CREATING SHAREHOLDER VALUE...
with a diversified real estate portfolio
2006 ANNUAL REPORT
I R E T
INVESTORS REAL ESTATE TRUST
Dan Feist
IRET shareholder since 1970
Trustee since 1985
“In 1970 I was approached by Roger
Odell and Tom Wentz, Sr. about
investing in a new company they had
formed, Investors Real Estate Trust. I
was the first outside investor in the
share
I was
Trust, and
certificate No. 1. I still have those
original shares. Except for mandatory
distributions from IRA accounts in
recent years, and nominal sales of
shares from time to time to cover
account fees, I have never sold a single
share of IRET stock. IRET has been a good investment for me and my family, and I
continue to recommend IRET to others. I am a firm believer in IRET’s prospects for
growth and ability to deliver on its commitment to create value for shareholders.”
issued
Dan Feist is a North Dakota native living in Minot, North Dakota. Dan is the
President of Feist Construction & Realty, a construction and real estate development
company. He is the Chairman of the Board of the Minot Area Community Foundation,
and is active in other community organizations. Dan is retiring from the IRET Board
of Trustees after serving for 21 years as trustee. His business judgment and vision
have helped guide IRET through years of
growth, and his focus on shareholder value
has strengthened IRET’s commitment to its
investors. IRET Management and Board
thank Dan for his years of service and
dedication to IRET.
1 SELECTED CONSOLIDATED
FINANCIAL DATA
CONTENTS
2 PRESIDENT’S LETTER
4 INVESTMENT PORTFOLIO
8 CREATING SHAREHOLDER VALUE
10 RENOVATIONS & REDEVELOPMENTS
12 TOTAL SHAREHOLDER RETURNS
14 COMPANY PROFILE
10-K REPORT
-
Front Cover Photo
IRET’s Minnesota Office
Crosstown Centre
10050 Crosstown Circle
Eden Prairie, MN 55344
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial data as of and for each of the fiscal years ended April 30,
2002 through 2006. The table illustrates the significant growth in revenue and real estate investment IRET
experienced over the period reported, most of which 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**
2006
(in thousands, except per share data)
2003
2004
2005
2002
$ 172,799
$
155,216
$
132,830
$
111,907
$
84,120
$
$
$
$
$
$
10,995
3,293
(1,863)
8,671
2,896
11,567
$
$
$
$
$
$
10,198
8,605
(1,801)
8,021
7,055
15,076
$
$
$
$
$
$
10,650
662
(2,274)
7,777
1,663
9,440
$ 1,126,400
$ 1,207,315
$ 765,890
$ 289,560
$ 1,067,345
$ 1,151,158
708,558
$
295,172
$
991,923
$
$ 1,076,317
633,124
$
278,629
$
$
$
$
$
$
.14
.06
.20
.65
46,711
$
$
$
$
$
.13
.17
.30
.65
42,314
$
$
$
$
$
.20
.04
.24
.64
36,638
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
14,252
1,595
$
$
12,664
547
(3,322) $
$
10,311
$
1,937
$
12,248
(3,304)
9,708
892
10,600
845,325
885,681
539,397
214,761
$ 685,347
$ 730,209
$ 459,569
$ 145,578
.32
.06
.38
.63
34,178
$
$
$
$
$
.38
.04
.42
.59
29,143
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
172.8
155.2
132.8
111.9
84.1
FUNDS FROM OPERATIONS
in millions of dollars
DISTRIBUTIONS
per share
TOTAL ASSETS
in millions of dollars
46.7
42.3
36.6
34.2
29.1
.653
.645
.637
.625
.595
885.7
730.2
1,207.3
1,151.2
1,076.3
02
03
04 05
06
02
03
04 05
06
02
03
04 05
06
02
03
04 05
06
1
PRESIDENT’S LETTER
Portfolio Growth
We bought 16 properties during Fiscal 2006 for $93.4
million (including $64.3 million of medical/assisted
living and $25.8 million of office), sold 19 properties
for $14.2 million, and invested in improvements to
existing properties for a net increase in real estate
owned of $89.5 million.
Increased Revenues
Our real estate portfolio grew by 7.6% while revenues
increased by 11.3%. This extra revenue growth was
helped largely by improving occupancy rates and only
slightly by increased rents.
Increased Utility, Maintenance and Real Estate
Tax Expense
These expenses increased 16.9% over the prior year.
For most commercial properties, these expenses are
passed through to the tenant, but they are borne by
IRET for apartments and vacant commercial space.
Administrative Expenses Hold Steady
Administrative expenses declined 4.4% from the prior
year to 2.1% of revenues from 2.5% primarily as a
result of reduced Sarbanes Oxley related expenses.
Our goal is to have administrative expenses at 2.0% of
revenues or lower.
Modest FFO Growth
Funds From Operations increased by 10.4% to $42.3
million. On a per share basis, FFO increased from $.76
to $.79, an increase of 3.9%.
Performance by Segment
We divide our portfolio into five property types. The
contribution of each to our Fiscal 2006 operating
profit was:
(in thousands)
Investment-
Fiscal 2006
Net of Depreciation Operating Profit
Segment
17.3%
33.3% $
$
Apartments
32.1%
31.3% $
Office
$
26.0%
21.8% $
Medical/Assisted Living $
8.7%
4.7% $
$
Industrial
$
15.9%
8.9% $
Retail
$ 1,120,816 100.0% *$ 15,285 100.0%
373,101
351,087
244,346
52,958
99,324
2,640
4,899
3,980
1,329
2,437
* Includes only “stabilized” properties – those owned during all of
fiscal years 2005 and 2006.
FFeellllooww
SShhaarreehhoollddeerrss,,
Thomas A. Wentz, Sr., President & CEO
IRET included in new
NASDAQ GLOBAL SELECT MARKET
Effective July 3, 2006, NASDAQ listed companies
were classified into three listing tiers.
IRET was
included in the new NASDAQ Global Select Market,
the premier listing tier, having the highest initial
listing standards of any stock exchange in the world
based on financial and liquidity requirements, and
reserved for public companies meeting these
superior listing standards. This represents another
significant milestone
in IRET’s growth and
achievement as a public company.
Fiscal 2006 Financial Results
Important financial indicators for IRET’s 36th year
which ended April 30, 2006, were:
Fiscal Year
Real Estate Owned
(before depreciation)
Revenue
Interest Expense
Depreciation/Amoritzation
of Real Estate Portfolio
Utilites, Maintenance and
Real Estate Tax Expense
Administrative Expense
Operating Income
Capital Gain Income
Funds From Operations
- FFO per Share/Unit
Per Share/Unit Cash
Distributions
(in thousands, except per share amounts)
2005 % Change
2006
$ 1,269,423 $ 1,179,856
155,216
$
48,013
$
172,799 $
51,390 $
+7.6%
+11.3%
+7.0%
$
$
$
$
$
$
$
$
37,413 $
33,491
+11.7%
53,190 $
3,674 $
9,754 $
3,293 $
46,711 $
.79 $
45,519
3,845
9,212
8,605
42,314
.76
+16.9%
-4.4%
+5.9%
-61.7%
+10.4%
+3.9%
.645 $
.653
+1.2%
2
Apartments Under-Performed – Improved in
4th Quarter
Apartments comprised 33.3% of our portfolio, but
contributed only 17.3% of
this year’s stabilized
operating profit. We saw an improvement in apartment
occupancy rates in the 4th quarter and are hopeful that
our apartments will continue to show improved
financial results.
36 Years of Increased Cash Distributions
to Shareholders
IRET again increased its cash distributions to its share
and unit holders during each quarter of Fiscal 2006 –
paying out 65.3 cents per share, an increase of 1.2%
over the 64.5 cents paid last fiscal year.
IRET has
increased its annual distribution every year since paying
its first distribution on July 1, 1971, and, since 1988,
every calendar quarter. The July 1, 2006, distribution
of 16.45 cents per share and unit was our 141st
consecutive quarterly distribution.
Shareholder Distributions are Partially Income
Tax Deferred
IRET’s
For the 2005 calendar year, 42.47% of
shareholder distributions were classified as “return of
capital” and thus, not included in taxable income. The
percentage of distributions so sheltered from
current-year taxation in 2004 was 55.35% and in 2003
was 37.67%.
Strong Balance Sheet
At the end of Fiscal 2006, IRET held cash and
marketable securities of $19.9 million. Of the $765.9
million of mortgages payable at year-end, only $24.3
million were variable rate mortgages. Of the $741.6
million of fixed-rate mortgages, only $23.0 million will
come due during the next year. The weighted average
rate of interest on April 30, 2006, was 6.03% compared
to 6.08% a year ago.
Little Exposure to an Increase in Interest Rates
Because only 3.2% of IRET’s mortgage payables are
variable and only 3.2% of
its fixed-rate mortgages
come due in the next year, we will not be significantly
impacted in the near future if interest rates should
dramatically increase.
The Real Estate Cycle – Signs of Improvement
The real estate industry is cyclical – periods of strong
demand and increased rents leading to over-building,
higher vacancies and reduced income. The past few
years have been a period of higher than average
vacancies, stagnant or falling rental rates, and increasing
operating expenses resulting in below average net
operating income from real estate investments.
Partially offsetting this deterioration in net operating
income, borrowing costs have been much lower. This
and the disfavor of competing investments have made
real estate a popular investment choice. This has led to
the unusual situation of real estate selling for higher
prices even though net operating income has been
declining. We are seeing improving occupancy rates
and less need to offer reduced rental rates – signs that
the cycle is moving to improved operating results.
The Future
Our goals for Fiscal 2007 include:
• Continue our investment in additional employees
and technology to accommodate continued
growth and improved efficiency.
Sell more of our smaller and older properties and
continue to concentrate our investments in
targeted communities in order to be more
efficient in managing our properties.
•
• Expand our real estate portfolio by as much as
$175 million. As previously announced, we have
entered into an agreement to acquire a 15-
building, 936,320 rentable square foot office
portfolio from Magnum Resources, Inc., an
real estate services and
Omaha, Nebraska,
investment firm founded by W. David Scott for
$140.8 million. This transaction is expected to
close on or before September 1, 2006.
• Maintain our conservative balance sheet practices
of adequate cash reserves, lines of credit, fixed-
rate debt and an overall indebtedness ratio of
60% or less of the fair market value of our
portfolio.
• Continue our policy of regular increases in our
quarterly cash distributions to our shareholders.
Sincerely,
Thomas A. Wentz, Sr.
President and Chief Executive Officer
3
INVESTMENT PORTFOLIO
Top Photo
Wells Fargo Center
St. Cloud, MN
Bottom Photos
Left to Right
Melissa Stewart
Receptionist
Chanhassen West Village
Retail Center
Chanhassen, MN
Crosstown Centre (Interior)
Eden Prairie, MN
COMMERCIAL PROPERTY
State
Colorado
Georgia
Idaho
Iowa
Michigan
Minnesota
Montana
Nebraska
North Dakota
South Dakota
Wisconsin
Total Commercial Property
4
Sq. Ft.
81,173
29,408
130,629
604,711
16,080
6,050,429
109,245
289,175
940,481
135,976
319,132
8,706,439
(in thousands)
Investment
11,519
$
4,686
15,722
13,091
2,121
632,813
6,820
41,331
53,831
13,209
22,029
817,172
$
Fiscal 2006
Occupancy
98.2%
100.0%
96.6%
69.1%
100.0%
91.9%
100.0%
99.8%
95.4%
94.8%
96.8%
92.5%
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
2,017
770
498
2,597
739
504
8,648
(in thousands)
Investment
41,870
$
3,986
5,000
41,615
106,880
39,667
23,254
118,538
32,559
38,882
452,251
$
Fiscal 2006
Occupancy
92.1%
94.0%
92.1%
94.4%
87.8%
94.3%
88.0%
93.0%
91.1%
93.7%
92.5%
UNDEVELOPED LAND
State
Minnesota
Montana
North Dakota
Wisconsin
Total Undeveloped Land
Total Real Estate Owned
Top Photos Left to Right
West Stonehill
Waite Park, MN
Park Meadows I, II & III
Waite Park, MN
(in thousands)
Investment
1,149
1,421
279
2,326
5,175
1,274,598
$
$
$
Bottom Photo
Dave Pankow
Assistant Vice President -
Risk & Capital Improvements
Don Peterson
Vice President -
Multi-Family Asset Manager
Kay Brunner
Commercial Property Manager
5
INVESTMENT PORTFOLIO
Idaho
1 - Boise
Montana
2 - Kalispell
3 - Missoula
4 - Livingston
5 - Billings
North Dakota
6 - Minot
7 - Harvey
8 - Devils Lake
9 - Grafton
10 - Grand Forks & East
Grand Forks
11 - Bismarck
12 - Jamestown
13 - Fargo
Minnesota
14 - International Falls
15 - Virginia & Hibbings
16 - Hermantown
17 - Duluth
18 - Brainerd
19 - Mora, Pine City &
Sandstone
20 - Long Prairie
21 - St. Cloud Metro Area
22 - Paynesville
23 - Willmar
24 - Minneapolis & St. Paul
Metro Area
- Forest Lake
- Howard Lake
- Greenwood
- Glencoe
- Winsted
- Monticello
- Waconia
- Champlin
- Lakeville
- Buffalo
- Prior Lake
- Anoka
25 - Faribault
26 - Rochester
2
3
1
4
5
34
35
43
44
45
REAL ESTATE PORTFOLIO MIX
(by investment amount, net of accumulated depreciation)
Multi-Family Residential
Office
Medical
Industrial
Retail
Undeveloped Land
33.1%
31.2%
21.7%
4.7%
8.8%
0.5%
PROPERTY INVESTMENTS
(percentage by state, by investment amount,
net of accumulated depreciation)
Texas
Wisconsin
Idaho
Iowa
Georgia
Michigan
3.0%
1.9%
1.5%
1.4%
0.4%
0.2%
Minnesota
North Dakota
Nebraska
Colorado
Montana
South Dakota
Kansas
58.1%
13.5%
5.1%
4.2%
3.8%
3.6%
3.3%
6
Wisconsin
27 - Superior
28 - Ladysmith
29 - River Falls
30 - Schofield
31 - Stevens Point
32 - Milwaukee
Michigan
33 - Kentwood
South Dakota
34 - Spearfish
35 - Rapid City
36 - Sioux Falls
Iowa
37 - Sioux City
38 - Des Moines
41 - Lincoln
42 - Hastings
Texas
47 - Irving
Colorado
43 - Fort Collins
44 - Highlands Ranch
45 - Colorado Springs
Georgia
48 - Lithia Springs
Nebraska
39 - Fremont
40 - Omaha & La Vista
Kansas
46 - Topeka
7
6
8
9
10
14
11
12
15
16
19
18
21
22
27
28
17
29
13
20
23
24
25
36
26
37
38
39
40
42
41
46
30
31
32
33
47
48
7
CREATING SHAREHOLDER VALUE
35 CALENDAR YEAR HISTORY OF INCREASING DISTRIBUTIONS
Since the first distribution paid July 1, 1971, IRET has never delayed, omitted or reduced the quarterly
distribution on our common shares. In each of the last 35 calendar years, the annual distribution has increased
over the amount paid in the preceding year.
Share Bid
Price History1
Distribution
History2
Total Return
Per Year3
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
2005
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
9.30
$
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
2005
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¢
64.90¢
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
2005
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%
-5.2%
(1) End of calendar year bid price per common 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 divided by previous end of year share bid.)
8
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 2006
Fiscal 2005
Fiscal 2004
High
10.24
10.16
9.79
9.67
Low
9.04
8.85
9.20
9.11
High
10.47
10.30
10.72
10.26
Low
9.39
9.51
9.78
8.90
High
10.80
10.48
10.70
10.50
Low
9.28
9.69
9.88
9.36
CALENDAR YEAR TAX STATUS OF DISTRIBUTION ON COMMON SHARES
Capital gain
Ordinary income
Return of capital
2005
16.05%
41.48%
42.47%
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%
Top Photo
Ridge Oaks Apartments
Sioux City, IA
Bottom Photos
Cold Spring Center
St. Cloud, MN
Joel Metz
Director of Property
Management Accounting
Nancy Scofield
Assistant Vice President -
Controller
Nancy Andersen
Assistant Controller
9
RENOVATIONS & REDEVELOPMENTS
MINOT ARROWHEAD SHOPPING CENTER
Minot Arrowhead Shopping Center SE side just before construction
IRET continually evaluates the properties in our portfolio to identify those
where added value can be created for our shareholders and our tenants
through renovation or redevelopment. Improving existing properties
through renovation or redevelopment makes these properties more
desirable to tenants and allows IRET to charge higher rents. Renovations
and redevelopments can also involve lower levels of risk and produce
higher returns for IRET than investment in new properties, because IRET
already owns the property and understands the income and demographic
data and the tenant demand in the surrounding area.
Two examples of ongoing or
renovation and
redevelopment projects are illustrated on these pages: the renovation of
the Arrowhead Shopping Center in IRET’s headquarters of Minot, North
Dakota, and the construction of a new Walgreen’s Drug Store at an
existing IRET retail location in Wausau, Wisconsin.
just-completed
Architect rendering of Minot Arrowhead renovation
10
SCHOFIELD PLAZA SHOPPING CENTER
The Arrowhead Shopping Center was purchased by IRET in 1973.
During Fiscal 2006 work was begun on an extensive renovation of the
façade and interiors of the center to improve its attractiveness and
layout. IRET expects the cosmetic and structural improvements at the
center to increase traffic at the property and support leasing efforts.
The newly-constructed Walgreen’s Drugstore at IRET’s existing retail
location in Wausau, Wisconsin, similarly illustrates value creation
through redevelopment. Completed in July 2006, this Walgreen’s
location is leased for a minimum 25-year term. The new store replaces
an existing outdated retail space, with part of the former surface
parking lot also utilized for the redeveloped premises. IRET expects
this redeveloped property to make a substantial positive contribution to
IRET revenues.
Schofield Plaza Shopping Center following redevelopment
Schofield Plaza before redevelopment
11
TOTAL SHAREHOLDER RETURNS
35 CALENDAR YEAR PERFORMANCE COMPARISON
$10,000 invested in IRET common shares at the close of trading on December 31, 1971, with distributions
reinvested, would be worth $841,944 as of December 31, 2005. This presentation excludes brokerage costs and
income taxes.
$ 841,944
$ 718,885
IRET
Peer Group(1)
S&P 500(2)
$ 371,173
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 05
(1) The peer group consists of
the real estate investment trusts included by the National Association of Real Estate Investment Trusts in
its NAREIT Equity REIT Index.
(2) Standard and Poor's ("S&P") 500 Stock Index
Source: Research Data Group, Inc.
12
Edward T. Schafer
C.W. “Chip” Morgan
Trustee Nominees
Edward T. Schafer and C.W. “Chip” Morgan have been nominated to stand for election to the
Investors Real Estate Trust Board of Trustees at the Company’s Annual Meeting of Shareholders,
to be held on September 19, 2006, and both have agreed to serve if elected. Mr. Schafer (59) was
the Governor of North Dakota from 1992 to 2000, and, until January of this year, was the Chief
Executive Officer of Extend America, a telecommunications company. Mr. Morgan (58) is the
President and Chief Executive Officer of Northwest Respiratory Services, LLC, a home medical
company, and a director of First Western Bank, Eden Prairie, Minnesota. IRET is pleased to attract
trustee nominees with the background and qualifications of former Governor Schafer and Chip
Morgan.
Sartell Medical Center - Sartell, MN and Colonial Villa - Burnsville, MN
Left to Right
13
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, 2006,
a total of 13,685,524 UPREIT units with a book value of approximately $104.2 million were
outstanding.
INVESTMENT STRATEGY
As of April 30, 2006, IRET owned 66 apartment communities containing 8,648 apartment units,
and 145 commercial properties with approximately 8.7 million 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.
14
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 - Eden Prairie, MN
Charles Wm. James
IRET Shareholder and Former Trustee
Charles Wm. James joined IRET in 2003 as an executive officer and trustee,
following the merger of IRET with the T.F. James Company, a Twin Cities real
estate development and management company. Mr. James resigned as an
executive officer and trustee of the Company during fiscal year 2006 to pursue a
property redevelopment project in the Minneapolis area.
15
Lancaster Place - St. Cloud, MN
SS ee nn ii oo rr MM aa nn aa gg ee mm ee nn tt (( ll ee ff tt tt oo rr ii gg hh tt ))
Timothy P. Mihalick - Trustee, Senior Vice President and Chief Operating Officer
Diane K. Bryantt - Senior Vice President and Chief Financial Officer
Thomas A. Wentz, Jr. - Trustee, Senior Vice President-Asset Management and Finance
Michael A. Bosh - General Counsel and Corporate Secretary
16
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, 2006
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 if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.
(cid:134) Yes (cid:59) No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act. (cid:134) Yes (cid:59) No
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:59) Yes (cid:134) 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:59)
Indicate by check mark whether the Registrant is a large accelerated filer, or accelerated filer, or a non-accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).
(cid:134) Large accelerated filer
(cid:59) Accelerated filer
(cid:134) Non-accelerated filer
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
(cid:134) Yes (cid:59) No
2006 Annual Report
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 2006 Annual Meeting
of Shareholders) was $401,600,311 based on the last reported sale price on the NASDAQ National Market on
October 31, 2005.
The number of common shares of beneficial interest outstanding as of June 30, 2006, was 46,986,206.
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 2006 Annual Meeting
of Shareholders to be held on September 19, 2006 are incorporated by reference into Part III (Items 10, 11, 12, 13
and 14) hereof.
2006 Annual Report 2
INVESTORS REAL ESTATE TRUST
INDEX
PART I
Item 1. Business ....................................................................................................................................
Item 1A. Risk Factors ..............................................................................................................................
Item 1B. Unresolved Staff Comments .....................................................................................................
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
PAGE
5
11
20
20
29
29
29
30
31
53
54
54
54
57
57
57
57
57
57
Item 15. Exhibits, Financial Statement Schedules ..................................................................................
Exhibit Index............................................................................................................................................
Signatures.................................................................................................................................................
Report of Independent Registered Public Accounting Firm and Financial Statements ........................... F-1 to F-43
58
58
60
2006 Annual Report 3
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 1A 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.
2006 Annual Report 4
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, 2006, our real estate investments in these two states accounted for 73.4% 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, 2006, our real estate portfolio consisted of:
• 66 multi-family residential properties, containing 8,648 apartment units and having a total real estate
investment amount net of accumulated depreciation of $373.1 million;
• 56 office properties containing approximately 3.8 million square feet of leasable space and having a total real
estate investment amount net of accumulated depreciation of $351.1 million;
• 33 medical properties (including assisted living facilities) containing approximately 1.7 million square feet of
leasable space and having a total real estate investment amount net of accumulated depreciation of $244.3
million;
• 11 industrial properties (including miscellaneous commercial properties) containing approximately 1.7
million square feet of leasable space and having a total real estate investment amount net of accumulated
depreciation of $53.0 million; and
• 45 retail properties containing approximately 1.5 million square feet of leasable space and having a total real
estate investment amount net of accumulated depreciation of $99.3 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, 2006, no single tenant accounted for more than 10% of our total
rental revenues.
2006 Annual Report 5
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, 2006, IRET, Inc. owned a 77.4% 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 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.
2006 Annual Report 6
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, 2006, we had no junior mortgages
outstanding. We had one contract for deed outstanding as of April 30, 2006, with a balance of $434,000
due to us.
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 36
years ago and every quarter since 1988.
Issuing senior securities. As of April 30, 2006, we have issued and outstanding $2,450,638 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, 2006, our ratio of total real
estate mortgages to total real estate assets was 63.5% while our ratio of total indebtedness as compared to our Net
Assets (computed in accordance with our Bylaws) was 138.0%.
2006 Annual Report 7
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
Value at issuance
2006
1,072
10,964
(in thousands)
2005
1,996
2004
2,006
$ 20,071 $ 19,851
$
Acquiring or repurchasing shares. As a REIT, it is our intention to invest only 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 2006, 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, 2006, totaled $0.4
million, and $0.6 million as of April 30, 2005.
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.
2006 Annual Report 8
Our Executive Officers
Set forth below are the names, ages, titles and biographies of each of our executive officers as of July 1, 2006.
Name
Thomas A. Wentz, Sr.
Timothy P. Mihalick
Thomas A. Wentz, Jr.
Diane K. Bryantt
Michael A. Bosh
Age
70
47
40
42
35
Title
President and Chief Executive Officer
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.
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, 2006, 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
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:
2006 Annual Report 9
• 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 a strong
demand for quality investment real estate. This demand caused continued high prices 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 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.
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.
2006 Annual Report 10
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 Committees 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.
