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 October 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 October 31, 1998, it
had 17,409,955 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 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)
<TABLE>
<CAPTION>
ASSETS: 10-31-98 04-30-98
------------ ------------
<S> <C> <C>
Cash $ 4,020,658 $ 2,132,220
Marketable Securities
- GNMA's 3,330,197 3,536,538
- Other REIT's 764,631 720,688
Accounts Receivable 14,528 55,326
Tax & Insurance Escrow 1,915,782 1,254,068
Deferred Charges 1,309,582 1,088,016
Prepaid Insurance 335,865 219,871
Real Estate Deposits 1,987,786 2,493,713
General Partnerships 0 6,705
------------ ------------
$ 13,679,028 $ 11,507,145
Real Estate Investments
Real Estate Owned $262,685,216 $231,416,322
Less Accumulated Depreciation (23,202,559) (21,516,129)
------------ ------------
Net Real Estate Owned 239,482,657 209,900,193
------------ ------------
Real Estate Mortgages
(unrelated) 1,666,698 3,438,308
Less Unearned Discounts &
Allowances (125,546) (127,132)
------------ ------------
Net Mortgages & Contracts 1,541,153 3,311,176
------------ ------------
Total Real Estate Investments $241,023,809 $213,211,369
------------ ------------
TOTAL ASSETS $254,702,837 $224,718,514
============ ============
LIABILITIES:
Accounts Payable & Other
Liabilities $ 3,412,512 $ 2,847,080
Mortgages Payable 151,472,754 134,059,974
Investment Certificates Payable 12,289,732 10,369,561
Credit Line 0 1,000,000
------------ ------------
TOTAL LIABILITIES $167,174,998 $148,276,615
------------ ------------
Minority Interest in Operating
Partnership $ 12,004,625 $ 8,289,273
SHAREHOLDERS' EQUITY
Shares of Beneficial Interest
Outstanding Shares of 10-31-98 04-30-98
------------ ------------
17,409,955 on 10/31/98
16,391,412 on 04/30/98 $ 81,608,143 $ 74,708,559
Undistributed Net Income (6,058,245) (6,666,555)
Unrealized Gain (Loss) REIT
Stock (26,685) 110,622
------------ ------------
Total Shareholders' Equity $ 87,527,839 $ 68,152,626
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $254,702,837 $224,718,514
============ ============
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
For the Three- and Six-Month Periods Ended October 31, 1998 & 1997
(unaudited)
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
October 31 October 31
---------- ----------
OPERATING INCOME: 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Real Estate Rentals $ 9,562,306 $ 7,827,686 $18,428,714 $14,834,983
Interest Income 236,198 147,614 448,348 448,396
Mortgage Discount & Fees 37,866 20,962 61,586 34,721
----------- ----------- ----------- -----------
$ 9,836,370 $ 7,996,262 $18,938,648 $15,180,023
----------- ----------- ----------- -----------
OPERATING EXPENSE:
Interest $ 2,935,609 $ 2,530,549 $ 5,751,717 $ 4,972,337
Utilities & Maintenance 1,460,368 1,242,214 2,965,514 2,360,965
Property Management 773,999 669,818 1,553,824 1,294,965
Taxes & Insurance 1,111,174 868,863 2,116,744 1,669,749
Advisory & Trustees Fees 247,087 162,729 442,265 313,377
Operating Expenses 66,412 61,705 129,770 115,171
----------- ----------- ----------- -----------
$ 6,594,648 $ 5,535,878 $12,959,834 $10,726,564
----------- ----------- ----------- -----------
OPERATING INCOME:
(before reserves) $ 3,241,722 $ 2,460,384 $ 5,978,814 $ 4,453,459
DEPRECIATION/AMORTIZATION (1,481,655) (1,227,058) (2,890,896) (2,326,089)
OPERATING INCOME (after
reserves) $ 1,760,067 $ 1,233,326 $ 3,087,918 $ 2,127,370
GAIN ON SALE OF INVESTMENTS 1,341,899 83,579 1,707,917 122,648
MINORITY INTEREST PORTION OF
OPERATING PARTNERSHIP
NET INCOME (287,579) (13,140) (421,442) (13,140)
----------- ----------- ----------- -----------
NET TAXABLE INCOME $ 2,814,387 $ 1,303,765 $ 4,374,393 $ 2,236,878
=========== =========== =========== ===========
FUNDS FROM OPERATIONS: *
Operating Income $ 1,760,067 $ 1,233,326 $ 3,087,918 $ 2,127,370
Plus Depreciation and
Amortization 1,481,655 1,127,058 2,890,896 2,326,089
Minus Minority Interest -
Operating Partnership (287,579) (13,140) (421,442) (13,140)
----------- ----------- ----------- -----------
FUNDS FROM OPERATIONS $ 2,954,143 $ 2,347,244 $ 5,557,372 $ 4,440,319
----------- ----------- ----------- -----------
PER SHARE:
Operating Income
(after reserves and minority
interest portion) .09 .08 .16 .14
Gain on Sale of Investments .08 .00 .10 .01
----------- ----------- ----------- -----------
Total Taxable Income/Share .17 .08 .26 .15
----------- ----------- ----------- -----------
FUNDS FROM OPERATIONS * .17 .15 .33 .28
----------- ----------- ----------- -----------
DIVIDENDS PAID PER SHARE .115 .103 .225 .208
----------- ----------- ----------- -----------
Average Number of Shares
Outstanding 17,029,159 15,551,732 16,782,964 15,373,372
</TABLE>
* Funds from Operations is defined as income before gains (losses) on sales of
