<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM S-11A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________
INVESTORS REAL ESTATE TRUST
(Exact name of registrant as specified in governing instruments)
12 SOUTH MAIN STREET
MINOT, ND 58701
(Address of principal executive offices, including zip code)
______________________
TIMOTHY P. MIHALICK
12 SOUTH MAIN STREET
MINOT, ND 58701
(Name and address of agent for service)
Copies of communications to:
THOMAS A. WENTZ, JR., ESQ.
PRINGLE & HERIGSTAD, P.C.
P.O. BOX 1000
MINOT, ND 58702-1000
(701) 852-0381
FAX (701) 857-1361
______________________
Approximate date of commencement of proposed sale to the public: As soon as
practicable on or after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, check the following box.
CALCULATION OF REGISTRATION FEE
<TABLE>
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Title of securities Amount to be offering price aggregate offering Amount of
to be registered registered per unit price registration fee
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investors Real 1,000,000 shares $7.00 per share $7,000,000.00 $2,413.81
Estate Trust aggregate offering
Shares of price
Beneficial
Interest
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
The registrant hereby amends this registration statement on such dates or
date as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
I
<PAGE>
Cross Reference Sheet
Part I. Information Required in Prospectus
ITEM PAGE LOCATION
- ---- -------------
1 Forepart of Registration Statement and Outside Front Cover
Page of Prospectus. . . . . . . . . . . . . . . . . . . . . . . I, II
2 Inside Cover Page of Prospectus . . . . . . . . . . . . . . . . . 1
3 Summary Information, Risk Factors and Ratio of Earnings to
Fixed Charges . . . . . . . . . . . . . . . . . . . . . 6, 7, 8, 9, 10
4 Determination of Offering Price . . . . . . . . . . . . . . . . . . . 10
5 Dilution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6 Selling Security Holders. . . . . . . . . . . . . . . . . . . . . . .N/A
7 Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . . . . 10
8 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 11, 12
9 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 12, 13
10 Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . .13 - 19
11 General Information as to Registrant. . . . . . . . . . . . . . . . . 19
12 Policy with Respect to Certain Activities . . . . . . . . 19, 20, 21, 22
13 Investment Policies of Registrant . . . . . . . . . . . . . . . . 22, 23
14 Description of Real Estate. . . . . . . . . . . . . . . . 23, 24, 25, 26
15 Tax Treatment of Registrant and Its Security Holders. 26, 27, 28, 29, 30
16 Market Price Of and Dividends on the Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . . . . . . . . 30, 31
17 Description of Registrant's Securities. . . . . . . . . . . . . . . . 31
18 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 31
19 Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . 31, 32, 33, 34
20 Directors and Executive Officers. . . . . . . . . . . . . . . 32, 33, 34
21 Executive Compensation. . . . . . . . . . . . . . . . . . . . 34, 35, 36
22 Certain Relationships and Related Transactions. . . . . . . . 34, 35, 36
23 Selection, Management and Custody of Registrant's Investments . . . . 37
24 Policies with Respect to Certain Transactions . . . . . . . . . . . . 37
25 Limitations of Liability. . . . . . . . . . . . . . . . . . . . . 37, 38
26 Financial Statements and Information. . . . . . . . . . . . . F-1 - F-34
27 Interests of Named Experts and Counsel. . . . . . . . . . . . . . . .N/A
28 Disclosure of Commission Position on Indemnification for Securities
Act Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .N/A
Part II. Information Not Required in Prospectus
ITEM PAGE LOCATION
- ---- -------------
30 Other Expenses of Issuance and Distribution . . . . . . . . . . . . .S-1
31 Sales to Special Parties. . . . . . . . . . . . . . . . . . . . . . .S-1
32 Recent Sales of Unregistered Securities . . . . . . . . . . . . . . .S-1
33 Indemnification of Directors and Officers . . . . . . . . . . . . . .S-1
34 Treatment of Proceeds from Stock Being Registered . . . . . . . . . .S-2
35 Financial Statements and Exhibits . . . . . . . . . . . . . . . S-2, S-3
36 Undertakings. . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-3
II
<PAGE>
Prospectus
INVESTORS REAL ESTATE TRUST
12 South Main Street
Minot, ND 58701
(701) 852-1756
FOR 800,000 SHARES OF BENEFICIAL INTEREST
OF INVESTORS REAL ESTATE TRUST WITHOUT PAR VALUE
MINIMUM PURCHASE: 100 SHARES
OFFERING PRICE: $7.00 PER SHARE
_____________________
All of the shares of Beneficial Interest offered hereby (the "Shares) are
being sold on a best efforts basis by Investors Real Estate Trust (the
"Trust"). A best efforts basis means there is no assurance that any of the
shares will be sold.
(1) The Trust is a North Dakota Business Trust which has operated as an
infinite life real estate investment trust ("REIT") since its formation on
July 30, 1970, and is organized for the purpose of investment in real estate
and loans secured by real estate. The Trust's investment objectives are to
provide investors appreciation of capital, greater security through
investment diversification, and a high level of distributable income. The
Trust owns or holds interests in a portfolio of real estate or real estate
backed mortgages located in eight states.
All of the shares of Beneficial Interest offered hereby (the "Offering") are
being sold only by the Broker-Dealers listed on page 10. There is no
established over-the-counter secondary market for the shares. SEE "MARKET"
PAGE 31.
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE SPECULATIVE. INVESTMENT IN THE
SHARES INVOLVES CERTAIN MATERIAL RISKS AND THERE IS NO GUARANTEE OF RETURN ON
INVESTMENT. SEE PAGE 7 OF THIS PROSPECTUS. AMONG SUCH RISKS ARE THE
FOLLOWING:
- LACK OF A PUBLIC MARKET AND LACK OF LIQUIDITY.
- TAXATION OF THE TRUST AS A CORPORATION IF IT FAILS TO QUALIFY AS A
REIT.
- THE SHARE PRICE IS ARBITRARILY DETERMINED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
_________________
(1) The shares are being offered on a "best efforts" basis. The termination
date of the offering shall be a date not later than one year after the date
of this Prospectus. The minimum required purchase is 100 shares. Any
proceeds received from subscribers for the shares will not be placed in
escrow or trust.
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Price to Public (2) Selling Commission (3) Proceeds to Trust (4)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $7.00 $.56 $6.44
- ---------------------------------------------------------------------------------------
Total $5,600,000 $448,000 $5,152,000
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
The Trust has registered 1,000,000 of its shares of Beneficial Interest no
par value per share, of which 200,000 shares are available only to
shareholders who participate in the Trust's dividend reinvestment plan. See
page 32. Said shares do not have a par value. The shares offered hereby
(the "Offering") will be sold by securities broker-dealers (the "Soliciting
Dealers") who are members of the National Association of Securities Dealers,
Inc. ("NASD").
The Date of this Prospectus is _____________________, 1996.
2
______________________
(2) The offering price of the shares was arbitrarily determined by the
Company based on the price at which the shares have previously traded. See
Determination of Offering Price. Page 10.
(3) The Company will pay the securities broker-dealers a commission
equal to $.56 per share for the sale of each share of Beneficial Interest
sold by them. The maximum selling commission which may be earned by the
soliciting dealers will be $448,000, provided the 800,000 shares available to
the public are all sold. No other compensation shall be paid to the
soliciting dealers in connection with the offering outlined by this
Prospectus.
(4) The proceeds to the company do not include a deduction for the
expenses, other than the soliciting dealer's commission, incurred by the
company as a result of the offering. These expenses are estimated to be
$5,000 for printing and filing fees, and $25,000 for legal fees to be paid to
Pringle & Herigstad, P.C.
<PAGE>
TABLE OF CONTENTS
THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
AVAILABLE INFORMATION CONCERNING THE TRUST . . . . . . . . . . 7
Securities and Exchange Commission. . . . . . . . . . . . 7
Reports to Security Holders . . . . . . . . . . . . . . . 7
Incorporation by Reference. . . . . . . . . . . . . . . . 7
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . 8
Price of Shares Arbitrarily Determined. . . . . . . . . . 8
Intent to Qualify as a Real Estate Investment Trust . . . 8
Best Efforts Sale . . . . . . . . . . . . . . . . . . . . 8
Business Environment. . . . . . . . . . . . . . . . . . . 8
Risks Related to Mortgage Lending . . . . . . . . . . . . 9
Relationship with Advisor . . . . . . . . . . . . . . . . 9
Environmental Liability . . . . . . . . . . . . . . . . . 9
Competition . . . . . . . . . . . . . . . . . . . . . . . 9
Liquidity . . . . . . . . . . . . . . . . . . . . . . . 10
DETERMINATION OF OFFERING PRICE. . . . . . . . . . . . . . . 10
DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . 10
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . 11
SELECTED FINANCIAL DATA - ANNUAL . . . . . . . . . . . . . . 12
TWO YEAR SELECTED FINANCIAL DATA - QUARTERLY RESULTS . . . . 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . 13
General . . . . . . . . . . . . . . . . . . . . . . . . 13
Results of Operations . . . . . . . . . . . . . . . . . 13
Fiscal Year 1996 Compared to Fiscal Year 1995. . . . 13
Fiscal Year 1995 Compared to Fiscal Year 1994. . . 15
Dividends . . . . . . . . . . . . . . . . . . . . . . . . 16
Funds From Operations . . . . . . . . . . . . . . . . . . 16
Liquidity and Capital Resources . . . . . . . . . . . . . 17
Affiliated Partnerships . . . . . . . . . . . . . . . . . 17
Consolidated Financial Statements . . . . . . . . . . . . 18
Impact of Inflation . . . . . . . . . . . . . . . . . . . 18
Economic Conditions . . . . . . . . . . . . . . . . . . . 19
GENERAL INFORMATION AS TO INVESTORS REAL ESTATE TRUST. . . . . 19
Organization of Trust . . . . . . . . . . . . . . . . . . 19
Governing Instruments of Trust. . . . . . . . . . . . . . 19
Shareholder Meetings. . . . . . . . . . . . . . . . . . . 19
POLICY WITH RESPECT TO CERTAIN ACTIVITIES. . . . . . . . . . . 19
To Issue Senior Securities. . . . . . . . . . . . . . . . 19
To Borrow Money . . . . . . . . . . . . . . . . . . . . . 19
To Make Loans To Other Persons. . . . . . . . . . . . . . 20
MORTGAGE LOANS RECEIVABLE - UNRELATED. . . . . . . . . . . . . 20
To Invest in the Securities of Other Issuers for the
Purpose of Exercising Control . . . . . . . . . . . 20
3
<PAGE>
Consolidated Partnerships . . . . . . . . . . . . . . . . 21
To Underwrite Securities of Other Issuers . . . . . . . . 21
To Engage in the Purchase and Sale (or Turnover) of
Investments . . . . . . . . . . . . . . . . . . . . 21
To Offer Securities in Exchange for Property. . . . . . . 21
To Repurchase or Otherwise Reacquire Its Shares or Other
Securities. . . . . . . . . . . . . . . . . . . . . 21
To Make Annual and Other Reports to Shareholders. . . . . 21
INVESTMENT POLICIES OF REGISTRANT. . . . . . . . . . . . . . . 22
Investments in Real Estate or Interests in Real Estate. . 22
Investments in Real Estate Mortgages. . . . . . . . . . . 22
Investments in Other Securities . . . . . . . . . . . . . 22
Investments in Securities Of or Interests In Persons
Primarily Engaged in Real Estate Activities . . . . 23
DESCRIPTION OF REAL ESTATE . . . . . . . . . . . . . . . . . . 23
INVESTMENT PORTFOLIO - INVESTORS REAL ESTATE TRUST
AS OF APRIL 30, 1996. . . . . . . . . . . . . . . . 23
Real Estate Owned . . . . . . . . . . . . . . . . . . . . 23
Title . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Insurance . . . . . . . . . . . . . . . . . . . . . . . . 26
Planned Improvements. . . . . . . . . . . . . . . . . . . 26
Contracts or Options to Sell. . . . . . . . . . . . . . . 26
Occupancy and Leases. . . . . . . . . . . . . . . . . . . 26
TAX TREATMENT OF REGISTRANT AND ITS SECURITY HOLDERS . . . . . 26
Federal Income Tax. . . . . . . . . . . . . . . . . . . . 26
North Dakota Income Tax . . . . . . . . . . . . . . . . . 28
Taxation of the Trust's Shareholders. . . . . . . . . . . 28
Taxation of Tax-Exempt Shareholders . . . . . . . . . . . 28
Tax Considerations for Foreign Investors. . . . . . . . . 29
Backup Withholding. . . . . . . . . . . . . . . . . . . . 29
State and Local Taxes . . . . . . . . . . . . . . . . . . 29
Other Tax Considerations. . . . . . . . . . . . . . . . . 30
MARKET PRICE OF AND DIVIDENDS ON THE TRUST'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . 30
Market for the Registrant's Common Stock and Related
Security Holder Matters . . . . . . . . . . . . . . 30
DIVIDEND REINVESTMENT PLAN . . . . . . . . . . . . . . . . . 31
DESCRIPTION OF REGISTRANT'S SECURITIES . . . . . . . . . . . . 31
Description of Shares . . . . . . . . . . . . . . . . . . 31
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . 31
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 31
EXECUTIVE COMPENSATION AND CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . 34
ADVISORY AGREEMENT . . . . . . . . . . . . . . . . . . . . . . 34
Basic Compensation. . . . . . . . . . . . . . . . . . . . 35
Additional Compensation . . . . . . . . . . . . . . . . . 35
Limitation. . . . . . . . . . . . . . . . . . . . . . . . 36
Roger R. Odell. . . . . . . . . . . . . . . . . . . . . . 36
Thomas A. Wentz, Sr.. . . . . . . . . . . . . . . . . . . 36
SELECTION, MANAGEMENT AND CUSTODY OF TRUST'S INVESTMENTS . . . 37
Management of Trust's Investments . . . . . . . . . . . . 37
4
<PAGE>
POLICIES WITH RESPECT TO CERTAIN TRANSACTIONS. . . . . . . . . 37
LIMITATIONS OF LIABILITY . . . . . . . . . . . . . . . . . . . 37
5
<PAGE>
THE TRUST
Investors Real Estate Trust (hereinafter "IRET"), an unincorporated business
trust, was organized under the laws of the State of North Dakota on July 31,
1970. IRET has qualified and operated as a "real estate investment trust"
under Sections 856-858 of the Internal Revenue Code since its inception.
IRET, pursuant to the requirements of Sections 856-858 of the Internal
Revenue Code which govern real estate investment trusts, is engaged in the
business of making passive investments in real estate equities and mortgages.
IRET has its only office in Minot, North Dakota, and operates principally
within the confines of the State of North Dakota, although it has some real
estate investments in the states of Minnesota, South Dakota, Nebraska,
Montana, Colorado, Wisconsin, Idaho and Arizona.
IRET is the general partner of seven limited partnerships which own
investment real estate. IRET, as the general partner and as a creditor of
said limited partnerships, has a substantial influence over the operation of
the partnerships. Thus, prior to its Fiscal Year 1996, the financial
statements of IRET and the seven partnerships were consolidated for financial
reporting purposes and all material intercompany transactions and balances
have been eliminated. During IRET's Fiscal Year ended April 30, 1996,
Chateau Properties refinanced its 64 unit apartment complex resulting in the
payment in full of its contract for deed obligation to IRET. IRET was not
required to guarantee Chateau's new mortgage loan. Thus, under generally
accepted accounting rules, Chateau's financial statement is not to be
consolidated with that of IRET. Prior year's results shown in this report
have been restated to reflect the removal of Chateau from the consolidated
statement. (See Note 11 to the Financial Statements.) The six limited
partnerships consolidated with IRET are:
Eastgate Properties, Ltd.
Bison Properties, Ltd.
First Avenue Building, Ltd.
Sweetwater Properties, Ltd.
Hill Park Properties, Ltd.
Colton Heights, Ltd.
IRET operates on a fiscal year ending April 30. For its past three fiscal
years, its sources of operating revenue, total expenses, net real estate
investment income, capital gain income, total income, and dividend
distributions consolidated with said six limited partnerships are as follows:
Fiscal Year Ending 4/30
1996 1995 RESTATED 1994 RESTATED
----------- ------------- -------------
REVENUE FROM OPERATIONS
Real Estate Rentals $17,635,297 $12,280,738 $ 9,765,701
Interest, Discount & Fees 1,024,368 1,520,385 1,817,307
----------- ----------- -----------
$18,659,665 $13,801,123 $11,583,008
EXPENSE $15,041,858 $10,240,805 $ 8,447,582
----------- ----------- -----------
NET REAL ESTATE INVESTMENT
INCOME $ 3,617,807 $ 3,560,318 $ 3,135,426
GAIN ON SALE OF INVESTMENTS
(CAPITAL GAIN) 994,163 407,512 64,962
----------- ----------- -----------
NET INCOME $ 4,611,970 $ 3,967,830 $ 3,200,388
----------- ----------- -----------
----------- ----------- -----------
6
<PAGE>
PER SHARE
Net Income $ .38 $ .38 $ .36
Dividends Paid $ .36 $ .35 $ .33
As indicated above, IRET has two principal sources of operating revenue:
rental income from real estate properties owned by the trust and interest
income from mortgages and contracts for deed secured by real estate. A minor
amount of revenue is derived from interest on short-term investments in
government securities, interest on savings deposits and fees derived from
serving as a general partner of certain limited partnerships. In addition to
operating income, the trust has received capital gain income when real estate
properties have been sold at a price in excess of the depreciated cost of
said properties.
IRET has no employees. Its business is conducted through the services of an
independent contractor (Odell-Wentz & Associates LLC, a North Dakota Limited
Liability Company having as its members Roger R. Odell and Thomas A. Wentz,
Sr.) which serves as the advisor to the trust. Since the inception of the
Trust and until January 1, 1986, Roger R. Odell, 12 South Main, Minot, North
Dakota, served as advisor to the trust, providing office facilities,
administering day-to-day operations of the trust, and advising with respect
to investments and investment policy. Effective January 1, 1986, the trust
entered into a revised advisory agreement with Mr. Odell and Thomas A. Wentz,
Sr.
Mr. Odell is a graduate of the University of Texas, receiving his B.A. degree
in 1947. He has been a resident of Minot, North Dakota since 1947. From
1947 to 1954, he was employed by Minot Federal Savings & Loan Association,
serving as secretary of the association from 1952 to 1954. Since 1954, Mr.
Odell has been a realtor in Minot, serving as an officer and stockholder of
Watne Realty Company from 1954 to January 1, 1970, and since that time as the
owner of his own realty firm.
Mr. Wentz is a graduate of Harvard College and Harvard Law School, receiving
his A.B. degree in 1957 and his L.L.B. degree in 1960. He has been a
resident of Minot, North Dakota, since 1962. Mr. Wentz' principal occupation
is the practice of law as a partner in the law firm of Pringle & Herigstad,
P.C., counsel to the trust and he provides services to Odell-Wentz &
Associates on a part-time basis.
AVAILABLE INFORMATION CONCERNING THE TRUST
SECURITIES AND EXCHANGE COMMISSION: The Trust is currently a reporting
company pursuant to the Exchange Act and in accordance therewith annually
files a Form 10-K and quarterly Forms 10-Q for the first three quarters of
each year with the Securities and Exchange Commission. The information filed
by the Trust can be inspected and copied at the public reference facilities
maintained by the Securities and Exchange Commission in Washington, DC, at
450 Fifth Street NW, Room 1024, Washington, DC 20549, (202-272-3100). Copies
of said information can be obtained from the Public Reference facility at
prescribed rates.
REPORTS TO SECURITY HOLDERS: The Trust shall furnish shareholders with
annual reports on or about July 25th of each year containing financial
statements audited by the Trust's independent accountants, with quarterly
reports for the first three quarters of each year containing unaudited
summary financial and other information, and with such other reports as the
Trust deems appropriate or as required by law.
INCORPORATION BY REFERENCE: Copies of any document or part thereof
incorporated by reference in this prospectus but delivered therewith is
available free of charge upon request made to Timothy Mihalick, 12 South Main
Street, Minot, ND 58701 (701-852-1756).
7
<PAGE>
RISK FACTORS
An investment in the shares involves various risks. Investors should
consider the following factors which make the Offering one of high risks:
PRICE OF SHARES ARBITRARILY DETERMINED: The price of the shares has been
determined by the Trust and is a higher price than the price paid by the
current holders of the Trust's shares. The offering price set forth on the
cover page of this Prospectus should not be considered an indication of the
actual value of the shares.
INTENT TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST: The Trust intends to
continue operating so as to qualify as a real estate investment trust under
the Internal Revenue Code of 1986, as amended (the "Code"). Although the
Trust believes that it is organized and will continue to operate in such a
manner, no assurance can be given that the Trust will remain qualified as a
REIT. Qualification as a REIT involves the application of highly technical
and complex code provisions for which there are only limited judicial or
administrative interpretations. No assurance can be given that legislation,
new regulations, administrative interpretations or court decisions will not
significantly change the tax laws with respect to qualifications as a REIT or
the federal income tax considerations of such qualifications. If in any
taxable year the Trust failed to qualify as a REIT, the Trust would not be
allowed a deduction for distribution to shareholders in computing its taxable
income and would be subject to federal income tax on its taxable income at
regular corporate rates. Unless entitled to relief under certain statutory
provisions, the Trust also would be disqualified from treatment as a REIT for
the four taxable years following the year during which qualification is lost.
As a result, the funds available for distribution to the Trust's shareholders
would be reduced for each of the years involved. Although the Trust
currently intends to continue to operate in a manner designed to qualify as a
REIT, it is possible that future economic, market, legal, tax or other
considerations may cause the Trust's Board of Trustees to revoke the REIT
election.
BEST EFFORTS SALE: The shares are being sold by the Soliciting Dealers on a
"best efforts" basis whereby the selling agent is only required to use its
best efforts to locate purchasers of the shares, but is not obligated to
ensure that a minimum number or that even any shares are sold. Therefore, no
assurance is given as to the amount of proceeds that will be available for
investment by the Trust. In the event fewer than all the Shares are sold
during the offering period (which is 365 days from the date of this
document), the Trust would have fewer cash assets to apply toward its
business plan. In such event, the fixed operating expenses of the Trust, as
a percentage of gross income, would be higher and consequently reduce the
taxable income distributable to shareholders.
