Investors Real Estate Trust
Annual Report 2014

Plain-text annual report

2014 Annual Report 1400 31st Avenue SW, Suite 60 P.O. Box 1988 Minot, North Dakota 58702-1988  UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended April 30, 2014 or  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.) 1400 31st Avenue SW, Suite 60 Post Office Box 1988 Minot, ND 58702-1988 (Address of principal executive offices) (Zip code) 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) - New York Stock Exchange Series A Cumulative Redeemable Preferred Shares of Beneficial Interest (no par value) - New York Stock Exchange Series B Cumulative Redeemable Preferred Shares of Beneficial Interest (no par value) - New York Stock Exchange 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.  Yes  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.   Yes  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.   Yes  No 2014 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).  Yes  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.  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.  Large accelerated filer  Non-accelerated filer  Smaller reporting Company  Accelerated filer Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No The aggregate market value of the Registrant’s outstanding common shares of beneficial interest held by non- affiliates of the Registrant as of October 31, 2013 was $898,050,172 based on the last reported sale price on the New York Stock Exchange on October 31, 2013. For purposes of this calculation, the Registrant has assumed that its trustees and executive officers are affiliates. The number of common shares of beneficial interest outstanding as of June 2, 2014, was 109,374,477. 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 2014 Annual Meeting of Shareholders to be held on September 16, 2014 are incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) hereof. 2014 Annual Report INVESTORS REAL ESTATE TRUST INDEX PAGE PART I 5 Item 1. Business ................................................................................................................................................. Item 1A. Risk Factors ........................................................................................................................................... 11 Item 1B. Unresolved Staff Comments .................................................................................................................. 22 Item 2. Properties ............................................................................................................................................... 22 Item 3. Legal Proceedings .................................................................................................................................. 33 Item 4. Mine Safety Disclosures ........................................................................................................................ 35 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .................................................................................................................................... 36 Item 6. Selected Financial Data ......................................................................................................................... 38 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ................. 38 Item 7A. Quantitative and Qualitative Disclosures about Market Risk ................................................................ 82 Item 8. Financial Statements and Supplementary Data ...................................................................................... 83 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................ 83 Item 9A. Controls and Procedures ........................................................................................................................ 83 Item 9B. Other Information................................................................................................................................... 85 PART III Item 10. Trustees, Executive Officers and Corporate Governance ...................................................................... 85 Item 11. Executive Compensation ....................................................................................................................... 85 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .................................................................................................................................................. 85 Item 13. Certain Relationships and Related Transactions, and Trustee Independence ........................................ 85 Item 14. Principal Accountant Fees and Services ................................................................................................ 85 PART IV Item 15. Exhibits, Financial Statement Schedules ............................................................................................... 86 Exhibit Index ......................................................................................................................................................... 86 Signatures .............................................................................................................................................................. 88 Reports of Independent Registered Public Accounting Firms and Financial Statements ........................ F-1 to F-54 2014 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,” “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; • our ability to complete construction and lease-up of our development projects on schedule and on budget; • 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. 2014 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, commercial healthcare, commercial industrial and commercial retail properties. These properties are located primarily in the upper Midwest states of Minnesota and North Dakota. For the fiscal year ended April 30, 2014, our real estate investments in these two states accounted for 69.1% of our total gross revenue. Our principal executive office is located in Minot, North Dakota. We also have corporate offices in Minneapolis and St. Cloud, Minnesota, and additional property management offices in Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota and South Dakota. We seek to diversify our investments among multi-family residential, commercial office, commercial healthcare, commercial industrial and commercial retail properties. As of April 30, 2014, our real estate portfolio consisted of: • 93 multi-family residential properties containing 10,779 apartment units and having a total real estate investment amount net of accumulated depreciation of $595.6 million; • 65 commercial office properties containing approximately 4.8 million square feet of leasable space and having a total real estate investment amount net of accumulated depreciation of $422.7 million; • 67 commercial healthcare properties (including senior housing) containing approximately 3.1 million square feet of leasable space and having a total real estate investment amount net of accumulated depreciation of $419.2 million; • 8 commercial industrial properties containing approximately 1.2 million square feet of leasable space and having a total real estate investment amount net of accumulated depreciation of $45.2 million; and • 26 commercial retail properties containing approximately 1.3 million square feet of leasable space and having a total real estate investment amount net of accumulated depreciation of $89.0 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, 2014, no individual tenant accounted for more than 10% of our total real estate rentals, although affiliated entities of Edgewood Vista together accounted for approximately 14.4% of our total commercial segments’ minimum rents. 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 “Internal Revenue Code”), and since February 1, 1997, we have been structured as an UPREIT. Since restructuring as an UPREIT, we have conducted our daily business operations primarily 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, 2014, IRET, Inc. owned an 83.8% interest in IRET Properties. The remaining ownership of IRET Properties is held by individual limited partners. 2014 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 commercial office, commercial healthcare, commercial industrial and commercial retail 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 Colorado, Idaho, Iowa, Kansas, Missouri, Montana, Nebraska, South Dakota, Wisconsin and Wyoming. 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 12 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, 2014 and 2013, we had no junior mortgages outstanding. We had no investments in real estate mortgages at April 30, 2014 and 2013. 2014 Annual Report 6 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: Distributions to shareholders and holders of limited partnership units. One of the requirements of the Internal Revenue Code 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. Our general policy has been to make 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. Distributions to our common shareholders and unitholders in fiscal years 2014 and 2013 totaled approximately 82.5% and 75.4%, respectively, on a per share and unit basis of our funds from operations. 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”), and on August 7, 2012 we issued 4,600,000 shares of 7.95% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series B 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 generally accepted accounting principles (“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, 2014, our ratio of total indebtedness to total real estate investments was 63.3% while our ratio of total indebtedness as compared to our Net Assets (computed in accordance with our Bylaws) was 93.3%. 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 declaration of trust, as amended (our “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, net of issue costs (in thousands) 2012 2013 1,024 1,620 $ 3,480 $ 12,632 $ 8,055 2014 361 Acquiring or repurchasing shares. As a REIT, it is our intention to invest only in real estate assets. Our 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 Internal Revenue Code. Any policy regarding the acquisition or repurchase of shares or other securities is vested solely in our Board of Trustees and may be changed at any time, or from time to time, without notice to, or a vote of, our shareholders. 2014 Annual Report 7 During fiscal year 2014, we did not repurchase any of our outstanding common shares, preferred shares or limited partnership units. 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. We had no investments in real estate mortgages at April 30, 2014 and 2013. 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 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; commercial office; commercial healthcare, including senior housing (formerly referred to as the commercial medical segment; the composition of this segment has not changed from prior periods); commercial industrial and commercial 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. Executive Officers of the Company Set forth below are the names, ages, titles and biographies of each of our executive officers as of July 1, 2014. Name Timothy P. Mihalick Thomas A. Wentz, Jr. Diane K. Bryantt Michael A. Bosh Mark W. Reiling Charles A. Greenberg Ted E. Holmes Andrew Martin Age 55 48 50 43 56 55 43 41 Title President and Chief Executive Officer Executive Vice President and Chief Operating Officer Executive Vice President and Chief Financial Officer Executive Vice President and General Counsel Executive Vice President of Asset Management Senior Vice President, Commercial Asset Management Senior Vice President, Finance Senior Vice President, Residential Property Management 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 served as the Chief Operating Officer from 1997 to 2009, as a Senior Vice President from 2002 to 2009, and as a member of our Board of Trustees since 1999. In September 2009, Mr. Mihalick was named President and Chief Executive Officer. 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 served as Senior Vice President of Asset Management and Finance from 2002 to 2009 and as a member of our Board of Trustees since 1996. In September 2009, Mr. Wentz was named Senior Vice President and Chief Operating Officer, and in June 2012 Mr. Wentz was named Executive Vice President and Chief Operating Officer. 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. Diane K. Bryantt is a graduate of Minot State University. Ms. Bryantt 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 and Executive Vice President and Chief Financial Officer in June 2012. 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 and Executive Vice President and General Counsel in June 2012. 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. 2014 Annual Report 8 Mark W. Reiling joined IRET in June 2012 as Executive Vice President of Asset Management. Mr. Reiling holds a Bachelor’s degree in Business Administration (Finance) from the University of Notre Dame and has over 30 years of commercial real estate experience. He was associated with the Towle Real Estate Company and its successors (now Cassidy Turley) for 29 years, 17 as president and 9 as the owner, providing appraisal, brokerage, consulting, mortgage banking and property management services. During the same time, as owner of Towle Properties, Inc., he acquired and developed real estate properties and provided third party asset management services. Previously, he was a senior account officer with Citicorp Real Estate, Inc. Mr. Reiling holds the CRE designation from the Counselors of Real Estate and the SIOR designation from the Society of Industrial and Office Realtors. He is a director of Sunrise Banks. Charles A. Greenberg joined IRET in August 2005 as Director of Commercial Asset Management, and was named Senior Vice President, Commercial Asset Management in November 2008. He is a graduate of the University of Wisconsin-Madison and has over 27 years of experience in both asset and property management of institutional- grade real estate investments. From 1989 to 2005, Mr. Greenberg was General Manager at Northco Corporation, a Minneapolis-based real estate investment firm. Ted E. Holmes joined us in 2009 as Vice President of Finance, and was promoted to Senior Vice President of Finance in December 2010. Mr. Holmes has over 18 years of experience in the finance industry, including the placement of debt and equity as a commercial and multi-family mortgage banker. From 1994 to 2002 Mr. Holmes was an Analyst and Assistant Vice President with Towle Financial Services/Midwest, a privately held mortgage banking company in Minneapolis, and he served as Director with Wells Fargo Bank, NA from 2003 to 2009. He holds a Bachelor of Arts degree in Economics from St. Cloud State University and is a licensed Minnesota Broker. Andrew Martin joined IRET in December 2009 to lead the Company’s Residential Property Management division. In May 2011 Mr. Martin was promoted to Senior Vice President of Residential Property Management. He has over 18 years of experience in the commercial and multi-family property management industry. Prior to his employment with IRET, Mr. Martin was a partner with INH Companies, a property management firm based in St. Cloud, Minnesota, and also worked in Minneapolis, Minnesota for United Properties as a regional property manager. Mr. Martin holds a bachelor’s degree in Real Estate and a Master’s degree in Business Administration from St. Cloud State University, and has earned the designation of Certified Property Manager from the Institute of Real Estate Management. Employees As of April 30, 2014, we had 445 employees, of whom 387 were full-time and 58 part-time employees. Of these 445 employees, 63 are corporate staff in our Minot, North Dakota and Minneapolis, Minnesota offices, and 382 are property management employees based at our properties or in local property management offices. 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. 2014 Annual Report 9 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 for 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 may be dominant in selected markets. Many of our competitors have greater financial and management resources than we have. We believe, however, that the geographic diversity of our investments, the experience and abilities of our management, the quality of our assets and the financial strength of many of our commercial tenants affords us some competitive advantages that have in the past and will in the future allow us to operate our business successfully despite the competitive nature of our business. Corporate Governance Our 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 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 shareholders and all interested parties to communicate 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 and Governance Committees of our Board of Trustees are also available on our website under the heading “Corporate Governance” in the Investors/Corporate Overview 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. 2014 Annual Report 10 Item 1A. Risk Factors Risks Related to Our Properties and Business Our performance and share value are subject to risks associated with the real estate industry. Our results of operations and financial condition, the value of our real estate assets, and the value of an investment in us are subject to the risks normally associated with the ownership and operation of real estate properties. These risks include, but are not limited to, the following factors which, among others, may adversely affect the income generated by our properties: • downturns in national, regional and local economic conditions (particularly increases in unemployment); • competition from other commercial and multi-family residential properties; • local real estate market conditions, such as oversupply or reduction in demand for commercial and multi- family residential space; • changes in interest rates and availability of attractive financing; • declines in the economic health and financial condition of our tenants and our ability to collect rents from our tenants; • vacancies, changes in market rental rates and the need periodically to repair, renovate and re-lease space; • • increased operating costs, including real estate taxes, state and local taxes, insurance expense, utilities, and security costs; significant expenditures associated with each investment, such as debt service payments, real estate taxes and insurance and maintenance costs, which are generally not reduced when circumstances cause a reduction in revenues from a property; • weather conditions, civil disturbances, natural disasters, terrorist acts or acts of war which may result in uninsured or underinsured losses; and • decreases in the underlying value of our real estate. 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. 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 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 unclear how future legislation may impact Fannie Mae and Freddie Mac’s involvement in multi-family residential financing. The scope and nature of the actions that the U.S. Government may undertake with respect to the future of Fannie Mae and Freddie Mac are unknown and will continue to evolve. 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. 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. 2014 Annual Report 11 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; • 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 to quickly and efficiently 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, 2014, we received approximately 69.1% 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, 2014, approximately 1.4 million square feet, or 13.0% of our total commercial property square footage, was vacant. Approximately 760 of our 10,779 apartment units, or 7.0%, were vacant. As of April 30, 2014, leases covering approximately 11.9% of our total commercial segments net rentable square footage will expire in fiscal year 2015, 12.1% in fiscal year 2016, 11.3% in fiscal year 2017, 6.7% in fiscal year 2018, and 12.6% in fiscal year 2019, assuming that none of the tenants exercise future renewal options, and excluding the effect of early renewals completed on existing leases. 2014 Annual Report 12 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 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. Capital markets and economic conditions can materially affect our financial condition and results of operations, the value of our equity securities, and our ability to sustain payment of our distribution at current levels. Many factors affect the value of our equity securities and our ability to make or maintain at current levels distributions to the holders of our shares of beneficial interest, including the state of the capital markets and the economy, which in recent years have negatively affected substantially all businesses, including ours. Demand for office, industrial, and retail space has declined nationwide due to bankruptcies, downsizing, layoffs and cost cutting. The availability of credit has been and may in the future again be adversely affected by illiquid credit markets. Regulatory pressures and the burden of troubled and uncollectible loans led some lenders and institutional investors to reduce, and in some cases, cease to provide funding to borrowers. If these market conditions recur, they may limit our ability and the ability of our tenants to timely refinance maturing liabilities and access the capital markets to meet liquidity needs, which may materially affect our financial condition and results of operations and the value of our equity securities. Declining rental revenues from our properties due to persistent negative economic conditions may have a material adverse effect on our ability to make distributions to the holders of our shares of beneficial interest. In fiscal years 2014 and 2013, distributions to our common shareholders and unitholders of the Operating Partnership in cash and common shares pursuant to our Distribution Reinvestment and Share Purchase Plan (DRIP) totaled approximately 71.4% and 76.2%, respectively, of our net cash provided by operating activities. Inability to manage rapid growth effectively may adversely affect our operating results. We have experienced significant growth at various times in the past; 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; and the ability to consistently achieve targeted returns on individual properties. 2014 Annual Report 13 We may not be able to maintain similar rates of growth in the future, or manage our growth effectively. Additionally, an inability to make accretive property acquisitions may adversely affect our ability to increase our net income. 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. 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. High leverage on our overall portfolio may result in losses. As of April 30, 2014, 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 93.3%. As of April 30, 2013 and 2012, our percentage of total indebtedness to total Net Assets was approximately 91.0% and 117.2%, respectively. Under our Bylaws we may increase our total indebtedness up to 300.0% of our Net Assets, or by an additional approximately $2.4 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; 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 2014 Annual Report 14 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 or repay or refinance the debt at maturity, 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. For example, as of April 30, 2014, we recognized an impairment loss of $34.9 million on eight of nine commercial office properties that comprise a portfolio securing a $122.6 million non-recourse loan maturing in October 2016, and we are working to initiate discussions with the loan servicer to discuss various alternatives with regard to the loan, including, among others, restructuring the debt, or conveying all nine of the properties to the lender. 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, 2014, approximately 8.0% of our mortgage debt is due for repayment in fiscal year 2015. As of April 30, 2014, we had approximately $80.1 million of principal payments and approximately $52.3 million of interest payments due in fiscal year 2015 on fixed and variable-rate mortgages secured by our real estate. Additionally, as of April 30, 2014, we had $22.5 million outstanding under our $72.0 million multi-bank line of credit, which has a maturity date of December 1, 2016. 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, 2014, $20.5 million, or approximately 2.1%, of the principal amount of our total mortgage indebtedness was subject to variable interest rates agreements, and approximately 60.3% of the principal amount of our total construction loan indebtedness was subject to variable interest rates. Additionally, our $72.0 million multi- bank line of credit bears interest at a rate of 1.25% over the Wall Street Journal Prime Rate, with a floor of 4.75% and a cap of 8.65%. 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. 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 commercial healthcare 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 healthcare properties (including senior housing) and may acquire more in the future. As of April 30, 2014, our real estate portfolio consisted of 67 commercial healthcare properties, with a total real estate investment amount, net of accumulated depreciation, of $419.2 million, or approximately 26.7% of the total real estate investment amount, net of accumulated depreciation, of our entire real estate portfolio. The healthcare industry continues to experience 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 2014 Annual Report 15 federal and state authorities. Sources of revenue for our commercial healthcare 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 commercial healthcare services tenants and, in turn, our lease revenues. In addition, if we or our tenants terminate the leases for these properties, or our tenants lose their regulatory authority to operate such properties, we may not be able to locate suitable replacement tenants to lease the properties for their specialized uses. Alternatively, we may be required to spend substantial amounts to adapt the properties to other uses. Any loss of revenues and/or additional capital expenditures occurring as a result could hinder our ability to make distributions to the holders of our shares of beneficial interest. New federal healthcare reform laws may adversely affect the operators and tenants of our commercial healthcare (including senior housing) properties. In March 2010, the President signed into law The Patient Protection and Affordable Care Act (“PPACA”) and The Health Care and Education and Reconciliation Act of 2010 (the “Reconciliation Act”), which amends the PPACA (collectively, the “Health Reform Acts”). The Health Reform Acts contain various provisions that may affect us directly as an employer, and that may affect the operators and tenants of commercial healthcare (including senior housing) properties. While some of the provisions of these laws may have a positive impact on operators’ or tenants’ revenues, by increasing coverage of uninsured individuals, other provisions may have a negative effect on operator or tenant reimbursements, for example by changing the “market basket” adjustments for certain types of healthcare facilities. The Health Reform Acts also enhance certain fraud and abuse penalty provisions that could apply to our operators and tenants in the event of one or more violations of complex federal healthcare laws. Additionally, provisions in the Health Reform Acts may affect the health coverage that we and our operators and tenants provide to our respective employees. We currently cannot predict the impact that this far-reaching, landmark legislation will have on our business and the businesses and operations of our tenants. Any loss of revenues and/or additional expenditures incurred by us or by operators and tenants of our properties as a result of the Health Reform Acts could adversely affect our cash flow and results of operations and have a material adverse effect on our ability to make distributions to the holders of our shares of beneficial interest. Adverse changes in applicable laws may affect our potential liabilities relating to our properties and operations. Increases in real estate taxes and income, service and transfer taxes cannot always be passed through to all tenants in the form of higher rents. As a result, any increase may adversely affect our cash available for distribution, our ability to make distributions to the holders of our shares of beneficial interest and our ability to pay amounts due on our debt. Similarly, changes in laws that increase the potential liability for environmental conditions existing on properties, that increase the restrictions on discharges or other conditions or that affect development, construction and safety requirements may result in significant unanticipated expenditures that could have a material adverse effect on us, our ability to make distributions to the holders of our shares of beneficial interest and our ability to pay 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. 2014 Annual Report 16 We may be responsible for potential liabilities under environmental laws. Under various federal, state and local laws, ordinances and regulations, we, as a current or previous owner or operator of real estate may be liable for the costs of removal of, or remediation of, hazardous or toxic substances in, on, around or under that property. These laws may impose liability without regard to whether we knew of, or were responsible for, the presence of the hazardous or toxic substances. The presence of these substances, or the failure to properly remediate any property containing these substances, may adversely affect our ability to sell or rent the affected property or to borrow funds using the property as collateral. In arranging for the disposal or treatment of hazardous or toxic substances, we may also be liable for the costs of removal of, or remediation of, these substances at that disposal or treatment facility, whether or not we own or operate the facility. In connection with our current or former ownership (direct or indirect), operation, management, development and/or control of real properties, we may be potentially liable for removal or remediation costs with respect to hazardous or toxic substances at those properties, as well as certain other costs, including governmental fines and claims for injuries to persons and property. A finding of liability for an environmental condition as to any one or more properties could have a material adverse effect on us, our ability to make distributions to the holders of our shares of beneficial interest and our ability to pay amounts due on our debt. Environmental laws also govern the presence, maintenance and removal of asbestos, and require that owners or operators of buildings containing asbestos properly manage and maintain the asbestos; notify and train those who may come into contact with asbestos; and undertake special precautions if asbestos would be disturbed during renovation or demolition of a building. Indoor air quality issues may also necessitate special investigation and remediation. These air quality issues can result from inadequate ventilation, chemical contaminants from indoor or outdoor sources, or biological contaminants such as molds, pollen, viruses and bacteria. Such asbestos or air quality remediation programs could be costly, necessitate the temporary relocation of some or all of the property’s tenants or require rehabilitation of an affected property. It is generally our policy to obtain a Phase I environmental study on each property that we seek to acquire. A Phase I environmental study generally includes a visual inspection of the property and the surrounding areas, an examination of current and historical uses of the property and the surrounding areas and a review of relevant state and federal documents, but does not involve invasive techniques such as soil and ground water sampling. If the Phase I indicates any possible environmental problems, our policy is to order a Phase II study, which involves testing the soil and ground water for actual hazardous substances. However, Phase I and Phase II environmental studies, or any other environmental studies undertaken with respect to any of our current or future properties, may not reveal the full extent of potential environmental liabilities. We currently do not carry insurance for environmental liabilities. We may be unable to retain or attract qualified management. We are dependent upon our senior officers for essentially all aspects of our business operations. Our senior officers have experience in the specialized business 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. If the level of drilling and production in the Bakken Shale Formation declines substantially near our North Dakota real estate assets, our physical occupancy levels and revenues could decline. We have significant existing real estate assets in our home market of North Dakota, and we are committing additional resources to the development of multi-family residential and commercial real estate in North Dakota in a response to unprecedented demand for office and residential space resulting from the development of the Bakken Shale Formation. We believe that our ability to maintain or increase physical occupancy levels and rental revenues at our commercial and multi-family residential properties in North Dakota will be significantly affected by the level of drilling and production by third parties in the Bakken Shale Formation. Drilling and production are impacted by factors beyond our control, including: the demand for and prices of crude oil and natural gas; environmental regulation and enforcement; producers’ finding and development costs of reserves; producers’ desire and ability to obtain necessary permits in a timely and economic manner; oil and natural gas field characteristics and production performance; and transportation and capacity constraints on natural gas, crude oil and natural gas liquids pipelines from the producing areas. Oil field activity could decline precipitously and substantially in North Dakota as a result of any or all of these 2014 Annual Report 17 factors, 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. Risks related to properties under construction or development may adversely affect our financial performance. Our development and construction activities involve significant risks that may adversely affect our cash flow and results of operations, and consequently 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 connection with our renovation, redevelopment, development and related construction activities, we may be unable to obtain, or may suffer delays in obtaining, necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations. These denials or delays could result in increased costs or our abandonment of projects. In addition, we may not be able to obtain financing on favorable terms, which may prevent us from proceeding with our development activities, and we may not be able to complete construction and lease-up of a property on schedule, which could result in increased debt service expense or construction costs. Additionally, the time required for development, construction and lease-up means that we may have to wait years for significant cash returns. Because we are required to make cash distributions to our shareholders, if our cash flow from operations or refinancings is not sufficient, we may be forced to borrow additional money to fund such distributions. Newly developed properties may not produce the cash flow that we expect, which could adversely affect our overall financial performance. In deciding whether to develop a particular property, we make assumptions regarding the expected future performance of that property. In particular, we estimate the return on our investment based on expected occupancy and rental rates. If our financial projections with respect to a new property are inaccurate, and the property is unable to achieve the expected occupancy and rental rates, it may fail to perform as we had expected. Our estimate of the costs of repositioning or redeveloping an acquired property may also prove to be inaccurate, which may result in our failure to meet our profitability goals. Risks related to joint ventures may adversely affect our financial performance and results of operations. We have entered into, and may continue in the future to enter into, partnerships or joint ventures with other persons or entities. Joint venture investments involve risks that may not be present with other methods of ownership, including the possibility: that our partner might become insolvent, refuse to make capital contributions when due or otherwise fail to meet its obligations, which may result in certain liabilities to us for guarantees and other commitments; that our partner might at any time have economic or other business interests or goals that are or become inconsistent with our interests or goals; that we could become engaged in a dispute with our partner, which could require us to expend additional resources to resolve such disputes and could have an adverse impact on the operations and profitability of the joint venture; and that our partner may be in a position to take action or withhold consent contrary to our instructions or requests. In addition, our ability to transfer our interest in a joint venture to a third party may be restricted. In some instances, we and/or our partner may have the right to trigger a buy-sell arrangement, which could cause us to sell our interest, or acquire our partner’s interest, at a time when we otherwise would not have initiated such a transaction. Our ability to acquire our partner’s interest may be limited if we do not have sufficient cash, available borrowing capacity or other capital resources. In such event, we may be forced to sell our interest in the joint venture when we would otherwise prefer to retain it. Joint ventures may require us to share decision- making authority with our partners, which could limit our ability to control the properties in the joint ventures. Even when we have a controlling interest, certain major decisions may require partner approval, such as the sale, acquisition or financing of a property. 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 2014 Annual Report 18 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 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 Declaration of Trust may limit a change in control and deter a takeover. In order to maintain our qualification as a REIT, our Declaration of Trust provides that any transaction, other than a transaction entered into through the NASDAQ National Market or other similar exchange, that would result in our disqualification as a REIT under Section 856 of the Internal Revenue Code, including any transaction that would result in (i) a person owning in excess of the ownership limit 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. 2014 Annual Report 19 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 assets notwithstanding 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 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 hold some of our assets through a taxable REIT subsidiary (“TRS”). While the TRS structure would allow the economic benefits of ownership to flow to us, a TRS is subject to tax on its income from the operations of the assisted living facilities at the federal and state level. In addition, a TRS is subject to detailed tax regulations that affect how it may be capitalized and operated. We currently have one TRS, to which we lease our Legends at Heritage Place assisted living facility, located in Sartell, Minnesota. Because of the ownership structure of our Sartell, Minnesota assisted living facility, we face potential adverse effects from changes to the applicable tax laws. Under the Internal Revenue Code, REITs are not allowed to operate assisted living facilities directly or indirectly. Accordingly, we lease our Sartell, Minnesota assisted living facility to our TRS. While the TRS structure allows the economic benefits of ownership to flow to us, the TRS is subject to tax on its income from the operations of the assisted living facilities at the federal and state level. In addition, the TRS is subject to detailed tax regulations that affect how it may be capitalized and operated. If the tax laws applicable to a TRS are modified, we may be forced to modify the structure for owning these assisted living facilities, and such changes may adversely affect the cash flows from the facilities. In addition, the Internal Revenue Service, the United States Treasury Department and Congress frequently review federal income tax legislation, and we cannot predict whether, when or to what extent new federal tax laws, regulations, interpretations or rulings will be adopted. Any of such actions may prospectively or retroactively modify the tax treatment of the TRS and, therefore, may adversely affect our after-tax returns from our Sartell, Minnesota assisted living facility. The lease of qualified health care properties to a taxable REIT subsidiary is subject to special requirements. We currently lease our Sartell, Minnesota assisted living facility to a TRS, and we may in future lease other qualified health care properties we acquire from operators to a TRS (or a limited liability company of which the TRS is a member), which lessee will contract with such operators (or a related party) to operate the health care operations at these properties. The rents from this TRS lessee structure will be treated as qualifying rents from real property if (1) they are paid pursuant to an arms-length lease of a qualified health care property with a TRS and (2) the operator qualifies as an eligible independent contractor. If any of these conditions are not satisfied, then the rents will not be qualifying rents, which could have a material adverse effect on us and our qualification as a REIT. 2014 Annual Report 20 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 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 has been reduced to a maximum rate of 15% if a taxpayer is in the 25%, 28%, 33% or 35% tax brackets and 20% if a taxpayer is in the 39.6% tax bracket. 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 39.6%. Although the earnings of a REIT that are distributed to its shareholders are still generally subject to less federal income taxation than earnings 2014 Annual Report 21 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, Series B 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 New York Stock Exchange 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 New York Stock Exchange, 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, 2013 through April 30, 2014 was 380,799 shares and the average monthly trading volume for the period of May 1, 2013 through April 30, 2014 was 7,965,040 shares. As a result of this trading volume, an owner of our common shares may encounter difficulty in selling our shares in a timely manner and may incur a substantial loss. Item 1B. Unresolved Staff Comments None. Item 2. Properties IRET is organized as a REIT under Section 856-858 of the Internal Revenue 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. 2014 Annual Report 22 Total Real Estate Rental Revenue As of April 30, 2014, our real estate portfolio consisted of 93 multi-family residential properties and 166 commercial properties, consisting of commercial office, commercial healthcare, commercial industrial and commercial retail properties, comprising 37.9%, 26.9%, 26.7%, 2.9%, and 5.6%, 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, 2014. 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: Gross Revenue (in thousands) Fiscal Year Ended April 30, 2014 2013 2012 Multi- Family Commercial Commercial Residential % $ 102,059 38.4% $ 77,440 29.2% $ 65,258 24.6% $ $ 89,923 36.3% $ 75,962 30.6% $ 61,975 25.0% $ $ 71,728 31.4% $ 73,493 32.1% $ 64,511 28.2% $ Healthcare Office % % Commercial Industrial % Commercial All Segments 6,894 2.6% $ 13,831 5.2% $ 265,482 6,700 2.7% $ 13,498 5.4% $ 248,058 6,613 2.9% $ 12,326 5.4% $ 228,671 Retail % Average Effective Annual Rent The table below sets out the average effective annual rent per square foot or unit at same-store properties for each of the last five fiscal years in each of our five segments. Same-store properties (formerly referred to as “stabilized properties”; our method of determining the properties included in this category has not changed from prior periods, only the name of the category has changed) are properties owned or in service for the entirety of the periods being compared, and, in the case of development or re-development properties, which have achieved a target level of occupancy of 90% for multi-family residential properties and 85% for commercial office, healthcare, industrial and retail properties. As of April 30 2014 2013 2012 2011 2010 $ $ $ $ $ Average Effective Annual Rent per square foot or unit(1) Multi-family Residential(2) 783 744 719 691 684 $ $ $ $ $ Commercial Office(3) 13 14 13 13 13 $ $ $ $ $ Commercial Healthcare(3) 17 16 16 19 18 $ $ $ $ $ Commercial Industrial(3) 4 4 4 4 4 $ $ $ $ $ Commercial Retail(3) 8 9 8 8 9 (1) Previously reported amounts are not revised for discontinued operations or changes in the composition of the same-store properties pool. (2) Monthly rent per unit, calculated as annualized rental revenue, net of free rent, including rent abatements and rent credits, divided by the occupied units as of April 30. (3) Monthly rental rate per square foot calculated as annualized contractual base rental income, net of free rent and excluding operating expense reimbursements, divided by the leased square feet as of April 30. Physical Occupancy Rates Physical occupancy represents the actual number of units or square footage leased divided by the total number of units or square footage at the end of the period. Physical occupancy levels on a same-store property and all-property basis are shown below for each property type in each of the three most recent fiscal years ended April 30. 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 Healthcare Commercial Industrial Commercial Retail Same-Store Properties Fiscal Year Ended April 30, All Properties Fiscal Year Ended April 30, 2014 2013 2013 2014 2012 2012 94.5% 95.3% 94.1% 93.0% 94.6% 93.6% 81.4% 81.5% 79.2% 80.7% 80.8% 79.2% 96.2% 94.9% 94.0% 96.3% 94.7% 94.4% 87.3% 95.7% 94.3% 87.8% 96.4% 94.3% 87.3% 86.9% 87.4% 87.4% 87.0% 87.4% 2014 Annual Report 23 Certain Lending Requirements In certain instances, in connection with the acquisition of investment properties, the lender financing such properties may require, as a condition of the loan, that the properties be owned by a “single asset entity.” Accordingly, we have organized a number of wholly-owned subsidiary corporations, and IRET Properties has organized several limited liability companies, for the purpose of holding title in an entity that complies with such lending conditions. All financial statements of these subsidiaries are consolidated into our financial statements. Management and Leasing of Our Real Estate Assets We conduct our corporate operations from offices in Minot, North Dakota and Minneapolis and St. Cloud, Minnesota. We also have property management offices in Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, and South Dakota. The day-to-day management of our properties is carried out by our own employees and in certain cases by third-party property 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. Generally, our management contracts provide for compensation ranging from 2.5% to 6.0% of gross rent collections and, typically, we may terminate these contracts in 60 days or less or upon the property manager’s failure to meet certain specified financial performance goals. With respect to multi- tenant commercial properties, we rely almost exclusively on third-party brokers to locate potential tenants. As compensation, brokers may receive a commission that is generally calculated as a percentage of the net rent to be paid over the term of the lease. We believe that the broker commissions paid by us conform to market and industry standards, and accordingly are commercially reasonable. Summary of Real Estate Investment Portfolio As of April 30, Real estate investments Property owned Less accumulated depreciation Development in progress Unimproved land Total real estate investments 2014 % 2013 % 2012 % (in thousands, except percentages) $ 1,996,031 (424,288) $ 1,571,743 104,609 22,864 $ 1,699,216 92.5% 6.2% 1.3% 100.0% $ 2,032,970 (420,421) $ 1,612,549 46,782 21,503 $ 1,680,834 $ 1,892,009 (373,490) $ 1,518,519 27,599 10,990 $ 1,557,108 95.9% 2.8% 1.3% 100.0% 97.5% 1.8% 0.7% 100.0% 2014 Annual Report 24 Summary of Individual Properties Owned as of April 30, 2014 The following table presents information regarding our 259 residential and commercial properties as well as unimproved land and development properties owned as of April 30, 2014. 