Item 1A. Risk Factors
Risks Related to Our Properties and Business
Our performance and share value are subject to risks associated with the real estate industry. Our results of
operations and financial condition, the value of our real estate assets, and the value of an investment in us are subject
to the risks normally associated with the ownership and operation of real estate properties. These risks include, but
are not limited to, the following factors which, among others, may adversely affect the income generated by our
properties:
• downturns in national, regional and local economic conditions (particularly increases in unemployment);
• competition from other commercial and multi-family residential properties;
•
local real estate market conditions, such as oversupply or reduction in demand for commercial and multi-
family residential space;
• changes in interest rates and availability of attractive financing;
• declines in the economic health and financial condition of our tenants and our ability to collect rents from
our tenants;
• vacancies, changes in market rental rates and the need periodically to repair, renovate and re-lease space;
•
•
increased operating costs, including real estate taxes, state and local taxes, insurance expense, utilities,
and security costs;
significant expenditures associated with each investment, such as debt service payments, real estate taxes
and insurance and maintenance costs, which are generally not reduced when circumstances cause a
reduction in revenues from a property;
• weather conditions, civil disturbances, natural disasters, or terrorist acts or acts of war which may result
in uninsured or underinsured losses; and
• decreases in the underlying value of our real estate.
Our property acquisition activities subject us to various risks which could adversely affect our operating results. We
have acquired in the past and intend to continue to pursue the acquisition of properties and portfolios of properties,
including large portfolios that could increase our size and result in alterations to our capital structure. Our
acquisition activities and their success are subject to numerous risks, including, but not limited to:
• even if we enter into an acquisition agreement for a property, it is subject to customary closing conditions,
including completion of due diligence investigations, and we may be unable to complete that acquisition after
making a non-refundable deposit and incurring other acquisition-related costs;
2006 Annual Report 11
• we may be unable to obtain financing for acquisitions on favorable terms or at all;
• acquired properties may fail to perform as expected;
•
the actual costs of repositioning or redeveloping acquired properties may be greater than our estimates; and
• we may be unable quickly and efficiently to integrate new acquisitions into our existing operations.
These risks could have an adverse effect on our results of operations and financial condition.
Acquired properties may subject us to unknown liabilities which could adversely affect our operating results. We
may acquire properties subject to liabilities and without any recourse, or with only limited recourse against prior
owners or other third parties, with respect to unknown liabilities. As a result, if liability were asserted against us
based upon ownership of these properties, we might have to pay substantial sums to settle or contest it, which could
adversely affect our results of operations and cash flows. Unknown liabilities with respect to acquired properties
might include liabilities for clean-up of undisclosed environmental contamination; claims by tenants, vendors or
other persons against the former owners of the properties; liabilities incurred in the ordinary course of business; and
claims for indemnification by general partners, directors, officers and others indemnified by the former owners of
the 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, 2006, we
received approximately 73.4% of our gross revenue from properties in Minnesota and North Dakota. 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. To the extent that weak economic or real estate conditions affect Minnesota
and/or North Dakota more severely than other areas of the country, our financial performance could be negatively
impacted.
If we are not able to renew leases or enter into new leases on favorable terms or at all as our existing leases expire,
our revenue, operating results and cash flows will be reduced. We may be unable to renew leases with our existing
tenants or enter into new leases with new tenants due to economic and other factors as our existing leases expire or
are terminated prior to the expiration of their current terms. As a result, we could lose a significant source of
revenue while remaining responsible for the payment of our obligations. In addition, even if we were able to renew
existing leases or enter into new leases in a timely manner, the terms of those leases may be less favorable to us than
the terms of expiring leases, because the rental rates of the renewal or new leases may be significantly lower than
those of the expiring leases, or tenant installation costs, including the cost of required renovations or concessions to
tenants, may be significant. If we are unable to enter into lease renewals or new leases on favorable terms or in a
timely manner for all or a substantial portion of space that is subject to expiring leases, our revenue, operating
results and cash flows will be adversely affected. As a result, our ability to make distributions to the holders of our
shares of beneficial interest may be adversely affected. As of April 30, 2006, approximately 0.78 million square feet,
or 9.0% of our total commercial property square footage, was vacant. Approximately 583 of our 8,648 apartment
units, or 6.7%, were vacant. As of April 30, 2006, leases on approximately 10.1% of our total commercial segments
leased net rentable square footage will expire in fiscal year 2007, 9.8% in fiscal year 2008, 10.0% in fiscal year
2009, 9.7% in fiscal year 2010, and 13.2% in fiscal year 2011.
We face potential adverse effects from commercial tenant bankruptcies or insolvencies. The bankruptcy or
insolvency of our commercial tenants may adversely affect the income produced by our properties. If a tenant
defaults, we may experience delays and incur substantial costs in enforcing our rights as landlord. If a tenant files
for bankruptcy, we cannot evict the tenant solely because of such bankruptcy. A court, however, may authorize the
tenant to reject and terminate its lease with us. In such a case, our claim against the tenant for unpaid future rent
would be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the
lease, and it is unlikely that a bankrupt tenant would pay in full amounts it owes us under a lease. This shortfall
could adversely affect our cash flow and results of operations. If a tenant experiences a downturn in its business or
other types of financial distress, it may be unable to make timely rental payments. Under some circumstances, we
2006 Annual Report 12
may agree to partially or wholly terminate the lease in advance of the termination date in consideration for a lease
termination fee that is less than the agreed rental amount. Additionally, without regard to the manner in which a
lease termination occurs, we are likely to incur additional costs in the form of tenant improvements and leasing
commissions in our efforts to lease the space to a new tenant, as well as possibly lower rental rates reflective of
declines in market rents.
Because real estate investments are generally illiquid, and various factors limit our ability to dispose of assets, we
may not be able to sell properties when appropriate. Real estate investments are relatively illiquid and, therefore,
we have limited ability to vary our portfolio quickly in response to changes in economic or other conditions. In
addition, the prohibitions under the federal income tax laws on REITs holding property for sale and related
regulations may affect our ability to sell properties. Our ability to dispose of assets may also be limited by
constraints on our ability to utilize disposition proceeds to make acquisitions on financially attractive terms, and the
requirement that we take additional impairment charges on certain assets. More specifically, we are required to
distribute or pay tax on all capital gains generated from the sale of assets, and, in addition, a significant number of
our properties were acquired using limited partnership units of IRET Properties, our operating partnership, and are
subject to certain agreements which restrict our ability to sell such properties in transactions that would create
current taxable income to the former owners. As a result, we are motivated to structure the sale of these assets as
tax-free exchanges. To accomplish this we must identify attractive re-investment opportunities. Recently, while
capital market conditions have been favorable for dispositions, investment yields on acquisitions have been less
attractive due to the abundant capital inflows into the real estate sector. These considerations impact our decisions
on whether or not to dispose of certain of our assets.
Inability to manage our rapid growth effectively may adversely affect our operating results. We have experienced
significant growth in recent years, increasing our total assets from approximately $885.7 million at April 30, 2003,
to $1,207.3 million at April 30, 2006, 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 presents challenges, including:
•
•
•
•
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 on individual properties.
We may not be able to maintain similar rates of growth in the future, or manage our growth effectively. Our failure
to do so may have a material adverse effect on our financial condition and results of operations and ability to make
distributions to the holders of our shares of beneficial interest.
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 tenant
improvements. 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 make accretive property acquisitions may adversely affect our ability to increase our operating
income. From our fiscal year ended April 30, 2004, to our fiscal year ended April 30, 2006, our operating income
decreased from $10.0 million to $9.8 million. Our basic and diluted net income per common share was $.20 as of
April 30, 2006, compared to $.30 and $.24, respectively, as of April 30, 2005 and 2004. The acquisition of
additional real estate properties is critical to our ability to increase our operating income. If we are unable to
continue to make real estate acquisitions on terms that meet our financial and strategic objectives, whether due to
2006 Annual Report 13
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, 2006, 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 138.0%. As of April 30, 2005 and 2004, our percentage of total indebtedness to total Net Assets was
approximately 133.9% and 136.8%, respectively. Under our Bylaws we may increase our total indebtedness up to
300.0% of our Net Assets, or by an additional approximately $906 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. Additionally, our degree of leverage
could adversely affect our ability to obtain additional financing and may have an adverse effect on the market price
of our common shares.
Our inability to renew, repay or refinance our debt may result in losses. We incur a significant amount of debt in the
ordinary course of our business and in connection with acquisitions of real properties. In addition, because we are
unable to retain earnings as a result of the REIT distribution requirements, we will generally be required to refinance
debt that matures with additional debt or equity. 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.
We anticipate that only a small portion of the principal of our debt will be repaid prior to maturity. Therefore, we
are likely to need to refinance at least a portion of our outstanding debt as it matures. We cannot guarantee that any
refinancing of debt with other debt will be possible on terms that are favorable or acceptable to us. If we cannot
refinance, extend or pay principal payments due at maturity with the proceeds of other capital transactions, such as
new equity capital, our cash flows may not be sufficient in all years to repay debt as it matures. Additionally, 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 our 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 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 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, 2006, $24.3 million, or approximately 3.2%, of the principal amount
of our total mortgage indebtedness was subject to variable interest rate agreements. If short-term interest rates rise,
our debt service payments on adjustable rate debt would increase, which would lower our net income and could
decrease our distributions to the holders of our shares of beneficial interest. In addition, portions of our fixed-rate
indebtedness incurred for past property acquisitions come due on a periodic basis. Rising interest rates could limit
our ability to refinance this existing debt when it matures, and would 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.
We depend on distributions and other payments from our subsidiaries that they may be prohibited from making to
us, which could impair our ability to make distributions to holders of our shares of beneficial interest. Substantially
2006 Annual Report 14
all of our assets are held through IRET Properties, our operating partnership, and other of our subsidiaries. As a
result, we depend on distributions and other payments from our subsidiaries in order to satisfy our financial
obligations and make distributions to the holders of our shares of beneficial interest. The ability of our subsidiaries
to make such distributions and other payments depends on their earnings, and may be subject to statutory or
contractual limitations. As an equity investor in our subsidiaries, our right to receive assets upon their liquidation or
reorganization effectively will be subordinated to the claims of their creditors. To the extent that we are recognized
as a creditor of such subsidiaries, our claims may still be subordinate to any security interest in or other lien on their
assets and to any of their debt or other obligations that are senior to our claims.
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
and comparable to coverage customarily obtained by owners of similar properties. 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. In addition, in
most cases we have to renew our insurance policies on an annual basis and negotiate acceptable terms for coverage,
exposing us to the volatility of the insurance markets, including the possibility of rate increases. Any material
increase in insurance rates or decrease in available coverage in the future could adversely affect our business and
financial condition and results of operations, which could cause a decline in the market value of our securities.
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, 2006, our
real estate portfolio consisted of 33 medical properties, with a total real estate investment amount, net of
accumulated depreciation, of $244.3 million, or approximately 21.8% of the total real estate investment amount, net
of accumulated depreciation, 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
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
2006 Annual Report 15
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 or other safety regulations and requirements may affect our costs
and investment strategies. Federal, state and local laws and regulations designed to improve disabled persons’ access
to and use of buildings, including the Americans with Disabilities Act of 1990, 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. 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. Noncompliance could result in the imposition of fines by government authorities or the award of
damages to private litigants. 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. Our properties are also subject to various other federal, state and local regulatory requirements, such as state
and local fire and life safety requirements. If we fail to comply with these requirements, we could incur fines or
private damage awards. Additionally, in the event that existing requirements change, compliance with future
requirements may require significant unanticipated expenditures that may adversely affect our cash flow and results
of operations.
We may be responsible for potential liabilities under environmental laws. Under various federal, state and local
laws, ordinances and regulations, we, as 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 may impose liability without regard to whether we knew of, or were 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 our ability to sell or rent the affected property or to borrow funds
using the property as collateral. In arranging for the disposal or treatment of hazardous or toxic substances, we may
also be liable for the costs of removal of, or remediation of, these substances at that disposal or treatment facility,
whether or not we own or operate the facility. 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 at 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.
Environmental laws also govern the presence, maintenance and removal of asbestos, and require that owners or
operators of buildings containing asbestos properly manage and maintain the asbestos; notify and train those who
may come into contact with asbestos; and undertake special precautions if asbestos would be disturbed during
renovation or demolition of a building. Indoor air quality issues may also necessitate special investigation and
remediation. These air quality issues can result from inadequate ventilation, chemical contaminants from indoor or
outdoor sources, or biological contaminants such as molds, pollen, viruses and bacteria. Such asbestos or air quality
remediation programs could be costly, necessitate the temporary relocation of some or all of the property’s tenants
or require rehabilitation of an affected property.
It is generally our policy to obtain a Phase I environmental study on each property that we seek to acquire. A Phase
I environmental study generally includes a visual inspection of the property and the surrounding areas, an
examination of current and historical uses of the property and the surrounding areas and a review of relevant state
and federal documents, but does not involve invasive techniques such as soil and ground water sampling. If the
Phase I indicates any possible environmental problems, 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
2006 Annual Report 16
segments in which we operate, and the loss of them would likely have a material adverse effect on our operations,
and could adversely impact our relationships with lenders, industry personnel and potential tenants. 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. If we fail to manage effectively a transition to
new personnel, or if we fail to attract and retain qualified and experienced personnel on acceptable terms, our
business and prospects could be harmed. The location of our company 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 comply with changing regulation of corporate governance and public disclosure could have a material
adverse effect on our business, operating results and stock price, and continuing compliance will result in additional
expenses. The Sarbanes-Oxley Act of 2002, as well as new rules and standards subsequently implemented by the
Securities and Exchange Commission and NASDAQ, have required changes in some of our corporate governance
and accounting practices, and are creating uncertainty for us and many other public companies, due to varying
interpretations of the rules and their evolving application in practice. We expect these laws, rules and regulations to
increase our legal and financial compliance costs, and to subject us to additional risks. In particular, 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 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. Even a technical or inadvertent mistake could endanger our REIT status.
The determination that we qualify as a REIT requires an ongoing analysis of various factual matters and
circumstances, some of which may not be within our control. For example, in order to qualify as a REIT, at least
95% of our gross income in any year must come from qualifying sources that are itemized in the REIT tax laws, and
we are prohibited from owning specified amounts of debt or equity securities of some issuers. Thus, to the extent
revenues from non-qualifying sources, such as income from third-party management services, represent 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. We are also required to make
distributions to the holders of our shares of beneficial interest of at least 90% of our REIT taxable income, excluding
net capital gains. The fact that we hold substantially all of our assets (except for qualified REIT subsidiaries)
through IRET Properties, our operating partnership, and its subsidiaries, and our ongoing reliance on factual
determinations, such as determinations related to the valuation of our assets, further complicates the application of
the REIT requirements for us. 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, we could be subject to increased state and local taxes, and, 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
2006 Annual Report 17
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 able to deduct, and would not 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 had 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.
Failure of our operating partnership to qualify as a partnership would have a material adverse effect on us. We
believe that IRET Properties, our operating partnership, qualifies as a partnership for federal income tax purposes.
No assurance can be given, however, that the Internal Revenue Service will not challenge its status as a partnership
for federal income tax purposes, or that a court would not sustain such a challenge. If the Internal Revenue Service
were to be successful in treating IRET Properties as an entity that is taxable as a corporation, we would cease to
qualify as a REIT because the value of our ownership interest in IRET Properties would exceed 5% of our assets,
and because we would be considered to hold more than 10% of the voting securities of another corporation. Also,
the imposition of a corporate tax on IRET Properties would reduce significantly the amount of cash available for
distribution by it.
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,
(recently renamed the NASDAQ Global 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 of 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.
In order to maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions. In
order to maintain our REIT status, we may need to borrow funds on a short-term basis to meet the REIT distribution
requirements, even if the then-prevailing market conditions are not favorable for these borrowings. To qualify as a
REIT, we generally must distribute to our shareholders at least 90% of our net taxable income each year, excluding
net capital gains. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which
certain distributions made by us with respect to the calendar year are less than the sum of 85% of our ordinary
income, 95% of our capital gain net income for that year, and any undistributed taxable income from prior periods.
We intend to make distributions to our shareholders to comply with the 90% distribution requirement and to avoid
the nondeductible excise tax and will rely for this purpose on distributions from our operating partnership.
However, we may need short-term debt or long-term debt or proceeds from asset sales or sales of common shares to
fund required distributions as a result of differences in timing between the actual receipt of income and the
recognition of income for federal income tax purposes, or the effect of non-deductible capital expenditures, the
creation of reserves or required debt or amortization payments. The inability of our cash flows to cover our
distribution requirements could have an adverse impact on our ability to raise short and long-term debt or sell equity
securities in order to fund distributions required to maintain our REIT status.
Our board of trustees may make changes to our major policies without approval of the holders of our shares of
beneficial interest. Our operating and financial policies, including policies relating to development and acquisition
of real estate, financing, growth, operations, indebtedness, capitalization and distributions, are exclusively
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. Accordingly, our
shareholders do not control these policies, and policy changes could adversely affect our financial condition and
results of operations.
2006 Annual Report 18
Risks Related to the Purchase of our Shares of Beneficial Interest
Our future growth depends, in part, on our ability to raise additional equity capital, which will have the effect of
diluting the interests of the holders of our common shares. Our future growth depends upon, among other things, our
ability to raise equity capital and issue limited partnership units of IRET Properties. The issuance of additional
common shares, and of limited partnership units for which we subsequently issue common shares upon the
redemption of the limited partnership units, will dilute the interests of the current holders of our common shares.
Additionally, sales of substantial amounts of our common shares or preferred shares in the public market, or
issuances of our common shares upon redemption of limited partnership units in our operating partnership, or the
perception that such sales or issuances might occur, could adversely affect the market price of our common shares.
We may issue additional classes or series of our shares of beneficial interest with rights and preferences that are
superior to the rights and preferences of our common shares. Without the approval of the holders of our common
shares, our board of trustees may establish additional classes or series of our shares of beneficial interest, and such
classes or series may have dividend rights, conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences or other rights and preferences that are superior to the rights of the holders of our common
shares.
Payment of distributions on our shares of beneficial interest is not guaranteed. Our board of trustees must approve
our payment of distributions and may elect at any time, or from time to time, and for an indefinite duration, to
reduce the distributions payable on our shares of beneficial interest or to not pay distributions on our shares of
beneficial interest. Our board of trustees may reduce distributions for a variety of reasons, including, but not limited
to, the following:
•
•
•
operating and financial results below expectations that cannot support the current distribution payment;
unanticipated costs or cash requirements; or
a conclusion that the payment of distributions would cause us to breach the terms of certain agreements or
contracts, such as financial ratio covenants.
Our distributions are not eligible for the lower tax rate on dividends except in limited situations. The tax rate
applicable to qualifying corporate dividends received by individuals prior to 2009 has been reduced to a maximum
rate of 15%. This special tax rate is generally not applicable to distributions paid by a REIT, unless such
distributions represent earnings on which the REIT itself had been taxed. As a result, distributions (other than capital
gain distributions) paid by us to individual investors will generally be subject to the tax rates that are otherwise
applicable to ordinary income which, currently, are as high as 35%. This law change may make an investment in
our common shares comparatively less attractive relative to an investment in the shares of other entities which pay
dividends but are not formed as REITs.
Changes in market conditions could adversely affect the price of our shares of beneficial interest. As is the case with
any publicly-traded securities, certain factors outside of our control could influence the value of our common shares,
Series A preferred shares and any other classes or series of preferred shares of beneficial interest to be issued in the
future. These conditions include, but are not limited to:
• market perception of REITs in general;
• market perception of REITs relative to other investment opportunities;
• market perception of our financial condition, performance, distributions and growth potential;
•
•
•
prevailing interest rates;
general economic and business conditions;
government action or regulation, including changes in the tax laws; and
2006 Annual Report 19
•
relatively low trading volumes in securities of REITS.
Higher market interest rates may adversely affect the market price of our common shares, and low trading volume
on the NASDAQ Global Select Market may prevent the timely resale of our common shares. One of the factors that
investors may consider important in deciding whether to buy or sell shares of a REIT is the distribution with respect
to such REIT’s shares as a percentage of the price of those shares, relative to market interest rates. If market interest
rates go up, prospective purchasers of REIT shares may expect a higher distribution rate in order to maintain their
investment. Higher market interest rates would likely increase our borrowing costs and might decrease funds
available for distribution. Thus, higher market interest rates could cause the market price of our common shares to
decline. In addition, although our common shares of beneficial interest are listed on the NASDAQ Global Select
Market, the daily trading volume of our shares may be lower than the trading volume for other companies and
industries. The average daily trading volume for the period of May 1, 2005, through April 30, 2006, was 63,094
shares and the average monthly trading volume for the period of May 1, 2005 through April 30, 2006 was 1,319,871
shares. As a result of this trading volume, an owner of our common shares may encounter difficulty in selling our
shares in a timely manner and may incur a substantial loss.
Item 1B. Unresolved Staff Comments
None.
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 and Minot offices, these real estate investments are generally managed by third-party professional real
estate management companies on our behalf.
Certain financial information from fiscal 2005 and 2004 was adjusted to reflect the effects of discontinued
operations. See property disposition discussion within Item 7.
Total Real Estate Rental Revenue
As of April 30, 2006, our real estate portfolio consisted of 66 multi-family residential properties and 145
commercial properties, consisting of office, medical, industrial and retail properties, comprising 33.3%, 31.3%,
21.8%, 4.7%, and 8.9%, respectively, of our total real estate portfolio, based on the dollar amount of our original
investment plus capital improvements, net of accumulated depreciation, through April 30, 2006. 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)
2006
2005
2004
Multi-
Family
Residential
Gross
Revenue
Commercial
Office
Gross
Revenue
%
Commercial
Medical
Gross
Revenue
%
%
$ 63,363 36.7% $ 57,523 33.3% $ 32,184 18.6% $
$ 60,207 38.8% $ 48,604 31.3% $ 25,794 16.6% $
$ 59,294 44.6% $ 39,874 30.0% $ 15,876 12.0% $
Commercial
Industrial
Gross
Revenue
6,372
6,459
6,634
Commercial
Retail
Gross
Revenue
%
Total
Revenue
3.7% $ 13,357 7.7% $ 172,799
4.2% $ 14,152 9.1% $ 155,216
5.0% $ 11,152 8.4% $ 132,830
%
2006 Annual Report 20
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
Certain Lending Requirements
Fiscal Year Ended April 30,
2006
91.6%
92.5%
96.2%
87.2%
87.7%
2005
90.1%
90.8%
92.7%
86.8%
88.6%
2004
90.2%
92.2%
93.6%
93.6%
92.2%
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 a number of 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 and Minot offices, generally handled by locally-based 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 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. We believe that under
most circumstances 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.
As of April 30, 2006, we had property management contracts with the following companies:
Residential Management
Commercial Management and Leasing
• Builder’s Management & Investment Co., Inc.
• 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.
• Illies Nohava Heinen Property Management, Inc.
• Inland Companies, Inc.
• Nath Management, Inc.
• Northco Management Services, LP
• Opus Northwest Management, LLC
• Paramount Real Estate Corporation
• R.A. Morton & Associates, Inc.
2006 Annual Report 21
Commercial Management and Leasing – continued
• Results Unlimited, Inc.
• The Remada Company
• Thornton Oliver Keller, LLC
• United Properties, LLC
• Vector Property Services, LLC
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.