BUSINESS ENVIRONMENT: The results of operations of the Trust will depend,
among other things, upon the availability of opportunities for the investment
and reinvestment of the funds of the Trust. The yields available from time
to time on mortgages and other real estate investments depend to a large
extent on the type of security involved, the type of investment, the
condition of the money market, the geographical location of the property,
general economic conditions, competition, and other factors, none of which
can be predicted. Trust funds are presently invested in real estate in North
Dakota and several other states. As a result, the Trust may be subject to
substantially greater risk than if its investments were more dispersed
geographically. Local conditions, such as competitive overbuilding or a
decrease in employment, may adversely affect the performance of the Trust's
investments. In the area in which the Trust operates, the economy is
dependent on the areas of agriculture and mineral development. If these
areas do not perform satisfactorily, the ability of the Trust to realize
profits from its business of real estate investments will be adversely
affected.
8
<PAGE>
RISKS RELATED TO MORTGAGE LENDING: All real property investments are subject
to some degree of risk, which, in some cases, varies according to the size of
the investment as a percentage of the value of the real property. In the
event of a default by a borrower on a mortgage loan, it may be necessary for
the Trust to foreclose its mortgage or engage in negotiations which may
involve further outlays to protect the Trust's investment. The mortgages
securing the Trust's loans may be, in certain instances, subordinate to
mechanics' liens, materialmen's liens, or government liens and, in instances
in which the Trust invests in a junior mortgage, to liens of senior
mortgages, and the Trust may be required to make payments in order to
maintain the status of the prior lien or to discharge it entirely. In
certain areas, the Trust might lose first priority of its lien to mechanics'
or materialmen's liens by reason of wrongful acts of the borrower. It is
possible that the total amount which may be recovered by the Trust in such
cases may be less than its total investment, with resultant losses to the
Trust.
Loans made by the Trust may, in certain cases, be subject to statutory
restrictions limiting the maximum interest charges and imposing penalties,
which may include restitution of excess interest, and, in some cases, may
affect enforceability of the debt. There can be no assurance that all or a
portion of the charges and fees which the Trust receives on its loans may not
be held to exceed the statutory maximum, in which case the Trust may be
subjected to the penalties imposed by the statutes.
RELATIONSHIP WITH ADVISOR: Certain operating expenses of the Trust,
including compensation to the advisor and the trustees, must be met
regardless of profitability. The advisor's fee is computed as a percentage
of the investments of the Trust. (See "Advisory Agreement" on page 36.)
ENVIRONMENTAL LIABILITY: Investments in real property create a potential for
environmental liability on the part of the owner of or any mortgage lender on
such real property. Under federal and state legislation, property owners are
liable for cleanup expenses in connection with hazardous wastes or other
hazardous substances found on their property. No assurance can be given that
a substantial financial liability may not occur with respect to properties
owned or acquired in the future by the Trust. It is the policy of the Trust
to obtain a Phase I environmental survey upon purchasing property and, as of
the date of this Prospectus, the Trust is unaware of any environmental
liability with respect to properties in its portfolio.
COMPETITION: Investments of the types in which the trust is interested may
be purchased on a negotiated basis by many kinds of institutions, including
mutual savings banks, savings and loan associations, commercial banks,
insurance companies and, to a lesser extent, pension funds, credit unions and
individuals. In addition, there are a number of other real estate investment
trusts in operation, some of which may be active in one or more of the
Trust's areas of investment. Investments must thus be made by the Trust in
competition with such other entities. The yields available on mortgage and
other real estate investments depend upon many factors, including the supply
of money available for such investments and the demand for mortgage money.
The presence of the foregoing competitors increases the available supply of
funds to prospective borrowers from the Trust. All these factors, in turn,
vary in relation to may other factors such as general and local economic
conditions, conditions in the construction industry, opportunities for other
types of investments, international, national and local political affairs,
legislation, governmental regulation, tax laws, and other factors. The Trust
cannot predict the effect which such factors will have on its operations.
9
<PAGE>
LIQUIDITY: No assurance can be given that a purchaser of Trust shares under
this Offering would be able to resell such shares when desired. At the
present time, there is no brokerage firm that "makes a market" for Trust
shares. All resales of Trust shares are now on a "best efforts" basis and
the ability of a shareholder to resell shares is dependent on the
broker-dealer locating a purchaser. During the past five years, to the best
of the Trust's knowledge, all shareholders desiring to resell their shares
have been able to do so within five business days. The current spread
between the price charged to purchasers of IRET shares and the price paid to
sellers of IRET shares is 8%.
DETERMINATION OF OFFERING PRICE
The offering price of $7.00 per share was arbitrarily established by the
Trust based upon the previous asked price for its shares of Beneficial
Interest over the past three calendar years. The total number of shares
traded, the high and low bid and asked prices during this period and the
quarterly dividend are as follows:
QUARTERLY
CALENDAR NO. OF BID ASKED PER SHARE
YEAR MONTHS SHARES TRADED LOW HIGH LOW HIGH DIVIDEND
- -------- ------ ------------- ---- ---- ---- ---- ---------
1993 April-June 230,068 5.10 5.19 5.80 5.90 .0805
1993 July-September 140,339 5.10 5.19 5.90 5.90 .081
1993 October-December 181,613 5.16 5.28 5.90 6.00 .0815
1994 January-March 250,167 5.20 5.37 6.00 6.10 .082
1994 April-June 163,347 5.20 5.37 6.10 6.10 .0825
1994 July-September 134,529 5.37 5.63 6.10 6.25 .088
1994 October-December 335,518 5.63 5.89 6.25 6.40 .084
1995 January-March 210,106 5.89 5.89 6.40 6.40 .085
1995 April-June 137,766 5.89 6.03 6.40 6.55 .08625
1995 July-September 452,665 5.89 6.03 6.40 6.55 .0925
1995 October-December 466,447 5.89 6.16 6.40 6.70 .08875
1996 January-March 451,383 6.16 6.30 6.70 6.85 .09
DILUTION
The book value of IRET shares of beneficial interest is substantially less
than the purchase price to new shareholders under this Offering. As of April
30, 1996, the book value of the 13,258,908 shares then outstanding was $3.82.
Assuming all of the shares registered under this Offering are sold, the
estimated resulting book value will be $3.98 per share. Thus, a purchasing
shareholder paying $7.00 per share under this Offering will incur an
immediate book value dilution of $3.02 per share.
PLAN OF DISTRIBUTION
The shares offered by this Prospectus shall be sold by Inland National
Securities, Inc., attention David Theusch, of 21 South Main, Minot, North
Dakota 58701, (701) 852-1640, and Financial Advantage Brokerage Services,
Inc., attention Roger Domres, of 17 South Main, Minot, North Dakota 58701,
(701) 852-3090, or the registered securities salespeople associated with said
firms. All shares shall be sold on a "best efforts" basis with no guarantee
or requirement that any shares be sold. All sales are subject to a 100 share
or $700.00 minimum purchase. For each share sold, the selling Broker-Dealer
shall receive a commission of $.56 per share. No other compensation or fees
other than the percentage commission shall be paid by the Trust to the
Broker-Dealers.
The relationship between the Broker-Dealers and the Trust may be terminated
by either entity at any time for any reason. Both Broker-Dealers have the
opportunity to sell the entire Offering.
10
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 800,000 shares offered to the public
will be added to the Trust's operating capital to be used in connection with
its general business purposes.
As of the date of this Prospectus, the Trust is engaged in constructing
apartment buildings in Minot and Grand Forks, North Dakota, and Billings,
Montana, and plans to construct the additional apartments described below.
These apartments are of a design and type previously constructed by the Trust
during the past three years in Sioux Falls, South Dakota (98 units),
Bismarck, North Dakota (49 units), and Minot, North Dakota (98 units). The
apartments constructed in Sioux Falls, Bismarck and Minot have rented quickly
at projected rental rates and, in the judgment of management, will produce a
satisfactory investment return. The Trust intends to continue the
construction of this type of apartment building as follows:
APARTMENTS UNDER CONSTRUCTION
CITY UNITS ESTIMATED COST
---- ----- --------------
Minot, ND 98 $ 4,375,000
Grand Forks, ND 116 5,275,000
Billings, MT 98 5,000,000
-----------
Total - Apartments Under Construction $14,650,000
PLANNED APARTMENT CONSTRUCTION
CITY UNITS ESTIMATED COST
---- ----- --------------
Grand Forks, ND 201 $ 9,100,000
Bismarck, ND 192 9,000,000
Billings, MT 98 4,600,000
-----------
Total - Planned Apartment Construction $22,700,000
The Trust does not yet own all of the land necessary for the planned
apartment construction, nor has it arranged for the financing that would be
necessary. Thus, no assurance can be given that the Trust will successfully
complete this construction program.
The Trust will also continue to consider other real estate investment
opportunities that are presented to it, but is not obligated at the date of
this Prospectus to acquire any real estate investments and expects to
concentrate its efforts and resources on the planned apartment construction
projects described above during the next 18 month period.
The Trust will also derive funds to fund the properties under construction
that are described above from the following sources:
- DEPRECIATION REVENUE. As a "Real Estate Investment Trust" under the
Internal Revenue Code, the Trust must distribute at least 95% of its
taxable income. However, in computing taxable income, a deduction for
depreciation of the buildings owned by the Trust is allowed. In the
Fiscal year ended April 30, 1996, this depreciation deduction was
$2,261,724. The amount of this depreciation is used by the Trust to
acquire addition real estate investments.
- LOANS. The Trust seeks to borrow approximately 70% of the cost of
real estate purchased. The objective is to purchase real estate at a
price which will yield a higher percentage return than the interest
rate payable on the mortgage loan. This "leverage" is
11
<PAGE>
essential to producing a satisfactory return to the owners of the
Trust. (No assurance can be given that the income actually earned on
real estate investments made by the Trust will be higher than the
interest rate paid on the Trust's mortgage loans.) As of April 30,
1996, the ratio of mortgage liabilities to total Trust real estate
assets was $71,699,059 of mortgage liabilities to $117,896,163 of real
estate assets or 61%. Thus, as much as $36,094,184 could be borrowed
on the existing portfolio before reaching the desired debt ratio of
70% (present equity in real estate of $117,896,163, minus mortgages of
$71,699,059 equals $46,197,104 divided by 30% = $153,990,347, minus
present real estate owned of $117,896,163 equals $36,094,184) (no
assurance can be given that this amount of borrowed funds would be
available).
- CASH ON HAND/MARKETABLE SECURITIES/CREDIT LINE. On April 30, 1996,
IRET had cash on hand of $2,715,274. IRET also maintains an
investment in marketable government insured securities ($4,411,857 as
of April 30, 1996) which securities are held in brokerage accounts
with Dean Witter and Smith Barney. The current policy of said brokers
is to allow the Trust to borrow up to 90% of the market value of these
securities for short-term needs. Also, the Trust may enter into
short-term credit line borrowing agreements with banks if the need
arises. As of April 30, 1996, IRET had an unsecured line of credit of
$5,000,000 with First American Bank West, Minot, ND, none of which was
in use. No assurance can be given that either of these borrowing
arrangements would be available to the Trust.
SELECTED FINANCIAL DATA - ANNUAL
<TABLE>
YEAR ENDED APRIL 30
------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------- ---------- -----------
(Restated) (Restated)
<S> <C> <C> <C> <C> <C>
Consolidated Income Statement Data
Revenue $ 18,659,665 $13,801,123 $11,583,008 $ 8,316,643 $ 7,206,054
Operating income 3,617,807 3,560,318 3,135,426 2,231,092 1,628,155
Gain on repossession/
sale of investments 994,163 407,512 64,962 132,610 22,858
Net income 4,611,970 3,967,830 3,200,388 2,363,702 1,651,013
Balance Sheet Data
Total real estate investments 122,377,909 84,005,635 64,089,476 50,041,059 34,302,341
Total assets 131,355,638 94,616,744 72,391,548 54,658,569 38,997,080
Shareholders' equity 50,711,920 37,835,654 29,997,189 23,745,443 18,849,635
Consolidated Per Share Data
Net income $ .38 $ .38 $ .36 $ .29 $ .23
Gain of repossession/
sale of investments .08 .04 .01 .01 .00
Dividends .36 .35 .33 .32 .31
Tax status of dividend
Capital gain 1.6% 11.0% 7.37% 4.08% 1.0%
Ordinary income 98.4% 89.0% 92.63% 74.04% 68.0%
Return of capital 0.0% 0.0% 0.00% 21.88% 31.0%
</TABLE>
TWO YEAR SELECTED FINANCIAL DATA - QUARTERLY RESULTS
(FISCAL YEAR 1995 RESULTS RESTATED - SEE NOTE 11 TO FINANCIAL STATEMENTS)
<TABLE>
QUARTER ENDED
-----------------------------------------------------
7-31-94 10-31-94 1-31-95 4-30-95
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Consolidated Income Statement Data
Revenue $ 3,247,910 $ 3,529,364 $ 3,492,941 $3,530,908
Income before gains on
sale of investments 794,755 1,066,229 1,014,011 685,328
Net gain on sales of
investments -- 305,543 -- 101,969
Net income 794,755 1,371,772 1,014,011 787,292
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Per Share
Income before gains on
sale of investments $ .07 $ .10 $ .10 $ .07
Net gain on sale of
investments -- .03 -- .01
</TABLE>
<TABLE>
QUARTER ENDED
-----------------------------------------------------
7-31-95 10-31-95 1-31-96 4-30-96
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Consolidated Income Statement Data
Revenue $3,782,061 $4,715,186 $5,104,409 $5,058,009
Income before gains on
sale of investments 1,009,468 1,058,136 1,082,506 467,697
Net gain on sales of
investments -- -- 522,001 472,162
Net income 1,009,468 1,058,136 1,604,507 939,858
Per Share
Income before gains on
sale of investments $ .09 $ .09 $ .09 $ .04
Net gain on sale of
investments -- -- $ .04 $ .04
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL: IRET has operated as a "real estate investment trust" under
Sections 856-858 of the Internal Revenue Code since its formation in 1970.
IRET is in the business of owning income producing real estate investments.
No major changes in IRET's business has occurred from the organization of the
Trust in 1970 to the date of this Prospectus, and none are planned at this
time.
RESULTS OF OPERATIONS:
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995: IRET's Fiscal Year 1996,
which ended on April 30, 1996, produced very favorable results, including a
substantial increase in IRET's investment portfolio and satisfactory
increases in earnings and funds from operations.
EARNINGS. IRET's net taxable earnings for Fiscal Year 1996 increased
to $4,611,970, compared to $3,967,830 earned in Fiscal 1995 and
$3,200,388 earned in Fiscal 1994. Fiscal 1996 taxable income includes
$994,163 of capital gain income from the sale of assets from the
investment portfolio, compared to $407,512 of capital gain income in
Fiscal 1995 and $64,962 of capital gain income in Fiscal 1994.
On a per share basis, net taxable income was $.38 per share for Fiscal
1996, the same as earned in Fiscal 1995. Per share taxable income in
Fiscal 1994 was $.36 per share.
As noted in prior reports, as IRET repositions its investment
portfolio by replacing high yielding mortgage loans with equity
investments in real estate properties, taxable earnings are depressed.
FUNDS FROM OPERATIONS. Funds from operations (taxable income
increased by non-cash deductions of depreciation and amortization, and
reduced by capital gain income and other extraordinary income items)
for Fiscal 1996 increased to $5,977,431 ($.49 per share) from the
$5,434,244 ($.52 per share) generated in Fiscal 1995 and the
$4,607,708 ($.52 per share) generated in Fiscal 1994.
13
<PAGE>
REVENUES. Total revenues for Fiscal 1996 were $18,659,665, compared
to $13,801,123 in Fiscal 1995 and $11,583,008 in Fiscal 1994. The
increase in revenues received during Fiscal 1996 in excess of Fiscal
1995 revenues was $4,858,542. This increase resulted from:
Rent from 6 properties acquired in Fiscal 1996 $3,272,078
Rent from 6 properties acquired in Fiscal 1995
in excess of that received in Fiscal 1994 2,094,922
An increase in rental rates on existing
properties (2.5%) 259,084
A decrease in rent on Smith Home Furnishing
Building (bankruptcy of tenant) -348,310
A decrease in rent - properties sold during 1996 -178,888
A decrease in interest income -240,344
----------
$4,858,542
The increase in revenue during Fiscal 1996 resulted primarily from the
addition of new real estate properties to the portfolio. Rents
received on properties acquired prior to the beginning of Fiscal 1995
increased by 2.5%. Overall occupancy was stable at 95%. The decline
in operating income per share (from $.35 per share in Fiscal 1994, to
$.34 in 1995 and $.30 in 1996) reflects the continuing repositioning
of the investment portfolio from a mix of real estate equities and
mortgage loans to one consisting entirely of real estate equities.
The income on the mortgage loans made by the Trust was immediately
reflected in operating income. Many of these mortgage loans earned
interest at 14% per annum and several produced additional
participation income. These mortgages have now been largely paid off
and have been replaced with equity investments in apartments and
triple net leased commercial property. The initial operating and
taxable income on the equity investments is lower than what was being
earned on the mortgage loans, but management is of the opinion that
these new investments will produce very satisfactory investment
returns in the years ahead.
Capital gain income, on the other hand, has been increasing ($.01 per
share in Fiscal 1994 compared to $.04 per share in Fiscal 1995 and
$.08 per share in Fiscal 1996). IRET is marketing its older and
smaller apartment investments and will continue to reposition its
portfolio into newer and larger properties.
The $644,140 increase in net income for Fiscal 1996 over the net
income earned in the prior fiscal year resulted from:
An increase in gain from the sale of investments $ 586,651
An increase in net rental income (rents, less
utilities, maintenance, taxes, insurance
and management) 3,193,087
A decrease in interest income (496,017)
An increase in interest expense (2,063,429)
An increase in depreciation expense (494,430)
A decrease in bad debt expense 200,000
An increase in operating expenses and advisory
trustee services (204,481)
An increase in amortization expense (77,241)
----------
$ 644,140
PROPERTY ACQUISITIONS. IRET acquired over $40,000,000 of new
properties during Fiscal 1996. They were:
14
<PAGE>
COMMERCIAL: COST
----------- ----
- Barnes & Noble Superbookstore, Omaha, NE
(15 year net lease) $3,627,206**
- Stone Container Manufacturing Plant, Fargo, ND $4,042,217**
APARTMENTS:
- 96 units, Billings, MT $ 3,727,440*
- 49 units, North Pointe, Bismarck, ND $ 927,450**
- 98 units, South Pointe Phase I, Minot, ND $ 2,727,085**
- 313 units, West Stonehill, St. Cloud, MN $10,765,830**
- 18 units, Minot, ND $ 593,147
- 49 units, Grand Forks, ND $ 3,373,754*
- 164 units, South Winds, Grand Forks, ND $ 5,433,683
- 98 units, South Pointe II, Minot, ND $ 4,290,061*
- 49 units, Circle 50, Billings, MT $ 491,247*
- 67 units, Columbia Park II, Grand Forks, ND $ 661,855*
-----------
$40,660,975
*Property not placed in service at April 30, 1996. Additional costs
are still to be incurred.
**Represents costs to complete a project started in the year ending
April 30, 1995.
PROPERTY DISPOSITIONS: During Fiscal 1996, IRET sold several older
and smaller apartment buildings. In addition, a contract for deed
receivable from Chateau Properties, Ltd., was paid in full, resulting
in the recognition of deferred capital gain. The total gain
recognized from the sale of properties (both current and deferred) was
$994,163 for Fiscal 1996, compared to $407,512 in Fiscal 1995, and
$64,962 in Fiscal 1994. It is management's intention to continue to
market IRET's older and smaller apartment projects.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994: (This comparative report is
reproduced as it was submitted for Fiscal Year 1995. The Fiscal 1995
results were restated in the Fiscal 1996 Financial Report because of the
removal of Chateau Properties from the consolidated Financial Report
resulting in small changes to the Fiscal 1995 results. See Note 11 to the
attached Financial Report for an explanation of these changes.) Net income
for Fiscal 1995 increased to $3,971,108, compared to $3,243,063 for Fiscal
1994 and $2,363,702 for Fiscal 1993. On a per share basis, net income was
$.38 for Fiscal 1995, an increase of 6% over the $.36 earned in the prior
year and 31% more than the $.29 earned in Fiscal 1993.
Gain from the sale of real estate investments constituted $403,094 ($.04
per share) of the Fiscal 1995 net income, compared to $64,962 ($.01 per
share) included in the Fiscal 1994 net income and $132,610 ($.01 per share)
for Fiscal 1993.
Total revenues were $14,117,694 in Fiscal 1995, compared to $11,884,579 in
1994 and $8,316,643 in 1993. The Fiscal 1995 revenue increase of
$2,233,115 consisted of:
Rent from 4 properties acquired in Fiscal 1995 $ 534,013
Rent from 4 properties acquired in Fiscal 1994
in excess of that received in Fiscal 1994 1,860,429
15
<PAGE>
An increase in rental rates on existing
properties (3%) 213,973
An increase in occupancy rates on existing
properties (1/2%) 52,171
A decrease in rent - property sold during 1995
(Yankton) (131,995)
A decrease in interest income (260,001)
----------
Net revenue increase (1995 over 1994) $2,233,115
----------
----------
Thus, the increase in revenue resulted primarily from the addition of new
real estate properties to the portfolio. Scheduled rents on existing
properties increased by 3%, while occupancy increased to 95.5% from 95% in
the prior year.
The $728,045 increase in net income for Fiscal 1995 over the amount earned
in the prior year resulted from:
An increase in gain from sale of investments $ 338,132
An increase in net rental income (rents, less
utilities, maintenance, taxes, insurance
and management) 1,999.032
A decrease in interest income (295,476)
An increase in interest expense (832,073)
An increase in depreciation expense (441,163)
A decrease in bad debt expense 50,000
An increase in operating expenses & other items (87,407)
----------
$ 728,045
----------
----------
IRET purchased some $27,000,000 of real estate properties during Fiscal
1995 and has contracted to acquire approximately $25,000,000 of additional
real estate properties in the coming year. Thus, the Trust's portfolio
will shift rapidly from a significant investment in high-yielding mortgage
loans to a portfolio consisting primarily of equity positions in real
estate. This change in the portfolio will result in a decrease in net
income because of increased depreciation.
We expect earnings in Fiscal 1996 to exceed this year's level. Occupancy,
rental rates and interest rates are expected to remain at present levels
and the new properties that are being added to the portfolio will enhance
net income.
DIVIDENDS. The following dividends were paid during Fiscal 1996:
DATE PER SHARE DIVIDEND
---- ------------------
July 1, 1995 $.09*
October 1, 1995 $.0875
January 5, 1996 $.09
April 1, 1996 $.09125
-------
$.35875
*Includes $.005 special dividend.
