, Minnesota was acquired in October 2004 from Best Buy Company, which is leasing all but 7,500 square feet
of the 185,000 square foot building under a master lease expiring September 30, 2010. Under the terms of the
financing obtained by the Company for this building, the Company is obligated to fund a leasing reserve account in
the event that a specified occupancy level is not met at the time the Best Buy master lease expires. The amount to be
deposited in the leasing reserve account would be calculated by multiplying a specified amount per square foot by
the difference between the specified occupancy level and the building’s actual occupied square feet. The maximum
amount the Company would be required to deposit in such leasing reserve account is $4,625,000. Funds in the
leasing reserve account would be released as leases for vacant space in the building are executed.
Pending Acquisitions at the year end. Ritchie Medical Plaza and 2800 Medical Building. On June 7, 2005, the
Company closed on its acquisition of two medical office buildings in St. Paul and Minneapolis, Minnesota,
respectively. The Company paid $10,750,000 to acquire seven condominium units totaling 50,409 square feet in
Ritchie Medical Plaza in St. Paul and $9,000,000 to acquire the 2800 Medical Building in Minneapolis, an
approximately 54,971 square foot building. Additionally, as of April 30, 2005, the Company had signed purchase
agreements to acquire five office/industrial properties located in or near Omaha, Nebraska, for purchase prices
totaling $7,250,000. These pending acquisitions are subject to certain closing conditions and contingencies, and no
assurances can be given that these transactions will be completed.
NOTE 17 • FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each class of financial instruments.
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. Terms are short term in nature and carrying value approximates the estimated
market value.
Cash and Cash Equivalents. The carrying amount approximates fair value because of the short maturity.
2005 Annual Report F-28
NOTE 17 • continued
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.
Other Debt. The fair value of other debt is estimated based on the discounted cash flows of the loan using current
market rates.
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 at financial institutions with similar remaining maturities.
The estimated fair values of the Company’s financial instruments as of April 30, 2005 and 2004, are as follows:
FINANCIAL ASSETS
Mortgage loans receivable
Cash and cash equivalents
Marketable securities - available-for-sale
FINANCIAL LIABILITIES
Notes payable
Other debt
Mortgages payable
Investment certificates issued
(in thousands)
2005
Carrying
Amount
$
$
619
23,538
2,459
0
847
708,558
4,636
$
$
Fair Value
619
23,538
2,459
0
869
763,591
4,609
2004
Carrying
Amount
Fair Value
4,893 $
31,704
2,336
4,893
31,704
2,336
25,000 $
843
633,124
7,074
25,000
861
643,673
7,021
$
$
NOTE 18 • COMMON AND PREFERRED SHARES OF BENEFICIAL INTEREST AND
SHAREHOLDERS’ EQUITY
Distribution Reinvestment Plan. During fiscal years 2005 and 2004, IRET issued 1.2 million and 1.1 million
common shares, respectively, pursuant to its distribution reinvestment plan, at a total value at issuance of $10.7
million and $10.2 million, respectively. IRET’s distribution reinvestment plan is available to common 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 distributions used to purchase additional IRET common
shares.
Conversion of Units to Common Shares. During fiscal years 2005 and 2004, respectively, 0.7 million and 0.4
million Units were converted to common shares, with a total value of $5.3 million and $3.3 million included in
shareholders’ equity.
Issuance of Common Shares. In November 2004, the Company concluded a “best efforts” offering of up to 1.5
million common shares at $10.15 per share. In this offering, 1.4 million common shares were sold, for gross
proceeds to the Company of approximately $14.3 million, before payment of commissions of six percent per share
to the broker-dealers selling the shares, and before payment of other expenses of the offering. In May 2004, the
Company concluded a “best efforts” offering under which approximately .2 million common shares were sold, at
$10.10 per share., for gross proceeds to the Company of approximately $2.6 million, before payment of
commissions of six percent per share to the broker-dealers selling the shares, and before payment of other expenses
of the offering.
Series A Cumulative Redeemable Preferred Shares of Beneficial Interest. During fiscal year 2004, the Company
issued 1,150,000 shares of 8.25% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest for total
proceeds of $27.3 million, net of selling costs. Holders of the Company’s Series A Cumulative Redeemable
Preferred Shares of Beneficial Interest are entitled to receive dividends at an annual rate of 8.25% of the liquidation
2005 Annual Report F-29
preference of $25 per share, or $2.0625 per share per annum. These dividends are cumulative and payable quarterly
in arrears. The shares are not convertible into or exchangeable for any other property or any other securities of the
Company at the election of the holders. However, on or after April 26, 2009, (or sooner, under limited
circumstances), the Company, at its option may redeem the shares at a redemption price of $25.00 per share, plus
any accrued and unpaid distributions through the date of redemption. The shares have no maturity date and will
remain outstanding indefinitely unless redeemed by the Company.
NOTE 19 • QUARTERLY RESULTS OF CONSOLIDATED OPERATIONS (unaudited)
QUARTER ENDED
Revenues
Net Income available to common shareholders
Net Income per common share - basic & diluted
QUARTER ENDED
Revenues
Net Income available to common shareholders
Net Income per common share - basic & diluted
(in thousands, except per share data)
July 31, 2004 October 31, 2004 January 31, 2005 April 30, 2005
39,326
$
1,824
$
.04
$
38,478 $
2,643 $
.06 $
39,168
3,360
.08
39,475
4,877
.12
$
$
$
$
$
$
July 31, 2003 October 31, 2003 January 31, 2004 April 30, 2004
34,903
$
1,383
$
.03
$
33,949 $
2,489 $
.06 $
32,513
2,615
.07
32,231
2,920
.08
$
$
$
$
$
$
The above financial information is unaudited. In the opinion of management, all adjustments (which are of a normal
recurring nature) have been included for a fair presentation.
NOTE 20 • SUBSEQUENT EVENTS
Common and Preferred Share Distributions. On June 30, 2005, the Company paid a distribution of 51.56 cents per
share on the Company’s Series A Cumulative Redeemable Preferred Shares to preferred shareholders of record on
June 15, 2005. On July 1, 2005, the Company paid a distribution of 16.25 cents per share on the Company’s
common shares, to common shareholders and Unitholders of record on June 17, 2005. This distribution represented
an increase of .05 cents or 0.3% over the previous regular quarterly distribution of 16.20 cents per common
share/unit paid April 1, 2005.
Acquisitions. The Company closed on the following acquisitions subsequent to its fiscal year ended April 30, 2005:
Ritchie Medical Plaza and 2800 Medical Building. On June 7, 2005, the Company closed on its acquisition of two
medical office buildings in St. Paul and Minneapolis, Minnesota, respectively. The Company paid approximately
$10.8 million to acquire seven condominium units totaling 50,409 square feet in Ritchie Medical Plaza in St. Paul,
and approximately $9.0 million to acquire the 2800 Medical Building in Minneapolis, an approximately 54,971
square foot building.
2005 Annual Report F-30
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULES
To the Board of Trustees and Shareholders of
Investors Real Estate Trust
Minot, North Dakota
We have audited the consolidated financial statements of Investors Real Estate Trust and subsidiaries as of April 30,
2005 and 2004, and for the years then ended and have issued our report thereon dated June 28, 2005; such report is
included elsewhere in this Form 10-K. Our audits also included the fiscal 2005 and 2004 information included in the
consolidated financial statement schedules listed in the table of contents to the consolidated financial statements.