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
2006
%
2005
%
2004
%
$1,269,423
(148,607)
$1,120,816
5,175
409
$1,126,400
$1,179,856
(118,512)
99.5% $1,061,344
5,382
619
100.0% $1,067,345
0.5%
0.0%
$ 1,082,773
(98,923)
99.4% $ 983,850
3,180
4,893
100.0% $ 991,923
0.5%
0.1%
99.2%
0.3%
0.5%
100.0%
Summary of Individual Properties Owned as of April 30, 2006
The following table presents information regarding our 211 properties owned as of April 30, 2006. 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, 2006:
(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 Avenue (Lonetree) - Harvey, ND
408 1st Street SE - Minot, ND
Applewood On The Green - Omaha, NE
Boulder Court - Eagan, MN
Brookfield Village Apartments - Topeka, KS
Candlelight Apartments - Fargo, ND
Canyon Lake Apartments - Rapid City, SD
Castle Rock - Billings, MT
Chateau Apartments - Minot, ND
Clearwater Apartments- Boise, ID
Colonial Villa - Burnsville, MN
Colton Heights Properties - Minot, ND
Cottonwood Lake I - Bismarck, ND
Cottonwood Lake II - Bismarck, ND
2006 Annual Report 22
Units
(in thousands)
Investment
Fiscal 2006
Economic
Occupancy
12 $
**
234
115
160
66
109
165
64
60
240
18
67
67
267
48
12,319
6,958
7,723
1,746
4,346
6,454
2,844
3,986
14,999
1,028
4,633
4,375
89.8%
100.0%
85.1%
88.5%
95.1%
95.9%
84.5%
84.9%
98.9%
94.0%
82.8%
98.3%
94.8%
95.6%
Property Name and Location
Cottonwood Lake III - Bismarck, ND
Country Meadows I - Billings, MT
Country Meadows II - Billings, MT
Crestview Apartments - Bismarck, ND
Crown Colony Apartments - 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 Manor - Bismarck, ND
Lancaster Place - St. Cloud, MN
Legacy Buildings I & II - Grand Forks, ND
Legacy Building III - Grand Forks, ND
Legacy Building IV- Grand Forks, ND
Legacy Building V - Grand Forks, ND
Legacy Building VI - Grand Forks, ND
Legacy Building VII - Grand Forks, ND
Magic City Apartments - Minot, ND
Meadows Phase I - Jamestown, ND
Meadows Phase II - Jamestown, ND
Meadows Phase III - Jamestown, ND
Miramont Apartments - Fort Collins, CO
Monticello Apartments - Monticello, MN
Neighborhood Apartments - Colorado Springs, CO
North Pointe - Bismarck, ND
Oakmont Apartments - Sioux Falls, SD
Oakwood - Sioux Falls, SD
Olympic Village - Billings, MT
Olympik Village Apartments - Rochester, MN
Oxbow - Sioux Falls, SD
Park East Apartments - Fargo, ND
Park Meadows I - Waite Park, MN
Park Meadows II & III - Waite Park, MN
Pebble Springs - Bismarck, ND
Pinecone Apartments - Fort Collins, CO
Pinehurst Apartments - Billings, MT
Pointe West - Rapid City, SD
Prairie Winds Apartments - Sioux Falls, SD
Prairiewood Meadows - Fargo, ND
Ridge Oaks - Sioux City, IA
Rimrock Apartments - Billings, MT
Rocky Meadows - Billings, MT
Sherwood Apartments - Topeka, KS
Southbrook & Mariposa - Topeka, KS
South Pointe - Minot, ND
Southview Apartments - Minot, ND
Southwind Apartments - Grand Forks, ND
Sunset Trail Phase I - Rochester, MN
Sunset Trail Phase II - Rochester, MN
Sweetwater Properties - Devils Lake & Grafton, ND
Sycamore Village Apartments - Sioux Falls, SD
Terrace On The Green - Moorhead, MN
Units
(in thousands)
Investment
Fiscal 2006
Economic
Occupancy
67 $
67
67
152
220
504
84
270
182
90
108
84
116
67
67
36
36
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
4,816
4,336
4,488
5,362
11,383
38,882
2,738
8,684
8,241
2,107
4,034
3,679
7,446
3,953
6,803
2,827
2,969
2,851
5,223
1,864
1,942
2,209
15,111
4,376
12,709
2,487
5,350
6,282
12,596
7,296
5,365
5,509
4,517
9,031
811
14,050
794
4,687
2,190
3,332
5,000
4,086
6,913
16,914
5,595
10,734
822
6,586
7,127
7,610
1,846
1,601
2,905
96.5%
93.2%
94.2%
99.0%
93.8%
93.7%
95.6%
91.2%
97.8%
95.1%
95.4%
84.0%
94.6%
95.4%
94.2%
67.7%
62.0%
61.2%
93.6%
99.2%
99.5%
99.8%
91.7%
96.4%
94.5%
97.4%
95.5%
91.6%
98.4%
90.5%
95.8%
92.1%
87.2%
83.1%
98.2%
90.4%
98.9%
88.1%
93.2%
88.7%
92.1%
96.7%
98.3%
94.9%
93.1%
98.3%
94.4%
93.2%
82.8%
87.8%
88.4%
78.6%
96.0%
2006 Annual Report 23
Property Name and Location
Thomasbrook Apartments - Lincoln, NE
Valley Park Manor - Grand Forks, ND
Village Green - Rochester, MN
West Stonehill - Waite Park, MN
Westwood Park - Bismarck, ND
Winchester - Rochester, MN
Woodridge Apartments - 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
7800 W Brown Deer Road - Milwaukee, WI
American Corporate Center - Mendota Heights, MN
Ameritrade - Omaha, NE
Benton Business Park - Sauk Rapids, MN
Bloomington Business Plaza - Bloomington, MN
Brenwood - Minnetonka, MN
Brook Valley I - La Vista, NE
Burnsville Bluffs II - Burnsville, MN
Cold Spring Center - St. Cloud, MN
Crosstown Centre - Eden Prairie, MN
Dewey Hill Business Center - Edina, MN
Golden Hills Office Center - Golden Valley, MN
Great Plains - Fargo, ND
Greenwood Office - Greenwood, MN
Highlands Ranch - Highlands Ranch, CO
Interlachen Corporate Center - Eagan, MN
Mendota Office Center I - Mendota Heights, MN
Mendota Office Center II - Mendota Heights, MN
Mendota Office Center III - Mendota Heights, MN
Mendota Office Center IV - Mendota Heights, MN
Metris - Duluth, MN
Minnesota National Bank - Duluth, MN
Minnetonka Office Building - Minnetonka, MN
Nicollett VII - Burnsville, MN
Northgate I - Maple Grove, MN
Northgate II - Maple Grove, MN
Northpark Corporate Center - Arden Hills, MN
Pillsbury Business Center - Bloomington, MN
Plaza VII - Boise, ID
Plymouth I - Plymouth, MN
Plymouth II - Plymouth, MN
Plymouth III - Plymouth, MN
Plymouth IV & V - Plymouth, MN
Prairie Oak Business Center - Eden Prairie, MN
Rapid City, SD - 900 Concourse Drive - Rapid City, SD
2006 Annual Report 24
Units
(in thousands)
Investment
Fiscal 2006
Economic
Occupancy
264 $
168
36
313
64
115
110
8,648 $
10,935
5,789
2,569
13,685
2,591
6,664
7,223
452,251
90.4%
94.9%
91.5%
86.9%
94.4%
86.6%
89.9%
91.6%
Approximate
Net Rentable
Square Footage
(in thousands)
Investment
Fiscal 2006
Economic
Occupancy
15,357 $
3,250
8,597
13,374
175,610
146,808
73,742
30,464
121,064
177,145
30,000
45,158
75,745
185,000
73,338
190,758
122,040
5,640
81,173
105,084
59,852
88,398
60,776
72,231
20,000
27,000
4,000
125,385
79,377
25,999
146,087
42,220
27,297
26,186
26,186
26,186
126,809
36,018
75,815
576
110
636
983
11,022
19,083
8,349
1,478
7,999
15,040
2,044
3,213
8,635
17,860
5,197
22,347
15,375
981
11,519
16,726
7,146
11,723
6,775
8,705
2,539
1,745
401
7,387
7,458
2,425
17,151
1,894
3,491
1,672
1,640
2,012
14,889
5,250
7,088
86.0%
0.0%
54.7%
100.0%
100.0%
100.0%
100.0%
100.0%
79.8%
73.5%
N/A
54.0%
97.4%
100.0%
94.0%
96.1%
100.0%
0.0%
98.2%
96.1%
88.0%
88.5%
96.8%
100.0%
100.0%
44.9%
100.0%
100.0%
100.0%
100.0%
N/A
100.0%
84.6%
100.0%
47.3%
100.0%
100.0%
40.8%
91.5%
Property Name and Location
Southeast Tech Center - Eagan, MN
Spring Valley IV - Omaha, NE
Spring Valley V - Omaha, NE
Spring Valley X - Omaha, NE
Spring Valley XI - Omaha, NE
TCA Building - Eagan, MN
Three Paramount Plaza - Bloomington, MN
Thresher Square - Minneapolis, MN
UHC Office - International Falls, MN
US Bank Financial Center - Bloomington, MN
Viromed - Eden Prairie, MN
Wayroad Corporate - 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
Property Name and Location
MEDICAL
2800 Medical Building - Minneapolis, MN
6517 Drew Avenue South - Edina, MN
Abbott Northwest - Sartell, MN*
Airport Medical - Bloomington, MN
Denfeld Clinic - Duluth, MN
Edgewood Vista - Bismarck, ND
Edgewood Vista - Brainerd, MN
Edgewood Vista - Duluth, MN
Edgewood Vista - Fremont, NE
Edgewood Vista - Hastings, NE
Edgewood Vista - Hermantown, MN
Edgewood Vista - Kalispell, MT
Edgewood Vista - Missoula, MT
Edgewood Vista - Omaha, NE
Edgewood Vista - Spearfish, SD
Edgewood Vista - Virginia, MN
Edgewood Vista Phase II - Virginia, MN
Fresenius - Duluth, MN
Garden View - St. Paul, MN*
Gateway Clinic - Sandstone, MN*
Health East St John & Woodwinds - Maplewood & Woodbury, MN
High Pointe Health Campus - Lake Elmo, MN
Mariner Clinic - Superior, WI*
Nebraska Orthopaedic Hospital - Omaha, NE*
Park Dental - Brooklyn Center, MN
Pavilion I - Duluth, MN*
Pavilion II - Duluth, MN
Ritchie Medical Plaza - St Paul, MN
Southdale 6525 France - Edina, MN
Southdale 6545 France - Edina, MN*
Stevens Point - Stevens Point, WI
Approximate
Net Rentable
Square Footage
(in thousands)
Investment
Fiscal 2006
Economic
Occupancy
58,300 $
15,594
23,913
24,000
24,000
102,854
75,526
112,836
30,000
153,947
48,700
62,383
86,428
24,000
103,332
75,216
3,796,198 $
6,338
1,113
1,364
1,226
1,259
9,903
8,044
11,553
2,505
16,598
4,864
5,567
9,711
1,454
12,231
8,986
383,280
100.0%
N/A
N/A
N/A
N/A
85.8%
90.4%
57.5%
100.0%
96.6%
100.0%
81.3%
96.6%
85.8%
100.0%
99.2%
92.5%
Approximate
Net Rentable
Square Footage
(in thousands)
Investment
Fiscal 2006
Economic
Occupancy
54,971 $
12,140
60,095
24,218
20,512
74,112
82,535
119,349
6,042
6,042
160,485
5,895
10,150
6,042
60,161
70,313
76,870
9,052
43,046
12,444
114,316
60,294
28,928
52,300
10,008
45,081
74,800
50,409
67,409
195,983
47,950
8,073
1,038
12,653
4,678
3,099
9,705
9,586
11,709
552
572
11,236
588
962
641
6,121
7,070
5,111
1,572
7,588
1,765
21,601
12,031
3,788
20,512
2,952
10,144
19,325
9,500
13,746
34,014
4,021
N/A
0.0%
95.7%
100.0%
100.0%
N/A
N/A
100.0%
100.0%
100.0%
N/A
100.0%
100.0%
100.0%
N/A
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
N/A
80.3%
84.7%
N/A
2006 Annual Report 25
Property Name and Location
Wedgewood Sweetwater - Lithia Springs, 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
Anoka Strip Center - Anoka, MN
Buffalo Strip Center - Buffalo, MN
Burnsville 1 Strip Center - Burnsville, MN
Burnsville 2 Strip Center - Burnsville, MN
Champlin South Pond - Champlin, MN
Chan West Village - Chanhassen, MN
Duluth Denfeld Retail - Duluth, MN
Duluth Tool Crib - Duluth, 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
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
Jamestown Buffalo Mall - Jamestown, ND
Jamestown Business Center - Jamestown, ND
Kalispell Retail Center - Kalispell, MT
Kentwood Thomasville Furniture - Kentwood, MI
Ladysmith Pamida - Ladysmith, WI
Lakeville Strip Center - Lakeville, 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
Moundsview Bakery - Mounds View, MN
2006 Annual Report 26
Approximate
Net Rentable
Square Footage
(in thousands)
Investment
Fiscal 2006
Economic
Occupancy
29,408 $
18,810
1,710,170
4,686
2,661
$ 263,300
100.0%
100.0%
96.2%
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
$
10,625 $
7,700
8,526
8,400
25,400
135,969
36,542
15,597
5,400
13,901
3,886
16,103
30,227
4,000
5,600
6,836
100,656
4,800
28,528
59,177
3,571
213,271
99,403
52,000
16,080
41,000
9,500
41,200
5,216
76,424
11,020
3,575
4,560
1,723
2,152
13,091
6,175
1,884
2,450
7,141
8,250
1,905
13,805
1,007
59,583
733
521
997
804
3,571
20,818
4,984
1,933
515
1,361
784
1,392
1,438
368
341
501
8,137
532
2,546
5,697
384
4,555
1,512
3,470
2,121
1,500
1,893
1,800
502
3,587
585
863
292
100.0%
100.0%
69.1%
78.8%
52.8%
100.0%
100.0%
100.0%
31.3%
100.0%
91.5%
87.2%
100.0%
57.0%
100.0%
79.6%
58.4%
95.4%
92.9%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
97.8%
100.0%
90.4%
79.7%
100.0%
100.0%
100.0%
72.0%
100.0%
0.0%
83.4%
100.0%
100.0%
100.0%
Property Name and Location
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 Maplewood Square - Rochester, MN
Schofield Plaza SC - Schofield, WI
St. Cloud Westgate SC - St. Cloud, MN
Wilmar Sam Goody - Willmar, MN
Winsted C Store - Winsted, MN
TOTAL RETAIL
SUBTOTAL
Property Name and Location
UNDEVELOPED LAND AND UNIMPROVED PROPERTY
17 S Main 2nd Floor - Minot, ND
Cottonwood Lake IV - Bismarck, ND
Eagan Vacant Land - Eagan, MN
IGH Vacant Land - Inver Grove Heights, MN
Kalispell Vacant Land - Kalispell, MT
Long Prairie Vacant Land - Long Prairie, MN
River Falls Vacant Land - River Falls, WI
Schofield Plaza Undeveloped - Schofield, WI
Stevens Point Undeveloped - Stevens Point, WI
TOTAL UNDEVELOPED LAND AND UNIMPROVED PROPERTY
Approximate
Net Rentable
Square Footage
(in thousands)
Investment
Fiscal 2006
Economic
Occupancy
27,500 $
4,800
4,800
63,225
6,800
4,200
118,398
25,644
104,928
6,225
3,571
1,474,784
3,699
369
442
2,976
979
484
11,923
1,698
6,787
411
204
$ 111,009
$ 1,269,423
100.0%
0.0%
100.0%
96.4%
44.0%
65.3%
62.8%
58.1%
91.4%
100.0%
8.3%
87.7%
Approximate
Net Rentable
Square Footage
(in thousands)
Investment
0
0
0
0
0
0
0
0
0
0
$
$
12
267
423
564
1,421
162
205
1,638
483
5,175
TOTAL UNITS – RESIDENTIAL SEGMENT
TOTAL SQUARE FOOTAGE – COMMERCIAL SEGMENTS
TOTAL INVESTMENTS
8,648
8,706,439
$1,274,598
Mortgages Payable
As of April 30, 2006, individual first mortgage liens on the above properties totaled $765.9 million. Of the $765.9
million of mortgage indebtedness on April 30, 2006, $24.3 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 $741.6 million. Principal payments due on our mortgage indebtedness are as
follows:
Year Ended April 30, (in thousands)
2007
2008
2009
2010
2011
Later Years
Total
Mortgage Principal
24,168
$
41,796
45,823
108,288
100,472
445,343
765,890
$
2006 Annual Report 27
Future Minimum Lease Payments
The future minimum lease payments to be received under leases for commercial properties in place as of April 30,
2006, assuming that no options to renew or buy out the leases are exercised, are as follows:
Year Ended April 30, (in thousands)
2007
2008
2009
2010
2011
Thereafter
Total
Lease Payments
67,325
60,714
52,840
46,354
36,095
179,057
442,385
$
$
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, 2006, we spent approximately $16.2 million on capital improvements.
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. In addition to options granted to third parties, we also granted an
option to Charles Wm. James to purchase our Excelsior Retail Center. Mr. James was formerly an officer and
trustee of the company. The option exercise price was equal to the price paid by us for the property, plus an annual
consumer price index increase. Mr. James exercised the purchase option and closed on the purchase of this property
in the fourth quarter of fiscal year 2006. 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. As of April 30, 2006, 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 - Bismarck, ND
Edgewood Vista - Brainerd, MN
Edgewood Vista - Duluth, MN
Edgewood Vista - Fremont, NE
Edgewood Vista - Hastings, NE
Edgewood Vista - Hermantown, MN
Edgewood Vista - Kalispell, MT
Edgewood Vista - Missoula, MT
Edgewood Vista - Omaha, NE
Edgewood Vista - Spearfish, SD
Edgewood Vista - Virginia, MN
Great Plains Software - Fargo, ND
Healtheast - Woodbury & Maplewood, MN
Stevens Point - Stevens Point, WI
Wedgewood Sweetwater - Lithia Springs, GA
Total
Properties by State
(in thousands)
Gross Rental Revenue
Property Cost
1,392
$
10,868
10,634
11,709
552
572
12,325
588
962
641
6,757
12,182
15,375
21,601
4,215
4,686
115,059
$
$
$
2006
152
653
645
1,472
62
63
749
62
120
70
406
1,320
1,876
2,032
102
512
10,296
$
$
2005
152
0
0
1,406
59
61
0
62
120
67
0
1,320
1,876
2,032
0
509
7,664
$
$
2004
152
0
0
1,278
59
61
0
62
120
67
0
893
1,875
1,948
0
502
7,017
The following table presents, as of April 30, 2006, an analysis by state of each of the five major categories of
properties owned by us - multi-family residential, office, medical, industrial and retail:
2006 Annual Report 28
Total Real Estate Investment by Type and Location
State
Minnesota
North Dakota
Nebraska
Colorado
Montana
South Dakota
Kansas
Texas
All Other States
Total
Multi-Family
Residential
(in thousands)
Commercial
Medical
Commercial
Office
106,880 $ 305,877 $ 211,152 $
16,697
118,538
15,355
23,254
11,519
41,870
0
39,667
7,088
32,559
0
41,615
38,882
0
26,744
8,986
452,251 $ 383,280 $ 263,300 $
9,705
22,277
0
1,550
6,121
0
0
12,495
$
$
Commercial
Industrial
Commercial
Retail
Total
76,433 $ 739,693
39,351 $
172,369
20,288
7,141
64,585
3,699
0
53,389
0
0
46,487
5,270
0
45,768
0
0
41,615
0
0
38,882
0
0
13,091
66,635
5,319
59,583 $ 111,009 $ 1,269,423
% of Total
58.3%
13.6%
5.1%
4.2%
3.7%
3.6%
3.3%
3.0%
5.2%
100.0%
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.
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, 2006.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Quarterly Share and Distribution Data
Effective July 1, 2006, NASDAQ renamed its existing NASDAQ National Market as the NASDAQ Global Market,
and created a new market tier, the “NASDAQ Global Select Market”. Our common shares of beneficial interest
trade on the NASDAQ Global Select Market under the symbol IRETS. On June 30, 2006, the last reported sales
price per share of our common shares on the NASDAQ National Market was $9.03. 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
2006
April 30, 2006
January 31, 2006
October 31, 2005
July 31, 2005
Quarter Ended
2005
April 30, 2005
January 31, 2005
October 31, 2004
July 31, 2004
High
$
9.67 $
9.79
10.16
10.24
High
$ 10.26 $
10.72
10.30
10.47
Low
9.11
9.20
8.85
9.04
Low
8.90
9.78
9.51
9.39
Distributions Declared
(per share and unit)
$
0.1640
0.1635
0.1630
0.1625
Distributions Declared
(per share and unit)
$
0.1620
0.1615
0.1610
0.1605
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
2006 Annual Report 29
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, 2006, the Company had approximately 4,488 common shareholders of record, and 46,986,206
common shares of beneficial interest (plus 13,578,669 limited partnership units convertible into 13,578,669 common
shares) were outstanding.
Unregistered Sales of Shares
Sales of Unregistered Securities. During the fiscal years ended April 30, 2006, 2005 and 2004, respectively, we
issued an aggregate of 342,242, 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 342,242, 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
2006, except for repurchases of nominal amounts of fractional shares, at shareholder request.
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)
2006
2005
2004
2003
2002
$ 172,799 $ 155,216 $ 132,830 $ 111,907 $ 84,120
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
$
$
$
$
$
10,995 $
10,198 $
10,650 $ 14,252 $ 12,664
3,293 $
8,605 $
662 $
1,595 $
547
(1,863) $
8,671 $
2,896 $
11,567 $
(1,801) $
8,021 $
7,055 $
15,076 $
(3,304)
(2,274) $
(3,322) $
9,708
7,777 $ 10,311 $
1,663 $
892
1,937 $
9,440 $ 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
$ 1,126,400 $ 1,067,345 $ 991,923 $ 845,325 $ 685,347
$ 1,207,315 $ 1,151,158 $1,076,317 $ 885,681 $ 730,209
$ 765,890 $ 708,558 $ 633,124 $ 539,397 $ 459,569
$ 289,560 $ 295,172 $ 278,629 $ 214,761 $ 145,578
$
$
$
$
.14 $
.06 $
.20 $
.65 $
.13 $
.17 $
.30 $
.65 $
.20 $
.04 $
.24 $
.64 $
.32 $
.06 $
.38 $
.63 $
.38
.04
.42
.59
2006 Annual Report 30
CALENDAR YEAR
Tax status of distribution
Capital gain
Ordinary income
Return of capital
2005
2004
2003
2002
2001
16.05%
41.48%
42.47%
0.00%
44.65%
55.35%
3.88%
58.45%
37.67%
0.00%
0.00%
68.29% 65.98%
31.71% 34.02%
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, 2006.
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, 2006, our real estate portfolio consisted of 66 multi-family residential properties containing
8,648 apartment units and having a total real estate investment amount net of accumulated depreciation of $373.1
million, and 145 commercial properties containing approximately 8.7 million square feet of leasable space and
having a total real estate investment amount net of accumulated depreciation of $747.7 million. Our commercial
properties consist of:
•
•
•
•
56 office properties containing approximately 3.8 million square feet of leasable space and having a total
real estate investment amount net of accumulated depreciation of $351.1 million;
33 medical properties (including assisted living facilities) containing approximately 1.7 million square feet
of leasable space and having a total real estate investment amount net of accumulated depreciation of
$244.3 million;
11 industrial properties (including miscellaneous commercial properties) containing approximately 1.7
million square feet of leasable space and having a total real estate investment amount net of accumulated
depreciation of $53.0 million; and
45 retail properties containing approximately 1.5 million square feet of leasable space and having a total
real estate investment amount net of accumulated depreciation of $99.3 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 2006, IRET continued to operate in a challenging economic environment. Job growth at a pace
slower than anticipated, abundant commercial property alternatives, continued lower rental income and increased
costs for tenant concessions all contributed to continued pressure on revenues at our commercial and multi-family
properties. While we saw improvement in vacancy levels in all of our operating segments other than retail, during
fiscal year 2006, 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. Identifying potential acquisition properties that met our investment criteria also remained difficult during
fiscal year 2006. Widespread demand for real estate from traditional and non-traditional investors combined with
continued lower tenant demand for commercial space and apartments resulted in lower investment returns from all
types of real estate.
During fiscal year 2006, economic vacancy levels at IRET’s commercial segment properties decreased in all
segments except retail to 7.5% vacancy at the end of fiscal year 2006 from 9.2% vacancy at the end of fiscal year
2005 in the case of our commercial office portfolio; to 3.8% in fiscal year 2006 from 7.3% in the case of our
commercial medical portfolio; and to 12.8% from 13.2% in the case of our commercial industrial portfolio.
2006 Annual Report 31
Vacancies in our commercial retail portfolio increased to 12.3% at the end of fiscal year 2006 from 11.4% at the end
of fiscal year 2005. Vacancy levels decreased at our total multi-family residential properties, to 8.4% compared to
9.9% at the end of fiscal year 2005. Total revenues of IRET Properties, our operating partnership, increased by
$17.6 million to $172.8 million, compared to $155.2 million in fiscal year 2005. This increase was primarily
attributable to the addition of new real estate properties. Operating income increased in fiscal year 2006, to $9.8
million from $9.2 in fiscal year 2005, and our rent concessions to tenants increased. We estimate that rent
concessions offered to tenants during the twelve months ended April 30, 2006 lowered our operating revenues by
approximately $5.2 million, compared to $4.5 million for fiscal year 2005. Expenses increased during fiscal year
2006 as well, with real estate taxes, maintenance, utility, 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 2006, the Company added seven medical properties (including five assisted living senior housing
facilities) with a total of 530,623 leasable square feet, six office properties with a total of 263,594 leasable square
feet, and two small parcels of vacant land adjoining existing Company properties to our investment portfolio, for an
aggregate purchase price of approximately $93.4 million. During fiscal year 2006, the Company disposed of 17
properties, consisting of one office property and sixteen retail properties, and two undeveloped properties, for sale
prices totaling approximately $14.2 million.
Additional information and more detailed discussions of our fiscal year 2006 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
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.
2006 Annual Report 32
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, 2006) 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, 2006) and from mortgage loans ($25,000 as of April 30, 2006). The straight-lining of rents 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 increases and abated rent 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 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
2006 Annual Report 33
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 adoption of SFAS No. 153 on its effective
date did not have a material effect on the Company’s consolidated financial statements.