FUNDS FROM OPERATIONS. The funds derived during Fiscal 1996 by the Trust from
its operations increased by 12% over the prior year and by 33% from the Fiscal
1994 level ($5,977,431 in Fiscal 1996, versus $5,348,271 in 1995 and $4,487,099
in 1994). (IRET uses the definition of "Funds From Operations" recommended by
the National Association of Real Estate Investment Trusts to mean "net income
(computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of property, plus
16
<PAGE>
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures calculated on the same basis." It is
emphasized that funds from operations as so calculated and presented does not
represent cash flows from operations as defined under generally accepted
accounting principles and should not be considered as an alternative to net
income as an indication of operating performance or to cash flows as a
measure of liquidity or ability to fund all cash needs.) (See the
Consolidated Statements of Cash Flows in the Consolidated Financial
Statements attached hereto.)
The following is a comparison of dividends paid during the past five fiscal
years to Funds From Operations (as defined above):
<TABLE>
Fiscal Fiscal Fiscal Fiscal Fiscal
ITEM 1996 1995 (RESTATED) 1994 (RESTATED) 1993 1992
- ---- ------ --------------- --------------- ------ ------
<S> <C> <C> <C> <C> <C>
Net Income (GAAP) $4,611,970 $3,967,830 $3,200,388 $2,363,702 $1,651,073
Less Gains (Losses)
from Property
Sales 994,163 407,512 64,962 132,610 22,858
---------- ---------- ---------- ---------- ----------
Operating Income $3,617,807 $3,560,318 3,135,426 $2,231,092 $1,628,155
Plus Depreciation 2,261,724 1,767,294 1,323,474 1,051,370 824,369
Plus Amortization 97,900 20,659 28,199 16,364 11,289
---------- ---------- ---------- ---------- ----------
Funds from
Operations $5,977,431 $5,348,271 $4,487,099 $3,298,826 $2,463,813
Dividends Paid 4,439,034 3,660,986 3,102,061 2,633,799 2,257,303
---------- ---------- ---------- ---------- ----------
$1,538,397 $1,687,285 $1,385,038 $ 665,027 $ 206,510
</TABLE>
Management expects that the Funds From Operations (as defined above) will
continue to improve during Fiscal 1997 and will exceed dividends paid in the
coming year.
LIQUIDITY AND CAPITAL RESOURCES. IRET's financial condition at the end of
Fiscal 1996 continued at the very strong level of its prior fiscal year.
- Equity capital increased to $50,711,920 from $37,835,654 on April 30,
1995, a gain of $12,876,266 (34%). Equity capital on April 30, 1994,
was $30,320,401. These increases result from the sale of shares of
beneficial interest and the reinvestment of dividends in new shares.
- Liabilities increased to $80,643,718 from $56,781,090 on April 30,
1995, and $42,409,447 on April 30, 1994.
- Total assets increased to $131,355,638 from $94,616,744 on April 30,
1995, and $72,729,848 on April 30, 1994.
- Cash and marketable securities were $7,127,131 compared to the year
earlier figure of $9,595,254, and $7,263,031 on April 30, 1994.
- In addition to its cash and marketable securities, IRET has an
unsecured line of credit agreement with First American Bank West,
Minot, North Dakota, of $5,000,000, none of which was in use on April
30, 1996.
AFFILIATED PARTNERSHIPS. IRET has sponsored and serves as a general partner
of seven limited partnerships. Because of IRET's position as a general
partner and creditor of these partnerships and because the partnerships (with
the exception of Chateau Properties) did not produce sufficient cash flow to
pay debts due to IRET as scheduled prior to Fiscal Year 1996, the financial
statements of IRET and the seven partnerships have been consolidated for
financial reporting purposes to more properly depict the financial status of
IRET. (It is emphasized that the consolidation of the financial reports does
not change the legal relationship between IRET and the partnerships, nor the
income tax reporting by IRET or the
17
<PAGE>
partnerships.) During Fiscal Year 1996, a new mortgage loan was negotiated
by Chateau Properties, Ltd., on its 64-unit apartment building in Minot,
North Dakota. As a result of this refinancing, the partnership paid the
balance that it owed to IRET on the contract for deed under which the
apartment building had been purchased from IRET. Further, IRET was not
required to guarantee the new mortgage loan made by the partnership.
Accordingly, for Fiscal 1996, IRET is accounting for its partnership interest
in Chateau Properties under the equity method of accounting. Prior financial
statements included in the audited financial statement and this report have
been restated to reflect this change. See Note 11 in the attached financial
report for a detail of the effect of this accounting change.
The seven affiliated partnerships are as follows:
YEAR PROPERTY IRET
NAME FORMED OWNED OWNERSHIP
- ------------------------------------------------------------------------------
Chateau Properties, 1979 64 Unit 26.7%
Ltd. Apt. Bldg.
Sweetwater Properties, 1981 114 Units 0%
Ltd. Apts.
Bison Properties, 1982 125 Units 20%
Ltd. Apts.
First Avenue Building, 1981 16,500 sq. ft. 20%
Ltd. Office Bldg.
Eastgate Properties, 1983 116 Units 18%
Ltd. Apts.
Colton Heights, Ltd. 1984 18 Unit 18.69%
Apt. Bldg.
Hill Park Properties, 1985 96 Units 7.14%
Ltd. Apts.
CONSOLIDATED FINANCIAL STATEMENTS:
The financial statement included in this Prospectus consolidates financial
statements of IRET and six of the above seven limited partnerships (Chateau
Properties is excluded). All material inter-company transactions and
balances have been eliminated on the consolidated statement. The principal
impact of this consolidation on the statement of operations is to reduce
reported income as a result of increased depreciation. On the balance sheet,
related mortgage loans and the investment in partnerships is reduced and real
estate owned is increased. Also, the deferred income account is decreased
and the retained earnings account is also decreased.
IMPACT OF INFLATION. The costs of utilities and other rental expenses
continue to increase, but in most areas, IRET has been able to increase
rental income sufficiently to cover inflationary increases in rental expense.
Increases in rental income are not precluded by long-term lease obligations
except for a few commercial properties subject to long-term net lease
agreements. Thus, as market conditions allow, rents will be increased to
cover inflationary expenses and to provide a better return to IRET.
18
<PAGE>
ECONOMIC CONDITIONS. Fiscal 1996 saw continued good economic conditions in
the northern plains states in which the Trust operates. The economy was
strong, due to adequate rainfall and higher commodity prices and a moderate
improvement in energy activity. Occupancy rates were stable at 95% and rent
levels for Trust properties improved only slightly in Fiscal 1996 (2 1/2%).
GENERAL INFORMATION AS TO INVESTORS REAL ESTATE TRUST
ORGANIZATION OF TRUST. Investors Real Estate Trust is an unincorporated
business trust organized and governed under the laws of North Dakota. The
Trust has qualified as a real estate investment trust under Sections 856-858
of the Internal Revenue Code.
GOVERNING INSTRUMENTS OF TRUST. The Trust was organized pursuant to Trust
Agreement dated July 31, 1970. The Trust will continue, unless sooner
terminated by a 2/3rds vote of the shareholders, until the expiration of 20
years after the death of the last survivor of the seven original trustees.
All of the original Trustees are still living, the youngest being 60 years of
age. The existence of the Trust may be extended indefinitely by action of the
Trustees approved by the vote of shareholders holding fifty per cent or more
of the outstanding shares.
SHAREHOLDER MEETINGS. The governing provisions of the Trust require the
holding of annual meetings. It is the policy of the Board of Trustees to
hold the annual meeting in Minot, North Dakota, during the month of August.
All shareholders shall be given not less than 15 nor more than 40 days prior
written notice.
Special meetings of the shareholders may be called at any time upon not less
than 15 nor more than 40 days prior written notice by the Chairman of the
Trustees, by a majority of the trustees or by the written request of
shareholders holding in aggregate not less than 20% of the issued and
outstanding shares entitled to vote at such meeting.
POLICY WITH RESPECT TO CERTAIN ACTIVITIES
The following information is a statement of the Trust's policy as it pertains
to the described activities.
TO ISSUE SENIOR SECURITIES. The Trust has issued and outstanding Investment
Certificates which are senior to the shares of Beneficial Interest being
offered under this Prospectus. The Investment Certificates are issued for a
definite term and annual interest rate (currently 7% for 6 months; 7 1/2% for
1 year; 8% for 3 years and 8 1/2% for 5 years). In the event of dissolution
of the Trust, the Investment Certificates would be paid in preference to the
shares of Beneficial Interest. As of April 30, 1996, the Investment
Certificates outstanding totalled $5,802,469. The Trust does not plan on
issuing other senior securities in the future.
TO BORROW MONEY. The Trust plans to continue to borrow money. The Trust
relies on borrowed funds in pursuing its investment objectives and goals.
The policy concerning borrowed funds is vested solely with the Board of
Trustees and may be changed by a majority of the Board without a vote of the
shareholders. The Trust intends to continue borrowing funds in the future.
Over the past three fiscal years, the Trust has borrowed funds as follows:
FISCAL FISCAL FISCAL
1996 1995 1994
------ ------ ------
Cost of Property
Acquired $40,660,975 $27,033,369 $17,569,810
19
<PAGE>
Net Increase in
Mortgages Payable $21,702,852 $13,006,654 $11,684,600
Percent of Acquisition
Price Represented by
Net Increase in
Mortgages Payable 53% 48% 67%
TO MAKE LOANS TO OTHER PERSONS. As part of the Trust's business plan, Trust
funds have been loaned to third parties. The loans are in the form of
mortgages secured by real estate. The decision to make loans is vested
solely with the Board of Trustees and may be changed by a majority of the
Board without a vote of the shareholders.
The Trust has no present plans to make additional loans of Trust funds, but
may do so in the future.
The Trust has the following outstanding mortgage loans:
MORTGAGE LOANS RECEIVABLE - UNRELATED:
REAL ESTATE 4/30/96
LOCATION SECURITY BALANCE RATE
- -------- ----------- ------- ----
BILLINGS, MT
Colton Heights Apts. - 144 Units $ 320,938 9%
DENVER, CO
Westminister-Writer Corp. Residential Lots 618,810 14%
Centrebrooke Homes Residential Lots 205,517 12%
GILBERT, AZ
NE1/4-27-2-6 Commercial Land 681,032 8%
BISMARCK, ND
M. Knutt Apts. 236,880 11%
DOUGLAS, GA
Sweetwater Springs Retirement Center 1,254,810 9%
OTHER MORTGAGES
Over $100,000 $ 978,893 8-10 1/4%
$50,000 to $99,999 360,998 8-12%
$20,000 to $49,999 252,315 8-12%
Less than $20,000 21,950 7-12%
----------
TOTAL $4,932,138
Unearned Discounts (18,222)
Allowance for Losses (165,074)
Deferred Gain (267,096)
----------
$4,481,746
----------
----------
TO INVEST IN THE SECURITIES OF OTHER ISSUERS FOR THE PURPOSE OF EXERCISING
CONTROL. The Trust has not invested in such securities in the past. The
decision to do so is vested solely in the Board of Trustees and may be
changed without a vote of the shareholders.
20
<PAGE>
The Trust currently holds an interest in the following partnerships:
<TABLE>
Year Partner-
Name, Location, Size ship Formed Fiscal Mortgages
& Type of Real and % Owned 1996 Year Payable
Estate Owned by Iret Occupancy Purchased Cost (Rate)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CHATEAU PROPERTIES, LTD.
Apartment Complex 1979 99% 1972 $2,663,654 $1,318,597
- - Minot, ND, 64 Units 26.7% (7%)
CONSOLIDATED PARTNERSHIPS:
SWEETWATER PROPERTIES, LTD.
Apartment Complex 1981 94% 1972 1,354,230 275,285
- - Devils Lake, ND 0% (9.25%)
72 Units
- - Grafton, ND, 42 Units
BISON PROPERTIES, LTD.
Apartment Complex 1982 94% 1972 1,490,135 188,062
- - Jamestown, ND 20% (8.5 to
90 Units 10%)
- - Carrington, ND
18 Units
- - Cooperstown, ND
17 Units
FIRST AVENUE BUILDING, LTD.
16,500 sq. ft. Office
Building 1981 95% 1981 778,817 0
- - 15 First Ave. SW 20%
Minot, ND
EASTGATE PROPERTIES, LTD.
Apartment Complex 1983 85% 1970 1,681,203 0
- - Terrace on the Green 18%
Moorhead, MN
116 Units
COLTON HEIGHTS, LTD.
Apartment Building 1984 97% 1984 816,561 399,197
- - Minot, ND, 18 Units 18.69% (8.5%)
HILL PARK PROPERTIES, LTD.
Garden Grove Apts. 1985 92% 1985 2,820,677 1,551,775
- - 201 Xavier Drive 7.14% (10.625%)
Bismarck, ND, 92 Units
</TABLE>
It is possible that the Board may increase IRET's ownership in the above
entities or seek to acquire a controlling ownership interest in other unrelated
entities.
TO UNDERWRITE SECURITIES OF OTHER ISSUERS. The Trust has no plans to engage in
such an activity.
TO ENGAGE IN THE PURCHASE AND SALE (OR TURNOVER) OF INVESTMENTS. The Trust has
no plans to engage in such an activity.
TO OFFER SECURITIES IN EXCHANGE FOR PROPERTY. The Trust has no plans to engage
in such an activity.
TO REPURCHASE OR OTHERWISE REACQUIRE ITS SHARES OR OTHER SECURITIES. As a "real
estate investment trust" under federal income tax laws, the Trust intends to
invest only in real estate assets. The Trust is authorized, but not obligated,
to repurchase its own shares and may do so from time to time if the Trustees
deem such action to be appropriate.
TO MAKE ANNUAL AND OTHER REPORTS TO SHAREHOLDERS. The Trust is required to
provide an annual report to shareholders during the month of July. The annual
21
<PAGE>
report contains a financial statement certified by an independent public
accountant. Provision of the annual report to shareholders may only be changed
by a vote of a majority of the shareholders. The Trust has a policy of
providing quarterly reports to the shareholders during January, March, June and
October. The quarterly reports do not contain a financial statement certified
by an independent public accountant. The provision of a quarterly report to the
shareholders may be changed by a majority of the Board without a vote of the
shareholders.
INVESTMENT POLICIES OF REGISTRANT
INVESTMENTS IN REAL ESTATE OR INTERESTS IN REAL ESTATE. The Trust currently
owns real estate located in 8 states. The company may invest in real estate or
interests in real estate which is located anywhere in the United States.
The Trust may invest in any type of real estate or interest in real estate
including, but not limited to, office buildings, apartment buildings, shopping
centers, industrial and commercial properties, special purpose buildings and
undeveloped acreage, except the Trust may not invest more than 10% of net assets
in unimproved real estate, excluding property being developed or property where
development will be completed within a reasonable period.
The method of operating the Trust's real estate shall be delegated to a
management company as it pertains to the day-to-day management. All major
operating decisions concerning the Trust's operation of its real estate shall be
made by the Board.
The method of financing the purchase of real estate investments shall be
primarily from borrowed funds and the sale of shares. The income generated from
rental income and interest income is planned to be distributed to shareholders
as dividends. The Trust will rely on proceeds from the sale of shares offered
by this Prospectus to expand its portfolio of real estate investments.
There is no limitation on the number or amount of mortgages which may be placed
on any one piece of property, provided that the overall ratio of liabilities to
assets for the Trust must not exceed 80%. As of April 30, 1996, the ratio of
total liabilities ($80,643,718) to total assets ($131,355,638) was 61%.
It is not the Trust's policy to acquire assets primarily for possible capital
gain. Rather, it is the policy of the Trust to acquire assets primarily for
income.
The Trust has no limitation on the amount or percentage of assets which will be
invested in any specific property, except that not more than 10% of assets can
consist of unimproved real estate.
Any Trust policy as it relates to investments in real estate or interests in
real estate may be changed by the Board at anytime without a vote of the
shareholders.
INVESTMENTS IN REAL ESTATE MORTGAGES. While the Trust has made mortgage loans
in the past, it is the current policy of the Trust not to make any further
mortgage loans.
Any Trust policy as it relates to mortgage loans may be changed by the Board at
anytime without a vote of the shareholders.
INVESTMENTS IN OTHER SECURITIES. The Trust has purchased and now owns United
States guaranteed obligations. These purchases are made solely for the purpose
of holding cash until future real estate investments are identified. No
investments in other types of securities are planned.
22
<PAGE>
Any Trust policy as it relates to investments in other securities may be changed
by the Board at anytime without a vote of the shareholders.
INVESTMENTS IN SECURITIES OF OR INTERESTS IN PERSONS PRIMARILY ENGAGED IN REAL
ESTATE ACTIVITIES. The Trust does not plan to make any such investments.
Any Trust policy as it relates to investments in other securities may be changed
by the Board at anytime without a vote of the shareholders.
DESCRIPTION OF REAL ESTATE
IRET owned the following properties as of April 30, 1996:
INVESTMENT PORTFOLIO - INVESTORS REAL ESTATE TRUST
AS OF APRIL 30, 1996
REAL ESTATE OWNED:
<TABLE>
Fiscal Mortgages
1996 Year Payable
Location Size/Type Occupancy Purchased Cost (Rate)
-------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
APARTMENTS:
Century Apartments 192 Unit 89% 1986 3,565,505 2,700,000
Williston, ND Apt. Complex (7.5%)
Century Condos 22 Condo 94% 1983 421,683 0
Beulah, ND Apt. Units & 1989
Century Apts. 120 Unit 98% 1986 1,741,619 1,595,000
Dickinson, ND Apt. Complex (7.5%)
201 - 301 17th Ave NE 2 24-Unit 92% 1987 806,694 0
Waseca, MN Apt. Bldgs
Virginia Apts. 14 Unit 95% 1988 217,083 2,377
Minot, ND Apt. Bldg. (10%)
1305 Birch St. 24 Unit 94% 1989 399,278 135,871
Marshall, MN Apt. Bldg. (9.0%)
Oak Manor Apts. 27 Unit 99% 1989 285,917 238,264
Dickinson, ND Apt. Bldg. (9.75%)
4301-13 9th Ave. SW 2 18-Unit 97% 1988 997,642 218,330
Fargo, ND Apt. Bldgs. (8.65%)
Parkway Apts. 2 18-Unit 93% 1989 82,386 0
Beulah, ND Apt. Bldgs.
Scottsbluff Estates 2 24-Unit 96% 1988 710,039 196,024
Scottsbluff, NE Apt. Bldgs. (10.25%)
177 10th Ave. E 41 Unit 86% 1989 360,877 234,660
Dickinson, ND Apt. Bldg. (8.75%)
312 12th Ave. NW 18 Unit 97% 1989 256,750 45,670
Mandan, ND Apt. Bldg. (8.75%)
105 Grant St. 12 Unit 80% 1990 171,884 0
Harvey, ND Apt. Bldg.
Candlelight Apts. 66 Unit 97% 1992 838,017 539,961
Fargo, ND (2/3rds) Apt. Complex (8.25%)
Forest Park 270 Unit 97% 1993 6,596,264 4,177,577
Grand Forks, ND Apt. Complex (9.75%)
Oakwood Estates 100 Unit 95% 1993 3,323,305 2,250,000
Sioux Falls, SD Apt. Complex (7.5%)
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Prairie Winds 48 Unit 98% 1993 1,960,108 1,388,452
Sioux Falls, SD Apt. Complex (7.19%)
Crestview Apts. 152 Unit 92% 1994 4,572,879 2,880,049
Bismarck, ND Apt. Complex (8.30%)
Pointe West 90 Unit 86% 1994 3,812,603 2,395,789
Rapid City, SD Apt. Complex (8.34%)
Oxbow Apts. 96 Unit 98% 1994 4,942,650 3,565,000
Sioux Falls, SD Apt. Complex (7.5%)
Pine Cone 195 Unit 92% 1995 13,071,638 10,645,576
Ft. Collins, CO Apt. Complex (7.125%)
Southview 24 Unit 98% 1995 653,948 0
Minot, ND Apt. Complex
North Pointe 49 Unit 96% 1996 2,387,600 1,382,528
Bismarck, ND Apt. Complex (8.18%)
South Pointe - Phase I 98 Unit N/A 1996 4,789,552 2,775,212
Minot, ND Apt. Complex Completed (8.01%)
Stonehill 313 Unit 96% 1995 11,106,355 8,186,235
St. Cloud, MN Apt. Complex (9.21%)
1112 32nd Ave. SW 18 Unit 99% 1995 593,147 414,283
Minot, ND Apt. Complex (9.0%)
South Winds 164 Unit N/A 1995 5,433,683 3,721,568
Grand Forks, ND Apt. Complex (7.84%)
South Pointe - Phase II 98 Units N/A Not 4,270,062 0
Minot, ND Apt. Complex Completed
Billings, MT 98 Units N/A Not 3,754,088 0
Apt. Complex Completed
Columbia Park 116 Unit N/A Not 4,035,609 0
Grand Forks, ND Apt. Complex Completed
Circle 50 49 Unit N/A Not 491,247 0
Billings, MT Apt. Complex Completed
COMMERCIAL:
114 S. Main 3,500 sq ft. 100% 1978 103,905 18,389
Minot, ND Retail Bldg. (9%)
408 1st St SE Rental House 100% 1986 46,873 0
Minot, ND
Arrowhead Center 80,000 sq ft. 97% 1973 2,397,414 145,277
Minot, ND Shopping Center (10%)
Superpumper Gas Station/ 100% 1986 297,064 0
Emerado, ND Conven. Store
Superpumper Gas Station/ 100% 1987 239,212 0
Langdon, ND Conven. Store
401 South Main 9,200 sq ft. 96% 1988 474,686 0
Minot, ND Commercial Bldg.
Lester Chiropractic 5,000 sq ft. 100% 1988 268,916 0
Clinic Clinic Bldg.
Bismarck, ND (1/2 int.)
