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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:2)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2016
(cid:2)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
or
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)
1400 31st Avenue SW, Suite 60
Post Office Box 1988
Minot, ND 58702-1988
(Address of principal executive offices) (Zip code)
45-0311232
(IRS Employer Identification No.)
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
8.25% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest (no par value) -
New York Stock Exchange
7.95% 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.
(cid:2) Yes (cid:2) No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
(cid:2) Yes (cid:2) No
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
(cid:2) Yes (cid:2) 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).
(cid:2) Yes (cid:2) 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.
(cid:2) Large accelerated filer
(cid:2) Non-accelerated filer
(cid:2) Accelerated filer
(cid:2) Smaller reporting Company
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
(cid:2) Yes (cid:2) 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, 2015 was
$985,547,135 based on the last reported sale price on the New York Stock Exchange on October 31, 2015. 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 22, 2016, was 121,091,249.
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 2016 Annual Meeting of Shareholders to be held on September 20, 2016 are
incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) hereof.
2016 Annual Report
INVESTORS REAL ESTATE TRUST
INDEX
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Trustees, 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 Trustee Independence . . . . . . . . . . . . . . . . . . . . .
Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
PAGE
4
9
21
21
32
32
33
36
37
69
71
71
71
73
73
73
73
73
73
Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reports of Independent Registered Public Accounting Firm and Financial Statements . . . . . . . . . . . . . . . . . . . .
73
74
76
F-2
2016 Annual Report 2
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 multifamily 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 multifamily and commercial tenants;
• market rental conditions, including occupancy levels and rental rates, for multifamily and commercial properties;
• our ability to identify and secure additional properties that meet our criteria for investment;
• our ability to complete construction and lease-up of our development projects on schedule and on budget;
• our ability to sell our non-core properties on terms and pricing that are acceptable;
•
the level and volatility of prevailing market interest rates and the pricing of our common shares of beneficial
interest;
• changes in our operating expenses;
•
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.
2016 Annual Report 3
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 mainly consist of multifamily and healthcare properties located primarily in the upper Midwest states of
Minnesota and North Dakota. For the fiscal year ended April 30, 2016, our real estate investments in these two states
accounted for 73.2% 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.
In January 2015, we announced our intention to sell substantially all of our office and retail properties. During the first
quarter of fiscal year 2016, we classified as held for sale and discontinued operations 48 office properties, 17 retail
properties and 1 healthcare property and reduced our number of reportable segments from five to three when our office
and retail segments fell below the quantitative thresholds for reporting as reportable segments due to dispositions. During
the last quarter of fiscal year 2016, we further reduced our number of reportable segments from three to two due to our
industrial segment not meeting the quantitative thresholds.
As of April 30, 2016, we held for investment 99 multifamily properties containing 12,950 apartment units and having a
total real estate investment amount net of accumulated depreciation of $1.0 billion, and 47 commercial properties,
consisting of healthcare, industrial, office and retail, containing approximately 2.9 million square feet of leasable space
and having a total real estate investment amount net of accumulated depreciation of $333.8 million. As of April 30,
2016, we held for sale 1 multifamily property, 36 commercial properties and 3 parcels of land. On June 6, 2016, we
announced our plan to move towards becoming a pure play multifamily REIT and our intention to sell our remaining
commercial properties.
Our multifamily 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, 2016, no individual tenant accounted for more than 10% of our total real
estate rentals, although affiliated entities of Edgewood Vista together accounted for approximately 28.4% of our total
commercial minimum rents for properties held for investment and for sale.
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 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, 2016, IRET, Inc. owned an
88.1% interest in IRET Properties. The remaining ownership of IRET Properties is held by individual limited partners.
Investment Strategy and Policies
Our business objective is to increase shareholder value by employing a disciplined investment strategy. This strategy is
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.
2016 Annual Report 4
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 multifamily 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 primarily of healthcare. Since January 2015, we have concentrated on multifamily and healthcare
property acquisitions, and are now exploring the potential sale of our remaining commercial properties to eventually
become a pure play multifamily REIT. We operate mainly within the states of North Dakota and Minnesota, although we
also have real estate in Idaho, Iowa, Kansas, 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 multifamily properties and/or
commercial properties in ten 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 Iowa, Kansas, Minnesota, Montana, Nebraska, North Dakota and South
Dakota. Similarly, we may invest in any type of real estate or interest in real estate, although we plan to focus
new investments in multifamily properties.
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, 2016
and 2015, we had no junior mortgages outstanding. We had no investments in real estate mortgages at April 30,
2016 and 2015.
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.
2016 Annual Report 5
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 2016 and 2015 totaled approximately 68.4% and 81.3%, 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 has generally been our
policy to borrow up to 65.0% to 75.0% of the appraised value of all new real estate acquired or developed. In the future,
we expect this policy will reflect a more conservative approach of up to 50.0% to 65% 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 Fourth Restated Trustees’ Regulations (Bylaws)
(“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, 2016, our ratio of total indebtedness to total real
estate investments was 63.6% while our ratio of total indebtedness as compared to our Net Assets (computed in
accordance with our Bylaws) was 88.2%.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,226 $
2,559
2016
2014
2015
89
361
800 $ 3,480
(in thousands)
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
2016 Annual Report 6
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 2016, our Board of Trustees authorized a share repurchase program of up to $50.0 million worth of
our common shares, under which we repurchased 4.6 million of our outstanding common shares on the open market. We
did not repurchase any of our preferred shares.
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, 2016 and 2015.
Investing in the securities of other issuers for the purpose of exercising control. We have not 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 two reportable real estate segments: multifamily and healthcare. 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, 2016, we had 483 employees, of whom 432 were full-time and 54 were part-time. 58 of these employees
were corporate staff located in our Minot, North Dakota and Minneapolis, Minnesota offices, and 428 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.
2016 Annual Report 7
Competition
Investing in and operating real estate is a very competitive business. We compete with other owners and developers of
multifamily 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 multifamily 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
Investor Relations/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 “Corporate Governance” tab under the Investor Relations/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.
2016 Annual Report 8
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 multifamily and commercial properties;
•
local real estate market conditions, such as oversupply or reduction in demand for multifamily and commercial
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 multifamily 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 multifamily 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 multifamily 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
multifamily 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.
2016 Annual Report 9
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 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, 2016, we
received approximately 73.2% 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, 2016, approximately 1,189 of our 12,974 apartment units, or 9.2%, were vacant. Approximately
159,000 square feet, or 10.6% of our healthcare property square footage, was vacant. As of April 30, 2016, leases
covering approximately 8.4% of our healthcare properties net rentable square footage will expire in fiscal year 2017,
15.0% in fiscal year 2018, 14.2% in fiscal year 2019, 4.9% in fiscal year 2020 and 7.9% in fiscal year 2021, assuming
that none of the tenants exercise future renewal options and excluding the effect of early renewals completed on existing
leases.
2016 Annual Report 10
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 change our portfolio of properties quickly in response to our strategic plan and 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. Under certain circumstances, the Internal Revenue Code
imposes certain penalties on a REIT that sells property held for less than two years and limits the number of properties it
can sell in a given year. 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 2016 and 2015, distributions to our
common shareholders and unitholders of IRET Properties in cash and common shares pursuant to our Distribution
Reinvestment and Share Purchase Plan (DRIP) totaled approximately 107.2% and 61.9%, respectively, of our net cash
provided by operating activities.
2016 Annual Report 11
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 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.
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, 2016, our ratio of total indebtedness to total
Net Assets (as defined in our Bylaws, which usage is not in accordance with GAAP) was approximately 88.2%. “Net
Assets” under our Bylaws mean our total assets at cost before deducting depreciation or other non-cash reserves, less
total liabilities. As of April 30, 2015 and 2014, our percentage of total indebtedness to total Net Assets was
approximately 97.8% and 93.3%, respectively. Under our Bylaws, we may increase our total indebtedness up to 300.0%
of our Net Assets, or by an additional approximately $3.1 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 or
decrease distributions to 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 risks 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.
2016 Annual Report 12
These risks increase when credit markets are tight. In general, when the credit markets are constrained, we may
encounter resistance from lenders when we seek financing or refinancing for properties or proposed acquisitions, and the
terms of such financing or refinancing are likely to be less favorable to us than the terms of our current indebtedness.
We anticipate that only a small portion of the principal of our debt will be repaid prior to maturity, 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.
As of April 30, 2016, approximately 17.0% of our mortgage debt, including mortgage debt on properties held for sale, is
due for repayment in fiscal year 2017. As of April 30, 2016, we had approximately $150.7 million of principal payments
and approximately $38.8 million of interest payments due in fiscal year 2017 on fixed and v1ariable-rate mortgages
secured by our real estate. Additionally, as of April 30, 2016, we had $17.5 million outstanding under our $100.0 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, 2016, $196.8 million, or approximately 22.2%, of the principal amount of our total mortgage indebtedness was
subject to variable interest rates agreements, and approximately 91.2% of the principal amount of our total construction
loan indebtedness was subject to variable interest rates. Additionally, our $100.0 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.
2016 Annual Report 13
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). As of April 30, 2016, our real estate portfolio held for investment
included 31 healthcare properties, with a total real estate investment amount, net of accumulated depreciation, of $254.4
million, or approximately 18.6% of the total real estate investment amount, net of accumulated depreciation, of our entire
real estate portfolio held for investment. Additionally, as of April 30, 2016, we held for sale 34 senior housing
properties. 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 multifamily
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
2016 Annual Report 14
of complying with these laws and regulations may be substantial, and limits or restrictions on construction, or the
completion of required renovations, may limit the implementation of our investment strategy or reduce overall returns on
our investments. This could have an adverse effect on us, our ability to make distributions to the holders of our shares of
beneficial interest and our ability to pay amounts due on our debt. Our properties are also subject to various other federal,
state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with
these requirements, we could incur fines or private damage awards. Additionally, in the event that existing requirements
change, compliance with future requirements may require significant unanticipated expenditures that may adversely
affect our cash flow and results of operations.
We may be responsible for potential liabilities under environmental laws. Under various federal, state and local laws,
ordinances and regulations, we, as a current or previous owner or operator of real estate may be liable for the costs of
removal of, or remediation of, hazardous or toxic substances in, on, around or under that property. These laws may
impose liability without regard to whether we knew of, or were responsible for, the presence of the hazardous or toxic
substances. The presence of these substances, or the failure to properly remediate any property containing these
substances, may adversely affect our ability to sell or rent the affected property or to borrow funds using the property as
collateral. In arranging for the disposal or treatment of hazardous or toxic substances, we may also be liable for the costs
of removal of, or remediation of, these substances at that disposal or treatment facility, whether or not we own or operate
the facility. In connection with our current or former ownership (direct or indirect), operation, management, development
and/or control of real properties, we may be potentially liable for removal or remediation costs with respect to hazardous
or toxic substances at those properties, as well as certain other costs, including governmental fines and claims for injuries
to persons and property. A finding of liability for an environmental condition as to any one or more properties could
have a material adverse effect on us, our ability to make distributions to the holders of our shares of beneficial interest
and our ability to pay amounts due on our debt.
Environmental laws also govern the presence, maintenance and removal of asbestos, and require that owners or operators
of buildings containing asbestos properly manage and maintain the asbestos; notify and train those who may come into
contact with asbestos; and undertake special precautions if asbestos would be disturbed during renovation or demolition
of a building. Indoor air quality issues may also necessitate special investigation and remediation. These air quality
issues can result from inadequate ventilation, chemical contaminants from indoor or outdoor sources, or biological
contaminants such as molds, pollen, viruses and bacteria. Such asbestos or air quality remediation programs could be
costly, necessitate the temporary relocation of some or all of the property’s tenants or require rehabilitation of an affected
property.
It is generally our policy to obtain a Phase I environmental study on each property that we seek to acquire. A Phase I
environmental study generally includes a visual inspection of the property and the surrounding areas, an examination of
current and historical uses of the property and the surrounding areas and a review of relevant state and federal
documents, but does not involve invasive techniques such as soil and ground water sampling. If the Phase I indicates any
possible environmental problems, our policy is to order a Phase II study, which involves testing the soil and ground
water for actual hazardous substances. However, Phase I and Phase II environmental studies, or any other environmental
studies undertaken with respect to any of our current or future properties, may not reveal the full extent of potential
environmental liabilities. We currently do not carry insurance for environmental liabilities.
We may be unable to retain or attract qualified management. We are dependent upon our senior officers for essentially
all aspects of our business operations. Our senior officers have experience in the specialized business 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.
2016 Annual Report 15
The level of oil and gas drilling in the Bakken Shale Formation has declined substantially and has adversely
impacted our apartments in western North Dakota. This condition could persist for an extended period of time. We
have ownership interests in three apartment projects totaling 477 units in Williston, ND, the heart of the Bakken Shale
Formation. The economy of Williston is significantly dependent on the oil and gas industry. To date we have
experienced significant increased vacancy and a material decrease in our rents. We also have ownership interests in
1,039 units in Minot, ND that to a lesser extent have experienced declines in occupancy and rent rates. 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 western North Dakota properties. In addition, we have
various mortgage loans on assets in western North Dakota with various operating income covenant requirements.
Compliance with such covenants may be at risk if the material reductions in rents and vacancies continue. We do not
believe these mortgage loans to be material to our operations, but if we are unable to comply with such covenants, we
could be required to pay down such loans or seek a remedy with an escrow to relieve debt service payments.
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.
2016 Annual Report 16
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.
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 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, could be subject to increased state and local taxes and,
unless entitled to relief under applicable statutory provisions, we would be disqualified from treatment as a REIT for the
four taxable years following the year during which we lost our qualification, 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. 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
2016 Annual Report 17
be able to deduct, and would not be required to make, distributions to holders of our securities. To the extent that
distributions to the holders of our securities had been made in anticipation of qualifying as a REIT, we might be required
to borrow funds or to liquidate certain investments to pay the applicable tax.
Failure of our operating partnership to qualify as a partnership would have a material adverse effect on us. We
believe that IRET Properties, our operating partnership, qualifies as a partnership for federal income tax purposes. No
assurance can be given, however, that the Internal Revenue Service will not challenge its status as a partnership for
federal income tax purposes or that a court would not sustain such a challenge. If the Internal Revenue Service were to
be successful in treating IRET Properties as an entity that is taxable as a corporation (such as a publicly-traded
partnership taxable as a corporation), we would cease to qualify as a REIT because the value of our ownership interest in
IRET Properties would exceed 5% of our assets and because we would be considered to hold more than 10% of the
voting securities and value of the outstanding securities of another corporation. Also, the imposition of a corporate tax on
IRET Properties would reduce significantly the amount of cash available for distribution by it.
Certain provisions of our Declaration of Trust may limit a change in control and deter a takeover. In order to maintain
our qualification as a REIT, our Declaration of Trust provides that any transaction, other than a transaction entered into
through the NASDAQ National Market or other similar exchange, that would result in our disqualification as a REIT
under Section 856 of the Internal Revenue Code, including any transaction that would result in (i) a person owning in
excess of the ownership limit of 9.8%, in number or value, of our outstanding securities, (ii) less than 100 people owning
our securities, (iii) our being “closely held” within the meaning of Section 856(h) of the Internal Revenue Code, or (iv)
50% or more of the fair market value of our securities being held by persons other than “United States persons,” as
defined in Section 7701(a)(30) of the Internal Revenue Code, will be void ab initio. If the transaction is not void ab
initio, then the securities in excess of the ownership limit, that would cause us to be closely held, that would result in
50% or more of the fair market value of our securities to be held by persons other than United States persons or that
otherwise would result in our disqualification as a REIT, will automatically be exchanged for an equal number of excess
shares, and these excess shares will be transferred to an excess share trustee for the exclusive benefit of the charitable
beneficiaries named by our Board of Trustees. These limitations may have the effect of preventing a change in control or
takeover of us by a third party, even if the change in control or takeover would be in the best interests of the holders of
our securities.
In order to maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions. In
order to maintain our REIT status, we may need to borrow funds on a short-term basis to meet the REIT distribution
requirements even if the then-prevailing market conditions are not favorable for these borrowings. To qualify as a REIT,
we generally must distribute to our shareholders at least 90% of our net taxable income each year, excluding net capital
gains. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which certain
distributions made by us with respect to the calendar year are less than the sum of 85% of our ordinary income, 95% of
our capital gain net income for that year, and any undistributed taxable income from prior periods. 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 nonetheless 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 Internal Revenue Service
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
2016 Annual Report 18
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.
The tax imposed on REITs engaging in prohibited transactions may limit our ability to engage in transactions that
would be treated as sales for federal income tax purposes. The federal income tax provisions applicable to REITs
provide that any gain realized by a REIT on the sale of property held as inventory or other property held primarily for
sale to customers in the ordinary course of business is treated as income from a “prohibited transaction” that is subject to
a 100% penalty tax. Under current law, unless a sale of real property qualifies for a safe harbor, the question of whether
the sale of a property constitutes the sale of property held primarily for sale to customers is generally a question of the
facts and circumstances regarding a particular transaction. We may make sales that do not satisfy the requirements of the
safe harbors or the IRS may successfully assert that one or more of our sales are prohibited transactions and, therefore
we may be required to pay a penalty tax. To avert this penalty tax, 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 an assisted living facility at the federal and state level. In addition, a
TRS is subject to detailed tax regulations that affect how it may be capitalized and operated. We currently have one TRS,
to which we lease our Legends at Heritage Place assisted living facility, located in Sartell, Minnesota.
Because of the ownership structure of our Sartell, Minnesota assisted living facility, we face potential adverse effects
from changes to the applicable tax laws. Under the Internal Revenue Code, REITs are not allowed to operate assisted
living facilities directly or indirectly. Accordingly, we lease our Sartell, Minnesota assisted living facility to our TRS.
While the TRS structure allows the economic benefits of ownership to flow to us, the TRS is subject to tax on its income
from the operations of the assisted living facilities at the federal and state level. In addition, the TRS is subject to detailed
tax regulations that affect how it may be capitalized and operated. If the tax laws applicable to a TRS are modified, we
may be forced to modify the structure for owning these assisted living facilities, and such changes may adversely affect
the cash flows from the facilities. In addition, the Internal Revenue Service, the United States Treasury Department and
Congress frequently review federal income tax legislation, and we cannot predict whether, when or to what extent new
federal tax laws, regulations, interpretations or rulings will be adopted. Any of such actions may prospectively or
retroactively modify the tax treatment of the TRS and, therefore, may adversely affect our after-tax returns from our
Sartell, Minnesota assisted living facility.
The lease of qualified health care properties to a taxable REIT subsidiary is subject to special requirements. We
currently lease our Sartell, Minnesota assisted living facility to a TRS, and we may in the 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.
Recent tax legislation impacts certain federal income tax rules applicable to REITs and could adversely affect our
current tax positions. The recently enacted Protecting Americans from Tax Hikes Act of 2015 (the “PATH Act”)
contains changes to certain aspects of the federal income tax rules applicable to us. The PATH Act is a recent example of
changes to the REIT rules, and additional legislative changes may occur that could adversely affect our current tax
positions. The PATH Act modifies various rules that apply to our ownership of, and business relationship with, our TRS
and reduces the maximum allowable value of our assets attributable to TRSs from 25% to 20% which could impact our
ability to enter into future investments. It expands prohibited transaction safe harbors and qualifying hedges and repeals
the preferential dividend rule for public REITs. The PATH Act also adjusts the way we may calculate certain earnings
and profit calculations to avoid double taxation at the shareholder level, and expands the types of qualifying assets and
income for purposes of the REIT requirements. The provisions enacted by the PATH Act could result in changes in our
tax positions or investments, and future legislative changes related to those rules described above could have a materially
2016 Annual Report 19
adverse impact on our results of operations and financial condition.
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 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, including the issuance of common shares in connection with redemption requests for limited partnership units,
will dilute the interests of the current holders of our common shares. Additionally, sales of substantial amounts of our
common or preferred shares in the public market, or substantial issuances of our common shares in connection with
redemption requests for limited partnership units, or the perception that such sales or issuances might occur, could
adversely affect the market price of our common shares.
We may issue additional classes or series of our shares of beneficial interest with rights and preferences that are
superior to the rights and preferences of our common shares. Without the approval of the holders of our common
shares, our Board of Trustees may establish additional classes or series of our shares of beneficial interest, and such
classes or series may have dividend rights, conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences or other rights and preferences that are superior to the rights of the holders of our common shares.
Payment of distributions on our shares of beneficial interest is not guaranteed. Our Board of Trustees must approve
our payment of distributions and may elect at any time, or from time to time, and for an indefinite duration, to reduce the
distributions payable on our shares of beneficial interest or to not pay distributions on our shares of beneficial interest.
Our Board of Trustees may reduce distributions for a variety of reasons, including, but not limited to, the following:
•
•
•
operating and financial results below expectations that cannot support the current distribution payment;
unanticipated costs or cash requirements; or
a conclusion that the payment of distributions would cause us to breach the terms of certain agreements or
contracts, such as financial ratio covenants in our debt financing documents.
2016 Annual Report 20
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,
2015 through April 30, 2016 was 558,328 shares and the average monthly trading volume for the period of May 1, 2015
through April 30, 2016 was 11,724,894 shares. As a result of this trading volume, an owner of our common shares may
encounter difficulty in selling our shares in a timely manner and may incur a substantial loss.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
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.
2016 Annual Report 21
Total Real Estate Rental Revenue
As of April 30, 2016, our real estate portfolio held for investment consisted of 99 multifamily, 31 healthcare and 16 other
properties, comprising 74.0%, 20.1% and 5.9%, respectively, of our total real estate portfolio, based on the dollar amount
of our original investment plus capital improvements, net of accumulated depreciation, through April 30, 2016. Gross
annual rental revenue and percentages of total annual real estate rental revenue by property type for each of the three
most recent fiscal years ended April 30, are as follows:
Gross Revenue
(in thousands)
Fiscal Year
Ended April 30,
Multifamily % Healthcare % All Other %
Total
6.1 % $ 188,320
2016 . . . . . . . . . . . . . $ 131,149 69.7 % $ 45,621 24.2 % $ 11,550
2015 . . . . . . . . . . . . . $ 118,526 66.1 % $ 44,153 24.6 % $ 16,642
9.3 % $ 179,321
2014 . . . . . . . . . . . . . $ 102,059 62.0 % $ 44,098 26.8 % $ 18,433 11.2 % $ 164,590
Average Effective Annual Rent
The table below sets out the average effective annual rent per unit or square foot at same-store properties for each of the
last five fiscal years in each of our two 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 multifamily properties and 85% for healthcare properties.
As of April 30,
Multifamily(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 844
Healthcare(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20
Average Effective Annual Rent per unit or square foot(1)
2012
2014
2015
2013
2016
$ 829
$ 16
$ 783 $ 744
16
17 $
$
$ 719
$ 16
(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 multifamily properties,
lease arrangements with individual tenants vary from month-to-month to one-year leases. Leases on healthcare properties
generally vary from month-to-month to 20 years.
Occupancy Levels on a Same-Store Property and All Property Basis:
Segments
All Properties
Fiscal Year Ended April 30,
2014
2016
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94.8 % 95.1 % 93.4 % 90.8 % 92.0 % 93.0 %
Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95.6 % 95.3 % 92.2 % 89.4 % 91.5 % 92.5 %
Same-Store Properties
Fiscal Year Ended April 30,
2016
2014
2015
2015
Certain Lending Requirements
In certain instances, in connection with the acquisition of investment properties, the lender financing such properties may
require, as a condition of the loan, that the properties be owned by a “single asset entity.” Accordingly, we have
organized a number of wholly-owned subsidiary corporations, and IRET Properties has organized several limited
liability companies, for the purpose of holding title in an entity that complies with such lending conditions. All financial
statements of these subsidiaries are consolidated into our financial statements.
2016 Annual Report 22
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. For example, during the fourth quarter of fiscal year 2015, we had
transferred the property management of the majority of our office and retail properties to a third-party company as part
of our plan to sell those 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 5.0% of gross rent collections and, typically, we may terminate these
contracts in 60 days or less or upon the property manager’s failure to meet certain specified financial performance goals.
With respect to multi-tenant commercial properties, we rely almost exclusively on third-party brokers to locate potential
tenants. As compensation, brokers may receive a commission that is generally calculated as a percentage of the net rent
to be paid over the term of the lease. We believe that the broker commissions paid by us conform to market and industry
standards, and accordingly are commercially reasonable.
Summary of Real Estate Investment Portfolio
As of April 30,
Real estate investments
2016
(in thousands, except percentages)
%
2015
%
2014
%
Property owned . . . . . . . . . . . . . . . . . . . $ 1,681,471
(312,889)
Less accumulated depreciation . . . . . .
$ 1,368,582
51,681
20,939
88.4 %
9.6 %
Development in progress . . . . . . . . . . .
Unimproved land . . . . . . . . . . . . . . . . .
2.0 %
Total real estate investments . . . . . . . . $ 1,441,202 100.0 % $ 1,236,091 100.0 % $ 1,094,733 100.0 %
$ 1,335,687
(279,417)
95.0 % $ 1,056,270
153,994
3.6 %
25,827
1.4 %
$ 1,241,195
(273,935)
85.5 % $ 967,260
104,609
12.4 %
22,864
2.1 %
2016 Annual Report 23
Summary of Individual Properties Owned as of April 30, 2016
The following table presents information regarding our 146 multifamily, healthcare and other properties held for
investment, as well as unimproved land, development properties and properties held for sale as of April 30, 2016. 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
MULTIFAMILY
71 France - Edina, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Avalon Cove - Rochester, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Boulder Court - Eagan, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brookfield Village - Topeka, KS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brooklyn Heights - Minot, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canyon Lake - Rapid City, SD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cardinal Point - Grand Forks, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cascade Shores - Rochester, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Castlerock - Billings, MT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chateau I & II - Minot, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cimarron Hills - Omaha, NE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Colonial Villa - Burnsville, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Colony - Lincoln, NE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Colton Heights - Minot, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commons at Southgate - Minot, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cottage West Twin Homes - Sioux Falls, SD . . . . . . . . . . . . . . . . . . . . . . . . .
Cottonwood - Bismarck, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Country Meadows - Billings, MT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Crestview - Bismarck, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Crown - Rochester, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Crown Colony - Topeka, KS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Crystal Bay - Rochester, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cypress Court - St. Cloud, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
Investment
(initial cost plus
improvements less
Occupancy
as of
impairment) April 30, 2016
Units
181 $
3
4
71
10
192
165
84
187
115
160
72
109
251
90
166
104
234
240
232
18
233
50
268
133
152
48
220
76
196
41,339
84
126
6,081
1,340
9,094
32,759
8,512
35,699
9,573
8,825
2,574
6,011
49,772
18,295
7,881
21,126
14,760
22,107
18,186
1,193
36,623
5,225
22,279
9,953
6,378
3,825
13,206
11,858
20,624
53.0%
66.7%
100.0%
100.0%
100.0%
100.0%
86.7%
92.9%
95.7%
100.0%
99.4%
95.8%
96.3%
44.2%
93.3%
90.4%
84.6%
95.3%
91.7%
98.7%
83.3%
95.3%
100.0%
84.3%
92.5%
98.7%
97.9%
94.5%
94.7%
96.4%
2016 Annual Report 24
Property Name and Location
Dakota Commons - Williston, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deer Ridge - Jamestown, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Evergreen - Isanti, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Evergreen II - Isanti, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fairmont - Minot, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Avenue - Minot, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forest Park - Grand Forks, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
French Creek - Rochester, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gables Townhomes - Sioux Falls, SD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gardens - Grand Forks, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grand Gateway - St. Cloud, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GrandeVille at Cascade Lake - Rochester, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Units
44
163
36
36
12
20
269
40
24
74
116
276
96
182
152
120
108
208
108
90
360
119
54
81
60
16
73
68
79
160
274
140
120
360
16
21
16
71
90
58
48
313
(in thousands)
Investment
(initial cost plus
improvements less
Occupancy
as of
impairment) April 30, 2016
86.4%
50.9%
100.0%
100.0%
100.0%
90.0%
93.7%
100.0%
100.0%
100.0%
95.7%
74.6%
97.9%
98.4%
99.3%
99.2%
88.0%
93.3%
89.8%
97.8%
92.2%
74.8%
98.1%
87.7%
95.0%
100.0%
86.3%
94.1%
98.7%
96.9%
86.5%
94.3%
96.7%
95.0%
93.8%
85.7%
100.0%
98.6%
94.4%
100.0%
91.7%
99.0%
10,517
24,897
3,262
3,567
481
3,067
14,135
4,936
2,463
9,291
9,019
55,586
5,635
10,286
15,076
7,148
4,941
17,672
17,399
2,852
30,594
15,174
6,074
6,629
4,849
860
5,068
8,496
5,981
7,797
14,917
9,458
6,734
17,836
937
1,119
437
16,268
5,452
5,359
2,535
33,968
2016 Annual Report 25
(in thousands)
Investment
(initial cost plus
improvements less
Occupancy
as of
impairment) April 30, 2016
94.6%
96.6%
43.8%
97.7%
96.2%
95.2%
98.0%
100.0%
96.7%
95.5%
98.1%
87.8%
96.9%
87.5%
98.8%
89.5%
91.8%
100.0%
93.8%
97.0%
97.0%
97.7%
100.0%
96.2%
97.0%
96.9%
98.5%
66.2%
95.7%
99.1%
90.8%
28,606
12,660
62,800
6,783
5,525
25,706
7,819
5,935
19,231
2,815
3,572
13,934
10,564
1,089
8,724
3,906
16,076
234
489
14,484
8,098
18,502
3,539
17,542
2,264
4,000
28,588
19,311
8,247
8,786
1,243,909
Property Name and Location
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 MULTIFAMILY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Units
130
145
288
132
78
146
98
72
300
44
52
196
96
24
164
95
146
4
16
264
167
308
36
312
33
65
336
145
115
108
12,950 $
2016 Annual Report 26
Property Name and Location
Approximate
Net Rentable
Square
Footage
(in thousands)
Investment
(initial cost plus
improvements less
Occupancy
as of
impairment) April 30, 2016
HEALTHCARE
2800 Medical Building - Minneapolis, MN. . . . . . . . . . . . . . . . . . . . . . . . .
2828 Chicago Avenue - Minneapolis, MN . . . . . . . . . . . . . . . . . . . . . . . . .
Airport Medical - Bloomington, MN* . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Billings 2300 Grant Road - Billings, MT . . . . . . . . . . . . . . . . . . . . . . . . . .