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. Additional information is included in Schedule III to our financial statements included in the Annual Report on Form 10-K. * = 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 11th Street 3 Plex - Minot, ND 4th Street 4 Plex - Minot, ND Alps Park - Rapid City, SD Apartments on Main - Minot, ND Arbors - S Sioux City, NE Ashland - Grand Forks, ND Boulder Court - Eagan, MN Brookfield Village - Topeka, KS Brooklyn Heights - Minot, ND Campus Center - St. Cloud, MN Campus Heights - St. Cloud, MN Campus Knoll - St. Cloud, MN Campus Plaza - St. Cloud, MN Campus Side - St. Cloud, MN Campus View - St. Cloud, MN Canyon Lake - Rapid City, SD Castlerock - Billings, MT Chateau I - Minot, ND Cimarron Hills - Omaha, NE Colonial Villa - Burnsville, MN Colony - Lincoln, NE Colton Heights - Minot, ND Cornerstone - St. Cloud, MN Cottage West Twin Homes - Sioux Falls, SD Cottonwood - Bismarck, ND Country Meadows - Billings, MT Crestview - Bismarck, ND Crown - Rochester, MN Crown Colony - Topeka, KS Cypress Court - St. Cloud, MN Evergreen - Isanti, MN Evergreen II - Isanti, MN Fairmont - Minot, ND First Avenue - Minot, ND Forest Park - Grand Forks, ND Gables Townhomes - Sioux Falls, SD (in thousands) Investment (initial cost plus improvements less impairment) Physical Occupancy as of April 30, 2014 Units 3 4 71 10 192 84 115 160 72 92 49 71 24 48 48 109 166 32 234 240 232 18 24 50 268 133 152 48 220 132 36 36 12 20 269 24 $ 81 116 5,922 1,312 8,585 8,400 9,418 8,600 2,429 2,847 831 1,898 434 863 843 5,842 7,582 6,285 14,493 20,332 17,634 1,166 436 5,103 21,574 9,644 6,101 3,744 12,796 13,666 3,204 3,498 435 3,051 13,420 2,430 100.0% 100.0% 100.0% 100.0% 89.6% 100.0% 94.8% 98.8% 100.0% 83.7% 73.5% 90.1% 54.2% 45.8% 47.9% 96.3% 94.6% 100.0% 91.5% 76.7% 84.9% 100.0% 66.7% 100.0% 100.0% 97.7% 99.3% 100.0% 95.9% 78.8% 100.0% 91.7% 100.0% 95.0% 99.3% 100.0% 2014 Annual Report 25 Property Name and Location MULTI-FAMILY RESIDENTIAL - continued Grand Gateway - St. Cloud, MN Greenfield - Omaha, NE Heritage Manor - Rochester, MN Indian Hills - Sioux City, IA Kirkwood Manor - Bismarck, ND Lakeside Village - Lincoln, NE Lancaster - St. Cloud, MN Landing at Southgate - Minot, ND Landmark - Grand Forks, ND Legacy - Grand Forks, ND Mariposa - Topeka, KS Meadows - Jamestown, ND Monticello Village - Monticello, MN Northern Valley - Rochester, MN North Pointe - Bismarck, ND Oakmont Estates - Sioux Falls, SD Oakwood Estates - Sioux Falls, SD Olympic Village - Billings, MT Olympik Village - Rochester, MN Oxbow Park - Sioux Falls, SD Park Meadows - Waite Park, MN Pebble Springs - Bismarck, ND Pinehurst - Billings, MT Pinecone Villas - Sartell, MN Pines - Minot, ND Plaza - Minot, ND Pointe West - Rapid City, SD Ponds at Heritage Place - Sartell, MN Prairie Winds - Sioux Falls, SD Quarry Ridge - Rochester, MN Quarry Ridge II - Rochester, MN Regency Park Estates - St. Cloud, MN Renaissance Heights I - Williston, ND Ridge Oaks - Sioux City, IA Rimrock West - Billings, MT River Ridge - Bismarck, ND Rocky Meadows - Billings, MT Rum River - Isanti, MN Sherwood - Topeka, KS Sierra Vista - Sioux Falls, SD South Pointe - Minot, ND Southpoint - Grand Forks, ND Southview - Minot, ND Southwind - Grand Forks, ND Summit Park - Minot, ND Sunset Trail - Rochester, MN 2014 Annual Report 26 (in thousands) Investment (initial cost plus improvements less impairment) Physical Occupancy as of April 30, 2014 Units 116 96 182 120 108 208 83 108 90 361 54 81 60 16 73 79 160 274 140 120 360 16 21 24 16 71 90 58 48 154 159 145 54 132 78 146 98 72 300 44 196 96 24 164 95 146 $ 8,480 5,363 10,003 6,617 4,753 17,314 4,267 15,151 2,720 29,377 5,996 6,365 4,693 828 4,792 5,778 7,592 14,466 8,854 6,214 15,665 904 998 2,783 434 15,986 5,263 5,191 2,426 15,803 17,642 12,144 11,513 6,338 5,272 25,086 7,467 5,812 18,696 2,723 12,701 10,485 1,009 8,148 3,397 15,640 87.9% 96.9% 87.4% 98.3% 100.0% 87.5% 90.4% 100.0% 100.0% 98.3% 100.0% 100.0% 91.7% 100.0% 100.0% 98.7% 98.1% 96.7% 89.3% 98.3% 92.2% 100.0% 90.5% 95.8% 93.8% 100.0% 94.4% 98.3% 100.0% 90.9% 89.3% 92.4% 70.4% 100.0% 88.5% 100.0% 100.0% 100.0% 98.7% 100.0% 99.5% 97.9% 100.0% 99.4% 96.8% 89.0% Property Name and Location MULTI-FAMILY RESIDENTIAL - continued Temple - Minot, ND Terrace Heights - Minot, ND Thomasbrook - Lincoln, NE University Park Place - St. Cloud, MN Valley Park - Grand Forks, ND Villa West - Topeka, KS Village Green - Rochester, MN West Stonehill - Waite Park, MN Westridge - Minot, ND Westwood Park - Bismarck, ND Whispering Ridge - Omaha, NE Williston Garden - Williston, ND Winchester - Rochester, MN Woodridge - Rochester, MN TOTAL MULTI-FAMILY RESIDENTIAL Property Name and Location COMMERCIAL OFFICE 1st Avenue Building - Minot, ND 2030 Cliff Road - Eagan, MN 610 Business Center IV - Brooklyn Park, 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 - Bismarck, ND Brenwood - Minnetonka, MN Brook Valley I - La Vista, NE Burnsville Bluffs II - Burnsville, MN Corporate Center West - Omaha, NE Crosstown Centre - Eden Prairie, MN Eden Prairie 6101 Blue Circle Drive - Eden Prairie, MN Farnam Executive Center - Omaha, NE Flagship - Eden Prairie, MN Gateway Corporate Center - Woodbury, MN Golden Hills Office Center - Golden Valley, MN Granite Corporate Center - St. Cloud, MN Great Plains - Fargo, ND Highlands Ranch I - Highlands Ranch, CO Highlands Ranch II - Highlands Ranch, CO Interlachen Corporate Center - Edina, MN Intertech Building - Fenton, MO (in thousands) Investment (initial cost plus improvements less impairment) Physical Occupancy as of April 30, 2014 $ $ 229 429 14,095 628 7,735 17,863 3,330 15,923 2,120 3,731 27,959 19,132 8,070 8,323 753,731 100.0% 100.0% 98.1% 31.4% 99.4% 81.2% 88.9% 85.9% 100.0% 96.9% 88.4% 89.7% 91.3% 95.4% 93.0% Units 4 16 264 35 168 308 36 312 33 65 336 145 115 108 10,779 Approximate Net Rentable Square Footage (in thousands) Investment (initial cost plus improvements less impairment) Physical Occupancy as of April 30, 2014 4,427 13,374 78,190 175,610 138,959 73,742 30,464 22,187 176,296 30,000 45,019 141,724 181,224 48,700 95,216 138,825 59,827 190,758 78,086 122,040 71,430 81,173 105,084 65,320 $ 367 1,071 9,403 12,544 21,723 8,349 1,538 2,798 16,983 2,147 3,440 9,133 20,016 4,864 10,100 17,417 8,300 25,414 9,764 16,084 11,057 12,679 19,092 7,366 100.0% 100.0% 100.0% 98.0% 87.4% 100.0% 88.1% 100.0% 41.7% 83.3% 45.3% 100.0% 68.5% 0.0% 63.9% 92.3% 100.0% 93.0% 75.0% 100.0% 100.0% 86.3% 92.0% 85.2% 2014 Annual Report 27 Approximate Net Rentable Square Footage (in thousands) Investment (initial cost plus improvements less impairment) Physical Occupancy as of April 30, 2014 59,852 88,398 60,776 72,231 18,869 48,960 15,000 84,445 79,297 26,000 145,439 58,574 143,075 50,610 28,994 20,528 26,186 26,186 26,186 126,930 36,421 75,815 121,316 58,300 18,055 24,171 24,000 24,000 20,000 103,640 75,526 117,144 90,153 30,000 153,311 86,477 24,075 103,342 61,138 74,568 61,820 4,757,483 $ $ 7,893 12,918 7,585 9,992 1,965 11,573 2,318 7,700 8,410 2,587 19,031 7,228 10,533 9,693 3,829 1,939 1,728 1,671 2,367 16,114 6,816 7,913 8,107 6,475 1,154 1,586 1,284 1,273 2,619 9,907 9,382 12,813 12,012 2,565 18,053 10,690 1,671 13,551 6,458 4,730 6,846 544,628 51.7% 51.5% 100.0% 100.0% 100.0% 91.2% 100.0% 85.4% 100.0% 100.0% 50.2% 98.6% 81.4% 100.0% 35.5% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 99.9% 100.0% 30.4% 0.0% 100.0% 55.0% 100.0% 100.0% 98.5% 66.9% 27.7% 92.1% 100.0% 82.8% 91.7% 87.5% 100.0% 62.0% 20.1% 100.0% 80.7% Property Name and Location COMMERCIAL OFFICE - continued 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 Minot 1400 31st Ave - Minot, ND Minot 2505 16th Street SW - Minot, ND Miracle Hills One - Omaha, NE Northgate I - Maple Grove, MN Northgate II - Maple Grove, MN Northpark Corporate Center - Arden Hills, MN Omaha 10802 Farnam Dr - Omaha, NE Pacific Hills - Omaha, NE Plaza 16 - Minot, ND 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 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 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 - Maryland Heights, MO TOTAL COMMERCIAL OFFICE 2014 Annual Report 28 Property Name and Location COMMERCIAL HEALTHCARE 2800 Medical Building - Minneapolis, MN 2828 Chicago Avenue - Minneapolis, MN Airport Medical - Bloomington, MN* Barry Pointe Office Park - Kansas City, MO Billings 2300 Grant Road - Billings, MT Burnsville 303 Nicollet Medical (Ridgeview) - Burnsville, MN Burnsville 305 Nicollet Medical (Ridgeview South) - Burnsville, MN Casper 1930 E 12th Street (Park Place) - Casper, WY Casper 3955 E 12th Street (Meadow Wind) - Casper, WY Cheyenne 4010 N College Drive (Aspen Wind) - Cheyenne, WY Cheyenne 4606 N College Drive (Sierra Hills) - Cheyenne, WY 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 - Minot, ND 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 Edina 6363 France Medical - Edina, MN* Edina 6405 France Medical - Edina, MN* Edina 6517 Drew Avenue - Edina, MN Edina 6525 Drew Avenue - Edina, MN Edina 6525 France SMC II - Edina, MN Edina 6545 France SMC I - Edina MN* Fresenius - Duluth, MN Garden View - St. Paul, MN* Gateway Clinic - Sandstone, MN* Healtheast St John & Woodwinds - Maplewood & Woodbury, MN High Pointe Health Campus - Lake Elmo, MN Jamestown Medical Office Building - Jamestown, ND* Laramie 1072 N 22nd Street (Spring Wind) - Laramie, WY Approximate Net Rentable Square Footage (in thousands) Investment (initial cost plus improvements less impairment) Physical Occupancy as of April 30, 2014 53,750 56,239 24,218 18,502 14,705 53,896 36,199 65,160 57,822 47,509 54,072 20,512 17,640 5,192 11,800 74,112 82,535 5,194 18,488 167,391 6,042 5,185 6,042 119,349 160,485 10,295 108,503 10,150 5,135 6,042 11,800 84,126 147,183 70,934 55,478 12,140 3,431 67,409 227,626 9,052 43,404 12,444 114,316 60,558 45,222 62,291 $ 9,585 17,672 4,678 2,893 1,865 9,515 6,272 6,381 11,063 11,160 8,190 3,099 2,587 820 1,892 9,843 9,665 870 1,666 21,658 589 837 612 11,679 11,269 1,187 12,712 1,037 773 681 1,328 8,968 12,206 15,175 12,242 1,542 505 14,791 48,981 1,572 8,052 1,766 21,601 13,511 7,622 10,574 82.4% 100.0% 100.0% 80.0% 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% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 98.3% 100.0% 100.0% 86.9% 95.1% 94.5% 100.0% 82.6% 100.0% 100.0% 65.0% 91.7% 100.0% 2014 Annual Report 29 Approximate Net Rentable Square Footage (in thousands) Investment (initial cost plus improvements less impairment) Physical Occupancy as of April 30, 2014 98,174 28,928 57,212 14,640 61,758 9,998 45,081 73,000 52,116 59,760 17,273 16,311 15,559 39,500 31,820 26,605 15,571 26,605 10,796 24,795 18,810 3,093,890 $ $ 10,890 3,871 9,424 1,971 21,887 2,952 10,174 19,325 12,947 12,715 4,015 5,004 4,038 7,115 7,148 6,629 2,223 4,300 2,851 9,702 2,661 525,028 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 89.3% 25.7% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 96.3% Approximate Net Rentable Square Footage (in thousands) Investment (initial cost plus improvements less impairment) Physical Occupancy as of April 30, 2014 101,567 198,600 90,260 27,698 195,075 17,750 518,161 69,600 1,218,711 $ $ 7,430 5,648 6,787 6,051 7,141 1,442 15,256 5,620 55,375 100.0% 25.2% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 87.8% Property Name and Location COMMERCIAL HEALTHCARE - continued Legends at Heritage Place - Sartell, MN Mariner Clinic - Superior, WI* Minneapolis 701 25th Avenue Medical - Minneapolis, MN* Missoula 3050 Great Northern - Missoula, MT Nebraska Orthopaedic Hospital - Omaha, NE* Park Dental - Brooklyn Center, MN Pavilion I - Duluth, MN* Pavilion II - Duluth, MN Ritchie Medical Plaza - St Paul, MN Sartell 2000 23rd Street South - Sartell, MN* Spring Creek-American Falls - American Falls, ID Spring Creek-Boise - Boise, ID Spring Creek-Eagle - Eagle, ID Spring Creek-Fruitland - Fruitland, ID Spring Creek-Meridian - Meridian, ID Spring Creek-Overland - Overland, ID Spring Creek-Soda Springs - Soda Springs, ID Spring Creek-Ustick - Meridian, ID St Michael Clinic - St Michael, MN Trinity at Plaza 16 - Minot, ND Wells Clinic - Hibbing, MN TOTAL COMMERCIAL HEALTHCARE Property Name and Location COMMERCIAL INDUSTRIAL Bloomington 2000 W 94th Street - Bloomington, MN Eagan 2785 & 2795 Highway 55 - Eagan, MN Lexington Commerce Center - Eagan, MN Minot IPS - Minot, ND Stone Container - Fargo, ND Roseville 3075 Long Lake Road - Roseville, MN Urbandale 3900 106th Street - Urbandale, IA Woodbury 1865 Woodlane - Woodbury, MN TOTAL COMMERCIAL INDUSTRIAL 2014 Annual Report 30 Property Name and Location COMMERCIAL RETAIL 17 South Main - Minot, ND Arrowhead First International Bank - Minot, ND Burnsville 1 Strip Center - Burnsville, MN Champlin South Pond - Champlin, MN Chan West Village - Chanhassen, MN Dakota West Plaza - Minot , ND Duluth 4615 Grand - Duluth, MN Duluth Denfeld Retail - Duluth, 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 Lakeville Strip Center - Lakeville, MN 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 COMMERCIAL RETAIL SUBTOTAL Approximate Net Rentable Square Footage (in thousands) Investment (initial cost plus improvements less impairment) Physical Occupancy as of April 30, 2014 2,454 3,702 8,526 26,020 137,572 16,921 15,582 37,770 34,226 6,836 100,570 28,528 59,117 213,271 100,249 52,000 9,488 81,594 11,003 3,575 26,985 4,800 63,225 118,398 105,446 25,644 14,820 1,308,322 10,378,406 $ 287 1,306 1,186 3,640 21,725 615 1,934 5,137 2,571 509 8,849 2,546 5,720 8,965 2,650 3,473 2,040 8,778 650 872 3,699 452 3,397 13,974 8,158 1,681 2,455 $ 117,269 $ 1,996,031 100.0% 100.0% 100.0% 75.6% 99.2% 94.9% 30.5% 78.4% 100.0% 100.0% 52.6% 100.0% 98.0% 86.4% 83.9% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 75.2% 97.9% 100.0% 0.0% 100.0% 87.4% 2014 Annual Report 31 Property Name and Location UNIMPROVED LAND Badger Hills - Rochester, MN Bismarck 4916 - Bismarck, ND Bismarck 700 E Main - Bismarck, ND Deer Ridge- Jamestown, ND Eagan - Eagan, MN Georgetown Square - Grand Chute, WI Grand Forks - Grand Forks, ND Isanti Unimproved - Isanti, MN Kalispell - Kalispell, MT Legends at Heritage Place - Sartell, MN Minot (Southgate) - Minot, ND Minot Wells Fargo Bank - Minot, ND Monticello - Monticello, MN Rapid City Unimproved- Rapid City, SD Renaissance Heights - Williston, ND River Falls - River Falls, WI Spring Creek Fruitland - Fruitland, IA Urbandale - Urbandale, IA Weston - Weston, WI TOTAL UNIMPROVED LAND DEVELOPMENT IN PROGRESS Arcata - Golden Valley, MN Cardinal Point - Grand Forks, ND Chateau II - Minot, ND Commons at Southgate - Minot, ND Cypress Court II - St. Cloud, MN Dakota Commons - Williston, ND Red 20 - Minneapolis, MN Renaissance Heights I - Williston, ND Other TOTAL DEVELOPMENT IN PROGRESS (in thousands) Investment (initial cost plus improvements less impairment) $ $ $ $ 1,050 3,250 876 711 423 1,860 4,278 58 1,424 537 890 992 117 1,376 3,577 180 339 114 812 22,864 13,018 6,829 2,098 28,065 1,580 9,014 13,980 27,529 2,496 104,609 TOTAL UNITS - RESIDENTIAL SEGMENT TOTAL SQUARE FOOTAGE - COMMERCIAL SEGMENTS(1) 10,779 10,378,406 TOTAL REAL ESTATE $ 2,123,504 (1) Excludes property classified as held for sale at April 30, 2014 (Dewey Hill Business Center, 73,338 sq ft). 2014 Annual Report 32 Mortgages Payable and Line of Credit As of April 30, 2014, individual first mortgage loans on the above properties totaled $985.9 million. Of the $997.7 million total of mortgage indebtedness on April 30, 2014, $20.5 million, or 2.1%, 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, 2015 2016 2017 2018 2019 Thereafter Total $ (in thousands) Mortgage Principal 80,140 92,888 207,890 91,657 136,884 388,230 997,689 $ In addition to the individual first mortgage loans included in the Company’s $997.7 million of mortgage indebtedness, the Company also has a revolving, multi-bank line of credit with First International Bank and Trust, Watford City, North Dakota, as lead bank. This line of credit had, as of April 30, 2014, lending commitments of $72.0 million. The facility has a maturity date of December 1, 2016, and is secured by mortgages on 14 properties; under the terms of the line of credit, properties may be added and removed from the collateral pool with the agreement of the lenders. Participants in this credit facility as of April 30, 2014 included, in addition to First International Bank, the following financial institutions: The Bank of North Dakota; First Western Bank and Trust; Dacotah Bank; United Community Bank; American State Bank & Trust Company; Town & Country Credit Union; Highland Bank and MidCountry Bank. The line of credit has a current interest rate of 4.75% and a minimum outstanding principal balance requirement of $12.5 million, and as of April 30, 2014, the Company had borrowed $22.5 million. The facility includes covenants and restrictions requiring the Company to achieve on a calendar quarter basis a debt service coverage ratio on borrowing base collateral of 1.25x in the aggregate and 1.00x on individual assets in the collateral pool, and the Company is also required to maintain minimum depository account(s) totaling $6.0 million with First International, of which $1.5 million is to be held in a non-interest bearing account. As of April 30, 2014, the Company believes it is in compliance with the facility covenants. Future Minimum Lease Receipts The future minimum lease receipts to be received under leases for commercial properties in place as of April 30, 2014, assuming that no options to renew or buy out the leases are exercised, are as follows: Year Ended April 30, 2015 2016 2017 2018 2019 Thereafter Total (in thousands) Lease Payments 110,080 101,673 87,405 73,163 60,348 136,292 568,961 $ $ 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, 2014, we spent approximately $34.6 million on capital improvements, tenant improvements and other capital expenditures. The following table shows total and weighted average per square foot/unit recurring and non-recurring capital expenditures (excluding capital expenditures recoverable from tenants and capital expenditures at properties sold during the period), and, for our same-store commercial segment properties, tenant improvements (excluding tenant- funded tenant improvements) and leasing costs for the three years ended April 30, 2014, 2013 and 2012. We define 2014 Annual Report 33 recurring capital expenditures as those made on a regular or recurring basis to maintain a property’s competitive position within its market, generally with a depreciable life of 5 to 12 years, but excluding (a) capital expenditures made in the year of acquisition and in subsequent periods until the property is classified as same-store (i.e., excluding capital expenditures on non-same-store properties), (b) improvements associated with the expansion or re- development of a building, (c) renovations to a building which change the underlying classification of the building (for example, from industrial to office or Class C office to Class A office) or (d) capital improvements that represent the addition of something new to a property, rather than the replacement of an existing item. We believe that recurring capital expenditures is a useful measure of performance because it provides an indication of the expenses that we can expect to incur on an on-going basis. Non-recurring capital expenditures correspond to major capital expenditures for items such as roof replacements or items that result in something new being added to the property (for example, the addition of a new heating and air conditioning unit that is not replacing one previously there), generally with a depreciable life of 20 to 40 years, and include expenditures completed in the year of acquisition and in subsequent periods until the property is classified as same-store (i.e., including capital expenditures on non-same- store properties). (in thousands except per SF or Unit data) Years Ended April 30, 2014 Amount Rate/SF or Unit 2013 Amount Rate/SF or Unit 2012 Amount Rate/SF or Unit 0 1,813 6,238 2,549 0 612 3,235 518 0 127 320 160 0 635 144 570 0.00 0.38 1.31 0.54 0.00 0.20 1.11 0.18 0.00 0.10 0.27 0.14 0.00 0.49 0.11 0.44 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 0 754 6,154 3,411 49 356 1,573 784 0 0 777 658 0 678 1,335 275 0.00 0.15 1.22 0.67 0.02 0.12 0.58 0.29 0.00 0.00 0.26 0.22 0.00 0.48 0.96 0.20 4,956 11,355 589 1,053 $ $ 5,941 6,737 713 655 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 148 992 5,179 1,683 0.03 0.20 1.02 0.33 86 562 3,736 557 0.03 0.19 1.28 0.19 5 256 1,179 317 0.00 0.09 0.40 0.11 49 1,062 214 215 0.04 0.76 0.15 0.15 6,416 5,001 752 546 Commercial Office Properties: Non-Recoverable Capital Expenditures Recurring capital expenditures Non-recurring capital expenditures Tenant improvements at same-store properties Leasing costs at same-store properties Commercial Healthcare Properties: Non-Recoverable Capital Expenditures Recurring capital expenditures Non-recurring capital expenditures Tenant improvements at same-store properties Leasing costs at same-store properties Commercial Industrial Properties: Non-Recoverable Capital Expenditures Recurring capital expenditures Non-recurring capital expenditures Tenant improvements at same-store properties Leasing costs at same-store properties Commercial Retail Properties: Non-Recoverable Capital Expenditures Recurring capital expenditures Non-recurring capital expenditures Tenant improvements at same-store properties Leasing costs at same-store properties Multi-Family Residential Properties: Recurring Capital Expenditures Non-Recurring Capital Expenditures $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2014 Annual Report 34 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, 2014, 15 of our properties were subject to purchase options, and the total investment cost, plus improvements, of all such properties was $120.5 million with total gross rental revenues in fiscal year 2014 of $9.8 million. Properties by State The following table presents, as of April 30, 2014, the total amount of property owned, net of accumulated depreciation, by state of each of the five major segments of properties owned by us - multi-family residential, commercial office, commercial healthcare, commercial industrial and commercial retail: (in thousands) State Minnesota North Dakota Nebraska Kansas South Dakota Idaho Wyoming Montana Iowa Missouri Colorado Wisconsin Total Commercial Multi-Family Residential Commercial Office Commercial Healthcare Commercial Industrial Retail All Segments $ 179,083 $ 256,441 $ 242,771 $ 21,851 $ 55,324 $ 755,470 322,656 169,591 61,245 50,337 50,301 42,596 40,213 22,890 22,512 18,896 15,036 $ 595,631 $ 422,736 $ 419,185 $ 45,177 $ 89,014 $ 1,571,743 199,350 91,724 49,233 36,356 0 0 30,116 9,769 0 0 0 25,575 2,266 0 0 0 0 2,633 0 0 0 3,216 10,205 0 0 0 0 0 0 13,121 0 0 0 33,238 55,598 12,012 5,329 12,212 0 0 0 20,087 18,896 8,923 54,288 20,003 0 8,652 38,089 42,596 7,464 0 2,425 0 2,897 % of All Segments 48.1% 20.5% 10.8% 3.9% 3.2% 3.2% 2.7% 2.6% 1.4% 1.4% 1.2% 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. Mine Safety Disclosures Not Applicable 2014 Annual Report 35 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Quarterly Share and Distribution Data Prior to December 18, 2012, our common shares traded on the Nasdaq Global Select Market under the symbol “IRET.” On December 18, 2012, our common shares began trading on the New York Stock Exchange (“NYSE”) under the symbol “IRET.” The following table shows the high and low sales prices for our common shares for the periods indicated, as reported by the Nasdaq Global Select Market through December 17, 2012 and the NYSE thereafter, and the distributions per common share and limited partnership unit declared with respect to each period. On June 2, 2014, the last reported sales price per share of our common shares on the NYSE was $8.93. Quarter Ended Fiscal Year 2014 April 30, 2014 January 31, 2014 October 31, 2013 July 31, 2013 Quarter Ended Fiscal Year 2013 April 30, 2013 January 31, 2013 October 31, 2012 July 31, 2012 High Low Distributions Declared (per share and unit) $ 9.06 $ 8.94 9.03 9.77 8.34 8.24 8.05 8.09 $ 0.1300 0.1300 0.1300 0.1300 High Low Distributions Declared (per share and unit) $ 10.00 $ 9.40 8.49 8.31 9.20 7.73 7.92 7.05 $ 0.1300 0.1300 0.1300 0.1300 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 2, 2014, the Company had 3,912 common shareholders of record, and 109,374,477 common shares of beneficial interest (plus 21,073,161 limited partnership units potentially convertible into 21,073,161 common shares) were outstanding. Unregistered Sales of Shares Sales of Unregistered Securities. During the fiscal years ended April 30, 2014, 2013 and 2012, respectively, we issued an aggregate of 254,948, 180,935 and 518,019 unregistered common shares to holders of limited partnership units of IRET Properties upon redemption and conversion of an aggregate of 254,948, 180,935 and 518,019 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 2014. 2014 Annual Report 36 Comparative Stock Performance The information contained in this Comparative Stock Performance 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 Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act. Set forth below is a graph that compares, for the five fiscal years commencing May 1, 2009, and ending April 30, 2014, 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, 2009, the last trading day of fiscal year 2009, $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. Total Return Performance 350 300 250 Investors Real Estate Trust S&P 500 FTSE NAREIT Equity REITs 200 150 l e u a V x e d n I 100 50 0 04/30/09 04/30/10 04/30/11 04/30/12 04/30/13 04/30/14 Investors Real Estate Trust S&P 500 FTSE NAREIT Equity REITs Source: SNL Financial LC FY09 FY10 FY11 FY12 FY13 FY14 100.00 100.00 100.00 101.79 138.84 168.70 118.53 162.75 206.23 97.50 170.49 226.47 139.77 199.29 270.74 133.21 240.02 273.10 2014 Annual Report 37 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 Impairment of real estate investments in continuing and discontinued operations Gain on sale of discontinued operations and real estate and other investments (Loss) income from continuing operations Income (loss) from discontinued operations Net (loss) income Net loss (income) attributable to noncontrolling interests – Operating Partnership Net (loss) income attributable to Investors Real Estate Trust Consolidated Balance Sheet Data Total real estate investments Total assets Mortgages payable Revolving lines of credit Total Investors Real Estate Trust shareholders’ equity (in thousands, except per share data) 2014 2013 2012 2011 2010 $ 265,482 $ 248,058 $ 228,671 $ 224,773 $ 218,364 $ $ 44,426 $ 305 $ 428 $ 0 $ 1,678 6,948 $ 6,885 $ 349 $ 19,365 $ 68 $ (23,390) $ 20,677 $ 8,644 $ 4,679 $ 5,710 $ $ 6,450 $ (16,940) $ 9,295 $ 29,972 $ 1,062 $ 9,706 $ 19,672 $ 24,351 $ (1,125) 4,585 $ 4,676 $ (3,633) $ (1,359) $ (4,449) $ (562) $ (13,174) $ 25,530 $ 8,212 $ 20,082 $ 4,001 $ 1,696,720 $ 1,680,834 $ 1,557,108 $ 1,458,245 $ 1,500,889 $ 1,869,221 $ 1,889,554 $ 1,714,367 $ 1,615,363 $ 1,660,930 $ 997,689 $ 1,049,206 $ 1,048,689 $ 993,803 $ 1,057,619 6,550 $ 30,000 $ 22,500 $ 39,000 $ 10,000 $ $ 592,184 $ 612,787 $ 432,989 $ 411,690 $ 409,523 Consolidated Per Common Share Data (basic and diluted) Income from continuing operations - Investors Real Estate Trust Income (loss) from discontinued operations - Investors Real Estate Trust $ $ Net income $ Distributions $ (.28) $ .09 $ .06 $ .02 $ .04 .05 $ (.23) $ .52 $ .08 $ .17 $ .52 $ .01 $ .07 $ .56 $ .20 $ .22 $ .69 $ (.01) .03 .68 CALENDAR YEAR Tax status of distributions Capital gain Ordinary income Return of capital 2013 2012 2011 2010 2009 3.09% 28.41% 68.50% 2.41% 23.17% 74.42% 37.48% 18.04% 44.48% 0.00% 28.53% 71.47% 0.09% 39.17% 60.74% For the fiscal year ended April 30, 2014, IRET recognized approximately $16.2 million of net capital gain for federal income tax purposes. IRET designates the entire $16.2 million of net capital gain as capital gain dividends. 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, 2014. 2014 Annual Report 38 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, 2014, our real estate portfolio consisted of 93 multi-family residential properties containing 10,779 apartment units and having a total real estate investment amount net of accumulated depreciation of $595.6 million, and 166 commercial properties containing approximately 10.5 million square feet of leasable space and having a total real estate investment amount net of accumulated depreciation of $976.1 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. We have paid quarterly distributions continuously since our first distribution in 1971. 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 assumed 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. 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 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 a relative fair value allocation if acquired in a merger or in a portfolio acquisition. 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 the fair value analysis 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 relative fair value of the tangible and intangible assets acquired. The Company follows the real estate project costs guidance in ASC 970, Real Estate – General, in accounting for the costs of development and re-development projects. As real estate is undergoing development or redevelopment, all project costs directly associated with and attributable to the development and construction of a project, including interest expense and real estate tax expense, are capitalized to the cost of the real property. The capitalization period begins when development activities and expenditures begin and ends upon completion, which is when the asset is ready for its intended use. Generally, rental property is considered substantially complete and ready for its intended use upon completion of tenant improvements (in the case of commercial properties) or upon issuance of a certificate of occupancy (in the case of multi-family residential properties). General and administrative costs are expensed as incurred. 2014 Annual Report 39 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. 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. 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 the current accounting principles governing the classification of properties as held-for-sale prior to a 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 current accounting principles. Prior to February 1, 2014, the Company reported, in discontinued operations, the results of operations and the related gains or losses of properties that had either been disposed of or classified as held for sale and otherwise met the classification of a discontinued operation. Effective February 1, 2014 the Company adopted Accounting Standards Update (“ASU”) 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. Under this standard, a disposal (or classification as held for sale) of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. As a result of the adoption of ASU No. 2014-08, results of operations and gains or losses on sale for properties that are disposed or classified as held for sale in the ordinary course of business on or subsequent to February 1, 2014 would generally be included in continuing operations on the Company’s consolidated statements of operations, to the extent such disposals did not meet the criteria for classification as a discontinued operation described above. During the quarter ended April 30, 2014, the Company applied the new standard to one property that was classified as held for sale. Impairment. The Company’s long-lived assets are reviewed for impairment when and if events or changes in circumstances or triggering events (such as adverse market conditions, including conditions resulting from an ongoing economic recession) indicate that the cost of a long lived asset group might not be recoverable. Judgments regarding existence of impairment indicators are based on factors such as operational performance, market conditions, expected holding period of each asset and events that occur that affect the financial strength of significant tenants of the assets, including tenants who have filed for bankruptcy. For long-lived assets in which a triggering event has been identified, the Company compares the expected future undiscounted cash flows for the long-lived asset against the carrying amount of the asset group, including any associated intangibles, subject to evaluation. The evaluation of undiscounted cash flows is subjective and reflects assumptions regarding current market conditions relative to the long-lived asset group being evaluated, such as future occupancy, rental rates and capital requirements that could differ materially from actual results. A worsening real estate market, among other factors, may cause the Company to re-evaluate the assumptions used in our impairment analysis. If the undiscounted cash flows plus reversion are less than the asset group’s carrying value, impairment is recorded based on the estimated fair value (typically based on a current independent appraisal) of the long-lived asset in comparison to its carrying value. Any changes in such assumptions or any differences between assumptions and actual results could materially affect the Company’s financial statements. The results of the Company’s 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 $248,000 as of April 30, 2014) 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 deferred rents receivable arising from the straight-lining of rents (approximately $796,000 as of April 30, 2014). The straight-lining of rents receivable arises from earnings recognized in excess of amounts currently due under lease agreements. Management exercises judgment in 2014 Annual Report 40 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. Under those sections, a REIT which distributes at least 90% of its REIT taxable income as a distribution to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. The Company intends to distribute to its shareholders 100% of its taxable income. Therefore, no provision for Federal income taxes is required. If the Company fails to distribute the required amount of income to its shareholders, it would fail to qualify as a REIT and substantial adverse tax consequences may result. The Company has one TRS, acquired during the second quarter of fiscal year 2014, which is subject to corporate federal and state income taxes on its taxable income at regular statutory rates. For fiscal year 2014, the Company estimates that the TRS will have no taxable income. There were no income tax provisions or material deferred income tax items for our TRS for the fiscal year ended April 30, 2014. The Company’s TRS is the tenant in the Company’s Legends at Heritage Place senior housing facility. 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 and that the Company’s tax and accounting positions do not change. 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. Fiscal 2014 Significant Events and Transactions During fiscal year 2014, the Company successfully completed various acquisition, development, disposition, and financing transactions, including the following significant activities: Acquisitions, Dispositions, and Development Projects Placed in Service: During fiscal year 2014, the Company added approximately 577 apartment units to its multi-family residential portfolio, through its acquisition of three multi-family residential properties and the placement in service of three multi-family residential development projects. The Company sold two multi-family residential properties, with a total of 132 units, for a net addition to the Company’s multi-family residential portfolio in fiscal year 2014 of approximately 445 apartment units. Additionally, approximately 54 units of a planned 288 units in the Company’s Renaissance Heights development project in Williston, North Dakota were certified for occupancy in the fourth quarter of fiscal year 2014. 2014 Annual Report 41 The Company added approximately 138,000 square feet to its senior housing portfolio through its acquisition of two assisted living properties, in Fruitland, Idaho and Sartell, Minnesota, for purchase prices totaling approximately $18.9 million. The Company also acquired a number of parcels of unimproved land in Idaho, Minnesota, North Dakota and South Dakota for possible future development, for purchase prices totaling approximately $5.1 million, including the $1.9 million value of the land contributed by the Company’s joint venture partner in a development project in Minnesota. During fiscal year 2014, in addition to its sale of two multi-family residential projects the Company sold 18 industrial, retail and office properties in Minnesota, North Dakota and Iowa, for sales prices totaling approximately $77.4 million. Development Projects in Process: During fiscal year 2014, the Company began construction of its 44-unit Dakota Commons apartment project in Williston, North Dakota; 251-unit Cardinal Point apartment project in Grand Forks, North Dakota; 66-unit Cypress Court II apartment project in St. Cloud, Minnesota, which is owned by a joint venture in which the Company is an approximately 86.1% partner; and 130-unit Red 20 apartment project with 10,625 commercial square feet in Minneapolis, Minnesota, which is owned by a joint venture in which the Company is an approximately 58.6% partner. During fiscal year 2014 construction continued on the Company’s 233-unit Commons at Southgate apartment project in Minot, North Dakota, which is owned by a joint venture in which the Company is an approximately 51.0% partner; 165-unit Arcata apartment project in Golden Valley, Minnesota; and 288-unit Renaissance Heights I apartment project in Williston, North Dakota, which is owned by a joint venture in which the Company is an approximately 70.0% partner. The Company is also continuing to rebuild the two buildings at its Chateau apartments property that were destroyed by fire in December 2013. Credit Facility: During fiscal year 2014, the Company’s Operating Partnership entered into an Amended and Restated Loan Agreement (“Loan Agreement”) with First International Bank & Trust as lead bank, pursuant to which First International agreed to provide a revolving credit facility with a commitment amount at the time of close of $72.0 million. This Loan Agreement amends and restates the borrower’s previous secured line of credit with First International and participant banks. The Loan Agreement lowered the floor on the interest rate on borrowing under the facility to 4.75%. Market Conditions and Outlook During the Company’s fiscal year 2014, continued high occupancy levels in its multi-family residential portfolio allowed the Company to implement selected rent increases, and the Company’s three multi-family residential development projects placed in service during the year (the Company’s Landing at Southgate project in Minot, North Dakota; Cypress Court project in St. Cloud, Minnesota, and River Ridge project in Bismarck, North Dakota) leased up quickly, with Landing at Southgate 100%, Cypress Court 78.8% and River Ridge 100% leased as of April 30, 2014. The Company expects to see continued favorable results in this segment in fiscal year 2015; however, the Company’s ability to maintain occupancy levels and selectively raise rents remains dependent on continued economic recovery and employment and wage growth. The Company also observes considerable multi-family development activity in the Company’s markets, and as this new construction is completed and leased, the Company will experience increased competition for tenants. The Company’s commercial office segment, while still negatively affected by a number of adverse macro conditions, including unemployment levels that remain elevated and stagnant wage growth, also showed some progress, with new leasing activity matching absorption rates in the Company’s Minneapolis market and in other of its office markets. However, these absorption rates remain low, and businesses, in a continued focus on costs, appear to be increasing the density of their work spaces by placing more employees in less total square footage and giving back the excess space or downsizing upon lease renewals. We expect this erosion in demand for office space to continue, which we expect will impede upward pressure on rental rates in our commercial office portfolio in particular. Trends in the effective rents received by the Company can be seen in the information presented in the “Analysis of Commercial Segments’ Credit Risk and Leases” section of this Management’s Discussion and Analysis of Financial Conditions and Results of Operations. Additionally, the Company continues to expect recovery of the overall office market to be challenged by the slow and uneven recovery of the broader economy and by relatively high unemployment rates. 2014 Annual Report 42 The Company’s healthcare segment consists of medical office properties and senior housing facilities. The medical office sector remains stable with modest increases in both occupancy and rents. Likewise, senior housing assets continue to benefit from a recovery of the housing market, as occupancy trends are closely aligned with the ability of seniors to sell their homes in anticipation of moving to a senior care facility. Both the retail and industrial property markets are showing signs of revival. In the retail segment, better-located retail properties continue to enjoy more leasing success, while outlying shopping centers continue to experience higher vacancy rates. In the industrial segment, a relative lack of new supply is leading to vacant industrial space being absorbed. Industrial rents are not yet rising to reflect this lack of new supply, but tenant concessions appear to be dissipating. The Company plans to continue in fiscal year 2015 its selective disposition of assets in non-core markets, particularly office and retail segment assets, and intends to use the proceeds from these dispositions to continue deleveraging its portfolio and for developing and acquiring high-quality assets in its multi-family and healthcare segments. Subsequent to the end of fiscal year 2014, on May 19, 2014, the Company sold an office property in Edina, Minnesota for a total sales price of approximately $3.1 million. The Company continues to allocate resources to the dynamic economy of the energy-rich Bakken Shale Formation region of eastern Montana, western and central North Dakota, northwest South Dakota and western Minnesota. Development projects currently scheduled for completion in fiscal years 2015 and 2016 in this region include the Company’s 233-unit Commons at Southgate apartment projects in Minot, North Dakota, in which the Company has a 51% interest; and the 288-unit Renaissance Heights Phase I apartment project in Williston, North Dakota, in which the Company has an approximately 70% interest. Energy activity in the Bakken Shale region continues to be robust, and the Company expects this activity to remain strong in the next several years. Same-Store and Non-Same-Store Properties Throughout this Annual Report on Form 10-K, we have provided certain information on a same-store and non-same- store properties basis. We formerly referred to these categories of properties as stabilized and non-stabilized properties. Our method of determining the properties included in these categories has not changed from prior periods; only the names of the categories have changed. Information provided on a same-store properties basis includes the results of properties that we have owned and operated for the entirety of both periods being compared (except for properties for which significant redevelopment or expansion occurred during either of the periods being compared, and properties classified as discontinued operations), and which, in the case of development or re- development properties, have achieved a target level of occupancy of 90% for multi-family residential properties and 85% for commercial office, healthcare, industrial and retail properties. For the comparison of fiscal years 2014 and 2013, all or a portion of 24 properties were non-same-store, of which non-same-store properties 11 were redevelopment or in-service development properties. For the fiscal year 2014 to 2013 comparison, all or a portion of 12 properties were added to non-same-store and all or a portion of 15 properties were moved to same-store compared to the designations for the fiscal year 2013 to 2012 comparison. For the comparison of fiscal years 2013 and 2012, all or a portion of 27 properties were non-same-store, of which non- same-store properties 7 were redevelopment or in-service development properties. While there are judgments to be made regarding changes in designation, we typically move properties from same- store to non-same-store when redevelopment has or is expected to have a significant impact on property net operating income within the fiscal year. Sold properties and properties designated as held for sale are moved to the non-same store category when so classified, and acquisitions are moved to same-store once we have owned the property for the entirety of comparable periods and the property is not under significant redevelopment or expansion. Our development projects in progress are not included in our non-same-store properties category until they are placed in-service, which occurs upon the substantial completion of a commercial property, and upon receipt of a certificate of occupancy, in the case of a multi-family residential development project. They are then subsequently moved from non-same-store to same-store when the property has been in-service for the entirety of both periods being compared and has reached the target level of occupancy specified above. 2014 Annual Report 43 RESULTS OF OPERATIONS Consolidated Results of Operations The discussion that follows is based on our consolidated results of operations for the fiscal years ended April 30, 2014, 2013 and 2012. (in thousands) Year Ended April 30 2014 vs. 2013 2013 vs. 2012 2014 2013 2012 $ Change % Change $ 219,921 $ 204,719 $ 188,299 $ 15,202 2,222 17,424 45,561 265,482 40,372 228,671 43,339 248,058 7.4% $ 16,420 2,967 5.1% 19,387 7.0% $ Change % Change 8.7% 7.3% 8.5% 67,592 21,864 31,158 32,982 5,165 16,961 357 9,938 805 2,132 59,306 18,792 28,340 32,182 3,734 15,003 1,008 7,904 590 2,173 53,690 17,106 25,530 29,349 3,343 18,164 (142) 6,694 687 1,898 8,286 3,072 2,818 800 1,431 1,958 (651) 2,034 215 (41) 14.0% 16.3% 9.9% 2.5% 38.3% 13.1% (64.6%) 25.7% 36.4% (1.9%) 5,616 1,686 2,810 2,833 391 10.5% 9.9% 11.0% 9.7% 11.7% (3,161) 1,150 1,210 (97) 275 (17.4%) (809.9%) 18.1% (14.1%) 14.5% 3,326 3,027 2,960 299 9.9% 67 2.3% 42,566 234,846 0 172,059 0 159,279 42,566 62,787 n/a 36.5% 0 12,780 n/a 8.0% 2,480 33,116 (59,142) 1,908 779 5,084 81,083 (61,154) 222 526 274 69,666 (61,801) 148 631 (2,604) (47,967) 2,012 1,686 253 (51.2%) (59.2%) (3.3%) 759.5% 48.1% 4,810 11,417 647 74 (105) 1755.5% 16.4% (1.0%) 50.0% (16.6%) (23,339) 20,677 8,644 (44,016) (212.9%) 12,033 139.2% (51) 0 0 (51) n/a 0 n/a (23,390) 20,677 8,644 (44,067) (213.1%) 12,033 139.2% 6,450 (16,940) 9,295 29,972 1,062 9,706 (2,845) (46,912) (30.6%) (156.5%) 8,233 20,266 775.2% 208.8% 4,676 (3,633) (1,359) 8,309 (228.7%) (2,274) 167.3% (910) (809) (135) (101) 12.5% (674) 499.3% (13,174) 25,530 8,212 (38,704) (151.6%) 17,318 210.9% (11,514) (9,229) (2,372) (2,285) 24.8% (6,857) 289.1% $ (24,688) $ 16,301 $ 5,840 (40,989) (251.5%) 10,461 179.1% Real estate rentals Tenant reimbursement TOTAL REVENUE Depreciation/amortization related to real estate investments Utilities Maintenance Real estate taxes Insurance Property management expenses Other property expenses Administrative expenses Advisory and trustee services Other expenses Amortization related to non- real estate investments Impairment of real estate investments TOTAL EXPENSES Gain on involuntary conversion Operating income Interest expense Interest income Other income (Loss) income before loss on sale of real estate and other investments and income from discontinued operations Loss on sale of real estate and other investments (Loss) income from continuing operations Income from discontinued operations NET (LOSS) INCOME Net loss (income) attributable to noncontrolling interests – Operating Partnership Net (income) loss attributable to noncontrolling interests – consolidated real estate entities Net (loss) income attributable to Investors Real Estate Trust Dividends to preferred shareholders NET (LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS 2014 Annual Report 44 Revenues. Total revenues increased by 7.0% to $265.5 million in fiscal year 2014, compared to $248.1 million in fiscal year 2013. Total revenues increased by 8.5% to $248.1 million in fiscal year 2013, compared to $228.7 million in fiscal year 2012. These increases were primarily attributable to the addition of new income-producing real estate properties. For fiscal 2014, the increase in revenue of $17.4 million resulted from: Rent primarily from properties acquired and development projects placed in service in fiscal year 2014 Rent in Fiscal 2014 primarily from properties acquired and development projects placed in service in fiscal year 2013 in excess of that received in 2013 from the same properties Increase in rent on same-store properties due primarily to increased rental revenue and tenant reimbursements in the commercial office and healthcare segments and increased rental rates in the multi-family residential segment(1) (1) See analysis of NOI by segment on pages 51-55 of the MD&A for additional information. For fiscal 2013, the increase in revenue of $19.4 million resulted from: Rent primarily from properties acquired and development projects placed in service in fiscal year 2013 (in thousands) $ 4,488 6,685 6,251 $ 17,424 (in thousands) $ 8,889 Rent in Fiscal 2013 primarily from properties acquired and development projects placed in service in fiscal year 2012 in excess of that received in 2012 from the same properties 8,666 Increase in rental income on same-store properties due primarily to an increase in occupancy and rents, net of a decrease in rental income due to changes within the assisted living portfolio in the commercial healthcare segment(1) 1,832 19,387 $ (1) Decrease in rent was offset by a decrease in expense. See analysis of NOI by segment on pages 57-61 of the MD&A for additional information. As illustrated above, the majority of the increase in our gross revenue for fiscal years 2014 and 2013 ($17.4 million and $19.4 million respectively) resulted from the addition of new income-producing real estate properties to the IRET Properties’ portfolio. Rental revenue from same-store properties increased by $6.3 million and $1.8 million in fiscal years 2014 and 2013, respectively. For the next 12 months, we continue to look to acquisitions and development of new properties and recovery in our same-store portfolio, in our commercial office segment in particular, to be the most significant factors in any increase in our revenues and ultimately our net income. However, identifying attractive acquisition possibilities remains a continuing challenge. Depreciation/Amortization Related to Real Estate Investments. Depreciation/amortization related to real estate investments increased by 14.0% to $67.6 million in fiscal year 2014, compared to $59.3 million in fiscal year 2013. This increase was primarily attributable to the addition of depreciable assets from acquisitions, development projects placed in service, capital improvements and tenant improvements and to a change in the lives of several intangible assets due to a change in lease terms. Depreciation/amortization related to real estate investments increased by 10.5% to $59.3 million in fiscal year 2013, compared to $53.7 million in fiscal year 2012. This increase was primarily attributable to the addition of depreciable assets from acquisitions, development projects placed in service, capital improvements and tenant improvements. Utilities. Utilities increased by 16.3% to $21.9 million in fiscal year 2014, compared to $18.8 million in fiscal year 2013. The addition of new income-producing real estate properties accounted for $984,000 of this increase. Utilities at same-store properties increased by $2.1 million in fiscal year 2014 due to utility rate increases and the effect of colder weather on heating costs. Utilities increased by 9.9% to $18.8 million in fiscal year 2013, compared to $17.1 million in fiscal year 2012. This increase was primarily attributable to the addition of new income-producing real estate properties which added $1.2 million in utility expense in fiscal 2013 compared to fiscal 2012. Utilities at same-store properties increased by approximately $529,000 in fiscal year 2013, primarily due to the effect of milder weather on heating costs in the prior period. 