Superpumper Gas Station/ 100% 1988 301,013 0
Bottineau, ND Conven. Store
Superpumper Gas Station/ 100% 1988 428,778 0
Crookston, MN Conven. Store
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Superpumper Gas Station/ 100% 1991 485,007 0
Grand Forks, ND Conven. Store
Superpumper Gas Station/ 100% 1991 250,000 0
New Town, ND Conven. Store
Pioneer Hi Bred Office/Whse. 100% 1991 653,876 350,023
Moorhead, MN (8.625%)
Lindberg Office/Whse. 100% 1991 1,455,789 851,838
Eden Prairie, MN (8.5%)
Creekside Office Bldgs. 91% 1991 1,571,135 946,482
Billings, MT (8.35%)
Superpumper Gas Station/ 100% 1992 120,600 0
Sidney, MT Conven. Store
Hutchinson Technology Manufacturing 100% 1992 4,429,026 2,470,548
Sioux Falls, SD Plant (8.5%)
Minot Plaza 11,200 sq ft. 100% 1993 502,898 0
Minot, ND Strip Shopping Center
Retail Warehouse 70,000 sq ft. 58% 1994 5,639,576 3,629,797
Boise, ID Retail warehouse (9.75%)
Midco Theatre 28,528 sq. ft. 100% 1994 2,545,736 1,703,009
Grand Forks, ND 10-screen theatre (8.65%)
30 Year Lease
Pet Foods 18,000 sq. ft. 100% 1995 1,276,776 834,130
Fargo, ND Retail/Whse. (8.31%)
Barnes and Noble 30,000 sq. ft. 100% 1995 3,292,012 2,317,499
Fargo, ND Retail/Whse. (7.98%)
Stone Container Currently Under N/A 1995 4,938,486 3,271,632
Fargo, ND Construction (8.25%)
Barnes & Noble Currently Under 100% 1995 3,699,101 2,510,624
Omaha, NE Construction ------------ (7.98%)
TOTAL COMMERCIAL 35,417,879
CONSOLIDATED PARTNERSHIPS:
Sweetwater Properties 114 Apt. 79% 1972 1,354,230 251,014
Devils Lake & Grafton, ND Units (9.75%)
Bison Properties 125 Apt. 90% 1972 1,490,135 152,946
Jamestown, Carrington & Units (10%)
Cooperstown, ND
First Avenue Building 16,500 Sq. Ft. 93% 1981 779,817 0
Minot, ND Office Bldg.
Eastgate Properties 116 Unit 81% 1970 1,693,189 0
Moorhead, MN Apt. Complex
Colton Heights 18 Unit 97% 1984 816,561 381,682
Minot, ND Apt. Bldg. (9.5%)
Hill Park Properties 92 Unit 86% 1985 2,822,476 1,470,000
Bismarck, ND Apt. Complex ------------ (7.5%)
TOTAL PARTNERSHIPS 8,956,408
Total Real Estate Owned $131,447,734 $71,321,337
Less Accumulated Depreciation (13,551,571) -----------
------------ ------------
Net Carrying Value $117,896,163
Other Properties Sold Contract ------------
For Deed ------------ $ 377,722
-----------
$71,699,059
-----------
-----------
</TABLE>
25
<PAGE>
TITLE. The title to all of the above properties is in the name of IRET in fee
simple (in each case, IRET has in its files an attorney's title opinion or a
title insurance policy evidencing its title).
INSURANCE. In the opinion of management, all of said properties are adequately
covered by casualty and liability insurance.
PLANNED IMPROVEMENTS. There are no plans for material improvements to any of
the above properties.
CONTRACTS OR OPTIONS TO SELL. As of April 30, 1996, IRET had not entered into
any contracts or options to sell any of the above properties, other than an
agreement to sell the 24 unit apartment complex in Hutchinson, Minnesota, for
$500,000.
OCCUPANCY AND LEASES. Occupancy rates shown above are for the fiscal year ended
April 30, 1996. In the case of apartment properties, lease arrangements with
individual tenants vary from month-to-month to one year leases, with the normal
term being six months. Leases on commercial properties vary from one year to 20
years. The tenant occupying the retail warehouse in Boise, Idaho, declared
bankruptcy. The lease has been terminated and the Trust is seeking a new
tenant.
TAX TREATMENT OF REGISTRANT AND ITS SECURITY HOLDERS
FEDERAL INCOME TAX. Since its organization, the Trust has operated in a manner
to qualify as a real estate investment trust under Sections 856-858 of the
Internal Revenue Code. Under such Sections a real estate investment trust
which, in any taxable year, meets certain requirements will not be subject to
Federal income tax with respect to income which it distributes to shareholders.
To be considered a real estate investment trust for purposes of the Federal
income tax laws, the Trust must continue to meet the following requirements,
among others:
(1) At the end of each fiscal quarter at least 75% of the value
of the total assets of the Trust must consist of real estate
assets (including interests in mortgages on real property
and shares in other real estate investment trusts meeting
the requirements for taxation in accordance with Sections
856-858 of the Internal Revenue Code), cash, cash items
including receivables and government securities. As to
non-real estate investments, which may not exceed 25% of the
total assets of the Trust, the securities of any one issuer
acquired by the Trust may not represent more than 5% of the
value of the Trust's assets or more than 10% of the
outstanding voting securities of such issuer.
(2) At least 75% of the gross income of the Trust for the
taxable year must be derived from real property rents,
interest on obligations secured by mortgages on real
property, abatements and refunds of real estate taxes, gains
from the sale or other disposition of real estate interests
or mortgages on real property and dividends or other
distributions on, and gains from the sale of, shares of
other real estate investment trusts meeting the requirements
for taxation in accordance with Sections 856-868 of the
Internal Revenue Code. An additional 15% of the gross
income of the Trust must be derived from the same sources
or from dividends, or interest, or gains from the sale or
other disposition of stock or securities, or any combination
of the foregoing.
26
<PAGE>
(3) Gross income for the taxable year from sales or other
disposition of stock or securities held for less than six
months and of real property (or interests in real property)
held for less than four years must be less than 30% of gross
income. The Trust may not hold any property primarily for
sale to customers in the ordinary course of its trade or
business.
(4) Beneficial ownership of the Trust must be held by 100 or
more persons during at least 335 days of a taxable year of
12 months, or during a proportionate part of a taxable year
of less than 12 months. More than 50% of the outstanding
capital stock may not be owned, directly or indirectly, by
or for, five or fewer individuals, at any time during the
last half of the taxable year.
As a real estate investment trust, the Trust will not be taxed on that portion
of its taxable income (including capital gains) which is distributed to
shareholders, if at least 95% of its real estate investment trust taxable income
(taxable income adjusted as provided in Section 857 of the Internal Revenue
Code) is distributed. However, to the extent that there is undistributed
taxable income or undistributed capital gain, the Trust will be taxed as a
corporation at corporate income tax rates. The Trust will not be entitled to
carry back or carry forward any net operating losses.
So long as the Trust has met the statutory requirements for taxation as a real
estate investment trust, distributions made to the Trust's shareholders will be
taxed to them as ordinary income or long term capital gain, as the case may be.
Distributions will not be eligible for the dividend exclusion for individuals,
or for the 85% dividends received deduction for corporations. The Trust will
notify each shareholder as to what portion of the distributions in the opinion
of its counsel constitutes ordinary income or capital gain. The shareholders
may not include in their individual income tax returns any operating or
extraordinary losses of the Trust, whether ordinary or capital losses.
If, in any taxable year, the Trust should not qualify as a real estate
investment trust, it would be taxed as a corporation and distributions to its
shareholders would not be deductible by the Trust in computing its taxable
income. Such distributions, to the extent made out of the Trust's current or
accumulated earnings and profits, would be taxable to the shareholders as
dividends, but would be eligible for the dividend exclusion, or the 85%
dividends received deduction for corporations.
The foregoing, while summarizing some of the more significant provisions of the
Internal Revenue Code which govern the tax treatment of the Trust, is general in
character. For a complete statement, reference should be made to the pertinent
Code Sections and the Regulations issued thereunder.
In the opinion of the law firm of Pringle & Herigstad, P.C., counsel for the
Trust, the contemplated method of operation of the Trust complies with the
requirements of the Internal Revenue Code for qualification as a real estate
investment trust. The Regulations of the Treasury Department require that the
trustees have continuing exclusive authority over the management of the Trust,
the conduct of its affairs and, with certain limitations, the management and
disposition of the trust property. It is the intention of the trustees to
effect any amendments to the Declaration of Trust that may be necessary in the
opinion of counsel for the Trust to meet the requirements of any modification or
interpretation of the Regulations. Provision for such amendment by the
trustees, without the vote or consent of the shareholders, is contained in the
Declaration of Trust.
27
<PAGE>
NORTH DAKOTA INCOME TAX. In the opinion of counsel for the Trust, since the
Trust qualifies as a Real Estate Investment Trust for purposes of the Federal
income tax laws, it will not be subject to the North Dakota Corporate Income Tax
on that portion of its taxable income (including capital gains) which is
distributed to shareholders, provided that the 95 percent distribution
requirement outlined above is met. To the extent there is undistributed taxable
income or undistributed capital gain, the Trust will be taxed as a corporation
for North Dakota income tax purposes. The Trust will not be entitled to carry
back or carry forward any net operating losses. Distributions to the trust
shareholders of capital gains or taxable income will be subject to the North
Dakota income tax.
TAXATION OF THE TRUST'S SHAREHOLDERS. If the Trust qualifies as a REIT, and so
long as the Trust so qualifies, distributions made to the Trust's shareholders
out of current or accumulated earnings and profits will be taken into account by
them as ordinary income (which will not be eligible for the dividends received
deduction for corporations). Distributions that are designated as capital gain
dividends will be taxed as long-term capital gains to the extent they do not
exceed the Trust's actual net capital gain dividend for the taxable year,
although corporate shareholders may be required to treat up to 20% of any such
capital gain dividend as ordinary income. Distributions in excess of current or
accumulated earnings and profits will not be taxable to a shareholder to the
extent that they do not exceed the adjusted basis of the shareholder's shares of
stock, but rather will reduce the adjusted basis of such shares of stock. To
the extent that such distributions exceed the adjusted basis of shareholder's
shares of stock they will be included in income as long-term or short-term
capital gain assuming the shares are held as a capital asset in the hands of the
shareholder. The Trust will notify shareholders at the end of each year as to
the portions of the distributions which constitute ordinary income, net capital
gain or return of capital.
In addition, any dividend declared by the Trust in October, November or December
of any year payable to a shareholder of record on a specified date in any such
month shall be treated as both paid by the Trust and received by the shareholder
on December 31 of such year, provided that the dividend is actually paid by the
Trust during January of the following calendar year. Shareholders may not
include in their individual income tax returns any net operating losses or
capital losses of the Trust.
In general any gain or loss upon a sale or exchange of shares by a shareholder
who has held such shares as a capital asset will be long-term or short-term
depending on whether the stock was held for more than one year; provided,
however, any loss on the sale or exchange of shares that have been held by such
shareholder for six months or less will be treated as a long-term capital loss
to the extent of distributions from the Trust required to be treated by such
shareholders as long-term capital gain.
TAXATION OF TAX-EXEMPT SHAREHOLDERS. The IRS has ruled that amounts distributed
as dividends by a qualified REIT do not constitute unrelated business taxable
income ("UBTI") when received by a tax-exempt entity. Based on that ruling the
dividend income from the Trust should not, subject to certain exceptions
described below, be UBTI to a qualified plan, IRET or other tax-exempt entity (a
"Tax-Exempt Shareholder") provided that Tax-Exempt Shareholder has not held its
shares as "debt financed property" within the meaning of the Code and the shares
are not otherwise used in an unrelated trade or business of the Tax-Exempt
Shareholder. Similarly, income from the sale of Common Stock should not,
subject to certain exceptions described below, constitute UBTI unless the Tax-
Exempt Shareholder has held such Common Stock as a dealer (under Section
512(b)(5)(B) of the Code) or as "debt financed property" within the meaning of
Section 514 of the Code.
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For Tax-Exempt Shareholders which are social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts, and qualified group
legal services plans exempt from federal income taxation under sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code respectively, income from an
investment in the Trust will constitute UBTI unless the organization is able to
deduct properly amounts set aside or placed in reserve for certain purposes so
as to offset the income generated by its investment in the Trust. Such
prospective investors should consult their tax advisors concerning these "set-
aside" and reserve requirements.
Notwithstanding the above, however, the recently enacted Omnibus Budget
Reconciliation Act of 1993 (the "1993 Act") provides that, effective for taxable
years beginning in 1994, a portion of the dividends paid by a "pension held
REIT" shall be treated as UBTI as to any trust which (i) is described in Section
401(a) of the Code, (ii) is tax-exempt under Section 501(a) of the Code, and
(iii) holds more than 10% (by value) of the interests in the REIT. Tax-exempt
pension funds that are described in Section 401(a) of the Code are referred to
below as "qualified trusts."
A real estate investment trust is a "pension held REIT" if (i) it would not have
qualified as a real estate investment trust but for the fact that Section
856(h)(3) of the Code (added by the 1993 Act) provides that stock owned by
qualified trusts shall be treated, for purposes of the "not closely held"
requirements, as owned by the beneficiaries of the trust (rather than by the
trust itself), and (ii) either (a) at least one such qualified trust holds more
than 25% (by value) of the interests in the REIT, or (b) one or more such
qualified trusts, each of whom owns more than 10% (by value) of the interests in
the REIT, hold in the aggregate more than 50% (by value) of the interests in the
REIT.
TAX CONSIDERATIONS FOR FOREIGN INVESTORS. The preceding discussion does not
address the federal income tax considerations to foreign investors of an
investment in the Trust. Foreign investors in the Shares should consult their
own tax advisors concerning those provisions of the Code which deal with the
taxation of foreign taxpayers. In particular, foreign investors should
consider, among other things, the impact of the Foreign Investors Real Property
Tax Act of 1980. In addition, various income tax treaties between the United
States and other countries could affect the tax treatment of an investment in
the Shares. Furthermore, the backup withholding and information reporting rules
are under review by the United States Treasury, and their application to the
Common Stock could be changed prospectively or retroactively by future Treasury
Regulations.
BACKUP WITHHOLDING. The Trust will report to its domestic shareholders and the
IRS the amount of dividends paid during each calendar year, and the amount of
tax withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to dividends paid
unless such holder (a) is a corporation or comes within certain other exempt
categories and when required, demonstrates this fact, or (b) provides a correct
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A shareholder that does not provide the Trust with a correct
taxpayer identification number may also be subject to penalties imposed by the
IRS. Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability. In addition, the Trust may be required to
withhold a portion of capital gain distributions to any shareholders who fail to
certify their non-foreign status to the Trust.
STATE AND LOCAL TAXES. The Trust or its shareholders may be subject to state or
local taxation in the state or local jurisdiction in which the Trust's
investments or loans are located or in which the shareholders reside.
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Prospective shareholders should consult their tax advisors for an explanation of
how state and local tax laws could affect their investment in the Shares.
OTHER TAX CONSIDERATIONS. In the event the Trust enters into any joint venture
transactions, special tax risks might arise. Such risks include possible
challenge by the IRS of (i) allocations of income and expense items, which could
affect the computation of taxable income of the Trust and (ii) the status of the
joint venture as a partnership (as opposed to a corporation). If a joint
venture were treated as a corporation, the joint venture would be treated as a
taxable entity and if the Trust's ownership interest in the joint venture
exceeds 10%, the Trust would cease to qualify as a REIT. Furthermore, in such a
situation even if the Trust ownership does not exceed 10%, distributions from
the joint venture to the Trust would be treated as dividends, which are not
taken into account in satisfying the 75% gross income test described above and
which could therefore make it more difficult for the Trust to qualify as a REIT
for the taxable year in which such distribution was received and the interest in
the joint venture held by the Trust would not qualify as a "real estate asset"
which could make it more difficult for the Trust to meet the 75% asset test
described above. Finally, in such a situation the Trust would not be able to
deduct its share of losses generated by the joint venture in computing its
taxable income., See "Failure of the Trust to Qualify as a Real Estate
Investment Trust" above for a discussion of the effect of the Trust's failure to
meet such tests for a taxable year. The Trust will not enter into any joint
venture, however, unless it has received from its counsel an opinion to the
effect that the joint venture will be treated for tax purposes as a partnership.
Such opinion will not be binding on the IRS and no assurance can be given that
the IRS might not successfully challenge the status of any such joint venture as
a partnership.
MARKET PRICE OF AND DIVIDENDS ON THE TRUST'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
No assurance can be given that a purchaser of Trust shares under this Offering
would be able to resell such shares when desired. At the present time, there is
no brokerage firm that "makes a market" for Trust shares. All resales of Trust
shares are now on a "best efforts" basis and the ability of a shareholder to
resell shares is dependent on the broker-dealer locating a purchaser. At the
present time, the Trust itself acts to support the secondary market in its
shares by repurchasing shares upon the following terms: A repurchase limitation
of $100,000 per customer, with a cumulative total for all shareholders of
$600,000. To the extent shares are sold by the Trust under this Offering, such
sales will replenish the repurchasing fund on a share for share basis. THIS
REPURCHASE POLICY MAY BE CHANGED AT ANY TIME BY THE BOARD OF TRUSTEES AND NO
ASSURANCE CAN BE GIVEN OF ITS CONTINUATION. Sales of Trust shares are handled
by Inland National Securities, Inc., 21 South Main, Minot, ND 58701, and
Financial Advantage Brokerage Services, Inc., 17 South Main, Minot, ND 58701.
The following is a summary of the total number of shares sold and repurchased
during the past 7 years:
PRICE RANGE
-----------
Shares Repurchased From New Shares Sold
Shareholders By IRET
Year No. of Shares Low High Low High
- ---- ------------- --- ---- --- ----
1989 686,847 3.82 4.18 4.35 4.75
1990 396,816 4.18 4.40 4.75 5.00
1991 562,227 4.40 4.75 5.00 5.40
1992 646,779 4.75 5.02 5.40 5.70
1993 911,773 5.02 5.28 5.70 6.00
1994 817,872 5.28 5.63 6.00 6.40
1995 1,266,984 5.89 6.16 6.40 6.70
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As of April 30, 1996, IRET had 2,884 shareholders. No shareholder held more
than 5% of the 13,365,393 shares outstanding and there were no warrants or stock
options outstanding. Dividends are paid on January 5, April 1, July 1, and
October 1 of each year.
DIVIDEND REINVESTMENT PLAN
The Trust is registering 200,000 of its shares of Beneficial Interest to
distribute to its shareholders who elect to participate in its Dividend
Reinvestment Plan.
Each shareholder shall have the option to receive dividends in the form of
additional shares instead of in cash. In order to participate in the Dividend
Reinvestment Plan, the shareholder must affirmatively elect to do so by
notifying the Transfer Agent and Registrar, Odell-Wentz & Associates, L.L.C., 12
South Main, Minot, ND 58701, (701) 852-1756. The shareholder may terminate
participation at any time by notifying the Transfer Agent.
The price at which shares will be issued under the Dividend Reinvestment Plan is
equal to 92% of the price at which the Trust is then offering its shares for
sale to the public on the dividend declaration date ($6.85 X 92% = $6.30 per
share as of the date of this Prospectus).
The dividend is taxable to the shareholders whether received in cash or shares.
DESCRIPTION OF REGISTRANT'S SECURITIES
DESCRIPTION OF SHARES. The shares of beneficial interests of the Trust are of
one class without par value. There is no limit on the number of shares that may
be issued. All shares participate equally in dividends and distributions when
and as declared by the trustees and in net assets upon liquidation. The shares
of beneficial interests offered hereby will be fully paid and non-assessable by
the Trust upon issuance and will have no preference, conversion, exchange,
pre-emptive or redemption rights. Annual meetings of shareholders are held on
the second Wednesday of August and special meetings may be called by the
Chairman of the trustees or by a majority of the trustees or upon written
request of shareholders holding not less than 20 percent of the issued and
outstanding shares. At any meeting a shareholder is entitled to one vote for
each share of beneficial interest owned.
The shares of beneficial interests are transferable in the same manner as are
shares of a North Dakota business corporation.
With respect to the election of trustees, the shares have cumulative voting
rights which allow each shareholder one vote in person or by written proxy for
each share registered in his name for as many persons as there are trustees to
be elected.
LEGAL PROCEEDINGS
IRET is not involved in any legal proceedings or litigation other than normal
collection matters that will not have a material impact on financial results.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of May 31, 1996, no persons, or any Trustee or officer individually was known
by the Trust to own beneficially more than 5% of the outstanding shares of
Beneficial Interest.
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<PAGE>
Collectively, the Trustees owned 8.38% of such shares on May 31, 1996.
Name and Position Principal Occupations Trustee Shares Beneficially
With Trust During Past 5 Years Since Owned As Of 5-31-96
C. Morris Anderson President of North Hill
Trustee, Age 67 Bowl, Inc.; Director of
International Inn, Inc.,
Norwest Bank - Minot, N.A.
and a Partner in Magic
City Realty, Ltd. 1970 11,164 (5)
Ralph A. Christensen Retired Rancher; Director of
Trustee and Chairman First Bank - Minot, N.A.;
Age 67 Chairman of IRET 1970 40,361 (6)
John D. Decker
Trustee, Age 79 Investor 1970 40,352 (7)
Mike F. Dolan
Trustee and Vice Investor;
Chairman, Age 84 Vice-Chairman of IRET 1978 224,867 (8)
J. Norman Ellison, Jr. Businessman; Managing
Trustee, Age 73 Partner of Ellison Realty
Co.; Former Director of
First Bank - Minot, N.A. 1970 18,067 (9)
Daniel L. Feist Realtor, Broker, Real Estate
Trustee, Age 64 Developer, Builder, General
Contractor; President of Feist
Construction & Realty, Inc.;
Director of First Bank -
Minot, N.A. and N.D.
Holdings, Inc., Minot, ND 1985 275,314 (10)
32
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(5) Owned by Mr. Anderson and his wife as Joint Tenants.
(6) Includes shares held in Mr. Christensen's IRA, and also his wife's
IRA, which is comprised of 567 shares; the balance is owned by Mr.
Christensen and his wife as Joint Tenants. Mr. Christensen's children own
16,679 shares as to which Mr. Christensen does not have beneficial ownership
or any dispositive powers.
(7) Owned by Mr. Decker with his wife as Tenants in Common. Mr.
Decker's children own 3,384 shares as to which Mr. Decker does not have
beneficial ownership or dispositive powers.
(8) Mr. Dolan's children own 12,428 shares, as to which Mr. Dolan
disclaims beneficial ownership or dispositive powers.
(9) Includes 4,416 shares held by Mr. Ellison's wife. Mr. Ellison
disclaims beneficial ownership of such shares.
(10) Includes 34,372 shares held by Mr. Feist's wife and in her IRA.
Mr. Feist disclaims beneficial ownership of such shares. Mr. Feist's children
own 74,913 shares as to which Mr. Feist does not have beneficial ownership or
dispositive powers.
