INVESTORS REAL ESTATE TRUST
2015 A N N U A L R E P O R T
President & CEO Timothy Mihalick
A transformational year for IRET
Fellow shareholders,
In a significant shift in strategy, IRET has disposed of most of our
commercial office and retail properties to continue on our focused
strategy of multifamily residential and healthcare properties.
I believe this move will greatly streamline our business model and
help accelerate growth. The Company continues to demonstrate its
ability to grow topline revenue, manage controllable expenses, and
dispose of non-core assets.
Additionally, we have an impressive $205 million of new projects
coming online in just the next six months! We think these initiatives
will result in a more growth-oriented portfolio, provide greater
financial flexibility, strengthen net operating income, and make us a
leader in our markets.
“Management is transforming our portfolio to improve the
predictability of earnings and cash flow by disposing of our
office and retail properties, and concentrating efforts on
apartments and healthcare. New developments and
acquisitions in these segments will help propel growth and
create an exciting future for IRET.”
The majority of the proceeds from these sales will be utilized to
reduce leverage and provide capital to fund further acquisitions and
developments. We will of course provide updates on these
initiatives over the coming months in fiscal 2016.
(Statements about IRET’s future expectations and plans are “forward-looking
statements,” subject to risks and uncertainties as disclosed more fully in the
attached Annual Report on Form 10-K, under “Special Note Regarding
Forward-Looking Statements.”)
Stock Information
$7.17 stock price
138,455,349 shares and units outstanding
$993 M market cap
7.3% dividend yield
$0.13 common share quarterly distribution
$0.52 annualized common share distribution
Over the past two years, IRET has carefully invested into Western North Dakota,
and the energy region known as the “Bakken”. Even though the energy industry
has had its ups and downs, to date, we have had very strong returns on those
investments. Currently, less than 10% of our NOI comes from the Bakken, and we
believe that our history of operating and owning real estate in this nearby market
provides our investors opportunity with minimalized energy risk.
“ We are pleased to welcome Pam Moret and
Jeff Caira to IRET’s Board of Trustees. Each
brings years of experience in finance, strategic
development, and corporate public affairs, and
we expect their guidance will be invaluable as
we continue to execute our strategic plan.”
Sincerely,
President & CEO Timothy Mihalick
Multi-Family and Healthcare Properties
REVENUE
in millions of dollars
259.4
265.5
279.7
FFO
in millions of dollars
78.9
79.9
86.6
DISTRIBUTIONS
cents per share
.5200
.5200
.5200
TOTAL ASSETS
in millions of dollars
1,889.6 1,869.2
1.997.8
13
14
15
13
14
15
13
14
15
13
14
15
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, 2015
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 001-35624
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
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
☐ Accelerated filer
☐ Smaller reporting Company
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, 2014 was $883,522,385 based
on the last reported sale price on the New York Stock Exchange on October 31, 2014. 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 1, 2015, was 124,574,042.
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 2015 Annual Meeting of Shareholders to be held on September 15, 2015 are incorporated by
reference into Part III (Items 10, 11, 12, 13 and 14) hereof.
2015 Annual Report
INVESTORS REAL ESTATE TRUST
INDEX
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
Item 1.
Item 1A.
Item 1B
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Exhibit Index
Signatures
Reports of Independent Registered Public Accounting Firm and Financial Statements
Exhibits, Financial Statement Schedules
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Trustees, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Trustee Independence
Principal Accountant Fees and Services
PAGE
5
10
22
22
34
34
35
37
37
76
77
77
77
79
79
79
79
79
79
79
79
82
F-1 to F-54
2015 Annual Report 3
Index
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 plans and objectives, including among other things, our future financial condition, anticipated capital expenditures, anticipated
distributions and 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. Forward-looking statements are typically identified by the use of terms such as “believe,” “expect,” “intend,” “project,”
“plan,” “anticipate,” “potential,” “may,” “will,” “designed,” “estimate,” “should,” “continue” and other similar expressions. These statements indicate that we have used assumptions
that are subject to a number of risks and uncertainties that could cause our actual results or performance to differ materially from those projected.
Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, we can give no assurance that these expectations will
prove to have been correct. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include:
•
•
the economic health of the markets in which we own and operate multi-family and commercial properties, in particular the states of Minnesota and North Dakota, or other markets
in which we may invest in the future;
the economic health of our commercial tenants;
• market rental conditions, including occupancy levels and rental rates, for multi-family residential and commercial properties;
•
•
•
•
•
•
our ability to identify and secure additional multi-family residential and commercial properties that meet our criteria for investment;
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.
2015 Annual Report 4
Index
Item 1. Business
Overview
PART I
Investors Real Estate Trust (“we,” “us,” “IRET” or the “Company”) is a self-advised equity Real Estate Investment Trust, or 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 properties composed of office, healthcare, industrial and retail. These
properties are located primarily in the upper Midwest states of Minnesota and North Dakota. For the fiscal year ended April 30, 2015, our real estate investments in these two states
accounted for 69.5% 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 located in the states where we own properties.
We seek to diversify our investments among multi-family residential and commercial properties. Our commercial properties consist of office, healthcare, industrial and retail. In January
2015, we revised our strategic plan and are exploring the potential sale of substantially all of our office and retail properties. As of April 30, 2015, our real estate portfolio consisted of:
•
•
•
•
•
100 multi-family residential properties containing 11,844 apartment units, having a total real estate investment amount net of accumulated depreciation of $766.1 million;
53 office properties containing approximately 4.2 million square feet of leasable space, having a total real estate investment amount net of accumulated depreciation of $365.3
million;
66 healthcare properties (including senior housing) containing approximately 3.0 million square feet of leasable space, having a total real estate investment amount net of
accumulated depreciation of $384.9 million;
7 industrial properties containing approximately 1.2 million square feet of leasable space, having a total real estate investment amount net of accumulated depreciation of $49.4
million; and
23 retail properties containing approximately 1.2 million square feet of leasable space, having a total real estate investment amount net of accumulated depreciation of $83.4
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, 2015, no individual
tenant accounted for more than 10% of our total real estate rentals, although affiliated entities of Edgewood Vista together accounted for approximately 15.1% of our total commercial
segments’ minimum rents.
Structure
We were organized under the laws of North Dakota on July 31, 1970, and have operated as a REIT under Sections 856-858 of the Internal Revenue Code of 1986, as amended (the
“Internal Revenue Code”) since our formation. On February 1, 1997, we were restructured as an UPREIT, and have conducted our daily business operations primarily through IRET
Properties.
IRET Properties was 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, 2015, IRET, Inc. owned an 89.9% interest in IRET Properties. The remaining ownership of IRET Properties is held by
individual limited partners.
2015 Annual Report 5
Index
Investment Strategy and Policies
Our business objective is to increase shareholder value by employing a disciplined investment strategy. This strategy is implemented by growing income-producing assets in desired
geographical markets in real estate classes we believe will provide a consistent return on investment for our shareholders.
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 “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 involves investing in multi-family residential properties and commercial properties that are leased to single or multiple tenants, usually for five years or longer,
and are located throughout the upper Midwest. Our commercial properties consist of office, healthcare, industrial and retail. Since January 2015, we have concentrated on multi-family
residential and healthcare property acquisitions, and are exploring the potential sale of substantially all of our office and retail properties. 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, except we may not invest in or make a mortgage loan
without obtaining an appraisal concerning the value of the underlying property unless it is a loan insured or guaranteed by a government or a governmental agency. 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, 2015 and 2014, we had no junior mortgages outstanding. We had no investments in real estate mortgages at April 30, 2015 and 2014.
2015 Annual Report 6
Index
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 Regarding Other Activities
Our current policies as they pertain to other 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 distributions meet
these requirements. 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 2015 and 2014 totaled approximately 81.3% and
82.5%, 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 rates 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, 2015, our ratio of total indebtedness to total real estate investments was 64.1% while our ratio of total indebtedness as
compared to our Net Assets (computed in accordance with our Bylaws) was 97.8%.
Offering securities in exchange for property. Our organizational structure allows us to issue shares and to offer limited partnership units of IRET Properties in exchange for real estate.
The limited partnership units are convertible into cash, or, at our option, common shares on a one-for-one basis after a minimum one-year holding period. All limited partnership units
receive the same cash distributions as those paid on common shares. Limited partners are not entitled to vote on any matters affecting us until their limited partnership units are
converted into 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)
2015
89
800
$
2014
361
3,480
$
2013
1,620
12,632
$
2015 Annual Report 7
Index
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.
During fiscal year 2015, we did not repurchase any of our outstanding common shares, preferred shares or limited partnership units.
Making 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, 2015 and 2014.
Investing 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; office; healthcare, including senior housing; industrial and retail. For further information on these
segments and other related information, see Note 11 of our consolidated financial statements as well as Item 2 Properties and Item 7 Management’s Discussion and Analysis of
Financial Condition and Results of Operations of this Annual Report on Form 10-K.
Employees
As of April 30, 2015, we had 433 employees, of whom 387 were full-time and 46 were part-time. 59 of these employees were corporate staff located in our Minot, North Dakota and
Minneapolis, Minnesota offices, and 374 were property management employees based either 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, personal injuries, and investigation and clean-up costs incurred in connection with any contamination. In addition, some environmental laws create a lien on a contaminated
site in favor of the government for damages and costs it incurs in connection with the contamination. These laws often impose liability without regard to whether the current owner was
responsible for, or even knew of, the presence of such substances. It is generally our policy to obtain from independent environmental consultants a “Phase I” environmental audit
(which involves visual inspection but not soil or groundwater analysis) on all properties that we seek to acquire. We do not believe that any of our properties are subject to any material
environmental contamination. However, no assurances can be given that:
•
•
a prior owner, operator or occupant of the properties we own or the properties we intend to acquire did not create a material environmental condition not known to us, which
might have been revealed by more in-depth study of the properties; and
future uses or conditions (including, without limitation, changes in applicable environmental laws and regulations) will not result in the imposition of environmental liability upon
us.
In addition to laws and regulations relating to the protection of the environment, many other laws and governmental regulations are applicable to our properties, and changes in the
laws and regulations, or in their interpretation by agencies and the courts, occur frequently. Under the Americans with Disabilities Act of 1990 (the “ADA”), all places of public
accommodation are required to meet certain federal requirements related to access and use by disabled persons. In addition, the Fair Housing Amendments Act of 1988 (the “FHAA”)
requires apartment communities first occupied after March 13, 1990, to be accessible to the handicapped. Non-compliance with the ADA or the FHAA could result in the imposition of
fines or an award of damages to private litigants. We believe that those of our properties to which the ADA and/or FHAA apply are substantially in compliance with present ADA and
FHAA requirements.
2015 Annual Report 8
Index
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 our corporate governance and increase the transparency of financial reporting. Each of the committees
of the Board of Trustees operates under written charters, and our independent trustees meet regularly in executive sessions at which only the independent trustees are present. The
Board of Trustees has adopted a Code of Conduct applicable to trustees, officers and employees; adopted a Code of Ethics for Senior Financial Officers; and has established processes
for shareholders and all interested parties for communication with the Board of Trustees.
Additionally, our 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 our 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 us by our independent registered public accounting firm.
We will disclose any amendment to our Code of Ethics for Senior Financial officers on our website. In the event we waive compliance with the Code of Ethics or Code of Conduct by
any of our trustees or officers, we 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 Information/Financial Reporting section of our website, our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, including exhibits 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 reports 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 Information/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 website does not constitute part of this Annual
Report on Form 10-K.
2015 Annual Report 9
Index
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 many 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.
2015 Annual Report 10
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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, 2015, we received approximately 69.5% of our gross revenue from properties in Minnesota and North Dakota. As a result of this
concentration, we are subject to substantially greater risk than if our investments were more geographically dispersed. Specifically, we are more significantly exposed to the effects of
economic and real estate conditions in those particular markets, such as building by competitors, local vacancy and rental rates and general levels of employment and economic
activity. To the extent that weak economic or real estate conditions affect Minnesota and/or North Dakota more severely than other areas of the country, our financial performance
could be negatively impacted.
If we are not able to renew leases or enter into new leases on favorable terms or at all as our existing leases expire, our revenue, operating results and cash flows will be reduced.
We may be unable to renew leases with our existing tenants or enter into new leases with new tenants due to economic and other factors as our existing leases expire or are terminated
prior to the expiration of their current terms. As a result, we could lose a significant source of revenue while remaining responsible for the payment of our obligations. In addition, even
if we were able to renew existing leases or enter into new leases in a timely manner, the terms of those leases may be less favorable to us than the terms of expiring leases, because the
rental rates of the renewal or new leases may be significantly lower than those of the expiring leases, or tenant installation costs, including the cost of required renovations or
concessions to tenants, may be significant. If we are unable to enter into lease renewals or new leases on favorable terms or in a timely manner for all or a substantial portion of space
that is subject to expiring leases, our revenue, operating results and cash flows will be adversely affected. As a result, our ability to make distributions to the holders of our shares of
beneficial interest may be adversely affected. As of April 30, 2015, approximately 1.2 million square feet, or 12.9% of our total commercial property square footage, was vacant.
Approximately 944 of our 11,844 apartment units, or 8.0%, were vacant. As of April 30, 2015, leases covering approximately 12.8% of our total commercial segments net rentable square
footage will expire in fiscal year 2016, 12.7% in fiscal year 2017, 7.6% in fiscal year 2018, 13.3% in fiscal year 2019, and 7.1% in fiscal year 2020, assuming that none of the tenants exercise
future renewal options, and excluding the effect of early renewals completed on existing leases.
2015 Annual Report 11
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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 2015 and 2014, 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 61.9% and 71.4%, 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.
2015 Annual Report 12
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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, 2015, 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 97.8%. As
of April 30, 2014 and 2013, our percentage of total indebtedness to total Net Assets was approximately 93.3% and 91.0%, 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.
2015 Annual Report 13
Index
We anticipate that only a small portion of the principal of our debt will be repaid prior to maturity, and we will need to refinance a significant portion of our outstanding debt as it
matures. We cannot guarantee that any refinancing of debt with other debt will be possible on terms that are favorable or acceptable to us. If we cannot refinance, extend or pay
principal payments due at maturity with the proceeds of other capital transactions, such as new equity capital, our cash flows may not be sufficient in all years to repay debt as it
matures. Additionally, if we are unable to refinance our indebtedness on acceptable terms, or at all, we may be forced to dispose of one or more of our properties on disadvantageous
terms, which may result in losses to us. These losses could have a material adverse effect on us, our ability to make distributions to the holders of our shares of beneficial interest and
our ability to pay amounts due on our debt. Furthermore, if a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments 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, including taking
ownership of the property, all with a consequent loss of revenues and asset value. Foreclosures could also create taxable income without accompanying cash proceeds, thereby
hindering our ability to meet the REIT distribution requirements of the Internal Revenue Code. On April 14, 2015, we received a letter from the special servicer for the $122.6 million non-
recourse loan under the Loan and Security Agreement between one of our subsidiaries as borrower and Citigroup Global Markets Realty Corp as lender advising that the loan was in
default due to a nonpayment on April 6, 2015. The aggregate estimated fair value of the assets securing this loan is less than the outstanding loan balance of $122.6 million. This loan
matures in October 2016 and has an interest rate of 5.93%. We cannot predict the outcome of the discussions with the special servicer on this loan.
As of April 30, 2015, approximately 12.5% of our mortgage debt is due for repayment in fiscal year 2016. As of April 30, 2015, we had approximately $121.9 million of principal payments
and approximately $48.3 million of interest payments due in fiscal year 2016 on fixed and variable-rate mortgages secured by our real estate. Additionally, as of April 30, 2015, we had
$60.5 million outstanding under our $90.0 million multi-bank line of credit, which has a maturity date of September 1, 2017.
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, 2015, $70.0 million, or approximately 7.2%, of the principal amount of our total mortgage indebtedness was subject to variable interest rates
agreements, and approximately 71.4% of the principal amount of our total construction loan indebtedness was subject to variable interest rates. Additionally, our $90.0 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.
2015 Annual Report 14
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We have significant investments in 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, 2015, our real estate portfolio
consisted of 66 healthcare properties, with a total real estate investment amount, net of accumulated depreciation, of $384.9 million, or approximately 23.3% 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 federal and state authorities. Sources of revenue for our 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 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 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 Care Reform Acts”). The Health Care Reform Acts contain various provisions that may affect us directly as an employer, and that may affect the
operators and tenants of 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 Care 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 Care 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
Care 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.
2015 Annual Report 15
Index
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 occupancy levels and revenues could
decline. We have ownership interests in three apartment projects totaling 405 units and 72 under construction in Williston, ND, the heart of the Bakken Shale Formation. The economy
of Williston is significantly dependent on the oil and gas industry of western North Dakota. To date, we have experienced some increased vacancy in these apartment projects and
increased price competition from other apartment owners, which has reduced our revenues, though not materially. We also own properties in other, larger, cities in North Dakota, which
could be impacted by lower oil prices, although we have not experienced any adverse effects in those markets. Oil 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 further in North Dakota as a result of any or all of these
factors, which could have a material adverse effect on our Williston properties.
2015 Annual Report 16
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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.
We face risks associated with security breaches through cyber-attacks, cyber intrusions, or otherwise, which could pose a risk to our systems, networks and services. We face risks
associated with security breaches or disruptions, whether through cyber-attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to emails, or persons
inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and
cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. In the normal course of
business we and our service providers (including service providers engaged in providing web hosting, property management, leasing, accounting and/or payroll software/services)
collect and retain certain personal information provided by our tenants, employees and vendors. We also rely extensively on computer systems to process transactions and manage our
business. While we and our service providers employ a variety of data security measures to protect confidential information on our systems and periodically review and improve our
data security measures, we cannot assure that we or our service providers will be able to prevent unauthorized access to this personal information. There can be no assurance that our
efforts to maintain the security and integrity of the information we and our service providers collect and our and their computer systems will be effective or that attempted security
breaches or disruptions would not be successful or damaging. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the
techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not be detected and, in
fact, may not be detected. Accordingly, we and our service providers may be unable to anticipate these techniques or to implement adequate security barriers or other preventative
measures, and thus it is impossible for us and our service providers to entirely mitigate this risk. A security breach or other significant disruption involving computer networks and
related systems could cause substantial costs and other negative measures including litigation, remediation costs, costs to deploy additional protection strategies, compromising of
confidential information, and reputational damage adversely affecting investor confidence, which could adversely impact our financial condition.
2015 Annual Report 17
Index
Risks Related to Our Structure and Organization
We may incur tax liabilities as a consequence of failing to qualify as a REIT. Although our management believes that we are organized and have operated and are operating in such a
manner to qualify as a “real estate investment trust,” as that term is defined under the Internal Revenue Code, we may not in fact have operated, or may not be able to continue to
operate, in a manner to qualify or remain so qualified. Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which there
are only limited judicial or administrative interpretations. Even a technical or inadvertent mistake could endanger our REIT status. The determination that we qualify as a REIT requires
an ongoing analysis of various factual matters and circumstances, some of which may not be within our control. For example, in order to qualify as a REIT, at least 95% of our gross
income in any year must come from certain passive sources that are itemized in the REIT tax laws, and we are prohibited from owning specified amounts of debt or equity securities of
some issuers. Thus, to the extent revenues from non-qualifying sources, such as income from third-party management services, represent more than five percent of our gross income in
any taxable year, we will not satisfy the 95% income test and may fail to qualify as a REIT, unless certain relief provisions contained in the Internal Revenue Code apply. Even if relief
provisions apply, however, a tax would be imposed with respect to excess net income. We are also required to make distributions to the holders of our securities of at least 90% of our
REIT taxable income, excluding net capital gains. The fact that we hold substantially all of our assets (except for qualified REIT subsidiaries) through IRET Properties, our operating
partnership, and its subsidiaries, and our ongoing reliance on factual determinations, such as determinations related to the valuation of our assets, further complicates the application of
the REIT requirements for us. Additionally, if IRET Properties, our operating partnership, or one or more of our subsidiaries is determined to be taxable as a corporation, we may fail to
qualify as a REIT. Either our failure to qualify as a REIT, for any reason, or the imposition of taxes on excess net income from non-qualifying sources, could have a material adverse
effect on us, our ability to make distributions to the holders of our shares of beneficial interest and our ability to pay amounts due on our debt. Furthermore, new legislation, regulations,
administrative interpretations or court decisions could change the tax laws with respect to our qualification as a REIT or the federal income tax consequences of our qualification.
If we failed to qualify as a REIT, we would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates, which
would likely have a material adverse effect on 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.
2015 Annual Report 18
Index
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. 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.
2015 Annual Report 19
Index
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.
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.
2015 Annual Report 20
Index
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 is a maximum rate of 20%. 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. Although the earnings of a REIT that are distributed to its shareholders are still generally subject to less federal income taxation
than earnings of a non-REIT C corporation that are distributed to its shareholders net of corporate-level income tax, this law change may make an investment in our securities
comparatively less attractive relative to an investment in the shares of other entities which pay dividends but are not formed as REITs.
Changes in market conditions could adversely affect the price of our securities. As is the case with any publicly-traded securities, certain factors outside of our control could influence
the value of our common shares, Series A preferred shares, 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, 2014 through April 30, 2015 was
510,561 shares and the average monthly trading volume for the period of May 1, 2014 through April 30, 2015 was 10,721,791 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.
2015 Annual Report 21
Index
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
We are organized as a REIT under Section 856-858 of the Internal Revenue Code, and are structured as an UPREIT, through which we conduct 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.
Total Real Estate Rental Revenue
As of April 30, 2015, our real estate portfolio consisted of 100 multi-family residential properties and 149 commercial properties, consisting of office, healthcare, industrial and retail
properties, comprising 45.1%, 22.9%, 23.8%, 2.9%, and 5.3%, 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, 2015. Gross annual rental revenue and percentages of total annual real estate rental revenue by property type for each
of the three most recent fiscal years ended April 30, are as follows:
Fiscal Year Ended
April
30,
2015
2014
2013
Multi-
Family
Residential
$ 118,526
$ 102,059
89,923
$
Average Effective Annual Rent
Gross Revenue
(in thousands)
%
42.4 % $
38.4 % $
36.3 % $
Office
74,978
77,440
75,962
% Healthcare
66,230
65,258
61,975
26.8 % $
29.2 % $
30.6 % $
%
23.7 % $
24.6 % $
25.0 % $
Industrial
6,491
6,894
6,700
%
2.3 % $
2.6 % $
2.7 % $
Retail
13,445
13,831
13,498
All
%
Segments
4.8 % $ 279,670
5.2 % $ 265,482
5.4 % $ 248,058
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 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 office, healthcare, industrial and retail properties.
As of April 30,
2015
2014
2013
2012
2011
Average Effective Annual Rent per square foot or unit(1)
Multi-family
Residential(2)
829
783
744
719
691
$
$
$
$
$
$
$
$
$
$
Office(3)
14
13
14
13
13
$
$
$
$
$
Healthcare(3)
16
17
16
16
19
$
$
$
$
$
Industrial(3)
5
4
4
4
4
$
$
$
$
$
Retail(3)
9
8
9
8
8
(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.
Occupancy Rates
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. 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.
2015 Annual Report 22
Index
Occupancy Levels on a Same-Store Property and All Property Basis:
Segments
Multi-Family Residential
Office
Healthcare
Industrial
Retail
Certain Lending Requirements
Same-Store Properties
Fiscal Year Ended April 30,
2015
94.7 %
84.8 %
95.7 %
100.0 %
83.3 %
2014
93.4 %
84.0 %
96.2 %
100.0 %
88.2 %
2013
95.3 %
81.5 %
94.9 %
95.7 %
86.9 %
All Properties
Fiscal Year Ended April 30,
2015
92.0 %
83.2 %
95.8 %
83.4 %
83.4 %
2014
93.0 %
80.7 %
96.3 %
87.8 %
87.4 %
2013
94.6 %
80.8 %
94.7 %
96.4 %
87.0 %
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 located in the states
where we own properties. 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. During the fourth quarter of fiscal year 2015 we transferred the property management of the majority of our office and retail properties to a third-party company, as part of
our plan to explore the sale of these assets. 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
2015
%
2014
%
2013
%
(in thousands, except percentages)
$
$
$
2,098,037
(448,987 )
1,649,050
153,994
25,827
1,828,871
$
90.2 % $
8.4 %
1.4 %
100.0 % $
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
95.9 %
2.8 %
1.3 %
100.0 %
2015 Annual Report 23
Index
Summary of Individual Properties Owned as of April 30, 2015
The following table presents information regarding our 249 residential and commercial properties as well as unimproved land and development properties owned as of April 30, 2015. 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 this Annual Report on Form 10-K.