2014 Annual Report 45 Maintenance. Maintenance expenses increased by 9.9% to $31.2 million in fiscal year 2014, compared to $28.3 million in fiscal year 2013. The addition of new income-producing real estate properties accounted for $1.4 million of this increase. The balance of the increases was attributable to increased general maintenance items at same-store properties compared to the prior year. Maintenance expenses increased by 11.0% to $28.3 million in fiscal year 2013, compared to $25.5 million in fiscal year 2012. The addition of new income-producing real estate properties accounted for approximately half of this increase. The remainder of the increase was due to increased snow removal costs at same-store properties compared to the prior year. Real Estate Taxes. Real estate taxes increased by 2.5% to $33.0 million in fiscal year 2014, compared to $32.2 million in fiscal year 2013. The addition of new income-producing real estate properties accounted for an increase of $1.4 million while the real estate taxes at same-store properties decreased by $547,000. This decrease was attributable to a state-paid property tax relief credit legislated by the state of North Dakota for calendar year 2013 real estate taxes. Real estate taxes increased by 9.7% to $32.2 million in fiscal year 2013, compared to $29.3 million in fiscal year 2012. The addition of new income-producing real estate properties accounted for approximately half of this increase. The remainder of the increase was due to increased real estate taxes at same-store properties compared to the prior year. Insurance. Insurance expense increased by 38.3% to $5.2 million in fiscal year 2014, compared to $3.7 million in fiscal year 2013. An increase in insurance premiums and the company’s self-insurance deductible accounted for $1.2 million of the increase while the balance of the increase was due to the addition of new income-producing real estate properties. Insurance expense increased by 11.7% to $3.7 million in fiscal year 2013, compared to $3.3 million in fiscal year 2012. This increase was primarily attributable to the addition of new income-producing real estate properties. Property Management Expenses. Property management expenses increased by 13.1% to $17.0 million in fiscal year 2014, compared to $15.0 million in fiscal year 2013. The addition of new income-producing real estate properties accounted for $1.3 million of this increase. The remainder of the increase was primarily attributable to increased management labor and benefit costs at our same-store properties compared to the prior year. This increase was due to high labor costs in our energy-impacted markets as well as the hiring of additional employees at existing properties. Property management expenses decreased by 17.4% to $15.0 million in fiscal year 2013, compared to $18.2 million in fiscal year 2012. This decrease was primarily due to the restructuring of the Company’s assisted living portfolio in the third quarter of fiscal year 2012, when the Company sold a wholly-owned taxable REIT subsidiary. Following the sale of this entity, the Company’s revenue from its Wyoming assisted living portfolio is received as rent under the lease agreement with the tenant in the facilities, and property management expenses are paid by the tenant, rather than (as was previously the case) included in the property management expense category of the Company’s statements. Other Property Expenses. Other property expense, consisting of bad debt provision expense, decreased by 64.6% to approximately $357,000 in fiscal year 2014, compared to $1.0 million of in fiscal year 2013, due to a decrease in uncollectible accounts receivable. Other property expense increased by 809.9% to $1.0 million in fiscal year 2013, compared to approximately $142,000 of revenue in fiscal year 2012. In fiscal 2012 approximately $715,000 was received in the bankruptcy settlement of a former tenant. The remainder of the change from fiscal year 2012 to fiscal year 2013 was due to increased bad debt write-offs in fiscal year 2013. Administrative Expenses. Administrative expenses increased by 25.7% to $9.9 million in fiscal year 2014, compared to $7.9 million in fiscal year 2013. This change was primarily due to an increase of approximately $914,000 in noncash executive compensation, an increase of approximately $740,000 in compensation expenses related to high labor costs in our energy-impacted markets and an increase of approximately $154,000 in health insurance costs as compared to the prior year. 2014 Annual Report 46 Administrative expenses increased by 18.1% to $7.9 million in fiscal year 2013, compared to $6.7 million in fiscal year 2012. This increase was primarily due to an increase of approximately $407,000 in salary expense related to high labor costs in our energy-impacted markets, $467,000 in executive bonus expense per the compensation plan and an increase of approximately $317,000 in health insurance costs in fiscal year 2013 as compared to the prior year. Advisory and Trustee Services. Advisory and trustee services expense increased by 36.4% to $805,000 in fiscal year 2014, compared to $590,000 in fiscal year 2013. This change was primarily due to an increase in noncash trustee compensation. Advisory and trustee services expense decreased by 14.1% to $590,000 in fiscal year 2013, compared to $687,000 in fiscal year 2012. Other Expenses. Other expenses decreased 1.9% to $2.1 million in fiscal year 2014, compared to $2.2 million in fiscal year 2013. Other expenses increased 14.5% to $2.2 million in fiscal year 2013, compared to $1.9 million in fiscal year 2012. This increase was primarily due to increases in securities issuance and registration expenses. Amortization Related to Non-Real Estate Investments. Amortization related to non-real estate investments increased 9.9% in fiscal year 2014 to $3.3 million, compared to $3.0 million in fiscal year 2013, primarily due to the amortization of new leasing commissions. Amortization related to non-real estate investments was $3.0 million in both fiscal years 2013 and 2012. Impairment of Real Estate Investments. During fiscal year 2014, the Company incurred a loss of $42.6 million due to the impairment of ten commercial office properties and one commercial industrial property. See Note 2 of the Notes to Consolidated Financial Statements in this report for additional information. Gain on Involuntary Conversion. During fiscal years 2014, 2013 and 2012, the Company recognized gains on involuntary conversion of $2.5 million, $5.1 million and approximately $274,000, respectively. See Note 2 of the Notes to Consolidated Financial Statements in this report for additional information. Interest Expense. Components of interest expense in fiscal years 2014, 2013 and 2012 were as follows. Mortgage debt Line of credit Other Total interest expense $ $ (in thousands) Year Ended April 30 2014 2012 2013 56,087 $ 58,893 $ 57,684 $ 980 1,281 59,142 $ 61,154 $ 61,801 $ 2,443 1,674 691 2,364 2014 vs. 2013 2013 vs. 2012 $ Change % Change (2,806) (289) 1,083 (2,012) (4.8%) $ (29.5%) 84.5% (3.3%) $ $ Change % Change 2.1% (59.9%) (23.5%) (1.0%) 1,209 (1,463) (393) (647) Mortgage interest decreased by 4.8% to $56.1 million in fiscal year 2014, compared to $58.9 million in fiscal year 2013. Mortgages on properties newly acquired in fiscal years 2014 and 2013 added $1.2 million to our mortgage interest expense in fiscal year 2014, while mortgage interest on same-store properties decreased $4.0 million compared to fiscal year 2013, primarily due to loan payoffs. Mortgage interest increased by 2.1% to $58.9 million in fiscal year 2013, compared to $57.7 million in fiscal year 2012. Mortgages on properties newly acquired in fiscal years 2013 and 2012 added $3.8 million to our mortgage interest expense in fiscal year 2013, while mortgage interest on same-store properties decreased $2.6 million compared to fiscal year 2012, primarily due to loan payoffs. Our overall weighted average mortgage interest rate was 5.37%, 5.55% and 5.78% as of April 30, 2014, 2013 and 2012, respectively, on total mortgages payable of $997.7 million, $1.0 billion and $1.0 billion. Interest expense on our line of credit decreased by 29.5% to approximately $691,000 in fiscal year 2014, compared to approximately $980,000 in fiscal year 2013, primarily due to a lower average outstanding balance during fiscal year 2014 compared to the prior year. Interest expense on our line of credit decreased by 59.9% to approximately $980,000 in fiscal year 2013, compared to $2.4 million in fiscal year 2012, primarily due to a lower average outstanding balance during fiscal year 2013 compared to the prior year. Other interest consists of interest on the Company’s construction loans, a financing liability, security deposits and special assessments, as well as amortization of loan costs, offset by capitalized construction interest. Other interest 2014 Annual Report 47 increased by 84.5% to $2.4 million in fiscal year 2014, compared to $1.3 million in fiscal year 2013, primarily due to interest on a new financing liability in fiscal year 2014. Other interest decreased by 23.5% to $1.3 million in fiscal year 2013, compared to $1.7 million in fiscal year 2012, primarily due to a decrease in prepayment penalties, offset by an increase in amortization of loan costs. Interest Income and Other Income. The Company recorded interest income in fiscal years 2014, 2013 and 2012 of approximately $1.9 million, $222,000 and $148,000, respectively. The increase in interest income from fiscal year 2013 to fiscal year 2014 was primarily due to interest earned on a contract for deed in fiscal year 2014. Other income consists of real estate tax appeal refunds and other miscellaneous income. The Company earned other income in fiscal years 2014, 2013 and 2012 of approximately $779,000, $526,000 and $631,000, respectively. The increase in other income from fiscal year 2013 to fiscal year 2014 was primarily due to income from the TRS the Company acquired in fiscal year 2014. Loss on Sale of Real Estate and Other Investments. The Company recorded a loss on sale of other investments of approximately $51,000 in fiscal year 2014. Income from Discontinued Operations. Prior to February 1, 2014, the Company reported, in discontinued operations, the results of operations and the related gains or losses of properties that had either been disposed of or classified as held for sale and otherwise met the classification of a discontinued operation. Effective February 1, 2014 the Company adopted ASU No. 2014-08. Under this standard, a disposal (or classification as held for sale) of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. As a result of the adoption of ASU No. 2014-08, results of operations and gains or losses on sale for properties that are disposed or classified as held for sale in the ordinary course of business on or subsequent to February 1, 2014 would generally be included in continuing operations on the Company’s consolidated statements of operations, to the extent such disposals did not meet the criteria for classification as a discontinued operation described above. During the quarter ended April 30, 2014, the Company applied the new standard to one property that was classified as held for sale. Income from discontinued operations in fiscal years 2014, 2013 and 2012 was $6.5 million, $9.3 million and $1.1 million, respectively. During the first three quarters of fiscal year 2014, the Company disposed of two multi-family residential properties, three commercial office properties, twelve commercial industrial properties and three commercial retail properties that were classified as discontinued operations. During the quarter ended April 30, 2014, the Company applied ASU No. 2014-08 to one property that was classified as held for sale and did not record any discontinued operations. During fiscal year 2013, the Company disposed of three multi-family residential properties, one retail property, one healthcare property and four condominium units that were classified as discontinued operations. Eight condominium units and a retail property were classified as held for sale and also classified as discontinued operations at April 30, 2012. The Company realized a gain on sale of discontinued operations for fiscal year 2014 of $7.0 million. This compares to a $6.9 million gain on sale of discontinued operations recognized in fiscal year 2013 and approximately $349,000 recognized in fiscal year 2012. See Note 12 of the Notes to Consolidated Financial Statements in this report for further information on discontinued operations. Net Income. Net loss available to common shareholders for fiscal year 2014 was $24.7 million, compared to net income available to common shareholders of $16.3 million and $5.8 million in fiscal years 2013 and 2012, respectively. The change in net income available to common shareholders in fiscal year 2014 as compared to fiscal year 2013 was primarily due to impairment of real estate investments of $42.6 million in fiscal year 2014. The increase in net income in fiscal year 2013 as compared to fiscal year 2012 was primarily due to an increase in the gain on involuntary conversion and the gain on sale of discontinued operations. On a per common share basis, net loss was $.23 per common share in fiscal year 2014, compared to net income of $.17 and $.07 per common share in fiscal years 2013 and 2012, respectively. 2014 Annual Report 48 Physical Occupancy Physical occupancy as of April 30, 2014 compared to April 30, 2013 increased in two of our five reportable segments (commercial healthcare and commercial retail), decreasing in our multi-family residential, commercial office and commercial industrial segments, on a same-store basis and an all-property basis. The decrease of 8.6% in physical occupancy in our commercial industrial segment was due to the expiration of a single lease for 147,600 square feet at our Eagan, Minnesota property on April 30, 2013. At April 30, 2014 our same-store industrial commercial segment was comprised of six properties, five of which were 100% occupied and the Eagan, Minnesota property which was approximately 25.2% occupied. Physical occupancy represents the actual number of units or square footage leased divided by the total number of units or square footage at the end of the period. Physical Occupancy Levels on a Same-Store Property and All Property Basis: Segments Multi-Family Residential Commercial Office Commercial Healthcare Commercial Industrial Commercial Retail Net Operating Income Same-Store Properties As of April 30, 2013 95.3% 81.5% 94.9% 95.7% 86.9% 2014 94.5% 81.4% 96.2% 87.3% 87.3% 2012 94.1% 79.2% 94.0% 94.3% 87.4% All Properties As of April 30, 2013 94.6% 80.8% 94.7% 96.4% 87.0% 2014 93.0% 80.7% 96.3% 87.8% 87.4% 2012 93.6% 79.2% 94.4% 94.3% 87.4% Net Operating Income (“NOI”) is a non-GAAP measure which we define as total real estate revenues and gain on involuntary conversion less real estate expenses (which consist of utilities, maintenance, real estate taxes, insurance, property management expenses and other property expenses). 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 real estate revenues, real estate operating expenses, gain on involuntary conversion and NOI by reportable operating segment for fiscal years 2014, 2013 and 2012. For a reconciliation of net operating income of reportable segments to net 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 same-store property and non-same- store property basis. Same-store properties are properties owned or in service for the entirety of the periods being compared, and, in the case of development or re-development properties, which have achieved a target level of occupancy of 90% for multi-family residential properties and 85% for commercial office, healthcare, industrial and retail properties. 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 same-store 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. The discussion below focuses on the main factors affecting real estate revenue and real estate expenses from same- store properties, since changes from one fiscal year to another in real estate revenue and expenses from non-same- store properties are due to the addition of those properties to the Company’s real estate portfolio, and accordingly provide less useful information for evaluating the ongoing operational performance of the Company’s real estate portfolio. 2014 Annual Report 49 Fiscal Year 2014 Compared to Fiscal Year 2013 All Segments The following table of selected operating data reconciles NOI to net income and provides the basis for our discussion of NOI by segment in fiscal year 2014 compared to fiscal year 2013. (in thousands, except percentages) Years Ended April 30 2013 2014 $ Change % Change All Segments Real estate revenue Same-store Non-same-store (1) Total Real estate expenses Same-store Non-same-store (1) Total Gain on involuntary conversion Same-store Non-same-store (1) Total Net operating income Same-store Non-same-store (1) Total Depreciation/amortization Administrative, advisory and trustee services Other expenses Impairment of real estate investments Interest expense Interest and other income (Loss) income before loss on sale of real estate and other investments and income from discontinued operations Loss on sale of real estate and other investments (Loss) income from continuing operations Income from discontinued operations(2) Net income $ $ $ $ $ $ $ $ 6,251 11,173 17,424 4,145 5,283 9,428 2.7% 67.9% 7.0% 4.4% 91.7% 9.5% (1,232) (1,372) (2,604) (100.0%) (35.6%) (51.2%) 874 4,518 5,392 0.6% 31.1% 3.5% $ $ $ $ $ $ $ $ $ 237,865 27,617 265,482 97,442 11,045 108,487 0 2,480 2,480 140,423 19,052 159,475 (70,918) (10,743) (2,132) (42,566) (59,142) 2,687 (23,339) (51) (23,390) 6,450 (16,940) $ $ $ $ $ $ $ $ $ 231,614 16,444 248,058 93,297 5,762 99,059 1,232 3,852 5,084 139,549 14,534 154,083 (62,333) (8,494) (2,173) 0 (61,154) 748 20,677 0 20,677 9,295 29,972 (1) Non-same-store properties consist of the following properties (re-development and in-service development properties are listed in bold type): FY2014 - Multi-Family Residential - Alps Park, Rapid City, SD; Chateau I, Minot, ND; Colonial Villa, Burnsville, MN; Colony, Lincoln, NE; Cypress Court, St. Cloud, MN; First Avenue, Minot, ND; Lakeside Village, Lincoln, NE; Landing at Southgate, Minot, ND; Pinecone Villas, Sartell, MN; Ponds at Heritage Place, Sartell, MN; Quarry Ridge II, Rochester, MN; Renaissance Heights I, Williston, ND; River Ridge, Bismarck, ND; Southpoint, Grand Forks, ND; Villa West, Topeka, KS; Whispering Ridge, Omaha, NE and Williston Garden, Williston, ND. Total number of units, 2,369. Dewey Hill Business Center, Edina, MN. Total rentable square footage, 73,338. Commercial Office - Commercial Healthcare - Jamestown Medical Office Building, Jamestown, ND; Legends at Heritage Place, Sartell, MN and Spring Creek Fruitland, Fruitland, ID. Total rentable square footage, 182,896. Commercial Industrial - Minot IPS, Minot, ND and Stone Container, Roseville, MN. Commercial Retail - Total rentable square footage, 45,448. Arrowhead First International Bank, Minot, ND. Total rentable square footage, 3,702. 2014 Annual Report 50 FY2013 - Multi-Family Residential - Chateau I, Minot, ND; Colonial Villa, Burnsville, MN; Colony, Lincoln, NE; First Avenue, Minot, ND; Lakeside Village, Lincoln, NE; Ponds at Heritage Place, Sartell, MN; Quarry Ridge II, Rochester, MN; Villa West, Topeka, KS; Whispering Ridge, Omaha, NE and Williston Garden, Williston, ND. Total number of units, 1,738. Dewey Hill Business Center, Edina, MN. Total rentable square footage, 73,338 Commercial Office - Commercial Healthcare - Jamestown Medical Office Building, Jamestown, ND. Total rentable square footage, 45,222. Commercial Industrial - Minot IPS, Minot, ND and Stone Container, Roseville, MN. Commercial Retail - Total rentable square footage, 256,770. Arrowhead First International Bank, Minot, ND. Total rentable square footage, 3,702. (2) Discontinued operations include gain on disposals and income from operations for: 2014 Discontinued Operations – Anoka Strip Center, API Building, Bloomington Business Plaza, Bodycote Industrial Building, Brooklyn Park 7401 Boone Ave, Burnsville 2 Strip Center, Cedar Lake Business Center, Clive 2075 NW 94th Street, Dixon Avenue Industrial Park, Eagan Community, East Park, Fargo 1320 45th Street N, Lighthouse, Metal Improvement Company, Minnetonka 13600 County Road 62, Nicollet VII, Pillsbury Business Center, Roseville 2929 Long Lake Road, Sycamore Village and Winsted Industrial Building. 2013 Discontinued Operations – Candlelight, Georgetown Square Condominiums, Kentwood Thomasville Furniture, Prairiewood Meadows, Stevens Point and Terrace on the Green. An analysis of NOI by segment follows. Multi-Family Residential Real estate revenue from same-store properties in our multi-family residential segment increased by $2.1 million in the twelve months ended April 30, 2014 compared to the same period in the prior fiscal year. The continued levels of high occupancy allowed for rental rate increases of approximately $2.5 million. This increase in revenue was offset by an increase in vacancy loss of $394,000. Real estate expenses at same-store properties increased by 8.9% or $3.0 million in the twelve months ended April 30, 2014 compared to the same period in the prior fiscal year. Maintenance expenses increased by $1.0 million; utilities expense increased by $928,000; property management expenses increased by $898,000 and insurance expense increased by $636,000. These increases in expenses were offset by a decrease in real estate taxes of $485,000 and a decrease in other property expenses of $52,000. The increase in utility expenses was due to utility rate increases and increased heating costs due to the effects of colder weather when compared to the prior year. The increase in maintenance costs was due to more general maintenance items being completed in the current year while the increased property management costs were primarily due to increased labor and benefit costs. The decrease in real estate taxes was attributable to a state-paid property tax relief credit legislated by the state of North Dakota for calendar year 2013. (in thousands, except percentages) Years Ended April 30, 2013 $ Change 2014 % Change Multi-Family Residential Real estate revenue Same-store Non-same-store Total Real estate expenses Same-store Non-same-store Total Gain on involuntary conversion Same-store Non-same-store Total Net operating income Same-store Non-same-store Total $ $ $ $ $ $ $ $ 77,447 24,612 102,059 36,106 10,032 46,138 0 2,480 2,480 41,341 17,060 58,401 $ $ $ $ $ $ $ $ 75,375 14,548 89,923 33,142 5,081 38,223 0 3,852 3,852 42,233 13,319 55,552 $ $ $ $ $ $ $ $ 2,072 10,064 12,136 2,964 4,951 7,915 0 (1,372) (1,372) (892) 3,741 2,849 2.7% 69.2% 13.5% 8.9% 97.4% 20.7% 0.0% (35.6%) (35.6%) (2.1%) 28.1% 5.1% 2014 Annual Report 51 Occupancy Same-store Non-same-store Total Number of Units Same-store Non-same-store Total Commercial Office 2014 94.5% 87.6% 93.0% 2014 8,410 2,369 10,779 2013 95.3% 91.2% 94.6% 2013 8,410 1,738 10,148 Real estate revenue from same-store properties in our commercial office segment increased by $1.5 million in the twelve months ended April 30, 2014 compared to the same period from the prior fiscal year. Tenant reimbursements increased by $1.0 million and vacancy loss decreased by $816,000. These increases in revenue were offset by a decrease in other revenue items of $310,000. The increase in tenant reimbursements was due to an increase in occupancy and increased recoverable operating expenses. Real estate expenses at same-store properties increased by $919,000 in the twelve months ended April 30, 2014 compared to the same period from the prior fiscal year. The increase was primarily due to an increase in utility expenses of $871,000. All other expenses combined increased by $48,000. The increase in utility expenses was due to utility rate increases and the effect of colder weather on heating costs. (in thousands, except percentages) Years Ended April 30, 2013 $ Change 2014 % Change $ $ $ $ $ $ 77,202 238 77,440 37,930 260 38,190 39,272 (22) 39,250 $ $ $ $ $ $ 75,733 229 75,962 37,011 256 37,267 38,722 (27) 38,695 $ $ $ $ $ $ 1,469 9 1,478 919 4 923 550 5 555 2014 81.4% 35.7% 80.7% 1.9% 3.9% 1.9% 2.5% 1.6% 2.5% 1.4% (18.5%) 1.4% 2013 81.5% 35.7% 80.8% 2014 4,757,483 73,338 4,830,821 2013 4,755,925 73,338 4,829,263 Commercial Office Real estate revenue Same-store Non-same-store Total Real estate expenses Same-store Non-same-store Total Net operating income Same-store Non-same-store Total Occupancy Same-store Non-same-store Total Rentable Square Footage Same-store Non-same-store Total 2014 Annual Report 52 Commercial Healthcare Real estate revenue from same-store properties in our commercial healthcare segment increased by $2.2 million in the twelve months ended April 30, 2014 compared to the same period from the prior fiscal year. The increase was due to an increase in tenant reimbursements of $999,000; an increase in real estate rental income of $438,000; an increase in percentage rent income of $399,000 at our Edgewood Vista assisted living portfolio and a decrease in vacancy of $402,000. The increase in tenant reimbursements was due to increased occupancy and an increase in recoverable operating expenses. Real estate expenses from same-store properties increased by $128,000 in the twelve months ended April 30, 2014 compared to the same period from the prior fiscal year. The increase was due to an increase in utility expenses of $216,000; an increase in insurance expenses of $160,000 and an increase in all other property expenses combined of $174,000. These increases were offset by a decrease in property management expenses of $422,000. The decrease in property management expenses was the result of six properties that were previously managed by a third party fee manager being converted to internal property management effective March 1, 2013. (in thousands, except percentages) Years Ended April 30, 2013 $ Change 2014 % Change $ $ $ $ $ $ 63,898 1,360 65,258 16,799 328 17,127 47,099 1,032 48,131 $ $ $ $ $ $ 61,661 314 61,975 16,671 108 16,779 44,990 206 45,196 $ $ $ $ $ $ Commercial Healthcare Real estate revenue Same-store Non-same-store Total Real estate expenses Same-store Non-same-store Total Net operating income Same-store Non-same-store Total Occupancy Same-store Non-same-store Total Rentable Square Footage Same-store Non-same-store Total 2,237 1,046 3,283 128 220 348 2,109 826 2,935 2014 96.2% 98.0% 96.3% 3.6% 333.1% 5.3% 0.8% 203.7% 2.1% 4.7% 401.0% 6.5% 2013 94.9% 80.5% 94.7% 2014 2,910,994 182,896 3,093,890 2013 2,910,800 45,222 2,956,022 2014 Annual Report 53 Commercial Industrial Real estate revenue from same-store properties in our commercial industrial segment increased by 5.1% or $272,000 in the twelve months ended April 30, 2014 compared to the same period in the prior fiscal year. The increase was primarily due to increased occupancy of $152,000 and an increase in tenant reimbursements of $105,000. Other real estate rental revenue items increased by a combined $15,000. The increase in tenant reimbursements was attributable to increased occupancy and an increase in recoverable operating expenses. Real estate expenses from same-store properties increased by $79,000 in the twelve months ended April 30, 2014 compared to the same period in the prior fiscal year. The increase was primarily due to an increase in insurance expenses of $62,000. Utility, maintenance, real estate tax, property management and other property expenses increased by a combined $17,000. (in thousands, except percentages) Years Ended April 30, 2013 $ Change 2014 % Change $ $ $ $ $ $ 5,630 1,264 6,894 1,636 407 2,043 3,994 857 4,851 $ $ $ $ $ $ 5,358 1,342 6,700 1,557 314 1,871 3,801 1,028 4,829 $ $ $ $ $ $ 272 (78) 194 79 93 172 193 (171) 22 2014 87.3% 100.0% 87.8% 5.1% (5.8%) 2.9% 5.1% 29.6% 9.2% 5.1% (16.6%) 0.5% 2013 95.7% 100.0% 96.4% 2014 1,173,263 45,448 1,218,711 2013 1,173,263 256,770 1,430,033 Commercial Industrial Real estate revenue Same-store Non-same-store Total Real estate expenses Same-store Non-same-store Total Net operating income Same-store Non-same-store Total Occupancy Same-store Non-same-store Total Rentable Square Footage Same-store Non-same-store Total 2014 Annual Report 54 Commercial Retail Real estate revenue from same-store properties in our commercial retail segment increased by $201,000 in the twelve months ended April 30, 2014 compared to the same period of the prior fiscal year. Stable occupancy levels allowed for a slight increase in rental real estate revenue of $161,000. Tenant reimbursements increased by $40,000 due to increased recoverable operating expenses. Real estate expenses from same-store properties increased by $55,000 due to an increase in property management expense of $136,000. This increase was offset by a decrease in utilities, maintenance, real estate tax, insurance and other property expenses combined of $81,000. The increase in property management expense was primarily due to space planning costs at our Forest Lake Westlake property which were incurred to renovate a large single tenant space into more desirable multi-tenant spaces. Commercial Retail Real estate revenue Same-store Non-same-store Total Real estate expenses Same-store Non-same-store Total Gain on involuntary conversion Same-store Non-same-store Total Net operating income Same-store Non-same-store Total Occupancy Same-store Non-same-store Total Rentable Square Footage Same-store Non-same-store Total (in thousands, except percentages) Years Ended April 30, 2013 $ Change 2014 $ $ $ $ $ $ $ $ 13,688 143 13,831 4,971 18 4,989 0 0 0 8,717 125 8,842 $ $ $ $ $ $ $ $ 13,487 11 13,498 4,916 3 4,919 1,232 0 1,232 9,803 8 9,811 $ $ $ $ $ $ $ $ 201 132 333 55 15 70 (1,232) 0 (1,232) (1,086) 117 (969) 2014 87.3% 100.0% 87.4% 2014 1,304,620 3,702 1,308,322 % Change 1.5% 1200.0% 2.5% 1.1% 500.0% 1.4% (100.0%) 0.0% (100.0%) (11.1%) 1462.5% (9.9%) 2013 86.9% 100.0% 87.0% 2013 1,304,460 3,702 1,308,162 2014 Annual Report 55 Fiscal Year 2013 Compared to Fiscal Year 2012 All Segments The following table of selected operating data reconciles NOI to net income and provides the basis for our discussion of NOI by segment in fiscal year 2013 compared to fiscal year 2012. (in thousands, except percentages) Years Ended April 30 2012 2013 $ Change % Change All Segments Real estate revenue Same-store Non-same-store (1) Total Real estate expenses Same-store Non-same-store (1) Total Gain on involuntary conversion Same-store Non-same-store (1) Total Net operating income Same-store Non-same-store (1) Total Depreciation/amortization Administrative, advisory and trustee services Other expenses Impairment of real estate investments Interest expense Interest and other income Income from continuing operations Income from discontinued operations(2) Net income $ $ $ $ $ $ $ $ 1,832 17,555 19,387 84 5,625 5,709 958 3,852 4,810 0.8% 340.9% 8.5% 0.1% 401.5% 6.1% 349.6% n/a 1755.5% 2,706 15,782 18,488 2.1% 421.0% 13.6% $ $ $ $ $ $ $ $ $ 225,353 22,705 248,058 92,033 7,026 99,059 1,232 3,852 5,084 134,552 19,531 154,083 (62,333) (8,494) (2,173) 0 (61,154) 748 20,677 9,295 29,972 $ $ $ $ $ $ $ $ $ 223,521 5,150 228,671 91,949 1,401 93,350 274 0 274 131,846 3,749 135,595 (56,650) (7,381) (1,898) 0 (61,801) 779 8,644 1,062 9,706 (1) Non-same-store properties consist of the following properties (re-development and in-service development properties are listed in bold type): FY2013 - Multi-Family Residential - Ashland, Grand Forks, ND; Chateau I, Minot, ND; Colony, Lincoln, NE; Cottage West Twin Homes, Sioux Falls, SD; Evergreen II, Isanti, MN; First Avenue, Minot, ND; Gables Townhomes, Sioux Falls, SD; Grand Gateway, St Cloud, MN; Lakeside Village, Lincoln, NE; Ponds at Heritage Place, Sartell, MN; Quarry Ridge II, Rochester, MN; Regency Park Estates, St Cloud, MN; Villa West, Topeka, KS; Whispering Ridge, Omaha, NE and Williston Garden, Williston, ND. Total number of units, 1,953. Commercial Healthcare - Edina 6525 Drew Avenue, Edina, MN; Jamestown Medical Office Building, Jamestown, ND; Spring Creek American Falls, American Falls, ID; Spring Creek Soda Springs, Soda Springs, ID; Spring Creek Eagle, Eagle, ID; Spring Creek Meridian, Meridian, ID; Spring Creek Overland, Boise, ID; Spring Creek Boise, Boise, ID; Spring Creek Ustick, Meridian, ID and Trinity at Plaza 16, Minot, ND. Total rentable square footage, 223,192. Commercial Industrial - Minot IPS, Minot, ND. Commercial Retail - Total rentable square footage, 27,698. Arrowhead First International Bank, Minot, ND. Total rentable square footage, 3,702. 2014 Annual Report 56 FY2012 - Multi-Family Residential - Ashland, Grand Forks, ND; Chateau I, Minot, ND; Cottage West Twin Homes, Sioux Falls, SD; Evergreen II, Isanti, MN; Gables Townhomes, Sioux Falls, SD; Grand Gateway, St Cloud, MN; Regency Park Estates, St Cloud, MN; Villa West, Topeka, KS; and Williston Garden, Williston, ND. Total number of units, 561. Commercial Healthcare - Edina 6525 Drew Avenue, Edina, MN; Spring Creek American Falls, American Falls, ID; Spring Creek Soda Springs, Soda Springs, ID; Spring Creek Eagle, Eagle, ID; Spring Creek Meridian, Meridian, ID; Spring Creek Overland, Boise, ID; Spring Creek Boise, Boise, ID; Spring Creek Ustick, Meridian, ID and Trinity at Plaza 16, Minot, ND. Total rentable square footage, 177,970. (2) Discontinued operations include gain on disposals and income from operations for: 2014 Discontinued Operations – Anoka Strip Center, API Building, Bloomington Business Plaza, Bodycote Industrial Building, Brooklyn Park 7401 Boone Ave, Burnsville 2 Strip Center, Cedar Lake Business Center, Clive 2075 NW 94th Street, Dixon Avenue Industrial Park, Eagan Community, East Park, Fargo 1320 45th Street N, Lighthouse, Metal Improvement Company, Minnetonka 13600 County Road 62, Nicollet VII, Pillsbury Business Center, Roseville 2929 Long Lake Road, Sycamore Village and Winsted Industrial Building. 2013 Discontinued Operations – Candlelight, Georgetown Square Condominiums, Kentwood Thomasville Furniture, Prairiewood Meadows, Stevens Point and Terrace on the Green. 2012 Discontinued Operations – Livingston Pamida, East Grand Station, Georgetown Square Condominiums and Kentwood Thomasville Furniture. An analysis of NOI by segment follows. Multi-Family Residential Real estate revenue from same-store properties in our multi-family residential segment increased by $3.0 million in the twelve months ended April 30, 2013 compared to the same period in the prior fiscal year. The continued levels of high occupancy allowed for rental rate increases of approximately $2.4 million. The remainder of the real estate revenue increase is attributable to a decrease of $379,000 in allowances and concessions and an increase of $194,000 in other fee revenue items. Real estate expenses at same-store properties decreased by $330,000 in the twelve months ended April 30, 2013 compared to the same period in the prior fiscal year. Real estate taxes increased by $366,000; utilities expense increased by $282,000 and insurance expense increased by $127,000. These increases in expenses were offset by a decrease in property management expenses of $1.0 million and a combined decrease in maintenance and other property expenses of $66,000 for a net decrease in overall expenses of $330,000. The decrease in property management expenses is attributable to recoverable allocations of internal management fees as compared to prior periods. (in thousands, except percentages) Years Ended April 30, 2012 $ Change 2013 % Change Multi-Family Residential Real estate revenue Same-store Non-same-store Total Real estate expenses Same-store Non-same-store Total Gain on involuntary conversion Same-store Non-same-store Total Net operating income Same-store Non-same-store Total $ $ $ $ $ $ $ $ 72,112 17,811 89,923 31,952 6,271 38,223 0 3,852 3,852 40,160 15,392 55,552 $ $ $ $ $ $ $ $ 69,111 2,617 71,728 32,282 1,104 33,386 0 0 0 36,829 1,513 38,342 $ $ $ $ $ $ $ $ 3,001 15,194 18,195 (330) 5,167 4,837 0 3,852 3,852 4.3% 580.6% 25.4% (1.0%) 468.0% 14.5% n/a n/a n/a 3,331 13,879 17,210 9.0% 917.3% 44.9% 2014 Annual Report 57 Occupancy Same-store Non-same-store Total Number of Units Same-store Non-same-store Total Commercial Office 2013 94.6% 94.5% 94.6% 2013 8,195 1,953 10,148 2012 94.1% 85.4% 93.6% 2012 8,201 561 8,762 Real estate revenue from same-store properties in our commercial office segment increased by $2.5 million in the twelve months ended April 30, 2013 compared to the same period from the prior fiscal year. Real estate rentals increased by $1.1 million and tenant reimbursements increased by $1.4 million due to an increase in occupancy and increased recoverable operating expenses. Real estate expenses at same-store properties increased by 9.2%, or $3.1 million in the twelve months ended April 30, 2013 compared to the same period from the prior fiscal year. The increase was primarily due to an increase in real estate taxes of $767,000; an increase in property management expense of $921,000; an increase in maintenance expenses of $968,000 and an increase of $485,000 in other expense items. The increase in property management expenses is attributable to recoverable allocations of internal management fees as compared to prior periods, while the increase in maintenance expenses is primarily due to increased snow removal costs. (in thousands, except percentages) Years Ended April 30, 2012 $ Change 2013 % Change $ $ $ $ $ $ 75,962 0 75,962 37,267 0 37,267 38,695 0 38,695 $ $ $ $ $ $ 73,493 0 73,493 34,126 0 34,126 39,367 0 39,367 $ $ $ $ $ $ 2,469 0 2,469 3,141 0 3,141 (672) 0 (672) 2013 80.8% n/a 80.8% 3.4% n/a 3.4% 9.2% n/a 9.2% (1.7%) n/a (1.7%) 2012 79.2% n/a 79.2% 2013 4,829,263 0 4,829,263 2012 4,827,449 0 4,827,449 Commercial Office Real estate revenue Same-store Non-same-store Total Real estate expenses Same-store Non-same-store Total Net operating income Same-store Non-same-store Total Occupancy Same-store Non-same-store Total Rentable Square Footage Same-store Non-same-store Total 2014 Annual Report 58 Commercial Healthcare Real estate revenue from same-store properties in our commercial healthcare segment decreased by $4.7 million in the twelve months ended April 30, 2013 compared to the same period from the prior fiscal year. The decrease was primarily due to the reduction in revenue of $5.3 million at our Wyoming senior living facilities and a reduction of $367,000 in straight-line rent. These reductions in revenue were offset by an increase in percentage rent revenue of $476,000 at our Edgewood Vista senior living facilities due to a percentage rent clause that was newly effective in fiscal year 2013 and an increase in tenant reimbursements of $532,000 due to slight increases in occupancy and reimbursable expenses. The revenue reduction at our Wyoming senior living facilities (which is offset by a $5.0 million reduction in real estate expenses outlined below) is the result of the restructuring of the Company’s assisted living portfolio in the third quarter of fiscal year 2012, when the Company sold its wholly-owned taxable REIT subsidiary. Following the sale of this entity, the Company’s revenue from its Wyoming assisted living portfolio is received as rent under the lease agreement with the tenant in the facilities, and property management expenses are paid by the tenant, rather than (as was previously the case) included in the property management expense category of the Company’s statements. Real estate expenses from same-store properties decreased by $4.3 million in the twelve months ended April 30, 2013 compared to the same period from the prior fiscal year. A decrease of $5.0 million was the result of the portfolio restructuring discussed above. This reduction in expenses was offset by an increase in property management expenses of $615,000 and other real estate expenses of $33,000. The increase in property management expenses is attributable to recoverable allocations of internal management fees as compared to prior periods. (in thousands, except percentages) Years Ended April 30, 2012 $ Change 2013 % Change $ $ $ $ $ $ 57,304 4,671 61,975 16,027 752 16,779 41,277 3,919 45,196 $ $ $ $ $ $ 61,978 2,533 64,511 20,353 297 20,650 41,625 2,236 43,861 $ $ $ $ $ $ Commercial Healthcare Real estate revenue Same-store Non-same-store Total Real estate expenses Same-store Non-same-store Total Net operating income Same-store Non-same-store Total Occupancy Same-store Non-same-store Total Rentable Square Footage Same-store Non-same-store Total (4,674) 2,138 (2,536) (4,326) 455 (3,871) (348) 1,683 1,335 2013 94.6% 95.7% 94.7% (7.5%) 84.4% (3.9%) (21.3%) 153.2% (18.7%) (0.8%) 75.3% 3.0% 2012 94.0% 99.8% 94.4% 2013 2,732,830 223,192 2,956,022 2012 2,701,768 177,970 2,879,738 2014 Annual Report 59 Commercial Industrial Real estate revenue from same-store properties in our commercial industrial segment decreased by $125,000 in the twelve months ended April 30, 2013 compared to the same period in the prior fiscal year. The decrease was due to an increase in vacancy loss of $375,000 which was primarily attributable to our Urbandale Property. Other revenue items increased by $250,000. Real estate expenses from same-store properties increased by $729,000 in the twelve months ended April 30, 2013 compared to the same period in the prior fiscal year. The increase was primarily due to an increase in bad debt provision of $684,000 which was the result of a debt collection at our Brooklyn Park 7401 Boone Avenue property in the prior fiscal year. All other expenses combined increased by $45,000. (in thousands, except percentages) Years Ended April 30, 2012 $ Change 2013 % Change $ $ $ $ $ $ 6,488 212 6,700 1,871 0 1,871 4,617 212 4,829 $ $ $ $ $ $ 6,613 0 6,613 1,142 0 1,142 5,471 0 5,471 $ $ $ $ $ $ (125) 212 87 729 0 729 (854) 212 (642) 2013 96.4% 100.0% 96.4% 2013 1,402,335 27,698 1,430,033 (1.9%) n/a 1.3% 63.8% n/a 63.8% (15.6%) n/a (11.7%) 2012 94.3% n/a 94.3% 2012 1,411,810 0 1,411,810 Commercial Industrial Real estate revenue Same-store Non-same-store Total Real estate expenses Same-store Non-same-store Total Net operating income Same-store Non-same-store Total Occupancy Same-store Non-same-store Total Rentable Square Footage Same-store Non-same-store Total 2014 Annual Report 60 Commercial Retail Real estate revenue from same-store properties in our commercial retail segment increased by $1.2 million in the twelve months ended April 30, 2013 compared to the same period of the prior fiscal year. The increase was due primarily to a $504,000 increase in real estate rentals with the remaining increase of $657,000 being attributable to tenant reimbursements. Lease up of our Minot Arrowhead Shopping Center post-flood accounted for $442,000 of the increase in real estate revenue. Increased occupancy at our Rochester Maplewood Square property resulted in increased real estate revenue of $292,000 as well. Real estate expenses from same-store properties increased by $870,000, primarily due to an increase in maintenance expense of $578,000; an increase in real estate taxes of $132,000 and an increase in other expenses combined of $160,000. The increase in maintenance expenses was primarily due to more general maintenance items being completed and an increase in snow removal. (in thousands, except percentages) Years Ended April 30, 2012 $ Change 2013 % Change $ $ $ $ $ $ $ $ 13,487 11 13,498 4,916 3 4,919 1,232 0 1,232 9,803 8 9,811 $ $ $ $ $ $ $ $ 12,326 0 12,326 4,046 0 4,046 274 0 274 8,554 0 8,554 $ $ $ $ $ $ $ $ Commercial Retail Real estate revenue Same-store Non-same-store Total Real estate expenses Same-store Non-same-store Total Gain on involuntary conversion Same-store Non-same-store Total Net operating income Same-store Non-same-store Total Occupancy Same-store Non-same-store Total Rentable Square Footage Same-store Non-same-store Total 1,161 11 1,172 870 3 873 958 0 958 1,249 8 1,257 2013 86.9% 100.0% 87.0% 9.4% n/a 9.5% 21.5% n/a 21.6% 349.6% n/a 349.6% 14.6% n/a 14.7% 2012 87.4% n/a 87.4% 2013 1,304,460 3,702 1,308,162 2012 1,300,961 0 1,300,961 2014 Annual Report 61 Comparison of Results from Residential and Commercial 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: Fiscal Years Ended April 30 Real Estate Investments – (cost before depreciation) Multi-Family Residential Commercial Office Commercial Healthcare Commercial Industrial Commercial Retail Total Net Operating Income Multi-Family Residential Commercial Office Commercial Healthcare Commercial Industrial Commercial Retail Total 2014 (in thousands, except percentages) 2013 % % 2012 % $ 753,731 37.7% $ 659,696 32.4% $ 539,783 28.5% 605,318 32.0% 613,775 30.2% 500,268 26.4% 501,191 24.7% 119,002 6.2% 125,772 6.3% 127,638 6.5% 132,536 6.8% $ 1,996,031 100.0% $ 2,032,970 100.0% $ 1,892,009 100.0% 544,628 27.3% 525,028 26.3% 2.8% 5.9% 55,375 117,269 $ 58,401 36.6% $ 39,250 24.6% 48,131 30.2% 3.0% 4,851 5.6% 8,842 38,342 28.3% 39,367 29.0% 43,861 32.3% 4.1% 5,471 6.3% 8,554 $ 159,475 100.0% $ 154,083 100.0% $ 135,595 100.0% 55,552 36.1% $ 38,695 25.1% 45,196 29.3% 3.1% 4,829 6.4% 9,811 Analysis of Commercial Segments’ Credit Risk and Leases Credit Risk The following table lists our top ten commercial tenants on April 30, 2014, for all commercial properties owned by us, measured by percentage of total commercial segments’ minimum rents as of April 1, 2014. Our results of operations are dependent on, among other factors, the economic health of our tenants. We attempt to mitigate tenant credit risk by working to secure creditworthy tenants that meet our underwriting criteria and monitoring our portfolio to identify potential problem tenants. We believe that our credit risk is also mitigated by the fact that no individual tenant accounts for more than approximately 10% of our total real estate rentals, although affiliated entities of Edgewood Vista together accounted for approximately 14.4% of our total commercial segments’ minimum rents as of April 1, 2014. As of April 30, 2014, 57 of our 166 commercial properties, including all 20 of our Edgewood Vista properties, all 7 of our Idaho Spring Creek senior housing properties, and all 5 of our Wyoming senior housing properties, were leased under triple net leases under which the tenant pays a monthly lump sum base rent as well as all costs associated with the property, including property taxes, insurance, replacement, repair or restoration, in addition to maintenance. The failure by any of our triple net tenants to effectively conduct their operations or to maintain and improve our properties in accordance with the terms of their respective triple net leases could adversely affect their business reputations and ability to attract and retain residents and customers to our properties, which could have an indirect adverse effect on us. We regularly monitor the relative credit risk of our significant tenants, including our triple net tenants. The metrics the Company uses to evaluate a significant tenant’s liquidity and creditworthiness depend on facts and circumstances specific to that tenant and to the industry in which it operates, and include the tenant’s credit history and economic conditions related to the tenant, its operations and the markets in which it operates, that may change over time. Prior to signing a lease with a tenant, the Company generally assesses the prospective tenant’s credit quality through review of its financial statements and tax returns, and the result of that review is a factor in establishing the rent to be charged (e.g., higher risk tenants will be charged higher rent). Over the course of a lease, the Company’s property management and asset management personnel have regular contact with tenants and tenant employees, and, where the terms of the lease permit, receive tenant financial information for periodic review, or review publicly-available financial statements, in the case of public company tenants or non-profit entities, such as hospital systems, whose financial statements are required to be filed with state agencies. Through these means the Company monitors tenant credit quality. 