investments, minority interests of unitholders in operating partnership
and extraordinary items, plus depreciation and amortization.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED OCTOBER 31, 1998 AND 1997
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997
---- ----
Net Income $ 4,374,393 $ 2,236,871
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,890,896 2,326,089
Minority interest portion of operating
partnership income 421,442 13,147
Accretion of discount on contracts (1,586) (2,853)
Gain on Sale of Properties (1,707,917) (122,648)
Interest reinvested in investment
certificates 120,780 105,312
Changes in other assets and liabilities:
(Increase) decrease in real estate
deposits (138,514) 512,800
(Increase) decrease in other assets (75,195) (281,291)
(Increase) decrease in tax and
insurance escrow (661,714) 79,710
(Increase) decrease in deferred charges (232,922) (109,348)
Increase (decrease) in accounts payable
& accrued expenses 854,993 408,304
------------ ------------
NET CASH PROVIDED FROM OPERATING
ACTIVITIES $ 5,844,656 $ 5,166,093
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of marketable
securities held to maturity $ 206,341 $ 192,502
Principle payments on mortgage loans
receivable 70,301 512,439
Proceeds from sale of property 2,569,292 580,000
Payments for acquisition and improvements
of properties (25,517,947) (19,382,971)
Purchase of marketable securities
available for sale (181,250) (13,105)
Investment in mortgage loans receivable 0 (206,834)
------------ ------------
NET CASH USED FOR INVESTING ACTIVITIES $(22,853,264) $(18,317,969)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of shares $ 6,668,436 $ 4,861,457
Proceeds from investment certificates
issued 2,591,892 2,026,839
Proceeds from mortgages payable 13,336,754 8,387,469
Proceeds from short-term lines of credit 8,250,000 4,491,392
Proceeds from sale of minority interest 3,747,132 122,050
Repurchase of shares/minority interest (2,433,847) (1,193,635)
Dividends/Distributions Paid (1,587,364) (1,076,596)
Redemption of investment certificates (828,846) (740,553)
Principal payments on mortgage loans (1,597,112) (1,369,407)
Payments on short-term lines of credit (9,250,000) (1,650,000)
------------ ------------
NET CASH PROVIDED FROM FINANCING
ACTIVITIES $ 18,897,045 $ 13,859,016
------------ ------------
NET INCREASE (DECREASE) IN CASH $ 1,888,437 $ 707,140
CASH AT APRIL 30 $ 2,132,220 $ 1,718,257
------------ ------------
CASH AT OCTOBER 31 $ 4,020,657 $ 2,425,397
------------ ------------
<PAGE>
SUPPLEMENTARY SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
1998 1997
---- ----
Dividends reinvested $ 2,533,230 $ 2,058,893
Real estate investment and mortgage loans
receivable acquired through assumption
of mortgage loans payable and accrual
of costs 5,366,292 3,691,585
Mortgage loan receivable transferred to
property owned 1,701,308 1,161,878
Proceeds from sale of properties deposited
directly with escrow agent 2,568,593 0
Properties acquired through the issuance
of minority interest units in the
operating partnership 1,055,525 874,526
Interest reinvested directly in investment
certificates 120,780 105,312
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest paid on mortgages $ 5,133,481 $ 4,598,216
Interest paid on margin account and
other 41,452 16,121
Interest paid on investment
certificates 171,587 123,290
------------ ------------
$ 5,346,520 $ 4,737,627
------------ ------------
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
RESULTS OF OPERATION. We are pleased to report that IRET's second quarter
continued to show very strong results. Highlights include record levels of Funds
from Operations and Net Income (caused by continued high occupancy rates in our
apartment communities, continuation of our program of rental increases and a
substantial gain from the sale of older properties) and the successful
negotiation of a lease on the Smith Home Furnishings Building in Boise, Idaho.
FUNDS FROM OPERATIONS. Funds from Operations for the second quarter of Fiscal
1999 increased to $2,954,143, from the year earlier figure of $2,347,244, an
increase of $606,899 or 26%. On a per share basis, Funds from Operations for
the second quarter were $.17 compared to the $.15 per share earned in the same
period of Fiscal 1998, an increase of 13%. For the first six months of Fiscal
1999, Funds from Operations increased to $5,557,372 from the year earlier figure
of $4,440,319 or $.33 per share, versus the year earlier result of $.28 per
share, an increase of 18%. This very satisfactory increase in Funds from
Operations resulted from increased rental income ($18,428,714 versus
$14,834,983) caused by above normal occupany rates, increased rental rates and
the addition of new rental properties to our portfolio.