In March 2005, the FASB issued FIN 47, Accounting for Conditional Asset Retirement Obligations, an
interpretation of FASB Statement No. 143, Asset Retirement Obligations. FIN 47 provides clarification of the term
“conditional asset retirement obligation” as used in SFAS 143, defined as a legal obligation to perform an asset
retirement activity in which the timing and/or method of settlement are conditional on a future event that may or
may not be within the control of the company. Under this standard, a company must record a liability for a
conditional asset retirement obligation if the fair value of the obligation can be reasonably estimated. FIN 47 became
effective in the Company’s fiscal quarter ended April 30, 2006. Certain of the Company’s real estate assets contain
asbestos, lead and/or underground fuel tanks. Although these materials are appropriately contained, in accordance
with current environmental regulations, the Company’s practice is to remediate asbestos and lead upon the
renovation or redevelopment of its properties, if such renovation or redevelopment would disturb the contained
materials, and to remove underground fuel tanks if they are no longer in use. The majority of the Company’s real
estate assets containing asbestos, lead and/or underground fuel tanks are not currently slated for renovation,
redevelopment or fuel tank removal and, accordingly, the Company has determined that at this time there is not
sufficient information available to reasonably estimate the fair value of the liability. The costs associated with
asbestos, lead and/or underground fuel tank abatement or removal for those few properties which IRET does have
current plans to renovate, demolish or sell have been estimated by IRET and are immaterial, individually and in the
aggregate. Accordingly, the adoption of FIN 47 did not have a material impact on the Company’s consolidated
financial statements.
In June 2005, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) on Issue No.
04-05, “Determining Whether a General Partner, or General Partners as a Group, Controls a Limited Partnership or
Similar Entity When the Limited Partners Have Certain Rights” (“EITF 04-05”). EITF 04-05 provides a framework
for determining whether a general partner controls, and should consolidate, a limited partnership or a similar entity.
EITF 04-05 became effective on June 29, 2005, for all newly formed or modified limited partnership arrangements
and January 1, 2006 for all existing limited partnership arrangements. The Company believes that the adoption of
this standard will not have a material effect on its consolidated financial statements.
RESULTS OF OPERATIONS
Revenues
Total revenues for fiscal year 2006 were $172.8 million, compared to $155.2 million in fiscal year 2005 and $132.8
million in fiscal year 2004. Revenues during fiscal year 2006 were $17.6 million greater than revenues in fiscal year
2005 and revenues during fiscal year 2005 were $22.4 million greater than in fiscal year 2004.
For fiscal 2006, the increase in revenue of $17.6 million resulted from:
Rent from 16 properties acquired in fiscal year 2005 in excess of that received in 2005 from the same
16 properties
Rent from 15 properties acquired in fiscal year 2006
Increase in rental income on existing properties
An increase in straight-line rents
(in thousands)
$
$
9,816
6,704
860
203
17,583
2006 Annual Report 34
For fiscal 2005, the increase in revenue of $22.4 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
A decrease in rent from properties sold in Fiscal 2006
(in thousands)
$
$
14,813
9,745
(2,431)
724
(465)
22,386
As illustrated above, the substantial majority of the increase in our gross revenue for fiscal years 2006 and 2005
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, stable to declining tenant demand combined with a continued widespread demand for
real estate from traditional and non-traditional investors has resulted in a 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. While we were able to take advantage of those lower borrowing costs for most of our recent acquisitions, our
borrowing costs are rising, and 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, land and other investments for fiscal year 2006 of $3.3 million.
This compares to $8.6 million of gain on sale of real estate recognized in fiscal 2005 and $0.7 million recognized in
fiscal 2004. A list of the properties sold during fiscal year 2006, showing sales price, depreciated cost plus sales
costs and net gain is included in this Item 7 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 2006 compared to fiscal year 2005, and for fiscal year 2005 compared to fiscal
year 2004. 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, 2006, compared to fiscal year ended April 30, 2005.
MULTI-FAMILY RESIDENTIAL
Real Estate Revenue
Expenses
Mortgage Interest
Depreciation/amortization related to real estate investments.
Utilities
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Expense
Segment Operating Profit
(in thousands)
2005
2006
Change % Change
$ 63,363
$
60,207 $
3,156
5.2%
18,373
11,614
6,757
8,069
7,142
1,432
7,185
60,572
2,791
$
$
18,247
11,075
5,832
6,928
7,057
1,521
6,805
57,465
2,742 $
126
539
925
1,141
85
(89)
380
3,107
49
0.7%
4.9%
15.9%
16.5%
1.2%
(5.9%)
5.6%
5.4%
1.8%
2006 Annual Report 35
COMMERCIAL OFFICE
Real Estate Revenue
Expenses
(in thousands)
2005
2006
Change % Change
$
57,523 $
48,604 $
8,919
18.4%
Mortgage Interest
Depreciation/amortization related to real estate investments
Utilities
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Expense
Segment Operating Profit
14,777
14,319
4,812
7,590
8,028
707
2,489
52,722
4,801 $
12,715
12,780
3,386
6,312
7,153
537
2,100
44,983
3,621 $
2,062
1,539
1,426
1,278
875
170
389
7,739
1,180
16.2%
12.0%
42.1%
20.2%
12.2%
31.7%
18.5%
17.2%
32.6%
$
COMMERCIAL MEDICAL
Real Estate Revenue
Expenses
(in thousands)
2005
2006
Change % Change
$
32,184 $
25,794 $
6,390
24.8%
Mortgage Interest
Depreciation/amortization related to real estate investments
Utilities
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Expense
Segment Operating Profit
10,608
7,065
1,600
2,471
2,283
298
1,662
25,987
6,197 $
8,923
5,305
1,142
1,870
1,616
277
1,273
20,406
5,388 $
1,685
1,760
458
601
667
21
389
5,581
809
18.9%
33.2%
40.1%
32.1%
41.3%
7.6%
30.6%
27.3%
15.0%
$
COMMERCIAL INDUSTRIAL
Real Estate Revenue
Expenses
(in thousands)
2005
2006
Change % Change
$
6,372 $
6,459 $
(87)
(1.3%)
Mortgage Interest
Depreciation/amortization related to real estate investments
Utilities
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Expense
Segment Operating Profit
2,240
1,551
91
201
771
81
108
5,043
1,329 $
2,302
1,523
60
185
797
78
104
5,049
1,410 $
$
(62)
28
31
16
(26)
3
4
(6)
(81)
(2.7%)
1.8%
51.7%
8.6%
(3.3%)
3.8%
3.8%
(0.1%)
(5.7%)
COMMERCIAL RETAIL
Real Estate Revenue
Expenses
(in thousands)
2005
2006
Change % Change
$
13,357 $
14,152 $
(795)
(5.6%)
Mortgage Interest
Depreciation/amortization related to real estate investments
Utilities
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Expense
Segment Operating Profit
4,155
2,634
415
1,161
1,799
189
560
10,913
2,444 $
3,917
2,608
400
988
1,793
190
288
10,184
3,968 $
238
26
15
173
6
(1)
272
729
(1,524)
6.1%
1.0%
3.8%
17.5%
0.3%
(0.5%)
94.4%
7.2%
(38.4%)
$
2006 Annual Report 36
Fiscal year ended April 30, 2005, compared to fiscal year ended April 30, 2004.
MULTI-FAMILY RESIDENTIAL
Real Estate Revenue
Expenses
Mortgage Interest
Depreciation/amortization related to real estate investments.
Utilities
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Expense
Segment Operating Profit
COMMERCIAL OFFICE
Real Estate Revenue
Expenses
(in thousands)
2004
2005
Change % Change
$ 60,207
$
59,294 $
913
1.5%
18,247
11,075
5,832
6,928
7,057
1,521
6,805
57,465
2,742
$
$
17,647
10,310
5,667
6,829
6,675
2,001
6,225
55,354
3,940 $
600
765
165
99
382
(480)
580
2,111
(1,198)
3.4%
7.4%
2.9%
1.4%
5.7%
(24.0%)
9.3%
3.8%
(30.4%)
(in thousands)
2004
2005
Change % Change
$
48,604 $
39,874 $
8,730
21.9%
Mortgage Interest
Depreciation/amortization related to real estate investments
Utilities
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Expense
Segment Operating Profit
12,715
12,780
3,386
6,312
7,153
537
2,100
44,983
3,621 $
11,001
7,129
2,768
5,646
5,745
450
1,764
34,503
5,371 $
1,714
5,651
618
666
1,408
87
336
10,480
(1,750)
15.6%
79.3%
22.3%
11.8%
24.5%
19.3%
19.0%
30.4%
(32.6%)
$
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
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Expense
Segment Operating Profit
8,923
5,305
1,142
1,870
1,616
277
1,273
20,406
5,388 $
5,841
2,977
775
1,451
1,491
149
1,156
13,840
2,036 $
52.8%
3,082
78.2%
2,328
47.4%
367
28.9%
419
8.4%
125
85.9%
128
10.1%
117
6,566
47.4%
3,352 164.6%
$
2006 Annual Report 37
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
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Expense
Segment Operating Profit
2,302
1,523
60
185
797
78
104
5,049
1,410 $
2,092
1,253
49
202
768
66
98
4,528
2,106 $
210
270
11
(17)
29
12
6
521
(696)
10.0%
21.5%
22.4%
(8.4%)
3.8%
18.2%
6.1%
11.5%
(33.0%)
$
COMMERCIAL RETAIL
Real Estate Revenue
Expenses
(in thousands)
2004
2005
Change % Change
$
14,152 $
11,152 $
3,000
26.9%
Mortgage Interest
Depreciation/amortization related to real estate investments
Utilities
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Expense
Segment Operating Profit
3,917
2,608
400
988
1,793
190
288
10,184
3,968 $
3,164
1,874
275
735
1,733
157
118
8,056
3,096 $
23.8%
753
39.2%
734
45.5%
125
34.4%
253
3.5%
60
33
21.0%
170 144.1%
26.4%
28.2%
2,128
872
$
Changes in Expenses and Net Income
Operating income for fiscal year 2006 increased to $9.8 million from $9.2 million in fiscal year 2005, and was $10.0
million in fiscal year 2004. Our net income available to common shareholders for fiscal year 2006 was $9.2 million,
compared to $12.7 million in fiscal year 2005 and $9.4 million in fiscal year 2004. On a per common share basis, net
income was $0.20 per common share in fiscal year 2006, compared to $0.30 per common share in fiscal year 2005
and $0.24 in fiscal year 2004.
These changes in operating income and net income result from the changes in revenues and expenses detailed
below:
Changes in net income available to common shareholders for fiscal year 2006 resulted from:
(in thousands)
An increase in net rental income primarily due to new acquisitions (rents, less utilities, maintenance,
taxes, insurance and management)
An increase in non-operating income
An increase in gain on sale of other investments
A decrease in operating expenses, administrative, advisory & trustee services
$
These increases were offset by:
An increase in depreciation/amortization expense related to real estate investments
An increase in interest expense primarily due to debt placed on new acquisitions
An increase in amortization expense
An increase in minority interest of other partnership’s income
An increase in minority interest of operating partnership income
A decrease in income from discontinued operations, net
Loss on impairment of real estate investment
Total decrease in fiscal 2006 net income available to common shareholders
$
8,374
255
20
191
(3,922)
(3,377)
(315)
(105)
(62)
(4,159)
(409)
(3,509)
2006 Annual Report 38
Changes in net income available to common shareholders 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 dividends to preferred shareholders
An increase in operating expenses, administrative, advisory & trustee services
An increase in amortization expense
A decrease in gain on sale of other investments
Total increase in fiscal 2005 net income available to common shareholders
(in thousands)
$
$
16,687
5,392
338
473
378
(5,960)
(9,785)
(2,339)
(1,469)
(263)
(155)
3,297
Factors Impacting Net Income During Fiscal Year 2006 as Compared to Fiscal Year 2005
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 continuing to lessen in the next twelve months.
•
Increased concessions and limited ability to raise rents. During fiscal year 2006, economic occupancy levels
at our multi-family residential and commercial properties improved. “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. However, our level of tenant concessions continued to rise, and, despite some positive
developments in the general economy, a majority of the markets in which we operate continue to experience
lower-than-expected levels of job creation and demand for multi-family residential and commercial space.
Accordingly, we were unable to raise rents significantly at the majority of our properties. Economic vacancy
levels at our stabilized multi-family residential properties decreased throughout our entire portfolio during
fiscal year 2006, to 8.0% compared to 9.7% at the end of fiscal year 2005, for economic occupancy levels of
approximately 92.0% in fiscal year 2006 compared to approximately 90.3% in fiscal year 2005. “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.
Economic vacancy levels at our stabilized total commercial segment properties decreased to 8.9% during
fiscal year 2006, from 10.1% at the end of fiscal year 2005, for economic occupancy levels of approximately
91.1% in fiscal year 2006 compared to approximately 89.9% in fiscal year 2005. On an individual
commercial segment basis, economic vacancy levels at our stabilized commercial office, medical and
industrial properties decreased to 8.5%, 5.7% and 12.8%, respectively, during fiscal year 2006, from 9.8%,
8.8% and 13.2%, respectively, during fiscal year 2005. Economic vacancy levels at our stabilized
commercial retail properties increased to 12.3% during fiscal year 2006, compared to 11.3% during fiscal
year 2005.
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 2006
lowered our operating revenues by approximately $5.2 million, compared to an estimated approximately $4.5
million reduction in operating revenues attributable to rent concessions offered in fiscal year 2005.
•
Increased real estate taxes. Real estate taxes on properties newly acquired in fiscal years 2005 and 2006
added $2 million to the real estate taxes category, while real estate taxes on existing properties decreased by
2006 Annual Report 39
•
•
•
$393,000, resulting in a net increase in real estate tax expense of $1.6 million, or 8.7%, for fiscal year 2006,
as compared to fiscal year 2005.
Increased maintenance expense. Maintenance expenses at our properties increased by $3.2 million, or 19.7%
for the fiscal year ended April 30, 2006, as compared to fiscal year 2005. Of the increased maintenance costs
for the fiscal year ended April 30, 2006, $2.4 million, or 74.5%, is attributable to the addition of new real
estate acquired in fiscal 2006 and 2005, while $817,000, or 25.5%, is 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 non-commercial 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 vacancy levels have prevented us
from raising rents in the amounts necessary to fully recover our increased maintenance costs.
Increased utility expense. The utility expense category increased by $2.9 million, or 26.4%, for the fiscal
year ended April 30, 2006, compared to fiscal year 2005. Of the increased utility costs, $1.6 million, or
56.5%, is attributable to the addition of new real estate acquired in fiscal years 2006 and 2005, while $1.2
million, or 43.5%, is due to increased 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 non-
commercial 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 vacancy levels at our properties, have prevented us from raising rents in the amounts
necessary to fully recover our increased utility costs. Additionally, 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 mortgage interest expense. Our mortgage debt increased $57.3 million, or 8.1%, for the fiscal year
ended April 30, 2006 compared to fiscal year 2005, to approximately $765.9 million from approximately
$708.6 million. Mortgage interest expense at properties newly acquired in fiscal years 2005 and 2006 added
$4.6 million to the mortgage interest expense category, while mortgage interest expense at existing properties
decreased by $522,000, resulting in a net increase of $4.0 million or 8.8% in mortgage interest expense in
fiscal year 2006 compared to fiscal year 2005.
Factors Impacting Net Income During Fiscal Year 2005 as Compared to Fiscal Year 2004
•
Increased economic vacancy and concessions. During fiscal year 2005, economic 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. However, economic 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 continued to experience overall
poor economic conditions in respect to job creation. The poor economic climate translated into increased
vacancy at many of our properties.
While economic 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 did not decline significantly, and
results at our multi-family residential properties continued 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 offered tenant incentives, generally in the form of lower rents, which
resulted 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.
•
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% was
attributable to the addition of new real estate acquired in fiscal 2005 and 2004, while ($0.4) million or
(18.4)% was due to decreased costs for real estate taxes on existing real estate assets.
2006 Annual Report 40
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 non-commercial 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.
•
•
•
•
•
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% was attributable
to the addition of new real estate acquired in fiscal 2005 and 2004, while $(0.8) million or (57.4)% was 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 non-commercial 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 $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%
was attributable to the addition of new real estate acquired in fiscal 2005 and 2004, while $(0.03) million or
(2.1)% was 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 non-
commercial 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.
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. During fiscal year 2005, we hired seven new employees. The addition of these
new employees, together with increases in the wages and benefits paid to existing employees, accounted 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 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% was 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
period, which has the effect in the short term of decreasing the Company’s net income available to common
shareholders.
2006 Annual Report 41
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
Multi-Family Residential
Commercial Office
Commercial Medical
Commercial Industrial
Commercial Retail
Total
Gross Real Estate Rental Revenues
Multi-Family Residential
Commercial Office
Commercial Medical
Commercial Industrial
Commercial Retail
Total
(in thousands)
2006
(in thousands)
2005
%
(in thousands)
2004
%
%
$ 373,101
351,087
244,346
52,958
99,324
39.1%
27.6%
16.3%
5.5%
11.5%
$1,120,816 100.0% $1,061,344 100.0% $ 983,850 100.0%
35.3% $ 384,374
271,823
31.1%
160,662
18.1%
54,201
5.0%
112,790
10.5%
33.3% $ 374,575
330,338
31.3%
192,478
21.8%
53,040
4.7%
110,913
8.9%
$
63,363
57,523
32,184
6,372
13,357
44.6%
30.0%
12.0%
5.0%
8.4%
$ 172,799 100.0% $ 155,216 100.0% $ 132,830 100.0%
36.7% $
33.3%
18.6%
3.7%
7.7%
38.8% $
31.3%
16.6%
4.2%
9.1%
59,294
39,874
15,876
6,634
11,152
60,207
48,604
25,794
6,459
14,152
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, 2006, for fiscal years 2007 through 2016 and the leases that will expire during fiscal
year 2017 and beyond.
(in thousands)
Square
Footage of
Expiring
Leases
873
848
868
842
1,142
745
131
191
134
70
951
Percentage
of Total
Commercial
Segments Leased
Square Footage
10.1%
9.8%
10.0%
9.7%
13.2%
8.6%
1.5%
2.2%
1.5%
0.8%
11.0%
$
(in thousands)
Annualized
Base Rent of
Expiring Leases
at Expiration
4,126
5,839
4,011
4,487
4,929
5,548
1,238
1,293
1,578
708
85,088
Fiscal Year of Lease Expiration
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 and beyond
2006 Annual Report 42
The following table lists our top ten commercial tenants on April 30, 2006, for the total commercial segments
properties owned by us as of April 30, 2006, based upon minimum rents in place as of April 30, 2006:
Lessee
Edgewood Living Communities, Inc.
St. Luke’s Hospital
Best Buy
Healtheast - Woodbury & Maplewood
Microsoft Great Plains
Smurfit - Stone Container Corporation
Allina Health
Nebraska Orthopaedic Hospital
Wilson’s The Leather Experts Inc.
Department of Health & Welfare (State of Idaho)
All Others
Total Monthly Rent as of April 30, 2006
Results on a “Stabilized Property” Basis
(in thousands)
% of Total Commercial
Segments Minimum
Rents as of April 30, 2006
8.4%
4.8%
2.9%
2.3%
2.1%
2.1%
2.0%
1.9%
1.7%
1.6%
70.2%
100.0%
The following tables present results on a stabilized property basis for fiscal year 2006 compared to fiscal year 2005,
and for fiscal year 2005 compared to fiscal year 2004, 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 from this analysis). This comparison allows us to evaluate the performance of
existing properties and their contribution to net income. The fiscal year 2005 results presented in the first table
below are not identical to the fiscal year 2005 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
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 2006 compared to fiscal year 2005:
Fiscal Years Ended April 30
Multi-Family Residential
Real Estate Revenue
Expenses
Mortgage Interest
Depreciation and Amortization
Utilities
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Expenses
Property Segment Operating Profit
(in thousands)
2006
2005
% Change
$
61,107
$ 59,657
2.4%
17,939
11,120
6,496
7,759
6,841
1,374
6,938
58,467
2,640
$
18,208
10,948
5,788
6,887
6,965
1,506
6,752
57,054
2,603
$
(1.5%)
1.6%
12.2%
12.7%
(1.8%)
(8.8%)
2.8%
2.5%
1.4%
2006 Annual Report 43
Commercial Office
Real Estate Revenue
Expenses
Mortgage Interest
Depreciation and Amortization
Utilities
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Expenses
Property Segment Operating Profit
Commercial Medical
Real Estate Revenue
Expenses
Mortgage Interest
Depreciation and Amortization
Utilities
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Expenses
Property Segment Operating Profit
Commercial Industrial
Real Estate Revenue
Expenses
Mortgage Interest
Depreciation and Amortization
Utilities
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Expenses
Property Segment Operating Profit
Commercial Retail
Real Estate Revenue
Expenses
Mortgage Interest
Depreciation and Amortization
Utilities
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Expenses
Property Segment Operating Profit
Total Stabilized Segment Operating Profit
Reconciliation to Segment Operating Profit
Real Estate Revenue - Non-Stabilized
Expenses - Non-Stabilized
Mortgage Interest
Depreciation and Amortization
Utilities
Maintenance
Real Estate Taxes
2006 Annual Report 44
$
44,338
$ 43,931
0.9%
11,553
9,962
3,650
5,651
6,146
522
1,955
39,439
4,899
$
11,920
10,921
3,209
5,911
6,547
473
1,945
40,926
3,005
$
(3.1%)
(8.8%)
13.7%
(4.4%)
(6.1%)
10.4%
0.5%
(3.6%)
63.0%
$
21,296
$ 21,203
0.4%
7,250
4,325
1,088
1,688
1,568
231
1,166
17,316
3,980
6,372
2,240
1,551
91
201
771
81
108
5,043
1,329
$
$
$
7,312
4,274
1,041
1,672
1,418
242
1,032
16,991
4,212
(0.8%)
1.2%
4.5%
1.0%
10.6%
(4.5%)
13.0%
1.9%
(5.5%)
6,459
(1.3%)
2,302
1,523
60
185
797
78
104
5,049
1,410
(2.7%)
1.8%
51.7%
8.6%
(3.3%)
3.8%
3.8%
(0.1%)
(5.7%)
$
$
$
$
13,343
$ 14,149
(5.7%)
6.1%
1.4%
3.8%
17.5%
0.4%
(0.5%)
94.8%
7.3%
(38.8%)
0.5%
4,155
2,627
415
1,161
1,800
189
559
10,906
2,437
15,285
26,343
7,016
7,598
1,935
3,032
2,897
$
$
$
$
3,917
2,590
400
988
1,792
190
287
10,164
3,985
$
$ 15,215
$
$
9,817
2,445
3,035
322
640
897
Insurance
Property Management
Total Segment Operating Profit
Fiscal year 2005 compared to fiscal year 2004:
Fiscal Years Ended April 30
Multi-Family Residential
Real Estate Revenue
Expenses
Mortgage Interest
Depreciation and Amortization
Utilities
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Expenses
Property Segment Operating Profit
Commercial Office
Real Estate Revenue
Expenses
Mortgage Interest
Depreciation and Amortization
Utilities
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Expenses
Property Segment Operating Profit
Commercial Medical
Real Estate Revenue
Expenses
Mortgage Interest
Depreciation and Amortization
Commercial Medical - continued
Utilities
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Expenses
Property Segment Operating Profit
Commercial Industrial
Real Estate Revenue
Expenses
Mortgage Interest
Depreciation and Amortization
Utilities
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Expenses
Property Segment Operating Profit
310
1,278
17,562
$
114
450
$ 17,129
(in thousands)
2005
2004
% Change
$
55,092
$ 55,504
(0.7%)
16,657
10,019
5,192
6,252
6,514
1,375
5,989
51,998
3,094
16,711
9,695
5,298
6,447
6,373
1,882
5,774
52,180
3,324
$
$
(0.3%)
3.3%
(2.0%)
(3.0%)
2.2%
(26.9%)
3.7%
(0.3%)
(6.9%)
$
32,930
$ 35,584
(7.5%)
9,630
5,662
2,278
4,493
4,989
353
1,507
28,912
4,018
10,202
5,448
2,459
5,148
5,122
403
1,589
30,371
5,213
$
$
(5.6%)
3.9%
(7.4%)
(12.7%)
(2.6%)
(12.4%)
(5.2%)
(4.8%)
(22.9%)
$
15,491
$ 15,171
2.1%
5,383
2,811
876
1,416
1,293
149
760
12,688
2,803
5,961
2,171
1,256
60
169
709
72
91
4,528
1,433
$
$
$
5,521
2,710
708
1,338
1,449
133
1,005
12,864
2,307
(2.5%)
3.7%
23.7%
5.8%
(10.8%)
12.0%
(24.4%)
(1.4%)
21.5%
6,614
(9.9%)
2,092
1,242
49
202
764
65
98
4,512
2,102
3.8%
1.1%
22.4%
(16.3%)
(7.2%)
10.8%
(7.1%)
0.4%
(31.8%)
$
$
$
2006 Annual Report 45
Commercial Retail
Real Estate Revenue
Expenses
Mortgage Interest
Depreciation and Amortization
Utilities
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Expenses
Property Segment Operating Profit
Total Stabilized Segment Operating Profit
Reconciliation to Segment Operating Profit
Real Estate Revenue - Non-Stabilized
Expenses - Non-Stabilized
Mortgage Interest
Depreciation and Amortization
Utilities
Maintenance
Real Estate Taxes
Insurance
Property Management
Total Segment Operating Profit
Property Acquisitions
$
12,022
$ 11,169
7.6%
4.8%
2.8%
29.5%
0.1%
(9.4%)
(7.9%)
36.0%
1.5%
23.9%
(5.4%)
3,383
1,913
351
734
1,650
139
68
8,238
3,784
15,132
3,229
1,861
271
733
1,821
151
50
8,116
$
3,053
$ 15,999
34,951
$
9,554
9,103
11,813
2,088
3,280
3,463
526
2,156
17,654
2,130
2,723
765
1,075
1,050
200
845
$ 16,765
$
$
$
$
IRET Properties paid approximately $93.4 million for real estate properties added to its portfolio during fiscal year
2006, compared to $146.4 million in fiscal year 2005. The fiscal year 2006 and 2005 additions are detailed below.
