Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
(Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended July 31, 1998
Commission file number 0-14851
INVESTORS REAL ESTATE TRUST
(Exact name of registrant as specified in its charter)
North Dakota 45-0311232
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12 South Main, Minot, ND 58701
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (701) 852-1756
(Former name, former address and former fiscal year, if
changed since last report.) No change
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes ( X ) No ( )
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. Applicant is a
North Dakota Real Estate Investment Trust. As of July 31, 1998, it had
16,767,369 Shares of Beneficial Interest outstanding.
<PAGE>
PART I
Item 1. Financial Statements.
The following financial statements have been prepared from
the records of Investors Real Estate Trust and its six affiliated
limited partnerships and have not been audited or reviewed by the
Trust's independent certified public accountants. Accordingly, these
statements are subject to adjustments upon audit, which audit will be
conducted for the Fiscal Year ending April 30, 1999. Reference
is made to the footnotes to the Statements prepared by the Trust's
auditors for the Fiscal Year ended April 30, 1998, contained in
the Annual Report for Fiscal 1998. In the opinion of the Trust,
there have been no developments requiring footnote disclosure for
the periods covered by the Financial Statements set forth
below that are not adequately disclosed in the footnotes to the
April 30, 1998, statements.
BALANCE SHEETS
(unaudited)
ASSETS: 07-31-98 04-30-98
------------ ------------
Cash $ 3,086,972 $ 2,132,220
Marketable Securities
- GNMA's 3,453,882 3,536,538
- Other REIT's 646,708 720,688
Accounts Receivable 10,808 55,326
Tax & Insurance Escrow 1,697,758 1,254,068
Deferred Charges 1,210,551 1,088,016
Prepaid Insurance 141,967 219,871
Real Estate Deposits 2,683,861 2,493,713
General Partnerships 0 6,705
------------ ------------
$ 12,932,502 $ 11,507,145
------------ ------------
Real Estate Investments
Real Estate Owned $240,046,889 $231,416,322
Less Accumulated Depreciation (22,575,451) (21,516,129)
------------ ------------
Net Real Estate Owned 217,471,438 209,900,193
------------ ------------
Real Estate Mortgages 1,698,861 3,438,308
Less Unearned Discounts &
Allowances (126,212) (127,132)
------------ ------------
Net Mortgages & Contracts 1,572,649 3,311,176
------------ ------------
Total Real Estate Investments $219,044,087 $213,211,369
------------ ------------
TOTAL ASSETS $231,976,590 $224,718,514
============ ============
LIABILITIES:
Accounts Payable & Accrued
Expenses $ 2,822,462 $ 2,847,080
Due on Credit Line 0 1,000,000
Mortgages Payable 137,324,811 134,059,974
Investment Certificates Payable 10,869,391 10,369,561
------------ ------------
TOTAL LIABILITIES $151,016,663 $148,276,615
------------ ------------
Minority Interest in Operating
Partnership $ 10,590,410 $ 8,289,273
------------ ------------
SHAREHOLDERS' EQUITY
Shares of Beneficial Interest
Outstanding Shares of 07-31-98 04-30-98
------------ ------------
16,767,369 on 07/31/98
16,391,412 on 04/30/98 $ 77,245,225 $ 74,708,559
Undistributed Net Income (6,912,349) (6,666,555)
Unrealized Gain REIT Stock 36,642 110,622
------------ ------------
Total Shareholders' Equity $ 70,369,518 $ 68,152,626
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $231,976,590 $224,718,514
============ ============
<PAGE>
STATEMENT OF OPERATIONS
(unaudited)
3 Months Ended July 31
OPERATING INCOME: 1998 1997
---- ----
Real Estate Rentals $ 8,866,408 $ 7,007,297
Interest Income 212,150 162,705
Mortgage Discount & Fees 23,720 13,759
------------ ------------
$ 9,102,278 $ 7,183,761
------------ ------------
OPERATING EXPENSE:
Interest $ 2,816,108 $ 2,441,788
Utilities & Maintenance 1,505,146 1,118,751
Property Management 779,825 625,147
Taxes & Insurance 1,005,570 800,886
Advisory & Trustees Fees 195,178 150,648
Operating Expenses 63,358 53,466
------------ ------------
$ 6,365,186 $ 5,190,686
------------ ------------
OPERATING INCOME:
(before reserves) $ 2,737,092 $ 1,993,075
------------ ------------
DEPRECIATION/AMORTIZATION (1,409,241) (1,099,031)
------------ ------------
OPERATING INCOME (after reserves) 1,327,851 $ 894,044
GAIN ON SALE OF INVESTMENTS 366,017 39,069
MINORITY INTEREST PORTION OF
OPERATING PARTNERSHIP NET INCOME (133,863) (7)