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
Arcata - Golden Valley, MN
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
Commons at Southgate - 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
Dakota Commons - Williston, ND
Evergreen - Isanti, MN
Evergreen II - Isanti, MN
Fairmont - Minot, ND
(in thousands)
Investment
(initial cost plus
improvements less
impairment)
Units
Occupancy
as of
April 30, 2015
$
3
4
71
10
192
165
84
115
160
72
92
49
71
24
48
48
109
166
32
234
240
232
18
233
24
50
268
133
152
48
220
196
44
36
36
12
83
123
6,003
1,334
8,898
31,823
8,473
9,570
8,746
2,474
2,882
895
1,958
450
883
878
5,915
7,765
6,407
14,640
21,387
17,916
1,173
35,622
453
5,162
21,722
9,786
6,207
3,796
12,964
20,605
10,444
3,236
3,530
482
100.0 %
100.0 %
98.6 %
100.0 %
99.0 %
20.0 %
100.0 %
98.3 %
96.9 %
97.2 %
88.0 %
67.3 %
88.7 %
58.3 %
93.8 %
77.1 %
95.4 %
98.8 %
93.8 %
95.3 %
91.7 %
95.7 %
88.9 %
92.7 %
79.2 %
100.0 %
92.2 %
93.2 %
100.0 %
100.0 %
99.5 %
91.3 %
95.5 %
97.2 %
100.0 %
100.0 %
2015 Annual Report 24
Index
Property Name and Location
MULTI-FAMILY RESIDENTIAL - continued
First Avenue - Minot, ND
Forest Park - Grand Forks, ND
Gables Townhomes - Sioux Falls, SD
Grand Gateway - St. Cloud, MN
Greenfield - Omaha, NE
Heritage Manor - Rochester, MN
Homestead Garden - Rapid City, SD
Indian Hills - Sioux City, IA
Kirkwood Manor - Bismarck, ND
Lakeside Village - Lincoln, NE
Landing at Southgate - Minot, ND
Landmark - Grand Forks, ND
Legacy - Grand Forks, ND
Legacy Heights - Bismarck, ND
Mariposa - Topeka, KS
Meadows - Jamestown, ND
Monticello Village - Monticello, MN
Northern Valley - Rochester, MN
North Pointe - Bismarck, ND
Northridge - 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
Red 20 - Minneapolis, MN
Regency Park Estates - St. Cloud, MN
Renaissance Heights - 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
Silver Springs - Rapid City, SD
(in thousands)
Investment
(initial cost plus
improvements less
impairment)
Units
Occupancy
as of
April 30, 2015
$
20
269
24
116
96
182
152
120
108
208
108
90
361
79
54
81
60
16
73
68
79
160
274
140
120
360
16
21
24
16
71
90
58
48
313
130
145
216
132
78
146
98
72
300
44
52
3,057
13,796
2,443
8,705
5,469
10,167
14,950
6,924
4,850
17,494
15,302
2,791
29,754
10,039
6,044
6,464
4,737
849
4,882
8,426
5,898
7,663
14,691
9,111
6,450
16,034
920
1,010
2,802
435
16,106
5,305
5,279
2,447
33,670
28,316
12,365
46,075
6,688
5,329
25,400
7,583
5,881
18,890
2,773
3,269
100.0 %
98.1 %
100.0 %
100.0 %
90.6 %
95.1 %
94.7 %
97.5 %
98.1 %
91.8 %
80.6 %
98.9 %
90.9 %
30.4 %
92.6 %
100.0 %
98.3 %
93.8 %
83.6 %
95.6 %
97.5 %
97.5 %
96.7 %
91.4 %
99.2 %
81.1 %
93.8 %
100.0 %
95.8 %
93.8 %
97.2 %
100.0 %
100.0 %
100.0 %
99.7 %
75.4 %
90.3 %
56.9 %
100.0 %
97.4 %
93.8 %
100.0 %
100.0 %
98.0 %
100.0 %
98.1 %
2015 Annual Report 25
Index
Property Name and Location
MULTI-FAMILY RESIDENTIAL - continued
South Pointe - Minot, ND
Southpoint - Grand Forks, ND
Southview - Minot, ND
Southwind - Grand Forks, ND
Summit Park - Minot, ND
Sunset Trail - Rochester, MN
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
OFFICE
1st Avenue Building - Minot, ND
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
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
(in thousands)
Investment
(initial cost plus
improvements less
impairment)
Occupancy
as of
April 30, 2015
$
$
12,945
10,517
1,064
8,408
3,609
15,802
231
483
14,242
643
7,939
18,273
3,492
16,330
2,218
3,809
28,295
19,181
8,216
8,605
946,520
95.4 %
93.8 %
100.0 %
98.2 %
100.0 %
92.5 %
100.0 %
87.5 %
97.7 %
68.6 %
89.2 %
88.3 %
86.1 %
98.1 %
93.9 %
89.2 %
92.3 %
85.5 %
96.5 %
100.0 %
92.0 %
Units
196
96
24
164
95
146
4
16
264
35
167
308
36
312
33
65
336
145
115
108
11,844
Approximate
Net Rentable
Square
Footage
(in thousands)
Investment
(initial cost plus
improvements less
impairment)
Occupancy
as of
April 30, 2015
$
4,427
78,190
175,610
138,959
73,742
30,464
22,187
176,362
30,000
141,724
181,224
48,700
95,216
138,825
59,827
190,758
78,086
122,040
367
9,403
12,642
21,728
8,349
1,536
2,798
17,644
2,152
9,154
20,636
4,864
10,101
17,448
8,300
25,875
9,917
16,087
100.0 %
100.0 %
98.0 %
85.0 %
100.0 %
88.1 %
100.0 %
47.3 %
66.6 %
100.0 %
75.0 %
0.0 %
63.9 %
74.8 %
100.0 %
98.4 %
77.5 %
100.0 %
2015 Annual Report 26
Index
Property Name and Location
OFFICE - continued
Highlands Ranch I - Highlands Ranch, CO
Highlands Ranch II - Highlands Ranch, CO
Interlachen Corporate Center - Edina, MN
Intertech Building - Fenton, MO
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
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
Prairie Oak Business Center - Eden Prairie, MN
Rapid City 900 Concourse Drive - Rapid City, SD
Riverport - Maryland Heights, MO
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
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
Woodlands Plaza IV - Maryland Heights, MO
TOTAL OFFICE
Approximate
Net Rentable
Square
Footage
(in thousands)
Investment
(initial cost plus
improvements less
impairment)
Occupancy
as of
April 30, 2015
71,430
81,173
105,084
65,320
59,852
88,398
60,776
72,231
18,869
48,960
15,000
84,445
145,439
58,574
143,075
50,610
28,994
20,528
36,421
75,815
121,316
18,055
24,171
24,000
24,000
20,000
103,640
75,526
91,270
30,000
153,311
86,477
24,075
103,342
61,820
4,078,338
$
$
11,747
12,887
19,163
7,819
8,406
13,303
7,661
10,215
1,965
11,573
2,318
7,706
19,115
7,228
10,743
9,693
1,217
1,944
7,123
8,036
8,000
1,154
1,586
1,284
1,273
2,679
10,113
9,371
12,165
2,715
18,490
11,198
1,697
13,551
6,841
480,980
100.0 %
98.4 %
96.4 %
93.7 %
67.2 %
87.3 %
100.0 %
100.0 %
100.0 %
76.3 %
100.0 %
89.2 %
48.9 %
98.6 %
78.5 %
100.0 %
41.2 %
100.0 %
77.2 %
99.9 %
100.0 %
0.0 %
100.0 %
30.0 %
90.0 %
100.0 %
100.0 %
62.8 %
97.5 %
100.0 %
78.3 %
91.7 %
87.5 %
100.0 %
100.0 %
83.2 %
2015 Annual Report 27
Index
Property Name and Location
HEALTHCARE
2800 Medical Building - Minneapolis, MN
2828 Chicago Avenue - Minneapolis, MN
Airport Medical - Bloomington, MN(1)
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(1)
Edina 6405 France Medical - Edina, MN(1)
Edina 6517 Drew Avenue - Edina, MN
Edina 6525 Drew Avenue - Edina, MN
Edina 6525 France SMC II - Edina, MN(1)
Edina 6545 France SMC I - Edina MN(1)
Fresenius - Duluth, MN
Garden View - St. Paul, MN(1)
Gateway Clinic - Sandstone, MN(1)
Healtheast St John & Woodwinds - Maplewood & Woodbury, MN
High Pointe Health Campus - Lake Elmo, MN
Laramie 1072 N 22nd Street (Spring Wind) - Laramie, WY
Legends at Heritage Place - Sartell, MN
Approximate
Net Rentable
Square
Footage
(in thousands)
Investment
(initial cost plus
improvements less
impairment)
Occupancy
as of
April 30, 2015
$
53,632
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
62,291
98,174
9,831
17,672
4,678
2,976
1,865
9,881
6,287
6,391
11,458
11,170
8,200
3,099
2,624
835
1,948
9,881
9,720
891
1,701
21,844
600
857
629
11,920
11,357
1,205
12,845
1,057
786
689
1,346
9,023
12,382
15,581
12,242
1,542
505
14,532
48,095
1,572
8,306
1,765
21,601
13,924
10,584
10,890
81.7 %
100.0 %
100.0 %
87.4 %
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 %
91.3 %
100.0 %
100.0 %
73.4 %
95.1 %
91.4 %
100.0 %
100.0 %
100.0 %
100.0 %
75.5 %
100.0 %
100.0 %
2015 Annual Report 28
Index
Property Name and Location
HEALTHCARE – continued
Mariner Clinic - Superior, WI(1)
Minneapolis 701 25th Avenue Medical - Minneapolis, MN(1)
Missoula 3050 Great Northern - Missoula, MT
Park Dental - Brooklyn Center, MN
Pavilion I - Duluth, MN(1)
Pavilion II - Duluth, MN
Ritchie Medical Plaza - St Paul, MN
Sartell 2000 23rd Street South - Sartell, MN(1)
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 HEALTHCARE
Property Name and Location
INDUSTRIAL
Bloomington 2000 W 94th Street - Bloomington, 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 INDUSTRIAL
Approximate
Net Rentable
Square
Footage
(in thousands)
Investment
(initial cost plus
improvements less
impairment)
Occupancy
as of
April 30, 2015
28,928
57,212
14,640
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
2,986,792
$
$
3,871
9,439
1,971
2,952
10,174
19,325
13,077
12,715
4,015
5,004
4,038
7,115
7,148
6,629
2,223
4,300
2,851
9,702
2,661
497,997
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
88.5 %
0.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
96.0 %
Approximate
Net Rentable
Square
Footage
(in thousands)
Investment
(initial cost plus
improvements less
impairment)
Occupancy
as of
April 30, 2015
101,567
90,260
27,698
195,075
220,557
518,161
69,600
1,222,918
$
$
7,447
6,782
6,368
7,141
11,698
15,555
5,620
60,611
100.0 %
100.0 %
100.0 %
100.0 %
8.0 %
100.0 %
100.0 %
83.4 %
2015 Annual Report 29
Index
Property Name and Location
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
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
Lakeville Strip Center - Lakeville, MN
Minot Arrowhead - Minot, ND
Minot Plaza - Minot, ND
Minot Southgate Wells Fargo Bank - 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
TOTAL RETAIL
SUBTOTAL
Approximate
Net Rentable
Square
Footage
(in thousands)
Investment
(initial cost plus
improvements less
impairment)
Occupancy
as of
April 30, 2015
2,454
3,702
8,526
26,020
137,572
16,921
15,582
37,770
6,836
100,570
28,528
59,117
213,575
103,049
9,488
81,594
11,003
4,998
3,575
26,985
4,800
63,225
118,398
105,446
1,189,734
9,477,782
$
$
$
287
1,306
1,181
3,650
21,779
615
2,086
5,160
509
9,497
2,546
5,720
9,092
2,632
2,143
8,869
658
3,186
872
3,699
452
4,134
14,040
7,816
111,929
2,098,037
100.0 %
100.0 %
100.0 %
75.6 %
99.2 %
94.1 %
100.0 %
70.4 %
0.0 %
69.9 %
100.0 %
33.9 %
85.5 %
88.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
47.1 %
97.6 %
78.8 %
83.3 %
2015 Annual Report 30
Index
Property Name and Location
UNIMPROVED LAND
Badger Hills - Rochester, MN
Bismarck 4916 - Bismarck, ND
Bismarck 700 E Main - Bismarck, ND
Creekside Crossing - Bismarck, ND
Georgetown Square - Grand Chute, WI
Grand Forks - Grand Forks, ND
Isanti Unimproved - Isanti, MN
Legends at Heritage Place - Sartell, MN
Minot 1525 24th Ave SW - Minot, ND
Monticello - Monticello, MN
Monticello 7th Addition - Monticello, MN
Rapid City Unimproved- Rapid City, SD
Renaissance Heights - Williston, ND
River Falls - River Falls, WI
Spring Creek Fruitland - Fruitland, IA
TCA formerly Eagan - Eagan, MN
Urbandale - Urbandale, IA
Weston - Weston, WI
TOTAL UNIMPROVED LAND
DEVELOPMENT IN PROGRESS
71 France - Edina, MN
Cardinal Point - Grand Forks, ND
Chateau II - Minot, ND
Deer Ridge - Jamestown, ND
Edina 6565 France SMC III - Edina, MN
Minot Southgate Retail - Minot, ND
PrairieCare Medical - Brooklyn Park, MN
Renaissance Heights - Williston, ND
Other
TOTAL DEVELOPMENT IN PROGRESS
(in thousands)
Investment
(initial cost plus
improvements less
impairment)
$
$
$
$
1,050
3,250
879
4,286
1,860
4,278
58
537
1,262
118
1,734
1,376
3,810
181
339
325
114
370
25,827
35,137
26,450
13,129
15,355
22,549
2,164
19,457
13,135
6,618
153,994
TOTAL UNITS - RESIDENTIAL SEGMENT
TOTAL SQUARE FOOTAGE - COMMERCIAL SEGMENTS(2)
TOTAL REAL ESTATE
11,844
9,477,782
$
2,277,858
(1) Real estate not owned in fee; all or a portion is leased under a ground or air rights lease.
(2) Excludes properties classified as held for sale at April 30, 2015 (Thresher Square, 117,144 sq ft and Nebraska Orthopaedic Hospital, 61,758 sq ft).
2015 Annual Report 31
Index
Mortgages Payable and Line of Credit
As of April 30, 2015, individual first mortgage loans on the above properties totaled $968.0 million. Of the $974.8 million total of mortgage indebtedness on April 30, 2015, $70.0 million, or
7.2%, 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. As of April 30, 2015, the
management of the Company believes there are no defaults or material compliance issues in regards to any of these mortgages payable other than one $122.6 million non-recourse loan
by a Company subsidiary, for which we’ve received a default notice from the special servicer on April 14, 2015 due to nonpayment on April 6, 2015. Principal payments due on our
mortgage indebtedness are as follows:
Fiscal Year Ended April 30,
2016
2017
2018
2019
2020
Thereafter
Total
(in thousands)
Mortgage Principal
121,931
202,612
88,071
130,875
79,298
352,041
974,828
$
In addition to the individual first mortgage loans included in the Company’s $974.8 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, 2015, lending commitments of $90.0 million. The facility has a
maturity date of September 1, 2017, and is secured by mortgages on 15 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, 2015 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 and Highland Bank. The
line of credit has a current interest rate of 4.75% and a minimum outstanding principal balance requirement of $17.5 million, and as of April 30, 2015, the Company had borrowed $60.5
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, 2015, 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, 2015, assuming that no options to renew or buy out the leases are
exercised, are as follows:
Fiscal Year Ended April 30,
2016
2017
2018
2019
2020
Thereafter
Total
Capital Expenditures
(in thousands)
Lease Payments
112,320
99,963
84,455
70,049
52,576
130,313
549,676
$
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, 2015, we spent approximately $31.7 million on capital improvements, tenant improvements and other capital
expenditures.
2015 Annual Report 32
Index
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 or classified as held for sale 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, 2015, 2014 and 2013. We define 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).
2015
Rate/SF
or Unit
Amount
(in thousands except per SF or Unit data)
Years Ended April 30,
2014
2013
Amount
Rate/SF
or Unit
Amount
Rate/SF
or Unit
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
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
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
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
$
$
0
1,160
4,884
1,510
691
821
1,427
353
0
0
173
40
0
927
1,105
387
5,444
9,663
0.00
0.28
1.20
0.37
$
$
$
$
0.24
0.28
0.50
0.12
$
$
$
$
0.00
0.00
0.17
0.04
$
$
$
$
0.00
0.78
0.93
0.33
$
$
$
$
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
$
$
$
$
550
815
$
$
4,956
11,355
589
1,053
$
$
0
754
6,154
3,411
49
356
1,573
784
0
0
777
658
0
678
1,335
275
5,941
6,737
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
713
655
2015 Annual Report 33
Index
Contracts or Options to Purchase
We have granted options to purchase certain of our properties to tenants in these properties, under lease agreements. 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, 2015, 15 of our
properties were subject to purchase options, and the total investment cost, plus improvements, of all such properties was $114.9 million with total gross rental revenues in fiscal year
2015 of $10.2 million. The tenant in our Nebraska Orthopaedic Hospital property has exercised its option to purchase the property. We are currently engaged in an arbitration proceeding
pursuant to the lease agreement to determine the purchase price and can give no assurance that the sale of the property pursuant to the purchase option will be completed.
Properties by State
The following table presents, as of April 30, 2015, 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, office, healthcare, industrial and retail:
State
Minnesota
North Dakota
Nebraska
South Dakota
Kansas
Idaho
Wyoming
Montana
Iowa
Missouri
Colorado
Wisconsin
Total
Multi-Family
Residential
240,936
293,004
90,332
53,628
48,591
0
0
29,562
10,053
0
0
0
766,106
$
$
$
$
(in thousands)
Office
204,300
31,572
54,693
5,124
11,924
10,245
0
0
0
19,761
19,031
8,620
365,270
$
$
Healthcare
235,564
46,184
3,453
8,473
0
36,992
41,710
7,336
0
2,429
0
2,794
384,935
$
$
Industrial
26,161
10,192
0
0
0
0
0
0
13,002
0
0
0
49,355
$
$
Retail
55,189
26,006
2,189
0
0
0
0
0
0
0
0
0
83,384
$
$
All Segments
762,150
406,958
150,667
67,225
60,515
47,237
41,710
36,898
23,055
22,190
19,031
11,414
1,649,050
% of All
Segments
46.2 %
24.7 %
9.1 %
4.1 %
3.7 %
2.9 %
2.5 %
2.2 %
1.4 %
1.3 %
1.2 %
0.7 %
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
2015 Annual Report 34
Index
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Quarterly Share and Distribution Data
Our common shares of beneficial interest trade on the 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 NYSE, and the distributions per common share and limited partnership unit declared with respect to each period. On June 1,
2015, the last reported sales price per share of our common shares on the NYSE was $7.24.
Quarter Ended
Fiscal Year 2015
April 30, 2015
January 31, 2015
October 31, 2014
July 31, 2014
Quarter Ended
Fiscal Year 2014
April 30, 2014
January 31, 2014
October 31, 2013
July 31, 2013
$
$
High
Low
Distributions Declared
(per share and unit)
8.31 $
8.60
8.59
9.21
7.09 $
8.05
7.49
8.52
0.1300
0.1300
0.1300
0.1300
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
It is our 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, we have paid quarterly cash distributions in the months of January, April, July and October.
Shareholders
As of June 1, 2015, we had 4,034 common shareholders of record, and 124,574,042 common shares of beneficial interest (plus 13,961,386 limited partnership units potentially convertible
into 13,961,386 common shares) were outstanding.
Unregistered Sales of Shares
Sales of Unregistered Securities. During the fiscal years ended April 30, 2015, 2014 and 2013, respectively, we issued an aggregate of 471,800, 254,948 and 180,935 unregistered common
shares to holders of limited partnership units of IRET Properties upon redemption and conversion of an aggregate of 471,800, 254,948 and 180,935 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(a)(2) of the Securities Act, including
Regulation D promulgated thereunder. We have registered the resale of such common shares under the Securities Act.
Issuer Purchases of Equity Securities. We did not repurchase any of our equity securities during fiscal year 2015.
2015 Annual Report 35
Index
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 into our 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, 2010 and ending April 30, 2015, the cumulative total returns for our 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, the latter of 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 NYSE, the American Stock Exchange and the
NASDAQ Market.
The performance graph assumes that at the close of trading on April 30, 2010, the last trading day of fiscal year 2010, $100 was invested in our common shares and in each of the
indexes. The comparison assumes the reinvestment of all distributions. Cumulative total shareholder returns for our common shares, the S&P 500 and the FTSE NAREIT Equity REITs
Index are based on our fiscal year ending April 30.
Investors Real Estate Trust
S&P 500
FTSE NAREIT Equity REITs
Source: SNL Financial LC
FY10
FY11
FY12
FY13
FY14
FY15
100.00
100.00
100.00
116.44
117.22
122.25
95.79
122.79
134.25
137.32
143.54
160.49
130.87
172.87
161.89
114.68
195.31
183.56
2015 Annual Report 36
Index
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
Income (loss) from continuing operations
Income from discontinued operations
Net income (loss)
Net (income) loss attributable to noncontrolling interests – Operating
Partnership
Net income (loss) 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
$
$
$
$
$
$
$
$
$
$
$
$
$
Consolidated Per Common Share Data (basic and diluted)
Income (loss) from continuing operations - Investors Real Estate Trust $
$
Income from discontinued operations - Investors Real Estate Trust
$
Net income (loss)
$
Distributions
CALENDAR YEAR
Tax status of distributions
Capital gain
Ordinary income
Return of capital
2015
(in thousands, except per share data)
2014
2013
2012
2011
283,190
$
267,109
$
248,058
$
228,671
$
224,773
6,105
$
44,426
$
305
$
428
$
0
6,093
28,684
0
28,684
$
$
$
$
(1,526 ) $
$
24,087
1,828,871
1,997,837
974,828
60,500
652,110
$
$
$
$
$
.11
.00
.11
.52
$
$
$
$
2014
23.09 %
25.74 %
51.17 %
6,948
$
(23,390 ) $
$
(16,940 ) $
6,450
4,676
$
(13,174 ) $
1,699,216
1,869,221
997,689
22,500
592,184
$
$
$
$
$
(.28 ) $
$
.05
(.23 ) $
$
.52
6,885
20,677
9,295
29,972
$
$
$
$
(3,633 ) $
$
25,530
1,680,834
1,889,554
1,049,206
10,000
612,787
$
$
$
$
$
.09
.08
.17
.52
$
$
$
$
2013
2012
3.09 %
28.41 %
68.50 %
2.41 %
23.17 %
74.42 %
349
8,644
1,062
9,706
$
$
$
$
(1,359 ) $
$
8,212
1,557,108
1,714,367
1,048,689
39,000
432,989
$
$
$
$
$
.06
.01
.07
.56
$
$
$
$
2011
37.48 %
18.04 %
44.48 %
19,365
4,679
19,672
24,351
(4,449 )
20,082
1,458,245
1,615,363
993,803
30,000
411,690
.02
.20
.22
.69
2010
0.00 %
28.53 %
71.47 %
For the fiscal year ended April 30, 2015, IRET recognized approximately $10.9 million of net capital gain for federal income tax purposes. IRET designates the entire $10.9 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, 2015.
2015 Annual Report 37
Index
Overview
We are a self-advised equity real estate investment trust, or REIT, 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 commercial properties consist of office, healthcare, industrial
and retail. Since January 2015, we have concentrated on multi-family residential and healthcare property acquisitions, and are exploring the potential sale of substantially all of our office
and retail properties.
As of April 30, 2015, our real estate portfolio consisted of 100 multi-family residential properties containing 11,844 apartment units and having a total real estate investment amount net
of accumulated depreciation of $766.1 million, and 149 commercial properties containing approximately 9.6 million square feet of leasable space and having a total real estate investment
amount net of accumulated depreciation of $882.9 million.
Our primary source of income and cash is rents associated with multi-family residential and commercial leases. Our business objective is to increase shareholder value by employing a
disciplined investment strategy. This strategy is implemented by growing income-producing assets in desired geographical markets in real estate classes we believe will provide a
consistent return on investment for our shareholders. 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.
2015 Annual Report 38
Index
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. Properties are classified as held for sale when they meet the necessary criteria, which include: (a) management, having the authority to approve the action,
commits to a plan to sell the asset and (b) the sale of the asset is probable and expected to be completed within one year. The Company generally considers these criteria met when the
transaction has been approved by our Board of Directors, there are no known significant contingencies related to the sale and management believes it is probable that the sale will be
completed within one year. 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.
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.
Impairment. The Company periodically evaluates its long-lived assets, including its investments in real estate, for impairment indicators. The impairment evaluation is performed on
assets by property such that assets for a property form an asset group. 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 group. If the sum of the estimated undiscounted cash flows is less than the carrying
amount of the asset group, 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.
Allowance for Doubtful Accounts. The Company periodically evaluates the collectibility of amounts due from tenants and maintains an allowance for doubtful accounts (approximately
$438,000 as of April 30, 2015) 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 $718,000 as of April 30, 2015). The straight-lining of rents receivable arises
from earnings recognized in excess of amounts currently due under lease agreements. Management exercises judgment in establishing these allowances and considers payment history
and current credit status in developing these estimates. If estimates differ from actual results this would impact reported results.
Revenue Recognition. The Company has the following revenue sources and revenue recognition policies:
• Base Rents - income arising from tenant leases. These rents are recognized over the non-cancelable term of the related leases on a straight-line basis, which includes the effects
of rent increases and abated rent under the leases. Certain leases provide for tenant occupancy during periods for which no rent is due or where minimum rent payments
increase during the term of the lease. Rental revenue is recorded for the full term of each lease on a straight-line basis. Accordingly, the Company records a receivable from
tenants for rents that it expects to collect over the remaining lease term as deferred rents receivable. When the Company acquires a property, the term of the existing leases is
considered to commence as of the acquisition date for the purposes of this calculation. Revenue recognition is considered to be critical because the evaluation of the reliability
of such deferred rents receivable involves management's assumptions relating to such tenant's viability.
2015 Annual Report 39
Index
• 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 2015, 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 years ended April 30, 2015 and 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
appearing elsewhere in this Annual Report on Form 10-K.
Fiscal 2015 Significant Events and Transactions
During fiscal year 2015, the Company has successfully completed the following significant transactions, including acquisition, development, disposition, and financing transactions,
and experienced the following significant events:
Acquisitions, Dispositions, and Development Projects Placed in Service:
During fiscal year 2015, the Company added approximately 1,027 apartment units to its multi-family residential portfolio, through its acquisition of four multi-family residential properties
and the placement in service of five multi-family residential development projects. The Company sold one multi-family residential property, with a total of 83 units, for a net addition to
the Company’s multi-family residential portfolio in fiscal year 2015 of approximately 944 apartment units.
The Company also acquired a number of parcels of unimproved land in Minnesota and North Dakota for possible future development, for purchase prices totaling approximately $14.5
million, including the $4.7 million value of the land contributed by the Company’s joint venture partner in a development project in Minnesota.
During fiscal year 2015, in addition to its sale of one multi-family residential project, the Company sold 19 industrial, retail, office and unimproved properties in Minnesota, North Dakota,
Wisconsin and Montana for sales prices totaling approximately $71.6 million.
Development Projects in Progress:
During fiscal year 2015, the Company began construction of its 57,479 square foot expansion project at its Edina 6565 property in Edina, Minnesota; 72,895 square foot PrairieCare
Medical project in Brooklyn Park, Minnesota; 7,963 square foot Minot Southgate Retail project in Minot, North Dakota; 163-unit Deer Ridge apartment project in Jamestown, North
Dakota; and 241-unit 71 France apartment project in Edina, Minnesota, which is owned by a joint venture in which the Company is an approximately 52.6% partner.
2015 Annual Report 40
Index
During fiscal year 2015 construction continued on the Company’s 251-unit Cardinal Point apartment project in Grand Forks, North Dakota 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.
Amendment to Credit Facility:
On October 29, 2014, the Company’s Operating Partnership entered into a First Amendment to Amended and Restated Loan Agreement with First International Bank & Trust as lead
bank. Under this amendment, the commitment amount was increased from $72.0 million to $90.0 million initially, and may be increased up to $100.0 million upon meeting various
conditions.
New Construction Loan:
On January 22, 2015, a joint venture entity in which the Company owns a 53% interest entered into a Construction Loan Agreement with a borrowing capacity of up to $50.75 million to
construct a multi-family apartment facility with commercial retail space in Edina, Minnesota. The construction loan agreement has a maturity date of July 1, 2018, is interest-only until
maturity, has a variable interest rate and includes a one year extension option. It is fully-recourse to and guaranteed by the Company’s Operating Partnership and IRET, Inc. The loan
was placed with PNC Bank, NA as administrative agent for the lenders.
Non-Payment of Non-Recourse Loan
On April 14, 2015, the Company received a default notice regarding the $122.6 million non-recourse loan between a Company subsidiary as borrower and Citigroup Global Markets
Realty Corp as lender due to a nonpayment on April 6, 2015. The aggregate estimated fair value of the assets securing this loan is less than the outstanding loan balance of $122.6
million. This loan matures in October 2016 and has an interest rate of 5.93%. The Company cannot predict the outcome of the discussions with the special servicer on this loan.
Update in Strategic Plan:
In January 2015, the Company announced an update of its strategic plan. The update includes exploring the potential sale of substantially all of its office and retail properties during the
calendar year of 2015 and directing new investments primarily towards multi-family residential and healthcare properties.
Changes in Executive Officers and Board of Trustees:
On February 9, 2015, Mr. Thomas Wentz, Jr. resigned as Executive Vice President and Chief Operating Officer of the Company and from its Board of Trustees to pursue other
opportunities.
On February 13, 2015, Diane K. Bryantt was promoted to Executive Vice President and Chief Operating Officer of the Company; Ted E. Holmes was promoted to Executive Vice President
and Chief Financial Officer; Mark W. Reiling was promoted to Executive Vice President and Chief Investment Officer; and Nancy Andersen was promoted to Vice President and Principal
Accounting Officer.
On February 25, 2015, Pamela J. Moret was appointed as a Trustee of the Company’s Board of Trustees.
Market Conditions and Outlook
The Company experienced improving trends in a majority of its apartment investments in fiscal year 2015. Same-store revenues for the portfolio outpaced same-store expenses and
occupancy reached our target 95% at fiscal year end on same store-assets. Same-store revenues in the segment increased 3.4% over the prior fiscal year primarily driven by an increase
in scheduled rent in all of our markets ranging from a 0.4% increase in Topeka, KS to 5.4% in Bismarck, ND. Demand was also strong for the 798 apartment units the Company placed in
service during fiscal year 2015. However, the Company’s ability to maintain occupancy levels and raise rents remains dependent on continued healthy employment and wage growth.
The Company has continued to observe 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 residents. However, based on information available to the Company, apartment developers in our markets are currently seeing increases in
construction costs for potential new apartment developments, which may slow new developments in our markets. The U.S. economic outlook through 2017 is forecasted to be good
according to U.S. Bureau of Labor Statistics and Moody’s Analytics. Businesses are adding jobs and for the first time in this phase of the economic cycle we are seeing meaningful
wage growth. There is an attitudinal shift also occurring toward renting by professional millennials and to lesser, although growing degree, by baby boomers. These trends are
beneficial to apartment owners.
2015 Annual Report 41
Index
The Company’s office segment, mostly concentrated in Minnesota, continued to be affected by a number of adverse macro conditions. Demand for office space is mixed, with space
absorption in the Minneapolis market in particular concentrated in prime locations, and suburban office properties continuing to lag in terms of occupancy. Businesses appear to be
maintaining their goal of increasing the density of their work spaces by placing more employees in less total square footage. The demand is strongest for modern office buildings which
are in short supply due the lack of new construction of this class of building. The Company’s office buildings are mostly class B, which class has the greatest supply and only modest
and selective demand. As a result, we have been unable to effectively compete for the limited number of tenant prospects in the market. The Company continues to expect a slow and
uneven recovery in its office segment. Additionally, there is a movement by tenants to the urban cores to attract and retain the best workers. Most of IRET’s office portfolio is
suburban.
The Company’s healthcare segment consists of medical office properties and senior housing facilities. The medical office sector remains stable with high occupancy and modest rent
increases. The Company’s senior housing assets continue to benefit from the strengthening recovery in 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 industrial and retail property markets continue to improve. The Company’s industrial properties are located primarily in the Minneapolis market, and all of these Minneapolis
properties are 83.4% leased. The demand for bulk warehouse and manufacturing space in the Company’s markets is healthy, with rents generally rising. The retail recovery is evident in
regard to the Company’s Minneapolis-metro and grocery-anchored retail properties, which are performing well. Locations outside the Minneapolis-metro area experience less demand,
although improving. There is little new construction in our markets, which bodes well going forward.
The Company is in process of selling substantially all of its commercial office and retail properties. In an update to its strategic plan previously announced, the Company is narrowing
its property focus. Sale proceeds are intended to be used toward portfolio deleveraging and investments in multi-family residential and healthcare.
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. 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 office, healthcare, industrial and retail properties.
For the comparison of fiscal years 2015 and 2014, all or a portion of 39 properties were non-same-store, of which non-same-store properties 11 were redevelopment or in-service
development properties. For the fiscal year 2015 to 2014 comparison, all or a portion of 29 properties were added to non-same-store and all or a portion of 14 properties were moved to
same-store compared to the designations for the fiscal year 2014 to 2013 comparison. 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.
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.
2015 Annual Report 42
Index
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, 2015, 2014 and 2013.
Real estate rentals
Tenant reimbursement
TRS senior housing revenue
$
TOTAL REVENUE
Depreciation/amortization
related to real estate
investments
Utilities
Maintenance
Real estate taxes
Insurance
Property management
expenses
Other property expenses
TRS senior housing
expenses
Administrative expenses
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
Income (loss) before income
from sale of real estate and
other investments and
income from discontinued
operations
Gain (loss) from sale of real
estate and other
investments
Income (loss) from
continuing operations
Income from discontinued
operations
NET INCOME (LOSS)
Net loss (income)
attributable to
noncontrolling interests –
Operating Partnership
Net income attributable to
noncontrolling interests –
consolidated real estate
entities
Net income (loss)
attributable to Investors
Real Estate Trust
Dividends to preferred
shareholders
NET INCOME (LOSS)
AVAILABLE TO
COMMON
SHAREHOLDERS
(in thousands)
Year Ended April 30,
2015
2014
$
235,852
43,818
3,520
283,190
$
219,921
45,561
1,627
267,109
2015 vs. 2014
2014 vs. 2013
$
2013
204,719
43,339
0
248,058
$ Change
15,931
(1,743 )
1,893
16,081
% Change
7.2 % $
(3.8 %)
116.4 %
6.0 %
$ Change
15,202
2,222
1,627
19,051
67,112
20,881
30,924
33,945
5,839
18,502
906
2,997
11,824
2,010
3,495
6,105
204,540
0
78,650
(59,020 )
2,238
723
67,592
21,864
31,158
32,982
5,165
16,961
357
1,331
10,743
2,132
3,326
42,566
236,177
2,480
33,412
(59,142 )
1,908
483
59,306
18,792
28,340
32,182
3,734
15,003
1,008
0
8,494
2,173
3,027
0
172,059
5,084
81,083
(61,154 )
222
526
(480 )
(983 )
(234 )
963
674
1,541
549
1,666
1,081
(122 )
169
(36,461 )
(31,637 )
(2,480 )
45,238
122
330
240
(0.7 %)
(4.5 %)
(0.8 %)
2.9 %
13.1 %
9.1 %
153.8 %
125.2 %
10.1 %
(5.7 %)
5.1 %
(85.7 %)
(13.4 %)
(100.0 %)
135.4 %
(0.2 %)
17.3 %
49.7 %
8,286
3,072
2,818
800
1,431
1,958
(651 )
1,331
2,249
(41 )
299
42,566
64,118
(2,604 )
(47,671 )
2,012
1,686
(43 )
% Change
7.4 %
5.1 %
n/a
7.7 %
14.0 %
16.3 %
9.9 %
2.5 %
38.3 %
13.1 %
(64.6 %)
n/a
26.5 %
(1.9 %)
9.9 %
n/a
37.3 %
(51.2 %)
(58.8 %)
(3.3 %)
759.5 %
(8.2 %)
22,591
(23,339 )
20,677
45,930
(196.8 %)
(44,016 )
(212.9 %)
6,093
28,684
0
28,684
(51 )
(23,390 )
6,450
(16,940 )
0
20,677
9,295
29,972
6,144
52,074
(6,450 )
45,624
(12,047.1 %)
(51 )
n/a
(222.6 %)
(100.0 %)
(269.3 %)
(44,067 )
(2,845 )
(46,912 )
(213.1 %)
(30.6 %)
(156.5 %)
(1,526 )
4,676
(3,633 )
(6,202 )
(132.6 %)
8,309
(228.7 %)
(3,071 )
(910 )
(809 )
(2,161 )
237.5 %
(101 )
12.5 %
24,087
(13,174 )
25,530
(11,514 )
(11,514 )
(9,229 )
37,261
0
(282.8 %)
(38,704 )
(151.6 %)
0.0 %
(2,285 )
24.8 %
$
12,573
$
(24,688 ) $
16,301
37,261
(150.9 %)
(40,989 )
(251.5 %)
2015 Annual Report 43
Index
Revenues. Total revenues increased by 6.0% to $283.2 million in fiscal year 2015, compared to $267.1 million in fiscal year 2014. Total revenues increased by 7.7% to $267.1 million in
fiscal year 2014, compared to $248.1 million in fiscal year 2013. These increases were primarily attributable to the addition of new income-producing real estate properties.