Fiscal 2006 (May 1, 2005 to April 30, 2006)
Fiscal 2006 Acquisitions
Multi-Family Residential
36-unit Legacy 7 - Grand Forks, ND
Commercial Property—Office
15,594 sq. ft. Spring Valley IV Office Building - Omaha, NE
23,913 sq. ft. Spring Valley V Office Building - Omaha, NE
24,000 sq. ft. Spring Valley X Office Building - Omaha, NE
24,000 sq. ft. Spring Valley XI Office Building - Omaha, NE
30,000 sq. ft. Brook Valley I Office Building - La Vista, NE
146,087 sq. ft. Northpark Corporate Center - Arden Hills, MN
Commercial Property—Medical (including assisted living)
74,112 sq. ft. Edgewood Vista - Bismarck, ND
60,161 sq. ft. Edgewood Vista - Spearfish, SD
82,535 sq. ft. Edgewood Vista - Brainerd, MN
160,485 sq. ft. Edgewood Vista - Hermantown, MN
50,409 sq. ft. Ritchie Medical Plaza - St. Paul, MN
54,971 sq. ft. 2800 Medical Building - Minneapolis, MN
47,950 sq. ft. Stevens Point - Stevens Point, WI
Undeveloped Property
Stevens Point Undeveloped - Stevens Point, WI
Eagan Vacant Land - Eagan, MN
Total Fiscal 2006 Property Acquisitions
$
2006 Annual Report 46
(in thousands)
Purchase Price
$
2,445
2,445
1,250
1,375
1,275
1,250
2,100
18,597
25,847
10,750
6,687
10,625
12,315
10,750
9,000
4,215
64,342
310
423
733
93,367
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
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
(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
$
* = Property not placed in service at April 30, 2005. Additional costs were still to be incurred.
Property Dispositions
During fiscal year 2006, IRET Properties disposed of 17 properties and two undeveloped properties for an aggregate
sale price of $14.2 million, compared to 17 properties and one parcel of undeveloped land sold for $48.9 million in
total during fiscal year 2005. Real estate assets sold by IRET during fiscal year 2006 were as follows:
Fiscal 2006 Dispositions
Commercial - Office
(in thousands)
Book Value
and Sales Cost
Sales Price
Gain/Loss
1,600 sq. ft. Greenwood Chiropractic - Greenwood, MN
$
490
$
345
$
145
Commercial – Retail
3,000 sq. ft. Centerville Convenience Store - Centerville, MN
4,800 sq. ft. East Bethel C-Store - East Bethel, MN
6,325 sq. ft. Lino Lake Strip Center - Lino Lakes, MN
8,400 sq. ft. IGH Strip Center - Inver Grove Heights, MN
46,720 sq. ft. Sleep Inn - Brooklyn Park, MN
7,993 sq. ft. Excelsior Strip Center - Excelsior, MN
3,000 sq. ft. Andover C-Store - Andover, MN
6,266 sq. ft. Oakdale Strip Center - Oakdale, MN
6,225 sq. ft. Rochester Auto - Rochester, MN
3,650 sq. ft. Lakeland C-Store - Lakeland, MN
340
660
650
1,280
3,350
965
383
1,050
465
610
324
498
462
940
2,990
891
308
745
431
436
16
162
188
340
360
74
75
305
34
174
2006 Annual Report 47
Commercial – Retail – continue
4,000 sq. ft. Lindstrom C-Store - Lindstrom, MN
3,571 sq. ft. Mora C-Store - Mora, MN
3,000 sq. ft. Shoreview C-Store - Shoreview, MN
8,750 sq. ft. Blaine Strip Center - Blaine, MN
3,444 sq. ft. St. Louis Park Retail - St. Louis Park, MN
3,864 sq. ft. Mound Strip Center - Mound, MN
Undeveloped Property
40,000 sq. ft. Centerville Undeveloped Land - Centerville, MN
Andover Vacant Land - Andover, MN
Total Fiscal 2006 Property Dispositions
Properties sold by IRET during fiscal 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
450
380
400
990
845
550
345
296
326
599
365
358
$
$
110
230
14,198
$
105
164
10,928
(in thousands)
Book Value
and Sales Cost
Sales Price
$
12,250
96
159
825
6,900
4,599
215
185
12,070
96
159
566
5,625
2,658
161
135
105
84
74
391
480
192
5
66
3,270
Gain/Loss
180
0
0
259
1,275
1,941
54
50
$
$
Commercial - Office
62,585 sq. ft. Flying Cloud Building - Eden Prairie, MN
5,750
5,750
0
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
Funds From Operations
7,210
509
509
509
1,639
4,590
2,160
650
5,676
433
435
434
1,312
2,916
1,209
518
151
48,906
$
151
40,304
$
$
1,534
76
74
75
327
1,674
951
132
0
8,602
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.
2006 Annual Report 48
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 to better 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.
FFO applicable to common shares and limited partnership units for the fiscal year ended April 30, 2006 increased to
$46.7 million, compared to $42.3 million and $36.6 million for the fiscal years ended April 30, 2005 and 2004,
respectively.
Reconciliation of Net Income to Funds From Operations
For the years ended April 30, 2006, 2005 and 2004:
Fiscal Years Ended April 30,
2006
2005
2004
(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)
$ 11,567
$
$
15,076
$
$
9,440
$
(2,372)
(2,372)
(33)
9,195
45,717
.20
12,704
43,214
.30
9,407
39,257
.24
2,705
13,329
3,873
12,621
2,752
11,176
38,104
(3,293)
34,342
(8,605)
25,079
(600)
$ 46,711
59,046 $
.79 $
42,314
55,835 $
.76 $
36,638
50,433 $
.73
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(4)
(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 $39,030, and depreciation and
amortization from Discontinued Operations of $189, less corporate-related depreciation and amortization on office equipment and other
assets of $230, and less amortization of financing costs of $885, for the fiscal year ended April 30, 2006.
(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.
(4)
In accordance with SEC and NAREIT guidance, IRET does not exclude impairment write-downs from FFO (that is, impairment charges are
not added back to GAAP net income in calculating FFO). IRET recorded impairment charges of $409, $570 and $62 for the fiscal years
ended April 30, 2006, 2005 and 2004, respectively. If these impairment charges are excluded from the Company's calculation of FFO, the
Company's FFO per share and unit would be $.80 and $.77 for fiscal years 2006 and 2005, respectively. FFO per share and unit for fiscal
year 2004 would be unchanged.
2006 Annual Report 49
Cash Distributions
The following cash distributions were paid to our common shareholders and UPREIT unitholders during fiscal years
2006, 2005, and 2004:
Quarters
First
Second
Third
Fourth
Fiscal Years
$
$
2006
.1625
.1630
.1635
.1640
.6530
$
$
2005
.1605
.1610
.1615
.1620
.6450
$
$
2004
.1585
.1590
.1595
.1600
.6370
The fiscal year 2006 cash distributions increased 1% and 3% over the cash distributions paid during fiscal year 2005
and fiscal year 2004, respectively.
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, 2006, the Company had three unsecured lines of credit, each in the amount of $10.0 million, 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 $3.5 million outstanding under the First Western Bank credit line as of
April 30, 2006, and had no outstanding borrowings on the other two lines as of April 30, 2006. Borrowings under
the lines of credit bear interest based on the following for each of the lines of credit described above, respectively:
(1) Wall Street Journal prime rate, or Libor plus 2.50% for periods of 90 days or more, (2) the Wall Street Journal
prime rate, and (3) the Wall Street Journal prime rate. 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,
2006, and October 15, 2006, respectively. The Company’s line of credit with First International Bank and Trust
expires on December 13, 2006. The Company will seek to renew each of these three lines of credit prior to their
expiration.
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 an aggregate initial offering price of $150 million
during the period that the registration statement remains effective. The Company did not issue any common or
2006 Annual Report 50
preferred shares under this registration statement in fiscal year 2006. The Company issued 1,652 common shares
under this registration statement in fiscal year 2005, for net proceeds of $15.8 million. As of April 30, 2006, the
Company had available securities under this registration statement in the aggregate amount of approximately $101.5
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 2006, 1.2 million common shares were issued under this plan, with an additional 1.1
million common shares issued during fiscal year 2005.
The issuance of UPREIT Units for property acquisitions continues to be a source of capital for the Company.
Approximately 1.1 million units were issued in connection with property acquisitions during fiscal year 2006, and
approximately 2.0 million units were issued in connection with property acquisitions during fiscal year 2005.
Primarily as a result of the conversion of UPREIT units and the issuance of common shares pursuant to our
distribution reinvestment plan, net of fractional shares repurchased, the Company’s equity capital increased during
fiscal 2006 by $15.2 million. Additionally, the equity capital of the Company was increased by $11.0 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 during fiscal year 2006 of $26.2 million.
Cash and cash equivalents on April 30, 2006 totaled $17.5 million, compared to $23.5 million and $31.7 million on
the same date in 2005 and 2004, respectively. Net cash provided from operating activities increased to $48.4 million
in fiscal year 2006 from $48.3 million in fiscal year 2005, due primarily to increased net income as a result of higher
occupancy rates at Company properties. 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 in the
non-cash item depreciation and amortization.
Net cash used in investing activities increased to $82.6 million in fiscal year 2006, from $70.4 million in fiscal year
2005. Net cash used in investing activities was $140.3 million in fiscal year 2004. The increase in net cash used in
investing activities in fiscal year 2006 compared to fiscal year 2005 was primarily a result of fewer proceeds from
sales of properties. Net cash provided from financing activities also increased to $28.2 million during fiscal year
2006, from $14.0 million during fiscal year 2005, due primarily to an increase in proceeds received from mortgage
borrowings and refinancings. 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.
Financial Condition
Mortgage Loan Indebtedness. Mortgage loan indebtedness increased to $765.9 million on April 30, 2006, due to the
acquisition of new investment properties, from $708.6 million on April 30, 2005. Approximately 96.8% 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, 2006, the weighted average rate of interest on the Company’s mortgage debt was 6.03%,
compared to 6.08% on April 30, 2005.
Notes Payable. As of April 30, 2006, the Company had $3.5 million outstanding under its unsecured credit line with
First Western Bank and Trust, Minot, N.D. The Company had no amounts outstanding under its credit lines as of
April 30, 2005.
Mortgage Loans Receivable. Mortgage loans receivable decreased to $0.4 million at April 30, 2006, from $0.6
million at April 30, 2005.
Real Estate Owned. Real estate owned increased to $1,269.4 million at April 30, 2006, from $1,179.9 million at
April 30, 2005. 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.
2006 Annual Report 51
Investment Certificates. We discontinued the issuance of investment certificates in April 2002. As of April 30, 2006,
$2.5 million of such certificates were outstanding.
Cash and Cash Equivalents. Cash and cash equivalents on April 30, 2006, totaled $17.5 million, compared to $23.5
million on April 30, 2005. The decrease in cash on hand on April 30, 2006, as compared to April 30, 2005, was due
primarily to fewer proceeds from the issuance of common stock.
Marketable Securities. During fiscal year 2006, IRET decreased its investment in marketable securities classified as
available-for-sale to $2.4 million on April 30, 2006, from $2.5 million on April 30, 2005. 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.
Operating Partnership Units. Outstanding limited partnership units in the Operating Partnership increased to 13.7
million units on April 30, 2006, compared to 13.1 million units outstanding on April 30, 2005. The increase in units
outstanding at April 30, 2006 as compared to April 30, 2005, 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,
2006 totaled 46.9 million compared to 45.2 million common shares outstanding on April 30, 2005. This increase in
common shares outstanding from April 30, 2005, to April 30, 2006, was primarily due to the issuance of common
shares pursuant to our distribution reinvestment plan. Preferred shares of beneficial interest outstanding on April 30,
2006 and 2005 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 had $3.5 million outstanding under its lines of credit at April 30, 2006. The
principal and interest payments on the mortgage notes payable for the years subsequent to April 30, 2006, are
included in the table below as “long-term debt.” The other debt category consists of two unsecured promissory notes
for leasehold improvements at two of our properties, Southdale Medical Center in Edina, Minnesota, and the Wells
Fargo Building in St. Cloud, Minnesota.
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 as they mature. Amounts due with respect to these investment certificates are reflected in the “Investment
Certificates” category below.
As of April 30, 2006, the Company is a tenant under operating ground leases on seven of its properties. The
Company pays a total of approximately $309,000 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, 2006, which the Company expects to
finance through debt and operating cash, 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.
2006 Annual Report 52
Long-term debt (principal and interest)
Investment Certificates
Operating Lease Obligations
Purchase Obligations
Off-Balance-Sheet Arrangements
Total
$ 1,120,952
2,451
$
19,247
$
11,918
$
(in thousands)
Less Than
1 Year
1-3 Years
74,116 $ 180,587
11
2,440 $
618
309 $
818
11,100 $
$
$
$
$
3-5 Years
$ 281,513
0
$
618
$
0
$
More than
5 Years
$ 584,736
0
$
17,702
$
0
$
As of April 30, 2006, 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, 2006, 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, 2006. On July 3, 2006, the Company paid a distribution of 16.45 cents per share on the Company’s
common shares of beneficial interest, to common shareholders and UPREIT unitholders of record on June 16, 2006.
This distribution represented an increase of .05 cents or .3% over the previous regular quarterly distribution of 16.40
cents per common share/unit paid April 3, 2006.
Closed and Pending Acquisitions. Subsequent to its April 30, 2006 fiscal year end, the Company closed on its
acquisition of a small retail property in Minot, North Dakota, for a purchase price of approximately $625,000.
Additionally, subsequent to its April 30, 2006 fiscal year end, the Company announced that it has signed an
agreement to acquire an office portfolio comprised of nine properties, consisting of 15 buildings totaling 936,320
rentable square feet, for $140.8 million (including the assumption of existing debt on the portfolio) from subsidiaries
of Omaha-based Magnum Resources, Inc., a real estate services and investment firm founded by W. David Scott.
The acquisition price will be funded with the issuance of up to approximately $60 million of limited partnership
units in the Company’s operating partnership, IRET Properties. The closing of this portfolio acquisition is expected
to occur on or before September 1, 2006. However, the closing of this transaction is subject to the satisfaction of
certain closing conditions, and, accordingly, no assurances can be given that the acquisition will be completed.
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. Because approximately 97% of our debt, as of April 30, 2006 (96% as of April 30, 2005), is
at fixed interest rates, we have little exposure to interest rate fluctuation risk on our existing debt, and accordingly
interest rate increases during fiscal year 2006 did not have a material effect on the Company. However, even though
our goal is to maintain a fairly low exposure to interest rate risk, we are still vulnerable to significant fluctuations in
interest rates on any future repricing or refinancing of our fixed or variable 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, 2006, 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
2007
$ 23,027 $
1,141
2008
2009
40,590 $ 42,694
3,129
Future Principal Payments (in thousands)
2010
$ 107,076
1,212
2011
$ 99,186
1,286
1,206
Thereafter
$ 429,002
16,341
Average Interest Rate (%)
(1)
(1)
(1)
(1)
(1)
(1)
Total
$ 741,575
24,315
$ 765,890
(1)
2006 Annual Report 53
Long Term Debt
Fixed Rate
Variable Rate
2007
$ 47,874 $
2,074
2008
2009
46,270 $ 42,850
1,838
Future Interest Payments (in thousands)
2010
$ 38,227
1,736
2011
$ 31,129
1,661
2,010
Thereafter
$ 137,160
2,233
Average Interest Rate (%)
(1)
(1)
(1)
(1)
(1)
(1)
Total
$ 343,510
11,552
$ 355,062
(1)
(1) The weighted average interest rate on our debt as of April 30, 2006, was 6.03%. Any fluctuations in variable interest rates could increase or
decrease our interest expenses. For example, an increase of one percent per annum on our $24.3 million of variable rate indebtedness
would increase our annual interest expense by $243,000.
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, 2006 and 2005, IRET had approximately $2.4 million and $2.5
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 approximately $2.3 million of securities
classified as “available-for-sale” as of April 30, 2004. The values of these securities will fluctuate with changes in
market interest rates. As of April 30, 2006 and 2005 the unrealized loss recorded in other comprehensive income on
these securities was $48,000 and $22,000, respectively.
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.
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, 2006, 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.
2006 Annual Report 54
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, 2006, 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, 2006, 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, 2006, 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, 2006.
(The remainder of this page has been intentionally left blank.)
2006 Annual Report 55
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees 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, 2006, 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 trustees, 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 trustees 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, 2006, 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, 2006, 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, 2006, of the Company and our
report dated July 6, 2006, expressed an unqualified opinion on those financial statements.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, MN
July 6, 2006
2006 Annual Report 56
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 2006 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 2006 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 2006 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 2006 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 2006 Annual
Meeting of Shareholders and such information is incorporated herein by reference.
2006 Annual Report 57
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.
2006 Annual Report 58
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.
10.7 Description of Compensation of Executive Officers, filed as Exhibit 10 to the Company’s Form 10-Q
filed December 12, 2005, and incorporated herein by reference.
10.8 Contribution Agreement, filed as Exhibit 10.1 to the Company’s Form 8-K filed May 17, 2006, and
incorporated herein by reference.
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.
2006 Annual Report 59
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 12, 2006
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:
Title
Date
Trustee & Chairman
July 12, 2006
Trustee & Vice Chairman
July 12, 2006
President & Chief Executive Officer
(Principal Executive Officer)
July 12, 2006
Trustee, Senior Vice President & Chief
Operating Officer
July 12, 2006
Trustee & Senior Vice President
July 12, 2006
Senior Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
July 12, 2006
Trustee
Trustee
Trustee
July 12, 2006
July 12, 2006
July 12, 2006
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/ John D. Stewart
John D. Stewart
/s/ Patrick G. Jones
Patrick G. Jones
/s/ Stephen L. Stenehjem
Stephen L. Stenehjem
2006 Annual Report 60
INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
April 30, 2006, 2005 and 2004
ADDITIONAL INFORMATION
FOR THE YEAR ENDED
April 30, 2006
and
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
PO Box 1988
12 South Main Street
Minot, ND 58702-1988
701-837-4738
fax: 701-838-7785
info@iret.com
www.iret.com
2006 Annual Report
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.....................................
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets .....................................................................................................................
F-3 – F-4
Consolidated Statements of Operations .....................................................................................................
F-5
Consolidated Statements of Shareholders’ Equity.....................................................................................
F-6
F-7 – F-8
Consolidated Statements of Cash Flows....................................................................................................
Notes to Consolidated Financial Statements.............................................................................................. F-9 – F-30
ADDITIONAL INFORMATION
Report of Independent Registered Public Accounting Firm on Financial Statement Schedules ...............
F-31
Real Estate and Accumulated Depreciation............................................................................................... F-32 – F-42
F-43
Investments in Mortgage Loans on Real Estate.........................................................................................
F-2
PAGE
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.
2006 Annual Report F- 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Turstees 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, 2006 and 2005, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three fiscal years in the period ended April 30, 2006. 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
the Company as of April 30, 2006 and 2005, and the results of its operations, and its cash flows for each of the three
fiscal years in the period ended April 30, 2006, 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, 2006, 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 July 6, 2006, 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
July 6, 2006
2006 Annual Report F-2
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, 2006 and 2005
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
Intangible 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)
2006
2005
$ 1,269,423
(148,607)
1,120,816
5,175
409
1,126,400
$ 1,179,856
(118,512)
1,061,344
5,382
619
1,067,345
17,485
2,402
9,474
2,364
1,177
436
26,449
8,893
1,506
1,441
9,288
$ 1,207,315
23,538
2,459
7,213
1,390
2,542
1,160
24,517
9,068
2,462
1,441
8,023
$ 1,151,158
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2006 Annual Report F- 3
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
April 30, 2006 and 2005
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Accounts payable and accrued expenses
Notes payable
Mortgages payable
Investment certificates issued
Other
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENCIES (NOTE 16)
MINORITY INTEREST IN OTHER PARTNERSHIPS
MINORITY INTEREST OF UNIT HOLDERS IN OPERATING PARTNERSHIP
(13,685,522 units at April 30, 2006 and 13,114,460 units at April 30, 2005)
SHAREHOLDERS’ EQUITY
Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no
par value,1,150,000 shares issued and outstanding at April 30, 2006 and 2005,
aggregate liquidation preference of $28,750,000)
Common Shares of Beneficial Interest (Unlimited authorization, no par value,
46,915,352 shares outstanding at April 30, 2006, and 45,187,676 shares
outstanding at April 30, 2005)
Accumulated distributions in excess of net income
Accumulated other comprehensive loss
Total shareholders’ equity
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
(in thousands)
2006
2005
$
24,223 $
3,500
765,890
2,451
1,075
797,139
16,403
104,213
21,795
0
708,558
4,636
1,966
736,955
15,860
103,171
27,317
27,317
339,384
(77,093)
(48)
289,560
324,180
(56,303)
(22)
295,172
$ 1,207,315 $ 1,151,158
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2006 Annual Report F- 4
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended April 30, 2006, 2005, and 2004
(in thousands, except per share data)
2006
2005
2004
REVENUE
Real estate rentals
Tenant reimbursement
TOTAL REVENUE
OPERATING EXPENSE
$
$ 144,349
28,450
172,799
Interest
Depreciation/amortization related to real estate investments
Utilities
Maintenance
Real estate taxes
Insurance
Property management expenses
Property management expenses - related party
Administrative expense
Advisory and trustee services
Other operating expenses
Amortization related to non-real estate investments
Amortization of related party costs
Loss on impairment of real estate investment
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 common share from discontinued operations
NET INCOME PER COMMON SHARE – BASIC & DILUTED
$
$
$
51,390
37,413
13,675
19,492
20,023
2,707
12,004
0
3,674
221
1,292
689
56
409
163,045
9,754
1,241
10,995
23
(1,863)
(484)
8,671
2,896
11,567
(2,372)
9,195
.14
.06
.20
$
$
$
130,023
25,193
155,216
48,013
33,491
10,820
16,283
18,416
2,603
10,286
284
3,845
103
1,430
372
58
0
146,004
9,212
986
10,198
3
(1,801)
(379)
8,021
7,055
15,076
(2,372)
12,704
.13
.17
.30
$
$
$
$
111,809
21,021
132,830
42,053
23,706
9,534
14,863
16,412
2,823
8,618
743
2,673
104
1,132
122
45
0
122,828
10,002
648
10,650
158
(2,274)
(757)
7,777
1,663
9,440
(33)
9,407
.20
.04
.24
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2006 Annual Report F- 5
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
for the years ended April 30, 2006, 2005, and 2004
(in thousands)
NUMBER OF
PREFERRED
SHARES
0
PREFERRED
SHARES
0
$
NUMBER OF
COMMON
SHARES
36,166
COMMON
SHARES
$ 240,645
BALANCE May 1, 2003
Comprehensive Income
Net income
Unrealized loss for the
period on securities
available-for-sale
ACCUMULATED
DISTRIBUTIONS
IN EXCESS OF
NET INCOME
$
(25,884) $
ACCUMULATED
OTHER
COMPRE-
HENSIVE
(LOSS)
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
(26)
1,150
27,317
1,146
1,652
701
10,738
15,774
5,306
(4)
45,188
(38)
324,180
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
BALANCE APRIL 30, 2005
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
9,440
(24,606)
(33)
(41,083)
15,076
(27,892)
(2,404)
(56,303)
11,567
(29,985)
(2,372)
$
$
TOTAL
SHARE-
HOLDERS’
EQUITY
214,761
9,440
(31)
9,409
(24,606)
(33)
10,157
65,650
3,303
(12)
278,629
15,076
(31)
(31)
9
$
9
15,085
(22)
(26)
$
(27,892)
(2,404)
10,738
15,748
5,306
(38)
295,172
11,567
(26)
11,541
(29,985)
(2,372)
11,076
139
4,006
(17)
289,560
BALANCE APRIL 30, 2006
1,150
$
27,317
1,213
15
501
11,076
139
4,006
(2)
46,915
(17)
$ 339,384
$
(77,093) $
(48) $
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2006 Annual Report F- 6
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended April 30, 2006, 2005, and 2004
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
Loss on impairment of real estate investment
Bad debt expense, net of recoveries
Changes in other assets and liabilities:
Increase in receivable arising from straight-lining of rents
(Increase) decrease in accounts receivable
Decrease (increase) in prepaid and other assets
Decrease (increase) 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 proceeds 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 real estate investments
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 fractional 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
2006
(in thousands)
2005
2004
$
11,567
$
15,076
$
9,440
39,219
3,189
(3,293)
127
409
167
(2,261)
(1,137)
724
175
(2,914)
2,428
48,400
174
1,365
210
0
(57)
13,480
(97,810)
(82,638)
139
0
80,276
248
3,500
(17)
(19,649)
(2,372)
(7,881)
(189)
(2,312)
(23,482)
(76)
28,185
35,803
4,252
(8,605)
243
570
359
(1,314)
457
1,517
2,233
(2,921)
611
48,281
0
(975)
4,274
0
(35)
47,877
(121,544)
(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
62
360
(1,731)
(1,183)
(2,746)
(3,098)
(2,426)
3,469
31,331
2,500
(2,604)
3,232
(6,625)
(4,867)
3,743
(135,658)
(140,279)
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
(6,053)
23,538
17,485
(8,166)
31,704
23,538
13,740
17,964
31,704
$
$
$
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2006 Annual Report F- 7
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
for the years ended April 30, 2006, 2005, and 2004
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
Mortgage loan receivable transferred to other assets
Mortgage loan receivable from sale of property
Other assets acquired
Other debt reclassified to mortgage payable
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)
2005
2006
$
10,336 $
741
0
0
9,969 $
769
197
32
0
0
0
129
539
10,898
0
4,006
21,071
0
0
134
0
20,071
0
5,306
2004
9,433
724
33
0
25,660
158
475
0
0
19,851
2,701
3,303
$
$
49,900 $
231
100
50,231 $
46,647 $
254
370
47,271 $
41,197
376
991
42,564
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2006 Annual Report F- 8
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2006, 2005, and 2004
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, 2006, IRET owned 66 multi-family residential properties
with approximately 8,648 apartment units and 145 commercial properties, consisting of office, medical, industrial
and retail properties, totaling approximately 8.7 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 77.4% as of April
30, 2006, 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 adoption of SFAS No. 153 on its effective
date did not have a material effect on the Company’s consolidated financial statements.