------------ ------------
NET TAXABLE INCOME $ 1,560,005 $ 933,106
------------ ------------
FUNDS FROM OPERATIONS: *
Operating Income $ 1,327,851 $ 894,044
Plus Depreciation and
Amortization 1,409,241 1,099,031
Minus Minority Interest -
Operating Partnership (133,863) (7)
------------ ------------
FUNDS FROM OPERATIONS $ 2,603,229 $ 1,993,082
------------ ------------
PER SHARE:
Operating Income
(after reserves) .08 .06
Gain on Sale of Investments .02 .00
------------ ------------
Total Taxable Income/Share .10 .06
------------ ------------
FUNDS FROM OPERATIONS * .16 .13
------------ ------------
DIVIDENDS PAID PER SHARE .11 .10125
------------ ------------
Average Number of Shares
Outstanding 16,579,390 15,081,101
------------ ------------
* Funds from Operations is defined as income before gains
(losses) on sales of investments, less minority interest
of unitholders in operating partnership and extraordinary
items, plus depreciation and amortization.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED JULY 31, 1998 AND 1997
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997
------------ ------------
Net Income $ 1,560,006 $ 933,106
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,409,241 1,099,030
Minority interest portion of operating
partnership income 133,863 7
Accretion of discount on contracts (667) (1,427)
Gain on Sale of Properties (366,017) (39,069)
Interest reinvested in investment certificates 97,029 32,173
Changes in other assets and liabilities:
(Increase) decrease in real estate deposits (71,250) 0
(Increase) decrease in other assets 122,428 (60,002)
(Increase) decrease in tax and insurance
escrow (443,690) 275,536
(Increase) decrease in deferred charges (122,535) 116,598
Increase (decrease) in accounts payable and
accrued expenses 264,943 113,750
------------ ------------
NET CASH PROVIDED FROM OPERATING
ACTIVITIES $ 2,583,351 $ 2,469,702
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of marketable
securities held to maturity $ 82,656 $ 130,816
Principle payments on mortgage loans
receivable 64,672 257,634
Proceeds from sale of property 892,349 250,000
Payments for acquisition and improvements
of properties (7,422,457) (3,975,628)
Purchase of marketable securities available
for sale 0 (13,105)
Investment in mortgage loans receivable 0 (75,959)
------------ ------------
NET CASH USED FOR INVESTING ACTIVITIES $ (6,382,780) $ (3,426,242)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of shares $ 2,721,085 $ 1,746,029
Proceeds from investment certificates issued 979,085 1,471,889
Proceeds from mortgages payable 3,769,936 650,000
Proceeds from short-term lines of credit 3,000,000 400,000
Proceeds from sale of minority interest 1,848,249 0
Repurchase of shares (1,389,936) (386,062)
Dividends Paid (600,283) (531,683)
Distribution paid to Minority Unitholders (161,502) 0
Redemption of investment certificates (644,627) (182,517)
Principal payments on mortgage loans (767,828) (766,873)
Payments on short-term lines of credit (4,000,000) (400,000)
------------ ------------
NET CASH PROVIDED FROM FINANCING
ACTIVITIES $ 4,754,181 $ 2,000,783
------------ ------------
NET INCREASE (DECREASE) IN CASH $ 954,752 $ 1,044,243
CASH AT APRIL 30 $ 2,132,220 $ 1,718,257
------------ ------------
CASH AT JULY 31 $ 3,086,972 $ 2,762,500
------------ ------------
<PAGE>
SUPPLEMENTARY SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
1998 1997
------------ ------------
Dividends reinvested $ 1,205,517 $ 995,407
Real estate investment and mortgage loans
receivable acquired through assumption
of mortgage loans payable and accrual
of costs 0 650,000
Mortgage loan receivable transferred to
property owned 1,701,308 0
Proceeds from sale of properties deposited
directly with escrow agent 0 0
Properties acquired through the issuance of
minority interest units in the operating
partnership 480,525 0
Interest reinvested directly in investment
certificates 97,029 32,173
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest paid on mortgages $ 2,511,296 $ 2,310,449
Interest paid on margin account and other 15,486 373
Interest paid on investment certificates 86,742 53,744
------------ ------------
$ 2,613,524 $ 2,364,566
------------ ------------
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATION. IRET had an excellent First Quarter. Improved occupancy,
rent increases and lower interest rates all contributed to strong gains in
revenues, Funds from Operations and net income.