Burnsville 303 Nicollet Medical (Ridgeview) - Burnsville, MN . . . . . . . .
Burnsville 305 Nicollet Medical (Ridgeview South) - Burnsville, MN . .
Denfeld Clinic - Duluth, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eagan 1440 Duckwood Medical - Eagan, MN . . . . . . . . . . . . . . . . . . . . . .
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* . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edina 6565 France SMC III - 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 . . . . . . . . . . . . . . . . . . . . . .
Lakeside Medical Plaza - Omaha, NE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PrairieCare Medical - Brooklyn Park, MN . . . . . . . . . . . . . . . . . . . . . . . . .
Ritchie Medical Plaza - St Paul, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
St Michael Clinic - St Michael, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trinity at Plaza 16 - Minot, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wells Clinic - Hibbing, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL HEALTHCARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53,603 $
56,239
24,218
14,705
53,896
36,199
20,512
17,640
70,934
55,478
12,140
3,431
67,409
227,626
57,624
9,052
43,404
12,444
114,316
60,558
27,819
28,928
57,212
14,640
9,998
45,081
73,000
70,756
52,116
10,796
24,795
18,810
1,445,379 $
9,886
17,325
4,729
1,865
10,050
6,537
3,099
2,624
15,994
12,458
1,040
505
14,965
48,055
34,233
1,572
8,480
1,776
21,601
14,007
6,113
4,056
9,439
1,971
2,967
10,174
19,325
24,440
13,529
2,851
9,593
2,661
337,920
85.6%
100.0%
100.0%
100.0%
100.0%
92.9%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
95.1%
91.5%
24.5%
100.0%
100.0%
100.0%
100.0%
75.5%
100.0%
100.0%
92.0%
100.0%
100.0%
100.0%
100.0%
100.0%
92.9%
100.0%
100.0%
100.0%
94.9%
2016 Annual Report 27
Property Name and Location
OTHER
1st Avenue Building - Minot, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17 South Main - Minot, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bismarck 715 East Broadway - Bismarck, ND . . . . . . . . . . . . . . . . . . . . . .
Bloomington 2000 W 94th Street - Bloomington, MN . . . . . . . . . . . . . . .
Dakota West Plaza - Minot , ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grand Forks Carmike - Grand Forks, ND . . . . . . . . . . . . . . . . . . . . . . . . . .
Lexington Commerce Center - Eagan, MN . . . . . . . . . . . . . . . . . . . . . . . . .
Minot 1400 31st Ave - Minot, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minot 2505 16th Street SW - Minot, ND . . . . . . . . . . . . . . . . . . . . . . . . . .
Minot Arrowhead - Minot, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minot IPS - Minot, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minot Southgate Wells Fargo Bank - Minot, ND . . . . . . . . . . . . . . . . . . . .
Minot Southgate Retail - Minot, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plaza 16 - Minot, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Roseville 3075 Long Lake Road - Roseville, MN . . . . . . . . . . . . . . . . . . .
Urbandale 3900 106th Street - Urbandale, IA . . . . . . . . . . . . . . . . . . . . . . .
Woodbury 1865 Woodlane - Woodbury, MN . . . . . . . . . . . . . . . . . . . . . . .
TOTAL OTHER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SUBTOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Approximate
Net Rentable
Square
Footage
(in thousands)
Investment
(initial cost plus
improvements less
Occupancy
as of
impairment) April 30, 2016
4,427 $
2,454
22,187
101,567
16,921
28,528
90,260
48,960
15,000
81,594
27,698
4,998
7,963
50,610
220,557
518,161
69,600
367
287
2,798
7,473
615
2,546
6,882
11,573
2,318
8,870
6,368
3,229
2,623
9,693
12,825
15,555
5,620
99,642
1,681,471
100.0%
100.0%
100.0%
100.0%
78.0%
100.0%
100.0%
76.3%
100.0%
96.0%
100.0%
100.0%
- %
100.0%
83.6%
100.0%
100.0%
95.8%
1,311,485 $
2,769,814 $
Property Name and Location
UNIMPROVED LAND
Badger Hills - Rochester, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bismarck 4916 - Bismarck, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bismarck 700 E Main - Bismarck, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Creekside Crossing - Bismarck, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grand Forks - Grand Forks, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Isanti Unimproved - Isanti, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minot 1525 24th Ave SW - Minot, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rapid City Unimproved- Rapid City, SD . . . . . . . . . . . . . . . . . . . . . . . . . .
Renaissance Heights - Williston, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Urbandale - Urbandale, IA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weston - Weston, WI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL UNIMPROVED LAND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DEVELOPMENT IN PROGRESS
71-France - Edina, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Monticello 7th Addition - Monticello, MN . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL DEVELOPMENT IN PROGRESS. . . . . . . . . . . . . . . . . . . . . .
(in thousands)
Investment
(initial cost plus
improvements less
impairment)
$
$
$
1,050
3,267
882
4,352
4,278
58
1,262
1,376
3,930
114
370
20,939
30,415
17,507
3,759
51,681
TOTAL UNITS - MULTIFAMILY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL SQUARE FOOTAGE - COMMERCIAL . . . . . . . . . . . . . . . .
TOTAL REAL ESTATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,950
2,769,814
$
1,754,091
2016 Annual Report 28
Approximate
Net Rentable
Square
Footage or Units
Property Name and Location
HELD FOR SALE
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) . . . . .
Edgewood Vista - Belgrade, MT(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edgewood Vista - Billings, MT(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edgewood Vista - Bismarck, ND(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edgewood Vista - Brainerd, MN(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edgewood Vista - Columbus, NE(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edgewood Vista - East Grand Forks, MN(2) . . . . . . . . . . . . . . . . . . . . . . . .
Edgewood Vista - Fargo, ND(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edgewood Vista - Fremont, NE(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edgewood Vista - Grand Island, NE(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edgewood Vista - Hastings, NE(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edgewood Vista - Hermantown I, MN(2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edgewood Vista - Hermantown II, MN(2) . . . . . . . . . . . . . . . . . . . . . . . . . .
Edgewood Vista - Kalispell, MT(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edgewood Vista - Minot, ND(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edgewood Vista - Missoula, MT(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edgewood Vista - Norfolk, NE(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edgewood Vista - Omaha, NE(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edgewood Vista - Sioux Falls, SD(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edgewood Vista - Spearfish, SD(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edgewood Vista - Virginia, MN(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Georgetown Square - Grand Chute, WI . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Laramie 1072 N 22nd Street (Spring Wind) - Laramie, WY(2) . . . . . . . . .
Legends at Heritage Place - Sartell, MN(2) . . . . . . . . . . . . . . . . . . . . . . . . .
Legends at Heritage Place - Sartell, MN . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pinecone Villas - Sartell, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sartell 2000 23rd Street South - Sartell, MN(2) . . . . . . . . . . . . . . . . . . . . . .
Spring Creek-American Falls - American Falls, ID(2). . . . . . . . . . . . . . . . .
Spring Creek-Boise - Boise, ID(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spring Creek-Eagle - Eagle, ID(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spring Creek-Fruitland - Fruitland, ID(2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spring Creek Fruitland - Fruitland, ID . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spring Creek-Meridian - Meridian, ID(2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spring Creek-Overland - Overland, ID(2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spring Creek-Soda Springs - Soda Springs, ID(2) . . . . . . . . . . . . . . . . . . . .
Spring Creek-Ustick - Meridian, ID(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stone Container - Fargo, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL HELD FOR SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL UNITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL SQUARE FOOTAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Real estate not owned in fee; all or a portion is leased under a ground or air rights lease.
(2) Properties classified as discontinued operations.
65,160
57,822
47,509
54,072
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
n/a
62,291
98,174
n/a
24
59,760
17,273
16,311
15,559
39,500
n/a
31,820
26,605
15,571
26,605
195,075
24
1,874,156
(in thousands)
Investment
improvements less
(initial cost plus Occupancy
as of
impairment) April 30, 2016
7,515
12,582
13,143
9,618
1,943
3,915
10,722
10,502
1,398
4,506
25,677
605
1,346
628
20,253
12,178
1,197
15,440
1,035
1,258
691
3,042
9,563
16,650
250
11,853
10,890
537
2,822
6,400
4,070
5,075
4,100
7,115
339
7,250
6,725
2,253
4,300
7,141
266,527
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%
n/a
100.0%
100.0%
n/a
100.0%
- %
100.0%
100.0%
100.0%
100.0%
n/a
100.0%
100.0%
100.0%
100.0%
100.0%
2016 Annual Report 29
Mortgages Payable and Line of Credit
As of April 30, 2016, mortgage loans on the above properties, including properties held for sale, totaled $886.1 million.
Of this amount, on April 30, 2016, $196.8 million, or 22.2%, 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, 2016,
our management believes there are no material defaults or material compliance issues in regards to any of these
mortgages payable. Principal payments due on our mortgage indebtedness are as follows:
(cid:2)
(cid:2)
(in thousands)
(cid:2)
Mortgages
Mortgages
on Properties on Properties
Held for
Held for
Investment
Fiscal Year Ended April 30,
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 102,636 $
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54,931
144,436
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
103,537
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
154,389
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
257,395
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 817,324 $
Sale
48,046
1,106
6,921
612
4,901
7,237
68,823
We also have a revolving, multi-bank line of credit with First International Bank and Trust, Watford City, North Dakota
(“First International Bank”), as lead bank. The line of credit has lending commitments of $100.0 million, a current
interest rate of 4.75%, a maturity date of September 1, 2017 and a minimum outstanding principal balance requirement
of $17.5 million, and is secured by mortgages on 17 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. As of April 30, 2016, participants
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, 2016, our outstanding principal
balance under the line of credit was $17.5 million.
The line of credit includes covenants and restrictions requiring us 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 we are also required to maintain minimum depository account(s) totaling $6.0 million with First International
Bank, of which $1.5 million is to be held in a non-interest bearing account. As of April 30, 2016, we believe we are in
compliance with the covenants under the line of credit.
Future Minimum Lease Receipts
The future minimum lease receipts to be received under leases in place as of April 30, 2016 at healthcare properties held
for investment, assuming that no options to renew or buy out the leases are exercised, are as follows:
(in thousands)
Fiscal Year Ended April 30,
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
28,558
26,235
22,289
18,423
17,216
112,551
225,272
Lease Payments
2016 Annual Report 30
Capital Expenditures
Each year we review the physical condition of each property we own. In order for our properties to remain competitive,
attract new tenants and retain existing tenants, we plan for a reasonable amount of capital improvements. In addition, we
have launched a value add program whereby we will commit an estimated $3.5 million per quarter to rehab 4,000
units. Under this program, apartments will be remodeled as the leases expire and upgrades will include a variety of new
appliances, flooring, lighting, kitchen cabinets, and bathroom upgrades. For the year ended April 30, 2016, excluding
discontinued operations, we spent approximately $34.6 million on capital improvements, tenant improvements and other
capital expenditures.
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 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). 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 healthcare segment, tenant
improvements (excluding tenant-funded tenant improvements) and leasing costs, for the three years ended April 30,
2016, 2015 and 2014.
(in thousands except per SF or Unit data)
Years Ended April 30,
2016
2015
2014
Amount
Cost/SF
or Unit
Amount
Cost/SF
or Unit
Amount
Cost/SF
or Unit
Multifamily Properties:
Recurring capital expenditures . . . . . . . . . . . . . . . $ 5,553 $
Non-recurring capital expenditures, excluding
value add expenditures . . . . . . . . . . . . . . . . . . . . . .
Value add expenditures(1) . . . . . . . . . . . . . . . . . . . .
9,083
4,463
564 $ 5,444 $
550 $
4,956 $
589
701
7,553
9,663
—
815
—
11,355 1,053
—
— —
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 . . . . . . . . .
— $
77
1,073
554
— $ 691 $ 0.24 $
0.05
0.83
0.43
821
1,427
353
0.28
0.50
0.12
— $
612
3,235
518
—
0.20
1.11
0.18
(1) Amount represents total spent on completed and in-progress units during the period. Cost per unit represents the average amount spent on
completed units during the period.
2016 Annual Report 31
Contracts or Options to Purchase
We have granted options to purchase certain of our properties to tenants under their 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, 2016, our properties subject to
purchase options are as follows:
Property
Billings 2300 Grant Road - Billings, MT . . . . . . . . . . . . . . .
Missoula 3050 Great Northern - Missoula, MT . . . . . . . . . .
Sartell 2000 23rd Street South - Sartell, MN . . . . . . . . . . . . .
Spring Creek American Falls- American Falls, ID(1) . . . . . .
Spring Creek Boise - Boise, ID(1) . . . . . . . . . . . . . . . . . . . . . .
Spring Creek Eagle - Eagle, ID(1) . . . . . . . . . . . . . . . . . . . . . .
Spring Creek Fruitland - Fruitland, ID(1) . . . . . . . . . . . . . . . .
Spring Creek Meridian - Meridian, ID(1) . . . . . . . . . . . . . . . .
Spring Creek Overland - Overland, ID(1) . . . . . . . . . . . . . . . .
Spring Creek Soda Springs - Soda Springs, ID(1) . . . . . . . . .
Spring Creek Ustick - Meridian, ID(1) . . . . . . . . . . . . . . . . . .
St. Michael Clinic - St. Michael, MN . . . . . . . . . . . . . . . . . .
Urbandale - Urbandale, IA . . . . . . . . . . . . . . . . . . . . . . . . . . .
PrairieCare – Brooklyn Park, MN . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Cost
2,522
$
2,723
8,298
4,070
5,075
4,100
7,115
7,250
6,725
2,253
4,300
2,851
15,555
24,408
97,245
$
$
$
(in thousands)
Gross Rental Revenue
2016
327
352
0
352
440
356
608
624
580
196
368
256
1,594
1,564
7,617
$
$
2015
318
343
141
352
440
356
606
624
580
196
368
253
1,573
0
6,150
$
$
2014
308
332
357
352
440
356
141
624
580
196
368
252
1,541
0
5,847
(1) Subsequent to fiscal year end, the tenant in our Spring Creek senior housing portfolio exercised its option to purchase the properties for a sale
price of $43.5 million. These are our only senior housing properties that have purchase options and they were classified as held for sale at April
30, 2016.
Properties by State
The following table presents, as of April 30, 2016, the total amount of property held for investment, net of accumulated
depreciation, by state:
(in thousands)
State
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nebraska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Montana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Iowa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3. Legal Proceedings
$ 233,456
8,544
6,021
Multifamily Healthcare
$ 396,035
409,495
88,830
53,207
47,874
29,349
9,963
—
—
3,467
—
2,874
$ 254,362
$ 1,034,753
$ 26,492
40,374
Other
Total
$
655,983
458,413
94,851
53,207
47,874
32,816
22,564
2,874
$ 1,368,582
% of Total
47.9 %
33.5 %
6.9 %
3.9 %
3.5 %
2.4 %
1.7 %
0.2 %
100.0 %
—
—
—
—
—
$ 79,467
— 12,601
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
2016 Annual Report 32
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.
Quarter Ended
Fiscal Year 2016
High
Low
Distributions Declared
(per share and unit)
April 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7.48 $ 5.97 $
January 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
October 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
July 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.24
6.51
6.93
8.39
8.16
7.44
0.1300
0.1300
0.1300
0.1300
Quarter Ended
Fiscal Year 2015
High
Low
Distributions Declared
(per share and unit)
April 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8.31 $ 7.09 $
January 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
October 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
July 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.05
7.49
8.52
8.60
8.59
9.21
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 22, 2016, there were approximately 3,644 common shareholders of record.
Unregistered Sales of Shares
Under the terms of IRET Properties’ Agreement of Limited Partnership, limited partners have the right to require the
IRET Properties to redeem their limited partnership units for cash any time following the first anniversary of the date
they acquired such units (“Exchange Right”). When a limited partner exercises the Exchange Right, we have the right, in
our sole discretion, to acquire such units by either making a cash payment or exchanging the units for our common
shares, on a one-for-one basis. The Exchange Right is subject to certain conditions and limitations, including the limited
partner may not exercise the Exchange Right more than two times during a calendar year and the limited partner may not
exercise for less than 1,000 units, or, if such limited partner holds less than 1,000 units, for less than all of the units held
by such limited partner. IRET Properties and some limited partners have contractually agreed to a holding period of
greater than one year, a greater number of redemptions during a calendar year or other limitations to their Exchange
Right.
During the fiscal years ended April 30, 2016, 2015 and 2014, respectively, we issued an aggregate of 36,156, 471,800
and 254,948 unregistered common shares to limited partners of IRET Properties upon exercise of their Exchange Rights
regarding an equal number of units. 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.
2016 Annual Report 33
Issuer Purchases of Shares
Our Board of Trustees has authorized a share repurchase program of up to $50.0 million worth of our common shares
over a one year period. Effective September 14, 2015 and December 15, 2015, as part of the implementation of the
program, we established written trading plans (“Plans”) that provide for share repurchases in open market transactions
for $25.0 million and $10.0 million, respectively, which are intended to comply with Rule 10b5-1 under the Securities
Exchange Act. The extent to which common shares are repurchased and the timing of such repurchases will depend upon
a variety of factors, including prevailing market conditions, regulatory requirements and other factors. The program does
not obligate us to repurchase any specific number of shares and may be suspended at any time in our discretion. We did
not repurchase any of our common shares during the fourth quarter of fiscal year 2016.
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, 2011 and ending April 30, 2016,
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, 2011, the last trading day of fiscal year 2011,
$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.
2016 Annual Report 34
FY16
Investors Real Estate Trust . . . . . . . . . . . . . . . . . . . . . . . 100.00
89.02
S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.00 104.76 122.45 147.48 166.62 168.63
FTSE NAREIT Equity REITs . . . . . . . . . . . . . . . . . . . . 100.00 109.81 131.28 132.42 150.15 161.96
82.26 117.93 112.39
98.48
FY15
FY12
FY14
FY13
FY11
Source: SNL Financial LC
2016 Annual Report 35
Item 6. Selected Financial Data
Set forth below is selected financial data on a historical basis for the five most recent fiscal years ended April 30. This
information should be read in conjunction with the consolidated financial statements and notes appearing elsewhere in
this Annual Report on Form 10-K.
Consolidated Income Statement Data
(in thousands, except per share data)
2016
2015
2014
2013
2012
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . $ 188,320 $ 179,321 $ 164,590 $
Impairment of real estate investments
in continuing and discontinued
operations . . . . . . . . . . . . . . . . . . . . . $
Gain on debt extinguishment . . . . . . . . $
Gain (loss) on sale of discontinued
44,426 $
— $
5,983 $
29,230 $
6,105 $
— $
149,572 $ 130,110
— $
— $
—
—
operations and real estate and other
investments . . . . . . . . . . . . . . . . . . . . $
Income from continuing operations . . $
Income (loss) from discontinued
operations . . . . . . . . . . . . . . . . . . . . . $
Net income (loss) . . . . . . . . . . . . . . . . . $
Net (income) loss attributable to
noncontrolling interests – Operating
Partnership . . . . . . . . . . . . . . . . . . . . $
Net income (loss) attributable to
9,640 $
19,280 $
6,093 $
19,506 $
(51) $
5,898 $
— $
12,275 $
57,322 $
76,602 $
9,178 $ (22,838) $
28,684 $ (16,940) $
17,697 $
29,972 $
—
2,890
6,816
9,706
(7,032) $
(1,526) $
4,676 $
(3,633) $
(1,359)
Investors Real Estate Trust . . . . . . . $
72,006 $
24,087 $ (13,174) $
25,530 $
8,212
Consolidated Balance Sheet Data
Total real estate investments . . . . . . . . $ 1,441,202 $ 1,236,091 $ 1,094,733 $ 1,046,933 $ 916,200
Total assets . . . . . . . . . . . . . . . . . . . . . . $ 1,760,177 $ 1,997,837 $ 1,869,221 $ 1,889,554 $ 1,714,367
Mortgages payable . . . . . . . . . . . . . . . . $ 817,324 $ 596,965 $ 604,844 $ 638,439 $ 596,106
Revolving lines of credit . . . . . . . . . . . $
39,000
Total Investors Real Estate Trust
22,500 $
10,000 $
17,500 $
60,500 $
shareholders’ equity . . . . . . . . . . . . . $ 618,758 $ 652,110 $ 592,184 $
612,787 $ 432,989
Consolidated Per Common Share Data
(basic and diluted)
Income (loss) from continuing
operations - Investors Real Estate
Trust . . . . . . . . . . . . . . . . . . . . . . . . . $
Income (loss) from discontinued
operations - Investors Real Estate
Trust . . . . . . . . . . . . . . . . . . . . . . . . . $
Net income (loss) . . . . . . . . . . . . . . . . . $
Distributions . . . . . . . . . . . . . . . . . . . . . $
CALENDAR YEAR
Tax status of distributions
0.08 $
0.04 $
(0.05) $
0.02 $
0.00
0.41 $
0.49 $
0.52 $
0.07 $
0.11 $
0.52 $
(0.18) $
(0.23) $
0.52 $
0.15 $
0.17 $
0.52 $
0.07
0.07
0.56
2015
2014
2013
2012
2011
Capital gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.99 % 23.09 % 3.09 % 2.41 % 37.48 %
Ordinary income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.28 % 25.74 % 28.41 % 23.17 % 18.04 %
Return of capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51.73 % 51.17 % 68.50 % 74.42 % 44.48 %
For the fiscal year ended April 30, 2016, we recognized approximately $55.2 million of net capital gain for federal
income tax purposes. We designate the entire $55.2 million of net capital gain as capital gain dividends.
2016 Annual Report 36
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis 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, 2016.
Overview
We are a self-advised equity REIT engaged in owning and operating income-producing real properties. Our investments
include multifamily, healthcare and other properties located primarily in the upper Midwest states of Minnesota and
North Dakota.
In January 2015, we announced our intention to sell substantially all of our office and retail properties. During the first
quarter of fiscal year 2016, we classified as held for sale and discontinued operations 48 office properties, 17 retail
properties and 1 healthcare property and reduced our number of reportable segments from five to three when our office
and retail segments fell below the quantitative thresholds for reporting as reportable segments due to dispositions. During
the last quarter of fiscal year 2016, we further reduced our number of reportable segments from three to two due to our
industrial segment not meeting the quantitative thresholds.
As of April 30, 2016, we held for investment 99 multifamily properties containing 12,950 apartment units and having a
total real estate investment amount net of accumulated depreciation of $1.0 billion, and 47 commercial properties,
consisting of healthcare, industrial, office and retail, containing approximately 2.9 million square feet of leasable space
and having a total real estate investment amount net of accumulated depreciation of $333.8 million. As of April 30,
2016, we held for sale 1 multifamily property, 36 commercial properties and 3 parcels of land.
Our primary source of income and cash is rents associated with multifamily 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 management. If we do not
allocate these costs appropriately or incorrectly estimate the useful lives of our real estate, depreciation expense may be
misstated. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. We use 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, we assess 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 consider 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 allocate 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.
2016 Annual Report 37
Other intangible assets acquired include amounts for in-place lease values that are based upon our 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, consideration of current market conditions
and costs to execute similar leases. We also consider information about each property obtained during our pre-
acquisition due diligence, marketing and leasing activities in estimating the relative fair value of the tangible and
intangible assets acquired.
We follow 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 multifamily properties). General and administrative costs are expensed as incurred.
Property sales or dispositions are recorded when title transfers, we receive sufficient consideration and we have 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. We generally consider 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, we 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, we 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 our consolidated statements of operations, to the extent such disposals
did not meet the criteria for classification as a discontinued operation described above.
Impairment. We periodically evaluate our long-lived assets, including our 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, we compare 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.
2016 Annual Report 38
Allowance for Doubtful Accounts. We periodically evaluate the collectability of amounts due from tenants and maintain
an allowance for doubtful accounts (approximately $97,000 as of April 30, 2016) for estimated losses resulting from the
inability of tenants to make required payments under their respective lease agreements. We also maintain an allowance
for deferred rents receivable arising from the straight-lining of rents (approximately $333,000 as of April 30, 2016). 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, reported results would be impacted.
Revenue Recognition. We have 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, we record a receivable from tenants for rents that we expect to collect over the
remaining lease term as deferred rents receivable. When we acquire a property, the term of the existing leases is
considered to commence as of the acquisition date for the purposes of this calculation. Revenue recognition is
considered to be critical because the evaluation of the reliability of such deferred rents receivable involves
management's assumptions relating to such tenant's viability.
• Percentage Rents - income arising from healthcare tenant leases which are contingent upon the gross revenue of
the tenant exceeding a defined threshold. These rents are recognized only after the contingency has been removed
(i.e., gross revenue 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. We operate in a manner intended to enable us 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. We intend to distribute to our shareholders 100% of our taxable
income. Therefore, no provision for Federal income taxes is required. If we fail to distribute the required amount of
income to our shareholders, we would fail to qualify as a REIT and substantial adverse tax consequences may result.
We have one TRS, acquired during fiscal year 2014, which is subject to corporate federal and state income taxes on its
taxable income at regular statutory rates. For fiscal year 2016, we estimate 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, 2016, 2015 and 2014. The TRS is the tenant in our Legends at Heritage Place senior housing facility.
Our taxable income is affected by a number of factors, including, but not limited to, the following: our tenants perform
their obligations under their leases and our tax and accounting positions do not change. These factors, which impact our
taxable income, are subject to change and many are outside of our control. If actual results vary, our 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.
2016 Annual Report 39
Fiscal 2016 Significant Events and Transactions
During fiscal year 2016, we have successfully completed the following significant transactions, including acquisition,
development, disposition and financing transactions, and experienced the following significant events:
Implementation of our Strategic Plan:
In January 2015, we announced our strategic plan to explore the possibility of selling substantially all of our office and
retail properties during the calendar year of 2015 and directing new investments primarily towards multifamily and
healthcare properties. During fiscal year 2016, we sold substantially all of our office and retail properties, consisting of
sales of 40 office and 18 retail properties, and we acquired six multifamily properties and one healthcare properties.
Acquisitions, Dispositions, and Development Projects Placed in Service:
During fiscal year 2016, we added approximately 1,517 apartment units to our multifamily portfolio, through our
acquisition of six multifamily properties and the placement in service of four multifamily development projects. We sold
eight student housing properties, with a total of 391 units, for a net addition to the Company’s multifamily portfolio in
fiscal year 2016 of approximately 1,126 apartment units. We also acquired one healthcare property in Omaha, NE, for a
purchase price of $6.5 million.
During fiscal year 2016, in addition to the sale of our eight multifamily properties, we sold 63 healthcare, office, retail,
industrial and unimproved properties for sales prices totaling $414.1 million.
On January 29, 2016, we transferred ownership of nine properties to the mortgage lender on a $122.6 million non-
recourse loan and removed the debt obligation and accrued interest from our balance sheet. The properties had an
estimated fair value of $89.3 million on the transfer date. Upon completion of this transfer, we recognized a gain on
extinguishment of debt of $36.5 million, representing the difference between the loan and accrued interest payable
extinguished over the carrying value of the properties, cash, accounts payable and accounts receivable transferred as of
the transfer date and related closing costs. There can be no assurance that the mortgage lender will not bring a claim
against us for the remaining liability.