For fiscal year 2015, the increase in revenue of $16.1 million resulted from:
Rent fiscal year 2015 primarily from properties acquired and development projects placed in service in fiscal year 2015
Rent in fiscal year 2015 primarily from properties acquired and development projects placed in service in fiscal year 2014 in excess of that
received in fiscal year 2014 from the same properties
Increase in rent on same-store properties, excluding straight line rent(1)
Net change in straight line rent on same-store properties(1)
Decrease in rent from properties sold or classified as held for sale in fiscal years 2015 and 2014
TRS senior housing revenue in excess of that received in fiscal year 2014(2)
Increase in total revenue
(1) See analysis of NOI by segment on pages 50-55 of the MD&A for additional information.
(2) See discussion in TRS Senior Housing Expenses paragraph below.
For fiscal year 2014, the increase in revenue of $19.1 million resulted from:
(in thousands)
$
6,616
7,169
4,790
(2,333 )
(2,054 )
1,893
16,081
$
(in thousands)
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 office and healthcare
segments and increased rental rates in the multi-family residential segment(1)
TRS senior housing revenue in excess of that received in fiscal year 2013(2)
Increase in total revenue
(1) See analysis of NOI by segment on pages 50-55 of the MD&A for additional information.
$
4,488
6,685
6,251
1,627
19,051
As illustrated above, the majority of the increase in our gross revenue for fiscal years 2015 and 2014 resulted from the addition of new income-producing real estate properties to our
portfolio. Rental revenue from same-store properties increased by $2.5 million and $6.3 million in fiscal years 2015 and 2014, respectively.
Depreciation/Amortization Related to Real Estate Investments. Depreciation/amortization related to real estate investments remained steady in fiscal year 2015 at $67.1 million
compared to $67.6 million in fiscal year 2014.
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.
Utilities. Utilities decreased by 4.5% to $20.9 million in fiscal year 2015, compared to $21.9 million in fiscal year 2014. The addition of new income-producing real estate properties
accounted for an increase of $401,000 while utilities as same-store properties decreased by $1.4 million. The decrease in utilities at same-store properties was due to utility rate
decreases and the effect of milder weather on heating costs.
Utilities increased by 16.3% to $21.9 million in fiscal year 2014, compared to $18.8 million in fiscal year 2013. The addition on 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.
2015 Annual Report 44
Index
Maintenance. Maintenance expenses decreased by 0.8% to $30.9 million in fiscal year 2015, compared to $31.2 million in fiscal year 2014. Same-store properties accounted for a
decrease of $511,000 primarily due to decreased snow removal costs. The addition of new income-producing real estate properties accounted for an increase of $277,000 compared to
the prior year.
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.
Real Estate Taxes. Real estate taxes increased by 2.9% to $33.9 million in fiscal year 2015 compared to $33.0 million in fiscal year 2014. An increase of $136,000 was attributable to the
addition of new income-producing real estate properties. An increase of $827,000 was realized at same-store properties compared to the prior year primarily due to increased property
valuations in our North Dakota markets. A property tax relief credit was in effect in the State of North Dakota for both periods, but the higher property valuations more than offset the
effect of the credit for fiscal year 2015.
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.
Insurance. Insurance expense increased by 13.1% to $5.8 million in fiscal year 2015 compared to $5.2 million in fiscal year 2014. Approximately $341,000 of the increase was attributable
to increased insurance premiums at same-store properties. While premium rates at same-store properties decreased, total premium costs rose due to an increase in insured values
compared to the prior year. Deductibles paid on insurance claims at same-store properties increased by $46,000 when compared to the prior year and the addition of new income-
producing real estate properties accounted for an increase of $287,000.
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.
Property Management Expenses. Property management expenses increased by 9.1% to $18.5 million in fiscal year 2015, compared to $17.0 million in fiscal year 2014. An increase of
$581,000 was attributable to internal property management expenses at same-store properties while the addition of new income-producing real estate properties accounted for an
increase of $960,000.
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.
Other Property Expenses. Other property expense, consisting of bad debt provision expense, increased by 153.8% to approximately $906,000 in fiscal year 2015, compared to $357,000 in
fiscal year 2014, due to an increase in estimated uncollectible accounts receivable.
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 estimated uncollectible accounts receivable.
2015 Annual Report 45
Index
TRS Senior Housing Expenses. The Company has one TRS, acquired during the second quarter of fiscal year 2014, which is the tenant in the Company’s Legends at Heritage Place
senior housing facility. Property management expenses for the Heritage Place property are paid by the TRS, as the tenant in the property, and revenue from the Heritage Place facility is
shown as TRS senior housing revenue on the Consolidated Statements of Operations. TRS senior housing expense increased to $3.0 million in fiscal year 2015 compared to $1.3 million
in fiscal year 2014, primarily due to the TRS only being in operation during the last two quarters of fiscal year 2014.
Administrative Expenses. Administrative expenses increased by 10.1% to $11.8 million in fiscal year 2015, compared to $10.7 million in fiscal year 2014. This change was primarily due to
an increase in share-based compensation expense.
Administrative expenses increased by 26.5% to $10.7 million in fiscal year 2014, compared to $7.9 million in fiscal year 2013. This change was primarily due to an increase of
approximately $1.1 million in share-based compensation expense, 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.
Other Expenses. Other expenses decreased 5.7% to $2.0 million in fiscal year 2015, compared to $2.1 million in fiscal year 2014. Other expenses decreased 1.9% to $2.1 million in fiscal
year 2014, compared to $2.2 million in fiscal year 2013.
Amortization Related to Non-Real Estate Investments. Amortization related to non-real estate investments increased 5.2% in fiscal year 2015 to $3.5 million, compared to $3.3 million in
fiscal year 2014. 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.
Impairment of Real Estate Investments. During fiscal year 2015, the Company incurred a loss of $6.1 million due to the impairment of four commercial properties and two parcels of
unimproved land. During fiscal year 2014, the Company incurred a loss of $42.6 million in continuing operations due to the impairment of ten office properties and one industrial
property. No impairments were incurred in continuing operations in fiscal year 2013. See Note 2 to our consolidated financial statements contained in this Annual Report on Form 10-K
for additional information.
Gain on Involuntary Conversion. No gains on involuntary conversion were recognized during fiscal year 2015. During fiscal years 2014 and 2013, the Company recognized gains on
involuntary conversion of $2.5 million and $5.1 million, respectively. See Note 2 to our consolidated financial statements contained in this Annual Report on Form 10-K for additional
information.
Interest Expense. Components of interest expense in fiscal years 2015, 2014 and 2013 were as follows.
(in thousands)
Year Ended April 30
Mortgage debt
Line of credit
Other
$
Total interest expense
$
$
2015
53,033
2,039
3,948
59,020
$
$
2014
56,087
691
2,364
59,142
$
$
2013
58,893
980
1,281
61,154
$
2015 vs. 2014
2014 vs. 2013
$ Change
(3,054 )
1,348
1,584
(122 )
% Change
(5.4 %) $
195.1 %
67.0 %
(0.2 %) $
$ Change
(2,806 )
(289 )
1,083
(2,012 )
% Change
(4.8 %)
(29.5 %)
84.5 %
(3.3 %)
Mortgage interest decreased by 5.4% to $53.0 million in fiscal year 2015, compared to $56.1 million in fiscal year 2014. Mortgages on properties newly acquired in fiscal years 2015 and
2014 added approximately $231,000 to our mortgage interest expense in fiscal year 2015, while mortgage interest on same-store properties decreased $3.3 million compared to fiscal year
2014, primarily due to loan payoffs.
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.
Our overall weighted average mortgage interest rate was 5.16%, 5.37% and 5.55% as of April 30, 2015, 2014 and 2013, respectively, on total mortgages payable of $974.8 million, $997.7
million and $1.0 billion.
2015 Annual Report 46
Index
Interest expense on our line of credit increased by 195.1% to $2.0 million in fiscal year 2015, compared to approximately $691,000 in fiscal year 2014, primarily due to a higher average
outstanding balance during fiscal year 2015 compared to the prior year. 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.
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 increased by 67.0% to $3.9 million in fiscal year 2015, compared to $2.4 million in fiscal year 2014, primarily due to interest on new
construction loans net of capitalized interest, prepayment penalties and default interest. Other interest 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
Interest Income and Other Income. The Company recorded interest income in fiscal years 2015, 2014 and 2013 of approximately $2.2 million, $1.9 million and $222,000, respectively. The
increase in interest income from fiscal year 2013 to fiscal years 2014 and 2015 was primarily due to interest earned on a contract for deed that was in place for part of fiscal year 2014 and
all of fiscal year 2015.
Other income consists of real estate tax appeal refunds and other miscellaneous income. The Company earned other income in fiscal years 2015, 2014 and 2013 of approximately
$723,000, $483,000 and $526,000, respectively. The increase in other income from fiscal year 2014 to fiscal year 2015 was primarily due to an increase in real estate tax appeal and other
refunds.
Gain on Sale of Real Estate and Other Investments. The Company recorded a gain on sale of real estate and other investments in continuing operations of $6.1 million in fiscal year
2015 and a loss 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.
The Company reported no income from discontinued operations in fiscal year 2015. Income from discontinued operations in fiscal years 2014 and 2013 was $6.5 million and $9.3 million,
respectively. The Company realized a gain on sale of discontinued operations for fiscal year 2014 of $7.0 million compared to $6.9 million in fiscal year 2013. See Note 12 of the Notes to
Consolidated Financial Statements in this report for further information on discontinued operations.
Net Income. Net income available to common shareholders for fiscal year 2015 was $12.6 million, compared to a net loss of $24.7 million and net income of $16.3 million in fiscal years
2014 and 2013, respectively.
2015 Annual Report 47
Index
Occupancy
Occupancy as of April 30, 2015 compared to April 30, 2014 increased in our multi-family residential and office segments, decreased in our healthcare and retail segments and remained
stable in our industrial segment on a same-store basis. The 4.9% decrease in occupancy in our retail segment on a same-store basis was due to the expiration and nonrenewal of a lease
for 37,849 square feet at Grand Forks MedPark Mall and the early termination of a lease for 22,394 square feet at St. Cloud Westgate. 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.
Occupancy Levels on a Same-Store Property and All Property Basis:
Segments
Multi-Family Residential
Office
Healthcare
Industrial
Retail
Net Operating Income
Same-Store Properties
As of April 30,
2015
94.7 %
84.8 %
95.7 %
100.0 %
83.3 %
2014
93.4 %
84.0 %
96.2 %
100.0 %
88.2 %
2013
95.3 %
81.5 %
94.9 %
95.7 %
86.9 %
All Properties
As of April 30,
2015
92.0 %
83.2 %
95.8 %
83.4 %
83.4 %
2014
93.0 %
80.7 %
96.3 %
87.8 %
87.4 %
2013
94.6 %
80.8 %
94.7 %
96.4 %
87.0 %
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 2015, 2014 and
2013. For a reconciliation of net operating income of reportable segments to net income as reported, see Note 11 to our consolidated financial statements contained in this Annual
Report on Form 10-K.
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 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.
2015 Annual Report 48
Index
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 years 2015, 2014 and 2013.
2015
2014
$ Change
% Change
2014
2013
$ Change
% Change
2015 vs 2014
2014 vs 2013
(in thousands, except percentages)
Years Ended April 30
$
$
$
$
$
$
$
$
All Segments
Real estate revenue
Same-store
Non-same-store(1)(2)
Total
Real estate expenses
Same-store
Non-same-store(1)(2)
Total
Gain on involuntary conversion
Same-store
Non-same-store(1)(2)
Total
Net operating income
Same-store
Non-same-store(1)(2)
Total
TRS senior housing revenue
TRS senior housing expenses
Depreciation/amortization
Administrative expenses
Other expenses
Impairment of real estate
investments
Interest expense
Interest and other income
Income (loss) before gain (loss)
on sale of real estate and other
investments and income from
discontinued operations
Gain (loss) on sale of real estate
and other investments
Income (loss) from continuing
operations
Income from discontinued
250,420
29,250
279,670
$
$
247,963 $
17,519
265,482 $
100,387
10,610
110,997
$
$
99,972 $
8,515
108,487 $
2,457
11,731
14,188
415
2,095
2,510
1.0 % $
67.0 %
5.3 % $
237,865 $
27,617
265,482 $
231,614 $
16,444
248,058 $
6,251
11,173
17,424
0.4 % $
24.6 %
2.3 % $
97,442 $
11,045
108,487 $
93,297 $
5,762
99,059 $
4,145
5,283
9,428
2.7 %
67.9 %
7.0 %
4.4 %
91.7 %
9.5 %
0
0
0
$
$
0 $
2,480
2,480 $
0
(2,480 )
(2,480 )
$
n/a
(100.0 )%
(100.0 )% $
0 $
2,480
2,480 $
1,232 $
3,852
5,084 $
(1,232 )
(1,372 )
(2,604 )
(100.0 %)
(35.6 %)
(51.2 %)
$
$
150,033
18,640
168,673
3,520
(2,997 )
(70,607 )
(11,824 )
(2,010 )
2,042
7,156
9,198
1.4 % $
62.3 %
5.8 % $
147,991 $
11,484
159,475 $
1,627
(1,331 )
(70,918 )
(10,743 )
(2,132 )
(6,105 )
(59,020 )
2,961
(42,566 )
(59,142 )
2,391
140,423 $
19,052
159,475 $
1,627
(1,331 )
(70,918 )
(10,743 )
(2,132 )
(42,566 )
(59,142 )
2,391
139,549 $
14,534
154,083 $
874
4,518
5,392
0.6 %
31.1 %
3.5 %
0
0
(62,333 )
(8,494 )
(2,173 )
0
(61,154 )
748
22,591
6,093
28,684
(23,339 )
(51 )
(23,390 )
6,450
(16,940 )
(23,339 )
20,677
(51 )
0
(23,390 )
20,677
6,450
(16,940 ) $
9,295
29,972
$
operations(3)
Net income (loss)
$
0
28,684
$
(1)
Non-same-store properties consist of the following properties for the comparative periods of fiscal years 2015 and 2014 (re-development and in-service development
properties are listed in bold type):
Multi-Family
Residential -
Arcata, Golden Valley, MN; Colonial Villa, Burnsville, MN; Commons at Southgate, Minot, ND; Cypress Court I and II, St. Cloud, MN; Dakota
Commons, Williston, ND; Homestead Garden, Rapid City, SD; Landing at Southgate, Minot, ND; Legacy Heights, Bismarck, ND; Northridge,
Bismarck, ND; Pinecone Villas, Sartell, MN; Red 20, Minneapolis, MN; Renaissance Heights, Williston, ND; River Ridge, Bismarck, ND; Silver
Springs, Rapid City, SD and Southpoint, Grand Forks, ND.
Total number of units, 1,949.
Spring Creek Fruitland, Fruitland, ID.
Total rentable square footage, 39,500.
Healthcare -
2015 Annual Report 49
Index
Industrial -
Retail -
Roseville 3075 Long Lake Road, Roseville, MN.
Total rentable square footage, 220,557.
Minot Southgate Wells Fargo Bank, Minot, ND.
Total rentable square footage, 4,998.
Held for
Sale -
Office -
Healthcare -
Thresher Square, Minneapolis, MN.
Total rentable square footage, 117,144.
Nebraska Orthopaedic Hospital, Omaha, NE.
Total rentable square footage, 61,758.
Total NOI for held for sale properties for the twelve months ended April 30, 2015 and 2014, respectively, $1,945 and $1,931.
Sold -
Multi-Family
Residential -
Office -
Healthcare -
Industrial -
Retail -
Lancaster, St. Cloud, MN.
2030 Cliff Road, Eagan, MN; Burnsville Bluffs II, Burnsville, MN; Dewey Hill Business Center, Edina, MN; Northgate I, Maple Grove, MN; Northgate
II, Maple Grove, MN; Plymouth I, Plymouth, MN; Plymouth II, Plymouth, MN; Plymouth III, Plymouth, MN; Plymouth IV-V, Plymouth, MN; Southeast
Tech, Eagan, MN; Whitewater Plaza, Minnetonka, MN and Wirth Corporate Center, Golden Valley, MN.
Jamestown Medical Office Building, Jamestown, ND.
Eagan 2785 & 2795 Hwy 55, Eagan, MN.
Fargo Express Community, Fargo, ND; Kalispell Retail Center, Kalispell, MT and Weston Retail and Walgreens, Weston, WI.
Total NOI for sold properties for the twelve months ended April 30, 2015 and 2014, respectively, $3,724 and $3,904.
(2)
Non-same-store properties consist of the following properties for the comparative periods of fiscal years 2014 and 2013 (re-development and in-service development
properties are listed in bold type):
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.
Jamestown Medical Office Building, Jamestown, ND; Legends at Heritage Place, Sartell, MN and Spring Creek Fruitland, Fruitland, ID.
Total rentable square footage, 182,896.
Minot IPS, Minot, ND and Stone Container, Roseville, MN.
Total rentable square footage, 45,448.
Arrowhead First International Bank, Minot, ND.
Total rentable square footage, 3,702.
Office -
Healthcare -
Industrial -
Retail -
(3)
Discontinued operations include gain on disposals and income from operations for:
2014 Dispositions – 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.
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 3.4% or $3.2 million in the twelve months ended April 30, 2015 compared to the same
period in the prior fiscal year. The ability to raise rents, which was the result of continued levels of high occupancy, accounted for an increase of $2.7 million while an increase of
$311,000 was attributable to increased occupancy. Other fee items combined increased by $199,000.
Real estate expenses at same-store properties increased by 2.9% or $1.2 million in the twelve months ended April 30, 2015 compared to the same period in the prior fiscal year. The
primary factors were increased real estate taxes of $880,000, and increased insurance expenses of $476,000. These increases were offset by a decrease in utilities expense of $580,000,
while all other expenses combined increased by $463,000 when compared to the prior year. The increase in real estate taxes was primarily attributable to increased property valuations in
our North Dakota markets. A property tax relief credit was in effect in the State of North Dakota both periods, but the higher property valuations more than offset the effect of the credit
for fiscal year 2015. Insurance premium rates at same-store properties decreased, but total insurance premium costs rose due to an increase in insured values compared to the prior fiscal
year. The decrease in utility costs was attributable to a decrease in utility rates and the effects of a milder weather on heating costs.
2015 Annual Report 50
Index
Real estate revenue from same-store properties in our multi-family residential segment increased by 2.7% or $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.
2015
2014
$ Change
% Change
2014
2013
$ Change
% Change
2015 vs 2014
2014 vs 2013
(in thousands, except percentages)
Years Ended April 30
$
$
$
$
$
$
$
$
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
Occupancy
Same-store
Non-same-store
Total
Number of Units
Same-store
Non-same-store
Total
99,072
19,454
118,526
$
$
95,831 $
6,228
102,059 $
44,140
7,032
51,172
$
$
42,901 $
3,237
46,138 $
3,241
13,226
16,467
1,239
3,795
5,034
3.4 % $
212.4 %
16.1 % $
77,447 $
24,612
102,059 $
75,375 $
14,548
89,923 $
2,072
10,064
12,136
2.9 % $
117.2 %
10.9 % $
36,106 $
10,032
46,138 $
33,142 $
5,081
38,223 $
2,964
4,951
7,915
0
0
0
$
$
0 $
2,480
2,480 $
0
(2,480 )
(2,480 )
n/a
$
(100.0 )%
(100.0 )% $
0 $
2,480
2,480 $
0 $
3,852
3,852 $
0
(1,372 )
(1,372 )
54,932
12,422
67,354
$
$
52,930 $
5,471
58,401 $
2,002
6,951
8,953
3.8 % $
127.1 %
15.3 % $
41,341 $
17,060
58,401 $
42,233 $
13,319
55,552 $
(892 )
3,741
2,849
2.7 %
69.2 %
13.5 %
8.9 %
97.4 %
20.7 %
n/a
(35.6 %)
(35.6 %)
(2.1 %)
28.1 %
5.1 %
2015
2014
94.7 %
78.6 %
92.0 %
93.4 %
100.0 %
93.0 %
2015
2014
9,895
1,949
11,844
9,896
883
10,779
2014
2013
94.5 %
87.6 %
93.0 %
95.3 %
91.2 %
94.6 %
2014
2013
8,410
2,369
10,779
8,410
1,738
10,148
2015 Annual Report 51
Index
Office
Real estate revenue from same-store properties in our office segment decreased by $1.4 million in the twelve months ended April 30, 2015 compared to the same period from the prior
fiscal year. The decrease in revenue was attributable to a decrease in the straight-line receivable of $1.4 million and a decrease in tenant reimbursements of $1.3 million which was
primarily due to a decrease in recoverable operating expense. These decreases were offset by an increase in rental revenues which was primarily due to decreased tenant rent
concessions and increased occupancy.
Real estate expenses at same-store properties decreased by $561,000 in the twelve months ended April 30, 2015 compared to the same period from the prior fiscal year. The primary
factors were decreased utilities expense of $745,000 due to a decrease in utility rates and the effect of milder weather on heating costs and decreased maintenance costs of $529,000
which were due primarily to a decrease in snow removal costs. These decreases were offset by an increase in the bad debt provision of $352,000 and an increase in all other expenses
combined of $361,000.
Real estate revenue from same-store properties in our 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.
2015
2014
$ Change
% Change
2014
2013
$ Change
% Change
2015 vs 2014
2014 vs 2013
(in thousands, except percentages)
Years Ended April 30
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
$
$
$
$
$
$
69,990
4,988
74,978
$
$
71,398 $
6,042
77,440 $
(1,408 )
(1,054 )
(2,462 )
(2.0 )% $
(17.4 )%
(3.2 )% $
77,202 $
238
77,440 $
75,733 $
229
75,962 $
1,469
9
1,478
33,895
2,596
36,491
$
$
34,456 $
3,734
38,190 $
(561 )
(1,138 )
(1,699 )
(1.6 )% $
(30.5 )%
(4.4 )% $
37,930 $
260
38,190 $
37,011 $
256
37,267 $
36,095
2,392
38,487
$
$
36,942 $
2,308
39,250 $
(847 )
84
(763 )
(2.3 )% $
3.6 %
(1.9 )% $
39,272 $
(22 )
39,250 $
38,722 $
(27 )
38,695 $
919
4
923
550
5
555
1.9 %
3.9 %
1.9 %
2.5 %
1.6 %
2.5 %
1.4 %
(18.5 %)
1.4 %
2015
2014
84.8 %
24.8 %
83.2 %
84.0 %
62.9 %
80.7 %
Rentable Square Footage
Same-store
Non-same-store
Total
2015
4,078,338
117,144
4,195,482
2014
4,077,155
753,666
4,830,821
2014
2013
81.4 %
35.7 %
80.7 %
81.5 %
35.7 %
80.8 %
2014
4,757,483
73,338
4,830,821
2013
4,755,925
73,338
4,829,263
2015 Annual Report 52
Index
Healthcare
Real estate revenue from same-store properties in our healthcare segment increased by $656,000 in the twelve months ended April 30, 2015 compared to the same period in the prior
fiscal year. Percentage rent at our Edgewood Vista senior living facilities increased by $359,000 while all other real estate revenue items combined increased by $297,000.
Real estate expenses from same-store properties decreased by $2,000 in the twelve months ended April 30, 2015 when compared to the same period from the prior fiscal year. The
decrease in expenses was due to a decrease in utilities expense of $48,000 which resulted from a decrease in utility rates. All other real estate expenses combined increased by $46,000.
Real estate revenue from same-store properties in our 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.
2015
2014
$ Change
% Change
2014
2013
$ Change
% Change
2015 vs 2014
2014 vs 2013
(in thousands, except percentages)
Years Ended April 30
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
$
$
$
$
$
$
62,406
3,824
66,230
$
$
61,750
3,508
65,258
$
$
16,556
620
17,176
$
$
16,558
569
17,127
$
$
45,850
3,204
49,054
$
$
45,192
2,939
48,131
$
$
656
316
972
(2 )
51
49
658
265
923
2015
2014
95.7 %
100.0 %
95.8 %
96.2 %
98.5 %
96.3 %
Rentable Square Footage
Same-store
Non-same-store
2015
2,849,118
101,258
2014
2,849,236
244,654
1.1 % $
9.0 %
1.5 % $
63,898
1,360
65,258
$
$
61,661 $
314
61,975 $
(0.0 )% $
9.0 %
0.3 % $
16,799
328
17,127
$
$
16,671 $
108
16,779 $
1.5 % $
9.0 %
1.9 % $
47,099
1,032
48,131
$
$
44,990 $
206
45,196 $
2,237
1,046
3,283
128
220
348
2,109
826
2,935
3.6 %
333.1 %
5.3 %
0.8 %
203.7 %
2.1 %
4.7 %
401.0 %
6.5 %
2014
2013
96.2 %
98.0 %
96.3 %
94.9 %
80.5 %
94.7 %
2014
2,910,994
182,896
2013
2,910,800
45,222
Total
2,950,376
3,093,890
3,093,890
2,956,022
2015 Annual Report 53
Index
Industrial
Real estate revenue from same-store properties in our industrial segment increased by $125,000 in the twelve months ended April 30, 2015 compared to the same period in the prior fiscal
year. Tenant reimbursements increased by $84,000 primarily due to increased occupancy while rental revenue increased by $41,000.
Real estate expenses from same-store properties decreased by $31,000 in the twelve months ended April 30, 2015 compared to the same period in the prior fiscal year. The decrease was
due to a decrease in real estate taxes of $59,000 while other real estate expenses combined increased by $28,000.
Real estate revenue from same-store properties in our 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.
2015
2014
$ Change
% Change
2014
2013
$ Change
% Change
2015 vs 2014
2014 vs 2013
(in thousands, except percentages)
Years Ended April 30
$
$
$
$
$
$
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
6,304
187
6,491
$
$
1,308
228
1,536
$
$
4,996
$
(41 )
$
4,955
6,179 $
715
6,894 $
1,339 $
704
2,043 $
4,840 $
11
4,851 $
125
(528 )
(403 )
(31 )
(476 )
(507 )
156
(52 )
104
2.0 % $
(73.8 )%
(5.8 )% $
(2.3 )% $
(67.6 )%
(24.8 )% $
3.2 % $
(472.7 )%
2.1 % $
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
5.1 %
(5.8 %)
2.9 %
5.1 %
29.6 %
9.2 %
5.1 %
(16.6 %)
0.5 %
2015
2014
100.0 %
8.1 %
83.4 %
100.0 %
31.3 %
87.8 %
2015
1,002,361
220,557
1,222,918
2014
1,002,361
216,350
1,218,711
2014
2013
87.3 %
100.0 %
87.8 %
95.7 %
100.0 %
96.4 %
2014
1,173,263
45,448
1,218,711
2013
1,173,263
256,770
1,430,033
2015 Annual Report 54
Index
Retail
Real estate revenue from same-store properties in our retail segment decreased by $157,000 in the twelve months ended April 30, 2015 when compared to the same period in the prior
fiscal year. Tenant reimbursements decreased by $196,000 primarily due to a decrease in recoverable operating expenses while rental revenues increased by $39,000 compared to the
prior year.
Real estate expenses from same-store properties decreased by $230,000 in the twelve months ended April 30, 2015 compared to the same period in the prior fiscal year. The decrease was
attributable to a decrease in maintenance expenses of $315,000 which resulted from a decrease in snow removal costs. This decrease was offset by an increase in the bad debt provision
of $96,000 while all other real estate expenses combined decreased by $11,000.
Real estate revenue from same-store properties in our 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.
2015
2014
$ Change
% Change
2014
2013
$ Change
% Change
2015 vs 2014
2014 vs 2013
(in thousands, except percentages)
Years Ended April 30
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
$
$
$
$
$
$
$
$
12,648
797
13,445
$
$
12,805 $
1,026
13,831 $
4,488
134
4,622
$
$
4,718 $
271
4,989 $
(157 )
(229 )
(386 )
(230 )
(137 )
(367 )
(1.2 )% $
(22.3 )%
(2.8 )% $
13,688 $
143
13,831 $
13,487 $
11
13,498 $
(4.9 )% $
(50.6 )%
(7.4 )% $
4,971 $
18
4,989 $
0
0
0
$
$
0 $
0
0 $
0
0
0
n/a
n/a
n/a
$
$
0 $
0
0 $
8,160
663
8,823
$
$
8,087 $
755
8,842 $
73
(92 )
(19 )
0.9 % $
(12.2 )%
(0.2 )% $
8,717 $
125
8,842 $
2015
2014
83.3 %
100.0 %
83.4 %
88.2 %
79.8 %
87.4 %
4,916 $
3
4,919 $
1,232 $
0
1,232 $
9,803 $
8
9,811 $
2014
2013
87.3 %
100.0 %
87.4 %
86.9 %
100.0 %
87.0 %
2014
1,304,620
3,702
1,308,322
2013
1,304,460
3,702
1,308,162
201
132
333
55
15
70
(1,232 )
0
(1,232 )
(1,086 )
117
(969 )
1.5 %
1200.0 %
2.5 %
1.1 %
500.0 %
1.4 %
(100.0 %)
n/a
(100 %)
(11.1 %)
1462.5 %
(9.9 %)
2015 Annual Report 55
Rentable Square Footage
Same-store
Non-same-store
Total
2015
1,184,736
4,998
1,189,734
2014
1,181,632
126,690
1,308,322
Index
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
Office
Healthcare
Industrial
Retail
Total
Net Operating Income
Multi-Family Residential
Office
Healthcare
Industrial
Retail
Total
2015
%
2014
%
2013
%
(in thousands, except percentages)
$
$
$
$
946,520
480,980
497,997
60,611
111,929
2,098,037
67,354
38,487
49,054
4,955
8,823
168,673
45.1 % $
22.9 %
23.8 %
2.9 %
5.3 %
100.0 % $
39.9 % $
22.8 %
29.1 %
3.0 %
5.2 %
100.0 % $
753,731
544,628
525,028
55,375
117,269
1,996,031
58,401
39,250
48,131
4,851
8,842
159,475
37.7 % $
27.3 %
26.3 %
2.8 %
5.9 %
100.0 % $
36.6 % $
24.6 %
30.2 %
3.0 %
5.6 %
100.0 % $
659,696
613,775
501,191
125,772
132,536
2,032,970
55,552
38,695
45,196
4,829
9,811
154,083
32.4 %
30.2 %
24.7 %
6.2 %
6.5 %
100.0 %
36.1 %
25.1 %
29.3 %
3.1 %
6.4 %
100.0 %
Analysis of Commercial Segments’ Credit Risk and Leases
Credit Risk
The following table lists our top ten commercial tenants on April 30, 2015, for all commercial properties owned by us, measured by percentage of total commercial segments’ minimum
rents as of April 1, 2015. 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 15.1% of our total commercial segments’ minimum rents as of April 1, 2015.
As of April 30, 2015, 56 of our 149 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.
2015 Annual Report 56
Index
Lessee
Affiliates of Edgewood Vista
Fairview Health Services
St. Luke’s Hospital of Duluth, Inc.
Applied Underwriters
HealthEast Care System
Microsoft (NASDAQ: MSFT)
Arcadis Corporate Services, Inc.
