Investors Real Estate Trust
Annual Report 2009

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creating shareholder value since 1970 2 0 0 9 A n n u a l R e p o r t S e l e c t e d C o n s o l i d a t e d Fi n a n c i a l D a t a The following table sets forth selected financial data as of and for each of the fiscal years ended April 30, 2005 through 2009. The table illustrates the significant growth in revenue and real estate investment IRET experienced over the period reported, most of which 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** Funds From Operations per share and unit** (in thousands, except per share data) 2009 2008 2007 2006 2005 240,005 10,659 54 (2,227) 8,526 0 8,526 $ $ $ $ $ $ $ 221,170 15,021 556 $ $ $ 197,538 14,255 4,602 (3,524) $ (3,217) 11,675 413 12,088 $ $ $ 11,026 3,084 14,110 $ $ $ $ $ $ $ 170,171 11,119 3,293 (1,892) 8,766 2,801 11,567 $ $ $ $ $ $ $ 152,759 9,871 8,605 (1,727) 7,768 7,308 15,076 1,472,575 $ 1,456,178 $ 1,316,534 $ 1,126,400 $ 1,067,345 1,605,091 $ 1,618,026 $ 1,435,389 $ 1,207,315 $ 1,151,158 1,070,158 $ 1,063,858 333,935 $ 345,006 .11 .00 .11 .68 64,622 .81 $ $ $ $ $ $ .17 .01 .18 .67 64,182 .87 $ $ $ $ $ $ $ $ 951,139 284,969 .18 .06 .24 .66 56,994 .88 $ $ $ $ $ $ $ $ 765,890 289,560 .14 .06 .20 .65 46,711 .79 $ $ $ $ $ $ $ $ 708,558 295,172 .13 .17 .30 .65 42,314 .76 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ * ** 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 240.0 221.2 197.5 170.2 152.8 Funds From Operations in millions of dollars Distributions cents per share 64.2 64.6 57.0 46.7 42.3 .677 .669 .661 .653 .645 Total Assets in billions of dollars 1.6 1.6 1.4 1.2 1.2 05 06 07 08 09 05 06 07 08 09 05 06 07 08 09 05 06 07 08 09 Photos on the front cover: Southdale Medical Center, Edina, MN (top right) and 2828 Medical Building, Minneapolis, MN (bottom left) Photos on the back cover: Southdale Medical Center, Edina, MN (interior, top right) and 2828 Medical Building, Minneapolis, MN (interior, bottom left) L e t t e r t o O u r S h a r e h o l d e r s Fellow Shareholders, This will be my last Annual Report letter to you as President and Chief Executive Officer of Investors Real Estate Trust. In January of this year, I announced my plans to retire from those positions, effective in September 2009 at IRET’s Annual Meeting of Shareholders. Timothy Mihalick, currently IRET’s Chief Operating Officer and long-time IRET executive and trustee, will become President and CEO, and Thomas Wentz, Jr., currently Senior Vice President, Asset Management and Finance, will become COO. I will continue with IRET on a part-time basis, in the role of Senior Vice President and Chief Investment Officer focusing on acquisitions to IRET’s property portfolio. Both Tim and Tom, Jr. are well known to IRET shareholders. Tim has been with IRET since 1981, and has been COO since 1997 and a trustee since 1999. Tom, Jr. joined IRET in 1999, and has served as a trustee since 1996. I have the utmost confidence in their experience, integrity and judgment, and in their dedication to managing the business in the best interests of our shareholders, as has been our history since Roger Odell and I founded IRET 39 years ago. Thomas A. Wentz, Sr. President & CEO for In IRET’s 39-year history, we have experienced many business cycles, recessions, credit crunches and economic contractions, but few with the velocity and severity of the current downturn. The global financial markets have been in prolonged turmoil, and many economists continue to project little or no sustainable economic the remainder of calendar year 2009, with growth unemployment continuing the challenges during our past fiscal year and the sharp contraction of business activity, we were able to deliver respectable financial results from our core operating activities, and we continued to pay our distribution as scheduled and in cash, when many of our real estate investment trust peers found it necessary to reduce their distributions or pay a portion in shares rather than cash. We remain optimistic about the future of the real estate industry in general, and IRET in particular. to rise. However, despite IRET Corporate Plaza, Minot, ND (Interior) Highlights of IRET’s 39th year were: • Funds From Operations (FFO) increased to $64.6 million during fiscal year 2009, from $64.2 million in the previous fiscal year; however, on a per share and unit basis, FFO decreased from 87 cents per share and unit to 81 cents per share and unit. • Cash distributions to our shareholders and unitholders increased for the 39th consecutive year, from 66.9 cents to 67.7 cents per share and unit. • We acquired or placed in service $33.8 million of real estate properties, including IRET Corporate Plaza, our new headquarters building. • We continued to make good progress in expanding our in-house property management capabilities. • To strengthen our liquidity position, we entered into a continuous equity offering program, pursuant to which we may sell our common shares from time to time through a sales agent; during the fourth quarter of fiscal year 2009, we sold approximately 633,000 newly-issued common shares under this program, for total proceeds (before offering expenses but after underwriting discounts and commissions) of $6.0 million. Fiscal 2009 Financial Results Important financial indicators for IRET’s 39th year which ended April 30, 2009 are: Fiscal Year Real Estate Owned (before depreciation) Revenue Interest Expense Depreciation/Amortization of Real Estate Portfolio Utilities, Maintenance and Real Estate Tax Expense Administrative Expense Other Expenses* Net Income Funds From Operations Funds From Operations per share and unit Cash Distributions (in thousands, except per share amounts) 2008 % Change 2009 $1,729,585 $ 1,648,259 $ 240,005 $ 221,170 63,439 $ 68,743 $ +4.9% +8.5% +8.4% $ $ $ $ $ $ $ 54,646 $ 50,042 +9.2% 77,021 $ 4,430 $ 25,428 $ 8,526 $ 64,622 $ 4,745 69,508 +10.8% -6.6% 21,175 +20.1% 12,088 -29.5% +0.7% 64,182 0.81 $ 0.87 -6.9% per share and unit +1.2% * Includes insurance, property management expenses, advisory and trustee services, other expenses, amortization related to non-real estate investments and impairment of real estate investment. 0.677 $ 0.669 $ Investors Real Estate Trust 2009 Annual Report - 2 IRET Corporate Plaza, Minot, ND $33.8 Million of Property Acquisitions and Development Projects Placed in Service During fiscal year 2009, IRET acquired or placed in service: 7 apartment communities with 169 units 2 office properties with approximately 72,860 square feet of leasable space 2 medical properties with approximately 87,882 square feet of leasable space 1 industrial property with approximately 69,984 square feet of leasable space 2 parcels of unimproved land Total Fiscal 2009 Acquisitions or Properties Placed in Service (in thousands) 17,301 $ $ $ $ $ $ 5,807 5,831 4,000 890 33,829 We had no material property dispositions in fiscal year 2009. IRET’s new headquarters building, IRET Corporate Plaza, was among the development projects we placed in service during fiscal year 2009. Our new office premises give us the space and technology improvements we need to accommodate our continued growth. We invite our shareholders to tour our new premises at an Open House we are sponsoring on September 15, 2009, from 4:00 to 6:30 p.m. Stop by for refreshments and a chance to meet our employees and see our new headquarters facilities at 3015 16th Street SW, and then plan to attend our 2009 Annual Shareholders Meeting that evening at 7:00 p.m. at the Grand International, Minot, North Dakota. 39 Years of Increased Cash Distributions to Shareholders and Unitholders IRET again increased its cash distributions to its shareholders and unitholders during each quarter of fiscal year 2009, paying out 67.7 cents per share and unit, an increase of 1.2% over the 66.9 cents per share and unit paid in fiscal year 2008. IRET has increased its annual distribution every year since paying its first distribution on July 1, 1971, and has increased its distribution each Cottonwood by IRET, Bismarck, ND C. Morris Anderson John Decker calendar quarter since 1988. The July 2009 distribution of 17.05 cents per share and unit was our 153rd consecutive quarterly distribution. Income Tax Benefits for IRET Shareholders I again want to remind IRET shareholders that, when comparing IRET common shares with other investments, it is important to understand that the cash distributions paid by IRET to its shareholders and unitholders are partially tax-deferred. For the 2008 calendar year, 46.6% of IRET’s shareholder and unitholder distributions were classified as “return of capital” and thus not included in current taxable income. The percentage of distributions sheltered from current-year taxation as return of capital in calendar year 2007 was 46.8% and in calendar year 2006 was 56.8%. Compared fully taxable, IRET’s cash distribution is further enhanced by this income tax treatment. income that to is Continued Conservative Financial Management At the end of fiscal year 2009, IRET held cash and marketable securities totaling $33.7 million. Of the $1.1 billion of mortgages payable at year-end, only $9.6 million are variable rate mortgages, and only $140.5 million will come due during the current fiscal year. The weighted average interest rate on our outstanding mortgage debt as of April 30, 2009 was 6.30%. Fiscal 2010 Goals We will continue to focus on our ongoing, announced plans to manage more of our properties, and in particular our multi-family residential properties, with our own employees, as opposed to hiring third-party management firms. In these difficult economic times, we are also continuing our efforts to preserve liquidity and maintain financing flexibility. Specific goals are to: • continue our policy of regular increases in our quarterly cash distributions to our shareholders and unitholders; • maintain our conservative financial management practices of adequate cash reserves, lines of credit, fixed-rate debt and an overall indebtedness ratio of 60% or less of the current fair market value of our portfolio; • add to our real estate portfolio as appropriately-priced, financeable transactions are identified; • continue our investment in additional employees, office space and technology to support our internal property-management initiative, and in particular our plans to self-manage more of our multi-family residential portfolio; and, of course, do our very best to improve our earnings. Remembering C. Morris Anderson and John Decker In conclusion, I note that the IRET family suffered the loss this year of two valued former trustees, C. Morris “Morrie” Anderson, who passed away in July 2009 at the age of 80, and John Decker, who passed away in February 2009 at the age of 92. Morrie and John were two of the seven original trustees at IRET’s formation in 1970. Morrie served as an IRET trustee for 32 years, and John served as a trustee for 28 years. The counsel and support of both Morrie and John contributed to IRET’s success, and I want to take this opportunity to express my appreciation for their service to IRET. I would also like to thank all of our employees and trustees for their hard work and dedication over the years. Additionally, I thank our loyal shareholders, to whom we are very grateful. I am proud of all that IRET has accomplished, and I look forward to continuing to participate in IRET’s bright future. Sincerely, Thomas A. Wentz, Sr. President and Chief Executive Officer Investors Real Estate Trust 2009 Annual Report - 3 To t a l S h a r e h o l d e r R e t u r n s 38 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 $1,193,040 as of December 31, 2008. This presentation excludes brokerage costs and income taxes. IRET Peer Group(1) S&P 500(2) $1,193,040 $509,746 $285,661 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 06 07 08 (1) The peer group consists of the real estate investment trusts included by the National Association of Real Estate Investment Trusts $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 in its NAREIT Equity REIT Index. (2) Standard and Poor's ("S&P") 500 Stock Index Source: Research Data Group, Inc. Investors Real Estate Trust 2009 Annual Report - 4 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (cid:53) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended April 30, 2009 or (cid:133) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ 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.) 3015 16th Street SW, Suite 100 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: Common Shares of Beneficial Interest (no par value) - NASDAQ Global Select Market Series A Cumulative Redeemable Preferred Shares of Beneficial Interest (no par value) - NASDAQ Global Select Market Securities registered pursuant to Section 12(g) of the Act: None ________________________________ 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 2009 Annual Report Indicate by checkmark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). (cid:134) 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:134) Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (cid:134) Large accelerated filer (cid:134) Non-accelerated filer (cid:134) Smaller reporting Company (cid:59) 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 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 2009 Annual Meeting of Shareholders) was $561,436,684 based on the last reported sale price on the NASDAQ Global Select Market on October 31, 2008. The number of common shares of beneficial interest outstanding as of June 30, 2009, was 63,460,743. 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 2009 Annual Meeting of Shareholders to be held on September 15, 2009 are incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) hereof. 2009 Annual Report INVESTORS REAL ESTATE TRUST INDEX PAGE PART I 5 Item 1. Business ................................................................................................................................................. Item 1A. Risk Factors ........................................................................................................................................... 10 Item 1B. Unresolved Staff Comments .................................................................................................................. 20 Item 2. Properties ............................................................................................................................................... 21 Item 3. Legal Proceedings .................................................................................................................................. 31 Item 4. Submission of Matters to a Vote of Security Holders ............................................................................ 31 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .................................................................................................................................... 31 Item 6. Selected Financial Data ......................................................................................................................... 33 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ................. 34 Item 7A. Quantitative and Qualitative Disclosures about Market Risk ................................................................ 55 Item 8. Financial Statements and Supplementary Data ...................................................................................... 56 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................ 56 Item 9A. Controls and Procedures ........................................................................................................................ 56 Item 9B. Other Information................................................................................................................................... 58 PART III Item 10. Trustees, Executive Officers and Corporate Governance ...................................................................... 58 Item 11. Executive Compensation ....................................................................................................................... 58 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .................................................................................................................................................. 58 Item 13. Certain Relationships and Related Transactions, and Trustee Independence ........................................ 58 Item 14. Principal Accountant Fees and Services ................................................................................................ 59 PART IV Item 15. Exhibits, Financial Statement Schedules ............................................................................................... 59 Exhibit Index ......................................................................................................................................................... 59 Signatures .............................................................................................................................................................. 61 Report of Independent Registered Public Accounting Firm and Financial Statements ........................... F-1 to F-41 2009 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; • compliance with applicable laws, including those concerning the environment and access by persons with disabilities; and • the availability and cost of casualty insurance for losses. 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. 2009 Annual Report 4 Item 1. Business Overview PART I Investors Real Estate Trust (“IRET” or the “Company”) 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 through 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, 2009, our real estate investments in these two states accounted for 68.5% of our total gross revenue. Our principal executive offices are located in Minot, North Dakota. We also have an office in Minneapolis, Minnesota, and property management offices in Omaha, Nebraska; Kansas City, Kansas; St. Louis, Missouri and Jamestown, North Dakota. We seek to diversify our investments among multi-family residential and office, medical, industrial and retail properties. As of April 30, 2009, our real estate portfolio consisted of: • 77 multi-family residential properties, containing 9,645 apartment units and having a total real estate investment amount net of accumulated depreciation of $426.8 million; • 67 office properties containing approximately 5.0 million square feet of leasable space and having a total real estate investment amount net of accumulated depreciation of $498.6 million; • 49 medical properties (including senior housing) containing approximately 2.3 million square feet of leasable space and having a total real estate investment amount net of accumulated depreciation of $345.9 million; • 18 industrial properties containing approximately 2.9 million square feet of leasable space and having a total real estate investment amount net of accumulated depreciation of $95.2 million; and • 33 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 $100.2 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, 2009, no single tenant accounted for more than 10% of our total rental revenues. 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, 2009, IRET, Inc. owned a 74.3% interest in IRET Properties. The remaining ownership of IRET Properties is held by individual limited partners. 2009 Annual Report 5 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. 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 in 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, Idaho, Iowa, Kansas, Michigan, Missouri, 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, 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, Iowa, Colorado, Montana, South Dakota, and Kansas. 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 Third 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. 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, 2008 and 2009, we had no junior mortgages outstanding. We had two contracts for deed outstanding as of April 30, 2008, with a combined balance of 2009 Annual Report 6 approximately $541,000, net of reserves, due to us. We had one contract for deed outstanding as of April 30, 2009, with a balance of approximately $160,000, net of reserves, 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. One of the requirements of the Internal Revenue Code of 1986, as amended, for a REIT is that it distribute 90% of its net taxable income, excluding net capital gains, to its shareholders. There is a separate requirement to distribute net capital gains or pay a corporate level tax in lieu thereof. 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 39 years ago and every quarter since 1988. Issuing senior securities. 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, 2009, our ratio of total real estate mortgages to total real estate assets was 72.7% while our ratio of total indebtedness as compared to our Net Assets (computed in accordance with our Bylaws) was 141.8%. 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 (in thousands) 2007 2008 2,309 6,705 $ 22,931 $ 62,427 2009 362 3,730 $ 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 2009 Annual Report 7 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 2009, 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, and except for the redemption for cash of 15,758 limited partnership units from a limited partner of the Operating Partnership. 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 loans receivables (including contracts for deed), net of reserves, totaled approximately $160,000 as of April 30, 2009, and $541,000 as of April 30, 2008. 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. Information about Segments We currently operate in five reportable real estate segments: multi-family residential, office, medical (including senior housing), industrial and retail. For further information on these segments and other related information, see Note 11 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. Our Executive Officers Set forth below are the names, ages, titles and biographies of each of our executive officers as of July 1, 2009. Name Thomas A. Wentz, Sr. Timothy P. Mihalick Thomas A. Wentz, Jr. Diane K. Bryantt Michael A. Bosh Age 73 50 43 45 38 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 of Asset Management and Finance 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. 2009 Annual Report 8 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, 2009, we had 81 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: • 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. 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 2009 Annual Report 9 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. Website and Available Information Our internet address is www.iret.com. We make available, free of charge, through the “SEC filings” tab under the Investors/Financial Reporting section of our 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 Investors/Corporate Profile 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 58702-1988. 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; 2009 Annual Report 10 • • 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. Adverse global market and economic conditions may continue to adversely affect us and could cause us to recognize additional impairment charges or otherwise harm our performance. Recent market and economic conditions have been challenging with tighter credit conditions through the end of 2008 and continuing in 2009. Continued concerns about the availability and cost of credit, the U.S. mortgage market, inflation, unemployment levels, geopolitical issues and declining equity and real estate markets have contributed to increased market volatility and diminished expectations for the U.S. economy. The commercial real estate sector in particular has been negatively affected by these recent market and economic conditions. These conditions may result in our tenants delaying lease commencements, requesting rent reductions, declining to extend or renew leases upon expiration and/or renewing at lower rates. These conditions also have forced some weaker tenants, in some cases, to declare bankruptcy and/or vacate leased premises. We may be unable to re-lease vacated space at attractive rents or at all. We are unable to predict whether, or to what extent or for how long, these adverse market and economic conditions will persist. The continuation and/or intensification of these conditions may impede our ability to generate sufficient operating cash flow to pay expenses, maintain properties, pay distributions and repay debt. The federal conservatorship of Fannie Mae and Freddie Mac and related efforts, along with any changes in laws and regulations affecting the relationship between Fannie Mae and Freddie Mac and the U.S. Government, may adversely affect our business. We depend on the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) for financing for the majority of our multi-family residential properties. Fannie Mae and Freddie Mac are U.S. Government-sponsored entities, or GSEs, but their guarantees are not backed by the full faith and credit of the United States. Since 2007, Fannie Mae and Freddie Mac have reported substantial losses and a need for substantial amounts of additional capital. In response to the deteriorating financial condition of Fannie Mae and Freddie Mac and the recent credit market disruptions, Congress and the U.S. Treasury have undertaken a series of actions to stabilize these GSEs and the financial markets generally. In September 2008 Fannie Mae and Freddie Mac were placed in federal conservatorship. The problems faced by Fannie Mae and Freddie Mac resulting in their being placed into federal conservatorship have stirred debate among some federal policy makers regarding the continued role of the U.S. Government in providing liquidity for the residential mortgage market. It is possible that each of Fannie Mae and Freddie Mac could be dissolved and the U.S. Government could decide to stop providing liquidity support of any kind to the multi-family residential mortgage market. The effect of the actions taken by the U.S. Government remains uncertain, and the scope and nature of the actions that the U.S. Government will ultimately undertake are unknown and will continue to evolve. Future legislation could further change the relationship between Fannie Mae and Freddie Mac and the U.S. Government, and could also nationalize or eliminate such GSEs entirely. Any law affecting these GSEs may create market uncertainty and have the effect of reducing the credit available for financing multi-family residential properties. The loss or reduction of this important source of credit would be likely to result in higher loan costs for us, and could result in inability to borrow or refinance maturing debt, all of which could materially adversely affect our business, operations and financial condition. 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; 2009 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 and the amount of cash available for payment of distributions. 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, 2009, we received approximately 68.5% 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, 2009, approximately 1.1 million square feet, or 9.0% of our total commercial property square footage, was vacant. Approximately 688 of our 9,645 apartment units, or 7.1%, were vacant. As of April 30, 2009, leases covering approximately 7.8% of our total commercial segments net rentable square footage will expire in fiscal year 2010, 18.1% in fiscal year 2011, 11.7% in fiscal year 2012, 7.3% in fiscal year 2013, and 6.9% in fiscal year 2014. 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 may agree to partially or wholly terminate the lease in advance of the termination date in consideration for a lease 2009 Annual Report 12 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. These considerations impact our decisions on whether or not to dispose of certain of our assets. Inability to manage rapid growth effectively may adversely affect our operating results. We have experienced significant growth at various times in the past; for example, we increased our total assets from approximately $1.4 billion at April 30, 2007, to $1.6 billion at April 30, 2009, 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 rapid 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 net income. From our fiscal year ended April 30, 2006, to our fiscal year ended April 30, 2009, our net income decreased from $11.6 million to $8.5 million. The acquisition of additional real estate properties is critical to our ability to increase our net income. If we are unable to make real estate acquisitions on terms that meet our financial and strategic objectives, whether due to market conditions, a changed competitive environment or unavailability of capital, our ability to increase our net income may be materially and adversely affected. High leverage on our overall portfolio may result in losses. As of April 30, 2009, 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 141.8%. As of April 30, 2008 and 2007, our percentage of total indebtedness to total Net Assets was approximately 143.8% and 149.6%, respectively. Under our Bylaws we may increase our total indebtedness up to 2009 Annual Report 13 300.0% of our Net Assets, or by an additional approximately $1.2 billion. 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 securities 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 have a limited ability 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. These risks increase when credit markets are tight, as they are now; in general, when the credit markets are constrained, we may encounter resistance from lenders when we seek financing or refinancing for properties or proposed acquisitions, and the terms of such financing or refinancing are likely to be less favorable to us 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 a significant 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. As of April 30, 2009, approximately 13.1% of our mortgage debt is due for repayment in fiscal year 2010. As of April 30, 2009, we had approximately $140.5 million of principal payments and approximately $63.9 million of interest payments due in fiscal year 2010 on fixed and variable-rate mortgages secured by our real estate. The cost of our indebtedness may increase. 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. In addition, we have incurred, and we expect to continue to incur, indebtedness that bears interest at a variable rate. As of April 30, 2009, $9.6 million, or approximately 0.9%, 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. 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 all of our assets are held through IRET Properties, our operating partnership, and other of our subsidiaries. As a 2009 Annual Report 14 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 senior housing) and may acquire more in the future. As of April 30, 2009, our real estate portfolio consisted of 49 medical properties, with a total real estate investment amount, net of accumulated depreciation, of $345.9 million, or approximately 23.6% 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. The American Reinvestment and Recovery Act of 2009, which was signed into law on February 17, 2009, provides $87 billion in additional federal Medicaid funding for states’ Medicaid expenditures between October 1, 2008 and December 31, 2010. Under this Act, states meeting certain eligibility requirements will temporarily receive additional money in the form of an increase in the federal medical assistance percentage (FMAP). Thus, for a limited period of time, the share of Medicaid costs that are paid for by the federal government will go up, and each state’s share will go down. We cannot predict whether states are, or will remain, eligible to receive the additional federal Medicaid funding, or whether the states will have sufficient funds for their Medicaid programs. We also cannot predict the impact that this broad-based, far-reaching legislation will have on the U.S. economy or our business. 