Share Repurchase Program:
Our Board of Trustees authorized a share repurchase program of up to $50.0 million worth of our common shares over a
one year period. Effective September 14, 2015 and December 15, 2015, as part of the implementation of the program, we
established written trading plans (“Plans”) that provide for share repurchases in open market transactions for $25.0 million
and $10.0 million, respectively, which are intended to comply with Rule 10b5-1 under the Securities Exchange Act. The
program does not obligate us to repurchase any specific number of shares and may be suspended at any time in our
discretion. During fiscal year 2016, we repurchased approximately 4.6 million common shares on the open market for an
aggregate total of approximately $35.0 million.
Commitment Increase to Credit Facility:
Under the terms of the First Amendment to the Amended and Restated Loan Agreement with First International Bank as
lead bank, the commitment amount may be increased from $90.0 million up to $100.0 million upon meeting various
conditions. During the first quarter of fiscal year 2016, we met such conditions, including providing additional collateral,
and the total commitment amount was increased to $100.0 million.
Changes in our Board of Trustees:
On June 23, 2015, Jeffrey P. Caira was appointed as a Trustee of our Board of Trustees. On October 13, 2015, Pamela J.
Moret tendered her letter of resignation from our Board of Trustees, and her resignation became effective on December
31, 2015. On April 19, 2016, Michael T. Dance and John A. Schissel were appointed as Trustees of our Board of
Trustees.
2016 Annual Report 40
Market Conditions and Outlook
The demand for investment and institutional quality real estate in our markets is strong. Investors have abundant equity
and access to debt to facilitate acquisitions and developments. Prices and sales volumes are strong. Fundamentals are
favorable across property types. The exception for us is in Williston, ND, an energy-impacted market, where we are
experiencing very high vacancies and offering rent concessions to attract residents.
Our healthcare segment consists of medical office properties. The same-store healthcare segment remains stable with
occupancy at 95.6%. A significant portion of our medical office portfolio is on campus and located in the Minneapolis
Metropolitan Statistical Area (“MSA”) which has an 11.4% on campus vacancy rate as of calendar year-end 2015
according to Colliers International. We developed one new medical office building on our Southdale campus in Edina,
MN and the property is in lease-up.
We experienced generally stable trends across most of our apartment investments during the fiscal year ended April 30,
2016, except in energy impacted markets. According to AXIOMetris Inc., the national apartment occupancy rate as of
April 30, 2016 was 95.1%. Our ability to maintain occupancy levels and raise rents remains dependent on continued healthy
employment and wage growth. We continue to observe considerable multifamily development activity in our markets, and
as this new construction is completed, we will experience increased competition for residents. However, developers of
new apartment projects are pushing up market rents to support the increasing costs of new developments. Many existing
apartment owners of modestly older properties are making significant upgrades to their units and raising rents. The
economic outlook of the Ninth Federal Reserve District, which overlays most of our geographic footprint, for 2016 is good
according to the Federal Reserve Bank of Minneapolis. Increases in employment and personal income growth are
projected. The biggest challenge facing employers is hiring qualified workers. The unemployment rate is generally below
the national average in most of the district’s states.
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 multifamily properties and 85% for commercial properties.
For the comparison of fiscal years 2016 and 2015, all or a portion of 60 properties were non-same-store, of which non-
same-store properties 16 were redevelopment or in-service development properties. For the fiscal year 2016 to 2015
comparison, all or a portion of 27 properties were added to non-same-store and all or a portion of 6 properties were
moved to same-store compared to the designations for the fiscal year 2015 to 2014 comparison. 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.
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 when a multifamily development project is tenantable,
generally upon receipt of a certificate of occupancy. 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.
2016 Annual Report 41
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, 2016,
2015 and 2014.
(in thousands)
Year Ended April 30,
2015
2014
2016
2016 vs. 2015
2015 vs. 2014
$ Change % Change $ Change % Change
10.3 %
(1.1)%
9.0 %
6.7 % $ 14,941
(8.9)%
(210)
5.0 % 14,731
Real estate rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 170,698 $ 159,969 $ 145,028 $ 10,729
(1,730)
Tenant reimbursement . . . . . . . . . . . . . . . . . . . . . . . .
8,999
17,622
TOTAL REVENUE . . . . . . . . . . . . . . . . . . . . . . 188,320
19,352
179,321
19,562
164,590
53,535
19,602
42,784
4,663
11,824
362
1,647
134,417
—
44,904
(34,447)
50,552
18,704
39,712
7,700
10,743
279
1,850
129,540
2,480
37,530
(33,729)
—
1,906
242
Property operating expenses, excluding real estate
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . .
Impairment of real estate investments . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . .
Acquisition and investment related costs . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58,859
20,241
49,832
5,543
11,267
830
2,231
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . . . . . 148,803
—
Gain on involuntary conversion . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . .
39,517
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . (35,768)
(106)
Loss on extinguishment of debt . . . . . . . . . . . . . . . . .
2,256
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
317
Income before gain (loss) from sale of real estate and
other investments, gain on bargain purchase and
income (loss) from discontinued operations . . . . . . . .
Gain (loss) from sale of real estate and other
investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on bargain purchase . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . .
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling
interests – Operating Partnership . . . . . . . . . . . . . . . .
Net loss (income) attributable to noncontrolling
interests – consolidated real estate entities . . . . . . . . .
Net income (loss) attributable to Investors Real Estate
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
72,006
Dividends to preferred shareholders . . . . . . . . . . . . . . (11,514)
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,492 $ 12,573 $ (24,688)
(51)
—
5,898
(22,838)
(16,940)
9,640
3,424
19,280
57,322
76,602
6,093
—
19,506
9,178
28,684
—
2,238
718
24,087
(11,514)
(13,174)
(11,514)
13,413
(1,526)
(3,071)
(7,032)
4,676
2,436
5,949
6,216
(910)
5,324
639
7,048
880
(557)
468
584
14,386
—
(5,387)
(1,321)
(106)
18
(401)
9.9 % 2,983
898
3.3 %
16.5 % 3,072
18.9 % (3,037)
(4.7)% 1,081
83
129.3 %
(203)
35.5 %
10.7 % 4,877
— % (2,480)
(12.0)% 7,374
(718)
—
332
476
3.8 %
— %
0.8 %
(55.8)%
5.9 %
4.8 %
7.7 %
(39.4)%
10.1 %
29.7 %
(11.0)%
3.8 %
(100.0)%
19.6 %
2.1 %
— %
17.4 %
196.7 %
(7,197)
(53.7)% 7,464
125.5 %
3,547
3,424
(226)
48,144
47,918
58.2 %
— %
6,144
—
(1.2)% 13,608
524.6 % 32,016
167.1 % 45,624
(12,047.1)%
— %
230.7 %
(140.2)%
(269.3)%
(5,506)
360.8 % (6,202)
(132.6)%
5,507
(179.3)% (2,161)
237.5 %
47,919
—
198.9 % 37,261
—
— %
(282.8)%
— %
47,919
381.1 % 37,261
(150.9)%
2016 Annual Report 42
Revenues. Total revenues increased by 5.0% to $188.3 million in fiscal year 2016, compared to $179.3 million in fiscal
year 2015. Total revenues increased by 9.0% to $179.3 million in fiscal year 2015, compared to $164.6 million in fiscal
year 2014. These increases were primarily attributable to the addition of new income-producing real estate properties, net
of decreases from sold properties.
For fiscal year 2016, the increase in revenue of $9.0 million resulted from:
Revenue primarily from properties acquired and development projects placed in service in fiscal
year 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Increase in revenue primarily from properties acquired and development projects placed in service
in fiscal year 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in revenue from same-store properties, excluding straight line rent(1) . . . . . . . . . . . . . . . . . .
Net change in straight line rent on same-store properties(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in revenue from properties sold or classified as held for sale in fiscal years 2016 and 2015
Net increase in total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
8,791
7,891
(210)
(202)
(7,271)
8,999
(in thousands)
(1) See analysis of NOI by segment below for additional information.
For fiscal year 2015, the increase in revenue of $14.7 million resulted from:
Revenue primarily from properties acquired and development projects placed in service in fiscal
year 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Increase in revenue primarily from properties acquired and development projects placed in service
in fiscal year 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in revenue from same-store properties, excluding straight line rent(1) . . . . . . . . . . . . . . . . . .
Net change in straight line rent on same-store properties(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in revenue from properties sold or classified as held for sale in fiscal years 2015 and 2014
Net increase in total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
6,616
6,431
4,322
(765)
(1,873)
14,731
(in thousands)
(1) See analysis of NOI by segment below for additional information.
Property operating expenses, excluding real estate taxes. Property operating expenses, excluding real estate taxes,
increased by 9.9% to $58.9 million in fiscal year 2016 compared to $53.5 million in fiscal year 2015. Of this $5.3
million increase, $4.0 million was attributable to non-same-store properties. Same-store properties accounted for $1.3
million of the increase, which was primarily driven by increased labor costs in certain of our markets and general
maintenance expense.
Property operating expenses, excluding real estate taxes, increased by 5.9% to $53.5 million in fiscal 2015 compared to
$50.6 million in fiscal year 2014. Of this $3.0 million increase, $2.0 million was attributable to non-same-store
properties. Same-store properties accounted for $1.0 million of the increase, which was primarily driven by increased
labor costs in certain of our markets and by increased insurance premiums.
Real Estate Taxes. Real estate taxes increased by 3.3% to $20.2 million in fiscal year 2016 compared to $19.6 million
in fiscal year 2015. An increase of $732,000 was attributable to the addition of new income-producing real estate
properties, while same-store properties realized a decrease of $93,000 when compared to the same period in the prior
year.
Real estate taxes increased by 4.8% to $19.6 million in fiscal year 2015, compared to $18.7 million in fiscal year 2014.
An increase of $40,000 was attributable to the addition of new income-producing real estate properties. An increase of
$858,000 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.
2016 Annual Report 43
Depreciation and Amortization. Depreciation and amortization increased by 16.5% to $49.8 million in fiscal year
2016, compared to $42.8 million in fiscal year 2015. This increase was primarily attributable to the addition of
depreciable assets from acquisitions, development projects placed in service, capital improvements and tenant
improvements.
Depreciation and amortization related to real estate investments increased by 7.7% to $42.8 million in fiscal year 2015,
compared to $39.7 million in fiscal year 2014. This increase was primarily attributable to the addition of depreciable
assets from acquisitions, development projects placed in service, capital improvements and tenant improvements.
Impairment of Real Estate Investments. During fiscal years 2016, 2015 and 2014, we incurred impairment losses of
$5.5 million, $4.7 million and $7.7 million, respectively, in continuing operations. See Note 2 to our consolidated
financial statements contained in this Annual Report on Form 10-K for additional information.
General and Administrative Expenses. General and administrative expenses decreased by 4.7% to $11.3 million in
fiscal year 2016, compared to $11.8 million in fiscal year 2015, primarily due to a decrease in compensation expense.
General and 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.
Acquisition and Investment Related Costs. Acquisition and investment related costs increased to approximately
$830,000 in fiscal year 2016 compared to approximately $362,000 in fiscal year 2015, primarily due to increased costs
related to development projects we are not pursuing.
Other Expenses. Other expenses increased 35.5% to $2.2 million in fiscal year 2016, compared to $1.6 million in fiscal
year 2015, primarily due to increased legal and consulting expenses. Other expenses decreased 11.0% to $1.6 million in
fiscal year 2015, compared to $1.9 million in fiscal year 2014.
Gain on Involuntary Conversion. No gains on involuntary conversion were recognized during fiscal years 2016 and
2015. During fiscal year 2014, we recognized a gain on involuntary conversion of $2.5 million. 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 2016, 2015 and 2014 were as follows.
2016
Mortgage debt . . . . . . . . . . . . . . . . . $ 33,631 $ 32,382 $ 33,273 $ 1,249
(410)
1,629
Line of credit . . . . . . . . . . . . . . . . . .
482 1,853.8 %
508
Other . . . . . . . . . . . . . . . . . . . . . . . . .
3.8 % $
Total interest expense . . . . . . . . . $ 35,768 $ 34,447 $ 33,729 $ 1,321
(20.1) % 1,348
261
718
2,039
26
691
(235)
3.9 $ (891)
2014
2015 vs. 2014
$ Change % Change
(2.7)%
195.1 %
111.1 %
2.1 %
2016 vs. 2015
$ Change % Change
(in thousands)
Year Ended April 30,
2015
Mortgage interest increased by 3.9% to $33.6 million in fiscal year 2016, compared to $32.4 million in fiscal year 2015.
Mortgages on non-same-store properties added $3.1 million in fiscal year 2016, while mortgage interest on same-store
properties decreased approximately $802,000 compared to fiscal year 2015, primarily due to loan payoffs.
Mortgage interest decreased by 2.7% to $32.4 million in fiscal year 2015, compared to $33.3 million in fiscal year 2014.
Mortgages on non-same-store properties added $1.1 million to our mortgage interest expense in fiscal year 2015, while
mortgage interest on same-store properties decreased $1.0 million compared to fiscal year 2014, primarily due to loan
payoffs.
Interest expense on our line of credit decreased by 20.1% to $1.6 million in fiscal year 2016, compared to $2.0 million in
fiscal year 2015, primarily due to a lower average outstanding balance during fiscal year 2016 compared to the prior
year. 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.
2016 Annual Report 44
Other interest consists of interest on our construction loans, security deposits and special assessments, as well as
amortization of loan costs, offset by capitalized construction interest. Other interest increased by 1,853.8% to
approximately $508,000 in fiscal year 2016, compared to approximately $26,000 in fiscal year 2015, primarily due to
interest on new construction loans. Other interest increased by 111.1%, or approximately 261,000, in fiscal year 2015 as
compared to fiscal year 2014, primarily due to interest on new construction loans net of capitalized interest
Interest Income and Other Income. We recorded interest income in fiscal years 2016, 2015 and 2014 of $2.3 million,
$2.2 million and $1.9 million, respectively. The increase in interest income from fiscal year 2014 to fiscal year 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. We earned other income in
fiscal years 2016, 2015 and 2014 of approximately $317,000, $718,000 and $242,000, respectively. The higher amount
of other income in 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. We recorded gains on sale of real estate and other investments in
continuing operations of $9.6 million and $6.1 million in fiscal years 2016 and 2015 and a loss of approximately $51,000
in fiscal year 2014.
Gain on Bargain Purchase. On March 22, 2016, we acquired a multifamily property in Rochester, MN, which had a
fair value at acquisition of approximately $36.3 million, as appraised by a third party. The consideration exchanged for
the property consisted of $15.0 million cash and approximately 2.5 million Units, valued at approximately $17.8 million.
The fair value of the Units transferred was based on the closing market price of our common stock on the acquisition
date of $7.09 per share. The acquisition resulted in a gain on bargain purchase because the fair value of assets acquired
exceeded the total of the fair value of the consideration paid by approximately $3.4 million. The seller accepted
consideration below the fair value of the property in order to do a partial tax-deferred exchange for Units.
Income from Discontinued Operations. Prior to February 1, 2014, we 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, we 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 our consolidated statements of operations, to the extent such disposals did not meet the criteria for
classification as a discontinued operation.
Income from discontinued operations in fiscal years 2016 and 2015 was $57.3 million and $9.2 million, respectively.
Loss from discontinued operations in fiscal year 2014 was $22.8 million. We realized a gain on sale of discontinued
operations for fiscal years 2016, 2015 and 2014 of $23.8 million, $0 and $7.0 million, respectively. See Note 12 of the
Notes to Consolidated Financial Statements in this report for further information on discontinued operations.
Occupancy
Occupancy as of April 30, 2016 compared to April 30, 2015 decreased 0.3% in our multifamily segment and increased
0.3% in our healthcare segment on a same-store basis. 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:
Same-Store Properties
As of April 30,
All Properties
As of April 30,
2014
Segments
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94.8 % 95.1 % 93.4 % 90.8 % 92.0 % 93.0 %
Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95.6 % 95.3 % 92.2 % 89.4 % 91.5 % 92.5 %
2016
2015
2014
2015
2016
2016 Annual Report 45
Net Operating Income
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 2016, 2015 and 2014. 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 multifamily properties and 85% for commercial properties. This comparison allows us 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 our properties are performing year over
year. Management uses this measure to assess whether or not it has been successful in increasing net operating income,
renewing the leases of existing tenants, controlling operating costs and appropriately handling capital improvements. 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 our real estate portfolio, and accordingly provide less useful
information for evaluating the ongoing operational performance of our real estate portfolio.
2016 Annual Report 46
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 2016, 2015 and 2014.
Year Ended April 30,
2016 vs 2015
2015 vs 2014
2016
2015 $ Change % Change
2015
2014 $ Change % Change
All Segments
Real estate revenue
(412)
Same-store . . . . . . . . . . . . . . . . . . . . . . . . . . $ 153,010 $ 153,422 $
Non-same-store(1)(2) . . . . . . . . . . . . . . . . . . . .
9,411
25,899
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 188,320 $ 179,321 $ 8,999
35,310
(0.3)% $ 150,789 $ 147,232 $
36.3 %
17,358 11,174
28,532
5.0 % $ 179,321 $ 164,590 $ 14,731
3,557
Real estate expenses
Same-store . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,898 $ 62,702 $ 1,196
Non-same-store(1)(2) . . . . . . . . . . . . . . . . . . . .
4,767
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 79,100 $ 73,137 $ 5,963
15,202
10,435
45.7 %
1.9 % $ 62,636 $ 60,740 $
10,501
8,516
8.2 % $ 73,137 $ 69,256 $
1,896
1,985
3,881
2.4 %
64.4 %
9.0 %
3.1 %
23.3 %
5.6 %
Gain on involuntary conversion
Same-store . . . . . . . . . . . . . . . . . . . . . . . . . . $
Non-same-store(1)(2) . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
—
— $
— $
—
— $
—
—
—
— % $
— %
— % $
—
— $
— $
—
(2,480)
2,480
— $ 2,480 $ (2,480)
— %
(100.0)%
(100.0)%
Net operating income
Same-store . . . . . . . . . . . . . . . . . . . . . . . . . . $ 89,112 $ 90,720 $ (1,608)
Non-same-store(1)(2) . . . . . . . . . . . . . . . . . . . .
4,644
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 109,220 $ 106,184 $ 3,036
20,108
15,464
(49,832)
(5,543)
(11,267)
(830)
(2,231)
(35,768)
(106)
2,573
(42,784)
(4,663)
(11,824)
(362)
(1,647)
(34,447)
—
2,956
Depreciation/amortization . . . . . . . . . . . . . . . . .
Impairment of real estate investments . . . . . . . .
General and administrative expenses . . . . . . . . .
Acquisition and investment related costs . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . .
Loss on debt extinguishment . . . . . . . . . . . . . . .
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
6,093
investments . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Gain on bargain purchase . . . . . . . . . . . . . . . . .
19,506
Income (loss) from continuing operations . . . . .
Income from discontinued operations(3) . . . . . . .
9,178
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . $ 76,602 $ 28,684
9,640
3,424
19,280
57,322
13,413
6,216
1,661
6,709
8,370
1.9 %
59.3 %
8.6 %
(1.8)% $ 88,153 $ 86,492 $
30.0 %
11,322
18,031
2.9 % $ 106,184 $ 97,814 $
(39,712)
(42,784)
(7,700)
(4,663)
(10,743)
(11,824)
(279)
(362)
(1,850)
(1,647)
(33,729)
(34,447)
—
—
2,148
2,956
13,413
5,949
6,093
—
19,506
9,178
(51)
—
5,898
(22,838)
$ 28,684 $ (16,940)
(1)
Non-same-store properties consist of the following properties for the comparative periods of fiscal years 2016 and 2015 (re-development and in-
service development properties are listed in bold type):
Held for Investment - Multifamily -
Healthcare -
Other -
71 France, Edina, MN; Arcata, Golden Valley, MN; Avalon Cove, Rochester, MN; Cardinal Point, Grand Forks, ND; Cascade
Shores, Rochester, MN; Chateau II, Minot, ND; Colonial Villa, Burnsville, MN; Commons at Southgate, Minot, ND; Crystal Bay,
Rochester, MN; Cypress Court I and II, St. Cloud, MN; Dakota Commons, Williston, ND; Deer Ridge, Jamestown, ND; French
Creek, Rochester, MN; Gardens, Grand Forks, ND; GrandeVille at Cascade Lake, Rochester, MN; Homestead Garden, Rapid City,
SD; Legacy Heights, Bismarck, ND; Northridge, Bismarck, ND; Red 20, Minneapolis, MN; Renaissance Heights, Williston, ND
and Silver Springs, Rapid City, SD.
Total number of units, 3,097.
Edina 6565 France SMC III, Edina, MN; Lakeside Medical Plaza, Omaha, NE and PrairieCare Medical, Brooklyn Park, MN.
Total rentable square footage, 156,199.
Minot Southgate Retail, Minot, ND; Minot Southgate Wells Fargo Bank, Minot, ND and Roseville 3075 Long Lake Road,
Roseville, MN.
Total rentable square footage, 233,518.
2016 Annual Report 47
Held for Sale -
Multifamily -
Healthcare -
Other -
Pinecone Villas, Sartell, MN.
Total number of units, 24.
Sartell 2000 23rd St, Sartell, MN.
Total rentable square footage, 59,760.
Stone Container, Fargo, ND.
Total rentable square footage, 195,075.
Sold -
Total NOI for held for sale properties for the twelve months ended April 30, 2016 and 2015, respectively, $776 and $830.
Healthcare -
Other -
Multifamily - 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; Cornerstone, St. Cloud, MN; Lancaster, St. Cloud, MN and University Park Place, St.
Cloud, MN.
Jamestown Medical Office Building, Jamestown, ND and Nebraska Orthopaedic Hospital, Omaha, NE.
2030 Cliff Road, Eagan, MN; Burnsville Bluffs II, Burnsville, MN; Dewey Hill Business Center, Edina, MN; Eagan 2785 & 2795 Hwy 55,
Eagan, MN; Fargo Express Community, Fargo, ND; Kalispell Retail Center, Kalispell, MT; Minot Arrowhead First International, Minot,
ND; Minot Plaza, Minot, ND; 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; Thresher Square,
Minneapolis, MN; Weston Retail and Walgreens, Weston, WI; Whitewater Plaza, Minnetonka, MN and Wirth Corporate Center, Golden
Valley, MN.
Total NOI for sold properties for the twelve months ended April 30, 2016 and 2015, respectively, $2,403 and $6,308.
(2)
Held for
Investment -
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):
Multifamily - 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.
Minot Southgate Wells Fargo Bank, Minot, ND and Roseville 3075 Long Lake Road, Roseville, MN.
Total rentable square footage, 225,555.
Other -
Held for Sale -
Healthcare -
Other -
Nebraska Orthopaedic Hospital, Omaha, NE.
Total rentable square footage, 61,758.
Thresher Square, Minneapolis, MN.
Total rentable square footage, 117,144.
Total NOI for held for sale properties for the twelve months ended April 30, 2015 and 2014, respectively, $1,945 and $1,931.
Sold -
Multifamily - Lancaster, St. Cloud, MN.
Healthcare -
Other -
Jamestown Medical Office Building, Jamestown, ND.
2030 Cliff Road, Eagan, MN; Burnsville Bluffs II, Burnsville, MN; Dewey Hill Business Center, Edina, MN; Eagan 2785 & 2795 Hwy 55,
Eagan, MN; Fargo Express Community, Fargo, ND; Kalispell Retail Center, Kalispell, MT; 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; Weston Retail and Walgreens, Weston, WI; Whitewater Plaza, Minnetonka, MN and Wirth Corporate
Center, Golden Valley, MN.
Total NOI for sold properties for the twelve months ended April 30, 2015 and 2014, respectively, $3,724 and $3,904.
(3) Discontinued operations include gain on disposals and income from operations for:
Held for Sale at April 30, 2016: Casper 1930 E 12th St, Casper 3955 E 12th St, Cheyenne 4010 N College Dr, Cheyenne 4606 N College Dr, Edgewood Vista (“EV”)
Belgrade, EV Billings, EV Bismarck, EV Brainerd, EV Columbus, EV East Grand Forks, EV Fargo, EV Fremont, EV Grand Island, EV Hastings, EV Hermantown I and
II, EV Kalispell, EV Minot, EV Missoula, EV Norfolk, EV Omaha, EV Sioux Falls, EV Spearfish, EV Virginia, Laramie 1072 N 22nd St, Legends at Heritage Place, Spring
Creek (“SC”) American Falls, SC Boise, SC Eagle, SC Fruitland, SC Meridian, SC Overland, SC Soda Springs and SC Ustick.
2016 Dispositions: 610 Business Center, 7800 West Brown Deer Road, American Corporate Center, Ameritrade, Barry Pointe Office Park, Benton Business Park,
Brenwood, Brook Valley I, Burnsville Strip Center, Champlin South Pond, Chan West Village, Corporate Center West, Crosstown Centre, Duluth 4615 Grand, Duluth
Denfeld Retail, Eden Prairie 6101 Blue Circle Drive, Farnam Executive Center, Flagship Corporate Center, Forest Lake Auto, Forest Lake Westlake Center, Gateway
Corporate Center, Golden Hills Office Center, Grand Forks Medpark Mall, Granite Corporate Center, Great Plains, Highlands Ranch I and II, Interlachen Corporate Center,
Intertech Building, Jamestown Buffalo Mall, Jamestown Business Center, Lakeville Strip Center, Mendota Office Center I-IV, Minnesota National Bank, Miracle Hills
One, Monticello C-Store, Northpark Corporate Center, Omaha 10802 Farnam Dr, Omaha Barnes & Noble, Pacific Hills, Pine City C-Store, Pine City Evergreen Square,
Plaza VII, Plymouth 5095 Nathan Lane, Prairie Oak Business Center, Rapid City 900 Concourse Drive, Riverport, Rochester Maplewood Square, Spring Valley IV, V, X
and XI, St. Cloud Westgate, Superior Office Building, TCA Building, Three Paramount Plaza, Timberlands, UHC Office, US Bank Financial Center, Wells Fargo Center,
West River Business Park, Westgate and Woodlands Plaza IV.
2016 Annual Report 48
An analysis of NOI by segment follows.
Multifamily
Real estate revenue from same-store properties in our multifamily segment decreased by 0.5% or $544,000 in the twelve
months ended April 30, 2016 compared to the same period in the prior fiscal year. A decrease of $913,000 was
attributable to increased vacancy, primarily in our energy impacted markets of Williston, North Dakota and Minot, North
Dakota. This decrease in revenue was offset by an increase of $332,000 that was the result of a ratio utility billings
system implemented in the current year to recapture tenant utility expenses. All other real estate revenue items combined
increased by $37,000.
Real estate expenses at same-store properties increased by 5.3% or $2.4 million in the twelve months ended April 30,
2016 compared to the same period in the prior fiscal year. The primary factors were increased administrative expenses of
$1.9 million and increased maintenance expenses of $987,000. These increases were offset by a decrease in insurance
expenses of $611,000 while all other expenses combined increased by $132,000 when compared to the prior year. The
increase in administrative expenses was due to increased internal property management and labor costs while the
increase in maintenance expenses was due to more general maintenance items being completed when compared to the
prior year. The decrease in insurance expenses was due to a decrease in insurance premiums as well as a decrease in
deductibles paid on insurance claims.
Real estate revenue from same-store properties in our multifamily 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 $196,000.
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.
2016 Annual Report 49
2016
2015
2016 vs 2015
$ Change % Change
2015
2014 $ Change % Change
2015 vs 2014
Years Ended April 30
Multifamily
Real estate revenue
Same-store . . . . . . . . . . . . . $ 102,694
Non-same-store . . . . . . . . . .
28,455
Total . . . . . . . . . . . . . . . . . . $ 131,149
$ 103,238
15,288
$ 118,526
$
(544)
13,167
$ 12,623
(0.5)% $ 99,072
86.1 %
19,454
10.6 % $ 118,526
$ 95,831 $
6,228
3,241
13,226
$ 102,059 $ 16,467
Real estate expenses
Same-store . . . . . . . . . . . . . $ 47,186
Non-same-store . . . . . . . . . .
13,291
Total . . . . . . . . . . . . . . . . . . $ 60,477
Gain on involuntary conversion
Same-store . . . . . . . . . . . . . $
Non-same-store . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . $
—
—
—
Net operating income
Same-store . . . . . . . . . . . . . $ 55,508
Non-same-store . . . . . . . . . .