Nebraska Orthopaedic Hospital
State of Idaho Department of Health & Welfare
Affiliates of Siemens USA
All Others
Total Monthly Commercial Rent as of April 1, 2015
Commercial Leasing Activity
% of Total Commercial
Segments Minimum
Rents as of April 1, 2015
15.1 %
4.0 %
3.7 %
2.6 %
1.8 %
1.5 %
1.4 %
1.4 %
1.2 %
1.2 %
66.1 %
100.0 %
During fiscal year 2015, we executed new and renewal commercial leases for our same-store rental properties on 1,075,008 square feet. Despite our leasing efforts, occupancy in our
same-store commercial portfolio decreased to 89.7% as of April 30, 2015, down from 90.1% as of April 30, 2014.
The total leasing activity for our same-store commercial rental properties, expressed in square feet of leases signed during the period, and the resulting occupancy levels are as follows
for the years ended April 30, 2015 and 2014 respectively.
Segments
Office
Healthcare
Industrial
Retail
Total
Square Feet of
New Leases(1)
2014
356,024
37,628
234,403
128,464
756,519
2015
168,007
21,153
0
57,777
246,937
Square Feet of
Leases Renewed(1)
2014
311,836
40,967
251,831
123,886
728,520
2015
421,006
109,661
39,697
257,707
828,071
Total
Square Feet of
Leases Executed(1)
2014
667,860
78,595
486,234
252,350
1,485,039
2015
589,013
130,814
39,697
315,484
1,075,008
Occupancy
Fiscal Year Ended April
30,
2014
2015
84.8 %
95.7 %
100.0 %
83.3 %
89.7 %
84.0 %
96.2 %
100.0 %
88.2 %
90.1 %
(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. Prior periods reflect amounts previously reported and exclude retroactive adjustments for properties reclassified to
discontinued operations or non-same-store in the current period.
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, 2015 and 2014, respectively:
Office
Healthcare
Industrial
Retail
Total
Square Feet of
New Leases(1)
2014
356,024
37,628
234,403
128,464
756,519
2015
168,007
21,153
0
57,777
246,937
Average Term
2015
4.7
5.4
0.0
3.3
4.4
in Years
2014
4.2 $
4.9
3.1
4.5
4.3 $
$
Average
Effective Rent(2)
2014
13.42
21.58
3.55
5.83
9.48
2015
13.37
17.57
0.00
8.56
12.60
$
Estimated Tenant
Improvement Cost
per Square Foot(1)
2014
13.30
49.71
0.13
1.79
9.08
2015
18.01
31.58
0.00
14.42
18.33
$
$
$
$
$
$
Leasing
Commissions per
Square Foot(1)
2014
4.33
6.88
0.50
4.35
3.27
2015
5.63
5.81
0.00
3.38
5.12
$
$
(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. Prior periods reflect amounts previously reported and exclude retroactive adjustments for properties reclassified to
discontinued operations or non-same-store in the current period. 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.
2015 Annual Report 57
Index
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 our healthcare segment in fiscal year 2015 when compared to new leases executed in the prior year is due to the signing of a 3,174
square foot lease for storage space at our St. Paul, Minnesota Ritchie Medical Plaza property for $3.78 per square foot. Absent this transaction, the average effective rental rate for
leases executed in our healthcare segment in fiscal year 2015 would have been $20.00 per square foot. The increase in the average effective rental rates of new leases executed in fiscal
year 2015 in our 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
fiscal year 2014. 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 retail segment in fiscal year 2014 would have been $11.72 per square foot. The increase in the average effective
rental rate of new leases executed in the total commercial portfolio in fiscal year 2015 when compared to the prior year is primarily due to the Jamestown Buffalo Mall lease mentioned
above and the fact that there were no industrial leases executed in fiscal year 2015.
Lease Renewals
The following table summarizes our lease renewal activity within our same-store commercial segments for the years ended April 30, 2015 and 2014, respectively (square feet data in
thousands):
Square Feet of
Leases Renewed(1)
2014
2015
311,836
421,006
40,967
109,661
251,831
39,697
123,886
257,707
728,520
828,071
Percent of Expiring
Leases Renewed(2)
2014
2015
72.6 %
73.2 %
0.0 %
57.1 %
67.7 %
50.8 %
91.4 %
45.6 %
40.2 %
50.8 %
Average Term
in Years
2014
3.4
3.3
3.2
3.6
3.4
2015
2.8
5.8
2.5
3.7
3.6
Weighted Average
Growth (Decline)
in Effective Rents(3)
2014
2015
9.6 %
(3.5 %)
(2.1 %)
18.3 %
8.0 %
(2.6 %) $
8.0 %
7.5 %
8.9 %
1.9 % $
Office
Healthcare
Industrial
Retail
Total
Estimated
Tenant
Improvement
Cost per Square
Foot(1)
2014
2015
2.29
10.87
0.00
1.33
3.01
$
$
4.82 $
8.51
0.32
1.19
2.85 $
Leasing
Commissions per
Square Foot(1)
2014
3.39
0.94
0.48
0.08
1.68
2015
1.52
1.56
1.01
0.30
1.12
$
$
(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. Prior periods reflect amounts previously reported and exclude retroactive adjustments for properties reclassified to
discontinued operations or non-same-store in the current period. 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. Beginning in the first quarter of fiscal year 2015, the
category of renewed leases does not include leases that have become month-to-month leases; these month-to-month leases are considered lease amendments. Previous-period
data has been revised to reflect this change.
(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 2015 in our commercial industrial segment when compared to the prior fiscal year is due to the fact that there
were no leases expiring in fiscal year 2015. The increase in the weighted average growth in effective rents for the retail segment in fiscal year 2015 when compared to the prior fiscal year
is due to a 47,150 square foot lease renewal executed at our Rochester, Minnesota Maplewood Square property and a 36,752 square foot lease renewal at our St. Cloud Westgate
property. The increase in the rental rate at our Rochester, Minnesota property was primarily due to the improved financial condition of the tenant which enabled IRET to renew the
lease at fair market rental rates. The lease renewal at our St. Cloud, Minnesota property contained a significant tenant improvement allowance negotiated by the tenant which enabled
IRET to negotiate an increased rental rate as well. Absent these two lease transactions, the weighted average growth rate in effective rents for the retail segment for fiscal year 2015
would have been 6.4%.
2015 Annual Report 58
Index
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, 2015.
Fiscal Year of Lease
Expiration
2016(1)
2017
2018
2019
2020
2021
2022
2023
2024
2025
Thereafter
Totals
# of Leases
Square Footage of
Expiring Leases(3)
1,228,799
1,211,526
724,033
1,273,808
675,357
463,342
1,408,667
499,626
384,820
198,574
218,325
8,286,877
166
142
101
90
61
54
49
16
42
13
11
745
Percentage of
Total
Commercial
Segments
Leased Square
Footage
Annualized Base
Rent of Expiring
Leases at
Expiration(2)
14.8 % $
14.6 %
8.7 %
15.4 %
8.2 %
5.6 %
17.0 %
6.0 %
4.7 %
2.4 %
2.6 %
100.0 % $
14,724,258
19,243,120
11,485,971
17,987,792
8,179,205
6,832,314
17,928,424
2,533,159
5,963,158
2,847,879
4,701,895
112,427,175
Percentage of Total
Commercial
Segments
Annualized Base
Rent
13.1 %
17.1 %
10.2 %
16.0 %
7.3 %
6.1 %
15.9 %
2.3 %
5.3 %
2.5 %
4.2 %
100.0 %
(1) Includes month-to-month leases. As of April 30, 2015 month-to-month leases accounted for 357,422 square feet.
(2) Annualized Base Rent is monthly scheduled rent as of April 1, 2015, multiplied by 12.
(3) Assuming that none of the tenants exercise renewal or termination options, and including leases renewed prior to expiration. Also excludes 140,022 square feet of space
occupied by IRET, of which 98,174 square feet is income producing real estate is operated within our TRS.
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.
2015 Annual Report 59
Index
Property Acquisitions
IRET Properties added approximately $56.3 million of real estate properties to its portfolio through property acquisitions during fiscal year 2015, compared to $43.6 million in fiscal year
2014. The fiscal year 2015 and 2014 acquisitions are detailed below.
Fiscal 2015 (May 1, 2014 to April 30, 2015)
Acquisitions
Date Acquired
Total
Acquisition
Cost
Form of Consideration
Investment Allocation
(in thousands)
Cash
Units(1)
Other(2)
Land
Building
Intangible
Assets
Multi-Family Residential
152 unit - Homestead Garden -
Rapid City, SD(3)
52 unit - Silver Springs - Rapid
City, SD
68 unit - Northridge - Bismarck,
ND
119 unit – Legacy Heights -
Bismarck, ND(4)
Unimproved Land
Creekside Crossing - Bismarck,
ND
PrairieCare Medical - Brooklyn
Park, MN
71 France Phase I - Edina, MN(5)
Monticello 7th Addition -
Monticello, MN
71 France Phase II & III - Edina,
MN(5)
Minot 1525 24th Ave SW - Minot,
ND
2014-06-02
$
15,000
$
5,092
$
0
$
9,908
$
655
$
14,139
$
2014-06-02
2014-09-12
2015-03-19
2014-05-22
2014-06-05
2014-06-12
2014-10-09
2014-11-04
2014-12-23
3,280
8,500
15,000
41,780
4,269
2,616
1,413
1,660
3,309
1,250
14,517
1,019
8,400
14,300
28,811
4,269
2,616
0
1,660
0
1,250
9,795
0
100
700
800
0
0
0
0
0
0
0
2,261
0
0
12,169
0
0
1,413
0
3,309
0
4,722
215
884
1,207
2,961
4,269
2,616
1,413
1,660
3,309
1,250
14,517
3,006
7,516
13,742
38,403
0
0
0
0
0
0
0
206
59
100
51
416
0
0
0
0
0
0
0
Total Property Acquisitions
$
56,297
$
38,606
$
800
$
16,891
$
17,478
$
38,403
$
416
(1) Value of limited partnership units of the Operating Partnership at the acquisition date.
(2) Consists of assumed debt (Homestead Garden I: $9.9 million, Silver Springs: $2.3 million) and value of land contributed by the joint venture partner (71 France: $4.7 million).
(3) At acquisition the Company adjusted the assumed debt to fair value and recognized approximately $852,000 of goodwill.
(4) At acquisition, the purchase price included assets in development (land: $804,000, building: $7.8 million, escrow $1.3 million).
(5) Land was contributed to a joint venture in which the Company has an approximately 52.6% interest. The joint venture is consolidated in IRET’s financial statements.
2015 Annual Report 60
Index
Fiscal 2014 (May 1, 2013 to April 30, 2014)
Acquisitions
Date Acquired
Total
Acquisition
Cost
Form of Consideration
Investment Allocation
(in thousands)
Cash
Units(1)
Other(2)
Land
Building
Intangible
Assets
Multi-Family Residential
71 unit - Alps Park - Rapid City,
SD
96 unit - Southpoint - Grand
Forks, ND
24 unit - Pinecone Villas - Sartell,
MN
2013-09-05
2013-10-31
Healthcare
98,174 sq ft Legends at Heritage
Place - Sartell, MN
39,500 sq ft Spring Creek Fruitland
- Fruitland, ID
2013-10-31
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
2013-05-01
$
6,200
$
2,920
$
3,280
$
0
$
287
$
5,551
$
10,600
2,800
19,600
11,863
7,050
18,913
179
700
1,900
537
335
50
1,366
5,067
10,400
2,800
16,120
11,863
7,050
18,913
179
700
0
537
335
50
1,366
3,167
200
0
3,480
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1,900
0
0
0
0
1,900
576
584
1,447
970
550
1,520
179
700
1,900
537
335
50
1,366
5,067
9,893
2,191
17,635
10,511
6,500
17,011
0
0
0
0
0
0
0
0
362
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.
2015 Annual Report 61
Index
Development Projects Placed in Service
IRET Properties placed approximately $124.5 million of development projects in service during fiscal year 2015, compared to $53.5 million in fiscal year 2014. The fiscal year 2015 and 2014
development projects placed in service are detailed below.
Fiscal 2015 (May 1, 2014 to April 30, 2015)
Development Projects Placed in Service (1)
Multi-Family Residential
44 unit - Dakota Commons - Williston, ND(2)
130 unit - Red 20 - Minneapolis, MN(3)
233 unit - Commons at Southgate - Minot, ND(4)
64 unit - Cypress Court II - St. Cloud, MN(5)
165 unit - Arcata - Golden Valley, MN(6)
Industrial
Date Placed in
Service
Land
Building
Development
Cost
(in thousands)
2014-07-15 $
2014-11-21
2014-12-09
2015-01-01
2015-01-01
$
823
1,900
3,691
447
2,088
8,949
0
9,596 $
26,412
31,351
6,320
29,640
103,319
9,036
10,419
28,312
35,042
6,767
31,728
112,268
9,036
202,807 sq ft Roseville 3075 Long Lake Road - Roseville, MN
2015-02-02
Retail
4,998 sq ft Minot Southgate Wells Fargo Bank - Minot, ND(7)
2014-11-10
992
2,193
3,185
Total Development Projects Placed in Service
$
9,941
$
114,548 $
124,489
(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 6 for additional information
on the Renaissance Heights project, which was partially placed in service during the fiscal year 2014 and the twelve months ended April 30, 2015.
(2) Costs paid in prior fiscal years totaled $8.1 million. Additional costs paid in fiscal year 2015 totaled $2.3 million, for a total project cost at January 31, 2015 of $10.4 million.
(3) Costs paid in prior fiscal years totaled $12.2 million. Additional costs paid in fiscal year 2015 totaled $16.1 million, for a total project cost at January 31, 2015 of $28.3
million. The project is owned by a joint venture entity in which the Company has an approximately 58.6% interest. The joint venture is consolidated in IRET’s financial
statements.
(4) Costs paid in prior fiscal years totaled $26.5 million, respectively. Additional costs paid in fiscal year 2015 totaled $8.1 million, for a total project cost at January 31, 2015 of
$34.6 million. The project is owned by a joint venture entity in which the Company has an approximately 52.9% interest. The joint venture is consolidated in IRET’s financial
statements.
(5) Costs paid in prior fiscal years totaled $1.2 million. Additional costs paid in fiscal year 2015 totaled $5.5 million, for a total project cost at January 31, 2015 of $6.6 million.
The project is owned by a joint venture entity in which the Company has an approximately 86.1% interest. The joint venture is consolidated in IRET’s financial statements.
(6) Costs paid in prior fiscal years totaled $11.3 million, respectively. Additional costs paid in fiscal year 2015 totaled $19.1 million, for a total project cost at January 31, 2015 of
$30.4 million.
(7) Costs paid in fiscal year 2015 totaled $3.2 million, including land acquired in fiscal year 2013.
2015 Annual Report 62
Index
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
590
12,864 $
12,428
24,267
15,126
13,564
24,857
Total Development Projects Placed in Service
$
3,988
$
49,559 $
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) Costs paid in prior fiscal years totaled $6.3 million. Costs paid in fiscal year 2014 totaled $8.8 million for a total project cost at April 30, 2014 of $15.1 million. The project is
owned by a joint venture entity in which the Company has an approximately 52.9% interest.
(3) Costs paid in prior fiscal years totaled $5.8 million. 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) Costs paid in prior fiscal years totaled $10.1 million. Costs paid in fiscal year 2014 totaled $14.7 million for a total project cost at April 30, 2014 of $24.9 million.
2015 Annual Report 63
Index
Property Dispositions
During fiscal year 2015, the Company disposed of one multi-family residential property, twelve office properties, one healthcare property, one industrial property, three retail properties,
and two unimproved properties for an aggregate sales price of $76.0 million, compared to dispositions totaling $80.9 million in fiscal year 2014. The fiscal year 2015 and 2014 dispositions
are detailed below.
Fiscal 2015 (May 1, 2014 to April 30, 2015)
Dispositions
Multi-Family Residential
83 unit - Lancaster - St. Cloud, MN
Office
73,338 sq ft Dewey Hill - Edina, MN
74,568 sq ft Wirth Corporate Center - Golden Valley, MN
79,297 sq ft Northgate I – Maple Grove, MN
26,000 sq ft Northgate II - Maple Grove, MN
45,019 sq ft Burnsville Bluffs II - Burnsville, MN
26,186 sq ft Plymouth I - Plymouth, MN
26,186 sq ft Plymouth II - Plymouth, MN
26,186 sq ft Plymouth III - Plymouth, MN
126,936 sq ft Plymouth IV & V - Plymouth, MN
58,300 sq ft Southeast Tech Center - Eagan, MN
61,138 sq ft Whitewater Plaza - Minnetonka, MN
13,374 sq ft 2030 Cliff Road - Eagan, MN
Date
Disposed
(in thousands)
Book Value
Sales Price
and Sales Cost
Gain/(Loss)
2014-09-22 $
4,451
$
3,033 $
1,418
2014-05-19
2014-08-29
2014-12-01
2015-03-02
2015-03-25
2015-03-25
2015-03-25
2015-03-25
2015-03-25
2015-03-25
2015-03-25
2015-04-21
3,100
4,525
7,200
2,725
1,245
1,985
1,625
2,500
12,910
3,300
3,035
950
45,100
3,124
4,695
6,881
1,727
2,245
1,492
1,356
1,977
11,706
4,196
4,625
834
44,858
(24 )
(170 )
319
998
(1,000 )
493
269
523
1,204
(896 )
(1,590 )
116
242
Healthcare
45,222 sq ft Jamestown Medical Office Building - Jamestown, MN
2015-02-05
12,819
8,710
4,109
Industrial
198,600 sq ft Eagan 2785 & 2795 - Eagan, MN
Retail
25,644 sq ft Weston Retail - Weston, WI
52,000 sq ft Kalispell Retail - Kalispell, MT
34,226 sq ft Fargo Express Center & SC Pad - Fargo, ND
14,820 sq ft Weston Walgreens – Weston, WI
Unimproved Land
Kalispell Unimproved - Kalispell, MT
Weston – Weston, WI
2014-07-15
3,600
5,393
(1,793 )
2014-07-28
2014-10-15
2014-11-18
2015-02-27
2014-10-15
2015-02-17
n/a
1,230
2,843
5,177
9,250
670
158
828
1,176
1,229
2,211
2,152
6,768
670
158
828
(1,176 )
1
632
3,025
2,482
0
0
0
Total Property Dispositions
$
76,048
$
69,590 $
6,458
2015 Annual Report 64
Index
Fiscal 2014 (May 1, 2013 to April 30, 2014)
Dispositions
Multi-Family Residential
84 unit - East Park - Sioux Falls, SD
48 unit - Sycamore Village - Sioux Falls, SD
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
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
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
Total Property Dispositions
Development and Re-Development Projects
Date
Disposed
2013-12-18 $
2013-12-18
2013-09-12
2013-09-12
2013-09-12
2013-05-13
2013-05-13
2013-05-13
2013-05-13
2013-09-12
2013-09-12
2013-09-24
2013-10-08
2013-10-31
2014-01-17
2014-01-30
2014-01-30
2013-05-14
2013-12-23
2014-01-08
(in thousands)
Book Value
Sales Price
and Sales Cost
Gain/(Loss)
2,214
1,296
3,510
4,500
7,290
1,160
12,950
3,150
4,700
2,350
9,275
12,800
2,550
2,553
1,825
14,675
725
3,800
2,735
61,138
2,310
325
650
3,285
$
2,358 $
1,380
3,738
7,339
6,001
1,164
14,504
1,375
4,100
1,949
9,998
12,181
2,607
1,488
1,547
10,328
747
3,084
2,675
52,079
2,420
347
796
3,563
(144 )
(84 )
(228 )
(2,839 )
1,289
(4 )
(1,554 )
1,775
600
401
(723 )
619
(57 )
1,065
278
4,347
(22 )
716
60
9,059
(110 )
(22 )
(146 )
(278 )
$
80,883
$
73,884 $
6,999
The following tables provide additional detail, as of April 30, 2015 and 2014, 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 development against the cost of the project. Estimated initial yields on the projects listed below range
from an estimated approximate 6.0% to an estimated approximate 14.0% initial yield. The higher initial returns are reflective of a project in Williston, North Dakota, a location which had
been experiencing higher levels of economic growth due primarily to energy development. The Company estimates that upon completion of the project, given the reduction in oil prices
in the last year and resulting reduction in some demand for housing in this market, the actual initial yields will be more in-line with its yields on similar projects being achieved in the
other markets in which we operate.
2015 Annual Report 65
Index
Projects Placed in Service in Fiscal Year 2015
Project Name and Location
Dakota Commons - Williston,
Rentable
Square Feet
or Number of
Units
Percentage
Leased
or
Committed
Segment
Anticipated
Total
Cost(1)
Costs as of
April 30,
2015(1)
Cost per
Square Foot
or Unit(1)
Date
Placed in
Service
Anticipated
Same-Store
Date
(in thousands)
ND
Multi-Family Residential
44 units
95.5 % $
10,736 $
10,419 $
244,000
Q1 2015
Q1 2017
Commons at Southgate -
Minot, ND(2)
Minot Southgate Wells
Fargo Bank - Minot, ND
Cypress Court II – St. Cloud,
Multi-Family Residential
233 units
Retail
4,998 sq ft
MN(3)
Multi-Family Residential
Arcata - Golden Valley, MN Multi-Family Residential
Red 20 - Minneapolis, MN(4) Multi-Family Residential
Roseville 3075 Long Lake Rd
64 units
165 units
130 units
- Roseville, MN
Industrial
202,807
92.7 %
100 %
96.9 %
20.0 %
75.4 %
5.0 %
$
37,201
35,042
159,661
Q3 2015
Q1 2017
3,288
3,186
658
Q3 2015
Q1 2017
7,028
33,448
29,462
6,767
31,728
28,312
109,813
202,715
226,631
Q3 2015
Q3 2015
Q3 2015
Q1 2017
Q1 2017
Q1 2017
13,915
135,078 $
9,036
124,490
69
Q4 2015
Q1 2017
(1) Excludes tenant improvements and leasing commissions.
(2) The Company is currently an approximately 52.9% 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. The anticipated total cost includes approximately 10,625 square feet of retail space.
Projects in Progress at April 30, 2015
Project Name and Location
Chateau II - Minot, ND
Edina 6565 France SMC III -
Edina, MN
Minot Southgate Retail -
Minot, ND
Renaissance Heights -
Williston, ND(2)
Deer Ridge – Jamestown, ND
PrairieCare Medical -
Brooklyn Park, MN
Cardinal Point - Grand Forks,
Planned Segment
Multi-Family Residential
Rentable
Square Feet
or Number of
Units
72 units
Healthcare
57,479 sq ft
Retail
Multi-Family Residential
Multi-Family Residential
7,963 sq ft
288 units
163 units
Healthcare
72,895 sq ft
ND
Multi-Family Residential
71 France Phases I, II, & III -
Edina, MN(3)
Multi-Family Residential
Other
n/a
251 units
241 units
n/a
Percentage
Leased
or Committed
13.9 %
24.2 %
0 %
44.5 %
8.6 %
100 %
18.3 %
6.2 %
n/a
(in thousands)
Anticipated
Total Cost
14,711
Costs as of
April 30, 2015(1)
13,129
36,752
2,923
62,362
24,519
24,251
40,042
73,290
n/a
22,549
2,164
59,087
15,355
19,457
26,450
35,137
6,618
199,946
$
278,850
$
Anticipated
Construction
Completion
1Q 2016
1Q 2016
1Q 2016
1Q 2016
2Q 2016
2Q 2016
3Q 2016
1Q 2017
n/a
(1) Includes costs related to development projects that are placed in service in phases (Renaissance Heights - $46.0 million).
(2) 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.
(3) The project will be constructed in three phases by a joint venture entity in which the Company has an approximately 52.6% interest. The anticipated total cost amount given is
the total cost to the joint venture entity. The anticipated total cost includes approximately 21,772 square feet of retail space.
2015 Annual Report 66
Index
Projects Placed in Service in Fiscal Year 2014
Project Name and Location
Landing at Southgate -
Minot, ND(2)
Cypress Court - St. Cloud,
MN(3)
River Ridge - Bismarck, ND
Square Feet
or Number of
Units
Segment
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
(in thousands)
Multi-Family Residential
108 units
99.1 % $
15,792 $
15,126
$
146,222
Q2 2014
Q1 2016
Multi-Family Residential
Multi-Family Residential
132 units
146 units
96.2 %
92.5 %
$
14,322
25,863
55,977 $
13,564
25,008
53,698
108,500
177,144
Q3 2014
Q3 2014
Q1 2016
Q1 2016
(1) Excludes tenant improvements and leasing commissions.
(2) The project is owned by a joint venture in which the Company has an approximately 52.9% 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
233 units
66 units
165 units
130 units and
10,625 sq ft
288 units
72 units
251 units
n/a
0 % $
10,736
$
0 %
0 %
0 %
0 %
13.2 %
0 %
0 %
n/a
37,201
7,028
33,448
29,462
62,362
14,711
40,042
n/a
$
234,990
$
9,013
28,065
1,580
13,018
13,980
39,017
2,098
6,829
2,496
116,096
Q1 2015
Q2 2015
Q3 2015
Q3 2015
Q3 2015
Q4 2015
Q4 2015
Q1 2016
n/a
(1) Includes costs related to development projects that are placed in service in phases (Renaissance Heights I - $11.5 million).
(2) The Company is an approximately 52.9% 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 the Consolidated Financial Statements in this report for additional
information.
2015 Annual Report 67
Index
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, 2015 was $86.6 million, compared to $79.9 million and $78.9 million for the fiscal years
ended April 30, 2014 and 2013, respectively.
2015 Annual Report 68
Index
Reconciliation of Net Income Attributable to Investors Real Estate Trust to Funds From Operations
For the years ended April 30, 2015, 2014 and 2013:
Fiscal Years Ended April 30,
2015
Weighted Avg
Shares and
Amount
Units(2)
(in thousands, except per share and unit amounts)
2014
Per
Share
and
Unit(3)
Weighted Avg
Shares and
Amount
Units(2)
Per
Share
and
Unit(3)
2013
Weighted Avg
Shares and
Amount
Units(2)
Per
Share
and
Unit(3)
Net income (loss) attributable to
Investors Real Estate Trust
Less dividends to preferred
shareholders
Net income (loss) available to
common shareholders
Adjustments:
Noncontrolling interests –
Operating Partnership
Depreciation and amortization(1)
Impairment of real estate
Gains on depreciable property
sales attributable to Investors
Real Estate Trust
Funds from operations applicable
to common shares and Units
$
24,087
$
$
(13,174 )
$
$
25,530
$
(11,514 )
(11,514 )
(9,229 )
12,573
118,004
0.11
(24,688 )
105,331
(0.23 )
16,301
93,344
0.17
16,594
1,526
70,450
6,105
(4,079 )
21,697
(4,676 )
71,830
44,426
(6,948 )
21,191
3,633
65,542
305
(6,885 )
$
86,575
134,598 $
0.64 $
79,944
127,028 $
0.63 $
78,896
114,535 $
0.69
(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 $70,607, $70,918 and $62,333 and depreciation/amortization from Discontinued Operations of $0,
$1,010 and $3,416, less corporate-related depreciation and amortization on office equipment and other assets of $157, $98 and $207 for the fiscal year ended April 30, 2015,
2014 and 2013.
(2) 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 unitholders during fiscal years 2015, 2014 and 2013:
Quarters
First
Second
Third
Fourth
The cash distributions remained the same in fiscal years 2015, 2014 and 2013.
Liquidity and Capital Resources
Overview
Fiscal Years
2015
.1300
.1300
.1300
.1300
.5200
$
$
2014
.1300
.1300
.1300
.1300
.5200
$
$
2013
.1300
.1300
.1300
.1300
.5200
$
$
The Company’s principal liquidity demands are maintaining distributions to the holders of the Company’s common and preferred shares of beneficial interest and 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.
2015 Annual Report 69
Index
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 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 $22.6 million in capital expenditures (excluding capital expenditures recoverable from
tenants and tenant improvements). For the fiscal year ended April 30, 2015, the Company paid distributions of $53.7 million in cash and $15.6 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 $112.9 million and FFO of $86.6 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 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, 2015, 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 September 1, 2017. The line of credit had, as of April 30, 2015, lending commitments of $90.0 million. Participants in this secured credit facility as
of April 30, 2015 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 United Bankers’ Bank. As of April 30, 2015, the Company had advanced
$60.5 million under the line of credit. The line of credit has a minimum outstanding principal balance requirement of $17.5 million. The interest rate on borrowings under the line of credit
is the Wall Street Journal Prime Rate plus 1.25%, with a floor of 4.75% and a cap of 8.65% during the initial term of the line of credit. 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 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,
2015, 15 properties with a total cost of $136.1 million collateralized this line of credit. As of April 30, 2015, the Company believes it is in compliance with its covenants.
2015 Annual Report 70
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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, 2015 the Company’s compensating balances totaled $14.3 million and consisted of the following: First International Bank, Watford City,
North Dakota, deposit of $6.1 million; Private Bank, Minneapolis, Minnesota, deposit of $2.0 million; Associated Bank, Green Bay, Wisconsin, deposit of $3.6 million; American National
Bank, Omaha, Nebraska, deposit of $400,000; Dacotah Bank, Minot, North Dakota, deposit of $350,000; United Community Bank, Minot, North Dakota, deposit of $275,000; Peoples
State Bank of Velva, North Dakota, deposit of $225,000; Commerce Bank, a Minnesota Banking Corporation, deposit of $100,000; and Bremer Bank, Saint Paul, Minnesota, deposit of
$1.3 million.
During the second quarter of fiscal year 2014, the Company and its Operating Partnership entered into an at-the-market, or ATM, sales agreement with Robert W. Baird & Co.
Incorporated as sales agent, where 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 issuable under this agreement are registered with the SEC on our Registration Statement on Form S-3 (No. 333-189637), pursuant to a prospectus supplement dated August
30, 2013 to the prospectus dated June 27, 2013. The Company issued no common shares under this program during fiscal years 2015 and 2014.
During fiscal year 2015, 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 2015, we remain cautious regarding our ability in
fiscal year 2016 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 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 and their general capacity to lend given
allocations set by the Federal Housing Finance Agency. We consider that one of the consequences of a modification in the agencies’ roles in recent years could potentially lead to 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
has historically obtained a significant portion of its multi-family debt from Freddie Mac, and we continue to plan to refinance portions of our maturing multi-family debt with these two
entities, so any change in their ability or willingness to lend going forward could result in higher loan costs and/or more constricted availability of financing for us.
As of April 30, 2015, approximately 10.3%, or $10.1 million of our mortgage debt maturing in the next twelve months is placed on multi-family residential assets, and approximately 89.7%,
or $87.9 million, is placed on properties in our four commercial segments. Mortgage debt maturing in the first two quarters of fiscal year 2016 totals approximately $44.0 million. Of this
$44.0 million, the Company paid off $1.9 million on May 1, 2015. The Company expects to pay off an additional $16.8 million in the first two quarters of fiscal year 2016 and expects to
refinance $25.3 million in the first two quarters of fiscal year 2016. 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. On April 14, 2015, the Company received a default notice
regarding the $122.6 million non-recourse loan between a Company subsidiary as borrower and Citigroup Global Markets Realty Corp as lender due to a nonpayment on April 6, 2015.