<PAGE>
Patrick G. Jones Investor; Former President
Trustee, Age 48 of Central Venture Capital,
Inc.; former Manager and
Director of Minot Daily
News 1986 74,392 (11)
Jeff L. Miller Investor; Businessman; President
Trustee and Vice of M & S Concessions, Inc., and
Chairman, Age 52 former president of Coca-Cola
Bottling Co. of Minot; and Director
of First Bank - Minot 1985 129,401 (12)
Roger R. Odell Realtor; President of IRET;
Trustee and Partner in Odell-Wentz &
President, Age 70 Associates (Advisor of IRET);
Director of Investors Manage-
ment & Marketing, Inc. and Inland
National Securities, Inc.; Partner
in Magic City Realty, Ltd. 1970 143,866 (13)
Thomas A. Wentz, Sr. Attorney, Pringle & Herigstad,
Trustee and Vice P.C.; Vice-President of IRET;
President, Age 61 Partner in Odell-Wentz &
Associates (Advisor to the
Trust). 1970 218,984 (14)
As of May 31, 1996, all of the above trustees as a group owned or held voting
control of 1,120,456 shares of Beneficial Interest of IRET, representing 8.38%
of the 12,365,393 shares then outstanding.
During the fiscal year ending April 30, 1996, there were twelve regular meetings
of the Board of Trustees. All of the Trustees attended 75% or more of the
meetings held during said fiscal year.
There are no separate audit, nominating or compensation committees of the Board
of Trustees, which duties are performed by the Board as a whole.
33
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(11) Includes 37,112 shares held by Mr. Jones' wife in her IRA. Mr.
Jones disclaims beneficial ownership of such shares. Mr. Jones' children own
10,925 shares as to which Mr. Jones disclaims beneficial ownership.
(12) 42,764 of such shares are owned by Mr. Miller's wife. Mr. Miller
disclaims beneficial ownership of such shares.
(13) Includes 9,275 shares owned by Magic City Realty and 19,548
shares owned by Investors Management & Marketing, Inc. Also includes 67,897
shares owned by Mr. Odell's wife as to which shares Mr. Odell disclaims
beneficial ownership. Mr. Odell's children own 64,317 shares as to which Mr.
Odell does not have beneficial ownership or dispositive powers.
(14) Includes 161,680 shares owned by Wenco, Ltd. and 27,214 shares
held by Pringle & Herigstad Retirement Fund of which Mr. Wentz is Trustee. Also
includes 12,452 shares held by Mr. Wentz's wife outright and 5,837 shares in her
IRA. Mr. Wentz disclaims beneficial ownership of such shares. Mr. Wentz's
children own 992 shares as to which Mr. Wentz does not have beneficial ownership
or dispositive powers.
<PAGE>
The last shareholder meeting at which Trustees were elected was held on August
9, 1995, at which meeting shareholders owning 60.59% of the shares of IRET
entitled to vote were present in person, or by proxy. The ten nominees received
100% of the total shares voted at such meeting.
EXECUTIVE COMPENSATION AND CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
The following tabulation shows the cash compensation paid by IRET to its
trustees and officers during its fiscal year ending April 30, 1996. The Trust
has no retirement, bonus, or deferred compensation plan and no other
compensation will accrue, directly or indirectly, to any of the Trustees except
as noted below.
Cash Compensation
Capacity in for Year Ending
Name Which Served April 30, 1996
- ---- ------------ -----------------
C. Morris Anderson Trustee $ 6,816.50
Ralph A. Christensen Trustee & Chairman 8,794.25
John D. Decker Trustee 6,916.50
Mike F. Dolan Trustee & Vice Chairman 7,806.00
J. Norman Ellison, Jr. Trustee 7,216.50
Daniel L. Feist Trustee 7,116.50
Jeff L. Miller Trustee & Vice Chairman 7,806.00
Patrick G. Jones Trustee 7,016.50
Thomas A. Wentz, Sr. Trustee & Vice President (1 & 2)
Roger R. Odell Trustee & President (1)
(1) Mr. Odell is a partner in Odell-Wentz & Associates, the Advisor to the
Trust. Under the Advisory Contract between IRET and Odell-Wentz & Associates,
IRET pays an Advisor's fee based on the net assets of the Trust and, in
addition, a percentage fee for investigating and negotiating the acquisition of
new investments. For the year ending April 30, 1996, Odell-Wentz & Associates
received compensation and reimbursement of disbursements under said Agreement of
$516,036. The terms of said Advisory Agreement are explained below. Investors
Management & Marketing, Inc., a firm in which Mr. Odell is a minority
shareholder also furnishes real estate management services to the Trust and
receives as compensation four percent (4%) of rents received from such real
estate. For the fiscal year ending April 30, 1996, Investors Management &
Marketing, Inc., received $281,717 as real estate management commissions. In
addition, Inland National Securities, Inc., a corporation in which Mr. Odell and
members of his family are shareholders, acts as the broker-dealer for the sale
of Trust securities. During the fiscal year ending April 30, 1996, the Trust
paid Inland National Securities, Inc. $269,656 as security sales fees.
(2) Mr. Wentz is a partner in Odell-Wentz & Associates. He is also a member of
the law firm of Pringle & Herigstad, P.C., counsel for the Trust. During the
fiscal year ending April 30, 1996, the Trust paid Pringle & Herigstad, P.C., the
sum of $23,488 for legal services rendered and disbursements made on behalf of
the Trust.
ADVISORY AGREEMENT
Roger R. Odell has served as advisor to IRET since its formation in 1970. As of
January 1, 1986, a revised Advisory Agreement was entered into between IRET and
Odell-Wentz & Associates, a partnership of Roger R. Odell and Thomas A. Wentz,
Sr. Mr. Odell serves as president and Mr. Wentz serves as vice president of
IRET. Mr. Wentz has also served as attorney for IRET since its formation as a
member of the law firm of Pringle & Herigstad, P.C.
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<PAGE>
Under the Advisory Agreement, the advisor has the following duties and
responsibilities:
Advisor, at its expense, shall provide suitable office facilities for IRET in
Minot, North Dakota, and shall provide sufficient staff and other equipment to
conduct the day-to-day operations of IRET. Advisor shall furnish a computer and
all other office equipment necessary to conduct the operations of IRET and shall
pay for all routine supplies, postage, and other costs of operating said office.
IRET shall be billed by the Advisor for stationery and other forms and documents
printed especially for IRET, the printing of the annual report and quarterly
reports and other communications to shareholders, and also for the postage for
mailing reports, checks and other documents to shareholders.
The Advisor, under the direction of Trustees, shall be responsible to conduct
all operations of IRET, including:
Collection of rent, contract and mortgage payments and depositing the same in
IRET bank accounts;
Payment of bills;
Disbursement of dividends;
Preparing monthly reports to the Trustees;
Preparing quarterly and annual reports to shareholders;
Preparing notices of shareholders' meetings and proxies and proxy statements;
and
Advising the Trustees as to investment decisions, including acquisition and
disposition of real estate and other permissible investments.
For providing the above services, the Advisor is compensated as follows:
BASIC COMPENSATION. Advisor shall receive monthly as its basic compensation for
the above described services a percentage of "net invested assets" of IRET held
on the last day of the month for which the payment is made as follows:
1/12th of .9% of net invested assets up to $10,000,000; and,
1/12th of .8% of net invested assets over $10,000,000, but less than
$20,000,000; and,
1/12th of .7% of net invested assets in excess of $20,000,000.
For the purpose of this agreement, "net invested assets" shall be determined as
follows:
Add: +total assets at cost
+depreciation reserve
+unearned contract receivable discount
+deferred gain account
Subtract: -cash
-marketable securities, less margin accounts
-total liabilities
ADDITIONAL COMPENSATION. For its services in investigating and negotiating the
acquisition of real estate equities, mortgages or contracts for deed by IRET,
the
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<PAGE>
Advisor shall receive a fee of 1/2 of 1 percent of the first $2,500,000 of value
of any such asset which is recommended to and acquired by IRET, except on new
construction projects for which the fee is 1/2 of 1 percent of the total cost.
LIMITATION. Notwithstanding the foregoing, the total compensation received by
the Advisor set forth above during any one fiscal year of IRET when added to
trustees' fees and other administrative costs of IRET shall not exceed the
lesser of the following: 2 percent of net invested assets (as set forth above)
or 25 percent of the net taxable income of IRET for such fiscal year.
Said Advisory Agreement is for a term of one year to continue for successive
terms on the same conditions until terminated by written notice of either party
and is also subject to a 60 day termination by either party and by the
shareholders holding a majority interest in IRET. The Agreement is renewable
annually and was last renewed for the calendar year 1996 by action of the Board
of Trustees at its December, 1995 regular meeting.
ROGER R. ODELL. Mr. Odell's address is 1445 SW 15th St., Minot, North Dakota
58701, (701) 839-4631. Mr. Odell is a graduate of the University of Texas,
receiving his B.A. degree in 1947. He has been a resident of Minot, North
Dakota, since 1947. From 1947 to 1954, he was employed by Minot Federal Savings
& Loan Association, serving as Secretary of the Association from 1952 to 1954.
Since 1954, Mr. Odell has been a realtor in Minot, serving as an officer and
stockholder of Watne Realty Trust from 1954 to January 1, 1970, and since that
time as the owner of his own realty firm.
Mr. Odell is a partner in Odell-Wentz & Associates, the Advisor to the Trust.
Under the Advisory Contract between IRET and Odell-Wentz & Associates, IRET pays
an Advisor's fee based on the net assets of the Trust and, in addition, a
percentage fee for investigating and negotiating the acquisition of new
investments. For the year ending April 30, 1996, Odell-Wentz & Associates
received compensation and reimbursement of disbursements under said Agreement of
$516,036. The terms of said Advisory Agreement are explained above. Investors
Management & Marketing, Inc., a firm in which Mr. Odell is a minority
shareholder also furnishes real estate management services to the Trust and
receives as compensation four percent (4%) of rents received from such real
estate. For the fiscal year ending April 30, 1996, Investors Management &
Marketing, Inc., received $281,717 as real estate management commissions. In
addition, Inland National Securities, Inc., a corporation in which Mr. Odell and
members of his family are shareholders, acts as the broker-dealer for the sale
of Trust securities. During the fiscal year ending April 30, 1996, the Trust
paid Inland National Securities, Inc., $269,656 as security sales fees.
THOMAS A. WENTZ, SR.. Mr. Wentz's address is 505 8th Ave. SE, Minot, North
Dakota 58701, (701) 838-0811. Mr. Wentz is a graduate of Harvard College and
Harvard Law School, receiving his A.B. degree in 1957 and his L.L.B. degree in
1960. He has been a resident of Minot, North Dakota, since 1962.
Mr. Wentz is a partner in Odell-Wentz & Associates, the Advisor to the Trust.
Under the Advisory Contract between IRET and Odell-Wentz & Associates, IRET pays
an Advisor's fee based on the net assets of the Trust and, in addition, a
percentage fee for investigating and negotiating the acquisition of new
investments. For the year ending April 30, 1996, Odell-Wentz & Associates
received compensation and reimbursement of disbursements under said Agreement of
$516,036. The terms of said Advisory Agreement are explained above.
He is also a member of the law firm of Pringle & Herigstad, P.C., counsel for
the Trust. During the fiscal year ending April 30, 1996, the Trust paid Pringle
& Herigstad, P.C., the sum of $23,488 for legal services rendered and
disbursements made on behalf of the Trust.
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<PAGE>
SELECTION, MANAGEMENT AND CUSTODY OF TRUST'S INVESTMENTS
MANAGEMENT OF TRUST'S INVESTMENTS. The Trust contracts with various local
management companies for the sole purpose of leasing, maintaining and monitoring
the Trust's interests. All other management is the responsibility of the
Advisor.
POLICIES WITH RESPECT TO CERTAIN TRANSACTIONS
No trustee, officer or advisor of the Trust, or any person affiliated with any
such persons, shall sell any property or assets to the Trust or purchase any
property or assets from the Trust, directly or indirectly, nor shall any such
person receive any commission or other remuneration, directly or indirectly, in
connection with the purchase or sale of Trust assets, except pursuant to
transactions that are fair and reasonable to the Shareholders and that relate
to:
a. the acquisition of property or assets at the formation
of the Trust or shortly thereafter and fully disclosed
in the prospectus filed with the North Dakota State
Securities Commissioner;
b. The acquisition of federally insured or guaranteed
mortgages at prices not exceeding the currently quoted
prices at which the Federal National Mortgage
Association is purchasing comparable mortgages;
c. The acquisition of other mortgages on terms not less
favorable to the Trust than similar transactions
involving unaffiliated parties; or,
d. The acquisition by the Trust of other property at prices
not exceeding) or disposition of other property at
prices not less than) the fair value thereof as
determined by independent appraisal.
All such transactions and all other transactions in which any such persons have
any direct or indirect interest shall be approved by a majority of the trustees,
including a majority of the independent trustees. All brokerage commissions or
remuneration received by any such person from the Trust in connection with any
such transactions shall be deemed a part of the fee payable under any management
or advisory contract.
No trustee or affiliate of the trustee shall receive a brokerage commission or
other such remuneration in connection with the acquisition or disposition of
Trust assets.
LIMITATIONS OF LIABILITY
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
The governing instrument of the Trust provides as follows:
Section 11. NONLIABILITY OF TRUSTEES. No trustee shall be liable
individually for any act or omission of any other trustee or agent
37
<PAGE>
or representative of the Trust, or for negligence, error in judgment,
or any act or omission except his own willful misfeasance, bad faith,
or gross negligence in the conduct of his duties.
Every act or thing done or omitted, and every power exercised or
obligation incurred by the trustees or any of them in the
administration of the Trust or in connection with any business or
property of the Trust whether ostensibly in their own names or in
their trust capacity, shall be deemed done, omitted, exercised, or
incurred by them as trustees and not as individuals; and upon any
debt, claim, demand, judgment, decree, or obligation of any nature
whatsoever against or incurred by the trustees in their capacities as
such, whether founded upon contract, tort or otherwise, resort shall
be had solely to the property of the Trust.
Nothing contained in the Declaration shall protect a trustee or agent
or representative of the Trust against liability to the Trust or to
the Shareholders for willful misfeasance, gross negligence or bad
faith in the conduct of his duties.
Section 12. INDEMNIFICATION OF TRUSTEES. The Trust shall indemnify
and hold harmless each trustee from and against all claims and
liabilities, whether they proceed to judgment or are settled, to which
such trustee may become subject by reason of his being or having been
a trustee, or by reason of any action alleged to have been taken or
omitted by him as trustee, and shall reimburse him for all legal and
other expenses reasonably incurred by him in connection with any such
claim or liability; provided, however, that no trustee shall be
indemnified or reimbursed under the foregoing provisions in relation
to any matter unless it shall have been adjudicated that his action or
omission did not constitute willful misfeasance, bad faith, or gross
negligence in the conduct of his duties, or, unless, in the absence of
such an adjudication, the Trust shall have received a written opinion
from independent counsel, approved by the trustees, to the effect that
if the matter of willful misfeasance, bad faith, or gross negligence
in the conduct of duties had been adjudicated, it would have been
adjudicated in favor of such trustee. The rights accruing to a
trustee under these provisions shall not exclude any other right to
which he may be lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse such trustee
in any proper cause even though not specifically provided for herein;
provided, that no trustee may satisfy any right of indemnity or
reimbursement granted herein or to which he may be otherwise entitled
except out of the property of the Trust and no Shareholder shall be
personally liable with respect to any claim of a trustee for indemnity
or reimbursement. Notwithstanding any of the provisions hereof,
however, no trustee shall be indemnified for any lability which he
personally may have under the provisions of the Securities Act of
1933.
38
<PAGE>
INVESTORS REAL ESTATE TRUST
AND AFFILIATED PARTNERSHIPS
MINOT, NORTH DAKOTA
CONSOLIDATED FINANCIAL STATEMENTS
AS OF
APRIL 30, 1996 AND 1995
AND
INDEPENDENT AUDITOR'S REPORT
F-1
<PAGE>
INVESTORS REAL ESTATE TRUST
AND AFFILIATED PARTNERSHIPS
TABLE OF CONTENTS
Pages
-----
INDEPENDENT AUDITOR'S REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 2-3
Consolidated Statements of Operations 4
Consolidated Statements of Shareholders' Equity 5
Consolidated Statements of Cash Flows 6-7
Notes to Consolidated Financial Statements 8-16
ADDITIONAL INFORMATION
Independent Auditor's Report on Additional Information 17
Marketable Securities 18
Noncurrent Indebtedness of Related Parties -
Mortgage Loans Receivable 19
Supplemental Income Statement Information 20
Real Estate and Accumulated Depreciation 21-23
Investments in Mortgage Loans on Real Estate 24-26
Selected Financial Data 27
Gain from Property Dispositions 28
Mortgage Loans 29
Significant Property Acquisitions 30
Quarterly Results of Consolidated Operations
(Unaudited) 31
OTHER SCHEDULES ARE OMITTED DUE TO INAPPLICABILITY
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Trustees
Investors Real Estate Trust
and Affiliated Partnerships
Minot, North Dakota
We have audited the accompanying consolidated balance sheets of Investors Real
Estate Trust and Affiliated Partnerships as of April 30, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years ended April 30, 1996, 1995 and 1994. These consolidated
financial statements are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 consolidated financial position of
Investors Real Estate Trust and Affiliated Partnerships at April 30, 1996 and
1995, and the consolidated results of its operations and cash flows for the
years ended April 30, 1996, 1995 and 1994, in conformity with generally accepted
accounting principles.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota
May 20, 1996
F-3
<PAGE>
INVESTORS REAL ESTATE TRUST
AND AFFILIATED PARTNERSHIPS
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1996 AND 1995
ASSETS
1995
1996 (RESTATED)
------------ ------------
REAL ESTATE INVESTMENTS
Property owned $131,447,734 $ 90,892,662
Less accumulated depreciation (13,551,571) (11,732,655)
------------ ------------
$117,896,163 $ 79,160,007
Mortgage loans receivable
- related parties - 1,449,312
- other 4,932,138 4,366,460
Less - unearned discounts and deferred interest (18,222) (34,792)
- deferred gain from property dispositions (165,074) (641,987)
- allowance for loan losses (267,096) (293,365)
------------ ------------
Total real estate investments $122,377,909 $ 84,005,635
OTHER ASSETS
Cash 2,715,274 4,765,445
Marketable securities 4,411,857 4,829,809
Accounts receivable 30,269 60,260
Real estate deposits - 175,000
Investment in partnership 85,576 166,955
Prepaid insurance 128,541 99,426
Tax and insurance escrow 1,151,527 317,520
Deferred charges 454,685 196,694
------------ ------------
TOTAL ASSETS $131,355,638 $ 94,616,744
------------ ------------
------------ ------------
F-4
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
1995
1996 (RESTATED)
------------ ------------
LIABILITIES
Accounts payable and accrued expenses $ 3,142,190 $ 1,922,419
Mortgages payable 71,699,059 49,996,207
Investment certificates issued 5,802,469 4,862,464
------------ ------------
Total liabilities $ 80,643,718 $ 56,781,090
------------ ------------
SHAREHOLDERS' EQUITY
Shares of beneficial interest (unlimited
authorization, no par value, 13,258,908
shares outstanding in 1996 and 11,187,786
shares outstanding in 1995) $ 54,263,917 $ 41,560,587
Accumulated distributions in excess of
net income (3,551,997) (3,724,933)
------------ ------------
Total shareholders' equity $ 50,711,920 $ 37,835,654
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $131,355,638 $ 94,616,744
------------ ------------
------------ ------------
F-5
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
<PAGE>
INVESTORS REAL ESTATE TRUST
AND AFFILIATED PARTNERSHIPS
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
1995 1994
1996 (RESTATED) (RESTATED)
----------- ----------- -----------
REVENUE
Real estate rentals $17,635,297 $12,280,738 $ 9,765,701
Interest, discounts and fees 1,024,368 1,520,385 1,817,307
----------- ----------- -----------
Total revenue $18,659,665 $13,801,123 $11,583,008
----------- ----------- -----------
EXPENSES
Interest $ 5,547,739 $ 3,484,310 $ 2,652,400
Depreciation 2,261,724 1,767,294 1,323,474
Utilities and maintenance 3,167,560 2,352,968 2,146,120
Taxes and insurance 2,065,017 1,220,434 1,054,880
Property management expenses 1,281,311 779,024 641,054
Advisory and trustee services 458,019 336,142 304,898
Operating expenses 162,588 79,974 46,557
Amortization 97,900 20,659 28,199
Provision for loan losses - 200,000 250,000
----------- ----------- -----------
Total expenses $15,041,858 $10,240,805 $ 8,447,582
----------- ----------- -----------
OPERATING INCOME $ 3,617,807 $ 3,560,318 $ 3,135,426
GAIN ON SALE OF PROPERTIES 994,163 407,512 64,962
----------- ----------- -----------
NET INCOME $ 4,611,970 $ 3,967,830 $ 3,200,388
----------- ----------- -----------
----------- ----------- -----------
Net income per share:
Operating income $ .30 $ .34 $ .35
Gain on sale of investments .08 .04 .01
----- ----- -----
Net income $ .38 $ .38 $ .36
----- ----- -----
----- ----- -----
F-6
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
<PAGE>
INVESTORS REAL ESTATE TRUST
AND AFFILIATED PARTNERSHIPS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
Accumulated
Shares of Distributions Total
Beneficial in excess of Shareholders'
Interest Net Income Equity
----------- ----------- -----------
BALANCE, MAY 1, 1993, AS
PREVIOUSLY REPORTED $27,663,010 $(3,917,567) $23,745,443
Adjustment for the cumulative
effect on prior years of a change
in the reporting entity - (361,537) (361,537)
----------- ----------- -----------
BALANCE, MAY 1, 1993, AS
RESTATED $27,663,010 $(4,279,104) $23,383,906
Net income - 3,200,388 3,200,388
Dividends distributed - (3,021,061) (3,021,061)
Dividends reinvested 1,853,356 - 1,853,356
Sale of shares 4,580,600 - 4,580,600
----------- ----------- -----------
BALANCE, APRIL 30, 1994 $34,096,966 $(4,099,777) $29,997,189
----------- ----------- -----------
----------- ----------- -----------
BALANCE, MAY 1, 1994, AS
PREVIOUSLY REPORTED $34,096,966 $(3,776,565) $30,320,401
Adjustment for the cumulative
effect on prior years of a change
in the reporting entity - (323,212) (323,212)
----------- ----------- -----------
BALANCE, MAY 1, 1994, AS
RESTATED $34,096,966 $(4,099,777) $29,997,189
Net income - 3,967,830 3,967,830
Dividends distributed - (3,592,986) (3,592,986)
Dividends reinvested 2,175,278 - 2,175,278
Sale of shares 5,288,343 - 5,288,343
----------- ----------- -----------
BALANCE, APRIL 30, 1995 $41,560,587 $(3,724,933) $37,835,654
----------- ----------- -----------
----------- ----------- -----------
BALANCE, MAY 1, 1995, AS
PREVIOUSLY REPORTED $41,560,587 $(3,466,443) $38,094,144
Adjustment for the cumulative
effect on prior years of a change
in the reporting entity - (258,490) (258,490)
----------- ----------- -----------
BALANCE, MAY 1, 1995,
AS RESTATED $41,560,587 $(3,724,933) $37,835,654
Net income - 4,611,970 4,611,970
Dividends distributed - (4,439,034) (4,439,034)
Dividends reinvested 3,100,988 - 3,100,988
Sale of shares 9,820,470 - 9,820,470
Shares repurchased (218,128) - (218,128)
----------- ----------- -----------
BALANCE, APRIL 30, 1996 $54,263,917 $(3,551,997) $50,711,920
----------- ----------- -----------
----------- ----------- -----------
F-7
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
<PAGE>
INVESTORS REAL ESTATE TRUST
AND AFFILIATED PARTNERSHIPS
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
1995 1994
1996 (Restated) (Restated)
------------ ------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,611,970 $ 3,967,830 $ 3,200,388
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 2,359,624 1,787,953 1,351,673
Provision for loan losses - - 250,000
Accretion of discount on contracts (16,570) (14,670) (120,485)
Gain on sale of properties (994,163) (407,512) (64,962)
Interest reinvested in investment
certificates 161,813 205,491 237,415
Changes in other assets and
liabilities:
Increase in other assets (273,636) (119,685) (39,067)
Increase in tax and insurance
escrow (834,007) (3,603) (49,720)
Increase (decrease) in accounts
payable and accrued expenses 1,219,771 (108,444) 163,195
------------ ------------ -----------
Net cash provided from operating
activities $ 6,234,802 $ 5,307,360 $ 4,928,437
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of
investment securities $ 417,952 $ 441,644 $ 992,872
Principal payments on mortgage
loans receivable 2,642,346 4,059,328 4,808,981
Proceeds from sale of other assets 389,784 - -
Payments for acquisition and
improvement of properties (32,462,846) (10,584,694) (8,372,346)
Purchase of investment securities - - (3,035,142)
Investment in mortgage loans
receivable (1,784,981) (653,952) (3,159,230)
------------ ------------ -----------
Net cash used for investing
activities $(30,797,745) $ (6,737,674) $(8,764,865)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of shares $ 9,820,470 $ 5,288,343 $ 4,580,600
Repurchase of shares (218,128 ) - -
Proceeds from investment
certificates issued 1,695,924 947,093 896,657
Proceeds from mortgages payable 29,025,001 2,092,266 3,453,849
Loan on margin account - - 2,250,000
Dividends paid (1,338,046) (1,417,708) (1,167,705)
Redemption of investment
certificates (917,732) (695,803) (1,488,070)
Principal payments on mortgage
loans (15,554,717) (1,979,111) (1,355,233)
Payments on margin account - - (2,250,000)
------------ ------------ -----------
Net cash provided from financing
activities $ 22,512,772 $ 4,235,080 $ 4,920,098
------------ ------------ -----------
NET INCREASE (DECREASE) IN CASH $ (2,050,171) $ 2,804,766 $ 1,083,670
CASH AT BEGINNING OF YEAR 4,765,445 1,960,679 877,009
------------ ------------ -----------
CASH AT END OF YEAR $ 2,715,274 $ 4,765,445 $ 1,960,679
------------ ------------ -----------
------------ ------------ -----------
F-8
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
1996 1995 1994
------------ ------------ -----------
SUPPLEMENTARY SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Dividends reinvested $ 3,100,988 $ 2,175,278 $ 1,853,356
Real estate investment and
mortgage loans receivable
acquired through assumption of
mortgage loans payable and
accrual of costs 8,232,568 15,917,788 9,510,351
Proceeds from sale of properties
deposited directly with
escrow agent 426,352 940,258 -
Mortgages paid directly by
owner of contract - 543,598 18,826
Interest reinvested directly in
investment certificates 161,813 205,491 237,415
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest paid on mortgages $ 4,642,186 $ 3,109,727 $ 2,215,752
Interest paid on investment
certificates 292,660 157,233 192,450
------------ ------------ -----------
$ 4,934,846 $ 3,266,960 $ 2,408,202
------------ ------------ -----------
------------ ------------ -----------
F-9
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
<PAGE>
INVESTORS REAL ESTATE TRUST
AND AFFILIATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Investors Real Estate Trust qualifies under Section
856 of the Internal Revenue Code of 1954 as a real estate investment trust.