15,164
Total . . . . . . . . . . . . . . . . . . $ 70,672
$
$
$
$
$
$
44,794
6,378
51,172
$ 2,392
6,913
$ 9,305
108.4 %
5.3 % $ 44,140
7,032
18.2 % $ 51,172
$ 42,901 $
3,237
$ 46,138 $
1,239
3,795
5,034
—
—
—
$
$
—
—
—
— % $
— %
— % $
—
—
—
$
— $
—
(2,480)
$ 2,480 $ (2,480)
2,480
58,444
8,910
67,354
$ (2,936)
6,254
$ 3,318
(5.0)% $ 54,932
70.2 %
12,422
4.9 % $ 67,354
$ 52,930 $
5,471
$ 58,401 $
2,002
6,951
8,953
3.8 %
127.1 %
15.3 %
3.4 %
212.4 %
16.1 %
2.9 %
117.2 %
10.9 %
— %
(100.0)%
(100.0)%
Occupancy
Same-store . . . . . . . . . . . . . . . .
Non-same-store . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . .
2016
94.8 %
78.4 %
90.8 %
2015
95.1 %
77.1 %
92.0 %
Number of Units
Same-store . . . . . . . . . . . . . . . .
Non-same-store . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . .
2016
9,853
3,121
12,974
2015
9,854
1,990
11,844
Healthcare
2015
94.7 %
78.6 %
92.0 %
2014
93.4 %
87.4 %
93.0 %
2015
9,895
1,949
11,844
2014
9,896
883
10,779
Real estate revenue from same-store properties in our healthcare segment decreased by 0.4% or $170,000 in the twelve
months ended April 30, 2016 compared to the same period in the prior fiscal year. The decrease in revenue was
attributable to a decrease in the straight-line rent receivable of $356,000. This decrease was offset by an increase in
tenant reimbursements of $200,000 while all other real estate revenue items combined decreased by $14,000.
Real estate expense from same-store properties decreased by 4.4% or $668,000 in the twelve months ended April 30,
2016 when compared to the same period of the prior fiscal year. The primary factors were decreases in other property
expenses of $392,000 and real estate taxes of $248,000. The decrease in other property expenses, consisting of bad debt
provision expenses, was due to a decrease in the estimated uncollectible accounts receivable. All other real estate
expenses combined decreased by $28,000.
Real estate revenue from same-store properties in our healthcare segment increased by 0.7% or $297,000 in the twelve
months ended April 30, 2015 compared to the same period in the prior fiscal year. Tenant reimbursements increased by
$349,000 while all other real estate revenue items combined decreased by $52,000.
Real estate expenses from same-store properties decreased by 0.4% or $61,000 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 $52,000 which resulted from a decrease in utility rates and a decrease in real estate taxes of $49,000.
All other real estate expenses combined increased by $40,000.
2016 Annual Report 50
2016
2015
2016 vs 2015
$ Change % Change
2015
2014
2015 vs 2014
$ Change % Change
Years Ended April 30
Healthcare
Real estate revenue
Same-store . . . . . . . . . . . . . . $
Non-same-store . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . $
40,715
4,906
45,621
Real estate expenses
Same-store . . . . . . . . . . . . . . $
Non-same-store . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . $
14,541
1,480
16,021
$
$
$
$
Net operating income
40,885
3,268
44,153
$ (170)
1,638
$ 1,468
(0.4)% $
50.1 %
3.3 % $
41,047
3,106
44,153
15,209
1,031
16,240
$ (668)
449
$ (219)
(4.4)% $
43.5 %
(1.3)% $
15,728
512
16,240
$
$
$
$
40,750 $
3,348
44,098 $
297
(242)
55
15,789 $
562
16,351 $
(61)
(50)
(111)
(25,676)
(2,237)
(27,913)
$ (498)
(1,189)
$ (1,687)
1.9 % $ (25,319)
53.2 %
(2,594)
6.0 % $ (27,913)
(358)
192
(166)
0.7 %
(7.2)%
0.1 %
(0.4)%
(8.9)%
(0.7)%
1.4 %
(6.9)%
0.6 %
$
$
(cid:2)
Same-store . . . . . . . . . . . . . . $ (26,174)
Non-same-store . . . . . . . . . . .
(3,426)
Total . . . . . . . . . . . . . . . . . . . $ (29,600)
(cid:2)
2016
95.6 %
52.2 %
89.4 %
(cid:2)
(cid:2)(cid:2) (cid:2)
(cid:2)
(cid:2)
Occupancy
Same-store . . . . . . . . . . . . . . . . . (cid:2)
Non-same-store . . . . . . . . . . . . . . (cid:2)
Total . . . . . . . . . . . . . . . . . . . . . . (cid:2)
(cid:2)
(cid:2)(cid:2) (cid:2)
(cid:2)
(cid:2)
2016
Rentable Square Footage
Same-store . . . . . . . . . . . . . . . . . (cid:2) 1,289,180
Non-same-store . . . . . . . . . . . . . . (cid:2)
215,959
Total . . . . . . . . . . . . . . . . . . . . . . (cid:2) 1,505,139
(cid:2)
(cid:2)
2015
95.3 %
50.8 %
91.5 %
2015
1,289,209
121,518
1,410,727
2015
1,348,969
61,758
1,410,727
2015
91.1 %
100.0 %
91.5 %
$ (24,961) $
(2,786)
$ (27,747) $
(cid:2) (cid:2)
(cid:2)
(cid:2) (cid:2)
2014
92.2 %(cid:2) (cid:2)
96.5 %(cid:2) (cid:2)
92.5 %(cid:2) (cid:2)
(cid:2) (cid:2)
(cid:2)
(cid:2) (cid:2)
2014
(cid:2) (cid:2)
1,349,087
(cid:2) (cid:2)
106,980
(cid:2) (cid:2)
1,456,067
Comparison of Results from Multifamily, Healthcare and Other 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 properties over the past three fiscal years:
Fiscal Years Ended April 30
Real Estate Investments – (cost before
2016
(in thousands, except percentages)
2015
%
%
2014
%
depreciation)
Multifamily . . . . . . . . . . . . . . . . . . . . $ 1,243,909
337,920
Healthcare . . . . . . . . . . . . . . . . . . . . .
99,642
Other . . . . . . . . . . . . . . . . . . . . . . . . .
60.7 %
25.2 %
14.1 %
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,681,471 100.0 % $ 1,335,687 100.0 % $ 1,241,195 100.0 %
Net Operating Income
74.0 % $ 946,520
284,342
20.1 %
104,825
5.9 %
70.9 % $ 753,731
313,114
21.3 %
174,350
7.8 %
Multifamily . . . . . . . . . . . . . . . . . . . . $
Healthcare . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
63.4 % $
26.3 %
10.3 % $
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 109,220 100.0 % $ 106,184 100.0 % $
64.7 % $
27.1 %
8.2 %
70,672
29,600
8,948
67,354
27,913
10,917
59.7 %
58,401
28.4 %
27,747
11,666
11.9 %
97,814 100.0 %
2016 Annual Report 51
Analysis of Commercial Credit Risk and Leases
Credit Risk
The following table lists our top ten commercial tenants on April 30, 2016, for all commercial properties owned by us,
including those held for sale, measured by percentage of total commercial minimum rents as of April 1, 2016. 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 28.4% of our total commercial minimum rents as of April 1, 2016.
As of April 30, 2016, 16 of our 47 commercial properties held for investment, along with our held for sale properties
including all 20 of our Edgewood Vista properties, all 8 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 we
use 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, we generally assess the prospective tenant’s credit quality through a 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, our 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 we monitor tenant credit quality.
Lessee
Affiliates of Edgewood Vista . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fairview Health Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
St. Lukes Hospital of Duluth, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PrairieCare Medical LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HealthEast Care System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quality Manufacturing Corp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Westrock CP LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allina Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Children's Hospitals & Clinics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noran Neurological Clinic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Monthly Commercial Rent as of April 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Total Commercial
Minimum Rents
as of April 1, 2016
28.4 %
7.2 %
6.3 %
4.3 %
3.4 %
2.0 %
1.8 %
1.6 %
1.6 %
1.4 %
42.0 %
100.0 %
Healthcare Leasing Activity
During fiscal year 2016, we executed new and renewal leases for our same-store healthcare properties on 201,989 square
feet. Due to our leasing efforts, occupancy in our same-store healthcare portfolio increased to 95.6% as of April 30,
2016, up from 95.3% as of April 30, 2015.
2016 Annual Report 52
The total leasing activity for our same-store healthcare 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, 2016 and 2015 respectively.
Segment
Healthcare . . . . . . . . . . . . . . . . .
2016
2015
45,446 21,153 156,543 109,661 201,989 130,814 95.6 % 95.3
2015 2016
2015
Square Feet of
New Leases(1)
Square Feet of
Leases Renewed(1)
2016
Total
Square Feet of
Leases Executed(1)
2016
Occupancy
2015
(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
healthcare properties during the years ended April 30, 2016 and 2015, respectively:
Leasing
Estimated Tenant
Improvement Cost Commissions per
Square Foot(1)
per Square Foot(1)
2015
Segment
Healthcare . . . . . . . . . 45,446 21,153 6.6 5.4 19.97 17.57 12.99 31.58 3.24 5.81
Square Feet of Average Term
New Leases(1)
in Years
Average
Effective Rent(2)
2016
2015 2016 2015
2015 2016
2016
2016
2015
(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.
Our ability to maintain or increase occupancy rates is a principal driver of maintaining and increasing the average
effective rents in our healthcare segment. The increase in the average effective rental rates of new leases executed in our
healthcare segment in fiscal year 2016 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 in fiscal year 2015. 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.
Lease Renewals
The following table summarizes our lease renewal activity within our same-store healthcare segment for the years ended
April 30, 2016 and 2015, respectively (square feet data in thousands):
Estimated
Average Term
in Years
2015
Segment
Healthcare . 156,543 109,661 92.2 % 73.2 % 4.7 5.8
Percent of Expiring
Leases Renewed(2)
2016
Square Feet of
Leases Renewed(1)
2015
2015
2016
2016
Growth (Decline)
in Effective Rents(3)
2015
(3.5)
2016
5.7
Weighted Average Tenant Improvement
Leasing
Cost per Square Commissions per
Square Foot(1)
2015
10.87 2.65 1.56
Foot(1)
2015
2016
2016
9.40
(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.
2016 Annual Report 53
The increase in the average growth in effective rents for the healthcare segment in fiscal year 2016 when compared to the
prior fiscal year is due to a 45,081 square foot lease renewal executed with the existing single tenant at our Pavilion I
property in Duluth, Minnesota in fiscal year 2015. This lease was renewed at a lower rate than the previous expiring
lease due to very low leasing transaction costs associated with the lease renewal. Absent this transaction, the weighted
average growth rate in effective rents for fiscal year 2015 would have been 3.8%
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 healthcare
properties held for investment, including square footage and annualized base rent for expiring leases, as of April 30,
2016.
Fiscal Year of Lease
Expiration
2017(cid:2)¹(cid:3)(cid:2)(cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:2)
2018 . . . . . . . . . . . . .
2019 . . . . . . . . . . . . .
2020 . . . . . . . . . . . . .
2021 . . . . . . . . . . . . .
2022 . . . . . . . . . . . . .
2023 . . . . . . . . . . . . .
2024 . . . . . . . . . . . . .
2025 . . . . . . . . . . . . .
2026 . . . . . . . . . . . . .
Thereafter . . . . . . . . .
Totals . . . . . . . . . . . .
Annualized Base
Rent of Expiring
Percentage of Total
Square Footage of Commercial Segments
Percentage of Total
Commercial
Segments
# of Leases Expiring Leases(3) Leased Square Footage Leases at Expiration(2) Annualized Base Rent
8.4 %
15.0 %
14.2 %
4.9 %
7.9 %
4.2 %
2.9 %
12.2 %
5.7 %
5.9 %
18.7 %
100.0 %
2,489,085
4,400,887
4,159,949
1,426,988
2,310,744
1,223,686
847,350
3,562,151
1,661,344
1,716,891
5,476,247
29,275,322
128,903
179,143
206,208
68,513
109,019
67,243
52,511
154,575
76,691
99,024
202,534
1,344,364
9.6 % $
13.3 %
15.3 %
5.1 %
8.1 %
5.0 %
3.9 %
11.5 %
5.7 %
7.4 %
15.1 %
100.0 % $
42
19
17
13
22
13
11
25
5
8
14
189
Includes month-to-month leases. As of April 30, 2016, month-to-month leases accounted for 20,687 square feet.
(1)
(2) Annualized Base Rent is monthly scheduled rent as of April 1, 2016 multiplied by 12.
(3) Assuming that none of the tenants exercise renewal or termination options, and including leases renewed prior to expiration. Also excludes 1,361
square feet of space occupied by us.
Because of 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, we believe that the increase or decrease in effective rent on our 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 our markets. We believe that rents on our new and renewed
leases generally approximate market rents.
2016 Annual Report 54
Property Acquisitions
IRET Properties added approximately $143.5 million of real estate properties to its portfolio through property
acquisitions during fiscal year 2016, compared to $56.3 million in fiscal year 2015. The fiscal year 2016 and 2015
acquisitions are detailed below.
Fiscal 2016 (May 1, 2015 to April 30, 2016)
Acquisitions
Multifamily
Total
Form of Consideration
Investment Allocation
Date Acquisition
Cost
Acquired
Cash
Units(1)
Land
Building
Intangible
Assets
(in thousands)
74 unit - Gardens - Grand Forks, ND . . . . . 2015-09-10 $
276 unit - GrandeVille at Cascade Lake -
Rochester, MN . . . . . . . . . . . . . . . . . . . . . . 2015-10-29
187 unit - Avalon Cove - Rochester, MN(2) . 2016-03-22
90 unit - Cascade Shores - Rochester, MN . 2016-03-22
76 unit - Crystal Bay - Rochester, MN . . . . 2016-03-22
40-unit - French Creek - Rochester, MN . . . 2016-03-22
9,250
$
8,850
400
$
518 $
8,672 $
60
56,000
36,250
18,500
12,000
5,000
56,000
15,000
18,500
12,000
5,000
—
17,826
—
—
—
5,003
1,616
1,585
433
201
50,363
34,145
16,710
11,425
4,735
634
489
205
142
64
137,000
115,350
18,226
9,356
126,050
1,594
Healthcare
27,819 sq ft Lakeside Medical Plaza -
Omaha, NE . . . . . . . . . . . . . . . . . . . . . . . . 2015-08-20
6,500
6,500
—
903
5,109
488
Total Property Acquisitions . . . . . . . . . . . . . . .
$ 143,500
$ 121,850 $ 18,226
$ 10,259 $ 131,159 $
2,082
(1) Value of limited partnership units of the Operating Partnership based on the closing market price of our common stock on the acquisition date.
The number of Units issued were approximately 44,000 and 2.5 million, respectively, for the Gardens and Avalon Cove acquisitions.
(2) Acquisition resulted in a gain on bargain purchase of approximately $3.4 million. See Note 2 of our consolidated financial statements for
additional information.
2016 Annual Report 55
Fiscal 2015 (May 1, 2014 to April 30, 2015)
Total
Form of Consideration
Investment Allocation
Date
Acquired
Acquisition
Cost
Cash Units(1) Other(2)
Land Building
Intangible
Assets
(in thousands)
Acquisitions
Multifamily
152 unit - Homestead Garden - Rapid
City, SD(3) . . . . . . . . . . . . . . . . . . . . 2014-06-02 $
52 unit - Silver Springs - Rapid City,
SD. . . . . . . . . . . . . . . . . . . . . . . . . . 2014-06-02
68 unit - Northridge - Bismarck, ND 2014-09-12
119 unit - Legacy Heights -
Bismarck, ND(4) . . . . . . . . . . . . . . . . 2015-03-19
Unimproved Land
Creekside Crossing - Bismarck, ND . 2014-05-22
PrairieCare Medical - Brooklyn Park,
MN . . . . . . . . . . . . . . . . . . . . . . . . . 2014-06-05
71 France Phase I - Edina, MN(5) . . . 2014-06-12
Monticello 7th Addition - Monticello,
MN . . . . . . . . . . . . . . . . . . . . . . . . . 2014-10-09
71 France Phase II & III - Edina,
MN(5). . . . . . . . . . . . . . . . . . . . . . . . 2014-11-04
Minot 1525 24th Ave SW - Minot,
ND . . . . . . . . . . . . . . . . . . . . . . . . . 2014-12-23
15,000
$ 5,092 $
— $ 9,908 $
655 $ 14,139 $
206
3,280
8,500
1,019
8,400
—
100
2,261
—
215
884
3,006
7,516
15,000
41,780
14,300
28,811
700
800
—
12,169
1,207
2,961
13,742
38,403
4,269
4,269
—
—
4,269
2,616
1,413
2,616
—
—
—
—
1,413
2,616
1,413
1,660
1,660
—
—
1,660
3,309
—
—
3,309
3,309
1,250
14,517
1,250
9,795
—
—
—
4,722
1,250
14,517
—
—
—
—
—
—
—
59
100
51
416
—
—
—
—
—
—
—
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 based on the closing market price of our common stock on the acquisition date.
The number of Units issued were approximately 11,000 and 77,000, respectively, for the Northridge and Legacy Heights acquisitions.
(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 we 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 we have an approximately 52.6% interest. The joint venture is consolidated in our financial
statements.
2016 Annual Report 56
Development Projects Placed in Service
IRET Properties placed approximately $211.8 million of development projects in service during fiscal year 2016,
compared to $124.5 million in fiscal year 2015. The fiscal year 2016 and 2015 development projects placed in service
are detailed below.
Fiscal 2016 (May 1, 2015 to April 30, 2016)
Development Projects Placed in Service (1)
Date Placed
in Service
Land Building
Development
Cost
(in thousands)
Multifamily
72 unit - Chateau II - Minot, ND (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
288 unit - Renaissance Heights - Williston, ND(3) . . . . . . . . . . . . . . . . . . . . . . . . . . .
163 unit - Deer Ridge - Jamestown, ND(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
251 unit - Cardinal Point - Grand Forks, ND(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Healthcare
57,624 sq ft Edina 6565 France SMC III - Edina, MN(6) . . . . . . . . . . . . . . . . . . . . . .
70,756 sq ft PrairieCare Medical - Brooklyn Park, MN(7) . . . . . . . . . . . . . . . . . . . . .
2015-06-01 $
2015-07-27
2016-02-22
2016-03-18
240 $ 14,408 $
3,080
700
1,600
5,620
59,434
24,137
48,132
146,111
14,648
62,514
24,837
49,732
151,731
2015-06-01
2015-09-08
—
2,610
2,610
33,041
21,830
54,871
33,041
24,440
57,481
Other
7,963 sq ft Minot Southgate Retail - Minot, ND(8) . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015-10-01
889
1,734
2,623
Total Development Projects Placed in Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,119 $ 202,716 $
211,835
(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 71 France projects which was partially placed in service during the fiscal year ended April 30, 2016.
(2) Costs paid in prior fiscal years totaled $12.3 million. Additional costs incurred in fiscal year 2016 totaled $2.3 million, for a total project cost at
April 30, 2016 of $14.6 million.
(3) Costs paid in prior fiscal years totaled $57.7 million. Additional costs incurred in fiscal year 2016 totaled $4.8 million, for a total project cost at
April 30, 2016 of $62.5 million. The project is owned by a joint venture entity in which we currently have an approximately 70.0% interest. The
joint venture is consolidated in our financial statements.
(4) Costs paid in prior fiscal years totaled $14.3 million. Additional costs incurred in fiscal year 2016 totaled $10.5 million, for a total project cost at
April 30, 2016 of $24.8 million.
(5) Costs paid in prior fiscal years totaled $23.0 million. Additional costs incurred in fiscal year 2016 totaled $26.7 million, for a total project cost at
April 30, 2016 of $49.7 million.
(6) Costs paid in prior fiscal years totaled $20.8 million. Additional costs incurred in fiscal year 2016 totaled $12.2 million, for a total project cost at
April 30, 2016 of $33.0 million.
(7) Costs paid in prior fiscal years totaled $17.3 million. Additional costs incurred in fiscal year 2016 totaled $7.1 million, for a total project cost at
April 30, 2016 of $24.4 million.
(8) Costs paid in prior fiscal years totaled $2.1 million. Additional costs incurred in fiscal year 2016 totaled approximately $500,000, for a total
project cost at April 30, 2016 of $2.6 million.
2016 Annual Report 57
Fiscal 2015 (May 1, 2014 to April 30, 2015)
Development Projects Placed in Service (1)
Multifamily
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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
4,998 sq ft Minot Southgate Wells Fargo Bank - Minot, ND(7) . . . . . . . . . . . . . . . . . .
202,807 sq ft Roseville 3075 Long Lake Road - Roseville, MN . . . . . . . . . . . . . . . . .
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 $ 9,596 $
1,900
3,691
447
2,088
8,949
26,412
31,351
6,320
29,640
103,319
10,419
28,312
35,042
6,767
31,728
112,268
2014-11-10
2015-02-02
992
—
992
2,193
9,036
11,229
3,185
9,036
12,221
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
15 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 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 we have an approximately 58.6% interest. The joint
venture is consolidated in our 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 April 30, 2015 of $35.0 million. The project is owned by a joint venture entity in which we had an approximately 52.9% interest at April
30, 2015. The joint venture is consolidated in our 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 April
30, 2015 of $6.8 million. The project is owned by a joint venture entity in which we have an approximately 86.1% interest. The joint venture is
consolidated in our 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 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.
2016 Annual Report 58
Property Dispositions
During fiscal year 2016, we sold 8 multifamily properties, 40 office properties, 2 healthcare properties, 18 retail
properties, and 3 parcels of unimproved land for a total sales price of $414.1 million and transferred ownership of 9
office properties pursuant to a deed in lieu transaction, compared to dispositions totaling $76.0 million in fiscal year
2015. The fiscal year 2016 and 2015 dispositions are detailed below.
Fiscal 2016 (May 1, 2015 to April 30, 2016)
Dispositions
Multifamily
Date
(in thousands)
Book Value
Disposed Sales Price and Sales Cost Gain/(Loss)
391 unit - St. Cloud Student Housing Portfolio - St. Cloud,
MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016-03-24 $
5,615 $
5,647
$
(32)
Healthcare
61,758 sq ft Nebraska Orthopaedic Hospital - Omaha, NE .
2016-04-01
24,494
16,512
7,982
Other
117,144 sq ft Thresher Square – Minneapolis, MN . . . . . . . 2015-05-18
2,549,222 sq ft Office Sale Portfolio(1) . . . . . . . . . . . . . . . . . 2015-08-03
420,216 sq ft Mendota Office Center Portfolio – Mendota
Heights, MN(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015-08-12
1,027,208 sq ft Retail Sale Portfolio(3) . . . . . . . . . . . . . . . . . 2015-09-30
48,700 sq ft Eden Prairie 6101 Blue Circle Drive – Eden
Prairie, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015-10-19
8,526 sq ft Burnsville I Strip Center – Burnsville, MN . . . . 2015-12-23
4,800 sq ft Pine City C-Store – Pine City, MN . . . . . . . . . . 2016-01-08
11,003 sq ft Minot Plaza – Minot, ND . . . . . . . . . . . . . . . . . 2016-01-19
937,518 sq ft 9-Building Office Portfolio(4)(5) . . . . . . . . . . . 2016-01-29
3,702 sq ft Arrowhead First International Bank - Minot, ND 2016-04-26
7,000
250,000
7,175
231,908
(175)
18,092
40,000
78,960
41,574
72,000
(1,574)
6,960
2,900
1,300
300
1,854
122,610 (5)
1,675
506,599
2,928
913
355
393
(28)
387
(55)
1,461
86,154 (5) 36,456 (5)
1,255
444,655
420
61,944
Unimproved Land
River Falls Unimproved Land - River Falls, WI . . . . . . . . . 2016-04-06
20
21
(1)
Total Property Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 536,728 $ 466,835 $ 69,893
(1) The properties included in this portfolio disposition are: 610 Business Center, 7800 West Brown Deer Road, Ameritrade, Barry Pointe Office
Park, Benton Business Park, Brenwood, Brook Valley I, Crosstown Centre, Golden Hills Office Center, Granite Corporate Center, Great Plains,
Highlands Ranch I, Highlands Ranch II, Interlachen Corporate Center, Intertech Building, Minnesota National Bank, Northpark Corporate
Center, Omaha 10802 Farnam Dr, Plaza VII, Plymouth 5095 Nathan Lane, Prairie Oak Business Center, Rapid City 900 Concourse Drive, Spring
Valley IV, Spring Valley V, Spring Valley X, Spring Valley XI, Superior Office Building, TCA Building & vacant land, Three Paramount Plaza,
UHC Office, US Bank Financial Center, Wells Fargo Center, West River Business Park and Westgate.
(2) The properties included in this portfolio disposition are: Mendota Office Center I, Mendota Office Center II, Mendota Office Center III, Mendota
Office Center IV and American Corporate Center.
(3) The properties included in this portfolio disposition are: Champlin South Pond, Chan West Village, Duluth 4615 Grand, Duluth Denfeld Retail,
Forest Lake Auto, Forest Lake Westlake Center, Grand Forks Medpark Mall, Jamestown Buffalo Mall, Jamestown Business Center, Lakeville
Strip Center, Monticello C Store & vacant land, Omaha Barnes & Noble, Pine City Evergreen Square, Rochester Maplewood Square and St.
Cloud Westgate.
(4) The properties included in this portfolio disposition are: Corporate Center West, Farnam Executive Center, Flagship Corporate Center, Gateway
Corporate Center, Miracle Hills One, Pacific Hills, Riverport, Timberlands, and Woodlands Plaza IV.
(5) On January 29, 2016, we transferred ownership of nine properties to the mortgage lender on a $122.6 million non-recourse loan and removed the
debt obligation and accrued interest from our balance sheet. The properties had an estimated fair value of $89.3 million on the transfer date. Upon
completion of this transfer, we recognized a gain on extinguishment of debt of $36.5 million, representing the difference between the loan and
accrued interest payable extinguished over the carrying value of the properties, cash, accounts payable and accounts receivable transferred as of
the transfer date and related closing costs.
2016 Annual Report 59
Fiscal 2015 (May 1, 2014 to April 30, 2015)
Dispositions
Multifamily
Date
(in thousands)
Book Value
Disposed Sales Price and Sales Cost Gain/(Loss)
83 unit - Lancaster - St. Cloud, MN . . . . . . . . . . . . . . . . . . . . . . 2014-09-22 $ 4,451 $
3,033 $ 1,418
Healthcare
45,222 sq ft Jamestown Medical Office Building - Jamestown,
MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015-02-05
12,819
8,710
4,109
Other
73,338 sq ft Dewey Hill - Edina, MN . . . . . . . . . . . . . . . . . . . . . 2014-05-19
198,600 sq ft Eagan 2785 & 2795 - Eagan, MN . . . . . . . . . . . . 2014-07-15
25,644 sq ft Weston Retail - Weston, WI . . . . . . . . . . . . . . . . . . 2014-07-28
74,568 sq ft Wirth Corporate Center - Golden Valley, MN . . . 2014-08-29
52,000 sq ft Kalispell Retail - Kalispell, MT . . . . . . . . . . . . . . . 2014-10-15
34,226 sq ft Fargo Express Center & SC Pad - Fargo, ND . . . . 2014-11-18
79,297 sq ft Northgate I – Maple Grove, MN . . . . . . . . . . . . . . 2014-12-01
14,820 sq ft Weston Walgreens – Weston, WI . . . . . . . . . . . . . . 2015-02-27
26,000 sq ft Northgate II - Maple Grove, MN . . . . . . . . . . . . . . 2015-03-02
45,019 sq ft Burnsville Bluffs II - Burnsville, MN . . . . . . . . . 2015-03-25
26,186 sq ft Plymouth I - Plymouth, MN . . . . . . . . . . . . . . . . . . 2015-03-25
26,186 sq ft Plymouth II - Plymouth, MN . . . . . . . . . . . . . . . . . 2015-03-25
26,186 sq ft Plymouth III - Plymouth, MN . . . . . . . . . . . . . . . . . 2015-03-25
126,936 sq ft Plymouth IV & V - Plymouth, MN . . . . . . . . . . . 2015-03-25
58,300 sq ft Southeast Tech Center - Eagan, MN . . . . . . . . . . . 2015-03-25
61,138 sq ft Whitewater Plaza - Minnetonka, MN. . . . . . . . . . . 2015-03-25
13,374 sq ft 2030 Cliff Road - Eagan, MN . . . . . . . . . . . . . . . . . 2015-04-21
Unimproved Land
Kalispell Unimproved - Kalispell, MT . . . . . . . . . . . . . . . . . . . . 2014-10-15
Weston – Weston, WI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015-02-17
3,100
3,600
n/a
4,525
1,230
2,843
7,200
5,177
2,725
1,245
1,985
1,625
2,500
12,910
3,300
3,035
950
57,950
670
158
828
3,124
5,393
1,176
4,695
1,229
2,211
6,881
2,152
1,727
2,245
1,492
1,356
1,977
11,706
4,196
4,625
834
57,019
670
158
828
(24)
(1,793)
(1,176)
(170)
1
632
319
3,025
998
(1,000)
493
269
523
1,204
(896)
(1,590)
116
931
—
—
—
Total Property Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 76,048 $
69,590 $ 6,458
2016 Annual Report 60
Development and Re-Development Projects
The following tables provide additional detail, as of April 30, 2016 and 2015, on our 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. We measure initial yield on our 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 in progress listed below range from approximately 6.0% to 6.3%.