2006 Annual Report F- 9
NOTE 2 • continued
In March 2005, the FASB issued FIN 47, Accounting for Conditional Asset Retirement Obligations, an
interpretation of FASB Statement No. 143, Asset Retirement Obligations. FIN 47 provides clarification of the term
“conditional asset retirement obligation” as used in SFAS 143, defined as a legal obligation to perform an asset
retirement activity in which the timing and/or method of settlement are conditional on a future event that may or
may not be within the control of the company. Under this standard, a company must record a liability for a
conditional asset retirement obligation if the fair value of the obligation can be reasonably estimated. FIN 47 became
effective in the Company’s fiscal quarter ended April 30, 2006. Certain of the Company’s real estate assets contain
asbestos, lead and/or underground fuel tanks. Although these materials are appropriately contained, in accordance
with current environmental regulations, the Company’s practice is to remediate asbestos and lead upon the
renovation or redevelopment of its properties, if such renovation or redevelopment would disturb the contained
materials, and to remove underground fuel tanks if they are no longer in use. The majority of the Company’s real
estate assets containing asbestos, lead and/or underground fuel tanks are not currently slated for renovation,
redevelopment or fuel tank removal and, accordingly, the Company has determined that at this time there is not
sufficient information available to reasonably estimate the fair value of the liability The costs associated with
asbestos, lead and/or underground fuel tank abatement or removal for those few properties which IRET does have
current plans to renovate, demolish or sell have been estimated by IRET and are immaterial, individually and in the
aggregate. Accordingly, the adoption of FIN 47 did not have a material impact on the Company’s consolidated
financial statements.
In June 2005, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) on Issue No.
04-05, “Determining Whether a General Partner, or General Partners as a Group, Controls a Limited Partnership or
Similar Entity When the Limited Partners Have Certain Rights” (“EITF 04-05”). EITF 04-05 provides a framework
for determining whether a general partner controls, and should consolidate, a limited partnership or a similar entity.
EITF 04-05 became effective on June 29, 2005, for all newly formed or modified limited partnership arrangements
and January 1, 2006 for all existing limited partnership arrangements. The Company believes that the adoption of
this standard will not have a material effect on its consolidated financial statements.
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 INVESTMENTS
Real estate investments are recorded at cost less accumulated depreciation and an adjustment for impairment, if any.
Acquisitions of real estate investments 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 and intangible 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.
2006 Annual Report F- 10
NOTE 2 • continued
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.
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long Lived Assets, 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. 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.
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, and as a result of discontinued operations,
retroactive reclassifications that change prior year numbers have been made.
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). In fiscal years 2006 and 2005, the Company added $6,898,000 and $15,779,000 of new intangible assets,
respectively (net of amortization expense of $1,366,000 and $3,503,000) all of which were classified as in-place
leases. The weighted average life of these intangibles are 6.1 years for fiscal 2006 and 5.5 years for fiscal year 2005.
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.
2006 Annual Report F- 11
NOTE 2 • continued
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, 2006 and 2005, respectively, the net carrying amounts of the Company’s identified intangible assets,
were $26,449,000 and $24,517,000 (net of accumulated amortization of $14,718,000 and $7,724,000), respectively.
The estimated annual amortization of the Company’s identified intangible assets for each of the five succeeding
years is as follows:
Year Ended April 30,
2007
2008
2009
2010
2011
(in thousands)
6,950
$
5,536
3,418
2,578
1,839
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, 2006 and 2005, for impairment. The annual reviews for years ended April 30, 2006 and 2005
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 other locations in Minneapolis, Minnesota. The balance sheet reflects
these assets at cost, net of accumulated depreciation. As of April 30, 2006 and 2005, the cost was $1.5 million and
$2.5 million, respectively. Accumulated depreciation was $0.9 million and $0.7 million as of April 30, 2006 and
2005, respectively.
MORTGAGE LOANS RECEIVABLE
The mortgage loan 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.
2006 Annual Report F- 12
NOTE 2 • continued
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, 2006, 2005 and 2004 is as
follows:
Balance at beginning of year
Provision
Write-off
Balance at close of year
TAX, INSURANCE, AND OTHER ESCROW
(in thousands)
2006
725
230
(230)
725
$
$
2005
475
438
(188)
725
$
$
$
$
2004
115
360
0
475
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.
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 interest 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.
2006 Annual Report F- 13
NOTE 2 • continued
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.
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 to the current financial statement
presentation. 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, and as a result of discontinued
operations, retroactive reclassifications that change prior year numbers have been made.
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.
2006 Annual Report F- 14
NOTE 3 • continued
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.
NOTE 4 • PROPERTY OWNED
Property, consisting principally of real estate, is stated at cost less accumulated depreciation of $1,120.8 million and
$1,061.3 million as of April 30, 2006, and April 30, 2005, respectively.
Construction period interest of $21,058, $137,591, and $148,922, has been capitalized for the years ended April 30,
2006, 2005, and 2004, respectively.
The future minimum lease proceeds to be received under leases for commercial properties as of April 30, 2006,
assuming that no options to renew or buy out the lease are exercised, are as follows:
Year Ended April 30,
2007
2008
2009
2010
2011
Thereafter
(in thousands)
$
67,325
60,714
52,840
46,354
36,095
179,057
442,385
$
During fiscal 2006, the Company incurred a loss of $409,000 due to impairment of two properties. For the year
ended April 30, 2005, the Company incurred a loss of $570,000 due to impairment on one property. For the year
ended April 20, 2004, the Company incurred a loss of $62,000 due to impairment on one property. The 2005 and
2004 impairment losses were related to properties held for sale; accordingly such losses are included in discontinued
operations (Note 13).
NOTE 5 • MORTGAGE LOAN RECEIVABLE - NET
The mortgage loan receivable consists of one loan that is collateralized by real estate. The interest rate on this loan is
6.0% and this mortgage loan receivable matures in 2010. Future principal payments due under this mortgage loan as
of April 30, 2006, are as follows:
Year Ended April 30,
2007
2008
2009
2010
Less allowance for doubtful accounts
(in thousands)
$
23
24
25
362
$
(25)
409
There were no non-performing mortgage loan receivables as of April 30, 2006, and 2005.
2006 Annual Report F- 15
NOTE 6 • MARKETABLE SECURITIES
The amortized cost and fair value (estimated market values) of marketable securities available-for-sale at April 30,
2006 and 2005 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:
2006
US Government & Agency Debt Securities
Agency MBS
Corporate Bonds
Bank Certificates of Deposit
Other
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
$
$
196
779
553
875
47
2,450
$
$
0
0
0
0
0
0
$
$
6
30
12
0
0
48
$
$
190
749
541
875
47
2,402
(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
As of April 30, 2006, the investment in Marketable Securities, at cost, will mature as follows:
US Government & Agency Debt Securities
Agency MBS
Corporate Bonds
Bank Certificates of Deposit
Other
Total
(in thousands)
Total
196
779
553
875
47
2,450
$
$
Less Than
1 Year
0
0
51
875
0
973
$
$
1-3 Years
77
126
414
0
0
617
$
$
$
$
3-5 Years
80 $
75
88
0
0
243 $
More than
5 Years
39
578
0
0
0
617
There were no realized gains or losses on sales of securities available-for-sale for the fiscal years ended April 30,
2006, 2005 and 2004. None of the securities with an unrealized loss at April 30, 2006 are considered to be other-
than-temporarily impaired.
2006 Annual Report F- 16
NOTE 7 • NOTES PAYABLE AND OTHER DEBT
IRET has lines of credit with three financial institutions as of April 30, 2006. Interest payments on outstanding
borrowings are due monthly. These credit facilities are summarized in the following table:
(in thousands)
Amount
Outstanding
as of April 30,
2006
Amount
Outstanding as
of April 30,
2005
Applicable
Interest Rate
as of April 30,
2006
Maturity
Date
Amount
Available
Weighted
Average Int.
Rate on
Borrowings
during fiscal
year 2006
Financial Institution
Lines of Credit
First Western Bank & Trust $ 10,000
10,000
First Int’l Bank & Trust
10,000
Bremer Bank
$
3,500
0
0
Total
$ 30,000
$
3,500
$
$
0
0
0
0
7.75% 10/15/06
7.75% 12/13/06
7.75% 9/14/06
5.29%
5.75%
5.67%
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 New York Prime as published in the Wall Street Journal, or Libor plus 2.5% for periods of 90 days or more
(in respect of the Bremer Bank credit facility).
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 $741.6 million and $681.5 million, and the
balances of variable rate mortgages totaled $24.3 million and $27.0 million as of April 30, 2006, and 2005,
respectively. Most of the fixed rate mortgages have substantial pre-payment penalties. As of April 30, 2006, the
weighted average rate of interest on the Company’s mortgage debt was 6.03%, compared to 6.08% on April 30,
2005. The aggregate amount of required future principal payments on mortgages payable as of April 30, 2006, is as
follows:
Year Ended April 30,
2007
2008
2009
2010
2011
Later Years
Total payments
(in thousands)
24,168
$
41,796
45,823
108,288
100,472
445,343
$ 765,890
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,
2007
2008
2009
(in thousands)
2,440
$
0
11
2,451
$
2006 Annual Report F- 17
NOTE 10 • TRANSACTIONS WITH RELATED PARTIES
PROPERTY MANAGEMENT SERVICES
In fiscal 2006 and 2005, the Company paid management fees to Hoyt Properties in the amount of $641,046 and
$682,286, 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 $172,875 and $49,309, respectively. Hoyt
Properties is owned by Steven B. Hoyt, a former 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.
PROPERTY ACQUISITIONS
During fiscal year 2005, the Company acquired four office/warehouse buildings from a limited liability company in
which Steven 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 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. Independent appraisals were obtained by
the Company for this property acquisition, and the purchase price was 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.
The Company paid no fees to Mr. Decker or to D.A. Davidson during fiscal years 2006 and 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.
PURCHASE OPTION
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 former executive officer of the
Company and a former 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 had 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. This option was exercised during the fourth quarter of fiscal year 2006,
and Mr. James resigned from the Company’s Board of Trustees.
2006 Annual Report F- 18
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. The Company purchased no vehicles from Fisher Motors during
fiscal years 2006 and 2004.
BANKING SERVICES
The Company maintains an unsecured line of credit with First International Bank and Trust, Watford City, N.D. In
December 2005, the amount available to be borrowed under this line of credit was increased to $10 million from $5
million. During fiscal year 2006, IRET's interest charges were $14,167 for borrowings under the First International
line of credit. In addition, IRET maintains a number of checking accounts with First International. During fiscal
year 2006, IRET paid less than $500 in total in various wire transfer and other fees charged on these checking
accounts. Interest and fees paid on the First International line of credit and checking accounts totaled $543 in fiscal
year 2005, and $48,793 in fiscal year 2004. Steven L. Stenehjem, a member of the Company’s Board of Trustees
and the Chairman of the Company’s Audit Committee, is the President and Chief Executive Officer of First
International, and the bank is owned by Mr. Stenehjem and members of his family.
NOTE 11 • ACQUISITIONS AND DISPOSITIONS IN FISCAL YEARS 2006 AND 2005
PROPERTY ACQUISITIONS
IRET Properties paid approximately $93.4 million for real estate properties added to its portfolio during fiscal 2006,
compared to $146.4 million paid in fiscal 2005. The fiscal 2006 and 2005 additions are detailed below.
Fiscal 2006 (May 1, 2005 to April 30, 2006)
Fiscal 2006 Acquisitions
Multi-Family Residential
36-unit Legacy 7 - Grand Forks, ND
Commercial Property—Office
15,594 sq. ft. Spring Valley IV Office Building - Omaha, NE
23,913 sq. ft. Spring Valley V Office Building - Omaha, NE
24,000 sq. ft. Spring Valley X Office Building - Omaha, NE
24,000 sq. ft. Spring Valley XI Office Building - Omaha, NE
30,000 sq. ft. Brook Valley I Office Building - La Vista, NE
146,087 sq. ft. Northpark Corporate Center - Arden Hills, MN
Commercial Property—Medical (including assisted living)
74,112 sq. ft. Edgewood Vista - Bismarck, ND
60,161 sq. ft. Edgewood Vista - Spearfish, SD
82,535 sq. ft. Edgewood Vista - Brainerd, MN
160,485 sq. ft. Edgewood Vista - Hermantown, MN
50,409 sq. ft. Ritchie Medical Plaza - St. Paul, MN
54,971 sq. ft. 2800 Medical Building - Minneapolis, MN
47,950 sq. ft. Stevens Point - Stevens Point, WI
Undeveloped Property
Stevens Point Undeveloped - Stevens Point, WI
Eagan Vacant Land - Eagan, MN
Total Fiscal 2006 Property Acquisitions
2006 Annual Report F- 19
(in thousands)
Purchase Price
$
$
2,445
2,445
1,250
1,375
1,275
1,250
2,100
18,597
25,847
10,750
6,687
10,625
12,315
10,750
9,000
4,215
64,342
310
423
733
93,367
NOTE 11 • continued
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
(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
$
* = Property not placed in service at April 30, 2005. Additional costs were still to be incurred.
PROPERTY DISPOSITIONS
During fiscal year 2006, IRET Properties disposed of 17 properties and two undeveloped properties for an aggregate
sale price of $14.2 million, compared to 17 properties and one parcel of undeveloped land sold for $48.9 million in
total during fiscal year 2005. Real estate assets sold by IRET during fiscal 2006 were as follows:
Fiscal 2006 Dispositions
Commercial - Office
(in thousands)
Book Value
and Sales Cost
Sales Price
1,600 sq. ft. Greenwood Chiropractic - Greenwood, MN
$
490
$
345
$
Commercial – Retail
3,000 sq. ft. Centerville Convenience Store - Centerville, MN
4,800 sq. ft. East Bethel C-Store - East Bethel, MN
6,325 sq. ft. Lino Lake Strip Center - Lino Lakes, MN
8,400 sq. ft. IGH Strip Center - Inver Grove Heights, MN
46,720 sq. ft. Sleep Inn - Brooklyn Park, MN
7,993 sq. ft. Excelsior Strip Center - Excelsior, MN
3,000 sq. ft. Andover C-Store Andover, MN
6,266 sq. ft. Oakdale Strip Center - Oakdale, MN
340
660
650
1,280
3,350
965
383
1,050
324
498
462
940
2,990
891
308
745
Gain
145
16
162
188
340
360
74
75
305
2006 Annual Report F- 20
Commercial – Retail - continued
6,225 sq. ft. Rochester Auto - Rochester, MN
3,650 sq. ft. Lakeland C-Store - Lakeland, MN
4,000 sq. ft. Lindstrom C-Store - Lindstrom, MN
3,571 sq. ft. Mora C-Store - Mora, MN
3,000 sq. ft. Shoreview C-Store - Shoreview, MN
8,750 sq. ft. Blaine Strip Center - - Blaine, MN
3,444 sq. ft. St. Louis Park Retail - St. Louis Park, MN
3,864 sq. ft. Mound Strip Center - Mound, MN
Undeveloped Property
40,000 sq. ft. Centerville Undeveloped Land - Centerville, MN
Andover Vacant Land - Andover, MN
Total Fiscal 2006 Property Dispositions
Properties sold by IRET during fiscal 2005 were as follows:
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
465
610
450
380
400
990
845
550
431
436
345
296
326
599
365
358
34
174
105
84
74
391
480
192
110
230
14,198
$
105
164
10,928
$
5
66
3,270
(in thousands)
Book Value
and Sales Cost
Sales Price
$
12,250
96
159
825
6,900
4,599
215
185
$
12,070
96
159
566
5,625
2,658
161
135
Gain
180
0
0
259
1,275
1,941
54
50
$
$
Commercial – Office
62,585 sq. ft. Flying Cloud Building – Eden Prairie, MN
5,750
5,750
0
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
7,210
509
509
509
1,639
4,590
2,160
650
5,676
433
435
434
1,312
2,916
1,209
518
1,534
76
74
75
327
1,674
951
132
Undeveloped Property
205,347 sq. ft. parcel of vacant land - Libby, MT
Total Fiscal 2005 Property Dispositions
151
48,906
$
$
151
40,304
$
0
8,602
2006 Annual Report F- 21
NOTE 12 • OPERATING SEGMENTS
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. IRET reports its results in five segments: multi-family residential properties, and 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, 2006, 2005 and 2004, along with reconciliations to the consolidated
financial statements:
Year Ended April 30, 2006
Multi-Family
Residential
Commercial-
Office
Commercial-
Medical
Commercial-
Industrial
Commercial-
Retail
Total
(in thousands)
Real Estate Revenue
Expenses
Mortgage interest
Depreciation related to real estate
investments
Utilities
Maintenance
Real estate taxes
Insurance
Property management
Total segment expense
Segment operating profit
$
63,363
$ 57,523
$
32,184
$
6,372
$ 13,357 $ 172,799
18,373
14,777
10,608
2,240
4,155
50,153
11,614
6,757
8,069
7,142
1,432
7,185
60,572
2,791
$
14,319
4,812
7,590
8,028
707
2,489
52,722
4,801
$
7,065
1,600
2,471
2,283
298
1,662
25,987
6,197
$
1,551
91
201
771
81
108
5,043
1,329
2,634
415
1,161
1,799
189
560
10,913
2,444
$
37,183
13,675
19,492
20,023
2,707
12,004
155,237
17,562
$
Reconciliation to consolidated operations:
Interest discounts and fee revenue
Amortization and other interest expense
Depreciation – furniture and fixtures
Administrative, advisory and trustee fees
Operating expenses
Amortization related to non-real estate investments and related party costs
Loss on impairment (commercial-retail segment)
Income before minority interest and discontinued operations and gain on sale of other investments
1,241
(1,237)
(230)
(3,895)
(1,292)
(745)
(409)
$ 10,995
2006 Annual Report F- 22
NOTE 12 • continued
Year Ended April 30, 2005
Multi-Family
Residential
Commercial-
Office
Commercial-
Medical
Commercial-
Industrial
Commercial-
Retail
Total
(in thousands)
Real Estate Revenue
Expenses
Mortgage interest
Depreciation related to real estate
investments
Utilities
Maintenance
Real estate taxes
Insurance
Property management
Total segment expense
Segment operating profit
$
60,207
$ 48,604
$
25,794
$
6,459
$ 14,152 $ 155,216
18,247
12,715
8,923
2,302
3,917
46,104
11,075
5,832
6,928
7,057
1,521
6,805
57,465
2,742
$
12,780
3,386
6,312
7,153
537
2,100
44,983
3,621
$
5,305
1,142
1,870
1,616
277
1,273
20,406
5,388
$
1,523
60
185
797
78
104
5,049
1,410
2,608
400
988
1,793
190
288
10,184
3,968
$
33,291
10,820
16,283
18,416
2,603
10,570
138,087
17,129
$
Reconciliation to consolidated operations:
Interest discounts and fee revenue
Amortization and other interest expense
Depreciation – furniture and fixtures
Administrative, advisory and trustee fees
Operating expenses
Amortization related to non-real estate investments and related party costs
Income before minority interest and discontinued operations and gain on sale of other investments
986
(1,909)
(200)
(3,948)
(1,430)
(430)
$ 10,198
Year Ended April 30, 2004
Real Estate Revenue
Expenses
Mortgage interest
Depreciation related to real estate
investments
Utilities
Maintenance
Real estate taxes
Insurance
Property management
Total segment expense
Segment operating profit
(in thousands)
Multi-Family
Residential
Commercial-
Office
Commercial-
Medical
Commercial-
Industrial
Commercial-
Retail
Total
$
59,294
$ 39,874
$
15,876
$
6,634
$ 11,152 $ 132,830
17,647
11,001
5,841
2,092
3,164
39,745
10,310
5,667
6,829
6,675
2,001
6,225
55,354
3,940
7,129
2,768
5,646
5,745
450
1,764
34,503
5,371
2,977
775
1,451
1,491
149
1,156
13,840
2,036
1,253
49
202
768
66
98
4,528
2,106
$
1,874
275
735
1,733
157
118
8,056
3,096
23,543
9,534
14,863
16,412
2,823
9,361
116,281
16,549
$
$
$
Reconciliation to consolidated operations:
Interest discounts and fee revenue
Amortization and other interest expense
Depreciation – furniture and fixtures
Administrative, advisory and trustee fees
Operating expenses
Amortization related to non-real estate investments and related party costs
$
Income before minority interest and discontinued operations and gain on sale of other investments
2006 Annual Report F- 23
648
(2,308)
(163)
(2,777)
(1,132)
(167)
$ 10,650
NOTE 12 • continued
Segment Assets and Accumulated Depreciation
As of April 30, 2006
Segment assets
Property owned
Less accumulated
depreciation/amortization
Total property owned
Cash
Marketable securities
Receivables and other assets
Undeveloped land
Mortgage receivables
Total Assets
As of 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
Multi-Family
Residential
Commercial-
Office
Commercial-
Medical
Commercial-
Industrial
Commercial-
Retail
Total
(in thousands)
$ 452,251
$ 383,280
$ 263,300
$ 59,583
$ 111,009 $1,269,423
(79,150)
$ 373,101
(32,193)
$ 351,087
(18,954)
$ 244,346
(6,625)
$ 52,958
(11,685)
(148,607)
$ 99,324 $1,120,816
17,485
2,402
61,028
5,175
409
$1,207,315
Multi-Family
Residential
Commercial-
Office
Commercial-
Medical
Commercial-
Industrial
Commercial-
Retail
Total
(in thousands)
$ 442,109
$ 353,536
$ 205,333
$ 58,233
$ 120,645 $1,179,856
(67,534)
$ 374,575
(23,198)
$ 330,338
(12,855)
$ 192,478
(5,193)
$ 53,040
(9,732)
(118,512)
$ 110,913 $1,061,344
23,538
2,459
57,816
5,382
619
$1,151,158
2006 Annual Report F- 24
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, 2006 or 2005. 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, 2006, 2005 and 2004.