These financial statement schedules are the responsibility of the Company’s management. Our responsibility is to
express an opinion based on our audits. In our opinion, the information included in such financial statement
schedules, when considered in relation to the basic 2005 and 2004 consolidated financial statements taken as a
whole, presents fairly, in all material respects, the fiscal 2005 and 2004 information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
June 28, 2005
2005 Annual Report F-31
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM ON ADDITIONAL INFORMATION
Board of Trustees
Investors Real Estate Trust
and Subsidiaries
Minot, North Dakota
We have audited the consolidated statements of operations, shareholders' equity, and cash flows of Investors Real
Estate Trust and subsidiaries for the year ended April 30, 2003, and have issued our report thereon dated May 22,
2003, (June 23, 2005, as to the effects of discontinued operations in Note 12 and Note 13); such report is included
elsewhere in this Form 10-K. Those audits were made for the purpose of forming an opinion on such consolidated
financial statements taken as a whole. The information as listed in the table of contents related to the consolidated
statements of operations, shareholders' equity, and cash flows for the year ended April 30, 2003, is presented for
purposes of additional analysis and is not a required part of the basic consolidated financial statements. Such
information has been subjected to the auditing procedures applied in the audits of the basic consolidated financial
statements, and, in our opinion, the information is fairly stated in all material respects in relation to the consolidated
statements of operations, shareholders' equity, and cash flows of Investors Real Estate Trust for the year ended April
30, 2003, taken as a whole.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota, USA
May 22, 2003
2005 Annual Report F-32
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2005
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
MULTI-FAMILY RESIDENTIAL
ENCUMBRANCES
INITIAL COST TO COMPANY
BUILDINGS &
IMPROVEMENTS
LAND
COST CAPITALIZATION
SUBSEQUENT TO ACQUISITION
CARRYING
COSTS
IMPROVEMENTS
405 Grant Ave - Harvey, ND
408 1st Street SE - Minot, ND
Applewood On The Green - Omaha, NE
Boulder Court - Eagan, MN
Brookfield Village - Topeka, KS
Candlelight Apts. - Fargo, ND
Canyon Lake Apts. - Rapid City, SD
Castle Rock - Billings, MT
Chateau Apts. - Minot, ND
Clearwater - Boise, ID
Colonial Villa - Burnsville, MN
Colton Heights - Minot, ND
Cottonwood Lake I - Bismarck, ND
Cottonwood Lake II - Bismarck, ND
Cottonwood Lake III - Bismarck, ND
Country Meadows I - Billings, MT
Country Meadows II - Billings, MT
Crestview Apts. - Bismarck, ND
Crown Colony - Topeka, KS
Dakota Hill at Valley Ranch - Irving, TX
East Park Apartments - Sioux Falls, SD
Forest Park Estates - Grand Forks, ND
Heritage Manor - Rochester, MN
Jenner Properties - Grand Forks, ND
Kirkwood Apts. - Bismarck, ND
Lancaster Apts. - St. Cloud, MN
Legacy Apts. I & II - Grand Forks, ND
Legacy Apts. III - Grand Forks, ND
Legacy IV- Grand Forks, ND
Legacy V - Grand Forks, ND
Legacy VI - Grand Forks, ND
Magic City Apts. - Minot, ND
Meadows Phase I - Jamestown, ND
Meadows Phase II - Jamestown, ND
Meadows Phase III - Jamestown, ND
Miramont - Fort Collins, CO
Monticello Apts. - Monticello, MN
Neighborhood Apts. - Co. Springs, CO
North Pointe - Bismarck, ND
Oakmont Apts. - Sioux Falls, SD
Oakwood - Sioux Falls, SD
Olympic Village - Billings, MT
Olympik Village - Rochester, MN
Oxbow - Sioux Falls, SD
Park East Apts. - Fargo, ND
Park Meadows I - Waite Park, MN
Park Meadows II & III - Waite Park, MN
Pebble Springs - Bismarck, ND
Pine Cone Apts. - Fort Collins, CO
Pinehurst Apts. - Billings, MT
Pointe West Apts. - Rapid City, SD
Prairie Winds Apts. - Sioux Falls, SD
Prairiewood Meadows - Fargo, ND
Ridge Oaks Apts. - Sioux City, IA
Rimrock Apts. - Billings, MT
Rocky Meadows - Billings, MT
$
$
106 $
0
7,316
4,756
5,205
1,520
2,880
3,640
1,918
2,437
9,512
623
2,570
2,682
2,512
2,306
2,304
3,453
6,918
24,211
1,694
6,872
4,099
1,763
2,124
1,482
3,349
2,245
2,659
0
0
3,078
950
950
1,090
11,125
3,351
6,418
1,546
3,952
3,722
8,072
0
4,056
3,872
2,826
7,533
403
10,390
492
2,091
1,234
1,848
2,776
2,418
3,436
14
10
706
1,067
509
80
305
736
122
585
2,401
80
264
264
264
246
246
235
620
3,650
115
810
403
201
449
289
908
454
252
137
137
412
57
55
56
1,470
490
1,034
144
423
543
1,164
1,034
404
83
572
572
7
905
72
240
144
280
178
330
656
$
246
37
11,223
5,691
6,915
1,590
3,926
5,427
2,612
3,339
11,799
912
4,270
4,025
4,483
4,026
4,138
5,016
10,570
34,785
2,544
7,336
7,658
1,814
3,465
3,118
6,292
3,328
6,491
214
93
4,504
1,784
1,875
2,145
13,411
3,775
11,114
2,145
4,867
5,470
11,150
6,109
4,811
5,274
3,761
8,054
782
12,900
697
4,376
1,955
2,788
4,674
3,696
6,070
$
2
0
161
(14)
189
36
20
126
26
30
240
19
33
27
10
7
10
21
98
191
36
163
85
54
51
91
65
31
28
2,420
2,616
125
3
1
2
107
28
269
12
22
146
127
17
59
69
58
184
12
136
7
37
31
130
83
18
43
0
0
95
0
0
0
73
0
0
0
0
0
38
37
40
39
81
0
0
0
0
0
0
0
0
0
112
112
0
0
0
0
0
0
0
0
0
0
124
27
0
0
0
0
0
0
0
0
0
6
0
0
0
0
0
103
2005 Annual Report F-33
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2005
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
MULTI-FAMILY RESIDENTIAL - continued
ENCUMBRANCES
INITIAL COST TO COMPANY
BUILDINGS &
IMPROVEMENTS
LAND
COST CAPITALIZATION
SUBSEQUENT TO ACQUISITION
CARRYING
COSTS
IMPROVEMENTS
$
$
$
Sherwood Apts. - Topeka, KS
Southbrook & Mariposa - Topeka, KS
South Pointe - Minot, ND
Southview Apts. - Minot, ND
Southwind Apts. - Grand Forks, ND
Sunset Trail Phase I - Rochester, MN
Sunset Trail Phase II - Rochester, MN
Sweetwater Properties – Devils Lake and
Grafton, ND
Sycamore Village Apts. - Sioux Falls, SD
Terrace On The Green - Moorhead, MN
Thomasbrook - Lincoln, NE