The aggregate estimated fair value of the assets securing this loan is less than the outstanding loan balance of $122.6 million. This loan matures in October 2016 and has an interest rate
of 5.93%. The Company cannot predict the outcome of the discussions with the special servicer on this loan.
2015 Annual Report 71
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IRET during fiscal year 2015 acquired properties with an investment cost totaling $56.3 million. In fiscal year 2015, IRET disposed of one multi-family residential property, twelve office
properties, one healthcare property, one industrial property, three retail properties, and two unimproved properties for sales prices totaling approximately $76.0 million, compared to
dispositions totaling $80.9 million in fiscal year 2014.
The Company has a Distribution Reinvestment and Share Purchase Plan (“DRIP”). The DRIP provides common shareholders and Unitholders of the Company an opportunity to invest
their cash distributions in common shares of the Company, currently at a discount of 3% from the market price, and to purchase additional shares through voluntary cash contributions
at 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 2015, the Company issued approximately 926,000 shares at an average price of $8.64
per share pursuant to such waivers, for total net proceeds to the Company of $8.0 million. 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 2015, 8.1 million common shares with a total value of $64.9 were issued
under the DRIP plan. During fiscal year 2014, 6.6 million common shares with a total value of $55.8 million were issued under the DRIP plan and 5.3 million common shares with a total
value of $43.1 million were issued under the plan during fiscal year 2013.
The issuance of Units for property acquisitions continues to be a source of capital for the Company. During fiscal year 2015, approximately 89,000 Units, valued at issuance at
approximately $800,000 were issued in connection with the Company’s acquisition of property. Approximately 361,000 units, valued at issuance at $3.5 million, and 1.6 million units,
valued at issuance at $12.6 million, respectively, were issued in connection with property acquisitions during fiscal years 2014 and 2013.
As a result of the issuance of common shares pursuant to our shelf registration statement and DRIP, the Company’s equity capital increased during fiscal 2015 by $67.5 million.
Additionally, the equity capital of the Company increased by approximately $800,000 as a result of contributions of real estate in exchange for Units, as summarized above, resulting in a
total increase in equity capital of $68.3 million from these sources during fiscal year 2015. The Company’s equity capital increased by $59.4 million and $111.6 million in fiscal years 2014
and 2013, respectively, as a result of the issuance of common shares pursuant to our shelf registration statement and DRIP, net of fractional shares repurchased, and contributions of
real estate in exchange for Units.
Cash and cash equivalents on April 30, 2015 totaled $49.0 million, compared to $47.3 million and $94.1 million on the same date in 2014 and 2013, respectively. Net cash provided by
operating activities increased to $114.2 million in fiscal year 2015 from $92.5 million in fiscal year 2014 due primarily to an increase in net income. 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 used by investing activities increased to $176.4 million in fiscal year 2015, compared to $121.8 million in fiscal year 2014. Net cash provided by investing activities was $134.1
million in fiscal year 2013. The increase in net cash used by investing activities is fiscal year 2015 compared to fiscal year 2014 was due primarily to an increase in payments for
development and re-development of real estate assets net of an increase in proceeds from sale of real estate and other investments and a decrease in proceeds from discontinued
operations. 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. Net cash provided by financing activities was $65.2 million in fiscal year 2015,
compared to $17.5 million net cash used by financing activities in fiscal year 2014, with the change due primarily to an increase in proceeds from mortgages payable and proceeds from
construction debt. 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.
2015 Annual Report 72
Index
Financial Condition
Mortgage Loan Indebtedness. Mortgage loan indebtedness was $974.8 million on April 30, 2015 and $997.7 million on April 30, 2014. Approximately 92.8% of such mortgage debt is at
fixed rates of interest, with staggered maturities. This limits the Company’s exposure to changes in interest rates, which minimizes the effect of interest rate fluctuations on the
Company’s results of operations and cash flows. As of April 30, 2015, the weighted average rate of interest on the Company’s mortgage debt was 5.16% compared to 5.37% on April 30,
2014.
Construction Loan Indebtedness. Construction loan indebtedness was $136.2 million on April 30, 2015 and $63.1 million on April 30, 2014. As of April 30, 2015, the weighted average
rate of interest on the Company’s construction loan indebtedness was 3.38%, compared to 3.08% on April 30, 2014.
Revolving lines of credit. As of April 30, 2015, 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, 2015, lending commitments of $90.0 million. The facility has a maturity date of September 1, 2017, and is secured by mortgages on 15 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, 2015 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 United Bankers’ Bank. The line of credit has a current interest rate of 4.75% and a minimum
outstanding principal balance requirement of $17.5 million, and as of April 30, 2015, the Company had borrowed $60.5 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, 2015, 15 properties with a total cost of $136.1 million collateralized this line of credit. As of April 30, 2015, the Company believes it is in compliance with
the facility covenants.
Property Owned. Property owned increased to $2.1 billion at April 30, 2015, compared to $2.0 billion at April 30, 2014. Acquisitions, developments and improvements to existing
properties in fiscal year 2014, partially offset by fiscal year 2015 dispositions, resulted in the net increase in property owned as of April 30, 2015 compared to April 30, 2014.
Cash and Cash Equivalents. Cash and cash equivalents on April 30, 2015 totaled $49.0 million, compared to $47.3 million on April 30, 2014. The increase in cash on hand on April 30,
2015, as compared to April 30, 2014, was due primarily to proceeds from sale of real estate and proceeds from mortgage and construction debt net of acquisitions and development of
property.
Other Investments. Other investments, consisting of bank certificates of deposit, was $329,000 on April 30, 2015, and April 30, 2014.
Operating Partnership Units. Outstanding limited partnership units in the Operating Partnership decreased to 14.0 million units on April 30, 2015, compared to 21.1 million units on April
30, 2014. The decrease in units outstanding at April 30, 2015 as compared to April 30, 2014, 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, 2015 totaled 124.5 million, compared to 109.0 million common shares
outstanding on April 30, 2014. This increase in common shares outstanding from April 30, 2014 to April 30, 2015 was due to the issuance of common shares in exchange for limited
partnership interests of the Company’s Operating Partnership, conversion of units to commons shares and, issuance of common shares 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.
2015 Annual Report 73
Index
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 issuable under this agreement are registered with the SEC on our
Registration Statement on Form S-3 (No. 333-189637), pursuant to a prospectus supplement dated August 30, 2013 to the prospectus dated June 27, 2013. The Company issued no
common shares under this program during fiscal year 2015 and 2014.
The Company issued approximately 8.1 million common shares pursuant to its Distribution Reinvestment and Share Purchase Plan during fiscal year 2015, for a total value of
approximately $64.9 million. Conversions of 7.2 million Units to common shares during fiscal year 2015, for a total of approximately $41.3 million in IRET shareholders’ equity, also
increased the Company’s common shares of beneficial interest outstanding during the twelve months ended April 30, 2015 compared to the twelve months ended April 30, 2014.
As of April 30, 2015, the Company had 1.15 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 September
2017, and had $60.5 million in loans outstanding at April 30, 2015. The principal and interest payments on the mortgage notes payable for the years subsequent to April 30, 2015, 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, 2015. The “Other Debt” category consists
primarily of principal and interest payments on construction loans.
As of April 30, 2015, the Company was a tenant under operating ground or air rights leases on eleven 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 0.5 to 86 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, 2015, 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. Service orders or contracts for the provision of routine maintenance
services at our properties, such as landscaping and grounds maintenance, are not included in the table below, 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
(in thousands)
$
$
$
$
$
$
Total
1,171,949
67,325
147,214
23,038
97,593
1,507,119
$
$
$
$
$
$
Less than
1 Year
170,224
2,690
85,550
478
93,593
352,535
$
$
$
$
$
$
1-3 Years
361,524
64,635
11,776
898
4,000
442,833
$
$
$
$
$
$
3-5 Years
256,230
0
48,588
898
0
305,716
$
$
$
$
$
$
More than
5 Years
383,971
0
1,300
20,764
0
406,035
(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, 2015.
2015 Annual Report 74
Index
Off-Balance-Sheet Arrangements
As of April 30, 2015, the Company had no significant off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Recent Developments
Common and Preferred Share Distributions. On June 2, 2015, 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
Payment Date
June 15, 2015
June 15, 2015
June 15, 2015
July 1, 2015
June 30, 2015
June 30, 2015
Pending Acquisition. Subsequent to the end of fiscal year 2015, the Company signed a purchase agreement to acquire an approximately 28,000-square foot medical office property in
Omaha, Nebraska for a purchase price of $6.5 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.
Completed Disposition. On May 18, 2015, the Company sold Thresher Square, an office property in Minneapolis, Minnesota, for a sale price of $7.0 million.
Pending Dispositions. On June 12, 2015, the Company signed an agreement to sell 34 office properties located in 8 states for a sale price of $250.0 million. Also on June 12, 2015, a joint
venture in which the Company has a 51% interest signed an agreement to sell five office properties in Mendota Heights, Minnesota, for a sale price of $40.0 million. On June 25, 2015,
the Company signed an agreement to sell 17 retail properties and one parcel of unimproved land located in Minnesota, North Dakota and Nebraska for a sale price of $81.5 million. These
pending dispositions are part of the Company’s previously announced strategic plan to explore the sale of its office and retail portfolios and the sales are expected to be completed in
the second or third quarter of fiscal year 2016. These pending dispositions are 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.
Commitment Increase to Credit Facility. Under the terms of the First Amendment to Amended and Restated Loan Agreement with First International Bank & Trust as lead bank, the
commitment amount may be increased from $90.0 million up to $100.0 million upon meeting various conditions. Subsequent to the end of fiscal year 2015, the Company met such
conditions, including providing additional collateral, and the total commitment amount was increased to $100.0 million.
2015 Annual Report 75
Index
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 92.8% of our mortgage debt, as of April 30, 2015 (97.9% and 97.5% as of April 30, 2014 and 2013, 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, 2015, we had the following amount of future principal and interest payments due on mortgages secured by our real estate.
Future Principal Payments (in thousands, except percentages)
Long Term Debt
Fixed Rate
Average Fixed Interest Rate
Variable Rate
Average Variable Interest Rate
Long Term Debt
Fixed Rate
Variable Rate
$
$
$
2016
120,628
$
5.12 %
1,303
2.87 %
$
2017
186,112
$
4.77 %
$
2.86 %
16,500
2018
56,150
$
5.11 %
31,921
$
2.93 %
2019
124,764
$
4.73 %
6,111
$
2.97 %
2020
65,166
$
4.71 %
$
3.61 %
14,132
Thereafter
352,041
$
Total
904,861
$
Fair Value
1,054,455
0
$
69,967
$
69,967
$
974,828
$
1,124,422
Future Interest Payments (in thousands)
2016
46,283 $
2,010
2017
37,376 $
1,947
2018
30,561 $
957
2019
25,617 $
588
2020
19,663 $
189
Thereafter
31,930 $
0
$
Total
191,430
5,691
197,121
As of April 30, 2015, the weighted-average interest rate on our fixed rate and variable rate loans was 5.34% and 2.87%, respectively. The weighted-average interest rate on all of our
mortgage debt as of April 30, 2015 was 5.16%. Any fluctuations in variable interest rates could increase or decrease our interest expenses. For example, an increase of one percent per
annum on our $70.0 million of variable rate mortgage indebtedness would increase our annual interest expense by approximately $700,000.
Exposure to interest rate fluctuation risk on our $90.0 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 plus 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 September 2017 and had an outstanding balance of $60.5 million at April 30, 2015.
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, 2015 and 2014, these amounts totaled $9.7 million and $14.4 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.
2015 Annual Report 76
Index
Item 8.
Financial Statements and Supplementary Data
Our consolidated financial statements and related notes, together with the Report of the Independent Registered Public Accounting Firm, are set forth beginning on page F-1 of this
Annual Report on Form 10-K 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, 2015, 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 our Chief Executive 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). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit 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 our
principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
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.
2015 Annual Report 77
Index
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, and for performing an assessment of the effectiveness of internal control over financial reporting as of April 30, 2015. 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, 2015, 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 (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment,
management has determined that the Company’s internal control over financial reporting as of April 30, 2015, was effective.
The Company’s internal control over financial reporting includes policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect transactions, acquisitions and dispositions of assets; (ii) 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 (iii) 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. 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.
The Company’s internal control over financial reporting as of April 30, 2015 has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in
their report on page F-3 of the Company’s consolidated financial statements contained in its Annual Report on Form 10-K, which expresses an unqualified opinion on the effectiveness
of the Company’s internal control over financial reporting as of April 30, 2015.
(The remainder of this page has been intentionally left blank.)
2015 Annual Report 78
Index
Item 9B. Other Information
None.
The information required in Item 10 (Directors, Executive Officers and Corporate Governance), Item 11 (Executive Compensation), Item 12 (Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters), Item 13 (Certain Relationships and Related Transactions, and Director Independence), and Item 14 (Principal Accountant
Fees and Services) will be incorporated by reference to our definitive proxy statement for our 2015 Annual Meeting of Shareholders to be filed with the SEC no later than 120 days after
the end of the fiscal year covered by this Annual Report on Form 10-K.
PART III
Item 15. Exhibits, Financial Statement Schedules
(a)
The following documents are filed as part of this report:
1. Financial Statements
PART IV
See the “Table of Contents” to our consolidated financial statements on page F-1 of this Annual Report on Form 10-K.
2. Financial Statement Schedules
See the “Table of Contents” to our consolidated financial statements on page F-1 of this Annual Report on Form 10-K.
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 Exhibit Index set forth in part (b) below.
(b)
The Exhibit Index below lists the 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.
EXHIBIT
NO.
3.1.
3.2
EXHIBIT INDEX
DESCRIPTION
Articles of Amendment and Third Restated Declaration of Trust of Investors Real Estate Trust
adopted on September 23, 2003, as amended on September 18, 2007 (incorporated herein by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K
filed with the Commission on June 30, 2014).
Third Restated Trustees’ Regulations (Bylaws) dated May 16, 2007, as amended June 26, 2013 (incorporated herein by reference to Exhibit 3.1 to the Company’s
Current Report on Form 8-K filed with the Commission on July 2, 2013).
2015 Annual Report 79
Index
3.3
10.1**
10.2**
10.3**
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
12.1*
21.1*
23.1*
31.1*
31.2*
Agreement of Limited Partnership of IRET Properties dated January 31, 1997 (incorporated herein by reference to Exhibit 3(II) to the Company’s Registration
Statement on Form S-11 filed with the Commission on February 18, 1997).
2008 Incentive Award Plan of Investors Real Estate Trust and IRET Properties dated September 16, 2008 (incorporated herein by reference to Appendix A to the
Company’s Definitive Proxy Statement filed with the Commission on August 1, 2008).
Short-Term Incentive Program dated May 1, 2012 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
Commission on June 4, 2012).
Long-Term Incentive Program dated May 1, 2012 (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the
Commission on June 4, 2012).
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 Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission
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 Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission 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
(incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Commission August 14, 2013).
Amended and Restated Loan Agreement dated November 20, 2013 by and between IRET Properties, as borrower, and First International Bank & Trust, as lender
(Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on November 25, 2013).
First Amendment to Amended and Restated Loan Agreement dated October 29, 2014 by and between IRET Properties, as borrower, and First International Bank &
Trust, as lender (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on November 4, 2014).
Construction and Term Loan Agreement dated March 15, 2013 by and between IRET-WRH 1, LLC, as borrower, the lending institutions party thereto as lenders,
and First International Bank & Trust, as a lender, Administrative Agent and Collateral Agent (incorporated herein by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed with the Commission on March 21, 2013).
Construction Loan Agreement dated January 22, 2015 by and between IRET-71 France, LLC, as borrower, the lending institutions party thereto as lenders, PNC
Bank, NA, as Administrative Agent, and PNC Capital Markets, LLC, as Lead Arranger (incorporated herein by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed with the Commission on January 28, 2015).
Sales Agreement dated August 30, 2013 by and between the Company, IRET Properties and Robert W. Baird & Co. Incorporated (incorporated herein by
reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed with the Commission on August 30, 2013).
Computation of Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Share Dividends
Subsidiaries of Investors Real Estate Trust
Consent of Independent Registered Public Accounting Firm
Section 302 Certification of President and Chief Executive Officer
Section 302 Certification of Executive Vice President and Chief Financial Officer
2015 Annual Report 80
Index
32.1*
32.2
101
Section 906 Certification of the President and Chief Executive Officer
Section 906 Certification of the Executive Vice President and Chief Financial Officer
The following materials from our Annual Report on Form 10-K for the fiscal year ended April 30, 2015 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.
* Filed herewith
** Indicates management compensatory plan, contract or arrangement.
2015 Annual Report 81
Index
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 29, 2015
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:
Signature
/s/ Jeffrey L. Miller
Jeffrey L. Miller
/s/ John D. Stewart
John D. Stewart
/s/ Timothy P. Mihalick
Timothy P. Mihalick
/s/ Ted E. Holmes
Ted E. Holmes
/s/ Nancy B. Andersen
Nancy B. Andersen
/s/ Jeffrey P. Caira
Jeffrey P. Caira
/s/ Linda J. Hall
Linda J. Hall
/s/ Terrance P. Maxwell
Terrance P. Maxwell
/s/ Pamela J. Moret
Pamela J. Moret
/s/ Stephen L. Stenehjem
Stephen L. Stenehjem
/s/ Jeffrey K. Woodbury
Jeffrey K. Woodbury
Title
Trustee & Chairman
Trustee & Vice Chairman
President & Chief Executive Officer
(Principal Executive Officer); Trustee
Date
June 29, 2015
June 29, 2015
June 29, 2015
Executive Vice President & Chief Financial Officer (Principal Financial Officer)
June 29, 2015
Vice President & Principal Accounting Officer (Principal Accounting Officer)
June 29, 2015
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
June 29, 2015
June 29, 2015
June 29, 2015
June 29, 2015
June 29, 2015
June 29, 2015
2015 Annual Report 82
Index
INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF April 30, 2015 AND 2014,
AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS,
EQUITY AND CASH FLOWS FOR EACH OF
THE FISCAL YEARS IN THE THREE YEARS ENDED April 30, 2015.
ADDITIONAL INFORMATION
FOR THE YEAR ENDED
April 30, 2015
and
REPORTS OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
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
2015 Annual Report
Index
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
TABLE OF CONTENTS
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
ADDITIONAL INFORMATION
Schedule III - Real Estate and Accumulated Depreciation
PAGE
F-2
F-4
F-5
F-6
F-8
F-10
F-41
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.
2015 Annual Report F-1
Index
Board of Trustees and Shareholders
Investors Real Estate Trust
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2015 and 2014, and the related consolidated statements of operations, equity, and cash flows for each of the three years in the period ended April 30, 2015. Our audits of the
basic consolidated financial statements included the financial statement schedule listed in the index appearing under 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 these financial statements and financial statement schedule 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, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 2015 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, 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, 2015, based on criteria established in 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated June 29, 2015, expressed an unqualified opinion thereon.
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
June 29, 2015
2015 Annual Report F-2
Index
Board of Trustees and Shareholders of
Investors Real Estate Trust
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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,
2015, based on criteria established in the 2013 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. 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.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 30, 2015, based on criteria established in the 2013 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, 2015, and our report dated June 29, 2015 expressed an unqualified opinion on those financial statements.
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
June 29, 2015
2015 Annual Report F-3
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Index
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 $718 and $796, respectively
Accounts receivable, net of allowance of $438 and $248, respectively
Real estate deposits
Prepaid and other assets
Intangible assets, net of accumulated amortization of $26,576 and $24,071, respectively
Tax, insurance, and other escrow
Property and equipment, net of accumulated depreciation of $1,464 and $2,041, respectively
Goodwill
Deferred charges and leasing costs, net of accumulated amortization of $21,340 and $21,068, respectively
TOTAL ASSETS
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
LIABILITIES
Accounts payable and accrued expenses
Revolving line of credit
Mortgages payable
Construction debt and 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, 2015 and April 30, 2014, 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, 2015 and April 30, 2014, aggregate liquidation preference of $115,000,000)
Common Shares of Beneficial Interest (Unlimited authorization, no par value, 124,455,624 shares issued and outstanding at April 30,
2015, and 109,019,341 shares issued and outstanding at April 30, 2014)
Accumulated distributions in excess of net income
Total Investors Real Estate Trust shareholders’ equity
Noncontrolling interests – Operating Partnership (13,999,725 units at April 30, 2015 and 21,093,445 units at April 30, 2014)
Noncontrolling interests – consolidated real estate entities
Total equity
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(in thousands)
April 30, 2015 April 30, 2014
$
$
$
$
2,098,037 $
(448,987 )
1,649,050
153,994
25,827
1,828,871
22,912
48,970
329
26,211
3,675
2,489
3,907
27,267
11,249
1,542
1,911
18,504
1,997,837 $
71,072 $
60,500
974,828
144,115
1,250,515
1,996,031
(424,288 )
1,571,743
104,609
22,864
1,699,216
2,951
47,267
329
27,096
10,206
145
4,639
32,639
20,880
1,681
1,100
21,072
1,869,221
59,105
22,500
997,689
63,178
1,142,472
6,368
6,203
27,317
111,357
951,868
(438,432 )
652,110
58,325
30,519
740,954
1,997,837 $
27,317
111,357
843,268
(389,758 )
592,184
105,724
22,638
720,546
1,869,221
2015 Annual Report F-4
Index
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
REVENUE
Real estate rentals
Tenant reimbursement
TRS senior housing revenue
TOTAL REVENUE
EXPENSES
Depreciation/amortization related to real estate investments
Utilities
Maintenance
Real estate taxes
Insurance
Property management expenses
Other property expenses
TRS senior housing expenses
Administrative expenses
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
Income (loss) before gain (loss) on sale of real estate and other investments and income from discontinued
operations
Gain (loss) on sale of real estate and other investments
Income (loss) from continuing operations
Income from discontinued operations
NET INCOME (LOSS)
Net (income) loss attributable to noncontrolling interests – Operating Partnership
Net income attributable to noncontrolling interests – consolidated real estate entities
Net income (loss) attributable to Investors Real Estate Trust
Dividends to preferred shareholders
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
Earnings (loss) 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 INCOME (LOSS) PER COMMON SHARE – BASIC & DILUTED
$
$
$
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(in thousands, except per share data)
Years Ended April 30,
2014
2015
$
$
235,852
43,818
3,520
283,190
$
219,921
45,561
1,627
267,109
67,112
20,881
30,924
33,945
5,839
18,502
906
2,997
11,824
2,010
3,495
6,105
204,540
0
78,650
(59,020 )
2,238
723
22,591
6,093
28,684
0
28,684
(1,526 )
(3,071 )
24,087
(11,514 )
12,573
.11
.00
.11
$
$
$
67,592
21,864
31,158
32,982
5,165
16,961
357
1,331
10,743
2,132
3,326
42,566
236,177
2,480
33,412
(59,142 )
1,908
483
(23,339 )
(51 )
(23,390 )
6,450
(16,940 )
4,676
(910 )
(13,174 )
(11,514 )
(24,688 ) $
(.28 ) $
.05
(.23 ) $
2013
204,719
43,339
0
248,058
59,306
18,792
28,340
32,182
3,734
15,003
1,008
0
8,494
2,173
3,027
0
172,059
5,084
81,083
(61,154 )
222
526
20,677
0
20,677
9,295
29,972
(3,633 )
(809 )
25,530
(9,229 )
16,301
.09
.08
.17
2015 Annual Report F-5
Index
BALANCE APRIL 30, 2013
Net income attributable to Investors Real
Estate Trust and 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 and share-based
compensation
Partnership units issued
Redemption of units for common shares
Contributions from nonredeemable
noncontrolling interests – consolidated
real estate entities
Other
BALANCE APRIL 30, 2014
Net income attributable to Investors Real
Estate Trust and 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 and share-based
compensation
Partnership units issued
Redemption of units for common shares
Contributions from nonredeemable
noncontrolling interests – consolidated
real estate entities
Distributions to nonredeemable
noncontrolling interests – consolidated
real estate entities
Other
BALANCE APRIL 30, 2015
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
NUMBER OF
PREFERRED
PREFERRED
SHARES
5,750 $
SHARES
138,674
NUMBER
OF
COMMON
ACCUMULATED
DISTRIBUTIONS
IN EXCESS OF
COMMON
NONREDEEMABLE
NONCONTROLLING
SHARES
SHARES
NET INCOME
INTERESTS
101,488 $
784,454 $
(310,341 ) $
142,657 $
(13,174 )
(54,729 )
(2,372 )
(9,142 )
(4,033 )
(11,283 )
3,480
(4,353 )
6,615
55,793
13
903
112
4,353
TOTAL
EQUITY
755,444
(17,207 )
(66,012 )
(2,372 )
(9,142 )
55,793
112
3,480
0
5,750 $
138,674
109,019 $
(1,444 )
843,268 $
(389,758 ) $
24,087
(61,247 )
(2,372 )
(9,142 )
8,102
64,856
151
2,626
7,183
41,264
5,750 $
138,674
124,455 $
(146 )
951, 868 $
(438,432 ) $
3,895
(2,001 )
128,362 $
3,895
(3,445 )
720,546
4,432
(8,607 )
800
(41,264 )
28,519
(69,854 )
(2,372 )
(9,142 )
64,856
2,626
800
0
8,909
8,909
(3,926 )
138
88,844 $
(3,926 )
(8 )
740,954
2015 Annual Report F-6
Index
BALANCE APRIL 30, 2012
Net income attributable to Investors Real
Estate Trust and 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 and share-based
compensation
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
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (continued)
NUMBER OF
PREFERRED
PREFERRED
SHARES
SHARES
NUMBER
OF
COMMON
SHARES
(in thousands)
ACCUMULATED
DISTRIBUTIONS
IN EXCESS OF
COMMON
NONREDEEMABLE
NONCONTROLLING
SHARES
NET INCOME
INTERESTS
1,150 $
27,317
89,474 $
684,049 $
(278,377 ) $
132,274 $
25,530
(48,265 )
(2,372 )
(6,857 )
4,437
(10,985 )
4,600
111,357
5,290
43,123
6,409
55,846
317
1,551
5,750 $
138,674
(2 )
101,488 $
(115 )
784,454 $
(310,341 ) $
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
12,632
(1,551 )
6,483
(633 )
142,657 $
TOTAL
EQUITY
565,263
29,967
(59,250 )
(2,372 )
(6,857 )
43,123
55,846
111,357
12,632
0
6,483
(748 )
755,444
2015 Annual Report F-7
(in thousands)
Years Ended April 30,
2014
2015
2013
$
28,684
$
(16,940 ) $
29,972
Index
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)
Adjustments to reconcile net income (loss) 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
Share-based compensation expense
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
Decrease (increase) in tax, insurance and other escrow
Increase in deferred charges and leasing costs
Increase in accounts payable, accrued expenses and other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from real estate deposits
Payments for real estate deposits
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 construction debt
Principal payments on construction 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 $15,519, $13,965 and $11,802, respectively
Distributions paid to preferred shareholders
Distributions paid to noncontrolling interests – Unitholders of the Operating Partnership, net of reinvestment of $636,
72,078
(6,093 )
0
6,105
2,215
967
(64 )
4,058
(150 )
1,445
(2,300 )
7,234
114,179
1,168
(3,512 )
0
10,738
(1,204 )
0
73,835
2,678
(38,704 )
(189,091 )
(32,315 )
(176,407 )
90,749
(127,622 )
55,000
(17,000 )
93,643
(12,685 )
0
0
48,701
0
2,284
0
(45,728 )
(11,514 )
73,723
(6,948 )
(2,480 )
44,426
0
434
(2,293 )
1,880
(555 )
(1,046 )
(4,708 )
7,021
92,514
991
(940 )
314
3,780
(11,045 )
78,879
682
2,491
(38,283 )
(123,744 )
(34,959 )
(121,834 )
50,333
(101,867 )
12,500
0
55,199
(17,443 )
7,900
0
41,194
0
994
(2,505 )
(40,764 )
(11,514 )
$634 and $614, respectively
Distributions paid to noncontrolling interests – consolidated real estate entities
Net cash provided (used) by financing activities
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR
(7,971 )
(3,926 )
63,931
1,703
47,267
48,970
$
(10,649 )
(924 )
(17,546 )
(46,866 )
94,133
47,267
$
$
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2015 Annual Report F-8
67,559
(6,885 )
(5,084 )
305
0
665
(2,733 )
689
(693 )
(325 )
(5,946 )
194
77,718
2,037
(1,970 )
0
1,891
(2,466 )
20,009
95
6,211
(76,020 )
(57,649 )
(26,280 )
(134,142 )
85,230
(104,976 )
20,500
(49,500 )
23,762
(5,911 )
0
55,433
30,707
111,357
0
0
(36,463 )
(8,467 )
(10,371 )
(733 )
110,568
54,144
39,989
94,133
Index
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Distribution reinvestment plan
Operating partnership distribution reinvestment plan
Operating partnership units converted to shares
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
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 $4,903, $2,855 and $742, respectively
$
(in thousands)
Years Ended April 30,
$
2015
15,519
636
41,264
800
12,169
0
5,116
6,624
0
0
0
$
2014
13,965
634
4,353
3,480
0
0
1,767
2,901
7,052
0
600
2013
11,802
614
1,551
12,632
12,500
5,887
2,502
12,415
107
13,650
0
$
51,283
$
54,071
$
60,357
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2015 Annual Report F-9
Index
NOTE 1 • ORGANIZATION
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2015, 2014, and 2013
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, 2015 and 2014. 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, 2015, IRET owned 100 multi-family residential properties with approximately 11,844 apartment units and 149 commercial properties, consisting
of office, healthcare, industrial and retail properties, totaling approximately 9.6 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 89.9% and 83.8%, respectively, as of April 30, 2015 and 2014, 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 May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 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 2014-09 does not apply to lease contracts accounted for under ASC 840, Leases. The ASU is effective for interim and annual reporting periods in fiscal years that
begin 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.
2015 Annual Report F-10
Index
NOTE 2 • continued
In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis. ASU 2015-02 affects reporting entities that are required to evaluate whether they should
consolidate certain legal entities. Specifically, the amendments: (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting
interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidated analysis of reporting entities that are involved
with variable interest entities, and (iv) provide a scope exception for certain entities. The ASU is effective for interim and annual reporting periods in fiscal years that begin after
December 15, 2015. The Company does not expect adoption of this update to have a material impact on the Company’s operating results or financial position.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as
a direct deduction from the carrying amount of the debt liability to which they relate, consistent with debt discounts, as opposed to being presented as assets. The ASU is effective for
interim and annual reporting periods in fiscal years that begin after December 15, 2015. The Company does not expect adoption of this update to have a material impact on the
Company’s operating results or financial position.
In April 2015, the FASB issued ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. Under ASU 2015-05, if a cloud computing arrangement
includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud
computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The ASU is effective for interim and annual
reporting periods in fiscal years that begin after December 15, 2015. 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. On the Consolidated Statements of Operations, the Company
reclassified advisory and trustee services to administrative expenses and also reclassified TRS senior housing revenue and TRS senior housing expenses from other income to TRS
senior housing revenue and TRS senior housing expenses, respectively.
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.
2015 Annual Report F-11
Index
NOTE 2 • continued
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.