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 2009 Annual Report 15 to make distributions to the holders of our shares of beneficial interest and our ability to pay amounts due on our debt. Similarly, changes in laws that increase the potential liability for environmental conditions existing on properties, that increase the restrictions on discharges or other conditions or that affect development, construction and safety requirements may result in significant unanticipated expenditures that could have a material adverse effect on us, our ability to make distributions to the holders of our shares of beneficial interest and our ability to pay amounts due on our debt. In addition, future enactment of rent control or rent stabilization laws or other laws regulating multi-family residential properties may reduce rental revenues or increase operating costs. Complying with laws benefiting disabled persons 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 2009 Annual Report 16 not reveal the full extent of potential environmental liabilities. We currently do not carry insurance for environmental liabilities. We may be unable to retain or attract qualified management. We are dependent upon our senior officers for essentially all aspects of our business operations. Our senior officers have experience in the specialized business segments in which we operate, and the loss of them would likely have a material adverse effect on our operations, 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, a material misstatement could go undetected, and 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 certain passive 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 securities 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 regular corporate rates, which would likely have a material adverse effect on 2009 Annual Report 17 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 investment or distributions to the holders of our securities 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 securities. To the extent that distributions to the holders of our securities 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 (such as a publicly- traded partnership 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 and value of the outstanding 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, (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 securities, (ii) less than 100 people owning our securities, (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 securities 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 securities 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 securities 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 securities. 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. Complying with REIT requirements may force us to forego otherwise attractive opportunities or liquidate otherwise attractive investments. To qualify and maintain our status as a REIT, we must satisfy certain requirements with respect to the character of our assets. If we fail to comply with these requirements at the end of any quarter, we must correct such failure within 30 days after the end of the quarter (by, possibly, selling asses not withstanding 2009 Annual Report 18 their prospects as an investment) to avoid losing our REIT status. If we fail to comply with these requirements at the end of any quarter, and the failure exceeds a minimum threshold, we may be able to preserve our REIT status if (a) the failure was due to reasonable cause and not to willful neglect, (b) we dispose of the assets causing the failure within six months after the last day of the quarter in which we identified the failure, (c) we file a schedule with the IRS describing each asset that caused the failure, and (d) we pay an additional tax of the greater of $50,000 or the product of the highest applicable tax rate multiplied by the net income generated on those assets. As a result, compliance with the REIT requirements may require us to liquidate or forego otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our shareholders. Even if we qualify as a REIT, we may face other tax liabilities that reduce our cash flow. Even if we qualify for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted a a result of a foreclosure, and state or local income, property and transfer taxes, such as mortgage recording taxes. Any of these taxes would decrease cash available for distribution to our shareholders. In addition, in order to meet the REIT qualification requirements, or to avert the imposition of a 100% tax that applies to certain gains derived by a REIT from dealer property or inventory, we may in the future hold some of our assets through a taxable REIT subsidiary. We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common shares. At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. Any of those new laws or interpretations may take effect retroactively and could adversely affect us or the market price of our common shares of beneficial interest. The U.S. federal income tax laws governing REITs are complex. We intend to operate in a manner that will qualify us as a REIT under the U.S. federal income tax laws. The REIT qualification requirements are extremely complex, however, and interpretations of the U.S. federal income tax laws governing qualification as a REIT are limited. Accordingly, we cannot be certain that we will be successful in operating so we can continue to qualify as a REIT. At any time, new laws, interpretations, or court decisions may change the federal tax laws or the U.S. federal income tax consequences of our qualification as a REIT. 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. 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 2009 Annual Report 19 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 in our debt financing documents. 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 shareholders taxed at individual rates prior to 2010 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 shareholders taxed at individual rates will generally be subject to the tax rates that are otherwise applicable to ordinary income which, currently, are as high as 35%. Although the earnings of a REIT that are distributed to its shareholders are still generally subject to less federal income taxation than earnings of a non-REIT C corporation that are distributed to its shareholders net of corporate-level income tax, this law change may make an investment in our securities 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 securities. 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 securities 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 relatively low trading volumes in securities of REITS. Higher market interest rates may adversely affect the market price of our securities, and low trading volume on the NASDAQ Global Select Market may prevent the timely resale of our securities. 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 rise, 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. The average daily trading volume for the period of May 1, 2008, through April 30, 2009, was 243,304 shares and the average monthly trading volume for the period of May 1, 2008 through April 30, 2009 was 5,105,451 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. 2009 Annual Report 20 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. These real estate investments are managed by our own employees and by third-party professional real estate management companies on our behalf. Certain financial information from fiscal 2008 and 2007 was adjusted to reflect the effects of discontinued operations. See the Property Dispositions section in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the discussion in Note 12 to our Consolidated Financial Statements. Total Real Estate Rental Revenue As of April 30, 2009, our real estate portfolio consisted of 77 multi-family residential properties and 167 commercial properties, consisting of office, medical, industrial and retail properties, comprising 29.1%, 34.0%, 23.6%, 6.5%, and 6.8%, 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, 2009. 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) 2009 2008 2007 Multi- Family Residential Gross Revenue Commercial Office Gross Revenue Commercial Medical Commercial Gross Retail Gross Revenue Revenue $ 76,716 31.9% $ 83,446 34.8% $ 52,564 21.9% $ 12,711 5.3% $ 14,568 $ 72,827 32.9% $ 84,042 38.0% $ 38,412 17.4% $ 11,691 5.3% $ 14,198 8,091 4.1% $ 14,089 $ 66,972 33.9% $ 73,603 37.3% $ 34,783 17.6% $ Commercial Industrial Gross Revenue % % % % % Total Revenue 6.1% $ 240,005 6.4% $ 221,170 7.1% $ 197,538 Economic Occupancy Rates Economic occupancy levels on a stabilized property and all-property basis are shown below for each property type in each of the three most recent fiscal years ended April 30. Economic occupancy represents actual rental revenues recognized for the period indicated as a percentage of scheduled rental revenues for the period. Percentage rents, tenant concessions, straightline adjustments and expense reimbursements are not considered in computing either actual revenues or scheduled rent revenues. Scheduled rent revenue is determined by valuing occupied units or square footage at contract rates and vacant units or square footage at market rates. Stabilized properties are those properties owned for the entirety of both periods being compared. While results presented on a stabilized property basis are not determined in accordance with GAAP, management believes that measuring performance on a stabilized property basis is useful to investors and to management because it enables evaluation of how the Company’s properties are performing year over year. 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. Segments Multi - Family Residential Commercial - Office Commercial - Medical Commercial - Industrial Commercial - Retail Certain Lending Requirements Stabilized Properties Fiscal Year Ended April 30, All Properties Fiscal Year Ended April 30, 2008 2009 2009 2008 2007 2007 93.9% 93.4% 93.2% 93.5% 92.7% 93.2% 88.9% 92.1% 90.8% 89.1% 92.1% 91.9% 96.0% 95.6% 96.7% 95.7% 95.8% 96.7% 97.3% 96.8% 94.8% 97.8% 96.3% 95.1% 87.1% 87.4% 89.3% 87.1% 87.4% 89.6% 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. 2009 Annual Report 21 Management and Leasing of Our Real Estate Assets We conduct our operations from offices in Minot, North Dakota and Minneapolis, Minnesota. We also have property management offices in Omaha, Nebraska; Kansas City, Kansas; St. Louis, Missouri and Jamestown, North Dakota. The day-to-day management of our commercial properties is carried out by our own employees and by third-party property management companies. The management and leasing of our multi-family residential properties are generally handled by locally-based, third-party management companies. In markets where the amount of rentable square footage we own does not justify self-management, when properties acquired have effective pre-existing property management in place, or when for other reasons particular properties are in our judgment not attractive candidates for self-management, we utilize third-party professional management companies for day-to-day management. However, all decisions 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 implemented by the third-party management companies. As of April 30, 2009, we have under internal management 103 commercial properties. Our remaining 64 commercial properties are managed by third parties. We also internally manage two of our multi-family residential properties. We plan to continue evaluating our portfolio to identify other commercial properties and multi-family properties that may be candidates for management by our own employees. As of April 30, 2009, we had property management contracts and/or leasing agreements with the following companies: Residential Management Commercial Management and Leasing • Builder’s Management & Investment Co., Inc. • ConAm Management Corporation • Investors Management & Marketing, Inc. • Illies Nohava Heinen Property Management, Inc. • Kahler Property Management • Paramark Corp. • A & L Management Services, LLC • AJB, Inc. dba Points West Realty Management • Balke Brown Associates, Inc. • Bayport Properties US, Inc. • BTO Development Corporation • CB Richard Ellis, Inc. • Cushman & Wakefield of Minnesota, Inc. • Dakota Commercial and Development Co. • Davis Real Estate Services Group • DESCO Commercial, LLC., dba NAI Desco • Duemelands Commercial LLLP • Frauenshuh Companies • Ferguson Property Management Services, L.C. • Illies Nohava Heinen Property Management, Inc. • Inland Companies, Inc. • Northco Real Estate Services, LLC • NorthMarq Real Estate Brokerage LLC • Pacific Realty Commercial LLC dba Grubb & Ellis/Pacific Realty • Paramount Real Estate Corporation • Red Brokerage LLC • Thornton Oliver Keller, Commercial, LLC • Turley Martin Tucker Company, Inc. dba Colliers Turley Martin Tucker Company • United Properties, LLC • Vector Property Services, LLC • Welsh Companies, LLC • Winbury Realty of K.C. Generally, our management contracts provide for compensation ranging from 1.5% 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. 2009 Annual Report 22 Summary of Real Estate Investment Portfolio As of April 30, (in thousands) Real estate investments Property owned Less accumulated depreciation Development in progress Unimproved land Mortgage loans receivable Total real estate investments 2009 % 2008 % 2007 % $ $ $ 1,729,585 (262,871) 1,466,714 0 5,701 160 1,472,575 $ 1,648,259 (219,379) 99.6% $ 1,428,880 22,856 3,901 541 100.0% $ 1,456,178 0.0% 0.4% 0.0% $ 1,489,287 (180,544) 98.1% $ 1,308,743 3,498 3,894 399 100.0% $ 1,316,534 1.6% 0.3% 0.0% 99.4% 0.3% 0.3% 0.0% 100.0% Summary of Individual Properties Owned as of April 30, 2009 The following table presents information regarding our 244 properties owned as of April 30, 2009. 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, 2009: * = Real estate not owned in fee; all or a portion is leased under a ground or air rights lease. Property Name and Location MULTI-FAMILY RESIDENTIAL 17 South Main Apartments - Minot, ND 401 South Main Apartments - Minot, ND Arbors Apartments - S Sioux City, 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 Cimarron Hills - Omaha, NE Colonial Villa - Burnsville, MN Colton Heights Properties - Minot, ND Cottonwood Community - Bismarck, ND Country Meadows Community - Billings, MT Crestview Apartments - Bismarck, ND Crown Colony Apartments - Topeka, KS Dakota Hill At Valley Ranch - Irving, TX East Park Apartments - Sioux Falls, SD Evergreen Apartments - Isanti, MN Forest Park Estates - Grand Forks, ND Greenfield Apartments - Omaha, NE Heritage Manor - Rochester, MN Indian Hills Apartments - Sioux City, IA IRET Corporate Plaza Apartments - Minot, ND Jenner Properties - Grand Forks, ND Kirkwood Manor - Bismarck, ND Lancaster Place - St. Cloud, MN Legacy Community - Grand Forks, ND Magic City Apartments - Minot, ND Meadows Community - Jamestown, ND (in thousands) Investment (initial cost plus improvements) Fiscal 2009 Economic Occupancy Units 4 $ 10 192 115 160 66 109 165 64 234 240 18 268 134 152 220 504 84 36 270 96 182 120 71 90 108 84 358 200 81 222 1,283 7,552 7,946 7,981 1,863 4,584 6,828 3,438 13,214 16,059 999 20,614 9,022 5,331 12,028 39,707 3,047 3,150 10,107 4,931 8,823 5,639 16,955 2,468 4,406 3,909 27,671 5,748 6,084 99.5% 60.6% 90.9% 95.8% 95.4% 93.7% 91.6% 93.9% 99.5% 85.4% 88.1% 99.0% 93.5% 95.3% 97.9% 92.6% 91.7% 90.7% 93.8% 89.6% 97.5% 98.4% 80.5% 54.2% 93.3% 95.7% 78.8% 97.1% 98.8% 99.7% 2009 Annual Report 23 Property Name and Location MULTI-FAMILY RESIDENTIAL - continued Minot 4th Street Apartments - Minot, ND Minot 11th Street Apartments - Minot, ND Minot Fairmont Apartments - Minot, ND Minot Westridge Apartments - Minot, 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 Meadows Community - 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 Quarry Ridge Apartments - Rochester, MN Ridge Oaks - Sioux City, IA Rimrock Apartments - Billings, MT Rocky Meadows - Billings, MT Rum River Apartments - Isanti, MN SCSH Campus Center Apartments - St. Cloud, MN SCSH Campus Heights Apartments - St. Cloud, MN SCSH Campus Knoll I Apartments - St. Cloud, MN SCSH Campus Plaza Apartments - St. Cloud, MN SCSH Campus Side Apartments - St. Cloud, MN SCSH Campus View Apartments - St. Cloud, MN SCSH Cornerstone Apartments - St. Cloud, MN SCSH University Park Place Apartments - St. Cloud, MN Sherwood Apartments - Topeka, KS Southbrook & Mariposa - Topeka, KS South Pointe - Minot, ND Southview Apartments - Minot, ND Southwind Apartments - Grand Forks, ND Sunset Trail - Rochester, MN Sweetwater Properties - 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 2009 Annual Report 24 (in thousands) Investment (initial cost plus improvements) Fiscal 2009 Economic Occupancy Units 4 $ 3 12 33 210 60 192 49 80 160 274 140 120 360 16 195 21 90 48 85 154 132 78 98 72 90 49 71 24 48 48 24 35 300 54 195 24 164 146 42 48 116 240 168 36 313 64 115 110 9,645 $ 89 65 367 1,971 15,442 4,533 13,716 2,542 5,446 6,637 13,149 7,571 5,682 14,444 834 14,376 850 4,885 2,299 3,621 14,828 5,752 4,262 7,097 5,676 2,677 753 1,811 371 744 735 377 540 17,744 5,735 11,804 911 7,298 14,991 952 1,777 3,287 10,611 6,242 2,883 14,687 2,817 7,328 7,729 542,547 100.0% 100.0% 100.0% 99.4% 95.4% 94.1% 91.6% 99.7% 97.4% 93.8% 97.9% 95.2% 96.5% 88.3% 98.1% 94.2% 97.4% 96.9% 89.5% 88.0% 96.6% 91.1% 98.1% 95.8% 96.5% 90.7% 62.6% 86.0% 72.0% 86.2% 87.3% 90.3% 89.5% 98.4% 96.0% 99.7% 99.0% 94.8% 97.1% 63.8% 86.3% 92.7% 89.1% 91.3% 95.6% 94.4% 96.8% 95.3% 97.1% 93.5% Property Name and Location OFFICE BUILDINGS 1st Avenue Building - Minot, ND 12 South Main - Minot, ND 610 Business Center IV - Brooklyn Park, MN 2030 Cliff Road - Eagan, MN 7800 West Brown Deer Road - Milwaukee, WI American Corporate Center - Mendota Heights, MN Ameritrade - Omaha, NE Benton Business Park - Sauk Rapids, MN Bismarck 715 East Broadway - Minot, ND 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 Corporate Center West - Omaha, NE Crosstown Centre - Eden Prairie, MN Dewey Hill Business Center - Edina, MN Farnam Executive Center - Omaha, NE Flagship - Eden Prairie, MN Gateway Corporate Center - Woodbury, MN Golden Hills Office Center - Golden Valley, MN Great Plains - Fargo, ND Highlands Ranch - Highlands Ranch, CO Highlands Ranch I - Highlands Ranch, CO Interlachen Corporate Center - Edina, MN Intertech Building - Fenton, MO IRET Corporate Plaza - Minot, ND 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 Minnesota National Bank - Duluth, MN Miracle Hills One - Omaha, NE Nicollett VII - Burnsville, MN Northgate I - Maple Grove, MN Northgate II - Maple Grove, MN Northpark Corporate Center - Arden Hills, MN Pacific Hills - Omaha, NE Pillsbury Business Center - Bloomington, MN Plaza VII - Boise, ID Plymouth 5095 Nathan Lane - Plymouth, MN 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 900 Concourse Drive - Rapid City, SD Riverport - Maryland Heights, MO Southeast Tech Center - Eagan, MN Spring Valley IV - Omaha, NE Spring Valley V - Omaha, NE Approximate Net Rentable Square Footage (in thousands) Investment (initial cost plus improvements) Fiscal 2009 Economic Occupancy 15,446 $ 10,126 78,190 13,374 175,610 138,959 73,742 30,464 22,500 121,064 176,789 30,000 45,158 77,634 141,724 185,000 73,338 94,832 138,825 59,827 190,758 122,040 81,173 71,430 105,084 64,607 50,360 59,852 88,398 60,776 72,231 17,108 83,448 118,125 79,297 26,000 146,087 143,075 42,220 28,994 20,528 26,186 26,186 26,186 126,930 36,421 75,815 122,567 58,300 15,700 24,171 694 393 9,403 983 11,477 20,870 8,349 1,527 1,672 8,050 16,793 2,055 3,352 9,146 21,405 17,933 5,341 13,592 24,127 9,489 24,202 15,375 11,912 10,630 16,819 6,099 6,317 7,337 12,472 6,813 9,283 1,745 12,665 7,444 8,242 2,445 17,551 16,952 1,906 3,769 1,897 1,690 1,671 2,352 15,292 5,896 7,088 20,885 6,358 1,154 1,558 35.5% 0.0% 100.0% 100.0% 100.0% 92.1% 100.0% 100.0% 100.0% 63.4% 78.4% 68.2% 83.8% 91.2% 100.0% 100.0% 29.6% 100.0% 100.0% 100.0% 97.6% 100.0% 95.2% 100.0% 10.7% 90.9% 0.0% 89.0% 72.8% 90.2% 100.0% 100.0% 95.9% 79.6% 100.0% 100.0% 83.8% 93.6% 49.2% 79.7% 100.0% 92.8% 100.0% 54.4% 95.2% 100.0% 100.0% 100.0% 100.0% 100.0% 62.5% 2009 Annual Report 25 Property Name and Location OFFICE BUILDINGS - continued Spring Valley X - Omaha, NE Spring Valley XI - Omaha, NE Superior Office Building - Duluth, MN TCA Building - Eagan, MN Three Paramount Plaza - Bloomington, MN Thresher Square - Minneapolis, MN Timberlands - Leawood, KS UHC Office - International Falls, MN US Bank Financial Center - Bloomington, MN Viromed - Eden Prairie, MN Wells Fargo Center - St Cloud, MN West River Business Park - Waite Park, MN Westgate - Boise, ID Whitewater Plaza - Minnetonka, MN Wirth Corporate Center - Golden Valley, MN Woodlands Plaza IV TOTAL OFFICE BUILDINGS Property Name and Location MEDICAL 2800 Medical Building - Minneapolis, MN 2828 Chicago Avenue - Minneapolis, MN Abbott Northwest - Sartell, MN* Airport Medical - Bloomington, MN* Barry Pointe Office Park - Kansas City, MO Burnsville 303 Nicollet Medical (Ridgeview) - Burnsville, MN Burnsville 305 Nicollet Medical (Ridgeview South) - Burnsville, MN Denfeld Clinic - Duluth, MN Eagan 1440 Duckwood Medical - Eagan, MN Edgewood Vista - Belgrade, MT Edgewood Vista - Billings, MT Edgewood Vista - Bismarck, ND Edgewood Vista - Brainerd, MN Edgewood Vista - Columbus, NE Edgewood Vista - East Grand Forks, MN Edgewood Vista - Fargo, ND Edgewood Vista - Fremont, NE Edgewood Vista - Grand Island, NE Edgewood Vista - Hastings, NE Edgewood Vista - Hermantown I, MN Edgewood Vista - Hermantown II, MN Edgewood Vista - Kalispell, MT Edgewood Vista - Missoula, MT Edgewood Vista - Norfolk, NE Edgewood Vista - Omaha, NE Edgewood Vista - Sioux Falls, SD Edgewood Vista - Spearfish, SD Edgewood Vista - Virginia, MN 2009 Annual Report 26 Approximate Net Rentable Square Footage (in thousands) Investment (initial cost plus improvements) Fiscal 2009 Economic Occupancy 24,000 $ 24,000 20,000 103,640 75,526 117,144 90,388 30,000 153,947 48,700 86,192 24,075 103,342 61,138 74,568 61,820 1,232 1,265 2,539 9,928 8,450 12,659 14,859 2,505 16,809 4,864 10,052 1,476 12,237 5,664 9,054 5,502 5,011,135 $ 571,565 75.3% 100.0% 100.0% 86.3% 83.8% 44.8% 78.2% 100.0% 95.7% 100.0% 94.8% 74.1% 100.0% 48.4% 96.4% 79.9% 89.1% Approximate Net Rentable Square Footage (in thousands) Investment (initial cost plus improvements) Fiscal 2009 Economic Occupancy 54,490 $ 56,239 59,760 24,218 18,502 53,466 36,199 20,512 17,640 5,192 11,800 74,112 82,535 5,194 18,488 168,801 6,042 5,185 6,042 119,349 160,485 5,895 10,150 5,135 6,042 11,800 60,161 147,183 8,676 16,506 12,653 4,678 2,845 8,609 5,850 3,099 2,587 814 1,882 9,740 9,620 867 1,642 21,843 588 807 606 11,660 11,269 624 999 764 676 1,289 6,156 12,146 92.3% 71.9% 95.7% 100.0% 87.8% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Property Name and Location MEDICAL - continued Edina 6363 France Medical - Edina, MN* Edina 6405 France Medical - Edina, MN* Edina 6517 Drew Avenue - Edina, MN Edina 6525 France SMC II - Edina, MN Edina 6545 France SMC I - Edina, MN* Fox River Cottages - Grand Chute, WI 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* Minneapolis 701 25th Avenue Medical (Riverside) - Minneapolis, MN* Nebraska Orthopaedic Hospital - Omaha, NE* Park Dental - Brooklyn Center, MN Pavilion I - Duluth, MN* Pavilion II - Duluth, MN Ritchie Medical Plaza - St Paul, MN St Michael Clinic - St Michael, MN Stevens Point - Stevens Point, WI Wells Clinic - Hibbing, MN TOTAL MEDICAL Property Name and Location INDUSTRIAL API Building - Duluth, MN Bloomington 2000 West 94th Street - Bloomington, MN Bodycote Industrial Building - Eden Prairie, MN Cedar Lake Business Center - St. Louis Park, MN Dixon Avenue Industrial Park - Des Moines, IA Eagan 2785 & 2795 Highway 55 - Eagan, MN Lexington Commerce Center - Eagan, MN Lighthouse - Duluth, MN Metal Improvement Company - New Brighton, MN Minnetonka 13600 County Road 62 - Minnetonka, MN Roseville 2929 Long Lake Road - Roseville, MN Stone Container - Fargo, ND Stone Container - Roseville, MN Urbandale 3900 106th Street - Urbandale, IA Waconia Industrial Building - Waconia, MN Wilson's Leather - Brooklyn Park, MN Winsted Industrial Building - Winsted, MN Woodbury 1865 Woodland - Woodbury, MN TOTAL INDUSTRIAL Approximate Net Rentable Square Footage (in thousands) Investment (initial cost plus improvements) Fiscal 2009 Economic Occupancy 70,934 $ 55,478 12,140 67,409 227,626 26,336 9,052 43,404 12,444 114,316 60,294 28,928 57,212 61,758 9,998 45,081 73,000 52,328 10,796 47,950 18,810 12,695 12,201 1,537 14,633 44,324 3,808 1,572 7,870 1,765 21,602 12,180 3,788 7,873 20,512 2,952 10,174 19,325 9,576 2,851 14,825 2,661 2,355,911 $ 388,219 82.0% 100.0% 100.0% 96.8% 84.4% 100.0% 100.0% 100.0% 100.0% 100.0% 94.3% 100.0% 98.3% 100.0% 100.0% 100.0% 100.0% 67.1% 100.0% 100.0% 100.0% 95.7% Approximate Net Rentable Square Footage (in thousands) Investment (initial cost plus improvements) Fiscal 2009 Economic Occupancy 35,000 $ 100,850 41,880 50,400 604,886 198,600 90,260 59,292 49,620 69,984 172,057 195,075 229,072 528,353 29,440 353,049 41,685 69,600 1,723 6,229 2,152 3,711 13,181 5,628 6,480 1,885 2,507 3,702 10,712 7,141 8,250 14,124 2,040 13,875 1,007 3,756 2,919,103 $ 108,103 100.0% 100.0% 100.0% 97.4% 91.6% 100.0% 100.0% 81.6% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 46.7% 100.0% 97.8% 2009 Annual Report 27 Approximate Net Rentable Square Footage (in thousands) Investment (initial cost plus improvements) Fiscal 2009 Economic Occupancy 2,454 $ 10,625 8,526 8,400 26,020 137,572 16,921 37,617 15,582 23,187 16,103 34,226 6,836 100,570 28,528 59,117 213,271 100,249 52,000 16,080 41,000 9,488 41,200 77,912 10,843 3,575 26,985 4,800 63,225 118,398 104,928 25,644 14,820 287 744 1,181 962 3,593 21,423 611 4,990 1,933 3,143 1,694 1,813 509 8,205 2,546 5,721 6,183 2,492 3,473 2,123 1,500 1,971 1,800 8,268 608 893 3,699 442 3,356 12,011 6,841 1,681 2,455 1,456,702 $ 119,151 $ 1,729,585 100.0% 50.0% 100.0% 84.2% 85.2% 99.0% 90.3% 94.5% 97.7% 90.0% 100.0% 81.2% 100.0% 100.0% 100.0% 99.2% 81.0% 92.1% 100.0% 100.0% 100.0% 97.2% 100.0% 99.2% 100.0% 100.0% 100.0% 100.0% 67.5% 51.8% 60.2% 75.0% 100.0% 87.1% Property Name and Location RETAIL 17 South Main - Minot, ND Anoka Strip Center - Anoka, MN Burnsville 1 Strip Center - Burnsville, MN Burnsville 2 Strip Center - Burnsville, MN Champlin South Pond - Champlin, MN Chan West Village – Chanhassen, MN Dakota West Plaza - Minot , ND Duluth Denfeld Retail - Duluth, MN Duluth NAPA - Duluth, MN Eagan Community - Eagan, MN East Grand Station - East Grand Forks, MN Fargo Express Community - Fargo, ND Forest Lake Auto - Forest Lake, MN Forest Lake Westlake Center - Forest Lake, MN Grand Forks Carmike - Grand Forks, ND Grand Forks Medpark Mall - Grand Forks, ND 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 Minot Arrowhead - Minot, ND Minot Plaza - Minot, ND Monticello C Store - Monticello, MN Omaha Barnes & Noble - Omaha, NE Pine City C Store - Pine City, MN Pine City Evergreen Square - Pine City, MN Rochester Maplewood Square - Rochester, MN St. Cloud Westgate - St. Cloud, MN Weston Retail - Weston, WI Weston Walgreens - Weston, WI TOTAL RETAIL SUBTOTAL 2009 Annual Report 28 Property Name and Location UNIMPROVED LAND Bismarck 2130 South 12th Street - Bismarck, ND Bismarck 700 East Main - Bismarck, ND Eagan Unimproved Land - Eagan, MN IRET Corporate Plaza Out-lot - Minot, ND Kalispell Unimproved Land - Kalispell, MT Monticello Unimproved Land - Monticello, MN Quarry Ridge Unimproved Land - Rochester, MN River Falls Unimproved Land - River Falls, WI Thomasbrook 24 Units - Lincoln, NE Urbandale Unimproved Land - Urbandale, IA Weston Unimproved Land - Weston, WI TOTAL UNIMPROVED LAND (in thousands) Investment (initial cost plus improvements) $ $ 587 827 423 323 1,424 97 942 205 56 5 812 5,701 TOTAL UNITS – RESIDENTIAL SEGMENT TOTAL SQUARE FOOTAGE – COMMERCIAL SEGMENTS TOTAL INVESTMENTS 9,645 11,742,851 $1,735,286 Mortgages Payable As of April 30, 2009, individual first mortgage loans on the above properties totaled $1.1 billion. Of the $1.1 billion of mortgage indebtedness on April 30, 2009, $9.6 million or 0.9% 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. Principal payments due on our mortgage indebtedness are as follows: Year Ended April 30, 2010 2011 2012 2013 2014 Thereafter Total Mortgage Principal (in thousands) $ 140,456 104,089 113,381 48,682 57,537 606,013 1,070,158 $ Future Minimum Lease Receipts The future minimum lease receipts to be received under leases for commercial properties in place as of April 30, 2009, assuming that no options to renew or buy out the leases are exercised, are as follows: Year Ended April 30, 2010 2011 2012 2013 2014 Thereafter Total Lease Payments (in thousands) 111,786 99,833 84,440 72,039 61,911 267,961 697,970 $ $ 2009 Annual Report 29 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, 2009, we spent approximately $28.0 million on capital improvements. Contracts or Options to Purchase We have granted options to purchase certain of our properties to tenants in these properties, under lease agreements with the tenant. In general, these options grant the tenant the right to purchase the property at the greater of such property’s appraised value or an annual compounded increase of a specified percentage of the initial cost to us. As of April 30, 2009, our properties subject to purchase options, the cost, plus improvements, of each such property and its gross rental revenue are as follows: Property Abbott Northwest-Sartell, MN Edgewood Vista-Belgrade, MT Edgewood Vista-Billings, MT Edgewood Vista-Bismarck, ND Edgewood Vista-Brainerd, MN Edgewood Vista-Columbus, NE Edgewood Vista-East Grand Forks, MN Edgewood Vista-Fargo, ND Edgewood Vista-Fremont, NE Edgewood Vista-Grand Island, NE Edgewood Vista-Hastings, NE Edgewood Vista-Hermantown I, MN Edgewood Vista-Hermantown II, MN Edgewood Vista-Kalispell, MT Edgewood Vista-Missoula, MT Edgewood Vista-Norfolk, NE Edgewood Vista-Omaha, NE Edgewood Vista-Sioux Falls, SD Edgewood Vista-Spearfish, SD Edgewood Vista-Virginia, MN Fox River Cottages - Grand Chute, WI Healtheast St John & Woodwinds- Maplewood & Woodbury, MN Great Plains - Fargo, ND Minnesota National Bank - Duluth, MN St. Michael Clinic - St. Michael, MN Stevens Point - Stevens Point, WI Total Properties by State $ $ Investment Cost 12,653 2,135 4,274 10,903 10,667 1,481 5,012 26,322 588 1,431 606 21,510 12,359 624 999 1,332 676 3,357 6,792 17,132 3,956 (in thousands) Gross Rental Revenue $ 2009 1,292 196 396 1,008 988 136 464 2,065 72 132 76 2,040 1,144 76 96 124 80 312 628 1,736 388 $ 2008 1,292 31 66 985 971 21 78 310 69 20 69 1,557 1,127 72 132 19 77 52 612 1,381 387 2007 1,252 0 0 980 968 0 0 0 68 0 68 1,472 1,124 72 132 0 76 0 608 1,320 260 21,601 15,375 2,104 2,851 15,020 $ 201,760 2,052 1,876 211 240 1,356 19,184 $ 2,032 1,876 205 229 1,279 14,949 $ 2,032 1,876 135 35 630 13,108 $ The following table presents, as of April 30, 2009, the total real estate investment amount, net of accumulated depreciation, by state of each of the five major segments of properties owned by us - multi-family residential, office, medical, industrial and retail: 2009 Annual Report 30 State Minnesota North Dakota Nebraska Colorado Kansas Montana South Dakota Wisconsin Iowa Missouri Texas All Other States* Total * Idaho and Michigan Multi-Family Residential Commercial Office Commercial Medical Commercial Industrial Commercial Retail (in thousands) $ 118,503 $ 310,178 $ 259,500 $ 20,203 74,017 20,702 13,914 0 5,595 9,639 0 30,740 0 13,617 $ 426,818 $ 498,605 $ 345,874 $ 114,440 30,309 30,598 35,123 31,539 25,067 0 9,895 0 31,344 0 30,155 21,886 0 0 3,869 6,888 20,852 0 2,724 0 0 65,319 $ 5,204 0 0 0 0 0 0 24,733 0 0 0 64,374 $ 817,874 192,025 22,023 128,865 2,653 51,300 0 49,037 0 39,991 4,583 37,550 0 35,487 4,996 34,628 0 33,464 0 31,344 0 15,149 1,532 95,256 $ 100,161 $ 1,466,714 Total % of Total 55.8% 13.1% 8.8% 3.5% 3.3% 2.7% 2.6% 2.4% 2.4% 2.3% 2.1% 1.0% 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, 2009. PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Quarterly Share and Distribution Data Our common shares of beneficial interest trade on the NASDAQ Global Select Market under the symbol IRET (formerly IRETS; we changed our symbol to IRET on July 1, 2008). On June 30, 2009, the last reported sales price per share of our common shares on the NASDAQ was $8.89. The following table sets forth the quarterly high and low closing sales prices per share of our common shares as reported on the NASDAQ Global Select Market, and the distributions per common share and limited partnership unit declared with respect to each period. Quarter Ended Fiscal Year 2009 April 30, 2009 January 31, 2009 October 31, 2008 July 31, 2008 Quarter Ended Fiscal Year 2008 April 30, 2008 January 31, 2008 October 31, 2007 July 31, 2007 High $ 10.43 $ 10.71 11.19 10.68 High $ 10.47 $ 10.55 11.59 10.86 Low 8.60 7.43 7.66 9.54 Low 8.95 8.84 9.35 9.40 Distributions Declared (per share and unit) $ 0.1700 0.1695 0.1690 0.1685 Distributions Declared (per share and unit) $ 0.1680 0.1675 0.1670 0.1665 2009 Annual Report 31 It is IRET’s policy to pay quarterly distributions to our common shareholders and unitholders, at the discretion of our Board of Trustees, based on our funds from operations, financial condition and capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code and such other factors as our Board of Trustees deems relevant. Since July 1, 1971, IRET has paid quarterly cash distributions in the months of January, April, July and October. Shareholders As of June 30, 2009, the Company had 3,908 common shareholders of record, and 63,460,743 common shares of beneficial interest (plus 20,836,972 limited partnership units potentially convertible into 20,836,972 common shares) were outstanding. Unregistered Sales of Shares Sales of Unregistered Securities. During the fiscal years ended April 30, 2009, 2008 and 2007, respectively, we issued an aggregate of 338,286, and 389,670 and 219,587 unregistered common shares to holders of limited partnership units of IRET Properties upon redemption and conversion of an aggregate of 338,286, and 389,670 and 219,587 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 2009, except for repurchases of nominal amounts of fractional shares, at shareholder request. Comparative Stock Performance The information contained in this Comparative Stock Performance Graph section shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934. Set forth below is a graph that compares, for the five fiscal years commencing May 1, 2004, and ending April 30, 2009, the cumulative total returns for the Company’s common shares with the comparable cumulative total return of two indexes, the Standard & Poor’s 500 Index (“S&P 500”), and the FTSE NAREIT Equity REITs Index, which is an index prepared by the FTSE Group for the National Association of Real Estate Investment Trusts, which includes all tax-qualified equity REITs listed on the New York Stock Exchange, the American Stock Exchange and the NASDAQ Market. The performance graph assumes that at the close of trading on April 30, 2004, the last trading day of fiscal year 2004, $100 was invested in the Company’s common shares and in each of the indexes. The comparison assumes the reinvestment of all distributions. Cumulative total shareholder returns for the Company’s common shares, the S&P 500 and the FTSE NAREIT Equity REITs Index are based on the Company’s fiscal year ending April 30. 