Valley Park Manor - Grand Forks, ND
West Stonehill - St. Cloud, MN
Westwood Park - Bismarck, ND
Winchester/Village Green - Rochester, MN
Woodridge Apts. - Rochester, MN
TOTAL MULTI-FAMILY RESIDENTIAL
OFFICE BUILDINGS
1st Avenue Building - Minot, ND
17 South Main - Minot, ND
401 South Main - Minot, ND
2030 Cliff Road - Eagan, MN
Ameritrade - Omaha, NE
Benton Business Park - Sauk Rapids, MN
Bloomington Business Plaza – Blmngtn., MN
Brenwood - Minnetonka, MN
Brown Deer Road - Milwaukee, WI
Burnsville Bluffs - Burnsville, MN
Cold Spring Center - St. Cloud, MN
Crosstown Centre - Eden Prairie, MN
Dewey Hill Business Center - Edina, MN
Eden Prairie Ctrl Bank Office - E. Prairie, MN
Golden Hills Office Ctr. - Golden Valley, MN
Great Plains Software - Fargo, ND
Greenwood Chiropractic - Greenwood, MN
Highlands Ranch - Highlands Ranch, CO
Interlachen Corp Center - Eagan, MN
Mendota Center I - Mendota Heights, MN
Mendota Center II - Mendota Heights, MN
Mendota Center III - Mendota Heights, MN
Mendota Center IV - Mendota Heights, MN
Mendota Northland Ctr. - M. Heights, MN
Metris - Duluth, MN
Minnesota National Bank - Duluth, MN
Minnetonka Office Bldg. - Minnetonka, MN
Nicollett VII - Burnsville, MN
Northgate I - Maple Grove, MN
Northgate II - Maple Grove, MN
Pillsbury Business Center - Edina, MN
Plaza VII - Boise, ID
Plymouth I - Plymouth, MN
Plymouth II - Plymouth, MN
Plymouth III - Plymouth, MN
Plymouth IV & V - Plymouth, MN
900 Concourse Drive - Rapid City, SD
$
$
$
$
$
$
10,377 $
3,391
6,890
0
3,728
4,175
4,095
1,150
399
550
185
400
168
168
819
953
1,522
5,646
3,761
6,896
1,107
6,278
3,340
90
100
24
600
293
938
161
982
370
263,763 $ 34,462
$
0
0
0
584
5,121
990
4,725
8,396
6,215
1,485
4,807
16,395
2,924
2,410
15,000
8,819
221
9,784
10,882
4,265
6,829
3,880
5,038
10,755
1,867
1,242
0
4,490
6,314
1,452
1,132
1,378
1,415
1,415
1,742
8,722
3,862
30
15
71
146
327
188
1,300
1,762
1,455
300
588
2,884
985
531
3,018
126
189
1,437
1,650
1,570
1,074
1,501
1,385
1,331
336
287
40
429
1,063
358
284
300
530
367
507
641
285
15,447
5,101
9,533
586
5,940
6,935
7,425
1,684
1,408
2,708
9,793
5,135
12,280
2,272
8,085
6,646
396,548
518
87
557
837
8,022
1,265
6,250
12,657
9,268
2,499
8,022
14,569
3,954
4,129
18,361
15,250
145
9,549
14,883
5,470
10,482
5,249
7,320
16,329
2,200
1,454
361
6,953
6,352
2,007
1,558
3,100
1,128
1,260
1,490
14,247
6,762
$
$
$
139
48
125
33
124
15
9
28
64
94
260
142
190
74
(259)
125
9,809
7
8
2
0
0
22
188
205
299
161
0
242
219
45
695
(1)
0
254
2
36
76
(2)
0
0
3
2
0
2
40
7
52
45
14
13
15
1
0
0
0
403
0
0
0
0
0
0
0
0
0
0
0
0
0
1,290
0
0
0
0
0
0
39
0
0
0
0
0
0
0
0
0
0
0
191
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2005 Annual Report F-34
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2005
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
OFFICE BUILDINGS - continued
ENCUMBRANCES
INITIAL COST TO COMPANY
BUILDINGS &
IMPROVEMENTS
LAND
COST CAPITALIZATION
SUBSEQUENT TO ACQUISITION
CARRYING
COSTS
IMPROVEMENTS
Southeast Tech Center - Eagan, MN
TCA Building - Eagan, MN
Three Paramount Plaza - Bloomington, MN
Thresher Square East - Minneapolis, MN
Thresher Square West - Minneapolis, MN
UHC Office - International Falls, MN
US Bank Financial Ctr. - Bloomington, MN
Viromed - Eden Prairie, MN
Wayroad - Minnetonka, MN
Wells Fargo Ctr. - St Cloud, MN
West River Business Park - Waite Park, MN
Westgate - Boise, ID
Wirth Corp Center - Golden Valley, MN
TOTAL OFFICE BUILDINGS
MEDICAL
Abbott Northwest - Sartell, MN
Airport Medical - Bloomington, MN
Denfeld Clinic - Duluth, MN
Edgewood Vista - Duluth, MN
Edgewood Vista - Fremont, NE
Edgewood Vista - Hastings, NE
Edgewood Vista - Kalispell, MT
Edgewood Vista - Missoula, MT
Edgewood Vista - Omaha, NE
Edgewood Vista - Virginia, MN
Edgewood Vista Phase II - Virginia, MN
Fresenius - Duluth, MN
Garden View - St. Paul, MN
Gateway Clinic - Sandstone, MN
Healtheast Med Ctr. - Wdbry. & St. Johns, MN
High Pointe Health Campus - Lake Elmo, MN
Mariner Clinic - Superior, WI
Nebraska Orthopaedic - Omaha, NE
Park Dental - Brooklyn, MN
Pavilion I - Duluth, MN
Pavilion II - Duluth, MN
Paul Larson Clinic - Edina, MN
Southdale Expansion - Edina, MN
Southdale Medical Center - Edina, MN
Wedgewood - Sweetwater, GA
Wells Clinic - Hibbing, MN
TOTAL MEDICAL
INDUSTRIAL
API Building - Duluth, MN
Bodycote Industrial Bldg. - Eden Prairie, MN
Dixon Avenue Industrial Park - Des Moines, IA
Lexington Commerce Center - Eagan, MN
Lighthouse - Duluth, MN
Metal Improvement Co. - New Brighton, MN
Stone Container - Fargo, ND
Stone Container - Roseville, MN
Waconia Industrial Bldg. - Waconia, MN
Wilson's Leather - Brooklyn Park, MN
Winsted Industrial Bldg. - Winsted, MN
TOTAL INDUSTRIAL
$
$
$
$
$
$
3,928 $
560
627
1,261
646
449
119
2,960
666
530
1,016
235
1,000
970
204,215 $ 40,329
10,127
4,775
0
0
1,583
0
2,241
3,311
0
990
7,647
5,057
7,868 $
2,869
2,354
3,857
306
316
320
564
365
4,719
3,417
1,139
4,352
1,363
17,497
5,782
2,982
14,695
1,646
7,857
14,458
0
9,500
23,116
1,216
2,079
0
0
501
390
56
14
70
109
89
246
0
50
0
66
3,238
1,305
0
0
185
1,245
2,715
351
0
3,500
334
162
134,637 $ 14,626
1,266 $
1,527
8,612
3,159
1,329
1,406
4,413
4,871
0
8,493
0
35,076 $
115
198
1,439
453
90
240
440
810
165
1,368
100
5,418
$
$
$
$
$
$
5,557
8,907
6,608
5,914
4,109
2,366
14,047
4,198
4,953
8,373
1,198
10,668
7,645
309,087
13,866
4,678
2,613
11,319
496
558
518
854
553
6,766
5,111
1,520
7,605
1,699
18,363
10,528
3,813
20,272
2,767
8,895
16,559
662
12,733
29,424
3,638
2,497
188,307
1,605
1,954
11,465
5,378
1,788
2,205
6,612
7,275
1,502
11,685
907
52,376
$
$
$
$
$
$
219 $
351
39
131
150
12
0
(1)
39
0
20
70
150
3,832 $
$
0
0
1
0
0
0
0
(1)
(1)
0
0
2
93
0
0
195
7
240
0
4
51
0
314
785
650
2
2,342 $
3 $
0
76
81
6
0
0
0
0
15
0
181 $
0
0
0
5
4
0
0
0
20
0
0
0
29
288
0
0
0
0
0
0
0
0
0
58
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
58
0
0
0
0
0
4
89
165
0
0
0
258
2005 Annual Report F-35