NET TAXABLE INCOME. Net taxable income for the second quarter more than doubled
due to the recognition of a substantial gain on the sale of the 90 unit Bison
apartment community in Jamestown, ND. For the second quarter, net taxable
income was $2,814,387 compared to $1,303,765 in the prior year, an improvement
of $1,510,622. Of this increase, most was attributable to the increase in the
gain on sale of investment, which was $1,341,899 in the second quarter, compared
to $83,579 in the prior year. For the six month period, net taxable income was
$4,374,393, compared to $2,236,878 in the prior year.
SMITH BUILDING. We are very pleased to report that at long last we have
negotiated a lease of the former Smith Home Furnishings store in Boise, ID, to
America's Best Furniture Warehouse, Inc., which occupied the store in November.
We will receive our first rental check by December 10 of this year.
OPERATIONS. We continue to be very pleased with the performance of our
investment portfolio. Occupancy rates continue to be very strong, the new
properties that we are acquiring are performing very well and we have
experienced good acceptance of the new apartment communities we are building in
Grand Forks, Bismarck and Billings. We continue to build in those three
communities and are also building a 27 unit complex in Jamestown, ND.
SALE OF PROPERTIES. As mentioned above, during the second quarter IRET sold the
90-unit Bison apartment community in Jamestown, ND, realizing a gain of
$1,341,899. We continue to negotiate for the sale of our older and smaller
apartment and commercial properties and hope to report additional capital gains
in the coming months.
<PAGE>
ACQUISITIONS. We were also successful during the second quarter in acquiring a
number of attractive properties to add to our investment portfolio. The
following properties were purchased or completed and added to our portfolio
during the second quarter and are producing income:
Cost
----
- 182-unit Heritage Manor apartment complex,
Rochester, MN $ 7,250,000
- 67-unit Westwood Park apartment complex,
Bismarck, ND $ 2,025,000
- 100-unit Van Mall Woods apartment complex,
Vancouver, WA $ 5,840,000
- 60-unit Clearwater apartment complex,
Boise, ID $ 3,525,000
- 67-unit Cottonwood Apartments, Phase I
Bismarck, ND $ 4,500,000
The following properties are under construction:
- Great Plains Software home office complex,
Fargo, ND $15,000,000
- 67-unit apartment building
(Cottonwood Apartments), Bismarck, ND $ 4,000,000
- 67-unit apartment complex with underground
parking in Grand Forks, ND $ 4,750,000
- 27-unit complex in Jamestown, ND $ 2,000,000
IRET has entered into purchase agreements for the following properties:
- 165-unit Castle Rock Apartment Complex,
Billings, MT $ 5,600,000
- 48,700 sq. ft. Class A office & medical testing
building occupied by Viromed, Inc. under a 15-year
triple net leaseback. This building is located in
the Opus #2 Industrial Park in Eden Prairie, MN $ 4,800,000
- 204-unit Ivy Club Apartments, Vancouver, WA $11,542,000
FINANCIAL CONDITION. IRET continues to maintain a very strong balance sheet. On
October 31, 1998, cash and marketable securities totalled $8,115,486, compared
to the $6,389,446 on hand at the beginning of the current fiscal year. Total
assets were $254,702,837, compared to $224,718,514 at the beginning of the
fiscal year. During the six month period, liabilities have increased to
$167,174,998, from the beginning figure of $148,276,615.
INCREASED DIVIDENDS. IRET paid a regular dividend of 11.5 cents per share on
October 1, 1998, to shareholders of record at the close of business on September
14, 1998. This was an increase from the 11 cents per share dividend paid on July
1, 1998, and was the 110th 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.
Form 8-K filed October 13, 1998 to report sales of Shares of
Beneficial Interest and use of proceeds under Registration
then in effect.
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
Date: December 7, 1998 By________________________________
Thomas A. Wentz, Sr.,Vice-President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> OCT-31-1998
<CASH> 4,020,658
<SECURITIES> 4,094,828
<RECEIVABLES> 7,230,240
<ALLOWANCES> (125,546)
<INVENTORY> 0
<CURRENT-ASSETS> 15,220,180
<PP&E> 262,685,216
<DEPRECIATION> (23,202,559)
<TOTAL-ASSETS> 254,702,837
<CURRENT-LIABILITIES> 15,417,137
<BONDS> 163,762,486
0
0
<COMMON> 81,608,143
<OTHER-SE> (6,084,929)
<TOTAL-LIABILITY-AND-EQUITY> 254,702,837
<SALES> 0
<TOTAL-REVENUES> 18,938,648
<CGS> 0
<TOTAL-COSTS> 10,484,865
<OTHER-EXPENSES> 421,442
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,365,865
<INCOME-PRETAX> 2,666,476
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,666,476
<DISCONTINUED> 1,707,917
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,374,393
<EPS-PRIMARY> .17
<EPS-DILUTED> 0
</TABLE>