The Trust has properties located throughout the Upper Midwest, with
principal offices located in Minot, North Dakota.
The company invests in commercial and residential real estate, real estate
contracts and real estate related governmental backed securities (GNMA).
PRINCIPALS OF CONSOLIDATION - The consolidated financial statements include
the accounts of Investors Real Estate Trust and all limited partnerships in
which Investors Real Estate Trust is a general partner and maintains a
controlling interest. Due to the immaterial involvement of the limited
partners, the trust's general partnership interest provides it with
substantial influence over operations of the partnerships. These limited
partnerships are as follows:
Eastgate Properties, Ltd.
Bison Properties, Ltd.
First Avenue Building, Ltd.
Sweetwater Properties, Ltd.
Hill Park Properties, Ltd.
Colton Heights, Ltd.
All material intercompany transactions and balances have been eliminated in
the consolidated financial statements.
ACCOUNTING POLICIES
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles 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.
PROPERTY OWNED - Real estate is stated at cost. Expenditures for renewals
and improvements that significantly add to the productive capacity or
extend the useful life of an asset are capitalized. Expenditures for
maintenance and repairs which do not add to the value or extend the useful
life are charged to expense as incurred.
F-10
<PAGE>
NOTE 1 - (CONTINUED)
DEPRECIATION is provided to amortize the cost of individual assets over
their estimated useful lives using principally the straight-line method.
Useful lives range from 15 to 40 years for buildings and improvements.
MORTGAGE LOANS RECEIVABLE are shown at cost less unearned discount.
Discounts on contracts are accreted using the straight-line method over the
term of the contract which approximates the effective interest method.
Deferred gain is recognized as income on the installment method when
principal payments are received. Interest income is accrued and reflected
in the related balance.
ALLOWANCE FOR LOAN LOSSES - The Trust evaluates the need for an allowance
for loan losses periodically. In performing its evaluation, management
assesses the recoverability of individual real estate loans by a comparison
of their carrying amount with their estimated net realizable value.
MARKETABLE SECURITIES - The Trust's investments in securities are
classified as securities to be held to maturity. These securities consist
of Government National Mortgage Association securities for which the Trust
has the positive intent and ability to hold to maturity. They are reported
at cost, adjusted by amortization of premiums and accretion of discounts
which are recognized in interest income using the straight line method over
the period to maturity which approximates the effective interest method.
Gains or losses on marketable securities are recognized on the basis of
specific identification.
INVESTMENT IN PARTNERSHIP - As described in Note 11, the Trust is
accounting for its investment in Chateau Properties, Ltd. under the equity
method of accounting, wherein the appropriate portion of the earnings or
loss is recognized currently. The Trust has a general partnership interest
in the limited partnership. Chateau Properties, Ltd. has invested in real
estate properties.
NET INCOME PER SHARE of beneficial interest has been computed based on the
weighted average number of shares outstanding during the year.
INCOME TAXES - The Trust intends to continue to qualify as a real estate
investment trust as defined by the Internal Revenue Code and, as such, will
not be taxed on the portion of the income that is distributed to the
shareholders, provided at least 95% of its real estate investment trust
taxable income is distributed and other requirements are met. The Trust
intends to distribute all of its taxable income and realized capital gains
from property dispositions within the prescribed time limits and,
accordingly, there is no provision or liability for income taxes shown on
the financial statements.
INCOME RECOGNITION - In accordance with Statement of Financial Accounting
Standards No. 66, "Accounting for Sales of Real Estate", profit shall be
recognized in full when real estate is sold, provided:
a. The profit is determinable, that is, the collectibility of the
sales price is reasonably assured or the amount that will be
collectible can be estimated.
b. The earnings process is virtually complete, that is, the seller
is not obliged to perform significant activities after the sale
to earn the profit.
Based on the economic climate and the terms of many contracts, the
collectibility of the sales price is not reasonably assured as required by
Statement of Financial Accounting Standards No. 66. Consequently, the
Trust uses the installment method of accounting for profits on several
property sales as it more fairly reflects earned revenue.
F-11
<PAGE>
NOTE 1 - (CONTINUED)
Interest on mortgage loans receivable is recognized in income as it accrues
during the period the loan is outstanding. In the case of non-performing
loans, income is recognized in conformity with FASB Statement No. 114, as
discussed in Note 4. Rent from leases of real estate is recognized in
income as it accrues on the straight-line basis. Advance rental deposits
are recorded as deferred income.
NOTE 2 - OFF-BALANCE-SHEET RISK
The Trust had deposits at Norwest Bank, North Dakota, N.A., and First
American Bank which exceeded Federal Deposit Insurance Corporation limits
by $1,286,202 and $779,367, respectively, at April 30, 1996.
NOTE 3 - PROPERTY OWNED UNDER LEASE
Property consisting principally of real estate owned under lease is stated
at cost less accumulated depreciation and is summarized as follows:
April 30,1995
April 30, 1996 (Restated)
-------------- -------------
Residential $ 96,029,855 $62,241,542
Less accumulated depreciation (9,620,990) (8,065,367)
------------ -----------
$ 86,408,865 $54,176,175
------------ -----------
Commercial $ 35,417,879 $28,651,120
Less accumulated depreciation (3,930,581) (3,667,288)
------------ -----------
$ 31,487,298 $24,983,832
------------ -----------
Remaining cost $117,896,163 $79,160,007
------------ -----------
------------ -----------
There were no repossessions during the years ended April 30, 1996 and 1995.
The above cost of residential real estate owned included construction in
progress of $12,544,357 and $3,863,141 as of April 30, 1996 and 1995,
respectively. The above cost of commercial real estate owned included
construction in progress of $968,163 as of April 30, 1995.
Construction period interest of $690,665 has been capitalized for the year
ended April 30, 1996. Construction period interest of $94,313 was
capitalized for the year ended April 30, 1995.
Residential apartment units are rented to individual tenants with lease
terms up to one year. Gross revenues from residential rentals totaled
$12,286,492, $9,076,477 and $7,313,780 for the years ended April 30, 1996,
1995 and 1994, respectively.
Commercial properties are leased to tenants under terms of leases expiring
at various dates through 2015. Lease terms often include renewal options.
In addition, 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.
Rents based on a percentage of sales totaled $25,054, $16,586 and $22,943
for the years ended April 30, 1996, 1995 and 1994, respectively.
F-12
<PAGE>
NOTE 3 - (CONTINUED)
The future minimum lease payments to be received under these operating
leases for the commercial properties as of April 30, 1996, are as follows:
Year ending April 30,
1997 $ 3,155,683
1998 2,817,310
1999 2,621,910
2000 2,564,304
2001 2,540,964
Thereafter 18,461,882
-----------
$32,162,053
-----------
-----------
NOTE 4 - MORTGAGE LOANS RECEIVABLE
Mortgage loans receivable consists of approximately thirty contracts which
are collateralized by real estate. Contract terms call for monthly
payments of principal and interest. Interest rates range from 7 to 14%.
Mortgage loans receivable have been evaluated for possible losses
considering repayment history, market value of underlying collateral,
deferred gains and economic conditions.
Future principal payments due under the mortgage loan contracts as of April
30, 1996 are as follows:
Year ending April 30,
1997 $ 2,722,999
1998 1,002,768
1999 195,884
2000 104,529
2001 71,943
Later years 834,015
-----------
$ 4,932,138
-----------
-----------
Details concerning mortgage loans receivable from related parties can be
found in Note 9.
Non-performing mortgage loans receivable were $377,464 at April 30, 1996.
These loans are recognized as impaired in conformity with FASB Statement
No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN. The total
allowance for credit losses related to those loans was approximately
$151,800 at April 30, 1996. The average balance of impaired loans for the
year ended April 30, 1996 was approximately $447,600. For impairment
recognized in conformity with FASB Statement No. 114, the entire change in
present value of expected cash flows is reported as bad debt expense in the
same manner in which impairment initially was recognized or as a reduction
in the amount of bad debt expense that otherwise would be reported.
Additional interest income that would have been earned on these loans if
they had not been non-performing amounted to approximately $31,600 in 1996.
Interest income on non-performing loans recognized on a cash basis amounted
to approximately $18,600 in 1996.
F-13
<PAGE>
NOTE 5 - MARKETABLE SECURITIES
Marketable securities consist of Governmental National Mortgage Association
(GNMA) securities bearing interest from 6.5% to 9.5% with maturity dates
ranging from May 15, 2016 to June 15, 2023. The details of the amortized
cost and approximate market value of marketable securities at April 30,
1996 and 1995 are as follows:
1996 1995
----------------------- -----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ---------- ----------
GNMA
Due after 10 years $4,411,857 $4,282,445 $4,829,809 $4,588,905
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The amortized cost and estimated market values with unrealized gains and
losses of marketable securities at April 30, 1996 and 1995 are as follows:
1996 Gross Gross
---- Amortized Unrealized Unrealized Fair
Issuer Cost Gains Losses Value
---------- ---------- ---------- ----------
GNMA $4,411,857 $ - $ 129,412 $4,282,445
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
1995 Gross Gross
---- Amortized Unrealized Unrealized Fair
Issuer Cost Gains Losses Value
---------- ---------- ---------- ----------
GNMA $4,829,809 $ - $ 240,904 $4,588,905
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
There were no realized gains or losses on sales of securities for the years
ended April 30, 1996, 1995 and 1994.
NOTE 6 - MORTGAGES PAYABLE
Mortgages payable as of April 30, 1996, included mortgages on properties
owned totaling $71,327,918, and mortgages of $371,141 on property sold on
contract. The carrying value of the related real estate owned was
$106,653,490 and the carrying value of the related mortgage loans
receivable was $905,752 as of April 30, 1996.
Mortgages payable as of April 30, 1995, included mortgages on properties
owned totaling $48,134,856, and mortgages of $1,861,351 on property sold on
contract. The carrying value of the related real estate owned was
$74,840,061 and the carrying value of the related mortgage loans receivable
was $1,990,167 as of April 30, 1995.
Monthly installments are due on the mortgages with interest rates ranging
from 7.19% to 10.25% and with varying maturity dates thru November 30,
2034.
F-14
<PAGE>
NOTE 6 - (CONTINUED)
The aggregate amount of required future principal payments on mortgages
payable is as follows:
Years ending April 30,
1997 $ 2,165,211
1998 2,155,476
1999 2,223,016
2000 2,193,352
2001 2,302,104
Later years 60,659,900
-----------
Total payments $71,699,059
-----------
-----------
NOTE 7 - INVESTMENT CERTIFICATES ISSUED
The Trust has placed investment certificates with the public. The interest
rates vary from 7% to 11% per annum, depending on the term of the security.
Total securities maturing within fiscal years ending April 30 are shown
below. Interest is paid annually, semiannually, or quarterly on the
anniversary date of the security.
DUE IN YEARS ENDING APRIL 30
1997 $ 3,111,167
1998 672,693
1999 930,624
2000 1,008,839
2001 79,146
-----------
$ 5,802,469
-----------
-----------
NOTE 8 - DEFERRED GAIN FROM PROPERTY DISPOSITIONS
Deferred gain represents gain from property dispositions that have been
reported on the installment method. With the installment method of
reporting, the proportionate share of the gain is recognized at the point
cash is received. Deferred gain recognized on the installment basis was
$54,788, $15,499, and $69,380 for the years ended April 30, 1996, 1995 and
1994, respectively.
NOTE 9 - TRANSACTIONS WITH RELATED PARTIES
Mr. Roger R. Odell and Mr. Thomas A. Wentz, Sr., officers and shareholders
of the Trust, are partners in Odell-Wentz & Associates, the advisor to the
Trust. Under the Advisory Contract between the Trust and Odell-Wentz &
Associates, the Trust pays an advisor's fee based on the net assets of the
Trust and a percentage fee for investigating and negotiating the
acquisition of new investments. For the year ended April 30, 1996, Odell-
Wentz & Associates received total fees under said agreement of $484,086.
The fees for April 30, 1995 were $339,128, and for April 30, 1994 were
$350,812. For the years
F-15
<PAGE>
NOTE 9 - (CONTINUED)
ended April 30, 1996, 1995 and 1994, the Trust has capitalized $115,993,
$49,323 and $95,772, respectively, of these fees, with the remainder of
$368,093, $289,805 and $255,040, respectively, expensed as advisory and
trustee fees on the statement of operations. The advisor is obligated to
provide office space, staff, office equipment and computer services and
other services necessary to conduct the business affairs of the Trust.
Investors Management and Marketing (IMM) provides property management
services to the Trust. Roger R. Odell is a shareholder in IMM. IMM
received $281,717, $212,018 and $170,870 for services rendered for years
ended April 30, 1996, 1995 and 1994, respectively. In addition, IMM owed
the Trust $118,137 at April 30, 1995. This receivable was paid in
November, 1995.
Inland National Securities is a corporation that provides underwriting
services in the sale of additional shares for the Trust. Roger R. Odell is
also a shareholder in Inland National Securities. Fees for services
totaled $269,656 for the year ended April 30, 1996, $272,615 for the year
ended April 30, 1995, and $507,036 for the year ended April 30, 1994.
The Trust paid fees and expense reimbursements to the law firm in which
Thomas A. Wentz, Sr. is a partner totaling $23,488, $4,890 and $4,692 for
the years ended April 30, 1996, 1995 and 1994, respectively.
The Trust had a mortgage loan receivable from Jenner Properties 1978, a
limited partnership in which Roger R. Odell and Thomas A. Wentz, Sr. are
investors. This contract was paid off during the year ended April 30,
1995.
The Trust had a mortgage loan receivable from Chateau Properties, Ltd., a
limited partnership, in which the Trust is a general partner as described
in Note 1 and Note 11. This contract was paid off during the year ended
April 30, 1996. The contract balance at April 30, 1995 was $1,331,175.
Investment certificates issued by the Trust to officers and trustees
totaled $1,258,133 at April 30, 1996 and $1,179,324 at April 30, 1995.
NOTE 10 - MARKET PRICE RANGE OF SHARES
Investors Real Estate Trust shares are traded on the Over-The-Counter-
Market, with sales handled by Inland National Securities, 21 South Main,
Minot, North Dakota and Financial Advantage Brokerage Services, Inc., 17
South Main, Minot, North Dakota. The price range is as follows:
Bid Ask
--------------- ---------------
Low High Low High
----- ----- ----- -----
1994 $5.22 $5.49 $5.80 $6.10
1995 5.49 5.89 6.10 6.40
1996 5.89 6.30 6.40 6.85
F-16
<PAGE>
NOTE 11 - CHANGE IN THE REPORTING ENTITY
The consolidated financial statements have previously included the accounts
of Investors Real Estate Trust and all limited partnerships in which the
Trust was a general partner and maintained a controlling interest. Due to
the control exerted by the Trust in their position as general partner and
the limited liability of the other partners involved, all limited
partnerships were included in the consolidated financial statements. For
the current year ended April 30, 1996, the control exerted over Chateau
Properties, Ltd. has been reduced to a level not requiring consolidation
under current accounting guidelines. As of April 30, 1996, the Trust is
accounting for its interest in Chateau Properties, Ltd. under the equity
method of accounting. Prior period financial statements included in this
report have been restated to properly reflect this change in the reporting
entity.
The effect of the change in the reporting entity on income previously
reported is shown as follows:
Increase (Decrease)
-----------------------
1995 1994
--------- ---------
Assets $(274,250) $(338,300)
Liabilities (15,760) (15,088)
Shareholders' equity (258,490) (323,212)
Income before extraordinary
item and net income (3,278) (42,675)
Earnings per share - -
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Mortgage loans receivable - Fair values are based on the discounted
value of future cash flows expected to be received for a loan using
current rates at which similar loans would be made to borrowers with
similar credit risk and the same remaining maturities.
Cash - The carrying amount approximates fair value because of the
short maturity of those instruments.
Marketable securities - The fair values of these instruments are
estimated based on quoted market prices for these instruments.
Mortgages payable - For variable rate loans that reprice frequently,
fair values are based on carrying values. The fair value of fixed-rate
loans is estimated based on the discounted cash flows of the loans using
current market rates.
Investment certificates issued - The fair value is estimated using a
discounted cash flow calculation that applies interest rates currently
being offered on deposits with similar remaining maturities.
F-17
<PAGE>
NOTE 12 - (CONTINUED)
Accrued interest payable - The carrying amount approximates fair value
because of the short-term nature of when interest will be paid.
The estimated fair values of the Company's financial instruments are as
follows:
1995
-------------------------
Carrying Fair
Amount Value
----------- -----------
FINANCIAL ASSETS
Mortgage loans receivable $ 4,932,138 $ 4,949,278
Cash 2,715,274 2,715,274
Marketable securities 4,411,857 4,282,445
FINANCIAL LIABILITIES
Mortgages payable $71,699,059 $70,694,035
Investment certificates issued 5,802,469 5,692,317
Accrued interest payable 656,080 656,080
F-18
<PAGE>
ADDITIONAL INFORMATION
F-19
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION
Board of Trustees
Investors Real Estate Trust
and Affiliated Partnerships
Minot, North Dakota
Our report on our audit of the basic consolidated financial statements of
Investors Real Estate Trust and Affiliated Partnerships for the years ended
April 30, 1996, 1995 and 1994, appears on page 1. Those audits were made for
the purpose of forming an opinion on such consolidated financial statements
taken as a whole. The information on pages 18 through 31 related to the 1996,
1995 and 1994 consolidated financial statements is presented for purposes of
additional analysis and is not a required part of the basic consolidated
financial statements. Such information, except for information on page 31 that
is marked "unaudited" on which we express no opinion, has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements, and, in our opinion, the information is fairly stated in all
material respects in relation to the basic consolidated financial statements for
the years ended April 30, 1996, 1995 and 1994, taken as a whole.
We also have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheets of Investors Real Estate Trust and
Affiliated Partnerships as of April 30, 1993, and 1992, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the two years ended April 30, 1993 and 1992, none of which is presented
herein, and we expressed unqualified opinions on those consolidated financial
statements. In our opinion, the information on page 26 relating to the 1993 and
1992 consolidated financial statements is fairly stated in all material respects
in relation to the basic consolidated financial statements from which it has
been derived.
BRADY, MARTZ & ASSOCIATES, P.C.