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2005
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
RETAIL
ENCUMBRANCES
INITIAL COST TO COMPANY
BUILDINGS &
IMPROVEMENTS
LAND
COST CAPITALIZATION
SUBSEQUENT TO ACQUISITION
CARRYING
COSTS
IMPROVEMENTS
Andover C Store - Andover, MN
Anoka Strip Center - Anoka, MN
Blaine Strip Center - Blaine, MN
Buffalo Strip Center - Buffalo, MN
Burnsville 1 Strip Center - Burnsville, MN
Burnsville 2 Strip Center - Burnsville, MN
Centerville C Store - Centerville, MN
Champlin South Pond - Champlin, MN
Chan West Village - Chanhassen, MN
Duluth Denfeld Retail - Duluth, MN
Duluth Tool Crib - Duluth, MN
E Bethel C Store - Bethel, MN
Eagan 1 Retail Center - Eagan, MN
Eagan 2 Retail Center - Eagan, MN
Eagan 3 C Store - Eagan, MN
East Grand Station - East Grand Forks, MN
Excelsior Strip Center - Excelsior, MN
Fargo Express Center - Fargo, ND
Fargo Express SC Pad 1 - Fargo, ND
Faribault Checker Auto - Faribault, MN
Forest Lake Auto - Forest Lake, MN
Forest Lake Westlake Center - Forest Lake, MN
Glencoe C Store - Glencoe, MN
Grand Forks Carmike - Grand Forks, ND
Grand Forks Medpark Mall - Grand Forks, ND
Howard Lake C Store - Howard Lake, MN
IGH Strip Center - Inver Grove Heights, MN
Jamestown Buffalo Mall - Jamestown, ND
Jamestown Business Center - Jamestown, ND
Kalispell Retail Center - Kalispell, MT
Kentwood Thomasville Furniture - Kntwd., MI
Ladysmith Pamida - Ladysmith, WI
Lakeland C Store - Lakeland, MN
Lakeville Strip Center – Lakeville, MN
Lindstrom C Store - Lindstrom, MN
Lino Lake Strip Center - Lino Lakes, MN
Livingston Pamida - Livingston, MT
Long Prairie C Store - Long Prairie, MN
Minot Arrowhead SC - Minot, ND
Minot Plaza - Minot, ND
Monticello C Store - Monticello, MN
Mora C Store - Mora, MN
Mound Strip Center - Mound, MN
Moundsview Bakery - Mounds View, MN
Oakdale Strip Center - Oakdale, MN
Omaha Barnes & Noble - Omaha, NE
Paynesville C Store - Paynesville, MN
Pine City C Store - Pine City, MN
Pine City Evergreen Square - Pine City, MN
Prior Lake 1 Strip Center - Prior Lake, MN
Prior Lake 3 Strip Center - Prior Lake, MN
Rochester Auto - Rochester, MN
Rochester Maplewood Square – Rochester, MN
Schofield Plaza SC – Schofield, WI
Shoreview C Store – Shoreview, MN
Sleep Inn – Brooklyn Park , MN
St. Cloud Westgate SC – St. Cloud, MN
St. Louise Park Retail – St. Louis Park, MN
Wilmar Sam Goody – Willmar, MN
Winsted C Store - Winsted, MN
TOTAL RETAIL
SUBTOTAL
$
$
$
187 $
469
364
301
637
506
219
2,342
15,350
3,555
1,076
338
1,674
0
0
655
0
1,283
0
214
0
5,354
0
2,266
3,183
239
626
2,507
881
1,750
1,072
1,204
294
1,283
212
283
1,431
0
1,154
0
0
0
0
0
475
3,325
0
369
2,269
905
0
280
5,646
0
0
0
4,210
221
0
258
104
123
121
131
208
291
78
842
5,035
276
130
32
196
291
214
150
275
305
69
83
50
2,397
52
184
681
22
221
566
297
250
225
89
86
121
67
121
227
39
100
50
86
55
100
47
351
600
31
83
154
202
48
76
3,275
175
63
633
1,219
168
170
35
70,867 $ 22,370
$ 117,205
708,558
$
$
$
176
608
413
340
788
486
252
2,703
15,739
4,699
1,800
478
319
1,067
568
1,242
643
1,122
300
257
448
5,700
478
2,295
4,982
358
726
3,229
1,099
2,250
1,896
1,411
357
1,843
254
331
1,573
661
2,997
472
770
245
260
243
388
3,099
334
357
2,783
774
434
364
8,632
1,600
267
2,118
5,559
177
238
376
96,378
1,042,696
$
$
$
1
2
3
5
0
12
3
2
30
9
3
0
0
1
1
0
11
7
(1)
1
0
29
0
0
26
1
0
428
51
917
0
0
0
65
1
2
0
1
98
52
7
1
0
2
0
0
2
2
37
3
1
0
7
1
2
(1)
1
2
2
0
1,830
17,994
$
$
$
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
67
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
67
1,961
2005 Annual Report F-36
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2005
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION - (in thousands)
UNDEVELOPED LAND
ENCUMBRANCES
INITIAL COST TO COMPANY
BUILDINGS &
IMPROVEMENTS
LAND
COST CAPITALIZATION
SUBSEQUENT TO ACQUISITION
CARRYING
COSTS
IMPROVEMENTS
17 S Main 2nd Floor - Minot, ND
Andover, MN
Centerville, MN
Cottonwood Lake IV - Bismarck, ND
IGH Land, MN
Jamestown Buffalo Mall Theater - Jmstwn., ND
Kalispell, MT
Legacy VII - Grand Forks, ND
Long Prairie, MN
River Falls, WI
TOTAL UNDEVELOPED LAND
TOTAL
$
$
$
0
0
0
0
0
0
0
0
0
0
0
$
$
0
150
100
264
560
0
1,400
137
150
200
2,961
708,558
$ 120,166
$
$
$
0
0
2
0
3
0
12
93
0
2
112
1,042,808
$
$
$
12
0
2
1
1
67
3
2,214
6
3
2,309
20,303
$
$
$
0
0
0
0
0
0
0
0
0
0
0
1,961
2005 Annual Report F-37
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2005
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
MULTI-FAMILY RESIDENTIAL
LAND
IMPROVEMENTS TOTAL
BUILDING &
ACCUMULATED
DEPRECIATION
DATE
ACQUIRED
$
405 Grant Ave - Harvey, ND
408 1st Street SE - Minot, ND
Applewood On The Green - Omaha, NE
Boulder Court - Eagan, MN
Brookfield Village - Topeka, KS
Candlelight Apts. - Fargo, ND
Canyon Lake Apts. - Rapid City, SD
Castle Rock - Billings, MT
Chateau Apts. - Minot, ND
Clearwater - Boise, ID
Colonial Villa - Burnsville, MN
Colton Heights - Minot, ND
Cottonwood Lake I - Bismarck, ND
Cottonwood Lake II - Bismarck, ND
Cottonwood Lake III - Bismarck, ND
Country Meadows I - Billings, MT
Country Meadows II - Billings, MT
Crestview Apts. - Bismarck, ND
Crown Colony - Topeka, KS
Dakota Hill at Valley Ranch - Irving, TX
East Park Apartments - Sioux Falls, SD
Forest Park Estates - Grand Forks, ND
Heritage Manor - Rochester, MN
Jenner Properties - Grand Forks, ND
Kirkwood Apts. - Bismarck, ND
Lancaster Apts. - St. Cloud, MN
Legacy Apts. I & II - Grand Forks, ND
Legacy Apts. III - Grand Forks, ND
Legacy IV- Grand Forks, ND
Legacy V - Grand Forks, ND
Legacy VI - Grand Forks, ND
Magic City Apts. - Minot, ND
Meadows Phase I - Jamestown, ND
Meadows Phase II - Jamestown, ND
Meadows Phase III - Jamestown, ND
Miramont - Fort Collins, CO
Monticello Apts. - Monticello, MN
Neighborhood Apts. - Co. Springs, CO
North Pointe - Bismarck, ND
Oakmont Apts. - Sioux Falls, SD
Oakwood - Sioux Falls, SD
Olympic Village - Billings, MT