2014 Annual Report 62 Lessee Affiliates of Edgewood Vista St. Luke’s Hospital of Duluth, Inc. Fairview Health Services Applied Underwriters HealthEast Care System Affiliates of Siemens USA Nebraska Orthopaedic Hospital Microsoft (NASDAQ: MSFT) Arcadis Corporate Services, Inc. State of Idaho Department of Health & Welfare All Others Total Monthly Commercial Rent as of April 1, 2014 Commercial Leasing Activity % of Total Commercial Segments Minimum Rents as of April 1, 2014 14.4% 3.7% 3.7% 2.4% 1.8% 1.4% 1.3% 1.3% 1.3% 1.2% 67.5% 100.0% During Fiscal 2014, we executed new and renewal commercial leases for our same-store rental properties on 1,485,039 square feet. Despite our leasing efforts, occupancy in our same-store commercial portfolio decreased to 87.1% as of April 30, 2014, down from 87.7% as of April 30, 2013. This decrease is primarily attributable to the disposition of a number of highly occupied commercial industrial properties during the year. The total leasing activity for our same-store commercial rental properties, expressed in square feet of leases signed during the period, and the resulting physical occupancy levels are as follows for the years ended April 30, 2014 and 2013 respectively. Segments Office Healthcare Industrial Retail Total Square Feet of New Leases(1) 2013 263,799 51,126 36,982 92,662 444,569 2014 356,024 37,628 234,403 128,464 756,519 Square Feet of Leases Renewed(1) (2) 2013 2014 399,399 311,836 55,718 40,967 23,572 251,831 86,878 123,886 565,567 728,520 Total Square Feet of Leases Executed(1) 2014 667,860 78,595 486,234 252,350 1,485,039 2013 663,198 106,844 60,554 179,540 1,010,136 2014 Physical Occupancy Fiscal Year Ended April 30, 2013 81.4% 81.5% 96.2% 94.9% 87.3% 95.7% 87.3% 86.9% 87.1% 87.7% (1) The leasing activity presented is based on leases signed or executed for our same-store rental properties during the period and is not intended to coincide with the commencement of rental revenue in accordance with GAAP. (2) Leases renewed include the retained occupancy of tenants on a month-to-month basis past their original lease expiration date. New Leases The following table sets forth the average effective rents and the estimated costs of tenant improvements and leasing commissions, on a per square foot basis, that we are obligated to fulfill under the new leases signed for our same- store commercial rental properties during the years ended April 30, 2014 and 2013, respectively: Square Feet of New Leases(1) 2013 263,799 51,126 36,982 92,662 444,569 2014 356,024 37,628 234,403 128,464 756,519 Office Healthcare Industrial Retail Total Average Effective Rent(2) 2013 2014 Estimated Tenant Improvement Cost per Square Foot(1) 2013 Leasing Commissions per Average Term Square Foot(1) in Years 2013 2013 2014 5.5 $ 13.42 $ 14.53 $ 13.30 $ 14.24 $ 4.33 $ 5.34 7.06 49.71 8.2 1.43 0.13 4.8 5.0 2.21 1.79 5.9 $ 9.48 $ 13.20 $ 9.08 $ 15.16 $ 3.27 $ 4.56 2014 4.2 4.9 3.1 4.5 4.3 6.88 .50 4.35 21.58 3.55 5.83 37.99 3.90 9.66 20.14 4.84 8.93 2014 (1) The leasing activity presented is based on leases signed or executed for our same-store rental properties during the period and is not intended to coincide with the commencement of rental revenue in accordance with GAAP. Tenant improvements and leasing commissions presented are based on square feet leased during the period. (2) Effective rents represent average annual base rental payments, on a straight-line basis for the term of each lease, excluding operating expense reimbursements. The underlying leases contain various expense structures including gross, modified gross, net and triple net. 2014 Annual Report 63 Our ability to maintain or increase occupancy rates is a principal driver of maintaining and increasing the average effective rents in our commercial segments. The decrease in the average effective rental rates of new leases executed in fiscal year 2014 in our commercial retail segment when compared to new leases executed in the prior year is due to the signing of a new anchor tenant lease at our Jamestown Buffalo Mall property. In June of 2013, we executed a ten year lease with an effective date of August 1, 2013 for 84,338 square feet with a new anchor tenant at an average effective rent of $2.75 per square foot. This space was vacated by the former anchor tenant, which was paying $1.70 per square foot at the time their lease expired on May 31, 2013. Absent this transaction, the average effective rental rate for leases executed in our commercial retail segment in fiscal year 2014 would have been $11.72 per square foot. The decrease in the average effective rental rate of new leases executed in the total commercial portfolio in fiscal year 2014 when compared to the prior year is due primarily to the lease transaction mentioned above and the fact that there were significantly more new commercial industrial leases executed in fiscal year 2014. Lease Renewals The following table summarizes our lease renewal activity within our same-store commercial segments for the years ended April 30, 2014 and 2013, respectively (square feet data in thousands): 2014 Square Feet of Leases Renewed(1) 2013 311,836 399,399 55,718 40,967 23,572 251,831 123,886 86,878 728,520 565,567 Percent of Expiring Leases Renewed(2) 2013 87.1% 74.1% 30.9% 72.4% 70.1% 2014 53.4% 98.3% 45.6% 48.0% 63.5% Office Healthcare Industrial Retail Total Average Term in Years 2013 3.1 6.5 3.1 3.4 3.9 2014 3.4 3.3 3.2 3.6 3.4 2014 (2.6%) 8.0% 7.5% 8.9% 1.9% Weighted Average Growth (Decline) in Effective Rents(3) 2013 (5.3%) Estimated Tenant Improvement Cost per Square Foot(1) 2013 Leasing Commissions per Square Foot(1) 2013 2014 $ 4.82 $ 5.89 $ 3.39 $ 4.47 4.6% 8.51 4.74 0.59 0.32 1.19 0.25 $ 2.85 $ 5.97 $ 1.68 $ 3.69 0.94 0.48 0.08 16.67 0.21 1.03 2014 (2.8%) 8.6% (2.6%) (1) The leasing activity presented is based on leases signed or executed for our same-store rental properties during the period and is not intended to coincide with the commencement of rental revenue in accordance with GAAP. Tenant improvements and leasing commissions are based on square feet leased during the period. (2) Renewal percentage of expiring leases is based on square footage of renewed leases and not the number of leases renewed. Expiring leases where the tenant retained occupancy on a month-to-month basis past the lease expiration date were considered to have been renewed. (3) Represents the percentage change in effective rent between the original leases and the renewal leases. Effective rents represent average annual base rental payments, on a straight-line basis for the term of each lease, excluding operating expense reimbursements. The underlying leases contain various expense structures including gross, modified gross, net and triple net. The decrease in the percentage of expiring leases renewed in fiscal year 2014 in our commercial retail segment when compared to the percentage of expiring leases renewed for the prior year was due to the lease expiration of an anchor tenant at our Jamestown Buffalo Mall property, which occupied 84,338 square feet. Although this lease expired on May 31, 2013, we were able to execute a lease with a new tenant for the entire 84,338 square feet with an effective date of August 1, 2013 that resulted in an increase in effective rent of 61.8% when compared to the rent paid by the prior tenant. Not taking into account the previously mentioned vacated space, the percent of expiring leases renewed for our retail segment in fiscal year 2014 would have been 88.6%. 2014 Annual Report 64 Lease Expirations Our ability to maintain and improve occupancy rates, and base rents, primarily depends upon our continuing ability to re-lease expiring space. The following table reflects the in-service portfolio lease expiration schedule of our consolidated commercial segments properties, including square footage and annualized base rent for expiring leases, as of April 30, 2014. Fiscal Year of Lease Expiration 2015(1) 2016 2017 2018 2019 2020 2021 2022 2023 2024 Thereafter Totals # of Leases 184 122 125 88 84 26 37 42 10 45 15 778 Square Footage of Expiring Leases(3) 1,241,776 1,262,437 1,178,312 699,606 1,316,695 552,937 334,256 1,352,847 460,613 421,555 272,213 9,093,247 Annualized Base Rent of Expiring Leases at Expiration(2) Percentage of Total Commercial Segments Leased Square Footage 13.7% $ 16,479,312 17,365,450 13.8% 19,311,713 13.0% 12,163,841 7.7% 16,201,140 14.5% 5,902,586 6.1% 5,058,436 3.7% 16,711,943 14.9% 1,855,850 5.0% 6,845,936 4.6% 6,183,086 3.0% 100.0% $ 124,079,293 Percentage of Total Commercial Segments Annualized Base Rent 13.3% 14.0% 15.5% 9.8% 13.0% 4.8% 4.1% 13.5% 1.5% 5.5% 5.0% 100.0% Includes month-to-month leases. As of April 30, 2014 month-to-month leases accounted for 438,647 square feet. (1) (2) Annualized Base Rent is monthly scheduled rent as of April 1, 2014, multiplied by 12. (3) Assuming that none of the tenants exercise renewal or termination options, and including leases renewed prior to expiration. Also excludes 98,174 square feet of income producing real estate operated within a Taxable REIT Subsidiary. Because of the diverse property types of the Company’s commercial portfolio and the dispersed locations of a substantial portion of the portfolio’s properties in secondary and tertiary markets, information on current market rents is difficult to obtain, is highly subjective, and is often not directly comparable between properties. As a result, the Company believes that the increase or decrease in effective rent on its recent leases is the most objective and meaningful information available regarding rent trends and the relationship between rents on leases expiring in the near-term and current market rents across the Company’s markets. The Company believes that rents on its new and renewed leases generally approximate market rents. 2014 Annual Report 65 Property Acquisitions IRET Properties added approximately $43.6 million of real estate properties to its portfolio through property acquisitions during fiscal year 2014, compared to $108.2 million in fiscal year 2013. The fiscal year 2014 and 2013 acquisitions are detailed below. Fiscal 2014 (May 1, 2013 to April 30, 2014) Acquisitions Date Acquired Total Acquisition Cost Form of Consideration Investment Allocation Cash Units(1) Other(2) Land Building Intangible Assets (in thousands) Multi-Family Residential 71 unit - Alps Park - Rapid City, SD 96 unit - Southpoint - Grand Forks, ND 24 unit - Pinecone Villas - Sartell, MN Commercial Healthcare 98,174 sq ft Legends at 2013-05-01 $ 6,200 $ 2,920 $ 3,280 $ 0 $ 287 $ 5,551 $ 362 2013-09-05 10,600 10,400 2013-10-31 2,800 2,800 200 0 19,600 16,120 3,480 Heritage Place - Sartell, MN 2013-10-31 11,863 11,863 39,500 sq ft Spring Creek Fruitland - Fruitland, ID 2014-02-05 7,050 7,050 18,913 18,913 Unimproved Land Chateau II - Minot, ND Jamestown Unimproved - Jamestown, ND Red 20 - Minneapolis, MN(3) Legends at Heritage Place - Sartell, MN Spring Creek Fruitland - Fruitland, ID Isanti Unimproved - Isanti, MN Rapid City Unimproved - Rapid City, SD 2013-05-21 2013-08-09 2013-08-20 2013-10-31 2014-01-21 2014-02-04 2014-03-25 179 700 1,900 537 335 50 1,366 5,067 179 700 0 537 335 50 1,366 3,167 0 0 0 0 0 0 0 0 0 0 0 576 9,893 584 2,191 1,447 17,635 970 10,511 550 6,500 1,520 17,011 0 0 0 0 0 0 0 0 1,900 0 0 0 0 179 700 1,900 537 335 50 1,366 1,900 5,067 0 0 0 0 0 0 0 0 131 25 518 382 0 382 0 0 0 0 0 0 0 0 Total Property Acquisitions $ 43,580 $ 38,200 $ 3,480 $ 1,900 $ 8,034 $ 34,646 $ 900 (1) Value of limited partnership units of the Operating Partnership at the acquisition date. (2) Consists of value of land contributed by the joint venture partner. (3) Land is owned by a joint venture in which the Company has an approximately 58.6% interest. The joint venture is consolidated in IRET’s financial statements. 2014 Annual Report 66 Fiscal 2013 (May 1, 2012 to April 30, 2013) Total Acquisition Cost Form of Consideration Investment Allocation Cash Units(1) Other(2) Land Building Intangible Assets (in thousands) Acquisitions Date Acquired Multi-Family Residential 308 unit - Villa West - Topeka, KS 2012-05-08 $ 17,650 $ 5,150 $ 0 $ 12,500 $ 1,590 $ 15,760 $ 232 unit - Colony - Lincoln, NE 208 unit - Lakeside Village - 2012-06-04 17,500 14,368 3,132 Lincoln, NE 2012-06-04 17,250 13,954 3,296 58 unit - Ponds at Heritage Place - Sartell, MN 336 unit - Whispering Ridge - 2012-10-10 5,020 3,332 1,688 0 0 0 Omaha, NE 2013-04-24 28,314 85,734 25,798 62,602 2,516 10,632 0 12,500 1,515 15,731 1,215 15,837 395 4,564 2,139 25,424 6,854 77,316 1,564 300 254 198 61 751 Unimproved Land University Commons - Williston, ND Cypress Court - St. Cloud, MN(3) Cypress Court Apartment Development - St. Cloud, MN(3) Badger Hills - Rochester, MN(4) Grand Forks - Grand Forks, ND Minot (Southgate Lot 4) - 2012-08-01 2012-08-10 2012-08-10 2012-12-14 2012-12-31 823 447 1,136 1,050 4,278 823 447 0 1,050 2,278 Minot, ND 2013-01-11 1,882 1,882 Commons at Southgate - Minot, ND(5) Landing at Southgate - Minot, ND(5) Grand Forks 2150 - Grand Forks, ND 2013-01-22 2013-01-22 2013-03-25 Bismarck 4916 - Bismarck, ND 2013-04-12 Arcata - Golden Valley, MN 2013-04-30 3,691 2,262 1,600 3,250 2,088 0 0 1,600 3,250 2,088 0 0 0 0 2,000 0 0 0 0 0 0 0 0 1,136 0 0 0 823 447 1,136 1,050 4,278 1,882 3,691 3,691 2,262 2,262 0 0 0 1,600 3,250 2,088 22,507 13,418 2,000 7,089 22,507 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Total Property Acquisitions $ 108,241 $ 76,020 $ 12,632 $ 19,589 $ 29,361 $ 77,316 $ 1,564 (1) Value of limited partnership units of the Operating Partnership at the acquisition date. (2) Consists of assumed debt (Villa West - $12.5 million) and value of land contributed by the joint venture partner (Cypress Court - $1.1 million, Commons at Southgate - $3.7 million, Landing at Southgate - $2.3 million). (3) Land is owned by a joint venture in which the Company has an approximately 86.1% interest. The joint venture is consolidated in IRET’s financial statements. (4) Acquisition of unimproved land consisted of two parcels acquired separately on December 14 and December 20, 2012, respectively. (5) Land is owned by a joint venture entity in which the Company has an approximately 51% interest. The joint venture is consolidated in IRET’s financial statements. 2014 Annual Report 67 Development Projects Placed in Service IRET Properties placed approximately $53.5 million of development projects in service during fiscal year 2014, compared to $47.9 million in fiscal year 2013. The fiscal year 2014 and 2013 development projects placed in service are detailed below. Fiscal 2014 (May 1, 2013 to April 30, 2014) Development Projects Placed in Service (1) Multi-Family Residential 108 unit - Landing at Southgate - Minot, ND(2) 132 unit - Cypress Court - St. Cloud, MN(3) 146 unit - River Ridge - Bismarck, ND(4) Date Placed in Service Land Building Development Cost (in thousands) 2013-09-04 $ 2013-11-01 2013-12-02 2,262 $ 1,136 589 12,864 $ 12,428 24,268 15,126 13,564 24,857 Total Development Projects Placed in Service $ 3,987 $ 49,560 $ 53,547 (1) Development projects that are placed in service in phases are excluded from this table until the entire project has been placed in service. See Note 15 for additional information on the Renaissance Heights I project, which was partially placed in service during the three months ended April 30, 2014. (2) Development property placed in service September 4, 2013. Costs paid in fiscal year 2013 totaled $6.3 million. Additional costs paid in fiscal year 2014 totaled $8.8 million, for a total project cost at April 20, 2014 of $15.1 million. The project is owned by a joint venture entity in which the Company has an approximately 51% interest. (3) Development property placed in service November 1, 2013. Costs paid in fiscal year 2013 totaled $5.8 million. Additional costs paid in fiscal year 2014 totaled $7.8 million, for a total project cost at April 30, 2014 of $13.6 million. The project is owned by a joint venture entity in which the Company has an approximately 86.1% interest. (4) Development property placed in service December 2, 2013. Costs paid in fiscal year 2013 totaled $10.1 million, including the land acquired in fiscal year 2009. Additional costs paid in fiscal year 2014 totaled $14.8 million, for a total project cost at April 30, 2014 of $24.9 million. 2014 Annual Report 68 Fiscal 2013 (May 1, 2012 to April 30, 2013) Development Projects Placed in Service Multi-Family Residential Date Placed in Service Land Building Development Cost (in thousands) 159 unit - Quarry Ridge II - Rochester, MN(1) 73 unit - Williston Garden Buildings 3 and 4 - Williston, ND(2) 2012-07-31 20 unit - First Avenue - Minot, ND(3) 2013-04-15 2012-06-29 $ 942 $ 700 0 1,642 16,636 $ 17,578 9,434 8,734 2,677 2,677 29,689 28,047 Commercial Healthcare 26,662 sq ft Spring Wind Expansion - Laramie, WY(4) 45,222 sq ft Jamestown Medical Office Building - Jamestown, ND(5) Commercial Industrial 27,698 sq ft Minot IPS - Minot, ND(6) Commercial Retail 2012-11-16 2013-01-01 0 0 0 3,485 3,485 7,605 11,090 7,605 11,090 2012-12-17 416 5,484 5,900 3,702 sq ft Arrowhead First International Bank - Minot, ND(7) 2013-03-19 75 1,165 1,240 Total Development Projects Placed in Service $ 2,133 $ 45,786 $ 47,919 (1) Development property placed in service June 29, 2012. Costs paid in fiscal years 2011 and 2012 totaled $13.0 million, including land acquired in fiscal year 2007. Additional costs paid in fiscal year 2013 totaled $4.6 million, for a total project cost at April 30, 2013 of $17.6 million. (2) Development property placed in service July 31, 2012. Buildings 1 and 2 were placed in service in fiscal year 2012. Costs paid in fiscal year 2012 for Buildings 3 and 4 totaled $2.4 million. Additional costs paid in fiscal year 2013 totaled $7.0 million, for a total project cost at April 30, 2013 of $9.4 million. The project is owned by a joint venture entity in which the Company has an approximately 60% interest. (3) Redevelopment property placed in service April 15, 2013. Costs paid in fiscal years 2011 and 2012 totaled approximately $321,000. Additional costs paid in fiscal year 2013 totaled $2.4 million, for a total project cost at April 30, 2013 of $2.7 million. (4) Expansion project placed in service November 16, 2012. Costs paid in fiscal year 2012 totaled $1.8 million. Additional costs paid in fiscal year 2013 totaled $1.7 million, for a total project cost at April 30, 2013 of $3.5 million. (5) Development property placed in service January 1, 2013. Costs paid in fiscal year 2012 totaled $1.0 million. Additional costs paid in fiscal year 2013 totaled $6.6 million, for a total project cost at April 30, 2013 of $7.6 million. The project is owned by a joint venture entity in which the Company has an approximately 51% interest. (6) Development property placed in service December 17, 2012. Costs paid in fiscal year 2012 totaled $1.8 million. Additional costs paid in fiscal year 2013 totaled $4.1 million, for a total project cost at April 30, 2013 of $5.9 million. (7) Development property placed in service March 19, 2013. Costs paid in fiscal year 2012 totaled approximately 75,000. Additional costs paid in fiscal year 2013 totaled $1.2 million, for a total project cost at April 30, 2013 of $1.2 million. 2014 Annual Report 69 Property Dispositions During fiscal year 2014, the Company disposed of two multi-family residential properties, three commercial office properties, twelve commercial industrial properties, and three commercial retail properties for an aggregate sales price of $80.9 million, compared to dispositions totaling $26.3 million in fiscal year 2013. The fiscal year 2014 and 2013 dispositions are detailed below. Fiscal 2014 (May 1, 2013 to April 30, 2014) Dispositions Multi-Family Residential Date Disposed (in thousands) Book Value Sales Price and Sales Cost Gain/(Loss) 84 unit - East Park - Sioux Falls, SD 48 unit - Sycamore Village - Sioux Falls, SD 2013-12-18 $ 2013-12-18 2,214 $ 1,296 3,510 2,358 $ 1,380 3,738 (144) (84) (228) Commercial Office 121,669 sq ft Bloomington Business Plaza - Bloomington, MN 118,125 sq ft Nicollet VII - Burnsville, MN 42,929 sq ft Pillsbury Business Center - Bloomington, MN Commercial Industrial 41,880 sq ft Bodycote Industrial Building- Eden Prairie, MN 42,244 sq ft Fargo 1320 45th Street N - Fargo, ND 49,620 sq ft Metal Improvement Company - New 2013-09-12 2013-09-12 2013-09-12 4,500 7,290 1,160 12,950 7,339 6,001 1,164 14,504 (2,839) 1,289 (4) (1,554) 2013-05-13 2013-05-13 3,150 4,700 1,375 4,100 1,775 600 Brighton, MN 2013-05-13 2,350 1,949 401 172,057 sq ft Roseville 2929 Long Lake Road - Roseville, MN 2013-05-13 9,275 9,998 (723) 322,751 sq ft Brooklyn Park 7401 Boone Ave - Brooklyn Park, MN 2013-09-12 12,800 12,181 619 50,400 sq ft Cedar Lake Business Center - St. Louis Park, MN 35,000 sq ft API Building - Duluth, MN 59,292 sq ft Lighthouse - Duluth, MN 606,006 sq ft Dixon Avenue Industrial Park - Des Moines, IA 41,685 sq ft Winsted Industrial Building - Winsted, MN 69,984 sq ft Minnetonka 13600 County Road 62 - Minnetonka, MN 42,510 sq ft Clive 2075NW 94th Street - Clive, IA 2013-09-12 2013-09-24 2013-10-08 2013-10-31 2014-01-17 2014-01-30 2014-01-30 Commercial Retail 23,187 sq ft Eagan Community - Eagan, MN 10,625 sq ft Anoka Strip Center- Anoka, MN 8,400 sq ft Burnsville 2 Strip Center - Burnsville, MN 2013-05-14 2013-12-23 2014-01-08 2,550 2,553 1,825 14,675 725 3,800 2,735 61,138 2,310 325 650 3,285 2,607 1,488 1,547 10,328 747 3,084 2,675 52,079 2,420 347 796 3,563 (57) 1,065 278 4,347 (22) 716 60 9,059 (110) (22) (146) (278) Total Property Dispositions $ 80,883 $ 73,884 $ 6,999 2014 Annual Report 70 Fiscal 2013 (May 1, 2012 to April 30, 2013) Dispositions Multi-Family Residential 116 unit - Terrace on the Green - Fargo, ND 85 unit - Prairiewood Meadows - Fargo, ND 66 unit - Candlelight - Fargo, ND Date Disposed (in thousands) Book Value Sales Price and Sales Cost Gain/(Loss) 2012-09-27 $ 2012-09-27 2012-11-27 3,450 $ 3,450 1,950 8,850 1,248 $ 2,846 1,178 5,272 2,202 604 772 3,578 Commercial Retail 16,080 sq ft Kentwood Thomasville - Kentwood, MI 2012-06-20 625 692 (67) Commercial Healthcare 47,950 sq ft Steven’s Pointe -Steven’s Point, WI 2013-04-25 16,100 12,667 3,433 Other Georgetown Square Condominiums 5 and 6 Georgetown Square Condominiums 3 and 4 2012-06-21 2012-08-02 330 368 698 336 421 757 (6) (53) (59) Total Property Dispositions $ 26,273 $ 19,388 $ 6,885 Development and Re-Development Projects The following tables provide additional detail, as of April 30, 2014 and 2013, on the Company’s in-service (completed) development and re-development projects, and development and re-development projects in progress. All of these projects are excluded from the same-store pool. The Company measures initial yield on its development projects upon completion and achievement of target lease-up levels by measuring net operating income from the property against the cost of the project. Estimated initial yields on the projects listed below range from an estimated approximate 5.0% to an estimated approximate 14.0% initial yield. In the Company’s energy-impacted markets in western and central North Dakota, actual initial yields upon project completion had in fiscal year 2013 trended higher than the estimated initial yields forecast at the project underwriting stage, due to heightened tenant demand, low vacancy and rent growth in this region. However, the Company currently expects that elevated construction costs in these markets, combined with increased development activity in the region, may make it less likely that actual initial yields upon project completion for the Company’s development projects in progress in these markets will materially exceed the estimated initial yields forecast at the project underwriting stage. The Company expects these trends of elevated construction costs and increased competition from other developers to eventually move yields on its development projects in the region to more modest levels similar to returns being achieved in other parts of the United States. 2014 Annual Report 71 Projects Completed in Fiscal Year 2014 Project Name and Location Landing at Southgate - Minot, ND(2) Cypress Court - St. Cloud, MN(3) River Ridge - Bismarck, ND Segment Multi-Family Residential Multi-Family Residential Multi-Family Residential (in thousands) Square Feet or Number of Units Percentage Leased or Committed Anticipated Total Cost(1) Costs as of April 30, 2014(1) Cost per Square Foot or Unit(1) Date Placed in Service Anticipated Same-Store Date 108 units 99.1% $ 15,792 $ 15,126 $ 146,222 FY2014 Q2 FY2016 Q1 132 units 96.2% 14,322 13,564 108,500 FY2014 Q3 FY2016 Q1 146 units 92.5% 25,863 25,008 177,144 FY2014 Q3 FY2016 Q1 $ 55,977 $ 53,698 (1) Excludes tenant improvements and leasing commissions. (2) The project is owned by a joint venture in which the Company has an approximately 51% interest. (3) The project is owned by a joint venture in which the Company has an approximately 86.1% interest. Projects in Progress at April 30, 2014 Project Name and Location Dakota Commons - Williston, ND Commons at Southgate - Minot, ND(2) Cypress Court II – St. Cloud, MN(3) Arcata - Golden Valley, MN Red 20 - Minneapolis, MN(4) Renaissance Heights I - Williston, ND(5) Chateau II - Minot, ND(6) Cardinal Point - Grand Forks, ND Other Planned Segment Multi-Family Residential Multi-Family Residential Multi-Family Residential Multi-Family Residential Multi-Family Residential and Commercial Multi-Family Residential Multi-Family Residential Multi-Family Residential n/a Square Feet or Number of Units Percentage Leased or Committed Anticipated Total Cost Costs as of April 30, 2014(1) Anticipated Construction Completion (in thousands) 44 units 0% $ 10,736 $ 9,013 FY2015 Q1 233 units 66 units 165 units 130 units and 10,625 sq ft 0% 0% 0% 37,201 28,065 FY2015 Q2 7,028 1,580 FY2015 Q3 33,448 13,018 FY2015 Q3 0% 29,462 13,980 FY2015 Q3 288 units 13.2% 62,362 39,017 FY2015 Q4 72 units 251 units n/a 0% 0% n/a 14,711 40,042 n/a $ 234,990 $ 2,098 FY2015 Q4 6,829 FY2016 Q1 2,496 n/a 116,096 Includes costs related to development projects that are placed in service in phases (Renaissance Heights I - $11.5 million). (1) (2) The Company is an approximately 51% partner in the joint venture entity constructing this project; the anticipated total cost amount given is the total cost to the joint venture entity. (3) The Company is an approximately 86.1% partner in the joint venture entity constructing this project; the anticipated total cost amount given is the total cost to the joint venture entity. (4) The Company is an approximately 58.6% partner in the joint venture entity constructing this project; the anticipated total cost amount given is the total cost to the joint venture entity. (5) The Company is an approximately 70% partner in the joint venture entity constructing this project; the anticipated total cost amount given is the total cost to the joint venture entity. (6) On December 5, 2013, this development project was destroyed by fire. See Note 2 of the Notes to Condensed Consolidated Financial Statements in this report for additional information. 2014 Annual Report 72 Projects Completed in Fiscal Year 2013 (all information presented as of April 30, 2013) Project Name and Location First Avenue - Minot, ND Quarry Ridge II - Rochester, MN Williston Garden - Williston, ND(2) Jamestown Medical Office Building - Jamestown, ND(3) Spring Wind Expansion - Laramie, WY Minot IPS - Minot, ND Arrowhead First International Bank - Minot, ND Segment Multi-Family Residential Multi-Family Residential Multi-Family Residential Commercial Healthcare Commercial Healthcare Commercial Industrial Commercial Retail (in thousands) Square Feet or Number of Units Percentage Leased or Committed Anticipated Total Project Cost(1) Costs as of April 30, 2013(1) Cost per Square Foot or Unit(1) Date Placed in Service Anticipated Same-Store Date 20 units 100% $ 3,000 $ 2,900 $ 150,000 FY2013 Q4 FY2015 Q1 159 units 98.7% 16,600 16,600 104,403 FY2013 Q1 FY2015 Q1 144 units 99.3% 19,100 19,100 132,639 FY2013 Q1 FY2015 Q1 45,222 sq ft 26,662 sq ft expansion 80.5% 7,600 7,600 168 FY2013 Q3 FY2015 Q1 100% 3,500 3,500 131 FY2013 Q3 n/a 27,698 sq ft 100% 6,400 5,900 231 FY2013 Q3 FY2015 Q1 3,700 sq ft 100% $ 1,700 1,600 57,900 $ 57,200 459 FY2013 Q4 FY2015 Q1 (1) Excludes tenant improvements and leasing commissions. (2) The project is owned by a joint venture in which the Company has an approximately 60% interest (3) The project is owned by a joint venture in which the Company has an approximately 51% interest. Projects in Progress at April 30, 2013 (all information presented as of April 30, 2013) Project Name and Location River Ridge - Bismarck, ND Cypress Court Apartment Development - St. Cloud, MN(1) Landing at Southgate - Minot, ND(2) Commons at Southgate - Minot, ND(2) Renaissance Heights I - Williston, ND(3) Arcata - Golden Valley, MN Other Planned Segment Multi-Family Residential Multi-Family Residential Multi-Family Residential Multi-Family Residential Multi-Family Residential Multi-Family Residential n/a Square Feet or Number of Units Percentage Leased or Committed Anticipated Total Cost Costs as of April 30, 2013 Anticipated Construction Completion (in thousands) 146 units 16.4% $ 25,800 $ 13,200 FY2014 Q2 132 units 20.0% 14,300 6,500 FY2014 Q2 108 units 12.0% 15,000 7,400 FY2014 Q2 233 units 288 units 165 units n/a 0% 0% 0% n/a 37,200 6,500 FY2015 Q1 62,200 10,100 FY2015 Q2 33,400 n/a $ 187,900 $ 2,700 FY2015 Q3 n/a 400 46,800 (1) The Company is an approximately 86.1% partner in the joint venture entity constructing this project; the anticipated total cost amount given is the total cost to the joint venture entity. (2) The Company is an approximately 51% partner in the joint venture entity constructing this project; the anticipated total cost amount given is the total cost to the joint venture entity. (3) The Company is an approximately 70% partner in the joint venture entity constructing this project; the anticipated total cost amount given is the total cost to the joint venture entity. 2014 Annual Report 73 Funds From Operations 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”). 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.” In addition, in October 2011 NAREIT clarified its computation of FFO so as to exclude impairment charges for all periods presented. 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, assists IRET management and investors in identifying 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, 2014 was $79.9 million, compared to $78.9 million and $67.3 million for the fiscal years ended April 30, 2013 and 2012, respectively. 2014 Annual Report 74 Reconciliation of Net Income Attributable to Investors Real Estate Trust to Funds From Operations For the years ended April 30, 2014, 2013 and 2012: Fiscal Years Ended April 30, 2014 (in thousands, except per share and unit amounts) 2013 2012 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) Net (loss) income attributable to Investors Real Estate Trust Less dividends to preferred shareholders Net (loss) income available to common shareholders Adjustments: Noncontrolling interests – Operating Partnership Depreciation and amortization(1) Impairment of real estate Gains on depreciable property sales Funds from operations applicable to common shares and Units $ (13,174) $ $ 25,530 $ $ 8,212 $ (11,514) (9,229) (2,372) (24,688) 105,331 (0.23) 16,301 93,344 0.17 5,840 83,557 0.07 (4,676) 21,697 3,633 21,191 1,359 19,875 71,830 44,426 (6,948) 65,542 305 (6,885) 60,057 428 (349) $ 79,944 127,028 $ 0.63 $ 78,896 114,535 $ 0.69 $ 67,335 103,432 $ 0.65 (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 $70,918, $62,333 and $56,650 and depreciation/amortization from Discontinued Operations of $1,010, $3,416 and $3,674, less corporate-related depreciation and amortization on office equipment and other assets of $98, $207 and $267 for the fiscal year ended April 30, 2014, 2013 and 2012. (2) UPREIT Units of the Operating Partnership are exchangeable for common shares of beneficial interest on a one-for-one basis. (3) Net income is calculated on a per share basis. FFO is calculated on a per share and unit basis. Cash Distributions The following cash distributions were paid to our common shareholders and UPREIT unitholders during fiscal years 2014, 2013 and 2012: Quarters First Second Third Fourth Fiscal Years $ $ 2014 .1300 .1300 .1300 .1300 .5200 $ $ 2013 .1300 .1300 .1300 .1300 .5200 $ $ 2012 .1715 .1300 .1300 .1300 .5615 The fiscal year 2014 cash distributions remained the same compared to fiscal year 2013, and fiscal year 2013 cash distributions decreased 7.4% over the cash distributions paid during fiscal year 2012. Liquidity and Capital Resources Overview The Company’s principal liquidity demands are maintaining distributions to the holders of the Company’s common and preferred shares of beneficial interest and UPREIT Units, capital improvements and repairs and maintenance to the Company’s properties, acquisition of additional properties, property development, tenant improvements and debt service and repayments. The Company has historically met its short-term liquidity requirements through net cash flows provided by its operating activities, and, from time to time, through draws on its lines of credit. Management considers the Company’s ability to generate cash from property operating activities, cash-out refinancing of existing properties and, from time to time, draws on its line of credit 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 2014 Annual Report 75 expenditures for ongoing maintenance and capital improvements and renovations to our real estate portfolio are also generally expected to be funded from existing cash on hand, cash flow generated from property operations, cash-out refinancing of existing properties, and/or new borrowings, and the Company believes it will have sufficient cash to meet its commitments over the next twelve months. However, the commercial real estate markets continue to experience challenges including reduced occupancies and rental rates as well as some restrictions on the availability of financing. In the event of deterioration in property operating results, or absent the Company’s ability to successfully continue cash-out refinancing of existing properties and/or new borrowings, the Company may need to consider additional cash preservation alternatives, including scaling back development activities, capital improvements and renovations. Budgeted expenditures for ongoing maintenance and capital improvements and renovations at our properties are also generally expected to be funded from existing cash on hand, cash flow generated from property operations, cash-out refinancing of existing properties, and/or new borrowings, and the Company believes it will have sufficient cash to meet its commitments over the next twelve months, including an estimated $23.3 million in capital expenditures (excluding capital expenditures recoverable from tenants and tenant improvements). For the fiscal year ended April 30, 2014, the Company paid distributions of $51.4 million in cash and $14.6 million in common shares pursuant to our DRIP to common shareholders and unitholders of the Operating Partnership, as compared to net cash provided by operating activities of $92.5 million and FFO of $79.9 million. 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 at all or on terms that we consider attractive. In particular, as a result of the economic downturn and turmoil in the capital markets, the availability of secured and unsecured loans was for a time sharply curtailed. We cannot predict whether these conditions will recur. 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, 2014, the Company, through its Operating Partnership as Borrower, had one secured line of credit with First International Bank and Trust, Watford City, North Dakota, as lead bank. This line of credit matures on December 1, 2016; the Borrower may extend the term for one additional year, to December 1, 2017. The facility had, as of April 30, 2014, lending commitments of $72.0 million. Participants in this secured credit facility as of April 30, 2014 included, in addition to First International Bank, the following financial institutions: The Bank of North Dakota; First Western Bank and Trust; Dacotah Bank; United Community Bank; American State Bank & Trust Company; Town & Country Credit Union; Highland Bank and MidCountry Bank. As of April 30, 2014, the Company had advanced $22.5 million under the line of credit. The line of credit has a minimum outstanding principal balance requirement of $12.5 million. The interest rate on borrowings under the facility is the Wall Street Journal Prime Rate +1.25%, with a floor of 4.75% and a cap of 8.65% during the initial term of the facility; interest- only payments are due monthly based on the total amount of advances outstanding. The line of credit may be prepaid at par at any time. The facility includes covenants and restrictions requiring the Company to achieve on a calendar quarter basis a debt service coverage ratio on borrowing base collateral of 1.25x in the aggregate and 1.00x on individual assets in the collateral pool, and the Company is also required to maintain minimum depository account(s) totaling $6.0 million with First International, of which $1.5 million is to be held in a non-interest bearing account. As of April 30, 2014, 14 properties with a total cost of $124.4 million collateralized this line of credit. As of April 30, 2014, the Company believes it is in compliance with the facility covenants. 2014 Annual Report 76 The Company maintains compensating balances, not restricted as to withdrawal, with several financial institutions in connection with financing received from those institutions and/or to ensure future credit availability. At April 30, 2014, the Company’s compensating balances totaled $7.9 million and consisted of the following: Dacotah Bank, Minot, North Dakota, deposit of $350,000; United Community Bank, Minot, North Dakota, deposit of $275,000; First International Bank, Watford City, North Dakota, deposit of $6.1 million; Peoples State Bank of Velva, North Dakota, deposit of $225,000; Associated Bank, Green Bay, Wisconsin, deposit of $600,000; and American National Bank, Omaha, Nebraska, deposit of $400,000. During the second quarter of fiscal year 2014, the Company and its Operating Partnership entered into an ATM sales agreement with Robert W. Baird & Co. Incorporated as sales agent, pursuant to which the Company may from time to time sell the Company’s common shares of beneficial interest having an aggregate offering price of up to $75 million. The shares would be issued pursuant to the Company’s currently-effective shelf registration statement on Form S-3ASR. The Company issued no common shares under this program during fiscal year 2014. On April 1, 2013 the Company terminated its existing at-the-market (“ATM”) equity program under which the Company from time to time offered and sold common shares to fund acquisitions and development and redevelopment projects, to repay outstanding debt, and for other general corporate purposes. During the fiscal year ended April 30, 2013, the Company issued 300,000 common shares at a weighted average price per share of $7.24 for net cash proceeds of $2.1 million under this program, and paid approximately $43,000 in commissions related to the sales of these common shares. During fiscal year 2014, credit markets continued to be stable, with credit availability relatively unconstrained and benchmark interest rates remaining at or near historic lows. Underwriting on commercial real estate continues to be more conservative compared to the underwriting standards employed prior to the recessionary period, however, and we continue to find recourse security more frequently required, lower amounts of proceeds available, and lenders limiting the amount of financing available in an effort to manage capital allocations and credit risk. While we continue to expect to be able to refinance our debt maturing in the next twelve months without significant issues, we also expect lenders to continue to employ conservative underwriting regarding asset quality, occupancy levels and tenant creditworthiness. As we were in regard to fiscal year 2014, we remain cautious regarding our ability in fiscal year 2015 to rely on cash-out refinancing at levels we had achieved in recent years to provide funds for investment opportunities and other corporate purposes. Additionally, while to date there has been no material negative impact on our ability to borrow in our multi-family segment, we continue to monitor proposals to modify the roles of the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae) in financing multi-family residential properties. We consider that one of the consequences of a modification in the agencies’ roles could potentially be a narrowing of their lending focus away from the smaller secondary or tertiary markets which we generally target, to multi-family residential properties in major metropolitan markets. IRET obtains a majority of its multi-family debt from primarily Freddie Mac, and we continue to plan to refinance a majority of our maturing multi-family debt with these two entities, so any change in their ability or willingness to lend going forward would most likely result in higher loan costs and/or more constricted availability of financing for us. As of April 30, 2014, approximately 3.9%, or $2.1 million of our mortgage debt maturing in the next twelve months is placed on multi-family residential assets, and approximately 96.1%, or $51.4 million, is placed on properties in our four commercial segments. Mortgage debt maturing in the first two quarters of fiscal year 2015 totals approximately $13.5 million and is debt placed on properties in our four commercial segments. Of this $13.5 million, the Company paid off $2.3 million on June 2, 2014. The Company expects to repay an additional $4.5 million in the first two quarters of fiscal year 2015 and expects to refinance $6.7 million in the first two quarters of fiscal year 2015. The Company typically seeks to refinance its maturing mortgage debt, although under certain circumstances the Company may choose to repay the debt rather than refinance, depending on the loan amount outstanding, Company plans for the property securing the debt, interest rates and other loan terms available, and other factors specific to a particular property. Under present market conditions, the Company currently expects to be able to refinance its individual mortgage loans maturing in the next twelve months, should it choose to refinance rather than pay off some or all of these loans. IRET during fiscal year 2014 acquired properties with an investment cost totaling $43.6 million. In fiscal year 2014, IRET disposed of two multi-family residential properties, three commercial office properties, 12 commercial industrial properties, and three commercial retail properties for sales prices totaling approximately $80.9 million, compared to dispositions totaling $26.3 million in fiscal year 2013. 2014 Annual Report 77 The Company has a Distribution Reinvestment and Share Purchase Plan (“DRIP”). The DRIP provides common shareholders and UPREIT Unitholders of the Company an opportunity to invest their cash distributions in common shares of the Company, and purchase additional shares through voluntary cash contributions, at a discount (currently 3%) from the market price. The maximum monthly voluntary cash contribution permitted without prior Company approval is currently $10,000. The Company may issue waivers to DRIP participants to provide for investments in excess of the $10,000 maximum monthly investment. During fiscal year 2014, the Company issued 1.4 million shares at an average price of $8.88 per share pursuant to such waivers, for total net proceeds to the Company of $12.0 million. During fiscal year 2013, the Company issued approximately 755,000 shares at an average price of $7.94 per share pursuant to such waivers, for total net proceeds to the Company of $6.0 million. During fiscal year 2012, the Company issued 2.2 million shares at an average price of $7.21 per share pursuant to such waivers, for total net proceeds to the Company of $15.8 million. During fiscal year 2014, 6.6 million common shares with a total value of $55.8 million were issued under the DRIP plan. In fiscal year 2013, 5.3 million common shares with a total value of $43.1 million were issued under the plan, and 4.8 million common shares with a total value of $34.3 million were issued under the plan during fiscal year 2012. The issuance of UPREIT Units for property acquisitions continues to be a source of capital for the Company. During fiscal year 2014, approximately 361,000 Units, valued at issuance at $3.5 million were issued in connection with the Company’s acquisition of property. Approximately 1.6 million units, valued at issuance at $12.6 million, and approximately 1.0 million units, valued at issuance at $8.1 million, respectively, were issued in connection with property acquisitions during fiscal years 2013 and 2012. As a result of the issuance of common shares pursuant to our shelf registration statement and distribution reinvestment plan, the Company’s equity capital increased during fiscal 2014 by $55.9 million. Additionally, the equity capital of the Company increased by $3.5 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 of $59.4 million from these sources during fiscal year 2014. The Company’s equity capital increased by $111.6 million and $67.3 million in fiscal years 2013 and 2012, respectively, as a result of the issuance of common shares pursuant to our shelf registration statement and distribution reinvestment plan, net of fractional shares repurchased, and contributions of real estate in exchange for UPREIT units. Cash and cash equivalents on April 30, 2014 totaled $47.3 million, compared to $94.1 million and $40.0 million on the same date in 2013 and 2012, respectively. Net cash provided by operating activities increased to $92.5 million in fiscal year 2014 from $77.7 million in fiscal year 2013 due primarily to an increase in net income, exclusive of impairment of real estate investments. Net cash provided by operating activities increased to $77.7 million in fiscal year 2013 from $65.1 million in fiscal year 2012 due primarily to an increase in net income. Net cash used by investing activities decreased to $121.8 million in fiscal year 2014, compared to $134.1 million in fiscal year 2013. Net cash provided by investing activities was $128.3 million in fiscal year 2012. The decrease in net cash used by investing activities in fiscal year 2014 compared to fiscal year 2013 was due primarily to an increase in proceeds from discontinued operations, net of an increase in payments for development and re- development of real estate assets. The increase in net cash used by investing activities in fiscal year 2013 compared to fiscal year 2012 was due primarily to an increase in payments for acquisitions of real estate assets and a decrease in refunds from lender holdbacks, net of an increase in proceeds from the sale of discontinued operations. Net cash used by financing activities was $17.5 million in fiscal year 2014, compared to $110.6 million net cash provided by financing activities in fiscal year 2013, with the change due primarily to proceeds from a public offering of preferred shares in fiscal year 2013. Net cash provided by financing activities increased to $110.6 million in fiscal 2013, compared to $61.9 million in fiscal year 2012, due primarily to proceeds from a public offering of preferred shares and a public offering of common shares, net of an increase in principal payments on mortgages payable, a decrease in mortgage proceeds and the pay down of the Company’s line of credit. Financial Condition Mortgage Loan Indebtedness. Mortgage loan indebtedness was $997.7 million on April 30, 2014 and $1.0 billion on April 30, 2013. Approximately 97.9% 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, 2014, the weighted average rate of interest on the Company’s mortgage debt was 5.37% compared to 5.55% on April 30, 2013. 