During fiscal year 2015, the Company incurred a non-cash loss of $6.1 million due to impairment of four commercial properties and two parcels of unimproved land. The Company
recognized impairments of $2.1 million on a retail property in Kalispell, Montana, approximately $183,000 on an office property in Golden Valley, Minnesota, $1.8 million on an office
property in Minneapolis, Minnesota, $1.4 million on an office property in Boise, Idaho, approximately $98,000 on unimproved land in Eagan, Minnesota, and approximately $442,000 on
unimproved land in Weston, Wisconsin. These properties were written-down to estimated fair value during fiscal year 2015 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 Boise and Weston properties, an independent appraisal. The Kalispell and Golden Valley properties were sold in
the second quarter of fiscal year 2015. The Minneapolis property is classified as held for sale at April 30, 2015.
2015 Annual Report F-12
Index
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. The Company recognized impairments of approximately $864,000 on an industrial property in St. Louis Park, Minnesota;
$329,000 on an office property in Bloomington, Minnesota; $265,000 on a retail property in Anoka, Minnesota; $402,000 on an industrial property in Clive, Iowa and $4.8 million on an
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, 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, 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 office properties located in four states. These properties are part of a portfolio
of nine 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. 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
exceeded the Company’s estimate of the fair value of this nine-property portfolio, the Company initiated discussions with the special servicer to discuss various alternatives with regard
to the loan. On April 14, 2015, the Company received a default notice regarding the $122.6 million non-recourse loan between a Company subsidiary as borrower and Citigroup Global
Markets Realty Corp as lender due to a nonpayment on April 6, 2015. The Company cannot predict the outcome of the discussions with the special servicer on this 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.
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.
Properties are classified as held for sale when they meet the necessary criteria, which include: (a) management, having the authority to approve the action, commits to a plan to sell the
asset and (b) the sale of the asset is probable and expected to be completed within one year. The Company generally considers these criteria met when the transaction has been
approved by our Board of Directors, there are no known significant contingencies related to the sale and management believes it is probable that the sale will be completed within one
year. One office property and one medical property were classified as held for sale at April 30, 2015, with assets of $22.9 million and liabilities of $138.8 million. An office property was
classified as held for sale at April 30, 2014.
2015 Annual Report F-13
Index
NOTE 2 • continued
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 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 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.
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, 2015 and 2014, respectively, the Company added approximately $416,000 and
$900,000 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, 2015 and 2014 are
0.5 years and 0.7 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, 2015 and 2014 was $1.9 million and $1.1 million, respectively. 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 year 2015, the Company recognized approximately $852,000 of goodwill from the acquisition of the Homestead Garden residential property and
disposed of one residential property and two commercial properties to which goodwill had been assigned, and as a result, approximately $40,000 of goodwill was derecognized. 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.
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 located in the states where we own properties. The balance sheet reflects these assets at cost, net of accumulated depreciation. As of April 30, 2015 and
2014, property and equipment cost was $3.0 million and $3.7 million, respectively. Accumulated depreciation was $1.5 million and $2.0 million as of April 30, 2015 and 2014, respectively.
2015 Annual Report F-14
Index
NOTE 2 • continued
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, 2015 the Company’s compensating balances totaled $14.3 million and consisted of the following: First International Bank, Watford City,
North Dakota, deposit of $6.1 million; Private Bank, Minneapolis, Minnesota, deposit of $2.0 million; Associated Bank, Green Bay, Wisconsin, deposit of $3.6 million; American National
Bank, Omaha, Nebraska, deposit of $400,000; Dacotah Bank, Minot, North Dakota, deposit of $350,000; United Community Bank, Minot, North Dakota, deposit of $275,000; Peoples
State Bank of Velva, North Dakota, deposit of $225,000; Commerce Bank, a Minnesota Banking Corporation, deposit of $100,000; and Bremer Bank, Saint Paul, Minnesota, deposit of
$1.3 million. 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 $10.7 million in lender holdbacks for improvements reflected in the Consolidated Statements of Cash Flows for the fiscal year ended April 30, 2015 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 $1.2 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, 2015, 2014 and 2013 is as follows:
(in thousands)
Balance at beginning of year
Provision
Write-off
Balance at close of year
TAX, INSURANCE, AND OTHER ESCROW
$
$
2015
1,044
967
(855 )
1,156
$
$
2014
1,393
434
(783 )
1,044
$
$
2013
1,363
665
(635 )
1,393
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.
2015 Annual Report F-15
Index
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, 2015, 2014 and 2013, 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 2015, 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 years ended April 30, 2015 and 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, 2014 were characterized, for federal income tax purposes, as 25.74% ordinary income, 23.09% capital gain and 51.17% return of
capital. 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.
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.
2015 Annual Report F-16
Index
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.
PROCEEDS FROM FINANCING LIABILITY
During the first quarter of fiscal year 2014, the Company sold a non-core assisted living property in exchange for $7.9 million in cash and a $29.0 million contract for deed which matures
August 1, 2018. The buyer leased the property back to the Company, and also granted an option to the Company to repurchase the property at a specified price at or prior to July 31,
2018. IRET accounted for the transaction as a financing due to the Company’s continuing involvement with the property and recorded the $7.9 million in sales proceeds within other
liabilities on the Consolidated Balance Sheets. The balance of the liability as of April 30, 2015 is $7.9 million.
VARIABLE INTEREST ENTITY
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 estimated 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. The second phase of the project, Commons at Southgate, was substantially completed in the third quarter of fiscal year 2015. As of April 30, 2015, IRET is the
approximately 52.9% owner of the joint venture and has management and leasing responsibilities; the real estate development company owns approximately 47.1% of the joint venture
and was 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 more than 50% 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.
On June 12, 2014, the Company entered into a joint venture operating agreement with a real estate development company and two other partners to construct a three-phase apartment
and retail project in Edina, Minnesota as IRET – 71 France, LLC. The Company estimates total costs for the project at $73.3 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 and second phases of the project are expected to be completed in the second
and third quarters of fiscal year 2016, respectively. Construction of the third phase is expected to be completed in the first quarter of fiscal year 2017. See Development, Expansion and
Renovation Projects in Note 15 for additional information. As of April 30, 2015, IRET is the approximately 52.6% owner of the joint venture and will have management and leasing
responsibilities after the project has been in service for 24 months; the real estate development company and the other two partners own approximately 47.4% of the joint venture and
are responsible for the development, construction and initial leasing 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 more than 50% 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.
2015 Annual Report F-17
Index
NOTE 2 • continued
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 and 2013:
Year Ended April 30,
Gain on involuntary conversion
Flood
2012 Fire
Total gain on involuntary conversion
(in thousands)
2014
0 $
2,480
2,480 $
2013
2,821
2,263
5,084
$
$
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 of approximately
$409,000. 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 Company is rebuilding both buildings, and expects them to be completed in the first quarter of fiscal year 2016. The Company received proceeds for the 2013 Fire claim
of $1.0 million in fiscal year 2014 and $6.0 million fiscal 2015, which reduced to zero the accounts receivable recorded at the time of the fire for expected proceeds. No gain or loss on
involuntary conversion was recorded due to the settlement of the claim.
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, 2015 and 2014, these
amounts totaled $9.7 million and $14.4 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, 2015, and 2014.
Construction period interest of approximately $4.9 million, $2.9 million, and $742,000 has been capitalized for the years ended April 30, 2015, 2014, and 2013, respectively.
The future minimum lease receipts to be received under non-cancellable leases for commercial properties as of April 30, 2015, assuming that no options to renew or buy out the lease are
exercised, are as follows:
Year Ended April 30,
2016
2017
2018
2019
2020
Thereafter
See Real Estate Investments within Note 2 for information about impairment losses recorded during fiscal years 2015 and 2014.
(in thousands)
$
$
112,320
99,963
84,455
70,049
52,576
130,313
549,676
2015 Annual Report F-18
Index
NOTE 5 • IDENTIFIED INTANGIBLE ASSETS AND LIABILITIES
The Company’s identified intangible assets and intangible liabilities at April 30, 2015 and 2014 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, 2015 April 30, 2014
$
$
$
$
53,843 $
(26,576 )
27,267 $
134 $
(110 )
24 $
56,710
(24,071 )
32,639
173
(127 )
46
The effect of amortization of acquired below-market leases and acquired above-market leases reduced rental income by approximately $23,000, $42,000 and $38,000 for the twelve months
ended April 30, 2015, 2014 and 2013, 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,
2016
2017
2018
2019
2020
$
(in thousands)
20
12
(1 )
(2 )
(1 )
Amortization of all other identified intangible assets (a component of depreciation/amortization related to real estate investments) was $5.7 million, $8.3 million and $5.3 million for the
twelve months ended April 30, 2015, 2014 and 2013, 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,
2016
2017
2018
2019
2020
NOTE 6 • NONCONTROLLING INTERESTS
$
(in thousands)
4,539
4,032
3,601
3,477
3,390
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.
2015 Annual Report F-19
Index
NOTE 6 • continued
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. During the fourth quarter of fiscal year 2015, IRET - Jamestown Medical Building, LLC disposed of the sole property held by the
entity. The Company’s noncontrolling interests – consolidated real estate entities at April 30, 2015 and 2014 were as follows:
IRET-71 France, LLC
IRET-Cypress Court Apartments, LLC
IRET-RED 20, LLC
IRET-Williston Garden Apartments, LLC
IRET - Jamestown Medical Building, LLC
IRET - WRH 1, LLC
Mendota Properties LLC
WRH Holding, LLC
Noncontrolling interests – consolidated real estate entities
NOTE 7 • LINE OF CREDIT
(in thousands)
April 30, 2015 April 30, 2014
0
8,630 $
$
1,127
1,089
3,277
3,072
2,804
3,090
1,219
0
5,672
6,138
7,333
7,294
1,206
1,206
22,638
30,519 $
$
As of April 30, 2015, 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 September 1, 2017. The facility had, as of April 30, 2015, lending commitments of $90.0 million. Participants in this secured credit facility as of
April 30, 2015 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 United Bankers’ Bank. As of April 30, 2015, the Company had advanced
$60.5 million under the line of credit. The line of credit has a minimum outstanding principal balance requirement of $17.5 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, 2015, 15
properties with a total cost of $136.1 million collateralized this line of credit. As of April 30, 2015, the Company believes it is in compliance with the facility covenants. This credit facility
is summarized in the following table:
Financial Institution
(in thousands)
Amount
Outstanding as
of April 30,
2015
Amount
Outstanding
as of April
30, 2014
Applicable
Interest Rate
as of April 30,
2015
Amount
Available
Maturity
Date
Weighted
Average Int.
Rate on
Borrowings
during fiscal
year 2015
First International Bank & Trust
$
90,000
$
60,500
$
22,500
4.75 %
9/1/17
4.75 %
2015 Annual Report F-20
Index
NOTE 8 • MORTGAGES PAYABLE AND CONSTRUCTION DEBT
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. Interest rates on mortgages payable range from 2.43% to 8.25%, and the mortgages have varying maturity dates from June 1, 2015, through July 1, 2036. As of April 30, 2015, the
management of the Company believes there are no defaults or material compliance issues in regards to any of these mortgages payable other than one $122.6 million non-recourse loan
by a Company subsidiary, for which we’ve received a default notice from the special servicer on April 14, 2015 due to nonpayment on April 6, 2015. The aggregate estimated fair value of
the assets securing this loan is less than the outstanding loan balance of $122.6 million. This loan matures in October 2016 and has an interest rate of 5.93%. The Company cannot
predict the outcome of the discussions with the special servicer on this loan.
Of the mortgages payable, the balance of fixed rate mortgages totaled $904.9 million and $977.2 million at April 30, 2015 and 2014, respectively, and the balances of variable rate
mortgages totaled $70.0 million and $20.5 million as of April 30, 2015, and 2014, 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, 2015, the weighted-average rate of interest on the Company’s
mortgage debt was 5.16%, compared to 5.37% on April 30, 2014. The aggregate amount of required future principal payments on mortgages payable as of April 30, 2015, is as follows:
Year Ended April 30,
2016
2017
2018
2019
2020
Thereafter
Total payments
(in thousands)
$
$
121,931
202,612
88,071
130,875
79,298
352,041
974,828
In addition to the individual first mortgage loans comprising the Company’s $974.8 million of mortgage indebtedness, the Company’s revolving, multi-bank secured line of credit
discussed in Note 7 is secured as of April 30, 2015, by mortgages on 15 Company properties. This line of credit is not included in the Company’s mortgage indebtedness total. The
Company currently has 48 unencumbered properties.
The Company’s construction debt totaled $136.2 million and $63.1 million on April 30 2015 and 2014, respectively. The weighted average rate of interest on the construction debt as of
April 30, 2015 was 3.38%, compared to 3.08% as of April 30, 2014. The total available to be drawn on the construction loans was $102.7 million at April 30, 2015.
NOTE 9 • TRANSACTIONS WITH RELATED PARTIES
BANKING SERVICES – FIRST INTERNATIONAL BANK AND TRUST
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 Chairman of First International and the Chief Executive Officer of Watford City BancShares, Inc., its bank holding company, and the
bank holding company is owned by Mr. Stenehjem and members of his family. For a portion of fiscal year 2015, the Company had 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; this loan was repaid in the second quarter of fiscal year 2015. 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, 2015, the construction loan had a balance of $37.7 million bearing interest at 5.0% per annum. The Company paid interest on these loans of approximately $325,000 and $1.4
million, respectively, in fiscal year 2015. The Company has a multi-bank line of credit with a capacity of $90.0 million, of which First International is the lead bank and a participant with
an $11.0 million commitment. In fiscal year 2015, the Company paid First International a total of approximately $245,000 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 checking accounts with First International. In fiscal year 2015, the Company paid less than $500 in total in various bank service and other fees
charged on these checking accounts.
2015 Annual Report F-21
Index
NOTE 9 • continued
In fiscal years 2014 and 2013, the Company paid interest and fees on outstanding mortgage and construction loans of approximately $1.0 million and $975,000, respectively. In fiscal
years 2014 and 2013, respectively, the Company paid First International $125,000 and $196,000 in interest on First International’s portion of the multi-bank line of credit and paid fees of
$40,000 in both years. Also in both fiscal years 2014 and 2013, 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 $2.0 million, $1.2 million and $1.2 million in fiscal years
2015, 2014 and 2013, respectively.
LEASE TRANSACTION
In 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. Net rental payments received in fiscal years
2015, 2014 and 2013 totaled $109,000, $109,000 and $11,000, respectively.
SALES AGREEMENT
The Company has an investment banking relationship with Robert W. Baird & Co. Incorporated (“Baird”). Terrance P. Maxwell, a member of the Company’s Board of Trustees, was
appointed the Chief Financial Officer of Baird in March 2015 and has served as a Managing Director and member of the Executive Committee since May 2014. On August 30, 2013, the
Company and its Operating Partnership entered into an at-the-market, or ATM, sales agreement with Baird as sales agent. Under the terms of this agreement, the Company may from
time to time issue and sell through Baird the Company’s common shares having an aggregate offering price of up to $75.0 million. Baird will be entitled to compensation of up to 2.0% of
the gross sales price per share for common shares sold under the agreement. The agreement remains in force until terminated pursuant to its terms, including automatic termination upon
the sale of all such shares through Baird. The Company has not issued any common shares under this program during fiscal years 2015 and 2014.
2015 Annual Report F-22
Index
NOTE 10 • ACQUISITIONS, DEVELOPMENT PROJECTS PLACED IN SERVICE AND DISPOSITIONS
PROPERTY ACQUISITIONS
IRET Properties added approximately $56.3 million of real estate properties to its portfolio through property acquisitions during fiscal year 2015, compared to $43.6 million in fiscal year
2014. The Company expensed approximately $216,000 and $176,000 of transaction costs related to the acquisitions in fiscal years 2015 and 2014, respectively. The fiscal year 2015 and
2014 acquisitions are detailed below.
Fiscal 2015 (May 1, 2014 to April 30, 2015)
Acquisitions
Date Acquired
Total
Acquisition
Cost
Form of Consideration
Investment Allocation
(in thousands)
Cash
Units(1)
Other(2)
Land
Building
Intangible
Assets
Multi-Family Residential
152 unit - Homestead Garden -
Rapid City, SD(3)
52 unit - Silver Springs - Rapid
City, SD
68 unit - Northridge - Bismarck,
ND
119 unit - Legacy Heights -
Bismarck, ND(4)
Unimproved Land
Creekside Crossing - Bismarck,
ND
PrairieCare Medical - Brooklyn
Park, MN
71 France Phase I - Edina, MN(5)
Monticello 7th Addition -
Monticello, MN
71 France Phase II & III - Edina,
MN(5)
Minot 1525 24th Ave SW - Minot,
ND
2014-06-02
$
15,000
$
5,092
$
0
$
9,908
$
655
$
14,139
$
2014-06-02
2014-09-12
2015-03-19
2014-05-22
2014-06-05
2014-06-12
2014-10-09
2014-11-04
2014-12-23
3,280
8,500
15,000
41,780
4,269
2,616
1,413
1,660
3,309
1,250
14,517
1,019
8,400
14,300
28,811
4,269
2,616
0
1,660
0
1,250
9,795
0
100
700
800
0
0
0
0
0
0
0
2,261
0
0
12,169
0
0
1,413
0
3,309
0
4,722
215
884
1,207
2,961
4,269
2,616
1,413
1,660
3,309
1,250
14,517
3,006
7,516
13,742
38,403
0
0
0
0
0
0
0
206
59
100
51
416
0
0
0
0
0
0
0
Total Property Acquisitions
$
56,297
$
38,606
$
800
$
16,891
$
17,478
$
38,403
$
416
(1) Value of limited partnership units of the Operating Partnership at the acquisition date.
(2) Consists of assumed debt (Homestead Garden I: $9.9 million, Silver Springs: $2.3 million) and value of land contributed by the joint venture partner (71 France: $4.7 million).
(3) At acquisition the Company adjusted the assumed debt to fair value and recognized approximately $852,000 of goodwill.
(4) At acquisition, the purchase price included assets in development (land: $804,000, building: $7.8 million, escrow $1.3 million).
(5) Land was contributed to a joint venture in which the Company has an approximately 52.6% interest. The joint venture is consolidated in IRET’s financial statements.
2015 Annual Report F-23
Index
NOTE 10 • continued
Fiscal 2014 (May 1, 2013 to April 30, 2014)
Acquisitions
Date Acquired
Total
Acquisition
Cost
Form of Consideration
Investment Allocation
(in thousands)
Cash
Units(1)
Other(2)
Land
Building
Intangible
Assets
Multi-Family Residential
71 unit - Alps Park - Rapid City,
SD
96 unit - Southpoint - Grand
Forks, ND
24 unit - Pinecone Villas - Sartell,
MN
2013-09-05
2013-10-31
Healthcare
98,174 sq ft Legends at Heritage
Place - Sartell, MN
39,500 sq ft Spring Creek Fruitland
- Fruitland, ID
2013-10-31
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
2013-05-01
$
6,200
$
2,920
$
3,280
$
0
$
287
$
5,551
$
10,600
2,800
19,600
11,863
7,050
18,913
179
700
1,900
537
335
50
1,366
5,067
10,400
2,800
16,120
11,863
7,050
18,913
179
700
0
537
335
50
1,366
3,167
200
0
3,480
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1,900
0
0
0
0
1,900
576
584
1,447
970
550
1,520
179
700
1,900
537
335
50
1,366
5,067
9,893
2,191
17,635
10,511
6,500
17,011
0
0
0
0
0
0
0
0
362
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.
2015 Annual Report F-24
Index
NOTE 10 • continued
Acquisitions in fiscal years 2015 and 2014 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 2015
and 2014 acquisitions (excluding development projects placed in service) are detailed below.
Year Ended April 30,
Total revenue
Net income
DEVELOPMENT PROJECTS PLACED IN SERVICE
(in thousands)
2015
2014
$
$
2,565
(1 )
$
$
1,897
(82 )
IRET Properties placed approximately $124.5 million of development projects in service during fiscal year 2015, compared to $53.5 million in fiscal year 2014. The fiscal year 2015 and 2014
development projects placed in service are detailed below.
Fiscal 2015 (May 1, 2014 to April 30, 2015)
Development Projects Placed in Service (1)
Multi-Family Residential
44 unit - Dakota Commons - Williston, ND(2)
130 unit - Red 20 - Minneapolis, MN(3)
233 unit - Commons at Southgate - Minot, ND(4)
64 unit - Cypress Court II - St. Cloud, MN(5)
165 unit - Arcata - Golden Valley, MN(6)
Industrial
202,807 sq ft Roseville 3075 Long Lake Road - Roseville, MN
Retail
4,998 sq ft Minot Southgate Wells Fargo Bank - Minot, ND(7)
Date Placed in
Service
Land
Building
Development
Cost
(in thousands)
2014-07-15 $
2014-11-21
2014-12-09
2015-01-01
2015-01-01
2014-11-10
2014-11-10
$
823
1,900
3,691
447
2,088
8,949
0
992
9,596 $
26,412
31,351
6,320
29,640
103,319
10,419
28,312
35,042
6,767
31,728
112,268
9,036
9,036
2,193
3,185
Total Development Projects Placed in Service
$
9,941
$
114,548 $
124,489
(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 6 for additional information
on the Renaissance Heights project, which was partially placed in service during fiscal years 2014 and 2015.
(2) Costs paid in prior fiscal years totaled $8.1 million. Additional costs paid in fiscal year 2015 totaled $2.3 million, for a total project cost at April 30, 2015 of $10.4 million.
(3) Costs paid in prior fiscal years totaled $12.2 million. Additional costs paid in fiscal year 2015 totaled $16.1 million, for a total project cost at April 30, 2015 of $28.3 million.
The project is owned by a joint venture entity in which the Company has an approximately 58.6% interest. The joint venture is consolidated in IRET’s financial statements.
(4) Costs paid in prior fiscal years totaled $26.5 million, respectively. Additional costs paid in fiscal year 2015 totaled $8.5 million, for a total project cost at April 30, 2015 of
$35.0 million. The project is owned by a joint venture entity in which the Company has an approximately 52.9% interest. The joint venture is consolidated in IRET’s financial
statements.
(5) Costs paid in prior fiscal years totaled $1.2 million. Additional costs paid in fiscal year 2015 totaled $5.6 million, for a total project cost at April 30, 2015 of $6.8 million. The
project is owned by a joint venture entity in which the Company has an approximately 86.1% interest. The joint venture is consolidated in IRET’s financial statements.
(6) Costs paid in prior fiscal years totaled $11.3 million, respectively. Additional costs paid in fiscal year 2015 totaled $20.4 million, for a total project cost at April 30, 2015 of
$31.7 million.
(7) Costs paid in fiscal year 2015 totaled $3.2 million, including land acquired in fiscal year 2013.
2015 Annual Report F-25
Index
NOTE 10 • continued
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) Costs paid in prior fiscal years totaled $6.3 million. Costs paid in fiscal year 2014 totaled $8.8 million for a total project cost at April 30, 2014 of $15.1 million. The project is
owned by a joint venture entity in which the Company has an approximately 52.9% interest.
(3) Costs paid in prior fiscal years totaled $5.8 million. 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) Costs paid in prior fiscal years totaled $10.1 million. Costs paid in fiscal year 2014 totaled $14.7 million for a total project cost at April 30, 2014 of $24.9 million.
2015 Annual Report F-26
Index
NOTE 10 • continued
PROPERTY DISPOSITIONS
During fiscal year 2015, the Company disposed of one multi-family residential property, twelve office properties, one healthcare property, one industrial property, three retail properties,
and two unimproved properties for an aggregate sales price of $76.0 million, compared to dispositions totaling $80.9 million in fiscal year 2014. The fiscal year 2015 and 2014 dispositions
are detailed below.
Fiscal 2015 (May 1, 2014 to April 30, 2015)
Dispositions
Multi-Family Residential
83 unit - Lancaster - St. Cloud, MN
Office
73,338 sq ft Dewey Hill - Edina, MN
74,568 sq ft Wirth Corporate Center - Golden Valley, MN
79,297 sq ft Northgate I - Maple Grove, MN
26,000 sq ft Northgate II - Maple Grove, MN
45,019 sq ft Burnsville Bluffs II - Burnsville, MN
26,186 sq ft Plymouth I - Plymouth, MN
26,186 sq ft Plymouth II - Plymouth, MN
26,186 sq ft Plymouth III - Plymouth, MN
126,936 sq ft Plymouth IV & V - Plymouth, MN
58,300 sq ft Southeast Tech Center - Eagan, MN
61,138 sq ft Whitewater Plaza - Minnetonka, MN
13,374 sq ft 2030 Cliff Road - Eagan, MN
Date
Disposed
(in thousands)
Book Value
Sales Price
and Sales Cost
Gain/(Loss)
2014-09-22 $
4,451
$
3,033 $
1,418
2014-05-19
2014-08-29
2014-12-01
2015-03-02
2015-03-25
2015-03-25
2015-03-25
2015-03-25
2015-03-25
2015-03-25
2015-03-25
2015-04-21
3,100
4,525
7,200
2,725
1,245
1,985
1,625
2,500
12,910
3,300
3,035
950
45,100
3,124
4,695
6,881
1,727
2,245
1,492
1,356
1,977
11,706
4,196
4,625
834
44,858
(24 )
(170 )
319
998
(1,000 )
493
269
523
1,204
(896 )
(1,590 )
116
242
Healthcare
45,222 sq ft Jamestown Medical Office Building - Jamestown, MN
2015-02-05
12,819
8,710
4,109
Industrial
198,600 sq ft Eagan 2785 & 2795 - Eagan, MN
Retail
25,644 sq ft Weston Retail - Weston, WI
52,000 sq ft Kalispell Retail - Kalispell, MT
34,226 sq ft Fargo Express Center & SC Pad - Fargo, ND
14,820 sq ft Weston Walgreens - Weston, WI
Unimproved Land
Kalispell Unimproved - Kalispell, MT
Weston - Weston, WI
2014-07-15
3,600
5,393
(1,793 )
2014-07-28
2014-10-15
2014-11-18
2015-02-27
2014-10-15
2015-02-17
n/a
1,230
2,843
5,177
9,250
670
158
828
1,176
1,229
2,211
2,152
6,768
670
158
828
(1,176 )
1
632
3,025
2,482
0
0
0
Total Property Dispositions
$
76,048
$
69,590 $
6,458
2015 Annual Report F-27
Index
NOTE 10 • continued
Fiscal 2014 (May 1, 2013 to April 30, 2014)
Dispositions
Multi-Family Residential
84 unit - East Park - Sioux Falls, SD
48 unit - Sycamore Village - Sioux Falls, SD
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
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
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
Date
Disposed
(in thousands)
Book Value
Sales Price
and Sales Cost
Gain/(Loss)
2013-12-18 $
2013-12-18
$
2,214
1,296
3,510
2,358 $
1,380
3,738
2013-09-12
2013-09-12
2013-09-12
2013-05-13
2013-05-13
2013-05-13
2013-05-13
2013-09-12
2013-09-12
2013-09-24
2013-10-08
2013-10-31
2014-01-17
2014-01-30
2014-01-30
2013-05-14
2013-12-23
2014-01-08
4,500
7,290
1,160
12,950
3,150
4,700
2,350
9,275
12,800
2,550
2,553
1,825
14,675
725
3,800
2,735
61,138
2,310
325
650
3,285
7,339
6,001
1,164
14,504
1,375
4,100
1,949
9,998
12,181
2,607
1,488
1,547
10,328
747
3,084
2,675
52,079
2,420
347
796
3,563
(144 )
(84 )
(228 )
(2,839 )
1,289
(4 )
(1,554 )
1,775
600
401
(723 )
619
(57 )
1,065
278
4,347
(22 )
716
60
9,059
(110 )
(22 )
(146 )
(278 )
Total Property Dispositions
$
80,883
$
73,884 $
6,999
2015 Annual Report F-28
Index
NOTE 11 • OPERATING SEGMENTS
IRET reports its results in five reportable segments: multi-family residential; office; healthcare, including senior housing; industrial and 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, 2015, 2014 and 2013 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, 2015
Real estate revenue
Real estate expenses
Net operating income
Multi-Family
Residential
Office
Healthcare
Industrial
(in thousands)
$
$
118,526
51,172
67,354
$
$
74,978
36,491
38,487
$
$
66,230
17,176
49,054
$
$
6,491
1,536
4,955
$
$
TRS senior housing revenue
TRS senior housing expenses
Depreciation/amortization
Administrative expenses
Other expenses
Impairment of real estate investments
Interest expense
Interest and other income
Income before gain on sale of real estate and
other investments
Gain on sale of real estate and other investments
Net income
Year Ended April 30, 2014
Real estate revenue
Real estate expenses
Gain on involuntary conversion
Net operating income
Multi-Family
Residential
Office
Healthcare
Industrial
(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 $
TRS senior housing revenue
TRS senior housing expenses
Depreciation/amortization
Administrative expenses
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
Retail
13,445
4,622
8,823
$
$
$
Retail
13,831
4,989
0
8,842
$
Total
279,670
110,997
168,673
3,520
(2,997 )
(70,607 )
(11,824 )
(2,010 )
(6,105 )
(59,020 )
2,961
22,591
6,093
28,684
Total
265,482
108,487
2,480
159,475
1,627
(1,331 )
(70,918 )
(10,743 )
(2,132 )
(42,566 )
(59,142 )
2,391
(23,339 )
(51 )
(23,390 )
6,450
(16,940 )
2015 Annual Report F-29
Index
NOTE 11 • continued
Year Ended April 30, 2013
Real estate revenue
Real estate expenses
Gain on involuntary conversion
Net operating income
Depreciation/amortization
Administrative expenses
Other expenses
Interest expense
Interest and other income
Income from continuing operations
Income from discontinued operations
Net income
Segment Assets and Accumulated Depreciation
Multi-Family
Residential
Office
Healthcare
Industrial
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
4,919
1,232
9,811
$
248,058
99,059
5,084
154,083
(62,333 )
(8,494 )
(2,173 )
(61,154 )
748
20,677
9,295
29,972
As of April 30, 2015
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, 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
$
$
$
$
Multi-Family
Residential
Office
Healthcare
Industrial
Retail
Total
(in thousands)
946,520
(180,414 )
766,106
$
$
480,980
(115,710 )
365,270
$
$
497,997
(113,062 )
384,935
$
$
60,611
(11,256 )
49,355
$
$
111,929
(28,545 )
83,384
$
$
$
2,098,037
(448,987 )
1,649,050
22,912
48,970
329
96,755
153,994
25,827
1,997,837
Multi-Family
Residential
Office
Healthcare
Industrial
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
$
$
117,269
(28,255 )
89,014
$
$
$
1,996,031
(424,288 )
1,571,743
2,951
47,267
329
119,458
104,609
22,864
1,869,221
2015 Annual Report F-30
Index
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 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 in
Note 2.
The Company classified no dispositions as discontinued operations during fiscal year 2015. During the first three quarters of fiscal year 2014, the Company disposed of two multi-family
residential properties, three office properties, twelve industrial properties and three retail properties that were classified as discontinued operations. During the quarter ended April 30,
2014, the Company applied ASU 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 and 2013.