Olympik Village - Rochester, MN
Oxbow - Sioux Falls, SD
Park East Apts. - Fargo, ND
Park Meadows I - Waite Park, MN
Park Meadows II & III - Waite Park, MN
Pebble Springs - Bismarck, ND
Pine Cone Apts. - Fort Collins, CO
Pinehurst Apts. - Billings, MT
Pointe West Apts. - Rapid City, SD
Prairie Winds Apts. - Sioux Falls, SD
Prairiewood Meadows - Fargo, ND
Ridge Oaks Apts. - Sioux City, IA
Rimrock Apts. - Billings, MT
Rocky Meadows - Billings, MT
Sherwood Apts. - Topeka, KS
$
14
10
706
1,067
509
80
305
736
122
585
2,401
80
264
264
264
246
246
235
620
3,650
115
810
403
201
449
289
908
454
252
137
137
412
57
55
56
1,470
490
1,034
144
423
543
1,164
1,034
404
83
572
572
7
905
72
240
144
280
178
330
656
1,150
$
248 $
37
11,479
5,677
7,104
1,626
4,019
5,553
2,638
3,369
12,039
931
4,341
4,089
4,533
4,072
4,229
5,037
10,668
34,976
2,580
7,499
7,743
1,868
3,516
3,209
6,469
3,471
6,519
2,634
2,709
4,629
1,787
1,876
2,147
13,518
3,803
11,383
2,281
4,916
5,616
11,277
6,126
4,870
5,343
3,819
8,238
794
13,036
710
4,413
1,986
2,918
4,757
3,714
6,216
15,586
262
47
12,185
6,744
7,613
1,706
4,324
6,289
2,760
3,954
14,440
1,011
4,605
4,353
4,797
4,318
4,475
5,272
11,288
38,626
2,695
8,309
8,146
2,069
3,965
3,498
7,377
3,925
6,771
2,771
2,846
5,041
1,844
1,931
2,203
14,988
4,293
12,417
2,425
5,339
6,159
12,441
7,160
5,274
5,426
4,391
8,810
801
13,941
782
4,653
2,130
3,198
4,935
4,044
6,872
16,736
79
35
1,032
256
273
461
369
918
484
574
538
525
783
746
547
752
565
1,411
1,529
4,612
190
2,227
1,369
377
737
429
1,476
650
874
39
19
928
256
247
174
2,881
115
2,457
545
383
1,544
1,375
20
1,263
951
1,295
1,604
115
3,211
58
1,227
609
360
646
551
1,355
2,236
1991
2001
2001
2003
2003
1993
2001
1999
1997
1999
2003
1996
1999
1999
1999
1995
1997
1994
2000
2000
2002
1993
1999
1996
1997
2000
1996
1996
2000
2000
2000
1997
2000
2000
2002
1996
2004
1996
1995
2002
1996
2001
2005
1994
1997
1997
1997
2000
1994
2002
1994
1993
2001
2001
2000
1996
2000
LIFE ON
WHICH
LATEST
INCOME
STATEMENT IS
COMPUTED
24-40 years
40 years
40 years
40 years
40 years
24-40 years
40 years
40 years
12-40 years
40 years
40 years
40 years
40 years
40 years
40 years
33-40 years
40 years
24-40 years
40 years
40 years
40 years
24-40 years
40 years
40 years
12-40 years
40 years
24-40 years
24-40 years
40 years
40 years
40 years
12-40 years
40 years
40 years
40 years
40 years
40 years
40 years
24-40 years
40 years
40 years
40 years
40 years
24-40 years
12-40 years
40 years
40 years
40 years
40 years
40 years
24-40 years
24-40 years
40 years
40 years
40 years
40 years
40 years
2005 Annual Report F-38
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2005
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
MULTI-FAMILY RES. - continued
LAND
IMPROVEMENTS TOTAL
BUILDING &
ACCUMULATED
DEPRECIATION
DATE
ACQUIRED
Southbrook & Mariposa - Topeka, KS
South Pointe - Minot, ND
Southview Apts. - Minot, ND
Southwind Apts. - Grand Forks, ND
Sunset Trail Phase I - Rochester, MN
Sunset Trail Phase II - Rochester, MN
Sweetwater Properties – Devils Lake and
Grafton, ND
Sycamore Village Apts. - Sioux Falls, SD
Terrace On The Green - Moorhead, MN
Thomasbrook - Lincoln, NE
Valley Park Manor - Grand Forks, ND
West Stonehill - St. Cloud, MN
Westwood Park - Bismarck, ND
Winchester/Village Green - Rochester, MN
Woodridge Apts. - Rochester, MN
TOTAL MULTI-FAMILY
RESIDENTIAL
OFFICE BUILDINGS
1st Avenue Building - Minot, ND
17 South Main - Minot, ND
401 South Main - Minot, ND
2030 Cliff Road - Eagan, MN
Ameritrade - Omaha, NE
Benton Business Park - Sauk Rapids, MN
Bloomington Bus. Plaza – Blmngtn., MN
Brenwood - Minnetonka, MN
Brown Deer Road - Milwaukee, WI
Burnsville Bluffs - Burnsville, MN
Cold Spring Center - St. Cloud, MN
Crosstown Centre - Eden Prairie, MN
Dewey Hill Business Center - Edina, MN
Eden Prairie Ctrl Bank Office - E. Prairie,
MN
Golden Hills Office Ctr. - Golden Valley,
MN
Great Plains Software - Fargo, ND
Greenwood Chiropractic - Greenwood, MN
Highlands Ranch - Highlands Ranch, CO
Interlachen Corp Center - Eagan, MN
Mendota Center I - Mendota Heights, MN
Mendota Center II - Mendota Heights, MN
Mendota Center III - Mendota Heights, MN
Mendota Center IV - Mendota Heights, MN
Mendota Northland Ctr. - M. Heights, MN
Metris - Duluth, MN
Minnesota National Bank - Duluth, MN
Minnetonka Office Bldg. - Minnetonka,
MN
Nicollett VII - Burnsville, MN
Northgate I - Maple Grove, MN
Northgate II - Maple Grove, MN
Pillsbury Business Center - Edina, MN
Plaza VII - Boise, ID
Plymouth I - Plymouth, MN
$
399
550
185
400
168
168
90
100
24
600
293
938
161
982
370
$ 34,462
$
30
15
71
146
327
188
1,300
1,762
1,455
300
588
2,884
985
531
3,018
126
189
1,437
1,650
1,570
1,074
1,501
1,385
1,331
336
287
40
429
1,063
358
284
300
530
$
$
$
$
$
$
$
5,149
10,061
619
6,064
6,950
7,434
1,712
1,472
2,802
10,053
5,277
12,470
2,346
7,826
6,771
5,548
10,611
804
6,464
7,118
7,602
1,802
1,572
2,826
10,653
5,570
13,408
2,507
8,808
7,141
407,647
$
442,109
$
525
95
559
837
8,022
1,287
6,477
12,862
9,567
2,660
8,022
14,811
4,173
555
110
630
983
8,349
1,475
7,777
14,624
11,022
2,960
8,610
17,695
5,158
48
2,259
166
1,422
803
690
1,136
105
1,881
1,645
834
2,968
437
361
1,497
67,534
480
10
227
85
1,209
57
590
902
498
249
843
206
463
2004
1995
1994
1996
2001
2002
1972
2002
1970
2000
2000
1995
1999
2003
1996
1981
2001
1987
1986
1999
2003
2001
2002
2003
2001
2001
2004
2001
LIFE ON
WHICH
LATEST
INCOME
STATEMENT IS
COMPUTED
40 years
24-40 years
24-40 years
24-40 years
40 years
40 years
5-40 years
40 years
33-40 years
40 years
40 years
40 years
40 years
40 years
40 years
33-40 years
40 years
24-40 years
19-40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
4,174
4,705
228
2003
40 years
19,056
15,249
145
9,803
15,076
5,506
10,558
5,247
7,320
16,329
2,203
1,456
361
6,955
6,392
2,014
1,610
3,145
1,142
22,074
15,375
334
11,240
16,726
7,076
11,632
6,748
8,705
17,660
2,539
1,743
401
7,384
7,455
2,372
1,894
3,445
1,672