2014 Annual Report 78 Construction Loan Indebtedness. Construction loan indebtedness was $63.1 million on April 30, 2014 and $18.1 million on April 30, 2013. As of April 30, 2014, the weighted average rate of interest on the Company’s construction loan indebtedness was 3.08%, compared to 4.15% on April 30, 2013. Revolving lines of credit. As of April 30, 2014, the Company had one secured line of credit with First International Bank and Trust, Watford City, North Dakota, as lead bank. This line of credit had, as of April 30, 2014, lending commitments of $72.0 million. The facility has a maturity date of December 1, 2016, and is secured by mortgages on 14 properties; under the terms of the line of credit, properties may be added and removed from the collateral pool with the agreement of the lenders. Participants in this credit facility as of April 30, 2014 included, in addition to First International Bank, the following financial institutions: The Bank of North Dakota; First Western Bank and Trust; Dacotah Bank; United Community Bank; American State Bank & Trust Company; Town & Country Credit Union; Highland Bank and MidCountry Bank. As of April 30, 2014, the Company had advanced $22.5 million under the line of credit. The line of credit has a minimum outstanding principal balance requirement of $12.5 million. The interest rate on borrowings under the facility is the Wall Street Journal Prime Rate +1.25%, with a floor of 4.75% and a cap of 8.65%; interest-only payments are due monthly based on the total amount of advances outstanding. The line of credit may be prepaid at par at any time. The facility includes covenants and restrictions requiring the Company to achieve on a calendar quarter basis a debt service coverage ratio on borrowing base collateral of 1.25x in the aggregate and 1.00x on individual assets in the collateral pool, and the Company is also required to maintain minimum depository account(s) totaling $6.0 million with First International, of which $1.5 million is to be held in a non-interest bearing account. As of April 30, 2014, 14 properties with a total cost of $124.4 million collateralized this line of credit. As of April 30, 2014, the Company believes it is in compliance with the facility covenants. Property Owned. Property owned was $2.0 billion at April 30, 2014 and 2013. Acquisitions, developments and improvements to existing properties in fiscal year 2014, offset by fiscal year 2014 dispositions, resulted in no net increase in property owned as of April 30, 2014 compared to April 30, 2013. Cash and Cash Equivalents. Cash and cash equivalents on April 30, 2014 totaled $47.3 million, compared to $94.1 million on April 30, 2013. The decrease in cash on hand on April 30, 2014, as compared to April 30, 2013, was due primarily to the acquisition and development of property. Other Investments. Other investments, consisting of bank certificates of deposit, decreased to approximately $329,000 on April 30, 2014, from $639,000 on April 30, 2013, primarily due to the redemption of a certificate of deposit. Operating Partnership Units. Outstanding limited partnership units in the Operating Partnership decreased to 21.1 million units on April 30, 2014, compared to 21.6 million units on April 30, 2013. The decrease in units outstanding at April 30, 2014 as compared to April 30, 2013, resulted from the issuance of units in exchange for property, net of the conversion of units to shares. Common and Preferred Shares of Beneficial Interest. Common shares of beneficial interest outstanding on April 30, 2014 totaled 109.0 million, compared to 101.5 million common shares outstanding on April 30, 2013. This increase in common shares outstanding from April 30, 2013 to April 30, 2014 was due to the issuance of common in ATM equity program sales, in exchange for limited partnership interests of the Company’s Operating Partnership, and under the Company’s distribution reinvestment plan. On April 5, 2013, the Company completed the public offering of approximately 6.0 million common shares of beneficial interest at a public offering price of $9.25 per share, for net proceeds of approximately $53.0 million after underwriting discounts and estimated offering expenses. The Company contributed the net proceeds from the sale of common shares to the Operating Partnership for general business purposes, including the acquisition and development of income-producing real estate properties and debt repayment. The common shares were registered under a shelf registration statement declared effective on May 4, 2010, and which expired on May 4, 2013. During fiscal year 2013, IRET issued 300,000 common shares at a weighted average price per share of $7.24 under its ATM equity program with BMO Capital Markets Corp. as sales agent, for net proceeds (before offering expenses but after underwriting discounts and commissions) of $2.1 million, used for general corporate purposes including the acquisition and development of investment properties. On April 1, 2013 the Company terminated this ATM equity program. During the second quarter of fiscal year 2014, the Company and its Operating Partnership entered into an ATM sales agreement with Robert W. Baird & Co. Incorporated as sales agent, pursuant to which the Company may 2014 Annual Report 79 from time to time sell the Company’s common shares of beneficial interest having an aggregate offering price of up to $75 million. The shares would be issued pursuant to the Company’s currently-effective shelf registration statement on Form S-3ASR. The Company issued no common shares under this program during fiscal year 2014. The Company issued approximately 6.6 million common shares pursuant to its Distribution Reinvestment and Share Purchase Plan during fiscal year 2014, for a total value of approximately $55.8 million. Conversions of approximately 361,000 UPREIT Units to common shares during fiscal year 2014, for a total of approximately $3.5 million in IRET shareholders’ equity, also increased the Company’s common shares of beneficial interest outstanding during the twelve months ended April 30, 2014 compared to the twelve months ended April 30, 2013. On August 7, 2012, the Company completed the public offering of 4.6 million Series B Cumulative Redeemable Preferred Shares of Beneficial Interest (“Series B preferred shares”) at a price of $25.00 per share for net proceeds of approximately $111.2 million after underwriting discounts and estimated offering expenses. These shares are nonvoting and redeemable for cash at $25.00 per share at the Company’s option on or after August 7, 2017. Holders of these shares are entitled to cumulative distributions, payable quarterly. Distributions accrue at an annual rate of $1.9875 per share, which is equal to 7.95% of the $25.00 per share liquidation preference ($115 million liquidation preference in the aggregate). As of April 30, 2013, the Company had 1.2 million Series A preferred shares and 4.6 million Series B preferred shares outstanding. Contractual Obligations and Other Commitments The primary contractual obligations of the Company relate to its borrowings under its line of credit and mortgage notes payable. The Company’s line of credit matures in December 2016, and had $22.5 million in loans outstanding at April 30, 2014. The principal and interest payments on the mortgage notes payable for the years subsequent to April 30, 2014, 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, 2014. The “Other Debt” category consists primarily of principal and interest payments on construction loans. As of April 30, 2014, the Company was a tenant under operating ground or air rights leases on twelve of its properties. The Company pays a total of approximately $500,000 per year in rent under these leases, which have remaining terms ranging from 1.5 to 87 years, and expiration dates ranging from October 2015 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, 2014, which the Company expects to finance through debt and operating cash, are summarized in the following table. The significant components in the 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 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) Line of credit (principal and interest)(1) Other Debt (principal and interest) Operating Lease Obligations Purchase Obligations Total $ 1,239,281 $ 25,309 $ $ 61,573 $ $ 23,544 $ $ 9,732 $ $ (in thousands) Less Than 1 Year 1-3 Years 132,429 $ 386,437 $ 24,311 $ 40,407 $ 927 $ 0 $ 998 $ 1,817 $ 506 $ 9,732 $ More than 3-5 Years 5 Years 285,735 $ 434,680 0 17,608 21,213 0 0 $ 1,741 $ 898 $ 0 $ (1) The future interest payments on the Company’s line of credit were estimated using the outstanding principal balance and interest rate in effect as of April 30, 2014. Off-Balance-Sheet Arrangements As of April 30, 2014, the Company had no significant off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K. 2014 Annual Report 80 Recent Developments Common and Preferred Share Distributions. On June 2, 2014, the Company’s Board of Trustees declared the following distributions: Class of shares/units Common shares and limited partnership units Preferred shares: Series A Series B Quarterly Amount per Share or Unit $0.1300 $0.5156 $0.4968 Record Date June 16, 2014 Payment Date July 1, 2014 June 16, 2014 June 16, 2014 June 30, 2014 June 30, 2014 Completed Acquisitions and Dispositions. Subsequent to the end of fiscal year 2014, the Company closed on its acquisitions of the following properties. The purchase price accounting is incomplete for the acquisitions that closed subsequent to the end of fiscal year 2014.  On May 22, 2014, an approximately 35-acre parcel of vacant land in Bismarck, North Dakota, for a purchase price of $4.3 million, paid in cash;  On June 2, 2014, 152-unit and 52-unit multi-family residential properties in Rapid City, South Dakota, for a purchase price totaling $18.3 million, of which approximately $12.2 million consisted of the assumption of existing debt, with the remainder paid in cash; and  On June 5, 2014, an approximately 10.5-acre parcel of vacant land in Brooklyn Park, Minnesota, for a purchase price of $2.6 million, paid in cash. On May 19, 2014, the Company sold the Dewey Hill Business Center, a commercial office property Edina, Minnesota, for a sale price of $3.1 million. Pending Acquisitions. Subsequent to the end of fiscal year 2014, the Company signed a purchase agreement to acquire multi-family residential property in Bismarck, North Dakota with 68 units, for a purchase price of $8.5 million to be paid in cash. This pending acquisition is subject to various closing conditions and contingencies, and no assurances can be given that it will be completed on the terms currently expected or at all. Pending Dispositions. The Company has signed an agreement to sell a commercial office property in Golden Valley, Minnesota for a sale price of $4.8 million. This pending disposition is subject to various closing conditions and contingencies, and no assurances can be given that the transaction will be completed on the terms currently expected, or at all. Development Project. Subsequent to the end of fiscal year 2014, the Company entered into a joint venture to develop approximately 246 apartments and 21,000 square feet of retail space in Edina, Minnesota, for a total project cost estimated at $69.9 million. The project, in which the Company will have an approximately 50.5% interest, will be constructed in three phases, with the planned retail space in the second and third phases. Construction of all phases is currently expected to be completed in June 2016. 2014 Annual Report 81 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Our exposure to market risk is limited primarily to fluctuations in the general level of interest rates on our current and future fixed and variable rate debt obligations, and secondarily to our deposits with and investments in certain products issued by various financial institutions. Variable interest rates. Because approximately 97.9% of our mortgage debt, as of April 30, 2014 (97.5% and 98.5% as of April 30, 2013 and 2012, respectively), is at fixed interest rates, we have little exposure to interest rate fluctuation risk on our existing mortgage 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, 2014, we had the following amount of future principal and interest payments due on mortgages secured by our real estate. Long Term Debt Fixed Rate Average Fixed Interest Rate Variable Rate Average Variable Interest Rate Future Principal Payments (in thousands, except percentages) 2015 2016 2017 2018 2019 Thereafter $ 80,020 $ 92,765 $ 192,762 $ 91,525 $ 131,922 $ 388,230 $ Total Fair Value 977,224 $ 1,109,797 5.29% 5.16% 4.75% 5.10% $ 120 $ 123 $ 15,128 $ 132 $ 4.93% 4,962 $ 0 $ 20,465 $ 20,465 2.75% 2.76% 2.91% 3.25% 3.58% $ 997,689 $ 1,130,262 Long Term Debt Fixed Rate Variable Rate 2015 2016 2017 2018 2019 Thereafter $ 51,726 $ 46,320 $ 38,241 $ 31,220 $ 25,660 $ 46,450 $ Future Interest Payments (in thousands) 563 561 537 166 148 0 $ Total 239,617 1,975 241,592 As of April 30, 2014, the weighted-average interest rate on our fixed rate and variable rate loans was 5.43% and 2.72%, respectively. The weighted-average interest rate on all of our mortgage debt as of April 30, 2014 was 5.37%. Any fluctuations in variable interest rates could increase or decrease our interest expenses. For example, an increase of one percent per annum on our $20.5 million of variable rate mortgage indebtedness would increase our annual interest expense by $205,000. Exposure to interest rate fluctuation risk on our $72.0 million secured line of credit is limited by a cap on the interest rate. The interest rate on borrowings under the facility is the Wall Street Journal Prime Rate +1.25%, with a floor of 4.75% and a cap of 8.65%; interest-only payments are due monthly based on the total amount of advances outstanding. The line of credit may be prepaid at par at any time. The line of credit matures in December 2016 and had an outstanding balance of $22.5 million at April 30, 2014. Investments with Certain Financial Institutions. IRET has entered into a cash management arrangement with First Western Bank (the “Bank”) with respect to deposit accounts that exceed Federal Deposit Insurance Corporation (“FDIC”) coverage. On a daily basis, account balances are swept into a repurchase account. The Bank pledges fractional interests in US Government Securities owned by the Bank at an amount equal to the excess over the uncollected balance in the repurchase account. The amounts deposited by IRET pursuant to the repurchase agreement are not insured by FDIC. At April 30, 2014 and 2013, these amounts totaled $14.4 million and $29.6 million, respectively. 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. 2014 Annual Report 82 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, 2014, 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 Exchange Act). Such controls and procedures are designed to ensure that information required to be disclosed by the Company 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 Commission’s rules 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. Based on their evaluation, they concluded that our disclosure controls and procedures were not effective as of April 30, 2014 due to a material weakness in internal control over financial reporting described below. In connection with the preparation of our annual financial statements as of and for the fiscal year ended April 30, 2014, management identified a material weakness relating to determining the appropriate modeling methodology and accounting treatment for stock-based compensation expense related to performance-based equity awards under the Company’s Long Term Incentive Plan (the “Plan”), and to applying the accounting rules to the terms of the Plan, which Plan was adopted in May 2012 and pursuant to which awards were first achieved in fiscal year 2014. This material weakness did not result in any material adjustments to the Company's consolidated financial statements or notes thereto. In response to the material weakness, we have taken remedial action to strengthen our existing internal controls and processes. Starting with the quarter ending July 31, 2014, we will (i) ensure we have the requisite skills, or engage the assistance of third parties, to evaluate accounting for provisions of stock-based compensation plans, (ii) record compensation expense in our quarterly interim financial statements based upon fair value of equity awards made under the Plan and (iii) adjust the cumulative compensation expense in subsequent quarters. With the implementation of these corrective actions, we anticipate that the material weakness identified above could be deemed remediated as soon as the quarter ending October 31, 2014. Changes in 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 Exchange Act) 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. 2014 Annual Report 83 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, 2014, 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 (1992 Framework) (COSO). Based on this assessment, management has determined that the Company’s internal control over financial reporting was not effective as of April 30, 2014 due to a material weakness in internal control over financial reporting relating to determining the appropriate modeling methodology and accounting treatment for stock-based compensation expense related to performance-based equity awards under the Company’s Long Term Incentive Plan (the “Plan”), and to applying the accounting rules to the terms of the Plan. 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, 2014 has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report on page F-3 hereof. (The remainder of this page has been intentionally left blank.) 2014 Annual Report 84 Item 9B. Other Information None. 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 2014 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 2014 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 2014 Annual Meeting of Shareholders and such information is incorporated herein by reference. The following table provides information as of April 30, 2014 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 0 0 0 0 1,834,147(2) 0 1,834,147 Plan category Equity compensation plans approved by security holders(1) Equity compensation plans not approved by security holders 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, performance awards or stock payment awards. 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 2014 Annual Meeting of Shareholders and such information is incorporated herein by reference. Item 14. Principal Accountant Fees and Services The information required by this Item will be contained in our definitive Proxy Statement for our 2014 Annual Meeting of Shareholders and such information is incorporated herein by reference. 2014 Annual Report 85 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 Additional Information. 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: Schedule III Real Estate and Accumulated Depreciation 3. Exhibits See the list of exhibits set forth in part (b) below. (b) 3.1 3.2 3.3 4.1 4.2 4.3 4.4 The following is a list of Exhibits to this Annual Report on Form 10-K. We will furnish a printed 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, as amended, filed herewith. Third Restated Trustees’ Regulations (Bylaws), dated May 16, 2007, as amended June 26, 2013, and incorporated herein by reference to the Company’s Current Report on Form 8-K , filed with the SEC on July 2, 2013. 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. Loan Agreement dated August 12, 2010 by and among IRET Properties, as borrower, the financial institutions party thereto as lenders, and First International Bank & Trust as lender and lead bank, incorporated herein by reference to the Company’s Current Report on Form 8-K, filed with the SEC on August 18, 2010. Third Amendment to Loan Agreement dated June 15, 2012 by and between IRET Properties, as borrower, and First International Bank & Trust, as lender, incorporated herein by reference to the Company’s Current Report on Form 8-K, filed with the SEC on June 22, 2012. Fifth Amendment to Loan Agreement dated August 9, 2013 by and between IRET Properties, as borrower, and First International Bank & Trust, as lender, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed August 14, 2013, and incorporated herein by reference. Amended and Restated Loan Agreement dated November 20, 2013 by and between IRET Properties, as borrower, and First International Bank & Trust, as lender, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 25, 2013, 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. 2014 Annual Report 86 10.2 10.3 10.4 10.5 10.6 10.7 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. 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. Contribution Agreement, filed as Exhibit 10.1 to the Company’s Form 8-K filed May 17, 2006, and incorporated herein by reference. 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. 10.8* Short-Term Incentive Program, filed as Exhibit 10.1 to the Company’s Form 8-K filed June 4, 2012 and incorporated herein by reference. 10.9* Long-Term Incentive Program, filed as Exhibit 10.2 to the Company’s Form 8-K filed June 4, 2012 and incorporated herein by reference. 10.10 Construction and Term Loan Agreement, filed as Exhibit 10.1 to the Company’s Form 8-K filed March 21, 2013 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 Independent Registered Public Accounting Firm, filed herewith. 23.2 Consent of Independent Registered Public Accounting Firm, filed herewith. 31.1 Section 302 Certification of President and Chief Executive Officer, filed herewith. 31.2 Section 302 Certification of Executive 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 Executive Vice President and Chief Financial Officer, filed herewith. 101 The following materials from our Annual Report on Form 10-K for the year ended April 30, 2014 formatted in eXtensible Business Reporting Language ("XBRL"): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Equity, (iv) the Consolidated Statements of Cash Flows, and (v) notes to these consolidated financial statements.(1) Indicates management compensatory plan, contract or arrangement. ________________________ * (1) Users of this data are advised pursuant to Rule 406T of Regulation S-T that these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act, are deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise are not subject to liability under these sections. 2014 Annual Report 87 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: June 30, 2014 Investors Real Estate Trust By: /s/ Timothy P. Mihalick Timothy P. Mihalick President & Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Title Date Trustee & Chairman June 25, 2014 Trustee & Vice Chairman June 25, 2014 President & Chief Executive Officer (Principal Executive Officer); Trustee June 25, 2014 Trustee, Executive Vice President & Chief Operating Officer June 25, 2014 Executive Vice President & Chief Financial Officer (Principal Financial and Accounting Officer) Trustee Trustee Trustee Trustee June 25, 2014 June 25, 2014 June 25, 2014 June 25, 2014 June 25, 2014 Signature /s/ Jeffrey L. Miller Jeffrey L. Miller /s/ John D. Stewart John D. Stewart /s/ Timothy P. Mihalick Timothy P. Mihalick /s/ Thomas A. Wentz, Jr. Thomas A. Wentz, Jr. /s/ Diane K. Bryantt Diane K. Bryantt /s/ Linda J. Hall Linda J. Hall /s/ Terrance P. Maxwell Terrance P. Maxwell /s/ Stephen L. Stenehjem Stephen L. Stenehjem /s/ Jeffrey K. Woodbury Jeffrey K. Woodbury 2014 Annual Report 88 INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF April 30, 2014 AND 2013, AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, EQUITY AND CASH FLOWS FOR EACH OF THE FISCAL YEARS IN THE THREE YEARS ENDED April 30, 2014. ADDITIONAL INFORMATION FOR THE YEAR ENDED April 30, 2014 and REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS 1400 31st Avenue SW, Suite 60 Post Office Box 1988 Minot, ND 58702-1988 701-837-4738 fax: 701-838-7785 info@iret.com www.iret.com 2014 Annual Report INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES TABLE OF CONTENTS PAGE REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS ................................ CONSOLIDATED FINANCIAL STATEMENTS F-5 Consolidated Balance Sheets ..................................................................................................................... F-6 Consolidated Statements of Operations ..................................................................................................... Consolidated Statements of Equity ............................................................................................................ F-7 Consolidated Statements of Cash Flows .................................................................................................... F-8 – F-9 Notes to Consolidated Financial Statements .............................................................................................. F-10 – F-41 ADDITIONAL INFORMATION Schedule III - Real Estate and Accumulated Depreciation ........................................................................ F-39 – F54 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. 2014 Annual Report F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Trustees and Shareholders Investors Real Estate Trust We have audited the accompanying consolidated balance sheets of Investors Real Estate Trust (a North Dakota real estate investment trust) and subsidiaries (the “Company”) as of April 30, 2014 and 2013, and the related consolidated statements of operations, equity, and cash flows for each of the two years in the period ended April 30, 2014. Our audits of the basic consolidated financial statements included the financial statement schedules listed in the index appearing under Item 15. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, 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, 2014 and 2013, and the results of their operations and their cash flows for each of the two years in the period ended April 30, 2014, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of April 30, 2014, based on criteria established in 1992 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated June 30, 2014, expressed an adverse opinion thereon. /s/ GRANT THORNTON LLP Minneapolis, Minnesota June 30, 2014 2014 Annual Report F-2 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees and Shareholders of Investors Real Estate Trust We have audited the internal control over financial reporting of Investor Real Estate Trust (a North Dakota real estate investment trust) and subsidiaries (the “Company”) as of April 30, 2014, based on criteria established in the 1992 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting (“Management’s Report”). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. The Company did not determine the appropriate modeling methodology and accounting treatment for stock-based compensation expense related to performance-based equity awards under the Company’s Long Term Incentive Plan, and to applying the accounting rules to the terms of the Plan. In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Investors Real Estate Trust has not maintained effective internal control over financial reporting as of April 30, 2014, based on criteria established in the 1992 Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended April 30, 2014. The material weakness identified above was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2014 consolidated financial statements, and this report does not affect our report dated June 30, 2014, which expressed an unqualified opinion on those financial statements. /s/ GRANT THORNTON LLP Minneapolis, Minnesota June 30, 2014 2014 Annual Report F-3 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 statement of operations, equity, and cash flows for the period ended April 30, 2012. Our audit also included the related financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the results of their operations and their cash flows for the period ended April 30, 2012, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, as it relates to information included therein for the year ended December 31, 2012, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ DELOITTE & TOUCHE LLP Minneapolis, Minnesota July 16, 2012 (June 30, 2014, as to the effects of discontinued operations discussed in Note 12 and the segment reclassification discussed in Note 2) 2014 Annual Report F-4 INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS April 30, 2014 and 2013 ASSETS Real estate investments Property owned Less accumulated depreciation Development in progress Unimproved land Total real estate investments Real estate held for sale Cash and cash equivalents Other investments Receivable arising from straight-lining of rents, net of allowance of $796 and $830, respectively Accounts receivable, net of allowance of $248 and $563, respectively Real estate deposits Prepaid and other assets Intangible assets, net of accumulated amortization of $24,071 and $27,708, respectively Tax, insurance, and other escrow Property and equipment, net of accumulated depreciation of $2,041 and $1,673, respectively Goodwill Deferred charges and leasing costs, net of accumulated amortization of $21,068 and $18,714, respectively TOTAL ASSETS LIABILITIES AND EQUITY LIABILITIES Accounts payable and accrued expenses Revolving line of credit Mortgages payable Other TOTAL LIABILITIES COMMITMENTS AND CONTINGENCIES (NOTE 15) REDEEMABLE NONCONTROLLING INTERESTS – CONSOLIDATED REAL ESTATE ENTITIES EQUITY Investors Real Estate Trust shareholders’ equity Series A Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no par value, 1,150,000 shares issued and outstanding at April 30, 2014 and April 30, 2013, aggregate liquidation preference of $28,750,000) Series B Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no par value, 4,600,000 shares issued and outstanding at April 30, 2014 and April 30, 2013, aggregate liquidation preference of $115,000,000) Common Shares of Beneficial Interest (Unlimited authorization, no par value, 109,019,341 shares issued and outstanding at April 30, 2014, and 101,487,976 shares issued and outstanding at April 30, 2013) (in thousands) April 30, 2014 April 30, 2013 (as revised) $ 1,996,031 (424,288) 1,571,743 104,609 22,864 1,699,216 2,951 47,267 329 $ 2,032,970 (420,421) 1,612,549 46,782 21,503 1,680,834 0 94,133 639 27,096 10,206 145 4,639 32,639 20,880 1,681 1,100 26,354 4,534 196 5,124 40,457 12,569 1,221 1,106 21,072 $ 1,869,221 22,387 $ 1,889,554 $ 59,105 22,500 997,689 63,178 1,142,472 $ 50,797 10,000 1,049,206 18,170 1,128,173 6,203 5,937 27,317 27,317 111,357 111,357 Accumulated distributions in excess of net income Total Investors Real Estate Trust shareholders’ equity Noncontrolling interests – Operating Partnership (21,093,445 units at April 30, 2014 and 21,635,127 units at April 30, 2013) 105,724 Noncontrolling interests – consolidated real estate entities 22,638 Total equity 720,546 TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY $ 1,869,221 843,268 (389,758) 592,184 784,454 (310,341) 612,787 122,539 20,118 755,444 $ 1,889,554 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 2014 Annual Report F-5 INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended April 30, 2014, 2013, and 2012 (in thousands, except per share data) 2014 2013 2012 REVENUE Real estate rentals Tenant reimbursement TOTAL REVENUE EXPENSES Depreciation/amortization related to real estate investments Utilities Maintenance Real estate taxes Insurance Property management expenses Other property expenses Administrative expenses Advisory and trustee services Other expenses Amortization related to non-real estate investments Impairment of real estate investments TOTAL EXPENSES Gain on involuntary conversion Operating income Interest expense Interest income Other income (Loss) income before loss on sale of real estate and other investments and income from discontinued operations Loss on sale of real estate and other investments (Loss) income from continuing operations Income from discontinued operations NET (LOSS) INCOME Net loss (income) attributable to noncontrolling interests – Operating Partnership Net income attributable to noncontrolling interests – consolidated real estate entities Net (loss) income attributable to Investors Real Estate Trust Dividends to preferred shareholders NET (LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS $ (Loss) earnings per common share from continuing operations – Investors $ 219,921 $ 204,719 $ 188,299 40,372 228,671 43,339 248,058 45,561 265,482 67,592 21,864 31,158 32,982 5,165 16,961 357 9,938 805 2,132 3,326 42,566 234,846 2,480 33,116 (59,142) 1,908 779 59,306 18,792 28,340 32,182 3,734 15,003 1,008 7,904 590 2,173 3,027 0 172,059 5,084 81,083 (61,154) 222 526 53,690 17,106 25,530 29,349 3,343 18,164 (142) 6,694 687 1,898 2,960 0 159,279 274 69,666 (61,801) 148 631 (23,339) (51) (23,390) 6,450 (16,940) 20,677 0 20,677 9,295 29,972 8,644 0 8,644 1,062 9,706 4,676 (3,633) (1,359) (910) (13,174) (11,514) (24,688) $ (809) 25,530 (9,229) 16,301 $ (135) 8,212 (2,372) 5,840 Real Estate Trust – basic and diluted $ (.28) $ .09 $ Earnings per common share from discontinued operations – Investors Real Estate Trust – basic and diluted NET (LOSS) INCOME PER COMMON SHARE – BASIC & DILUTED $ .05 (.23) $ .08 .17 $ .06 .01 .07 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 2014 Annual Report F-6 BALANCE APRIL 30, 2011 Net income attributable to Investors Real Estate Trust and nonredeemable noncontrolling interests Distributions - common shares and units Distributions - preferred shares Distribution reinvestment and share purchase plan Shares issued Partnership units issued Redemption of units for common shares Other BALANCE APRIL 30, 2012 Net income attributable to Investors Real Estate Trust and nonredeemable noncontrolling interests Distributions - common shares and units Distributions – Series A preferred shares Distributions – Series B preferred shares Distribution reinvestment and share purchase plan Shares issued Series B preferred shares issued Partnership units issued Redemption of units for common shares Contributions from nonredeemable noncontrolling interests – consolidated real estate entities Other BALANCE APRIL 30, 2013 Net income attributable to Investors Real Estate Trust and nonredeemable noncontrolling interests Distributions - common shares and units Distributions – Series A preferred shares Distributions – Series B preferred shares Distribution reinvestment and share purchase plan Shares issued Partnership units issued Redemption of units for common shares Contributions from nonredeemable noncontrolling interests – consolidated real estate entities Other BALANCE APRIL 30, 2014 INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY for the years ended April 30, 2014, 2013, and 2012 NUMBER OF PREFERRED SHARES PREFERRED SHARES NUMBER OF COMMON SHARES (in thousands) COMMON SHARES ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INCOME 1,150 $ 27,317 80,523 $ 621,936 $ (237,563) NONCONTROLLING INTERESTS (as revised) 132,600 $ TOTAL EQUITY (as revised) 544,290 $ 4,796 3,398 34,345 24,870 759 (2) 89,474 $ 3,454 (556) 684,049 1,150 $ 27,317 8,212 (46,654) (2,372) $ (278,377) $ 25,530 (48,265) (2,372) (6,857) 4,600 111,357 5,290 6,409 43,123 55,846 317 1,551 5,750 $ 138,674 (2) 101,488 $ (115) 784,454 $ (310,341) $ (13,174) (54,729) (2,372) (9,142) 6,615 13 55,793 112 903 4,353 1,482 9,694 (11,102) 8,055 (3,454) 4,693 132,274 $ (57,756) (2,372) 34,345 24,870 8,055 0 4,137 565,263 4,437 29,967 (10,985) (59,250) (2,372) (6,857) 43,123 55,846 111,357 12,632 0 12,632 (1,551) 6,483 (633) 142,657 6,483 (748) 755,444 $ (4,033) (17,207) (11,283) (66,012) (2,372) (9,142) 55,793 112 3,480 0 3,480 (4,353) 5,750 $ 138,674 109,019 $ (1,444) 843,268 $ (389,758) $ 3,895 (2,001) 128,362 3,895 (3,445) 720,546 $ SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 2014 Annual Report F-7 INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended April 30, 2014, 2013, and 2012 CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization Gain on sale of real estate, land, other investments and discontinued operations Gain on involuntary conversion Impairment of real estate investments Bad debt expense Changes in other assets and liabilities: Increase in receivable arising from straight-lining of rents Decrease in accounts receivable Increase in prepaid and other assets Increase in tax, insurance and other escrow Increase in deferred charges and leasing costs Increase in accounts payable, accrued expenses and other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from real estate deposits Payments for real estate deposits Principal proceeds on mortgage loans receivable Decrease in other investments Decrease in lender holdbacks for improvements Increase in lender holdbacks for improvements Proceeds from sale of discontinued operations Proceeds from sale of real estate and other investments Insurance proceeds received Payments for acquisitions of real estate assets Payments for development and re-development of real estate assets Payments for improvements of real estate assets Net cash used by investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from mortgages payable Principal payments on mortgages payable Proceeds from revolving lines of credit and other debt Principal payments on revolving lines of credit and other debt Proceeds from financing liability Proceeds from sale of common shares, net of issue costs Proceeds from sale of common shares under distribution reinvestment and share purchase program Proceeds from underwritten Public Offering of Preferred Shares – Series B, net of offering costs Proceeds from noncontrolling partner – consolidated real estate entities Payments for acquisition of noncontrolling interests – consolidated real estate entities Distributions paid to common shareholders, net of reinvestment of $13,965, $11,802 and $10,177, respectively Distributions paid to preferred shareholders Distributions paid to noncontrolling interests – Unitholders of the Operating Partnership, net reinvestment of $634, $614 and $657, respectively Distributions paid to noncontrolling interests – consolidated real estate entities Distributions paid to redeemable noncontrolling interests-consolidated real estate entities 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) 2013 2014 2012 $ (16,940) $ 29,972 $ 9,706 73,723 (6,948) (2,480) 44,426 434 (2,293) 1,880 (555) (1,046) (4,708) 7,021 92,514 67,559 (6,885) (5,084) 305 665 (2,733) 689 (693) (325) (5,946) 194 77,718 61,954 (349) (274) 428 298 (4,831) 1,542 (1,361) (353) (6,145) 4,522 65,137 991 (940) 0 314 3,780 (11,045) 78,879 682 2,491 (38,283) (123,744) (34,959) (121,834) 2,037 (1,970) 0 0 1,891 (2,466) 20,009 95 6,211 (76,020) (57,649) (26,280) (134,142) 2,254 (2,188) 159 0 5,681 (1,730) 3,142 430 5,758 (61,661) (37,777) (42,333) (128,265) 50,333 (101,867) 67,699 (17,443) 7,900 0 85,230 (104,976) 44,262 (55,411) 0 55,433 117,595 (77,089) 31,925 (10,060) 0 24,413 41,194 30,707 23,511 0 994 (2,505) 111,357 0 0 (40,764) (11,514) (10,649) (924) (36,463) (8,467) (10,371) (733) 0 (17,546) (46,866) 94,133 47,267 $ 0 110,568 54,144 39,989 94,133 $ $ 0 2,854 (1,289) (36,477) (2,372) (10,445) (613) (27) 61,926 (1,202) 41,191 39,989 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 2014 Annual Report F-8 INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) for the years ended April 30, 2014, 2013, and 2012 SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Distribution reinvestment plan Operating partnership distribution reinvestment plan Operating partnership units converted to shares Shares issued under the Incentive Award Plan Real estate assets acquired through the issuance of operating partnership units Real estate assets acquired through assumption of indebtedness and accrued costs Mortgages included in real estate dispositions Increase (decrease) to accounts payable included within real estate investments Real estate assets contributed by noncontrolling interests – consolidated real estate entities Fair value adjustments to redeemable noncontrolling interests Involuntary conversion of assets due to flood and fire damage Construction debt reclassified to mortgages payable Forfeiture of note payable in conjunction with sale of property SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest, net of amounts capitalized of $2,855, $742 and (in thousands) 2013 2014 2012 $ 13,965 $ 634 4,353 112 11,802 $ 10,177 657 3,454 443 614 1,551 398 3,480 12,632 0 0 12,500 5,887 8,055 7,190 0 1,767 2,901 0 7,052 0 600 2,502 (5,445) 12,415 0 107 13,650 0 2,227 35 2,783 7,190 0 $571, respectively $ 54,071 $ 60,357 $ 63,653 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 2014 Annual Report F-9 INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2014, 2013, and 2012 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 residential 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, except for taxes on undistributed REIT taxable income and taxes on the income generated by our taxable REIT subsidiary (“TRS”). Our TRS is subject to corporate federal and state income tax on its taxable income at regular statutory rates. We have considered estimated future taxable income and have determined that there were no material income tax provisions or material net deferred income tax items for our TRS for the years ended April 30, 2014 and 2013. 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, Missouri, Montana, Nebraska, South Dakota, Wisconsin and Wyoming. As of April 30, 2014, IRET owned 93 multi-family residential properties with approximately 10,779 apartment units and 166 commercial properties, consisting of commercial office, commercial healthcare, commercial industrial and commercial retail properties, totaling approximately 10.5 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 83.8% and 82.4%, respectively, as of April 30, 2014 and 2013, 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 controlling interest. These entities are consolidated into IRET’s other operations with noncontrolling interests reflecting the noncontrolling partners’ share of ownership and income and expenses. RECENT ACCOUNTING PRONOUNCEMENTS In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. Under this standard, a disposal (or classification as held for sale) of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. Examples include a disposal of a major geographic area, 2014 Annual Report F-10 NOTE 2 • continued a major line of business, or a major equity method investment. In addition, the new guidance requires expanded disclosures about the assets, liabilities, income and expenses of discontinued operations. The ASU is effective for all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The Company adopted this update effective February 1, 2014 and determined that the adoption did not have a material impact on the Company’s consolidated results of operations or financial condition. As a result of the adoption of ASU No. 2014-08, results of operations and gains or losses on sale for properties that are disposed or classified as held for sale in the ordinary course of business on or subsequent to February 1, 2014 would generally be included in continuing operations on the Company’s consolidated statements of operations, to the extent such disposals did not meet the criteria for classification as a discontinued operation described above. During the quarter ended April 30, 2014, the Company applied the new standard to one property that was classified as held for sale. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The standard will eliminate the transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU No. 2014-09 does not apply to lease contracts accounted for under ASC 840, Leases. The ASU is effective for annual and interim periods beginning after December 15, 2016. The Company does not expect adoption of this update to have a material impact on the Company’s operating results or financial position. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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. RECLASSIFICATIONS Certain previously reported amounts have been reclassified to conform to the current financial statement presentation. Prior to February 1, 2014, the Company reported, in discontinued operations, the results of operations and the related gains or losses of properties that had either been disposed of or classified as held for sale and otherwise met the classification of a discontinued operation. As a result of the adoption of ASU No. 2014-08, results of operations and gains or losses on sale for properties that are disposed or classified as held for sale in the ordinary course of business on or subsequent to February 1, 2014 would generally be included in continuing operations on the Company’s consolidated statements of operations, to the extent such disposals did not meet the criteria for classification as a discontinued operation described above. See Recent Accounting Pronouncements above for additional information. As a result of discontinued operations recognized prior to February 1, 2014, retroactive reclassifications that change prior period numbers have been made. See Note 12 for additional information. During fiscal year 2014, the Company classified as discontinued operations two multi-family residential properties, three commercial office properties, twelve commercial industrial properties and three commercial retail properties. During fiscal year 2013, the Company classified as discontinued operations three multi-family residential properties, one commercial healthcare property, one commercial retail property and four condominium units. The results of operations for these properties are included in income from discontinued operations on the Condensed Consolidated Statements of Operations. During the first quarter of fiscal year 2014 the Company reclassified a commercial property in Minot, North Dakota from the Company’s commercial retail segment to its commercial office segment, following the departure of a retail tenant from the property and the Company’s subsequent repurposing of the majority of the space in the building from retail to office premises. 2014 Annual Report F-11 NOTE 2 • continued REVISION During fiscal year 2014 the Company identified an error pertaining to the reporting for a noncontrolling interest in a consolidated real estate joint venture formed in the fourth quarter of fiscal year 2013 for which the holder of such interest has the right to require the Company to acquire the interest at fair value twelve months after the final certificate of occupancy is obtained for the joint venture’s development project. Accounting guidance in ASC 480- 10, CFRR 211: Redeemable Preferred Stocks, requires that this noncontrolling interest be classified outside of permanent equity because it is redeemable at the option of the joint venture partner. This error resulted in an overstatement of equity and offsetting understatement of the line entitled “redeemable noncontrolling interests – consolidated real estate entities” in the mezzanine section of the Company’s consolidated balance sheet of $5.9 million as of April 30, 2013. This non-cash revision did not impact the Company’s consolidated statements of operations or statements of cash flows for any period. In accordance with accounting guidance found in ASC 250-10, Materiality, the Company assessed the materiality of the error and concluded that the error was not material to any of the Company’s previously issued financial statements. In accordance with accounting guidance found in ASC 250-10, Considering the Effects of Prior Year Misstatement when Quantifying Misstatements in Current Year Financial Statements, the Company revised its previously issued consolidated balance sheet and statement of equity to correct the effect of this error. The Company will revise amounts pertaining to each of the fiscal 2014 calendar quarters from May 1, 2013 through January 31, 2014 in future quarterly filings on Form 10-Q. The following tables present the effect of this correction on the Company’s Consolidated Balance Sheet and Statement of Equity for the period affected: April 30, 2013 Consolidated Balance Sheet (in thousands) As Previously Reported Adjustment As Revised Redeemable noncontrolling interests – consolidated real estate entities Noncontrolling interests – consolidated real estate entities Total equity $ 0 $ 5,937 $ (5,937) (5,937) 26,055 761,381 5,937 20,118 755,444 Year Ended April 30, 2013 Consolidated Statement of Equity Noncontrolling Interests Net income attributable to Investors Real Estate Trust and nonredeemable noncontrolling interests Contributions from nonredeemable noncontrolling interests – consolidated real estate entities Balance April 30, 2013 Total Equity Net income attributable to Investors Real Estate Trust and nonredeemable noncontrolling interests Contributions from nonredeemable noncontrolling interests – consolidated real estate entities Balance April 30, 2013 (in thousands) As Previously Reported Adjustment As Revised $ 4,442 $ (5) $ 4,437 12,415 148,594 (5,932) (5,937) 6,483 142,657 29,972 (5) 29,967 12,415 761,381 (5,932) (5,937) 6,483 755,444 2014 Annual Report F-12 NOTE 2 • continued REAL ESTATE INVESTMENTS Real estate investments are recorded at cost less accumulated depreciation and an adjustment for impairment, if any. Acquisitions of real estate 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 based on the relative fair values 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. Acquired above- and below-market lease values are recorded as the difference between the contractual amounts to be paid pursuant to the in-place leases and management’s estimate of fair market value lease rates for the corresponding in-place leases. The capitalized above- and below-market lease values are amortized as adjustments to rental revenue over the remaining terms of the respective leases, which includes fixed rate renewal options for below-market leases if it is determined probable the tenant will execute a bargain renewal option. 