May 20, 1996
F-20
<PAGE>
INVESTORS REAL ESTATE TRUST
AND AFFILIATED PARTNERSHIPS
APRIL 30, 1996 AND 1995
Schedule I
MARKETABLE SECURITIES
APRIL 30, 1996 APRIL 30, 1995
----------------------- -----------------------
PRINCIPAL PRINCIPAL
AMOUNT MARKET AMOUNT MARKET
---------- ---------- ---------- ----------
GNMA Pools $4,411,857 $4,282,445 $4,829,809 $4,588,905
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
F-21
<PAGE>
INVESTORS REAL ESTATE TRUST
AND AFFILIATED PARTNERSHIPS
APRIL 30, 1996 AND 1995
Schedule IV
NONCURRENT INDEBTEDNESS OF RELATED PARTIES
MORTGAGE LOANS RECEIVABLE
BEGINNING ENDING
BALANCE ADDITIONS DEDUCTIONS BALANCE
---------- --------- ---------- -------
Year ended April 30, 1996
Chateau Properties, Ltd. $1,331,175 $ - $1,331,175 $ -
Investors Management
and Marketing 118,137 - 118,137 -
---------- ------ ---------- ----------
$1,449,312 $ - $1,449,312 $ -
---------- ------ ---------- ----------
---------- ------ ---------- ----------
Year ended April 30, 1995 (Restated)
Chateau Properties, Ltd. $1,358,413 $ - $ (27,238) $1,331,175
Jenner Properties
1978, Ltd. 543,598 - (543,598) -
Investors Management
and Marketing 119,793 - (1,656) 118,137
---------- ------ ---------- ----------
$2,021,804 $ - $ 572,492 $1,449,312
---------- ------ ---------- ----------
---------- ------ ---------- ----------
F-22
<PAGE>
INVESTORS REAL ESTATE TRUST
AND AFFILIATED PARTNERSHIPS
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
Schedule X
SUPPLEMENTAL INCOME STATEMENT INFORMATION
CHARGED TO COSTS AND EXPENSES
------------------------------------------
1996 1995 1994
---------- ---------- ----------
ITEM
Maintenance and repairs $1,702,365 $1,338,236 $1,236,251
Taxes, other than payroll
and income taxes
Property taxes 1,873,720 1,078,712 928,600
Royalties * * *
Advertising costs * * *
* Less than 1 percent of total revenues
F-23
<PAGE>
INVESTORS REAL ESTATE TRUST
AND AFFILIATED PARTNERSHIPS
APRIL 30, 1996
Schedule XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
COST CAPITALIZED
SUBSEQUENT
INITIAL COST TO TRUST TO ACQUISITION
--------------------------- ----------------------
BUILDINGS AND CARRYING
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COSTS
----------- ------------ ----------- -------------- ------------- --------
<S> <C> <C> <C> <C> <C>
Apartments:
Hutchinson $ 6,577 $ 24,772 $ 332,250 $ 46,314 $ -
Century - Williston 2,700,000 200,000 3,166,750 198,755 -
Beulah - 6,360 336,589 78,734 -
Century - Dickinson 1,595,000 100,000 1,564,598 77,021 -
Waseca, MN - 40,000 634,737 131,957 -
Virginia 2,378 37,600 163,036 16,447 -
Parkway - 7,000 40,738 34,648 -
4301-4313 9th Ave. 546,353 52,870 908,727 36,045 -
Marshall 135,872 35,000 275,000 89,278 -
Scottsbluff 196,024 60,000 570,000 80,039 -
Oak Manor 238,264 25,000 225,000 35,917 -
177 10th Ave. E 234,661 40,000 318,109 2,768 -
312 12th Ave. NW 45,670 20,000 236,750 - -
405 Grand Avenue - 13,584 157,211 1,089 -
Sweetwater 251,014 90,767 1,208,847 54,616 -
Bison 152,946 100,210 1,348,127 41,798 -
Eastgate - 23,917 1,490,181 179,091 -
Colton Heights 381,682 80,000 734,286 2,275 -
Hill Park 1,470,000 224,750 2,562,296 35,430 -
Candlelight Apts. 539,961 80,040 757,977 - -
Forest Park 4,177,577 810,000 5,579,164 207,100 -
Oakwood Estates 2,250,000 342,800 2,783,950 196,555 -
Prairie Winds 1,388,480 144,097 1,816,011 - -
Crestview Apts. 2,880,049 235,000 4,290,031 47,848 -
Pointe West 2,395,789 240,000 3,537,775 34,828 -
Oxbow Apts. 3,565,000 404,072 4,494,441 44,137 -
96 Units, Billings, MT - 655,985 3,098,103 - -
49 units, Bismarck, ND 1,382,528 143,500 2,244,100 - -
South Pointe, Minot, ND - 275,000 4,514,552 - -
Stonehill, St. Cloud, MN 8,186,235 939,000 10,167,355 - -
Pine Cone, Ft. Collins, CO 10,645,576 904,545 12,167,093 - -
South View, Minot, ND - 185,000 468,585 363
1112 32nd Ave. S 414,283 50,000 543,147 - -
South Winds 3,721,568 400,000 5,033,683 - -
Columbia Park - G.F. Phase I - 700,000 2,673,754 - -
Southpointe, Minot Phase II 2,775,212 275,000 4,015,062 - -
Circle 50 - Billings,MT - 491,247 - - -
Columbia Park - G.F. Phase II - 661,855 - - -
Office Buildings:
114 S. Main 18,389 27,055 76,076 774 -
408 1st St. SE - 10,000 34,836 2,037 -
401 South Main - 70,600 334,308 69,778 -
Lester Building - 25,000 243,916 - -
First Avenue - 30,000 219,496 530,321 -
Creekside 946,452 311,310 1,088,149 171,676 -
Commercial:
Arrowhead Shopping Center 145,277 100,359 1,063,925 1,233,130 -
Superpumper, Emerado, ND - 25,000 225,564 46,500 -
Superpumper, Langdon, ND - 59,674 151,500 28,038 -
Superpumper, Bottineau, ND - 15,000 186,013 100,000 -
Superpumper, Crookston, MN - 13,125 214,152 201,500 -
Superpumper, Grand Forks, ND - 80,000 405,007 - -
Superpumper, New Town - 69,900 180,100 - -
Pioneer Hi-Bred 350,023 56,925 548,075 48,876 -
Lindberg Building 851,838 198,000 1,154,404 103,385 -
Superpumper, Sidney, MT - 12,000 108,600 - -
Hutchinson Tech 2,470,548 244,800 4,029,426 154,800 -
Minot Plaza - 50,000 452,898 - -
Smith's, Boise, ID 3,629,797 765,000 4,874,576 - -
Midco Theatre, Grand
Forks, ND 1,703,010 183,515 2,359,721 2,500 -
Pet Foods, Fargo, ND 834,130 324,148 927,570 25,058 -
Barnes & Noble, Fargo, ND 4,828,123 540,000 2,752,012 - -
Stone Container, Fargo, ND 3,271,632 440,251 4,498,235 - -
Barnes & Noble, Omaha, NE - 600,000 3,099,101 - -
----------- ----------- ------------ ---------- ---
$71,327,918 $13,370,633 $113,685,675 $4,391,426 $ -
----------- ----------- ------------ ---------- ---
----------- ----------- ------------ ---------- ---
</TABLE>
F-24
<PAGE>
INVESTORS REAL ESTATE TRUST
AND AFFILIATED PARTNERSHIPS
Schedule XI (Continued)
<TABLE>
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF PERIOD
-----------------------------------------
LIFE ON WHICH
BUILDINGS LATEST INCOME
AND ACCUMULATED DATE STATEMENT
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED IS COMPUTED
- ----------- ----------- ------------ ------------ ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Apartments:
Hutchinson $ 25,551 $ 377,785 $ 403,336 $ 188,006 1977 33 1/2-40 years
Century - Williston 274,970 3,290,535 3,565,505 964,800 1985 35-40 years
Beulah 78,327 343,356 421,683 269,854 1983 15-40 years
Century - Dickinson 126,738 1,614,881 1,741,619 450,420 1986 35-40 years
Waseca, MN 40,000 766,694 806,694 241,601 1987 27 1/2-40 years
Virginia 37,600 179,483 217,083 51,821 1987 27 1/2-40 years
Parkway 11,446 70,940 82,386 8,762 1988 5-40 years
4301-4313 9th Ave. 66,912 930,730 997,642 180,492 1988 40 years
Marshall 35,360 363,918 399,278 58,166 1988 40 years
Scottsbluff 60,000 650,039 710,039 118,134 1988 40 years
Oak Manor 29,012 256,905 285,917 41,121 1989 40 years
177 10th Ave. E 40,218 320,659 360,877 52,012 1989 40 years
312 12th Ave. NW 20,000 236,750 256,750 38,472 1989 40 years
405 Grand Avenue 14,674 157,210 171,884 21,579 1991 40 years
Sweetwater 94,270 1,259,960 1,354,230 897,854 1972 20-33 years
Bison 100,210 1,389,925 1,490,135 1,029,078 1972 25-33 years
Eastgate 28,638 1,664,551 1,693,189 1,214,428 1970 33 years
Colton Heights 80,000 736,561 816,561 300,453 1984 33 years
Hill Park 245,653 2,576,823 2,822,476 982,436 1985 33 years
Candlelight Apts. 80,040 757,977 838,017 66,323 1993 40 years
Forest Park 811,954 5,784,310 6,596,264 497,045 1993 40 years
Oakwood Estates 342,800 2,980,505 3,323,305 254,287 1993 40 years
Prairie Winds 144,097 1,816,011 1,960,108 158,901 1993 40 years
Crestview Apts. 235,000 4,337,879 4,572,879 268,725 1994 40 years
Pointe West 240,000 3,572,603 3,812,603 221,546 1994 40 years
Oxbow Apts. 404,072 4,538,578 4,942,650 169,094 1994 40 years
96 units, Billings, MT 655,985 3,098,103 3,754,088 -
49 units, Bismarck, ND 143,500 2,244,100 2,387,600 26,505 1995 40 years
South Pointe, Minot, ND 275,000 4,514,552 4,789,552 52,943 1995 40 years
Stonehill, St. Cloud, MN 939,000 10,167,355 11,106,355 127,092 1995 40 years
Pine Cone, Ft. Collins, CO 904,545 12,167,093 13,071,638 304,177 1994 40 years
South View, Minot, ND 185,000 468,948 653,948 19,889 1994 40 years
1112 32nd Ave. SW 50,000 543,147 593,147 6,789 1996 40 years
South Winds 400,000 5,033,683 5,433,683 62,921 1996 40 years
Columbia Park - G.F. Phase I 700,000 2,673,754 3,373,754 - 1996 40 years
Southpointe, Minot Phase II 275,000 4,015,062 4,290,062 - 1996 40 years
Circle 50 - Billings,MT 491,247 - 491,247 - 1996 40 years
Columbia Park - G.F. Phase II 661,855 - 661,855 - 1996 40 years
Office Buildings:
114 S. Main 27,829 76,076 103,905 68,347 1978 20 years
408 1st St. SE 10,016 36,857 46,873 18,256 1986 19-40 years
401 South Main 70,722 403,964 474,686 101,657 1987 31 1/2-40 years
Lester Building 25,000 243,916 268,916 45,912 1988 40 years
First Avenue 67,711 712,106 779,817 275,265 1981 33 years
Creekside 311,310 1,259,825 1,571,135 130,347 1992 40 years
Commercial:
Arrowhead Shopping Ctr. 100,412 2,297,002 2,397,414 1,993,595 1973 15-40 years
Superpumper, Emerado, ND 25,000 272,064 297,064 121,328 1986 19-40 years
Superpumper, Langdon, ND 59,674 179,538 239,212 45,527 1987 31 1/2-40 years
Superpumper, Bottineau, ND 15,000 286,013 301,013 43,271 1989 40 years
Superpumper, Crookston, MN 13,125 415,652 428,777 59,074 1988 40 years
Superpumper
Grand Forks, ND 80,000 405,007 485,007 55,688 1991 40 years
Superpumper, New Town, ND 69,900 180,100 250,000 20,261 1992 40 years
Pioneer Hi-Bred 56,925 596,951 653,876 62,336 1992 40 years
Lindberg Building 198,000 1,257,789 1,455,789 132,113 1992 40 years
Superpumper, Sidney, MT 12,000 108,600 120,600 9,502 1993 40 years
Hutchinson Tech 244,800 4,184,226 4,429,026 358,406 1993 40 years
Minot Plaza 50,000 452,898 502,898 39,629 1993 40 years
Smith's, Boise, ID 765,000 4,874,576 5,639,576 304,661 1994 40 years
Midco Theatre, Grand Forks, ND 183,515 2,362,221 2,545,736 88,521 1994 40 years
Pet Foods, Fargo, ND 324,148 952,628 1,276,776 35,097 1994 40 years
Barnes & Noble, Fargo, ND 540,000 2,752,012 3,292,012 103,200 1994 40 years
Stone Container, Fargo, ND 440,251 4,498,235 4,938,486 55,113 1995 40 years
Barnes & Noble, Omaha, NE 600,000 3,099,101 3,699,101 38,739 1995 40 years
----------- ------------ ------------ -----------
$13,639,012 $117,808,722 $131,447,734 $13,551,571
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
</TABLE>
F-25
<PAGE>
INVESTORS REAL ESTATE TRUST
AND AFFILIATED PARTNERSHIPS
Schedule XI (Continued)
Reconciliations of total real estate carrying value for the three years ended
April 30, 1996, 1995 and 1994 are as follows:
1995 1994
1996 (RESTATED) (RESTATED)
------------ ----------- -----------
Balance at beginning of year $ 90,892,662 $63,861,793 $46,319,398
Additions during year
- acquisitions 40,660,975 27,371,289 17,094,188
- improvements 635,791 344,255 448,207
------------ ----------- -----------
$132,189,428 $91,577,337 $63,861,793
Deductions during year
- cost of real estate sold (741,694) (684,675) -
------------ ----------- -----------
Balance at close of year $131,447,734 $90,892,662 $63,861,793
------------ ----------- -----------
------------ ----------- -----------
Reconciliations of accumulated depreciation for the three years ended April
30, 1996, 1995 and 1994 are as follows:
1995 1994
1996 (RESTATED) (RESTATED)
------------ ----------- -----------
Balance at beginning of year $ 11,732,655 $10,097,374 $ 8,773,900
Additions during year
- provisions for depreciation 2,261,724 1,767,294 1,323,474
Deduction during year
- accumulated depreciation
on real estate sold (442,808) (132,013) -
------------ ----------- -----------
Balance at close of year $ 13,551,571 $11,732,655 $10,097,374
------------ ----------- -----------
------------ ----------- -----------
F-26
<PAGE>
INVESTORS REAL ESTATE TRUST
AND AFFILIATED PARTNERSHIPS
APRIL 30, 1996
Schedule XII
INVESTMENTS IN MORTGAGE LOANS ON REAL ESTATE
INTEREST FINAL MATURITY PAYMENT PRIOR
RATE DATE TERMS LIENS
-------- -------------- ------- -----
RESIDENTIAL
Billings, MT - 144 units 9% 9-1-98 Monthly -
Higley Heights, Phoenix, AZ 8% 3-31-04 Monthly -
North Park - Writer Corp. 14% 1-4-98 Monthly -
Centerbrooke Homes 12% 1-14-94 Monthly -
Marcella Knutt 11% 6-1-08 Monthly -
Sweetwater Springs Balloon
Retirement Center 9% 7-15-96 Payment -
Melanie Bentsinger 8% 6-1-25 Monthly -
Rolland Hausman 9% 2-1-16 Monthly -
Other - over $100,000 9-10 1/4% 5-1-96 to
8-1-07 Monthly -
- from $50,000-99,999 8-12% 7-1-96 to
1-1-00 Monthly -
- from $20,000-49,999 8-12% 9-1-97 to
12-1-03 Monthly -
- less than $20,000 7-12% 9-4-97 to
3-1-02 Monthly
Total
Less - Unearned discounts
- Deferred gain from property dispositions
- Allowance for bad debts
F-27
<PAGE>
PRINCIPAL AMOUNT
FACE CARRYING OF LOANS SUBJECT TO
AMOUNTS OF AMOUNTS OF DELINQUENT PRINCIPAL
MORTGAGES MORTGAGES OR INTEREST
------------ ---------- --------------------
$ 1,500,000 $ 320,938 $ -
809,786 681,032 -
1,550,000 618,810 -
1,900,000 205,512 141,345
300,000 236,880 -
2,810,000 1,254,810 -
217,761 216,154 -
315,659 314,710 -
678,814 448,029 -
1,340,381 360,998 3,473
768,088 252,315 -
293,304 21,950 -
----------- ---------- --------
$12,483,793 $4,932,138 $144,818
----------- --------
----------- --------
(18,222)
(165,074)
(267,096)
----------
$4,481,746
----------
----------
F-28
<PAGE>
Schedule XII (CONTINUED)
1995 1994
1996 (RESTATED) (RESTATED)
----------- ----------- -----------
MORTGAGE LOANS RECEIVABLE,
BEGINNING OF YEAR $ 5,815,772 $11,212,354 $12,869,463
New participations in and advances
on mortgage loans 1,790,070 653,952 3,170,698
----------- ----------- -----------
$ 7,605,842 $11,866,306 $16,040,161
Collections (2,647,434) (5,850,534) (4,827,807)
Write-off through allowance (26,270) (200,000) -
----------- ----------- -----------
MORTGAGE LOANS RECEIVABLE,
END OF YEAR $ 4,932,138 $ 5,815,772 $11,212,354
----------- ----------- -----------
----------- ----------- -----------
F-29
<PAGE>
INVESTORS REAL ESTATE TRUST
AND AFFILIATED PARTNERSHIPS
SELECTED FINANCIAL DATA
<TABLE>
YEAR ENDED APRIL 30
--------------------------------------------------------------------
1995 1994 1993 1992
1996 (RESTATED) (RESTATED) (RESTATED) (RESTATED)
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Consolidated Income Statement Data
Revenue $ 18,659,665 $13,801,123 $11,583,008 $ 8,048,916 $ 6,955,404
Operating income 3,617,807 3,560,318 3,135,426 2,222,313 1,612,231
Gain on repossession/
sale of investments 994,163 407,512 64,962 145,165 34,408
Net income 4,611,970 3,967,830 3,200,388 2,367,478 1,646,639
Consolidated Balance Sheet Data
Total real estate
investments $122,377,909 $84,005,635 $63,972,042 $49,492,380 $33,707,171
Total assets 131,355,638 94,616,744 72,391,548 54,248,011 38,555,050
Shareholders' equity 50,711,920 37,835,654 29,997,189 23,347,449 18,420,243
Consolidated Per Share Data
Operating income $ .30 $ .34 $ .35 $ .28 $ .23
Gain on repossession/
sale of investments .08 .04 .01 .01 .00
Dividends .37 .34 .33 .31 .30
Tax status of dividend
Capital gain 1.6% 11.0% 7.4% 4.1% 1.0%
Ordinary income 98.4% 89.0% 92.6% 74.0% 67.8%
Return of capital 0.0% 0.0% 0.0% 21.9% 31.2%
</TABLE>
F-30
<PAGE>
INVESTORS REAL ESTATE TRUST
AND AFFILIATED PARTNERSHIPS
APRIL 30, 1996, 1995 AND 1994
GAIN FROM PROPERTY DISPOSITIONS
<TABLE>
TOTAL
ORIGINAL UNREALIZED REALIZED REALIZED REALIZED
PROPERTY GAIN 4/30/96 4/30/96 4/30/95 4/30/94
- -------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Brooklyn Addition * $ 25,000 $ 4,000 $ 1,000 $ 1,000 $ 1,000
1411 South 20th * 34,696 - 1,177 3,292 3,039
1302 South 19 1/2 * 87,669 22,444 6,215 5,739 5,299
600 Maple * 60,025 - 41,253 859 766
406 17th Street - Mandan * 233,522 138,629 5,143 4,609 4,131
1320 19 1/2 South* 74,424 - - - 50,727
419 and 404 - Minot 82,053 - - 82,053 -
Yankton, SD 305,542 - - 305,542 -
108 4th Avenue SE - Minot 173,211 - 173,244 - -
Mobridge, SD 293,035 - 293,035 - -
Lantern Court 50,971 - 50,971 - -
Chateau 684,914 - 422,125 4,418 -
-------- -------- -------- -------
$ - $994,163 $407,512 $64,962
-------- -------- -------- -------
-------- -------- -------- -------
</TABLE>
* The gain from the sale of these properties is being realized based on the
installment method. The amount of deferred gain realized was $476,913,
$19,917 and $64,962 for the years ended April 30, 1996, 1995 and 1994,
respectively.
F-31
<PAGE>
INVESTORS REAL ESTATE TRUST
AND AFFILIATED PARTNERSHIPS
APRIL 30, 1995
MORTGAGE LOANS
<TABLE>
FINAL PERIODIC CARRYING DELINQUENT
INTEREST MATURITY PAYMENT FACE AMOUNT AMOUNT OF PRINCIPAL
RATE DATE TERMS OF MORTGAGE MORTGAGES OR INTEREST
-------- -------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Arrowhead Shopping
Center, Minot, ND 10.00% 10-1-97 Monthly $ 1,152,278 $ 145,277 $ -
Century Apartments, Williston,
196 unit complex 7.50 3-1-06 Monthly 2,700,000 2,700,000 -
Century Apartments, Dickinson,
120 unit complex 7.50 3-1-06 Monthly 1,595,000 1,595,000 -
Colton Heights Assoc.,
Billings, MT 9.00 3-1-97 Monthly 1,291,000 142,541 -
Sweetwater Properties,
Grafton, Devils 2003 to
Lake, 114 units 9.75 2004 Monthly 914,138 251,014 -
Bison Properties,
Jamestown, Carrington,
Cooperstown, 1999 to
125 units 10.00 2000 Monthly 1,001,650 152,946 -
Hill Park Properties, Ltd.
Bismarck, ND, 96 units 7.50 3-1-06 Monthly 1,470,000 1,470,000 -
Colton Heights, Ltd.