- Funds From Operations. Funds from Operations for the first three months
of Fiscal 1998 increased to $2,603,229, compared to $1,993,082 generated
in the same period of the prior fiscal year, an increase of 31%. On a
per share basis, Funds from Operations increased to 16 cents per
share, compared to 13 cents for the prior year, an increase of 23%. Funds
from Operations is regarded as the appropriate measure of performance
for Real Estate Investment Trusts.
- Operating Income. Operating income increased to $1,327,423 for the
first quarter compared to $894,044 earned in the same period last year.
The first quarter of last year saw a temporary spike in our vacancy rate
for apartment properties which did not happen this year. Last year's
experience appears to have been a temporary phenomena.
- Smith Building. The first quarter results are all the more impressive
considering the continued vacancy of the former Smith furniture store in
Boise, Idaho. We have been close to signing leases with two tenants and
continue to work with one. Hopefully, the building can be re-rented soon.
We expect continued good results for the remainder of the current fiscal
year. Occupancy rates are above normal and we expect to be able to raise
rents in most communities. In particular, the new apartments built in
Billings, Bismarck and Grand Forks have rented up quickly. We have additional
land in those communities and plan to continue our building program. We are
also negotiating to acquire other apartment complexes in Rochester, MN, Boise,
ID and Vancouver, WA.
SALE OF PROPERTIES. During the first quarter of Fiscal 1999, IRET sold the
48-unit Park Place apartment complex in Waseca, MN, for $960,000, realizing a
gain of $366,000.
ACQUISITIONS. The following properties were acquired by IRET during the
First Quarter:
- Edgewood Vista Alzheimer Facility - Billings, MT $ 965,000
- Edgewood Vista Alzheimer Facility - Sioux Falls, SD 965,000
- Corner Express Convenience Store - Minot, ND 1,200,000
------------
$ 3,130,000
------------
Construction of the following property was completed during the First Quarter
and is in the rent-up phase:
- 67-unit Cottonwood Apartments
Phase I - Bismarck, ND $ 4,590,731
------------
Total major additions to portfolio $ 7,720,731
============
The following properties are under construction:
- 67-unit Cottonwood Apartments
Phase II - Bismarck, ND
- Great Plains Software home office complex - Fargo, ND
FINANCIAL CONDITION. IRET's financial condition continues to be very strong.
The July 31, 1998, balance sheet shows cash and marketable securities of
$7,187,562, compared to the $6,389,446 on hand three months earlier. Total
assets increased to $231,976,590 from the April 30, 1998, total of
$224,718,514. Liabilities increased to $151,016,663 versus the April 30,
1998, figure of $148,276,615. Shareholder equity increased to $70,369,518,
from $68,152,626 on April 30, 1998.
DIVIDENDS. IRET paid a regular dividend of 11 cents per share on July 1,
1998, to shareholders of record at the close of business on June 11, 1998.
This was an increase from the 10.7 cents per share dividend paid on April
1, 1998, and was the 109th consecutive quarterly dividend paid by IRET.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
None
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INVESTORS REAL ESTATE TRUST
(Registrant)
/s/ Thomas A. Wentz, Sr.
Date: September 1, 1998 By___________________________________
Thomas A. Wentz, Sr.,Vice-President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> JUL-31-1998
<CASH> 3,086,972
<SECURITIES> 4,100,590
<RECEIVABLES> 7,443,802
<ALLOWANCES> (126,212)
<INVENTORY> 0
<CURRENT-ASSETS> 14,505,152
<PP&E> 240,046,889
<DEPRECIATION> (22,575,451)
<TOTAL-ASSETS> 231,976,590
<CURRENT-LIABILITIES> 13,412,872
<BONDS> 148,194,202
0
0
<COMMON> 77,245,225
<OTHER-SE> (6,912,349)
<TOTAL-LIABILITY-AND-EQUITY> 231,976,590
<SALES> 0
<TOTAL-REVENUES> 9,102,278
<CGS> 0
<TOTAL-COSTS> 5,116,103
<OTHER-EXPENSES> 133,863
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,658,323
<INCOME-PRETAX> 1,193,989
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 366,017
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,560,006
<EPS-PRIMARY> .10
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</TABLE>