2009 Annual Report 32 FY04 100.00 100.00 100.00 FY05 100.61 106.34 134.62 FY06 112.75 122.73 170.40 FY07 134.28 141.43 215.49 FY08 138.55 134.82 188.52 FY09 134.27 87.21 97.63 Investors Real Estate Trust S&P 500 FTSE NAREIT Equity REITs Source: Research Data Group, Inc. 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 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 (in thousands, except per share data) 2009 2008 2007 2006 2005 $ 240,005 $ 221,170 $ 197,538 $ 170,171 $ 152,759 $ $ $ $ $ $ 10,659 54 $ $ 15,021 556 $ $ 14,255 4,602 $ $ 11,119 $ 9,871 3,293 $ 8,605 (2,227) $ 8,526 $ 0 $ 8,526 $ (3,524) $ $ 11,675 $ 413 $ 12,088 (3,217) $ $ 11,026 $ 3,084 $ 14,110 (1,892) $ 8,766 $ 2,801 $ 11,567 $ (1,727) 7,768 7,308 15,076 $1,472,575 $1,605,091 $1,070,158 $ 333,935 $ 1,456,178 $ 1,618,026 $ 1,063,858 $ 345,006 $ 1,316,534 $ 1,435,389 $ 951,139 $ 284,969 $ 1,126,400 $ 1,067,345 $ 1,207,315 $ 1,151,158 $ 765,890 $ 708,558 $ 289,560 $ 295,172 $ $ $ $ .11 .00 .11 .68 $ $ $ $ .17 .01 .18 .67 $ $ $ $ .18 .06 .24 .66 $ $ $ $ .14 $ .06 $ .20 $ .65 $ .13 .17 .30 .65 2009 Annual Report 33 CALENDAR YEAR Tax status of distributions Capital gain Ordinary income Return of capital 2008 2007 2006 2005 2004 0.00% 1.49% 0.00% 53.43% 51.69% 42.01% 41.48% 44.65% 46.57% 46.82% 56.77% 42.47% 55.35% 1.22% 16.05% 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, 2009. 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, 2009, our real estate portfolio consisted of 77 multi-family residential properties containing 9,645 apartment units and having a total real estate investment amount net of accumulated depreciation of $426.8 million, and 167 commercial properties containing approximately 11.7 million square feet of leasable space and having a total real estate investment amount net of accumulated depreciation of $1.0 billion. Our commercial properties consist of: • • • • 67 office properties containing approximately 5.0 million square feet of leasable space and having a total real estate investment amount net of accumulated depreciation of $498.6 million; 49 medical properties (including senior housing) containing approximately 2.3 million square feet of leasable space and having a total real estate investment amount net of accumulated depreciation of $345.9 million; 18 industrial properties containing approximately 2.9 million square feet of leasable space and having a total real estate investment amount net of accumulated depreciation of $95.2 million; and 33 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 $100.2 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. In April 2009, the Company commenced the sale of up to $50 million of Common Shares pursuant to a continuous offering program. Through April 30, 2009, the Company sold 632,712 common shares as part of this program. The net proceeds (before offering expenses but after underwriting discounts and commissions) from the offering of $6.0 million through April 30, 2009 were used for general corporate purposes. Through April 30, 2009, the Company paid Robert W. Baird & Co. Incorporated, its agent under this program, $122,000 in fees with respect to the common shares sold through this program. Total revenues of IRET Properties, our operating partnership, increased by $18.8 million to $240.0 million in fiscal year 2009, compared to $221.2 million in fiscal year 2008. This increase was primarily attributable to the addition of new real estate properties. We estimate that rent concessions offered to tenants during the twelve months ended April 30, 2009 lowered our operating revenues by approximately $3.4 million, compared to $3.0 million for fiscal year 2008. Expenses increased during fiscal year 2009 as well, with real estate taxes, maintenance, utilities and property management 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 properties to our portfolio. 2009 Annual Report 34 On an all-property basis, economic occupancy levels in our total commercial property segments decreased to 91.8% in fiscal year 2009 from 93.0% in fiscal year 2008. Economic occupancy rates in our commercial industrial segment increased; the economic occupancy rates in our commercial office, medical and retail segments decreased. Economic occupancy in our multi-family residential segment increased to 93.5% in fiscal year 2009 on an all- property basis, from 92.7% in fiscal year 2008. We have written off or recorded as past due a total of approximately $570,000 at IRET’s Fox River project (Grand Chute, WI) and approximately $874,000 at the Stevens Point project (Stevens Point, WI) as of April 30, 2009. The Fox River project was acquired by IRET in fiscal year 2006 as a partially-completed eight-unit senior housing project with adjoining vacant land, and IRET subsequently funded the completion of the eight senior living villas and the construction of ten new senior living patio homes, which were completed in September 2007. The Stevens Point project was acquired by IRET in fiscal year 2006, and at acquisition consisted of an existing senior housing complex and an adjoining vacant parcel of land. IRET subsequently funded the construction of an expansion to the existing facility on the adjoining parcel, which was completed in June 2007. The tenants in these two properties, affiliates of Sunwest Management, Inc., have filed for bankruptcy under Chapter 11 of the Bankruptcy Code, and have been unable to finance their portion of the construction cost for the ten new Fox River patio homes and have been unable to fund the shortfall between the Stevens Point project’s cash flow and the lease payments due to IRET. IRET’s investment in the Fox River and Stevens Point properties leased to Sunwest is approximately $3.8 million and $14.8 million, respectively, or approximately 0.2% and 0.9% of IRET’s property owned as of April 30, 2009. IRET is currently receiving all of the cash flow generated by the Stevens Point project (approximately $85,000 per month, or approximately 58.3% of the Scheduled Rent and other obligations due under the lease). IRET is currently receiving no payments from the Fox River project, and its exercise of its rights under the lease to remove Sunwest as the tenant and manager at the project and to pursue collection of amounts owed under guarantees provided in conjunction with the lease agreement has been suspended following the tenant’s bankruptcy filing. IRET is evaluating its options in respect of this project; at this time IRET considers that, subject to its analysis of market values in Appleton, Wisconsin, IRET would proceed to market the patio homes and senior living villas and the balance of the vacant parcel (approximately 12 acres) in an attempt to recover its investment and provide some return on investment. Additional information and more detailed discussions of our fiscal year 2009 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. As described further below, the process of allocating property costs to its components involves a considerable amount of subjective judgments to be made by Company management. 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 and a 5-12 year estimated life for furniture, fixtures and equipment. 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) 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 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 2009 Annual Report 35 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 estimated based on the present value 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 or below-market intangible is amortized to rental income over the remaining non- cancelable terms of the respective leases. Other intangible assets acquired include amounts for in-place lease values that are based upon the Company’s evaluation of the specific characteristics of the leases. Factors considered in these analyses include an estimate of carrying costs during hypothetical expected lease-up periods, considering current market conditions, and costs to execute similar leases. The Company also considers information about each property obtained during its pre- acquisition due diligence and marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired. Property sales or dispositions are recorded when title transfers and sufficient consideration is received by the Company and the Company has no significant continuing involvement with the property sold. 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. This review requires management to exercise judgment, including making estimates about the future performance of the properties being reviewed. 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 (approximately $286,000 as of April 30, 2009) 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 (approximately $842,000 as of April 30, 2009) and from mortgage loans (approximately $3,000 as of April 30, 2009). 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 reliability 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 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 2009 Annual Report 36 certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. The Company intends to distribute to its shareholders 100% of its taxable income. Therefore, no provision for Federal income taxes is required. If the Company fails to distribute the required amount of income to its shareholders, it would fail to qualify as a REIT and substantial adverse tax consequences may result. The Company’s taxable income is affected by a number of factors, including, but not limited to, the following: that the Company’s tenants perform their obligations under their leases with the Company; that the Company’s tax and accounting positions do not change; and that the number of issued and outstanding shares of the Company’s common stock remain relatively unchanged. These factors, which impact the Company’s taxable income, are subject to change, and many are outside the control of the Company. If actual results vary, the Company’s taxable income may change. Recent Accounting Pronouncements For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 to our Consolidated Financial Statements. RESULTS OF OPERATIONS Revenues Total revenues for fiscal year 2009 were $240.0 million, compared to $221.2 million in fiscal year 2008 and $197.5 million in fiscal year 2007. Revenues during fiscal year 2009 were $18.8 million greater than revenues in fiscal year 2008 and revenues during fiscal year 2008 were $23.7 million greater than in fiscal year 2007. For fiscal 2009, the increase in revenue of $18.8 million resulted from: Rent from 24 properties acquired in fiscal year 2008 in excess of that received in 2008 from the same 24 properties Rent from 8 properties acquired in fiscal year 2009 Increase in rental income on existing properties For fiscal 2008, the increase in revenue of $23.7 million resulted from: Rent from 29 properties acquired in fiscal year 2007 in excess of that received in 2007 from the same 29 properties Rent from 24 properties acquired in fiscal year 2008 Increase in rental income on existing properties (in thousands) $ 15,431 2,093 1,311 $ 18,835 (in thousands) $ 14,345 5,759 3,528 $ 23,632 As illustrated above, the substantial majority (93.0% in fiscal year 2009 and 85.1% in fiscal year 2008) of the increase in our gross revenue for fiscal years 2009 and 2008 resulted from the addition of new real estate properties to the IRET Properties’ portfolio, with 7.0% and 14.9%, respectively, resulting 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. However, domestic financial markets continue to experience unusual volatility and uncertainty. Although this occurred initially most visibly within the single-family mortgage lending sector of the credit market, liquidity has since tightened in overall domestic financial markets, including the equity capital markets. Consequently, there is greater uncertainty regarding our ability to access the credit markets in order to attract financing on reasonable terms, and our ability to make acquisitions could be adversely affected. Gain on Sale of Real Estate The Company realized a gain on sale of real estate, land and other investments for fiscal year 2009 of approximately $54,000. This compares to approximately $556,000 of gain on sale of real estate recognized in fiscal 2008 and $4.6 2009 Annual Report 37 million recognized in fiscal 2007. A list of the properties sold during fiscal year 2008, showing sales price, depreciated cost plus sales costs and net gain is included in this Item 7 under the caption “Property Dispositions.” Net Operating Income The following tables report segment financial information. We measure the performance of our segments based on net operating income (“NOI”), which we define as total real estate revenues less real estate expenses and real estate taxes. We believe that NOI is an important supplemental measure of operating performance for a REIT’s operating real estate because it provides a measure of core operations that is unaffected by depreciation, amortization, financing and general and administrative expense. NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered an alternative to net income, net income available for common shareholders or cash flow from operating activities as a measure of financial performance. The following tables show revenues, operating expenses and NOI by reportable operating segment for fiscal years 2009, 2008 and 2007. For a reconciliation of net operating income of reportable segments to operating income as reported, see Note 11 of the Notes to Consolidated Financial Statements in this report. The tables also show net operating income by reportable operating segment on a stabilized property and non- stabilized property basis. Stabilized properties are 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 excluded from the stabilized property category). This comparison allows the Company to evaluate the performance of existing properties and their contribution to net income. Management believes that measuring performance on a stabilized property basis is useful to investors because it enables evaluation of how the Company’s 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. Year Ended April 30, 2009 Multi-Family Residential Commercial- Office Commercial- Medical Commercial- Industrial Commercial- Retail Total (in thousands) Real estate revenue Real estate expenses Utilities Maintenance Real estate taxes Insurance Property management Total real estate expenses Net operating income Stabilized net operating income Non-stabilized net operating income Total net operating income $ 76,716 $ 83,446 $ 52,564 $ 12,711 $ 14,568 $ 240,005 7,724 10,240 7,972 1,272 8,954 36,162 $ 40,554 $ 7,851 11,287 13,850 1,003 3,653 37,644 $ 45,802 $ 2,859 4,046 4,515 419 4,207 16,046 $ 36,518 $ 38,644 $ 1,910 40,554 $ 43,969 $ 1,833 45,802 $ 26,732 $ 9,786 36,518 $ 93 582 1,926 175 446 3,222 $ 9,489 $ 6,882 $ 2,607 9,489 $ $ $ $ $ 18,975 448 27,603 1,448 30,443 2,180 3,051 182 18,079 819 5,077 $ 98,151 9,491 $ 141,854 9,491 $ 125,718 16,136 9,491 $ 141,854 0 2009 Annual Report 38 Year Ended April 30, 2008 Multi-Family Residential Commercial- Office Commercial- Medical Commercial- Industrial Commercial- Retail Total (in thousands) Real estate revenue Real estate expenses Utilities Maintenance Real estate taxes Insurance Property management Total real estate expenses Net operating income Stabilized net operating income Non-stabilized net operating income Total net operating income $ 72,827 $ 84,042 $ 38,412 $ 11,691 $ 14,198 $ 221,170 7,388 9,637 7,528 1,162 8,922 34,637 $ 38,190 $ 7,743 10,522 13,140 901 3,900 36,206 $ 47,836 $ 2,111 2,757 2,977 257 1,654 9,756 $ 28,656 $ 37,332 $ 858 38,190 $ 47,536 $ 300 47,836 $ 26,909 $ 1,747 28,656 $ 131 558 1,346 135 359 2,529 $ 9,162 $ 7,576 $ 1,586 9,162 $ $ $ $ $ 17,793 420 24,582 1,108 27,133 2,142 2,624 169 15,273 438 4,277 $ 87,405 9,921 $ 133,765 9,921 $ 129,274 4,491 9,921 $ 133,765 0 Year Ended April 30, 2007 Multi-Family Residential Commercial- Office Commercial- Medical Commercial- Industrial Commercial- Retail Total (in thousands) Real estate revenue Real estate expenses Utilities Maintenance Real estate taxes Insurance Property management Total real estate expenses Net operating income Stabilized net operating income Non-stabilized net operating income Total net operating income $ 66,972 $ 73,603 $ 34,783 $ 8,091 $ 14,089 $ 197,538 6,666 8,619 7,294 1,090 7,785 31,454 $ 35,518 $ 6,286 9,243 10,831 772 3,343 30,475 $ 43,128 $ 1,771 2,611 2,322 274 1,697 8,675 $ 26,108 $ 34,318 $ 1,200 35,518 $ 34,675 $ 8,453 43,128 $ 25,823 $ 285 26,108 $ 57 218 755 75 148 1,253 6,838 6,317 521 6,838 $ $ $ $ 15,157 377 21,691 1,000 23,281 2,079 2,377 166 13,826 853 4,475 $ 76,332 9,614 $ 121,206 9,229 $ 110,362 10,844 9,614 $ 121,206 385 $ $ $ $ Changes in Expenses and Net Income Net income available to common shareholders for fiscal year 2009 was $6.2 million, compared to $9.7 million in fiscal year 2008 and $11.7 million in fiscal year 2007. On a per common share basis, net income was $.11 per common share in fiscal year 2009, compared to $.18 per common share in fiscal year 2008 and $.24 in fiscal year 2007. 2009 Annual Report 39 These changes in net income result from the changes in revenues and expenses detailed below: Changes in net income available to common shareholders for fiscal year 2009 resulted from: An increase in net operating income primarily due to new acquisitions A decrease in minority interest of operating partnership income A decrease in other expenses, administrative, advisory & trustee services An increase in gain on sale of other investments These increases were 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 A decrease in interest income An increase in amortization related to non-real estate investments A decrease in income from discontinued operations, net A decrease in other income An increase in impairment of real estate investment A decrease in minority interest of other partnership’s loss Total decrease in fiscal 2009 net income available to common shareholders Changes in net income available to common shareholders for fiscal year 2008 resulted from: An increase in net operating income primarily due to new acquisitions An increase in interest income An increase in minority interest of other partnership’s loss An increase in gain on sale of other investments 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 A decrease in income from discontinued operations, net An increase in other expenses, administrative, advisory & trustee services An increase in amortization related to non-real estate investments An increase in minority interest of operating partnership income A decrease in other income Total decrease in fiscal 2008 net income available to common shareholders (in thousands) 8,089 $ 1,297 225 12 (5,304) (4,604) (1,487) (592) (413) (351) (338) (96) (3,562) $ (in thousands) 12,559 $ 151 110 80 (5,623) (5,015) (2,671) (856) (394) (307) (56) (2,022) $ Factors Impacting Net Income During Fiscal Year 2009 as Compared to Fiscal Year 2008 Economic occupancy rates in three of our five segments increased slightly compared to the year-earlier period, and real estate revenue increased in four of our five segments in fiscal year 2009 compared to fiscal year 2008. Net income available to common shareholders decreased to $6.2 million in fiscal year 2009, compared to $9.7 million in fiscal year 2008. Revenue increases during fiscal year 2009 were offset by increases in maintenance, utilities, mortgage interest due to increased borrowing, real estate taxes, property management, insurance and amortization expense. • Economic Occupancy. During fiscal year 2009, economic occupancy levels at our properties increased slightly over year-earlier levels in three of our five reportable segments (multi-family, medical and industrial), and declined in our commercial office and retail segments. Economic occupancy represents actual rental revenues recognized for the period indicated as a percentage of scheduled rental revenues for the period. Percentage rents, tenant concessions, straightline adjustments and expense reimbursements are not considered in computing either actual revenues or scheduled rent revenues. Economic occupancy rates on a stabilized property basis for the fiscal year ended April 30, 2009 compared to the fiscal year ended April 30, 2008 are shown below: 2009 Annual Report 40 Multi-Family Residential Commercial Office Commercial Medical Commercial Industrial Commercial Retail Fiscal Year Ended April 30, 2009 93.9% 88.9% 96.0% 97.3% 87.1% 2008 93.4% 92.1% 95.6% 96.8% 87.4% • Concessions. Our overall level of tenant concessions increased for the fiscal year ended April 30, 2009 compared to the year-earlier period. To maintain or increase physical occupancy levels at our properties, we may offer tenant incentives, generally in the form of lower or abated rents, which results in decreased revenues and income from operations at our properties. Rent concessions offered during the fiscal year ended April 30, 2009 lowered our operating revenues by approximately $3.4 million, as compared to an approximately $3.0 million reduction in operating revenues attributable to rent concessions offered in fiscal year 2008. The following table shows the approximate reduction in our operating revenues due to rent concessions, by segment, for the fiscal years ended April 30, 2009 and 2008: Multi-Family Residential Commercial Office Commercial Medical Commercial Industrial Commercial Retail Total (in thousands) Fiscal Year Ended April 30, 2009 2,083 1,036 34 220 44 3,417 $ $ 2008 2,254 692 34 0 31 3,011 $ $ Change (171) 344 0 220 13 406 $ $ • Increased Maintenance Expense. Maintenance expenses totaled $27.6 million in fiscal year 2009, compared to $24.6 million in fiscal year 2008. Maintenance expenses at properties newly acquired in fiscal years 2009 and 2008 added $1.4 million to the maintenance expense category during fiscal year 2009 (with our commercial medical segment accounting for $1.2 million), while maintenance expenses at existing properties increased by approximately $1.6 million, primarily for snow removal at our multi-family residential and commercial retail segments and building maintenance costs at our commercial office, medical and industrial segments, resulting in a net increase of $3.0 million or 12.3% in maintenance expenses in fiscal year 2009 compared to fiscal year 2008. Under the terms of most of our commercial leases, the full cost of maintenance is paid by the tenant as additional rent. For our noncommercial real estate properties, any increase in our maintenance costs must be collected from tenants in the form of general rent increases. Maintenance expenses by reportable segment for the fiscal years ended April 30, 2009 and 2008 are as follows: 2009 2008 % change (2009 vs. 2008) Multi-Family Residential 10,240 9,637 6.3% $ $ Commercial Office 11,287 10,522 7.3% $ $ Commercial Medical 4,046 2,757 46.8% $ $ Commercial Industrial 582 558 4.3% $ $ Commercial Retail 1,448 1,108 30.7% $ $ $ $ Total 27,603 24,582 12.3% (in thousands) • Increased Utility Expense. Utility expense totaled $19.0 million in fiscal year 2009, compared to $17.8 million in fiscal year 2008. Utility expenses at properties newly acquired in fiscal years 2009 and 2008 added $787,000 to the utility expense category during fiscal year 2009 (with our commercial medical segment accounting for $646,000), while utility expenses at existing properties increased by $395,000, primarily due to increased heating costs due to unseasonably cold temperatures and, to a lesser degree, increased rates from 2009 Annual Report 41 higher fuel costs, (notably in our multi-family residential segment with an increase of $224,000), for a total increase of $1.2 million or 6.6% in utility expenses in fiscal year 2009 compared to fiscal year 2008. Utility expenses by reportable segment for the fiscal years ended April 30, 2009 and 2008 are as follows: 2009 2008 % change (2009 vs. 2008) Multi-Family Residential 7,724 7,388 4.5% $ $ Commercial Office 7,851 7,743 1.4% $ $ Commercial Medical 2,859 2,111 35.4% $ $ Commercial Industrial 93 131 (29.0%) $ $ Commercial Retail 448 420 6.7% $ $ $ $ Total 18,975 17,793 6.6% (in thousands) • Increased Mortgage Interest Expense. Our mortgage interest expense increased approximately $5.3 million, or 8.4%, to approximately $68.0 million during fiscal year 2009, compared to $62.7 million in fiscal year 2008. Mortgage interest expense for properties newly acquired in fiscal years 2009 and 2008 added $5.2 million to our total mortgage interest expense in fiscal year 2009, while mortgage interest expense on existing properties increased $107,000. Our overall weighted average interest rate on all outstanding mortgage debt was 6.30% as of April 30, 2009, compared to 6.37% as of April 30, 2008. Our mortgage debt increased approximately $6.3 million, or 0.6%, to approximately $1.1 billion as of April 30, 2009, compared to April 30, 2008. Mortgage interest expense by reportable segment for the fiscal years ended April 30, 2009 and 2008 is as follows: 2009 2008 % change (2009 vs. 2008) Multi-Family Residential 19,696 19,602 0.5% $ $ Commercial Office 23,658 23,131 2.3% $ $ Commercial Medical $ 16,870 $ 12,351 36.6% Commercial Industrial 3,803 3,481 9.3% $ $ Commercial Retail 3,939 4,137 (4.8%) $ $ $ $ Total 67,966 62,702 8.4% (in thousands) • Increased 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 buildings 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, as computed in accordance with GAAP. Amortization expense related to in-places leases totaled $10.2 million in fiscal year 2009, compared to $10.0 million in fiscal year 2008. The increase in amortization expense in fiscal year 2009 compared to fiscal year 2008 was primarily due to property acquisitions completed by the Company in fiscal year 2009. • Increased Real Estate Tax Expense. Real estate taxes on properties newly acquired in fiscal years 2009 and 2008 added $2.3 million to real estate tax expense (with our commercial medical segment accounting for $1.3 million), while real estate taxes on existing properties increased by approximately $1.0 million, for a total increase of $3.3 million or 12.2% in real estate tax expense in fiscal year 2009 compared to fiscal year 2008, from $27.1 million to $30.4 million. The increase in real estate taxes was primarily due to higher value assessments or increased tax levies on our stabilized properties. Real estate tax expense by reportable segment for the fiscal years ended April 30, 2009 and 2008 is as follows: 2009 2008 % change (2009 vs. 2008) Multi-Family Residential 7,972 7,528 5.9% $ $ Commercial Office 13,850 13,140 5.4% $ $ Commercial Medical 4,515 2,977 51.7% $ $ Commercial Industrial 1,926 1,346 43.1% $ $ Commercial Retail 2,180 2,142 1.8% $ $ $ $ Total 30,443 27,133 12.2% (in thousands) 2009 Annual Report 42 • Increased Insurance Expense. Insurance expense increased in fiscal year 2009 compared to fiscal year 2008, from $2.6 million to $3.1 million, an increase of approximately 16.3%. Insurance expense at properties newly-acquired in fiscal years 2009 and 2008 added approximately $179,000 to insurance expense, while insurance expense at existing properties increased by approximately $248,000, for an increase of approximately $427,000 in insurance expense in fiscal year 2009 compared to fiscal year 2008. The increase in insurance expense at stabilized properties is due to an increase in premiums. Insurance expense by reportable segment for the fiscal years ended April 30, 2009 and 2008 is as follows: 2009 2008 % change (2009 vs. 2008) Multi-Family Residential 1,272 1,162 9.5% $ $ Commercial Office 1,003 901 11.3% $ $ Commercial Medical 419 257 63.0% $ $ Commercial Industrial 175 135 29.6% $ $ Commercial Retail 182 169 7.7% $ $ $ $ Total 3,051 2,624 16.3% (in thousands) • Increased Property Management Expense. Property management expense increased in fiscal year 2009 compared to fiscal year 2008, from $15.3 million to $18.1 million, an increase of $2.8 million or approximately 18.4%. Of this increase, approximately $1.6 million is attributable to existing properties, while $1.2 million is due to properties acquired in fiscal years 2009 and 2008 (with our commercial medical segment accounting for $826,000). The increase at existing properties is primarily due to the increase in bad debt write-offs at our Fox River and Stevens Point projects in our commercial medical segment of $1.4 million and in our commercial retail segment of $279,000, offset by recoveries and decreased write-offs in our multi-family residential and commercial office segments compared to fiscal year 2008. Property management expense by reportable segment for the fiscal years ended April 30, 2009 and 2008 is as follows: 2009 2008 % change (2009 vs. 2008) Multi-Family Residential 8,954 8,922 0.4% $ $ Commercial Office 3,653 3,900 (6.3%) $ $ Commercial Medical $ 4,207 $ 1,654 154.4% Commercial Industrial 446 359 24.2% $ $ Commercial Retail 819 438 87.0% $ $ $ $ Total 18,079 15,273 18.4% (in thousands) Factors Impacting Net Income During Fiscal Year 2008 as Compared to Fiscal Year 2007 Economic occupancy rates in three of our five segments increased slightly compared to the year-earlier period, and real estate revenue increased in fiscal year 2008 compared to fiscal year 2007 in all of our reportable segments. Net income available to common shareholders decreased to $9.7 million in fiscal year 2008, compared to $11.7 million in fiscal year 2007. Revenue increases during fiscal year 2008 were offset somewhat by increases in maintenance, utilities, mortgage interest due to increased borrowing, real estate taxes, property management, insurance and amortization expense. • Economic Occupancy. During fiscal year 2008, economic occupancy levels at our properties increased slightly over year-earlier levels in three of our five reportable segments, and declined in our commercial medical and retail segments. Economic occupancy represents actual rental revenues recognized for the period indicated as a percentage of scheduled rental revenues for the period. Percentage rents, tenant concessions, straightline adjustments and expense reimbursements are not considered in computing either actual revenues or scheduled rent revenues. Economic occupancy rates on a stabilized property basis for the fiscal year ended April 30, 2008 compared to the fiscal year ended April 30, 2007 are shown below: 2009 Annual Report 43 Multi-Family Residential Commercial Office Commercial Medical Commercial Industrial Commercial Retail Fiscal Year Ended April 30, 2008 93.3% 91.0% 95.5% 96.2% 87.1% 2007 93.2% 90.8% 96.7% 94.8% 89.3% • Concessions. Our overall level of tenant concessions declined for the fiscal year ended April 30, 2008 compared to the year-earlier period. To maintain or increase physical occupancy levels at our properties, we may offer tenant incentives, generally in the form of lower or abated rents, which results in decreased revenues and income from operations at our properties. Rent concessions offered during the fiscal year ended April 30, 2008 lowered our operating revenues by approximately $3.0 million, as compared to an approximately $5.0 million reduction in operating revenues attributable to rent concessions offered in fiscal year 2007. The following table shows the approximate reduction in our operating revenues due to rent concessions, by segment, for the fiscal years ended April 30, 2008 and 2007: Multi-Family Residential Commercial Office Commercial Medical Commercial Industrial Commercial Retail Total (in thousands) Fiscal Year Ended April 30, 2008 2,254 692 34 0 31 3,011 $ $ 2007 3,147 1,769 70 14 22 5,022 Change (893) (1,077) (36) (14) 9 (2,011) $ $ • Increased Maintenance Expense. Maintenance expenses totaled $24.6 million in fiscal year 2008, compared to $21.7 million in fiscal year 2007. Maintenance expenses at properties newly acquired in fiscal years 2008 and 2007 added $2.3 million to the maintenance expense category during fiscal year 2008, while maintenance expenses at existing properties increased by approximately $568,000 primarily for snow removal and janitorial contract services, resulting in a net increase of $2.9 million or 13.3% in maintenance expenses in fiscal year 2008 compared to fiscal year 2007. Under the terms of most of our commercial leases, the full cost of maintenance is paid by the tenant as additional rent. For our noncommercial real estate properties, any increase in our maintenance costs must be collected from tenants in the form of general rent increases. Maintenance expenses by reportable segment for the fiscal years ended April 30, 2008 and 2007 were as follows: 2008 2007 % change (2008 vs. 2007) Multi-Family Residential 9,637 8,619 11.8% $ $ Commercial Office 10,522 9,243 13.8% $ $ Commercial Medical 2,757 2,611 5.6% $ $ Commercial Industrial 558 218 156.0% $ $ Commercial Retail 1,108 1,000 10.8% $ $ $ $ Total 24,582 21,691 13.3% (in thousands) • Increased Utility Expense. Utility expense totaled $17.8 million in fiscal year 2008, compared to $15.2 million in fiscal year 2007. Utility expenses at properties newly acquired in fiscal years 2008 and 2007 added $1.5 million to the utility expense category during fiscal year 2008, while utility expenses at existing properties increased by $1.1 million, primarily due to unusually warm weather in certain of IRET’s markets, resulting in increased cooling costs, for a total increase of $2.6 million or 17.4% in utility expenses in fiscal year 2008 compared to fiscal year 2007. 