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 the fair value analysis 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 relative 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. The Company follows the real estate project costs guidance in ASC 970, Real Estate – General, in accounting for the costs of development and re-development projects. As real estate is undergoing development or redevelopment, all project costs directly associated with and attributable to the development and construction of a project, including interest expense and real estate tax expense, are capitalized to the cost of the real property. The capitalization period begins when development activities and expenditures begin and are identifiable to a specific property and ends upon completion, which is when the asset is ready for its intended use. Generally, rental property is considered substantially complete and ready for its intended use upon completion of tenant improvements (in the case of commercial properties) or upon issuance of a certificate of occupancy (in the case of multi-family residential properties). General and administrative costs are expensed as incurred. 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. The Company periodically evaluates its long-lived assets, including its real estate investments, 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 group and legal and environmental concerns. If indicators exist, the Company compares the expected future undiscounted cash flows for the long-lived asset group 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 group. 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. 2014 Annual Report F-13 NOTE 2 • continued During fiscal year 2014, the Company incurred a non-cash loss of $44.4 million due to impairment of 15 properties, of which $1.9 million is reflected in discontinued operations. See Note 12 for additional information on discontinued operations. Of the total impairment charges of $44.4 million, the amounts incurred in the first, second, third and fourth quarters of fiscal year 2014 were $1.8 million, approximately $57,000, $4.8 million and $37.7 million, respectively. The Company recognized impairments of approximately $864,000 on a commercial industrial property in St. Louis Park, Minnesota; $329,000 on a commercial office property in Bloomington, Minnesota; $265,000 on a commercial retail property in Anoka, Minnesota; $402,000 on a commercial industrial property in Clive, Iowa and $4.8 million on a commercial industrial property in Roseville, Minnesota. These properties were written-down to estimated fair value based on receipt of individual market offers to purchase and the Company’s intent to dispose of the properties or, in the case of the Roseville, Minnesota property, a commitment to dispose of a significant portion of the property due to planned redevelopment. The approximately $835,000 impairment of the Company’s Edina, Minnesota, commercial office property was based on receipt of a market offer to purchase and the Company’s intent to dispose of the property (a purchase agreement was signed by the Company in the fourth quarter of fiscal year 2014). This property was classified as held for sale at April 30, 2014. An impairment loss of $2.1 million was recognized during fiscal year 2014 for the Company’s Golden Valley, Minnesota, commercial office property based on receipt of a market offer to purchase and the Company’s intent to dispose of the property (a purchase agreement was signed by the Company in the first quarter of fiscal year 2015). The Company recognized in the fourth quarter of fiscal year 2014 a $34.9 million impairment loss on eight commercial office properties located in four states. These properties are part of a portfolio of nine commercial office properties securing a $122.6 million non-recourse CMBS loan with a maturity date of October 6, 2016. Due to concerns over the borrower’s ability to refinance the portfolio at loan maturity, the Company revised its assumptions regarding the holding period of these properties. Impairment testing performed in connection with the preparation of the financial statements included in this Annual Report on Form 10-K indicated that impairment indicators were present. The Company commissioned a third-party appraisal of the properties, the result of which indicated a fair value of the portfolio below net book value, and, accordingly, an impairment loss was recorded for the difference. Because the loan amount significantly exceeds the Company’s current estimate of the fair value of this nine-property portfolio, the Company is working to initiate discussions with the loan servicer to discuss various alternatives with regard to the loan. Cash flow from the portfolio currently covers debt service on the loan, and the borrower, a special-purpose subsidiary of the Company, is current on all payments under the loan. During fiscal year 2013, the Company incurred a loss of approximately $305,000 due to impairment of one property. The impairment of the Company’s Eagan, Minnesota, retail property was based on receipt of a market offer to purchase and the Company’s intent to dispose of the property (a purchase agreement was signed by the Company in the fourth quarter of fiscal year 2013). The impairment charge for fiscal year 2013 is reported in discontinued operations. See Note 12 for additional information. During fiscal year 2012, the Company incurred a loss of approximately $428,000 due to impairment of two properties. The $128,000 impairment of the Company’s Kentwood, Michigan, retail property was based on receipt of a market offer to purchase and the Company’s intention to dispose of the property (a purchase agreement was signed by the Company in the fourth quarter of fiscal year 2012). A related impairment of $7,000 was recorded to write-off goodwill assigned to the Kentwood property. This property was classified as held for sale at April 30, 2012, and the related impairment charge for fiscal year 2012 is in discontinued operations. Also during fiscal year 2012, the Company recognized a $293,000 impairment loss on eight condominium units in Grand Chute, Wisconsin. The impairment of the condominiums was based on receipt of a market offer to purchase two of the units and the Company’s intention to dispose of the units (a purchase agreement was signed by the Company in the fourth quarter of fiscal year 2012). The condominiums were classified as held for sale at April 30, 2012, and the related impairment charge for fiscal year 2012 is reported in discontinued operations. See Note 12 for additional information. 2014 Annual Report F-14 NOTE 2 • continued REAL ESTATE HELD FOR SALE Real estate held for sale is stated at the lower of its carrying amount or estimated fair value less disposal costs. The Company’s determination of fair value is based on inputs management believes are consistent with those that market participants would use. Estimates are significantly impacted by estimates of sales price, selling velocity, and other factors. Due to uncertainties in the estimation process, actual results could differ from such estimates. Depreciation is not recorded on assets classified as held for sale. U.S. GAAP requires management to make certain significant judgments as to the classification of any of our properties as held for sale on the balance sheet. 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 the current accounting principles governing the classification of properties as held for sale prior to a 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 current accounting principles. A commercial office property was classified as held for sale at April 30, 2014. No properties were classified as held for sale at April 30, 2013. Prior to February 1, 2014, the Company reported, in discontinued operations, the results of operations and the related gains or losses of properties that had either been disposed of or classified as held for sale and otherwise met the classification of a discontinued operation. As a result of the adoption of ASU No. 2014-08, results of operations and gains or losses on sale for properties that are disposed or classified as held for sale in the ordinary course of business on or subsequent to February 1, 2014 would generally be included in continuing operations on the Company’s consolidated statements of operations, to the extent such disposals did not meet the criteria for classification as a discontinued operation described above. See Recent Accounting Pronouncements above for additional information 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 the twelve months ended April 30, 2014 and 2013, respectively, the Company added approximately $900,000 and $1.6 million of new intangible assets and no new intangible liabilities. The weighted average lives of the intangible assets acquired in the twelve months ended April 30, 2014 and 2013 are 0.7 years and 0.5 years, respectively. 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. 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 and 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 value as of April 30, 2014 and 2013 was $1.1 million. The annual reviews of goodwill compared the fair value of the reporting units that have been assigned goodwill to their carrying value (investment cost less accumulated depreciation), with the results for these periods indicating no impairment. In fiscal years 2014 and 2013, the Company disposed of property that had goodwill assigned, and as a result, approximately $7,000 and $14,000, respectively, of goodwill was derecognized. During fiscal year 2012 an approximately $7,000 impairment to goodwill was recognized. 2014 Annual Report F-15 NOTE 2 • continued PROPERTY AND EQUIPMENT Property and equipment consists of the equipment contained at IRET’s headquarters in Minot, North Dakota, corporate offices in Minneapolis and St. Cloud, Minnesota, and additional property management offices in Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota and South Dakota. The balance sheet reflects these assets at cost, net of accumulated depreciation. As of April 30, 2014 and 2013, property and equipment cost was $3.7 million and $2.9 million, respectively. Accumulated depreciation was $2.0 million and $1.7 million as of April 30, 2014 and 2013, respectively. 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. At times these deposits may exceed the FDIC limit. COMPENSATING BALANCES AND OTHER INVESTMENTS; LENDER HOLDBACKS The Company maintains compensating balances, not restricted as to withdrawal, with several financial institutions in connection with financing received from those institutions and/or to ensure future credit availability. At April 30, 2014, the Company’s compensating balances totaled $7.9 million and consisted of the following: Dacotah Bank, Minot, North Dakota, deposit of $350,000; United Community Bank, Minot, North Dakota, deposit of $275,000; First International Bank, Watford City, North Dakota, deposit of $6.1 million; Peoples State Bank of Velva, North Dakota, deposit of $225,000; Associated Bank, Green Bay, Wisconsin, deposit of $600,000; and American National Bank, Omaha, Nebraska, deposit of $400,000. The deposit at United Community Bank and a portion of the deposit at Dacotah Bank are held as certificates of deposit and comprise the approximately $329,000 in other investments on the Consolidated Balance Sheets. The certificates of deposit have remaining terms of six months and two years and the Company intends to hold them to maturity. The Company has a number of mortgage loans under which the lender retains a portion of the loan proceeds for the payment of construction costs or tenant improvements. The decrease of $3.8 million in lender holdbacks for improvements reflected in the Consolidated Statements of Cash Flows for the fiscal year ended April 30, 2014 is due primarily to the release of loan proceeds to the Company upon completion of these construction milestones and tenant improvement projects, while the increase of $11.0 million represents additional amounts retained by lenders for new projects. 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, 2014, 2013 and 2012 is as follows: (in thousands) Balance at beginning of year Provision Write-off Balance at close of year TAX, INSURANCE, AND OTHER ESCROW 2013 2014 2012 $ 1,393 $ 1,363 $ 1,316 298 (251) $ 1,044 $ 1,393 $ 1,363 434 (783) 665 (635) 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. 2014 Annual Report F-16 NOTE 2 • continued REAL ESTATE DEPOSITS Real estate deposits include funds held by escrow agents to be applied toward the purchase of real estate or the payment of loan costs associated with loan placement or refinancing. DEFERRED CHARGES AND LEASING 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. 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. For the fiscal years ended April 30, 2014, 2013 and 2012, the Company distributed in excess of 90% of its taxable income and realized capital gains from property dispositions within the prescribed time limits; accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on its taxable income at regular corporate rates (including any alternative minimum tax) and may not be able to qualify as a REIT for the four subsequent taxable years. Even as a REIT, the Company may be subject to certain state and local income and property taxes, and to federal income and excise taxes on undistributed taxable income. In general, however, if the Company qualifies as a REIT, no provisions for federal income taxes are necessary except for taxes on undistributed REIT taxable income and taxes on the income generated by a taxable REIT subsidiary (TRS). The Company has one TRS, acquired during the second quarter of fiscal year 2014, which is subject to corporate federal and state income taxes on its taxable income at regular statutory rates. For fiscal year 2014, the Company estimates that the TRS will have no taxable income. There were no income tax provisions or material deferred income tax items for our TRS for the fiscal year ended April 30, 2014. The Company’s TRS is the tenant in the Company’s Legends at Heritage Place senior housing facility. 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. Distributions for the calendar year ended December 31, 2013 were characterized, for federal income tax purposes, as 28.41% ordinary income, 3.09% capital gain and 68.50% return of capital. Distributions for the calendar year ended December 31, 2012 were characterized, for federal income tax purposes, as 23.17% ordinary income, 2.41% capital gain and 74.42% return of capital. 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. 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 tenants at multi-tenant commercial properties 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. 2014 Annual Report F-17 NOTE 2 • continued 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. INVOLUNTARY CONVERSION OF ASSETS In June 2011, both the Company’s Minot Arrowhead retail property and Chateau Apartments property, which at that time consisted of two 32-unit buildings, were extensively damaged by a flood. In February 2012, one of the buildings of the Chateau Apartments property, which had been undergoing restoration work following the flood, was completely destroyed by fire (the “2012 Fire”). Final settlement of the flood insurance claim was reached in fiscal year 2013 with total proceeds received of $8.5 million for flood clean-up costs and redevelopment. Final settlement of the 2012 Fire insurance claim was reached in fiscal year 2014 with total proceeds received of $5.1 million for redevelopment. Insurance proceeds for these events exceeded the basis in the assets requiring replacement, resulting in recognition of the following gains from involuntary conversion in fiscal years 2014, 2013 and 2012: Year Ended April 30, Gain on involuntary conversion Flood 2012 Fire Total gain on involuntary conversion (in thousands) 2014 2013 2012 $ 0 $ 2,821 $ 2,263 2,480 $ 2,480 $ 5,084 $ 274 0 274 Final settlement was reached during fiscal year 2013 for business interruption claims from the flood and 2012 Fire with proceeds received during fiscal years 2013 and 2012 of approximately $409,000 and $666,000, respectively. Reimbursement for business interruption is included within real estate rentals in the Consolidated Statements of Operations. In December 2013, 15-unit and 57-unit buildings at the Chateau Apartments property were destroyed by fire (the “2013 Fire”). Both buildings were under construction and were unoccupied. The 15-unit building had been anticipated to open in February 2014, and the 57-unit building was anticipated to open in the summer of 2014. A third, occupied 32-unit building on the west side of the complex did not suffer any fire damage. The financial effect in fiscal year 2014 of the 2013 Fire is reflected in our financial statements through a write-down of assets on the Condensed Consolidated Balance Sheets, totaling $7.1 million, with an offsetting insurance receivable recorded within accounts receivable. The Company is named as an insured party under the construction contractor’s insurance policy, which the Company expects to cover its costs to rebuild the 15-unit and 57-unit buildings. The Company intends to rebuild both buildings, and currently expects both buildings to be completed in the fourth quarter of fiscal year 2015. The Company received partial proceeds of $1.0 million for the 2013 Fire claim in fiscal year 2014, which reduced the accounts receivable recorded at the time of the fire for expected proceeds. The insurance coverage for the 2013 Fire does not cover the Company’s lost net operating income for the period extending from the dates on which the 15-unit and 57-unit buildings were formerly expected to be in service and occupied (February 2014 and Summer 2014, respectively) to the dates on which those buildings are actually placed in service and occupied. The Company estimates this lost net operating income to total approximately $882,000. The Company does not expect to record any material gain or loss due to involuntary conversion for the 2013 Fire. 2014 Annual Report F-18 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 (the “Bank”) with respect to deposit accounts that exceed FDIC Insurance coverage. On a daily basis, account balances are swept into a repurchase account. The Bank pledges fractional interests in US Government Securities owned by the Bank at an amount equal to the excess over the uncollected balance in the repurchase account. The amounts deposited by IRET pursuant to the repurchase agreement are not insured by FDIC. At April 30, 2014 and 2013, these amounts totaled $14.4 million and $29.6 million, respectively. NOTE 4 • PROPERTY OWNED Property, consisting principally of real estate, is stated at cost less accumulated depreciation and totaled $1.6 billion as of April 30, 2014, and 2013. Construction period interest of approximately $2.9 million, $742,000, and $571,000 has been capitalized for the years ended April 30, 2014, 2013, and 2012, respectively. The future minimum lease receipts to be received under non-cancellable leases for commercial properties as of April 30, 2014, assuming that no options to renew or buy out the lease are exercised, are as follows: Year Ended April 30, 2015 2016 2017 2018 2019 Thereafter (in thousands) $ 110,080 101,673 87,405 73,163 60,348 136,292 568,961 $ See Real Estate Investments within Note 2 for information about impairment losses recorded during fiscal years 2014 and 2013. NOTE 5 • IDENTIFIED INTANGIBLE ASSETS AND LIABILITIES The Company’s identified intangible assets and intangible liabilities at April 30, 2014 and 2013 were as follows: Identified intangible assets (included in intangible assets): Gross carrying amount Accumulated amortization Net carrying amount Identified intangible liabilities (included in other liabilities): Gross carrying amount Accumulated amortization Net carrying amount (in thousands) April 30, 2014 April 30, 2013 $ $ $ $ 56,710 $ (24,071) 32,639 $ 68,165 (27,708) 40,457 173 $ (127) 46 $ 391 (296) 95 2014 Annual Report F-19 NOTE 5 • continued The effect of amortization of acquired below-market leases and acquired above-market leases on rental income was approximately $(42,000), $(38,000) and $(54,000) for the twelve months ended April 30, 2014, 2013 and 2012, respectively. The estimated annual amortization of acquired below-market leases, net of acquired above-market leases for each of the five succeeding fiscal years is as follows: Year Ended April 30, 2015 2016 2017 2018 2019 (in thousands) 22 $ 19 11 (2) (3) Amortization of all other identified intangible assets (a component of depreciation/amortization related to real estate investments) was $8.3 million, $5.3 million and $5.3 million for the twelve months ended April 30, 2014, 2013 and 2012, respectively. The estimated annual amortization of all other identified intangible assets for each of the five succeeding fiscal years is as follows: Year Ended April 30, 2015 2016 2017 2018 2019 (in thousands) 4,959 $ 4,567 4,099 3,667 3,543 NOTE 6 • NONCONTROLLING 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 noncontrolling interests in accordance with the terms of the Operating Partnership agreement. IRET reflects noncontrolling interests in consolidated real estate entities 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 noncontrolling interests are reflected as net income attributable to noncontrolling interests – consolidated real estate entities in the Consolidated Statements of Operations. The Company’s noncontrolling interests – consolidated real estate entities at April 30, 2014 and 2013 were as follows: (in thousands) April 30, 2014 April 30, 2013 $ 7,236 1,003 2,597 1,396 1,118 1,149 5,619 0 20,118 7,333 $ 0 2,804 1,219 1,206 1,127 5,672 3,277 22,638 $ $ Mendota Properties LLC IRET-1715 YDR, LLC IRET-Williston Garden Apartments, LLC IRET - Jamestown Medical Building, LLC WRH Holding, LLC IRET-Cypress Court Apartments, LLC IRET - WRH 1, LLC IRET-RED 20, LLC Noncontrolling interests – consolidated real estate entities 2014 Annual Report F-20 NOTE 7 • LINE OF CREDIT As of April 30, 2014, the Company had one secured line of credit with First International Bank and Trust, Watford City, North Dakota, as lead bank. This line of credit had, as of April 30, 2014, lending commitments of $72.0 million. The facility has a maturity date of December 1, 2016, and is secured by mortgages on 14 properties; under the terms of the line of credit, properties may be added and removed from the collateral pool with the agreement of the lenders. Participants in this credit facility as of April 30, 2014 included, in addition to First International Bank, the following financial institutions: The Bank of North Dakota; First Western Bank and Trust; Dacotah Bank; United Community Bank; American State Bank & Trust Company; Town & Country Credit Union; Highland Bank and MidCountry Bank. As of April 30, 2014, the Company had advanced $22.5 million under the line of credit. The line of credit has a minimum outstanding principal balance requirement of $12.5 million. The interest rate on borrowings under the facility is the Wall Street Journal Prime Rate +1.25%, with a floor of 4.75% and a cap of 8.65%; interest-only payments are due monthly based on the total amount of advances outstanding. The line of credit may be prepaid at par at any time. The facility includes covenants and restrictions requiring the Company to achieve on a calendar quarter basis a debt service coverage ratio on borrowing base collateral of 1.25x in the aggregate and 1.00x on individual assets in the collateral pool, and the Company is also required to maintain minimum depository account(s) totaling $6.0 million with First International, of which $1.5 million is to be held in a non-interest bearing account. As of April 30, 2014, 14 properties with a total cost of $124.4 million collateralized this line of credit. As of April 30, 2014, the Company believes it is in compliance with the facility covenants. This credit facility is summarized in the following table: (in thousands) Amount Outstanding as of April 30, 2014 Amount Outstanding as of April 30, 2013 Applicable Interest Rate as of April 30, 2014 Amount Available Weighted Average Int. Rate on Borrowings during fiscal year 2014 Maturity Date $ 72,000 $ 22,500 $ 10,000 4.75% 12/1/16 4.86% Financial Institution First International Bank & Trust NOTE 8 • MORTGAGES PAYABLE Most of the properties owned by the Company individually serve as collateral for separate mortgage loans on single properties or groups of properties. The majority of these mortgages payable 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. As of April 30, 2014, the management of the Company believes there are no defaults or material compliance issues in regard to any of these mortgages payable. Interest rates on mortgages payable range from 2.40% to 8.25%, and the mortgages have varying maturity dates from June 1, 2014, through July 1, 2036. Of the mortgages payable, the balance of fixed rate mortgages totaled $977.2 million and $1.0 billion at April 30, 2014 and 2013, respectively, and the balances of variable rate mortgages totaled $20.5 million and $26.2 million as of April 30, 2014, and 2013, 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, 2014, the weighted-average rate of interest on the Company’s mortgage debt was 5.37%, compared to 5.55% on April 30, 2013. The aggregate amount of required future principal payments on mortgages payable as of April 30, 2014, is as follows: Year Ended April 30, 2015 2016 2017 2018 2019 Thereafter Total payments (in thousands) 80,140 92,888 207,890 91,657 136,884 388,230 997,689 $ $ In addition to the individual first mortgage loans comprising the Company’s $997.7 million of mortgage indebtedness, the Company’s revolving, multi-bank secured line of credit discussed in Note 7 is secured as of April 30, 2014, by mortgages on 14 Company properties. This line of credit is not included in the Company’s mortgage indebtedness total. The Company currently has 49 unencumbered properties. 2014 Annual Report F-21 NOTE 9 • TRANSACTIONS WITH RELATED PARTIES BANKING SERVICES The Company has an ongoing banking relationship with First International Bank and Trust, Watford City, North Dakota (“First International”). Stephen L. Stenehjem, a member of the Company’s Board of Trustees, is the President and Chief Executive Officer of First International, and the bank is owned by Mr. Stenehjem and members of his family. The Company has one mortgage loan outstanding with First International, with an original principal balance of $13.7 million (Williston Garden) bearing interest at 5.5% per annum. In connection with this loan, the Company maintains a compensating balance of $50,000. The Company also has a construction loan with First International for $43.7 million to finance the development of the Renaissance Heights I residential property in Williston, North Dakota. At April 30, 2014, the construction loan had a balance of $17.2 million bearing interest at 5.0% per annum. The Company paid interest on these loans of approximately $717,000 and $290,000, respectively, in fiscal year 2014. The Company has a multi-bank line of credit with a capacity of $72.0 million, of which First International is the lead bank and a participant with a $12.0 million commitment. In fiscal year 2014, the Company paid First International a total of approximately $125,000 in interest on First International’s portion of the outstanding balance of this credit line, and paid fees of $40,000. In connection with this multi-bank line of credit, the Company maintains compensating balances with First International totaling $6.0 million, of which $1.5 million is held in a non-interest bearing account, and $4.5 million is held in an account that pays the Company interest on the deposited amount of 0.20% per annum. The Company also maintains a number of checking accounts with First International. In fiscal year 2014, the Company paid less than $500 in total in various bank service and other fees charged on these checking accounts. In fiscal years 2013 and 2012, the Company paid interest and fees on outstanding mortgage and construction loans of approximately $975,000 and $422,000, respectively. In fiscal years 2013 and 2012, respectively, the Company paid First International $196,000 and $531,000 in interest on First International’s portion of the multi-bank line of credit and paid fees of $40,000 and $70,000. In both fiscal years 2013 and 2012, the Company paid under $500 in total in various bank service and other fees charged on checking accounts maintained with First International. Total payments of interest and fees from the Company to First International Bank were approximately $1.2 million, $1.2 million and $1.1 million in fiscal years 2014, 2013 and 2012, respectively. LEASE TRANSACTION In the first quarter of fiscal year 2013, the Company entered into an agreement with First International to construct an approximately 3,700 square-foot building on an outlot of the Company’s Arrowhead Shopping Center in Minot, North Dakota, to be leased by First International under a 20-year lease for use as a branch bank location. The project was completed in fiscal year 2013 at a cost of $1.3 million. Net rental payments under the lease are estimated to be approximately $2.4 million in total over the 20-year lease term. 2014 Annual Report F-22 NOTE 10 • ACQUISITIONS, DEVELOPMENT PROJECTS PLACED IN SERVICE AND DISPOSITIONS PROPERTY ACQUISITIONS IRET Properties added approximately $43.6 million of real estate properties to its portfolio through property acquisitions during fiscal year 2014, compared to $108.2 million in fiscal year 2013. The Company expensed approximately $176,000 and $434,000 of transaction costs related to the acquisitions in fiscal years 2014 and 2013, respectively. The fiscal year 2014 and 2013 acquisitions are detailed below. Fiscal 2014 (May 1, 2013 to April 30, 2014) Acquisitions Date Acquired Total Acquisition Cost Form of Consideration Investment Allocation Cash Units(1) Other(2) Land Building Intangible Assets (in thousands) Multi-Family Residential 71 unit - Alps Park - Rapid City, SD 96 unit - Southpoint - Grand Forks, ND 24 unit - Pinecone Villas - Sartell, MN Commercial Healthcare 98,174 sq ft Legends at 2013-05-01 $ 6,200 $ 2,920 $ 3,280 $ 0 $ 287 $ 5,551 $ 362 2013-09-05 10,600 10,400 200 2013-10-31 2,800 19,600 2,800 16,120 0 3,480 Heritage Place - Sartell, MN 2013-10-31 11,863 11,863 39,500 sq ft Spring Creek Fruitland - Fruitland, ID 2014-02-05 Unimproved Land Chateau II - Minot, ND Jamestown Unimproved - Jamestown, ND Red 20 - Minneapolis, MN(3) Legends at Heritage Place - Sartell, MN Spring Creek Fruitland - Fruitland, ID Isanti Unimproved - Isanti, MN Rapid City Unimproved - Rapid City, SD 2013-05-21 2013-08-09 2013-08-20 2013-10-31 2014-01-21 2014-02-04 2014-03-25 7,050 18,913 7,050 18,913 179 700 1,900 537 335 50 1,366 5,067 179 700 0 537 335 50 1,366 3,167 0 0 0 0 0 0 0 0 0 0 0 576 9,893 584 2,191 1,447 17,635 970 10,511 550 6,500 1,520 17,011 0 0 0 0 0 0 0 0 1,900 0 0 0 0 179 700 1,900 537 335 50 1,366 1,900 5,067 0 0 0 0 0 0 0 0 131 25 518 382 0 382 0 0 0 0 0 0 0 0 Total Property Acquisitions $ 43,580 $ 38,200 $ 3,480 $ 1,900 $ 8,034 $ 34,646 $ 900 (1) Value of limited partnership units of the Operating Partnership at the acquisition date. (2) Consists of value of land contributed by the joint venture partner. (3) Land is owned by a joint venture in which the Company has an approximately 58.6% interest. The joint venture is consolidated in IRET’s financial statements. 2014 Annual Report F-23 NOTE 10 • continued Fiscal 2013 (May 1, 2012 to April 30, 2013) Total Acquisition Cost Form of Consideration Investment Allocation Cash Units(1) Other(2) Land Building Intangible Assets (in thousands) Acquisitions Date Acquired Multi-Family Residential 308 unit - Villa West - Topeka, KS 2012-05-08 $ 17,650 $ 5,150 $ 0 $ 12,500 $ 1,590 $ 15,760 $ 232 unit - Colony - Lincoln, NE 208 unit - Lakeside Village - 2012-06-04 17,500 14,368 3,132 Lincoln, NE 2012-06-04 17,250 13,954 3,296 58 unit - Ponds at Heritage Place - Sartell, MN 336 unit - Whispering Ridge - 2012-10-10 5,020 3,332 1,688 0 0 0 Omaha, NE 2013-04-24 28,314 85,734 25,798 62,602 2,516 10,632 0 12,500 1,515 15,731 1,215 15,837 395 4,564 2,139 25,424 6,854 77,316 1,564 300 254 198 61 751 Unimproved Land University Commons - Williston, ND Cypress Court - St. Cloud, MN(3) Cypress Court Apartment Development - St. Cloud, MN(3) Badger Hills - Rochester, MN(4) Grand Forks - Grand Forks, ND Minot (Southgate Lot 4) - 2012-08-01 2012-08-10 2012-08-10 2012-12-14 2012-12-31 823 447 1,136 1,050 4,278 823 447 0 1,050 2,278 Minot, ND 2013-01-11 1,882 1,882 Commons at Southgate - Minot, ND(5) Landing at Southgate - Minot, ND(5) Grand Forks 2150 - Grand Forks, ND 2013-01-22 2013-01-22 2013-03-25 Bismarck 4916 - Bismarck, ND 2013-04-12 Arcata - Golden Valley, MN 2013-04-30 3,691 2,262 1,600 3,250 2,088 0 0 1,600 3,250 2,088 0 0 0 0 2,000 0 0 0 0 0 0 0 0 1,136 0 0 0 823 447 1,136 1,050 4,278 1,882 3,691 3,691 2,262 2,262 0 0 0 1,600 3,250 2,088 22,507 13,418 2,000 7,089 22,507 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Total Property Acquisitions $ 108,241 $ 76,020 $ 12,632 $ 19,589 $ 29,361 $ 77,316 $ 1,564 (1) Value of limited partnership units of the Operating Partnership at the acquisition date. (2) Consists of assumed debt (Villa West - $12.5 million) and value of land contributed by the joint venture partner (Cypress Court - $1.1 million, Commons at Southgate - $3.7 million, Landing at Southgate - $2.3 million). (3) Land is owned by a joint venture in which the Company has an approximately 86.1% interest. The joint venture is consolidated in IRET’s financial statements. (4) Acquisition of unimproved land consisted of two parcels acquired separately on December 14 and December 20, 2012, respectively. (5) Land is owned by a joint venture entity in which the Company has an approximately 51% interest. The joint venture is consolidated in IRET’s financial statements. 2014 Annual Report F-24 NOTE 10 • continued Acquisitions in fiscal years 2014 and 2013 are immaterial to our real estate portfolio both individually and in the aggregate, and consequently no proforma information is presented. The results of operations from acquired properties are included in the Consolidated Statements of Operations as of their acquisition date. The revenue and net income of our fiscal year 2014 and 2013 acquisitions (excluding development projects placed in service) are detailed below. Total revenue Net income DEVELOPMENT PROJECTS PLACED IN SERVICE (in thousands) April 30, 2014 April 30, 2013 6,497 $ $ (66) 1,897 $ (82) $ IRET Properties placed approximately $53.5 million of development projects in service during fiscal year 2014, compared to $47.9 million in fiscal year 2013. The fiscal year 2014 and 2013 development projects placed in service are detailed below. Fiscal 2014 (May 1, 2013 to April 30, 2014) Development Projects Placed in Service (1) Multi-Family Residential 108 unit - Landing at Southgate - Minot, ND(2) 132 unit - Cypress Court - St. Cloud, MN(3) 146 unit - River Ridge - Bismarck, ND(4) Date Placed in Service Land Building Development Cost (in thousands) 2013-09-04 $ 2013-11-01 2013-12-02 2,262 $ 1,136 589 12,864 $ 12,428 24,268 15,126 13,564 24,857 Total Development Projects Placed in Service $ 3,987 $ 49,560 $ 53,547 (1) Development projects that are placed in service in phases are excluded from this table until the entire project has been placed in service. See Note 15 for additional information on the Renaissance Heights I project, which was partially placed in service during the three months ended April 30, 2014. (2) Development property placed in service September 4, 2013. Costs paid in fiscal year 2013 totaled $6.3 million. Additional costs paid in fiscal year 2014 totaled $8.8 million, for a total project cost at April 20, 2014 of $15.1 million. The project is owned by a joint venture entity in which the Company has an approximately 51% interest. (3) Development property placed in service November 1, 2013. Costs paid in fiscal year 2013 totaled $5.8 million. Additional costs paid in fiscal year 2014 totaled $7.8 million, for a total project cost at April 30, 2014 of $13.6 million. The project is owned by a joint venture entity in which the Company has an approximately 86.1% interest. (4) Development property placed in service December 2, 2013. Costs paid in fiscal year 2013 totaled $10.1 million, including the land acquired in fiscal year 2009. Additional costs paid in fiscal year 2014 totaled $14.8 million, for a total project cost at April 30, 2014 of $24.9 million. 2014 Annual Report F-25 NOTE 10 • continued Fiscal 2013 (May 1, 2012 to April 30, 2013) Development Projects Placed in Service Multi-Family Residential Date Placed in Service Land Building Development Cost (in thousands) 159 unit - Quarry Ridge II - Rochester, MN(1) 73 unit - Williston Garden Buildings 3 and 4 - Williston, ND(2) 2012-07-31 20 unit - First Avenue - Minot, ND(3) 2013-04-15 2012-06-29 $ 942 $ 700 0 1,642 16,636 $ 17,578 9,434 8,734 2,677 2,677 29,689 28,047 Commercial Healthcare 26,662 sq ft Spring Wind Expansion - Laramie, WY(4) 45,222 sq ft Jamestown Medical Office Building - Jamestown, ND(5) Commercial Industrial 27,698 sq ft Minot IPS - Minot, ND(6) Commercial Retail 2012-11-16 2013-01-01 0 0 0 3,485 3,485 7,605 11,090 7,605 11,090 2012-12-17 416 5,484 5,900 3,702 sq ft Arrowhead First International Bank - Minot, ND(7) 2013-03-19 75 1,165 1,240 Total Development Projects Placed in Service $ 2,133 $ 45,786 $ 47,919 (1) Development property placed in service June 29, 2012. Costs paid in fiscal years 2011 and 2012 totaled $13.0 million, including land acquired in fiscal year 2007. Additional costs paid in fiscal year 2013 totaled $4.6 million, for a total project cost at April 30, 2013 of $17.6 million. (2) Development property placed in service July 31, 2012. Buildings 1 and 2 were placed in service in fiscal year 2012. Costs paid in fiscal year 2012 for Buildings 3 and 4 totaled $2.4 million. Additional costs paid in fiscal year 2013 totaled $7.0 million, for a total project cost at April 30, 2013 of $9.4 million. The project is owned by a joint venture entity in which the Company has an approximately 60% interest. (3) Redevelopment property placed in service April 15, 2013. Costs paid in fiscal years 2011 and 2012 totaled approximately $321,000. Additional costs paid in fiscal year 2013 totaled $2.4 million, for a total project cost at April 30, 2013 of $2.7 million. (4) Expansion project placed in service November 16, 2012. Costs paid in fiscal year 2012 totaled $1.8 million. Additional costs paid in fiscal year 2013 totaled $1.7 million, for a total project cost at April 30, 2013 of $3.5 million. (5) Development property placed in service January 1, 2013. Costs paid in fiscal year 2012 totaled $1.0 million. Additional costs paid in fiscal year 2013 totaled $6.6 million, for a total project cost at April 30, 2013 of $7.6 million. The project is owned by a joint venture entity in which the Company has an approximately 51% interest. (6) Development property placed in service December 17, 2012. Costs paid in fiscal year 2012 totaled $1.8 million. Additional costs paid in fiscal year 2013 totaled $4.1 million, for a total project cost at April 30, 2013 of $5.9 million. (7) Development property placed in service March 19, 2013. Costs paid in fiscal year 2012 totaled approximately 75,000. Additional costs paid in fiscal year 2013 totaled $1.2 million, for a total project cost at April 30, 2013 of $1.2 million. 2014 Annual Report F-26 NOTE 10 • continued PROPERTY DISPOSITIONS During fiscal year 2014, the Company disposed of two multi-family residential properties, three commercial office properties, twelve commercial industrial properties, and three commercial retail properties for an aggregate sales price of $80.9 million, compared to dispositions totaling $26.3 million in fiscal year 2013. The fiscal year 2014 and 2013 dispositions are detailed below. Fiscal 2014 (May 1, 2013 to April 30, 2014) Dispositions Multi-Family Residential Date Disposed (in thousands) Book Value Sales Price and Sales Cost Gain/(Loss) 84 unit - East Park - Sioux Falls, SD 48 unit - Sycamore Village - Sioux Falls, SD 2013-12-18 $ 2013-12-18 2,214 $ 1,296 3,510 2,358 $ 1,380 3,738 (144) (84) (228) Commercial Office 121,669 sq ft Bloomington Business Plaza - Bloomington, MN 118,125 sq ft Nicollet VII - Burnsville, MN 42,929 sq ft Pillsbury Business Center - Bloomington, MN Commercial Industrial 41,880 sq ft Bodycote Industrial Building- Eden Prairie, MN 42,244 sq ft Fargo 1320 45th Street N - Fargo, ND 49,620 sq ft Metal Improvement Company - New Brighton, MN 172,057 sq ft Roseville 2929 Long Lake Road - Roseville, MN 322,751 sq ft Brooklyn Park 7401 Boone Ave - Brooklyn Park, MN 50,400 sq ft Cedar Lake Business Center - St. Louis Park, MN 35,000 sq ft API Building - Duluth, MN 59,292 sq ft Lighthouse - Duluth, MN 606,006 sq ft Dixon Avenue Industrial Park - Des Moines, IA 41,685 sq ft Winsted Industrial Building - Winsted, MN 69,984 sq ft Minnetonka 13600 County Road 62 - Minnetonka, MN 42,510 sq ft Clive 2075NW 94th Street - Clive, IA 2013-09-12 2013-09-12 2013-09-12 4,500 7,290 1,160 12,950 7,339 6,001 1,164 14,504 (2,839) 1,289 (4) (1,554) 2013-05-13 2013-05-13 3,150 4,700 1,375 4,100 1,775 600 2013-05-13 2,350 1,949 401 2013-05-13 9,275 9,998 (723) 2013-09-12 12,800 12,181 619 2013-09-12 2013-09-24 2013-10-08 2013-10-31 2014-01-17 2014-01-30 2014-01-30 2,550 2,553 1,825 14,675 725 3,800 2,735 61,138 2,310 325 650 3,285 2,607 1,488 1,547 10,328 747 3,084 2,675 52,079 2,420 347 796 3,563 (57) 1,065 278 4,347 (22) 716 60 9,059 (110) (22) (146) (278) Commercial Retail 23,187 sq ft Eagan Community - Eagan, MN 10,625 sq ft Anoka Strip Center- Anoka, MN 8,400 sq ft Burnsville 2 Strip Center - Burnsville, MN 2013-05-14 2013-12-23 2014-01-08 Total Property Dispositions $ 80,883 $ 73,884 $ 6,999 2014 Annual Report F-27 NOTE 10 • continued Fiscal 2013 (May 1, 2012 to April 30, 2013) Dispositions Multi-Family Residential 116 unit - Terrace on the Green - Fargo, ND 85 unit - Prairiewood Meadows - Fargo, ND 66 unit - Candlelight - Fargo, ND Date Disposed (in thousands) Book Value Sales Price and Sales Cost Gain/(Loss) 2012-09-27 $ 2012-09-27 2012-11-27 3,450 $ 3,450 1,950 8,850 1,248 $ 2,846 1,178 5,272 2,202 604 772 3,578 Commercial Retail 16,080 sq ft Kentwood Thomasville - Kentwood, MI 2012-06-20 625 692 (67) Commercial Healthcare 47,950 sq ft Steven’s Pointe -Steven’s Point, WI 2013-04-25 16,100 12,667 3,433 Other Georgetown Square Condominiums 5 and 6 Georgetown Square Condominiums 3 and 4 2012-06-21 2012-08-02 330 368 698 336 421 757 (6) (53) (59) Total Property Dispositions $ 26,273 $ 19,388 $ 6,885 2014 Annual Report F-28 NOTE 11 • OPERATING SEGMENTS IRET reports its results in five reportable segments: multi-family residential; commercial office; commercial healthcare, including senior housing (formerly referred to as the commercial medical segment; the composition of this segment has not changed from prior periods); commercial industrial and commercial retail properties. The Company’s reportable segments are aggregations of similar properties. Segment information in this report is presented based on net operating income (“NOI”), which we define as total real estate revenues and gain on involuntary conversion less real estate expenses (which consist of utilities, maintenance, real estate taxes, insurance, property management expenses and other property expenses). 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 present real estate revenues and net operating income for the fiscal years ended April 30, 2014, 2013 and 2012 from our five reportable segments, and reconcile net operating income of reportable segments to net income as reported in the consolidated financial statements. Segment assets are also reconciled to Total Assets as reported in the consolidated financial statements. Year Ended April 30, 2014 Real estate revenue Real estate expenses Gain on involuntary conversion Net operating income Depreciation/amortization Administrative, advisory and trustee fees Other expenses Impairment of real estate investments Interest expense Interest and other income Loss before loss on sale of real estate and other investments and income from discontinued operations Loss on sale of real estate and other investments Loss from continuing operations Income from discontinued operations Net loss Year Ended April 30, 2013 Real estate revenue Real estate expenses Gain on involuntary conversion Net operating income Depreciation/amortization Administrative, advisory and trustee fees Other expenses Impairment of real estate investments Interest expense Interest and other income Income from continuing operations Income from discontinued operations Net income Multi-Family Residential Commercial Office Commercial Healthcare Commercial Industrial Commercial Retail Total (in thousands) $ 102,059 46,138 2,480 58,401 $ $ $ 77,440 38,190 0 39,250 $ $ 65,258 $ 17,127 0 48,131 $ 6,894 $ 2,043 0 4,851 $ 0 8,842 13,831 $ 265,482 4,989 108,487 2,480 159,475 (70,918) (10,743) (2,132) (42,566) (59,142) 2,687 (23,339) (51) (23,390) 6,450 $ (16,940) Multi-Family Residential Commercial Office Commercial Healthcare Commercial Industrial Commercial Retail Total (in thousands) $ $ 89,923 38,223 3,852 55,552 $ $ 75,962 37,267 0 38,695 $ $ 61,975 $ 16,779 0 45,196 $ 6,700 $ 1,871 0 4,829 $ 13,498 $ 248,058 4,919 99,059 5,084 1,232 154,083 9,811 (62,333) (8,494) (2,173) 0 (61,154) 748 20,677 9,295 $ 29,972 2014 Annual Report F-29 NOTE 11 • continued Year Ended April 30, 2012 Real estate revenue Real estate expenses Gain on involuntary conversion Net operating income Depreciation/amortization Administrative, advisory and trustee fees Other expenses Interest expense Interest and other income Income from continuing operations Income from discontinued operations Multi-Family Residential Commercial Office Commercial Healthcare Commercial Industrial Commercial Retail Total (in thousands) $ $ 71,728 $ 33,386 0 38,342 $ 73,493 $ 34,126 0 39,367 $ 64,511 $ 20,650 0 43,861 $ 4,046 274 8,554 6,613 $ 12,326 $ 1,142 0 5,471 $ 228,671 93,350 274 135,595 (56,650) (7,381) (1,898) (61,801) 779 8,644 1,062 9,706 98,309 $ 92,856 $ 1,518,519 $ Net income Total property owned as of April 30, 2012 $ 410,949 $ 494,881 $ 421,524 $ Segment Assets and Accumulated Depreciation Multi-Family Residential Commercial Office Commercial Healthcare Commercial Industrial Commercial Retail Total (in thousands) $ 753,731 (158,100) $ 595,631 $ 544,628 (121,892) $ 422,736 $ 525,028 (105,843) $ 419,185 $ 55,375 (10,198) $ 45,177 (28,255) $ 117,269 $ 1,996,031 (424,288) $ 89,014 $ 1,571,743 2,951 47,267 329 119,458 104,609 22,864 $ 1,869,221 Multi-Family Residential Commercial Office Commercial Healthcare Commercial Industrial Commercial Retail Total (in thousands) $ 659,696 (140,354) $ 519,342 $ 613,775 (138,270) $ 475,505 $ 501,191 (90,891) $ 410,300 $ 125,772 (23,688) $ 102,084 (27,218) $ 132,536 $ 2,032,970 (420,421) $ 105,318 $ 1,612,549 94,133 639 113,948 46,782 21,503 $ 1,889,554 As of April 30, 2014 Segment assets Property owned Less accumulated depreciation Total property owned Real estate held for sale Cash and cash equivalents Other investments Receivables and other assets Development in progress Unimproved land Total Assets As of April 30, 2013 Segment assets Property owned Less accumulated depreciation Total property owned Cash and cash equivalents Other investments Receivables and other assets Development in progress Unimproved land Total Assets 2014 Annual Report F-30 NOTE 12 • DISCONTINUED OPERATIONS Prior to February 1, 2014, the Company reported, in discontinued operations, the results of operations and the related gains or losses of properties that had either been disposed of or classified as held for sale and otherwise met the classification of a discontinued operation. As a result of the adoption of ASU No. 2014-08, results of operations and gains or losses on sale for properties that are disposed or classified as held for sale in the ordinary course of business on or subsequent to February 1, 2014 would generally be included in continuing operations on the Company’s consolidated statements of operations, to the extent such disposals did not meet the criteria for classification as a discontinued operation described above. See Note 2 for additional information. During the first three quarters of fiscal year 2014, the Company disposed of two multi-family residential properties, three commercial office properties, twelve commercial industrial properties and three commercial retail properties that were classified as discontinued operations. During the quarter ended April 30, 2014, the Company applied ASU No. 2014-08 to one property that was classified as held for sale and did not record any discontinued operations. During fiscal year 2013, the Company disposed of three multi-family residential properties, one retail property, one healthcare property and four condominium units that were classified as discontinued operations. Eight condominium units and a retail property were classified as held for sale and also classified as discontinued operations at April 30, 2012. The following information shows the effect on net income and the gains or losses from the sale of properties classified as discontinued operations for the fiscal years ended April 30, 2014, 2013 and 2012. REVENUE Real estate rentals Tenant reimbursement TOTAL REVENUE EXPENSES Depreciation/amortization related to real estate investments Utilities Maintenance Real estate taxes Insurance Property management expenses Other property expenses Other expenses Amortization related to non-real estate investments Impairment of real estate investments TOTAL EXPENSES Operating (loss) income Interest expense Other income Income (loss) from discontinued operations before gain on sale Gain on sale of discontinued operations INCOME FROM DISCONTINUED OPERATIONS Segment Data Multi-Family Residential Commercial Office Commercial Healthcare Commercial Industrial Commercial Retail Total Property Sale Data Sales price Net book value and sales costs Gain on sale of discontinued operations Asset and Liability Data Total assets Total liabilities 2012 10,702 2,619 13,321 3,418 561 1,070 2,428 211 759 4 67 256 428 9,202 4,119 (3,429) 23 713 349 1,062 100 52 (465) 1,127 248 1,062 2012 3,237 (2,888) 349 (in thousands) 2013 2014 3,173 1,302 4,475 920 164 299 951 97 222 0 0 90 1,860 4,603 (128) (421) 0 (549) 6,999 6,450 $ $ 10,068 3,099 13,167 3,169 447 1,029 2,276 218 520 16 0 247 305 8,227 4,940 (2,532) 2 2,410 6,885 9,295 $ $ (99) $ (1,794) 0 8,923 (580) 6,450 $ $ 3,712 314 3,416 2,118 (265) 9,295 $ (in thousands) 2013 2014 80,883 (73,884) 6,999 $ $ 26,273 (19,388) 6,885 $ $ (in thousands) 2014 2013 $ 0 0 72,631 (1,335) $ $ $ $ $ $ $ 2014 Annual Report F-31 NOTE 13 • EARNINGS PER SHARE Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. The Company has no outstanding options, warrants, convertible stock or other contractual obligations requiring issuance of additional common shares that would result in a dilution of earnings. Units can be exchanged for shares on a one-for-one basis after a minimum holding period of one year. 