Projects Placed in Service in Fiscal Year 2016
Rentable Percentage
(in thousands)
Segment
Project Name and Location
Chateau II - Minot, ND . . . . . . . . . . . . . . . . Multifamily 72 units
Edina 6565 France SMC III - Edina, MN . . . . Healthcare 57,624 sq ft
(2) . . . . Multifamily 288 units
Renaissance Heights - Williston, ND
Minot Southgate Retail - Minot, ND . . . . . . . Retail
7,963 sq ft
PrairieCare Medical - Brooklyn Park, MN . . . Healthcare 70,756 sq ft
Cardinal Point - Grand Forks, ND . . . . . . . . . Multifamily 251 units
Deer Ridge – Jamestown, ND . . . . . . . . . . . . Multifamily 163 units
Square Feet
or Number of
or
Units Committed
Leased Anticipated Costs as of
2016(1)
Cost per
Date Anticipated
April 30, Square Foot Placed in Same-Store
Date
Q1 2019
Q1 2019
Q1 2019
Q1 2019
Q1 2018
Q1 2019
Q1 2019
or Unit(1)
Service
204,319 Q1 2016
578 Q1 2016
217,063 Q1 2016
367 Q2 2016
347 Q2 2016
208,542 Q4 2016
152,374 Q4 2016
Total
Cost(1)
14,711 $ 14,648 $
33,281
62,514
2,923
24,536
52,344
24,837
33,041
62,514
2,623
24,440
49,732
24,837
$ 215,146 $ 211,835
84.7 % $
24.5 %
43.8 %
— %
100.0 %
44.2 %
50.9 %
(1) Excludes tenant improvements and leasing commissions.
(2) We are currently an approximately 70.0% partner in the joint venture entity constructing this project. The anticipated total cost amount given is
the total cost to the joint venture entity.
Projects in Progress at April 30, 2016
(in thousands)
Number
of Units
Project Name and Location
71 France I - Edina, MN (4) . . . . . . . . . . . Multifamily 241 units
Monticello Crossing - Monticello, MN . . . Multifamily 202 units
n/a
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Planned
Segment
n/a
Percentage
Leased or
Committed
49.4 %
5.5 %
n/a
Anticipated
Total Cost
Costs as
of
April 30,
2016(1)
73,290 71,727
31,784 17,507
3,729
n/a
$ 105,074 $ 92,963
Anticipated
Construction
Completion
1Q 2017
2Q 2017
n/a
Includes costs related to development projects that are placed in service in phases (71 France, $41.3 million).
(1)
(2) The project will be constructed in three phases by a joint venture entity in which we currently have 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.
2016 Annual Report 61
Projects Placed in Service in Fiscal Year 2015
Rentable Percentage
(in thousands)
Segment
Project Name and Location
Dakota Commons - Williston, ND . . . . . . Multifamily
Commons at Southgate - Minot, ND(2) . . . Multifamily
Minot Southgate Wells Fargo Bank -
Minot, ND . . . . . . . . . . . . . . . . . . . . . .
Other
Cypress Court II – St. Cloud, MN(3) . . . . . Multifamily
Arcata - Golden Valley, MN . . . . . . . . . . Multifamily
Red 20 - Minneapolis, MN(4) . . . . . . . . . . Multifamily
Roseville 3075 Long Lake Rd - Roseville,
MN . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial
44 units
233 units
4,998 sq ft
64 units
165 units
130 units
202,807
Square Feet
or Number of
Leased
or
Units Committed
Anticipated Costs as of
April 30,
2015(1)
10,419
$
35,042
Total
Cost(1)
10,736 $
37,201
Cost per
Date Anticipated
Square Foot Placed in Same-Store
Date
Q1 2017
Q1 2017
or Unit(1)
Service
244,000
Q1 2015
159,661 Q3 2015
95.5 % $
92.7 %
100.0 %
96.9 %
20.0 %
75.4 %
3,288
7,028
33,448
29,462
3,186
6,767
31,728
28,312
658 Q3 2015
109,813 Q3 2015
202,715 Q3 2015
226,631 Q3 2015
Q1 2017
Q1 2017
Q1 2017
Q1 2017
5.0 %
$
13,915
9,036
69 Q4 2015
Q1 2017
135,078 $ 124,490
(1) Excludes tenant improvements and leasing commissions.
(2) The project is owned by a joint venture in which we currently have an approximately 51.0% interest. The anticipated total cost amount given is
the total cost to the joint venture entity.
(3) The project is owned by a joint venture in which we currently have an approximately 86.1% interest. The anticipated total cost amount given is
the total cost to the joint venture entity.
(4) The project is owned by a joint venture in which we currently have an approximately 58.6% interest. The anticipated total cost amount given is
the total cost to the joint venture entity.
Projects in Progress at April 30, 2015
Rentable
Project Name and Location
Chateau II - Minot, ND . . . . . . . . . . . . . . . . Multifamily
72 units
Edina 6565 France SMC III - Edina, MN(2) . Healthcare 57,479 sq ft
Retail 7,963 sq ft
Minot Southgate Retail - Minot, ND . . . . . .
Renaissance Heights - Williston, ND(3) . . . . Multifamily
288 units
Deer Ridge – Jamestown, ND . . . . . . . . . . . Multifamily
163 units
PrairieCare Medical - Brooklyn Park, MN . Healthcare 72,895 sq ft
251 units
Cardinal Point - Grand Forks, ND . . . . . . . . Multifamily
71 France Phases I, II, & III - Edina, MN(4) . Multifamily
241 units
n/a
n/a
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Planned
Segment
Square Feet Percentage
or Number Leased or
of Units Committed
(in thousands)
Anticipated
Anticipated Costs as of Construction
Total Cost April 30, 2015(1) Completion
1Q 2016
1Q 2016
1Q 2016
1Q 2016
2Q 2016
2Q 2016
3Q 2016
1Q 2017
n/a
14,711 $
36,752
2,923
62,362
24,519
24,251
40,042
73,290
n/a
$ 278,850 $
13,129
22,549
2,164
59,087
15,355
19,457
26,450
35,137
6,618
199,946
13.9 % $
24.2 %
—
44.5 %
8.6 %
100.0 %
18.3 %
6.2 %
n/a
Includes costs related to development projects that are placed in service in phases (Renaissance Heights I - $11.5 million).
(1)
(2) Anticipated total cost includes tenant improvements and leasing commissions.
(3) We are an approximately 70.0% 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) We are an approximately 52.6% partner in the joint venture entity constructing this project. The anticipated total cost amount given is the total
cost to the joint venture entity.
Funds From Operations
We consider Funds from Operations (“FFO”) a useful measure of performance for an equity REIT. We use 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,
we have made certain interpretations in applying the definition. We believe all such interpretations not specifically
provided for in the NAREIT definition are consistent with the definition.
2016 Annual Report 62
Our 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 our 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 FFO definition of gains and losses from the sales of previously depreciated
operating real estate assets assists management and investors in identifying the operating results of the long-term assets
that form the core of our investments and assists in comparing those operating results between periods. FFO is used by
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
our 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 our needs or our ability to service indebtedness or make distributions.
FFO applicable to common shares and limited partnership units for the fiscal year ended April 30, 2016 was $103.9
million, compared to $86.6 million and $79.9 million for the fiscal years ended April 30, 2015 and 2014, respectively.
Reconciliation of Net Income Attributable to Investors Real Estate Trust to Funds From Operations
For the years ended April 30, 2016, 2015 and 2014:
Fiscal Years Ended April 30,
2016
(in thousands, except per share and unit amounts)
2015
Per
Per
2014
Weighted Avg
Shares and
Share
and
Units(1) Unit(2)
Weighted Avg
Shares and
Share
and
Units(1) Unit(2)
Amount
Weighted Avg
Shares and
Units(1)
Amount
$
$ 24,087
(11,514)
$
$ (13,174)
(11,514)
$
Amount
72,006
(11,514)
Per(cid:2)
Share
and
Unit(2)
60,492
123,094
0.49
12,573
118,004
0.11
(24,688)
105,331
(0.23)
14,278
7,032
63,789
5,983
(33,422)
16,594
1,526
70,450
6,105
(4,079)
(4,676)
71,830
44,426
(6,948)
21,697
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 . . . . . . .
Impairment of real estate . . . . . . . . . . .
Gains on depreciable property sales
attributable to Investors Real Estate Trust
. . . . . . . . . . . . . . . . . . . . . . . . . .
to
from operations applicable
Funds
common shares and Units . . . . . . . . . $ 103,874
137,372 $ 0.76
$ 86,575
134,598 $ 0.64 $
79,944
127,028 $ 0.63
(1) Pursuant to Exchange Rights, limited partnership units of the Operating Partnership are redeemable for cash, or, at our discretion, may be
exchangeable for common shares on a one-for-one basis.
(2) Net income attributable to us is calculated on a per common share basis. FFO is calculated on a per common share and limited partnership unit
basis.
2016 Annual Report 63
Cash Distributions
The following cash distributions were paid to our common shareholders and unitholders during fiscal years 2016, 2015
and 2014:
Quarters
First . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.1300
0.1300
Second . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1300
Third . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1300
Fourth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.5200
2016
2015
2014
$ 0.1300 $ 0.1300
0.1300
0.1300
0.1300
0.1300
0.1300
0.1300
$ 0.5200 $ 0.5200
Fiscal Years
Liquidity and Capital Resources
Overview
Our principal liquidity demands are maintaining distributions to the holders of our common and preferred shares and
limited partnership units of IRET Properties, capital improvements and repairs and maintenance to our properties,
acquisition of additional properties, property development, tenant improvements and debt service and repayments.
We have historically met our short-term liquidity requirements through net cash flows provided by our operating
activities, and, from time to time, through draws on our lines of credit. Management considers our ability to generate
cash from property operating activities, cash-out refinancing of existing properties and draws on our line of credit to be
adequate to meet all operating requirements and to make distributions to our 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 we believe
we will have sufficient cash to meet our commitments over the next twelve months, including an estimated $30.9 million
in capital expenditures (excluding capital expenditures recoverable from tenants and tenant improvements). However,
the 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 our
ability to successfully continue cash-out refinancing of existing properties and/or new borrowings, we may need to
consider additional cash preservation alternatives, including scaling back development activities, capital improvements
and renovations. For the fiscal year ended April 30, 2016, we paid distributions of $67.2 million in cash and issued $4.0
million worth of common shares under to our Distribution Reinvestment and Share Purchase Plan (“DRIP”) to common
shareholders and unitholders of IRET Properties, as compared to net cash provided by operating activities of $66.5
million and FFO of $103.9 million.
To the extent we do not satisfy our long-term liquidity requirements, which consist primarily of maturities under our
long-term debt, construction and development activities and potential acquisition opportunities, through net cash flows
provided by operating activities and our credit facilities, we intend to satisfy such requirements through a combination of
funding sources which we believe will be available to it, including the issuance of limited partnership 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
2016 Annual Report 64
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, 2016, we, through our Operating Partnership as borrower, had one secured line of credit with First
International Bank as lead bank. This revolving, multi-bank line of credit has lending commitments of $100.0 million,
a maturity date of September 1, 2017 and a minimum outstanding principal balance requirement of $17.5 million, and is
secured by mortgages on 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. As of April 30, 2016, participants 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 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. The
current interest rate is 4.75%. 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, and includes covenants and restrictions requiring us 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 we are required to maintain minimum depository account(s)
totaling $6.0 million with First International Bank, of which $1.5 million is to be held in a non-interest bearing account.
As of April 30, 2016, 17 properties with a total cost of $162.1 million collateralized this line of credit, and our
outstanding principal balance under the line of credit was $17.5 million. As of April 30, 2016, we believe we are in
compliance with its covenants.
We maintain 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, 2016, our
compensating balances totaled $13.2 million and consisted of the following:
Financial Institution
First International Bank, Watford City, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,000,000
3,000,000
Associated Bank, Green Bay, WI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,000,000
The Private Bank, Minneapolis, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,285,000
Bremer Bank, Saint Paul, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
350,000
Dacotah Bank, Minot, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
225,000
Peoples State Bank, Velva, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
200,000
American National Bank, Omaha, NE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commerce Bank a Minnesota Banking Corporation . . . . . . . . . . . . . . . . . . . . . .
100,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,160,000
During the second quarter of fiscal year 2014, we and our Operating Partnership entered into an at-the-market, or ATM,
sales agreement with Robert W. Baird & Co. Incorporated as sales agent, where we may from time to time sell our
common shares 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. We issued no common shares under this
program during fiscal years 2016 and 2015. On June 1, 2016, we terminated this agreement according to its terms.
During fiscal year 2016, credit markets continued to be stable, with credit availability relatively unconstrained and
benchmark interest rates remaining at or near historic lows. While to date there has been no material negative impact on
our ability to borrow in our multifamily 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 multifamily
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 multifamily
properties in major metropolitan markets. We have historically obtained a significant portion of our multifamily debt
from Freddie Mac, and we continue to plan to refinance portions of our maturing multifamily 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
2016 Annual Report 65
constricted availability of financing for us. Underwriting on commercial real estate continues to be more conservative
compared to the underwriting standards employed prior to the recessionary period 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 2016, we remain cautious regarding our ability in fiscal year 2017 to rely on cash-out refinancing at levels we
had achieved in recent years to provide funds for investment opportunities and other corporate purposes.
As of April 30, 2016, approximately 88.7%, or $73.7 million of our mortgage debt maturing in the next twelve months is
placed on multifamily assets, and approximately 11.3%, or $9.4 million, is placed on properties in our healthcare assets.
Mortgage debt maturing in the first two quarters of fiscal year 2017 totals approximately $40.2 million. Of this $40.2
million, we paid off $6.5 million on May 11, 2016. We expect to pay off an additional $32.0 million in the first two
quarters of fiscal year 2017 and expect to extend $1.7 million in the first two quarters of fiscal year 2017. We typically
seek to refinance our maturing mortgage debt, although under certain circumstances we may choose to repay the debt
rather than refinance, depending on the loan amount outstanding, our 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,
we currently expect to be able to refinance our individual mortgage loans maturing in the next twelve months, should we
choose to refinance rather than pay off some or all of these loans.
During fiscal year 2016, we acquired properties with an investment cost totaling $143.5 million. In fiscal year 2016, we
sold 8 multifamily properties, 40 office properties, 2 healthcare properties, 18 retail properties and 3 parcels of
unimproved land for a total sales price of $414.1 million and transferred ownership of 9 office properties pursuant to a
deed in lieu transaction, compared to dispositions totaling $76.0 million in fiscal year 2015.
Our DRIP provides an opportunity for existing holders of common shares and limited partnership units and new
investors to purchase our common shares by automatically reinvesting their cash distributions on all or a portion of their
common shares and units and by making additional voluntary cash contributions. The maximum monthly voluntary cash
contribution permitted under the DRIP is currently $10,000. However, we may issue waivers to such investment
limitation subject to a pre-approval process. No waivers were issued in fiscal year 2016. We issued the following
common shares pursuant to such waivers: during fiscal year 2015, approximately 926,000 shares at an average price of
$8.64 per share, for total net proceeds of $8.0 million; and during fiscal year 2014, approximately 1.4 million shares at
an average price of $8.88 per share, for total net proceeds of $12.0 million. Collectively, we issued the following
common shares under the DRIP: during fiscal year 2016, approximately 821,000 common shares with a total value of
$5.6 million; during fiscal year 2015, 8.1 million common shares with a total value of $64.9 million; and during fiscal
year 2014, 6.6 million common shares with a total value of $55.8 million.
The issuance of limited partnership units for property acquisitions continues to be a source of capital for us. We issued
the following units in connection with property acquisitions: during fiscal year 2016, 2.6 million units, valued at issuance
at $18.2 million; during fiscal year 2015, approximately 89,000 units, valued at issuance at approximately $800,000; and
during fiscal year 2014, approximately 361,000 units, valued at issuance at $3.5 million.
Under our previously announced share repurchase program, during fiscal year 2016, we repurchased approximately 4.6
million common shares for approximately $35.0 million. There were no repurchases of common shares in fiscal 2015 or
2014.
Cash and cash equivalents on April 30, 2016 totaled $66.7 million, compared to $49.0 million and $47.3 million on the
same date in 2015 and 2014, respectively. Net cash provided by operating activities decreased to $66.5 in fiscal year
2016 from $114.2 in fiscal year 2015 primarily due to a decrease in accounts payable and a decrease in net income
adjusted for depreciation, gain on sale of discontinued operations, gain on debt extinguishment and gain on bargain
purchase. 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.
2016 Annual Report 66
Net cash provided by investing activities was $134.3 million in fiscal year 2016. The decrease in net cash used by
investing activities from fiscal year 2015 to fiscal year 2016 was due primarily to an increase in proceeds from
discontinued operations net of an increase in payments for acquisitions of real estate assets and a decrease in payments
for improvements of real estate. Net cash used by investing activities increased to $176.4 million in fiscal year 2015,
compared to $121.8 million in fiscal year 2014. 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. Net cash used by financing activities was $183.0 million in fiscal year 2016 compared to net
cash provided by financing activities of $63.9 in fiscal year 2015, with the change due primarily to an increase in
payments on mortgages payable and payments on revolving lines of credit and the repurchase of common shares during
fiscal year 2016. In addition, as of October 1, 2015, shares acquired under our Distribution Reinvestment and Share
Purchase Plan for distribution reinvestment and voluntary cash contributions were no longer issued directly by us but
rather acquired through open market purchases, thereby increasing the cash used for distributions. Net cash provided by
financing activities was $63.9 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.
Financial Condition
Mortgage Loan Indebtedness. Mortgage loan indebtedness, including mortgages on properties held for sale, was $886.1
million on April 30, 2016 and $974.8 million on April 30, 2015. Approximately 77.8% of such mortgage debt is at fixed
rates of interest, with staggered maturities. This limits our exposure to changes in interest rates, which minimizes the
effect of interest rate fluctuations on our results of operations and cash flows. As of April 30, 2016, the weighted average
rate of interest on our mortgage debt was 4.54% compared to 5.16% on April 30, 2015.
Construction Loan Indebtedness. Construction loan indebtedness was $82.0 million on April 30, 2016 and $136.2
million on April 30, 2015. As of April 30, 2016, the weighted average rate of interest on construction loan indebtedness
was 2.74%, compared to 3.38% on April 30, 2015.
Revolving line of credit. As of April 30, 2016, $17.5 million was outstanding under our line of credit with First
International Bank, as lead bank, with a current interest rate of 4.75%. This line of credit, as of April 30, 2016, was
secured by 17 properties with a total cost of $162.1 million.
Property Owned. Property owned increased to $1.7 billion at April 30, 2016, compared to $1.3 billion at April 30, 2015.
Acquisitions, developments and improvements to existing properties in fiscal year 2016, partially offset by fiscal year
2016 dispositions, resulted in the net increase in property owned as of April 30, 2016 compared to April 30, 2015.
Cash and Cash Equivalents. Cash and cash equivalents on April 30, 2016 totaled $66.7 million, compared to $49.0
million on April 30, 2015. The increase in cash on hand on April 30, 2016, as compared to April 30, 2015, 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 $50,000 and $329,000 on April 30,
2016 and 2015, respectively.
Operating Partnership Units. Outstanding limited partnership units in the Operating Partnership increased to 16.3
million units on April 30, 2016, compared to 14.0 million units on April 30, 2015. The increase in units outstanding at
April 30, 2016 as compared to April 30, 2015, resulted from the issuance of units in exchange for property, net of the
conversion of units to shares.
2016 Annual Report 67
Common and Preferred Shares. Common shares outstanding on April 30, 2016 totaled 121.1 million, compared to 124.5
million common shares outstanding on April 30, 2015. This decrease in common shares outstanding from April 30, 2015
to April 30, 2016 was due to our repurchase of outstanding common shares under the share repurchase program net of
issuances of common shares in exchange for limited partnership units of our Operating Partnership and under our DRIP.
We did not issue common shares under the ATM sales agreement with Baird during fiscal years 2016 or 2015. On June
1, 2016, we and our Operating Partnership terminated this agreement according to its terms.
During fiscal year 2016, we issued approximately 821,000 million common shares pursuant to the DRIP, for a total value
of approximately $5.6 million, and approximately 273,000 million common shares in exchange for an equal number of
limited partnership units pursuant to exercises of Exchange Rights during fiscal year 2016, for a total of approximately
$1.5 million in shareholders’ equity. Such issuances increased the number of our outstanding common shares during the
twelve months ended April 30, 2016 compared to the twelve months ended April 30, 2015.
As of April 30, 2016, we had 1.15 million Series A preferred shares and 4.6 million Series B preferred shares
outstanding.
Contractual Obligations and Other Commitments
Our primary contractual obligations relate to our borrowings under the line of credit and mortgage notes payable. The
line of credit matures in September 2017 and had $17.5 million in loans outstanding at April 30, 2016. The principal and
interest payments on the mortgage notes payable, including mortgages on properties held for sale, for the years
subsequent to April 30, 2016, 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, 2016. The “Other Debt” category consists primarily of principal and
interest payments on construction loans.
As of April 30, 2016, we are the tenant under operating ground or air rights leases on nine of our properties. We pay a
total of approximately $329,000 per year in rent under these leases, which have remaining terms ranging from 14 to 85
years, and expiration dates ranging from February 2031 to October 2100.
Our purchase obligations represent those costs that we are contractually obligated to pay in the future. Our significant
purchase obligations as of April 30, 2016, which we expect 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 our 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.
(in thousands)
More than
5 Years
Long-term debt (principal and interest) . . . . . . . . . . $ 1,058,246 $ 180,250 $ 273,430 $ 310,677 $ 293,889
Line of credit (principal and interest)(1) . . . . . . . . . . $
0
Other debt (principal and interest) . . . . . . . . . . . . . . $
0
668 $ 8,503
Operating lease obligations . . . . . . . . . . . . . . . . . . . . $
Purchase obligations . . . . . . . . . . . . . . . . . . . . . . . . . $
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,194,186 $ 204,560 $ 375,889 $ 311,345 $ 302,392
18,684 $
831 $ 17,853 $
86,220 $ 2,277 $ 83,943 $
663 $
330 $
10,164 $
— $
20,872 $ 20,872 $
Less than
1 Year
0 $
0 $
— $
3-5 Years
1-3 Years
Total
(1) The future interest payments on the line of credit were estimated using the outstanding principal balance and interest rate in effect as of April 30,
2016.
2016 Annual Report 68
Off-Balance-Sheet Arrangements
As of April 30, 2016, we 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, 2016, our Board of Trustees declared the following
distributions:
Class of shares/units
Common shares and limited partnership units . . . . . . . . . . . . . . . . . . $
Preferred shares:
Quarterly Amount
per Share or Unit
Record Date
0.1300 June 15, 2016
Payment Date
July 1, 2016
Series A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Series B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.5156 June 15, 2016
0.4968 June 15, 2016
June 30, 2016
June 30, 2016
Strategic Plan Update. On June 6, 2016, we announced our plan to move towards becoming a pure play multifamily
REIT and our intention to sell our remaining commercial properties.
Termination of the ATM Sales Agreement. On June 1, 2016, we and our Operating Partnership terminated the ATM sales
agreement with Baird according to its terms.
Completed Disposition. On May 6, 2016, we sold a parcel of unimproved land in Grand Chute, WI, for a sale price of
$250,000.
Pending Dispositions. On May 2, 2016, the tenant in our eight Spring Creek senior housing properties exercised its
option to purchase the properties for a sale price of $43.5 million. On May 3, 2016, we signed an agreement to sell an
industrial property in Fargo, ND, for a sale price of $13.4 million. 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.
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. Approximately 77.8%, 92.8% and 97.9% of our mortgage debt, including mortgages on
properties held for sale, as of April 30, 2016, 2015 and 2014, respectively, are at fixed interest rates. Therefore, we have
little exposure to interest rate fluctuation risk on our existing mortgage debt. Even though our goal is to maintain a fairly
low exposure to interest rate risk, we may become vulnerable to significant fluctuations in interest rates on any future
repricing or refinancing of our fixed or variable rate debt and on future debt.
2016 Annual Report 69
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, 2016, we had the following amounts of future principal and interest payments due on
mortgages, including mortgages held for sale, secured by our real estate.
Future Principal Payments (in thousands, except percentages)
2018
$ 38,004
2019
$ 79,258
2020
$ 57,133
2021
$ 154,389
Thereafter
$ 257,395 $ 620,523 $ 669,848
Total
Fair
Value
4.86 %
4.80 %
4.64 %
4.44 %
3.79 %
Long Term Debt
2017
Fixed Rate . . . . . . . . . $ 34,344
Average Fixed
Interest Rate . . . . . . .
Variable Rate . . . . . . $ 68,292
Average Variable
Interest Rate . . . . . . .
3.48 %
Held for Sale . . . . . . . $ 48,046
Avg Fixed Interest
Rate . . . . . . . . . . . . . .
3.94 %
$ 16,927
$ 65,178
$ 46,404
$
—
$
— $ 196,801 $ 196,801
3.62 %
4.06 %
4.82 %
$ 1,106
$ 6,921
$
612
$
4,901
$
7,237 $ 68,823 $ 78,690
5.74 %
4.73 %
5.86 %
4.96 %
$ 886,147 $ 945,339
Future Interest Payments (in thousands)
Long Term Debt
2018
Fixed Rate . . . . . . . . . . . . . . . . . . . . . . . . $ 30,091 $ 28,455 $ 25,731 $ 21,127 $ 15,619 $ 28,941 $ 149,964
Variable Rate . . . . . . . . . . . . . . . . . . . .
15,556
Held for Sale . . . . . . . . . . . . . . . . . . . .
6,579
$ 172,099
5,957
2,790
1,472
747
4,687
1,193
3,440
930
2021 Thereafter
—
316
—
603
2020
2019
2017
Total
As of April 30, 2016, the weighted-average interest rate on our fixed rate and variable rate loans was 4.87% and 3.37%,
respectively. The weighted-average interest rate on all of our mortgage debt as of April 30, 2016 was 4.54%. Any
fluctuations in variable interest rates could increase or decrease our interest expenses. For example, an increase of one
percent per annum on our $196.8 million of variable rate mortgage indebtedness would increase our annual interest
expense by $2.0 million.
Exposure to interest rate fluctuation risk on our $100.0 million secured line of credit is limited by a cap on the interest
rate. 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%. The line of credit may be prepaid at par at any time, matures in September 2017 and
had an outstanding balance of $17.5 million at April 30, 2016.
Investments with Certain Financial Institutions. We have 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 us pursuant to the repurchase agreement are not insured by FDIC.
At April 30, 2016 and 2015, these amounts totaled $36.7 million and $9.7 million, respectively.
Deposits exceeding FDIC insurance. We are 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. We have not
experienced any losses in such accounts.
2016 Annual Report 70
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, 2016, 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 our 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, our internal control
over financial reporting.
2016 Annual Report 71
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management 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, 2016. Our internal
control over financial reporting is a process designed under the supervision of our principal executive and principal
financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our
financial statements for external reporting purposes in accordance with United States GAAP.
As of April 30, 2016, management conducted an assessment of the effectiveness of our 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 our internal control over financial reporting as of April 30, 2016, was effective.
Our 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 GAAP, and that receipts and expenditures are being made only in accordance with authorizations of
our management and the trustees; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a material effect on our 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.
Our internal control over financial reporting as of April 30, 2016 has been audited by Grant Thornton LLP, an
independent registered public accounting firm, as stated in their report on page F-3 of our consolidated financial
statements contained in our Annual Report on Form 10-K, which expresses an unqualified opinion on the effectiveness
of our internal control over financial reporting as of April 30, 2016.
(The remainder of this page has been intentionally left blank.)
2016 Annual Report 72
Item 9B. Other Information
None.
PART III
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 2016 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 IV
Item 15. Exhibits, Financial Statement Schedules
(a)
The following documents are filed as part of this report:
1. Financial Statements
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.
2016 Annual Report 73
EXHIBIT
NO.
3.1.
3.2
3.3
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).
Fourth Restated Trustees’ Regulations (Bylaws) dated September 15, 2015 (incorporated herein by
reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the Commission on
September 21, 2015).
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).
10.1**
2015 Incentive Plan dated June 23, 2015 ((incorporated herein by reference to Appendix A to the
Company’s Proxy Statement on Schedule 14A filed with the Commission on August 3, 2015).
