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
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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