2009 Annual Report 44 Utility expenses by reportable segment for the fiscal years ended April 30, 2008 and 2007 were as follows: 2008 2007 % change (2008 vs. 2007) Multi-Family Residential 7,388 6,666 10.8% $ $ Commercial Office 7,743 6,286 23.2% $ $ Commercial Medical 2,111 1,771 19.2% $ $ Commercial Industrial 131 57 129.8% $ $ Commercial Retail 420 377 11.4% $ $ $ $ Total 17,793 15,157 17.4% (in thousands) • Increased Mortgage Interest Expense. Our mortgage interest expense increased approximately $6.1 million, or 10.8%, to approximately $62.7 million during fiscal year 2008, compared to $56.6 million in fiscal year 2007. Mortgage interest expense for properties newly acquired in fiscal years 2008 and 2007 added $6.1 million to our total mortgage interest expense in fiscal year 2008, while mortgage interest expense on existing properties increased $24,000. Our overall weighted average interest rate on all outstanding mortgage debt was 6.37% as of April 30, 2008, compared to 6.43% as of April 30, 2007. Our mortgage debt increased approximately $112.8 million, or 11.9%, to approximately $1.1 billion as of April 30, 2008, compared to $951.1 million on April 30, 2007. Mortgage interest expense by reportable segment for the fiscal years ended April 30, 2008 and 2007 were as follows: 2008 2007 % change (2008 vs. 2007) Multi-Family Residential 19,602 18,723 4.7% $ $ Commercial Office 23,131 20,157 14.8% $ $ Commercial Medical $ 12,351 $ 11,291 9.4% Commercial Industrial 3,481 2,325 49.7% $ $ Commercial Retail 4,137 4,070 1.6% $ $ $ $ Total 62,702 56,566 10.8% (in thousands) • Increased 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 buildings 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, as computed in accordance with GAAP. Amortization expense related to in-place leases totaled $10.0 million in fiscal year 2008, compared to $9.2 million in fiscal year 2007. The increase in amortization expense in fiscal year 2008 compared to fiscal year 2007 was primarily due to property acquisitions completed by the Company in fiscal year 2008. • Increased Real Estate Tax Expense. Real estate taxes on properties newly acquired in fiscal years 2008 and 2007 added $3.1 million to real estate tax expense, while real estate taxes on existing properties increased by approximately $738,000, for a total increase of $3.8 million or 16.5% in real estate tax expense in fiscal year 2008 compared to fiscal year 2007, from $23.3 million to $27.1 million. Real estate tax expense by reportable segment for the fiscal years ended April 30, 2008 and 2007 was as follows: 2008 2007 % change (2008 vs. 2007) Multi-Family Residential 7,528 7,294 3.2% $ $ Commercial Office 13,140 10,831 21.3% $ $ Commercial Medical 2,977 2,322 28.2% $ $ Commercial Industrial 1,346 755 78.2% $ $ Commercial Retail 2,142 2,079 3.0% $ $ $ $ Total 27,133 23,281 16.5% (in thousands) • Increased Insurance Expense. Insurance expense increased in fiscal year 2008 compared to fiscal year 2007, from $2.4 million to $2.6 million, an increase of approximately 10.4%. Insurance expense at properties newly-acquired in fiscal years 2008 and 2007 added approximately $240,000 to insurance expense, while 2009 Annual Report 45 insurance expense at existing properties increased by approximately $7,000, for a net increase of approximately $247,000 in insurance expense in fiscal year 2008 compared to fiscal year 2007. Insurance expense by reportable segment for the fiscal years ended April 30, 2008 and 2007 was as follows: 2008 2007 % change (2008 vs. 2007) Multi-Family Residential 1,162 1,090 6.6% $ $ Commercial Office 901 772 16.7% $ $ Commercial Medical 257 274 (6.2%) $ $ Commercial Industrial 135 75 80.0% $ $ Commercial Retail 169 166 1.8% $ $ $ $ Total 2,624 2,377 10.4% (in thousands) • Increased Property Management Expense. Property management expense increased in fiscal year 2008 compared to fiscal year 2007, from $13.8 million to $15.3 million, an increase of $1.4 million or approximately 10.5%. Of this increase, approximately $240,000 million was attributable to existing properties, while $1.2 million was due to properties acquired in fiscal years 2008 and 2007. The increase at existing properties was primarily due to an increase in property revenue resulting in higher management fees payable (management fees are generally a percentage of rents received). Property management expense by reportable segment for the fiscal years ended April 30, 2008 and 2007 was as follows: 2008 2007 % change (2008 vs. 2007) Multi-Family Residential 8,922 7,785 14.6% $ $ Commercial Office 3,900 3,343 16.7% $ $ Commercial Medical $ 1,654 $ 1,697 (2.5%) Commercial Industrial 359 148 142.6% $ $ Commercial Retail 438 853 (48.7%) $ $ $ $ Total 15,273 13,826 10.5% (in thousands) Comparison of Results from Commercial and Residential Properties The following table presents an analysis of the relative investment in (corresponding to “Property owned” on the balance sheet, i.e., cost), and net operating income of, our commercial and multi-family residential properties over the past three fiscal years: 2009 % (in thousands) 2008 % 2007 % $ 542,547 571,565 388,219 108,103 119,151 $1,729,585 31.4% $ 510,697 556,712 33.0% 359,986 22.4% 104,060 6.3% 6.9% 116,804 100% $1,648,259 32.9% 31.0% $ 489,644 36.0% 536,431 33.8% 18.4% 274,779 21.8% 5.1% 75,257 6.3% 7.1% 7.6% 113,176 100% $1,489,287 100.0% $ 40,554 45,802 36,518 9,489 9,491 29.4% 35.6% 21.5% 5.6% 7.9% $ 141,854 100.0% $ 133,765 100.0% $ 121,206 100.0% 28.6% $ 32.3% 25.7% 6.7% 6.7% 28.6% $ 35.8% 21.4% 6.8% 7.4% 35,518 43,128 26,108 6,838 9,614 38,190 47,836 28,656 9,162 9,921 Fiscal Years Ended April 30 Real Estate Investments – (cost) Multi-Family Residential Commercial Office Commercial Medical Commercial Industrial Commercial Retail Total Net Operating Income Multi-Family Residential Commercial Office Commercial Medical Commercial Industrial Commercial Retail Total 2009 Annual Report 46 Analysis of Lease Expirations and Credit Risk The following table shows the annual lease expiration percentages and base rent of expiring leases for the total commercial segments properties owned by us as of April 30, 2009, for fiscal years 2010 through 2019, and the leases that will expire during fiscal year 2019 and beyond. Our multi-family residential properties are excluded from this table, since residential leases are generally for a one-year term. Fiscal Year of Lease Expiration 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Thereafter Totals Square Footage of Expiring Leases 915,355 2,125,056 1,368,366 858,447 808,845 507,268 755,725 631,238 270,955 434,156 1,353,412 10,028,823 Percentage of Total Commercial Segments Leased Square Footage Annualized Base Rent of Expiring Leases at Expiration 7,724,008 16,808,994 15,339,409 9,202,739 11,355,964 5,561,416 6,347,956 8,981,845 5,806,846 5,439,379 20,968,934 113,537,490 9.1% $ 21.2% 13.6% 8.6% 8.1% 5.1% 7.5% 6.3% 2.7% 4.3% 13.5% 100.0% $ Percentage of Total Commercial Segments Annualized Base Rent 6.8% 14.8% 13.5% 8.1% 10.0% 4.9% 5.6% 7.9% 5.1% 4.8% 18.5% 100.0% The following table lists our top ten commercial tenants on April 30, 2009, for the total commercial segments properties owned by us as of April 30, 2009, based upon minimum rents in place as of April 30, 2009: Lessee Affiliates of Edgewood Vista St. Lukes Hospital of Duluth, Inc. Fairview Health Applied Underwriters Best Buy Co., Inc. (NYSE: BBY) HealthEast Care System UGS Corp. Microsoft (Nasdaq: MSFT) Smurfit - Stone Container (Nasdaq: SSCC)(1) Arcadis Corporate Services (Nasdaq: ARCAF) All Others Total Monthly Rent as of April 30, 2009 (in thousands) % of Total Commercial Segments Minimum Rents as of April 30, 2009 9.9% 3.5% 2.4% 2.2% 2.0% 1.7% 1.6% 1.5% 1.5% 1.4% 72.3% 100.0% (1) Smurfit-Stone Container has filed bankruptcy under Chapter 11 of the Bankruptcy Code. As of April 30, 2009, Smurfit was current on all base rent payment under its leases with us. We have not yet been notified of the debtor’s intentions with respect to these leases. 2009 Annual Report 47 Property Acquisitions IRET Properties paid approximately $33.8 million for real estate properties added to its portfolio during fiscal year 2009, compared to $154.7 million in fiscal year 2008. The fiscal year 2009 and 2008 additions are detailed below. Fiscal 2009 (May 1, 2008 to April 30, 2009) Acquisitions and Development Projects Placed in Service Land Building Intangible Assets Acquisition Cost (in thousands) Multi-Family Residential 33-unit Minot Westridge Apartments – Minot, ND 12-unit Minot Fairmont Apartments – Minot, ND 4-unit Minot 4th Street Apartments – Minot, ND 3-unit Minot 11th Street Apartments – Minot, ND 36-unit Evergreen Apartments – Isanti, MN 10-unit 401 S. Main Apartments – Minot, ND1 71-unit IRET Corporate Plaza Apartments – Minot, ND2 $ Commercial Property - Office 22,500 sq. ft. Bismarck 715 E. Bdwy – Bismarck, ND 50,360 sq. ft. IRET Corporate Plaza – Minot, ND2 Commercial Property - Medical 56,239 sq. ft. 2828 Chicago Avenue – Minneapolis, MN3 31,643 sq. ft. Southdale Medical Expansion (6545 France) – Edina, MN4 Commercial Property - Industrial 69,984 sq. ft. Minnetonka 13600 Cty Rd 62 – Minnetonka, MN Unimproved Land Bismarck 2130 S. 12th Street – Bismarck, ND Bismarck 700 E. Main – Bismarck, ND $ 67 28 15 11 380 0 0 501 389 0 389 0 0 0 809 809 576 314 890 1,887 337 74 53 2,720 905 10,824 16,800 1,267 3,896 5,163 5,052 779 5,831 2,881 2,881 0 0 0 $ 0 $ 0 0 0 0 0 0 0 255 0 255 0 0 0 310 310 0 0 0 1,954 365 89 64 3,100 905 10,824 17,301 1,911 3,896 5,807 5,052 779 5,831 4,000 4,000 576 314 890 Total Property Acquisitions $ 2,589 $ 30,675 $ 565 $ 33,829 (1) Development property placed in service November 10, 2008. Approximately $145,000 of this cost was incurred in the three months ended April 30, 2009. Additional costs incurred in fiscal year 2008 totaled approximately $14,000 for a total project cost at April 30, 2009 of approximately $919,000. (2) Development property placed in service January 19, 2009. Approximately $1.8 million of the residential cost and $563,000 of the commercial office cost was incurred in the three months ended April 30, 2009. Additional costs incurred in fiscal years 2008 and 2007 totaled $8.6 million for a total project cost at April 30, 2009 of $23.3 million. (3) Development property placed in service September 16, 2008. Approximately $800,000 of this cost was incurred in the three months ended January 31, 2009. Additional costs incurred in fiscal years 2008 and 2007 totaled $7.8 million for a total project cost at April 30, 2009 of $12.9 million. (4) Development property placed in service September 17, 2008. Approximately $364,000 of this cost was incurred in the three months ended January 31, 2009. Additional costs incurred in fiscal year 2008 totaled $5.4 million for a total project cost at April 30, 2009 of $6.2 million. 2009 Annual Report 48 Fiscal 2008 (May 1, 2007 to April 30, 2008) Acquisitions and Development Projects Placed in Service Land Building Intangible Assets Acquisition Cost (in thousands) Multi-Family Residential 96 – unit Greenfield Apartments – Omaha, NE 67 – unit Cottonwood Lake IV – Bismarck, ND1 Commercial Property – Office 20,528 sq. ft. Plymouth 5095 Nathan Lane Office Building – Plymouth, MN 78,560 sq. ft. 610 Business Center IV – Brooklyn Park, MN 64,607 sq. ft. Intertech Office Building – Fenton, MO Commercial Property—Medical (including Senior Housing) 18,502 sq. ft. Barry Pointe Medical Building – Kansas City, MO 11,800 sq. ft./28 beds Edgewood Vista – Billings, MT 18,488 sq. ft./36 beds Edgewood Vista – East Grand Forks, MN 11,800 sq. ft./28 beds Edgewood Vista – Sioux Falls, SD 55,478 sq. ft. Edina 6405 France Medical – Edina, MN2 70,934 sq. ft. Edina 6363 France Medical – Edina, MN2 57,212 sq. ft. Minneapolis 701 25th Ave Medical (Riverside) – Minneapolis, MN2 53,466 sq. ft. Burnsville 303 Nicollet Medical (Ridgeview) – Burnsville, MN 36,199 sq. ft. Burnsville 305 Nicollet Medical (Ridgeview South) – Burnsville, MN 17,640 sq. ft. Eagan 1440 Duckwood Medical – Eagan, MN 5,192 sq. ft./13 beds Edgewood Vista – Belgrade, MT 5,194 sq. ft./13 beds Edgewood Vista – Columbus, NE 168,801 sq. ft./185 beds Edgewood Vista – Fargo, ND 5,185 sq. ft./13 beds Edgewood Vista – Grand Island, NE 5,135 sq. ft./13 beds Edgewood Vista – Norfolk, NE Commercial Property – Industrial 50,400 sq. ft. Cedar Lake Business Center – St. Louis Park, MN 528,353 sq. ft. Urbandale Warehouse Building – Urbandale, IA 69,600 sq. ft. Woodbury 1865 Woodlane – Woodbury, MN 198,600 sq. ft. Eagan 2785 & 2795 Highway 55—Eagan, MN $ $ 578 267 845 4,122 5,924 10,046 $ 0 $ 0 0 4,700 6,191 10,891 604 975 2,130 3,709 384 115 290 314 0 0 0 1,071 189 521 35 43 792 34 42 3,830 896 3,679 1,108 3,058 8,741 1,236 5,525 3,951 10,712 2,355 1,743 1,346 971 12,179 12,651 7,225 6,842 5,127 1,547 744 793 20,578 742 691 75,534 2,802 9,840 2,613 2,557 17,812 160 0 919 1,079 461 2,392 3,354 2,065 1,436 709 775 887 584 257 1,321 614 4,480 624 567 20,526 342 481 279 785 1,887 2,000 6,500 7,000 15,500 3,200 4,250 4,990 3,350 13,615 13,360 8,000 8,800 5,900 2,325 2,100 1,450 25,850 1,400 1,300 99,890 4,040 14,000 4,000 6,400 28,440 Total Property Acquisitions $ 17,125 $ 114,104 $ 23,492 $ 154,721 (1) Development property placed in service January 2, 2008. (2) Acquisition of leasehold interests only (air rights lease and ground leases). 2009 Annual Report 49 Property Dispositions During fiscal year 2009, the Company had no material dispositions, compared to two properties and two buildings of an apartment community sold for an aggregate sale price of $1.4 million during fiscal 2008. Real estate assets sold by IRET during fiscal year 2008 were as follows: Fiscal 2008 Dispositions Multi-Family Residential 405 Grant Ave (Lonetree) Apartments – Harvey, ND Sweetwater Apartments – Devils Lake, ND Commercial Property – Office Minnetonka Office Buildings – Minnetonka, MN Total Fiscal 2008 Property Dispositions Funds From Operations (in thousands) Book Value and Sales Cost Sales Price Gain/Loss $ $ 185 940 1,125 310 310 1,435 $ $ 184 430 614 307 307 921 $ $ 1 510 511 3 3 514 IRET considers Funds from Operations (“FFO”) a useful measure of performance for an equity REIT. IRET uses the definition of FFO adopted by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) in 1991, as clarified in 1995, 1999 and 2002. NAREIT defines FFO to mean “net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis.” Because of limitations of the FFO definition adopted by NAREIT, IRET has made certain interpretations in applying the definition. IRET believes all such interpretations not specifically provided for in the NAREIT definition are consistent with the definition. IRET management considers that FFO, by excluding depreciation costs, the gains or losses from the sale of operating real estate properties and extraordinary items as defined by GAAP, is useful to investors in providing an additional perspective on IRET’s operating results. Historical cost accounting for real estate assets in accordance with GAAP assumes, through depreciation, that the value of real estate assets decreases predictably over time. However, real estate asset values have historically risen or fallen with market conditions. NAREIT’s definition of FFO, by excluding depreciation costs, reflects the fact that 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, 2009 increased to $64.6 million, compared to $64.2 million and $57.0 million for the fiscal years ended April 30, 2008 and 2007, respectively. 2009 Annual Report 50 Reconciliation of Net Income to Funds From Operations For the years ended April 30, 2009, 2008 and 2007: Fiscal Years Ended April 30, 2009 (in thousands, except per share and unit amounts) 2008 2007 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) $ 8,526 $ $ 12,088 $ $ 14,110 $ (2,372) (2,372) (2,372) 6,154 58,603 0.11 9,716 53,060 0.18 11,738 47,672 0.24 2,227 21,217 56,295 (54) 3,677 51,303 (514) 20,417 4,299 17,017 45,559 (4,602) $ 64,622 79,820 $ 0.81 $ 64,182 73,477 $ 0.87 $ 56,994 64,689 $ 0.88 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 and amortization related to non-real estate investments from the Consolidated Statements of Operations, totaling $56,714, $51,518 and $45,501 and depreciation/amortization from Discontinued Operations of $0, $47 and $ 299, less corporate-related depreciation and amortization on office equipment and other assets of $419, $262 and $241 for the fiscal year ended April 30, 2009, 2008 and 2007. (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 $338, $0 and $640 for the fiscal years ended April 30, 2009, 2008 and 2007, respectively. If these impairment charges are excluded from the Company's calculation of FFO, the Company's FFO per share and unit would be unchanged for fiscal year 2009 and 2008, and would increase by one cent per share and unit of fiscal year 2007, to $.89 per share and unit. Cash Distributions The following cash distributions were paid to our common shareholders and UPREIT unitholders during fiscal years 2009, 2008 and 2007: Quarters First Second Third Fourth Fiscal Years $ $ 2009 .1685 .1690 .1695 .1700 .6770 $ $ 2008 .1665 .1670 .1675 .1680 .6690 $ $ 2007 .1645 .1650 .1655 .1660 .6610 The fiscal year 2009 cash distributions increased 1.2% over the cash distributions paid during fiscal year 2008, and fiscal year 2008 cash distributions increased 1.2% over the cash distributions paid during fiscal year 2007, 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, 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 2009 Annual Report 51 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, 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. However, our ability to raise funds through the sale of equity securities, the sale of properties, and additional long-term secured or unsecured borrowings is dependent on, among other things, general economic conditions, general market conditions for REITs, our operating performance, and the current trading price of our common shares, and the capital and debt markets may not consistently be available on terms that we consider attractive. In particular, as a result of the current economic downturn and turmoil in the capital markets, the availability of secured and unsecured loans has been sharply curtailed, and long-term credit has become significantly more costly. We cannot predict how long these conditions will continue. We believe that we will generate sufficient cash flow from operations and have access to the capital resources necessary to fund our requirements. However, as a result of general economic conditions in our markets, economic downturns affecting the ability to attract and retain tenants, unfavorable fluctuations in interest rates or our share price, unfavorable changes in the supply of competing properties, or our properties not performing as expected, we may not generate sufficient cash flow from operations or otherwise have access to capital on favorable terms, or at all. If we are unable to obtain capital from other sources, we may not be able to pay the distribution required to maintain our status as a REIT, make required principal and interest payments, make strategic acquisitions or make necessary routine capital improvements or undertake re-development opportunities with respect to our existing portfolio of operating assets. In addition, if a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, the holder of the mortgage could foreclose on the property, resulting in loss of income and asset values. Sources and Uses of Cash As of April 30, 2009, the Company had three unsecured lines of credit, in the amounts of $10.0 million, $12.0 million and $14.0 million, respectively, from (1) Bremer Bank, Minot, ND; (2) First Western Bank and Trust, Minot, ND; and (3) First International Bank and Trust, Watford City, ND. As of April 30, 2009, the Company had an outstanding balance of $4.0 million at First International Bank and Trust. Borrowings under the lines of credit bear interest based on the following, respectively: (1) Bremer Financial Corporation Reference Rate with a floor of 4.00%, (2) 175 basis points below the Wall Street Journal Prime Rate with a floor of 5.25% and a ceiling of 8.25%, and (3) 50 basis points above 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, First Western Bank and First International Bank and Trust expire in September 2009, December 2011 and December 2009, respectively. The Company expects to renew these lines of credit prior to their expiration. In addition to these three lines of credit, the Company also has a fully-drawn $5.0 million line of credit maturing in November 2009 with Dacotah Bank in Minot, North Dakota. Of this $5.0 million, the Company includes $3.5 million in mortgages payable on the Company’s balance sheet, as secured by six small apartment properties owned by the Company, with the remaining $1.5 million included in revolving lines of credit. In September 2008, 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 October 2008. We may sell any combination of common shares and preferred shares up to an aggregate initial offering price of $150.0 million during the period that the registration statement remains effective. This registration statement replaced the Company’s previous shelf registration statement on Form S-3, which would have expired in December 2008; the remaining securities available for issuance under the previous registration statement (in an aggregate amount of approximately $30.7 million) were transferred to the current registration statement. The Company did not issue any common or preferred shares under the previous registration statement in fiscal year 2007. The Company issued 6.9 million common shares under the previous registration statement in fiscal year 2008, for net proceeds of $66.4 2009 Annual Report 52 million. As of April 30, 2009, the Company had available securities under the current registration statement in the aggregate amount of approximately $143.9 million. Continued uncertainty in the credit markets and declines and weakness in the general economy negatively impacted IRET during fiscal year 2009. The credit markets have become considerably less favorable than in the recent past, and IRET accordingly has shifted its financing strategy to include more equity sales in order to address its financing needs. Uncertainty about the pricing of commercial real estate and the curtailment of available financing to facilitate transactions has significantly reduced IRET’s ability to rely on cash-out refinancings and proceeds from the sale of real estate to provide funds for investment opportunities. Additionally, current market conditions are not favorable for acquisitions and development, and consequently the potential for growth in net income from acquisitions and development is anticipated to be limited in fiscal year 2010. Despite these market uncertainties, and a tightening in credit standards by lenders during the latter half of fiscal year 2009 in particular, IRET during fiscal year 2009 acquired or placed in service properties with an investment cost totaling $33.8 million. The Company had no material dispositions during fiscal year 2009. The Company has a Distribution Reinvestment and Share Purchase 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 (currently 5%) from the market price, and to purchase additional common shares of the Company with voluntary cash contributions, also at a discount to the market price. During fiscal year 2009, approximately 1.3 million common shares were issued under this plan, with an additional 1.2 million common shares issued during fiscal year 2008, and 1.2 million common shares issued during fiscal year 2007. The issuance of UPREIT Units for property acquisitions continues to be a source of capital for the Company. Approximately 362,000 units were issued in connection with property acquisitions during fiscal year 2009, and approximately 2.3 million units and 6.7 million units, respectively, were issued in connection with property acquisitions during fiscal years 2008 and 2007. Primarily as a result of the conversion of UPREIT units and the issuance of common shares pursuant to our shelf registration statement and distribution reinvestment plan, net of fractional shares repurchased, the Company’s equity capital increased during fiscal 2009 by $22.4 million. Additionally, the equity capital of the Company was increased by $3.7 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 2009 of $26.1 million. The Company’s equity capital increased by $108.6 million and $66.5 million in fiscal years 2008 and 2007, respectively. Cash and cash equivalents on April 30, 2009 totaled $33.2 million, compared to $53.5 million and $44.5 million on the same date in 2008 and 2007, respectively. Net cash provided by operating activities decreased to $60.1 million in fiscal year 2009 from $61.9 million in fiscal year 2008, due primarily to decreased net income as a result of higher maintenance costs. Net cash provided by operating activities increased to $61.9 million in fiscal year 2008 from $58.4 million in fiscal year 2007, due primarily to increased net income as a result of less cash concessions given to tenants. Net cash used in investing activities decreased to $54.4 million in fiscal year 2009, from $145.3 million in fiscal year 2008. Net cash used in investing activities was $161.4 million in fiscal year 2007. The decrease in net cash used in investing activities in fiscal year 2009 compared to fiscal year 2008 was primarily a result of fewer acquisitions of property. Net cash used by financing activities during fiscal year 2009 was $26.0 million, compared to $92.3 million provided by financing activities during fiscal year 2008. The difference was due primarily to a decrease in proceeds received from mortgage borrowings and refinancings. Net cash provided from financing activities decreased to $92.3 million during fiscal year 2008, from $130.0 million during fiscal year 2007, also due primarily to a decrease in proceeds received from mortgage borrowings and refinancings. Financial Condition Mortgage Loan Indebtedness. Mortgage loan indebtedness was $1.1 billion on April 30, 2009 and 2008, and $951.1 million on April 30, 2007. Approximately 99.1% 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, 2009, the weighted average rate of interest on the Company’s mortgage debt was 6.30%, compared to 6.37% on April 30, 2008 and 6.43% on April 30, 2007. 2009 Annual Report 53 Revolving lines of credit. As of April 30, 2009, the Company had an outstanding balance of $4.0 million under its unsecured credit line with First International Bank and Trust and no amounts outstanding under its unsecured credit lines at Bremer Bank and First Western Bank and Trust. In addition to these three lines of credit, the Company also has a fully-drawn $5.0 million line of credit with Dacotah Bank. Of this $5.0 million, the Company includes $3.5 million in mortgages payable on the Company’s balance sheet, as secured by six small apartment properties owned by the Company, with the remaining $1.5 million included in revolving lines of credit. The Company had no amounts outstanding under these credit lines as of April 30, 2008 and 2007. Mortgage Loans Receivable. Mortgage loans receivable net of allowance decreased to approximately $160,000 at April 30, 2009, from approximately $541,000 at April 30, 2008 and approximately $399,000 at April 30, 2007. Property Owned. Property owned increased to $1.7 billion at April 30, 2009, from $1.6 billion at April 30, 2008. The increases 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. Cash and Cash Equivalents. Cash and cash equivalents on April 30, 2009, totaled $33.2 million, compared to $53.5 million on April 30, 2008 and $44.5 million on April 30, 2007. The decrease in cash on hand on April 30, 2009, as compared to April 30, 2008, was due primarily to a decrease in mortgage loan borrowings. Marketable Securities. During fiscal year 2009, IRET’s investment in marketable securities classified as available- for-sale remained at approximately $420,000 on April 30, 2009 and 2008, a decrease from $2.0 million on April 30, 2007. 