10.2**†
Amendment to 2015 Incentive Plan dated April 19, 2016.
10.3†
Form of Trustee Stock Award Agreement under the 2015 Incentive Plan dated June 22, 2016.
10.4**†
Form of Performance Stock Award Agreement under the 2015 Incentive Plan dated June 22, 2016.
10.5**†
Form of Stock Award Agreement under the 2015 Incentive Plan dated June 22, 2016.
10.6**
10.7**
10.8**
10.9**
10.10**
10.11**
10.12**
10.13**
Form of Stock Award Agreement (one-year measurement period) under the 2015 Incentive Plan dated
September 16, 2015 (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K filed with the Commission on September 21, 2015).
Form of Stock Award Agreement (two-year measurement period) under the 2015 Incentive Plan dated
September 16, 2015 (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on
Form 8-K filed with the Commission on September 21, 2015).
Form of Stock Award Agreement (three-year measurement period) under the 2015 Incentive Plan
dated September 16, 2015 (incorporated herein by reference to Exhibit 10.4 to the Company’s Current
Report on Form 8-K filed with the Commission on September 21, 2015).
Form of Change in Control Severance Agreement (incorporated herein by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed with the Commission on July 7, 2015).
Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed with the Commission on September 21, 2015).
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).
2016 Annual Report 74
EXHIBIT
NO.
10.14
10.15
10.16
10.17
10.18
12.1†
21.1†
23.1†
31.1†
31.2†
32.1†
32.2†
101†
DESCRIPTION
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 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).
Agreement for Sale and Purchase of Property dated June 12, 2015 by and between IRET Properties, as
seller, and LSREF4 Bison Acquisitions, LLC, as buyer (incorporated herein by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K filed with the Commission on June 18, 2015).
Agreement for Sale and Purchase of Property dated June 25, 2015 by and between IRET Properties, as
seller, and Glenborough, LLC, as agent on behalf of a joint venture between Glenborough and Oaktree
Capital Management, L.P., as buyer (incorporated herein by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed with the Commission on June 26, 2015).
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
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, 2016
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.
2016 Annual Report 75
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, 2016
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
Title
Date
/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/ Michael T. Dance
Michael T. Dance
/s/ Linda J. Hall
Linda J. Hall
/s/ Terrance P. Maxwell
Terrance P. Maxwell
/s/ John A. Schissel
John A. Schissel
/s/ Stephen L. Stenehjem
Stephen L. Stenehjem
/s/ Jeffrey K. Woodbury
Jeffrey K. Woodbury
2016 Annual Report 76
Trustee & Chairman
June 29, 2016
Trustee & Vice Chairman
June 29, 2016
President & Chief Executive Officer
(Principal Executive Officer); Trustee
June 29, 2016
Executive Vice President & Chief Financial Officer
(Principal Financial Officer)
June 29, 2016
Vice President & Principal Accounting Officer
(Principal Accounting Officer)
June 29, 2016
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
June 29, 2016
June 29, 2016
June 29, 2016
June 29, 2016
June 29, 2016
June 29, 2016
June 29, 2016
25MAR201322024809
INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF April 30, 2016 AND 2015,
AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS,
EQUITY AND CASH FLOWS FOR EACH OF
THE FISCAL YEARS IN THE THREE YEARS ENDED April 30, 2016.
ADDITIONAL INFORMATION
FOR THE YEAR ENDED
April 30, 2016
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
2016 Annual Report
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-42
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.
2016 Annual Report F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Trustees and Shareholders
Investors Real Estate Trust
We have audited the accompanying consolidated balance sheets of Investors Real Estate Trust (a North Dakota real estate
investment trust) and subsidiaries (the “Company”) as of April 30, 2016 and 2015, and the related consolidated statements
of operations, equity, and cash flows for each of the three years in the period ended April 30, 2016. 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, 2016 and 2015, and the results of their operations
and their cash flows for each of the three years in the period ended April 30, 2016 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, 2016, based on criteria established in the
2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated June 29, 2016 expressed an unqualified opinion thereon.
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
June 29, 2016
2016 Annual Report F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Trustees and Shareholders
Investors Real Estate Trust
We have audited the internal control over financial reporting of Investors Real Estate Trust (a North Dakota real estate
investment trust) and subsidiaries (the “Company”) as of April 30, 2016, 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, 2016, 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, 2016, and our report
dated June 29, 2016 expressed an unqualified opinion on those financial statements.
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
June 29, 2016
2016 Annual Report F-3
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
April 30, 2016 April 30, 2015
ASSETS
Real estate investments
Development in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unimproved land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,681,471
(312,889)
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,368,582
51,681
20,939
Total real estate investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,441,202
220,761
66,698
50
7,179
1,524
0
2,937
1,858
5,450
1,011
1,680
Assets held for sale and assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable arising from straight-lining of rents, net of allowance of $333 and $222, respectively
Accounts receivable, net of allowance of $97 and $439, respectively . . . . . . . . . . . . . . . . . . . . . .
Real estate deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net of accumulated amortization of $6,230 and $6,112, respectively . . . . . . . . .
Tax, insurance, and other escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net of accumulated depreciation of $1,058 and $1,374, respectively . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred charges and leasing costs, net of accumulated amortization of $8,716 and $7,524,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,827
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,760,177
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
LIABILITIES
Liabilities held for sale and liabilites of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgages payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction debt and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77,712
39,727
17,500
817,324
82,130
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,034,393
COMMITMENTS AND CONTINGENCIES (NOTE 15)
REDEEMABLE NONCONTROLLING INTERESTS – CONSOLIDATED REAL ESTATE
ENTITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EQUITY
Investors Real Estate Trust shareholders’ equity
7,522
Series A Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no par
value, 1,150,000 shares issued and outstanding at April 30, 2016 and April 30, 2015, 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, 2016 and April 30, 2015, aggregate
liquidation preference of $115,000,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Shares of Beneficial Interest (Unlimited authorization, no par value, 121,091,249
shares issued and outstanding at April 30, 2016, and 124,455,624 shares issued and outstanding
at April 30, 2015) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated distributions in excess of net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Investors Real Estate Trust shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests – Operating Partnership (16,285,239 units at April 30, 2016 and
78,484
13,999,725 units at April 30, 2015) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,020
Noncontrolling interests – consolidated real estate entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
718,262
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY . . . $ 1,760,177
922,084
(442,000)
618,758
111,357
27,317
$ 1,335,687
(279,417)
1,056,270
153,994
25,827
1,236,091
675,764
48,970
329
6,504
2,390
2,489
3,134
1,388
9,499
1,027
1,718
8,534
$ 1,997,837
$
401,299
55,540
60,500
596,965
136,211
1,250,515
6,368
27,317
111,357
951,868
(438,432)
652,110
58,325
30,519
740,954
$ 1,997,837
See Notes to Consolidated Financial Statements.
2016 Annual Report F-4
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
REVENUE
(in thousands, except per share data)
Years Ended April 30,
2016
2015
2014
Real estate rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 170,698 $ 159,969 $ 145,028
19,562
Tenant reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
164,590
17,622
TOTAL REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,320
EXPENSES
19,352
179,321
—
39,517
(35,768)
(106)
2,256
317
50,552
18,704
39,712
7,700
10,743
279
1,850
129,540
2,480
37,530
(33,729)
—
1,906
242
53,535
19,602
42,784
4,663
11,824
362
1,647
134,417
—
44,904
(34,447)
—
2,238
718
Property operating expenses, excluding real estate taxes . . . . . . . . . . . . . . . . . .
Real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of real estate investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition and investment related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58,859
20,241
49,832
5,543
11,267
830
2,231
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,803
Gain on involuntary conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before gain (loss) on sale of real estate and other investments, gain on
bargain purchase and income (loss) from discontinued operations . . . . . . . . . . .
Gain (loss) on sale of real estate and other investments . . . . . . . . . . . . . . . . . . . .
Gain on bargain purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interests – Operating
Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss (income) attributable to noncontrolling interests – consolidated real
(910)
2,436
estate entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13,174)
Net income (loss) attributable to Investors Real Estate Trust . . . . . . . . . . . . . . .
72,006
Dividends to preferred shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,514)
(11,514)
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS . . . $ 60,492 $ 12,573 $ (24,688)
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 . . . . $
5,949
(51)
—
5,898
(22,838)
(16,940)
13,413
6,093
—
19,506
9,178
28,684
6,216
9,640
3,424
19,280
57,322
76,602
(3,071)
24,087
(11,514)
0.41
0.49 $
0.07
0.11 $
(0.18)
(0.23)
0.08 $
0.04 $
(1,526)
(7,032)
(0.05)
4,676
See Notes to Consolidated Financial Statements.
2016 Annual Report F-5
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
NUMBER OF
PREFERRED PREFERRED COMMON COMMON
SHARES
SHARES
OF
SHARES
138,674
SHARES
109,019 $ 843,268 $
5,750 $
NUMBER
ACCUMULATED
DISTRIBUTIONS NONREDEEMABLE
IN EXCESS OF NONCONTROLLING TOTAL
INTERESTS EQUITY
NET INCOME
(389,758) $
128,362 $ 720,546
24,087
(61,247)
(2,372)
(9,142)
4,432
28,519
(8,607)
(69,854)
(2,372)
(9,142)
64,856
2,626
800
800
8,102
64,856
151
2,626
7,183
41,264
(41,264)
—
5,750 $
138,674
124,455 $ 951,868 $
(438,432) $
(146)
72,006
(64,060)
(2,372)
(9,142)
821
5,619
185
1,728
273
(4,643)
1,477
(35,000)
5,750 $
138,674
121,091 $ 922,084 $
(442,000) $
(3,608)
See Notes to Consolidated Financial Statements.
8,909
8,909
(3,926)
138
(3,926)
(8)
88,844 $ 740,954
4,562
76,568
(7,230)
(71,290)
(2,372)
(9,142)
5,619
1,728
18,226
—
(35,000)
18,226
(1,477)
—
—
(7,029)
(7,029)
3,608
—
99,504 $ 718,262
BALANCE APRIL 30, 2014 . . . . . . .
Net income attributable to Investors
Real Estate Trust and nonredeemable
noncontrolling interests . . . . . . . . . . .
Distributions - common shares and
units . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions – Series A preferred
shares . . . . . . . . . . . . . . . . . . . . . . . .
Distributions – Series B preferred
shares . . . . . . . . . . . . . . . . . . . . . . . .
Distribution reinvestment and share
purchase plan . . . . . . . . . . . . . . . . . . .
Shares issued 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 . . . . . . .
Net income attributable to Investors
Real Estate Trust and nonredeemable
noncontrolling interests . . . . . . . . . . .
Distributions - common shares and
units . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions – Series A preferred
shares . . . . . . . . . . . . . . . . . . . . . . . .
Distributions – Series B preferred
shares . . . . . . . . . . . . . . . . . . . . . . . .
Distribution reinvestment and share
purchase plan . . . . . . . . . . . . . . . . . . .
Shares issued and share-based
compensation . . . . . . . . . . . . . . . . . . .
Partnership units issued . . . . . . . . . . .
Redemption of units for common
shares . . . . . . . . . . . . . . . . . . . . . . . .
Shares repurchased . . . . . . . . . . . . . . .
Contributions from nonredeemable
noncontrolling interests – consolidated
real estate entities . . . . . . . . . . . . . . . .
Distributions to nonredeemable
noncontrolling interests – consolidated
real estate entities . . . . . . . . . . . . . . . .
Adjustments to prior year redemption
of units for common shares . . . . . . . . .
BALANCE APRIL 30, 2016 . . . . . . .
2016 Annual Report F-6
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 . . . . . .
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (continued)
(in thousands)
NUMBER
NUMBER OF
PREFERRED PREFERRED COMMON COMMON
SHARES
SHARES
OF
SHARES
138,674
SHARES
101,488 $ 784,454 $
5,750 $
ACCUMULATED
DISTRIBUTIONS NONREDEEMABLE
IN EXCESS OF NONCONTROLLING
NET INCOME
TOTAL
INTERESTS EQUITY
(310,341) $
142,657 $ 755,444
(13,174)
(54,729)
(2,372)
(9,142)
(4,033)
(17,207)
(11,283)
(66,012)
(2,372)
(9,142)
55,793
112
3,480
3,480
6,615
55,793
13
112
903
4,353
(4,353)
—
5,750 $
138,674
109,019 $ 843,268 $
(389,758) $
(1,444)
3,895
(2,001)
3,895
(3,445)
128,362 $ 720,546
See Notes to Consolidated Financial Statements.
2016 Annual Report F-7
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of real estate, land, other investments and discontinued operations. . . . . . . . . . . . . .
Gain on involuntary conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on extinguishment of debt and discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on bargain purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of real estate investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in other assets and liabilities:
Receivable arising from straight-lining of rents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax, insurance and other escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred charges and leasing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments for improvements of real estate assets from discontinued operations . . . . . . . . . . . . . . . . .
Net cash provided (used) by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgages payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on mortgages payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from revolving lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on revolving lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from construction debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on construction debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from financing liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of common shares under distribution reinvestment and share purchase program . .
Proceeds from noncontrolling partner – consolidated real estate entities . . . . . . . . . . . . . . . . . . . . . .
Payments for acquisition of noncontrolling interests – consolidated real estate entities . . . . . . . . . . .
Repurchase of common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions paid to common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions paid to preferred shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions paid to noncontrolling interests – Unitholders of the Operating Partnership . . . . . . . . .
Distributions paid to noncontrolling interests – consolidated real estate entities . . . . . . . . . . . . . . . . .
Net cash (used) provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . .
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . .
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(in thousands)
Year Ended April 30,
2016
2015
2014
76,602
$
28,684
$ (16,940)
50,978
14,477
(33,423)
—
(35,552)
(3,424)
2,256
5,983
651
(437)
1,815
762
1,463
(1,366)
(14,292)
66,493
5,203
(2,714)
279
4,347
(1,136)
365,845
40,306
1,320
(121,821)
(122,801)
(28,976)
(5,600)
134,252
143,574
(234,885)
82,000
(125,000)
94,142
(24,754)
—
1,493
1,120
—
(35,000)
(60,063)
(11,514)
(7,101)
(7,029)
(183,017)
17,728
48,970
66,698
43,762
28,316
(6,093)
—
—
—
2,215
6,105
967
(64)
4,058
(150)
1,445
(2,300)
7,234
114,179
1,168
(3,512)
—
10,738
(1,204)
—
73,835
2,678
(38,704)
(189,091)
(21,327)
(10,988)
(176,407)
90,749
(127,622)
55,000
(17,000)
93,643
(12,685)
—
48,701
2,284
—
—
(45,728)
(11,514)
(7,971)
(3,926)
63,931
1,703
47,267
48,970
$
41,976
31,747
(6,948)
(2,480)
—
—
—
44,426
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)
(25,974)
(8,985)
(121,834)
50,333
(101,867)
12,500
0
55,199
(17,443)
7,900
41,194
994
(2,505)
—
(40,764)
(11,514)
(10,649)
(924)
(17,546)
(46,866)
94,133
47,267
$
See Notes to Consolidated Financial Statements.
2016 Annual Report F-8
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
Year Ended April 30,
2016
2015
2014
130
1,477
18,226
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Distribution reinvestment plan – shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating partnership distribution reinvestment plan – shares issued . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Decrease) increase to accounts payable included within real estate
investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,420)
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 . . . . . . . . . . . . . . . . . . . . . . . 123,553
Forfeiture of note payable in conjunction with sale of property . . . . . . . . . . . . . .
—
Decrease in real estate assets in connection with transfer of real estate assets in
settlement of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in debt in connection with transfer of real estate assets in settlement of
debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,610
87,213
—
3,997 $ 15,519 $ 13,965
634
4,353
3,480
636
41,264
800
12,169
—
5,116
1,767
6,624
—
—
—
—
—
2,901
7,052
—
600
—
—
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized of $4,396, $4,903 and $2,855,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39,668 $ 51,283 $ 54,071
See Notes to Consolidated Financial Statements.
2016 Annual Report F-9
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2016, 2015, and 2014
NOTE 1 • ORGANIZATION
Investors Real Estate Trust (“IRET”, “we” or “us”) is a self-advised equity real estate investment trust engaged in
acquiring, owning and leasing real estate. We have elected to be taxed as a real estate investment trust (“REIT”) under
Sections 856-860 of the Internal Revenue Code of 1986, as amended. As a REIT, we 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, 2016, 2015 and 2014. Our properties are located mainly in
the states of North Dakota and Minnesota, but also in the states of Idaho, Iowa, Kansas, Montana, Nebraska, South
Dakota, Wisconsin and Wyoming. As of April 30, 2016, we held for investment 99 multifamily properties with 12,950
apartment units and 47 commercial properties, consisting of healthcare, industrial, office and retail, totaling 2.9 million
net rentable square feet. As of April 30, 2016, we held for sale 1 multifamily property, 36 commercial properties and 3
parcels of land. We conduct a majority of our business activities through our 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, we or us 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 our accounts and the accounts of all our subsidiaries in
which we maintain a controlling interest, including the Operating Partnership. All intercompany balances and
transactions are eliminated in consolidation. Our fiscal year ends April 30th.
Our interest in the Operating Partnership was 88.1% and 89.9%, respectively, of the limited partnership units of the
Operating Partnership (“Units”) as of April 30, 2016 and 2015, which includes 100% of the general partnership interest.
Under the terms of the Operating Partnership’s Agreement of Limited Partnership, limited partners have the right to
require the Operating Partnership to redeem their Units for cash any time following the first anniversary of the date they
acquired such Units (“Exchange Right”). When a limited partner exercises the Exchange Right, we have the right, in our
sole discretion, to acquire such Units by either making a cash payment or exchanging the Units for our common shares
of beneficial interest (“Common Shares”), on a one-for-one basis. The Exchange Right is subject to certain conditions
and limitations, including the limited partner may not exercise the Exchange Right more than two times during a
calendar year and the limited partner may not exercise for less than 1,000 Units, or, if such limited partner holds less than
1,000 Units, for less than all of the Units held by such limited partner. The Operating Partnership and some limited
partners have contractually agreed to a holding period of greater than one year, a greater number of redemptions during a
calendar year or other limitations to their Exchange Right.
The consolidated financial statements also reflect the ownership by the Operating Partnership of certain joint venture
entities in which the Operating Partnership has a general partners or controlling interest. These entities are consolidated
into our other operations with noncontrolling interests reflecting the noncontrolling partners’ share of ownership, income
and expenses.
2016 Annual Report F-10
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 accounting principles generally accepted in the United States of America (“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 fiscal years beginning after
December 15, 2017. We do not expect adoption of this update to have a material impact on our operating results or
financial position.
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 fiscal years beginning after December 15,
2015. We do not expect adoption of this update to have a material impact on our 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 fiscal years beginning after December 15, 2015. We do not expect adoption of this update to have a material
impact on our 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 fiscal years beginning after December 15, 2015. We do not
expect adoption of this update to have a material impact on our operating results or financial position.
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial
Liabilities. ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial
instruments, including the requirement to measure certain equity investments at fair value with changes in fair value
recognized in net income. The ASU is effective for interim and annual reporting periods in fiscal years beginning after
December 15, 2017. We do not expect adoption of this update to have a material impact on our operating results or
financial position.
In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 amends existing accounting standards for lease
accounting, including by requiring lessees to recognize most leases on the balance sheet and making certain changes to
lessor accounting. The ASU is effective for interim and annual reporting periods in fiscal years beginning after
December 15, 2018. We are currently evaluating the impact the new standard may have on our consolidated financial
statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. ASU
2016-09 amends several aspects of the accounting for share-based payment transactions, including the income tax
consequences, accrual of compensation cost, classification of awards as either equity or liabilities, and classification on
the statement of cash flows. The ASU is effective for interim and annual reporting periods in fiscal years beginning after
December 15, 2016. We are currently evaluating the impact the new standard may have on our consolidated financial
statements.
2016 Annual Report F-11
USE OF ESTIMATES
The preparation of financial statements in conformity with 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, we combined utilities, maintenance, insurance, property management
expenses and other property expenses onto a single line called property operating expenses, excluding real estate taxes.
We also combined depreciation/amortization related to real estate investments and amortization related to non-real estate
investments onto a single line called depreciation and amortization. Additionally on the Consolidated Statements of
Operations, we reclassed acquisition and project costs from other expenses to acquisition and investment related costs.
On the Consolidated Balance Sheets, we reclassified assets and liabilities related to properties classified as held for sale.
We report, in discontinued operations, the results of operations and the related gains or losses of properties that have
either been disposed of or classified as held for sale and for which the disposition represents a strategic shift that has or
will have a major effect on our operations and financial results. As the result of discontinued operations, retroactive
reclassifications that change prior period numbers have been made. See Note 12 for additional information. During the
first quarter of fiscal year 2016, we classified as discontinued operations 48 office properties, 17 retail properties and 1
healthcare property. During the fourth quarter of fiscal year 2016, we classified as discontinued operations 34 senior
housing properties.
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. We
allocate 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 fair value of the intangible assets (which include in-place leases.) The as-if-vacant value is allocated to land,
buildings and personal property based on management’s determination of the relative fair values of these assets. The
estimated fair value of the property is the amount that would be recoverable upon the disposition of the property.
Techniques used to estimate fair value include discounted cash flow analysis and reference to recent sales of
comparables. A land value is assigned based on the purchase price if land is acquired separately or based on estimated
fair value if acquired in a merger or in a single or portfolio acquisition.
Acquired above- and below-market lease values are recorded as the difference between the contractual amounts to be
paid pursuant to the in-place leases and management’s estimate of fair market value lease rates for the corresponding in-
place leases. The capitalized above- and below-market lease values are amortized as adjustments to rental revenue over
the remaining terms of the respective leases, which includes fixed rate renewal options for below-market leases if it is
determined probable the tenant will execute a bargain renewal option.
Other intangible assets acquired include amounts for in-place lease values that are based upon our 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. We also consider information about each property obtained during 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. We use a 20-40 year
estimated life for buildings and improvements and a 5-12 year estimated life for furniture, fixtures and equipment.
2016 Annual Report F-12
We follow 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 multifamily 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, we have received
sufficient consideration and we have no significant involvement with the property sold.
We periodically evaluate our long-lived assets, including 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, we
compare 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 2016, we incurred a non-cash loss of $6.0 million due to impairment of one office property, one
healthcare property, two parcels of land and eight multifamily properties of which approximately $440,000 is reflected in
discontinued operations. See Note 12 for additional information on discontinued operations. We recognized impairments
of approximately $440,000 on an office property in Eden Prairie, Minnesota; $1.9 million on a healthcare property in
Sartell, Minnesota; $1.6 million on a parcel of land in Grand Chute, Wisconsin; $1.9 million on eight multifamily
properties in St. Cloud, Minnesota; and $162,000 on a parcel of land in River Falls, Wisconsin. These properties were
written-down to estimated fair value during fiscal year 2016 based on receipt of individual market offers to purchase and
our intent to dispose of the properties or, in the case of the Grand Chute, Wisconsin, the sale listing price and our intent
to dispose of the property. The Sartell, Minnesota property is classified as held for sale at April 30, 2016.
During fiscal year 2015, we incurred a non-cash loss of $6.1 million due to impairment of four commercial properties
and two parcels of unimproved land of which $1.4 million is reflected in discontinued operations. See Note 12 for
additional information on discontinued operations. We 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 our 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.
During fiscal year 2014, we incurred a non-cash loss of $44.4 million due to impairment of 15 properties, of which $36.7
million is reflected in discontinued operations. See Note 12 for additional information on discontinued operations. We
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 our 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 Edina, Minnesota,
2016 Annual Report F-13
office property was based on receipt of a market offer to purchase and our intent to dispose of the property (we signed a
purchase agreement 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 Golden Valley, Minnesota,
office property based on receipt of a market offer to purchase and our intent to dispose of the property (we signed a
purchase agreement in the first quarter of fiscal year 2015).
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. Our
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.
We classify properties as held for sale when they meet the U.S. GAAP criteria, which include: (a) management commits
to and initiates a plan to sell the asset (disposal group), (b) the sale is probable and expected to be completed within one
year under terms that are usual and customary for sales of such assets (disposal groups), and (c) actions required to
complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be
withdrawn. We generally consider 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. 35 healthcare properties, one multifamily property, one industrial property and three
parcels of unimproved land were classified as held for sale at April 30, 2016. One office property and one healthcare
property were classified as held for sale at April 30, 2015. In addition, properties classified as discontinued operations
during fiscal year 2016 were reclassified as assets and liabilities held for sale as of April 30, 2015. See Note 12 for
additional information.
Prior to February 1, 2014, we 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, we 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 our 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, we record 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. We amortize 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, 2016 and 2015, respectively, we added $2.2 million and approximately $416,000 of new
intangible assets and approximately $101,000 and $0 of new intangible liabilities. The weighted average lives of the
intangible assets acquired in the twelve months ended April 30, 2016 and 2015 are 0.7 years and 0.5 years, respectively.
Amortization of intangibles related to above or below-market leases is recorded in real estate rentals in the Consolidated
Statements of Operations. Amortization of other intangibles is recorded in depreciation/amortization related to real estate
investments in the Consolidated Statements of Operations. Intangible assets subject to amortization are reviewed for
impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An
impairment loss is recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount
exceeds its estimated fair value.
2016 Annual Report F-14
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. Our 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, 2016 and 2015 was $1.7 million and $1.7
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 2016, we disposed of eight commercial properties that had goodwill
assigned, and as a result, approximately $196,000 of goodwill was derecognized. In fiscal year 2015, we recognized
approximately $852,000 of goodwill from the acquisition of the Homestead Garden multifamily property and disposed
of one multifamily 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, we disposed of property that had goodwill
assigned, and as a result, approximately $7,000 of goodwill was derecognized.
PROPERTY AND EQUIPMENT
Property and equipment consists of the equipment contained at our 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, 2016
and 2015, property and equipment cost was $2.1 million and $2.4 million, respectively. Accumulated depreciation was
$1.1 million and $1.4 million as of April 30, 2016 and 2015, respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all cash and highly liquid investments purchased with maturities of three months or
less. Cash and cash equivalents consist of our bank deposits and short-term investment certificates acquired subject to
repurchase agreements, and our deposits in a money market mutual fund. At times, these deposits may exceed the FDIC
limit.
COMPENSATING BALANCES AND OTHER INVESTMENTS; LENDER HOLDBACKS
We maintain 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, 2016, our
compensating balances totaled $13.2 million and consisted of the following:
Financial Institution
First International Bank, Watford City, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,000,000
3,000,000
Associated Bank, Green Bay, WI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,000,000
The PrivateBank, Minneapolis, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,285,000
Bremer Bank, Saint Paul, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
350,000
Dacotah Bank, Minot, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
225,000
Peoples State Bank, Velva, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
200,000
American National Bank, Omaha, NE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commerce Bank a Minnesota Banking Corporation . . . . . . . . . . . . . . . . . . . . . . .
100,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,160,000
A portion of the deposit at Dacotah Bank is held as a certificate of deposit and comprises the $50,000 in other
investments on the Consolidated Balance Sheets. The certificate of deposit has a remaining term of less than six months
and we intend to hold it to maturity.
We have a number of mortgage loans under which the lender retains a portion of the loan proceeds or requires a deposit
for the payment of construction costs or tenant improvements. The decrease of $4.3 million in lender holdbacks for
improvements reflected in the Consolidated Statements of Cash Flows for the fiscal year ended April 30, 2016 is due
primarily to the release of loan proceeds to us upon completion of these construction and tenant improvement projects,
while the increase of $1.1 million represents additional amounts retained by lenders for new projects.
2016 Annual Report F-15
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 including properties held for sale for fiscal years ended April 30, 2016, 2015 and 2014 is as follows:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at close of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
TAX, INSURANCE, AND OTHER ESCROW
(in thousands)
2015
2014
2016
1,044 $ 1,393
1,156 $
434
967
651
(783)
(855)
(861)
946 $ 1,156 $ 1,044
Tax, insurance and other escrow includes funds deposited with a lender for payment of real estate tax and insurance, and
reserves for funds to be used for replacement of structural elements and mechanical equipment of certain projects. The
funds are under the control of the lender. Disbursements are made after supplying written documentation to the lender.
REAL ESTATE DEPOSITS
Real estate deposits include funds held by escrow agents to be applied toward the purchase of real estate or the payment
of loan costs associated with loan placement or refinancing.
DEFERRED 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
We operate in a manner intended to enable us 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, 2016, 2015 and
2014, we 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 we fail to qualify as a REIT in any taxable year, we will be subject to federal
income tax on our 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, we 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 we qualifie 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).