766
2,176
8
92
1,413
498
960
451
587
1,290
57
38
82
706
139
266
159
182
25
2003
2000
2003
2004
2001
2002
2002
2002
2002
2002
2004
2004
2001
2001
2004
2000
2001
2003
2004
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
2005 Annual Report F-39
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2005
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
OFFICE BUILDINGS - continued
LAND
IMPROVEMENTS TOTAL
BUILDING &
ACCUMULATED
DEPRECIATION
DATE
ACQUIRED
$
$
$
$
$
Plymouth II - Plymouth, MN
Plymouth III - Plymouth, MN
Plymouth IV & V - Plymouth, MN
Rapid City, SD - 900 Concourse Drive
Southeast Tech Center - Eagan, MN
TCA Building - Eagan, MN
Three Paramount Plaza - Bloomington, MN
Thresher Square East - Minneapolis, MN
Thresher Square West - Minneapolis, MN
UHC Office - International Falls, MN
US Bank Financial Ctr. - Bloomington, MN
Viromed - Eden Prairie, MN
Wayroad - Minnetonka, MN
Wells Fargo Ctr. - St Cloud, MN
West River Bus. Park - Waite Park, MN
Westgate - Boise, ID
Wirth Corp Center - Golden Valley, MN
TOTAL OFFICE BUILDINGS
$
367
507
641
285
560
627
1,261
646
449
119
2,960
666
530
1,016
235
1,000
970
$ 40,329
MEDICAL
Abbott Northwest - Sartell, MN
Airport Medical - Bloomington, MN
Denfeld Clinic - Duluth, MN
Edgewood Vista - Duluth, MN
Edgewood Vista - Fremont, NE
Edgewood Vista - Hastings, NE
Edgewood Vista - Kalispell, MT
Edgewood Vista - Missoula, MT
Edgewood Vista - Omaha, NE
Edgewood Vista - Virginia, MN
Edgewood Vista Phase II - Virginia, MN
Fresenius - Duluth, MN
Garden View - St. Paul, MN
Gateway Clinic - Sandstone, MN
Healtheast Med Ctr. - Wdbry. & St. Johns,
MN
High Pt. Health Campus - Lake Elmo, MN
Mariner Clinic - Superior, WI
Nebraska Orthopaedic - Omaha, NE
Park Dental - Brooklyn, MN
Pavilion I - Duluth, MN
Pavilion II - Duluth, MN
Paul Larson Clinic - Edina, MN
Southdale Expansion - Edina, MN
Southdale Medical Center - Edina, MN
Wedgewood - Sweetwater, GA
Wells Clinic - Hibbing, MN
TOTAL MEDICAL
$
0
0
501
390
56
14
70
109
89
246
0
50
0
66
3,238
1,305
0
0
185
1,245
2,715
351
0
3,500
334
162
$ 14,626
$
INDUSTRIAL
API Building - Duluth, MN
Bodycote Indus. Bldg. - Eden Prairie, MN
Dixon Ave. Indus. Park - Des Moines, IA
Lexington Commerce Center - Eagan, MN
Lighthouse - Duluth, MN
Metal Improvement Co. – N. Brighton, MN
Stone Container - Fargo, ND
Stone Container - Roseville, MN
Waconia Industrial Bldg. - Waconia, MN
115
198
1,439
453
90
240
440
810
165
$
$
$
$
$
1,273 $
1,505
14,248
6,762
5,776
9,258
6,647
6,050
4,263
2,378
14,047
4,197
5,012
8,373
1,218
10,738
7,824
313,207 $
13,866 $
4,678
2,614
11,319
496
558
518
853
552
6,824
5,111
1,522
7,698
1,699
18,363
10,723
3,820
20,512
2,767
8,899
16,610
662
13,047
30,209
4,288
2,499
190,707 $
1,608 $
1,954
11,541
5,459
1,794
2,209
6,701
7,440
1,502
1,640
2,012
14,889
7,047
6,336
9,885
7,908
6,696
4,712
2,497
17,007
4,863
5,542
9,389
1,453
11,738
8,794
353,536
13,866
4,678
3,115
11,709
552
572
588
962
641
7,070
5,111
1,572
7,698
1,765
21,601
12,028
3,820
20,512
2,952
10,144
19,325
1,013
13,047
33,709
4,622
2,661
205,333
1,723
2,152
12,980
5,912
1,884
2,449
7,141
8,250
1,667
28
33
1,419
810
771
357
527
489
341
63
44
651
394
26
54
635
614
23,198
898
307
68
1,026
54
58
54
181
57
519
154
40
526
44
2,276
212
99
491
182
195
545
44
590
3,425
745
65
12,855
42
467
749
701
47
168
1,268
628
177
2004
2004
2001
2001
2000
2003
2002
2002
2002
2004
2005
1999
2002
2005
2003
2003
2002
2002
2002
2004
2000
2001
2001
2001
1997
2001
2002
2004
2004
2002
2004
2001
2004
2004
2004
2002
2004
2004
2002
2003
2001
1996
2004
2004
1992
2002
2000
2004
2002
1995
2001
2001
LIFE ON
WHICH
LATEST
INCOME
STATEMENT IS
COMPUTED
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
2005 Annual Report F-40
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2005
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
INDUSTRIAL – continued
LAND
IMPROVEMENTS TOTAL
BUILDING &
ACCUMULATED
DEPRECIATION
DATE
ACQUIRED
LIFE ON
WHICH
LATEST
INCOME
STATEMENT IS
COMPUTED
$
$
$
Wilson's Leather - Brooklyn Park, MN
Winsted Industrial Bldg. - Winsted, MN
TOTAL INDUSTRIAL
$ 1,368
100
$ 5,418
RETAIL
Andover C Store - Andover, MN
Anoka Strip Center - Anoka, MN
Blaine Strip Center - Blaine, MN
Buffalo Strip Center - Buffalo, MN
Burnsville 1 Strip Center - Burnsville, MN
Burnsville 2 Strip Center - Burnsville, MN
Centerville C Store - Centerville, MN
Champlin South Pond - Champlin, MN
Chan West Village - Chanhassen, MN
Duluth Denfeld Retail - Duluth, MN
Duluth Tool Crib - Duluth, MN
E Bethel C Store - Bethel, MN
Eagan 1 Retail Center - Eagan, MN
Eagan 2 Retail Center - Eagan, MN
Eagan 3 C Store - Eagan, MN
East Grand Station - East Grand Forks, MN
Excelsior Strip Center - Excelsior, MN
Fargo Express Center - Fargo, ND
Fargo Express SC Pad 1 - Fargo, ND
Faribault Checker Auto - Faribault, MN
Forest Lake Auto - Forest Lake, MN
Forest Lake Westlake Ctr. – Forest Lake,
MN
Glencoe C Store - Glencoe, MN
Grand Forks Carmike - Grand Forks, ND
Grand Forks Medpk. Mall - Grand Forks,
ND
Howard Lake C Store - Howard Lake, MN
IGH Strip Ctr - Inver Grove Heights, MN
Jamestown Buffalo Mall - Jamestown, ND
Jamestown Business Ctr. - Jamestown, ND
Kalispell Retail Center - Kalispell, MT
Kntwood Thomasville Furn. - Kentwood.,
MI
Ladysmith Pamida - Ladysmith, WI
Lakeland C Store - Lakeland, MN
Lakeville Strip Center – Lakeville, MN
Lindstrom C Store - Lindstrom, MN
Lino Lake Strip Center - Lino Lakes, MN
Livingston Pamida - Livingston, MT
Long Prairie C Store - Long Prairie, MN
Minot Arrowhead SC - Minot, ND
Minot Plaza - Minot, ND
Monticello C Store - Monticello, MN
Mora C Store - Mora, MN
Mound Strip Center - Mound, MN
Moundsview Bakery - Mounds View, MN
Oakdale Strip Center - Oakdale, MN
Omaha Barnes & Noble - Omaha, NE
Paynesville C Store - Paynesville, MN
Pine City C Store - Pine City, MN
Pine City Evergreen Square – P. City, MN
Prior Lake 1 Strip Center - Prior Lake, MN