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 decreased to 20.8 million units on April 30, 2009, compared to 21.2 million units on April 30, 2008 and 20.0 million units on April 30, 2007. The decrease in units outstanding at April 30, 2009 as compared to April 30, 2008, resulted primarily from the conversion of units to shares. Common and Preferred Shares of Beneficial Interest. Common shares of beneficial interest outstanding on April 30, 2009 totaled 60.3 million compared to 57.7 million common shares outstanding on April 30, 2008 and 48.6 million common shares outstanding on April 30, 2007. This increase in common shares outstanding from April 30, 2008 and 2007, to April 30, 2009, was due to the issuance of common shares pursuant to our shelf registration statement and distribution reinvestment plan. Preferred shares of beneficial interest outstanding on April 30, 2009, 2008 and 2007 totaled 1.2 million. Contractual Obligations and Other Commitments The primary contractual obligations of the Company relate to its borrowings under its four lines of credit and mortgage notes payable. The Company had $5.5 million outstanding under its lines of credit at April 30, 2009. The principal and interest payments on the mortgage notes payable for the years subsequent to April 30, 2009, are included in the table below as “Long-term debt.” Interest due on variable rate mortgage notes is calculated using rates in effect on April 30, 2009. The “Other Debt” category consists of an unsecured promissory note issued by the Company to the sellers of an office/warehouse property located in Minnesota. The Company acquired this property for a purchase price of $4.0 million, consisting of $3.0 million in cash and the $1.0 million balance payable under a promissory note with a ten-year term. If the tenant defaults in the initial term of the lease, the then-current balance of the promissory note is forfeited to the Company. As of April 30, 2009, the Company is a tenant under operating ground or air rights leases on eleven of its properties. The Company pays a total of approximately $503,000 per year in rent under these leases, which have remaining terms ranging from 4 to 92 years, and expiration dates ranging from July 2012 to October 2100. Purchase obligations of the Company represent those costs that the Company is contractually obligated to pay in the future. The Company’s significant purchase obligations as of April 30, 2009, which the Company expects to finance through debt and operating cash, are summarized in the following table. The significant components in this purchase obligation category are costs for construction and expansion projects and capital improvements at the Company’s properties. Purchase 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 2009 Annual Report 54 properties, such as landscaping and grounds maintenance, since these arrangements are generally based on current needs, are filled by our service providers within short time horizons, and may be cancelled without penalty. The expected timing of payment of the obligations discussed below is estimated based on current information. Long-term debt (principal and interest) Other Debt (principal and interest) Operating Lease Obligations Purchase Obligations Off-Balance-Sheet Arrangements Total $ 1,445,283 1,516 $ 26,080 $ 7,138 $ (in thousands) Less Than 1 Year $ 204,380 60 $ 503 $ 7,138 $ 1-3 Years $ 319,759 170 $ 1,006 $ 0 $ 3-5 Years More than 5 Years $ 186,032 $ 735,112 1,075 $ 23,565 $ 0 $ 211 $ 1,006 $ 0 $ As of April 30, 2009, the Company had no 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, 2009, 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, 2009. On July 1, 2009, the Company paid a distribution of 17.05 cents per share on the Company’s common shares of beneficial interest, to common shareholders and UPREIT unitholders of record on June 15, 2009. This distribution represented an increase of .05 cents or .3% over the previous regular quarterly distribution of 17.00 cents per common share/unit paid April 1, 2009. Pending Acquisition. The Company currently has no material pending acquisitions. In the fourth quarter of fiscal year 2009, IRET signed a purchase agreement to acquire a portfolio of office and retail properties located in the Minneapolis-St. Paul metropolitan area for a total of $29.7 million. The Company subsequently terminated this purchase agreement. Subsequent to its April 30, 2009 fiscal year end, the Company signed a purchase agreement to acquire an approximately 42,180 square foot, single-tenant office showroom/warehouse building located in Iowa for $350,000 in cash and the issuance of limited partnership units of IRET Properties valued at $3.0 million, for a total purchase price of $3.4 million. This pending acquisition is subject to various closing conditions and contingencies, and no assurances can be given that this transaction will be completed. Common Share Offering. Subsequent to its April 30, 2009 fiscal year end, in June 2009, the Company completed a public offering of 3,000,000 common shares of beneficial interest at $8.70 per share (before underwriting discounts and commissions). Proceeds to the Company were $24,795,000 after deducting underwriting discounts and commissions but before deducting offering expenses. The shares were sold pursuant to an Underwriting Agreement with Robert W. Baird & Co., Incorporated, D.A. Davidson & Co. and J.J.B. Hilliard, W.L. Lyons, Inc., and were issued pursuant to IRET’s registration statement on Form S-3 filed with and declared effective by the Securities and Exchange Commission. 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 99.1% of our debt, as of April 30, 2009 (98.9% and 97.7% respectively, as of April 30, 2008 and 2007), is at fixed interest rates, we have little exposure to interest rate fluctuation risk on our existing debt. 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, 2009, we had the following amount of future principal and interest payments due on mortgages secured by our real estate. 2009 Annual Report 55 Long Term Debt Fixed Rate Variable Rate 2010 2011 2012 $ 133,105 $ 103,811 $ 113,087 $ 7,351 278 294 2013 48,370 $ 312 2014 Thereafter Fair Value 56,853 $ 605,355 $ 1,060,581 $ 1,291,494 9,577 $ 1,070,158 $ 1,301,071 9,577 658 684 Total Future Principal Payments (in thousands) Long Term Debt Fixed Rate Variable Rate $ 63,680 $ 55,481 $ 46,586 $ 244 119 103 2010 2011 Future Interest Payments (in thousands) 2014 2012 2013 41,412 $ 84 Thereafter 38,257 $ 128,883 $ 60 216 $ Total 374,299 826 375,125 The weighted average interest rate on all of our debt as of April 30, 2009, was 6.30%. Any fluctuations in variable interest rates could increase or decrease our interest expenses. For example, an increase of one percent per annum on our $9.6 million of variable rate indebtedness would increase our annual interest expense by $96,000. 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, 2009 and 2008, IRET had approximately $420,000 of marketable securities classified as “available-for-sale,” consisting of bank certificates of deposit. IRET had approximately $2.0 million of securities classified as “available-for-sale” as of April 30, 2007. The values of these securities will fluctuate with changes in market interest rates. As of April 30, 2007, IRET recorded in other comprehensive income an unrealized loss of $16,000 on these securities. During the fourth quarter of fiscal year 2008, IRET sold the securities in its deposit account with Merrill Lynch for a gain of approximately $42,000, recorded in other comprehensive income and in net income as of April 30, 2008. 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, and are incorporated herein by reference 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, 2009, 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 were effective to ensure that information required to be disclosed by IRET in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the 2009 Annual Report 56 commission’s rule and forms, and is accumulated and communicated to management, including the Company’s principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. 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. 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, 2009, 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, 2009, was 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. The Company’s internal control over financial reporting as of April 30, 2009, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report on page F-2 hereof, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of April 30, 2009. (The remainder of this page has been intentionally left blank.) 2009 Annual Report 57 Item 9B. Other Information During the fourth quarter of fiscal year 2009, the Compensation Committee of the Company’s Board of Trustees rescinded its previous decision to award 1,000 shares of IRET common shares of beneficial interest to each trustee for fiscal year 2009 under IRET’s 2008 Incentive Award Plan, and accordingly no shares were awarded or issued to the Company’s trustees for fiscal year 2009. Item 10. Trustees, Executive Officers and Corporate Governance 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 2009 Annual Meeting of Shareholders and such information is incorporated herein by reference. IRET has adopted a Code of Ethics applicable to, among others, IRET’s principal executive officer and principal financial and accounting officer. This Code is available on our website at www.iret.com. Item 11. Executive Compensation The information required by this Item will be contained in our definitive Proxy Statement for our 2009 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 2009 Annual Meeting of Shareholders and such information is incorporated herein by reference. The following table provides information as of April 30, 2009 regarding compensation plans (including individual compensation arrangements) under which our common shares of beneficial interest are available for issuance: Equity Compensation Plan Information Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) 0 0 2,000,000(2) Plan category Equity compensation plans approved by security holders(1) Equity compensation plans not approved by security holders 0 0 0 0 0 2,000,000 Total (1) The 2008 Incentive Award Plan of Investors Real Estate Trust and IRET Properties approved by shareholders on September 16, 2008. (2) All of the shares available for future issuance under the 2008 Incentive Award Plan approved by shareholders may be issued as restricted shares or performance shares. Item 13. Certain Relationships and Related Transactions, and Trustee Independence The information required by this Item will be contained in our definitive Proxy Statement for our 2009 Annual Meeting of Shareholders and such information is incorporated herein by reference. 2009 Annual Report 58 Item 14. Principal Accountant Fees and Services The information required by this Item will be contained in our definitive Proxy Statement for our 2009 Annual Meeting of Shareholders and such information is incorporated herein by reference. 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: II Valuation and Qualifying Accounts 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. Third Restated Trustees’ Regulations (Bylaws), dated May 16, 2007, and incorporated herein by reference to the Company’s Current Report on Form 8-K , filed with the SEC on May 16, 2007. 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. 2009 Annual Report 59 10.3 10.4 10.5 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. 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. 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. 10.9* Description of Compensation of Trustees, filed as Exhibit 10 to the Company’s Form 10-Q filed September 11, 2006, and incorporated herein by reference. 10.10 Loan and Security Agreement, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 18, 2006, and incorporated herein by reference. 10.11* Description of Compensation of Executive Officers, filed as Exhibit 10 to the Company’s Form 10-Q filed March 12, 2007, and incorporated herein by reference. 10.12* Description of Compensation of Executive Officers, filed as Exhibit 10 to the Company’s Form 10-Q filed March 11, 2008, and incorporated herein by reference. 10.13* Description of Compensation of Executive Officers, filed as Exhibit 10 to the Company’s Form 10-Q filed March 12, 2009, and incorporated herein by reference. 10.14* Description of Compensation of Trustees, filed as Exhibit 10 to the Company’s Form 10-Q filed December 10, 2007, and incorporated herein by reference. 12.1 Computation of Ratio of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Share Dividends, filed herewith. 21.1 Subsidiaries of Investors Real Estate Trust, filed herewith. 23.1 Consent of Deloitte & Touche LLP, filed herewith. 31.1 Section 302 Certification of President and Chief Executive Officer, filed herewith. 31.2 Section 302 Certification of Senior Vice President and Chief Financial Officer, filed herewith. 32.1 Section 906 Certification of the President and Chief Executive Officer, filed herewith. 32.2 Section 906 Certification of the Senior Vice President and Chief Financial Officer, filed herewith. ________________________ * Indicates management compensatory plan, contract or arrangement. 2009 Annual Report 60 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 8, 2009 Investors Real Estate Trust By: /s/ Thomas A. Wentz, Sr. Thomas A. Wentz, Sr. President & Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature /s/ Jeffrey L. Miller Jeffrey L. Miller /s/ Stephen L. Stenehjem Stephen L. Stenehjem /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/ C.W. “Chip” Morgan C.W. “Chip” Morgan /s/ John T. Reed John T. Reed /s/ W. David Scott W. David Scott Title Trustee & Chairman Trustee & Vice Chairman President & Chief Executive Officer (Principal Executive Officer) Trustee, Senior Vice President & Chief Operating Officer Date July 8, 2009 July 8, 2009 July 8, 2009 July 8, 2009 Trustee & Senior Vice President July 8, 2009 Senior Vice President & Chief Financial Officer (Principal Financial and Accounting Officer) July 8, 2009 Trustee Trustee Trustee Trustee Trustee July 8, 2009 July 8, 2009 July 8, 2009 July 8, 2009 July 8, 2009 2009 Annual Report 61 INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF April 30, 2009 AND 2008, AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, SHAREHOLDERS’ EQUITY AND CASH FLOWS FOR EACH OF THE FISCAL YEARS IN THE PERIOD ENDED April 30, 2009. ADDITIONAL INFORMATION FOR THE YEAR ENDED April 30, 2009 and REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PO Box 1988 3015 16th Street SW, Suite 100 Minot, ND 58702-1988 701-837-4738 fax: 701-838-7785 info@iret.com www.iret.com 2009 Annual Report INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES TABLE OF CONTENTS PAGE REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..................................... CONSOLIDATED FINANCIAL STATEMENTS F-4 Consolidated Balance Sheets ..................................................................................................................... F-5 Consolidated Statements of Operations ..................................................................................................... Consolidated Statements of Shareholders’ Equity..................................................................................... F-6 Consolidated Statements of Cash Flows .................................................................................................... F-7 – F-8 Notes to Consolidated Financial Statements.............................................................................................. F-9 – F-29 ADDITIONAL INFORMATION Schedule II - Valuation and Qualifying Accounts ..................................................................................... Schedule III - Real Estate and Accumulated Depreciation........................................................................ Schedule IV - Investments in Mortgage Loans on Real Estate.................................................................. F-30 F-31-40 F-41 F-2 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. 2009 Annual Report F-1 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 accompanying consolidated balance sheets of Investors Real Estate Trust and subsidiaries (the "Company") as of April 30, 2009 and 2008, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended April 30, 2009. Our audits also included the consolidated financial statement schedules listed in the Index at Item 15. We also have audited the Company's internal control over financial reporting as of April 30, 2009, 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 these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and financial statement schedules and an opinion on the Company's internal control over financial reporting 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 and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 2009 Annual Report F-2 In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Investors Real Estate Trust and subsidiaries as of April 30, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such 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. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 30, 2009, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. DELOITTE & TOUCHE LLP Minneapolis, Minnesota July 13, 2009 2009 Annual Report F-3 INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS April 30, 2009 and 2008 ASSETS Real estate investments Property owned Less accumulated depreciation Development in progress Unimproved land Mortgage loans receivable, net of allowance of $3 and $11, respectively 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 of $842 and $992, respectively Accounts receivable, net of allowance of $286 and $261, respectively Real estate deposits Prepaid and other assets Intangible assets, net of accumulated amortization of $44,887 and $34,493, respectively Tax, insurance, and other escrow Property and equipment, net of accumulated depreciation of $957 and $1,328, respectively Goodwill Deferred charges and leasing costs, net of accumulated amortization of $11,010 and $7,265, respectively TOTAL ASSETS LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES Accounts payable and accrued expenses Revolving lines of credit Mortgages payable Other TOTAL LIABILITIES COMMITMENTS AND CONTINGENCIES (NOTE 15) MINORITY INTEREST IN PARTNERSHIPS MINORITY INTEREST OF UNITHOLDERS IN OPERATING PARTNERSHIP (20,838,197 units at April 30, 2009 and 21,238,342 units at April 30, 2008) SHAREHOLDERS’ EQUITY Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no par value, 1,150,000 shares issued and outstanding at April 30, 2009 and April 30, 2008, aggregate liquidation preference of $28,750,000) Common Shares of Beneficial Interest (Unlimited authorization, no par value, 60,304,154 shares issued and outstanding at April 30, 2009, and 57,731,863 shares issued and outstanding at April 30, 2008) Accumulated distributions in excess of net income Total shareholders’ equity TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (in thousands) April 30, 2009 April 30, 2008 $ 1,729,585 $ (262,871) 1,466,714 0 5,701 160 1,472,575 1,648,259 (219,379) 1,428,880 22,856 3,901 541 1,456,178 33,244 420 16,012 2,738 88 1,051 52,173 7,261 1,015 1,392 53,481 420 14,113 4,163 1,379 349 61,649 8,642 1,467 1,392 $ $ 17,122 1,605,091 $ 14,793 1,618,026 32,773 $ 5,500 1,070,158 1,516 1,109,947 33,757 0 1,063,858 978 1,098,593 13,010 148,199 12,609 161,818 27,317 27,317 462,574 (155,956) 333,935 1,605,091 $ 440,187 (122,498) 345,006 1,618,026 $ SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 2009 Annual Report F-4 INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended April 30, 2009, 2008, and 2007 (in thousands, except per share data) 2009 2008 2007 REVENUE Real estate rentals Tenant reimbursement TOTAL REVENUE EXPENSES Interest Depreciation/amortization related to real estate investments Utilities Maintenance Real estate taxes Insurance Property management expenses Administrative expenses Advisory and trustee services Other expenses Amortization related to non-real estate investments Impairment of real estate investment TOTAL EXPENSES Interest income Other income Income before gain (loss) on sale of other investments and minority interest and discontinued operations Gain (loss) on sale of other investments Minority interest portion of operating partnership income Minority interest portion of other partnerships’ loss Income from continuing operations Discontinued operations, net of minority interest 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 $ $ $ $ 194,758 $ 179,965 $ 162,410 35,128 197,538 41,205 221,170 45,247 240,005 68,743 54,646 18,975 27,603 30,443 3,051 18,079 4,430 452 1,440 2,068 338 230,268 608 314 63,439 50,042 17,793 24,582 27,133 2,624 15,273 4,745 458 1,344 1,476 0 208,909 2,095 665 10,659 54 (2,227) 40 8,526 0 8,526 (2,372) 6,154 $ .11 $ .00 .11 $ 15,021 42 (3,524) 136 11,675 413 12,088 (2,372) 9,716 $ .17 $ .01 .18 $ 58,424 44,419 15,157 21,691 23,281 2,377 13,826 4,162 289 1,240 1,082 0 185,948 1,944 721 14,255 (38) (3,217) 26 11,026 3,084 14,110 (2,372) 11,738 .18 .06 .24 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 2009 Annual Report F-5 INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY for the years ended April 30, 2009, 2008, and 2007 (in thousands) NUMBER OF PREFERRED SHARES 1,150 $ PREFERRED SHARES 27,317 NUMBER OF COMMON SHARES 46,915 $ COMMON SHARES 339,384 $ ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INCOME (77,093) ACCUMULATED OTHER COMPRE- HENSIVE (LOSS) $ (48) $ TOTAL SHARE- HOLDERS’ EQUITY 289,560 14,110 (31,472) (2,372) 32 (96,827) $ (16) $ 12,088 (35,387) (2,372) (122,498) 8,526 $ (39,612) (2,372) 16 0 $ (155,956) $ 0 $ 14,110 32 14,142 (31,472) (2,372) 11,412 303 3,411 (15) 284,969 12,088 16 12,104 (35,387) (2,372) 11,274 66,679 7,753 (14) 345,006 8,526 (39,612) (2,372) 11,385 5,978 5,034 (10) 333,935 1,215 32 11,412 303 410 (2) 48,570 $ 3,411 (15) 354,495 $ 1,150 $ 27,317 1,177 6,934 11,274 66,679 1,052 (1) 57,732 $ 7,753 (14) 440,187 $ 1,186 641 11,385 5,978 746 (1) 60,304 $ 5,034 (10) 462,574 $ 1,150 $ 27,317 1,150 $ 27,317 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. BALANCE APRIL 30, 2006 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, 2007 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, 2008 Net 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, 2009 2009 Annual Report F-6 INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended April 30, 2009, 2008, and 2007 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 Impairment of real estate investments Bad debt expense Changes in other assets and liabilities: Increase in receivable arising from straight-lining of rents Decrease (increase) in accounts receivable (Increase) decrease in prepaid and other assets Decrease (increase) in tax, insurance and other escrow Increase in deferred charges and leasing costs (Decrease) 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 Net 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 and other investments Insurance proceeds received Payments for acquisitions and improvements of real estate investments Net cash used by investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sale of common shares, net of issue costs Proceeds from mortgages payable Proceeds from minority partner Proceeds from revolving lines of credit and other debt Repurchase of fractional shares and minority interest units Distributions paid to common shareholders, net of reinvestment of $10,603, $10,518 and $10,607, respectively Distributions paid to preferred shareholders Distributions paid to unitholders of operating partnership, net reinvestment of $782, $756 and $805, respectively Distributions paid to other minority partners Redemption of partnership units Redemption of investment certificates Principal payments on mortgages payable Principal payments on revolving lines of credit and other debt Net cash (used) provided by financing activities NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR (in thousands) 2009 2008 2007 $ 8,526 $ 12,088 $ 14,110 57,832 2,187 (54) 338 2,472 (2,403) (603) (702) 1,381 (5,686) (3,153) 60,135 0 1,291 389 0 0 68 2,962 (59,077) (54,367) 5,978 73,530 717 20,500 (10) (29,009) (2,372) (13,601) (277) (158) 0 (67,230) (14,073) (26,005) (20,237) 52,423 3,541 (556) 0 1,060 (1,921) (1,754) 219 (1,420) (5,468) 3,667 61,879 1,740 (644) 25 (167) (54) 1,374 837 46,695 4,273 (4,602) 640 507 (3,247) (1,007) (132) 1,671 (4,801) 4,334 58,441 525 442 23 0 (132) 22,375 0 (148,364) (145,253) (184,613) (161,380) 66,679 111,684 0 0 (14) (24,869) (2,372) (12,747) (179) 0 (11) (45,759) (73) 92,339 8,965 303 257,664 54 20,500 (15) (20,865) (2,372) (10,258) (170) 0 (2,440) (88,345) (24,086) 129,970 27,031 17,485 44,516 53,481 33,244 $ 44,516 53,481 $ $ SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 2009 Annual Report F-7 INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) for the years ended April 30, 2009, 2008, and 2007 SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Distribution reinvestment plan Operating partnership distribution reinvestment plan Real estate investment acquired through assumption of indebtedness and accrued costs Assets acquired through the issuance of minority interest units in the operating partnership 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) 2009 2008 2007 $ 10,603 $ 782 10,518 $ 756 10,607 805 0 46,794 16,838 3,730 5,034 22,931 7,753 62,427 3,411 $ $ 67,947 $ 0 421 68,368 $ 62,110 $ 2 98 62,210 $ 56,918 164 812 57,894 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 2009 Annual Report F-8 INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2009, 2008, and 2007 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, Kansas, Montana, Missouri, Nebraska, South Dakota, Texas, Michigan and Wisconsin. As of April 30, 2009, IRET owned 77 multi-family residential properties with approximately 9,645 apartment units and 167 commercial properties, consisting of office, medical, industrial and retail properties, totaling approximately 11.7 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 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 74.3% and 73.1% as of April 30, 2009 and 2008, 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 In May 2009, the Financial Accounting Standards Board (“FASB”) issued FAS No. 165, Subsequent Events (“FAS 165”). FAS 165 is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. FAS 165 is effective for interim periods or fiscal years ending after June 15, 2009. The Company does not expect this Statement to have a material impact on the Company’s consolidated financial statements. In June 2008, the FASB issued FASB Staff Position (“FSP”) on Emerging Issues Task Force Issue 03-6, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF 03-6-1”). FSP EITF 03-6-1 states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included 2009 Annual Report F-9 NOTE 2 • continued in the computation of earnings per share (“EPS”) pursuant to the two-class method. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period EPS data presented shall be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with the provisions of FSP EITF 03-6-1. Early application is not permitted. The Company currently has no unvested share-based payment awards outstanding, but expects that in the future some may be granted under its 2008 Incentive Award Plan approved by shareholders in September 2008. The Company’s adoption of this staff position on May 1, 2009 did not impact the Company’s EPS calculations. In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 removes the requirement under Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, to consider whether an intangible asset can be renewed without substantial cost or material modifications to the existing terms and conditions and replaces it with a requirement that an entity consider its own historical experience in renewing similar arrangements, or a consideration of market participant assumptions in the absence of historical experience. FSP 142-3 also requires entities to disclose information that enables users of financial statements to assess the extent to which the expected future cash flows associated with the asset are affected by the entity’s intent and/or ability to renew or extend the arrangement. FSP 142-3 is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of FSP 142-3 did not have a material impact on the Company’s financial position and results of operations. In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51 (“SFAS 160”). SFAS 160 changes the accounting and reporting for minority interests. Minority interests are recharacterized as noncontrolling interests and are reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control are accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest are included in consolidated net income on the face of the income statement and upon a loss of control, the interest sold, as well as any interest retained, is recorded at fair value with any gain or loss recognized in earnings. SFAS 160 was effective for the Company on May 1, 2009. The adoption of this statement did not have a material effect on the Company’s financial position or results of operations. In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS 141(R)”). This new standard significantly changes the accounting for and reporting of business combination transactions in consolidated financial statements. SFAS 141(R) requires an acquiring entity to recognize acquired assets and liabilities assumed in a transaction at fair value as of the acquisition date, changes the disclosure requirements for business combination transactions, and changes the accounting treatment for certain items, including contingent consideration agreements, which will be required to be recorded at acquisition date fair value, and acquisition costs which will be required to be expensed as incurred. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008, and accordingly we adopted the standard on May 1, 2009; the new standard impacted the accounting for acquisitions we made after our adoption. Upon adoption of this pronouncement, we wrote off to general and administrative expense approximately $32,000 of previously capitalized pre-acquisition costs. The impact of this pronouncement on our financial statements is dependent on the volume of our acquisition activity in fiscal year 2010 and beyond. We currently expect the most significant impact of this statement to be the treatment of transaction costs, which are expensed as a period cost due to the adoption of this statement. In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 permits entities to irrevocably elect fair value on a contract-by-contract basis as the initial and subsequent measurement attribute for many financial assets and liabilities and certain other items including property and casualty insurance contracts. SFAS 159 was effective for the Company on May 1, 2008, and it did not elect the fair value option for any of its eligible financial instruments. In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 was effective for the Company on May 1, 2008; however, FASB Staff Position No. 157-2 deferred the effective date for certain non-financial assets and liabilities not re- 2009 Annual Report F-10 NOTE 2 • continued measured at fair value on a recurring basis to fiscal years beginning after November 15, 2008 (for the Company, May 1, 2009). SFAS 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based upon the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement. At April 30, 2009, the Company’s marketable securities are carried at fair value measured on a recurring basis. Fair values are determined through the use of unadjusted quoted prices in active markets, which are inputs that are classified as Level 1 in the valuation hierarchy. The adoption of this statement did not have a material effect on the Company’s 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 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 fair value if acquired in a merger or in a single or portfolio acquisition. Above-market and below-market in-place lease intangibles 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 market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. 