(in thousands)
2006
2005
2004
$
961 $ 3,283
574
226
3,857
1,187
$ 7,069
508
7,577
915
237
618
175
236
16
310
77
408
179
50
15
213
18
5
2
8
0
570
0
3,333
719
524
468
1
0
525
468
(2,072)
(842)
3,270
8,602
2,896 $ 7,055
1,924
1,322
1,102
80
709
126
585
10
26
62
5,946
1,631
6
1,637
(478)
504
$ 1,663
0 $ 2,997 $
120
0
0
2,725
51
(397)
1,883
0
2,572
0
2,896 $ 7,055
270
58
818
(26)
546
(3)
$ 1,663
$
$
$
$ 14,197 $ 48,906
10,927
40,304
3,270 $ 8,602
$
$ 3,807
3,303
504
$
REVENUE
Real Estate Rentals
Tenant Reimbursements
Total Revenue
OPERATING EXPENSE
Interest
Depreciation/Amortization
Utilities
Maintenance
Real Estate Taxes
Insurance
Property Management Expenses
Operating Expense
Amortization of Related Party Costs
Loss on Impairment of Real Estate
Total Operating Expenses
Operating Income
Non-Operating Income
Income Before Minority Interest and Gain on Sale
Minority Interest
Gain 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
2006 Annual Report F- 25
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,
2006, 2005, and 2004:
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)
2006
2005
2004
$
8,671 $
2,896
11,567
(2,372)
8,021 $
7,055
15,076
(2,372)
7,777
1,663
9,440
(33)
9,195
2,705
9,407
2,752
$ 11,900 $ 16,577 $ 12,159
12,704
3,873
45,717
13,329
59,046
43,214
12,621
55,835
$
$
.14 $
.06
.20 $
.13 $
.17
.30 $
39,257
11,176
50,433
.20
.04
.24
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, 2006, 2005, and 2004, were $217,599, $204,141, and
$133,800.
NOTE 16 • COMMITMENTS AND CONTINGENCIES
Ground Leases. As of April 30, 2005, the Company is a tenant under operating ground leases on seven of its
properties. The Company pays a total of approximately $309,000 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 seven ground leases, and rights of first offer or first refusal for the remainder.
The expected timing of Ground Lease payments as of April 30, 2006 is as follows:
Year Ended April 30, (in thousands)
2007
2008
2009
2010
2011
Thereafter
Total
Lease Payments
309
309
309
309
309
17,702
19,247
$
$
2006 Annual Report F- 26
NOTE 16 • continued
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:
Property
East Grand Station - East Grand Forks, MN
Edgewood Vista - Bismarck, ND
Edgewood Vista - Brainerd, MN
Edgewood Vista - Duluth, MN
Edgewood Vista - Fremont, NE
Edgewood Vista - Hastings, NE
Edgewood Vista - Hermantown, MN
Edgewood Vista - Kalispell, MT
Edgewood Vista - Missoula, MT
Edgewood Vista - Omaha, NE
Edgewood Vista - Spearfish, SD
Edgewood Vista - Virginia, MN
Great Plains Software - Fargo, ND
Healtheast - Woodbury & Maplewood, MN
Stevens Point - Stevens Point, WI
Wedgewood Sweetwater - Lithia Springs, GA
Total
(in thousands)
Gross Rental Revenue
Property Cost
1,392
$
10,868
10,634
11,709
552
572
12,325
588
962
641
6,757
12,182
15,375
21,601
4,215
4,686
115,059
$
$
$
2006
152
653
645
1,472
62
63
749
62
120
70
406
1,320
1,876
2,032
102
512
10,296
$
$
2005
152
0
0
1,406
59
61
0
62
120
67
0
1,320
1,876
2,032
0
509
7,664
$
$
2004
152
0
0
1,278
59
61
0
62
120
67
0
893
1,875
1,948
0
502
7,017
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
(principal and interest payments), from two of the properties included in the portfolio. As of April 30, 2006, the
Company has recorded a receivable for payment of $340,323 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, 2006, $145,000 was due
under the Olympik Village income guarantee.
Restrictions on Taxable Dispositions. Approximately 122 of our properties, consisting of approximately 4.4 million
square feet of our combined commercial segments properties and 3,957 apartment units, are subject to restrictions
on taxable dispositions under agreements entered into with some of the sellers or contributors of the properties. The
real estate investment amount of these properties (net of accumulated depreciation) was approximately $550 million
at April 30, 2006. The restrictions on taxable dispositions are effective for varying periods. The terms of these
agreements generally prevent us from selling the properties in taxable transactions. We do not believe that the
agreements materially affect the conduct of our business or our decisions whether to dispose of restricted properties
during the restriction period because we generally hold these and our other properties for investment purposes,
rather than for sale. Historically, however, where we have deemed it to be in our shareholders’ best interests to
dispose of restricted properties, we have done so through transactions structured as tax-deferred transactions under
Section 1031 of the Internal Revenue Code.
Joint Venture Buy/Sell Options. Certain of our joint venture agreements contain buy/sell options in which each
party under certain circumstances has the option to acquire the interest of the other party, but do not generally
require that we buy our partners’ interests. We have one joint venture which allows our unaffiliated partner, at its
election, to require that we buy its interest at a purchase price to be determined by an appraisal conducted in
accordance with the terms of the agreement, or at a negotiated price. In accordance with Statement of Accounting
Standards No. 5, Accounting for Contingencies, we have not recorded a liability or the related asset that would result
2006 Annual Report F- 27
NOTE 16 • continued
from the acquisition in connection with the above potential obligation because the probability of our unaffiliated
partner requiring us to buy their interest is not currently determinable, and we are unable to estimate the amount of
the payment required for that purpose.
Development Projects. The Company has certain funding commitments under contracts for property development
and renovation projects. As of April 30, 2006, IRET’s funding commitments included the following:
Walgreen Construction: The Company is obligated under a lease agreement signed during the second quarter of
fiscal year 2006 to construct a new, free-standing retail store for Walgreen Co. in Weston, Wisconsin, which
Walgreen will then lease from the Company. Construction of this building is substantially complete, with
approximately $775,000 of the total project cost of $2,200,000 remaining to be paid.
Stevens Point Assisted Living: During fiscal year 2006 IRET purchased an existing senior housing complex
and adjoining vacant parcel of land in Stevens Point, Wisconsin. IRET is committed to fund construction of an
expansion to the existing facility on the adjoining parcel of land, to be leased to the tenant of the existing senior
housing complex. The construction costs to be paid by IRET are capped at approximately $10.5 million. IRET
expects construction on this project to begin in the first quarter of IRET’s fiscal year 2007.
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 Dispositions. As of or subsequent to April 30, 2006, the Company signed separate agreements to sell five
small retail properties and one single-tenant office building for sale prices ranging from $190,000 to $1.5 million,
and totaling approximately $2.9 million. These properties are among approximately 30 small retail properties,
primarily convenience store and gas station properties, that the Company identified as possible candidates for sale.
The sales of 14 of these 30 properties closed during fiscal year 2006. These pending dispositions are subject to
various closing conditions and contingencies, and no assurances can be given that these transactions will be
consummated. The Company accordingly considers that these pending dispositions do not qualify as assets held for
sale, or for classification as discontinued operations.
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.
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.
2006 Annual Report F- 28
NOTE 17 • continued
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, 2006 and 2005, 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)
2006
Carrying
Amount
$
$
409
17,485
2,402
3,500
233
765,890
2,451
$
$
Fair Value
409
17,485
2,402
3,500
234
761,831
2,444
2005
Carrying
Amount
Fair Value
619 $
23,538
2,459
619
23,538
2,459
0 $
847
708,558
4,636
0
869
763,591
4,609
$
$
NOTE 18
SHAREHOLDERS’ EQUITY
• COMMON AND PREFERRED SHARES OF BENEFICIAL
INTEREST AND
Distribution Reinvestment Plan. During fiscal years 2006 and 2005, 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 $11.1
million and $10.7 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 2006 and 2005, respectively, 0.5 million and 0.7
million Units were converted to common shares, with a total value of $4.0 million and $5.3 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
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.
2006 Annual Report F- 29
NOTE 19 • QUARTERLY RESULTS OF CONSOLIDATED OPERATIONS (unaudited)
QUARTER ENDED
Revenues
Operating Income
Net Income available to common shareholders
Net Income per common share - basic & diluted
QUARTER ENDED
Revenues
Operating Income
Net Income available to common shareholders
Net Income per common share - basic & diluted
(in thousands, except per share data)
July 31, 2005 October 31, 2005 January 31, 2006 April 30, 2006
43,939
$
2,389
$
4,408
$
.10
$
43,357 $
2,499 $
1,728 $
.04 $
43,750
3,001
1,980
.04
41,753
1,865
1,079
.02
$
$
$
$
$
$
$
$
July 31, 2004 October 31, 2004 January 31, 2005 April 30, 2005
38,142
$
1,232
$
1,824
$
.04
$
38,467 $
1,833 $
2,643 $
.06 $
39,156
2,712
3,360
.08
39,451
3,435
4,877
.12
$
$
$
$
$
$
$
$
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, 2006, 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, 2006. On July 3, 2006, the Company paid a distribution of 16.45 cents per share on the Company’s
common shares, to common shareholders and Unitholders of record on June 16, 2006. This distribution represented
an increase of .05 cents or 0.3% over the previous regular quarterly distribution of 16.40 cents per common
share/unit paid April 3, 2006.
Closed and Pending Acquisitions. Subsequent to its April 30, 2006 fiscal year end, the Company closed on its
acquisition of a small retail property in Minot, North Dakota, for a purchase price of approximately $625,000.
Additionally, subsequent to its April 30, 2006 fiscal year end, the Company announced that it has signed an
agreement to acquire an office portfolio comprised of nine properties, consisting of 15 buildings totaling 936,320
rentable square feet, for $140.8 million (including the assumption of existing debt on the portfolio) from subsidiaries
of Omaha-based Magnum Resources, Inc., a real estate services and investment firm founded by W. David Scott.
The closing of this portfolio acquisition is expected to occur on or before September 1, 2006. However, the closing
of this transaction is subject to the satisfaction of certain closing conditions, and, accordingly, no assurances can be
given that the acquisition will be completed.
2006 Annual Report F- 30
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 (the
“Company”) as of April 30, 2006 and 2005, and for each of the three fiscal years in the period ended April 30, 2006,
management's assessment of the effectiveness of the Company's internal control over financial reporting as of April
30, 2006, and the effectiveness of the Company's internal control over financial reporting as of April 30, 2006, and
have issued our reports thereon dated July 6, 2006; such reports are included elsewhere in the Form 10-K. Our audits
also included the consolidated financial statement schedules of the Company listed in the table of contents to the
consolidated financial statements. These consolidated 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, such
consolidated financial statement schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
July 6, 2006
2006 Annual Report F- 31
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2006
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 Avenue (Lonetree) - Harvey, ND
408 1st Street SE - Minot, ND
Applewood On The Green - Omaha, NE
Boulder Court - Eagan, MN
Brookfield Village Apartments - Topeka, KS
Candlelight Apartments - Fargo, ND
Canyon Lake Apartments - Rapid City, SD
Castle Rock - Billings, MT
Chateau Apartments - Minot, ND
Clearwater Apartments - Boise, ID
Colonial Villa - Burnsville, MN
Colton Heights Properties - 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 Apartments - Bismarck, ND
Crown Colony Apartments - 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 Manor - Bismarck, ND
Lancaster Place - St. Cloud, MN
Legacy Buildings I & II - Grand Forks, ND
Legacy Building III - Grand Forks, ND
Legacy Building IV - Grand Forks, ND
Legacy Building V - Grand Forks, ND
Legacy Building VI - Grand Forks, ND
Legacy Building VII - Grand Forks, ND
Magic City Apartments - Minot, ND
Meadows Phase I - Jamestown, ND
Meadows Phase II - Jamestown, ND
Meadows Phase III - Jamestown, ND
Miramont Apartments - Fort Collins, CO
Monticello Apartments - Monticello, MN
Neighborhood Apartments -
Colorado Springs, CO
North Pointe - Bismarck, ND
Oakmont Apartments - Sioux Falls, SD
Oakwood - Sioux Falls, SD
Olympic Village - Billings, MT
Olympik Village Apartments - Rochester, MN
Oxbow - Sioux Falls, SD
Park East Apartments - Fargo, ND
Park Meadows I - Waite Park, MN
Park Meadows II & III - Waite Park, MN
Pebble Springs - Bismarck, ND
Pinecone Apartments - Fort Collins, CO
Pinehurst Apartments - Billings, MT
Pointe West - Rapid City, SD
Prairie Winds Apartments - Sioux Falls, SD
Prairiewood Meadows - Fargo, ND
Ridge Oaks - Sioux City, IA
Rimrock Apartments - Billings, MT
$
105 $
0
7,182
4,599
5,119
1,491
2,839
3,575
1,892
2,392
9,198
606
2,524
2,643
2,478
2,241
2,225
3,361
6,817
23,883
1,671
6,717
5,034
1,731
2,080
1,413
3,241
2,182
2,568
0
0
0
2,994
940
940
1,070
11,047
3,304
6,227
1,517
3,904
3,667
7,979
5,240
3,996
3,802
2,782
7,404
389
10,255
472
2,032
1,214
1,784
2,741
2,363
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
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
$
248
37
11,384
5,677
7,104
1,626
3,946
5,553
2,638
3,369
12,039
931
4,303
4,052
4,493
4,033
4,148
5,037
10,668
34,976
2,580
7,499
7,743
1,868
3,516
3,209
6,357
3,359
6,519
2,634
2,709
2,307
4,629
1,787
1,876
2,147
13,518
3,803
11,383
2,157
4,889
5,616
11,277
6,126
4,870
5,343
3,819
8,238
794
13,036
704
4,413
1,986
2,918
4,757
3,714
$
5
1
134
214
110
40
22
165
84
32
559
17
28
22
19
18
13
90
95
256
43
375
95
38
69
181
69
28
32
56
123
407
182
20
11
6
123
83
292
62
11
123
155
136
91
83
126
221
10
109
12
34
60
134
65
42
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
0
124
27
0
0
0
0
0
0
0
0
0
6
0
0
0
0
0
2006 Annual Report F- 32
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2006
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
$
$
$
Rocky Meadows - Billings, MT
Sherwood Apartments - Topeka, KS
Southbrook & Mariposa - Topeka, KS
South Pointe - Minot, ND
Southview Apartments - Minot, ND
Southwind Apartments - Grand Forks, ND
Sunset Trail Phase I - Rochester, MN
Sunset Trail Phase II - Rochester, MN
Sweetwater Properties -
Devils Lake & Grafton, ND
Sycamore Village Apartments - Sioux Falls, SD
Terrace On The Green - Moorhead, MN
Thomasbrook Apartments - Lincoln, NE
Valley Park Manor - Grand Forks, ND
Village Green - Rochester, MN
West Stonehill - Waite Park, MN
Westwood Park - Bismarck, ND
Winchester - Rochester, MN
Woodridge Apartments - 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
7800 W Brown Deer Road - Milwaukee, WI
American Corporate Center -
Mendota Heights, MN
Ameritrade - Omaha, NE
Benton Business Park - Sauk Rapids, MN
Bloomington Business Plaza -
Bloomington, MN
Brenwood - Minnetonka, MN
Brook Valley I - La Vista, NE
Burnsville Bluffs II - Burnsville, MN
Cold Spring Center - St. Cloud, MN
Crosstown Centre - Eden Prairie, MN
Dewey Hill Business Center - Edina, MN
Golden Hills Office Center - Golden Valley, MN
Great Plains - Fargo, ND
Greenwood Office - Greenwood, MN
Highlands Ranch - Highlands Ranch, CO
Interlachen Corporate Center - Edina, MN
Mendota Office Center I -
Mendota Heights, MN
Mendota Office Center II -
Mendota Heights, MN
Mendota Office Center III -
Mendota Heights, MN
Mendota Office Center IV -
Mendota Heights, MN
Metris - Duluth, MN
Minnesota National Bank - Duluth, MN
Minnetonka Office Building - Minnetonka, MN
Nicollett VII - Burnsville, MN
Northgate I - Maple Grove, MN
Northgate II - Maple Grove, MN
Northpark Corporate Center - Arden Hills, MN
2006 Annual Report F- 33
$
$
$
3,358 $
10,226
3,339
6,765
802
3,660
4,123
4,033
656
1,150
399
550
185
400
168
168
810
940
1,498
5,518
3,713
1,761
6,700
1,085
4,310
3,158
90
100
24
600
293
234
938
161
748
370
265,669 $ 34,599
0 $
0
0
564
6,119
10,496
4,902
946
4,629
8,229
1,557
1,437
4,674
16,068
2,866
15,000
8,025
537
9,590
10,659
30
15
71
146
1,455
1,331
327
188
1,300
1,762
347
300
588
2,884
985
3,018
126
148
1,437
1,650
4,162
1,570
6,665
1,074
3,807
1,501
4,943
1,797
1,195
0
4,401
6,198
1,421
0
1,385
336
287
40
429
1,063
358
2,567
$
$
$
6,113
15,586
5,149
9,658
619
6,064
6,950
7,434
1,712
1,472
2,802
10,053
5,277
2,236
12,470
2,346
5,590
6,771
408,664
525
95
559
837
9,567
16,329
8,022
1,287
6,438
12,862
1,671
2,660
8,022
14,811
4,173
19,056
15,249
832
9,803
14,885
5,506
10,558
5,247
7,320
2,203
1,456
361
6,955
6,392
2,014
14,584
$
$
$
41
178
47
123
18
122
9
8
44
29
79
282
219
99
277
84
326
82
7,698
21
0
6
0
0
1,423
0
3
222
416
26
253
25
165
39
273
0
1
279
0
70
91
27
0
0
2
0
3
3
53
0
103
0
0
403
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1,290
0
0
0
0
0
0
0
0
39
0
0
0
0
0
0
0
0
0
0
191
0
0
0
0
0
0
0
0
0
0
0
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2006
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
$
$
$
Pillsbury Business Center - Bloomington, MN
Plaza VII - Boise, ID
Plymouth I - Plymouth, MN
Plymouth II - Plymouth, MN
Plymouth III - Plymouth, MN
Plymouth IV & V - Plymouth, MN
Prairie Oak Business Center - Eden Prairie, MN
Rapid City, SD - 900 Concourse Drive -
Rapid City, SD
Southeast Tech Center - Eagan, MN
Spring Valley IV - Omaha, NE
Spring Valley V - Omaha, NE
Spring Valley X - Omaha, NE
Spring Valley XI - Omaha, NE
TCA Building - Eagan, MN
Three Paramount Plaza - Bloomington, MN
Thresher Square - Minneapolis, MN
UHC Office - International Falls, MN
US Bank Financial Center - Bloomington, MN
Viromed - Eden Prairie, MN
Wayroad Corporate - 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 BUILDINGS
MEDICAL
2800 Medical Building - Minneapolis, MN
6517 Drew Avenue South - Edina, MN
Abbott Northwest - Sartell, MN
Airport Medical - Bloomington, MN
Denfeld Clinic - Duluth, MN
Edgewood Vista - Bismarck, ND
Edgewood Vista - Brainerd, MN
Edgewood Vista - Duluth, MN
Edgewood Vista - Fremont, NE
Edgewood Vista - Hastings, NE
Edgewood Vista - Hermantown, MN
Edgewood Vista - Kalispell, MT
Edgewood Vista - Missoula, MT
Edgewood Vista - Omaha, NE
Edgewood Vista - Spearfish, SD
Edgewood Vista - Virginia, MN
Edgewood Vista Phase II - Virginia, MN
Fresenius - Duluth, MN
Garden View - St. Paul, MN
Gateway Clinic - Sandstone, MN
Health East St John & Woodwinds -
Maplewood & Woodbury, MN
High Pointe Health Campus - Lake Elmo, MN
Mariner Clinic - Superior, WI
Nebraska Orthopaedic Hospital - Omaha, NE
Park Dental - Brooklyn Center, MN
Pavilion I - Duluth, MN
Pavilion II - Duluth, MN
Ritchie Medical Plaza - St Paul, MN
Southdale 6525 France - Edina, MN
Southdale 6545 France - Edina, MN
Stevens Point - Stevens Point, WI
$
$
$
1,093 $
1,340
1,389
1,389
1,710
8,555
2,265
284
300
530
367
507
641
531
3,613
3,844
927
1,019
945
927
9,814
4,594
0
1,523
15,243
2,056
4,165
7,634
946
7,400
4,873
285
560
178
212
180
143
627
1,261
1,095
119
3,117
666
530
869
235
1,000
970
228,151 $ 43,925
6,523 $
0
7,433
2,703
2,282
7,382
7,296
3,537
283
292
8,455
298
527
338
4,596
4,583
3,319
1,097
4,071
1,322
16,894
5,297
2,890
14,424
1,550
7,616
14,014
7,808
9,500
22,862
0
930
351
0
0
501
511
587
390
56
14
719
70
109
89
315
246
0
50
0
66
3,238
1,305
0
0
185
1,245
2,715
1,615
0
3,500
133
$
$
$
1,610
3,145
1,142
1,273
1,505
14,248
4,174
6,762
5,776
916
1,123
1,024
1,094
9,258
6,647
10,304
2,378
13,350
4,197
4,992
8,414
1,218
10,738
7,795
333,362
7,135
662
12,653
4,678
2,614
9,193
8,999
11,319
496
558
10,517
518
853
552
5,806
6,766
5,111
1,522
7,588
1,699
18,363
10,723
3,820
20,512
2,767
8,899
16,610
7,851
13,047
30,209
3,888
0 $
46
0
0
0
0
545
41
2
19
29
22
22
18
136
145
8
131
1
25
428
1
493
192
5,705 $
8 $
25
0
0
(16)
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
3
(32)
0
0
0
0
34
699
305
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
9
0
0
0
20
0
0
0
29
288
0
0
0
0
0
0
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
2006 Annual Report F- 34
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2006
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
MEDICAL - continued
ENCUMBRANCES
INITIAL COST TO COMPANY
BUILDINGS &
IMPROVEMENTS
LAND
COST CAPITALIZATION
SUBSEQUENT TO ACQUISITION
CARRYING
COSTS
IMPROVEMENTS
$
$
$
$
$
Wedgewood Sweetwater - Lithia Springs, 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
Anoka Strip Center - Anoka, MN
Buffalo Strip Center - Buffalo, MN
Burnsville 1 Strip Center - Burnsville, MN
Burnsville 2 Strip Center - Burnsville, MN
Champlin South Pond - Champlin, MN
Chan West Village - Chanhassen, MN
Duluth Denfeld Retail - Duluth, MN
Duluth Tool Crib - Duluth, 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
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
Jamestown Buffalo Mall - Jamestown, ND
Jamestown Business Center - Jamestown, ND
Kalispell Retail Center - Kalispell, MT
Kentwood Thomasville Furniture -
Kentwood, MI
Ladysmith Pamida - Ladysmith, WI
Lakeville Strip Center - Lakeville, 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
Moundsview Bakery - Mounds View, 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
2006 Annual Report F- 35
$
$
$
$
1,153 $
2,016
334
162
172,361 $ 19,436
1,218 $
1,478
8,423