We have 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 2016, we estimate 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, 2016, 2015 and 2014. Our TRS is the tenant in our Legends at Heritage Place senior housing
facility.
We conduct our business activity as an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) through our
Operating Partnership. UPREIT status allows us to accept the contribution of real estate in exchange for Units.
2016 Annual Report F-16
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, 2015 were characterized, for federal income tax purposes, as
36.28% ordinary income, 11.99% capital gain and 51.73% return of capital. 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.
REVENUE RECOGNITION
Multifamily 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. We receive payments for these reimbursements from substantially all
of our 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.
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. We have no potentially dilutive financial interests. The
potential issuance of Units in exchange for common shares pursuant to the Exchange Right 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, we 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 us, and
also granted us an option to repurchase the property at a specified price at or prior to July 31, 2018. We accounted for the
transaction as a financing due to our 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, 2016 is
$7.9 million.
VARIABLE INTEREST ENTITY
On November 27, 2012, we 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, with approximately 69% of
the project financed with third-party debt and approximately 7% financed with debt from us to the joint venture entity.
The two-phase project was substantially completed in the third quarter of fiscal year 2015. As of April 30, 2016, we are
the approximately 51.0% owner of the joint venture and have management and leasing responsibilities and the real estate
development company owns approximately 49.0% of the joint venture and was responsible for the development and
construction of the property. We have 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. We have also determined that we are the primary beneficiary of the VIE due to
the fact that we are providing more than 50% of the equity contributions, the subordinated debt and a guarantee on the
third party debt and have the power to direct the most significant activities that impact the entity’s economic
performance.
2016 Annual Report F-17
On June 12, 2014, we entered into a joint venture operating agreement with a real estate development company and two
other partners to construct a three-phase apartment project in Edina, Minnesota as IRET – 71 France, LLC. We estimate
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 us to the joint venture entity. The first phase of the project was substantially
completed in the second quarter of fiscal year 2016, the second phase of the project was substantially completed in the
third quarter of fiscal year 2016 and 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 10 for additional information. As of
April 30, 2016, we are 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 and 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. We have determined that the joint venture is a 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. We have also determined that we are the primary beneficiary of the VIE due to the fact that we are
providing more than 50% of the equity contributions, the subordinated debt and a guarantee on the third party debt and
have the power to direct the most significant activities that impact the entity’s economic performance.
INVOLUNTARY CONVERSION OF ASSETS
In February 2012, one of the buildings of the Chateau Apartments property was completely destroyed by fire (the “2012
Fire”). 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 exceeded the basis in the assets requiring replacement, resulting in
recognition of a gain from involuntary conversion of $2.5 million in fiscal year 2014.
In December 2013, 15-unit and 57-unit buildings at the Chateau Apartments property were destroyed by fire (the “2013
Fire”). Rebuilding was completed in the first quarter of fiscal year 2016. We 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.
GAIN ON BARGAIN PURCHASE
On March 22, 2016, we acquired a multifamily property in Rochester, MN, which had a fair value at acquisition of
approximately $36.3 million, as appraised by a third party. The consideration exchanged for the property consisted of
$15.0 million cash and approximately 2.5 million Units, valued at approximately $17.8 million. The fair value of the
Units transferred was based on the closing market price of our common stock on the acquisition date of $7.09 per share.
The acquisition resulted in a gain on bargain purchase because the fair value of assets acquired exceeded the total of the
fair value of the consideration paid by approximately $3.4 million. The seller accepted consideration below the fair value
of the property in order to do a partial tax-deferred exchange for Units.
NOTE 3 • CREDIT RISK
We are potentially exposed to credit risk for cash deposited with FDIC-insured financial institutions in accounts which,
at times, may exceed federally insured limits. We have not experienced any losses in such accounts.
We have 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 U.S. 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 us pursuant to the repurchase
agreement are not insured by FDIC. At April 30, 2016 and 2015, these amounts totaled $36.7 million and $9.7 million,
respectively.
2016 Annual Report F-18
NOTE 4 • PROPERTY OWNED
Property, consisting principally of real estate, is stated at cost less accumulated depreciation and totaled $1.4 billion and
$1.1 billion as of April 30, 2016 and 2015, respectively.
Construction period interest of approximately $4.9 million, $4.9 million and $2.9 million has been capitalized for the
years ended April 30, 2016, 2015 and 2014, respectively.
The future minimum lease receipts to be received under non-cancellable leases for commercial properties held for
investment as of April 30, 2016, assuming that no options to renew or buy out the lease are exercised, are as follows:
Year Ended April 30,
(in thousands)
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,558
26,235
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,289
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,423
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,216
112,551
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 225,272
See Real Estate Investments within Note 2 for information about impairment losses recorded during fiscal years 2016
and 2015.
NOTE 5 • IDENTIFIED INTANGIBLE ASSETS AND LIABILITIES
Our identified intangible assets and intangible liabilities at April 30, 2016 and 2015 were as follows:
(in thousands)
April 30, 2016 April 30, 2015
Identified intangible assets (included in intangible assets):
Gross carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
8,088 $
(6,230)
1,858 $
7,500
(6,112)
1,388
Identified intangible liabilities (included in other liabilities):
Gross carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
159 $
(55)
104 $
82
(61)
21
The amortization of acquired below-market leases and acquired above-market leases reduced rental income by
approximately $14,000, $24,000 and $25,000 for the twelve months ended April 30, 2016, 2015 and 2014, 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,
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
$
5
(11)
(20)
(16)
(13)
2016 Annual Report F-19
Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $1.7
million, $1.5 million and $2.1 million for the twelve months ended April 30, 2016, 2015 and 2014, 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,
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
1,171
269
170
104
78
NOTE 6 • NONCONTROLLING INTERESTS
Interests in the Operating Partnership held by limited partners are represented by Units. The Operating Partnership’s
income is allocated to holders of Units based upon the ratio of their holdings to the total Units outstanding during the
period. Capital contributions, distributions and profits and losses are allocated to noncontrolling interests in accordance
with the terms of the Operating Partnership’s Agreement of Limited Partnership.
We reflect noncontrolling interests in consolidated real estate entities on the balance sheet for the portion of properties
consolidated by us that are not wholly owned by us. 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 fiscal year 2016, Mendota Properties LLC disposed of the
five properties held by the entity. Our noncontrolling interests – consolidated real estate entities at April 30, 2016 and
2015 were as follows:
(in thousands)
April 30, 2016 April 30, 2015
IRET-71 France, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
IRET-Cypress Court Apartments, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IRET-RED 20, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IRET-Williston Garden Apartments, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IRET - WRH 1, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mendota Properties LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
WRH Holding, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests – consolidated real estate entities . . . . . . . . . . . . . . . . . . . . . . . . . $
8,070 $
1,042
2,410
3,014
5,266
—
1,195
23
21,020 $
8,630
1,089
3,072
3,090
6,138
7,294
1,206
—
30,519
NOTE 7 • LINE OF CREDIT
As of April 30, 2016, we, through our Operating Partnership as Borrower, had one secured revolving multi-bank line of
credit with First International Bank and Trust, Watford City, North Dakota (“First International Bank”), as lead bank.
The line of credit has lending commitments of $100.0 million, a current interest rate of 4.75%, a maturity date of
September 1, 2017 and a minimum outstanding principal balance requirement of $17.5 million. As of April 30, 2016,
participants 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 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. As of April 30, 2016, we had advanced $17.5 million under the line of credit.
2016 Annual Report F-20
The line of credit may be prepaid at par at any time. The facility includes covenants and restrictions requiring us 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 we are also required to maintain minimum depository
account(s) totaling $6.0 million with First International Bank, of which $1.5 million is to be held in a non-interest
bearing account. As of April 30, 2016, 17 properties with a total cost of $162.1 million collateralized this line of credit.
As of April 30, 2016, we believe we are in compliance with the line of credit’s covenants. This credit facility is
summarized in the following table:
(in thousands)
Financial Institution
Weighted
Average Int.
Rate on
Borrowings
Amount as of April 30, as of April 30, as of April 30, Maturity during fiscal
year 2016
Amount
Outstanding Outstanding
Applicable
Interest Rate
Amount
Date
2016
2015
2016
Available
First International Bank & Trust . . . $ 100,000 $
17,500 $
60,500
4.75 % 9/1/17
4.75 %
NOTE 8 • MORTGAGES PAYABLE AND CONSTRUCTION DEBT
Most of our properties owned 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 us, 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 2.44% to 7.94%, and the mortgages have varying maturity dates from July 1,
2016 through July 1, 2036. As of April 30, 2016, management believes there are no material defaults or material
compliance issues in regards to any of these mortgages payable.
Of the mortgages payable, including mortgages on properties held for sale, the balance of fixed rate mortgages totaled
$689.3 million and $904.9 million at April 30, 2016 and 2015, respectively, and the balances of variable rate mortgages
totaled $196.8 million and $70.0 million as of April 30, 2016, and 2015, respectively. We do not utilize derivative
financial instruments to mitigate our exposure to changes in market interest rates. Most of the fixed rate mortgages have
substantial pre-payment penalties. As of April 30, 2016, the weighted-average rate of interest on our mortgage debt was
4.54%, compared to 5.16% on April 30, 2015. The aggregate amount of required future principal payments on mortgages
payable as of April 30, 2016, is as follows
(in thousands)
Mortgages
Mortgages
on Properties on Properties
Year Ended April 30,
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 102,636 $
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 817,324 $
54,931
144,436
103,537
154,389
257,395
Sale
48,046
1,106
6,921
612
4,901
7,237
68,823
Held for
Investment
Held for
In addition to mortgage loans comprising our $886.1 million of mortgage indebtedness, our revolving, multi-bank
secured line of credit discussed in Note 7 is secured as of April 30, 2016, by mortgages on 17 properties. This line of
credit is not included in our mortgage indebtedness total. We currently have 29 unencumbered properties.
Our construction debt totaled $82.0 million and $136.2 million on April 30, 2016 and 2015, respectively. The weighted
average rate of interest on the construction debt as of April 30, 2016 was 2.74%, compared to 3.38% as of April 30,
2015. The total available to be drawn on the construction loans was $26.2 million at April 30, 2016.
2016 Annual Report F-21
NOTE 9 • TRANSACTIONS WITH RELATED PARTIES
BANKING SERVICES – FIRST INTERNATIONAL BANK AND TRUST
We have an ongoing banking relationship with First International Bank. Stephen L. Stenehjem, a member of our Board
of Trustees, is the Chief Executive Officer and Chairman of First International Bank 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. We have one mortgage loan outstanding with First International Bank, with an original
principal balance of $43.0 million (Renaissance Heights I) bearing variable interest at 5.24% per annum as of April 30,
2016. We paid interest on this loan of $2.2 million in fiscal year 2016 and it had a balance of $42.2 million at April 30,
2016. We have a multi-bank line of credit with a capacity of $100.0 million, of which First International Bank is the lead
bank and a participant with an $11.0 million commitment. In fiscal year 2016, we paid First International Bank a total of
approximately $186,000 in interest on First International Bank’s portion of the outstanding balance of this credit line,
and paid fees of $77,000. In connection with this multi-bank line of credit, we maintain compensating balances with First
International Bank 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 us interest on the deposited amount of 0.20% per annum. We also maintain checking
accounts with First International Bank. In fiscal year 2016, we paid less than $500 in total in various bank service and
other fees charged on these checking accounts.
In fiscal years 2015 and 2014, we paid interest and fees on outstanding mortgage and construction loans of
approximately $1.7 million and $1.0 million respectively. In fiscal years 2015 and 2014, respectively, we paid First
International Bank $245,000 and $125,000 in interest on First International Bank’s portion of the multi-bank line of
credit and paid fees of $40,000 in both years. Also in both fiscal years 2015 and 2014, we paid under $500 in total in
various bank service and other fees charged on checking accounts maintained with First International Bank. Total
payments of interest and fees from us to First International Bank were approximately $2.5 million, $2.0 million and $1.2
million in fiscal years 2016, 2015 and 2014, respectively.
LEASE AND SALE TRANSACTIONS
In fiscal year 2013, we entered into an agreement with First International Bank to construct an approximately 3,700
square-foot building on an outlot of our Arrowhead Shopping Center in Minot, North Dakota, to be leased by First
International Bank 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 received in fiscal years 2016, 2015 and 2014 totaled $108,000,
$109,000 and $109,000, respectively. We sold the property to First International Bank during fiscal year 2016 for a sales
price of $1.7 million.
SALES AGREEMENT
We have an investment banking relationship with Robert W. Baird & Co. Incorporated (“Baird”). Terrance P. Maxwell,
a member of our 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, we and our
Operating Partnership entered into an at-the-market, or ATM, sales agreement with Baird as sales agent. Under the terms
of this agreement, we may from time to time issue and sell through Baird our 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. We have not issued any common
shares under this program during fiscal years 2016, 2015 and 2014.
2016 Annual Report F-22
NOTE 10 • ACQUISITIONS, DEVELOPMENT PROJECTS PLACED IN SERVICE AND DISPOSITIONS
PROPERTY ACQUISITIONS
We added $143.5 million of real estate properties to our portfolio through property acquisitions during fiscal year 2016,
compared to $56.3 million in fiscal year 2015. We expensed approximately $253,000 and $216,000 of transaction costs
related to the acquisitions in fiscal years 2016 and 2015, respectively. The fiscal year 2016 and 2015 acquisitions are
detailed below.
Fiscal 2016 (May 1, 2015 to April 30, 2016)
Acquisitions
Multifamily
Total
Form of Consideration
Investment Allocation
Date Acquisition
Acquired
Cost
Cash
Units(1) Land Building
Intangible
Assets
(in thousands)
74 unit - Gardens - Grand Forks, ND . . . . . . . . . 2015-09-10 $
276 unit - GrandeVille at Cascade Lake -
Rochester, MN . . . . . . . . . . . . . . . . . . . . . . . . . 2015-10-29
187 unit - Avalon Cove - Rochester, MN(2) . . . . . 2016-03-22
90 unit - Cascade Shores - Rochester, MN . . . . . 2016-03-22
76 unit - Crystal Bay - Rochester, MN . . . . . . . . 2016-03-22
40-unit - French Creek - Rochester, MN . . . . . . . 2016-03-22
9,250
$
8,850 $
400 $
518 $ 8,672 $
56,000
36,250
18,500
12,000
5,000
56,000
15,000
18,500
12,000
5,000
— 5,003
17,826 1,616
— 1,585
433
—
201
—
50,363
34,145
16,710
11,425
4,735
60
634
489
205
142
64
137,000
115,350
18,226 9,356
126,050
1,594
Healthcare
27,819 sq ft Lakeside Medical Plaza - Omaha, NE
2015-08-20
6,500
6,500
—
903
5,109
488
Total Property Acquisitions . . . . . . . . . . . . . . . . . . .
$
143,500
$ 121,850 $ 18,226 $10,259 $131,159 $
2,082
(1) Value of Units of the Operating Partnership based on the closing market price of our common stock on the acquisition date. The number of Units
issued were approximately 44,000 and 2.5 million, respectively, for the Gardens and Avalon Cove acquisitions.
(2) Acquisition resulted in a gain on bargain purchase of approximately $3.4 million. See Note 2 for additional information.
2016 Annual Report F-23
Fiscal 2015 (May 1, 2014 to April 30, 2015)
Acquisitions
Date Acquired
Cost
Cash
Acquisition
Units(1) Other(2) Land
Intangible
Building Assets
Total
Form of Consideration
Investment Allocation
(in thousands)
Multifamily
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 $ — $ 9,908
$ 655
$ 14,139 $ 206
2014-06-02
3,280
1,019
—
2,261
215
3,006
59
2014-09-12
8,500
8,400
100
—
884
7,516
100
2015-03-19
15,000
41,780
14,300
28,811
700
800
—
12,169
1,207
2,961
13,742
38,403
51
416
2014-05-22
4,269
4,269
—
—
4,269
2014-06-05
2,616
2,616
—
—
2,616
2014-06-12
1,413
—
—
1,413
1,413
2014-10-09
1,660
1,660
—
—
1,660
2014-11-04
3,309
—
—
3,309
3,309
2014-12-23
1,250
14,517
1,250
9,795
—
—
—
1,250
14,517
4,722
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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 based on the closing market price of our common stock on the acquisition date.
The number of Units issued were approximately 11,000 and 77,000, respectively, for the Northridge and Legacy Heights acquisitions.
(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, we 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 we have an approximately 52.6% interest. The joint venture is consolidated in our financial
statements.
Acquisitions in fiscal years 2016 and 2015 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 2016 and 2015 acquisitions are detailed below.
(in thousands)
Year Ended April 30,
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,094 $ 2,565
(1)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(366) $
2016
2015
2016 Annual Report F-24
DEVELOPMENT PROJECTS PLACED IN SERVICE
Our Operating Partnership placed approximately $211.8 million of development projects in service during fiscal year
2016, compared to $124.5 million in fiscal year 2015. The fiscal year 2016 and 2015 development projects placed in
service are detailed below.
Fiscal 2016 (May 1, 2015 to April 30, 2016)
Development Projects Placed in Service (1)
Date Placed
in Service
Land
Building
Development
Cost
(in thousands)
Multifamily
72 unit - Chateau II - Minot, ND (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015-06-01 $ 240 $ 14,408 $ 14,648
288 unit - Renaissance Heights - Williston, ND(3) . . . . . . . . . . . . . . . . 2015-07-27
62,514
163 unit - Deer Ridge - Jamestown, ND(4) . . . . . . . . . . . . . . . . . . . . . . 2016-02-22
24,837
251 unit - Cardinal Point - Grand Forks, ND(5) . . . . . . . . . . . . . . . . . . 2016-03-18
49,732
151,731
59,434
24,137
48,132
146,111
3,080
700
1,600
5,620
Healthcare
57,624 sq ft Edina 6565 France SMC III - Edina, MN(6) . . . . . . . . . . . 2015-06-01
70,756 sq ft PrairieCare Medical - Brooklyn Park, MN(7) . . . . . . . . . . 2015-09-08
—
2,610
2,610
33,041
21,830
54,871
33,041
24,440
57,481
Other
7,963 sq ft Minot Southgate Retail - Minot, ND(8) . . . . . . . . . . . . . . . . 2015-10-01
889
1,734
2,623
Total Development Projects Placed in Service . . . . . . . . . . . . . . . . . . . . .
$9,119 $202,716 $ 211,835
(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 71 France project, which was partially placed in service during the fiscal year ended April 30, 2016.
(2) Costs paid in prior fiscal years totaled $12.3 million. Additional costs incurred in fiscal year 2016 totaled $2.3 million, for a total project cost at
April 30, 2016 of $14.6 million.
(3) Costs paid in prior fiscal years totaled $57.7 million. Additional costs incurred in fiscal year 2016 totaled $4.8 million, for a total project cost at
April 30, 2016 of $62.5 million. The project is owned by a joint venture entity in which we currently have an approximately 70.0% interest. The
joint venture is consolidated in our financial statements.
(4) Costs paid in prior fiscal years totaled $14.3 million. Additional costs incurred in fiscal year 2016 totaled $10.5 million, for a total project cost at
April 30, 2016 of $24.8 million.
(5) Costs paid in prior fiscal years totaled $23.0 million. Additional costs incurred in fiscal year 2016 totaled $26.7 million, for a total project cost at
April 30, 2016 of $49.7 million.
(6) Costs paid in prior fiscal years totaled $20.8 million. Additional costs incurred in fiscal year 2016 totaled $12.2 million, for a total project cost at
April 30, 2016 of $33.0 million.
(7) Costs paid in prior fiscal years totaled $17.3 million. Additional costs incurred in fiscal year 2016 totaled $7.1 million, for a total project cost at
April 30, 2016 of $24.4 million.
(8) Costs paid in prior fiscal years totaled $2.1 million. Additional costs incurred in fiscal year 2016 totaled approximately $500,000, for a total
project cost at April 30, 2016 of $2.6 million.
2016 Annual Report F-25
Fiscal 2015 (May 1, 2014 to April 30, 2015)
Development Projects Placed in Service (1)
Date Placed
in Service
Land
Building
Development
Cost
(in thousands)
Multifamily
44 unit - Dakota Commons - Williston, ND(2) . . . . . . . . . . . . . . . . . . . 2014-07-15 $ 823 $ 9,596 $ 10,419
130 unit - Red 20 - Minneapolis, MN(3) . . . . . . . . . . . . . . . . . . . . . . . . 2014-11-21
28,312
233 unit - Commons at Southgate - Minot, ND(4) . . . . . . . . . . . . . . . . 2014-12-09
35,042
64 unit - Cypress Court II - St. Cloud, MN(5) . . . . . . . . . . . . . . . . . . . . 2015-01-01
6,767
165 unit - Arcata - Golden Valley, MN(6) . . . . . . . . . . . . . . . . . . . . . . . 2015-01-01
31,728
112,268
26,412
31,351
6,320
29,640
103,319
1,900
3,691
447
2,088
8,949
Other
4,998 sq ft Minot Southgate Wells Fargo Bank - Minot, ND(7) . . . . . 2014-11-10
202,807 sq ft Roseville 3075 Long Lake Road - Roseville, MN . . . . 2015-02-02
992
—
992
2,193
9,036
11,229
3,185
9,036
12,221
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 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 we have an approximately 58.6% interest. The joint
venture is consolidated in our 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 April 30, 2015 of $35.0 million. The project is owned by a joint venture entity in which we had an approximately 52.9% interest at April
30, 2015. The joint venture is consolidated in our 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 April
30, 2015 of $6.8 million. The project is owned by a joint venture entity in which we have an approximately 86.1% interest. The joint venture is
consolidated in our 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 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.
2016 Annual Report F-26
PROPERTY DISPOSITIONS
During fiscal year 2016, we sold 8 multifamily, 40 office properties, 2 healthcare properties, 18 retail properties and 3
parcels of unimproved land for a total sales price of $414.1 million and transferred ownership of 9 office properties
pursuant to a deed in lieu transaction. Dispositions totaled $76.0 million in fiscal year 2015. The fiscal year 2016 and
2015 dispositions are detailed below.
Fiscal 2016 (May 1, 2015 to April 30, 2016)
Dispositions
Multifamily
Date
Disposed Sales Price and Sales Cost Gain/(Loss)
(in thousands)
Book Value
391 unit - St. Cloud Student Housing Portfolio - St. Cloud, MN . . . . . . . . . . . . . . . 2016-03-24 $
5,615
5,647
(32)
Healthcare
61,758 sq ft Nebraska Orthopaedic Hospital - Omaha, NE . . . . . . . . . . . . . . . . . . . 2016-04-01
24,494
16,512
7,982
Other
117,144 sq ft Thresher Square – Minneapolis, MN . . . . . . . . . . . . . . . . . . . . . . . . . 2015-05-18
2,549,222 sq ft Office Sale Portfolio(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015-08-03
420,216 sq ft Mendota Office Center Portfolio – Mendota Heights, MN(2) . . . . . . . 2015-08-12
1,027,208 sq ft Retail Sale Portfolio(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015-09-30
48,700 sq ft Eden Prairie 6101 Blue Circle Drive – Eden Prairie, MN . . . . . . . . . . . 2015-10-19
8,526 sq ft Burnsville I Strip Center – Burnsville, MN . . . . . . . . . . . . . . . . . . . . . . 2015-12-23
4,800 sq ft Pine City C-Store – Pine City, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016-01-08
11,003 sq ft Minot Plaza – Minot, ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016-01-19
937,518 sq ft 9-Building Office Portfolio(4)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016-01-29
3,702 sq ft Arrowhead First International Bank - Minot, ND . . . . . . . . . . . . . . . . . . 2016-04-06
7,000
250,000
40,000
78,960
2,900
1,300
300
1,854
122,610 (5)
1,675
506,599
7,175
231,908
41,574
72,000
2,928
913
355
393
86,154 (5)
1,255
444,655
(175)
18,092
(1,574)
6,960
(28)
387
(55)
1,461
36,456 (5)
420
61,944
Unimproved Land
River Falls Unimproved Land - River Falls, WI . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016-04-06
20
21
(1)
Total Property Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 536,728 $
466,835 $
69,893
(1) The properties included in this portfolio disposition are: 610 Business Center, 7800 West Brown Deer Road, Ameritrade, Barry Pointe Office
Park, Benton Business Park, Brenwood, Brook Valley I, Crosstown Centre, Golden Hills Office Center, Granite Corporate Center, Great Plains,
Highlands Ranch I, Highlands Ranch II, Interlachen Corporate Center, Intertech Building, Minnesota National Bank, Northpark Corporate
Center, Omaha 10802 Farnam Dr, Plaza VII, Plymouth 5095 Nathan Lane, Prairie Oak Business Center, Rapid City 900 Concourse Drive, Spring
Valley IV, Spring Valley V, Spring Valley X, Spring Valley XI, Superior Office Building, TCA Building & vacant land, Three Paramount Plaza,
UHC Office, US Bank Financial Center, Wells Fargo Center, West River Business Park and Westgate.
(2) The properties included in this portfolio disposition are: Mendota Office Center I, Mendota Office Center II, Mendota Office Center III, Mendota
Office Center IV and American Corporate Center.
(3) The properties included in this portfolio disposition are: Champlin South Pond, Chan West Village, Duluth 4615 Grand, Duluth Denfeld Retail,
Forest Lake Auto, Forest Lake Westlake Center, Grand Forks Medpark Mall, Jamestown Buffalo Mall, Jamestown Business Center, Lakeville
Strip Center, Monticello C Store & vacant land, Omaha Barnes & Noble, Pine City Evergreen Square, Rochester Maplewood Square and St.
Cloud Westgate.
(4) The properties included in this portfolio disposition are: Corporate Center West, Farnam Executive Center, Flagship Corporate Center, Gateway
Corporate Center, Miracle Hills One, Pacific Hills, Riverport, Timberlands, and Woodlands Plaza IV.
(5) On January 29, 2016, we transferred ownership of nine properties to the mortgage lender on a $122.6 million non-recourse loan and removed the
debt obligation and accrued interest from our balance sheet. The properties had an estimated fair value of $89.3 million on the transfer date. Upon
completion of this transfer, we recognized a gain on extinguishment of debt of $36.5 million, representing the difference between the loan and
accrued interest payable extinguished over the carrying value of the properties, cash, accounts payable and accounts receivable transferred as of
the transfer date and related closing costs.
2016 Annual Report F-27
Fiscal 2015 (May 1, 2014 to April 30, 2015)
Dispositions
Multifamily
Date
Disposed Sales Price and Sales Cost Gain/(Loss)
(in thousands)
Book Value
83 unit - Lancaster - St. Cloud, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014-09-22 $
4,451 $
3,033 $
1,418
Healthcare
45,222 sq ft Jamestown Medical Office Building - Jamestown, ND . . . . . . . . . . . . . . 2015-02-05
12,819
8,710
4,109
Other
73,338 sq ft Dewey Hill - Edina, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014-05-19
198,600 sq ft Eagan 2785 & 2795 - Eagan, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014-07-15
25,644 sq ft Weston Retail - Weston, WI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014-07-28
74,568 sq ft Wirth Corporate Center - Golden Valley, MN . . . . . . . . . . . . . . . . . . . 2014-08-29
52,000 sq ft Kalispell Retail - Kalispell, MT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014-10-15
34,226 sq ft Fargo Express Center & SC Pad - Fargo, ND . . . . . . . . . . . . . . . . . . . . 2014-11-18
79,297 sq ft Northgate I – Maple Grove, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014-12-01
45,222 sq ft Jamestown Medical Office Building - Jamestown, MN . . . . . . . . . . . . 2015-02-05
14,820 sq ft Weston Walgreens – Weston, WI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015-02-27
26,000 sq ft Northgate II - Maple Grove, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015-03-02
45,019 sq ft Burnsville Bluffs II - Burnsville, MN . . . . . . . . . . . . . . . . . . . . . . . . 2015-03-25
26,186 sq ft Plymouth I - Plymouth, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015-03-25
26,186 sq ft Plymouth II - Plymouth, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015-03-25
26,186 sq ft Plymouth III - Plymouth, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015-03-25
126,936 sq ft Plymouth IV & V - Plymouth, MN . . . . . . . . . . . . . . . . . . . . . . . . . . 2015-03-25
58,300 sq ft Southeast Tech Center - Eagan, MN . . . . . . . . . . . . . . . . . . . . . . . . . . 2015-03-25
61,138 sq ft Whitewater Plaza - Minnetonka, MN . . . . . . . . . . . . . . . . . . . . . . . . . . 2015-03-25
13,374 sq ft 2030 Cliff Road - Eagan, MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015-04-21
Unimproved Land
Kalispell Unimproved - Kalispell, MT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014-10-15
Weston – Weston, WI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015-02-17
3,100
3,600
—
4,525
1,230
2,843
7,200
12,819
5,177
2,725
1,245
1,985
1,625
2,500
12,910
3,300
3,035
950
70,769
670
158
828
3,124
5,393
1,176
4,695
1,229
2,211
6,881
8,710
2,152
1,727
2,245
1,492
1,356
1,977
11,706
4,196
4,625
834
65,729
670
158
828
(24)
(1,793)
(1,176)
(170)
1
632
319
4,109
3,025
998
(1,000)
493
269
523
1,204
(896)
(1,590)
116
5,040
—
—
—
Total Property Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
88,867 $
78,300 $
10,567
NOTE 11 • OPERATING SEGMENTS
We report our results in two reportable segments, which are aggregations of similar properties: multifamily and
healthcare, excluding our senior housing properties, which were classified as held for sale and discontinued operations at
April 30, 2016.