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 and foregone rental income 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 and depreciated 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 and the Company has no significant involvement with the property sold. 2009 Annual Report F-11 NOTE 2 • continued 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. If our anticipated holding period for properties, the estimated fair value of properties or other factors change based on market conditions or otherwise, our evaluation of impairment charges may be different and such differences could be material to our consolidated financial statements. The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results. Plans to hold properties over longer periods decrease the likelihood of recording impairment losses. An impairment loss of $640,000 was recorded in fiscal year 2007. No impairment losses were recorded in fiscal year 2008. An impairment loss of $338,000 was recorded in fiscal year 2009. 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. The application of current accounting principles that govern the classification of any of our properties as held-for- sale on the balance sheet requires management to make certain significant judgments. In evaluating whether a property meets the criteria set forth in SFAS No. 144, Accounting for the Impairment and Disposal of Long-Lived Assets (“SFAS 144”), the Company makes a determination as to the point in time that it is probable that a sale will be consummated. It is not unusual for real estate sales contracts to allow potential buyers a period of time to evaluate the property prior to formal acceptance of the contract. In addition, certain other matters critical to the final sale, such as financing arrangements, often remain pending even upon contract acceptance. As a result, properties under contract may not close within the expected time period, or may not close at all. Due to these uncertainties, it is not likely that the Company can meet the criteria of SFAS 144 prior to the sale formally closing. Therefore, any properties categorized as held-for-sale represent only those properties that management has determined are probable to close within the requirements set forth in SFAS 144. 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, reclassifications of prior year revenues and expenses have been made. IDENTIFIED INTANGIBLE ASSETS AND LIABILITIES AND GOODWILL Upon acquisition of real estate, the Company records the intangible assets and liabilities 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 and liabilities that are determined to have finite lives based on the period over which the assets and liabilities are expected to affect, directly or indirectly, the future cash flows of the real estate property acquired (generally the life of the lease). In fiscal years 2009 and 2008, respectively, the Company added approximately $565,000 and $38.0 million of new intangible assets, net of intangible liabilities, all of which were classified as in-place leases. The weighted average lives of these intangibles are 1.8 years for fiscal 2009 and 7.0 years for fiscal year 2008. Amortization of intangibles related to above or below-market leases is recorded in real estate rentals in the consolidated statements of operations. Amortization of other intangibles is recorded in depreciation/amortization related to real estate investments in the consolidated statements of operations. 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. 2009 Annual Report F-12 NOTE 2 • continued As of April 30, 2009 and 2008, respectively, the net carrying amounts of the Company’s identified intangible assets and liabilities were $51.7 million and $60.7 million (net of accumulated amortization of $42.8 million and $32.8 million), respectively. The estimated annual amortization of the Company’s identified intangible assets for each of the five succeeding fiscal years is as follows: Year Ended April 30, 2010 2011 2012 2013 2014 (in thousands) 8,484 $ 6,372 4,353 3,361 2,956 The excess of the cost of an acquired business over the net of the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed is recorded as goodwill. The Company’s goodwill has an indeterminate life in accordance with the provisions of SFAS No. 142, Goodwill and Other Intangible Assets. 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. Goodwill book values as of April 30, 2009 and 2008 were $1.4 million. The annual reviews for these same periods indicated no impairment. PROPERTY AND EQUIPMENT Property and equipment consists of the equipment contained at IRET’s headquarters in Minot, North Dakota, and other locations in Minneapolis, Minnesota; Omaha, Nebraska; Kansas City, Kansas; St. Louis, Missouri and Jamestown, North Dakota. The balance sheet reflects these assets at cost, net of accumulated depreciation. As of April 30, 2009 and 2008, the cost was $2.0 million and $2.8 million, respectively. Accumulated depreciation was $1.0 million and $1.3 million as of April 30, 2009 and 2008, respectively. MORTGAGE LOANS RECEIVABLE The mortgage loans receivable (which include contracts for deed) are stated at the outstanding principal balance, net of an allowance for uncollectibility. Interest income is accrued and reflected in the balance sheet. 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 fair value with the resulting unrealized gains and losses excluded from earnings and reported as a separate component of shareholders’ equity until realized. Gains or losses on these securities are computed based on the amortized cost of the specific securities when sold. All securities with unrealized losses are subjected to the Company’s process for identifying other-than-temporary impairments. The Company records a charge to earnings to write 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 2009 Annual Report F-13 NOTE 2 • continued 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, 2009, 2008 and 2007 is as follows: (in thousands) Balance at beginning of year Provision Write-off Balance at close of year TAX, INSURANCE, AND OTHER ESCROW 2009 $ 1,264 $ 2,472 (2,605) 2008 910 $ 1,060 (706) $ 1,131 $ 1,264 $ 2007 725 507 (322) 910 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 to interest expense over the life of the loan using the straight-line method, which approximates the effective interest method. 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 Mendota Properties LLC, IRET–BD LLC, IRET-Candlelight LLC, IRET-Golden Jack LLC, and IRET-1715 YDR LLC on the balance sheet for the portion of properties consolidated by IRET that are not wholly owned by IRET. The earnings or losses from these properties attributable to the minority interests are reflected as minority interest portion of other partnerships’ income in the consolidated statements of operations. INCOME TAXES IRET operates in a manner intended to enable it to continue to qualify as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended. Under those sections, a REIT which distributes at least 90% of its REIT taxable income as a dividend to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to shareholders. The Company intends to 2009 Annual Report F-14 NOTE 2 • continued 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. On May 1, 2008, IRET adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). The adoption of FIN 48 did not have a material impact on the Company’s consolidated financial statements. 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 generally 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. This treatment of rent concessions is supported in SFAS No. 13, Accounting for Leases, which provides that if rentals vary from a straight-line basis, the income shall be recognized on a straight-line basis. 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. 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 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 Company has no potentially dilutive financial interests; the potential exchange of Units for common shares will have no effect on net income per share because Unitholders and common shareholders effectively share equally in the net income of the Operating Partnership. NOTE 3 • CREDIT RISK The Company is potentially exposed to credit risk for cash deposited with FDIC-insured financial institutions in accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. IRET has entered into a cash management arrangement with First Western Bank with respect to deposit accounts that exceed FDIC Insurance coverage. On a daily basis, account balances are invested in United States government securities sold to IRET by First Western Bank. IRET can require First Western Bank to repurchase such securities at any time, at a purchase price equal to what IRET paid for the securities plus interest. First Western Bank automatically repurchases securities when collected amounts on deposit in IRET’s deposit accounts fall below the maximum insurance amount, with the proceeds of such repurchases being transferred to IRET’s deposit accounts to bring the amount on deposit back up to the threshold amount. The amounts invested by IRET pursuant to the repurchase agreement are not insured by FDIC. 2009 Annual Report F-15 NOTE 4 • PROPERTY OWNED Property, consisting principally of real estate, is stated at cost less accumulated depreciation and totaled $1.5 billion and $1.4 billion as of April 30, 2009, and April 30, 2008, respectively. Construction period interest of approximately, $912,000, $505,000, and $69,000, has been capitalized for the years ended April 30, 2009, 2008, and 2007, respectively. The future minimum lease receipts to be received under non-cancellable leases for commercial properties as of April 30, 2009, assuming that no options to renew or buy out the lease are exercised, are as follows: Year Ended April 30, 2010 2011 2012 2013 2014 Thereafter (in thousands) $ 111,786 99,833 84,440 72,039 61,911 267,961 697,970 $ During fiscal 2009, the Company incurred a loss of approximately $338,000 due to impairment of the property formerly used as IRET’s Minot headquarters. During fiscal 2008, the Company incurred no losses due to impairment. For the year ended April 30, 2007, the Company incurred a loss of approximately $640,000 due to impairment of three properties and one parcel of unimproved land. The 2007 impairment losses were related to properties which were subsequently sold; accordingly such losses are included in discontinued operations (Note 12). NOTE 5 • MORTGAGE LOANS RECEIVABLE - NET The mortgage loans receivable consists of one contract for deed that is collateralized by real estate. The interest rate on this loan is 7.0% and it matures in fiscal 2013. Future principal payments due under this mortgage loan as of April 30, 2009, are as follows: Year Ended April 30, 2010 2011 2012 2013 (in thousands) $ 2 2 2 157 163 (3) 160 Less allowance for doubtful accounts $ There were no non-performing mortgage loans receivable as of April 30, 2009, and 2008. NOTE 6 • MARKETABLE SECURITIES The amortized cost and fair value of marketable securities available-for-sale at April 30, 2009 and 2008 are as follows. Bank certificates of deposit Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (in thousands) $ $ 420 420 $ $ 0 0 $ $ 0 0 $ $ 420 420 As of April 30, 2009, the investment in bank certificates of deposit will mature in less than one year. There were no realized gains or losses on sales of securities available-for-sale for the fiscal year ended April 30, 2009. There was a realized gain on sale of securities available-for-sale of $42,000 for the fiscal year ended April 30, 2008. There were no realized gains or losses on sales of securities available-for-sale for the fiscal year ended April 30, 2007. 2009 Annual Report F-16 NOTE 7 • REVOLVING LINES OF CREDIT IRET has lines of credit with four financial institutions as of April 30, 2009. 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, 2009 Amount Outstanding as of April 30, 2008 Applicable Interest Rate as of April 30, 2009 Maturity Date Amount Available Weighted Average Int. Rate on Borrowings during fiscal year 2009 Financial Institution Lines of Credit (1) Bremer Bank (2) First Western Bank & Trust (3) First International Bank $ & Trust (4) Dacotah Bank 10,000 12,000 14,000 1,500 $ $ 0 0 4,000 1,500 Total $ 37,500 $ 5,500 $ 0 0 0 0 0 4.00% 09/01/09 5.25% 12/10/11 3.75% 12/19/09 3.25% 11/4/09 4.6% 4.5% 4.8% 3.3% Borrowings under the lines of credit bear interest based on the following: (1) Bremer Financial Corporation Reference Rate with a floor of 4.00%, (2) 175 basis points below the Wall Street Journal Prime Rate with a floor of 5.25% and a ceiling of 8.25% and (3) 50 basis points above the Wall Street Journal Prime Rate. In addition to these three lines of credit, the Company also has a fully-drawn $5.0 million line of credit maturing in November 2009 with Dacotah Bank in Minot, North Dakota. Of this $5.0 million, the Company includes $3.5 million in mortgages payable on the Company’s balance sheet, as secured by six small apartment properties owned by the Company, with the remaining $1.5 million included in revolving lines of credit. Borrowings under the Dacotah Bank line of credit bear interest based on the Wall Street Journal Prime Rate. NOTE 8 • MORTGAGES PAYABLE The Company’s mortgages payable are collateralized by substantially all of its properties owned. The majority of the Company’s mortgages payable are secured by individual properties or groups of properties, and are non-recourse to the Company, other than for standard carve-out obligations such as fraud, waste, failure to insure, environmental conditions and failure to pay real estate taxes. Interest rates on mortgages payable range from 2.75% to 9.75%, and the mortgages have varying maturity dates from August 1, 2009, through April 1, 2040. Of the mortgages payable, the balance of fixed rate mortgages totaled $1.1 billion at April 30, 2009 and 2008, and the balances of variable rate mortgages totaled $9.6 million and $11.7 million as of April 30, 2009, and 2008, respectively. The Company does not utilize derivative financial instruments to mitigate its exposure to changes in market interest rates. Most of the fixed rate mortgages have substantial pre-payment penalties. As of April 30, 2009, the weighted average rate of interest on the Company’s mortgage debt was 6.30%, compared to 6.37% on April 30, 2008. The aggregate amount of required future principal payments on mortgages payable as of April 30, 2009, is as follows: Year Ended April 30, 2010 2011 2012 2013 2014 Thereafter Total payments (in thousands) $ 140,456 104,089 113,381 48,682 57,537 606,013 $ 1,070,158 2009 Annual Report F-17 NOTE 9 • TRANSACTIONS WITH RELATED PARTIES PROPERTY ACQUISITION During fiscal year 2008, the Company acquired a two-story office building consisting of approximately 65,000 rentable square feet, located in Fenton, Missouri, for a purchase price of $7.0 million. The Company purchased the property from entities controlled by W. David Scott, a trustee of the Company. In accordance with the requirements of the Company’s Declaration of Trust, the transaction was approved by a majority of the trustees and by a majority of the independent trustees not otherwise interested in the transaction. BANKING SERVICES The Company maintains an unsecured line of credit with First International Bank and Trust, Watford City, North Dakota (First International). During fiscal years 2009, 2008 and 2007, respectively, the Company’s interest charges were approximately $91,000, $0, and $71,000, for borrowings under the First International line of credit. During fiscal year 2007, the Company entered into two mortgage loans with First International in the amounts of $450,000 and $2.4 million, respectively, paying a total of approximately $34,000 in origination fees and loan closing costs for these two loans, and paying interest on the loans of approximately $26,000 and $69,000, respectively, during fiscal year 2007, and interest of approximately $34,000 and $174,000, respectively, on the loans in fiscal year 2008, and interest of approximately $33,000 and $171,000, respectively, during fiscal year 2009. The Company also maintains a number of checking accounts with First International. In each of fiscal years 2009, 2008 and 2007, respectively, IRET paid less than $500 in total in various wire transfer and other fees charged on these checking accounts. Stephen L. Stenehjem, a member of the Company’s Board of Trustees and 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 10 • ACQUISITIONS AND DISPOSITIONS IN FISCAL YEARS 2009 AND 2008 PROPERTY ACQUISITIONS IRET Properties paid approximately $33.8 million for real estate properties added to its portfolio during fiscal year 2009, compared to $154.7 million in fiscal year 2008. Of the $33.8 million paid for real estate properties added to the Company’s portfolio in fiscal year 2009, approximately $3.7 million was paid in the form of limited partnership units of the Operating Partnership, with the remainder paid in cash. Of the $154.7 million paid in fiscal year 2008, approximately $22.9 million consisted of the value of limited partnership units of the Operating Partnership and approximately $46.8 million consisted of the assumption of mortgage debt, with the remainder paid in cash. The fiscal year 2009 and 2008 additions are detailed below. 2009 Annual Report F-18 NOTE 10 • continued Fiscal 2009 (May 1, 2008 to April 30, 2009) Acquisitions and Development Projects Placed in Service Land Building Intangible Assets Acquisition Cost (in thousands) Multi-Family Residential 33-unit Minot Westridge Apartments – Minot, ND 12-unit Minot Fairmont Apartments – Minot, ND 4-unit Minot 4th Street Apartments – Minot, ND 3-unit Minot 11th Street Apartments – Minot, ND 36-unit Evergreen Apartments – Isanti, MN 10-unit 401 S. Main Apartments – Minot, ND1 71-unit IRET Corporate Plaza Apartments – Minot, ND2 $ Commercial Property - Office 22,500 sq. ft. Bismarck 715 E. Bdwy – Bismarck, ND 50,360 sq. ft. IRET Corporate Plaza – Minot, ND2 Commercial Property - Medical 56,239 sq. ft. 2828 Chicago Avenue – Minneapolis, MN3 31,643 sq. ft. Southdale Medical Expansion (6545 France) – Edina, MN4 Commercial Property - Industrial 69,984 sq. ft. Minnetonka 13600 Cty Rd 62 – Minnetonka, MN Unimproved Land Bismarck 2130 S. 12th Street – Bismarck, ND Bismarck 700 E. Main – Bismarck, ND $ 67 28 15 11 380 0 0 501 389 0 389 0 0 0 809 809 576 314 890 1,887 337 74 53 2,720 905 10,824 16,800 1,267 3,896 5,163 5,052 779 5,831 2,881 2,881 0 0 0 $ 0 $ 0 0 0 0 0 0 0 255 0 255 0 0 0 310 310 0 0 0 1,954 365 89 64 3,100 905 10,824 17,301 1,911 3,896 5,807 5,052 779 5,831 4,000 4,000 576 314 890 Total Property Acquisitions $ 2,589 $ 30,675 $ 565 $ 33,829 (1) Development property placed in service November 10, 2008. Approximately $145,000 of this cost was incurred in the three months ended April 30, 2009. Additional costs incurred in fiscal year 2008 totaled approximately $14,000 for a total project cost at April 30, 2009 of approximately $919,000. (2) Development property placed in service January 19, 2009. Approximately $1.8 million of the residential cost and $563,000 of the commercial office cost was incurred in the three months ended April 30, 2009. Additional costs incurred in fiscal years 2008 and 2007 totaled $8.6 million for a total project cost at April 30, 2009 of $23.3 million. (3) Development property placed in service September 16, 2008. Approximately $800,000 of this cost was incurred in the three months ended January 31, 2009. Additional costs incurred in fiscal years 2008 and 2007 totaled $7.8 million for a total project cost at April 30, 2009 of $12.9 million. (4) Development property placed in service September 17, 2008. Approximately $364,000 of this cost was incurred in the three months ended January 31, 2009. Additional costs incurred in fiscal year 2008 totaled $5.4 million for a total project cost at April 30, 2009 of $6.2 million. 2009 Annual Report F-19 NOTE 10 • continued Fiscal 2008 (May 1, 2007 to April 30, 2008) Acquisitions and Development Projects Placed in Service Land Building Intangible Assets Acquisition Cost (in thousands) Multi-Family Residential 96 – unit Greenfield Apartments – Omaha, NE 67 – unit Cottonwood Lake IV – Bismarck, ND1 Commercial Property – Office 20,528 sq. ft. Plymouth 5095 Nathan Lane Office Building – Plymouth, MN 78,560 sq. ft. 610 Business Center IV – Brooklyn Park, MN 64,607 sq. ft. Intertech Office Building – Fenton, MO Commercial Property—Medical (including Senior Housing) 18,502 sq. ft. Barry Pointe Medical Building – Kansas City, MO 11,800 sq. ft./28 beds Edgewood Vista – Billings, MT 18,488 sq. ft./36 beds Edgewood Vista – East Grand Forks, MN 11,800 sq. ft./28 beds Edgewood Vista – Sioux Falls, SD 55,478 sq. ft. Edina 6405 France Medical – Edina, MN2 70,934 sq. ft. Edina 6363 France Medical – Edina, MN2 57,212 sq. ft. Minneapolis 701 25th Ave Medical (Riverside) – Minneapolis, MN2 53,466 sq. ft. Burnsville 303 Nicollet Medical (Ridgeview) – Burnsville, MN 36,199 sq. ft. Burnsville 305 Nicollet Medical (Ridgeview South) – Burnsville, MN 17,640 sq. ft. Eagan 1440 Duckwood Medical – Eagan, MN 5,192 sq. ft./13 beds Edgewood Vista – Belgrade, MT 5,194 sq. ft./13 beds Edgewood Vista – Columbus, NE 168,801 sq. ft./185 beds Edgewood Vista – Fargo, ND 5,185 sq. ft./13 beds Edgewood Vista – Grand Island, NE 5,135 sq. ft./13 beds Edgewood Vista – Norfolk, NE Commercial Property – Industrial 50,400 sq. ft. Cedar Lake Business Center – St. Louis Park, MN 528,353 sq. ft. Urbandale Warehouse Building – Urbandale, IA 69,600 sq. ft. Woodbury 1865 Woodlane – Woodbury, MN 198,600 sq. ft. Eagan 2785 & 2795 Highway 55—Eagan, MN $ $ 578 267 845 4,122 5,924 10,046 $ 0 $ 0 0 4,700 6,191 10,891 604 975 2,130 3,709 384 115 290 314 0 0 0 1,071 189 521 35 43 792 34 42 3,830 896 3,679 1,108 3,058 8,741 1,236 5,525 3,951 10,712 2,355 1,743 1,346 971 12,179 12,651 7,225 6,842 5,127 1,547 744 793 20,578 742 691 75,534 2,802 9,840 2,613 2,557 17,812 160 0 919 1,079 461 2,392 3,354 2,065 1,436 709 775 887 584 257 1,321 614 4,480 624 567 20,526 342 481 279 785 1,887 2,000 6,500 7,000 15,500 3,200 4,250 4,990 3,350 13,615 13,360 8,000 8,800 5,900 2,325 2,100 1,450 25,850 1,400 1,300 99,890 4,040 14,000 4,000 6,400 28,440 Total Property Acquisitions $ 17,125 $ 114,104 $ 23,492 $ 154,721 (1) Development property placed in service January 2, 2008. (2) Acquisition of leasehold interests only (air rights lease and ground leases). 2009 Annual Report F-20 NOTE 10 • continued PROPERTY DISPOSITIONS During fiscal year 2009, the Company had no material dispositions, compared to two properties and two buildings of an apartment community sold for an aggregate sale price of $1.4 million during fiscal 2008. Real estate assets sold by IRET during fiscal year 2008 were as follows: Fiscal 2008 Dispositions Multi-Family Residential 405 Grant Ave (Lonetree) Apartments – Harvey, ND Sweetwater Apartments – Devils Lake, ND Commercial Property – Office Minnetonka Office Buildings – Minnetonka, MN Total Fiscal 2008 Property Dispositions NOTE 11 • OPERATING SEGMENTS (in thousands) Book Value and Sales Cost Sales Price Gain/Loss $ $ 185 940 1,125 310 310 1,435 $ $ 184 430 614 307 307 921 $ $ 1 510 511 3 3 514 IRET reports its results in five reportable segments: multi-family residential properties, and commercial office, medical (including senior housing), industrial and retail properties. Our reportable segments are aggregations of similar properties. The accounting policies of each of these segments are the same as those described in Note 2. We disclose segment information in accordance with SFAS 131, Disclosures about Segments of an Enterprise and Related Disclosures (“SFAS 131”). SFAS 131 requires that segment disclosures present the measure(s) used by the chief operating decision maker for purposes of assessing segment performance. Segment information in this report is presented based on net operating income, which we define as total revenues less property operating expenses and real estate taxes. The following tables present revenues and net operating income for the fiscal years ended April 30, 2009, 2008 and 2007 from our five reportable segments, and reconcile net operating income of reportable segments to income before gain (loss) on sale of other investments and minority interest and discontinued operations as reported. Segment assets are also reconciled to Total Assets as reported in the consolidated financial statements. Multi-Family Residential Commercial- Office Commercial- Medical Commercial- Industrial Commercial- Retail Total (in thousands) $ $ 76,716 36,162 40,554 $ $ 83,446 37,644 45,802 $ $ 52,564 $ 16,046 36,518 $ 12,711 $ 3,222 9,489 $ Year Ended April 30, 2009 Real estate revenue Real estate expenses Net operating income Interest Depreciation/amortization Administrative, advisory and trustee fees Other expenses Impairment of real estate investment Other income Income before gain (loss) on sale of other investments and minority interest and discontinued operations 14,568 $ 240,005 5,077 98,151 141,854 9,491 (68,743) (56,714) (4,882) (1,440) (338) 922 $ 10,659 2009 Annual Report F-21 14,198 $ 221,170 4,277 87,405 133,765 9,921 (63,439) (51,518) (5,203) (1,344) 2,760 $ 15,021 14,089 $ 197,538 4,475 76,332 121,206 9,614 (58,424) (45,501) (4,451) (1,240) 2,665 $ 14,255 Multi-Family Residential Commercial- Office Commercial- Medical Commercial- Industrial Commercial- Retail Total (in thousands) $ $ 72,827 34,637 38,190 $ $ 84,042 36,206 47,836 $ $ 38,412 $ 9,756 28,656 $ 11,691 $ 2,529 9,162 $ NOTE 11 • continued Year Ended April 30, 2008 Real estate revenue Real estate expenses Net operating income Interest Depreciation/amortization Administrative, advisory and trustee fees Other expenses Other income Year Ended April 30, 2007 Real estate revenue Real estate expenses Net operating income Interest Depreciation/amortization Administrative, advisory and trustee fees Other expenses Other income Income before gain (loss) on sale of other investments and minority interest and discontinued operations Multi-Family Residential Commercial- Office Commercial- Medical Commercial- Industrial Commercial- Retail Total (in thousands) $ $ 66,972 31,454 35,518 $ $ 73,603 30,475 43,128 $ $ 34,783 $ 8,675 26,108 $ 8,091 $ 1,253 6,838 $ Income before gain (loss) on sale of other investments and minority interest and discontinued operations Segment Assets and Accumulated Depreciation As of April 30, 2009 Segment assets Property owned Less accumulated depreciation Total property owned Cash and cash equivalents Marketable securities – available-for-sale Receivables and other assets Unimproved land Mortgage receivables, net of allowance Total Assets Multi-Family Residential Commercial- Office Commercial- Medical Commercial- Industrial Commercial- Retail Total (in thousands) $ 542,547 (115,729) $ 426,818 $ 571,565 (72,960) $ 498,605 $ 388,219 (42,345) $ 345,874 $ 108,103 (12,847) $ 95,256 (18,990) $ 119,151 $ 1,729,585 (262,871) $ 100,161 $ 1,466,714 33,244 420 98,852 5,701 160 $ 1,605,091 2009 Annual Report F-22 NOTE 11 • continued As of April 30, 2008 Segment assets Property owned Less accumulated depreciation Total property owned Cash and cash equivalents Marketable securities – available-for-sale Receivables and other assets Development in progress Unimproved land Mortgage receivables, net of allowance Total Assets Multi-Family Residential Commercial- Office Commercial- Medical Commercial- Industrial Commercial- Retail Total (in thousands) $ 510,697 (101,964) $ 408,733 $ 556,712 (58,095) $ 498,617 $ 359,986 (32,466) $ 327,520 $ 104,060 (10,520) $ 93,540 (16,334) $ 116,804 $ 1,648,259 (219,379) $ 100,470 $ 1,428,880 53,481 420 107,947 22,856 3,901 541 $ 1,618,026 NOTE 12 • 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 classified as held for sale as of April 30, 2009, 2008 and 2007. 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, 2008 and 2007. There were no sales of property classified as discontinued operations for the fiscal year ended April 30, 2009. REVENUE Real estate rentals Tenant reimbursement TOTAL REVENUE EXPENSES Interest Depreciation/amortization related to real estate investments Utilities Maintenance Real estate taxes Insurance Property management expenses Administrative expenses Other expenses Impairment of real estate investment TOTAL EXPENSES Income before minority interest and gain on sale of discontinued operations Minority interest portion of operating partnership income Gain on sale of discontinued operations DISCONTINUED OPERATIONS, NET OF MINORITY INTEREST Segment Data Multi-Family Residential Commercial - Office Commercial - Medical Commercial - Industrial Commercial - Retail Unimproved Land Total $ $ $ $ (in thousands) 2008 208 $ 2 210 0 47 35 22 28 4 22 0 0 0 158 52 (153) 514 413 $ 415 $ (2) 0 0 0 0 413 $ 2007 1,609 66 1,675 415 299 205 214 202 31 132 2 9 640 2,149 (474) (1,082) 4,640 3,084 1,783 392 605 0 170 134 3,084 2009 Annual Report F-23 NOTE 12 • continued Property Sale Data Sales price Net book value and sales costs Gain on sale of discontinued operations NOTE 13 • EARNINGS PER SHARE (in thousands) 2008 1,435 $ 921 514 $ 2007 22,543 17,903 4,640 $ $ 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, 2009, 2008 and 2007: 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 For Years Ended April 30, (in thousands, except per share data) 2009 2008 2007 8,526 0 8,526 (2,372) $ 11,675 $ 11,026 3,084 14,110 (2,372) 413 12,088 (2,372) 6,154 2,227 8,381 9,716 3,677 11,738 4,299 $ 13,393 $ 16,037 58,603 21,217 79,820 .11 .00 .11 53,060 20,417 73,477 $ $ .17 $ .01 .18 $ 47,672 17,017 64,689 .18 .06 .24 $ $ $ $ NOTE 14 • RETIREMENT PLANS IRET sponsors a defined contribution profit sharing retirement plan and a defined contribution 401(k) 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. Participation in IRET’s defined contribution 401(k) plan is available to all employees over the age of 21 immediately upon their employment with the Company, and employees participating in the 401(k) plan may contribute up to maximum levels established by the IRS. Employer contributions to the profit sharing and 401(k) plans are at the discretion of the Company’s management. IRET currently contributes 4.5% of the salary of each employee participating in the profit sharing plan, and 3% of the salary of each employee participating in the 401(k) plan, for a total contribution of 7.5% of the salary of each of the employees participating in both plans. Contributions by IRET to these plans on behalf of employees totaled approximately $356,000 in fiscal year 2009, $305,000 in fiscal year 2008 and $258,000 in fiscal year 2007. 