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
Amortization related to non-real estate investments
Impairment of real estate investments
TOTAL EXPENSES
Operating (loss) income
Interest expense
Other income
(Loss) income from discontinued operations before gain on sale
Gain on sale of discontinued operations
INCOME FROM DISCONTINUED OPERATIONS
Segment Data
Multi-Family Residential
Office
Healthcare
Industrial
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
$
$
$
$
$
$
$
(in thousands)
2014
3,173 $
1,302
4,475
920
164
299
951
97
222
0
90
1,860
4,603
(128 )
(421 )
0
(549 )
6,999
6,450 $
(99 ) $
(1,794 )
0
8,923
(580 )
6,450 $
(in thousands)
2014
80,883 $
(73,884 )
6,999 $
(in thousands)
2014
0 $
0
2013
10,068
3,099
13,167
3,169
447
1,029
2,276
218
520
16
247
305
8,227
4,940
(2,532 )
2
2,410
6,885
9,295
3,712
314
3,416
2,118
(265 )
9,295
2013
26,273
(19,388 )
6,885
2013
72,631
(1,335 )
2015 Annual Report F-31
Index
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, 2015, 2014 and 2013:
NUMERATOR
Income (loss) from continuing operations – Investors Real Estate Trust
Income from discontinued operations – Investors Real Estate Trust
Net income (loss) attributable to Investors Real Estate Trust
Dividends to preferred shareholders
Numerator for basic earnings per share – net income (loss) 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
Earnings (loss) 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 INCOME (LOSS) PER COMMON SHARE – BASIC & DILUTED
$
$
$
$
NOTE 14 • RETIREMENT PLANS
For Years Ended April 30,
(in thousands, except per share data)
2015
2014
$
24,087
0
24,087
(11,514 )
12,573
1,526
14,099
$
118,004
16,594
134,598
.11
.00
.11
$
$
(18,508 ) $
5,334
(13,174 )
(11,514 )
(24,688 )
(4,676 )
(29,364 ) $
105,331
21,697
127,028
(.28 ) $
.05
(.23 ) $
2013
17,929
7,601
25,530
(9,229 )
16,301
3,633
19,934
93,344
21,191
114,535
.09
.08
.17
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; discretionary non-
elective employer contributions; and employee deferrals or contributions. Participation in IRET’s defined contribution 401(k) plan is available to employees over the age of 21, except
that collectively bargained employees, non-resident alien employees, and part-time/temporary/seasonal employees scheduled to work less than 1000 hours of service within the plan
year are excluded from participation. Employees can contribute immediately upon hire; however, they are not eligible for the employer match until they have completed six months of
service and worked 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 discretionary employer 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 discretionary employer 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. Discretionary employer
contributions are subject to a vesting schedule; 401(k) matching contributions by IRET are fully vested when made. IRET’s contributions to these plans on behalf of employees totaled
approximately $1.0 million, $1.1 million and $912,000 in fiscal years 2015, 2014 and 2013, respectively.
2015 Annual Report F-32
Index
NOTE 15 • COMMITMENTS AND CONTINGENCIES
Ground Leases. As of April 30, 2015, the Company is a tenant under operating ground or air rights leases on eleven 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 0.5 to 86 years, and expiration dates ranging from October 2015 to October 2100. The
Company has renewal options for six of the eleven ground leases, and rights of first offer or first refusal for the remainder.
The expected timing of ground and air rights lease payments as of April 30, 2015 is as follows:
Fiscal Year Ended April 30,
2016
2017
2018
2019
2020
Thereafter
Total
(in thousands)
Lease Payments
478
$
449
449
449
449
20,764
23,038
$
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 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, 2015, the Company is committed to fund $7.2 million in tenant
improvements, within approximately the next 12 months.
Purchase Options. The Company has granted options to purchase certain of IRET properties to tenants in these properties, under lease agreements. 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, 2015, 15 of our properties were subject to purchase options, and the total investment cost, plus improvements, of all such properties was $114.9 million with total gross rental
revenues in fiscal year 2015 of $10.2 million. The tenant in the Company’s Nebraska Orthopaedic Hospital property has exercised its option to purchase the property. The Company and
its tenant are currently engaged in an arbitration proceeding pursuant to the lease agreement to determine the purchase price. The Company currently can give no assurance that the
sale of the property pursuant to the purchase option will be completed.
2015 Annual Report F-33
Index
NOTE 15 • continued
Insurance. IRET carries insurance coverage on its properties in amounts and types that the Company believes are customarily obtained by owners of similar properties and are
sufficient to achieve IRET’s risk management objectives.
Restrictions on Taxable Dispositions. Approximately 94 of the Company’s properties, consisting of approximately 4.3 million square feet of our combined commercial segment’s
properties and 4,910 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 $738.7 million at April 30, 2015. 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 Units. The limited partnership 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 Units receive the same cash distributions as those
paid on common shares. 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, 2015 and 2014, the aggregate redemption value of the then-outstanding Units of the operating partnership
owned by limited partners was approximately $102.4 million and $185.7 million, respectively.
Joint Venture Buy/Sell Options. Several 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 do not generally require that the Company buy its partners’ interests. However, from time to time, the Company has entered into joint venture agreements
which contain options compelling the Company to acquire the interest of the other parties. The Company currently has one such joint venture, the Company’s Southgate apartment
project in Minot, North Dakota, in which the Company’s joint venture partner can, for the four-year period from February 6, 2016 through February 5, 2020, 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. The joint venture partner’s interest is reflected as a
redeemable noncontrolling interest on the Consolidated Balance Sheets.
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 placed in service during the quarter, the costs for which have been capitalized. As of April 30, 2015, contractual commitments for these projects are as
follows:
2015 Annual Report F-34
Index
NOTE 15 • continued
Project Name and Location
Roseville 3075 Long Lake Rd -
Roseville, MN
Chateau II - Minot, ND
Edina 6565 France SMC III - Edina,
MN
Minot Southgate Retail - Minot,
ND
Renaissance Heights - Williston,
ND(2)
Deer Ridge – Jamestown, ND
PrairieCare Medical - Brooklyn
Park, MN
Cardinal Point - Grand Forks, ND
71 France Phase I, II, III - Edina,
MN(3)
Other
Planned
Segment
Rentable
Square Feet
or Number of Units
Anticipated
Total Cost
Costs as of
April 30, 2015(1)
(in thousands)
Industrial
Multi-Family Residential
Healthcare
Retail
Multi-Family Residential
Multi-Family Residential
Healthcare
Multi-Family Residential
Multi-Family Residential
n/a
202,807 sq ft
72 units
57,479 sq ft
7,963 sq ft
288 units
163 units
72,895 sq ft
251 units
241 units
n/a
13,915
14,711
36,752
2,923
62,362
24,519
24,251
40,042
73,290
n/a
$
292,765
$
9,036
13,129
22,549
2,164
59,087
15,355
19,457
26,450
35,137
6,618
208,982
(in fiscal years)
Anticipated
Construction
Completion
In Service
1Q 2016
1Q 2016
1Q 2016
1Q 2016
2Q 2016
2Q 2016
3Q 2016
1Q 2017
n/a
(1) Includes costs related to development projects that are placed in service in phases (Renaissance Heights - $46.0 million).
(2) 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.
(3) The project will be constructed in three phases by a joint venture entity in which the Company has an approximately 52.6% interest. The anticipated total cost amount given in
the table above is the total cost to the joint venture entity. The anticipated total cost includes approximately 21,772 square feet of retail space.
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 2015 and 2014. 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, 2015 and 2014.
2015 Annual Report F-35
Index
NOTE 16 • continued
Fair Value Measurements on a Nonrecurring Basis
Non-financial assets measured at fair value on a nonrecurring basis at April 30, 2015 consisted of real estate held for sale that was written-down to estimated fair value during fiscal year
2015. 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. The aggregate fair value of these assets by their levels in the fair value hierarchy are as follows:
April 30, 2015
Real estate held for sale
April 30, 2014
Real estate investments
Real estate held for sale
Financial Assets and Liabilities Not Measured at Fair Value
Total
(in thousands)
Level 1
Level 2
Level 3
$
7,100
$
0
$
0
$
7,100
89,537
2,951
0
0
0
0
89,537
2,951
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.
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, 2015 and 2014 are as follows:
FINANCIAL ASSETS
Cash and cash equivalents
Other investments
FINANCIAL LIABILITIES
Other debt
Lines of credit
Mortgages payable
(in thousands)
2015
Carrying
Amount
Fair Value
2014
Carrying
Amount
$
48,970 $
329
$
48,970
329
47,267 $
329
144,090
60,500
974,828
143,749
60,500
1,124,422
63,132
22,500
997,689
Fair Value
47,267
329
63,250
22,500
1,130,262
2015 Annual Report F-36
Index
NOTE 17 • COMMON AND PREFERRED SHARES OF BENEFICIAL INTEREST AND EQUITY
Distribution Reinvestment and Share Purchase Plan. During fiscal years 2015 and 2014, IRET issued 8.1 million and 6.6 million common shares, respectively, pursuant to its
distribution reinvestment and share purchase plan, at a total value at issuance of $64.9 million and $55.8 million, respectively. The shares issued under the distribution reinvestment and
share purchase plan during fiscal year 2015 consisted of 2.1 million shares valued at issuance at $16.2 million that were issued for reinvested distributions, and approximately 6.0 million
shares valued at $48.7 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 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. 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 invest their cash distributions in
common shares of the Company, currently at a discount of 3% from the market price, and to purchase additional shares through voluntary cash contributions at market price.
Exchange of Units for Common Shares. During fiscal years 2015 and 2014, respectively, 7.2 million and approximately 903,000 Units were exchanged for common shares pursuant to the
Agreement of Limited Partnership of the Operating Partnership, with a total value of $41.3 million and $4.4 million included in equity.
Issuance of Preferred Shares. 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. 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.
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 years
2015 and 2014.
2015 Annual Report F-37
Index
NOTE 18 • QUARTERLY RESULTS OF CONSOLIDATED OPERATIONS (unaudited)
QUARTER ENDED
Revenues
Net (loss) income attributable to Investors Real Estate Trust
Net (loss) income available to common shareholders
Net (loss) income per common share - basic & diluted
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
(in thousands, except per share data)
July 31, 2014
68,630
October 31, 2014
70,885
$
5,114
(151 ) $
2,236
(3,030 ) $
.02
(.03 ) $
January 31, 2015
72,916
$
8,371
$
5,492
$
.05
$
$
$
$
$
April 30, 2015
70,759
10,753
7,875
.07
(in thousands, except per share data)
July 31, 2013
65,098
3,078
199
.00
October 31, 2013
65,772
$
8,787
$
5,909
$
.06
$
January 31, 2014
68,433
$
3,503
$
624
$
.00
$
$
$
$
$
April 30, 2014
67,806
(28,542 )
(31,420 )
(.29 )
$
$
$
$
$
$
$
$
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. 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 the four-year period from February 6, 2016 through February 5, 2020, 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.
As of April 30, 2015 and 2014, the estimated redemption value of the redeemable noncontrolling interests was $6.4 million and $6.2 million, respectively. Below is a table reflecting the
activity of the redeemable noncontrolling interests.
Balance at beginning of fiscal year
Contributions
Net income
Balance at close of fiscal year
NOTE 20 • SHARE BASED COMPENSATION
2015
(in thousands)
2014
2013
$
$
6,203 $
0
165
6,368 $
5,937
0
266
6,203
$
$
0
5,932
5
5,937
Share 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, 2015, awards under the 2008 Incentive Award Plan consisted of cash awards and grants of restricted and unrestricted common shares.
2015 Annual Report F-38
Index
NOTE 20 • continued
Long-Term Incentive Plan
The Company maintains a long-term incentive plan (“LTIP”) that allows for share based awards to officer and non-officer employees of the Company. 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 (for example, the performance period for fiscal year 2015 commenced on May 1, 2014 and concluded on April 30, 2015). 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.
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. 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 of 15-20% upon the historical volatility of our daily closing share price. Dividend yield of 6.1% was
calculated as the estimated annual dividend for the fiscal year divided by the average price of the previous fiscal year. We based the risk-free interest rate of 0.03-0.09% on U.S. treasury
bonds with a maturity equal to the remaining market condition performance period. 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, 2015. 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.
Share-based compensation expense for the 2015 performance period was $1.3 million for the fiscal year ended April 30, 2015. Share-based compensation expense for the 2014
performance period was approximately $690,000 and $914,000 for the fiscal years ended April 30, 2015 and 2014. The TSR threshold was not reached in fiscal year 2013; consequently
there was no LTIP expense for the fiscal year ended April 30, 2013.
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 $39,139, $28,976, and $15,975 for each of the fiscal years ended April 2015, 2014, and 2013, respectively.
Total Compensation Expense
Total share-based compensation expense recognized in the consolidated financial statements for the three years ended April 30, 2015 for all share-based awards was as follows (in
thousands):
Share based compensation expense
Year Ended April 30,
2015
2,215
$
2014
1,162
$
$
2013
45
2015 Annual Report F-39
Index
NOTE 20 • continued
Restricted Share Awards
The activity for the two years ended April 30, 2015 related to the Company’s restricted share awards was as follows. There was no activity related to restricted shares in fiscal year 2013.
Unvested at April 30, 2013
Granted
Unvested at April 30, 2014
Granted
Vested during year
Forfeited
Unvested at April 30, 2015
Shares
0 $
104,855
104,855
107,536
(79,181 )
(25,674 )
107,536
Wtd Avg Grant-
Date Fair Value
n/a
8.72
8.72
7.17
8.72
8.72
7.17
The total fair value of share grants vested during the fiscal year ended April 30, 2015 was approximately $568,000. No share grants vested during the fiscal years ended April 30, 2014
and 2013.
As of April 30, 2015, the total compensation cost related to non-vested share awards not yet recognized was approximately $771,000, which the Company expects to recognize during
fiscal year 2016.
NOTE 21 • SUBSEQUENT EVENTS
Common and Preferred Share Distributions. On June 2, 2015, 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
$
Record Date
Payment Date
June 15, 2015
July 1, 2015
$
$
0.5156
0.4968
June 15, 2015
June 15, 2015
June 30, 2015
June 30, 2015
Pending Acquisition. Subsequent to the end of fiscal year 2015, the Company signed a purchase agreement to acquire an approximately 28,000-square foot medical office property in
Omaha, Nebraska for a purchase price of $6.5 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.
Completed Disposition. On May 18, 2015, the Company sold Thresher Square, an office property in Minneapolis, Minnesota, for a sale price of $7.0 million.
Pending Dispositions. On June 12, 2015, the Company signed an agreement to sell 34 office properties located in 8 states for a sale price of $250.0 million. Also on June 12, 2015, a joint
venture in which the Company has a 51% interest signed an agreement to sell five office properties in Mendota Heights, Minnesota, for a sale price of $40.0 million. On June 25, 2015,
the Company signed an agreement to sell 17 retail properties and one parcel of unimproved land located in Minnesota, North Dakota and Nebraska for a sale price of $81.5 million. These
pending dispositions are part of the Company’s previously announced strategic plan to explore the sale of its office and retail portfolios and the sales are expected to be completed in
the second or third quarter of fiscal year 2016. These pending dispositions are 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.
Commitment Increase to Credit Facility: Under the terms of the First Amendment to Amended and Restated Loan Agreement with First International Bank & Trust as lead bank, the
commitment amount may be increased from $90.0 million up to $100.0 million upon meeting various conditions. Subsequent to the end of fiscal year 2015, the Company met such
conditions, including providing additional collateral, and the total commitment amount was increased to $100.0 million.
2015 Annual Report F-40
Index
Schedule III - REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2015
Description
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
Arcata - Golden Valley, MN
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
Commons at Southgate - 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
Initial Cost to Company
Gross amount at which carried at
close of period
Encumbrances(1)
Land
Buildings &
Improvements
Costs capitalized
subsequent to
acquisition
Buildings &
Improvements
Accumulated
Depreciation
Total
Land
Life on which
depreciation in
latest income
statement is
computed
Date of
Construction
or Acquisition
$
84 $
98
3,934
642
3,840
0
5,517
2,736
5,216
694
1,127
0
752
0
0
0
2,843
6,574
0
4,729
5,473
13,303
391
11 $
15
287
158
350
2,088
741
1,067
509
145
395
110
266
54
107
107
305
736
61
706
2,401
1,515
80
0
0
3,691
54
3,586
15,586
6,560
3,839
2,571
8,081
968
1,056
491
235
261
620
53 $
74
5,551
1,123
6,625
29,640
7,569
5,498
6,698
1,450
2,244
628
1,512
311
615
615
3,958
4,864
5,663
9,588
11,515
15,730
672
31,351
311
3,762
17,372
7,809
4,290
3,289
9,956
19 $
34
165
53
1,923
95
163
3,005
1,539
879
243
157
180
85
161
156
1,652
2,165
683
4,346
7,471
671
421
20 $
23
293
193
980
2,088
774
1,324
756
219
407
124
305
60
118
113
376
994
71
1,334
2,844
1,574
123
83 $
63 $
123
100
6,003
5,710
1,334
1,141
7,918
8,898
29,735 31,823
8,473
7,699
9,570
8,246
8,746
7,990
2,474
2,255
2,882
2,475
895
771
1,958
1,653
450
390
883
765
878
765
5,915
5,539
7,765
6,771
6,336
6,407
13,306 14,640
18,543 21,387
16,342 17,916
1,173
1,050
580
88
3,703
57
31,919 35,622
453
396
432
3,294
1,486
1,682
246
2,388
1,022
1,383
538
515
269
898
5,162
4,140
20,339 21,722
9,786
9,248
6,207
5,692
3,527
3,796
12,066 12,964
(12 )
(19 )
(299 )
(235 )
(2,115 )
(380 )
(678 )
(2,539 )
(2,348 )
(949 )
(534 )
(163 )
(364 )
(87 )
(170 )
(164 )
(1,739 )
(2,726 )
(786 )
(4,723 )
(5,255 )
(1,316 )
(769 )
(993 )
(89 )
(378 )
(6,904 )
(3,797 )
(2,915 )
(470 )
(4,531 )
2008
2008
2013
1987
2006
2013
2012
2003
2003
1997
2007
2007
2007
2007
2007
2007
2001
1998
2013
2001
2003
2012
1984
2013
2007
2011
1997
1995
1994
2010
1999
40 years
40 years
40 years
24-40 years
40 years
40 years
40 years
40 years
40 years
12-40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
33-40 years
24-40 years
40 years
40 years
2015 Annual Report F-41
Index
Schedule III - REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2015
Initial Cost to Company
Gross amount at which carried at
close of period
Encumbrances(1)
Land
Buildings &
Improvements
Costs capitalized
subsequent to
acquisition
Buildings &
Improvements
Accumulated
Depreciation
Total
Land
Life on which
depreciation in
latest income
statement is
computed
Date of
Construction
or Acquisition
Description
Multi-Family Residential -
continued
Cypress Court - St. Cloud, MN
$
Dakota Commons - Williston, ND(2)
Evergreen - Isanti, MN
Evergreen II - Isanti, MN
Fairmont - Minot, ND
First Avenue - Minot, ND
Forest Park - Grand Forks, ND
Gables Townhomes - Sioux Falls,
SD
Grand Gateway - St. Cloud, MN
Greenfield - Omaha, NE
Heritage Manor - Rochester, MN
Homestead Garden - Rapid City, SD
Indian Hills - Sioux City, IA(2)
Kirkwood Manor - Bismarck, ND
Lakeside Village - Lincoln, NE
Landing at Southgate - Minot, ND
Landmark - Grand Forks, ND
Legacy - Grand Forks, ND
Legacy Heights - Bismarck, ND
Mariposa - Topeka, KS
Meadows - Jamestown, ND(2)
Monticello Village - Monticello,
MN
Northern Valley - Rochester, MN
North Pointe - Bismarck, ND
Northridge - 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
13,150 $ 1,583 $
823
380
691
28
0
810
0
1,986
2,066
332
0
7,560
1,452
5,345
3,552
3,895
9,761
0
3,259
13,129
0
1,573
15,528
0
2,925
0
2,956
0
3,382
6,322
2,418
3,939
10,575
4,382
3,846
8,482
349
814
578
403
655
294
449
1,215
2,254
184
1,362
804
399
590
490
110
303
884
422
543
1,164
1,034
404
1,143
18,874 $
9,596
2,740
2,784
337
3,046
5,579
1,921
7,086
4,122
6,968
14,139
2,921
2,725
15,837
12,955
1,514
21,727
9,162
5,110
4,519
3,756
610
3,957
7,516
4,838
2,784
10,441
6,109
3,152
9,099
148 $ 1,583 $
824
25
385
116
698
55
55
117
11
0
1,426
7,407
19,022 $ 20,605 $
9,620 10,444
3,236
2,851
3,530
2,832
482
427
3,057
3,057
12,370 13,796
173
805
769
2,796
156
3,709
1,676
442
93
1,093
6,665
73
535
1,355
491
129
622
26
638
4,336
3,086
1,968
2,894
5,792
374
934
803
580
658
397
553
1,263
2,294
331
2,133
804
427
669
621
119
354
888
627
777
1,785
1,183
824
1,629
2,443
2,069
8,705
7,771
4,666
5,469
9,587 10,167
14,292 14,950
6,924
6,527
4,850
4,297
16,231 17,494
13,008 15,302
2,460
2,791
27,621 29,754
9,235 10,039
6,044
5,617
6,464
5,795
4,737
4,116
849
730
4,882
4,528
8,426
7,538
5,898
5,271
6,886
7,663
12,906 14,691
9,111
7,928
5,626
6,450
14,405 16,034
(652 )
(236 )
(474 )
(277 )
(76 )
(155 )
(5,333 )
(189 )
(746 )
(932 )
(3,751 )
(329 )
(1,353 )
(1,786 )
(1,294 )
(546 )
(1,070 )
(10,186 )
(21 )
(1,498 )
(2,135 )
(1,257 )
(100 )
(1,474 )
(126 )
(1,746 )
(3,214 )
(4,881 )
(2,127 )
(2,808 )
(5,939 )
2012
2012
2008
2011
2008
2013
1993
2011
2012
2007
1998
2014
2007
1997
2012
2013
1997
1995-2005
2015
2004
1998
2004
2010
1995-2011
2014
2002
1993
2000
2005
1994
1997
40 years
40 years
40 years
40 years
40 years
40 years
24-40 years
40 years
40 years
40 years
40 years
40 years
40 years
12-40 years
40 years
40 years
40 years
24-40 years
40 years
40 years
40 years
40 years
40 years
24-40 years
40 years
40 years
40 years
40 years
40 years
24-40 years
40 years
2015 Annual Report F-42
Index
Schedule III - REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2015
Description
Multi-Family Residential -
continued
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
Red 20 - Minneapolis, MN
Regency Park Estates - St. Cloud,
MN
Renaissance Heights - 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
Silver Springs - Rapid City, SD
South Pointe - Minot, ND
Southpoint - Grand Forks, ND(2)
Southview - Minot, ND
Southwind - Grand Forks, ND
Summit Park - Minot, ND
Sunset Trail - Rochester, MN
Temple - Minot, ND
Terrace Heights - Minot, ND
Thomasbrook - Lincoln, NE
University Park Place - St. Cloud,
MN
Valley Park - Grand Forks, ND
Initial Cost to Company
Gross amount at which carried at
close of period
Encumbrances(1)
Land
Buildings &
Improvements
Costs capitalized
subsequent to
acquisition
Buildings &
Improvements
Accumulated
Depreciation
Total
Land
Life on which
depreciation in
latest income
statement is
computed
Date of
Construction
or Acquisition
$
757 $
205
0
111
5,348
2,624
7 $
72
584
35
867
240
3,852
1,410
27,268
0
395
144
2,254
1,900
748 $
687
2,191
215
12,784
3,538
4,564
1,816
30,024
26,412
165 $
251
27
185
2,455
1,527
54 $
81
585
49
995
368
320
487
1,392
4
404
235
2,307
1,900
866 $
929
2,217
386
920 $
1,010
2,802
435
15,111 16,106
5,305
4,937
5,279
4,875
2,447
2,212
31,363 33,670
26,416 28,316
(349 )
(305 )
(95 )
(141 )
(2,433 )
(2,379 )
(363 )
(1,228 )
(4,533 )
(445 )
1999
2002
2013
1997
2009
1994
2012
1993
2006
2013
40 years
40 years
40 years
40 years
40 years
24-40 years
40 years
24-40 years
40 years
40 years
6,680
702
10,198
1,465
811
11,554 12,365
(1,162 )
2011
40 years
0
3,359
3,282
13,200
5,089
3,536
12,134
1,390
2,230
8,613
0
1,035
5,503
963
8,009
75
160
5,893
2,464
178
330
576
656
843
1,142
241
215
550
576
185
400
161
336
0
29
600
0
3,822
78
294
43,488
4,073
3,489
23,826
5,726
4,823
14,684
2,097
3,006
9,548
9,893
469
5,034
1,898
12,814
0
312
10,306
450
4,137
123
2,437
1,510
998
1,201
215
3,064
435
48
2,847
48
410
2,974
1,550
2,652
231
142
3,336
2,467
288
435
1,438
772
862
1,694
265
215
1,343
591
240
765
560
581
0
40
1,403
43,608 46,075
6,688
6,400
4,894
5,329
23,962 25,400
7,583
6,811
5,019
5,881
17,196 18,890
2,773
2,508
3,054
3,269
11,602 12,945
9,926 10,517
1,064
824
8,408
7,643
3,049
3,609
15,221 15,802
231
483
12,839 14,242
231
443
115
3,508
83
1,115
560
6,824
643
7,939
(848 )
(2,205 )
(1,765 )
(1,290 )
(3,129 )
(1,020 )
(6,619 )
(273 )
(68 )
(5,494 )
(414 )
(371 )
(3,486 )
(1,249 )
(5,453 )
(57 )
(172 )
(4,680 )
(118 )
(2,599 )
2013
2001
1999
2008
1995
2007
1999
2011
2014
1995
2013
1994
1995
1997
1999
2006
2006
1999
2007
1999
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
24-40 years
40 years
40 years
24-40 years
24-40 years
40 years
40 years
40 years
40 years
40 years
40 years
2015 Annual Report F-43
Index
Schedule III - REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2015
Description
Multi-Family Residential -
continued
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
Office
1st Avenue Building - Minot, ND
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
Corporate Center West - Omaha,
NE
Crosstown Centre - Eden Prairie,
MN
Eden Prairie 6101 Blue Circle Dr -
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(2)
Highlands Ranch I - Highlands
Ranch, CO
Highlands Ranch II - Highlands
Ranch, CO
Interlachen Corporate Center -
Edina, MN
Initial Cost to Company
Gross amount at which carried at
close of period
Encumbrances(1)
Land
Buildings &
Improvements
Costs capitalized
subsequent to
acquisition
Buildings &
Improvements
Accumulated
Depreciation
Total
Land
Life on which
depreciation in
latest income
statement is
computed
Date of
Construction
or Acquisition
$
$
$
12,106 $ 1,590 $
234
1,047
939
8,448
68
1,604
116
1,950
2,139
22,000
1,400
10,870
748
2,564
370
6,257
423,385 $ 65,410 $
15,760 $
2,296
10,167
1,887
1,909
25,424
17,696
5,622
6,028
746,299 $
923 $ 1,876 $
359
962
1,533
5,224
263
77
284
1,784
2,276
732
1,421
85
1,009
1,846
642
2,207
134,811 $ 81,919 $
16,397 $ 18,273 $
3,133
3,492
14,797 16,330
2,218
2,141
3,525
3,809
26,019 28,295
17,760 19,181
8,216
7,207
8,605
7,963
864,601 $ 946,520 $
(1,331 )
(935 )
(6,896 )
(377 )
(1,425 )
(1,563 )
(2,132 )
(2,297 )
(3,557 )
(180,414 )
2012
2003
1995
2008
1998
2012
2012
2003
1997
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
0 $
30 $
337 $
0 $
30 $
337 $
367 $
(41 )
1981
33-40 years
6,759
975
5,542
2,886
980
8,423
9,403
(2,408 )
2007
40 years
10,320
1,455
8,756
2,431
1,475
11,167 12,642
(4,022 )
2003
40 years
8,670
2,020
893
327
16,768
7,957
4,067
65
893
327
20,835 21,728
8,349
8,022
(8,926 )
(3,215 )
2002
1999
40 years
40 years
0
188
1,261
87
188
1,348
1,536
(429 )
2003
40 years
2,103
0
1,209
389
1,642
347
1,283
12,138
1,671
1,126
3,864
134
443
1,650
347
2,355
2,798
15,994 17,644
2,152
1,805
(458 )
(5,810 )
(458 )
2008
2002
2005
40 years
40 years
40 years
17,315
3,880
5,253
21
3,880
5,274
9,154
(126 )
2006
40 years
9,000
2,884
14,569
3,183
2,980
17,656 20,636
(4,939 )
2004
40 years
0
666
4,197
1
666
4,198
4,864
(1,701 )
1999
40 years
12,160
21,565
2,188
1,899
7,912
15,518
1
31
2,188
1,913
7,913 10,101
15,535 17,448
(190 )
(373 )
2006
2006
40 years
40 years
8,700
1,637
6,663
0
1,637
6,663
8,300
(160 )
2006
40 years
17,417
3,018
18,544
4,313
3,018
22,857 25,875
(8,851 )
2003
40 years
5,313
0
588
126
7,808
15,240
1,521
721
740
126
9,177
9,917
15,961 16,087
(3,524 )
(6,161 )
2001
1997
40 years
40 years
0
2,268
8,362
1,117
2,268
9,479 11,747
(2,211 )
2006
40 years
0
1,437
9,549
1,901
1,437
11,450 12,887
(3,391 )
2004
40 years
8,800
1,650
14,983
2,530
1,693
17,470 19,163