3,092
1,279
1,364
4,123
4,714
0
8,222
0
33,913 $
453 $
293
615
489
2,254
15,114
3,421
1,036
1,635
0
0
575
1,249
0
206
0
5,229
0
2,192
3,122
231
2,297
840
1,703
977
1,176
1,248
1,398
0
1,112
691
0
0
3,236
0
361
2,218
884
0
115
198
1,439
453
90
240
440
810
165
1,368
100
5,418
123
131
208
291
842
5,035
276
130
196
291
214
150
305
69
83
50
2,397
52
184
681
22
566
297
250
225
89
121
227
39
100
50
86
47
600
31
83
154
202
48
$
$
$
$
$
4,288
2,499
242,715
1,608
1,954
11,541
5,459
1,794
2,205
6,612
7,275
1,502
11,700
907
52,557
610
345
788
498
2,705
15,769
4,708
1,803
319
1,068
569
1,242
1,129
299
258
448
5,729
478
2,295
5,008
359
3,657
1,150
3,167
1,896
1,411
1,908
1,573
662
3,095
524
777
245
3,099
336
359
2,820
777
435
$
$
$
$
64
0
1,091
0
0
111
263
0
1
0
0
238
737
0
1,350
0
45
1
15
24
14
0
0
0
2
1
0
4
0
0
3
11
2
0
8
3
332
65
53
0
0
(136)
0
(199)
392
11
0
0
0
2
0
2
0
1
0
0
58
0
0
0
0
0
4
89
165
0
0
0
258
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
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2006
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
RETAIL - continued
ENCUMBRANCES
INITIAL COST TO COMPANY
BUILDINGS &
IMPROVEMENTS
LAND
COST CAPITALIZATION
SUBSEQUENT TO ACQUISITION
CARRYING
COSTS
IMPROVEMENTS
Rochester Maplewood Square - Rochester, MN
Schofield Plaza SC - Schofield, WI
St. Cloud Westgate SC - St. Cloud, MN
Wilmar Sam Goody - Willmar, MN
Winsted C Store - Winsted, MN
TOTAL RETAIL
SUBTOTAL
UNDEVELOPED LAND
17 S Main 2nd Floor - Minot, ND
Cottonwood Lake IV - Bismarck, ND
Eagan Vacant Land - Eagan, MN
IGH Vacant Land - Inver Grove Heights, MN
Kalispell Vacant Land - Kalispell, MT
Long Prairie Vacant Land - Long Prairie, MN
River Falls Vacant Land - River Falls, WI
Schofield Plaza Undeveloped - Schofield, WI
Stevens Point Undeveloped - Stevens Point, WI
TOTAL UNDEVELOPED LAND
TOTAL
$
$
$
$
$
$
5,199 $
0
4,093
0
249
3,275
175
1,219
170
35
65,796 $ 19,819
765,890 $ 123,197
0 $
0
0
0
0
0
0
0
0
0 $
0
264
423
560
1,400
150
200
79
310
3,386
765,890 $ 126,583
$
$
$
$
$
$
8,639
1,601
5,560
240
376
90,734
1,128,032
12
1
0
4
15
6
5
0
0
43
1,128,075
$
$
$
$
$
$
9
(78)
8
1
(207)
389
16,233
0
2
0
0
6
6
0
1,559
173
1,746
17,979
$
$
$
$
$
$
0
0
0
0
0
67
1,961
0
0
0
0
0
0
0
0
0
0
1,961
2006 Annual Report F- 36
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2006
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
MULTI-FAMILY RESIDENTIAL
LAND
IMPROVEMENTS TOTAL
GROSS AMOUNT CARRIED AT CLOSE
OF PERIOD
BUILDING &
LIFE ON
WHICH
LATEST
INCOME
STATEMENT IS
COMPUTED
ACCUMULATED
DEPRECIATION
DATE
ACQUIRED
405 Grant Avenue (Lonetree) - Harvey, ND $
408 1st Street SE - Minot, ND
Applewood On The Green - Omaha, NE
Boulder Court - Eagan, MN
Brookfield Village Apartments -
Topeka, KS
Candlelight Apartments - Fargo, ND
Canyon Lake Apartments - Rapid City, SD
Castle Rock - Billings, MT
Chateau Apartments - Minot, ND
Clearwater Apartments - Boise, ID
Colonial Villa - Burnsville, MN
Colton Heights Properties - 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 Apartments - Bismarck, ND
Crown Colony Apartments - 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 Manor - Bismarck, ND
Lancaster Place - St. Cloud, MN
Legacy Buildings I & II - Grand Forks, ND
Legacy Building III - Grand Forks, ND
Legacy Building IV - Grand Forks, ND
Legacy Building V - Grand Forks, ND
Legacy Building VI - Grand Forks, ND
Legacy Building VII - Grand Forks, ND
Magic City Apartments - Minot, ND
Meadows Phase I - Jamestown, ND
Meadows Phase II - Jamestown, ND
Meadows Phase III - Jamestown, ND
Miramont Apartments - Fort Collins, CO
Monticello Apartments - Monticello, MN
Neighborhood Apartments -
Colorado Springs, CO
North Pointe - Bismarck, ND
Oakmont Apartments - Sioux Falls, SD
Oakwood - Sioux Falls, SD
Olympic Village - Billings, MT
Olympik Village Apartments -
Rochester, MN
Oxbow - Sioux Falls, SD
Park East Apartments - Fargo, ND
Park Meadows I - Waite Park, MN
Park Meadows II & III - Waite Park, MN
Pebble Springs - Bismarck, ND
Pinecone Apartments - Fort Collins, CO
Pinehurst Apartments - Billings, MT
Pointe West - Rapid City, SD
Prairie Winds Apartments - Sioux Falls, SD
Prairiewood Meadows - Fargo, ND
Ridge Oaks - Sioux City, IA
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
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
2006 Annual Report F- 37
$
253 $
38
11,613
5,891
7,214
1,666
4,041
5,718
2,722
3,401
12,598
948
4,369
4,111
4,552
4,090
4,242
5,127
10,763
35,232
2,623
7,874
7,838
1,906
3,585
3,390
6,538
3,499
6,551
2,690
2,832
2,714
4,811
1,807
1,887
2,153
13,641
3,886
11,675
2,343
4,927
5,739
11,432
6,262
4,961
5,426
3,945
8,459
804
13,145
722
4,447
2,046
3,052
4,822
$
267
48
12,319
6,958
7,723
1,746
4,346
6,454
2,844
3,986
14,999
1,028
4,633
4,375
4,816
4,336
4,488
5,362
11,383
38,882
2,738
8,684
8,241
2,107
4,034
3,679
7,446
3,953
6,803
2,827
2,969
2,851
5,223
1,864
1,942
2,209
15,111
4,376
12,709
2,487
5,350
6,282
12,596
7,296
5,365
5,509
4,517
9,031
811
14,050
794
4,687
2,190
3,332
5,000
(87)
(36)
(1,385)
(408)
(464)
(510)
(474)
(1,085)
(565)
(664)
(868)
(553)
(898)
(867)
(663)
(857)
(667)
(1,558)
(1,817)
(5,530)
(266)
(2,463)
(1,593)
(433)
(844)
(533)
(1,659)
(744)
(1,039)
(107)
(90)
(65)
(1,079)
(301)
(295)
(217)
(3,254)
(214)
(2,794)
(608)
(512)
(1,721)
(1,690)
(181)
(1,399)
(1,094)
(1,440)
(1,888)
(137)
(3,568)
(77)
(1,354)
(669)
(451)
(800)
1991
2001
2001
2003
2003
1993
2001
1999
1997
1999
2003
1996
1999
1999
1999
1984
1997
1994
2000
2000
2002
1993
1999
1996
1997
2000
1996
1996
2000
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
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
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
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2006
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
MULTI-FAMILY RES. - continued
Rimrock Apartments - Billings, MT
Rocky Meadows - Billings, MT
Sherwood Apartments - Topeka, KS
Southbrook & Mariposa - Topeka, KS
South Pointe - Minot, ND
Southview Apartments - Minot, ND
Southwind Apartments - Grand Forks, ND
Sunset Trail Phase I - Rochester, MN
Sunset Trail Phase II - Rochester, MN
Sweetwater Properties -
Devils Lake & Grafton, ND
Sycamore Village Apartments - Sioux
Falls, SD
Terrace On The Green - Moorhead, MN
Thomasbrook Apartments - Lincoln, NE
Valley Park Manor - Grand Forks, ND
Village Green - Rochester, MN
West Stonehill - Waite Park, MN
Westwood Park - Bismarck, ND
Winchester - Rochester, MN
Woodridge Apartments - 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
7800 W Brown Deer Road -
Milwaukee, WI
American Corporate Center -
Mendota Heights, MN
Ameritrade - Omaha, NE
Benton Business Park - Sauk Rapids, MN
Bloomington Business Plaza -
Bloomington, MN
Brenwood - Minnetonka, MN
Brook Valley I - La Vista, NE
Burnsville Bluffs II - Burnsville, MN
Cold Spring Center - St. Cloud, MN
Crosstown Centre - Eden Prairie, MN
Dewey Hill Business Center - Edina, MN
Golden Hills Office Center -
Golden Valley, MN
Great Plains - Fargo, ND
Greenwood Office - Greenwood, MN
Highlands Ranch - Highlands Ranch, CO
Interlachen Corporate Center - Edina, MN
Mendota Office Center I -
Mendota Heights, MN
Mendota Office Center II -
Mendota Heights, MN
Mendota Office Center III -
Mendota Heights, MN
Mendota Office Center IV -
Mendota Heights, MN
GROSS AMOUNT CARRIED AT CLOSE
OF PERIOD
BUILDING &
LAND
IMPROVEMENTS TOTAL
ACCUMULATED
DEPRECIATION
DATE
ACQUIRED
LIFE ON
WHICH
LATEST
INCOME
STATEMENT IS
COMPUTED
$
$
$
$
330
656
1,150
399
550
185
400
168
168
90
100
24
600
293
234
938
161
748
370
$ 34,599
$
30
15
71
146
1,455
1,331
327
188
1,300
1,762
347
300
588
2,884
985
3,018
126
148
1,437
1,650
1,570
1,074
1,501
1,385
$
3,756 $
6,257
15,764
5,196
10,184
637
6,186
6,959
7,442
4,086
6,913
16,914
5,595
10,734
822
6,586
7,127
7,610
(651)
(1,524)
(2,655)
(179)
(2,535)
(186)
(1,599)
(980)
(880)
2000
1996
2000
2004
1995
1994
1996
2001
2002
40 years
40 years
40 years
40 years
24-40 years
24-40 years
24-40 years
40 years
40 years
1,756
1,846
(1,184)
1972
5-40 years
1,501
2,881
10,335
5,496
2,335
12,747
2,430
5,916
6,853
1,601
2,905
10,935
5,789
2,569
13,685
2,591
6,664
7,223
417,652 $
452,251
546 $
95
565
837
576
110
636
983
9,567
11,022
$
$
17,752
8,022
1,290
6,699
13,278
1,697
2,913
8,047
14,976
4,212
19,329
15,249
833
10,082
15,076
19,083
8,349
1,478
7,999
15,040
2,044
3,213
8,635
17,860
5,197
22,347
15,375
981
11,519
16,726
(151)
(1,947)
(1,962)
(1,006)
(164)
(3,378)
(517)
(413)
(1,704)
(79,150)
(369)
(12)
(242)
(105)
(867)
(1,780)
(1,410)
(91)
(804)
(1,327)
(26)
(358)
(1,070)
(585)
(614)
(1,371)
(2,557)
(67)
(367)
(1,791)
2002
1970
2000
2000
2003
1995
1999
2003
1996
40 years
33-40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
1981
2001
1987
2001
33-40 years
40 years
24-40 years
19-40 years
2003
40 years
2002
1999
2003
2001
2002
2005
2001
2001
2004
2001
2003
2000
2005
2004
2001
40 years
40 years
40 years
40 years
40 years
45 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
5,576
7,146
(684)
2002
40 years
10,649
11,723
(1,318)
2002
40 years
5,274
7,320
6,775
8,705
(606)
(783)
2002
40 years
2002
40 years
2006 Annual Report F- 38
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2006
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
GROSS AMOUNT CARRIED AT CLOSE
OF PERIOD
BUILDING &
LAND
IMPROVEMENTS TOTAL
ACCUMULATED
DEPRECIATION
DATE
ACQUIRED
LIFE ON
WHICH
LATEST
INCOME
STATEMENT IS
COMPUTED
4,719
5,250
(368)
2003
40 years
$
336
287
$
2,203 $
1,458
$
2,539
1,745
401
7,387
7,458
2,425
361
6,958
6,395
2,067
OFFICE BUILDINGS - continued
Metris - Duluth, MN
Minnesota National Bank - Duluth, MN
Minnetonka Office Building -
Minnetonka, MN
Nicollett VII - Burnsville, MN
Northgate I - Maple Grove, MN
Northgate II - Maple Grove, MN
Northpark Corporate Center -
Arden Hills, MN
Pillsbury Business Center -
Bloomington, MN
Plaza VII - Boise, ID
Plymouth I - Plymouth, MN
Plymouth II - Plymouth, MN
Plymouth III - Plymouth, MN
Plymouth IV & V - Plymouth, MN
Prairie Oak Business Center -
Eden Prairie, MN
Rapid City, SD - 900 Concourse Drive -
Rapid City, SD
Southeast Tech Center - Eagan, MN
Spring Valley IV - Omaha, NE
Spring Valley V - Omaha, NE
Spring Valley X - Omaha, NE
Spring Valley XI - Omaha, NE
TCA Building - Eagan, MN
Three Paramount Plaza - Bloomington, MN
Thresher Square - Minneapolis, MN
UHC Office - International Falls, MN
US Bank Financial Center -
Bloomington, MN
Viromed - Eden Prairie, MN
Wayroad Corporate - Minnetonka, MN
Wells Fargo Center - St Cloud, MN
West River Business Park - Waite Park, MN
Westgate - Boise, ID
Wirth Corporate Center -
40
429
1,063
358
2,567
284
300
530
367
507
641
531
285
560
178
212
180
143
627
1,261
1,095
119
3,117
666
530
869
235
1,000
14,584
17,151
1,610
3,191
1,142
1,273
1,505
14,248
1,894
3,491
1,672
1,640
2,012
14,889
6,803
5,778
935
1,152
1,046
1,116
9,276
6,783
10,458
2,386
13,481
4,198
5,037
8,842
1,219
11,231
7,088
6,338
1,113
1,364
1,226
1,259
9,903
8,044
11,553
2,505
16,598
4,864
5,567
9,711
1,454
12,231
$
$
Golden Valley, MN
TOTAL OFFICE BUILDINGS
970
$ 43,925
$
MEDICAL
2800 Medical Building - Minneapolis, MN
6517 Drew Avenue South - Edina, MN
Abbott Northwest - Sartell, MN
Airport Medical - Bloomington, MN
Denfeld Clinic - Duluth, MN
Edgewood Vista - Bismarck, ND
Edgewood Vista - Brainerd, MN
Edgewood Vista - Duluth, MN
Edgewood Vista - Fremont, NE
Edgewood Vista - Hastings, NE
Edgewood Vista - Hermantown, MN
Edgewood Vista - Kalispell, MT
Edgewood Vista - Missoula, MT
Edgewood Vista - Omaha, NE
Edgewood Vista - Spearfish, SD
Edgewood Vista - Virginia, MN
Edgewood Vista Phase II - Virginia, MN
930
351
0
0
501
511
587
390
56
14
719
70
109
89
315
246
0
$
$
8,016
339,355 $
8,986
383,280
7,143 $
687
12,653
4,678
2,598
9,194
8,999
11,319
496
558
10,517
518
853
552
5,806
6,824
5,111
8,073
1,038
12,653
4,678
3,099
9,705
9,586
11,709
552
572
11,236
588
962
641
6,121
7,070
5,111
2006 Annual Report F- 39
(112)
(74)
(102)
(881)
(299)
(323)
(15)
(202)
(264)
(53)
(60)
(70)
(1,815)
2004
2004
2001
2001
2004
2000
40 years
40 years
40 years
40 years
40 years
40 years
2006
40 years
2001
2003
2004
2004
2004
2001
40 years
40 years
40 years
40 years
40 years
40 years
(980)
(954)
(14)
(18)
(16)
(17)
(641)
(727)
(1,100)
(124)
(380)
(756)
(532)
(241)
(84)
(918)
(849)
(32,193)
(156)
(61)
(1,228)
(424)
(133)
(144)
(141)
(1,312)
(67)
(71)
(164)
(67)
(203)
(70)
(91)
(689)
(282)
2001
2000
2005
2005
2005
2005
2003
2002
2002
2004
2005
1999
2002
2005
2003
2003
40 years
40 years
41 years
42 years
43 years
44 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
2002
40 years
2002
2002
2002
2002
2004
2005
2005
2000
2001
2001
2005
2001
1997
2001
2005
2002
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
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2006
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
GROSS AMOUNT CARRIED AT CLOSE
OF PERIOD
BUILDING &
LAND
IMPROVEMENTS TOTAL
ACCUMULATED
DEPRECIATION
DATE
ACQUIRED
LIFE ON
WHICH
LATEST
INCOME
STATEMENT IS
COMPUTED
$
$
50
0
66
1,522 $
7,588
1,699
1,572
7,588
1,765
$
(78)
(738)
(87)
2004
2002
2004
40 years
40 years
40 years
18,363
21,601
(2,735)
2001
40 years
3,238
1,305
0
0
185
1,245
2,715
1,615
0
3,500
133
334
162
$ 19,436
$
115
10,726
3,788
20,512
2,767
8,899
16,610
7,885
13,746
30,514
3,888
12,031
3,788
20,512
2,952
10,144
19,325
9,500
13,746
34,014
4,021
4,352
2,499
243,864 $
4,686
2,661
263,300
1,608 $
1,723
$
$
198
1,954
2,152
$
$
1,439
453
90
240
440
810
165
1,368
100
$ 5,418
$
123
131
208
291
842
5,035
276
130
196
291
214
150
305
69
83
50
11,652
5,722
1,794
2,210
6,701
7,440
1,740
12,437
907
54,165 $
610 $
390
789
513
2,729
15,783
4,708
1,803
319
1,070
570
1,242
1,133
299
258
451
13,091
6,175
1,884
2,450
7,141
8,250
1,905
13,805
1,007
59,583
733
521
997
804
3,571
20,818
4,984
1,933
515
1,361
784
1,392
1,438
368
341
501
$
$
$
$
(480)
(194)
(1,003)
(251)
(417)
(1,069)
(172)
(1,059)
(4,371)
(20)
(849)
(128)
(18,954)
(82)
(516)
(1,067)
(882)
(92)
(223)
(1,435)
(814)
(231)
(1,150)
(133)
(6,625)
(49)
(28)
(66)
(49)
(139)
(1,273)
(242)
(92)
(25)
(84)
(45)
(200)
(90)
(10)
(21)
(33)
2004
2004
2004
2002
2004
2004
2005
2003
2001
2006
1996
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
2004
40 years
1992
40 years
2002
2000
2004
2002
1995
2001
2001
2002
2001
2003
2003
2003
2003
2004
2003
2004
2004
2003
2003
2003
2000
2003
2005
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
MEDICAL – continued
Fresenius - Duluth, MN
Garden View - St. Paul, MN
Gateway Clinic - Sandstone, MN
Health East St John & Woodwinds -
Maplewood & Woodbury, MN
High Pointe Health Campus - Lake Elmo,
MN
Mariner Clinic - Superior, WI
Nebraska Orthopaedic Hospital -
Omaha, NE
Park Dental - Brooklyn Center, MN
Pavilion I - Duluth, MN
Pavilion II - Duluth, MN
Ritchie Medical Plaza - St Paul, MN
Southdale 6525 France - Edina, MN
Southdale 6545 France- Edina, MN
Stevens Point - Stevens Point, WI
Wedgewood Sweetwater -
Lithia Springs, 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
Anoka Strip Center - Anoka, MN
Buffalo Strip Center - Buffalo, MN
Burnsville 1 Strip Center - Burnsville, MN
Burnsville 2 Strip Center - Burnsville, MN
Champlin South Pond - Champlin, MN
Chan West Village - Chanhassen, MN
Duluth Denfeld Retail - Duluth, MN
Duluth Tool Crib - Duluth, 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
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
2,397
5,740
8,137
(454)
2003
40 years
2006 Annual Report F- 40
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2006
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
RETAIL – continued
GROSS AMOUNT CARRIED AT CLOSE
OF PERIOD
BUILDING &
LAND
IMPROVEMENTS TOTAL
ACCUMULATED
DEPRECIATION
DATE
ACQUIRED
LIFE ON
WHICH
LATEST
INCOME
STATEMENT IS
COMPUTED
52
184
681
22
566
297
250
225
89
121
227
39
100
50
86
47
600
31
83
154
202
48
$
480 $
2,362
5,016
362
3,989
1,215
3,220
1,896
1,411
1,772
1,573
463
3,487
535
777
245
3,099
338
359
2,822
777
436
532
2,546
5,697
384
4,555
1,512
3,470
2,121
1,500
1,893
1,800
502
3,587
585
863
292
3,699
369
442
2,976
979
484
3,275
175
1,219
170
35
$ 19,819
$ 123,197
$
0
264
423
560
1,400
150
200
79
310
$ 3,386
$ 126,583
8,648
1,523
5,568
241
169
91,190 $
11,923
1,698
6,787
411
204
111,009
1,146,226 $ 1,269,423
12 $
3
0
4
21
12
5
12
267
423
564
1,421
162
205
1,559
1,638
173
1,789 $
483
5,175
1,148,015 $ 1,274,598
$
$
$
$
$
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
Jamestown Buffalo Mall - Jamestown, ND
Jamestown Business Center -
Jamestown, ND
Kalispell Retail Center - Kalispell, MT
Kentwood Thomasville Furniture -
Kentwood, MI
Ladysmith Pamida - Ladysmith, WI
Lakeville Strip Center - Lakeville, 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
Moundsview Bakery - Mounds View, 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 Maplewood Square -
Rochester, MN
Schofield Plaza SC - Schofield, WI
St. Cloud Westgate SC - St. Cloud, MN
Wilmar Sam Goody - Willmar, MN
Winsted C Store - Winsted, MN
TOTAL RETAIL
SUBTOTAL
UNDEVELOPED LAND
17 S Main 2nd Floor - Minot, ND
Cottonwood Lake IV - Bismarck, ND
Eagan Vacant Land - Eagan, MN
IGH Vacant Land -
Inver Grove Heights, MN
Kalispell Vacant Land - Kalispell, MT
Long Prairie Vacant Land -
Long Prairie, MN
River Falls Vacant Land - River Falls, WI
Schofield Plaza Undeveloped -
Schofield, WI
Stevens Point Undeveloped -
Stevens Point, WI
TOTAL UNDEVELOPED LAND
TOTAL
2006 Annual Report F- 41
2003
1994
2000
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
1996
2003
2003
2003
2003
1973 15 1/2-40 years
1993
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
2000
2003
2004
2003
2003
40 years
40 years
40 years
40 years
40 years
2001
1999
2006
2003
2003
2003
2003
40 years
40 years
40 years
40 years
40 years
40 years
40 years
2005
40 years
2006
40 years
$
$
$
$
$
$
(38)
(679)
(794)
(29)
(218)
(99)
(210)
(450)
(113)
(155)
(126)
(50)
(2,444)
(165)
(62)
(20)
(813)
(27)
(29)
(234)
(60)
(32)
(1,472)
(128)
(296)
(19)
(23)
(11,685)
(148,607)
0
0
0
0
0
0
0
0
0
0
(148,607)
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2006
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION
Reconciliations of total real estate carrying value for the three years ended April 30, 2006, 2005, and 2004 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(1)
(in thousands)
2005
2006
2004
$ 1,179,856 $ 1,082,773 $ 916,757
2,445
25,034
58,200
0
0
14,771
1,280,306
12,643
67,532
42,245
0
3,120
17,688
1,226,001
40,993
50,387
35,465
3,596
20,781
18,442
1,086,421
(10,474)
(3,586)
0
(62)
$ 1,269,423 $ 1,179,856 $ 1,082,773
(45,575)
0
(570)
(409)
0
Reconciliations of accumulated depreciation/amortization for the three years ended April 30, 2006, 2005, and 2004,
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)
2005
2006
2004
$ 118,512
$
98,923
$ 75,639
30,585
27,605
23,758
(490)
$ 148,607
(8,016)
$ 118,512
(474)
$ 98,923
(1) The net basis of the Company’s real estate investments for Federal Income Tax purposes is approximately $879 million.
2006 Annual Report F- 42
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2006
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
Less:
Unearned Discounts
Deferred Gain from Property Dispositions
Allowance for Loan Losses
6.00% 05/01/09
Monthly/
Balloon
0
$
$
475
475
$
$
$
$
434
434
0
0
(25)
409
MORTGAGE LOANS RECEIVABLE, BEGINNING OF YEAR
New participations in and advances on mortgage loans
$
0
2004
1,183
7,100
8,283
(3,232)
(158)
4,893
2006
619
619
(210)
$
(in thousands)
2005
4,893 $
0
4,893
(4,274)
0
619 $
$
$
409
Collections
Transferred to other assets
MORTGAGE LOANS RECEIVABLE, END OF YEAR
2006 Annual Report F- 43
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 14, 2006
By:
/s/ Thomas A. Wentz, Sr.
Thomas A. Wentz, Sr., President & CEO
2006 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 14, 2006
By:
/s/ Diane K. Bryantt
Diane K. Bryantt, Senior Vice President & CFO
2006 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, 2006, as filed with the Securities and Exchange Commission on July 14, 2006, (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 14, 2006
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.
2006 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, 2006, as filed with the Securities and Exchange Commission on July 14, 2006, (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 14, 2006
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.
2006 Annual Report
SHAREHOLDER INFORMATION
TRUSTEES
Daniel L. Feist(2)(6)(8)*
President
Feist Construction & Realty
(construction and real estate development company)
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.
(automobile dealership)
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
ANNUAL MEETING
The Annual Meeting of Shareholders of the Company will be
held at 7:00 p.m. CDT on September 19, 2006, at the Grand
International, 1505 North Broadway, Minot, North Dakota.
SHARES LISTED
The Company’s common shares of beneficial interest are listed
on the NASDAQ Global Select Market under the symbol
“IRETS.”
The Company’s series A cumulative preferred shares of
beneficial interest are listed on the NASDAQ Global Select
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
Fulbright & Jaworski L.L.P.
Minneapolis, Minnesota
DISTRIBUTION REINVESTMENT PLAN
The Company has a distribution reinvestment plan. Interested
participants can obtain more information by contacting the
Investor Relations Department at 701-837-4738 or at
info@iret.com.
Thomas A. Wentz, Jr.
Senior Vice President - Asset Management and Finance
FORM 10-K
Michael A. Bosh
General Counsel and 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
* Will retire from the Company’s Board of Trustees, effective at the 2006 Annual Meeting
Investor Relations Department
Susie Graner & Lindsey Knoop-Anderson
A copy of the annual report on Form 10-K for the Company’s
fiscal year ended April 30, 2006, 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, or 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