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, 2014, 2013 and 2012: NUMERATOR (Loss) income from continuing operations – Investors Real Estate Trust Income from discontinued operations – Investors Real Estate Trust Net (loss) income attributable to Investors Real Estate Trust Dividends to preferred shareholders Numerator for basic earnings per share – net (loss) income available to common shareholders Noncontrolling interests – Operating Partnership Numerator for diluted earnings per share DENOMINATOR Denominator for basic earnings per share weighted average shares Effect of convertible operating partnership units Denominator for diluted earnings per share (Loss) earnings per common share from continuing operations – Investors Real Estate Trust – basic and diluted Earnings per common share from discontinued operations – Investors Real Estate Trust – basic and diluted NET (LOSS) INCOME PER COMMON SHARE – BASIC & DILUTED NOTE 14 • RETIREMENT PLANS For Years Ended April 30, (in thousands, except per share data) 2014 2013 2012 $ (18,508) $ 17,929 $ 5,334 (13,174) (11,514) 7,601 25,530 (9,229) (24,688) (4,676) 16,301 3,633 $ (29,364) $ 19,934 $ 7,357 855 8,212 (2,372) 5,840 1,359 7,199 105,331 21,697 127,028 93,344 21,191 114,535 83,557 19,875 103,432 $ $ (.28) $ .09 $ .05 (.23) $ .08 .17 $ .06 .01 .07 IRET sponsors a defined contribution 401(k) retirement plan. There are three types of contributions to the plan: 401(k) Safe Harbor employer matching contributions; employer discretionary non-elective profit sharing contributions; and employee deferrals or contributions. Participation in IRET’s defined contribution 401(k) plan is available to employees over the age of 21 who have completed six months of service and who work at least 1,000 hours per calendar year. Employees participating in the 401(k) plan may contribute up to maximum levels established by the IRS. Employer contributions to the plan are at the discretion of the Company’s management. Employees are eligible to receive employer discretionary profit sharing contributions if they are over the age of 21, have completed 1,000 hours of service within the plan year, and are employed on the last day of the plan year. IRET currently expects to make profit sharing contributions of not more than 3.5% of the eligible wages of each participating employee, and currently matches, dollar for dollar, employee contributions to the 401(k) plan in an amount equal to up to 4.0% of the eligible wages of each participating employee, for a total expected contribution of not more than 7.5% of the eligible wages of each participating employee. Profit sharing contributions are subject to a vesting schedule; 401k matching contributions by IRET are fully vested when made. IRET’s contributions to these plans on behalf of employees totaled approximately $1.1 million, $912,000 and $871,000 in fiscal years 2014, 2013 and 2012, respectively. 2014 Annual Report F-32 NOTE 15 • COMMITMENTS AND CONTINGENCIES Ground Leases. As of April 30, 2014, the Company is a tenant under operating ground or air rights leases on twelve of its properties. The Company pays a total of approximately $500,000 per year in rent under these ground leases, which have remaining terms ranging from 1.5 to 87 years, and expiration dates ranging from October 2015 to October 2100. The Company has renewal options for six of the twelve 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, 2014 is as follows: Year Ended April 30, 2015 2016 2017 2018 2019 Thereafter Total (in thousands) Lease Payments 506 $ 478 449 449 449 21,213 23,544 $ 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 consolidated 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 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 insufficient information. IRET believes it does not have sufficient information to estimate the fair value of the asset retirement obligations for these properties because a settlement date or range of potential settlement dates has not been specified by others, and, additionally, there are currently no plans or expectation of plans to sell or to demolish these properties, or to undertake major renovations that would require removal of the asbestos, lead and/or underground storage tanks. These properties are expected to be maintained by repairs and maintenance activities that would not involve the removal of the asbestos, lead and/or underground storage tanks. Also, a need for renovations caused by tenant changes, technology changes or other factors has not been identified. 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, 2014, the Company is committed to fund $9.7 million in tenant improvements, within approximately the next 12 months. Purchase Options. 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, 2014, 15 of our properties were subject to purchase options, and the total investment cost, plus improvements, of all such properties was $120.5 million with total gross rental revenues in fiscal year 2014 of $9.8 million. 2014 Annual Report F-33 NOTE 15 • continued Restrictions on Taxable Dispositions. Approximately 110 of the Company’s properties, consisting of approximately 5.5 million square feet of our combined commercial segment’s properties and 4,953 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 $814.5 million at April 30, 2014. 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 for the ten consecutive trading days immediately preceding the date of valuation of the Unit. As of April 30, 2014 and 2013, the aggregate redemption value of the then-outstanding UPREIT Units of the operating partnership owned by limited partners was approximately $185.7 million and $209.7 million, respectively. Joint Venture Buy/Sell Options. Certain of IRET’s 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 these agreements do not generally require that the Company buy its partners’ interests. During the third quarter of fiscal year 2012, IRET acquired its joint venture partner’s interest in the joint venture entity owner of the Company’s Golden Hills office property in Golden Valley, Minnesota, at that time the Company’s only joint venture which allowed IRET’s unaffiliated partner, at its election, to require that IRET buy its interest at a purchase price to be determined in accordance with the terms of the agreement. The Company currently has one joint venture, the Company’s Southgate apartment project in Minot, North Dakota, in which the Company’s joint venture partner can, for a four- year period beginning twelve months after the last certificate of occupancy is received for the project, compel the Company to acquire the partner’s interest, for a price to be determined in accordance with the provisions of the joint venture agreement. Development, Expansion and Renovation Projects. The Company has various contracts outstanding with third parties in connection with development, expansion and renovation projects that are underway or recently completed, the costs for which have been capitalized. As of April 30, 2014, contractual commitments for these projects are as follows: 2014 Annual Report F-34 NOTE 15 • continued Project Name and Location Dakota Commons - Williston, ND Commons at Southgate - Minot, ND(2) Cypress Court II – St. Cloud, MN(3) Arcata - Golden Valley, MN Red 20 - Minneapolis, MN(4) Renaissance Heights I - Williston, ND(5) Chateau II - Minot, ND(6) Cardinal Point - Grand Forks, ND Other Planned Segment Multi-Family Residential Multi-Family Residential Multi-Family Residential Multi-Family Residential Multi-Family Residential and Commercial Multi-Family Residential Multi-Family Residential Multi-Family Residential n/a Square Feet or Number of Units Anticipated Total Cost Costs as of April 30, 2014(1) Loans Closed or Committed Anticipated Construction Completion (in thousands) 44 units $ 10,736 $ 9,013 $ 0 FY2015 Q1 233 units 37,201 28,065 24,480 FY2015 Q2 66 units 7,028 1,580 4,200 FY2015 Q3 165 units 33,448 13,018 24,250 FY2015 Q3 130 units and 10,625 sq ft 29,462 13,980 21,726 FY2015 Q3 288 units 62,362 39,017 43,672 FY2015 Q4 72 units 14,711 2,098 0 FY2015 Q4 251 units n/a 40,042 n/a $ 234,990 $ 6,829 2,496 116,096 $ 24,500 n/a 142,828 FY2016 Q1 n/a Includes costs related to development projects that are placed in service in phases (Renaissance Heights I - $11.5 million). (1) (2) The Company is an approximately 51% partner in the joint venture entity constructing this project; the anticipated total cost amount given is the total cost to the joint venture entity. (3) The Company is an approximately 86.1% partner in the joint venture entity constructing this project; the anticipated total cost amount given is the total cost to the joint venture entity. (4) The Company is an approximately 58.6% partner in the joint venture entity constructing this project; the anticipated total cost amount given is the total cost to the joint venture entity. (5) The Company is an approximately 70% partner in the joint venture entity constructing this project; the anticipated total cost amount given is the total cost to the joint venture entity. (6) On December 5, 2013, this development project was destroyed by fire. As of April 30, 2014, $6.1 million of expected insurance proceeds were included in accounts receivable on the Company’s consolidated balance sheet. See Note 2 for additional information. These development projects are subject to various contingencies, and no assurances can be given that they will be completed within the time frames or on the terms currently expected. NOTE 16 • FAIR VALUE MEASUREMENTS ASC 820, Fair Value Measurement and Disclosures defines and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels, as follows: Level 1: Quoted prices in active markets for identical assets Level 2: Significant other observable inputs Level 3: Significant unobservable inputs There were no transfers in and out of Level 1, Level 2 and Level 3 fair value measurements during fiscal years 2014 and 2013. Fair value estimates may be different than the amounts that may ultimately be realized upon sale or disposition of the assets and liabilities. Fair Value Measurements on a Recurring Basis The Company had no assets or liabilities recorded at fair value on a recurring basis at April 30, 2014 and 2013. 2014 Annual Report F-35 NOTE 16 • continued Fair Value Measurements on a Nonrecurring Basis Non-financial assets measured at fair value on a nonrecurring basis at April 30, 2014 consisted of real estate investments and real estate held for sale that were written-down to estimated fair value during fiscal year 2014. Non- financial assets measured at fair value on a nonrecurring basis at April 30, 2013 consisted of real estate investments that were written-down to estimated fair value during fiscal year 2013. See Note 2 for additional information on impairment losses recognized during fiscal years 2014 and 2013. The aggregate fair value of these assets by their levels in the fair value hierarchy are as follows: Real estate investments Real estate held for sale Real estate held for sale Total 89,537 $ 2,951 Total 335 $ $ $ (in thousands) April 30, 2014 Level 1 0 $ 0 (in thousands) April 30, 2013 Level 1 0 $ Level 2 0 $ 0 Level 3 89,537 2,951 Level 2 0 $ Level 3 335 Financial Assets and Liabilities Not Measured at Fair Value The following methods and assumptions were used to estimate the fair value of each class of financial assets and liabilities. The fair values of our financial instruments approximate their carrying amount in our consolidated financial statements except for debt. 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. Other Investments. The carrying amount, or cost plus accrued interest, of the certificates of deposit approximates fair value. Other Debt. 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 relevant treasury interest rates plus credit spreads (Level 2). Lines of Credit. The carrying amount approximates fair value because the variable rate debt re-prices frequently. 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 relevant treasury interest rates plus credit spreads (Level 2). The estimated fair values of the Company’s financial instruments as of April 30, 2014 and 2013 are as follows: FINANCIAL ASSETS Cash and cash equivalents Other investments FINANCIAL LIABILITIES Other debt Lines of credit Mortgages payable 2014 Annual Report F-36 (in thousands) 2014 Carrying Amount Fair Value 2013 Carrying Amount Fair Value 47,267 329 47,267 329 94,133 639 94,133 639 63,132 22,500 997,689 63,250 22,500 1,130,262 18,076 10,000 1,049,206 18,156 10,000 1,160,190 NOTE 17 • COMMON AND PREFERRED SHARES OF BENEFICIAL INTEREST AND EQUITY Distribution Reinvestment and Share Purchase Plan. During fiscal years 2014 and 2013, IRET issued 6.6 million and 5.3 million common shares, respectively, pursuant to its distribution reinvestment and share purchase plan, at a total value at issuance of $55.8 million and $43.1 million, respectively. The shares issued under the distribution reinvestment and share purchase plan during fiscal year 2014 consisted of 1.8 million shares valued at issuance at $14.6 million that were issued for reinvested distributions, and approximately 4.8 million shares valued at $41.2 million at issuance that were issued in exchange for voluntary cash contributions under the plan. The shares issued under the distribution reinvestment and share purchase plan during fiscal year 2013 consisted of 1.5 million shares valued at issuance at $12.4 million that were issued for reinvested distributions and approximately 3.8 million shares valued at $30.7 million at issuance that were sold for voluntary cash contributions. 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 3%) from the market price. Exchange of Units for Common Shares. During fiscal years 2014 and 2013, respectively, approximately 903,000 and 317,000 Units were exchanged for common shares pursuant to the Agreement of Limited Partnership of the Operating Partnership, with a total value of $4.4 million and $1.6 million included in equity. Issuance of Common and Preferred Shares. On April 5, 2013, the Company completed the public offering of approximately 6.0 million common shares of beneficial interest at a public offering price of $9.25 per share, for net proceeds of approximately $53.0 million after underwriting discounts and estimated offering expenses. The Company contributed the net proceeds from the sale of common shares to the Operating Partnership for general business purposes, including the acquisition and development of income-producing real estate properties and debt repayment. The common shares were registered under a shelf registration statement declared effective on May 4, 2010, and which expired on May 4, 2013. On August 7, 2012, the Company completed the public offering of 4.6 million Series B Cumulative Redeemable Preferred Shares of Beneficial Interest (“Series B preferred shares”) at a price of $25.00 per share for net proceeds of approximately $111.2 million after underwriting discounts and estimated offering expenses. These shares are nonvoting and redeemable for cash at $25.00 per share at the Company’s option on or after August 7, 2017. Holders of these shares are entitled to cumulative distributions, payable quarterly (as and if declared by the Board of Trustees). Distributions accrue at an annual rate of $1.9875 per share, which is equal to 7.95% of the $25.00 per share liquidation preference ($115 million liquidation preference in the aggregate). The Company contributed the net proceeds from the sale to the Operating Partnership for general business purposes, including the acquisition and development of income-producing real estate properties and debt repayment, in exchange for 4.6 million Series B preferred units, which carry terms that are substantially the same as the Series B preferred shares. On August 7, 2012, the Operating Partnership used a portion of the proceeds of the offering of Series B preferred shares to repay $34.5 million in borrowings under its multi-bank line of credit, reducing outstanding borrowings under the line of credit from $44.5 million to $10.0 million. The Series B preferred shares were registered under a shelf registration statement declared effective on July 12, 2012. This shelf registration statement was terminated in June 2013 upon the filing of the Company’s currently-effective shelf registration statement on Form S-3ASR, which shelf registration statement expires June 27, 2016. In addition to the 4.6 million Series B preferred shares outstanding, the Company also has outstanding approximately 1.2 million shares of 8.25% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, issued during the Company’s fiscal year 2004 for total proceeds of $27.3 million, net of selling costs. Holders of the Company’s Series A preferred shares 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 dividends through the date of redemption. The shares have no maturity date and will remain outstanding indefinitely unless redeemed by the Company. 2014 Annual Report F-37 NOTE 17 • continued During fiscal year 2013, IRET issued 300,000 common shares at a weighted average price per share of $7.24 under its ATM equity program with BMO Capital Markets Corp. as sales agent, for net proceeds (before offering expenses but after underwriting discounts and commissions) of $2.1 million, used for general corporate purposes including the acquisition and development of investment properties. On April 1, 2013 the Company terminated this ATM equity program. During the second quarter of fiscal year 2014, the Company and its Operating Partnership entered into an ATM sales agreement with Robert W. Baird & Co. Incorporated as sales agent, pursuant to which the Company may from time to time sell the Company’s common shares of beneficial interest having an aggregate offering price of up to $75 million. The shares would be issued pursuant to the Company’s currently-effective shelf registration statement on Form S-3ASR. The Company issued no common shares under this program during fiscal year 2014. NOTE 18 • QUARTERLY RESULTS OF CONSOLIDATED OPERATIONS (unaudited) (in thousands, except per share data) QUARTER ENDED Revenues Net income (loss) attributable to Investors Real Estate Trust Net income (loss) available to common shareholders Net income (loss) per common share - basic & diluted QUARTER ENDED Revenues Net income attributable to Investors Real Estate Trust Net income (loss) available to common shareholders Net income (loss) per common share - basic & diluted July 31, 2013 October 31, 2013 January 31, 2014 April 30, 2014 67,629 $ 66,983 $ 65,098 65,772 $ $ $ $ $ 3,078 199 .00 $ $ $ 8,787 5,909 .06 $ $ $ 3,503 $ (28,542) 624 $ (31,420) (.29) .00 $ (in thousands, except per share data) July 31, 2012 October 31, 2012 January 31, 2013 April 30, 2013 63,080 $ 64,184 $ 58,930 5,324 $ 10,015 1,679 $ 7,136 2,445 $ 1,086 $ .07 .03 $ .01 $ 61,864 8,512 5,634 .06 $ $ $ $ $ $ $ $ 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 • REDEEMABLE NONCONTROLLING INTERESTS Redeemable noncontrolling interests on our Consolidated Balance Sheets represent the noncontrolling interest in a joint venture of the Company in which the Company’s unaffiliated partner, at its election, could require the Company to 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. Redeemable noncontrolling interests are presented at the greater of their carrying amount or redemption value at the end of each reporting period. Changes in the value from period to period are charged to common shares of beneficial interest on our Consolidated Balance Sheets. During fiscal year 2014 the Company identified an error pertaining to the reporting for a noncontrolling interest in a consolidated real estate joint venture formed in the fourth quarter of fiscal year 2013 for which the holder of such interest has the right to require the Company to acquire the interest at fair value twelve months after the final certificate of occupancy is obtained for the joint venture’s development project. This error resulted in an overstatement of equity and offsetting understatement of the line entitled “redeemable noncontrolling interests – consolidated real estate entities” in the mezzanine section of the Company’s consolidated balance sheet of $5.9 million as of April 30, 2013. The Company revised its previously issued consolidated balance sheet and statement of equity to correct the effect of this error. See Note 2 for additional information. 2014 Annual Report F-38 NOTE 19 • continued As of April 30, 2014 and 2013, the estimated redemption value of the redeemable noncontrolling interests was $6.2 million and $5.9 million, respectively. The redeemable noncontrolling interest recorded in fiscal years 2014 and 2013 is the noncontrolling interest in the joint venture entity that owns the Company’s Southgate apartments project in Minot, North Dakota. The redeemable noncontrolling interest on the Company’s Consolidated Balance Sheets in fiscal year 2012 was the noncontrolling interest in the joint venture owner of the Company’s Golden Hills office property in Golden Valley, Minnesota, which interest the Company acquired from its joint venture partner in the third quarter of fiscal year 2012. Below is a table reflecting the activity of the redeemable noncontrolling interests. Balance at beginning of fiscal year Contributions Net income Net distributions Fair value adjustments Acquisition of joint venture partner’s interest Balance at close of fiscal year (in thousands) 2014 2013 2012 $ $ 5,937 0 266 0 0 0 6,203 $ $ 0 5,932 5 0 0 0 5,937 $ $ 987 0 12 (27) 35 (1,007) 0 On November 27, 2012 the Company entered into a joint venture operating agreement with a real estate development company to construct an apartment project in Minot, North Dakota as IRET – Minot Apartments, LLC. The Company estimates total costs for the project at $52.2 million, with approximately 69% of the project financed with third-party debt and approximately 7% financed with debt from IRET to the joint venture entity. The first phase of the project, Landing at Southgate, was substantially completed in the second quarter of fiscal year 2014. See Developments Placed in Service in Note 10 for additional information on Landing at Southgate. The second phase of the project, Commons at Southgate, is expected to be completed in the second quarter of fiscal year 2015. See Development, Expansion and Renovation Projects in Note 15 for additional information on Commons at Southgate. IRET is the approximately 51% owner of the joint venture and will have management and leasing responsibilities when the project is completed. The real estate development company owns approximately 49% of the joint venture and is responsible for the development and construction of the property. The Company has determined that the joint venture is a variable interest entity (“VIE”), primarily based on the fact that the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support. The Company has also determined that IRET is the primary beneficiary of the VIE due to the fact that IRET is providing 51% of the equity contributions, the subordinated debt and a guarantee on the third party debt and has the power to direct the most significant activities that impact the entity’s economic performance. NOTE 20 • STOCK BASED COMPENSATION The Company maintains a long-term incentive plan that allows for stock-based awards to officer and non-officer employees of the Company. Stock based awards are provided to officers, non-officer employees and trustees, under the Company’s 2008 Incentive Award Plan approved by shareholders on September 16, 2008, which allows for awards in the form of cash and awards of unrestricted and restricted common shares, up to an aggregate of 2,000,000 shares over the ten year period in which the plan will be in effect. Through April 30, 2014, awards under the 2008 Incentive Award Plan consisted of cash awards and grants of unrestricted common shares. In fiscal year 2012, the Company’s Compensation Committee conducted an extensive review of the Company’s executive compensation philosophy, resulting in a new long-term incentive (“LTIP”) plan, which was approved by the Compensation Committee and the Company’s independent trustees on June 1, 2012, effective as of May 1, 2012. Under the LTIP, executives are provided the opportunity to earn awards, payable 50% in unrestricted shares and 50% in restricted shares, based on achieving one or more performance objectives within a one-year performance period (with the performance period for fiscal year 2014 commencing on May 1, 2013 and concluding on April 30, 2014). LTIP performance is evaluated based on the following objective performance goal: Three-Year Average Annual Total Shareholder Return (“TSR”), which means the average of the Annual Total Shareholder Return for the Company’s common shares in each of the three consecutive fiscal years ending with and including the performance period. TSR is considered a market condition. “Annual Total Shareholder Return,” and “Three-Year Average Annual Total Shareholder Return,” have the meanings set forth in the LTIP. The unrestricted shares vest immediately at the end of the one-year performance period, and the restricted shares vest on the one year anniversary of the award date based on service during that year. 2014 Annual Report F-39 NOTE 20 • continued With respect to the performance period of the LTIP subject to market conditions, we recognize compensation expense ratably (over one year for the 50% unrestricted shares and over two years for the 50% restricted shares) based on the service inception date fair value, as determined using a Monte Carlo simulation. We use a binomial model which employs the Monte Carlo method as of the service inception date to determine the fair value of the LTIP award subject to market conditions referenced above. The market condition performance measurement is the three-year average annual total shareholder return. The model evaluates the awards for changing total shareholder return over the term of the vesting, and uses random simulations that are based on past IRET stock characteristics. We based the expected volatility upon the historical volatility of our daily closing share price. The officers' total award opportunity under the LTIP stated as a percentage of base salary ranges from 50% to 100% at target level. The calculated grant date fair value as a percentage of base salary for the officers ranged from 47% to 94% for LTIP subject to market conditions as of the grant date of April 30, 2014. The grant date is the end of the performance period, when the executive has risk in the shares that were earned as of that date. The service inception date precedes the grant date because a mutual understanding was achieved between the Company and the executives at the beginning of the performance period. Subsequent to the end of fiscal year 2014, the Company’s Compensation Committee recommended, and the Company’s independent trustees approved, awards of unrestricted and restricted shares to the Company’s executive officers in accordance with the terms of the LTIP, with the shares awarded to be issued to award recipients in the first quarter of fiscal year 2015. Trustee Awards We award share-based compensation to our non-management trustees on an annual basis in the form of unrestricted shares which vest immediately. The value of share-based compensation at grant date for each non-management trustee was $28,976, $15,975, and $7,560 for each of the fiscal years ended April 2014, 2013, and 2012, respectively. Total Compensation Expense Total share-based compensation expense recognized in the consolidated financial statements for the three years ended April 30, 2014 for all share-based awards was as follows (in thousands): Stock-based compensation expense Year Ended April 30, 2014 1,162 $ $ 2013 45 $ 2012 461 2014 Annual Report F-40 NOTE 21 • SUBSEQUENT EVENTS Common and Preferred Share Distributions. On June 2, 2014, the Company’s Board of Trustees declared the following distributions: Class of shares/units Common shares and limited partnership units Preferred shares: Series A Series B Quarterly Amount per Share or Unit $0.1300 $0.5156 $0.4968 Record Date June 16, 2014 Payment Date July 1, 2014 June 16, 2014 June 16, 2014 June 30, 2014 June 30, 2014 Completed Acquisitions and Dispositions. Subsequent to the end of fiscal year 2014, the Company closed on its acquisitions of the following properties. The purchase price accounting is incomplete for the acquisitions that closed subsequent to the end of fiscal year 2014.  On May 22, 2014, an approximately 35-acre parcel of vacant land in Bismarck, North Dakota, for a purchase price of $4.3 million, paid in cash;  On June 2, 2014, 152-unit and 52-unit multi-family residential properties in Rapid City, South Dakota, for a purchase price totaling $18.3 million, of which approximately $12.2 million consisted of the assumption of existing debt, with the remainder paid in cash; and  On June 5, 2014, an approximately 10.5-acre parcel of vacant land in Brooklyn Park, Minnesota, for a purchase price of $2.6 million, paid in cash. On May 19, 2014, the Company sold the Dewey Hill Business Center, a commercial office property Edina, Minnesota, for a sale price of $3.1 million. Pending Acquisitions. Subsequent to the end of fiscal year 2014, the Company signed a purchase agreement to acquire multi-family residential property in Bismarck, North Dakota with 68 units, for a purchase price of $8.5 million to be paid in cash. This pending acquisition is subject to various closing conditions and contingencies, and no assurances can be given that it will be completed on the terms currently expected or at all. Pending Dispositions. The Company has signed an agreement to sell a commercial office property in Golden Valley, Minnesota for a sale price of $4.8 million. This pending disposition is subject to various closing conditions and contingencies, and no assurances can be given that the transaction will be completed on the terms currently expected, or at all. Development Project. Subsequent to the end of fiscal year 2014, the Company entered into a joint venture to develop approximately 246 apartments and 21,000 square feet of retail space in Edina, Minnesota, for a total project cost estimated at $69.9 million. The project, in which the Company will have an approximately 50.5% interest, will be constructed in three phases, with the planned retail space in the second and third phases. Construction of all phases is currently expected to be completed in June 2016. 2014 Annual Report F-41 h c i h w n o e f i L n i n o i t a i c e r p e d e m o c n i t s e t a l f o e t a D d e z i l a t i p a c s t s o C & n o i t c u r t s n o C d e t a l u m u c c A & s g n i d l i u B o t t n e u q e s b u s s g n i d l i u B n o i t i s i u q c A r o n o i t a i c e r p e D l a t o T s t n e m e v o r p m I d n a L n o i t i s i u q c a s t n e m e v o r p m I d n a L ) 1 ( s e c n a r b m u c n E n o i t p i r c s e D t a d e i r r a c h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c y n a p m o C o t t s o C l a i t i n I S E I R A I D I S B U S D N A T S U R T E T A T S E L A E R S R O T S E V N I 4 1 0 2 , 0 3 l i r p A ) s d n a s u o h t n i ( N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R - I I I e l u d e h c S 2014 Annual Report F-42 d e t u p m o c s i t n e m e t a t s s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 - 4 2 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 - 2 1 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 - 3 3 s r a e y 0 4 - 4 2 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 8 0 0 2 8 0 0 2 3 1 0 2 7 8 9 1 6 0 0 2 2 1 0 2 3 0 0 2 3 0 0 2 7 9 9 1 7 0 0 2 7 0 0 2 7 0 0 2 7 0 0 2 7 0 0 2 7 0 0 2 1 0 0 2 8 9 9 1 3 1 0 2 1 0 0 2 3 0 0 2 2 1 0 2 4 8 9 1 7 0 0 2 1 1 0 2 7 9 9 1 5 9 9 1 4 9 9 1 0 1 0 2 9 9 9 1 2 1 0 2 8 0 0 2 1 1 0 2 ) 0 1 ( ) 4 1 ( ) 0 4 1 ( ) 8 9 1 ( ) 0 6 4 ( ) 7 0 8 , 1 ( ) 0 8 2 , 2 ( ) 5 6 1 , 2 ( ) 5 7 8 ( ) 9 5 4 ( ) 6 3 1 ( ) 2 1 3 ( ) 2 7 ( ) 0 4 1 ( ) 6 3 1 ( ) 8 4 5 , 1 ( ) 4 0 5 , 2 ( ) 9 6 5 ( ) 7 0 3 , 4 ( ) 7 4 5 , 4 ( ) 9 2 8 ( ) 7 3 7 ( ) 4 7 ( ) 5 6 2 ( ) 2 7 3 , 6 ( ) 7 0 5 , 3 ( ) 0 4 7 , 2 ( ) 8 6 3 ( ) 5 1 2 , 4 ( ) 6 9 1 ( ) 8 9 3 ( ) 6 9 1 ( $ 1 8 6 1 1 2 2 9 , 5 2 1 3 , 1 5 8 5 , 8 0 0 4 , 8 8 1 4 , 9 0 0 6 , 8 9 2 4 , 2 7 4 8 , 2 1 3 8 8 9 8 , 1 4 3 4 2 6 8 2 4 8 2 4 8 , 5 2 8 5 , 7 5 8 2 , 6 2 9 4 , 4 1 2 3 3 , 0 2 4 3 6 , 7 1 6 6 1 , 1 6 3 4 3 0 1 , 5 4 7 5 , 1 2 4 4 6 , 9 1 0 1 , 6 4 4 7 , 3 6 9 7 , 2 1 6 6 6 , 3 1 4 0 2 , 3 8 9 4 , 3 $ 2 6 3 9 $ 3 3 6 , 5 1 3 1 , 1 5 9 7 , 7 8 3 6 , 7 9 1 1 , 8 6 2 9 , 7 2 1 2 , 2 2 4 4 , 2 7 0 7 9 1 6 , 1 4 7 3 4 4 7 9 2 7 8 6 4 , 5 8 1 6 , 6 8 1 2 , 6 0 9 1 , 3 1 5 0 5 , 7 1 0 9 0 , 6 1 0 5 0 , 1 9 7 3 8 9 0 , 4 0 2 2 , 0 2 9 0 1 , 9 6 0 6 , 5 8 7 4 , 3 9 3 9 , 1 1 0 3 5 , 2 1 4 2 8 , 2 7 0 8 , 2 9 1 3 2 9 8 2 1 8 1 0 9 7 2 6 7 9 9 2 , 1 4 7 6 7 1 2 5 0 4 4 2 1 9 7 2 0 6 8 1 1 3 1 1 4 7 3 4 6 9 7 6 2 0 3 , 1 7 2 8 , 2 4 4 5 , 1 7 5 6 1 1 5 0 0 , 1 4 5 3 , 1 5 3 5 5 9 4 6 6 2 7 5 8 0 8 3 1 9 6 6 3 1 , 1 $ 7 1 7 2 4 8 1 3 0 9 0 1 6 , 1 3 5 8 , 2 3 9 3 , 1 4 3 8 8 0 2 3 9 0 2 1 9 6 0 4 1 0 2 1 9 7 5 , 1 2 8 9 , 1 1 6 5 8 9 1 , 4 6 1 4 , 6 9 8 3 4 1 4 1 7 3 7 3 6 4 1 , 3 4 4 3 , 1 6 7 5 , 1 4 9 1 2 0 1 0 2 2 , 2 4 8 3 2 $ 3 5 4 7 1 5 5 , 5 3 2 1 , 1 5 2 6 , 6 9 6 5 , 7 8 9 4 , 5 8 9 6 , 6 0 5 4 , 1 4 4 2 , 2 8 2 6 2 1 5 , 1 1 1 3 5 1 6 5 1 6 8 5 9 , 3 4 6 8 , 4 3 6 6 , 5 8 8 5 , 9 5 1 5 , 1 1 0 3 7 , 5 1 2 7 6 1 1 3 2 6 7 , 3 2 7 3 , 7 1 9 0 8 , 7 0 9 2 , 4 9 8 2 , 3 6 5 9 , 9 0 4 7 , 2 4 8 7 , 2 8 2 4 , 2 1 $ 1 1 5 1 7 8 2 8 5 1 0 5 3 1 4 7 7 6 0 , 1 9 0 5 5 4 1 5 9 3 0 1 1 6 6 2 4 5 7 0 1 7 0 1 5 0 3 6 3 7 1 6 6 0 7 1 0 4 , 2 5 1 5 , 1 0 8 4 5 8 6 9 6 5 0 , 1 1 9 4 5 3 2 1 6 2 0 2 6 0 8 3 1 9 6 6 3 1 , 1 $ 7 8 1 0 1 0 3 0 , 4 6 6 6 2 2 9 , 3 5 1 6 , 5 0 9 9 , 2 3 0 3 , 5 9 4 7 6 0 2 , 1 0 4 0 8 0 0 0 0 4 9 8 , 2 7 7 6 , 6 6 0 8 , 4 0 8 9 , 5 5 6 5 , 3 1 0 1 2 4 6 4 6 , 3 3 0 8 , 5 1 8 7 6 , 6 7 1 9 , 3 9 2 6 , 2 0 2 2 , 8 0 9 1 0 , 2 8 0 1 , 2 $ D N , t o n i M - x e l P 3 t e e r t S h t 1 1 D N , t o n i M - x e l P 4 t e e r t S h t 4 l a i t n e d i s e R y l i m a F - i t l u M D N , t o n i M - n i a M n o s t n e m t r a p A S K , a k e p o T - e g a l l i V d l e i f k o o r B N M , d u o l C . t S - r e t n e C s u p m a C D N , t o n i M - s t h g i e H n y l k o o r B N M , d u o l C . t S - s t h g i e H s u p m a C N M , d u o l C . t S - l l o n K s u p m a C N M , d u o l C . t S - a z a l P s u p m a C N M , d u o l C . t S - e d i S s u p m a C N M , d u o l C . t S - w e i V s u p m a C D S , y t i C d i p a R - e k a L n o y n a C T M , s g n i l l i B - k c o r e l t s a C D N , t o n i M - I u a e t a h C D N , s k r o F d n a r G - d n a l h s A N M , n a g a E - t r u o C r e d l u o B E N , y t i C x u o i S S - s r o b r A E N , a h a m O - s l l i H n o r r a m C i D S , s l l a F x u o i S - s e m o H n i w T t s e W e g a t t o C N M , e l l i v s n r u B - a l l i V l a i n o l o C D N , t o n i M - s t h g i e H n o t l o C N M , d u o l C . t S - e n o t s r e n r o C E N , n l o c n i L - y n o l o C T M , s g n i l l i B - s w o d a e M y r t n u o C D N , k c r a m s i B - d o o w n o t t o C N M , d u o l C . t S - t r u o C s s e r p y C S K , a k e p o T - y n o l o C n w o r C D N , k c r a m s i B - w e i v t s e r C N M , r e t s e h c o R - n w o r C N M , i t n a s I - I I n e e r g r e v E N M , i t n a s I - n e e r g r e v E D S , y t i C d i p a R - k r a P s p l A h c i h w n o e f i L n i n o i t a i c e r p e d e m o c n i t s e t a l f o e t a D d e z i l a t i p a c d e t u p m o c n o i t i s i u q c A r o n o i t a i c e r p e D l a t o T s t n e m e v o r p m I d n a L n o i t i s i u q c a s i t n e m e t a t s n o i t c u r t s n o C d e t a l u m u c c A & s g n i d l i u B o t t n e u q e s b u s s t s o C & s t n e m e v o r p m s g n i d l i u B I d n a L ) 1 ( s e c n a r b m u c n E n o i t p i r c s e D s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 - 4 2 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 - 2 1 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 8 0 0 2 3 1 0 2 3 9 9 1 1 1 0 2 2 1 0 2 7 0 0 2 8 9 9 1 7 0 0 2 7 9 9 1 2 1 0 2 0 0 0 2 3 1 0 2 7 9 9 1 s r a e y 0 4 - 4 2 5 0 0 2 - 5 9 9 1 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 4 0 0 2 8 9 9 1 4 0 0 2 0 1 0 2 s r a e y 0 4 - 4 2 1 1 0 2 - 5 9 9 1 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 - 4 2 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 - 4 2 s r a e y 0 4 s r a e y 0 4 - 4 2 s r a e y 0 4 2 0 0 2 3 9 9 1 0 0 0 2 5 0 0 2 4 9 9 1 7 9 9 1 9 9 9 1 2 0 0 2 3 1 0 2 7 9 9 1 9 0 0 2 4 9 9 1 2 1 0 2 3 9 9 1 6 0 0 2 ) 1 6 ( ) 8 7 ( ) 3 9 8 , 4 ( ) 3 3 1 ( ) 0 9 4 ( ) 3 8 7 ( ) 9 8 4 , 3 ( ) 4 4 1 , 1 ( ) 5 5 6 , 1 ( ) 1 2 8 ( ) 0 1 4 , 1 ( ) 2 1 2 ( ) 3 8 9 ( ) 5 9 3 , 9 ( ) 1 4 3 , 1 ( ) 8 6 9 , 1 ( ) 6 3 1 , 1 ( ) 7 7 ( ) 8 3 3 , 1 ( ) 2 0 6 , 1 ( ) 5 1 0 , 3 ( ) 1 6 4 , 4 ( ) 0 7 8 , 1 ( ) 5 2 6 , 2 ( ) 0 9 7 , 5 ( ) 3 2 3 ( ) 6 7 2 ( ) 3 3 ( ) 2 3 1 ( ) 9 2 0 , 2 ( ) 0 4 2 , 2 ( ) 6 1 2 ( ) 1 7 1 , 1 ( ) 1 1 8 , 2 ( 1 5 0 , 3 0 2 4 , 3 1 0 3 4 , 2 0 8 4 , 8 3 6 3 , 5 8 1 6 , 6 3 5 7 , 4 3 0 0 , 0 1 4 1 3 , 7 1 7 6 2 , 4 1 5 1 , 5 1 1 2 7 , 2 8 7 3 , 9 2 6 9 9 , 5 5 6 3 , 6 3 9 6 , 4 8 2 8 2 9 7 , 4 8 7 7 , 5 2 9 5 , 7 6 6 4 , 4 1 4 5 8 , 8 4 1 2 , 6 5 6 6 , 5 1 4 0 9 8 9 9 4 3 4 3 8 7 , 2 6 8 9 , 5 1 3 6 2 , 5 1 9 1 , 5 6 2 4 , 2 3 0 8 , 5 1 1 5 0 , 3 1 1 0 , 2 1 9 5 0 , 2 8 6 5 , 7 5 8 5 , 4 5 2 4 , 9 2 3 2 , 6 7 0 2 , 4 9 7 0 , 6 1 7 0 8 , 3 7 9 8 , 2 1 8 0 4 , 2 0 9 2 , 7 2 0 7 5 , 5 2 1 7 , 5 2 7 0 , 4 9 0 7 3 5 4 , 4 0 2 2 , 5 7 1 8 , 6 9 0 7 , 2 1 6 8 6 , 7 9 4 5 , 5 0 7 0 , 4 1 0 6 8 9 1 9 5 8 3 9 9 1 , 2 4 9 9 , 4 1 9 9 8 , 4 6 9 7 , 4 7 9 1 , 2 0 5 4 , 4 1 $ 5 3 4 $ 0 8 3 $ 1 7 3 2 1 9 8 7 7 8 7 5 6 8 3 6 4 5 5 3 2 , 1 0 6 4 4 5 2 , 2 3 1 3 8 8 0 , 2 6 2 4 3 5 6 1 2 6 9 1 1 9 3 3 8 5 5 5 7 7 7 5 7 , 1 8 6 1 , 1 5 6 6 5 9 5 , 1 4 4 9 7 9 4 4 8 5 2 9 9 4 6 3 5 9 3 9 2 2 3 5 3 , 1 0 6 1 0 8 5 3 6 6 2 3 6 , 2 3 0 4 , 3 9 7 5 , 1 2 6 2 9 7 0 , 1 5 2 3 2 0 , 1 9 8 2 , 6 7 8 4 6 5 2 , 1 7 4 4 8 0 1 2 3 5 7 1 5 5 6 2 , 4 1 6 8 , 2 1 1 7 , 1 8 5 6 , 2 3 2 4 , 5 9 4 1 9 3 2 8 4 8 1 5 3 3 , 2 5 8 4 , 1 2 3 2 6 6 4 9 2 1 , 1 0 5 5 $ 5 0 7 9 0 4 , 1 1 3 0 , 7 $ 7 3 3 6 4 0 , 3 9 7 5 , 5 1 2 9 , 1 6 8 0 , 7 2 2 1 , 4 8 6 9 , 6 1 2 9 , 2 5 2 7 , 2 7 3 8 , 5 1 9 9 8 , 2 2 7 8 , 2 1 4 1 5 , 1 7 2 7 , 1 2 0 1 1 , 5 9 1 5 , 4 6 5 7 , 3 0 1 6 7 5 9 , 3 8 3 8 , 4 4 8 7 , 2 1 4 4 , 0 1 9 0 1 , 6 2 5 1 , 3 9 9 0 , 9 8 4 7 7 8 6 5 1 2 1 9 1 , 2 4 8 7 , 2 1 8 3 5 , 3 4 6 5 , 4 6 1 8 , 1 2 6 3 , 3 1 $ 0 8 2 0 1 8 9 4 3 4 1 8 8 7 5 3 0 4 4 9 2 9 4 4 5 1 2 , 1 9 8 2 4 5 2 , 2 4 8 1 2 6 3 , 1 9 9 3 0 9 5 0 9 4 0 1 1 3 0 3 3 2 4 3 4 5 4 6 1 , 1 4 3 0 , 1 4 0 4 3 4 1 , 1 7 2 7 5 3 4 8 5 7 6 8 0 4 2 5 9 3 4 4 1 0 2 9 6 , 7 6 7 4 , 1 5 6 4 , 5 8 9 5 , 3 1 5 0 , 4 0 2 1 3 , 3 2 8 3 , 3 1 0 0 8 3 6 , 1 5 8 8 , 5 1 5 7 9 , 2 0 0 0 1 3 4 , 3 3 7 4 , 2 5 2 0 , 4 0 7 7 , 0 1 9 9 4 , 4 1 3 9 , 3 6 1 6 , 8 5 7 7 3 4 2 0 0 2 1 8 7 4 , 5 9 7 6 , 2 0 5 9 , 3 8 3 4 , 1 $ 4 4 3 $ 2 1 3 , 1 3 0 6 , 3 1 d e u n i t n o c - l a i t n e d i s e R y l i m a F - i t l u M D S , s l l a F x u o i S - s e m o h n w o T s e l b a G N M , d u o l C . t S - y a w e t a G d n a r G D N , s k r o F d n a r G - k r a P t s e r o F N M , r e t s e h c o R - r o n a M e g a t i r e H E N , a h a m O - d l e i f n e e r G D N , t o n i M - e u n e v A t s r i F D N , t o n i M - t n o m r i a F ) 2 ( A I , y t i C x u o i S - s l l i H n a i d n I D N , k c r a m s i B - r o n a M d o o w k r i K E N , n l o c n i L - e g a l l i V e d i s e k a L N M , d u o l C . t S - r e t s a c n a L D N , t o n i M - e t a g h t u o S t a g n i d n a L D N , s k r o F d n a r G - k r a m d n a L ) 2 ( D N , n w o t s e m a J - s w o d a e M S K , a k e p o T - a s o p i r a M D N , s k r o F d n a r G - y c a g e L N M , o l l e c i t n o M - e g a l l i V o l l e c i t n o M N M , r e t s e h c o R - y e l l a V n r e h t r o N D N , k c r a m s i B - e t n i o P h t r o N D S , s l l a F x u o i S - s e t a t s E t n o m k a O D S , s l l a F x u o i S - s e t a t s E d o o w k a O N M , r e t s e h c o R T M , s g n i l l i B - - e g a l l i V c i p m y l O e g a l l i V k i p m y l O D S , s l l a F x u o i S - k r a P w o b x O N M , k r a P e t i a W - s w o d a e M k r a P N M , l l e t r a S - e c a l P e g a t i r e H t a s d n o P D S , y t i C d i p a R - t s e W e t n i o P D S , s l l a F x u o i S - s d n i W e i r i a r P N M , r e t s e h c o R - e g d i R y r r a u Q D N , k c r a m s i B - s g n i r p S e l b b e P N M , l l e t r a S - s a l l i V e n o c e n i P T M , s g n i l l i B - t s r u h e n i P D N , t o n i M D N , t o n i M - - s e n i P a z a l P 2014 Annual Report F-43 t a d e i r r a c h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c y n a p m o C o t t s o C l a i t i n I S E I R A I D I S B U S D N A T S U R T E T A T S E L A E R S R O T S E V N I 4 1 0 2 , 0 3 l i r p A ) s d n a s u o h t n i ( N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R - I I I e l u d e h c S h c i h w n o e f i L n i n o i t a i c e r p e d e m o c n i t s e t a l f o e t a D d e z i l a t i p a c n o i t i s i u q c A r o n o i t a i c e r p e D l a t o T s t n e m e v o r p m I d n a L n o i t i s i u q c a n o i t c u r t s n o C d e t a l u m u c c A & s g n i d l i u B o t t n e u q e s b u s s t s o C & s t n e m e v o r p m s g n i d l i u B d e t u p m o c s i t n e m e t a t s s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 - 4 2 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 - 4 2 s r a e y 0 4 - 4 2 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 2 1 0 2 1 1 0 2 3 1 0 2 1 0 0 2 9 9 9 1 8 0 0 2 5 9 9 1 7 0 0 2 9 9 9 1 1 1 0 2 5 9 9 1 3 1 0 2 4 9 9 1 5 9 9 1 7 9 9 1 9 9 9 1 6 0 0 2 6 0 0 2 9 9 9 1 7 0 0 2 9 9 9 1 2 1 0 2 3 0 0 2 5 9 9 1 8 0 0 2 8 9 9 1 2 1 0 2 2 1 0 2 3 0 0 2 7 9 9 1 ) 0 3 8 ( ) 4 0 8 ( ) 8 5 ( ) 2 4 0 , 2 ( ) 4 2 6 , 1 ( ) 8 3 4 ( ) 2 4 9 , 2 ( ) 2 8 8 ( ) 8 9 1 ( ) 0 5 1 , 6 ( ) 5 6 1 , 5 ( ) 8 5 1 ( ) 4 4 3 ( ) 6 1 2 , 3 ( ) 7 6 1 , 1 ( ) 1 1 0 , 5 ( ) 0 5 ( ) 4 6 1 ( ) 6 6 3 , 4 ( ) 9 9 ( ) 5 7 3 , 2 ( ) 5 4 8 ( ) 8 2 8 ( ) 3 1 5 , 6 ( ) 9 0 3 ( ) 5 1 3 , 1 ( ) 6 0 8 ( ) 6 1 4 , 1 ( ) 1 7 0 , 2 ( ) 7 3 3 , 3 ( $ 2 4 6 , 7 1 4 4 1 , 2 1 3 1 5 , 1 1 8 3 3 , 6 2 7 2 , 5 6 8 0 , 5 2 7 6 4 , 7 2 1 8 , 5 3 2 7 , 2 6 9 6 , 8 1 1 0 7 , 2 1 5 8 4 , 0 1 9 0 0 , 1 8 4 1 , 8 7 9 3 , 3 0 4 6 , 5 1 9 2 2 9 2 4 5 9 0 , 4 1 8 2 6 5 3 7 , 7 0 3 3 , 3 3 6 8 , 7 1 3 2 9 , 5 1 0 2 1 , 2 1 3 7 , 3 9 5 9 , 7 2 2 3 1 , 9 1 0 7 0 , 8 3 2 3 , 8 $ 7 9 6 , 6 1 3 9 3 , 1 1 7 9 8 , 0 1 7 5 0 , 6 1 4 8 , 4 3 6 6 , 3 2 8 9 6 , 6 4 6 9 , 4 8 5 4 , 2 0 6 0 , 7 1 5 8 3 , 1 1 9 0 9 , 9 2 7 7 2 2 4 , 7 8 7 9 , 2 7 9 0 , 5 1 9 2 2 9 8 3 3 5 8 , 2 1 6 4 5 0 4 6 , 6 1 7 9 , 2 9 8 1 , 6 1 0 5 4 , 4 1 5 4 0 , 2 3 6 4 , 3 6 1 7 , 5 2 4 2 7 , 7 1 4 6 0 , 7 1 2 8 , 7 $ 5 4 9 1 5 7 6 1 6 1 8 2 1 3 4 3 2 4 , 1 9 6 7 8 4 8 5 6 2 6 3 6 , 1 6 1 3 , 1 6 7 5 7 3 2 6 2 7 9 1 4 3 4 5 0 0 4 2 8 2 4 2 , 1 5 9 0 , 1 4 7 6 , 1 9 5 3 3 7 4 , 1 5 7 8 6 2 3 4 2 , 2 8 0 4 , 1 6 0 0 , 1 2 0 5 5 2 4 4 2 , 1 7 8 0 , 2 3 5 4 , 1 6 7 0 , 1 5 8 0 , 1 6 4 1 5 8 3 0 7 8 , 2 3 0 6 , 2 6 1 5 5 3 4 1 7 , 2 8 3 3 , 1 0 9 4 , 2 8 8 9 2 2 9 8 1 , 3 0 0 1 4 0 3 , 3 3 1 5 0 0 8 7 1 8 , 4 5 6 1 6 0 7 , 1 3 3 6 9 3 0 0 7 , 1 5 2 9 , 1 $ 9 3 $ 1 6 6 , 6 1 8 9 1 , 0 1 2 7 8 , 0 1 3 7 0 , 4 9 8 4 , 3 4 3 4 , 3 2 6 2 7 , 5 3 2 8 , 4 4 8 6 , 4 1 7 9 0 , 2 8 4 5 , 9 3 9 8 , 9 9 6 4 4 3 0 , 5 8 9 8 , 1 0 2 1 3 4 1 8 , 2 1 6 0 3 , 0 1 0 5 4 7 3 1 , 4 6 9 2 , 2 0 6 7 , 5 1 7 6 1 , 0 1 7 8 8 , 1 9 0 9 , 1 4 2 4 , 5 2 9 9 6 , 7 1 2 2 6 , 5 8 2 0 , 6 $ 2 4 9 2 0 7 6 1 6 8 7 1 0 3 3 6 7 5 6 5 6 3 4 8 2 4 1 , 1 1 4 2 0 5 5 6 7 5 5 8 1 0 0 4 1 6 1 6 3 3 0 9 2 0 0 6 8 7 4 9 2 4 3 2 9 3 9 8 6 6 1 1 0 9 5 , 1 9 3 1 , 2 0 0 4 , 1 8 4 7 0 7 3 0 7 2 8 , 6 4 1 4 , 3 9 3 3 , 3 0 7 7 1 , 5 9 0 6 , 3 1 2 4 , 1 9 8 7 , 8 0 4 3 , 2 1 0 9 5 0 , 1 5 1 6 , 5 9 3 0 , 1 8 3 1 , 8 8 7 3 7 1 0 7 8 9 , 5 6 8 8 , 3 0 8 2 , 2 1 5 4 1 , 1 1 2 6 , 8 2 6 6 , 1 2 8 9 , 1 0 0 0 , 2 2 7 5 0 , 2 1 2 0 8 , 2 2 1 4 , 6 $ 8 5 1 , 4 1 $ ) 0 0 1 , 8 5 1 ( $ 1 3 7 , 3 5 7 $ 9 0 0 , 7 8 6 $ 2 2 7 , 6 6 $ 5 4 5 , 2 2 1 $ 1 4 8 , 8 7 5 $ 5 4 3 , 2 5 $ 5 9 6 , 4 8 3 $ d e u n i t n o c - l a i t n e d i s e R y l i m a F - i t l u M N M , d u o l C . t S - s e t a t s E k r a P y c n e g e R D N , n o t s i l l i W - I s t h g i e H e c n a s s i a n e R N M , r e t s e h c o R - I I e g d i R y r r a u Q A I , y t i C x u o i S - s k a O e g d i R T M , s g n i l l i B - t s e W k c o r m R i T M , s g n i l l i B - s w o d a e M y k c o R D N , k c r a m s i B - e g d i R r e v i R N M , i t n a s I - r e v i R m u R S K , a k e p o T - d o o w r e h S ) 2 ( D N , s k r o F d n a r G - t n i o p h t u o S D N , t o n i M - e t n i o P h t u o S D S , s l l a F x u o i S - a t s i V a r r e i S D N , s k r o F d n a r G - d n i w h t u o S N M , r e t s e h c o R - l i a r T t e s n u S D N , t o n i M - k r a P t i m m u S D N , t o n i M - w e i v h t u o S D N , t o n i M - s t h g i e H e c a r r e T E N , n l o c n i L - k o o r b s a m o h T D N , t o n i M - e l p m e T N M , d u o l C . t S - e c a l P k r a P y t i s r e v i n U D N , s k r o F d n a r G - k r a P y e l l a V S K , a k e p o T - t s e W a l l i V N M , k r a P e t i a W - l l i h e n o t S t s e W N M , r e t s e h c o R - n e e r G e g a l l i V D N , t o n i M - e g d i r t s e W D N , k c r a m s i B - k r a P d o o w t s e W E N , a h a m O - e g d i R g n i r e p s i h W D N , n o t s i l l i W - n e d r a G n o t s i l l i W N M , r e t s e h c o R - r e t s e h c n i W N M , r e t s e h c o R - e g d i r d o o W l a i t n e d i s e R y l i m a F - i t l u M l a t o T I d n a L ) 1 ( s e c n a r b m u c n E n o i t p i r c s e D t a d e i r r a c h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c y n a p m o C o t t s o C l a i t i n I S E I R A I D I S B U S D N A T S U R T E T A T S E L A E R S R O T S E V N I 4 1 0 2 , 0 3 l i r p A ) s d n a s u o h t n i ( N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R - I I I e l u d e h c S 2014 Annual Report F-44 h c i h w n o e f i L n i n o i t a i c e r p e d e m o c n i t s e t a l f o e t a D d e z i l a t i p a c s t s o C & n o i t c u r t s n o C d e t a l u m u c c A & s g n i d l i u B o t t n e u q e s b u s s g n i d l i u B n o i t i s i u q c A r o n o i t a i c e r p e D l a t o T s t n e m e v o r p m I d n a L n o i t i s i u q c a s t n e m e v o r p m I d n a L ) 1 ( s e c n a r b m u c n E n o i t p i r c s e D t a d e i r r a c h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c y n a p m o C o t t s o C l a i t i n I S E I R A I D I S B U S D N A T S U R T E T A T S E L A E R S R O T S E V N I 4 1 0 2 , 0 3 l i r p A ) s d n a s u o h t n i ( N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R - I I I e l u d e h c S d e t u p m o c s i t n e m e t a t s s r a e y 0 4 - 3 3 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 1 8 9 1 1 0 0 2 7 0 0 2 3 0 0 2 2 0 0 2 9 9 9 1 3 0 0 2 8 0 0 2 2 0 0 2 5 0 0 2 1 0 0 2 6 0 0 2 4 0 0 2 9 9 9 1 6 0 0 2 6 0 0 2 6 0 0 2 3 0 0 2 1 0 0 2 7 9 9 1 6 0 0 2 4 0 0 2 1 0 0 2 7 0 0 2 2 0 0 2 2 0 0 2 2 0 0 2 2 0 0 2 4 0 0 2 0 1 0 2 9 0 0 2 6 0 0 2 4 0 0 2 9 9 9 1 ) 3 3 ( ) 0 0 3 ( ) 0 6 0 , 2 ( ) 1 2 6 , 3 ( ) 9 3 3 , 8 ( ) 4 1 0 , 3 ( ) 4 9 3 ( ) 3 7 3 ( ) 7 0 4 ( ) 9 7 3 , 5 ( ) 4 2 3 , 1 ( 0 ) 8 2 3 , 4 ( ) 6 9 5 , 1 ( 0 0 0 ) 9 4 0 , 8 ( ) 9 9 1 , 3 ( ) 0 4 6 , 5 ( ) 9 2 8 , 1 ( ) 1 1 0 , 3 ( ) 4 8 6 , 5 ( ) 0 7 9 ( ) 0 2 4 , 2 ( ) 1 3 5 , 4 ( ) 9 2 1 , 2 ( ) 1 5 9 , 2 ( ) 3 1 4 ( ) 4 1 2 ( ) 0 7 6 , 1 ( 0 ) 5 4 8 ( ) 0 5 8 , 1 ( $ 7 6 3 $ 1 7 0 , 1 3 0 4 , 9 4 4 5 , 2 1 3 2 7 , 1 2 9 4 3 , 8 8 3 5 , 1 8 9 7 , 2 3 8 9 , 6 1 7 4 1 , 2 0 4 4 , 3 3 3 1 , 9 4 6 8 , 4 6 1 0 , 0 2 0 