2009 Annual Report F-24 NOTE 15 • COMMITMENTS AND CONTINGENCIES Ground Leases. As of April 30, 2009, the Company is a tenant under operating ground or air rights leases on eleven of its properties. The Company pays a total of approximately $503,000 per year in rent under these ground leases, which have remaining terms ranging from 4 to 92 years, and expiration dates ranging from July 2012 to October 2100. The Company has renewal options for five of the eleven ground leases, and rights of first offer or first refusal for the remainder. The expected timing of ground and air rights lease payments as of April 30, 2009 is as follows: Year Ended April 30, 2010 2011 2012 2013 2014 Thereafter Total (in thousands) Lease Payments 503 $ 503 503 503 503 23,565 26,080 $ 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. Environmental Matters. It is generally IRET’s policy to obtain a Phase I environmental assessment of each property that the Company seeks to acquire. Such assessments have not revealed, nor is the Company aware of, any environmental liabilities that IRET believes would have a material adverse effect on IRET’s financial position or results of operations. IRET owns properties that contain or potentially contain (based on the age of the property) asbestos or lead, or have underground fuel storage tanks. For certain of these properties, the Company estimated the fair value of the conditional asset retirement obligation in accordance with FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, or FIN 47, and chose not to book a liability, because the amounts involved were immaterial. With respect to certain other properties, the Company has not recorded any related asset retirement obligation, as the fair value of the liability cannot be reasonably estimated, due to uncertainties in the timing and manner of settlement of these obligations. Tenant Improvements. In entering into leases with tenants, IRET may commit itself to fund improvements or build- outs of the rented space to suit tenant requirements. These tenant improvements are typically funded at the beginning of the lease term, and IRET is accordingly exposed to some risk of loss if a tenant defaults prior to the expiration of the lease term, and the rental income that was expected to cover the cost of the tenant improvements is not received. As of April 30, 2009, the Company is committed to fund approximately $7.1 million in tenant improvements, within approximately the next 12 months. Purchase Options. The Company has granted options to purchase certain IRET properties to tenants in these properties, under lease agreements. In general, the options grant the tenant the right to purchase the property at the greater of such property’s appraised value or an annual compounded increase of a specified percentage of the initial cost of the property to IRET. The property cost and gross rental revenue of these properties are as follows: 2009 Annual Report F-25 NOTE 15 • continued Property Abbott Northwest-Sartell, MN Edgewood Vista-Belgrade, MT Edgewood Vista-Billings, MT Edgewood Vista-Bismarck, ND Edgewood Vista-Brainerd, MN Edgewood Vista-Columbus, NE Edgewood Vista-East Grand Forks, MN Edgewood Vista-Fargo, ND Edgewood Vista-Fremont, NE Edgewood Vista-Grand Island, NE Edgewood Vista-Hastings, NE Edgewood Vista-Hermantown I, MN Edgewood Vista-Hermantown II, MN Edgewood Vista-Kalispell, MT Edgewood Vista-Missoula, MT Edgewood Vista-Norfolk, NE Edgewood Vista-Omaha, NE Edgewood Vista-Sioux Falls, SD Edgewood Vista-Spearfish, SD Edgewood Vista-Virginia, MN Fox River Cottages - Grand Chute, WI Healtheast St John & Woodwinds- Maplewood & Woodbury, MN Great Plains - Fargo, ND Minnesota National Bank - Duluth, MN St. Michael Clinic - St. Michael, MN Stevens Point - Stevens Point, WI Total $ Investment Cost 12,653 2,135 4,274 10,903 10,667 1,481 5,012 26,322 588 1,431 606 21,510 12,359 624 999 1,332 676 3,357 6,792 17,132 3,956 (in thousands) Gross Rental Revenue 2009 1,292 $ 196 396 1,008 988 136 464 2,065 72 132 76 2,040 1,144 76 96 124 80 312 628 1,736 388 2008 1,292 $ 31 66 985 971 21 78 310 69 20 69 1,557 1,127 72 132 19 77 52 612 1,381 387 2007 1,252 0 0 980 968 0 0 0 68 0 68 1,472 1,124 72 132 0 76 0 608 1,320 260 21,601 15,375 2,104 2,851 15,020 201,760 $ 2,052 1,876 211 240 1,356 19,184 $ 2,032 1,876 205 229 1,279 14,949 $ 2,032 1,876 135 35 630 13,108 $ $ 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, 2009, the Company has recorded a receivable for payment of approximately $215,000 under this guarantee. Restrictions on Taxable Dispositions. Approximately 131 of the Company’s properties, consisting of approximately 7.3 million square feet of our combined commercial segment’s properties and 4,101 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 $862.3 million at April 30, 2009. 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. The Company does not believe that the agreements materially affect the conduct of its business or its decisions whether to dispose of restricted properties during the restriction period because the Company generally holds these and its other properties for investment purposes, rather than for sale. Historically, however, where the Company has deemed it to be in its shareholders’ best interests to dispose of restricted properties, the Company has done so through transactions structured as tax-deferred transactions under Section 1031 of the Internal Revenue Code. Redemption Value of UPREIT Units. The limited partnership units (“UPREIT Units”) of the Company’s operating partnership, IRET Properties, are redeemable at the option of the holder for cash, or, at our option, for the Company’s common shares of beneficial interest on a one-for-one basis, after a minimum one-year holding period. All UPREIT Units receive the same cash distributions as those paid on common shares. UPREIT Units are redeemable for an amount of cash per Unit equal to the average of the daily market price of an IRET common share 2009 Annual Report F-26 NOTE 15 • continued for the ten consecutive trading days immediately preceding the date of valuation of the Unit. As of April 30, 2009 and 2008, the aggregate redemption value of the then-outstanding UPREIT Units of the operating partnership owned by limited partners was approximately $198.2 million and $218.3 million, respectively. 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 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 completed several development or renovation projects during fiscal year 2009; these projects are included in the Acquisitions and Development Projects Placed in Service table in Note 10 above. IRET currently is constructing a 24-unit apartment building in Lincoln, NE, to replace the building in its Thomasbrook apartment complex destroyed by fire in July 2008. The construction of this apartment building is expected to cost approximately $2.2 million, of which $2.1 million will be covered by insurance. The remaining cost not covered by insurance is due to various property upgrades incorporated in the project by IRET to modernize and enhance the marketability of the units being constructed. 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 Acquisition. Subsequent to its April 30, 2009 fiscal year end, the Company signed a purchase agreement to acquire an approximately 42,180 square foot, single-tenant office showroom/warehouse building located in Iowa for $350,000 in cash and the issuance of limited partnership units of IRET Properties valued at $3.0 million, for a total purchase price of $3.4 million. This pending acquisition is subject to various closing conditions and contingencies, and no assurances can be given that this transaction will be completed. NOTE 16 • 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 fair 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. Other Debt. The fair value of other debt is estimated based on the discounted cash flows of the loan using current market rates. Mortgages Payable. For variable rate loans that re-price frequently, fair values are based on carrying values. The fair value of fixed rate loans is estimated based on the discounted cash flows of the loans using current market rates. 2009 Annual Report F-27 NOTE 16 • continued The estimated fair values of the Company’s financial instruments as of April 30, 2009 and 2008, are as follows: FINANCIAL ASSETS Mortgage loans receivable Cash and cash equivalents Marketable securities - available-for-sale FINANCIAL LIABILITIES Other debt Mortgages payable (in thousands) 2009 Carrying Amount Fair Value 2008 Carrying Amount $ 160 $ 160 $ 541 $ 33,244 420 33,244 420 53,481 420 Fair Value 541 53,481 420 1,000 1,070,158 1,129 1,301,071 73 1,063,858 74 1,079,986 NOTE 17 • COMMON AND PREFERRED SHARES OF BENEFICIAL INTEREST AND SHAREHOLDERS’ EQUITY Distribution Reinvestment and Share Purchase Plan. During fiscal years 2009 and 2008, IRET issued 1.3 million and 1.2 million common shares, respectively, pursuant to its distribution reinvestment and share purchase plan, at a total value at issuance of $12.4 million and $11.4 million, respectively. The shares issued under the distribution reinvestment and share purchase plan during fiscal year 2009 consisted of 1.2 million shares valued at issuance at $11.4 million that were issued for reinvested distributions and approximately 108,000 shares valued at $1.0 million at issuance that were sold for voluntary cash contributions. All the shares issued under the distribution reinvestment plan during fiscal year 2008 were issued for reinvested distributions. 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, and may elect to make voluntary cash contributions for the purchase of IRET common shares, at a discount (currently 5%) from the market price. Conversion of Units to Common Shares. During fiscal years 2009 and 2008, respectively, approximately 746,000 and 1.1 million Units were converted to common shares, with a total value of $5.0 million and $7.8 million included in shareholders’ equity. Issuance of Common Shares. In April 2009, the Company commenced the sale of up to $50 million of common shares pursuant to a continuous offering program. Through April 30, 2009, the Company sold 632,712 common shares as part of this program. The net proceeds (before offering expenses but after underwriting discounts and commissions) from the offering of $6.0 million through April 30, 2009 will be used for general corporate purposes. Through April 30, 2009, the Company paid Robert W. Baird & Co. Incorporated, its agent under this program, $122,000 in fees with respect to the common shares sold through this program. In October 2007, the Company sold 6.9 million common shares at $10.20 per share in an underwritten public offering, for net proceeds to the Company of approximately $66.4 million, after payment of commissions and other expenses of the offering. The Company conducted no public offerings of common shares in fiscal year 2007, other than sales of common shares under its Distribution Reinvestment Plan. 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, 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. 2009 Annual Report F-28 NOTE 18 • QUARTERLY RESULTS OF CONSOLIDATED OPERATIONS (unaudited) QUARTER ENDED Revenues Net Income available to common shareholders Net Income per common share - basic & diluted QUARTER ENDED Revenues Net Income available to common shareholders Net Income per common share - basic & diluted (in thousands, except per share data) July 31, 2008 October 31, 2008 January 31, 2009 April 30, 2009 60,652 $ 1,674 $ .03 $ 60,934 $ 785 $ .02 $ 59,573 1,930 .03 58,846 1,765 .03 $ $ $ $ $ $ (in thousands, except per share data) July 31, 2007 October 31, 2007 January 31, 2008 April 30, 2008 58,962 $ 2,695 $ .05 $ 54,424 $ 2,390 $ .04 $ 54,211 2,243 .04 53,573 2,388 .05 $ $ $ $ $ $ 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 19 • SUBSEQUENT EVENTS Common and Preferred Share Distributions. On June 30, 2009, 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, 2009. On July 1, 2009, the Company paid a distribution of 17.05 cents per share on the Company’s common shares and units, to common shareholders and Unitholders of record on June 15, 2009. This common share/unit distribution represented an increase of .05 cents or 0.3% over the previous regular quarterly distribution of 17.00 cents per common share/unit paid April 1, 2009. Common Share Offering. Subsequent to the fourth quarter of fiscal year 2009, IRET completed a public offering of 3,000,000 common shares of beneficial interest at $8.70 per share (before underwriting discounts and commissions). Proceeds to the Company were $24,795,000 after deducting underwriting discounts and commissions but before deducting offering expenses. The shares were sold pursuant to an Underwriting Agreement with Robert W. Baird & Co., Incorporated, D.A. Davidson & Co. and J.J.B. Hilliard, W.L. Lyons, Inc., and were issued pursuant to IRET’s registration statement on Form S-3 filed with and declared effective by the Securities and Exchange Commission. Pending Acquisition. The Company currently has no material pending acquisitions. In the fourth quarter of fiscal year 2009, IRET signed a purchase agreement to acquire a portfolio of office and retail properties located in the Minneapolis-St. Paul metropolitan area for a total of $29.7 million. The Company subsequently terminated this purchase agreement. Subsequent to its April 30, 2009 fiscal year end, the Company signed a purchase agreement to acquire an approximately 42,180 square foot, single-tenant office showroom/warehouse building located in Iowa for $350,000 in cash and the issuance of limited partnership units of IRET Properties valued at $3.0 million, for a total purchase price of $3.4 million. This pending acquisition is subject to various closing conditions and contingencies, and no assurances can be given that this transaction will be completed. 2009 Annual Report F-29 INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES April 30, 2009 Schedule II VALUATION AND QUALIFYING ACCOUNTS Description Fiscal Year Ended April 30, 2009 Allowance for doubtful accounts Fiscal Year Ended April 30, 2008 Allowance for doubtful accounts Fiscal Year Ended April 30, 2007 Allowance for doubtful accounts (in thousands) Column A Balance at Beginning of Year Column B Additions Charged Against Operations Column C Column E Uncollectible Accounts Written-off Balance at End of Year $ $ $ 1,264 910 725 $ $ $ 2,472 1,060 507 $ $ $ (2,605) (706) (322) $ $ $ 1,131 1,264 910 2009 Annual Report F-30 h c i h w n o e f i L n i n o i t a i c e r p e d e m o c n i t s e t a l f o e t a D d e z i l a t i p a c s t s o C t a d e i r r a c h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c y n a p m o C o t t s o C l a i t i n I s i t n e m e t a t s n o i t c u r t s n o C d e t a l u m u c c A & s g n i d l i u B o t t n e u q e s b u s & s g n i d l i u B d e t u p m o c n o i t i s i u q c A r o n o i t a i c e r p e D l a t o T s t n e m e v o r p m I d n a L n o i t i s i u q c a s t n e m e v o r p m I d n a L s e c n a r b m u c n E n o i t p i r c s e D S E I R A I D I S B U S D N A T S U R T E T A T S E L A E R S R O T S E V N I 9 0 0 2 , 0 3 l i r p A ) s d n a s u o h t n i ( N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R - 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s t n e m t r a p A n i a M h t u o S 1 0 4 D N , t o n i M - s t n e m t r a p A n i a M h t u o S 7 1 E N , y t i C x u o i S S - s t n e m t r a p A s r o b r A N M , n a g a E - t r u o C r e d l u o B l a i t n e d i s e R y l i m a F - i t l u M S K , a k e p o T - s t n e m t r a p A e g a l l i V d l e i f k o o r B D S , y t i C d i p a R - s t n e m t r a p A e k a L n o y n a C D N , o g r a F - s t n e m t r a p A t h g i l e l d n a C D N , t o n i M - s t n e m t r a p A u a e t a h C N M , e l l i v s n r u B - a l l i V l a i n o l o C E N , a h a m O - s l l i H n o r r a m C i T M , s g n i l l i B - k c o R e l t s a C T M , s g n i l l i B - y t i n u m m o C s w o d a e M y r t n u o C D N , k c r a m s i B - y t i n u m m o C d o o w n o t t o C D N , t o n i M - s e i t r e p o r P s t h g i e H n o t l o C S K , a k e p o T - s t n e m t r a p A y n o l o C n w o r C X T , g n i v r I - h c n a R y e l l a V t A l l i H a t o k a D D S , s l l a F x u o i S - s t n e m t r a p A k r a P t s a E D N , k c r a m s i B - s t n e m t r a p A w e i v t s e r C D N , s k r o F d n a r G - s e t a t s E k r a P t s e r o F E N , a h a m O - s t n e m t r a p A d l e i f n e e r G N M , i t n a s I - s t n e m t r a p A n e e r g r e v E N M , r e t s e h c o R - r o n a M e g a t i r e H D N , t o n i M - s t n e m t r a p A a z a l P e t a r o p r o C T E R I A I , y t i C x u o i S - s t n e m t r a p A s l l i H n a i d n I D N , s k r o F d n a r G D N , k c r a m s i B - - s e i t r e p o r P r e n n e J r o n a M d o o w k r i K N M , d u o l C . t S - e c a l P r e t s a c n a L D N , s k r o F d n a r G - y t i n u m m o C y c a g e L D N , t o n i M - s t n e m t r a p A y t i C c i g a M D N , t o n i M - s t n e m t r a p A t e e r t S h t 4 t o n i M D N , n w o t s e m a J - y t i n u m m o C s w o d a e M D N , t o n i M - s t n e m t r a p A t e e r t S h t 1 1 t o n i M h c i h w n o e f i L n i n o i t a i c e r p e d e m o c n i t s e t a l f o e t a D d e z i l a t i p a c s t s o C t a d e i r r a c h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c y n a p m o C o t t s o C l a i t i n I s i t n e m e t a t s n o i t c u r t s n o C d e t a l u m u c c A & s g n i d l i u B o t t n e u q e s b u s & s g n i d l i u B d e t u p m o c n o i t i s i u q c A r o n o i t a i c e r p e D l a t o T s t n e m e v o r p m I d n a L n o i t i s i u q c a s t n e m e v o r p m I d n a L s e c n a r b m u c n E n o i t p i r c s e D S E I R A I D I S B U S D N A T S U R T E T A T S E L A E R S R O T S E V N I 9 0 0 2 , 0 3 l i r p A ) s d n a s u o h t n i ( N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R - I I I e l u d e h c S s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 - 4 2 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 - 4 2 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 - 4 2 s r a e y 0 4 - 4 2 s r a e y 0 4 s r a e y s r a e y 0 4 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 8 0 0 2 8 0 0 2 6 9 9 1 4 0 0 2 7 9 9 1 5 9 9 1 2 0 0 2 3 9 9 1 0 0 0 2 5 0 0 2 4 9 9 1 7 9 9 1 9 9 9 1 5 9 9 1 2 0 0 2 4 9 9 1 3 9 9 1 0 0 0 2 6 0 0 2 1 0 0 2 9 9 9 1 5 9 9 1 7 0 0 2 7 0 0 2 7 0 0 2 7 0 0 2 7 0 0 2 7 0 0 2 7 0 0 2 7 0 0 2 7 0 0 2 9 9 9 1 ) 8 ( ) 6 4 ( ) 8 6 3 , 4 ( ) 7 3 5 ( ) 2 8 8 , 3 ( ) 6 1 8 ( ) 7 0 9 ( ) 8 7 2 , 2 ( ) 8 9 6 , 2 ( ) 3 2 7 ( ) 9 4 8 , 1 ( ) 7 8 6 , 4 ( ) 6 0 2 ( ) 7 8 6 , 4 ( ) 4 4 1 ( ) 2 4 7 , 1 ( ) 9 6 8 ( ) 4 5 7 ( ) 2 9 8 ( ) 1 7 9 ( ) 6 0 3 , 1 ( ) 1 6 0 , 2 ( ) 7 4 2 ( ) 7 2 1 ( ) 6 3 ( ) 7 8 ( ) 8 1 ( ) 6 3 ( ) 5 3 ( ) 8 1 ( 1 7 9 , 1 2 4 4 , 5 1 3 3 5 , 4 6 1 7 , 3 1 2 4 5 , 2 6 4 4 , 5 7 3 6 , 6 1 7 5 , 7 2 8 6 , 5 9 4 1 , 3 1 4 4 4 , 4 1 4 3 8 6 7 3 , 4 1 0 5 8 5 8 8 , 4 9 9 2 , 2 1 2 6 , 3 1 0 9 , 1 2 6 8 , 3 1 1 4 9 , 3 8 6 5 , 2 1 2 8 3 , 2 6 1 0 , 5 0 8 8 , 5 0 8 4 , 6 8 0 2 , 5 9 4 7 , 1 1 9 5 9 , 2 1 8 9 7 2 4 3 , 3 1 6 7 7 1 8 5 , 4 1 9 0 , 2 6 8 2 , 3 $ 7 6 3 $ 9 3 3 $ 8 2 0 7 0 8 5 , 1 2 9 5 8 4 1 , 1 0 6 1 0 3 4 7 5 7 0 0 4 , 1 1 9 0 , 1 4 7 4 5 8 4 , 1 6 3 4 3 0 , 1 4 7 4 0 3 8 0 2 5 3 3 2 5 7 , 5 2 6 2 , 4 7 9 0 , 7 6 7 6 , 5 7 7 6 , 2 3 5 7 1 1 8 , 1 1 7 3 4 4 7 5 3 7 7 7 3 0 0 5 , 5 2 7 8 , 3 3 5 3 , 6 3 3 8 , 4 2 8 2 , 2 3 4 6 5 4 5 , 1 7 1 3 6 3 6 8 2 6 3 2 3 2 5 2 0 9 3 4 4 7 3 4 8 5 9 3 0 1 1 6 6 2 4 5 8 0 1 7 0 1 4 5 8 2 8 , 4 1 8 0 5 , 3 1 0 2 3 , 1 ) 6 2 ( ) 3 8 9 , 3 ( 0 4 5 4 4 7 , 7 1 2 6 4 7 5 2 , 6 1 8 7 7 8 4 , 1 $ 2 6 1 7 0 2 , 1 7 8 2 0 7 8 , 2 5 5 1 5 8 1 0 1 3 , 3 4 4 5 , 1 8 2 4 6 2 1 , 2 2 0 2 , 4 9 7 6 6 3 , 1 1 9 7 0 1 , 1 9 3 3 0 1 8 4 5 1 3 4 4 5 1 7 1 0 5 , 1 0 1 8 3 5 1 4 3 6 2 2 3 1 2 1 1 1 0 1 9 , 1 $ 7 3 3 $ 7 8 8 , 1 5 6 7 , 2 1 6 5 7 , 3 2 1 8 , 9 4 4 2 , 2 8 3 8 , 4 4 8 7 , 2 9 0 1 , 6 2 5 1 , 3 9 9 0 , 9 8 4 7 1 4 4 , 0 1 5 0 1 , 2 1 7 8 6 8 3 5 , 3 6 1 8 , 1 1 3 5 , 2 2 6 3 , 3 1 3 7 0 , 4 9 8 4 , 3 6 2 7 , 5 3 2 8 , 4 4 4 2 , 2 8 2 6 2 1 5 , 1 1 1 3 5 1 6 5 1 6 1 1 3 1 5 4 4 8 6 , 4 1 8 2 8 6 0 7 4 , 1 0 9 4 4 3 0 , 1 3 4 1 3 2 4 3 4 5 4 6 1 , 1 4 3 0 , 1 4 0 4 3 4 1 , 1 7 2 7 5 0 9 0 4 2 4 4 1 0 8 2 1 8 9 , 1 4 4 9 , 0 1 5 4 1 , 3 1 7 8 , 9 8 0 1 , 2 7 3 7 , 3 0 8 4 , 3 6 5 6 , 7 9 9 9 , 4 3 9 7 , 3 6 0 6 , 9 0 4 3 2 0 4 4 0 8 , 9 0 1 9 , 2 3 5 5 , 1 4 6 5 , 2 $ 6 9 3 $ O C , s g n i r p S o d a r o l o C - s t n e m t r a p A d o o h r o b h g i e N D N , t o n i M - s t n e m t r a p A t n o m r i a F t o n i M D N , t o n i M - s t n e m t r a p A e g d i r t s e W t o n i M O C , s n i l l o C t r o F - s t n e m t r a p A t n o m a r i M N M , o l l e c i t n o M - s t n e m t r a p A o l l e c i t n o M d e u n i t n o c - l a i t n e d i s e R y l i m a F - i t l u M N M , r e t s e h c o R - s t n e m t r a p A e g a l l i V k i p m y l O N M , k r a P e t i a W - y t i n u m m o C s w o d a e M k r a P O C , s n i l l o C t r o F - s t n e m t r a p A e n o c e n i P T M , s g n i l l i B - s t n e m t r a p A t s r u h e n i P D N , k c r a m s i B - s g n i r p S e l b b e P D S , y t i C d i p a R - t s e W e t n i o P D S , s l l a F x u o i S - s t n e m t r a p A s d n i W e i r i a r P D N , o g r a F - s w o d a e M d o o w e i r i a r P D S , s l l a F x u o i S - w o b x O D S , s l l a F x u o i S - s t n e m t r a p A t n o m k a O D N , k c r a m s i B - e t n i o P h t r o N T M , s g n i l l i B - e g a l l i V c i p m y l O D S , s l l a F x u o i S - d o o w k a O 2 1 3 , 1 8 1 6 , 2 1 N M , r e t s e h c o R - s t n e m t r a p A e g d i R y r r a u Q 8 7 1 0 3 3 6 5 6 3 4 8 5 9 3 0 1 1 5 6 2 4 5 7 0 1 7 0 1 4 5 8 7 0 5 1 , 1 9 1 6 , 2 4 7 1 , 2 9 8 0 , 3 3 1 9 , 3 9 3 5 , 1 0 6 2 0 , 1 0 0 0 0 0 N M , d u o l C . t S - s t n e m t r a p A r e t n e C s u p m a C H S C S N M , d u o l C . t S - s t n e m t r a p A s t h g i e H s u p m a C H S C S N M , d u o l C . t S - s t n e m t r a p A I l l o n K s u p m a C H S C S N M , d u o l C . t S - s t n e m t r a p A a z a l P s u p m a C H S C S N M , d u o l C . t S - s t n e m t r a p A e d i S s u p m a C H S C S N M , d u o l C . t S - s t n e m t r a p A w e i V s u p m a C H S C S N M , d u o l C . t S - s t n e m t r a p A e n o t s r e n r o C H S C S , d u o l C . t S - s t n e m t r a p A e c a l P k r a P y t i s r e v i n U H S C S N M T M , s g n i l l i B - s t n e m t r a p A k c o r m R i T M , s g n i l l i B - s w o d a e M y k c o R N M , i t n a s I - s t n e m t r a p A r e v i R m u R A I , y t i C x u o i S - s k a O e g d i R 0 0 2 , 3 1 S K , a k e p o T - s t n e m t r a p A d o o w r e h S 2 3 - F t r o p e R l a u n n A 9 0 0 2 3 3 - F t r o p e R l a u n n A 9 0 0 2 h c i h w n o e f i L n i n o i t a i c e r p e d e m o c n i t s e t a l f o e t a D d e z i l a t i p a c s t s o C t a d e i r r a c h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c y n a p m o C o t t s o C l a i t i n I s i t n e m e t a t s r o n o i t c u r t s n o C d e t a l u m u c c A & s g n i d l i u B o t t n e u q e s b u s & s g n i d l i u B d e t u p m o c n o i t i s i u q c A n o i t a i c e r p e D l a t o T s t n e m e v o r p m I d n a L n o i t i s i u q c a s t n e m e v o r p m I d n a L s e c n a r b m u c n E n o i t p i r c s e D s r a e y 0 4 s r a e y 0 4 - 4 2 s r a e y 0 4 - 4 2 s r a e y 0 4 - 4 2 s r a e y 0 4 s r a e y 0 4 - 5 s r a e y 0 4 s r a e y 0 4 - 3 3 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 - 3 3 s r a e y 0 4 - 4 2 s r a e y 0 4 s r a e y 0 4 - 9 1 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 5 4 s r a e y 0 4 s r a e y 0 4 4 0 0 2 5 9 9 1 4 9 9 1 5 9 9 1 9 9 9 1 4 7 9 1 2 0 0 2 0 7 9 1 9 9 9 1 9 9 9 1 3 0 0 2 5 9 9 1 8 9 9 1 3 0 0 2 7 9 9 1 1 8 9 1 7 8 9 1 7 0 0 2 1 0 0 2 3 0 0 2 2 0 0 2 9 9 9 1 3 0 0 2 8 0 0 2 1 0 0 2 2 0 0 2 5 0 0 2 1 0 0 2 1 0 0 2 ) 2 9 5 ( ) 0 7 4 , 3 ( ) 7 5 2 ( ) 3 9 1 , 2 ( ) 2 9 9 , 2 ( ) 0 7 5 ( ) 8 0 3 ( ) 4 5 1 , 2 ( ) 2 4 7 , 2 ( ) 5 5 5 , 1 ( ) 5 7 3 ( ) 6 6 7 , 4 ( ) 0 8 7 ( ) 9 5 9 ( ) 1 8 3 , 2 ( 1 1 9 4 0 8 , 1 1 8 9 2 , 7 1 9 9 , 4 1 2 5 9 7 7 7 , 1 7 8 2 , 3 2 4 2 , 6 3 8 8 , 2 1 1 6 , 0 1 7 8 6 , 4 1 7 1 8 , 2 8 2 3 , 7 9 2 7 , 7 2 9 6 8 5 5 , 0 1 9 0 6 , 6 2 1 5 , 4 1 4 9 8 1 3 6 , 1 7 5 1 , 3 1 1 9 , 9 5 3 8 , 5 7 5 5 , 2 0 8 5 , 2 2 6 3 , 6 7 9 2 , 7 6 1 5 , 3 1 9 1 2 9 8 6 9 7 4 8 5 6 4 1 0 3 1 0 0 7 7 0 4 6 2 3 6 4 2 , 1 7 3 2 6 6 9 2 3 4 1 7 1 , 1 6 0 7 , 1 7 5 2 4 6 8 , 1 1 4 8 , 1 9 9 4 9 5 3 3 7 7 , 1 0 2 2 , 2 2 1 8 , 1 3 5 3 1 8 5 , 3 2 9 7 8 5 9 1 3 3 , 1 $ 5 3 7 , 5 $ 6 1 3 , 5 $ 9 1 4 $ 6 2 2 $ ) 9 2 7 , 5 1 1 ( $ 7 4 5 , 2 4 5 $ 6 6 3 , 4 9 4 $ 1 8 1 , 8 4 $ 8 1 8 , 8 9 ) 9 3 3 ( ) 0 4 1 ( ) 9 1 3 ( ) 8 6 1 ( ) 9 3 8 , 1 ( ) 0 4 2 , 4 ( ) 1 1 0 , 2 ( ) 2 2 ( ) 5 0 2 ( ) 9 2 5 , 1 ( ) 5 5 0 , 3 ( ) 4 5 1 ( ) 1 5 7 ( ) 6 0 8 , 1 ( 3 8 9 3 0 4 , 9 7 7 4 , 1 1 0 7 8 , 0 2 9 4 3 , 8 7 2 5 , 1 2 7 6 , 1 0 5 0 , 8 5 5 0 , 2 2 5 3 , 3 6 4 1 , 9 3 9 7 , 6 1 7 3 8 3 2 4 , 8 2 0 0 , 0 1 7 7 9 , 9 1 2 2 0 , 8 9 3 3 , 1 3 8 2 , 1 5 4 7 , 6 8 0 7 , 1 1 5 0 , 3 4 5 5 , 8 3 2 0 , 5 1 $ 4 9 6 3 9 3 $ 1 6 6 4 6 3 $ 3 3 9 2 0 8 9 6 4 1 3 9 8 7 2 3 8 8 1 9 8 3 5 7 4 , 1 5 0 3 , 1 0 7 7 , 1 7 4 3 1 0 3 2 9 5 $ 4 8 5 4 6 3 6 8 8 , 2 2 5 5 7 9 0 2 , 3 5 6 8 7 4 4 6 3 8 2 , 1 3 9 8 , 2 7 3 8 9 8 0 5 7 $ $ 0 1 1 , 5 8 4 5 , 9 9 6 4 4 3 0 , 5 4 1 8 , 2 1 3 0 4 7 1 3 , 1 0 9 4 , 1 7 4 8 , 7 7 3 1 , 4 6 9 2 , 2 9 0 9 , 1 2 2 6 , 5 8 2 0 , 6 7 6 1 , 0 1 $ 9 9 3 0 5 5 5 8 1 0 0 4 6 3 3 0 5 1 0 1 4 2 4 4 5 3 9 2 4 3 2 9 3 9 6 1 1 8 4 7 0 7 3 $ 0 7 1 , 3 1 2 5 , 9 8 3 7 9 7 0 , 6 7 6 7 , 7 0 5 9 8 6 1 4 , 1 7 7 0 , 5 7 4 5 , 3 0 6 5 , 1 8 3 3 , 9 6 0 0 , 1 9 1 8 , 3 8 1 5 , 2 $ 5 5 7 , 3 0 4 $ 4 7 9 , 9 3 $ 7 0 2 , 6 1 3 $ 0 0 8 5 3 8 2 4 5 , 5 7 6 2 , 9 8 6 7 , 6 1 7 5 9 , 7 1 6 2 , 1 0 6 0 1 , 6 8 3 1 , 2 1 1 7 6 , 1 4 5 1 , 2 8 0 8 , 7 $ 0 3 9 2 5 7 9 6 4 1 3 9 8 7 2 3 8 8 1 9 8 3 5 5 4 , 1 0 0 3 , 1 2 6 7 , 1 7 4 3 0 0 3 8 8 5 $ 0 0 $ 5 9 4 2 3 4 , 7 0 6 3 , 1 1 7 9 5 , 9 0 4 1 , 4 0 0 8 0 7 9 2 , 4 0 4 6 , 7 9 5 4 , 1 7 6 2 , 1 2 1 2 , 4 D N , s k r o F d n a r G D N , t o n i M - - s t n e m t r a p A w e i v h t u o S s t n e m t r a p A d n i w h t u o S D N , n o t f a r G - s e i t r e p o r P r e t a w t e e w S N M , r e t s e h c o R - l i a r T t e s n u S d e u n i t n o c - l a i t n e d i s e R y l i m a F - i t l u M S K , a k e p o T - a s o p i r a M & k o o r b h t u o S D N , t o n i M - e t n i o P h t u o S D S , s l l a F x u o i S - s t n e m t r a p A e g a l l i V e r o m a c y S N M , d a e h r o o M - n e e r G e h T n O e c a r r e T E N , n l o c n i L - s t n e m t r a p A k o o r b s a m o h T D N , s k r o F d n a r G - r o n a M k r a P y e l l a V N M , r e t s e h c o R - s t n e m t r a p A e g d i r d o o W l a i t n e d i s e R y l i m a F - i t l u M l a t o T N M , k r a P e t i a W - l l i h e n o t S t s e W D N , k c r a m s i B - k r a P d o o w t s e W N M , r e t s e h c o R - n e e r G e g a l l i V N M , r e t s e h c o R - r e t s e h c n i W N M , s t h g i e H a t o d n e M - r e t n e C e t a r o p r o C n a c i r e m A I W , e e k u a w l i M - d a o R r e e D n w o r B t s e W 0 0 8 7 N M , k r a P n y l k o o r B - V I r e t n e C s s e n i s u B 0 1 6 N M , n a g a E - d a o R f f i l C 0 3 0 2 N M , n o t g n i m o o l B - a z a l P s s e n i s u B n o t g n i m o o l B D N , k c r a m s i B - y a w d a o r B t s a E 5 1 7 k c r a m s i B N M , s d i p a R k u a S - k r a P s s e n i s u B n o t n e B E N , a h a m O - e d a r t i r e m A D N , t o n i M - g n i d l i u B e u n e v A t s 1 D N , t o n i M - n i a M h t u o S 2 1 e c i f f O N M , e l l i v s n r u B - I I s f f u l B e l l i v s n r u B N M , d u o l C . t S - r e t n e C g n i r p S d l o C N M , a k n o t e n n i M - d o o w n e r B E N , a t s i V a L - I y e l l a V k o o r B S E I R A I D I S B U S D N A T S U R T E T A T S E L A E R S R O T S E V N I 9 0 0 2 , 0 3 l i r p A ) s d n a s u o h t n i ( N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R - I I I e l u d e h c S h c i h w n o e f i L n i n o i t a i c e r p e d e m o c n i t s e t a l f o e t a D d e z i l a t i p a c s t s o C s i t n e m e t a t s n o i t c u r t s n o C d e t a l u m u c c A & s g n i d l i u B o t t n e u q e s b u s & s g n i d l i u B d e t u p m o c n o i t i s i u q c A r o n o i t a i c e r p e D l a t o T s t n e m e v o r p m I d n a L n o i t i s i u q c a s t n e m e v o r p m I d n a L s e c n a r b m u c n E t a d e i r r a c h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c y n a p m o C o t t s o C l a i t i n I s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 6 0 0 2 4 0 0 2 0 0 0 2 6 0 0 2 6 0 0 2 6 0 0 2 3 0 0 2 7 9 9 1 4 0 0 2 6 0 0 2 1 0 0 2 7 0 0 2 9 0 0 2 2 0 0 2 2 0 0 2 2 0 0 2 2 0 0 2 4 0 0 2 6 0 0 2 1 0 0 2 4 0 0 2 9 9 9 1 6 0 0 2 6 0 0 2 1 0 0 2 3 0 0 2 7 0 0 2 4 0 0 2 4 0 0 2 4 0 0 2 1 0 0 2 3 0 0 2 ) 0 5 1 , 1 ( ) 1 4 7 , 1 ( ) 6 0 1 , 1 ( ) 8 4 7 ( ) 4 2 5 ( ) 8 4 5 , 1 ( ) 7 9 7 , 3 ( ) 1 0 7 , 3 ( ) 6 2 3 , 1 ( ) 4 1 5 ( ) 1 3 9 , 2 ( ) 6 4 ( ) 6 3 1 ( ) 9 6 2 , 1 ( ) 6 3 4 , 2 ( ) 1 0 1 , 1 ( ) 7 3 4 , 1 ( ) 4 8 1 ( ) 1 4 8 ( ) 8 1 4 , 1 ( ) 6 1 8 ( ) 1 2 5 ( ) 8 3 2 , 1 ( ) 5 9 8 ( ) 9 3 3 ( ) 5 8 5 ( ) 8 5 ( ) 0 4 1 ( ) 1 6 1 ( ) 1 0 2 ( ) 9 4 9 , 2 ( ) 5 1 0 , 1 ( $ 5 0 4 , 1 2 3 3 9 , 7 1 1 4 3 , 5 2 9 5 , 3 1 7 2 1 , 4 2 9 8 4 , 9 2 0 2 , 4 2 5 7 3 , 5 1 2 1 9 , 1 1 0 3 6 , 0 1 9 1 8 , 6 1 9 9 0 , 6 7 1 3 , 6 7 3 3 , 7 3 1 8 , 6 3 8 2 , 9 5 4 7 , 1 2 7 4 , 2 1 4 4 4 , 7 2 4 2 , 8 5 4 4 , 2 5 6 6 , 2 1 1 5 5 , 7 1 2 5 9 , 6 1 6 0 9 , 1 9 6 7 , 3 7 9 8 , 1 0 9 6 , 1 1 7 6 , 1 2 5 3 , 2 6 9 8 , 5 2 9 2 , 5 1 $ 5 2 5 , 7 1 6 4 0 , 5 1 6 4 3 , 4 4 0 4 , 1 1 8 2 2 , 2 2 2 5 8 , 7 4 8 1 , 1 2 9 4 2 , 5 1 5 7 4 , 0 1 2 6 3 , 8 7 6 1 , 5 1 9 6 9 , 3 8 2 9 , 5 2 0 5 , 6 3 4 8 , 5 3 1 2 , 8 7 5 4 , 1 1 5 3 , 1 1 8 0 0 , 7 5 7 1 , 7 2 4 0 , 2 1 9 6 , 0 1 7 1 5 , 5 1 2 3 7 , 2 1 2 2 6 , 1 8 1 4 , 3 3 9 2 , 1 0 6 1 , 1 4 0 3 , 1 5 4 8 , 1 3 3 3 , 5 4 5 9 , 3 1 $ 0 8 8 , 3 7 8 8 , 2 5 9 9 8 8 1 , 2 9 9 8 , 1 7 3 6 , 1 8 1 0 , 3 6 2 1 7 3 4 , 1 8 6 2 , 2 2 5 6 , 1 0 3 1 , 2 9 8 3 5 3 8 0 7 9 1 2 1 , 1 8 8 2 0 7 0 , 1 4 7 9 , 1 6 3 4 3 0 4 7 6 0 , 1 4 3 0 , 2 0 2 2 , 4 4 8 2 1 5 3 4 0 6 0 3 5 7 6 3 7 0 5 3 6 5 8 3 3 , 1 $ 6 1 0 8 4 9 4 8 0 9 8 0 9 5 ) 8 9 2 , 3 ( 9 6 2 9 0 6 8 1 0 1 1 7 3 3 3 6 6 2 , 1 4 9 0 1 8 7 5 4 8 4 7 5 2 2 8 2 4 1 3 3 9 4 4 7 6 6 1 1 4 0 4 7 2 0 4 0 5 3 4 6 2 , 1 6 9 2 , 1 $ 9 0 5 , 7 1 9 6 5 , 4 1 7 0 5 , 3 4 0 4 , 1 1 8 3 6 , 1 2 3 6 7 , 7 2 8 4 , 4 2 0 4 2 , 5 1 9 4 5 , 9 2 6 3 , 8 3 8 9 , 4 1 9 6 9 , 3 7 1 2 , 5 9 6 1 , 6 4 3 7 , 5 5 3 6 , 7 4 5 4 , 1 5 8 0 , 0 1 7 1 1 , 0 1 1 3 9 , 6 8 5 3 , 6 4 4 9 , 1 4 8 5 , 4 1 8 8 9 , 1 1 6 5 5 , 1 8 5 0 , 3 3 5 2 , 1 3 3 1 , 1 4 6 2 , 1 5 9 4 , 1 9 6 0 , 4 2 9 6 , 2 1 $ 0 8 8 , 3 4 8 8 , 2 5 8 9 8 8 1 , 2 9 9 8 , 1 7 3 6 , 1 8 1 0 , 3 6 2 1 7 3 4 , 1 8 6 2 , 2 0 5 6 , 1 0 3 1 , 2 9 8 3 5 3 8 0 7 9 1 2 1 , 1 0 7 0 , 1 7 8 2 4 7 9 , 1 9 2 4 9 5 3 2 6 0 , 1 4 3 0 , 2 0 2 2 , 4 4 8 2 0 0 3 4 0 6 0 3 5 7 6 3 7 0 5 1 3 5 6 3 3 , 1 $ 5 1 3 , 7 1 3 7 9 , 4 1 3 6 6 , 2 0 6 1 , 2 1 5 6 5 , 1 2 0 0 7 , 8 7 3 5 , 4 1 5 9 2 , 5 0 4 9 , 8 4 1 0 , 9 6 8 8 , 9 0 2 8 , 4 0 6 0 8 , 3 4 9 0 , 6 4 5 5 , 3 5 1 6 , 4 8 3 0 , 1 5 9 8 , 8 0 9 0 , 4 7 0 8 , 5 2 1 3 , 1 4 0 7 , 3 1 0 7 7 , 6 1 9 5 9 9 0 2 , 1 7 2 3 , 1 2 0 3 , 1 2 0 3 , 1 2 0 6 , 1 2 6 9 , 7 9 0 6 , 3 $ N M , y e l l a V n e d l o G - r e t n e C e c i f f O s l l i H n e d l o G N M , y r u b d o o W - r e t n e C e t a r o p r o C y a w e t a G N M , a n i d E - r e t n e C s s e n i s u B l l i H y e w e D E N , a h a m O - r e t n e C e v i t u c e x E m a n r a F E N , a h a m O - t s e W r e t n e C e t a r o p r o C N M , e i r i a r P n e d E - e r t n e C n w o t s s o r C N M , e r i a r P n e d E - p i h s g a l F O C , h c n a R s d n a l h g i H - O C , h c n a R s d n a l h g i H - I h c n a R s d n a l h g i H h c n a R s d n a l h g i H N M , a n i d E - r e t n e C e t a r o p r o C n e h c a l r e t n I D N , o g r a F - s n i a l P t a e r G D N , t o n i M - a z a l P e t a r o p r o C T E R I O M , n o t n e F - g n i d l i u B h c e t r e t n I N M , s t h g i e H a t o d n e M - I r e t n e C e c i f f O a t o d n e M N M , s t h g i e H a t o d n e M - I I r e t n e C e c i f f O a t o d n e M N M , s t h g i e H a t o d n e M - I I I r e t n e C e c i f f O a t o d n e M N M , s t h g i e H a t o d n e M - V I r e t n e C e c i f f O a t o d n e M N M , h t u l u D - k n a B l a n o i t a N a t o s e n n i M N M , s l l i H n e d r A - r e t n e C e t a r o p r o C k r a p h t r o N N M , n o t g n i m o o l B - r e t n e C s s e n i s u B y r u b s l l i P E N , a h a m O - s l l i H c i f i c a P N M , h t u o m y l P - e n a L n a h t a N 5 9 0 5 h t u o m y l P D I , e s i o B - I I V a z a l P N M , h t u o m y l P - I h t u o m y l P N M , h t u o m y l P - I I h t u o m y l P N M , h t u o m y l P - I I I h t u o m y l P N M , e i r i a r P n e d E - r e t n e C s s e n i s u B k a O e i r i a r P N M , h t u o m y l P - V & V I h t u o m y l P E N , a h a m O - e n O s l l i H e l c a r i M N M , e l l i v s n r u B - I I V t t e l l o c i N N M , e v o r G e l p a M - I e t a g h t r o N N M , e v o r G e l p a M - I I e t a g h t r o N d e u n i t n o c - e c i f f O n o i t p i r c s e D 4 3 - F t r o p e R l a u n n A 9 0 0 2 S E I R A I D I S B U S D N A T S U R T E T A T S E L A