(6,389 )
2001
40 years
2015 Annual Report F-44
Index
Schedule III - REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2015
Initial Cost to Company
Gross amount at which carried at
close of period
Description
Office - continued
Intertech Building - Fenton, MO
Mendota Office Center I - Mendota
$
Encumbrances(1)
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(2)
Minot 2505 16th Street SW - Minot,
ND(2)
Miracle Hills One - Omaha, NE
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
Prairie Oak Business Center - Eden
Prairie, MN
Rapid City 900 Concourse Drive -
Rapid City, SD
Riverport - Maryland Heights, MO
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
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
Woodlands Plaza IV - Maryland
Buildings &
Improvements
Land
Costs capitalized
subsequent to
acquisition
Buildings &
Improvements
Accumulated
Depreciation
Total
Land
Life on which
depreciation in
latest income
statement is
computed
Date of
Construction
or Acquisition
4,177 $ 2,130 $
3,968 $
1,721 $ 2,191 $
5,628 $ 7,819 $
(1,253 )
2007
40 years
3,734
835
6,169
1,402
835
7,571
8,406
(2,683 )
2002
40 years
5,516
1,121
10,085
2,097
1,121
12,182 13,303
(4,882 )
2002
40 years
3,791
970
5,734
957
970
6,691
7,661
(2,419 )
2002
40 years
4,507
1,070
7,635
1,510
1,070
9,145 10,215
(3,235 )
2002
40 years
628
0
287
1,026
0
8,895
298
1,974
1,454
6,143
1,724
5,726
224
4,404
288
1,038
1,677
1,965
10,535 11,573
296
6
298
1,974
2,020
5,732
2,318
7,706
(475 )
(2,287 )
(275 )
(139 )
2004
2010
2009
2006
40 years
40 years
40 years
40 years
11,519
2,034
14,584
2,497
2,037
17,078 19,115
(4,231 )
2006
40 years
5,061
16,770
7,098
0
2,462
4,220
389
300
4,374
6,280
5,444
913
392
243
3,860
4
2,818
4,220
598
300
4,410
7,228
6,523 10,743
9,693
9,095
1,217
917
(525 )
(180 )
(2,041 )
(11 )
2010
2006
2009
2003
40 years
40 years
40 years
40 years
1,147
604
1,253
87
636
1,308
1,944
(258 )
2007
40 years
3,120
531
4,069
2,523
1,030
6,093
7,123
(2,365 )
2003
40 years
181
19,690
720
792
734
720
285
1,891
178
212
180
143
944
7,500
336
627
0
13,155
1,261
2,375
6,600
6,109
916
1,123
1,024
1,094
2,200
8,571
6,149
9,601
1,151
0
60
251
80
36
514
1,891
186
240
189
151
7,522
6,109
968
1,346
1,095
1,122
8,036
8,000
1,154
1,586
1,284
1,273
143
915
336
684
2,343
2,679
9,429 10,113
1,961
189
1,482
2,375
7,889
9,371
9,790 12,165
(2,912 )
(146 )
(259 )
(388 )
(282 )
(276 )
(688 )
(2,767 )
(3,085 )
(242 )
2000
2006
2005
2005
2005
2005
2004
2003
2002
2006
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
800
119
2,366
230
119
2,596
2,715
(734 )
2004
40 years
12,766
5,787
3,117
869
0
3,844
235
1,000
13,350
8,373
1,195
10,618
2,023
1,956
3,195
884
15,295 18,490
10,314 11,198
267
1,933
235
1,000
1,697
1,462
12,551 13,551
(3,805 )
(2,641 )
(430 )
(4,512 )
2005
2005
2003
2003
2006
40 years
40 years
40 years
40 years
40 years
2015 Annual Report F-45
Heights, MO
Total Office
$
4,360
771
279,307 $ 62,337 $
4,609
353,764 $
1,461
862
64,879 $ 64,646 $
5,979
6,841
416,334 $ 480,980 $
(1,501 )
(115,710 )
Index
Schedule III - REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2015
Description
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(2)
Casper 3955 E 12th Street (Meadow
Wind) - Casper, WY(2)
Cheyenne 4010 N College Drive
(Aspen Wind) - Cheyenne, WY(2)
Cheyenne 4606 N College Drive
(Sierra Hills) - Cheyenne, WY(2)
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
Initial Cost to Company
Gross amount at which carried at
close of period
Encumbrances(1)
Land
Buildings &
Improvements
Costs capitalized
subsequent to
acquisition
Buildings &
Improvements
Accumulated
Depreciation
Total
Land
Life on which
depreciation in
latest income
statement is
computed
Date of
Construction
or Acquisition
$
7,740 $
204 $
7,135 $
2,492 $
229 $
9,602 $ 9,831 $
(3,037 )
2005
40 years
12,105
726
11,319
5,627
729
16,943 17,672
(4,011 )
2007
40 years
431
0
4,678
0
0
4,678
4,678
(1,730 )
2002
40 years
1,369
384
2,366
226
392
2,584
2,976
(547 )
2007
40 years
1,226
649
1,216
0
649
1,216
1,865
(146 )
2010
40 years
8,092
1,071
6,842
1,968
1,092
8,789
9,881
(1,612 )
2008
40 years
5,066
189
5,127
971
203
6,084
6,287
(1,078 )
2008
40 years
0
0
0
0
1,430
0
0
1,785
0
0
0
2,718
11,846
550
0
567
439
388
628
695
501
521
35
115
511
587
43
290
775
56
33
49
5,780
10,494
10,272
7,455
2,597
1,547
779
1,767
9,193
8,999
824
1,352
20,870
490
773
517
172
439
5,952
6,391
(855 )
2009
40 years
576
459
10,999 11,458
(1,510 )
2009
40 years
270
629
10,541 11,170
(1,457 )
2009
40 years
50
1
556
21
66
177
134
24
59
199
54
51
63
695
501
521
35
115
511
587
44
290
775
56
39
50
7,505
2,598
8,200
3,099
2,103
800
1,833
9,370
9,133
847
2,624
835
1,948
9,881
9,720
891
1,411
1,701
21,069 21,844
600
857
629
544
818
579
(1,020 )
(718 )
(635 )
(140 )
(323 )
(2,231 )
(2,184 )
(148 )
(251 )
(3,730 )
(179 )
(142 )
(197 )
2009
2004
2008
2008
2008
2005
2005
2008
2000
2008
2008
2008
2008
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
15,197
288
9,871
1,761
288
11,632 11,920
(3,888 )
2000
40 years
0
568
9,017
807
0
359
719
70
1,045
109
42
89
10,517
502
11,590
854
722
547
121
633
210
94
22
53
719
70
1,047
116
42
89
10,638 11,357
1,135
1,205
11,798 12,845
1,057
786
689
941
744
600
(2,542 )
(364 )
(1,307 )
(412 )
(131 )
(201 )
2005
2001
2010
1996
2008
2001
40 years
40 years
40 years
40 years
40 years
40 years
2015 Annual Report F-46
Index
Schedule III - REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2015
Description
Healthcare - continued
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
Laramie 1072 N 22nd Street (Spring
Wind) - Laramie, WY(2)
Legends at Heritage Place - Sartell,
MN
Mariner Clinic - Superior, WI
Minneapolis 701 25th Avenue
Medical - Minneapolis, MN
Missoula 3050 Great Northern -
Missoula, MT
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
Initial Cost to Company
Gross amount at which carried at
close of period
Encumbrances(1)
Land
Buildings &
Improvements
Costs capitalized
subsequent to
acquisition
Buildings &
Improvements
Accumulated
Depreciation
Total
Land
Life on which
depreciation in
latest income
statement is
computed
Date of
Construction
or Acquisition
$
1,022 $
0
12,927
314 $
315
246
9,567
8,145
0
0
0
0
353
388
974 $
8,584
11,823
12,675
12,201
660
117
58 $
124
313
314 $
330
246
1,032 $ 1,346 $
8,693
9,023
12,136 12,382
(185 )
(1,710 )
(3,669 )
2008
2005
2002
40 years
40 years
40 years
2,906
41
0
0
15,581 15,581
(3,781 )
2008
40 years
12,242 12,242
(2,969 )
2008
40 years
529
372
1,170
1,542
(579 )
2002
40 years
0
388
117
505
(10 )
2011
40 years
9,803
755
8,054
5,723
1,040
13,492 14,532
(5,874 )
2003
40 years
29,622
576
0
828
3,480
50
0
66
30,192
1,520
7,408
1,699
14,423
2
898
0
3,480
50
26
66
44,615 48,095
1,572
1,522
8,306
8,280
1,765
1,699
(17,035 )
(420 )
(2,723 )
(469 )
2001
2004
2002
2004
40 years
40 years
40 years
40 years
7,366
3,239
18,362
0
3,239
18,362 21,601
(6,867 )
2000
40 years
7,500
1,305
10,528
2,091
1,329
12,595 13,924
(3,750 )
2004
40 years
0
406
10,151
27
406
10,178 10,584
(1,251 )
2009
40 years
0
1,811
970
0
9,920
3,781
0
90
970
20
9,920 10,890
3,871
3,851
(382 )
(1,077 )
2013
2004
40 years
40 years
7,196
0
7,873
1,566
0
9,439
9,439
(1,837 )
2008
40 years
1,267
247
4,773
8,783
5,980
640
185
1,245
2,715
1,615
1,331
2,767
8,898
14,673
7,851
0
0
31
1,937
3,611
640
185
1,245
2,715
1,647
1,971
1,331
2,767
2,952
8,929 10,174
16,610 19,325
11,430 13,077
(159 )
(873 )
(2,445 )
(5,788 )
(2,880 )
2010
2002
2004
2004
2005
40 years
40 years
40 years
40 years
40 years
1,593
0
11,781
934
0
12,715 12,715
(4,101 )
2002
40 years
2,086
2,751
1,919
145
708
263
3,870
4,296
3,775
0
550
6,565
3,171
424
6,724
3,106
687
5,942
0
0
0
0
0
0
145
708
263
550
424
687
3,870
4,296
3,775
4,015
5,004
4,038
(404 )
(482 )
(396 )
2011
2011
2011
40 years
40 years
40 years
6,565
7,115
(260 )
2014
40 years
6,724
7,148
(698 )
2011
40 years
5,942
6,629
(644 )
2011
40 years
2015 Annual Report F-47
Index
Schedule III - REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2015
Initial Cost to Company
Gross amount at which carried at
close of period
Encumbrances(1)
Land
Buildings &
Improvements
Costs capitalized
subsequent to
acquisition
Buildings &
Improvements
Accumulated
Depreciation
Total
Land
Life on which
depreciation in
latest income
statement is
computed
Date of
Construction
or Acquisition
Description
Healthcare - continued
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 Healthcare
$
751 $
0
1,795
4,718
1,263
66 $
467
328
568
162
221,439 $ 33,906 $
2,124 $
3,833
2,259
9,009
2,497
411,712 $
33 $
0
264
125
2
66 $
467
328
674
162
52,379 $ 34,593 $
2,157 $ 2,223 $
4,300
3,833
2,851
2,523
9,702
9,028
2,661
2,499
463,404 $ 497,997 $
(228 )
(370 )
(510 )
(820 )
(690 )
(113,062 )
2011
2011
2007
2011
2004
40 years
40 years
40 years
40 years
40 years
Industrial
Bloomington 2000 W 94th Street -
Bloomington, MN(2)
$
0 $ 2,133 $
4,097 $
1,217 $ 2,204 $
5,243 $ 7,447 $
(1,423 )
2006
40 years
Lexington Commerce Center -
Eagan, MN
Minot IPS - Minot, ND(2)
Stone Container - Fargo, ND
Roseville 3075 Long Lake Road -
Roseville, MN
Urbandale 3900 106th Street -
Urbandale, IA
Woodbury 1865 Woodlane -
Woodbury, MN
Total Industrial
1,604
0
382
453
416
440
4,352
5,952
6,597
1,977
0
104
480
416
440
6,302
5,952
6,701
6,782
6,368
7,141
(2,831 )
(374 )
(2,943 )
1999
2012
2001
40 years
40 years
40 years
0
810
9,562
1,326
810
10,888 11,698
(145 )
2001
40 years
10,418
3,680
9,893
1,982
3,863
11,692 15,555
(2,553 )
2007
40 years
$
0
1,108
12,404 $ 9,040 $
2,628
43,081 $
1,884
1,123
8,490 $ 9,336 $
4,497
5,620
51,275 $ 60,611 $
(987 )
(11,256 )
2007
40 years
2015 Annual Report F-48
Index
Schedule III - REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2015
Initial Cost to Company
Gross amount at which carried at
close of period
Buildings &
Improvements
Land
Costs capitalized
subsequent to
acquisition
Buildings &
Improvements
Land
Accumulated
Depreciation
Total
Date of
Construction
or Acquisition
Life on which
depreciation in
latest income
statement is
computed
Encumbrances(1)
Description
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
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
Lakeville Strip Center - Lakeville,
MN
Minot Arrowhead - Minot, ND(2)
Minot Plaza - Minot, ND
Minot Southgate Wells Fargo Bank
- 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
$
Total Retail
75 $
15 $
75 $
197 $
17 $
270 $
287 $
(202 )
2000
40 years
0
0
75
208
1,211
773
20
95
1,211
1,306
(65 )
2013
40 years
200
208
973
1,181
(306 )
2003
40 years
1,185
842
2,703
105
866
2,784
3,650
(797 )
2004
40 years
12,307
347
544
1,798
5,035
92
130
276
14,665
493
1,800
4,699
2,079
30
156
185
5,679
106
131
297
16,100
509
1,955
4,863
21,779
615
2,086
5,160
(5,215 )
(122 )
(499 )
(1,380 )
2003
2006
2004
2004
40 years
40 years
40 years
40 years
0
50
446
13
50
459
509
(143 )
2003
40 years
0
2,446
5,304
1,747
2,480
7,017
9,497
(1,830 )
2003
40 years
1,304
184
2,360
2
184
2,362
2,546
(1,211 )
1994
40 years
0
681
4,808
231
722
4,998
5,720
(1,924 )
2000
40 years
1,717
566
5,551
2,975
1,114
7,978
9,092
(1,996 )
2003
40 years
327
297
1,023
1,312
333
2,299
2,632
(965 )
2003
40 years
0
0
758
0
0
0
0
0
46
100
50
992
65
600
83
154
1,142
3,216
453
2,194
770
3,099
357
2,646
955
5,553
155
94
176
80
2,049
8,693
578
2,143
8,869
658
(726 )
(2,058 )
(339 )
2003
1973
1993
40 years
40 years
40 years
0
992
2,194
3,186
(24 )
2014
40 years
37
0
12
97
600
83
775
872
(247 )
2003
40 years
3,099
369
3,699
452
(1,511 )
(118 )
1995
2003
40 years
40 years
1,334
385
3,749
4,134
(1,104 )
2003
40 years
6,325
0
3,275
885
26,687 $ 17,147 $
8,610
5,535
73,933 $
3,652
2,155
1,002
1,396
20,849 $ 19,443 $
14,040
10,388
7,816
6,814
92,486 $ 111,929 $
(3,936 )
(1,827 )
(28,545 )
1999
2004
40 years
40 years
Subtotal
$
963,222 $ 187,840 $
1,628,789 $
281,408 $ 209,937 $
1,888,100 $ 2,098,037 $
(448,987 )
2015 Annual Report F-49
Index
Schedule III - REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2015
Description
Unimproved Land
Badger Hills - Rochester, MN
Bismarck 4916 - Bismarck, ND
Bismarck 700 E Main - Bismarck, ND
Creekside Crossing - Bismarck, ND
Georgetown Square - Grand Chute, WI
Grand Forks - Grand Forks, ND
Isanti Unimproved - Isanti, MN
Legends at Heritage Place - Sartell, MN
Minot 1525 24th Ave SW - Minot, ND
Monticello - Monticello, MN
Monticello 7th Addition - Monticello, MN
Rapid City Unimproved- Rapid City, SD
Renaissance Heights - Williston, ND
River Falls - River Falls, WI
Spring Creek Fruitland - Fruitland, IA
TCA - Eagan, MN
Urbandale - Urbandale, IA
Weston - Weston, WI
Total Unimproved Land
Initial Cost to Company
Gross amount at which carried at
close of period
Encumbrances(1)
Land
Buildings &
Improvements
Costs capitalized
subsequent to
acquisition
Buildings &
Improvements
Land
Accumulated
Depreciation
Total
Date of
Construction
or Acquisition
$
$
0 $ 1,050 $
3,250
0
314
0
4,286
0
1,860
0
4,278
0
58
0
537
0
1,262
0
115
0
1,734
0
1,376
0
2,229
0
176
0
339
0
325
0
5
0
370
0
0 $ 23,564 $
0 $
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0 $
0 $ 1,050 $
3,250
0
879
565
4,286
0
1,860
0
4,278
0
58
0
537
0
1,262
0
118
3
1,734
0
1,376
0
3,810
1,581
181
5
339
0
325
0
114
109
370
0
2,263 $ 25,827
0 $ 1,050 $
3,250
0
879
0
4,286
0
1,860
0
4,278
0
58
0
537
0
1,262
0
118
0
1,734
0
1,376
0
3,810
0
181
0
339
0
325
0
114
0
370
0
0 $ 25,827 $
2012
2013
2008
2014
2006
2012
2014
2013
2014
2006
2014
2014
2012
2003
2014
2006
2009
2006
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2015 Annual Report F-50
Index
Schedule III - REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2015
Initial Cost to Company
Gross amount at which carried at
close of period
Description
Development in Progress
71 France - Edina, MN
Cardinal Point - Grand Forks, ND
Chateau II - Minot, ND
Deer Ridge - Jamestown, ND
Edina 6565 France SMC III - Edina, MN
Minot Southgate Retail - Minot, ND
PrairieCare Medical - Brooklyn Park, MN
Renaissance Heights - Williston, ND
Other
Total Development in Progress
Total
Encumbrances(1)
Land
Buildings &
Improvements
Costs capitalized
subsequent to
acquisition
Buildings &
Improvements
Land
Accumulated
Depreciation
Total
Date of
Construction
or Acquisition
$
$
$
0 $ 4,721 $
1,600
0
240
0
711
0
0
0
889
0
2,610
0
616
0
0
402
0 $ 11,789 $
27,655 $
21,455
12,080
13,580
20,799
1,199
14,715
11,156
3,233
125,872 $
2,761 $ 4,721 $
1,600
3,395
240
809
711
1,064
0
1,750
889
76
2,610
2,132
616
1,363
2,983
402
16,333 $ 11,789 $
30,416 $ 35,137 $
26,450
24,850
13,129
12,889
15,355
14,644
22,549
22,549
2,164
1,275
19,457
16,847
13,135
12,519
6,618
6,216
142,205 $ 153,994 $
2014
2013
2013
2013
2014
2014
2014
2013
n/a
0
0
0
0
0
0
0
0
0
0
963,222 $ 223,193 $
1,754,661 $
300,004 $ 247,553 $
2,030,305 $ 2,277,858 $
(448,987 )
(1) Amounts in this column are the mortgages payable balances as of April 30, 2015. These amounts do not include amounts owing under the Company’s multi-bank line of credit
or under the Company’s construction loans.
(2) As of April 30, 2015, this property was included in the collateral pool securing the Company’s $90.0 million multi-bank line of credit. The Company may add and remove
eligible properties from the collateral pool if certain minimum collateral requirements are satisfied. Advances under the facility may not exceed 60% of the value of properties
provided as security.
2015 Annual Report F-51
Index
Schedule III
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2015
REAL ESTATE AND ACCUMULATED DEPRECIATION
Reconciliations of the carrying value of total property owned for the three years ended April 30, 2015, 2014, and 2013 are as follows:
Balance at beginning of year
Additions during year
Multi-Family Residential
Office
Healthcare
Industrial
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(1)
Balance at close of year
(in thousands)
2015
2014
2013
$
1,996,031
$
2,032,970
$
1,892,009
183,114
0
0
9,037
3,186
31,706
2,223,074
(15,719 )
(3,008 )
(2,055 )
(97,824 )
(6,431 )
84,117
0
18,005
0
0
34,637
2,169,729
(85,030 )
(43,189 )
(31,688 )
(10,307 )
(3,484 )
$
2,098,037
$
1,996,031
$
113,859
0
11,122
5,900
1,240
36,375
2,060,505
(21,953 )
(305 )
0
(1,893 )
(3,384 )
2,032,970
Reconciliations of accumulated depreciation/amortization for the three years ended April 30, 2015, 2014, and 2013, are as follows:
Balance at beginning of year
Additions during year
Provisions for depreciation
Deductions during year
Accumulated depreciation on real estate sold or classified as held for sale
Write down of asset and accumulated depreciation on impaired assets
Other(1)
Balance at close of year
(in thousands)
2015
2014
2013
$
424,288
$
420,421
$
373,490
60,658
(29,463 )
(2,055 )
(4,441 )
57,575
(19,413 )
(31,688 )
(2,607 )
$
448,987
$
424,288
$
56,611
(6,444 )
0
(3,236 )
420,421
2015 Annual Report F-52
Index
Schedule III
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2015
REAL ESTATE AND ACCUMULATED DEPRECIATION - continued
Reconciliations of development in progress for the three years ended April 30, 2015, 2014, and 2013, 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(2)
Other(3)
Balance at close of year
Reconciliations of unimproved land for the three years ended April 30, 2015, 2014, and 2013, are as follows:
Balance at beginning of year
Additions during year
Unimproved land acquisitions
Improvements and other
Deductions during year
Cost of real estate sold
Impairment charge
Properties classified as held for sale during the year
Unimproved land moved to development in progress
Balance at close of year
Total real estate investments(4)
(in thousands)
2015
2014
$
104,609
$
46,782
$
12,647
7,015
189,306
0
(159,578 )
(5 )
2,079
2,870
123,240
(7,052 )
(63,210 )
(100 )
$
153,994
$
104,609
$
(in thousands)
2015
2014
$
22,864
$
21,503
$
10,487
1,533
(670 )
(1,293 )
(79 )
(7,015 )
25,827
$
3,022
1,209
0
0
0
(2,870 )
22,864
$
2013
27,599
9,177
0
52,970
0
(42,964 )
0
46,782
2013
10,990
13,329
854
0
0
0
(3,670 )
21,503
$
$
1,828,871 $
1,699,216 $
1,680,834
(1) Consists of miscellaneous disposed assets.
(2) Includes development projects that are placed in service in phases.
(3) Consists of miscellaneous re-classed assets.
(4) The net basis of the Company’s real estate investments for Federal Income Tax purposes was $1.7 billion, $1.5 billion and $1.5 billion at April 30, 2015, 2014 and 2013,
respectively.
2015 Annual Report F-54
CALCULATION OF RATIOS 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 and Series B preferred shares.
Earnings
Income (loss) from continuing operations
Add:
(in thousands, except ratios)
Fiscal Year Ended April 30,
2015
2014
2013
2012
$
28,684
$
(23,390 ) $
20,677
$
8,644
$
Combined fixed charges and preferred distributions (see below)
Amortization of capitalized interest
75,437
74
73,933
0
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
$
$
$
$
(3,071 )
(4,903 )
(11,514 )
84,707
$
(910 )
(2,856 )
(11,514 )
35,263
$
59,020
4,903
$
63,923
11,514
75,437
$
59,563
2,856
$
62,419
11,514
73,933
$
73,657
0
(809 )
(742 )
(9,229 )
68,172
0
(135 )
(571 )
(2,372 )
83,554
$
73,738
$
63,686
65,229
742
$
64,428
9,229
73,657
$
571
$
65,800
2,372
68,172
$
Ratio of earnings to fixed charges
Ratio of earnings to combined fixed charges and preferred distributions
1.33x
1.12x
(1 )
(1 )
1.30x
1.13x
1.12x
1.08x
2011
4,679
64,954
0
180
(57 )
(2,372 )
67,384
62,525
57
62,582
2,372
64,954
1.08x
1.04x
(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.
SUBSIDIARIES OF INVESTORS REAL ESTATE TRUST
Name of Subsidiary
DRF Omaha/NOH, LLC
EVI Billings, LLC
EVI Grand Cities, LLC
EVI Sioux Falls, LLC
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 - Canyon Lake, LLC
IRET - Cardinal Point, 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 - 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 - 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 - 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
IRET - Villa West Apartments, LLC
IRET - Westwood Park, LLC
IRET - Whispering Ridge Apartments, LLC
IRET-Williston Garden Apartments, LLC
Exhibit 21.1
State of
Incorporation or
Organization
Minnesota
North Dakota
North Dakota
North Dakota
Delaware
Minnesota
Delaware
North Dakota
North Dakota
Delaware
Minnesota
North Dakota
North Dakota
North Dakota
North Dakota
North Dakota
Delaware
North Dakota
North Dakota
North Dakota
North Dakota
Delaware
Delaware
Delaware
Delaware
Delaware
North Dakota
North Dakota
North Dakota
Delaware
North Dakota
North Dakota
North Dakota
North Dakota
Delaware
Delaware
North 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
North Dakota
North Dakota
Delaware
North Dakota
continued
Name of Subsidiary
IRET - WRH1, LLC
LSREF Golden Property 14 (WY), LLC
Mendota Office Holdings LLC
Mendota Office Three & Four LLC
Mendota Properties LLC
Minnesota Medical Investors LLC
SMB Operating Company LLC
WRH Holding, LLC
State of
Incorporation or
Organization
North Dakota
Delaware
Minnesota
Minnesota
Minnesota
Delaware
Delaware
North Dakota
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.1
We have issued our reports dated June 29, 2015, with respect to the consolidated financial statements, schedule, 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, 2015. 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 Forms S-3 (File Nos. 333-189637, 333-189554, 333-187620,
333-182451, 333-182165, 333-177143, 333-173568, 333-169710, 333-169205, 333-166162, 333-165977, 333-163267, 333-162349, 333-160948, 333-158001, 333-153715, 333-153714, 333-149081,
333-148529, 333-148131, 333-145714, 333-141341, 333-137699, 333-131894, 333-128745, 333-122289, 333-119547, 333-117121, 333-115082, 333-114162, 333-112465, 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 29, 2015
Certification
I, Timothy P. Mihalick, certify that:
Exhibit 31.1
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 in the case of an annual report) 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 29, 2015
By:
/s/ Timothy P. Mihalick
Timothy P. Mihalick, President & CEO
Certification
I, Ted E. Holmes, 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 in the case of an annual report) 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 29, 2015
By:
/s/ Ted E. Holmes
Ted E. Holmes, Executive Vice President & CFO
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, 2015, as filed with the Securities and Exchange
Commission on June 29, 2015, (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.
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.
/s/ Timothy P. Mihalick
Timothy P. Mihalick
President and Chief Executive Officer
June 29, 2015
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 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Investors Real Estate Trust (the “Company”) on Form 10-K for the year ended April 30, 2015, as filed with the Securities and Exchange
Commission on June 29, 2015, (the “Report”), I, Ted E. Holmes, 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.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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.
/s/ Ted E. Holmes
Ted E. Holmes
Executive Vice President and CFO
June 29, 2015
Executive Leadership
IRET has tremendous pride and confidence in the leadership
team we’ve assembled to drive these exciting new initiatives.
Please take a moment to examine these impressive credentials.
Timothy Mihalick | President and CEO
2009 | Named President and CEO
2002–2009 | Served as Senior Vice President and COO
1997–2009 | Served as COO
1999 | Joined IRET Board of Trustees
Graduate of Minot State University
Diane K. Bryantt | Executive Vice President and COO
2015 | Promoted to Executive Vice President and COO
2012–2015 | Promoted to Executive Vice President and CFO
2002–2012 | Served as Senior Vice President and CFO
1996–2002 | Served as Controller and Corporate Secretary
Graduate of Minot State University
Ted E. Holmes | Executive Vice President and CFO
2015 | Promoted to Executive Vice President and CFO
2010–2015 | Served as Senior Vice President of Finance
2009–2010 | Served as Vice President of Finance
2003–2009 | Director with Wells Fargo, NA
1994–2002 | Analyst and Assistant Vice President with Towle Financial
Graduate of St. Cloud State University
Michael A. Bosh | Executive Vice President & General Counsel
2012 | Promoted to Executive Vice President and General Counsel
2003–2012 | Served as Senior Vice President, General Counsel, and Assistant Secretary
2002–2003 | Served as Assistant General Counsel and Secretary
Graduate of Jamestown College and Washington and Lee University Law School
Mark W. Reiling | Executive Vice President and Chief Investment Officer
2015 | Promoted to Executive Vice President and Chief Investment Officer
2012 | Named Executive Vice President of Asset Management
Prior | Associated with Towle Real Estate Company and its successors for 29 years, 18 as President
Holds CRE and SIOR designations
Graduate of the University of Notre Dame
Charles A. Greenberg | Senior VP, Commercial Asset Management
2008 | Named Senior Vice President of Commercial Asset Management
2005–2008 | Served as Director of Commercial Asset Management
Prior | General Manager at Northco Corporation for 26 years
Graduate of the University of Wisconsin – Madison
Andrew Martin | Senior VP, Residential Property Management
2011 | Named Senior Vice President of Residential Property Management
2009–2011 | Served as Vice President of Residential Property Management
Prior | Partner with INH Companies and Regional Property Manager for United Properties
Holds CPM Designation
Graduate of St. Cloud State University
Trustees / Board Members
Jeffrey L. Miller | Chairman
Managing Partner of Miller Properties, LLP and K&J Miller Holdings, LLP
Former President of M&S Concessions, Inc.
Former President of Coca-Cola Bottling Franchise in Minot, ND
IRET Board of Trustees Member since 1985
John D. Stewart | Vice Chairman
President of Glacial Holdings, Inc., Glacial Holdings, LLC., and Glacial Holdings Property Mangement, Inc.
Chairman of the Bank of North Dakota Advisory Board
Former Certified Public Accountant and Partner at Brady, Martz, and Associates, P.C.
IRET Board of Trustees Member since 2004
Stephen L. Stenehjem
CEO of Watford City, BancShares, Inc.
President and Chairman of First International Bank & Trust
IRET Board of Trustees Member since 1999
Linda J. Hall
Entreprenuer-in-Residence at the University of Minnesota Carlson School
Served as CEO of MinuteClinic from 2002–2005
Served Various Leadership Roles at Honeywell
Former President of Ceridian Performance Partners
Former Executive at UnitedHealth Group
IRET Board of Trustees Member since 2011
Jeffrey K. Woodbury
Vice President of Acquisitions and Development for the Woodbury Corporation
Member of the Utah State Bar
IRET Board of Trustees Member since 2011
Timothy P. Mihalick
President and CEO of Investors Real Estate Trust
Former Trinity Board of Directors Member
IRET Board of Trustees Member since 1999
Terrance P. Maxwell
CFO at Robert W. Baird & Co.
Member of Executive Committee of Robert W. Baird & Co.
IRET Board of Trustees Member since 2013
Pamela J. Moret
Former President and CEO at brightpeak financial
Former Senior Vice President, Strategic Development at Thrivent Financial
Former Executive at Ameriprise Financial
IRET Board of Trustees Member since 2015
Jeff Caira
Served as a Director – Co-Portfolio Manager at AEW Capital Management for ten years
Served as a Vice President- Portfolio Manager and Senior Analyst for Pioneer Investment Management, Inc.
IRET Board of Trustees Member since 2015
Stock Exchange Listing
Our common shares of beneficial interest trade on the New York Stock Exchange
(NYSE) under the symbol IRET, while the Company’s Series A Cumulative Redeemable
Preferred Shares trade under the symbol IRET PR and the Series B Cumulative
Redeemable Preferred Shares trade under the symbol IRET PRB.
Independent Accountants
Grant Thornton LLP
Minneapolis, Minnesota
Legal Counsel
Stinson Leonard Street LLP
Hunton & Williams, LLP
Pringle & Herigstad, PC
Transfer Agent
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
www.amstock.com
(800) 937-5449
(718) 921-8124
Annual Meeting
The Annual Meeting of Shareholders for the Company will be held at 9:00 a.m. CT
on Tuesday, September 15, 2015 at the Grand Hotel, 1505 North Broadway, Minot,
North Dakota.
Financial Information
The Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2015
forms part of the Annual Report. Additional copies of the Form 10-K are available free of
charge upon written request to the Company at 1400 31st Avenue SW, Suite 60, PO Box
1988, Minot, North Dakota 58702.
The Form 10-K is also posted on the Company’s website at IRET.com or may be obtained
from the SEC’s website at www.sec.gov.
Investor Relations Contact
Cindy Bradehoft
Director of Investor Relations
Telephone Number: 701-837-4738
info@iret.com
INVESTORS REAL ESTATE TRUST
Investors Real Estate Trust
1400 31st Ave SW Ste 60
PO Box 1988
Minot, ND 58702-1988
Tel: (701) 837-4738
Web: www.iret.com
Email: info@iret.com