Prior Lake 3 Strip Center - Prior Lake, MN
$
104
123
121
131
208
291
78
842
5,035
276
130
32
196
291
214
150
275
305
69
83
50
2,397
52
184
681
22
221
566
297
250
225
89
86
121
67
121
227
39
100
50
86
55
100
47
351
600
31
83
154
202
48
$
$
$
11,700 $
907
52,815 $
13,068
1,007
58,233
177 $
610
416
345
788
498
255
2,705
15,769
4,708
1,803
478
319
1,068
569
1,242
654
1,129
299
258
448
5,729
478
2,362
5,008
359
726
3,657
1,150
3,167
1,896
1,411
357
1,908
255
333
1,573
662
3,095
524
777
246
260
245
388
3,099
336
359
2,820
777
435
281
733
537
476
996
789
333
3,547
20,804
4,984
1,933
510
515
1,359
783
1,392
929
1,434
368
341
498
8,126
530
2,546
5,689
381
947
4,223
1,447
3,417
2,121
1,500
443
2,029
322
454
1,800
701
3,195
574
863
301
360
292
739
3,699
367
442
2,974
979
483
839
107
5,193
2002
2001
40 years
40 years
10
34
23
19
45
30
14
70
873
123
47
26
17
58
31
169
35
62
2
14
22
310
26
620
664
20
40
125
68
131
402
78
20
110
14
18
87
36
2,368
149
42
14
14
13
21
736
18
20
156
42
21
2003
2003
2003
2003
2003
2003
2003
2004
2003
2004
2004
2003
2003
2003
2003
2000
2003
2003
2005
2003
2003
2003
2003
1994
2000
2003
2003
2003
2003
2003
1996
2003
2003
2003
2003
2003
2003
2003
1973
1993
2003
2003
2003
2003
2003
1995
2003
2003
2003
2003
2003
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
15 1/2-40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
2005 Annual Report F-41
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2005
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
RETAIL - continued
LAND
BUILDING &
IMPROVEMENTS
TOTAL
ACCUMULATED
DEPRECIATION
DATE
ACQUIRED
LIFE ON WHICH
LATEST
INCOME
STATEMENT IS
COMPUTED
76
$
364 $
440
$
20
2003
40 years
Rochester Auto - Rochester, MN
Rochester Maplewood Square – Rochester,
$
MN
Schofield Plaza SC – Schofield, WI
Shoreview C Store – Shoreview, MN
Sleep Inn – Brooklyn Park , MN
St. Cloud Westgate SC – St. Cloud, MN
St. Louise Park Retail – St. Louis Park,
MN
Wilmar Sam Goody – Willmar, MN
Winsted C Store - Winsted, MN
TOTAL RETAIL
$
3,275
175
63
633
1,219
168
170
35
22,370
SUBTOTAL
$ 117,205
UNDEVELOPED LAND
17 S Main 2nd Floor - Minot, ND
Andover, MN
Centerville, MN
Cottonwood Lake IV - Bismarck, ND
IGH Land, MN
Jamestown Buffalo Mall Theatre -
Jmstwn., ND
Kalispell, MT
Legacy VII - Grand Forks, ND
Long Prairie, MN
River Falls, WI
TOTAL UNDEVELOPED LAND
$
$
0
150
100
264
560
0
1,400
137
150
200
2,961
TOTAL
$ 120,166
8,639
1,601
269
2,117
5,560
11,914
1,776
332
2,750
6,779
179
240
376
98,275 $
347
410
411
120,645
1,062,651 $ 1,179,856
12 $
0
4
1
4
67
15
2,307
6
5
2,421 $
12
150
104
265
564
67
1,415
2,444
156
205
5,382
1,065,072 $ 1,185,238
$
$
$
$
$
$
$
$
$
$
2000
2003
2003
2004
2004
2003
2003
2003
2001
2003
2003
1999
2003
2003
2003
2000
2003
2003
1,255
88
15
46
157
10
13
21
9,732
118,512
0
0
0
0
0
0
0
0
0
0
0
118,512
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
2005 Annual Report F-42
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2005
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION
Reconciliations of total real estate carrying value for the three years ended April 30, 2005, 2004, and 2003 are as
follows:
Balance at beginning of year
Additions during year
Residential Real Estate
Commercial Office Real Estate
Commercial Medical Real Estate
Commercial Industrial Real Estate
Commercial Retail Real Estate
Improvements and Other
Deductions during year
Cost of Real Estate Sold
Reclassification
Impairment charge
Balance at close of year
(in thousands)
2004
2005
2003
$ 1,082,773
$ 916,757 $740,055
12,643
67,532
42,245
0
3,120
17,118
$ 1,225,431
40,993
50,387
35,465
3,596
20,781
18,442
3,938
41,178
40,725
24,883
63,723
14,574
$1,086,421 $929,076
(45,575)
0
0
$ 1,179,856
(3,586)
0
(62)
(11,908)
(411)
0
$1,082,773 $916,757
Reconciliations of accumulated depreciation/amortization for the three years ended April 30, 2005, 2004, and 2003,
are as follows:
Balance at beginning of year
Additions during year
Provisions for depreciation
Deductions during year
Accumulated depreciation on real estate sold
Balance at close of year
(in thousands)
2004
2005
2003
$
98,923
$
75,639
$ 58,926
27,605
23,758
19,606
(8,016)
$ 118,512
$
(474)
98,923
(2,893)
$ 75,639
2005 Annual Report F-43
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2005
Schedule IV
INVESTMENTS IN MORTGAGE LOANS ON REAL ESTATE
Interest
Rate
Final
Maturity
Date
Payment
Terms
Prior
Liens
Face Amt. of
Mortgages
Prin. Amt
of Loans
Subject to
Delinquent
Prin. or Int.
Carrying
Amt. of
Mortgages
(in thousands)
First Mortgage
Martin Property – Pioneer Seed
6.00% 05/01/09
Junior Mortgage
C. Grueber - Cottage Grove
7.50% 10/04/07
Monthly/
Balloon
Monthly/
Balloon
0
0
$
$
$
$
Less:
Unearned Discounts
Deferred Gain from Property Dispositions
Allowance for Loan Losses
475
475
200
675
$
$
$
$
$
$
455
455
189
644
0
0
(25)
619
MORTGAGE LOANS RECEIVABLE, BEGINNING OF YEAR
New participations in and advances on mortgage loans
Collections
Transferred to other assets
MORTGAGE LOANS RECEIVABLE, END OF YEAR
2005
4,893
0
4,893
(4,274)
0
619
$
$
$
$
(in thousands)
2004
1,183 $
7,100
8,283 $
(3,232)
(158)
4,893 $
$
$
0
0
2003
3,953
1,024
4,977
(3,794)
0
1,183
2005 Annual Report F-44
SUBSIDIARIES OF INVESTORS REAL ESTATE TRUST
Name of Subsidiary
Applewood - IRET Properties, a Nebraska Limited Partnership
Applewood - IRET, Inc.
Dakota - IRET, Inc.
Dakota Hill Properties, a Texas Limited Partnership
DRF Omaha/NOH, LLC
Forest Park - IRET, Inc.
Forest Park Properties, a North Dakota Limited Partnership
France Medical LLC
France Medical MM LLC
Health Investors Business Trust
IRET - BD, LLC
IRET - Brenwood, LLC
IRET - DMS, LLC
IRET - Oakmont, LLC
IRET - Ridge Oaks, LLC
IRET – Westlake, Inc.
IRET Properties, a North Dakota Limited Partnership
IRET, Inc.
IRET-1715 YDR, LLC
IRET-Brown Deer, LLC
IRET-Candlelight, LLC
IRET-Golden Jack, L.L.C.
IRET-Plymouth, LLC
Meadow 2 - IRET, Inc.
Meadow 2 Properties, L.P.
MedPark - IRET, Inc.