0 1 , 0 1 7 1 4 , 7 1 0 0 3 , 8 4 1 4 , 5 2 4 6 7 , 9 5 8 0 , 6 1 7 5 0 , 1 1 9 7 6 , 2 1 2 9 0 , 9 1 6 6 3 , 7 3 9 8 , 7 8 1 9 , 2 1 5 8 5 , 7 2 9 9 , 9 5 6 9 , 1 3 7 5 , 1 1 8 1 3 , 2 0 0 7 , 7 0 1 4 , 8 7 8 5 , 2 7 3 3 3 1 9 3 2 4 , 8 9 6 0 , 1 1 0 3 8 , 0 2 2 2 0 , 8 0 5 3 , 1 5 5 3 , 2 0 0 8 , 1 6 6 0 , 3 3 5 2 , 5 3 3 3 , 5 1 4 8 0 , 7 1 8 9 1 , 4 2 1 9 , 7 3 6 6 , 6 8 1 5 , 5 1 6 9 3 , 2 2 7 3 0 , 9 9 5 9 , 5 1 9 8 7 , 8 2 4 2 , 1 1 4 2 4 , 7 1 5 7 1 , 5 8 5 0 , 7 7 9 7 , 1 1 5 1 6 , 6 2 2 9 , 8 7 7 6 , 1 5 3 5 , 0 1 0 2 0 , 2 6 2 7 , 5 5 7 1 , 7 4 8 1 , 2 $ 0 3 8 5 1 0 8 9 5 7 4 , 1 3 9 8 7 2 3 8 8 1 3 4 4 0 5 6 , 1 7 4 3 4 7 3 0 8 8 , 3 2 3 9 , 2 6 6 6 8 8 1 , 2 9 9 8 , 1 7 3 6 , 1 8 1 0 , 3 7 2 7 6 2 1 8 6 2 , 2 7 3 4 , 1 8 6 6 , 1 1 9 1 , 2 5 3 8 1 2 1 , 1 0 7 9 0 7 0 , 1 8 8 2 8 9 2 8 3 0 , 1 4 7 9 , 1 5 3 2 , 1 3 0 4 $ 0 9 7 3 3 6 8 8 , 2 3 3 3 , 2 2 6 0 , 4 5 6 9 8 6 2 1 , 1 3 0 2 , 3 0 9 2 1 6 8 9 3 6 5 , 2 1 0 0 0 2 5 8 , 3 8 6 3 , 1 9 1 7 7 2 4 3 9 6 , 1 9 5 4 , 2 8 6 2 , 1 9 8 8 2 1 7 , 1 1 8 8 7 8 2 , 1 4 2 2 4 0 4 , 4 0 6 9 2 0 9 9 4 8 2 $ 0 5 3 8 2 4 5 , 5 6 5 7 , 8 8 6 7 , 6 1 7 5 9 , 7 1 6 2 , 1 3 8 2 , 1 8 3 1 , 2 1 1 7 6 , 1 4 5 1 , 2 3 5 2 , 5 7 9 1 , 4 2 1 9 , 7 9 6 5 , 4 1 3 6 6 , 6 8 1 5 , 5 1 4 4 5 , 8 1 8 0 8 , 7 0 4 2 , 5 1 2 6 3 , 8 9 4 5 , 9 8 6 9 , 3 9 6 1 , 6 3 8 9 , 4 1 5 8 0 , 0 1 4 3 7 , 5 5 3 6 , 7 4 5 4 , 1 3 4 1 , 6 4 2 7 , 1 6 2 7 , 5 8 5 3 , 6 4 4 9 , 1 $ 0 3 6 4 1 5 7 9 5 5 4 , 1 3 9 8 7 2 3 8 8 1 9 8 3 2 4 6 , 1 7 4 3 0 0 3 0 8 8 , 3 4 8 8 , 2 6 6 6 8 8 1 , 2 9 9 8 , 1 7 3 6 , 1 8 1 0 , 3 8 8 5 6 2 1 8 6 2 , 2 7 3 4 , 1 0 5 6 , 1 0 3 1 , 2 5 3 8 1 2 1 , 1 0 7 9 0 7 0 , 1 7 8 2 8 9 2 6 2 0 , 1 4 7 9 , 1 2 6 0 , 1 9 5 3 8 3 9 8 8 8 , 6 0 2 5 , 0 1 4 9 7 , 8 0 4 4 , 2 1 9 4 3 6 1 , 2 0 0 6 5 2 , 1 9 7 6 , 1 5 1 3 , 7 1 7 0 7 , 2 1 0 6 1 , 2 1 5 6 5 , 1 2 0 0 7 , 8 1 1 7 , 7 1 2 9 4 , 5 0 2 9 9 , 7 1 0 6 , 7 9 1 6 , 8 1 0 3 , 4 7 8 7 , 3 5 9 5 , 5 5 4 8 , 3 1 7 5 , 4 7 0 7 0 0 5 9 8 , 8 7 7 9 , 4 7 1 9 $ 0 $ N M , k r a P n y l k o o r B - V I r e t n e C s s e n i s u B 0 1 6 D N , t o n i M - g n i d l i u B e u n e v A t s 1 N M , n a g a E - d a o R f f i l C 0 3 0 2 e c i f f O l a i c r e m m o C I W , e e k u a w l i M - d a o R r e e D n w o r B t s e W 0 0 8 7 N M , s t h g i e H a t o d n e M - r e t n e C e t a r o p r o C n a c i r e m A D N , k c r a m s i B - y a w d a o r B t s a E 5 1 7 k c r a m s i B N M , s d i p a R k u a S - k r a P s s e n i s u B n o t n e B E N , a h a m O - e d a r t i r e m A N M , e l l i v s n r u B - I I s f f u l B e l l i v s n r u B E N , a h a m O - t s e W r e t n e C e t a r o p r o C N M , e i r i a r P n e d E - e r t n e C n w o t s s o r C N M , a k n o t e n n i M - d o o w n e r B E N , a t s i V a L - I y e l l a V k o o r B N M , e i r i a r P n e d E - e v i r D e l c r i C e u l B 1 0 1 6 e i r i a r P n e d E N M , y e l l a V n e d l o G - r e t n e C e c i f f O s l l i H n e d l o G N M , y r u b d o o W - r e t n e C e t a r o p r o C y a w e t a G N M , d u o l C . t S - r e t n e C e t a r o p r o C e t i n a r G E N , a h a m O - r e t n e C e v i t u c e x E m a n r a F N M , e i r i a r P n e d E - p i h s g a l F O C , h c n a R s d n a l h g i H - I h c n a R s d n a l h g i H O C , h c n a R s d n a l h g i H - I I h c n a R s d n a l h g i H N M , a n i d E - r e t n e C e t a r o p r o C n e h c a l r e t n I O M , n o t n e F - g n i d l i u B h c e t r e t n I ) 2 ( D N , o g r a F - s n i a l P t a e r G N M , s t h g i e H a t o d n e M - I r e t n e C e c i f f O a t o d n e M N M , s t h g i e H a t o d n e M - I I r e t n e C e c i f f O a t o d n e M N M , s t h g i e H a t o d n e M - I I I r e t n e C e c i f f O a t o d n e M N M , s t h g i e H a t o d n e M - V I r e t n e C e c i f f O a t o d n e M ) 2 ( D N , t o n i M - W S t e e r t S h t 6 1 5 0 5 2 t o n i M D N , t o n i M - e v A t s 1 3 0 0 4 1 t o n i M N M , h t u l u D - k n a B l a n o i t a N a t o s e n n i M E N , a h a m O - e n O s l l i H e l c a r i M N M , e v o r G e l p a M - I e t a g h t r o N N M , e v o r G e l p a M - I I e t a g h t r o N 2014 Annual Report F-45 h c i h w n o e f i L n i n o i t a i c e r p e d e m o c n i t s e t a l f o e t a D d e z i l a t i p a c d e t u p m o c n o i t i s i u q c A r o n o i t a i c e r p e D l a t o T s t n e m e v o r p m I d n a L n o i t i s i u q c a s i t n e m e t a t s n o i t c u r t s n o C d e t a l u m u c c A & s g n i d l i u B o t t n e u q e s b u s s t s o C & s t n e m e v o r p m s g n i d l i u B I d n a L ) 1 ( s e c n a r b m u c n E n o i t p i r c s e D s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 6 0 0 2 0 1 0 2 6 0 0 2 9 0 0 2 3 0 0 2 7 0 0 2 4 0 0 2 4 0 0 2 4 0 0 2 1 0 0 2 3 0 0 2 0 0 0 2 6 0 0 2 9 9 9 1 5 0 0 2 5 0 0 2 5 0 0 2 5 0 0 2 4 0 0 2 3 0 0 2 2 0 0 2 2 0 0 2 6 0 0 2 4 0 0 2 5 0 0 2 5 0 0 2 3 0 0 2 3 0 0 2 2 0 0 2 2 0 0 2 6 0 0 2 ) 7 9 3 ( ) 0 5 6 , 3 ( 0 ) 5 6 6 , 1 ( ) 2 2 1 , 1 ( ) 4 2 2 ( ) 7 0 3 ( ) 2 4 3 ( ) 3 6 5 ( 0 ) 4 0 2 , 5 ( ) 8 3 1 , 2 ( ) 4 8 5 , 2 ( ) 2 0 3 , 2 ( ) 5 3 2 ( ) 2 4 3 ( ) 6 4 2 ( ) 7 4 2 ( ) 9 0 6 ( 0 ) 6 0 4 , 2 ( ) 8 2 8 , 2 ( ) 3 6 9 , 3 ( ) 6 5 6 ( ) 4 5 2 , 3 ( ) 5 7 3 , 2 ( ) 1 7 3 ( ) 6 4 0 , 4 ( ) 2 8 9 , 1 ( 0 ) 1 6 2 , 1 ( 8 2 2 , 7 3 3 5 , 0 1 3 9 6 , 9 9 2 8 , 3 9 3 9 , 1 8 2 7 , 1 1 7 6 , 1 7 6 3 , 2 0 1 4 , 4 3 1 3 , 6 5 9 0 , 9 9 5 4 , 3 3 0 3 , 1 8 9 1 , 1 4 0 3 , 1 0 6 8 , 1 4 1 1 , 6 1 6 7 7 , 4 1 $ 1 3 0 , 9 1 $ 4 9 9 , 6 1 $ 6 1 8 , 6 3 1 9 , 7 7 0 1 , 8 5 7 4 , 6 4 5 1 , 1 6 8 5 , 1 3 8 2 , 1 3 7 2 , 1 9 1 6 , 2 7 0 9 , 9 2 8 3 , 9 3 1 8 , 2 1 2 1 0 , 2 1 5 6 5 , 2 3 5 0 , 8 1 0 9 6 , 0 1 1 7 6 , 1 1 5 5 , 3 1 8 5 4 , 6 0 3 7 , 4 6 4 8 , 6 2 3 0 , 6 9 9 3 , 7 6 1 2 , 6 6 0 9 , 5 8 6 9 6 4 3 , 1 4 9 0 , 1 2 2 1 , 1 3 8 2 , 2 3 2 2 , 9 4 3 0 , 8 9 0 7 , 1 1 7 3 6 , 9 6 4 4 , 2 4 3 9 , 4 1 1 2 8 , 9 6 3 4 , 1 1 5 5 , 2 1 1 8 8 , 5 0 6 7 , 3 4 8 9 , 5 7 3 0 , 2 8 1 8 , 2 0 2 2 , 4 8 9 5 0 7 3 6 3 6 0 3 5 7 6 3 7 0 5 8 3 3 , 1 4 8 7 4 1 5 1 9 8 , 1 9 6 5 6 8 1 0 4 2 9 8 1 1 5 1 6 3 3 4 8 6 8 4 3 , 1 4 0 1 , 1 5 7 3 , 2 9 1 1 9 1 1 , 3 9 6 8 5 3 2 0 0 0 , 1 7 7 5 0 7 9 2 6 8 3 3 2 9 3 1 7 4 0 6 8 , 3 2 8 5 6 0 4 5 6 3 5 8 0 , 2 6 1 2 , 2 8 2 0 , 1 7 0 1 9 1 4 0 6 1 5 2 9 7 6 3 3 8 9 0 7 2 7 9 , 1 3 9 6 , 1 6 3 0 8 6 8 5 , 1 8 4 4 , 1 1 4 2 3 3 9 , 1 8 6 0 , 1 0 6 6 4 , 1 4 7 3 , 4 0 8 2 , 6 4 4 4 , 5 8 5 0 , 3 3 5 2 , 1 3 3 1 , 1 4 6 2 , 1 5 9 4 , 1 3 9 6 , 2 1 9 6 0 , 4 0 0 6 , 6 9 0 1 , 6 6 9 4 , 5 6 1 9 3 2 1 , 1 4 2 0 , 1 4 9 0 , 1 0 0 2 , 2 1 7 5 , 8 9 4 1 , 6 1 0 6 , 9 6 6 3 , 2 6 2 0 , 0 1 0 5 3 , 3 1 3 7 3 , 8 5 9 1 , 1 8 1 6 , 0 1 0 6 8 , 4 0 6 7 , 3 9 0 6 , 4 $ 3 1 4 , 2 $ 4 8 5 , 4 1 $ 4 3 0 , 2 2 6 4 , 2 0 2 2 , 4 9 8 3 0 0 3 4 0 6 0 3 5 7 6 3 7 0 5 6 3 3 , 1 1 3 5 5 8 2 1 9 8 , 1 0 6 5 8 7 1 2 1 2 0 8 1 3 4 1 6 3 3 7 2 6 1 6 2 , 1 4 9 0 , 1 5 7 3 , 2 9 1 1 7 1 1 , 3 9 6 8 5 3 2 0 0 0 , 1 0 3 5 0 7 9 1 7 7 $ 8 3 9 , 1 1 $ N M , s l l i H n e d r A - r e t n e C e t a r o p r o C k r a p h t r o N d e u n i t n o c - e c i f f O l a i c r e m m o C 2 8 1 , 5 0 7 7 , 6 1 1 7 2 , 7 0 3 9 2 8 1 , 1 5 1 1 , 1 5 1 1 , 1 3 7 3 , 1 7 1 7 , 6 5 1 2 , 3 6 9 6 1 5 6 , 1 0 9 6 , 9 1 8 4 7 3 2 8 3 6 7 8 4 7 3 6 0 , 1 0 0 5 , 7 0 0 5 5 1 , 3 1 0 0 9 2 0 0 , 6 4 0 1 , 3 1 0 1 9 4 9 8 9 , 3 2 6 7 , 3 0 6 3 , 4 N M , h t u o m y l P - e n a L n a h t a N 5 9 0 5 h t u o m y l P E N , a h a m O - r D m a n r a F 2 0 8 0 1 a h a m O E N , a h a m O - s l l i H c i f i c a P D N , t o n i M - 6 1 a z a l P D I , e s i o B - I I V a z a l P N M , h t u o m y l P - V & V I h t u o m y l P N M , h t u o m y l P - I h t u o m y l P N M , h t u o m y l P - I I h t u o m y l P N M , h t u o m y l P - I I I h t u o m y l P D S , y t i C d i p a R - e v i r D e s r u o c n o C 0 0 9 y t i C d i p a R N M , e i r i a r P n e d E - r e t n e C s s e n i s u B k a O e i r i a r P N M , n o t g n i m o o l B - a z a l P t n u o m a r a P e e r h T N M , h t u l u D - g n i d l i u B e c i f f O r o i r e p u S N M , n a g a E - g n i d l i u B A C T N M , s i l o p a e n n i M - e r a u q S r e h s e r h T S K , d o o w a e L - s d n a l r e b m T i N M , s l l a F l a n o i t a n r e t n I - e c i f f O C H U N M , n o t g n i m o o l B - r e t n e C l a i c n a n i F k n a B S U N M , k r a P e t i a W - k r a P s s e n i s u B r e v i R t s e W N M , d u o l C t S - r e t n e C o g r a F s l l e W N M , y e l l a V n e d l o G - r e t n e C e t a r o p r o C h t r i W O M , s t h g i e H d n a l y r a M - V I a z a l P s d n a l d o o W N M , a k n o t e n n i M - a z a l P r e t a w e t i h W D I , e s i o B - e t a g t s e W N M , n a g a E - r e t n e C h c e T t s a e h t u o S O M , s t h g i e H d n a l y r a M - t r o p r e v i R E N , a h a m O - V I y e l l a V g n i r p S E N , a h a m O E N , a h a m O - - V y e l l a V g n i r p S X y e l l a V g n i r p S E N , a h a m O - I X y e l l a V g n i r p S ) 2 9 8 , 1 2 1 ( $ 8 2 6 , 4 4 5 $ 1 5 3 , 2 7 4 $ 7 7 2 , 2 7 $ 0 4 9 , 6 6 $ 0 9 5 , 7 0 4 $ 8 9 0 , 0 7 $ 9 7 8 , 8 2 3 $ e c i f f O l a i c r e m m o C l a t o T S E I R A I D I S B U S D N A T S U R T E T A T S E L A E R S R O T S E V N I 4 1 0 2 , 0 3 l i r p A t a d e i r r a c h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c y n a p m o C o t t s o C l a i t i n I ) s d n a s u o h t n i ( N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R - I I I e l u d e h c S 2014 Annual Report F-46 h c i h w n o e f i L n i n o i t a i c e r p e d e m o c n i t s e t a l f o e t a D d e z i l a t i p a c s i t n e m e t a t s n o i t c u r t s n o C d e t a l u m u c c A & s g n i d l i u B o t t n e u q e s b u s s g n i d l i u B d e t u p m o c n o i t i s i u q c A r o n o i t a i c e r p e D l a t o T s t n e m e v o r p m I d n a L n o i t i s i u q c a s t n e m e v o r p m I d n a L ) 1 ( s e c n a r b m u c n E s t s o C & s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 5 0 0 2 7 0 0 2 2 0 0 2 7 0 0 2 0 1 0 2 8 0 0 2 8 0 0 2 9 0 0 2 9 0 0 2 9 0 0 2 9 0 0 2 4 0 0 2 8 0 0 2 8 0 0 2 8 0 0 2 5 0 0 2 5 0 0 2 8 0 0 2 0 0 0 2 8 0 0 2 8 0 0 2 8 0 0 2 8 0 0 2 0 0 0 2 5 0 0 2 1 0 0 2 0 1 0 2 6 9 9 1 8 0 0 2 1 0 0 2 8 0 0 2 ) 1 9 6 , 2 ( ) 8 8 3 , 3 ( ) 4 1 6 , 1 ( ) 7 6 4 ( ) 5 1 1 ( ) 8 2 3 , 1 ( ) 1 0 9 ( ) 2 9 6 ( ) 0 3 1 , 1 ( ) 0 8 1 , 1 ( ) 0 3 8 ( ) 3 5 6 ( ) 1 4 5 ( ) 0 2 1 ( ) 5 7 2 ( ) 3 9 9 , 1 ( ) 0 5 9 , 1 ( ) 6 2 1 ( ) 3 1 2 ( ) 7 9 1 , 3 ( ) 6 6 1 ( ) 0 2 1 ( ) 1 8 1 ( ) 9 8 5 , 3 ( ) 3 7 2 , 2 ( ) 7 8 2 ( ) 7 0 0 , 1 ( ) 5 8 3 ( ) 2 1 1 ( ) 6 8 1 ( ) 5 5 1 ( 8 7 6 , 4 3 9 8 , 2 5 6 8 , 1 2 7 6 , 7 1 5 1 5 , 9 2 7 2 , 6 1 8 3 , 6 8 7 6 , 4 1 0 5 , 2 6 1 2 , 1 3 4 9 , 6 1 4 4 4 , 8 3 8 0 , 6 2 4 9 , 5 3 6 0 , 1 1 4 0 6 , 0 1 0 6 1 , 1 1 1 3 5 , 0 1 $ 5 8 5 , 9 $ 6 5 3 , 9 $ 0 9 1 , 8 9 9 0 , 3 7 8 5 , 2 0 2 8 2 9 8 , 1 3 4 8 , 9 5 6 6 , 9 0 7 8 9 8 5 7 3 8 2 1 6 6 6 6 , 1 8 5 6 , 1 2 9 7 6 , 1 1 9 6 2 , 1 1 7 8 1 , 1 7 3 0 , 1 2 1 7 , 2 1 3 7 7 1 8 6 8 2 3 , 1 5 9 4 , 7 8 9 5 , 2 6 6 0 , 2 5 8 7 7 7 7 , 1 2 3 3 , 9 8 7 0 , 9 6 2 8 3 3 5 8 9 7 2 6 5 6 7 3 , 1 3 8 8 , 0 2 1 9 3 , 1 1 0 5 5 , 0 1 7 1 1 , 1 5 6 6 , 1 1 1 2 9 1 3 7 2 9 5 4 1 0 , 1 1 7 0 , 1 2 0 6 , 1 0 9 2 2 9 2 7 2 9 3 9 4 6 0 0 3 4 1 $ 6 4 2 , 2 7 2 6 , 5 $ 9 8 1 9 3 4 9 5 4 9 2 6 5 9 6 1 0 5 1 2 5 5 3 5 1 1 1 1 5 7 8 5 4 4 0 9 2 5 7 7 6 5 9 3 0 5 8 8 2 9 1 7 0 7 6 1 1 7 4 0 , 1 2 4 9 8 4 1 3 6 5 9 2 6 1 1 8 1 0 6 2 1 0 4 9 1 5 6 0 1 9 3 1 3 9 7 4 2 3 1 3 4 1 3 6 4 3 3 5 1 6 0 2 5 , 1 7 7 4 7 9 5 4 0 4 5 3 1 , 7 9 1 3 , 1 1 8 7 6 , 4 6 6 3 , 2 6 1 2 , 1 2 4 8 , 6 7 2 1 , 5 0 8 7 , 5 4 9 4 , 0 1 2 7 2 , 0 1 5 5 4 , 7 7 9 5 , 2 7 4 5 , 1 9 7 7 7 6 7 , 1 3 9 1 , 9 9 9 9 , 8 4 2 8 0 9 4 3 7 7 7 1 5 2 5 3 , 1 0 7 8 , 0 2 2 0 5 1 7 8 , 9 7 1 5 , 0 1 0 9 5 , 1 1 4 5 8 2 2 7 7 4 5 4 7 9 $ 0 4 0 2 6 2 7 4 8 3 9 4 6 $ 3 0 2 , 5 7 1 2 , 8 9 6 7 3 0 4 , 1 7 4 4 , 1 1 7 0 , 1 3 7 2 , 8 $ - N M , s i l o p a e n n i M - g n i d l i u B l a c i d e M 0 0 8 2 N M , s i l o p a e n n i M - e u n e v A o g a c i h C 8 2 8 2 N M , n o t g n i m o o l B - l a c i d e M t r o p r i A e r a c h t l a e H l a i c r e m m o C n o i t p i r c s e D O M , y t i C s a s n a K - k r a P e c i f f O e t n i o P y r r a B T M , s g n i l l i B - d a o R t n a r G 0 0 3 2 s g n i l l i B ) w e i v e g d i R ( l a c i d e M t e l l o c i N 3 0 3 e l l i v s n r u B N M , e l l i v s n r u B 9 8 1 9 3 4 8 8 3 8 2 6 5 9 6 1 0 5 1 2 5 5 3 5 1 1 1 1 5 7 8 5 3 4 0 9 2 5 7 7 6 5 3 3 9 4 8 8 2 9 1 7 0 7 9 0 1 5 4 0 , 1 2 4 9 8 4 1 3 0 0 0 0 9 7 1 , 5 6 4 5 , 1 0 0 4 4 8 , 1 0 0 0 3 7 5 0 0 9 5 9 0 8 , 2 8 1 4 , 2 1 0 2 9 5 0 4 8 0 5 2 , 9 0 4 7 3 6 5 0 , 1 3 2 8 , 5 1 - ) h t u o S w e i v e g d i R ( l a c i d e M t e l l o c i N 5 0 3 e l l i v s n r u B N M , e l l i v s n r u B , r e p s a C - ) e c a l P k r a P ( t e e r t S h t 2 1 E 0 3 9 1 r e p s a C ) 2 ( Y W , r e p s a C - ) d n i W w o d a e M ( t e e r t S h t 2 1 E 5 5 9 3 r e p s a C ) 2 ( Y W - ) d n i W n e p s A ( - ) s l l i H a r r e i S ( e v i r D e g e l l o C N 0 1 0 4 e n n e y e h C e v i r D e g e l l o C N 6 0 6 4 e n n e y e h C ) 2 ( ) 2 ( Y W , e n n e y e h C Y W , e n n e y e h C N M , n a g a E - l a c i d e M d o o w k c u D 0 4 4 1 n a g a E N M , h t u l u D - c i n i l C d l e f n e D N M , s k r o F d n a r G t s a E - a t s i V d o o w e g d E E N , t n o m e r F - a t s i V d o o w e g d E D N , o g r a F - a t s i V d o o w e g d E N M , I n w o t n a m r e H N M , I I n w o t n a m r e H E N , d n a l s I d n a r G E N , s g n i t s a H T M , l l e p s i l a K D N , t o n i M T M , a l u o s s i M E N , k l o f r o N E N , a h a m O - - - - - - - - - a t s i V d o o w e g d E a t s i V d o o w e g d E a t s i V d o o w e g d E a t s i V d o o w e g d E a t s i V d o o w e g d E a t s i V d o o w e g d E a t s i V d o o w e g d E a t s i V d o o w e g d E a t s i V d o o w e g d E D S , s l l a F x u o i S - a t s i V d o o w e g d E T M , e d a r g l e B T M , s g n i l l i B D N , k c r a m s i B N M , d r e n i a r B E N , s u b m u l o C - - - - - a t s i V d o o w e g d E a t s i V d o o w e g d E a t s i V d o o w e g d E a t s i V d o o w e g d E a t s i V d o o w e g d E 2014 Annual Report F-47 S E I R A I D I S B U S D N A T S U R T E T A T S E L A E R S R O T S E V N I 4 1 0 2 , 0 3 l i r p A t a d e i r r a c h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c y n a p m o C o t t s o C l a i t i n I ) s d n a s u o h t n i ( N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R - I I I e l u d e h c S h c i h w n o e f i L n i n o i t a i c e r p e d e m o c n i t s e t a l f o e t a D n o i t i s i u q c A r o n o i t a i c e r p e D l a t o T s t n e m e v o r p m I d n a L n o i t i s i u q c a n o i t c u r t s n o C d e t a l u m u c c A & s g n i d l i u B o t t n e u q e s b u s d e z i l a t i p a c s t s o C & s t n e m e v o r p m s g n i d l i u B I d n a L ) 1 ( s e c n a r b m u c n E t a d e i r r a c h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c y n a p m o C o t t s o C l a i t i n I S E I R A I D I S B U S D N A T S U R T E T A T S E L A E R S R O T S E V N I 4 1 0 2 , 0 3 l i r p A ) s d n a s u o h t n i ( N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R - I I I e l u d e h c S 2014 Annual Report F-48 d e t u p m o c s i t n e m e t a t s s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 5 0 0 2 2 0 0 2 8 0 0 2 8 0 0 2 2 0 0 2 1 1 0 2 3 0 0 2 1 0 0 2 4 0 0 2 2 0 0 2 4 0 0 2 0 0 0 2 4 0 0 2 3 1 0 2 9 0 0 2 3 1 0 2 4 0 0 2 8 0 0 2 0 1 0 2 4 0 0 2 2 0 0 2 4 0 0 2 4 0 0 2 5 0 0 2 2 0 0 2 1 1 0 2 1 1 0 2 1 1 0 2 4 1 0 2 1 1 0 2 1 1 0 2 ) 9 8 4 , 1 ( ) 7 5 3 , 3 ( ) 4 1 1 , 3 ( ) 2 3 5 , 2 ( ) 7 ( ) 9 1 5 ( ) 5 0 8 , 5 ( ) 5 2 2 , 6 1 ( ) 2 8 3 ( ) 6 6 4 , 2 ( ) 7 2 4 ( ) 7 0 4 , 6 ( ) 0 2 3 , 3 ( ) 4 6 4 ( ) 1 4 9 ( ) 4 3 1 ( ) 4 7 9 ( ) 1 7 4 , 1 ( ) 6 2 1 ( ) 3 5 3 , 5 ( ) 4 0 8 ( ) 9 1 2 , 2 ( ) 4 6 2 , 5 ( ) 0 5 3 , 2 ( ) 2 8 7 , 3 ( ) 2 9 2 ( ) 8 4 3 ( ) 6 8 2 ( ) 7 5 ( ) 4 0 5 ( ) 5 6 4 ( 6 0 2 , 2 1 5 7 1 , 5 1 2 4 2 , 2 1 2 4 5 , 1 5 0 5 1 9 7 , 4 1 1 8 9 , 8 4 2 7 5 , 1 2 5 0 , 8 6 6 7 , 1 1 0 6 , 1 2 1 1 5 , 3 1 2 2 6 , 7 4 7 5 , 0 1 0 9 8 , 0 1 1 7 8 , 3 4 2 4 , 9 1 7 9 , 1 7 8 8 , 1 2 2 5 9 , 2 4 7 1 , 0 1 5 2 3 , 9 1 7 4 9 , 2 1 5 1 7 , 2 1 5 1 0 , 4 4 0 0 , 5 8 3 0 , 4 5 1 1 , 7 8 4 1 , 7 9 2 6 , 6 0 6 9 , 1 1 5 7 1 , 5 1 2 4 2 , 2 1 0 7 1 , 1 7 1 1 1 5 7 , 3 1 1 0 5 , 5 4 2 2 5 , 1 0 4 0 , 8 0 0 7 , 1 2 6 3 , 8 1 2 8 1 , 2 1 2 2 6 , 7 0 2 9 , 9 1 5 8 , 3 8 6 1 , 0 1 4 2 4 , 9 1 3 3 , 1 7 6 7 , 2 9 2 9 , 8 7 8 8 , 1 2 0 1 6 , 6 1 0 0 3 , 1 1 5 1 7 , 2 1 0 7 8 , 3 6 9 2 , 4 5 7 7 , 3 5 6 5 , 6 4 2 7 , 6 2 4 9 , 5 $ 8 6 9 , 8 $ 8 3 6 , 8 $ 0 0 0 3 3 6 4 2 2 7 3 8 8 3 0 4 0 , 1 0 8 4 , 3 0 5 2 1 6 6 0 9 3 2 , 3 9 2 3 , 1 6 0 4 0 7 9 0 2 0 0 0 4 6 5 8 1 5 4 2 , 1 5 1 7 , 2 7 4 6 , 1 0 5 4 1 8 0 7 3 6 2 0 5 5 4 2 4 7 8 6 7 3 1 0 0 5 , 2 0 1 4 9 2 5 2 8 9 , 5 8 5 7 , 4 1 1 0 2 4 4 6 8 7 6 , 1 0 7 1 0 0 9 1 5 5 , 1 0 5 1 6 , 1 0 1 3 7 3 9 , 1 1 8 4 , 3 4 3 9 0 0 0 0 0 0 $ 9 6 $ 4 8 5 , 8 3 2 8 , 1 1 5 7 6 , 2 1 1 0 2 , 2 1 0 6 6 7 1 1 4 5 0 , 8 3 4 7 , 0 3 0 2 5 , 1 8 0 4 , 7 9 9 6 , 1 2 6 3 , 8 1 8 2 5 , 0 1 2 2 6 , 7 0 2 9 , 9 1 8 7 , 3 1 5 1 , 0 1 3 7 8 , 7 1 3 3 , 1 7 6 7 , 2 8 9 8 , 8 2 7 2 , 0 2 1 5 8 , 7 3 7 6 , 4 1 1 8 7 , 1 1 0 7 8 , 3 6 9 2 , 4 5 7 7 , 3 5 6 5 , 6 4 2 7 , 6 2 4 9 , 5 $ $ 0 0 5 1 3 6 4 2 3 5 3 8 8 3 5 5 7 0 0 5 6 6 0 8 4 , 3 0 9 3 2 , 3 5 0 3 , 1 0 0 6 0 4 0 7 9 0 4 6 0 5 8 1 5 4 2 , 1 5 1 7 , 2 5 1 6 , 1 0 5 4 1 8 0 7 3 6 2 0 5 5 4 2 4 7 8 6 0 3 8 , 9 3 7 4 , 8 0 6 4 , 3 1 0 0 1 9 9 , 9 9 1 2 , 0 3 8 4 6 5 8 7 5 9 8 7 4 9 , 8 0 0 5 , 7 8 7 0 , 6 0 0 8 5 9 , 1 8 6 3 , 7 0 1 5 , 1 6 1 5 , 1 1 1 4 4 9 5 1 , 5 4 9 4 , 9 8 2 2 , 6 6 5 4 , 2 0 1 2 , 2 7 5 8 , 2 4 3 0 , 2 0 0 6 3 , 3 5 2 2 , 3 $ 0 $ N M , a n i d E - l a c i d e M e c n a r F 3 6 3 6 a n i d E N M , a n i d E - l a c i d e M e c n a r F 5 0 4 6 a n i d E N M , a n i d E - e u n e v A w e r D 7 1 5 6 a n i d E N M , a n i d E - e u n e v A w e r D 5 2 5 6 a n i d E N M , a n i d E - I I C M S e c n a r F 5 2 5 6 a n i d E N M a n i d E - I C M S e c n a r F 5 4 5 6 a n i d E d e u n i t n o c - e r a c h t l a e H l a i c r e m m o C D S , h s i f r a e p S - a t s i V d o o w e g d E N M , a i n i g r i V - a t s i V d o o w e g d E n o i t p i r c s e D N M , l u a P . t S - w e i V n e d r a G N M , h t u l u D - s u i n e s e r F & d o o w e l p a M - s d n i w d o o W & n h o J t S t s a e h t l a e H N M , e n o t s d n a S - c i n i l C y a w e t a G N M , l o m E e k a L - s u p m a C h t l a e H e t n i o P h g i H N M , y r u b d o o W D N , n w o t s e m a J - g n i d l i u B e c i f f O l a c i d e M n w o t s e m a J , e i m a r a L - ) d n i W g n i r p S ( t e e r t S d n 2 2 N 2 7 0 1 e i m a r a L ) 2 ( Y W , s i l o p a e n n i M - l a c i d e M e u n e v A h t 5 2 1 0 7 s i l o p a e n n i M N M , l l e t r a S - e c a l P e g a t i r e H t a s d n e g e L I W , r o i r e p u S - c i n i l C r e n i r a M N M T M , a l u o s s i M - n r e h t r o N t a e r G 0 5 0 3 a l u o s s i M E N , a h a m O - l a t i p s o H c i d e a p o h t r O a k s a r b e N N M , r e t n e C n y l k o o r B - l a t n e D k r a P D I , s l l a F n a c i r e m A - s l l a F n a c i r e m A - k e e r C g n i r p S N M , l l e t r a S - h t u o S t e e r t S d r 3 2 0 0 0 2 l l e t r a S N M , l u a P t S - a z a l P l a c i d e M e i h c t i R N M , h t u l u D - I n o i l i v a P N M , h t u l u D - I I n o i l i v a P D I , d n a l t i u r F - d n a l t i u r F - k e e r C g n i r p S D I , n a i d i r e M - n a i d i r e M - k e e r C g n i r p S D I , d n a l r e v O - d n a l r e v O - k e e r C g n i r p S D I , e s i o B - e s i o B - k e e r C g n i r p S D I , e l g a E - e l g a E - k e e r C g n i r p S h c i h w n o e f i L n i n o i t a i c e r p e d e m o c n i t s e t a l f o e t a D n o i t i s i u q c A r o n o i t a i c e r p e D l a t o T s t n e m e v o r p m I d n a L n o i t i s i u q c a n o i t c u r t s n o C d e t a l u m u c c A & s g n i d l i u B o t t n e u q e s b u s d e z i l a t i p a c s t s o C & s t n e m e v o r p m s g n i d l i u B d e t u p m o c s i t n e m e t a t s s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 1 1 0 2 1 1 0 2 7 0 0 2 1 1 0 2 4 0 0 2 6 0 0 2 8 0 0 2 9 9 9 1 2 1 0 2 1 0 0 2 1 0 0 2 7 0 0 2 7 0 0 2 ) 5 6 1 ( ) 8 6 2 ( ) 7 4 4 ( ) 8 8 5 ( ) 6 2 6 ( $ 3 2 2 , 2 0 0 3 , 4 1 5 8 , 2 2 0 7 , 9 1 6 6 , 2 $ 7 5 1 , 2 3 3 8 , 3 3 2 5 , 2 8 2 0 , 9 9 9 4 , 2 $ 6 6 7 6 4 8 2 3 4 7 6 2 6 1 $ 0 3 3 2 4 6 2 5 2 1 $ 4 2 1 , 2 3 3 8 , 3 9 5 2 , 2 9 0 0 , 9 7 9 4 , 2 $ 6 6 7 6 4 8 2 3 8 6 5 2 6 1 0 1 5 8 , 1 4 5 8 , 4 5 6 3 , 1 ) 3 4 8 , 5 0 1 ( $ 8 2 0 , 5 2 5 $ 4 8 4 , 0 9 4 $ 4 4 5 , 4 3 $ 5 6 9 , 0 5 $ 7 5 1 , 0 4 4 $ 6 0 9 , 3 3 $ 4 1 7 , 3 4 2 $ ) 1 0 4 ( ) 7 9 1 , 1 ( ) 9 3 6 , 2 ( ) 2 1 2 ( ) 6 7 7 , 2 ( ) 4 ( ) 4 3 8 ( ) 5 3 1 , 2 ( $ 0 3 4 , 7 8 4 6 , 5 7 8 7 , 6 1 5 0 , 6 1 4 1 , 7 2 4 4 , 1 0 2 6 , 5 6 5 2 , 5 1 $ 3 4 2 , 5 0 9 5 , 2 7 0 3 , 6 5 3 6 , 5 1 0 7 , 6 2 3 6 7 9 4 , 4 3 9 3 , 1 1 $ 7 8 1 , 2 8 5 0 , 3 0 8 4 6 1 4 0 4 4 0 1 8 3 6 8 , 3 3 2 1 , 1 0 2 2 8 9 , 1 0 4 0 1 6 0 1 3 8 6 , 1 4 8 8 , 1 $ 0 0 2 , 1 $ 7 9 0 , 4 0 7 5 , 2 2 5 3 , 4 5 3 6 , 5 7 9 5 , 6 6 2 5 3 9 8 , 9 8 2 6 , 2 $ 3 3 1 , 2 8 5 0 , 3 $ 0 0 $ 3 5 4 6 1 4 0 4 4 0 1 8 0 8 6 , 3 8 0 1 , 1 0 0 2 2 9 4 9 2 , 2 0 4 6 5 , 0 1 , n o t g n i m o o l B - t e e r t S h t 4 9 W 0 0 0 2 n o t g n i m o o l B l a i r t s u d n I l a i c r e m m o C ) 2 ( N M N M , n a g a E - 5 5 y a w h g i H 5 9 7 2 & 5 8 7 2 n a g a E N M , n a g a E - r e t n e C e c r e m m o C n o t g n i x e L D N , o g r a F - r e n i a t n o C e n o t S ) 2 ( D N , t o n i M - S P I t o n i M N M , e l l i v e s o R - d a o R e k a L g n o L 5 7 0 3 e l l i v e s o R A I , e l a d n a b r U - t e e r t S h t 6 0 1 0 0 9 3 e l a d n a b r U N M , y r u b d o o W - e n a l d o o W 5 6 8 1 y r u b d o o W D I , n a i d i r e M - k c i t s U - k e e r C g n i r p S N M , l e a h c i M t S - c i n i l C l e a h c i M t S D N , t o n i M - 6 1 a z a l P t a y t i n i r T e r a c h t l a e H l a i c r e m m o C l a t o T N M , g n i b b i H - c i n i l C s l l e W I d n a L ) 1 ( s e c n a r b m u c n E d e u n i t n o c - e r a c h t l a e H l a i c r e m m o C n o i t p i r c s e D $ 6 9 7 $ D I , s g n i r p S a d o S - s g n i r p S a d o S - k e e r C g n i r p S S E I R A I D I S B U S D N A T S U R T E T A T S E L A E R S R O T S E V N I 4 1 0 2 , 0 3 l i r p A t a d e i r r a c h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c y n a p m o C o t t s o C l a i t i n I ) s d n a s u o h t n i ( N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R - I I I e l u d e h c S ) 8 9 1 , 0 1 ( $ 5 7 3 , 5 5 $ 8 9 9 , 2 4 $ 7 7 3 , 2 1 $ 9 7 9 , 6 $ 8 9 2 , 6 3 $ 8 9 0 , 2 1 $ 0 8 7 , 3 1 $ l a i r t s u d n I l a i c r e m m o C l a t o T 2014 Annual Report F-49 h c i h w n o e f i L n i n o i t a i c e r p e d e m o c n i t s e t a l f o e t a D d e t u p m o c s i t n e m e t a t s n o i t i s i u q c A r o n o i t a i c e r p e D l a t o T s t n e m e v o r p m I d n a L n o i t i s i u q c a n o i t c u r t s n o C d e t a l u m u c c A & s g n i d l i u B o t t n e u q e s b u s d e z i l a t i p a c s t s o C & s t n e m e v o r p m s g n i d l i u B s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 s r a e y 0 4 0 0 0 2 3 1 0 2 3 0 0 2 4 0 0 2 3 0 0 2 6 0 0 2 4 0 0 2 4 0 0 2 5 0 0 2 - 3 0 0 2 3 0 0 2 3 0 0 2 4 9 9 1 0 0 0 2 3 0 0 2 3 0 0 2 3 0 0 2 3 0 0 2 3 7 9 1 3 9 9 1 3 0 0 2 5 9 9 1 3 0 0 2 3 0 0 2 9 9 9 1 4 0 0 2 3 0 0 2 6 0 0 2 ) 4 3 ( ) 9 9 1 ( ) 4 8 2 ( ) 2 2 7 ( ) 0 6 7 , 4 ( ) 8 0 1 ( ) 3 5 4 ( ) 7 0 5 ( ) 2 3 1 ( ) 6 5 2 , 1 ( ) 1 5 6 , 1 ( ) 2 5 1 , 1 ( ) 0 0 8 , 1 ( ) 6 4 7 , 1 ( ) 0 3 9 ( ) 0 4 8 ( ) 7 6 6 ( ) 7 1 3 ( ) 7 2 2 ( ) 8 1 7 , 1 ( ) 3 3 4 , 1 ( ) 7 0 1 ( ) 3 8 9 ( ) 1 8 5 , 3 ( ) 9 2 7 , 1 ( ) 8 4 4 ( ) 1 7 4 ( 6 0 3 , 1 6 8 1 , 1 0 4 6 , 3 5 2 7 , 1 2 5 1 6 4 3 9 , 1 7 3 1 , 5 1 7 5 , 2 9 0 5 9 4 8 , 8 6 4 5 , 2 0 2 7 , 5 5 6 9 , 8 0 5 6 , 2 3 7 4 , 3 0 4 0 , 2 8 7 7 , 8 0 5 6 2 7 8 2 5 4 9 9 6 , 3 7 9 3 , 3 4 7 9 , 3 1 8 5 1 , 8 1 8 6 , 1 5 5 4 , 2 8 7 9 1 1 2 , 1 4 7 7 , 2 1 0 1 , 6 1 9 0 5 3 0 8 , 1 0 4 8 , 4 5 8 1 , 2 9 5 4 9 6 3 , 6 2 6 3 , 2 8 9 9 , 4 1 5 8 , 7 7 1 3 , 2 0 2 2 , 3 6 4 9 , 1 2 6 6 , 8 0 7 5 5 7 7 9 6 3 9 9 0 , 3 2 1 0 , 3 2 2 3 , 0 1 1 8 1 , 7 1 0 6 , 1 8 8 3 , 2 $ 7 8 2 $ 0 7 2 $ 7 1 5 9 8 0 2 6 6 8 $ 0 2 7 9 1 5 0 2 5 9 4 2 6 , 5 5 2 0 , 2 6 0 1 1 3 1 7 9 2 6 8 3 0 5 0 8 4 , 2 4 8 1 2 2 7 4 1 1 , 1 3 3 3 3 5 2 4 9 6 1 1 0 8 7 9 3 8 0 0 6 5 8 3 0 8 7 6 7 7 9 2 5 6 , 3 4 0 3 2 6 1 7 7 7 3 1 2 1 3 2 9 9 0 , 1 8 4 8 , 2 0 3 3 , 1 3 7 9 2 5 8 7 4 1 2 6 4 , 5 0 7 3 2 1 7 9 5 9 8 0 , 2 8 3 7 , 1 7 2 1 7 6 $ 5 7 $ 3 7 7 1 1 2 , 1 3 0 7 , 2 5 6 6 , 4 1 3 9 4 0 0 8 , 1 9 9 6 , 4 0 2 4 , 1 6 4 4 4 0 3 , 5 0 6 3 , 2 8 0 8 , 4 1 5 5 , 5 3 2 0 , 1 0 5 2 , 2 2 4 1 , 1 6 1 2 , 3 3 5 4 0 7 7 7 5 3 9 9 0 , 3 6 4 6 , 2 0 1 6 , 8 5 3 5 , 5 5 7 5 , 1 8 1 7 , 1 I d n a L ) 1 ( s e c n a r b m u c n E 5 1 5 7 8 0 2 2 4 8 5 3 0 , 5 2 9 0 3 1 6 7 2 4 7 3 0 5 6 4 4 , 2 4 8 1 1 8 6 6 6 5 7 9 2 0 5 2 6 4 0 0 1 0 5 5 6 3 8 0 0 6 4 5 1 9 7 6 6 5 8 8 5 7 2 , 3 0 0 2 3 3 , 1 0 9 6 , 2 1 6 5 3 2 1 6 2 8 8 3 2 0 , 2 0 0 6 2 4 , 1 0 4 3 9 , 1 9 9 3 1 7 9 4 7 8 0 7 7 7 0 7 6 2 , 2 0 0 0 0 0 0 $ 8 7 $ D N , t o n i M - k n a B l a n o i t a n r e t n I t s r i F d a e h w o r r A N M , e l l i v s n r u B - r e t n e C p i r t S 1 e l l i v s n r u B D N , t o n i M - n i a M h t u o S 7 1 l i a t e R l a i c r e m m o C n o i t p i r c s e D N M , e k a L t s e r o F - r e t n e C e k a l t s e W e k a L t s e r o F D N , s k r o F d n a r G - l l a M k r a p d e M s k r o F d n a r G D N , n w o t s e m a J - r e t n e C s s e n i s u B n w o t s e m a J D N , n w o t s e m a J - l l a M o l a f f u B n w o t s e m a J D N , s k r o F d n a r G - e k i m r a C s k r o F d n a r G N M , n i l p m a h C - d n o P h t u o S n i l p m a h C N M , n e s s a h n a h C D N , t o n i M - - e g a l l i V t s e W n a h C a z a l P t s e W a t o k a D N M , h t u l u D - l i a t e R d l e f n e D h t u l u D N M , h t u l u D - d n a r G 5 1 6 4 h t u l u D D N , o g r a F - y t i n u m m o C s s e r p x E o g r a F N M , e k a L t s e r o F - o t u A e k a L t s e r o F T M , l l e p s i l a K - r e t n e C l i a t e R l l e p s i l a K N M , e l l i v e k a L - r e t n e C p i r t S e l l i v e k a L ) 2 ( D N , t o n i M - d a e h w o r r A t o n i M ) 2 ( D N , t o n i M - a z a l P t o n i M N M , o l l e c i t n o M - e r o t S C o l l e c i t n o M E N , a h a m O - e l b o N & s e n r a B a h a m O N M , y t i C e n i P - e r o t S - C y t i C e n i P N M , r e t s e h c o R - e r a u q S d o o w e l p a M r e t s e h c o R N M , d u o l C . t S - e t a g t s e W d u o l C . t S I W , n o t s e W - l i a t e R n o t s e W N M , y t i C e n i P - e r a u q S n e e r g r e v E y t i C e n i P I W , n o t s e W - s n e e r g l a W n o t s e W ) 5 5 2 , 8 2 ( ) 8 8 2 , 4 2 4 ( $ $ 9 6 2 , 7 1 1 $ 2 7 1 , 8 9 $ 7 9 0 , 9 1 $ 3 4 6 , 1 2 1 3 0 , 6 9 9 , 1 $ 4 1 0 , 1 9 7 , 1 $ 7 1 0 , 5 0 2 $ 2 7 0 , 9 6 2 $ $ 2 0 7 , 8 7 $ 4 2 9 , 6 1 $ 1 2 6 , 6 2 8 8 5 , 1 4 5 , 1 $ 1 7 3 , 5 8 1 $ 9 8 6 , 7 9 9 $ $ l i a t e R l a i c r e m m o C l a t o T l a t o t b u S S E I R A I D I S B U S D N A T S U R T E T A T S E L A E R S R O T S E V N I 4 1 0 2 , 0 3 l i r p A t a d e i r r a c h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c y n a p m o C o t t s o C l a i t i n I ) s d n a s u o h t n i ( N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R - I I I e l u d e h c S 2014 Annual Report F-50 n o i t i s i u q c A r o n o i t a i c e r p e D l a t o T s t n e m e v o r p m I d n a L n o i t i s i u q c a f o e t a D d e z i l a t i p a c n o i t c u r t s n o C d e t a l u m u c c A & s g n i d l i u B o t t n e u q e s b u s s t s o C & s t n e m e v o r p m s g n i d l i u B I d n a L ) 1 ( s e c n a r b m u c n E n o i t p i r c s e D S E I R A I D I S B U S D N A T S U R T E T A T S E L A E R S R O T S E V N I 4 1 0 2 , 0 3 l i r p A t a d e i r r a c h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c y n a p m o C o t t s o C l a i t i n I ) s d n a s u o h t n i ( N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R - I I I e l u d e h c S 2 1 0 2 3 1 0 2 8 0 0 2 3 1 0 2 6 0 0 2 6 0 0 2 2 1 0 2 4 1 0 2 3 0 0 2 3 1 0 2 3 1 0 2 3 1 0 2 6 0 0 2 4 1 0 2 2 1 0 2 3 0 0 2 4 1 0 2 9 0 0 2 6 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $ 0 5 0 , 1 $ 6 7 8 1 1 7 3 2 4 0 5 2 , 3 0 6 8 , 1 8 7 2 , 4 8 5 4 2 4 , 1 7 3 5 0 9 8 2 9 9 7 1 1 6 7 3 , 1 7 7 5 , 3 0 8 1 9 3 3 4 1 1 2 1 8 $ 4 6 8 , 2 2 $ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $ 0 5 0 , 1 0 5 2 , 3 $ 0 0 $ 6 7 8 1 1 7 3 2 4 0 6 8 , 1 8 7 2 , 4 8 5 4 2 4 , 1 7 3 5 0 9 8 2 9 9 7 1 1 6 7 3 , 1 7 7 5 , 3 0 8 1 9 3 3 4 1 1 2 1 8 0 0 0 0 0 4 2 0 0 0 2 0 2 6 5 4 0 0 9 0 1 8 4 3 , 1 $ 4 6 8 , 2 2 $ 9 4 0 , 2 $ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $ 0 5 0 , 1 0 5 2 , 3 $ 4 1 3 1 1 7 3 2 4 0 6 8 , 1 8 7 2 , 4 8 5 0 0 4 , 1 7 3 5 0 9 8 2 9 9 5 1 1 6 7 3 , 1 9 2 2 , 2 6 7 1 9 3 3 5 2 1 8 $ 5 1 8 , 0 2 $ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $ $ D N , k c r a m s i B - n i a M E 0 0 7 k c r a m s i B D N , n w o t s e m a J - e g d i R r e e D N M , n a g a E - n a g a E I W , e t u h C d n a r G - e r a u q S n w o t e g r o e G D N , s k r o F d n a r G - s k r o F d n a r G N M , i t n a s I - d e v o r p m i n U i t n a s I T M , l l e p s i l a K - l l e p s i l a K N M , l l e t r a S - e c a l P e g a t i r e H t a s d n e g e L D N , t o n i M - ) 4 t o L e t a g h t u o S ( t o n i M D N , t o n i M - k n a B o g r a F s l l e W t o n i M N M , o l l e c i t n o M - o l l e c i t n o M D N , k c r a m s i B - 6 1 9 4 k c r a m s i B N M , r e t s e h c o R - s l l i H r e g d a B d n a L d e v o r p m n U i D S , y t i C d i p a R - d e v o r p m i n U y t i C d i p a R D N , n o t s i l l i W - s t h g i e H e c n a s s i a n e R I W , s l l a F r e v i R - s l l a F r e v i R A I , d n a l t i u r F - d n a l t i u r F k e e r C g n i r p S A I , e l a d n a b r U - e l a d n a b r U d n a L d e v o r p m n U i l a t o T I W , n o t s e W - n o t s e W 2014 Annual Report F-51 n o i t i s i u q c A r o n o i t a i c e r p e D l a t o T s t n e m e v o r p m I d n a L n o i t i s i u q c a f o e t a D d e z i l a t i p a c n o i t c u r t s n o C d e t a l u m u c c A & s g n i d l i u B o t t n e u q e s b u s s t s o C & s t n e m e v o r p m s g n i d l i u B I d n a L ) 1 ( s e c n a r b m u c n E n o i t p i r c s e D S E I R A I D I S B U S D N A T S U R T E T A T S E L A E R S R O T S E V N I 4 1 0 2 , 0 3 l i r p A t a d e i r r a c h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c y n a p m o C o t t s o C l a i t i n I ) s d n a s u o h t n i ( N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R - I I I e l u d e h c S 3 1 0 2 3 1 0 2 3 1 0 2 3 1 0 2 2 1 0 2 2 1 0 2 3 1 0 2 3 1 0 2 a / n 0 0 0 0 0 0 0 0 0 0 ) 8 8 2 , 4 2 4 ( 9 2 8 , 6 8 9 0 , 2 0 8 5 , 1 4 1 0 , 9 5 6 0 , 8 2 0 8 9 , 3 1 9 2 5 , 7 2 6 9 4 , 2 9 2 2 , 5 8 5 8 , 1 3 3 1 , 1 1 9 1 , 8 4 7 3 , 4 2 0 8 0 , 2 1 5 6 0 , 5 2 6 9 4 , 2 $ 8 1 0 , 3 1 $ 0 3 9 , 0 1 $ 8 8 0 , 2 0 0 6 , 1 0 4 2 1 9 6 , 3 7 4 4 3 2 8 0 0 9 , 1 4 6 4 , 2 0 $ 6 1 6 5 9 , 1 9 2 2 , 5 5 5 5 , 1 8 2 1 , 1 8 9 8 5 6 1 , 1 6 9 4 , 2 4 6 9 , 1 1 $ 4 7 9 , 8 $ 5 0 2 4 8 , 1 9 1 8 , 2 2 6 1 1 3 9 2 , 7 0 0 9 , 3 2 0 8 8 0 , 2 0 0 6 , 1 0 4 2 1 9 6 , 3 7 4 4 3 2 8 0 0 9 , 1 4 6 4 , 2 0 $ 0 0 0 0 0 0 0 0 0 0 $ $ 9 0 6 , 4 0 1 $ 6 3 5 , 1 9 $ 3 5 2 , 3 1 $ 7 0 4 , 6 2 4 0 5 , 3 2 1 , 2 $ 0 7 3 , 2 8 8 , 1 $ 4 3 1 , 1 4 2 $ 8 2 5 , 7 9 2 $ $ 9 4 9 , 4 6 $ 3 5 2 , 3 1 $ 7 3 5 , 6 0 6 , 1 $ 9 3 4 , 9 1 2 $ 9 8 6 , 7 9 9 $ $ $ D N , t o n i M - e t a g h t u o S t a s n o m m o C N M , d u o l C . t S - I I t r u o C s s e r p y C D N , n o t s i l l i W - s n o m m o C a t o k a D N M , s i l o p a e n n i M - 0 2 d e R D N , s k r o F d n a r G - t n i o P l a n i d r a C D N , t o n i M - I I u a e t a h C D N , n o t s i l l i W - I s t h g i e H e c n a s s i a n e R N M , y e l l a V n e d l o G - a t a c r A s s e r g o r P n i t n e m p o l e v e D s s e r g o r P n i t n e m p o l e v e D l a t o T r e h t O l a t o T 2014 Annual Report F-52 s ’ y n a p m o C e h t r e d n u r o t i d e r c f o e n i l k n a b - i t l u m s ’ y n a p m o C e h t r e d n u g n i w o s t n u o m a e d u l c n i t o n o d s t n u o m a e s e h T . 4 1 0 2 , 0 3 l i r p A f o s a s e c n a l a b e l b a y a p s e g a g t r o m e h t e r a n m u l o c s i h t n i s t n u o m A ) 1 ( e h t m o r f s e i t r e p o r p e l b i g i l e e v o m e r d n a d d a y a m y n a p m o C e h T . t i d e r c f o e n i l k n a b - i t l u m n o i l l i m 0 . 2 7 $ s ’ y n a p m o C e h t g n i r u c e s l o o p l a r e t a l l o c e h t n i d e d u l c n i s a w y t r e p o r p s i h t , 4 1 0 2 , 0 3 l i r p A f o s A ) 2 ( . y t i r u c e s s a d e d i v o r p s e i t r e p o r p f o e u l a v e h t f o % 0 6 d e e c x e t o n y a m y t i l i c a f e h t r e d n u s e c n a v d A . d e i f s i t a s e r a s t n e m e r i u q e r l a r e t a l l o c m u m i n i m n i a t r e c f i l o o p l a r e t a l l o c . s n a o l n o i t c u r t s n o c INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES April 30, 2014 Schedule III REAL ESTATE AND ACCUMULATED DEPRECIATION Reconciliations of the carrying value of total property owned for the three years ended April 30, 2014, 2013, and 2012 are as follows: Balance at beginning of year Additions during year Multi-Family Residential Commercial Office Commercial Healthcare Commercial Industrial Commercial Retail Improvements and Other Deductions during year Cost of real estate sold Impairment charge Write down of asset and accumulated depreciation on impaired assets Properties classified as held for sale during the year Other(A) Balance at close of year (in thousands) 2014 2013 2012 $ 2,032,970 $ 1,892,009 $ 1,770,798 84,117 0 18,005 0 0 34,637 2,169,729 113,859 0 11,122 5,900 1,240 36,375 2,060,505 47,433 0 47,408 0 2,316 35,176 1,903,131 (85,030) (43,189) (21,953) (305) (3,498) (127) (31,688) (10,307) (3,484) 0 (1,288) (6,209) $ 1,996,031 $ 2,032,970 $ 1,892,009 0 (1,893) (3,384) Reconciliations of accumulated depreciation/amortization for the three years ended April 30, 2014, 2013, and 2012, are as follows: Balance at beginning of year Additions during year Provisions for depreciation Deductions during year Accumulated depreciation on real estate sold Write down of asset and accumulated depreciation on impaired assets Other(A) Balance at close of year (in thousands) 2014 2013 2012 $ 420,421 $ 373,490 $ 328,952 57,575 56,611 51,093 (19,413) (6,444) (758) (31,688) (2,607) 424,288 $ 0 (3,236) 420,421 $ 0 (5,797) 373,490 $ 2014 Annual Report F-53 INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES April 30, 2014 Schedule III REAL ESTATE AND ACCUMULATED DEPRECIATION Reconciliations of development in progress for the three years ended April 30, 2014, 2013, and 2012, are as follows: Balance at beginning of year Additions during year Unimproved land acquisitions Unimproved land moved to development in progress Improvements and other Deductions during year Involuntary conversion Development placed in service(B) Other(C) Balance at close of year (in thousands) 2014 2013 2012 $ 46,782 $ 27,599 $ 9,693 2,079 2,870 123,240 9,177 0 52,970 2,718 0 40,358 (7,052) (63,210) (100) 104,609 $ 0 (42,964) 0 46,782 $ 0 (23,434) (1,736) 27,599 $ Reconciliations of unimproved land for the three years ended April 30, 2014, 2013, and 2012, are as follows: Balance at beginning of year Additions during year Unimproved land acquisitions Improvements and other Deductions during year Unimproved land moved to development in progress Balance at close of year Total real estate investments(D) (in thousands) 2014 2013 2012 $ 21,503 $ 10,990 $ 6,550 3,022 1,209 13,329 854 4,600 10 (2,870) 22,864 $ (3,670) 21,503 $ (170) 10,990 $ $ 1,699,216 $ 1,680,834 $ 1,557,108 Includes development projects that are placed in service in phases. (A) Consists of miscellaneous disposed assets. (B) (C) Consists of miscellaneous re-classed assets. (D) The net basis of the Company’s real estate investments for Federal Income Tax purposes was $1.5 billion, $1.5 billion and $1.4 billion at April 30, 2014, 2013 and 2012, respectively. 2014 Annual Report F-54 Exhibit Index 3.1 3.2 3.3 4.1 4.2 4.3 4.4 Articles of Amendment and Third Restated Declaration of Trust of Investors Real Estate Trust, as amended, filed herewith. Third Restated Trustees’ Regulations (Bylaws), dated May 16, 2007, as amended June 26, 2013 and incorporated herein by reference to the Company’s Current Report on Form 8-K , filed with the SEC on July 2, 2013. 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. Loan Agreement dated August 12, 2010 by and among IRET Properties, as borrower, the financial institutions party thereto as lenders, and First International Bank & Trust as lender and lead bank, incorporated herein by reference to the Company’s Current Report on Form 8-K, filed with the SEC on August 18, 2010. Third Amendment to Loan Agreement dated June 15, 2012 by and between IRET Properties, as borrower, and First International Bank & Trust, as lender, incorporated herein by reference to the Company’s Current Report on Form 8-K, filed with the SEC on June 22, 2012. Fifth Amendment to Loan Agreement dated August 9, 2013 by and between IRET Properties, as borrower, and First International Bank & Trust, as lender, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed August 14, 2013 and incorporated herein by reference. Amended and Restated Loan Agreement dated November 20, 2013 by and between IRET Properties, as borrower, and First International Bank & Trust, as lender, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 25, 2013 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 10.3 10.4 10.5 10.6 10.7 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. 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. Contribution Agreement, filed as Exhibit 10.1 to the Company’s Form 8-K filed May 17, 2006, and incorporated herein by reference. 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. 10.8* Short-Term Incentive Program, filed as Exhibit 10.1 to the Company’s Form 8-K filed June 4, 2012 and incorporated herein by reference. 10.9* Long-Term Incentive Program, filed as Exhibit 10.2 to the Company’s Form 8-K filed June 4, 2012 and incorporated herein by reference. 2013 Annual Report 10.10 Construction and Term Loan Agreement, filed as Exhibit 10.1 to the Company’s Form 8-K filed March 21, 2013 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 Independent Registered Public Accounting Firm, filed herewith. 23.2 Consent of Independent Registered Public Accounting Firm, filed herewith 31.1 Section 302 Certification of President and Chief Executive Officer, filed herewith. 31.2 Section 302 Certification of Executive 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 Executive Vice President and Chief Financial Officer, filed herewith. 101 The following materials from our Annual Report on Form 10-K for the year ended April 30, 2013 formatted in eXtensible Business Reporting Language ("XBRL"): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Equity, (iv) the Consolidated Statements of Cash Flows, and (v) notes to these consolidated financial statements.(1) Indicates management compensatory plan, contract or arrangement. ________________________ * (1) Users of this data are advised pursuant to Rule 406T of Regulation S-T that these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act, are deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise are not subject to liability under these sections. 2014 Annual Report CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE DISTRIBUTIONS (Unaudited) 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 plus fixed charges, less (income) loss from non-controlling interests and interest capitalized. 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. Earnings (Loss) income from continuing operations Add: Combined fixed charges and preferred distributions (see below) Less: (Income) loss noncontrolling interests – consolidated real estate entities Interest capitalized Preferred distributions Total earnings Fixed charges Interest expensed Interest capitalized Total fixed charges Preferred distributions Total combined fixed charges and preferred distributions (in thousands, except ratios) Fiscal Year Ended April 30, 2014 2013 2012 2011 2010 $ (23,390) $ 20,677 $ 8,644 $ 4,679 $ 5,710 73,933 73,657 68,172 64,954 71,497 (910) (2,856) (11,514) (809) (742) (9,229) (135) (571) (2,372) 180 (57) (2,372) (22) (19) (2,372) $ 35,263 $ 83,554 $ 73,738 $ 67,384 $ 74,794 $ $ 59,563 2,856 63,686 742 65,229 571 62,525 57 62,419 $ 11,514 64,428 $ 9,229 65,800 $ 2,372 62,582 $ 2,372 69,106 19 69,125 2,372 $ 73,933 $ 73,657 $ 68,172 $ 64,954 $ 71,497 Ratio of earnings to fixed charges Ratio of earnings to combined fixed charges and preferred distributions (1) (1) 1.30x 1.13x 1.12x 1.08x 1.08x 1.08x 1.04x 1.05x (1) Due to non-cash asset impairment charges of $42.6 million, earnings were inadequate to cover fixed charges and combined fixed charges and preferred distributions by $27.2 million and $38.7 million, respectively. Excluding the asset impairment charge, the ratios of earnings to fixed charges and earnings to combined fixed charges and preferred distributions would have been 1.25 and 1.05, respectively, for the fiscal year ended April 30, 2014. 2014 Annual Report SUBSIDIARIES OF INVESTORS REAL ESTATE TRUST Name of Subsidiary 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 Health Investors Business Trust IRET-1715 YDR, LLC IRET-3900 Urbandale, LLC IRET - 6405 France Medical, LLC IRET-71 France, LLC IRET - Ashland Apartments, LLC IRET - BD, LLC IRET - Billings 2300 CBR, LLC IRET - Brenwood, LLC IRET - Canyon Lake, LLC IRET - Chateau Apartments, LLC IRET - Cimarron Hills, LLC IRET - Colony Apartments (NE), LLC IRET Corporate Plaza, LLC IRET-Cottage Gables, LLC IRET - Country Meadows 2, LLC IRET-Cypress Court Apartments, LLC IRET - DMS, LLC IRET - Forest Park, LLC IRET-Golden Jack, L.L.C. IRET - Grand Gateway Apartments, LLC IRET - Homestead Gardens I, LLC IRET - Homestead Gardens II, LLC IRET, Inc. IRET - Indian Hills, LLC IRET - Jamestown Medical Building, LLC IRET - Kirkwood Apartments, LLC IRET - Lakeside Apartments (NE), LLC IRET - LEXCOM, LLC IRET - Minot Apartments, LLC IRET - Minot EV, LLC IRET - Missoula 3050 CBR, LLC IRET-MR9, LLC IRET-MR9 Holding, LLC IRET - North Pointe Apartments, LLC IRET - Oakmont, LLC IRET - Olympic Village (MT), LLC IRET - Park Meadows, LLC IRET - Plymouth, LLC IRET Properties, a North Dakota Limited Partnership IRET-QR, LLC IRET-Quarry Ridge, LLC IRET-RED 20, LLC IRET - Regency Park, LLC IRET-Ridge Oaks, LLC IRET - Rimrock, LLC IRET - River Ridge Apartments, LLC IRET - Rochester Crown Apartments, LLC IRET - Rocky Meadows, LLC IRET - SH1, LLC IRET - Silver Spring, LLC IRET - Southbrook & Mariposa, LLC IRET - Sunset Trail, LLC IRET - Thomasbrook Apartments, LLC IRET - Valley Park Manor, LLC 2014 Annual Report Exhibit 21.1 State of Incorporation or Organization Minnesota North Dakota North Dakota North Dakota North Dakota North Dakota Delaware Minnesota Delaware North Dakota North Dakota Delaware Minnesota North Dakota Minnesota North Dakota North Dakota North Dakota Delaware North Dakota North Dakota North Dakota North Dakota Minnesota Delaware Delaware Delaware Delaware Delaware North Dakota North Dakota North Dakota North Dakota Delaware North Dakota North Dakota North Dakota North Dakota Delaware Delaware North Dakota South Dakota North Dakota Delaware Minnesota North Dakota Delaware Delaware North Dakota North Dakota Iowa North Dakota North Dakota North Dakota North Dakota North Dakota Delaware North Dakota Delaware North Dakota North Dakota continued Name of Subsidiary IRET - Villa West Apartments, LLC IRET - Westwood Park, LLC IRET - Whispering Ridge Apartments, LLC IRET-Williston Garden Apartments, LLC IRET - WRH1, LLC LSREF Golden Property 14 (WY), 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 Operating Company LLC WRH Holding, LLC State of Incorporation or Organization North Dakota North Dakota Delaware North Dakota North Dakota Delaware North Dakota North Dakota North Dakota North Dakota Minnesota Minnesota Minnesota Delaware Iowa Delaware North Dakota 2014 Annual Report CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM EXHIBIT 23.1 We have issued our reports dated June 30, 2014, with respect to the consolidated financial statements, schedules, and internal control over financial reporting included in the Annual Report of Investors Real Estate Trust on Form 10-K for the year ended April 30, 2014. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Investors Real Estate Trust on Forms S-8 (File Nos. 333-191539, 333-173393, 333- 155497, and 333-140176) and on Form S-3 (File Nos. 333-189637, 333-189554, 333-187620, 333-182165, 333- 177143, 333-173568, 333-169710, 333-166162, 333-163267, 333-162349, 333-160948, 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). /s/ GRANT THORNTON LLP Minneapolis, Minnesota June 30, 2014 2014 Annual Report CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM EXHIBIT 23.2 We consent to the incorporation by reference in Registration Statement Nos. 333-191539, 333-189637, 333-189554, 333-187620, 333-182165, 333-177143, 333-173568, 333-169710, 333-166162, 333-163267, 333-162349, 333- 160948, 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. 333-173393, 333-140176 and 333-155497 on Form S-8 of our report, dated July 16, 2012 (June 30, 2014 as to the effects of discontinued operations as discussed in Note 12 and the segment reclassification discussed in Note 2), relating to the consolidated financial statements and financial statement schedule of Investors Real Estate Trust and subsidiaries for the year ended April 30, 2012 appearing in this Annual Report on Form 10-K of Investors Real Estate Trust and subsidiaries for the year-ended April 30, 2014. /s/ DELOITTE & TOUCHE LLP Minneapolis, Minnesota June 30, 2014 2014 Annual Report Certification Exhibit 31.1 I, Timothy P. Mihalick, 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: June 30, 2014 By: /s/ Timothy P. Mihalick Timothy P. Mihalick, President & CEO 2014 Annual Report Certification I, Diane K. Bryantt, certify that: Exhibit 31.2 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: June 30, 2014 By: /s/ Diane K. Bryantt Diane K. Bryantt, Executive Vice President & CFO 2014 Annual Report Certification 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, 2014, as filed with the Securities and Exchange Commission on June 30, 2014, (the “Report”), I, Timothy P. Mihalick, 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/ Timothy P. Mihalick Timothy P. Mihalick President and Chief Executive Officer June 30, 2014 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. 2014 Annual Report Certification 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, 2014, as filed with the Securities and Exchange Commission on June 30, 2014, (the “Report”), I Diane K. Bryantt, Executive 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 Executive Vice President and Chief Financial Officer June 30, 2014 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. 2014 Annual Report Shareholder Information Trustees & Executive Officers Jeffrey L. Miller, Chairman of the Board Trustee; Private Investor Managing Partner of Miller Properties, LLP; Managing Partner of K&J Miller Holdings LLP Annual Meeting The Annual Meeting of Shareholders of the company will be held at 7:00 p.m. CDT on September 16, 2014, at the Grand Hotel, 1505 North Broadway, Minot, North Dakota. Linda Hall Trustee; Entrepreneur-in-Residence, Carlson School of Management, University of Minnesota; Consultant Shares Listed The company’s common shares of beneficial interest are listed on the New York Stock Exchange (NYSE) under the Terrance P. Maxwell Managing Director, Director of Corporate Development and Strategic Investment, and member of the Executive Committee, Robert W. Baird & Co. Incorporated Stephen L. Stenehjem Trustee; President & Chief Executive Officer of Watford City BancShares, Inc., a bank holding company; President & Chairman of First International Bank & Trust, Watford City, North Dakota, a state banking and trust association John D. Stewart, Vice Chairman of the Board Trustee; President of Glacial Holdings, Inc. and Glacial Holdings LLC, multi-family residential and commercial real estate holding companies; President of Glacial Holdings Property Management, Inc., a property management company Jeffrey K. Woodbury Trustee; Vice President, Acquisitions and Development, Woodbury Corporation Timothy P. Mihalick Trustee; President and Chief Executive Officer Thomas A. Wentz, Jr. Trustee; Executive Vice President and Chief Operating Officer Michael A. Bosh Executive Vice President and General Counsel Diane K. Bryantt Executive Vice President and Chief Financial Officer Mark W. Reiling Executive Vice President of Asset Management Charles A. Greenberg Senior Vice President, Commercial Asset Management Ted E. Holmes Senior Vice President, Finance Andrew Martin symbol “IRET.” The company’s Series A and Series B cumulative preferred shares of beneficial interest are listed on the NYSE under the symbols “IRETP” and “IRETPB” respectively. Independent Accountants Grant Thornton LLP Minneapolis, Minnesota Legal Counsel Leonard Street and Deinard Minneapolis, Minnesota 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, 2014, 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. Registrar and Transfer Agent American Stock Transfer & Trust Company, LLC Attention: Investors Real Estate Trust 6201 15th Avenue Brooklyn, New York 11219 Senior Vice President, Residential Property Management 888-200-3167  

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