E R S R O T S E V N I 9 0 0 2 , 0 3 l i r p A ) s d n a s u o h t n i ( N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R - I I I e l u d e h c S 5 3 - F t r o p e R l a u n n A 9 0 0 2 s r a e y 0 4 8 0 0 2 ) 5 6 1 ( 0 5 8 , 5 1 6 6 , 5 9 8 1 h c i h w n o e f i L n i n o i t a i c e r p e d e m o c n i t s e t a l f o e t a D d e z i l a t i p a c s t s o C d e t u p m o c s i t n e m e t a t s n o i t c u r t s n o C d e t a l u m u c c A & s g n i d l i u B o t t n e u q e s b u s & s g n i d l i u B n o i t i s i u q c A r o n o i t a i c e r p e D l a t o T s t n e m e v o r p m I d n a L n o i t i s i u q c a s t n e m e v o r p m I d n a L s e c n a r b m u c n E t a d e i r r a c h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c y n a p m o C o t t s o C l a i t i n I d e u n i t n o c - e c i f f O n o i t p i r c s e D S E I R A I D I S B U S D N A T S U R T E T A T S E L A E R S R O T S E V N I 9 0 0 2 , 0 3 l i r p A ) s d n a s u o h t n i ( N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R - I I I e l u d e h c S $ 1 3 7 , 2 $ D S , y t i C d i p a R - e v i r D e s r u o c n o C 0 0 9 y t i C d i p a R s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 0 0 0 2 6 0 0 2 9 9 9 1 5 0 0 2 5 0 0 2 5 0 0 2 5 0 0 2 4 0 0 2 3 0 0 2 2 0 0 2 2 0 0 2 6 0 0 2 4 0 0 2 5 0 0 2 9 9 9 1 5 0 0 2 3 0 0 2 3 0 0 2 2 0 0 2 2 0 0 2 6 0 0 2 5 0 0 2 7 0 0 2 2 0 0 2 2 0 0 2 7 0 0 2 8 0 0 2 ) 3 9 4 , 1 ( ) 6 4 2 , 1 ( ) 1 0 5 , 1 ( ) 8 9 ( ) 2 1 1 ( ) 8 9 ( ) 2 0 1 ( ) 8 7 2 ( ) 4 9 4 , 1 ( ) 7 7 3 , 1 ( ) 7 5 0 , 2 ( ) 5 4 9 ( ) 8 0 3 ( ) 5 1 4 , 1 ( ) 1 7 0 , 1 ( ) 6 5 9 ( ) 7 8 1 ( ) 3 0 8 , 1 ( ) 0 9 9 ( ) 3 6 3 ( ) 6 1 6 , 1 ( $ 8 8 0 , 7 $ 7 6 7 , 6 $ 1 2 3 $ 8 5 3 , 6 4 5 1 , 1 8 5 5 , 1 2 3 2 , 1 5 6 2 , 1 9 3 5 , 2 8 2 9 , 9 0 5 4 , 8 5 8 8 , 0 2 9 5 6 , 2 1 9 5 8 , 4 1 5 0 5 , 2 9 0 8 , 6 1 4 6 8 , 4 2 5 0 , 0 1 6 7 4 , 1 7 3 2 , 2 1 4 6 6 , 5 4 5 0 , 9 2 0 5 , 5 9 8 7 , 5 2 8 9 , 8 1 8 6 9 6 4 3 , 1 2 5 0 , 1 2 2 1 , 1 3 0 2 , 2 4 4 2 , 9 2 5 1 , 7 5 5 5 , 1 1 1 5 4 , 2 1 6 8 3 , 2 0 9 6 , 3 1 8 9 1 , 4 3 8 1 , 9 1 4 2 , 1 7 3 2 , 1 1 7 8 0 , 5 3 8 0 , 8 1 3 7 , 4 9 6 5 6 8 1 2 1 2 0 8 1 3 4 1 6 3 3 4 8 6 3 0 9 , 1 8 9 2 , 1 4 0 1 , 1 8 0 4 , 2 9 1 1 9 1 1 , 3 6 6 6 9 6 8 5 3 2 0 0 0 , 1 7 7 5 1 7 9 1 7 7 2 1 3 0 2 0 6 2 0 3 3 2 2 8 2 8 2 3 0 3 7 0 4 0 , 1 9 3 5 , 1 0 2 6 6 2 2 4 3 1 6 4 0 1 8 9 1 6 4 7 2 5 2 4 2 2 1 ) 0 6 9 , 2 7 ( $ 5 6 5 , 1 7 5 $ 1 5 6 , 1 0 5 $ 4 1 9 , 9 6 $ 2 8 1 , 1 3 0 0 6 , 6 2 8 9 , 8 1 6 9 4 , 5 6 1 9 3 2 1 , 1 4 2 0 , 1 4 9 0 , 1 0 0 2 , 2 1 7 5 , 8 9 4 1 , 6 6 2 0 , 0 1 8 1 2 , 2 1 6 6 3 , 2 0 5 3 , 3 1 7 9 1 , 4 3 7 3 , 8 5 9 1 , 1 8 1 6 , 0 1 0 6 8 , 4 9 5 6 , 7 9 0 6 , 4 $ 5 8 2 1 9 8 , 1 0 6 5 8 7 1 2 1 2 0 8 1 3 4 1 6 3 3 7 2 6 1 6 2 , 1 4 9 0 , 1 5 7 3 , 2 9 1 1 7 1 1 , 3 6 6 6 9 6 8 5 3 2 0 0 0 , 1 0 3 5 0 7 9 1 7 7 8 6 8 5 5 9 6 8 8 8 6 8 9 4 5 , 3 0 9 6 , 9 1 0 1 6 5 , 1 6 6 7 , 8 9 6 9 , 3 3 2 3 , 1 5 5 1 , 3 1 7 4 5 , 4 1 5 1 4 , 1 7 9 8 , 6 0 0 8 0 7 5 , 6 7 5 0 , 4 8 5 2 , 4 0 6 3 , 4 4 2 9 , 0 7 4 $ 9 5 4 , 9 6 $ 9 4 7 , 2 7 3 $ $ $ $ N M , n o t g n i m o o l B - a z a l P t n u o m a r a P e e r h T N M , h t u l u D - g n i d l i u B e c i f f O r o i r e p u S N M , n a g a E - g n i d l i u B A C T N M , s i l o p a e n n i M - e r a u q S r e h s e r h T S K , d o o w a e L - s d n a l r e b m T i N M , s l l a F l a n o i t a n r e t n I - e c i f f O C H U N M , n o t g n i m o o l B - r e t n e C l a i c n a n i F k n a B S U N M , k r a P e t i a W - k r a P s s e n i s u B r e v i R t s e W N M , d u o l C t S - r e t n e C o g r a F s l l e W N M , e i r i a r P n e d E - d e m o r i V N M , y e l l a V n e d l o G - r e t n e C e t a r o p r o C h t r i W O M , s t h g i e H d n a l y r a M - V I a z a l P s d n a l d o o W N M , a k n o t e n n i M - a z a l P r e t a w e t i h W D I , e s i o B - e t a g t s e W N M , n a g a E - r e t n e C h c e T t s a e h t u o S O M , s t h g i e H d n a l y r a M - t r o p r e v i R E N , a h a m O - V I y e l l a V g n i r p S E N , a h a m O E N , a h a m O - - V y e l l a V g n i r p S X y e l l a V g n i r p S E N , a h a m O - I X y e l l a V g n i r p S e c i f f O l a t o T l a c i d e M ) 6 7 8 ( ) 9 0 3 ( ) 0 7 1 , 2 ( ) 9 2 0 , 1 ( ) 1 2 1 ( 6 0 5 , 6 1 3 5 6 , 2 1 8 7 6 , 4 5 4 8 , 2 0 8 7 , 5 1 3 5 6 , 2 1 8 7 6 , 4 1 6 4 , 2 $ 6 7 6 , 8 $ 7 4 4 , 8 $ 9 2 2 6 2 7 0 0 4 8 3 ) 2 1 2 ( 9 0 6 , 8 8 3 5 , 7 1 7 0 , 1 $ 7 3 3 , 1 1 6 4 , 4 2 7 8 0 5 9 6 9 6 4 3 5 5 3 1 , 7 9 1 3 , 1 1 1 8 7 , 1 1 8 7 6 , 4 6 6 3 , 2 2 4 8 , 6 7 2 1 , 5 $ 4 0 2 6 2 7 0 0 4 8 3 0 0 1 9 , 5 6 1 1 , 2 4 4 5 , 1 $ 1 9 0 , 6 $ 1 7 0 , 1 7 6 8 , 7 9 8 1 7 1 9 , 4 N M , s i l o p a e n n i M - g n i d l i u B l a c i d e M 0 0 8 2 N M , s i l o p a e n n i M - e u n e v A o g a c i h C 8 2 8 2 N M , n o t g n i m o o l B - l a c i d e M t r o p r i A N M , l l e t r a S - t s e w h t r o N t t o b b A - ) w e i v e g d i R ( l a c i d e M t e l l o c i N 3 0 3 e l l i v s n r u B O M , y t i C s a s n a K - k r a P e c i f f O e t n i o P y r r a B N M , e l l i v s n r u B - ) h t u o S w e i v e g d i R ( l a c i d e M t e l l o c i N 5 0 3 e l l i v s n r u B N M , e l l i v s n r u B h c i h w n o e f i L n i n o i t a i c e r p e d e m o c n i t s e t a l f o e t a D d e z i l a t i p a c s t s o C s i t n e m e t a t s n o i t c u r t s n o C d e t a l u m u c c A & s g n i d l i u B o t t n e u q e s b u s & s g n i d l i u B d e t u p m o c n o i t i s i u q c A r o n o i t a i c e r p e D l a t o T s t n e m e v o r p m I d n a L n o i t i s i u q c a s t n e m e v o r p m I d n a L s e c n a r b m u c n E t a d e i r r a c h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c y n a p m o C o t t s o C l a i t i n I d e u n i t n o c - l a c i d e M n o i t p i r c s e D S E I R A I D I S B U S D N A T S U R T E T A T S E L A E R S R O T S E V N I 9 0 0 2 , 0 3 l i r p A ) s d n a s u o h t n i ( N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R - I I I e l u d e h c S s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y s r a e y 0 4 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 4 0 0 2 8 0 0 2 8 0 0 2 8 0 0 2 5 0 0 2 5 0 0 2 8 0 0 2 8 0 0 2 8 0 0 2 0 0 0 2 8 0 0 2 0 0 0 2 0 0 0 2 5 0 0 2 1 0 0 2 6 9 9 1 8 0 0 2 1 0 0 2 8 0 0 2 5 0 0 2 2 0 0 2 8 0 0 2 8 0 0 2 2 0 0 2 3 0 0 2 1 0 0 2 6 0 0 2 4 0 0 2 2 0 0 2 4 0 0 2 0 0 0 2 4 0 0 2 4 0 0 2 ) 2 7 ( ) 2 2 ( ) 4 5 ( ) 8 2 3 ( ) 4 3 8 ( ) 7 1 8 ( ) 3 2 ( ) 1 4 ( ) 2 9 5 ( ) 4 0 1 ( ) 2 2 ( ) 1 1 1 ( ) 9 6 1 , 2 ( ) 4 5 9 ( ) 7 0 1 ( ) 8 6 2 ( ) 0 2 ( ) 0 3 ( ) 2 1 1 ( ) 7 2 5 ( ) 0 2 5 ( ) 6 6 3 ( ) 3 2 2 ( ) 7 6 8 , 1 ( ) 9 6 6 , 2 ( ) 2 7 6 , 7 ( ) 2 9 1 ( ) 2 9 1 ( ) 4 1 2 ( ) 7 7 3 , 1 ( ) 2 1 1 , 4 ( ) 5 0 3 , 1 ( ) 8 7 4 ( $ 9 9 0 , 3 7 8 5 , 2 4 1 8 2 8 8 , 1 0 4 7 , 9 0 2 6 , 9 7 6 8 2 4 6 , 1 3 4 8 , 1 2 8 8 5 7 0 8 6 0 6 0 6 6 , 1 1 9 6 2 , 1 1 4 2 6 9 9 9 4 6 7 6 7 6 9 8 2 , 1 6 5 1 , 6 6 4 1 , 2 1 5 9 6 , 2 1 1 0 2 , 2 1 7 3 5 , 1 3 3 6 , 4 1 4 2 3 , 4 4 8 0 8 , 3 2 7 5 , 1 0 7 8 , 7 5 6 7 , 1 2 0 6 , 1 2 0 8 1 , 2 1 8 8 7 , 3 $ 8 9 5 , 2 6 6 0 , 2 9 7 7 7 6 7 , 1 9 2 2 , 9 3 3 0 , 9 4 2 8 2 5 3 , 1 1 5 0 , 1 2 2 3 5 4 7 7 7 5 5 2 7 3 , 1 1 0 5 5 , 0 1 4 5 5 0 9 8 2 2 7 7 8 5 5 7 9 1 4 8 , 5 0 0 9 , 1 1 5 9 6 , 2 1 1 0 2 , 2 1 5 6 1 , 1 8 7 8 , 3 1 4 4 8 , 0 4 3 0 5 , 3 2 2 5 , 1 0 7 8 , 7 9 9 6 , 1 3 6 3 , 8 1 2 7 8 , 0 1 2 8 7 , 3 $ 1 0 5 1 2 5 5 3 5 1 1 1 1 5 7 8 5 3 4 0 9 2 2 9 7 6 5 3 3 9 4 8 8 2 9 1 7 0 7 9 0 1 2 4 9 8 4 1 3 5 1 3 6 4 2 0 0 2 7 3 5 5 7 5 0 3 0 8 4 , 3 0 0 5 6 6 6 9 3 2 , 3 8 0 3 , 1 0 9 1 5 ) 5 1 ( 6 3 4 3 0 1 ) 1 3 ( 2 4 1 0 4 1 0 5 , 1 3 3 2 5 6 3 0 0 4 ) 6 2 ( 4 3 7 7 0 2 0 4 2 5 4 2 8 , 5 1 0 1 , 0 1 7 5 7 2 2 6 4 0 0 7 7 4 3 $ 1 $ 7 9 5 , 2 7 4 5 , 1 9 7 7 2 8 7 , 1 3 9 1 , 9 9 9 9 , 8 4 2 8 3 8 3 , 1 0 5 0 , 1 2 0 9 4 3 7 7 7 1 5 1 7 8 , 9 7 1 5 , 0 1 2 0 5 4 5 8 2 2 7 7 4 5 1 0 0 , 1 7 0 8 , 5 3 2 8 , 1 1 5 7 6 , 2 1 1 0 2 , 2 1 0 6 6 4 5 0 , 8 3 4 7 , 0 3 6 4 7 , 2 0 2 5 , 1 8 0 4 , 7 9 9 6 , 1 3 6 3 , 8 1 8 2 5 , 0 1 1 8 7 , 3 $ 1 0 5 1 2 5 5 3 5 1 1 1 1 5 7 8 5 3 4 0 9 2 2 9 7 6 5 3 3 9 4 8 8 2 9 1 7 0 7 9 0 1 2 4 9 8 4 1 3 5 1 3 6 4 2 0 0 3 5 3 5 5 7 5 0 3 0 8 4 , 3 0 0 5 6 6 0 9 3 2 , 3 5 0 3 , 1 $ 1 4 0 , 2 7 6 9 , 1 0 6 7 9 0 0 2 5 , 6 4 4 4 , 6 3 5 4 , 1 7 9 4 , 4 1 2 5 6 0 2 7 6 7 6 4 , 7 0 2 0 , 8 1 0 4 7 6 7 5 9 6 2 4 5 7 9 9 5 0 , 4 8 2 3 , 5 1 9 5 1 , 8 3 2 3 , 9 4 4 2 , 1 8 9 7 , 9 8 0 3 , 2 3 7 9 , 1 2 2 5 9 9 7 0 , 3 2 8 1 , 1 5 0 6 , 3 6 8 5 , 2 5 0 7 , 4 1 $ N M , h t u l u D - c i n i l C d l e f n e D N M , n a g a E - l a c i d e M d o o w k c u D 0 4 4 1 n a g a E N M , s k r o F d n a r G t s a E - a t s i V d o o w e g d E N M , I n w o t n a m r e H N M , I I n w o t n a m r e H E N , d n a l s I d n a r G E N , s g n i t s a H T M , l l e p s i l a K T M , a l u o s s i M E N , k l o f r o N - - - - - - - a t s i V d o o w e g d E a t s i V d o o w e g d E a t s i V d o o w e g d E a t s i V d o o w e g d E a t s i V d o o w e g d E a t s i V d o o w e g d E a t s i V d o o w e g d E E N , t n o m e r F - a t s i V d o o w e g d E D N , o g r a F - a t s i V d o o w e g d E N M , a n i d E - l a c i d e M e c n a r F 3 6 3 6 a n i d E N M , a n i d E - l a c i d e M e c n a r F 5 0 4 6 a n i d E N M , a n i d E - e u n e v A w e r D 7 1 5 6 a n i d E N M , a n i d E - I I C M S e c n a r F 5 2 5 6 a n i d E N M , a n i d E - I C M S e c n a r F 5 4 5 6 a n i d E I W , e t u h C d n a r G - s e g a t t o C r e v i R x o F N M , e n o t s d n a S - c i n i l C y a w e t a G N M , l u a P . t S - w e i V n e d r a G N M , h t u l u D - s u i n e s e r F D S , s l l a F x u o i S - a t s i V d o o w e g d E E N , a h a m O - a t s i V d o o w e g d E D S , h s i f r a e p S - a t s i V d o o w e g d E N M , a i n i g r i V - a t s i V d o o w e g d E T M , e d a r g l e B T M , s g n i l l i B D N , k c r a m s i B N M , d r e n i a r B E N , s u b m u l o C - - - - - a t s i V d o o w e g d E a t s i V d o o w e g d E a t s i V d o o w e g d E a t s i V d o o w e g d E a t s i V d o o w e g d E & d o o w e l p a M - s d n i w d o o W & n h o J t S t s a E h t l a e H N M , y r u b d o o W N M l , o m E e k a L - s u p m a C h t l a e H e t n i o P h g i H I W , r o i r e p u S - c i n i l C r e n i r a M 6 3 - F t r o p e R l a u n n A 9 0 0 2 h c i h w n o e f i L n i n o i t a i c e r p e d e m o c n i t s e t a l f o e t a D t a d e i r r a c h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c d e z i l a t i p a c s t s o C y n a p m o C o t t s o C l a i t i n I d e t u p m o c s i t n e m e t a t s n o i t c u r t s n o C d e t a l u m u c c A & s g n i d l i u B o t t n e u q e s b u s & s g n i d l i u B n o i t i s i u q c A r o n o i t a i c e r p e D l a t o T s t n e m e v o r p m I d n a L n o i t i s i u q c a s t n e m e v o r p m I d n a L s e c n a r b m u c n E d e u n i t n o c - l a c i d e M n o i t p i r c s e D S E I R A I D I S B U S D N A T S U R T E T A T S E L A E R S R O T S E V N I 9 0 0 2 , 0 3 l i r p A ) s d n a s u o h t n i ( N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R - I I I e l u d e h c S 7 3 - F t r o p e R l a u n n A 9 0 0 2 s r a e y 0 4 s r a e y 0 4 0 0 0 2 3 0 0 2 ) 5 9 ( ) 3 0 1 ( $ 7 8 2 4 4 7 $ 0 7 2 0 1 6 ) 7 4 8 , 2 1 ( $ 3 0 1 , 8 0 1 $ 2 3 9 , 8 8 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 8 0 0 2 4 0 0 2 2 0 0 2 4 0 0 2 4 0 0 2 5 0 0 2 7 0 0 2 6 0 0 2 4 0 0 2 4 0 0 2 6 0 0 2 2 9 9 1 7 0 0 2 2 0 0 2 8 0 0 2 9 9 9 1 4 0 0 2 2 0 0 2 9 0 0 2 6 0 0 2 5 9 9 1 1 0 0 2 7 0 0 2 0 0 0 2 2 0 0 2 1 0 0 2 7 0 0 2 ) 1 2 2 ( ) 2 4 5 , 2 ( ) 8 5 4 ( ) 0 9 0 , 1 ( ) 2 4 6 , 2 ( ) 2 7 7 ( ) 1 3 1 ( ) 9 9 8 ( ) 4 1 3 ( 2 5 9 , 2 2 1 5 , 0 2 4 7 1 , 0 1 5 2 3 , 9 1 6 7 5 , 9 1 5 8 , 2 1 6 6 , 2 5 2 8 , 4 1 7 6 7 , 2 9 2 9 , 8 2 1 5 , 0 2 0 1 6 , 6 1 9 2 9 , 7 3 2 5 , 2 9 9 4 , 2 3 8 3 , 4 1 $ 3 7 8 , 7 $ 3 7 8 , 7 $ 0 0 5 8 1 5 4 2 , 1 5 1 7 , 2 7 4 6 , 1 8 2 3 2 4 4 2 6 1 0 1 3 0 4 2 2 0 1 1 4 6 2 7 3 9 , 1 5 9 4 , 0 1 $ 0 $ 3 7 8 , 7 2 7 2 , 0 2 7 6 7 , 2 8 9 8 , 8 3 7 6 , 4 1 1 5 8 , 7 9 5 2 , 2 8 8 8 , 3 7 9 4 , 2 $ 0 0 5 8 1 5 4 2 , 1 5 1 7 , 2 5 1 6 , 1 8 2 3 2 4 4 2 6 1 3 1 2 , 1 3 1 8 , 6 0 0 5 , 3 1 7 3 5 , 2 1 0 9 2 , 7 8 7 0 , 2 3 0 8 , 1 6 0 3 , 1 1 ) 5 4 3 , 2 4 ( $ 9 1 2 , 8 8 3 $ 0 9 5 , 3 6 3 ) 3 0 2 ( $ 3 2 7 , 1 $ 8 0 6 , 1 ) 5 4 2 ( ) 2 6 6 ( ) 3 3 1 ( ) 3 7 0 , 2 ( ) 0 8 ( ) 8 5 5 , 1 ( ) 7 2 2 ( ) 4 0 4 ( ) 8 1 ( ) 8 8 4 ( ) 8 3 9 , 1 ( ) 2 7 3 , 1 ( ) 8 9 4 ( ) 9 7 4 ( ) 0 4 1 , 2 ( ) 2 1 2 ( ) 7 1 1 ( 9 2 2 , 6 2 5 1 , 2 1 1 7 , 3 1 8 1 , 3 1 8 2 6 , 5 0 8 4 , 6 5 8 8 , 1 7 0 5 , 2 2 0 7 , 3 1 4 1 , 7 0 5 2 , 8 2 1 7 , 0 1 4 2 1 , 4 1 0 4 0 , 2 5 7 8 , 3 1 7 0 0 , 1 6 5 7 , 3 6 9 0 , 4 4 5 9 , 1 6 1 8 , 2 2 4 7 , 1 1 0 7 5 , 2 0 0 0 , 6 5 9 7 , 1 7 6 2 , 2 3 9 8 , 2 2 3 7 , 8 1 0 7 , 6 0 4 4 , 7 3 0 4 , 0 1 3 5 8 , 1 7 0 5 , 2 1 7 0 9 8 4 6 , 2 $ $ $ $ 9 2 6 , 4 2 3 9 4 , 1 4 8 9 1 5 9 8 3 3 1 , 2 9 3 4 , 1 8 5 0 , 3 0 9 0 8 4 0 4 2 9 0 8 0 4 4 0 1 8 0 8 9 , 1 1 2 7 , 3 7 8 1 8 6 3 , 1 0 0 1 8 0 1 , 1 5 1 1 $ 3 0 6 0 0 8 4 8 9 0 7 8 7 5 7 6 , 1 9 5 4 , 2 4 7 4 , 1 0 4 0 1 5 5 3 3 8 3 4 6 8 6 0 2 1 7 1 , 9 1 $ 8 1 2 , 9 7 1 4 3 1 $ 7 9 1 9 1 $ $ $ $ 2 8 1 , 2 2 3 $ 4 4 5 , 4 2 $ 1 6 8 , 3 5 2 5 0 6 , 1 $ 5 1 1 $ 8 5 0 , 1 6 9 0 , 4 4 5 1 , 1 0 1 8 , 2 8 5 7 , 0 1 0 7 5 , 2 2 5 3 , 4 8 8 7 , 1 9 8 1 , 2 4 3 4 2 7 2 , 7 7 9 5 , 6 0 4 4 , 7 9 8 0 , 0 1 2 9 4 , 1 3 4 6 , 1 1 1 0 9 8 2 6 , 2 8 1 8 , 9 7 5 7 2 0 6 8 9 1 5 9 8 3 3 1 , 2 9 3 4 , 1 8 5 0 , 3 0 9 3 5 4 0 4 2 9 0 8 6 6 9 , 1 0 4 4 0 1 8 0 8 6 , 3 5 6 1 8 6 3 , 1 0 0 1 8 0 1 , 1 6 7 0 , 4 3 1 3 , 1 7 8 4 , 2 6 8 7 , 7 6 7 7 , 3 4 5 8 , 2 1 1 1 , 1 7 1 2 , 1 9 9 4 , 2 5 9 9 , 5 4 2 1 , 3 3 7 1 , 4 2 2 1 , 1 5 9 2 , 7 0 0 8 , 0 1 0 6 2 9 , 2 $ $ 5 1 3 2 1 $ 0 0 7 6 0 , 9 1 $ 2 1 6 , 3 6 $ $ $ $ E N , a h a m O - l a t i p s o H c i d e a p o h t r O a k s a r b e N N M , r e t n e C n y l k o o r B - l a t n e D k r a P N M , l u a P t S - a z a l P l a c i d e M e i h c t i R N M , l e a h c i M t S - c i n i l C l e a h c i M t S I W , t n i o P s n e v e t S - t n i o P s n e v e t S N M , g n i b b i H - c i n i l C s l l e W N M , h t u l u D - I n o i l i v a P N M , h t u l u D - I I n o i l i v a P t e e r t S h t 4 9 t s e W 0 0 0 2 n o t g n i m o o l B N M , h t u l u D - g n i d l i u B I P A N M , n o t g n i m o o l B - l a c i d e M l a t o T l a i r t s u d n I N M , e i r i a r P n e d E - g n i d l i u B l a i r t s u d n I e t o c y d o B N M , k r a P s i u o L . t S - r e t n e C s s e n i s u B e k a L r a d e C A I , s e n i o M s e D - k r a P l a i r t s u d n I e u n e v A n o x i D N M , n a g a E - 5 5 y a w h g i H 5 9 7 2 & 5 8 7 2 n a g a E N M , n a g a E - r e t n e C e c r e m m o C n o t g n i x e L N M , h t u l u D - e s u o h t h g i L N M , a k n o t e n n i M - 2 6 d a o R y t n u o C 0 0 6 3 1 a k n o t e n n i M N M , n o t h g i r B w e N - y n a p m o C t n e m e v o r p m I l a t e M N M , e l l i v e s o R - d a o R e k a L g n o L 9 2 9 2 e l l i v e s o R A I , e l a d n a b r U - t e e r t S h t 6 0 1 0 0 9 3 e l a d n a b r U N M , a i n o c a W - g n i d l i u B l a i r t s u d n I a i n o c a W N M , e l l i v e s o R - r e n i a t n o C e n o t S D N , o g r a F - r e n i a t n o C e n o t S N M , y r u b d o o W - d n a l d o o W 5 6 8 1 y r u b d o o W N M , d e t s n i W - g n i d l i u B l a i r t s u d n I d e t s n i W N M , a k o n A - r e t n e C p i r t S a k o n A D N , t o n i M - n i a M h t u o S 7 1 l a i r t s u d n I l a t o T l i a t e R N M , k r a P n y l k o o r B - r e h t a e L s n o s l i ' W $ 4 3 8 , 6 $ N M , s i l o p a e n n i M - ) e d i s r e v i R ( l a c i d e M e u n e v A h t 5 2 1 0 7 s i l o p a e n n i M h c i h w n o e f i L n i n o i t a i c e r p e d e m o c n i t s e t a l f o e t a D d e z i l a t i p a c s t s o C d e t u p m o c s i t n e m e t a t s n o i t c u r t s n o C d e t a l u m u c c A & s g n i d l i u B o t t n e u q e s b u s & s g n i d l i u B n o i t i s i u q c A r o n o i t a i c e r p e D l a t o T s t n e m e v o r p m I d n a L n o i t i s i u q c a s t n e m e v o r p m I d n a L s e c n a r b m u c n E t a d e i r r a c h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c y n a p m o C o t t s o C l a i t i n I s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 - 2 / 1 5 1 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 3 0 0 2 3 0 0 2 4 0 0 2 3 0 0 2 6 0 0 2 4 0 0 2 4 0 0 2 3 0 0 2 9 9 9 1 5 0 0 2 - 3 0 0 2 3 0 0 2 3 0 0 2 4 9 9 1 0 0 0 2 3 0 0 2 3 0 0 2 3 0 0 2 6 9 9 1 3 0 0 2 3 0 0 2 3 0 0 2 3 7 9 1 3 9 9 1 3 0 0 2 5 9 9 1 3 0 0 2 3 0 0 2 9 9 9 1 4 0 0 2 3 0 0 2 6 0 0 2 ) 3 4 1 ( ) 6 0 1 ( ) 6 5 3 ( ) 3 3 5 , 2 ( ) 9 3 ( ) 1 0 6 ( ) 7 2 2 ( ) 5 1 3 ( ) 1 0 3 ( ) 8 0 2 ( ) 9 6 ( ) 1 9 8 ( ) 6 5 8 ( ) 4 9 5 ( ) 1 7 3 ( ) 6 4 4 ( ) 2 9 5 ( ) 9 1 2 ( ) 1 5 3 ( ) 4 4 2 ( ) 2 8 1 , 1 ( ) 0 2 2 ( ) 3 2 1 ( ) 4 3 9 , 2 ( ) 6 4 0 , 1 ( ) 6 5 ( ) 5 9 4 ( ) 1 3 1 , 2 ( ) 4 2 7 ( ) 7 4 2 ( ) 2 7 1 ( 2 6 9 3 9 5 , 3 3 2 4 , 1 2 1 1 6 0 9 9 , 4 3 3 9 , 1 3 4 1 , 3 4 9 6 , 1 3 1 8 , 1 9 0 5 5 0 2 , 8 6 4 5 , 2 1 2 7 , 5 3 8 1 , 6 2 9 4 , 2 3 7 4 , 3 3 2 1 , 2 0 0 5 , 1 1 7 9 , 1 0 0 8 , 1 8 6 2 , 8 8 0 6 3 9 8 2 4 4 9 9 6 , 3 6 5 3 , 3 1 1 0 , 2 1 1 4 8 , 6 1 8 6 , 1 5 5 4 , 2 $ 1 8 1 , 1 $ 5 0 5 4 1 7 , 4 3 0 8 , 1 0 4 4 , 2 3 4 5 , 1 8 2 4 , 1 9 5 4 5 2 7 , 5 2 6 3 , 2 1 0 0 , 5 6 2 3 , 5 6 6 1 , 2 0 2 2 , 3 8 9 8 , 1 1 1 4 , 1 7 7 8 , 1 3 7 5 , 1 6 4 5 , 7 6 3 5 5 7 7 9 5 3 9 9 0 , 3 1 7 9 , 2 7 1 7 , 8 9 9 5 , 5 1 0 6 , 1 9 8 3 , 2 6 0 1 6 7 2 0 3 1 3 0 7 1 5 1 5 8 3 0 5 0 8 4 , 2 4 8 1 0 2 7 7 5 8 6 2 3 3 5 2 5 2 2 9 8 4 9 7 2 2 2 2 7 2 7 8 1 1 0 0 6 3 8 5 8 3 0 8 6 6 4 9 2 , 3 2 4 2 , 1 6 2 5 1 3 3 5 8 9 0 3 9 1 3 1 2 5 5 4 3 3 2 8 0 4 , 2 2 7 1 , 1 3 7 9 9 0 0 3 8 7 4 0 1 , 7 8 3 5 0 1 0 2 6 5 5 6 2 1 7 8 7 2 1 7 6 3 9 4 9 9 6 , 4 0 0 8 , 1 8 8 5 , 1 5 3 2 , 1 0 2 4 , 1 6 4 4 4 0 3 , 5 0 6 3 , 2 8 0 8 , 4 9 0 2 , 3 3 2 0 , 1 0 5 2 , 2 9 8 8 , 1 1 1 4 , 1 2 4 1 , 1 3 7 5 , 1 4 6 0 , 1 3 5 4 9 6 7 7 5 3 9 9 0 , 3 6 4 6 , 2 0 1 6 , 8 5 3 5 , 5 5 7 5 , 1 8 1 7 , 1 3 7 9 1 7 6 7 2 7 , 2 7 1 8 , 5 1 $ 8 0 2 1 9 2 6 6 8 $ 2 0 2 2 0 2 8 4 6 0 6 , 5 3 2 7 , 1 $ 2 7 7 9 6 4 3 0 7 , 2 5 6 6 , 4 1 $ 7 0 2 1 9 2 2 4 8 5 3 0 , 5 2 9 6 7 2 0 3 1 2 0 7 0 5 1 4 7 3 0 5 6 4 4 , 2 4 8 1 0 8 6 6 6 5 7 9 2 0 5 2 5 2 2 9 8 6 4 7 2 2 0 0 1 0 5 6 8 0 0 6 3 8 4 5 1 9 7 6 6 5 7 2 , 3 9 1 2 , 1 $ 8 7 5 0 6 4 $ 7 5 9 , 1 3 2 3 , 4 1 1 2 4 9 9 8 0 7 9 , 2 1 0 5 , 1 0 3 3 2 3 1 , 1 0 5 0 8 , 4 3 4 9 , 1 7 0 9 , 2 4 9 5 , 1 9 9 6 3 4 5 , 1 9 2 5 1 8 0 , 1 9 2 1 , 1 4 8 2 , 1 8 0 0 , 5 0 4 3 6 3 3 3 1 3 9 , 2 3 4 0 , 2 0 6 6 , 3 1 9 6 , 3 0 4 4 3 , 3 ) 0 9 9 , 8 1 ( ) 1 7 8 , 2 6 2 ( $ $ 1 5 1 , 9 1 1 $ 1 1 1 , 8 9 $ 0 4 0 , 1 2 $ 0 8 3 , 8 1 5 8 5 , 9 2 7 , 1 $ 0 5 6 , 6 4 5 , 1 $ 5 3 9 , 2 8 1 $ 1 9 0 , 9 9 1 $ $ 2 6 7 , 1 8 $ 9 0 0 , 9 1 $ 9 2 7 , 3 6 $ 1 4 4 , 8 5 3 , 1 $ 3 5 0 , 2 7 1 $ 8 5 1 , 0 7 0 , 1 $ N M , e l l i v s n r u B N M , e l l i v s n r u B - - r e t n e C p i r t S 1 e l l i v s n r u B r e t n e C p i r t S 2 e l l i v s n r u B N M , n i l p m a h C - d n o P h t u o S n i l p m a h C N M , n e s s a h n a h C D N , t o n i M - - e g a l l i V t s e W n a h C a z a l P t s e W a t o k a D N M , h t u l u D - l i a t e R d l e f n e D h t u l u D N M , n a g a E - y t i n u m m o C n a g a E N M , h t u l u D - A P A N h t u l u D d e u n i t n o c - l i a t e R n o i t p i r c s e D N M , e k a L t s e r o F - r e t n e C e k a l t s e W e k a L t s e r o F D N , s k r o F d n a r G - l l a M k r a p d e M s k r o F d n a r G D N , n w o t s e m a J - r e t n e C s s e n i s u B n w o t s e m a J D N , n w o t s e m a J - l l a M o l a f f u B n w o t s e m a J D N , s k r o F d n a r G - e k i m r a C s k r o F d n a r G T M , l l e p s i l a K - r e t n e C l i a t e R l l e p s i l a K I M , d o o w t n e K - e r u t i n r u F e l l i v s a m o h T d o o w t n e K N M , s k r o F d n a r G t s a E - n o i t a t S d n a r G t s a E D N , o g r a F - y t i n u m m o C s s e r p x E o g r a F N M , e k a L t s e r o F - o t u A e k a L t s e r o F N M , e l l i v e k a L - r e t n e C p i r t S e l l i v e k a L T M , n o t s g n i v i L - a d i m a P n o t s g n i v i L I W , h t i m s y d a L - a d i m a P h t i m s y d a L N M , o l l e c i t n o M - e r o t S C o l l e c i t n o M E N , a h a m O - e l b o N & s e n r a B a h a m O N M , y t i C e n i P - e r o t S C y t i C e n i P D N , t o n i M - d a e h w o r r A t o n i M D N , t o n i M - a z a l P t o n i M N M , r e t s e h c o R - e r a u q S d o o w e l p a M r e t s e h c o R N M , y t i C e n i P - e r a u q S n e e r g r e v E y t i C e n i P N M , d u o l C . t S - e t a g t s e W d u o l C . t S I W , n o t s e W - s n e e r g l a W n o t s e W I W , n o t s e W - l i a t e R n o t s e W 8 3 - F t r o p e R l a u n n A 9 0 0 2 l i a t e R l a t o T l a t o t b u S S E I R A I D I S B U S D N A T S U R T E T A T S E L A E R S R O T S E V N I 9 0 0 2 , 0 3 l i r p A ) s d n a s u o h t n i ( N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R - I I I e l u d e h c S 9 3 - F t r o p e R l a u n n A 9 0 0 2 h c i h w n o e f i L n i n o i t a i c e r p e d e m o c n i t s e t a l f o e t a D d e z i l a t i p a c s t s o C d e t u p m o c s i t n e m e t a t s n o i t c u r t s n o C d e t a l u m u c c A & s g n i d l i u B o t t n e u q e s b u s & s g n i d l i u B n o i t i s i u q c A r o n o i t a i c e r p e D l a t o T s t n e m e v o r p m I d n a L n o i t i s i u q c a s t n e m e v o r p m I d n a L s e c n a r b m u c n E t a d e i r r a c h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c y n a p m o C o t t s o C l a i t i n I d n a L d e v o r p m i n U n o i t p i r c s e D s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 8 0 0 2 8 0 0 2 6 0 0 2 9 0 0 2 3 0 0 2 6 0 0 2 6 0 0 2 3 0 0 2 8 0 0 2 9 0 0 2 6 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 $ 7 8 5 7 2 8 3 2 4 3 2 3 4 2 4 , 1 7 9 2 4 9 5 0 2 5 6 5 2 1 8 0 0 3 1 3 1 5 0 0 2 0 0 0 $ 0 $ 7 8 5 4 1 3 3 2 4 3 2 3 1 1 4 , 1 7 9 2 4 9 3 0 2 5 6 5 2 1 8 0 0 4 2 3 1 5 2 0 5 0 0 0 $ 1 1 $ $ 1 0 7 , 5 $ 8 2 5 $ 3 7 1 , 5 $ 5 5 5 $ 0 0 0 0 0 0 0 0 0 0 0 0 $ 6 7 5 4 1 3 3 2 4 3 2 3 0 0 4 , 1 5 9 2 4 9 0 0 2 5 6 5 2 1 8 $ $ 6 4 1 , 5 $ 0 0 0 0 0 0 0 0 0 0 0 0 $ D N , k c r a m s i B - t S h t 2 1 S 0 3 1 2 k c r a m s i B N M , r e t s e h c o R - d n a L d e v o r p m i n U e g d i R y r r a u Q N M , o l l e c i t n o M - d n a L d e v o r p m i n U o l l e c i t n o M I W , s l l a F r e v i R - d n a L d e v o r p m i n U s l l a F r e v i R A I , e l a d n a b r U - d n a L d e v o r p m i n U e l a d n a b r U I W , n o t s e W - d n a L d e v o r p m i n U n o t s e W E N , n l o c n i L - s t i n U 4 2 k o o r b s a m o h T D N , t o n i M - t o l - t u O a z a l P e t a r o p r o C T E R I T M , l l e p s i l a K - d n a L d e v o r p m i n U l l e p s i l a K D N , k c r a m s i B - n i a M E 0 0 7 k c r a m s i B N M , n a g a E - d n a L d e v o r p m i n U n a g a E $ d n a L d e v o r p m i n U l a t o T ) 1 7 8 , 2 6 2 ( 6 8 2 , 5 3 7 , 1 $ 8 7 1 , 7 4 5 , 1 $ 8 0 1 , 8 8 1 $ 6 4 6 , 9 9 1 $ 1 4 4 , 8 5 3 , 1 $ 9 9 1 , 7 7 1 $ 8 5 1 , 0 7 0 , 1 $ l a t o T S E I R A I D I S B U S D N A T S U R T E T A T S E L A E R S R O T S E V N I 9 0 0 2 , 0 3 l i r p A ) s d n a s u o h t n i ( N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R - I I I e l u d e h c S INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES April 30, 2009 Schedule III REAL ESTATE AND ACCUMULATED DEPRECIATION Reconciliations of total real estate carrying value for the three years ended April 30, 2009, 2008, and 2007 are as follows: Balance at beginning of year Additions during year Multi-Family Residential Commercial Office Commercial Medical Commercial Industrial Commercial Retail Improvements and Other Deductions during year Cost of real estate sold Impairment charge Other(1) Balance at close of year(2) (in thousands) 2009 2008 2007 $ 1,648,259 $ 1,489,287 $ 1,269,423 23,215 8,573 19,084 4,337 0 27,971 1,731,439 (49) (338) (1,467) 1,729,585 $ $ 11,159 14,473 82,233 27,132 0 25,787 1,650,071 (1,812) 0 0 1,648,259 38,562 147,302 5,638 15,467 2,382 30,865 1,509,639 (19,797) (555) 0 1,489,287 $ Reconciliations of accumulated depreciation/amortization for the three years ended April 30, 2009, 2008, and 2007, are as follows: Balance at beginning of year Additions during year Provisions for depreciation Deductions during year Accumulated depreciation on real estate sold Other(1) Balance at close of year (in thousands) 2009 2008 2007 $ 219,379 $ 180,544 $ 148,607 44,227 (36) (699) 262,871 $ 39,806 (971) 0 219,379 $ 35,143 (3,206) 0 180,544 $ (1) Consists of miscellaneous disposed assets. (2) The net basis of the Company’s real estate investments for Federal Income Tax purposes is approximately $1.2 billion. 2009 Annual Report F-40 INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES April 30, 2009 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 Liberty Holdings, LLC 7.00% 11/01/12 Less: Allowance for Loan Losses Monthly/ Balloon 0 0 $ 167 167 $ 163 163 $ 0 0 $ $ $ (3) 160 MORTGAGE LOANS RECEIVABLE, BEGINNING OF YEAR New participations in and advances on mortgage loans Collections Transferred to other assets MORTGAGE LOANS RECEIVABLE, END OF YEAR 2009 541 0 541 (381) 0 160 $ $ $ $ (in thousands) 2008 399 167 566 (25) 0 541 $ $ 2007 409 0 409 (22) 12 399 $ $ $ 2009 Annual Report F-41 Computation of Ratio of Earning to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Share Dividends Exhibit 12.1 The following table sets forth our ratios of earnings to fixed charges and earnings to combined fixed charges and preferred share dividends for the periods indicated. The ratio of earnings to fixed charges was computed by dividing earnings by our fixed charges. The ratio of earnings to combined fixed charges and preferred share dividends was computed by dividing earnings by our combined fixed charges and preferred share dividends. For purposes of calculating these ratios, earnings consist of income from continuing operations before minority interest plus fixed charges. Fixed charges consist of interest charges on all indebtedness, whether expensed or capitalized, the interest component of rental expense and the amortization of debt discounts and issue costs, whether expensed or capitalized. Preferred share dividends consist of dividends on our Series A preferred shares. 2009 1.14x Fiscal Year ended April 30, 2007 2006 2008 1.23x 1.24x 1.21x 2005 1.20x 1.10x 1.19x 1.19x 1.16x 1.14x Consolidated ratio of earnings to fixed charges Consolidated ratio of earnings to combined fixed charges and preferred share dividends 2009 Annual Report SUBSIDIARIES OF INVESTORS REAL ESTATE TRUST Name of Subsidiary Dakota - IRET, Inc. Dakota Hill Properties, a Texas Limited Partnership DRF Omaha/NOH, LLC EVI Billings, LLC EVI Grand Cities, LLC EVI Sioux Falls, LLC Forest Park - IRET, Inc. Forest Park Properties, a North Dakota Limited Partnership France Medical LLC France Medical MM LLC Health Investors Business Trust IRET - BD, LLC IRET - Brenwood, LLC IRET Corporate Plaza, LLC IRET - DMS, LLC IRET - Kentwood, LLC IRET-MR9, LLC IRET-MR9 Holding, LLC IRET - Oakmont, LLC IRET-QR, LLC IRET-Quarry Ridge, LLC IRET - Ridge Oaks, LLC IRET - Rimrock, LLC IRET - Rocky Meadows, LLC IRET Properties, a North Dakota Limited Partnership IRET, Inc. IRET-1715 YDR, LLC IRET - Candlelight, LLC IRET - Golden Jack, L.L.C. IRET - Minot EV, LLC IRET - Plymouth, LLC IRET-3900 Urbandale, LLC Meadow 2 - IRET, Inc. Meadow 2 Properties, L.P. MedPark - IRET, Inc. Medpark Properties Limited Partnership Mendota Office Holdings LLC Mendota Office Three & Four LLC Mendota Properties LLC Minnesota Medical Investors LLC Ridge Oaks, L.P. SMB MM LLC SMB Operating Company LLC Thomasbrook - IRET, Inc. Thomasbrook Properties, a Nebraska Limited Partnership Exhibit 21.1 State of Incorporation or Organization Texas Texas Minnesota North Dakota North Dakota North Dakota North Dakota North Dakota Delaware Delaware Delaware Minnesota Minnesota North Dakota Minnesota North Dakota Delaware Delaware South Dakota Delaware Delaware Iowa North Dakota North Dakota North Dakota North Dakota Minnesota North Dakota Delaware North Dakota Minnesota Delaware North Dakota North Dakota North Dakota North Dakota Minnesota Minnesota Minnesota Delaware Iowa Delaware Delaware Nebraska Nebraska 2009 Annual Report CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM EXHIBIT 23.1 We consent to the incorporation by reference in Registration Statement Nos. 333-158001, 333-153715, 333-153714, 333-149081, 333-148529, 333-145714, 333-141341, 333-137699, 333-131894, 333-128745, 333-122289, 333- 119547, 333-117121, 333-115082, 333-112465, 333-114162, 333-112272, 333-110003, 333-109387, 333-107729, 333-106748, 333-104267, 333-102610, 333-101782, 333-100272, 333-98575, 333-91788, 333-85930, 333-85352, 333-76034, 333-76266, 333-57676, 333-89761, and 333-67317 on Form S-3 and in Registration Statement Nos. 333-140176 and 333-155497 on Form S-8 of our report, dated July 13, 2009, relating to the consolidated financial statements and financial statement schedules of Investors Real Estate Trust and subsidiaries, and the effectiveness of Investors Real Estate Trust and subsidiaries’ internal control over financial reporting, appearing in the Annual Report on Form 10-K of Investors Real Estate Trust for the year ended April 30, 2009. DELIOTTE & TOUCHE LLP Minneapolis, Minnesota July 13, 2009 2009 Annual Report Certifications Exhibit 31.1 I, Thomas A. Wentz, Sr., certify that: 1. I have reviewed this Annual Report on Form 10-K of Investors Real Estate Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: July 14, 2009 By: /s/ Thomas A. Wentz, Sr. Thomas A. Wentz, Sr., President & CEO 2009 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, 2009 By: /s/ Diane K. Bryantt Diane K. Bryantt, Senior Vice President & CFO 2009 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, 2009, as filed with the Securities and Exchange Commission on July 14, 2009, (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, 2009 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. 2009 Annual Report Exhibit 32.2 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. 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, 2009, as filed with the Securities and Exchange Commission on July 14, 2009, (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, 2009 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. 2009 Annual Report S h a r e h o l d e r I n f o r m a t i o n Trustees & Executive Officers Patrick G. Jones Trustee; Private Investor Jeffrey L. Miller Trustee; Private Investor C.W. “Chip” Morgan Trustee; President and Chief Executive Officer, Northwest Respiratory Services, LLC John T. Reed Trustee; Private Investor W. David Scott Trustee; Chief Executive Officer, Tetrad Corporation (fka Magnum Resources, Inc.) Stephen L. Stenehjem Trustee; President and Chief Executive Officer, Watford City BancShares, Inc. John D. Stewart Trustee; President and Chief Executive Officer, Fisher Motors, Inc. Thomas A. Wentz, Sr. President and Chief Executive Officer 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 Senior Vice President - General Counsel and Corporate Secretary Charles A. Greenberg Senior Vice President Asset Management Group Karin M. Wentz Senior Vice President - Chief Compliance Officer, Assistant Secretary, & Associate General Counsel Annual Meeting The Annual Meeting of Shareholders of the company will be held at 7:00 p.m. CDT on September 15, 2009, 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 “IRET.” 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 Legal Counsel Pringle & Herigstad, P.C. Minot, North Dakota Hunton & Williams, LLP Richmond, Virginia Distribution Reinvestment and Share Purchase Plan For information on the company’s distribution reinvestment and share purchase plan, contact the Investor Relations Department at 701-837-4738 or at info@iret.com. Form 10-K A copy of the annual report on Form 10-K for the company’s fiscal year ended April 30, 2009, 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 Investors 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: Investor Relations, Investors Real Estate Trust, PO Box 1988, Minot, ND 58702- 1988. INVESTORS REAL ESTATE TRUST 3015 16th Street SW, Suite100 PO Box 1988 Minot, ND 58702-1988 Telephone: 701.837.4738 Fax: 701.838.7785 info@iret.com • www.iret.com

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