Medpark Properties Limited Partnership
Mendota Office Holdings LLC
Mendota Office Three & Four LLC
Mendota Properties, LLC
Minnesota Medical Investors LLC
Miramont - IRET, Inc.
Ridge Oaks, L.P.
SMB MM LLC
SMB Operating Company LLC
Thomasbrook - IRET, Inc.
Thomasbrook Properties, a Nebraska Limited Partnership
West Stonehill - IRET, Inc.
Exhibit 21.1
State of
Incorporation or
Organization
Nebraska
Nebraska
Texas
Texas
Minnesota
North Dakota
North Dakota
Delaware
Delaware
Delaware
Minnesota
Minnesota
Minnesota
South Dakota
Iowa
Minnesota
North Dakota
North Dakota
Minnesota
North Dakota
North Dakota
Delaware
Minnesota
North Dakota
North Dakota
North Dakota
North Dakota
Minnesota
Minnesota
Minnesota
Delaware
Colorado
Iowa
Delaware
Delaware
Nebraska
Nebraska
Minnesota
2005 Annual Report
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-122289, 333-119547, 333-117121,
333-115082, 333-112465, 333-114162, 333-112272, 333-110003, 333-109387, 333-107729, 333-106748, 333-
104267, 333-102610, 333-101782, 333-100272, 333-98575, 333-91788, 333-85930, 333-85352, 333-76034, 333-
76266, 333-57676, 333-89761 and 333-67317 on Form S-3 of our reports dated June 28, 2005, relating to the
financial statements and financial statement schedules of Investors Real Estate Trust, and management’s report on
the effectiveness of internal control over financial reporting, appearing in the Annual Report on Form 10-K of
Investors Real Estate Trust for the year ended April 30, 2005.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
July 12, 2005
2005 Annual Report
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-122289, 333-119547, 333-117121,
333-115082, 333-112465, 333-114162, 333-112272, 333-110003, 333-109387, 333-107729, 333-106748, 333-
104267, 333-102610, 333-101782, 333-100272, 333-98575, 333-91788, 333-85930, 333-85352, 333-76034, 333-
76266, 333-57676, 333-89761 and 333-67317 of Investors Real Estate Trust on Form S-3 of our reports dated May
22, 2003 (June 23, 2005 as to the effects of discontinued operations in Note 12 and Note 13), appearing in the
Annual Report on Form 10-K of Investors Real Estate Trust for the year ended April 30, 2005.
EXHIBIT 23.2
/s/ BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota, USA
July 12, 2005
2005 Annual Report
Certifications
Exhibit 31.1
I, Thomas A. Wentz, Sr., certify that:
1. I have reviewed this Annual Report on Form 10-K of Investors Real Estate Trust;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of
directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: July 13, 2005
By:
/s/ Thomas A. Wentz, Sr.
Thomas A. Wentz, Sr., President & CEO
2005 Annual Report
Exhibit 31.2
I, Diane K. Bryantt, certify that:
1. I have reviewed this Annual Report on Form 10-K of Investors Real Estate Trust;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of
directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: July 13, 2005
By:
/s/ Diane K. Bryantt
Diane K. Bryantt, Senior Vice President & CFO
2005 Annual Report
The following certification is furnished as provided by Rule 13a-14(b) promulgated under the Securities Act of 1934
and Item 601(b) (32) (ii) of Regulation S-K.
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Investors Real Estate Trust (the “Company”) on Form 10-K for the year
ended April 30, 2005, as filed with the Securities and Exchange Commission on July 14, 2005, (the “Report”), I,
Thomas A. Wentz, Sr., President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ Thomas A. Wentz, Sr.
Thomas A. Wentz, Sr.
President and Chief Executive Officer
July 13, 2005
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
2005 Annual Report
The following certification is furnished as provided by Rule 13a-14(b) promulgated under the Securities Act of 1934
and Item 601(b) (32) (ii) of Regulation S-K.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Investors Real Estate Trust (the “Company”) on Form 10-K for the year
ended April 30, 2005, as filed with the Securities and Exchange Commission on July 14, 2005, (the “Report”), I
Diane K. Bryantt, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ Diane K. Bryantt
Diane K. Bryantt
Senior Vice President and Chief Financial Officer
July 13, 2005
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
2005 Annual Report
SHAREHOLDER INFORMATION
TRUSTEES
Daniel L. Feist (2)(6)(8)
President
Feist Construction & Realty
(construction and real estate development company)
Charles Wm. James
Senior Vice President
Investors Real Estate Trust
Patrick G. Jones (6)(8)
Private Investor
Jeffrey L. Miller (1)(4)(5)(7)
President
M&S Concessions, Inc.
(food service and facility management company)
Timothy P. Mihalick
Senior Vice President & Chief Operating Officer
Investors Real Estate Trust
Stephen L. Stenehjem (3)(6)(8)
President and Chief Executive Officer
Watford City BancShares, Inc.
(bank holding company)
John D. Stewart (4)(6)(8)
President and Chief Executive Officer
Fisher Motors, Inc.
Thomas A. Wentz, Jr.
Senior Vice President
Investors Real Estate Trust
EXECUTIVE OFFICERS
Thomas A. Wentz, Sr.
President and Chief Executive Officer
Timothy P. Mihalick
Senior Vice President and Chief Operating Officer
Diane K. Bryantt
Senior Vice President and Chief Financial Officer
Charles Wm. James
Senior Vice President - Development & Asset Management
Thomas A. Wentz, Jr.
Senior Vice President - Asset Management & Finance
Michael A. Bosh
General Counsel & Cor porate Secretary
(1) Chairman, Board of Trustees
(2) Vice Chairman, Board of Trustees
(3) Chairman, Audit Committee
(4) Member, Audit Committee
(5) Chairman, Compensation Committee
(6) Member, Compensation Committee
(7) Chairman, Nominating Committee
(8) Member, Nominating Committee
ANNUAL MEETING
The Annual Meeting of Shareholders of the Company will be
held at 7:00 p.m. on September 20, 2005, at the International
Inn, 1505 North Broadway, Minot, North Dakota.
SHARES LISTED
The Company’s common shares of beneficial interest are listed
on the NASDAQ Stock Market under the symbol “IRETS.”
The Company’s series A cumulative preferred shares of
beneficial interest are listed on the NASDAQ Stock Market
under the symbol “IRETP.”
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
Minneapolis, Minnesota
INTERNAL AUDITORS
Brady, Martz & Associates. P.C.
Minot, North Dakota
LEGAL COUNSEL
Pringle & Herigstad, P.C.
Minot, North Dakota
Gray, Plant, Mooty, Mooty & Bennett, P.A.
Minneapolis, Minnesota
DISTRIBUTION REINVESTMENT PLAN
The Company has a distribution reinvestment plan for current
and future shareholders. Interested participants can obtain
more information by contacting the Company at 701-837-4738
or at info@iret.com.
FORM 10-K
A copy of the annual report on Form 10-K for the Company’s
fiscal year ended April 30, 2005, as filed with the Securities and
Exchange Commission, is available without charge by request
to IRET, Investor Relations, PO Box 1988, Minot, ND 58702-
1988, by visiting the Investor Relations section of
the
Company’s website at www.iret.com, or by accessing the
EDGAR database on
the Securities and Exchange
Commission’s Website at www.sec.gov.
TRANSFER AGENT
Questions about distribution payments, shareholder accounts,
replacement of lost share certificates, address or name changes
should be directed to: Transfer Agent, Investors Real Estate
Trust, PO Box 1988, Minot, ND 58702-1988.
COMPANY HEADQUARTERS
Investors Real Estate Trust
12 South Main Street • PO Box 1988
Minot, ND 58702-1988
Telephone: (701)837-4738
Fax: (701)838-7785
info@iret.com
www.iret.com
Investors Real Estate Trust
12 South Main Street
PO Box 1988
Minot, ND 58702-1988
www.iret.com