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 U.S. 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, 2016, 2015 and 2014 from our two 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.
2016 Annual Report F-28
(in thousands)
60,477
Multifamily Healthcare All Other
Total
Year Ended April 30, 2016
Real estate revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 131,149 $ 45,621 $ 11,550 $ 188,320
Real estate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79,100
16,021 2,602
109,220
Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70,672 $ 29,600 $ 8,948
(49,832)
(5,543)
(11,267)
(830)
(2,231)
(35,768)
(106)
2,573
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of real estate investments . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition and investment related costs . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on debt extinguishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before gain on sale of real estate and other investments, gain
on bargain purchase and income from discontinued operations . . . . .
Gain on sale of real estate and other investments . . . . . . . . . . . . . . . . .
Gain on bargain purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,216
9,640
3,424
19,280
57,322
$ 76,602
(in thousands)
51,172
Multifamily Healthcare All Other
Total
Year Ended April 30, 2015
Real estate revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 118,526 $ 44,153 $ 16,642 $ 179,321
Real estate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73,137
16,240 5,725
106,184
Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,354 $ 27,913 $ 10,917
(42,784)
(4,663)
(11,824)
(362)
(1,647)
(34,447)
2,956
13,413
6,093
19,506
9,178
$ 28,684
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of real estate investments . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition and investment related costs . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 Annual Report F-29
(in thousands)
46,138
2,480
Multifamily Healthcare All Other
Total
Year Ended April 30, 2014
Real estate revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 102,059 $ 44,098 $ 18,433 $ 164,590
69,256
16,351 6,767
Real estate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,480
Gain on involuntary conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0
0
97,814
Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 58,401 $ 27,747 $ 11,666
(39,712)
(7,700)
(10,743)
(279)
(1,850)
(33,729)
2,148
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of real estate investments . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition and investment related costs . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before loss on sale of real estate and other investments and
loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of real estate and other investments . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,949
(51)
5,898
(22,838)
$ (16,940)
Segment Assets and Accumulated Depreciation
As of April 30, 2016
Segment assets
Multifamily Healthcare All Other
Total
(in thousands)
Property owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,243,909 $ 337,920 $ 99,642 $ 1,681,471
(312,889)
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . .
Total property owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,034,753 $ 254,362 $ 79,467 $ 1,368,582
220,761
66,698
50
31,466
51,681
20,939
$ 1,760,177
Assets held for sale and assets from discontinued operations
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables and other assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Development in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unimproved land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(83,558)
(20,175)
(209,156)
As of April 30, 2015
Segment assets
Multifamily Healthcare All Other
Total
(in thousands)
Property owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 946,520 $ 284,342 $ 104,825 $ 1,335,687
(279,417)
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . .
Total property owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 766,106 $ 205,717 $ 84,447 $ 1,056,270
675,764
48,970
329
36,683
153,994
25,827
$ 1,997,837
Assets held for sale and assets from discontinued operations .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Development in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unimproved land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(180,414)
(78,625)
(20,378)
2016 Annual Report F-30
NOTE 12 • DISCONTINUED OPERATIONS
Prior to February 1, 2014, we 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 our consolidated statements of operations, to the extent
such disposals did not meet the criteria for classification as a discontinued operation described in Note 2.
During fiscal year 2016, we determined that our strategic plan to exit the office and retail segments met the criteria for
discontinued operations. Accordingly, 48 office properties, 17 retail properties and 1 healthcare property were classified
as discontinued operations and subsequently sold during fiscal year 2016. Additionally, we determined that our strategic
decision to exit senior housing, which is a subset of our healthcare segment, met the criteria for discontinued operations
and we consequently classified 34 senior housing properties as held for sale and discontinued operations at April 30,
2016. We classified no dispositions as discontinued operations during fiscal year 2015. During fiscal year 2014, we
disposed of two multifamily properties, three office properties, twelve industrial properties and three retail properties that
were classified as discontinued operations. 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, 2016, 2015
and 2014.
REVENUE
(in thousands)
2016
2015
2014
Real estate rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,544 $ 75,883 $ 78,066
27,301
Tenant reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TRS senior housing revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,627
106,994
TOTAL REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXPENSES
24,466
3,520
103,869
8,684
3,955
56,183
25,735
10,252
Property operating expenses, excluding real estate taxes . . . . . . . . . . . . . . . . . . . . .
15,229
5,777
Real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32,216
14,166
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,726
440
Impairment of real estate investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,331
3,366
TRS senior housing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
—
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
111,240
34,001
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,246)
22,182
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,406)
(25,834)
Gain on extinguishment of debt(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
29,336
2
1
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
241
427
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(29,837)
33,540
Income (loss) from discontinued operations before gain on sale . . . . . . . . . . . . . . . .
Gain on sale of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,999
23,782
INCOME (LOSS) FROM DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . . $ 57,322 $ 9,178 $ (22,838)
Segment Data
23,517
14,343
27,823
1,442
2,997
1
70,123
33,746
(24,573)
—
—
5
9,178
—
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(99)
4,223
(26,962)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57,322 $ 9,178 $ (22,838)
5,926
51,396
6,832
2,346
— $
— $
(1)
Interest expense includes $4.7 million and approximately $528,000 for fiscal years ended April 30, 2016 and 2015, respectively, of default
interest related to a $122.6 million non-recourse loan. Gain on extinguishment of debt in the fiscal year ended April 30, 2016 includes $36.5
million of gain on extinguishment of debt recognized in connection with our transfer of ownership to the mortgage lender of the nine properties
serving as collateral for the $122.6 million non-recourse loan and the removal of the debt obligation and accrued interest from our balance sheet.
2016 Annual Report F-31
Property Sale Data
Sales price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net book value and sales costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
373,460 $
(349,678)
23,782 $
— $ 80,883
—
(73,884)
— $ 6,999
The following information reconciles the carrying amounts of major classes of assets and liabilities of the discontinued
operations to assets and liabilities held for sale that are presented separately on the Condensed Consolidated Balance
Sheets:
(in thousands)
2015
2016
2014
Carrying amounts of major classes of assets included as part of discontinued
operations
Property owned and intangible assets, net of accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Receivable arising from straight-lining of rents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax, insurance and other escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred charges and leasing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total major classes of assets of the discontinued operations . . . . . . . . . . . . . . . . . . . . . . .
Other assets included in the disposal group classified as held for sale . . . . . . . . . . . . . . .
Total assets of the disposal group classified as held for sale on the balance sheet . . . . . . $
Carrying amounts of major classes of liabilities included as part of discontinued
operations
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Mortgages payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total major classes of liabilities of the discontinued operations . . . . . . . . . . . . . . . . . . . .
Other liabilities included in the disposal group classified as held for sale . . . . . . . . . . . .
Total liabilities of the disposal group classified as held for sale on the balance sheet . . . $
NOTE 13 • EARNINGS PER SHARE
(in thousands)
April 30, 2016
April 30, 2015
189,900 $
9,805
1,707
43
0
670
479
18
222
202,844
17,917
220,761 $
810 $
68,162
7,900
76,872
840
77,712 $
592,780
19,191
1,041
739
25,879
1,750
515
193
9,936
652,024
23,740
675,764
14,811
366,824
7,904
389,539
11,760
401,299
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. We have no outstanding options, warrants, convertible stock or
other contractual obligations requiring issuance of additional common shares that would result in a dilution of earnings.
Pursuant to the exercise of Exchange Rights, Units may be exchanged for common 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, 2016, 2015 and 2014:
2016 Annual Report F-32
For Year Ended April 30,
(in thousands, except per share data)
2016
2015
2014
8,091
24,087
(11,514)
NUMERATOR
Income from continuing operations – Investors Real Estate Trust . . . . . . . . . . . . . $ 20,600 $ 15,996 $ 6,065
51,406
(19,239)
Income (loss) from discontinued operations – Investors Real Estate Trust . . . . . .
(13,174)
Net income (loss) attributable to Investors Real Estate Trust . . . . . . . . . . . . . . . . .
72,006
Dividends to preferred shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,514)
(11,514)
Numerator for basic earnings per share – net income (loss) available to common
(24,688)
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests – Operating Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,676)
Numerator for diluted earnings (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,524 $ 14,099 $ (29,364)
DENOMINATOR
Denominator for basic earnings per share weighted average shares . . . . . . . . . . . . 123,094
Effect of convertible operating partnership units . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,278
Denominator for diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,372
Earnings (loss) per common share from continuing operations – Investors Real
Estate Trust – basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Earnings (loss) per common share from discontinued operations – Investors Real
Estate Trust – basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INCOME (LOSS) PER COMMON SHARE – BASIC & DILUTED . . . . . . $
118,004
16,594
134,598
105,331
21,697
127,028
12,573
1,526
0.41
0.49 $
0.07
0.11 $
60,492
7,032
(0.18)
(0.23)
0.08 $
0.04 $
(0.05)
NOTE 14 • RETIREMENT PLANS
We sponsor 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 our 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 1,000 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 our
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. We currently
expect discretionary employer contributions to be not more than 3.5% of the eligible wages of each participating
employee, and currently match, 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 are fully vested when made. Our contributions to these plans on behalf of employees
totaled approximately $836,000, $1.0 million and $1.1 million in fiscal years 2016, 2015 and 2014, respectively. The
decrease in cost from fiscal year 2015 to fiscal year 2016 was due to a decrease in discretionary employer contribution
expense.
2016 Annual Report F-33
NOTE 15 • COMMITMENTS AND CONTINGENCIES
Ground Leases. As of April 30, 2016, we are a tenant under operating ground or air rights leases on nine of our
properties. We pay a total of approximately $329,000 per year in rent under these ground leases, which have remaining
terms ranging from 15 to 85 years, and expiration dates ranging from February 2031 to October 2100. We have renewal
options for four of the nine 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, 2016 is as follows:
Fiscal Year Ended April 30,
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(in thousands)
Lease Payments
330
331
332
333
335
8,503
10,164
Legal Proceedings. We are involved in various lawsuits arising in the normal course of business. Management believes
that such matters will not have a material effect on our consolidated financial statements.
Environmental Matters. It is generally our policy to obtain a Phase I environmental assessment of each property that we
seek to acquire. Such assessments have not revealed, nor are we aware of, any environmental liabilities that we believe
would have a material adverse effect on our financial position or results of operations. We own 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, we 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, we have not
recorded any related asset retirement obligation as the fair value of the liability cannot be reasonably estimated due to
insufficient information. We believe we do 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, we may commit ourself 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 we are 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, 2016, we are committed to fund $6.1 million in tenant improvements, within approximately the next 12 months. Of
this total, approximately $101,000 is related to properties classified as held for sale.
Purchase Options. Under certain lease agreements, we have granted options to the tenants of properties to purchase
such properties. 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, 2016, 14 of our properties were subject to purchase options, and the total investment cost, plus improvements,
of all such properties was $97.2 million with total gross rental revenues in fiscal year 2016 of $7.6 million. Subsequent
to fiscal year end, the tenant in our Spring Creek senior housing portfolio exercised its option to purchase the properties
for a sale price of $43.5 million. The Spring Creek properties were classified as held for sale and discontinued operations
with the rest of our senior housing portfolio at April 30, 2016.
Insurance. We carry insurance coverage on our properties in amounts and types that we believe are customarily
obtained by owners of similar properties and are sufficient to achieve our risk management objectives.
2016 Annual Report F-34
Restrictions on Taxable Dispositions. Approximately 76 of our properties, consisting of approximately 2.6 million
square feet of our combined commercial properties and 5,396 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 $692.4 million at April 30,
2016. The restrictions on taxable dispositions are effective for varying periods. The terms of these agreements generally
prevent us from selling the properties in taxable transactions. We do not believe that the agreements materially affect the
conduct of our business or our decisions whether to dispose of restricted properties during the restriction period because
we generally hold these and our other properties for investment purposes rather than for sale. Historically, however,
where we have deemed it to be in our shareholders’ best interests to dispose of restricted properties, we have done so
through transactions structured as tax-deferred transactions under Section 1031 of the Internal Revenue Code.
Redemption Value of Units. Pursuant to a Unitholders exercise of its Exchange Rights, after a minimum one-year
holding period, we have the right, in our sole discretion, to acquire such Units by either making a cash payment or
exchanging the Units for our common shares, on a one-for-one basis. 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 our common share for the ten consecutive trading days immediately preceding the date of valuation of
the Unit. As of April 30, 2016 and 2015, the aggregate redemption value of the then-outstanding Units owned by limited
partners was approximately $109.3 million and $102.4 million, respectively.
Joint Venture Buy/Sell Options. Several of our joint venture agreements contain buy/sell options in which each party
under certain circumstances has the option to acquire the interest of the other party, but do not generally require that we
buy our partners’ interests. However, from time to time, we have entered into joint venture agreements which contain
options compelling us to acquire the interest of the other parties. We currently have one such joint venture, the Southgate
apartment project in Minot, North Dakota, in which our joint venture partner can, for the four-year period from February
6, 2016 through February 5, 2020, compel us 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. We have 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, 2016, contractual commitments for these projects are
as follows:
Project Name and Location
Deer Ridge - Jamestown, ND . . . . . . . Multifamily
Cardinal Point - Grand Forks, ND(2) . Multifamily
71 France - Edina, MN(3) . . . . . . . . . . . Multifamily
Monticello Crossings - Monticello,
MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . Multifamily
n/a
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rentable
(in thousands)
Square Feet Anticipated
Costs as of
Planned Segment or Number of Units Total Cost(1) April 30, 2016(1)
24,837
49,732
71,727
163 units
251 units
241 units
24,837
52,344
73,290
(in fiscal years)
Anticipated
Construction
Completion
In Service
In Service
1Q 2017
202 units
n/a
31,784
n/a
$ 182,255 $
17,507
3,729
167,532
2Q 2017
n/a
Includes costs related to development projects that are placed in service in phases (71 France - $41.3 million).
(1)
(2) Anticipated total cost as of April 30, 2016 includes incremental cost increase due to the replacement of the project’s original general contractor.
(3) The project is being constructed in three phases by a joint venture entity in which we currently have 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
20,956 square feet of rentable 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.
2016 Annual Report F-35
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 2016 and
2015. 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
We had no assets or liabilities recorded at fair value on a recurring basis at April 30, 2016 and 2015.
Fair Value Measurements on a Nonrecurring Basis
Non-financial assets measured at fair value on a nonrecurring basis at April 30, 2016 and 2015 consisted of real estate
held for sale that was written-down to estimated fair value during fiscal year 2016 and 2015, respectively. The aggregate
fair value of these assets by their levels in the fair value hierarchy are as follows:
April 30, 2016
Real estate held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,650 $ — $ — $ 6,650
April 30, 2015
Real estate held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,100 $ — $ — $ 7,100
(in thousands)
Total Level 1 Level 2 Level 3
Financial Assets and Liabilities Not Measured at Fair Value
The following methods and assumptions were used to estimate the fair value of each class of financial assets and
liabilities. The fair values of our financial instruments approximate their carrying amount in our consolidated financial
statements except for debt.
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).
2016 Annual Report F-36
The estimated fair values of our financial instruments as of April 30, 2016 and 2015 are as follows:
FINANCIAL ASSETS
(in thousands)
2016
2015
Amount
Fair Value
Amount
Fair Value
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,698 $ 66,698 $ 48,970 $ 48,970
329
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
329
50
50
FINANCIAL LIABILITIES
82,026 136,190 136,190
Other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60,500
17,500 60,500
Mortgages payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 817,324 866,649 596,965 673,043
78,690 366,824 451,379
Mortgages payable related to assets held for sale . . . . . . . . . . . . . . . . . . .
82,026
17,500
68,824
NOTE 17 • COMMON AND PREFERRED SHARES OF BENEFICIAL INTEREST AND EQUITY
Distribution Reinvestment and Share Purchase Plan. During fiscal years 2016 and 2015, we issued approximately
821,000 and 8.1 million common shares, respectively, pursuant to our Distribution Reinvestment and Share Purchase
Plan (“DRIP”), at a total value at issuance of $5.6 million and $64.9 million, respectively. The shares issued under the
DRIP during fiscal year 2016 consisted of approximately 610,000 shares valued at issuance at $4.1 million that were
purchased with reinvested distributions and approximately 211,000 shares valued at $1.5 million at issuance that were
purchased with voluntary cash contributions. The shares issued under the DRIP during fiscal year 2015 consisted of 2.1
million shares valued at issuance at $16.2 million that were purchased with reinvested distributions and approximately
6.0 million shares valued at $48.7 million at issuance that were purchased with voluntary cash contributions.
Participation in the DRIP is available to existing common shareholders and Unitholders as well as new investors. Under
the DRIP, participants may purchase additional common shares by reinvesting their cash distributions and making
voluntary cash contributions.
Exchange of Units for Common Shares. During fiscal years 2016 and 2015, respectively, approximately 273,000 and
7.2 million Units were exchanged for common shares in connection with Unitholders exercising their Exchange Rights,
with a total value of $1.5 million and $41.3 million included in equity.
Issuance of Preferred Shares. On August 7, 2012, we completed the public offering of 4.6 million 7.95% 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 our 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). We 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 shelf registration statement on Form S-3ASR, which shelf registration statement
expired June 27, 2016.
We also have outstanding approximately 1.2 million shares of 8.25% Series A Cumulative Redeemable Preferred Shares
of Beneficial Interest (“Series A preferred shares”), issued during fiscal year 2004 for total proceeds of $27.3 million, net
of selling costs. Holders of 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 of our
securities. However, we, at our 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 us.
2016 Annual Report F-37
During the second quarter of fiscal year 2014, we and our Operating Partnership entered into an ATM sales agreement
with Baird as sales agent, pursuant to which we may from time to time sell common shares having an aggregate offering
price of up to $75 million. The shares would be issued pursuant to our shelf registration statement on Form S-3ASR. The
Company issued no common shares under this agreement during fiscal years 2016 and 2015.
NOTE 18 • QUARTERLY RESULTS OF CONSOLIDATED OPERATIONS (unaudited)
(in thousands, except per share data)
QUARTER ENDED
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,045 $
4,540 $
Net income attributable to Investors Real Estate Trust . $
1,661 $
Net income available to common shareholders . . . . . . . $
0.01 $
Net income per common share - basic & diluted . . . . . $
46,346 $
16,666 $
13,788 $
0.11 $
January 31, 2016 April 30, 2016
48,523
11,003
8,125
0.07
48,406 $
39,797 $
36,918 $
0.30 $
July 31, 2015 October 31, 2015
QUARTER ENDED
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,314 $
Net (loss) income attributable to Investors Real Estate
(in thousands, except per share data)
July 31, 2014 October 31, 2014 January 31, 2015 April 30, 2015
45,236 $
45,630 $
45,141
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(151) $
Net (loss) income available to common shareholders . . . . $ (3,030) $
(0.03) $
Net (loss) income per common share - basic & diluted . . $
5,114 $
2,236 $
0.02 $
8,371 $
5,492 $
0.05 $
10,753
7,875
0.07
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 in which our unaffiliated partner, at its election, could require us 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 on our Consolidated
Balance Sheets. We currently have one joint venture, the Southgate apartment project in Minot, North Dakota, in which
our joint venture partner can, for the four-year period from February 6, 2016 through February 5, 2020, compel us to
acquire its interest for a price to be determined in accordance with the provisions of the joint venture agreement.
As of April 30, 2016 and 2015, the estimated redemption value of the redeemable noncontrolling interests was $7.5
million and $6.4 million, respectively. Below is a table reflecting the activity of the redeemable noncontrolling interests.
(in thousands)
2015
2016
2014
Balance at beginning of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,368 $ 6,203 $ 5,937
—
Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
266
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at close of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,522 $ 6,368 $ 6,203
1,120
34
—
165
NOTE 20 • SHARE BASED COMPENSATION
Share based awards are provided to officers, non-officer employees and trustees, under our 2015 Incentive Plan approved
by shareholders on September 15, 2015, which allows for awards in the form of cash and unrestricted and restricted
common shares up to an aggregate of 4,250,000 shares over the ten year period in which the plan will be in effect.
Through April 30, 2016, awards under the 2015 Incentive Plan consisted of restricted and unrestricted common shares.
2016 Annual Report F-38
Prior to the approval of our 2015 Incentive Plan, share based awards were provided to officers, non-officer employees
and trustees under the our 2008 Incentive Award Plan, which was approved by shareholders on September 16, 2008,
which allowed for awards in the form of cash and unrestricted and restricted common shares up to an aggregate of
2,000,000 shares over the period in which the plan is in effect. Through April 30, 2016, awards under the 2008 Incentive
Award Plan consisted of cash and restricted and unrestricted Common Shares.
Long-Term Incentive Plan
Under the 2008 Incentive Award Plan, our officers and non-officer employees could earn share awards under the Long-
Term Incentive Plan (“LTIP”) adopted pursuant to the plan, which was a backward-looking program that measured
performance over a one-year performance period beginning on the first day of each fiscal year. Such awards were
payable to the extent deemed earned in shares, 50% of which vested on the last day of the performance period and 50%
of which vested on the first anniversary of the end of the performance period. Such awards utilized the sole performance
metric of the three-year average of the annual absolute total shareholder return (“TSR”).
Under the 2015 Incentive Plan, our officers and non-officer employees may earn share awards under a revised long-term
incentive plan, which is a forward-looking program that measures long-term performance over the stated performance
period. Such awards are payable to the extent deemed earned in shares, 50% of which will vest at the conclusion of the
performance period and 50% of which will vest on the first anniversary of the end of the performance period. To
accommodate the transition from the 2008 Incentive Award Plan to the 2015 Incentive Plan, performance periods for
such awards granted on September 16, 2015 (“2016 LTIP Awards”) included one-year, two-year and three-year periods
beginning on May 1, 2015. Going forward, it is anticipated that LTIP awards will be issued with a three-year
performance period. The 2016 LTIP Awards utilized the performance metrics of relative TSR for 67% of the award and
absolute TSR for 33% of the award. The 2016 LTIP Awards for performance periods of one, two and three years were
380,498; 353,535 and 353,535 shares, respectively.
In connection with the LTIP awards, we recognize compensation expense ratably (over 31.5 months for the 50%
unrestricted shares and over 43.5 months for the 50% restricted shares) based on the grant date fair value, as determined
using a binomial model employing the Monte Carlo simulation, and regardless of whether the market conditions are
achieved and the LTIP awards ultimately vest. The market conditions utilized for the 2016 LTIP Awards are absolute
TSR (1/3 weighting) and relative TSR measured against the MSCI US REIT Index (2/3 weighting). The model evaluates
the LTIP awards for changing TSR over the vesting periods, and uses random simulations that are based on past share
characteristics as well as distribution growth and other factors. The assumptions used to value the LTIP awards were an
expected volatility of 16.6%, a risk-free interest rate of 1.13% and an expected life of 3 years. We based the expected
volatility on the historical volatility of our daily closing share price. The share price at the grant date, September 16,
2015, was $7.13. We based the risk-free interest rate on the interest rates on U.S. treasury bonds with a maturity equal to
the remaining performance period of the LTIP award. We based the expected term on the performance period of the
LTIP award.
The calculated grant date fair value as a percentage of the officers’ base salary for the 2016 LTIP Awards with a three-
year performance period beginning on May 1, 2015 ranged from approximately 42% to 85% for the portion of the
awards based on relative TSR and from 5% to 10% for the portion of the awards based on absolute TSR. For the
transition 2016 LTIP Awards with a one-year performance period beginning on May 1, 2015, the calculated grant date
fair value as a percentage of the officers’ base salary ranged from approximately 46% to 96% for the portion of the
awards based on relative TSR and from 5% to 10% for the portion of the awards based on absolute TSR. For the
transition 2016 LTIP Awards with a two-year performance period beginning on May 1, 2015, the calculated grant date
fair value as a percentage of the officers’ base salary ranged from approximately 43% to 86% for the portion of the
awards based on relative TSR and from 5% to 10% for the portion of the awards based on absolute TSR.
Share-based compensation expense for the 2016 LTIP Awards was $1.6 million for the fiscal year ended April 30, 2016.
Share-based compensation expense for the 2015 performance period was approximately $277,000 and $1.3 million for
the fiscal years ended April 30, 2016 and 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.
2016 Annual Report F-39
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, $39,139 and $28,976 for each of the fiscal years ended April 2016, 2015, and 2014, respectively.
Total Compensation Expense
Total share-based compensation expense recognized in the consolidated financial statements for the three years ended
April 30, 2016 for all share-based awards was as follows (in thousands):
Year Ended April 30,
2015
2016
2014
Share based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,256 $ 2,215 $ 1,162
Restricted Share Awards with Performance and Service Conditions
The activity for the three years ended April 30, 2016 related to our restricted share awards, excluding those subject to
market conditions, was as follows.
Unvested at April 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wtd Avg Grant-
Shares Date Fair Value
—
8.72
— $
104,855
Unvested at April 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested during year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested at April 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested during year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested at April 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
104,855
107,536
(79,181)
(25,674)
107,536
(107,536)
—
(cid:2)
8.72
7.17
8.72
8.72
7.17
7.17
—
The total fair value of share grants vested during the fiscal years ended April 30, 2016, 2015 and 2014 was
approximately $647,000, $568,000 and $0. As of April 30, 2016, there was no compensation cost related to non-vested
share awards not yet recognized.
Restricted and Unrestricted Share Awards with Market Conditions
Share based awards with market conditions were granted during fiscal year 2016 under the LTIP with fair market values,
as determined using a Monte Carlo simulation, as follows:
(cid:2)
(cid:2)
(in thousands)
Relative TSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Absolute TSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grant Date Fair Value
Restricted Unrestricted
1,750
199
1,750 $
199
The unamortized value of the awards with market conditions as of April 30, 2016 was as follows:
(cid:2)
Relative TSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Absolute TSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:2)
(in thousands)
Restricted Unrestricted
763
87
1,275 $
145
2016 Annual Report F-40
NOTE 21 • SUBSEQUENT EVENTS
Common and Preferred Share Distributions. On June 2, 2016, our Board of Trustees declared the following
distributions:
Class of shares/units
Common shares and limited partnership units . . . . . . . . . . . . . . . . . . . $
Preferred shares:
Quarterly Amount
per Share or Unit
Record Date
0.1300 June 15, 2016
Payment Date
July 1, 2012
Series A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Series B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.5156 June 15, 2016 June 30, 2016
0.4968 June 15, 2016 June 30, 2016
Strategic Plan Update. On June 6, 2016, we announced our plan to move towards becoming a pure play multifamily
REIT and our intention to sell our remaining commercial properties.
Termination of the ATM Sales Agreement. On June 1, 2016, we and our Operating Partnership terminated the ATM sales
agreement with Baird according to its terms.
Completed Disposition. On May 6, 2016, we sold a parcel of unimproved land in Grand Chute, WI, for a sale price of
$250,000.
Pending Dispositions. On May 2, 2016, the tenant in our eight Spring Creek senior housing properties exercised its
option to purchase the properties for a sale price of $43.5 million. On May 3, 2016, we signed an agreement to sell an
industrial property in Fargo, ND, for a sale price of $13.4 million. 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.
2016 Annual Report F-41
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(
2016 Annual Report F-51
(This page has been left blank intentionally.)
Exhibit 31.1
Certification
I, Timothy P. Mihalick, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Investors Real Estate Trust;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter 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, 2016
By:
/s/ Timothy P. Mihalick
Timothy P. Mihalick, President & CEO
Exhibit 31.2
Certification
I, Ted E. Holmes, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Investors Real Estate Trust;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter 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, 2016
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, 2016, as filed with the Securities and Exchange Commission on June 29, 2016, (the “Report”), I, Timothy P.
Mihalick, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Timothy P. Mihalick
Timothy P. Mihalick
President and Chief Executive Officer
June 29, 2016
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.
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, 2016, as filed with the Securities and Exchange Commission on June 29, 2016, (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. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Ted E. Holmes
Ted E. Holmes
Executive Vice President and CFO
June 29, 2016
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.
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