Minot, ND, 18 units 9.50 1-1-00 Monthly 730,000 381,682 -
Residential Properties,
Single family - 7.50 to 6-1-96 to
36 unit complexes 10.50 3-1-03 Monthly 4,017,631 1,634,398 -
Commercial Properties,
Retail stores 9.00 5-1-98 Monthly 97,500 18,389 -
Pioneer Hi-Bred,
Moorhead, MN 8.625 11-1-01 Monthly 425,000 350,023 -
Creekside Office Complex
Billings, MT 8.35 12-1-16 Monthly 1,023,750 946,482 -
Hutchinson Tech
Sioux Falls, SD 8.50 8-1-99 Monthly 2,800,000 2,470,548 -
Candlelight Apts. 8.25 12-1-04 Monthly 578,000 539,961 -
Oakwood Apts. 7.50 3-1-06 Monthly 2,250,000 2,250,000 -
Prairie Winds 7.19 5-1-18 Monthly 1,470,000 1,388,452 -
Forest Park 9.75 5-1-03 Monthly 4,500,000 4,177,577 -
Pointe West Apts. 8.34 1-1-14 Monthly 2,625,000 2,395,789 -
Crestview Apts. 8.30 1-1-14 Monthly 3,150,000 2,880,049 -
Midco Theatre 8.65 7-1-14 Monthly 1,750,000 1,703,009 -
Oxbow, Sioux Falls, SD 7.50 3-1-06 Monthly 3,565,000 3,565,000 -
Smith's Home Furnishings 9.75 3-29-03 Monthly 3,750,000 3,629,797 -
Lindberg Building 8.50 4-1-00 Monthly 950,000 851,838 -
Barnes & Noble, Fargo, ND 7.98 11-20-10 Monthly 4,900,000 4,828,123 -
Pine Cone 7.125 12-20-34 Monthly 10,685,215 10,645,576 -
1112 32nd Ave. SW - 18 plex 9.00 9-1-10 Monthly 425,000 414,283
West Stonehill, St. Cloud, MN 9.21 2-1-98 to
1-1-00 Monthly 8,232,569 8,186,235 -
North Pointe Apts, Bismarck, ND 8.18 8-1-15 Monthly 1,400,000 1,382,528 -
Southpointe Apts, I, Minot, ND 8.01 9-1-15 Monthly 2,800,000 2,775,212 -
Southwind Apts, Grand Forks, ND 7.84 11-1-10 Monthly 3,780,000 3,721,568 -
Stone Container, Fargo, ND 8.25 12-1-10 Monthly 3,300,000 3,271,632 -
Pet Food Warehouse, Fargo, ND 8.31 12-1-10 Monthly 840,000 834,130 -
----------- ----------- ------
$80,168,731 $71,699,059 $ -
----------- ----------- ------
----------- ----------- ------
</TABLE>
F-32
<PAGE>
INVESTORS REAL ESTATE TRUST
AND AFFILIATED PARTNERSHIPS
APRIL 30, 1996
SIGNIFICANT PROPERTY ACQUISITIONS
Acquisition for cash and assumptions of mortgages
Commercial:
Barnes & Noble, Omaha, NE ** $ 3,627,206
Store Container, Fargo, ND ** 4,042,217
-----------
$ 7,669,423
-----------
Apartments:
96 Units, Billings, MT * $ 3,727,440
North Pointe, Bismarck, ND ** 927,450
South Point I, Minot, ND ** 2,727,085
West Stonehill, St. Cloud, MN ** 10,765,830
1112 - 32nd Avenue SW, Minot, ND 593,147
Columbia Park Phase I, Grand Forks, ND * 3,373,754
Southwinds, Grand Forks, ND 5,433,683
South Point II, Minot, ND * 4,290,061
Circle 50, Billings, MT * 491,247
Columbia Park II, Grand Forks, ND * 661,855
-----------
$32,991,552
-----------
Total $40,660,975
-----------
-----------
* Property not placed in service at April 30, 1996. Additional costs are
still to be incurred.
** Represents costs to complete a project started in year ending April 30,
1995.
F-33
<PAGE>
INVESTORS REAL ESTATE TRUST
AND AFFILIATED PARTNERSHIPS
QUARTERLY RESULTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
QUARTER ENDED
-------------------------------------------------
7-31-95 10-31-95 1-31-96 4-30-96
---------- ---------- ---------- ----------
Revenues $3,782,061 $4,715,186 $5,104,409 $5,058,009
Income before gains on
sale of investments 1,009,468 1,058,136 1,082,506 467,697
Net gain on sale of
investments - - 522,001 472,162
Net income 1,009,468 1,058,136 1,604,507 939,859
Per share
Income before gains
on sale of
investments .09 .09 .09 .04
Net gain on sale of
investments - - .04 .04
QUARTER ENDED
-------------------------------------------------
7-31-94 10-31-94 1-31-95 4-30-95
---------- ---------- ---------- ----------
Revenues $3,247,910 $3,529,364 $3,492,941 $3,530,908
Income before gains on
sale of investments 794,755 1,066,229 1,014,011 685,323
Net gain on sale of
investments - 305,543 - 101,969
Net income 794,755 1,371,772 1,014,011 787,292
Per share
Income before gains
on sale of
investments .07 .10 .10 .07
Net gain on sale of
investments - .03 - .01
QUARTER ENDED
-------------------------------------------------
7-31-93 10-31-93 1-31-94 4-30-94
---------- ---------- ---------- ----------
Revenues $2,619,795 $2,831,487 $2,898,989 $3,232,737
Income before gains on
sale of investments 841,939 852,618 872,875 567,994
Net gain on sale of
investments - - - 64,962
Net income 841,939 852,618 872,875 632,956
Per share
Income before gains
on sale of
investments .10 .10 .10 .05
Net gain on sale of
investments - - - .01
F-34
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of the anticipated cost to the Trust in
connection with the issuance and distribution of the securities to be
registered.
Legal: $25,000
Printing: 1,500
Accounting: 1,000
Registration Fees: 2,500
-------
$30,000
ITEM 31. SALES TO SPECIAL PARTIES
There is no person or class of persons to whom any securities have been sold
within the past six months, or are to be sold, by the registrant or any
security holder for whose account any of the securities being registered are
to be offered, at a price varying from that at which securities of the same
class are to be offered to the general public pursuant to this registration.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES
The shares of Beneficial Interest of IRET are sold in the over-the-counter
market only within the State of North Dakota by Inland National Securities,
Inc., 21 South Main, Minot, ND 58701, and Financial Advantage Brokerage
Services, Inc., 17 South Main, Minot, ND 58701. Set forth below, by
quarter-year, are the total number of IRET shares sold and repurchased and
the high and low reported sales prices for the past three years:
CALENDAR NO. OF BID ASKED
YEAR MONTHS SHARES SOLD LOW HIGH LOW HIGH
--------- ------ ----------- ---- ---- ---- ----
1993 January-March 241,353 5.02 5.10 5.70 5.80
1993 April-June 230,068 5.10 5.19 5.80 5.90
1993 July-September 140,339 5.10 5.19 5.90 5.90
1993 October-December 181,613 5.16 5.28 5.90 6.00
1994 January-March 250,167 5.20 5.37 6.00 6.10
1994 April-June 163,347 5.20 5.37 6.10 6.10
1994 July-September 134,529 5.37 5.63 6.10 6.25
1994 October-December 335,518 5.63 5.89 6.25 6.40
1995 January-March 210,106 5.89 5.89 6.40 6.40
1995 April-June 137,766 5.89 6.03 6.40 6.55
1995 July -September 452,665 5.89 6.03 6.40 6.55
1995 October-December 466,447 5.89 6.16 6.40 6.70
IRET shares are sold on the primary market only for cash to bona-fide
residents of the State of North Dakota by Inland National Securities, Inc.,
and Financial Advantage Brokerage Services, Inc., which are securities
dealers registered with the State of North Dakota. IRET claims exemption
from the registration of its shares of Beneficial Interest under the
Securities Act of 1933 under Section 3(a)(11) of said Act. All securities
have been offered and sold only to persons resident within the State of North
Dakota. The Trust is organized and doing business within North Dakota.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The governing provisions of the Trust provide nonliability of and
indemnification to the Board of Trustees and officers except for willful
misfeasance, bad faith, gross negligence, or any liability imposed by the
Securities Act of 1933. The Trust currently provides no insurance coverage
for the errors or omissions of Board members, officers or the Advisor.
The Advisor currently maintains no insurance coverage for its errors or
omissions as Advisor to the Trust.
S-1
<PAGE>
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED
No portion of the consideration to be received by the registrant for such
shares is to be credited to an account other than the appropriate capital
share account.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS
a) List of all financial statements filed as part of this
registration statement
FINANCIAL STATEMENT FILED INCLUDED IN PROSPECTUS
------------------------- ----------------------
Financial Statement by Investors Real See F-1 through F-34
Estate Trust for the period ended
April 30, 1996, prepared by Brady
Martz & Associates, P.C., Certified
Public Accountants
b) Exhibit Index
DESCRIPTION OF EXHIBIT LOCATION
---------------------- --------
(1) Security Sales Agreements Attached as E-2 through E-5
(2) Plan of acquisition, Not Applicable
reorganization, arrangement,
liquidation or succession
(3) (i) Articles of Incorporation Declaration of Trust,
(ii) By-Laws dated 7/31/70, and First
Amendment thereto dated
8/26/70, and Second
Amendment thereto dated
7/11/74, filed as
Exhibit 3 to Form 10
filed for the Registrant
(File No. 0-14851) and
incorporated herein by
reference
(4) Instruments defining the See #3
rights of security holders,
including indentures
(5) Opinion re legality Attached as E-6 through E-7
(6) Opinion re discount on Not Applicable
capital shares
(7) Opinion re liquidation Not Applicable
preference
(8) Opinion re tax matters Not Applicable
(9) Voting trust agreement Not Applicable
(10) Material Contracts Advisory Agreement with
the Registrant and
Odell-Wentz &
Associates, filed as
Exhibit 10 to said Form
10 and incorporated
herein by reference
(File No. 0-14851)
(11) Statement re computation Not Applicable
of per share earnings
S-2
<PAGE>
(12) Statement re computation Not Applicable
of ratios
(15) Letter re unaudited Not Applicable
interim financial information
(16) Letter re change in Not Applicable
certifying accountant
(21) Subsidiaries of the List of affiliated
Registrant partnerships filed as
Item 7 of Form 10 filed
for the Registrant
(File No. 0-14851) and
incorporated herein by
reference
(23) Consent of experts and counsel Attached as E-8 through E-9
(a) Pringle & Herigstad, P.C.
(b) Brady Martz & Associates, P.C.
(24) Power of Attorney Not Applicable
(25) Statement of eligibility Not Applicable
of trustee
(27) Financial Data Schedule Attached as E-1
(99) Additional Exhibits Not Applicable
UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred
S-3
<PAGE>
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) of (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certified that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this registration to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Minot, State of North Dakota.
INVESTORS REAL ESTATE TRUST
BY /s/ Thomas A. Wentz
-----------------------------------------
Thomas A. Wentz
Its Vice President
S-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on
the dated indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas A. Wentz
- ----------------------------- Vice-President and Trustee July 1, 1996
Thomas A. Wentz
/s/ Ralph A. Christensen
- ----------------------------- Trustee and Chairman July 1, 1996
Ralph A. Christensen
/s/ Mike F. Dolan
- ----------------------------- Trustee and Vice Chairman July 1, 1996
Mike F. Dolan
/s/ Patrick G. Jones
- ----------------------------- Trustee July 1, 1996
Patrick G. Jones
/s/ Timothy P. Mihalick
- ----------------------------- Secretary July 1, 1996
Timothy P. Mihalick
/s/ J. Norman Ellison
- ----------------------------- Trustee July 1, 1996
J. Norman Ellison
/s/ Daniel L. Feist
- ----------------------------- Trustee July 1, 1996
Daniel L. Feist
/s/ C. Morris Anderson
- ----------------------------- Trustee July 1, 1996
C. Morris Anderson
/s/ Jeff Miller
- ----------------------------- Trustee July 1, 1996
Jeff Miller
S-5
<PAGE>
EXHIBIT 5
[LETTERHEAD]
July 2, 1996
EXHIBIT E-5
OPINION RE LEGALITY
Securities and Exchange Commission
Washington, D.C. 20549
INVESTORS REAL ESTATE TRUST - FORM S-11 DATED JULY 1, 1996
In connection with the filing of Form S-11 by Investors Real Estate Trust, we
advise you that we have examined and are familiar with the originals of all
documents, trust records and other instruments relating to the organization
of Investors Real Estate Trust, the authorization and issuance of the shares
of Beneficial Interest described in said application, including the following:
1. Declaration of Trust dated July 31, 1970; First Amendment thereto
dated August 26, 1970; and Second Amendment thereto dated July 11,
1974.
2. Application for Registration of Securities by Qualification and
attached exhibits, including Prospectus.
From our examination of said documents and records, it is our opinion:
1. Investors Real Estate Trust has been duly organized and is a validly
existing business trust under the laws of the State of North Dakota.
2. Investors Real Estate Trust has the power under North Dakota law to
conduct the business activities described in the Trust Agreement and
said Prospectus.
3. Investors Real Estate Trust is authorized to issue an unlimited
number of its shares of Beneficial Interest as set forth in its
Trust Agreement and such shares conform to the statements made about
them in the Form S-11 and Prospectus.
4. Said shares of Beneficial Interest have been duly and validly
authorized and issued.
5. We are not aware, and Investors Real Estate Trust has advised us that
it is not aware of any legal or governmental proceedings pending or
threatened to which Investors Real Estate Trust is a party or which
the property thereof is the subject; and it and we do not know of any
contracts of a character to be disclosed on said application or
prospectus which are not disclosed, filed and properly summarized
therein.
E-6
<PAGE>
Securities and Exchange Commission
July 2, 1996
Page 2
6. Said Form S-11 and the Prospectus and other exhibits attached thereto
are in the form required and have been examined by us; we have no
reason to believe that any of said documents contain any untrue
statement of material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading. We have reviewed said documents and to the
best of our knowledge, information and belief, the statements
contained therein are correct.
PRINGLE & HERIGSTAD, P.C.
By /s/ Thomas A. Wentz, Jr.
-------------------------------
Thomas A. Wentz, Jr.
kak
E-7
<PAGE>
EXHIBIT 10
EXHIBIT E-1 FORM S-11 INVESTORS REAL ESTATE TRUST
AMENDED
SECURITY SALES AGREEMENT
THIS AGREEMENT, made this 22nd day of May, 1996, between INVESTORS REAL
ESTATE TRUST, A North Dakota Business Trust, 12 South Main, Minot, North
Dakota 58701 (hereinafter ("IRET"), and INLAND NATIONAL SECURITIES, INC., 21
South Main, Minot, North Dakota 58701 (hereinafter "INLAND").
WHEREAS, IRET intends to file a Form S-11 with the Securities and Exchange
Commission to register for sale to the public 800,000 shares of its shares of
Beneficial Interest; and,
WHEREAS, INLAND is a broker registered with the National Association of
Securities Dealers and is also registered in states in which said shares of
Beneficial Interest will also be registered for sale by IRET;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, it
is agreed as follows:
1. IRET hereby employs INLAND as a Broker to offer said shares of
Beneficial Interest for sale for $7.00 per share, minimum purchase of 100
shares. INLAND agrees to use its best efforts to conduct the sales effort
necessary to market said securities subject to the terms and conditions of
this agreement. This agreement shall become effective only upon the
effectiveness of the registration of said securities by the Securities and
Exchange Commission and the applicable state Securities Commissioners and
shall terminate contemporaneously with the termination or completion of said
registration.
2. IRET shall be responsible for paying all costs and expenses relating
to the registration of said securities, including the preparation, printing
and filing of the Prospectus and Registration Statements and all amendments
and exhibits, all filing and registration fees and costs, and all legal,
accounting, printing and filing fee expenses in connection therewith.
3. All solicitation expenses including travel, telephone and other
expenses incurred by INLAND and its salesmen shall be the responsibility of
INLAND and its salesmen. In the event the offering is terminated, INLAND
will not be reimbursed for any actual accountable out-of-pocket expenses.
4. As compensation for its services hereunder, INLAND shall receive 8%
of the proceeds of all of the securities sold and paid for.
5. IRET represents and warrants to INLAND as follows:
- IRET is a North Dakota Business Trust duly organized and in good
standing under the laws of the State of North Dakota and duly
authorized to conduct its business in the states in which it operates.
- The shares of Beneficial Interest described in the Prospectus filed in
connection with the above described Offering have the characteristics
set forth in said Prospectus and IRET is authorized to issue an
unlimited number of its shares of Beneficial Interest under its trust
powers.
- The Financial Statements contained in the Prospectus and by reference
incorporated herein are true, correct and complete, and no material,
adverse changes have occurred since the issuance of such statement.
E-2
<PAGE>
IRET hereby indemnifies and will hold INLAND harmless from all claims, demands,
liabilities and expenses (including legal expenses) arising out of or based on
any of the representations or warranties made by IRET herein.
This agreement shall be binding upon and shall inure to the benefit of the
parties, their successors and assigns.
INVESTORS REAL ESTATE TRUST
BY /s/ Thomas A. Wentz
------------------------------------
Thomas A. Wentz, Vice President
INLAND NATIONAL SECURITIES, INC.
BY /s/ David J. Theusch
------------------------------------
David J. Theusch, President
E-3
<PAGE>
EXHIBIT E-1 FORM S-11 INVESTORS REAL ESTATE TRUST
AMENDED
SECURITY SALES AGREEMENT
THIS AGREEMENT, made this 22nd day of May, 1996, between INVESTORS REAL
ESTATE TRUST, A North Dakota Business Trust, 12 South Main, Minot, North
Dakota 58701 (hereinafter ("IRET"), and FINANCIAL ADVANTAGE BROKERAGE
SERVICES, INC., 17 South Main, Minot, North Dakota 58701 (hereinafter
"FABSI").
WHEREAS, IRET intends to file a Form S-11 with the Securities and Exchange
Commission to register for sale to the public 800,000 shares of its shares of
Beneficial Interest; and,
WHEREAS, FABSI is a broker registered with the National Association of
Securities Dealers and is also registered in states in which said shares of
Beneficial Interest will also be registered for sale by IRET;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, it
is agreed as follows:
1. IRET hereby employs FABSI as a Broker to offer said shares of
Beneficial Interest for sale for $7.00 per share, minimum purchase of 100
shares. FABSI agrees to use its best efforts to conduct the sales effort
necessary to market said securities subject to the terms and conditions of
this agreement. This agreement shall become effective only upon the
effectiveness of the registration of said securities by the Securities and
Exchange Commission and the applicable state Securities Commissioners and
shall terminate contemporaneously with the termination or completion of said
registration.
2. IRET shall be responsible for paying all costs and expenses relating
to the registration of said securities, including the preparation, printing
and filing of the Prospectus and Registration Statements and all amendments
and exhibits, all filing and registration fees and costs, and all legal,
accounting, printing and filing fee expenses in connection therewith.
3. All solicitation expenses including travel, telephone and other
expenses incurred by FABSI and its salesmen shall be the responsibility of
FABSI and its salesmen. In the event the offering is terminated, FABSI will
not be reimbursed for any actual accountable out-of-pocket expenses.
4. As compensation for its services hereunder, FABSI shall receive 8%
of the proceeds of all of the securities sold and paid for.
5. IRET represents and warrants to FABSI as follows:
- IRET is a North Dakota Business Trust duly organized and in good
standing under the laws of the State of North Dakota and duly
authorized to conduct its business in the states in which it operates.
- The shares of Beneficial Interest described in the Prospectus filed in
connection with the above described Offering have the characteristics
set forth in said Prospectus and IRET is authorized to issue an
unlimited number of its shares of Beneficial Interest under its trust
powers.
- The Financial Statements contained in the Prospectus and by reference
incorporated herein are true, correct and complete, and no material,
adverse changes have occurred since the issuance of such statement.
E-4
<PAGE>
IRET hereby indemnifies and will hold FABSI harmless from all claims,
demands, liabilities and expenses (including legal expenses) arising out of
or based on any of the representations or warranties made by IRET herein.
This agreement shall be binding upon and shall inure to the benefit of the
parties, their successors and assigns.
INVESTORS REAL ESTATE TRUST
BY /s/ Thomas A. Wentz
------------------------------------
Thomas A. Wentz, Vice President
FINANCIAL ADVANTAGE BROKERAGE SERVICES, INC.
BY /s/ Roger W. Domres
------------------------------------
Roger W. Domres, President
E-5
<PAGE>
EXHIBIT 23.1
[LETTERHEAD]
July 2, 1996
UNITED STATES SECURITIES AND
EXCHANGE COMMISSIONER
WASHINGTON DC 20549
FORM S-11 REGISTRATION STATEMENT
INVESTORS REAL ESTATE TRUST CIK0000798359
TO WHOM IT MAY CONCERN:
We consent to the incorporation directly or by reference in this Registration
Statement of Investors Real Estate Trust, on Form S-11 of our opinion letter
dated July 2, 1996, concerning the opinion of legality. We also consent to the
reference to us under the heading "Experts" in the Prospectus, which is also
part of this Registration Statement.
PRINGLE & HERIGSTAD, P.C.
Thomas A. Wentz, Jr.
kak
<PAGE>
EXHIBIT 23.2
[LETTERHEAD]
UNITED STATES SECURITIES AND
EXCHANGE COMMISSIONER
WASHINGTON DC 20549
RE: FORM S-11 REGISTRATION STATEMENT
INVESTORS REAL ESTATE TRUST CIK0000798359
TO WHOM IT MAY CONCERN:
We hereby consent to the incorporation directly or by reference in the
Registration Statement of Investors Real Estate Trust on Form S-11, of the
consolidated financial statements and additional information of Investors
Real Estate Trust and Affiliated Partnerships as of April 30, 1996, as well
as our Independent Auditor's Report dated May 20, 1996. We also consent to
the reference to us under the heading "Experts" in the Prospectus, which is
part of the Registration Statement.
BRADY MARTZ & ASSOCIATES, P.C.
June 25, 1996
BRADY, MARTZ & ASSOCIATES, P.C.
24 West Central P.O. Box 848
Minot, ND 58702-0848 (701) 852-0196 Fax (701) 839-5452
OTHER OFFICES: Grand Forks, ND Bismarck, ND
Devils Lake, ND Thief River Falls, MN
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Financial Statement attached hereto as Exhibit F for the 12-month period ended
April 30, 1996, and is qualified in its entirety by reference to such Exhibit F.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<CASH> 2,715,274
<SECURITIES> 4,411,857
<RECEIVABLES> 4,932,138
<ALLOWANCES> 267,096
<INVENTORY> 0
<CURRENT-ASSETS> 8,977,729
<PP&E> 131,447,734
<DEPRECIATION> 13,511,571
<TOTAL-ASSETS> 131,355,638
<CURRENT-LIABILITIES> 3,142,190
<BONDS> 71,699,059
3,142,190
0
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</TABLE>
